<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 17, 1998
REGISTRATION NO. 333-51443
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
GOLDEN STATE VINTNERS, INC.
(Exact name of registrant as specified in its charter)
----------------
<TABLE>
<S> <C> <C>
DELAWARE 2084 77-0412761
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
500 DRAKE'S LANDING ROAD
GREENBRAE, CALIFORNIA 94904
(415) 461-4400
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
----------------
BRIAN R. THOMPSON
CHIEF FINANCIAL OFFICER
500 DRAKE'S LANDING ROAD
GREENBRAE, CALIFORNIA 94904
(415) 461-4400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------
Copies to:
<TABLE>
<S> <C>
TIMOTHY F. SYLVESTER, ESQ. FRANK H. GOLAY, ESQ.
RIORDAN & MCKINZIE SULLIVAN & CROMWELL
300 SOUTH GRAND AVENUE, 29TH FLOOR 444 SOUTH FLOWER STREET, SUITE 1200
LOS ANGELES, CALIFORNIA 90071 LOS ANGELES, CALIFORNIA 90071
(213) 629-4824 (213) 955-8000
</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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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. / /
----------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- - --------------------------------------------------------------------------------
<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.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 17, 1998
4,300,000 SHARES
GOLDEN STATE VINTNERS, INC.
CLASS B COMMON STOCK
(PAR VALUE $.01 PER SHARE)
----------------
Of the 4,300,000 shares of Class B Common Stock offered hereby, 2,150,000
shares are being sold by the Company and 2,150,000 shares are being sold by the
Selling Stockholders. See "Principal and Selling Stockholders". The Company will
not receive any proceeds from the sale of the shares being sold by the Selling
Stockholders.
The Company has two classes of authorized Common Stock, Class B Common
Stock, which is offered hereby, and Class A Common Stock. Holders of Class B
Common Stock generally have identical rights to holders of Class A Common Stock,
except that holders of Class B Common Stock are entitled to one vote per share
and holders of Class A Common Stock are entitled to 10 votes per share on all
matters submitted to a vote of stockholders. Class A Common Stock is convertible
at any time into Class B Common Stock on a share-for-share basis. Immediately
upon completion of this offering, the shares of Class B Common Stock sold in
this offering will represent 9.2% of the combined voting power of all classes of
voting stock and 45.4% of the economic interest (or rights of holders of common
equity to participate in distributions in respect of common equity) in the
Company ( % and %, respectively, if the Underwriters' over-allotment
option is exercised in full).
Prior to this offering, there has been no public market for the Class B
Common Stock. It is currently estimated that the initial public offering price
per share will be between $16 and $19. For factors to be considered in
determining the initial public offering price, see "Underwriting".
SEE "RISK FACTORS" COMMENCING ON PAGE 9 FOR CERTAIN CONSIDERATIONS 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 "VINT".
----------------
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 PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDERS(2)
-------------- ------------- ------------- -------------------
<S> <C> <C> <C> <C>
Per Share.................................. $ $ $ $
Total(3)................................... $ $ $ $
</TABLE>
- - --------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting".
(2) Before deducting expenses of the Company and the Selling Stockholders
estimated at $1,600,000. The Company has agreed to pay the offering expenses
of the Selling Stockholders, other than the Underwriting Discount.
(3) The Company and certain Selling Stockholders have granted the Underwriters a
30-day option to purchase up to an additional 645,000 shares of Class B
Common Stock at the initial public offering price per share, less the
Underwriting Discount, solely to cover over-allotments. If such option is
exercised in full, the total Initial Public Offering Price, Underwriting
Discount, Proceeds to Company and Proceeds to Selling Stockholders 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 of Class B Common Stock will be ready
for delivery in New York, New York, on or about , 1998, against payment
therefor in immediately available funds.
GOLDMAN, SACHS & CO.
HAMBRECHT & QUIST
J.P. MORGAN & CO.
----------
The date of this Prospectus is , 1998.
<PAGE>
[PHOTOS OF THE COMPANY'S VINEYARDS, FACILITIES, OPERATIONS AND PRODUCTS]
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, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION CONCERNING THE COMPANY AND THE
CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO OF GSV APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM
"COMPANY" OR "GSV" WHEN USED IN THIS PROSPECTUS REFERS TO GOLDEN STATE VINTNERS,
INC., A DELAWARE CORPORATION, AND ITS CONSOLIDATED SUBSIDIARIES AND
PREDECESSORS. EXCEPT AS SET FORTH IN THE CONSOLIDATED FINANCIAL STATEMENTS AND
NOTES THERETO OR AS OTHERWISE SPECIFIED HEREIN, ALL INFORMATION IN THIS
PROSPECTUS ASSUMES (I) THE CHANGE OF THE NAME OF GSV FROM "GOLDEN STATE
ACQUISITION CORP." TO "GOLDEN STATE VINTNERS, INC.", (II) THE CONVERSION OF ALL
OF GSV'S OUTSTANDING SHARES OF CLASS B COMMON STOCK INTO SHARES OF CLASS A
COMMON STOCK, (III) THE CREATION BY GSV OF A NEW CLASS B COMMON STOCK, (IV) THE
CONVERSION OF ALL OF GSV'S OUTSTANDING SHARES OF CLASS E COMMON STOCK AND CLASS
K COMMON STOCK INTO SHARES OF THE COMPANY'S NEWLY-CREATED CLASS B COMMON STOCK,
(V) THE CONVERSION OF ALL OF GSV'S OUTSTANDING SHARES OF JUNIOR PREFERRED STOCK
INTO 130,349 SHARES OF THE COMPANY'S NEWLY-CREATED CLASS B COMMON STOCK, (VI) A
2.9-FOR-1 STOCK SPLIT FOR EACH OF GSV'S OUTSTANDING SHARES OF CLASS A COMMON
STOCK AND CLASS B COMMON STOCK (COLLECTIVELY, WITH THE EVENTS DESCRIBED IN (II)
THROUGH (V), THE "RECAPITALIZATION"), (VII) THE COMPANY'S FISCAL YEAR PERIODS
RUNNING FROM JULY 1 TO JUNE 30 OF EACH YEAR REFERENCED AND (VIII) NO EXERCISE OF
THE UNDERWRITERS' OVER-ALLOTMENT OPTION. AS USED IN THIS PROSPECTUS, THE TERM
"PREMIUM WINE" REFERS TO WINE THAT RETAILS FOR $3.00 OR MORE PER 750 MILLILITER
(ML) BOTTLE OR THE EQUIVALENT PRICE FOR DIFFERENT SIZED BOTTLES, IN ACCORDANCE
WITH INDUSTRY CUSTOM.
THE COMPANY
GSV is one of the largest suppliers of premium bulk wines, wine processing
and storage services, wine grapes and case goods in the United States.
Management believes that the Company is a contract supplier of choice for many
of the leading branded wineries in California because of its reputation for
quality and service, extensive vineyard holdings, strategically located
facilities and ability to tailor a full range of products and services to meet
the particular needs of its customers. The Company believes that its strong
customer relationships, low-cost operations and ability to successfully
integrate vineyard and facility acquisitions have enabled GSV to capitalize on
recent wine industry trends, including the growth of the premium wine market and
the trend by many of the leading branded wineries to outsource wine production.
Over the last five years, GSV has increased its revenues at a compounded annual
rate of 19% from $47.0 million in fiscal 1993 to $95.8 million in fiscal 1997.
The Company provides a broad range of high quality winemaking and processing
services, barrel fermentation and bottling and storage services to many of the
largest branded wineries in California and to a number of international
wineries. The Company supplies premium bulk wine pursuant to long-term supply
agreements with Sutter Home Winery ("Sutter Home"), Canandaigua Wine Company
("Canandaigua"), Sebastiani Vineyards ("Sebastiani"), IDV North America
("Heublein"), Vincor International, Inc. ("Vincor"), and other wineries. The
Company also delivers contract wine processing, barrel fermentation and storage
services under contracts with, among others, The Wine Group, Robert Mondavi
Winery ("Mondavi") and Beringer Wine Estates ("Beringer"). The Company also
sells wine grapes, primarily to EJ Gallo Winery ("Gallo").
GSV produces private label case goods for a number of clients, such as
Archer Daniels Midland Co. ("ADM"), JC Boisset USA ("Boisset") and Trader Joe's.
The Company is the largest exporter of bulk wine from California, according to
Gomberg, Fredrikson & Associates ("Fredrikson"), a wine industry consulting
firm, and, in fiscal 1997, the Company derived approximately 12% of its revenues
from the sale of bulk wine and case goods outside of the United States. The
Company also supplies brandy (a distilled derivative of wine) to Heublein
pursuant to a long-term agreement and is the second largest brandy producer in
the United States.
The combination of GSV's extensive vineyard holdings and five strategically
located facilities has enabled the Company to become what management believes is
one of California's low-cost producers
3
<PAGE>
of premium bulk wine. The Company's 9,600 acres of vineyard properties in
California's San Joaquin Valley allow the Company to source high quality wine
grapes at a competitive cost. The Company's wine processing facilities are
generally modern, efficient and automated, and allow for large scale, low-cost
production of premium bulk wine and case goods and the delivery of a full line
of winemaking, processing and storage services. Over the last four years, the
Company has greatly expanded its presence in the California wine industry by
acquiring vineyards and wine and brandy processing facilities and quickly
integrating these assets into GSV's winemaking operations.
Management believes that the growth in the Company's sales is attributable
in part to the growth of the premium wine market. Over the past 10 years, there
has been a shift in consumer preferences in the United States from generic or
"jug" wines to high quality, branded premium varietal wines sold primarily in
750ml bottles. Since 1987, sales of premium California table wines have
increased at a 15% compounded annual rate, from approximately $932 million in
1987 to approximately $3.8 billion in 1997, according to Fredrikson. In 1997,
premium table wines accounted for 78% of the $4.8 billion California table wine
market (expressed in winery sales revenues), compared to 52% of the $1.8 billion
California table wine market in 1987. 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 that lends itself to expanded consumption of premium
wines; and (4) the improving quality and reputation of California premium wines.
Management believes that the Company's recent financial performance has also
benefited from the increasing trend by a number of California's leading branded
wineries to outsource various steps in the winemaking process. With the growth
in demand for premium wines, these wineries have focused on the marketing of
their brands and have invested significant financial resources in building brand
awareness and loyalty through marketing and distribution. Additionally, the
growing demand for premium wine has strained the winemaking capacity of a number
of leading branded wineries. These wineries have demonstrated a strategic
preference towards focusing their resources on brand building as opposed to
facility expansion. Management believes that these and other factors in the wine
industry have resulted in an increasing need for California's large, branded
wineries to outsource the production of premium wine. As a quality-oriented,
low-cost provider of contract winemaking and processing services, management
believes that the Company is well positioned to continue to capitalize on these
wine industry trends.
BUSINESS STRENGTHS
GSV's key business strengths include:
LOW-COST PROVIDER. To position the Company advantageously among its bulk
wine processing competitors, GSV seeks to be the low-cost provider of bulk wine
and contract winemaking and processing services. The economies of scale of the
Company's large, efficient vineyards and facilities and GSV's expertise in
managing its winemaking facilities translate into low production costs, which
allow the Company to price its winemaking products and services at prices that
may be lower than the marginal production costs of these products and services
to its customers.
FOCUS ON QUALITY. The Company has a consistent record of producing high
quality wine products. For example, three of the top 13 "Best-Value" Chardonnays
(under $10 per 750ml bottle), as ranked in 1997 by WINE SPECTATOR magazine, were
made exclusively from the Company's wine. The Company applies rigorous attention
to quality in all aspects of its grape growing, winemaking and storage
processes.
FULL RANGE OF PRODUCTS AND SERVICES. The Company offers customers an array
of wine products in most of the California appellations and provides a full
complement of wine-related services, from grape growing to the shipment of case
goods. Consequently, the Company's customers can use GSV's
4
<PAGE>
products and services in any step of the winemaking process, while focusing the
use of their resources to leverage their particular strengths.
LARGE, COST EFFECTIVE VINEYARDS. The Company is one of the largest vineyard
owners in California in terms of total acreage. GSV's 9,600 acres of vineyard
properties are large and highly productive, which results in lower grape
production costs. For example, in 1997 the average cost of grape production at
the Company's vineyards was well below the 1997 market price for such grapes.
The Company's ownership of extensive vineyards also allows GSV to control the
varieties of grapes it grows, enabling the Company to tailor its product
offerings to the changing needs of its branded winery customers.
STRATEGICALLY LOCATED FACILITIES. The location of the Company's five
wineries in or adjacent to most of California's primary wine growing regions
allows the Company to offer its customers winemaking, processing and storage
services at several conveniently located facilities. In addition, the size of
the Company's facilities enables GSV to aggregate the winemaking needs of
several customers, producing wine at a lower marginal cost than each customer
could at their own facilities and reliably delivering large quantities of
quality wine.
STRONG CUSTOMER RELATIONSHIPS. The Company has developed relationships with
many of the largest branded wineries in California as well as with a number of
international branded wineries. The Company has used long-term contracts to
create and maintain business relationships with such customers as Gallo,
Heublein, Sutter Home, Canandaigua, Sebastiani, The Wine Group, Mondavi,
Beringer, and Vincor. As competition among the major wineries in California
intensifies, management believes that a number of these wineries will continue
to outsource the production of a major portion of their premium wines.
GROWTH STRATEGY
GSV's strategic objective is to strengthen its position as a leading
supplier of premium bulk wine, wine processing and storage services and case
goods to the leading branded wineries in California and to a number of
international winemakers. In addition to building on its business strengths, the
Company's strategy for achieving this goal has the following key elements:
UPGRADE AND EXPAND WINEMAKING OPERATIONS. The Company recently authorized
capital expenditures of up to $20 million, primarily to upgrade, maintain and
expand its existing winemaking facilities in Fresno and Monterey over the next
two years. In addition, the Company will continue to evaluate opportunities to
make strategic greenfield investments in selected wine regions of California.
PURSUE STRATEGIC ACQUISITIONS. The Company's recent acquisitions have
enabled it to expand the range of premium winemaking and processing services
that it offers to its branded winery customers. Additionally, the Company has
often been able to quickly generate revenues from acquired assets that have been
integrated into GSV operations. While the Company has found it increasingly
difficult to identify attractive acquisition opportunities, GSV will continue to
examine acquisition opportunities that make sense financially and can be
integrated efficiently with the Company's existing operations.
EXPAND INTERNATIONALLY. The Company will seek to strengthen its position as
the leading bulk wine exporter from California and will continue to market its
winemaking and processing services to leading international wineries. The
Company also plans to further leverage its relationships with leading
international winemakers to internationally source bulk wine for the Company's
customers in North America. Finally, the Company believes there are significant
growth opportunities in a variety of international winemaking regions, including
Australia, South America and Southern Europe, and that the premium bulk wine
processor and contract service provider models that the Company has successfully
implemented in California can be applied internationally.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The Company (referred to as "New GSV" below) was incorporated for the
purpose of acquiring all of the outstanding capital stock of Golden State
Vintners, currently one of the Company's consolidated subsidiaries (referred to
as "Old GSV" below), on April 27, 1995. The Company constitutes the successor
company to Old GSV and is reflected in the statement of operations data
beginning on April 27, 1995 and the balance sheet data beginning on June 30,
1995. The statement of operations data and the balance sheet data through April
26, 1995 are the results of Old GSV. The information contained in the tables
below should be read in conjunction with and is qualified in its entirety by
"Selected Consolidated Financial Data", "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the audited and unaudited
Consolidated Financial Statements of Old GSV and the Company and the Notes
thereto, each of which is included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NEW GSV
OLD GSV -------------------------------------------
--------------------------------- NINE
MONTHS
YEAR ENDED JUNE 30, JULY 1, APRIL 27, YEAR ENDED JUNE 30, ENDED
1994 TO 1995 TO MARCH 31,
-------------------- APRIL 26, JUNE 30, -------------------- ---------
1993 1994 1995 1995 1996 1997 1997
--------- --------- ----------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................................... $ 47,048 $ 44,063 $ 42,851 $ 4,037 $ 71,755 $ 95,785 $ 88,678
Cost of sales (1).............................. 38,713 34,241 34,772 3,949 58,468 71,662 66,846
Gross profit................................... 8,335 9,822 8,079 88 13,287 24,123 21,832
Selling, general, and administrative expenses
(2).......................................... 1,676 2,768 3,364 951 5,042 7,408 5,315
Income (loss) from operations.................. 6,659 7,054 4,715 (863) 8,245 16,715 16,517
Interest expense............................... 2,813 3,189 2,797 920 5,344 5,880 4,480
Income (loss) before income taxes.............. 3,846 3,828 1,874 (1,784) 2,507 10,158 11,360
Net income (loss).............................. 6,618 3,503 1,874 (1,784) 1,924 6,170 6,896
Preferred stock dividends...................... -- -- -- -- (1,290) (1,314) (679)
--------- --------- ----------- ---------- --------- --------- ---------
Income (loss) available to common
stockholders................................. $ 6,618 $ 3,503 $ 1,874 $ (1,784) $ 634 $ 4,856 $ 6,217
--------- --------- ----------- ---------- --------- --------- ---------
--------- --------- ----------- ---------- --------- --------- ---------
Earnings (loss) per common share (3):
Basic........................................ $ (.26) $ .09 $ .71 $ .91
---------- --------- --------- ---------
---------- --------- --------- ---------
Diluted...................................... $ (.26) $ .09 $ .71 $ .89
---------- --------- --------- ---------
---------- --------- --------- ---------
OTHER FINANCIAL DATA:
Depreciation and amortization.................. $ 1,946 $ 2,279 $ 1,926 $ 755 $ 3,319 $ 4,207 $ 3,525
Capital expenditures........................... 1,007 3,639 3,222 8,967 3,536 4,778 2,676
OTHER DATA:
Tons of grapes crushed (4)..................... 128,022 110,285 119,103 156,722 163,521 163,521
Vineyard property (in acres)................... 7,850 7,850 9,600 9,600 9,600 9,600
<CAPTION>
1998
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................................... $ 101,675
Cost of sales (1).............................. 75,625
Gross profit................................... 26,050
Selling, general, and administrative expenses
(2).......................................... 13,066
Income (loss) from operations.................. 12,984
Interest expense............................... 5,203
Income (loss) before income taxes.............. 7,616
Net income (loss).............................. 4,738
Preferred stock dividends...................... (636)
---------
Income (loss) available to common
stockholders................................. $ 4,102
---------
---------
Earnings (loss) per common share (3):
Basic........................................ $ .60
---------
---------
Diluted...................................... $ .57
---------
---------
OTHER FINANCIAL DATA:
Depreciation and amortization.................. $ 3,768
Capital expenditures........................... 5,524
OTHER DATA:
Tons of grapes crushed (4)..................... 197,841
Vineyard property (in acres)................... 9,600
</TABLE>
<TABLE>
<CAPTION>
OLD GSV NEW GSV
-------------------- ---------------------------------------------------------
JUNE 30, JUNE 30, MARCH 31, 1998
-------------------- ------------------------------- ------------------------
1993 1994 1995 1996 1997 ACTUAL PRO FORMA(5)
--------- --------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................... $ 5,755 $ 10,011 $ 8,735 $ 9,335 $ 9,386 $ 8,245 $ 8,245
Total assets......................... 45,741 53,537 80,941 90,435 102,111 124,640 124,640
Total long-term debt................. 27,119 30,900 44,322 42,973 49,781 48,023 48,023
Redeemable preferred stock........... -- -- 9,978 10,034 8,813 8,915 8,192
Stockholders' equity................. 10,286 13,789 10,037 10,670 12,574 16,676 17,399
<CAPTION>
AS ADJUSTED(6)
---------------
<S> <C>
BALANCE SHEET DATA:
Working capital...................... $ 13,836
Total assets......................... 124,640
Total long-term debt................. 30,223
Redeemable preferred stock........... -
Stockholders' equity................. 48,982
</TABLE>
- - --------------------
(1) In accordance with purchase accounting rules applied to the Company's
acquisition of Old GSV, inventory was increased to estimated fair value. The
inventory step-up increased cost of sales for the period April 27, 1995 to
June 30, 1995 and the year ended June 30, 1996 by $471 and $1,563,
respectively.
(2) Management incentives relating to stock appreciation rights and bonuses
increased selling, general and administrative expenses by $33, $930, $2,141,
$1,567 and $8,800 for the period April 27, 1995 to June 30, 1995, the years
ended June 30, 1996 and 1997 and the nine months ended March 31, 1997 and
1998, respectively.
(3) See Note 2 of the Notes to Consolidated Financial Statements for an
explanation of the basic and diluted earnings per share computations.
(4) It is industry custom to convert one ton of wine grapes to 170 gallons of
wine, and to convert gallons of wine into cases of twelve 750ml bottles at
the rate of 2.3775 gallons per case. All grapes crushed in the twelve month
period ended June 30, 1995 are shown under New GSV.
(5) Pro forma to give effect to the conversion of all shares of the 8% Junior
Exchangeable Redeemable Preferred Stock (the "Junior Preferred Stock") into
shares of Class B Common Stock as if such conversion had occurred on March
31, 1998.
(6) Assumes that the issuance and sale of the 2,150,000 shares of Class B Common
Stock offered by the Company hereby at an assumed initial public offering
price of $17.50 per share and the application of the estimated net proceeds
therefrom occurred on March 31, 1998.
6
<PAGE>
SUMMARY SUPPLEMENTAL PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS DATA
(IN THOUSANDS)
Effective December 31, 1997, the Company restructured certain management
incentives. The restructured incentives will not have a material impact on the
Company's net income in future periods but, as a result of vested stock options,
will impact the Company's future earnings per share. The summary supplemental
consolidated financial data set forth below are presented herein to reflect on a
pro forma basis the comparative consolidated financial data without the impact
of these management incentives included in the actual results for the year ended
June 30, 1997 and the nine months ended March 31, 1998. This information should
be read in conjunction with "Supplemental Pro Forma Consolidated Statement of
Operations Data", "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the audited and unaudited Consolidated Financial
Statements and Notes thereto, each of which is included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
JUNE 30, MARCH 31,
1997 1998
----------- -------------
<S> <C> <C>
Revenues................................................................ $ 95,785 $ 101,675
Cost of sales........................................................... 71,662 75,625
----------- -------------
Gross profit............................................................ 24,123 26,050
Selling, general and administrative expenses (1)........................ 5,267 4,266
----------- -------------
Income from operations (1).............................................. 18,856 21,784
Interest expense........................................................ 5,880 5,203
Other expense, net...................................................... 677 165
----------- -------------
Income before income taxes (1).......................................... 12,299 16,416
Income taxes (2)........................................................ 4,847 6,410
----------- -------------
Net income.............................................................. $ 7,452 $ 10,006
----------- -------------
----------- -------------
</TABLE>
- - ------------------
(1) For the year ended June 30, 1997 and the nine months ended March 31, 1998,
selling, general and administrative expenses were reduced and income from
operations and income before income taxes were effectively increased by
$2,141 and $8,800, respectively, after adding back the impact of the
management incentives.
(2) For the year ended June 30, 1997 and the nine months ended March 31, 1998,
income taxes have been computed on income before income taxes after
adjustment for the effects of the adjustments described above.
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THE OFFERING
<TABLE>
<S> <C>
Class B Common Stock Offered:
The Company..................... 2,150,000 shares
The Selling Stockholders........ 2,150,000 shares
Total......................... 4,300,000 shares
Common Stock to Be Outstanding
After the Offering (1):
Class A Common Stock............ 4,114,888 shares
Class B Common Stock............ 5,364,385 shares
Voting Rights:
Class A Common Stock............ Ten votes per share
Class B Common Stock............ One vote per share
Use of Proceeds................... Repayment of certain outstanding indebtedness,
repurchase of senior preferred stock, working capital
and other general corporate purposes. Certain Selling
Stockholders intend to use a portion of the net proceeds
they receive from the sale of shares of Class B Common
Stock to redeem outstanding participating securities
issued to the U.S. Small Business Administration. See
"Use of Proceeds".
Proposed Nasdaq National Market
Symbol........................ VINT
</TABLE>
- - --------------
(1) Based on an aggregate of 9,479,273 shares of Class A Common Stock and Class
B Common Stock outstanding as of April 30, 1998, after giving effect to the
Recapitalization, the conversion of 1,753,726 shares of Class A Common Stock
into a like number of shares of Class B Common Stock immediately prior to
the sale thereof in the offering and the offering, and assumes no exercise
of the Underwriters' over-allotment option. Excludes (a) 362,834 shares of
Class A Common Stock and 223,491 shares of Class B Common Stock reserved for
issuance pursuant to the Company's 1996 Stock Option Plan (the "1996 Option
Plan") of which options to purchase 362,834 shares of Class A Common Stock
and 159,500 shares of Class B Common Stock are outstanding at an average
exercise price of $5.07, (b) 348,000 shares of Class B Common Stock reserved
for issuance pursuant to the Company's 1998 Director Stock Option Plan (the
"Director Plan") of which options to purchase 74,975 shares of Class B
Common Stock are outstanding at an average exercise price of $12.08 and (c)
764,729 shares of Class B Common Stock reserved for issuance pursuant to
outstanding options with an exercise price of $12.07 issued outside of the
Company's option plans. See "Capitalization", "Description of Capital Stock"
and "Management--Stock Option Plans".
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.
TRADEMARK INFORMATION
The Company's trademarks include GOLDEN STATE VINTNERS, and the proprietary
labels EDGEWOOD ESTATE, SUMMERFIELD, SUMMERFIELD RESERVE, MONTHAVEN, CUTLER
CREEK, BOUNTY, J. WILE, MUIRFIELD, WESTON and LEBLANC. This Prospectus also
contains trademarks and trade names of other companies.
THE COMPANY
The Company was incorporated in Delaware in 1995 as Golden State Acquisition
Corp. The Company changed its name to Golden State Vintner's, Inc. on April 22,
1998. The Company's principal executive offices are located at 500 Drake's
Landing Road, Greenbrae, California 94904, and its telephone number at that
location is (415) 461-4400.
8
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING RISK FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE COMPANY
AND ITS BUSINESS PROSPECTS BEFORE PURCHASING SHARES OF CLASS B COMMON STOCK
OFFERED BY THIS PROSPECTUS. EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN,
THE MATTERS DISCUSSED IN THIS PROSPECTUS CONTAIN FORWARD-LOOKING STATEMENTS THAT
ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, INCLUDING WITHOUT LIMITATION,
THE RISKS DESCRIBED BELOW.
CONCENTRATION OF CUSTOMERS
During fiscal 1997, five customers accounted for more than 56.0% of the
Company's revenues, with Gallo and Heublein accounting for approximately 17.1%
and 15.7%, respectively. For fiscal 1998, the Company estimates that five
customers will account for approximately 50% of the Company's revenues, with
Gallo and Heublein accounting for approximately 17% and 13%, respectively. The
Company's revenues from brandy production during fiscal 1997 accounted for
approximately 12% of total revenues and were derived primarily from sales to one
customer, Heublein. While many of the Company's largest customers have entered
into some form of long-term contract with the Company, there can be no assurance
that each of these relationships will continue following the expiration of these
contracts or that the volume of business the Company is currently conducting
with such customers will continue at such levels. The loss of any one of the
Company's major customers or a significant reduction in the volume of their
business with the Company could have a material adverse effect on GSV's
business, financial condition and results of operations.
In the Company's 1997 and 1998 fiscal years, approximately 87.0% and 86.0%,
respectively, of the Company's grape production (on a per ton basis) were
contracted for sale to Gallo. Such grape sales accounted for more than 17.0% of
the Company's revenues in fiscal 1997 and are estimated to account for
approximately 17% of its revenues in fiscal 1998. However, the Company has
restructured its grape supply arrangements with Gallo, and as the Company goes
into the 1998 summer harvest, most of its grape production will not be subject
to guaranteed purchase contracts with Gallo or with any other customer. As a
result of these restructuring efforts, GSV will experience a significant decline
in grape sale revenues and may experience a decline in total revenues for the
Company's 1999 fiscal year. Further, if the wine industry were to experience a
significant decline in the price of premium varietal grapes, there can be no
assurance that the Company could profitably use or sell such grapes, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company continues to have long-term grape supply
contracts with Gallo, covering Zinfandel and Chardonnay grapes.
AGRICULTURAL RISKS
Grape production is subject to a variety of agricultural risks. Extreme
weather conditions can materially and adversely affect the quality and quantity
of grapes produced. In 1995 and 1996, variability in production yields in
California's Central Valley contributed to a significant decline in the tonnage
of grapes produced by virtually all vineyards, including those of the Company.
Additionally, in January 1997, severe flooding in the San Joaquin River Basin
destroyed a number of protective levees, damaging a portion of the Company's
Gravelly Ford vineyards, which damage was not entirely insured. There can be no
assurance that inclement weather in the future will not affect a substantial
portion of the Company's vineyards in any year and have a material adverse
effect on the Company's business, financial condition and results of operations.
Vineyards are also susceptible to certain diseases, insects and pests, which
can increase operating expenses, reduce yields and damage or kill vines. In
recent years phylloxera, a louse that feeds on and may ultimately destroy the
roots of grape vines, has infested many vineyards in the wine grape producing
regions of California, causing grape yields to decrease. Phylloxera infestation
has been widespread
9
<PAGE>
in California, particularly in Napa, Sonoma, Mendocino and Monterey Counties,
where the soil and climate provide an ideal environment for the pest. As a
result of this widespread infestation, thousands of vineyard acres throughout
the State of California have been replanted with phylloxera-resistant rootstock
or, in some cases, taken out of production completely. The cost of controlling
this pest was significant to affected vineyard owners.
Substantially all of the Company's vineyards are planted on their own
rootstock that is not phylloxera-resistant. In the fall of 1997, phylloxera was
discovered in certain acres of the Company's vineyards. The Company believes
that the scope of this phylloxera infestation is modest, though there can be no
assurance in that regard. Additionally, GSV believes the climate, soil and water
conditions in California's San Joaquin Valley slow the development of phylloxera
in vineyard roots. Further, in the 1997 harvest, the yields from the Company's
phylloxera-infested acres were not notably lower than yields from surrounding,
non-infested acreage. There can, however, be no assurance that phylloxera will
not spread throughout adjoining vineyard acres, reduce yields and require a
significant investment in replanting with disease-resistant root stock, all of
which would have a material adverse effect on the Company.
Other pests that may infest vineyards include leafhoppers, thrips,
nematodes, mites, insects, orange tortrix and various grapevine diseases.
Pesticides and the selection of resistant rootstocks reduce losses from these
pests, but do not eliminate the risk of such loss. Gophers, rabbits, deer and
birds can also pose a problem for vineyards, and wine grapevines are also
susceptible to certain virus infections which may cause reduction of yields. In
addition, the presence of potentially harmful nematodes in relatively high
numbers has been detected in certain acres of the Company's vineyards. None of
these infestations or infections currently poses a major threat to the Company's
vineyards, although they could do so in the future and could subject the
vineyards to severe damage, which could have a material adverse effect on the
Company.
RISKS RELATING TO THE PRODUCTION OF BULK WINE
While the Company has substantial experience in producing and processing
bulk wine, the Company may still experience production difficulties and delays
with respect to the delivery of finished wine. The Company generally guarantees
the quality of the wine produced, which could result in the Company bearing
financial responsibility for wine that fails to meet agreed upon quality
standards. From time to time, the Company has received claims from customers
based on alleged defects in wine produced by the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations". Such
production difficulties could have a material adverse effect on the Company's
business, results of operations and financial condition.
DEPENDENCE ON CONSUMER DEMAND
The growth of the wine industry and the success of the Company's business
depend to a significant extent on a number of factors relating to discretionary
consumer spending, including the general condition of the economy, federal,
state and local taxation, the deductibility of business entertainment expenses
under federal and state tax laws and general levels of consumer confidence.
Imposition of excise or other taxes on wine could negatively impact the wine
industry by increasing wine prices for consumers. The wine industry is also
subject to changes in consumer tastes and preferences. To the extent wine
consumers reduce consumption of wine in favor of other beverages, or if there
should be any significant decline in general economic conditions or
uncertainties regarding future economic prospects that adversely affect
discretionary consumer spending generally, or purchases of wine specifically,
demand for wine and for the Company's products and services could decline.
In recent years there has been substantial publicity regarding the possible
health benefits of moderate wine consumption. The results of a number of studies
suggest that moderate consumption of wine (or other alcoholic beverages) could
result in decreased mortality and other health benefits.
10
<PAGE>
Alternatively, anti-alcohol groups have, in the past, successfully advocated
more stringent labeling requirements and other regulations designed to
discourage consumption of alcoholic beverages, including wine. More restrictive
regulations, negative publicity regarding alcohol consumption, publication of
studies that indicate a significant health risk from moderate consumption of
alcohol or changes in consumer perceptions of the relative healthfulness or
safety of wine generally could adversely affect the sale and consumption of wine
and the demand for wine and wine grapes and could have a material adverse effect
on the Company's business, financial condition and results of operations.
DEMAND FOR BULK WINE
Bulk wine and related services accounted for approximately 52.0% of GSV's
revenues in its 1997 fiscal year and is estimated to account for approximately
51% of revenues in its 1998 fiscal year. Recently, the Company has focused its
resources on the expansion of this portion of its business. Any loss of a major
bulk wine customer would reduce GSV's bulk wine revenues, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
CASE GOODS SALES
Sales of case goods and related services accounted for approximately 17.0%
of the Company's revenues in its 1997 fiscal year and is estimated to account
for approximately 19% of revenues in its 1998 fiscal year. A significant portion
of the Company's case goods revenues consisted of short-term private label case
goods sales. Additionally, the Company's higher margin proprietary case goods
revenues resulted from sales of the Company's relatively unknown proprietary
brands of premium wines. Any significant increase in the supply of premium wine
in the California wine market that is not met by a corresponding demand could
adversely affect the Company's case goods sales.
WINE GRAPE SUPPLY; PRICING
As recently as the 1996 harvest, the California wine industry experienced a
shortage of grapes due to insufficient plantings of premium varieties in the
early 1990s, acreage taken out of production due to phylloxera infestation and
reduced yields due to poor weather. The Company believes that the demand for
wine grapes has also increased substantially over recent years and has generally
outpaced grape supply. As a result, prices for premium California wine grapes
were at historically high levels following the 1996 harvest and through the 1997
harvest. A number of recent developments, including (1) plantings of new
vineyards, (2) yield enhancements through technological advances, (3) denser
plantings of vines, (4) availability of wine from foreign sources and (5)
excellent weather in the 1997 growing season, have resulted in a greatly
increased grape supply, resulting in downward price pressure following the 1997
harvest. In addition, the supply of wine grapes is expected to increase
significantly in the near future as the vines from recent plantings mature and
their grapes become marketable. Such increases in supply may cause California
premium wine grape prices and wine prices to decline significantly, which could
have a material adverse effect on the Company's business, financial condition
and results of operations.
ENVIRONMENTAL RISKS
The Company's current operations emit ethanol and require the periodic usage
of various chemical herbicides, fungicides and pesticides, some of which contain
hazardous or toxic substances. The emission and usage of these chemicals are, to
varying degrees, subject to federal and state regulation. The Company believes
that its properties and operations have been and continue to be in material
compliance with relevant environmental regulations. At the same time, if
hazardous substances are discovered to have emanated from the Company's
properties, the Company could be subject to material liability arising from the
remediation of such potential harm.
11
<PAGE>
SEASONALITY OF BUSINESS; QUARTERLY REVENUES; FLUCTUATING RESULTS
The wine grape business is extremely seasonal and the Company recognizes the
vast majority of its revenues in the first six months of its fiscal year. GSV is
not positioned to maximize quarter-to-quarter results, and its quarterly results
should not be considered indicative of those to be expected for a full year. The
Company recorded 79.4% of its 1997 fiscal year revenues during the first six
months of the Company's 1997 fiscal year. It is expected that GSV's revenues of
$89.5 million for the six months ended December 31, 1997 will account for a
similar percentage of the Company's revenues for its 1998 fiscal year. GSV has
historically operated at a loss in the last two fiscal quarters due to limited
sales during such quarters. Seasonality of revenues also affects the Company's
cash flow requirements. In the past, GSV has borrowed funds under lines of
credit beginning in February or March to finance crop production costs through
harvest and repaid such borrowings from the proceeds of each harvest. GSV also
borrows substantial sums from late summer through the fall to finance inventory
build-up during the fall crush season. Such seasonality in revenues and
borrowings may lead to significant fluctuations in the Company's reported
quarterly results. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
COMPETITION; INDUSTRY FRAGMENTATION
The wine industry is extremely competitive. The Company competes with
several well-capitalized companies in the production of bulk wine. Further, many
of the Company's current and prospective competitors have substantially greater
financial, production, personnel and other resources than the Company. In order
to meet near-term shortfalls in supply, a number of wineries have commenced
purchases of wine from foreign sources. Because of higher production costs in
the United States and the higher prices of grapes in California, especially in
comparison to the prices of years past, some wineries can achieve significant
cost savings, even after taking into account shipping costs, by importing bulk
wine from abroad. Some countries, such as France, have launched marketing
campaigns to increase their sales in the United States. Foreign competition can
be expected to continue and increase. In addition, the Company's principal
winery customers compete with each other and with other wineries located in the
United States, Europe, South America, South Africa and Australia. Wine also
competes with other alcoholic, and to a lesser degree, nonalcoholic beverages,
and to the extent wine consumers reduce consumption of wine in favor of such
other beverages, demand for wine and the Company's products and services could
decline.
FACILITY EXPANSION
The Company is currently operating a number of its wine processing
facilities at close to full capacity. The Company recently authorized capital
expenditures of up to $20 million, primarily to upgrade, maintain and expand its
facilities over the next two years. The Company intends to increase the annual
processing capacity at its Fresno facility by approximately 20,000 tons of
grapes and to expand Fresno wine cooperage capacity by approximately four
million gallons. GSV will also expand its Monterey wine processing facility's
annual capacity by approximately 15,000 tons of grapes and increase annual
barrel fermentation capacity by approximately 18,000 barrels. GSV's efficient
use of capital resources in the next two years to expand wine production will be
important for the Company to maintain its position as one of the leading
suppliers of premium bulk wine and related wine processing services in the
United States. The Company's ability to complete this and subsequent expansions
may be subject to substantial delays due to shortages of stainless steel tanks
and other important materials and equipment, delays that the marketplace
periodically experiences. Other factors that may delay such improvements are
higher than anticipated expenditures, adverse weather and delays in construction
by contractors. The Company has already encountered such delays in its proposed
expansion and upgrade of its Monterey facility. Failure to deploy such capital
resources successfully or complete any expansion of the Company's operations on
a timely basis or underestimating the costs and time required to improve the
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Company's facilities could have a material adverse effect on the Company's
results of operations and prospects.
GROWTH THROUGH ACQUISITION
In the last three years the Company has virtually doubled the size of its
operations through the acquisition of vineyard acres and wine and brandy
production facilities. These acquisitions have created additional winemaking
capacity and grape supply sources, which have contributed to significant growth
in revenues and net income for the Company on a year-to-year basis. In the
future, there can be no assurance that acceptable acquisition opportunities will
be available to the Company or that the Company will be able to profitably
integrate any such future acquisition. Thus, it is unlikely that GSV's previous
level of acquisition-related activity will continue in the Company's 1998 and
1999 fiscal years and beyond.
FIXED FARMING COSTS
The Company incurs relatively fixed annual farming costs per vineyard acre.
Revenues from grape sales and wine processing and production are not realized
until harvest and vary depending upon numerous factors. Vineyard productivity
varies from year to year depending upon weather and other factors, and
significant variations in annual yields should be expected from time to time.
Because production costs are not significantly variable in light of productivity
or revenue levels, weak harvests or lower grape prices cannot be fully mitigated
by cost reductions and could have an adverse effect upon profitability.
RELIANCE ON KEY PERSONNEL
The Company believes its continued success depends on the active involvement
of Jeffrey B. O'Neill, the Company's Chief Executive Officer, and Brian R.
Thompson, the Company's Chief Financial Officer. There can be no assurance that
these persons will remain in their management positions with the Company, and
the loss of the services of either of these persons could have an adverse effect
on the Company's business, financial condition and results of operations.
CONTROL BY EXISTING STOCKHOLDERS; ANTI-TAKEOVER MEASURES
The Company has two classes of Common Stock: Class A Common Stock, which is
entitled to 10 votes per share, and Class B Common Stock, which is entitled to
one vote per share. The Class A Common Stock and Class B Common Stock vote
together on substantially all matters. Following this offering, SBIC Partners,
L.P. ("SBIC Partners"), Exeter Equity Partners, L.P. ("EE Partners") and Exeter
Venture Lenders, L.P. (individually, "EV Lenders", and, collectively with EE
Partners, "Exeter") and Mr. O'Neill will own or control together 4,114,888
shares of Class A Common Stock. In addition, Mr. O'Neill will own or control
24,385 shares of Class B Common Stock. Such ownership will represent 100% of the
outstanding Class A Common Stock and an insignificant percent of the Class B
Common Stock. Nevertheless, following the offering, the voting power of such
Class A Common Stock will represent 88.5% of the combined voting power of both
classes of Common Stock, and such persons, acting together, will be able to
decide substantially all matters submitted to a stockholder vote, including the
election of members of the Company's Board of Directors, proxy contests, mergers
and tender offers, thereby ensuring that they will continue to direct the
business, policies and management of the Company.
In addition, the Company and certain stockholders have entered into a
Stockholders Agreement (as defined herein) pursuant to which SBIC Partners,
Exeter and Mr. O'Neill, have agreed to vote their shares of Common Stock for
each other's nominees to the Company's Board of Directors. The Stockholders
Agreement also provides, among other things, that the prior written consent of
SBIC Partners, which
13
<PAGE>
consent is subject to the sole discretion of SBIC Partners, is required with
respect to all material transactions relating to the Company. Such voting
control by SBIC Partners, Exeter and Mr. O'Neill may discourage certain
transactions involving an actual or potential change of control of the Company,
including transactions in which the holders of Class B Common Stock may receive
a premium for their shares over the then-prevailing market price, and may have a
depressive effect on the market price for Class B Common Stock. The Stockholders
Agreement will terminate upon the consummation of this offering if the offering
results in gross proceeds to the Company of at least $35 million. See "Principal
and Selling Stockholders", "Certain Transactions" and "Description of Capital
Stock".
Furthermore, following this offering, the Company's Second Amended and
Restated Certificate of Incorporation will authorize the issuance and sale of
5,000,000 shares of so-called "blank check" Preferred Stock with rights,
preferences and privileges to be fixed by the Board of Directors in its
discretion, without further approval of or action by the stockholders. The
rights of the holders of the Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any Preferred Stock that may
be issued in the future. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company, thereby delaying, deferring or preventing a change in control of the
Company. Furthermore, such Preferred Stock may have other rights, including
economic rights senior to the Common Stock, and, as a result, the issuance
thereof could have a material adverse affect on the market value of the Common
Stock. The Company has no present plans to issue shares of Preferred Stock.
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, the statue 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 66 2/3% of the outstanding voting stock of the corporation (excluding
shares held by the interested stockholder). The application of Section 203 and
other provisions of the Company's Certificate of Incorporation, its Bylaws and
Delaware corporate law may have the effect of deterring hostile takeovers or
delaying or preventing changes in control or management of the Company,
including transactions in which stockholders might otherwise receive a premium
for their shares over then current market prices.
GOVERNMENT REGULATION
GSV is subject to a broad range of federal and state regulatory requirements
regarding its operations and practices. These regulations are subject to change
and conceivably could have a significant impact on operating practices, chemical
usage and other aspects of the Company's business. There can be no assurance
that new or revised regulations pertaining to the wine grape production industry
will not have a material adverse effect on the Company's business, financial
condition and results of operations.
Wine production and sales are subject to extensive regulation by the Federal
Bureau of Alcohol, Tobacco and Firearms, the California Department of Alcohol
Beverage Control and other state and federal governmental authorities that
regulate licensing, trade and pricing practices, labeling, advertising and other
activities. In recent years, federal and state authorities have required warning
labels on beverages containing alcohol. Restrictions imposed by government
authorities on the sale of wine could increase the retail price of wine, which
could have an adverse effect on demand for wine in general. There can be no
assurance that there will not be new or revised laws or regulations pertaining
to the wine industry which could have a negative impact on the Company's
business.
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DILUTION
The initial public offering price is substantially higher than the book
value per share of Class B Common Stock. Investors purchasing shares of 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 upon exercise of stock options by Company officers and employees and
issuances of Class B Common Stock in public offerings and in connection with
acquisitions in the future. See "Dilution".
ABSENCE OF TRADING MARKET; DETERMINATION OF OFFERING PRICE; VOLATILITY OF STOCK
PRICE
Prior to this offering, there has been no public market for the Class B
Common Stock. Although the Company has applied to have the Class B Common Stock
accepted for quotation on the Nasdaq National Market, there can be no assurance
that an active trading market will develop, or if one does develop, that it will
be sustained. The initial public offering price of the Class B Common Stock will
be established by negotiation among the Company, the Selling Stockholders and
the Underwriters and may not be indicative of the market price of the Class B
Common Stock after this offering. See "Underwriting". In addition, stock markets
from time to time have experienced price and volume fluctuations that have
affected the market price for many companies and that frequently have been
unrelated to the operating performance of those companies. Such market
fluctuations may adversely affect the market price of the Class B Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Class B Common Stock in the public market
following this offering could adversely affect the market price of the Class B
Common Stock. Although only the 4,300,000 shares being sold in this offering
will be available for sale in the public market immediately after the offering,
substantially all of the remaining shares of Class B Common Stock and Class A
Common Stock, which are convertible into shares of Class B Common Stock at any
time on a share-for-share basis, will be eligible for sale in the public market
beginning 90 days from the date of this offering, subject to the volume and
manner of sale limitations imposed by Rule 144 under the Securities Act of 1933,
as amended (the "Securities Act"), and to certain contractual limitations. See
"Shares Eligible for Future Sale".
YEAR 2000 COMPLIANCE
A significant percentage of the software that runs most of the computers in
the United States relies on two digit date codes to perform a number of
computation and decision making functions. Commencing on January 1, 2000, these
computer programs may fail from an inability to interpret date codes properly,
misreading "00" for the year 1900 instead of the year 2000. The Company believes
that its operating systems and application software programs are Year 2000
compliant, though there can be no assurance in that regard. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements regarding the Company's
financial position, business strategy, prospects and other related matters.
Although the Company believes that the expec-
tations reflected in such forward-looking statements are reasonable, it can give
no assurance that such expectations will prove to be correct. Actual results
could differ materially from the Company's expectations as a result of a number
of factors, including without limitation, agricultural risks, the Company's
ability or inability to implement its growth strategy and the possibility of a
significant shift in consumer wine drinking preferences.
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<PAGE>
USE OF PROCEEDS
THE COMPANY
The net proceeds to the Company from the sale of the 2,150,000 shares of
Class B Common Stock offered by it hereby are estimated to be $33.4 million
($ if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $17.50 per share, after deducting
underwriting discounts and estimated offering expenses payable by the Company.
The Company intends to use approximately $17.8 million of the net proceeds
from the offering to repay certain long-term debt obligations, comprised of: (a)
a variable rate bank term loan of $5.0 million, at an interest rate of 7.84%,
due March 5, 2005; (b) a variable rate bank term loan of $5.4 million, at an
interest rate of 7.84%, due March 5, 2005; (c) an insurance company note of $2.5
million, at an interest rate of 11.6%, due October 2002; (d) a bank term loan of
$2.0 million, at an interest rate of 8.0%, due January 15, 2000; (e) a note
payable of $0.5 million, at an interest rate of 10.0%, due May 5, 2000; (f) a
note payable of $0.5 million, at an interest rate of 8.0%, due December 20,
1998; (g) a note payable of $0.5 million, at an interest rate of 8.0%, due
January 1, 2003; and (h) capital lease obligations and other loans aggregating
$1.4 million, at interest rates of 7.75% to 8.1%, due at various dates. The
Company also intends to use approximately $10 million of the net proceeds to
redeem all outstanding shares of its 12% Senior Redeemable Exchangeable
Preferred Stock (the "Senior Preferred Stock"). Initially, the Company intends
to use the balance of the net proceeds to pay down a portion of GSV's revolving
credit facility, which, as of March 31, 1998, had $18.3 million in outstanding
balances thereunder. The remainder of the proceeds of this offering, if any, and
the Company's renewed borrowing capacity are expected to be used for capital
expenditures, working capital and other general corporate purposes.
Specifically, the Company recently authorized capital expenditures of up to $20
million, primarily to upgrade, maintain and expand its existing winemaking
facilities in Fresno and Monterey. The cost, timing and amount of any additional
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 the offering will be applied. Pending such
uses, the Company intends to invest the net proceeds of the offering in
short-term, investment grade, interest-bearing obligations. The Company will not
receive any proceeds from the sale of shares of Class B Common Stock by the
Selling Stockholders.
THE SELLING STOCKHOLDERS
Each of SBIC Partners and Exeter intends to use a portion of the net
proceeds it receives from the offering, estimated to aggregate $28.5 million (or
$ million, assuming the over-allotment option is exercised in full),
assuming an initial public offering price of $17.50 per share, to redeem certain
outstanding participating securities issued to the U.S. Small Business
Administration ("SBA"). Such redemption will be made in accordance with all
applicable rules and regulations of the SBA.
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1998
was approximately $17.0 million, or $2.43 per share of Common Stock based upon
an aggregate of 6,992,054 shares of Class A Common Stock and Class B Common
Stock outstanding. Net tangible book value per share represents the amount of
the Company's total tangible assets (total assets less deferred financing costs)
less total liabilities, divided by the number of shares of Common Stock
outstanding after giving effect to (i) the conversion of all outstanding shares
of the Company's previous Class B Common Stock into shares of Class A Common
Stock; (ii) the conversion of 178,105 shares of Junior Preferred Stock into
130,349 shares of the Company's newly created Class B Common Stock and (iii) the
conversion of all outstanding shares of the Company's Class E Common Stock and
Class K Common Stock in shares of GSV's newly-created Class B Common Stock.
After giving effect to the sale by the Company of
16
<PAGE>
2,150,000 shares of Class B Common Stock offered hereby (assuming that the
Underwriters' over-allotment option is not exercised) at an assumed initial
public offering price of $17.50 per share, and the application of estimated net
proceeds therefrom (after deducting the Underwriters' discount and estimated
offering expenses), the pro forma net tangible book value of the Company as of
March 31, 1998 would have been approximately $5.31 per share of Common Stock
based upon an aggregate of 9,142,054 shares of Class A Common Stock and Class B
Common Stock outstanding. This represents an immediate increase in pro forma net
tangible book value of $2.88 per share to existing stockholders and an immediate
dilution in pro forma net tangible book value of $12.19 per share to new
investors purchasing shares of Class B Common Stock in the offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 17.50
Pro forma net tangible book value per share before
offering................................................ $ 2.43
Increase in pro forma net tangible book value per share
attributable to new investors in offering............... 2.88
---------
Pro forma net tangible book value per share after
offering.................................................. 5.31
---------
Dilution per share to new investors in offering (1)......... $ 12.19
---------
---------
</TABLE>
- - --------------
(1) Assumes no exercise of any outstanding stock options to purchase shares of
Class A Common Stock or Class B Common Stock. As of March 31, 1998, there
were 670,434 shares of Class A Common Stock and 933,547 shares of Class B
Common Stock granted and reserved for issuance under the Company's option
plans and other outstanding stock options agreements at a weighted average
exercise price of approximately $8.39 per share. To the extent that these
outstanding options would have been exercised, the dilution in pro forma net
tangible book value after giving effect to the Offering would have been
$11.73 per share to new investors. See "Management-- Stock Option Plans" and
"Description of Capital Stock".
The following table summarizes, on an as adjusted basis as of March 31,
1998, the differences between the number of shares of Common Stock purchased
from the Company, the total consideration paid (before deducting the
Underwriters' discount and estimated offering expenses), and the average price
per share paid by the existing stockholders and by the new investors purchasing
shares of Class B Common Stock in this offering (assuming an initial public
offering price of $17.50 per share and that the Underwriters' over-allotment
option is not exercised);
<TABLE>
<CAPTION>
SHARES PURCHASED (1) TOTAL CONSIDERATION AVERAGE
------------------------- ---------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
----------- ------------ -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............................. 6,992,054 76% $ 9,590,460 20% $ 1.37
New investors...................................... 2,150,000 24 $ 37,625,000 80 $ 17.50
----------- --- -------------- ---
Total.......................................... 9,142,054 100% $ 47,215,460 100% $ 5.16
----------- --- -------------- --- -----------
----------- --- -------------- --- -----------
</TABLE>
- - --------------
(1) See Footnote 1 to the preceding table regarding certain assumptions.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its outstanding
shares of Common Stock. The Company currently intends to retain future earnings
to finance its operations, and therefore does not anticipate paying any cash
dividends on the shares of Class A Common Stock or of Class B Common Stock in
the foreseeable future. In addition, negative covenants contained in the
Company's senior credit facility currently prohibit the Company from paying cash
dividends on such shares without the prior approval of the lender. See Note 6 of
Notes to Consolidated Financial Statements.
17
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company at
March 31, 1998 and the pro forma capitalization of the Company at such date,
after giving effect to the Recapitalization. The table also sets forth the
capitalization of the Company at March 31, 1998 as adjusted to reflect the
issuance and sale by the Company of 2,150,000 shares of Class B Common Stock and
the conversion and sale of 1,753,726 shares of Class A Common Stock into Class B
Common Stock by existing shareholders, pursuant to the offering, the receipt by
the Company of the estimated net proceeds therefrom (assuming an initial public
offering price of $17.50 per share and that the Underwriters' over-allotment
option is not exercised and after deducting the Underwriters' discount and
estimated offering expenses of both the Company and the Selling Stockholders,
all of which is payable by the Company), and the application of the estimated
net proceeds therefrom. This table should be read in conjunction with the
Consolidated Financial Statements of the Company and Notes thereto. See also
"Selected Consolidated Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Line of credit........................................................ $ 18,300 $ 18,300 $ 12,709
Long-term debt (including current portion)............................ 51,419 51,419 33,619
--------- ----------- -----------
Total debt.......................................................... 69,719 69,719 46,328
Redeemable preferred stock:
12% Senior Preferred Stock, $0.01 par value: 100,000 shares
authorized; 100,000 shares outstanding actual and pro forma; no
shares outstanding as adjusted.................................... 8,192 8,192 --
8% Junior Preferred Stock, $0.01 par value: 200,000 shares
authorized; 178,105 shares outstanding actual; no shares
outstanding pro forma and as adjusted............................. 723 -- --
--------- ----------- -----------
8,915 8,192 --
Stockholders' equity:
Class A Common Stock, $.0034 par value actual and $0.01 par value
pro forma and as adjusted: no shares authorized actual and
6,000,000 shares authorized pro forma and as adjusted; no shares
outstanding actual, 5,561,014 shares outstanding pro forma and
3,807,288 shares outstanding as adjusted (1)...................... -- 56 38
Class B Common Stock, $0.0034 par value actual and $0.01 par value
pro forma and as adjusted: 7,250,000 shares authorized actual and
54,000,000 shares authorized pro forma and as adjusted; 5,561,014
shares outstanding actual, 1,431,040 shares outstanding pro forma
and 5,334,766 shares outstanding as adjusted (1).................. 19 14 53
Class E Common Stock, $0.0034 par value: 2,900,000 shares
authorized; 1,200,829 shares outstanding actual, no shares
outstanding pro forma and as adjusted............................. 4 -- --
Class K Common Stock, $0.0034 par value: 1,450,000 shares
authorized; 99,862 shares outstanding actual, no shares
outstanding pro forma and as adjusted............................. -- -- --
Additional paid-in capital.......................................... 8,845 9,521 42,891
Retained earnings................................................... 7,808 7,808 6,000
--------- ----------- -----------
Total stockholders' equity........................................ 16,676 17,399 48,982
--------- ----------- -----------
Total capitalization............................................ $ 95,310 $ 95,310 $ 95,310
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
- - ----------------
(1) Excludes 670,434 shares of Class A Common Stock and 933,547 shares of Class
B Common Stock reserved for issuance under GSV's option plans and other
stock option agreements. See "Management--Stock Option Plans" and Notes 9
and 15 to the Consolidated Financial Statements of the Company included
elsewhere in this Prospectus.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The statement of operations data for the years ended June 30, 1993 and 1994
and the balance sheet data at June 30, 1993 and 1994 have been derived from
audited financial statements of Old GSV, which financial statements are not
included in this Prospectus. The balance sheet data at June 30, 1995 have been
derived from the audited financial statements of the Company, which financial
statements are not included in this Prospectus. The statement of operations data
for the period from July 1, 1994 to April 26, 1995 have been derived from the
audited financial statements of Old GSV, which have been audited by Deloitte &
Touche LLP and which are included elsewhere in this Prospectus. The statement of
operations data for the period from April 27, 1995 to June 30, 1995, for the
years ended June 30, 1996 and 1997 and for the nine months ended March 31, 1998
and the balance sheet data at June 30, 1996 and 1997 and March 31, 1998 have
been derived from audited financial statements of the Company, which have been
audited by Deloitte & Touche LLP and which are included elsewhere in this
Prospectus. The statement of operations data for the nine months ended March 31,
1997 and the balance sheet data at March 31, 1997 have been derived from the
Company's unaudited consolidated financial statements for such periods, which
are included elsewhere in this Prospectus and which in the opinion of
management, include all material adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results of
operations of the Company for such periods. Results for the interim periods are
not necessarily indicative of results for a full year. The selected consolidated
financial data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements of the Company and Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NEW GSV
OLD GSV -------------------------------------------
--------------------------------- NINE
MONTHS
YEAR ENDED JULY 1, APRIL 27, YEAR ENDED ENDED
JUNE 30, 1994 TO 1995 TO JUNE 30, MARCH 31,
-------------------- APRIL 26, JUNE 30, -------------------- ---------
1993 1994 1995 1995 1996 1997 1997
--------- --------- ----------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................ $ 47,048 $ 44,063 $ 42,851 $ 4,037 $ 71,755 $ 95,785 $ 88,678
Cost of sales (1)................................... 38,713 34,241 34,772 3,949 58,468 71,662 66,846
Gross profit........................................ 8,335 9,822 8,079 88 13,287 24,123 21,832
Selling, general, and administrative expenses (2)... 1,676 2,768 3,364 951 5,042 7,408 5,315
Income (loss) from operations....................... 6,659 7,054 4,715 (863) 8,245 16,715 16,517
Interest expense.................................... 2,813 3,189 2,797 920 5,344 5,880 4,480
Other expense, net.................................. -- 37 44 1 394 677 677
Income (loss) before income taxes................... 3,846 3,828 1,874 (1,784) 2,507 10,158 11,360
Net income (loss)................................... 6,618 3,503 1,874 (1,784) 1,924 6,170 6,896
Earnings (loss) per common share (3):
Basic............................................. $ (.26) $ .09 $ .71 $ .91
---------- --------- --------- ---------
---------- --------- --------- ---------
Diluted........................................... $ (.26) $ .09 $ .71 $ .89
---------- --------- --------- ---------
---------- --------- --------- ---------
Weighted average shares outstanding (3):
Basic............................................. 6,856 6,856 6,860 6,859
---------- --------- --------- ---------
---------- --------- --------- ---------
Diluted........................................... 6,856 6,856 6,860 7,080
---------- --------- --------- ---------
---------- --------- --------- ---------
OTHER FINANCIAL DATA:
Depreciation and amortization..................... $ 1,946 $ 2,279 $ 1,926 $ 755 $ 3,319 $ 4,207 $ 3,525
Capital expenditures.............................. 1,007 3,639 3,222 8,967 3,536 4,778 2,676
OTHER DATA:
Tons of grapes crushed (4)........................ 128,022 110,285 119,103 156,722 163,521 163,521
Vineyard property (in acres)...................... 7,850 7,850 9,600 9,600 9,600 9,600
<CAPTION>
1998
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................ $ 101,675
Cost of sales (1)................................... 75,625
Gross profit........................................ 26,050
Selling, general, and administrative expenses (2)... 13,066
Income (loss) from operations....................... 12,984
Interest expense.................................... 5,203
Other expense, net.................................. 165
Income (loss) before income taxes................... 7,616
Net income (loss)................................... 4,738
Earnings (loss) per common share (3):
Basic............................................. $ .60
---------
---------
Diluted........................................... $ .57
---------
---------
Weighted average shares outstanding (3):
Basic............................................. 6,862
---------
---------
Diluted........................................... 7,319
---------
---------
OTHER FINANCIAL DATA:
Depreciation and amortization..................... $ 3,768
Capital expenditures.............................. 5,524
OTHER DATA:
Tons of grapes crushed (4)........................ 197,841
Vineyard property (in acres)...................... 9,600
</TABLE>
<TABLE>
<CAPTION>
OLD GSV NEW GSV
-------------------- -------------------------------------------------------------------------
JUNE 30, JUNE 30, MARCH 31, 1998
-------------------- ------------------------------- ----------------------------------------
1993 1994 1995 1996 1997 ACTUAL PRO FORMA(5) AS ADJUSTED(6)
--------- --------- --------- --------- --------- --------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................... $ 5,755 $ 10,011 $ 8,735 $ 9,335 $ 9,386 $ 8,245 $ 8,245 $ 13,836
Total assets....................... 45,741 53,537 80,941 90,435 102,111 124,640 124,640 124,640
Total long-term debt............... 27,119 30,900 44,322 42,973 49,781 48,023 48,023 30,223
Redeemable preferred stock......... -- -- 9,978 10,034 8,813 8,915 8,192 --
Stockholders' equity............... 10,286 13,789 10,037 10,670 12,574 16,676 17,399 48,982
</TABLE>
- - --------------------
(1) In accordance with purchase accounting rules applied to the Company's
acquisition of Old GSV, inventory was increased to fair market value. The
inventory step-up increased cost of sales for the period April 27, 1995 to
June 30, 1995 and the year ended June 30, 1996 by $471 and $1,563,
respectively.
(2) Management incentives relating to stock appreciation rights and bonuses
increased selling, general and administrative expenses by $33, $930, $2,141,
$1,567 and $8,800 for the period April 27, 1995 to June 30, 1995, the years
ended June 30, 1996 and 1997, and the nine months ended March 31, 1997 and
1998, respectively.
(3) See Note 2 of the Notes to Consolidated Financial Statements for an
explanation of the basic and diluted earnings per share computations.
(4) It is industry custom to convert one ton of wine grapes to 170 gallons of
wine, and to convert gallons of wine to cases of twelve 750ml bottles at the
rate of 2.3775 gallons per case. All grapes crushed in the twelve month
period ended June 30, 1995 are shown under New GSV.
(5) Pro forma to give effect to the conversion of all shares of Junior Preferred
Stock into shares of Class B Common Stock as if it had occurred on March 31,
1998.
(6) Assumes that the issuance and sale of the 2,150,000 shares of Class B Common
Stock offered by the Company hereby at an assumed initial public offering
price of $17.50 per share and the application of the estimated net proceeds
therefrom occurred on March 31, 1998.
19
<PAGE>
SUPPLEMENTAL PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS DATA
(IN THOUSANDS)
Effective December 31, 1997, the Company restructured certain management
incentives. The restructured incentives will not have a material impact on the
Company's net income in fututre periods but, as a result of vested stock
options, will impact the Company's future earnings per share. 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 impact
of these management incentives included in the audited results the year ended
June 30, 1997 and the nine months ended March 31, 1998. This information should
be read in conjunction with "Selected Consolidated Financial Data",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited and unaudited Consolidated Financial Statements and
Notes thereto, each of which is included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
JUNE 30, ENDED MARCH
1997 31, 1998
----------- -------------
<S> <C> <C>
Revenues...................................................................... $ 95,785 $ 101,675
Cost of sales................................................................. 71,662 75,625
----------- -------------
Gross profit.................................................................. 24,123 26,050
Selling, general and administrative expenses (1).............................. 5,267 4,266
----------- -------------
Income from operations (1).................................................... 18,856 21,784
Interest expense.............................................................. 5,880 5,203
Other expense, net............................................................ 677 165
----------- -------------
Income before income taxes (1)................................................ 12,299 16,416
Income taxes (2).............................................................. 4,847 6,410
----------- -------------
Net income.................................................................... $ 7,452 $ 10,006
----------- -------------
----------- -------------
</TABLE>
- - --------------
(1) For the year ended June 30, 1997 and the nine months ended March 31, 1998,
selling, general and administrative expenses were reduced and income from
operations and income before income taxes were effectively increased by
$2,141 and $8,800, respectively, after adding back the impact of the
management incentives.
(2) For the year ended June 30, 1997 and the nine months ended March 31, 1998,
income taxes have been computed on income before income taxes after
adjustment for the effects of the adjustments described above.
20
<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 PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS DATA" AND THE COMPANY'S CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO, EACH OF WHICH IS INCLUDED ELSEWHERE IN THIS
PROSPECTUS. FOR COMPARATIVE PURPOSES ONLY, DATA FOR THE PERIODS JULY 1, 1994 TO
APRIL 26, 1995 AND APRIL 27, 1995 TO JUNE 30, 1995 HAVE BEEN COMBINED AND
REFLECTED BELOW IN ALL REFERENCES TO THE COMPANY'S 1995 FISCAL YEAR.
OVERVIEW
The Company's operations can be distinguished among the following: bulk wine
and related services, grape sales, case goods and related services and brandy.
Bulk wine and related services includes the production and sale of bulk wine,
the provision of custom crushing services, the storage of bulk wine in tanks and
barrels and the delivery of bulk wine barreling services, such as racking and
topping. Grape sales consist of the sale of grapes grown at the Company's
vineyards as well as grapes purchased by the Company from third party growers.
Case goods and related services includes the production of proprietary and
private label bottled wine and wine-based beverages and the provision of custom
bottling and storage services. The Company's brandy business includes the
production of brandy and grape spirits and the provision of brandy barrel
storage and related barreling services. See "Business--Company Operations".
SUPPLEMENTAL STATEMENT OF OPERATIONS ADJUSTMENTS
In connection with the Golden State Vintners Purchase, as defined, Golden
State Vintners entered into a five-year Employment Agreement (the "Old
Agreement") with Jeffrey B. O'Neill, the Company's President and Chief Executive
Officer. Terms of the Old Agreement provided for, among other things, the
granting to Mr. O'Neill of 504,348 and 145,000 stock appreciation rights (the
"O'Neill SARs") at exercise prices of $1.72 and $0.003 per right, respectively.
Additionally, the Old Agreement provided for a performance-based bonus
calculated as a percentage of operating income, as set forth therein (the
"O'Neill Bonus"). An additional 145,000 stock appreciation rights were issued to
Brian R. Thompson, GSV's Chief Financial Officer, in connection with his
employment in November 1995 at an exercise price of $2.59 per right (the
"Thompson SARs"). The O'Neill SARs, the Thompson SARs and the O'Neill Bonus are
sometimes collectively referred to as the "Management Incentives".
In the fiscal year ended June 30, 1997, Management Incentives of $2.1
million were included in the selling, general and administrative expenses
reported for such periods. For the nine months ended March 31, 1997 and 1998,
such Management Incentives accounted for $1.6 million and $8.8 million,
respectively, of selling, general and administrative expenses. With respect to
the nine months ended March 31, 1998, $1.5 million of such $8.8 million of
Management Incentives arose as a result of the acceleration of certain estimated
bonus amounts due under the Old Agreement. As of December 31, 1997, (a) the Old
Agreement was terminated, eliminating the O'Neill Bonus, and (b) each of the
O'Neill SARs and the Thompson SARs were replaced with a combination of
compensation paid partly in cash and partly with promissory notes and fully
vested non-qualified stock options having an exercise price of $12.07 per share
(the "Replacement Incentives"). Such Replacement Incentives will not have a
material impact on the Company's net income in future periods, but, as a result
of the fully vested nature of the options granted to Messrs. O'Neill and
Thompson, will impact GSV's future earnings per share. None of the Replacement
Incentives contains a formula based bonus. Additionally, the Company does not
anticipate that bonuses paid to Mr. O'Neill will be material under the terms of
his current employment agreement.
21
<PAGE>
In connection with the Replacement Incentives, effective January 1, 1998,
(1) the Company made cash payments of $4.7 million and $0.7 million to Messrs.
O'Neill and Thompson, respectively (the "Executive Cash Payments"), and (2) the
Company issued promissory notes in the amount of $4.7 million and $0.7 million
to Messrs. O'Neill and Thompson, respectively (the "Executive Promissory
Notes"). Messrs. O'Neill and Thompson used their respective Executive Cash
Payments to exercise stock options and to pay certain income taxes due. See
"Certain Relationships and Related Transactions" and Note 15 of Notes to
Consolidated Financial Statements.
The table below sets forth summary statement of operations data for the
three fiscal years ended June 30, 1997 and for the nine months ended March 31,
1997 and 1998, on a historical basis and, for the fiscal year ended June 30,
1997 and the nine months ended March 31, 1998, on a pro forma basis without the
Management Incentives.
SUMMARY AS REPORTED AND PRO FORMA STATEMENT OF OPERATIONS DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 AS REPORTED
AS REPORTED COMBINED ------------------------------------------
------------------------ PRO FORMA(1)
JULY 1, APRIL 27, ------------- NINE MONTHS ENDED
1994 1995 YEAR YEAR ENDED JUNE 30,
TO TO ENDED MARCH 31,
APRIL 26, JUNE 30, JUNE 30, -------------------- --------------------
1995 1995 1995 1996 1997 1997 1998
----------- ----------- ------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................................... $ 42,851 $ 4,037 $ 46,888 $ 71,755 $ 95,785 $ 88,678 $ 101,675
Cost of sales.............................. 34,772 3,949 38,721 58,468 71,662 66,846 75,625
----------- ----------- ------------- --------- --------- --------- ---------
Gross profit............................... 8,079 88 8,167 13,287 24,123 21,832 26,050
Selling, general and administrative
expenses................................. 3,364 951 4,314 5,042 7,408 5,315 13,066
----------- ----------- ------------- --------- --------- --------- ---------
Income (loss) from operations.............. 4,715 (863) 3,853 8,245 16,715 16,517 12,984
Interest expense........................... 2,797 920 3,716 5,344 5,880 4,480 5,203
Other expense, net......................... 44 1 47 394 677 677 165
----------- ----------- ------------- --------- --------- --------- ---------
Income before income taxes................. 1,874 (1,784) 90 2,507 10,158 11,360 7,616
Income taxes............................... -- -- -- 583 3,988 4,464 2,878
----------- ----------- ------------- --------- --------- --------- ---------
Net income................................. $ 1,874 $ (1,784) $ 90 $ 1,924 $ 6,170 6,896 4,738
----------- ----------- ------------- --------- --------- --------- ---------
----------- ----------- ------------- --------- --------- --------- ---------
<CAPTION>
PRO FORMA
--------------------------
NINE MONTHS
YEAR ENDED ENDED MARCH
JUNE 30, 31,
----------- -------------
1997 1998
----------- -------------
<S> <C> <C>
Revenues................................... $ 95,785 $ 101,675
Cost of sales.............................. 71,662 75,625
----------- -------------
Gross profit............................... 24,123 26,050
Selling, general and administrative
expenses................................. 5,267(2) 4,266(2)
----------- -------------
Income (loss) from operations.............. 18,856(2) 21,784(2)
Interest expense........................... 5,880 5,203
Other expense, net......................... 677 165
----------- -------------
Income before income taxes................. 12,299(2) 16,416(2)
Income taxes............................... 4,847(3) 6,410(3)
----------- -------------
Net income................................. $ 7,452 10,006
----------- -------------
----------- -------------
</TABLE>
- - --------------------
The following footnotes explain the variations in the above presentation of the
summary pro forma statement of operations data, as compared to the as reported
statement of operations data:
(1) Represents the summation of the "As Reported" amounts for the periods ended
April 26, 1995 and June 30, 1995.
(2) Selling, general and administrative expenses were reduced and income from
operations and income before income taxes were effectively increased by
$2,141 for the year ended June 30, 1997, and $8,800 for the nine months
ended March 31, 1998, as a result of the elimination of the impact of the
Management Incentives, which were restructured as of December 31, 1997.
(3) For the year ended June 30, 1997 and the nine months ended March 31, 1998,
income taxes have been computed on income before income taxes after giving
effect to the adjustments described above.
22
<PAGE>
The following table reflects summary statement of operations data shown
above, expressed as a percentage of revenues:
PERCENTAGE OF REVENUES
<TABLE>
<CAPTION>
1995 AS REPORTED
AS REPORTED COMBINED ------------------------------------------
------------------------ PRO FORMA(1)
JULY 1, APRIL 27, ------------- NINE MONTHS ENDED
1994 1995 YEAR YEAR ENDED JUNE 30,
TO TO ENDED MARCH 31,
APRIL 26, JUNE 30, JUNE 30, -------------------- --------------------
1995 1995 1995 1996 1997 1997 1998
----------- ----------- ------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................... 81.1 97.8 82.6 81.5 74.8 75.4 74.4
----------- ----------- ------------- --------- --------- --------- ---------
Gross profit................................ 18.9 2.2 17.4 18.5 25.2 24.6 25.6
Selling, general and administrative
expenses.................................. 7.9 23.6 9.2 7.0 7.7 6.0 12.8
----------- ----------- ------------- --------- --------- --------- ---------
Income (loss) from operations............... 11.0 (21.4) 8.2 11.5 17.5 18.6 12.8
Interest expense............................ 6.5 22.8 7.9 7.4 6.2 5.0 5.1
Other expense, net.......................... 0.1 -- 0.1 0.6 0.8 0.8 0.2
----------- ----------- ------------- --------- --------- --------- ---------
Income before income taxes.................. 4.4 (44.2) 0.2 3.5 10.6 12.8 7.5
Income taxes (benefit)...................... -- -- -- 0.8 4.2 5.0 2.8
----------- ----------- ------------- --------- --------- --------- ---------
Net income.................................. 4.4 (44.2) 0.2 2.7 6.4 7.8 4.7
----------- ----------- ------------- --------- --------- --------- ---------
----------- ----------- ------------- --------- --------- --------- ---------
<CAPTION>
PRO FORMA
----------------------------
NINE MONTHS
YEAR ENDED ENDED MARCH
JUNE 30, 31,
------------- -------------
1997 1998
------------- -------------
<S> <C> <C>
Revenues.................................... 100.0% 100.0%
Cost of sales............................... 74.8 74.4
------------- -------------
Gross profit................................ 25.2 25.6
Selling, general and administrative
expenses.................................. 5.5 4.1
------------- -------------
Income (loss) from operations............... 19.7 21.5
Interest expense............................ 6.1 5.1
Other expense, net.......................... 0.8 0.2
------------- -------------
Income before income taxes.................. 12.8 16.2
Income taxes (benefit)...................... 5.0 6.4
------------- -------------
Net income.................................. 7.8 9.8
------------- -------------
------------- -------------
</TABLE>
SEASONALITY AND QUARTERLY RESULTS
The Company has experienced and expects to continue to experience seasonal
and quarterly fluctuations in its revenues. Because of the inherent seasonality
of its operations, the Company has reported its highest revenues and net income
in its first and second fiscal quarters, as the Company sells most of its grapes
in the first quarter, immediately after harvest, sells most of its bulk wine in
the second quarter, immediately after crush, and performs many of its wine
processing services in the first and second quarters. As a result, the Company
typically reports lower revenues and net income (loss) in the third and fourth
fiscal quarters.
The following table illustrates the seasonality of the Company's revenues
and net income (loss) for each of the four fiscal quarters of the Company's 1997
fiscal year:
QUARTERLY REVENUES AND NET INCOME (LOSS)
<TABLE>
<CAPTION>
FISCAL 1997 QUARTER ENDED
------------------------------------------
SEPT. 30 DEC. 31 MAR. 31 JUNE 30
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues....................................................... $ 42,211 $ 33,862 $ 12,605 $ 7,107
Percent of revenues for the year ended
June 30, 1997................................................ 44.1% 35.3% 13.2% 7.4%
Net income (loss).............................................. $ 5,072 $ 1,999 $ (175) $ (726)
Percentage of net income (loss)................................ 82.2% 32.4% (2.8)% (11.8)%
</TABLE>
23
<PAGE>
RESULTS OF OPERATIONS
The following table illustrates the Company's revenues by source for the
periods indicated:
REVENUES BY SOURCE
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, NINE MONTHS ENDED
------------------------------------ MARCH 31,
COMBINED PRO ----------------------
FORMA 1995 1996 1997 1997 1998
-------------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Bulk wine and related services........... $ 26,082 $ 33,816 $ 50,228 $ 47,401 $ 53,815
Grape sales.............................. 12,875 15,183 18,585 18,585 22,817
Case goods and related services.......... 6,288 11,335 15,829 11,809 15,081
Brandy................................... 1,643 11,421 11,143 10,883 9,962
-------------- --------- --------- --------- -----------
Total revenues......................... $ 46,888 $ 71,755 $ 95,785 $ 88,678 $ 101,675
-------------- --------- --------- --------- -----------
-------------- --------- --------- --------- -----------
</TABLE>
The following table illustrates the Company's revenues by source for the
periods indicated, expressed as a percentage of revenues:
PERCENTAGE OF REVENUES BY SOURCE
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, NINE MONTHS ENDED
------------------------------------- MARCH 31,
COMBINED PRO --------------------
FORMA 1995 1996 1997 1997 1998
--------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Bulk wine and related services........................ 55.6% 47.1% 52.5% 53.5% 53.0%
Grape sales........................................... 27.5 21.2 19.4 20.9 22.4
Case goods and related services....................... 13.4 15.8 16.5 13.3 14.8
Brandy................................................ 3.5 15.9 11.6 12.3 9.8
----- --------- --------- --------- ---------
Total revenues...................................... 100% 100% 100% 100% 100%
----- --------- --------- --------- ---------
----- --------- --------- --------- ---------
</TABLE>
NINE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
REVENUES
Revenues for the first nine months of fiscal 1998 were $101.7 million, an
increase of $13.0 million or 14.7%, as compared to revenues of $88.7 million in
the first nine months of fiscal 1997. As a result of the restructuring of the
Company's grape supply relationship with Gallo, grape sales revenues will
decline significantly in the Company's 1999 fiscal year, though management
believes that such decline in grape sales revenues will be at least partially
offset by increased bulk wine sales.
BULK WINE AND RELATED SERVICES. For the first nine months of the Company's
1998 fiscal year, revenues from bulk wine and related services were $53.8
million, an increase of $6.4 million or 13.5%, as compared to revenues of $47.4
million in the first nine months of fiscal 1997. This increase in revenues is
primarily due to higher customer demands for contracted bulk wines and the
initiation of bulk wine production and processing and storage service operations
at the Company's Monterey facility, along with increases in wine processing
revenues from the Company's Fresno facility and barrel fermentation and storage
fees at the Company's recently purchased Napa warehouse.
24
<PAGE>
GRAPE SALES. In the first nine months of fiscal 1998, revenues from grape
sales were $22.8 million, an increase of $4.2 million or 22.7%, as compared to
revenues of $18.6 million in the first nine months of fiscal 1997. The increase
in revenues for grape sales is primarily due to the significant increase in
grapes harvested at the Company's vineyards, which exceeded historical averages
by more than 20%. Due to the reallocation of a significant portion of GSV's wine
grapes to the internal production of bulk wine, the Company expects revenues
from grape sales to decline significantly in fiscal 1999.
CASE GOODS AND RELATED SERVICES. For the first nine months of fiscal 1998,
revenues from case goods and related services were $15.1 million, an increase of
$3.3 million or 28.0%, as compared to revenues of $11.8 million the first nine
months of fiscal 1997. This increase in case goods and related services revenues
is evidence of the Company's strategy to generate significant case goods sales
and reflects an increase in the sale of private label case goods and an
expansion in GSV's proprietary labels (which tend to have higher margins) in the
popular premium and superpremium segments of the premium wine market.
BRANDY. For the first nine months of fiscal 1998, revenues from the sale of
brandy and grape spirits were $10.0 million, a decline of $0.9 million or 8.3%,
as compared to $10.9 million in revenues from the previous period. This decline
primarily resulted from the reduction in the contracted demand for brandy from
period to period.
COST OF SALES
Cost of sales includes all direct and indirect costs to produce the
Company's marketed products. Bulk wine, case goods and brandy cost of sales
generally include wine grape costs, direct and indirect plant production costs
and certain allocated overhead items such as depreciation and insurance.
Vineyard costs include farming expenses and direct and allocated indirect costs.
For the first nine months of fiscal 1998, total cost of sales was $75.6 million,
an increase of $8.8 million or 13.2%, from $66.8 million in the first six months
of fiscal 1997. As a percentage of revenues, for the first nine months of fiscal
1998, cost of sales was 74.4%, a decrease from 75.4% for the first nine months
of fiscal 1997. Factors contributing to this dollar increase in cost of sales
included an increase in the overall level of Company operations, the impact of
the cost of certain premium varietal grapes used in the production of bulk wine,
start-up costs related to the initiation of operations at the Company's Monterey
facility and the expansion of the Company's case goods sales. In addition, cost
of sales was impacted by amounts reserved by the Company in connection with
disputes with two customers concerning the quality of wine products delivered by
the Company. The increase in cost of sales was partially offset by a reduction
in farming costs per acre, which was largely due to the optimal wine grape
growing and harvesting conditions during calendar 1997.
GROSS PROFIT
Gross profit generally represents revenues less cost of sales. In the first
nine months of fiscal 1998, the Company realized gross profit of $26.1 million,
an increase of $4.3 million or 19.7%, as compared to gross profit of $21.8
million for the first nine months of fiscal 1997. As a percentage of revenues,
in the first nine months of fiscal 1998 gross margin improved to 25.6%, from
24.6% in the first nine months of fiscal 1997. Factors contributing to the
improvement in gross profit and gross margin included increased yields at the
Company's vineyards, operational efficiencies at certain of the Company's
facilities and a reduction of the Company's LIFO reserve. Margin growth was
adversely affected by declining market prices for certain premium varietal wine
that were not entirely offset by lower grape prices, a number of operational
start up costs associated with the initiation of wine processing services at the
Monterey facility and a reserve for product quality claims.
25
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses include general administrative
items, corporate overhead and expenses relating to the Management Incentives.
For the first nine-months of fiscal 1998, selling, general and administrative
expenses were $13.1 million, an increase of $7.8 million or 147.2%, from $5.3
million for the first nine months of fiscal 1997. As a percentage of revenues,
for the first nine months of fiscal 1998 selling, general and administrative
expenses increased to 12.8%, from 6.0% for the first nine months of fiscal 1997.
The Management Incentives represented $1.2 million and $8.8 million of selling,
general and administrative expenses for the first nine-months of fiscal 1997 and
1998, respectively. With the issuance of the Replacement Incentives, the Company
anticipates eliminating substantial selling, general and administrative expenses
associated with the Management Incentives in future years. On a pro forma basis
after the elimination of the impact of the Management Incentives, for the first
nine months of fiscal 1998, selling, general and administrative expenses
increased to $4.3 million. On a pro forma basis, as a percentage of revenues,
for the first nine months of fiscal 1998, selling, general and administrative
expenses decreased to 4.1%.
INTEREST EXPENSE
For the first nine months of fiscal 1998, interest expense was $5.2 million,
an increase of $0.7 million or 15.6%, as compared to interest expense of $4.5
million in the first nine months of fiscal 1997. Interest expense increased
primarily due to an increase in long term borrowings used to acquire the
Company's Monterey facility and its Napa warehouse, and, to a lesser extent, by
an increase in inventory and working capital borrowings consistent with the
Company's increased level of revenues.
NET INCOME
For the first nine months of fiscal 1998 net income was $4.7 million, a
decrease of $2.2 million or 31.9%, as compared to net income of $6.9 million for
the first nine months of fiscal 1997. As a percentage of revenues, for the first
nine months of fiscal 1998, net income was 4.7%, as compared to 7.8% for the
first nine months of fiscal 1997. This decrease in net income is attributable to
a substantial increase in expenses relating to the Management Incentives. Such
Management Incentive expenses were partially offset by the growth of profit in
the Company's bulk wine and related services, grape sales and case goods and
related services businesses. On a pro forma basis after the elimination of the
impact of the Management Incentives, for the first nine months of fiscal 1998,
net income increased to $10.0 million. On a pro forma basis, as a percentage of
revenues, for the first nine months of fiscal 1998, net income increased to
9.8%.
EARNINGS PER SHARE
For the first nine months of fiscal 1998, earnings per share were $.60, a
decline of $.31 or 34%, as compared to earnings per share of $.91 for the first
nine months of fiscal 1997. Net earnings available to common shareholders for
the first nine months of fiscal 1998 was impacted by the decrease in net income
described above and by dividends paid on shares of Senior Preferred Stock during
such period. For each of the nine month periods ended March 31, 1997 and 1998
such dividends equalled $0.6 million.
In connection with the redemption of Senior Preferred Stock with proceeds
from this offering, the excess of the redemption value of $10 million over the
carrying amount of $8.2 million will be treated similarly to a dividend and will
be a deduction from net earnings in the computation of net earnings available to
common shareholders for use in earnings per share calculations for periods
including such redemption.
26
<PAGE>
THREE FISCAL YEARS ENDED JUNE 30, 1997
REVENUES
For the Company's 1997 fiscal year, revenues were $95.8 million, an increase
of $24.0 million or 33.5%, as compared to revenues of $71.8 million in the 1996
fiscal year, which increased by $24.9 million or 53%, over revenues of $46.9
million in fiscal 1995.
BULK WINE AND RELATED SERVICES. For the Company's 1997 fiscal year,
revenues from bulk wine and related services were $50.2 million, an increase of
$16.4 million or 48.5%, as compared to revenues of $33.8 million in fiscal 1996.
Revenues from bulk wine and related services in fiscal 1996 increased by $7.7
million or 29.7%, from revenues of $26.1 million in fiscal 1995. These increases
in bulk wine and related services revenues are primarily due to a significant
increase in the demand for bulk wine which resulted from the execution of bulk
wine supply contracts with a number of customers, and the increase in wine
processing and storage fees, which resulted from an increase in custom crushing
contracts executed by the Company.
GRAPE SALES. In fiscal 1997, grape sales revenues were $18.6 million, an
increase of $3.4 million or 22.4%, over revenues of $15.2 million in fiscal
1996. Grape sales revenues in fiscal 1996 increased by $2.3 million or 17.9%,
from revenues of $12.9 million in fiscal 1995. These increases in grape sales
revenues are primarily due to an increase in the average sales price per ton of
grapes sold and, in fiscal 1997, an increase in grapes harvested at the
Company's vineyards and the maturation of certain grafted acreage.
CASE GOODS AND RELATED SERVICES. For fiscal 1997, revenues from case goods
and related services were $15.8 million, an increase of $4.5 million or 39.6%,
over case goods and related services revenues of $11.3 million in fiscal 1996.
Case goods and related services revenues in fiscal 1996 increased $5.0 million
or 80.3%, from revenues of $6.3 million in fiscal 1995. These increases in case
goods and related services revenues are evidence of the Company's strategy to
generate additional case goods sales and reflects a significant increase in the
sale of private label case goods and an expansion in GSV's proprietary labels in
the popular premium and superpremium segments of the wine market.
BRANDY. For fiscal 1997, revenues from the sale of brandy were $11.1
million, a decrease of $0.3 million or 2.4%, from revenues of $11.4 million in
fiscal 1996, primarily as a result of a decrease in contracted brandy sales. In
the last quarter of fiscal 1995, the Company acquired its Reedley facility from
Heublein and entered into a long term brandy processing and production contract
with Heublein. Prior to such acquisition, brandy sales constituted approximately
3.5% of the Company's fiscal 1995 revenues.
COST OF SALES
Total cost of sales in fiscal 1997 were $71.7 million, an increase of $13.2
million or 22.6%, over cost of sales of $58.5 million in fiscal 1996. Total cost
of sales in fiscal 1996 increased by $19.8 million or 51.0%, from $38.7 million
in fiscal 1995. As a percentage of revenues, in fiscal 1997, cost of sales was
74.8%, as compared to 81.5% in fiscal 1996 and 82.6% in fiscal 1995. From 1996
to 1997, cost of sales grew primarily due to the growth in the Company's
revenues, principally in bulk wine sales. From 1995 to 1996, cost of sales also
grew due to increased revenues, primarily arising from the Company's newly
acquired Reedley brandy processing facility, and due to the Inventory Step-Up.
GROSS PROFIT
In fiscal 1997, the Company realized gross profit of $24.1 million, an
increase of $10.8 million or 81.6%, over gross profit of $13.3 million in fiscal
1996, which saw an increase in gross profit of
27
<PAGE>
$5.1 million or 62.7%, over gross profit of $8.2 million in fiscal 1995. As a
percentage of revenues, in 1997 gross margin improved to 25.2%, as compared to
18.5% in fiscal 1996 and 17.4% in fiscal 1995. Gross profit and margin increased
from 1996 to 1997 primarily due to the growth in bulk wine sales, as both bulk
wine prices and volumes increased year-to-year. The increase in gross profit
from 1995 to 1996 resulted primarily from a higher volume of grape sales and
from brandy sales that resulted from the acquisition of the Company's Reedley
facility.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
In fiscal 1997, selling, general and administrative expenses were $7.4
million, an increase of $2.4 million or 46.9%, over selling, general and
administrative expenses of $5.0 million in fiscal 1996, which increased by $0.7
million or 16.9% over $4.3 million in fiscal 1995. As a percentage of revenues,
in fiscal 1997, selling, general and administrative expenses were 7.7%, as
compared to 7.0% in fiscal 1996 and 9.2% in fiscal 1995. Charges related to the
Management Incentives were $2.1 million, $0.9 million and $0 for the 1997, 1996
and 1995 fiscal years, respectively. The period to period increase in selling,
general and administrative expenses are primarily due to accruals made with
respect to such Management Incentives.
INTEREST EXPENSE
In fiscal 1997 interest expense was $5.9 million, an increase of $0.6
million or 10.0%, as compared to an interest expense of $5.3 million in fiscal
1996, which saw an interest expense increase of $1.6 million or 43.8% over
interest expense of $3.7 million in fiscal 1995. The growth in interest expense
from fiscal 1995 to fiscal 1996 primarily reflects the expense of increased
borrowings made in connection with the Golden State Vintners Purchase.
NET INCOME
In fiscal 1997, net income was $6.2 million, an increase of $4.3 million or
221.0%, from net income of $1.9 million in fiscal 1996. In fiscal 1996, net
income was $1.9 million, an increase of $1.8 million over net income of $0.1
million in fiscal 1995. As a percentage of revenues, in fiscal 1997 net income
was 6.4%, as compared to 2.7% in fiscal 1996.
EARNINGS PER SHARE
In fiscal 1997, earnings per share were $.71, an increase of $.62 or 688.9%,
over earnings per share of $.09 in fiscal 1996. Net earnings available to common
shareholders for fiscal 1997 was impacted by the increase in net income
described above, which increase was partially offset by dividends paid on shares
of Senior Preferred Stock during such period. For each of fiscal 1996 and fiscal
1997, such dividends equalled $1.3 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position at March 31, 1998 was $8.2 million,
as compared to $10.3 million at March 31, 1997. The decrease in working capital
is primarily due to the increase in current liabilities reflecting the
recognition of $8.8 million of expenses related to Management Incentives. The
Company maintains a revolving line of credit for working capital purposes which
is secured by inventory, accounts receivable, the current year's wine grape crop
and other collateral. Collateral balances are adequate for the Company's working
capital line of credit. Borrowings under the line typically peak in November,
during the Company's second fiscal quarter. Revolving line of credit balances
were $10.5 million and $18.3 million at March 31, 1997 and 1998, respectively.
Unused availability under the line of credit was $4.2 million at March 31, 1998.
28
<PAGE>
Operating cash flow for the nine months ended March 31, 1998 was $5.2
million, as compared to cash flow from operations of $7.4 million for the nine
months ended March 31, 1997. The decrease in operating cash flow for the nine
months ended March 31, 1998 is primarily due to an increase in accrued deferred
compensation expense relating to Management Incentives and an increase in
accounts receivable balances reflective of the Company's revenue growth. The
Company anticipates a substantial increase in operating cash flow during the
fourth quarter of fiscal year 1998 over the fourth quarter of fiscal 1997, as
outstanding receivables from the previous quarter are collected.
Management expects that GSV's working capital requirements will grow as the
business expands and that peak borrowing needs will continue to occur in the
second quarter of the Company's fiscal year. Adequate levels of collateral are
expected to cover any increase in line of credit borrowings needed with respect
to increasing working capital requirements. Management believes that cash from
operations, the net proceeds of this offering and funds available under the
Company's lines of credit will be sufficient to fund operations during the
Company's 1999 fiscal year.
The Company recently authorized capital expenditures of up to $20 million,
primarily to upgrade, maintain and expand its existing winemaking facilities
over the next two years. The Company intends to finance these expenditures
through cash generated from this offering, cash generated from operations and
various other financing sources. On or before November 30, 1998, the Company is
obligated to pay to Messrs. O'Neill and Thompson an aggregate of $5.4 million,
plus interest, pursuant to the Executive Promissory Notes. The Company intends
to satisfy these obligations from cash generated from operations and a portion
of the proceeds from this offering. See Note 9 of Notes to Consolidated
Financial Statements.
The Company currently has reserved amounts that it deems appropriate in
connection with disputes with two customers concerning the quality of wine
products delivered by the Company. The Company believes such reserves are
adequate in the context of such disputes, though there can be no assurances in
that regard. See "Business--Legal Proceedings".
YEAR 2000 COMPLIANCE
The Company has addressed potential Year 2000 difficulties by initiating a
comprehensive evaluation, redesign and upgrade of its information, technology,
manufacturing, accounting and facilities computer software. Many of the
Company's systems include new hardware and packaged software recently purchased
from large vendors who have represented that these systems are Year 2000
compliant. The Company is in the process of obtaining assurances from vendors
that timely updates will be made available to ensure additional purchased
software is Year 2000 compliant. Additionally, GSV has utilized both internal
and external resources to reprogram, replace and test all of its software for
Year 2000 compliance. The estimated cost for this project was approximately
$250,000.
29
<PAGE>
BUSINESS
INTRODUCTION
GSV is one of the largest suppliers of premium bulk wines, wine processing
and storage services, wine grapes and case goods in the United States.
Management believes that the Company is a contract supplier of choice for many
of the leading branded wineries in California because of its reputation for
quality and service, extensive vineyard holdings, strategically located
facilities and ability to tailor a full range of products and services to meet
the particular needs of its customers. The Company believes that its strong
customer relationships, low-cost operations and ability to successfully
integrate vineyard and facility acquisitions have enabled GSV to capitalize on
recent wine industry trends, including the growth of the premium wine market and
the trend by many of the leading branded wineries to outsource wine production.
Over the last five years, GSV has increased its revenues at a compounded annual
rate of 19% from $47.0 million in fiscal 1993 to $95.8 million in fiscal 1997.
The Company provides a broad range of high quality winemaking and processing
services, barrel fermentation and bottling and storage services to many of the
largest branded wineries in California and to a number of international
wineries. The Company supplies premium bulk wine pursuant to long-term supply
agreements with Sutter Home, Canandaigua, Sebastiani, Heublein, Vincor and other
wineries. The Company also delivers contract wine processing, barrel
fermentation and storage services under contracts with, among others, The Wine
Group, Mondavi and Beringer. The Company also sells wine grapes, primarily to
Gallo.
GSV produces private label case goods for a number of clients, such as ADM,
Boisset and Trader Joe's. The Company is the largest exporter of bulk wine from
California, according to Fredrikson, and, in fiscal 1997, the Company derived
approximately 12% of its revenues from the sale of bulk wine and case goods
outside of the United States. The Company also supplies brandy (a distilled
derivative of wine) to Heublein pursuant to a long-term agreement and is the
second largest brandy producer in the United States.
The combination of GSV's extensive vineyard holdings and five strategically
located facilities has enabled the Company to become what management believes is
one of California's low-cost producers of premium bulk wine. The Company's 9,600
acres of vineyard properties in California's San Joaquin Valley allow the
Company to source high quality wine grapes at a competitive cost. The Company's
wine processing facilities are generally modern, efficient and automated, and
allow for large scale, low-cost production of premium bulk wine and case goods
and the delivery of a full line of winemaking, processing and storage services.
Over the last four years, the Company has greatly expanded its presence in the
California wine industry by acquiring vineyards and wine and brandy processing
facilities and quickly integrating these assets into GSV's winemaking
operations.
Management believes that the growth in the Company's sales is attributable
in part to the growth of the premium wine market. Over the past 10 years, there
has been a shift in consumer preferences in the United States from generic or
"jug" wines to high quality, branded premium varietal wines sold primarily in
750ml bottles. Since 1987, sales of premium California table wines have
increased at a 15% compounded annual rate, from approximately $932 million in
1987 to approximately $3.8 billion in 1997, according to Fredrikson. In 1997,
premium table wines accounted for 78% of the $4.8 billion California table wine
market (expressed in winery sales revenues), compared to 52% of the $1.8 billion
California table wine market in 1987. 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 that lends itself to expanded consumption of premium
wines; and (4) the improving quality and reputation of California premium wines.
30
<PAGE>
Management believes that the Company's recent financial performance has also
benefited from the increasing trend by a number of California's leading branded
wineries to outsource various steps in the winemaking process. With the growth
in demand for premium wines, these wineries have focused on the marketing of
their brands and have invested significant financial resources in building brand
awareness and loyalty through marketing and distribution. Additionally, the
growing demand for premium wine has strained the winemaking capacity of a number
of leading branded wineries. These wineries have demonstrated a strategic
preference towards focusing their resources on brand building as opposed to
facility expansion. Management believes that these and other factors in the wine
industry have resulted in an increasing need for California's large, branded
wineries to outsource the production of premium wine. As a quality-oriented,
low-cost provider of contract winemaking and processing services, management
believes that the Company is well positioned to continue to capitalize on these
wine industry trends.
BUSINESS STRENGTHS
GSV's key business strengths include:
LOW-COST PROVIDER. To position the Company advantageously among its bulk
wine processing competitors, GSV seeks to be the low-cost provider of bulk wine
and contract winemaking and processing services. The economies of scale of the
Company's large, efficient vineyards and facilities and GSV's expertise in
managing its winemaking facilities translate into low production costs, which
allow the Company to price its winemaking products and services flexibly and
competitively. As a result, the Company believes that it can provide high
quality premium bulk wine, wine processing and storage services and case goods
to its customers at prices that may be lower than the marginal production costs
of these products and services to such customers.
FOCUS ON QUALITY. The Company has a consistent record of producing high
quality wine products. For example, three of the top 13 "Best-Value" Chardonnays
(under $10 per 750ml bottle), as ranked in 1997 by WINE SPECTATOR magazine, were
made exclusively from the Company's wine. The Company applies rigorous attention
to quality in all aspects of its grape growing, winemaking and storage
processes. The Company works closely with each customer (who often has its
winemaker on site at the Company's winemaking facilities) to ensure that
finished wines meet applicable quality standards.
FULL RANGE OF PRODUCTS AND SERVICES. The Company offers customers an array
of wine products in most of the California appellations and provides a full
complement of wine-related services, from grape growing to the shipment of case
goods. Consequently, the Company's customers can use GSV's products and services
in any step of the winemaking process, while focusing the use of their resources
to leverage their particular strengths.
LARGE, COST EFFECTIVE VINEYARDS. The Company is one of the largest vineyard
owners in California in terms of total acreage. GSV's 9,600 acres of vineyard
properties are large and highly productive, which results in lower grape
production costs. For example, in 1997 the average cost of grape production at
the Company's vineyards was well below the 1997 market price for such grapes.
The Company's ownership of extensive vineyards also allows GSV to control the
varieties of grapes it grows, enabling the Company to tailor its product
offerings to the changing needs of its branded winery customers and to focus its
grape production on the grape varieties that GSV believes will be most
profitable.
STRATEGICALLY LOCATED FACILITIES. The location of the Company's five
wineries in or adjacent to most of California's primary wine growing regions
allows the Company to offer its customers winemaking, processing and storage
services at several conveniently located facilities. In addition, the size of
the Company's facilities enables GSV to aggregate the winemaking needs of
several customers, producing wine at a lower marginal cost than each customer
could at their own facilities while reliably delivering large quantities of
quality wine. Management periodically upgrades GSV's facilities with many of the
31
<PAGE>
latest technological advances in winemaking, allowing the Company to maintain
high quality and efficiency in its operations.
STRONG CUSTOMER RELATIONSHIPS. The Company has developed relationships with
many of the largest branded wineries in California as well as with a number of
international branded wineries. The Company has used long-term contracts to
create and maintain business relationships with such customers as Gallo,
Heublein, Sutter Home, Canandaigua, Sebastiani, The Wine Group, Mondavi,
Beringer and Vincor. As competition among the major wineries in California
intensifies, management believes that a number of these wineries will continue
to outsource the production of a major portion of their premium wines.
Management believes that the Company's strong relationships with its customers
will enable it to capitalize on the continued growth in the premium wine market
and the continued trend towards outsourcing in the premium wine industry.
GROWTH STRATEGY
GSV's strategic objective is to strengthen its position as a leading
supplier of premium bulk wine, wine processing and storage services and case
goods to the leading branded wineries in California and to a number of
international winemakers. In addition to building on its business strengths, the
Company's strategy for achieving this goal has the following key elements:
UPGRADE AND EXPAND WINEMAKING OPERATIONS. The Company recently authorized
capital expenditures of up to $20 million, primarily to upgrade, maintain and
expand its existing winemaking facilities over the next two years. The Company
intends to increase the annual processing capacity at its Fresno facility by
approximately 20,000 tons of grapes and to expand Fresno wine cooperage capacity
by approximately four million gallons. GSV will also increase its Monterey wine
processing facility's annual capacity by approximately 15,000 tons of grapes and
increase barrel fermentation capacity by approximately 18,000 barrels. In
addition, the Company will continue to evaluate opportunities to make strategic
greenfield investments in selected wine regions of California.
PURSUE STRATEGIC ACQUISITIONS. Over the past four years, GSV has grown
through a series of strategic acquisitions and has expanded through the
integration of these purchased vineyards and winemaking and processing
facilities. The following table sets forth the vineyard and facility assets
acquired by the Company since 1994:
<TABLE>
<CAPTION>
ACQUISITION DATE GENERAL DESCRIPTION
- - ----------------------- ------------------- ------------------------------
<S> <C> <C>
Napa Valley Winery May 1994 Winery and bottling line
Lost Hills Vineyards May 1995 Premium varietal vineyard
Reedley Facility May 1995 Brandy production facility
Monterey Winery December 1996 Wine processing facility
Napa Warehouse June 1997 Barrel storage warehouse
</TABLE>
The Company continually seeks to build on its successful acquisition track
record. The Company's acquisition of vineyards, wineries and facilities has
enabled it to expand the range of premium winemaking and processing services
that it offers to its branded winery customers. Additionally, the Company has
often been able to quickly generate revenue from acquired assets that have been
integrated into GSV operations. While the Company has found it increasingly
difficult to identify attractive acquisition opportunities, GSV will continue to
examine acquisition opportunities that make sense financially and can be
integrated efficiently with the Company's existing operations.
EXPAND INTERNATIONALLY. The Company will seek to strengthen its position as
the leading bulk wine exporter from California and will continue to market its
winemaking and processing services to leading
32
<PAGE>
international wineries. The Company also plans to further leverage its
relationships with leading international winemakers to internationally source
bulk wine for the Company's customers in North America. Finally, the Company
believes there are significant growth opportunities in a variety of
international winemaking regions, including Australia, South America and
Southern Europe, and that the premium bulk wine processor and contract service
provider models that the Company has successfully implemented in California can
be applied internationally.
THE WINE INDUSTRY
California table wines are categorized by price; wines that retail for less
than $3.00 per equivalent 750ml bottle are generally considered to be "jug" or
"generic" wines and wines that retail for $3.00 or more per equivalent 750ml
bottle are generally considered to be "premium" wines. Fredrikson further
divides the premium wine category into three major segments consisting of
"popular premium" wines, which retail for $3.00 up to $7.00 per equivalent 750ml
bottle; "superpremium" wines, which retail for $7.00 up to $14.00 per equivalent
750ml bottle; and "ultrapremium" wines, which retail for $14.00 or more per
750ml bottle. California produces the vast majority of the premium wine made in
the United States.
GROWTH IN PREMIUM WINE INDUSTRY. Over the past ten years there has been a
shift in consumer preferences in the U.S. from generic wines to high quality,
premium varietal wines sold in 750ml bottles. Since 1987, sales of premium
California wines have increased at a 15% compounded annual rate, from
approximately $932 million in 1987 to approximately $3.8 billion in 1997,
according to Fredrikson. In 1997, premium table wines accounted for 78% of the
$4.8 billion California table wine market (expressed in winery sales revenues),
compared to 52% of the $1.8 billion California wine market in 1987.
TREND TOWARDS OUTSOURCING. The wine industry in the U.S. includes thousands
of wine labels from hundreds of wineries, the vast majority of which are very
small and have limited wine production and finished goods distribution. Despite
the many labels, the industry has become increasingly concentrated, and only
seven wineries accounted for approximately 76% of total California wine
shipments in 1997 by volume. Many of the branded wineries in California do not
own sufficient wine grape vineyards to meet their own needs, have only limited
production or bottling facilities or are operating their current facilities at
or near full capacity.
As the market for California premium wines has grown, the leading branded
California wineries have concentrated on distinguishing their branded wines from
those produced by other wineries by focusing their resources on the marketing
and distribution of their particular brands rather than investing in winemaking
facilities. This allocation of resources away from the expansion of capital
intensive winemaking facilities has resulted, among other things, in an increase
in the need for the outsourcing of wine production in order to satisfy
increasing consumer demand for premium wine. The Company believes that its
business strengths have allowed GSV to capitalize on this trend and to become a
contract supplier of choice for many of the leading branded wineries in
California.
33
<PAGE>
FISCAL 1997 REVENUES
(dollars in millions)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
BULK WINE AND RELATED SERVICES - $50.2 (52%)
<S> <C>
Grape Sales - $18.6 (19%)
Case Goods and Related Services - $15.8 (17%)
Brandy - $11.1 (12%)
</TABLE>
COMPANY OPERATIONS
The Company's operations include the following: bulk wine and related
services, grape sales, case goods and related services and brandy. Bulk wine and
related services includes the production and sale of bulk wine, the provision of
custom crushing services, the storage of bulk wine in tanks and barrels and the
delivery of bulk wine barreling services, such as racking and topping. The
Company's grape sales consist of the sale of grapes grown at the Company's
vineyards as well as grapes purchased by the Company from third party growers.
Case goods and related services includes the production of proprietary and
private label bottled wine and wine-related beverages and the provision of
custom bottling and storage services. The Company's brandy business includes the
production of brandy and grape spirits and the provision of brandy barrel
storage and related barreling services.
BULK WINE AND RELATED SERVICES
The Company generates a majority of its revenues from the sale of premium
bulk wine and the delivery of a broad range of wine processing, barrel
fermentation and storage services to its branded winery customers.
The Company sells premium bulk wine to a number of the largest branded
wineries in California, including Sutter Home, Canandaigua, Sebastiani and
Heublein, and to a number of international wineries, including Vincor. In
response to recent wine industry trends towards an increase in the outsourcing
of premium wine production, GSV has increased its production of premium bulk
wines significantly, from approximately 11.8 million gallons in fiscal 1995 to
approximately 14.0 million gallons in fiscal 1997.
GSV's branded winery customers blend and mix the Company's high quality bulk
wine in the production of their premium varietal wines. For example, wine
produced from the French Colombard grape is often included in Chardonnay wine
and wine produced from the Ruby Cabernet grape is often used in the production
of Cabernet Sauvignon and Merlot. Some of GSV's branded winery customers also
buy GSV's high quality bulk wine to sell under their own brands, which allows
these customers to focus on the marketing of their brands rather than wine
production.
34
<PAGE>
The Company's standard bulk wine supply contract establishes the variety of
wine, source of grapes and vintage and generally calls for the delivery of a set
number of gallons of wine or processed grape juice at an agreed upon price per
ton of grapes. Industry practice calls for the delivery of 170 gallons of wine
per ton of grapes crushed. The Company supplies, crushes and processes the
grapes and typically stores the wine for six months or more following
production. Winemaking standards are usually agreed to by the parties in
advance. GSV generally guarantees the quality of the wine produced. Delivery of
bulk wine is usually F.O.B. the particular GSV winery.
Historically, approximately 10% of the grapes grown at the Company's
vineyards have been available for the production of premium bulk wine. The
Company has therefore purchased grapes in the marketplace in order to meet the
needs of its bulk wine customers. The Company typically buys grapes from
numerous growers pursuant to a variety of long-term, evergreen grape purchase
contracts and short-term grape purchase contracts entered into prior to grape
harvest. Additionally, after analyzing anticipated grape yields and grape prices
following a harvest, the Company often elects to purchase needed grape supplies
on the spot market. The Company believes it has expertise in matching the grape
needs for its bulk wine contracts with available grape supplies and carefully
monitors grape quality and prices. As a result of the restructuring of the
Company's relationship with Gallo, beginning in the Company's 1999 fiscal year,
at least a majority of the Company's grape crop will be available for the
production of GSV's premium bulk wine. The Company believes that this use of its
grapes will be a more profitable utilization of the Company's resources.
Additionally, the availability of the Company's grapes will lessen the Company's
exposure to unexpected price variations in the California grape market.
The Company produces more than half of its bulk wine at its most modern and
efficient wine processing facility in Fresno, which has the capacity to handle
100,000 tons of grapes annually (the equivalent of 7.2 million cases), and is
used primarily for the production of premium white wine. At the Company's Cutler
facility approximately 40,000 tons of red wine grapes (the equivalent of 2.9
million cases) are processed annually for the production of bulk red wine. GSV
also processes smaller quantities of premium bulk wine at its St. Helena,
Monterey and Reedley facilities. As is customary in the industry, the Company
engages the services of wine brokers to place bulk wine, at a pre-determined
commission.
As a full service provider, the Company also delivers an array of contract
wine processing, barrel fermentation and storage services under long-term
contracts with, among others, Mondavi and Beringer. GSV is flexible with respect
to providing these services and customizes its products and services to meet the
unique needs of its customers. Wine processing and storage services are
available for all steps of the winemaking process, including crushing grapes,
wine production, fermentation in oak barrels and storage in stainless steel
tanks and oak barrels. Under a typical wine processing and storage contract, a
wine processing customer will deliver grapes for crushing, fermentation and
storage in separately labeled tanks or barrels. Customers often have a winemaker
on site to monitor every step of the winemaking process.
Historically, the Company conducted most of its wine processing and storage
services at its Fresno facility. In December 1996, the Company acquired its
Monterey winery, and, following the 1997 summer harvest, initiated wine
processing and storage operations at Monterey, running the facility at
approximately 50% of its capacity. With GSV's Monterey winery fully operational
in fiscal 1999, the Company anticipates that it will deliver a significant
portion of its wine processing and storage services from Monterey.
GRAPE SALES
For the last twelve years the Company has sold most of its grapes to Gallo
pursuant to long-term grape purchase contracts. In August 1996, GSV began
restructuring its relationship with Gallo, though the Company was still required
to deliver approximately 87% and 86%, respectively, of its grapes to Gallo for
the contract years 1996 and 1997.
35
<PAGE>
In May 1995, the Company entered into new long-term grape supply contracts
with Gallo covering certain Chardonnay and Zinfandel grapes. The terms of these
contracts extend six years to May 2001. These contracts require the Company to
deliver grapes meeting specified sugar levels and other quality measurements.
Substantially all of the contracts call for payment in full within 30 days of
delivery of the crop to Gallo.
Due to the Company's restructuring of its relationship with Gallo, at least
a majority of the Company's grapes from the 1998 harvest will be retained by the
Company for internal use in the production of bulk wine. Thus, revenues from
grape sales will decline significantly in GSV's 1999 fiscal year. Nevertheless,
the Company believes that this use of grapes is a potentially more profitable
allocation of the Company's resources.
Certain of the Company's grape purchase contracts require GSV to purchase
the entire grape production of a number of small vineyards. Thus, the Company
must purchase varieties of grapes that it does not use in its production of bulk
wine. The Company generally sells these grapes into the market at a small margin
over cost.
CASE GOODS AND RELATED SERVICES
The Company produces proprietary and private label products and provides
custom bottling and storage services for its customers and for the Company's own
proprietary brands. These case goods sales are comprised of wine bottled and
sold in a case containing twelve 750ml bottles, or the volume equivalent. The
Company sold more than 935,000 cases of wine and wine related products in its
1997 fiscal year. In fiscal 1997, the sale of case goods produced and bottled
for third parties, or "private" case goods, accounted for more than 66% of total
case goods revenues, while case goods products sold under the Company's
proprietary labels accounted for the remainder of such revenues.
PRIVATE LABEL CASE GOODS. The sale of private label case goods includes the
purchase and processing of grapes, aging and storage of wine and the bottling
and labeling of the finished product. The majority of the Company's private
label case goods revenues in 1997 were derived from two customers based on
short-term arrangements that may terminate at any time. The Company has made a
concerted effort to expand private label case goods sales into higher margin
premium varietal wines. Private label case goods are produced and bottled
primarily at the Company's Cutler facility, although products for the Company's
largest private label case goods customer in its 1997 fiscal year were produced
at GSV's St. Helena winery in the Napa Valley.
PROPRIETARY AND CONTROL BRANDS. The Company sells proprietary wine products
under a variety of brands in the generic and premium wine categories. Generally,
the Company's BOUNTY and LEBLANC labels sell in the generic category, the
Company's GOLDEN STATE VINTNERS, J. WILE, MUIRFIELD, SUMMERFIELD and WESTON
brands sell in the popular premium category, the Company's MONTHAVEN and
SUMMERFIELD RESERVE labels compete in the superpremium category and the
Company's EDGEWOOD ESTATE label is sold in the ultrapremium category. The
Company's proprietary wines include a number of different types of premium
varietal wines, including vintage Cabernet Sauvignon, Chardonnay, Merlot and
Zinfandel. Many of the Company's proprietary wines are produced, processed
and/or bottled at the Company's St. Helena winery. The Company's proprietary
products are sold primarily through third party distributors and directly to
specific wine and general merchandise retailers such as Trader Joe's.
The Company also offers its proprietary brands to retailers, such as large
supermarket chains, for sale on an exclusive basis in certain defined geographic
regions. The terms of the exclusive arrangements for the Company's "control
brands" vary from customer to customer and are negotiated directly with
retailers, rather than through wine wholesalers. The Company intends to expand
the production and sale of proprietary and control brands case goods in its 1999
fiscal year.
36
<PAGE>
BRANDY
Brandy is produced by processing wine grapes into wine, distilling the wine
into brandy and aging the brandy in oak barrels for a minimum of two years. The
Company is the second largest brandy processor in the United States and has a
long-term brandy production agreement with Heublein to produce brandy for sale
under Heublein's CHRISTIAN BROTHERS label. Under the terms of the Company's
relationship with Heublein, GSV is paid for all aspects of the brandy
distillation process, including the purchase of grapes and barrels for brandy
storage and various processing charges. The Company also produces limited
quantities of brandy for other customers.
INTERNATIONAL
Approximately 12% of the Company's revenues in its 1997 fiscal year were
derived from the sale of wine and wine products internationally. The Company
exports bulk wine and case goods to a number of foreign locations, including
Canada, Europe and Asia. Sales to customers in Asia were approximately 7.8% and
4.3% of the Company's revenues from bulk wine and case goods sales in fiscal
1997 and for the first six months of fiscal 1998, respectively. According to
Fredrikson, in 1997 the Company was the largest exporter of bulk wine from
California. The Company also imports bulk wine from South America and Europe for
its customers in North America. The Company also seeks to strengthen its
position as the leading bulk wine exporter from California and will continue to
market its winemaking and processing services to leading international
winemakers. Management believes that the premium bulk wine processor and
contract service provider models that the Company successfully implemented in
California can be expanded internationally.
WINEMAKING FACILITIES
The Company's five winemaking and processing facilities are strategically
located in Fresno, Monterey, Napa and Tulare counties to provide winemaking and
processing services in or adjacent to most of the primary grape growing and
winemaking centers in California. Based on industry data, in 1997, the Company
was among the five largest California wineries in terms of wine cooperage
capacity.
The table below sets forth the name of each of the Company's facilities and
the approximate tonnage of grapes crushed and processed into wine, the number of
gallons of wine or brandy produced and the related case equivalent, and the
number of gallons of wine or brandy cooperage capacity at each facility. The
information presented below relates to activities at the Company's winemaking
facilities following the 1997 harvest, which will be reflected in the Company's
1998 fiscal year.
PRODUCTION AT THE COMPANY'S WINEMAKING FACILITIES
<TABLE>
<CAPTION>
GALLONS OF
TONS OF GRAPES COOPERAGE
FACILITY NAME CRUSHED IN 1997 CASE EQUIVALENT(1) CAPACITY
- - ------------------------------------------------------------ ---------------- --------------------- -------------
<S> <C> <C> <C>
(IN MILLIONS)
Fresno...................................................... 99,600 7.1 18.3
Cutler...................................................... 40,500 2.9 10.4
Reedley..................................................... 35,400 2.5(2) 17.4
Monterey.................................................... 16,800 1.2 7.7
Napa Valley................................................. 5,500 0.4 1.7
-------- --- -----
Total................................................... 197,800 14.1 55.5
-------- --- -----
-------- --- -----
</TABLE>
- - --------------
(1) It is industry custom to convert one ton of wine grapes into 170 gallons of
wine, and to convert gallons of wine into cases of twelve 750ml bottles at
the rate of 2.3775 gallons per case.
(2) A majority of grapes processed at Reedley were distilled into brandy and
other grape spirits.
37
<PAGE>
FRESNO. The Company's Fresno winery is situated on six acres amidst the
Company's 4,400 acre Fresno vineyard and is located approximately 10 miles
southwest of the City of Fresno. The Fresno winery is an extremely efficient
wine processing facility and serves as the Company's bulk wine processing center
for premium varietal white wines, including Chardonnay, White Zinfandel and
other premium white wines. The Fresno facility contains 75 stainless steel
storage tanks ranging in size from approximately 8,500 gallons to 350,000
gallons.
CUTLER. The Company's Cutler facility is the original and oldest GSV winery
and is located on approximately 120 acres in Tulare County north of the town of
Visalia. In the 1997 fiscal year many of the Company's private label case goods
were processed and produced at Cutler, primarily for varietal bulk red and white
wine customers. The Cutler facility also has bottling lines with a combined
bottling capacity of two million cases and more than 70 stainless steel storage
tanks ranging in size from approximately 2,600 gallons to 350,000 gallons.
REEDLEY. The Company's Reedley facility is located on a 246-acre parcel in
southern Fresno County, northwest of the town of Parlier. The Company uses the
Reedley facility primarily for the production and storage of brandy and the
production of dry and sweet white wines, as well as fortified wines such as
sherry and port. The facility has more than 186 stainless steel storage tanks
ranging in size from approximately 600 gallons to 350,000 gallons.
MONTEREY. The Monterey winery is GSV's most recently acquired winemaking
facility. Located on 21 acres in the town of Soledad, the Monterey facility is
strategically situated near California's growing central coast wine region. The
Company acquired the Monterey facility in the third quarter of fiscal 1997 but
did not commence operations at the winery until the first quarter of fiscal
1998. The Company uses the winery primarily for custom processing of small lots
of popular premium, superpremium and ultrapremium white and red wines for GSV's
wine processing customers. The Company anticipates that, during fiscal 1998, the
facility will crush and process approximately 17,000 tons of grapes. Monterey
contains more than 370 small stainless steel tanks ranging in size from
approximately 500 gallons to 50,000 gallons, which allow for a higher level of
quality control and facilitate the production of a large number of small lots of
high quality premium varietal wine.
NAPA VALLEY WINERY. The Company's Napa Valley winery in St. Helena occupies
approximately 3 acres and is located in the town of St. Helena fronting Highway
29, in the center of the Napa Valley. The Napa Valley winery produces primarily
superpremium and ultrapremium white and red wines for a number of the leading
branded wineries in California. A significant portion of the Company's
proprietary and control label case goods are produced and bottled at the Napa
Valley winery. The facility also has a bottling line with an annual bottling
capacity of up to 1,100,000 cases and has 85 stainless steel storage tanks
ranging in size from approximately 1,160 gallons to 19,500 gallons.
NAPA VALLEY WAREHOUSE. The Company uses the Napa Valley warehouse for wine
fermentation and storage in oak barrels. The Napa Valley warehouse has a
24,000-barrel storage capacity, which was virtually full in 1997.
FACILITY EXPANSION. The Company recently authorized capital expenditures of
up to $20 million primarily to upgrade, maintain and expand its facilities over
the next two years. See "--Strategy".
VINEYARD OPERATIONS
The Company owns more than 9,600 acres of vineyard properties, of which more
than 8,500 acres are permanently planted. The table below sets forth the name of
each of the Company's vineyards and the acres of wine grapes at each vineyard.
38
<PAGE>
THE COMPANY'S VINEYARD PROPERTIES
<TABLE>
<CAPTION>
APPROXIMATE
VINEYARD NAME COUNTY LOCATION ACRES PLANTED
- - ------------------------------------------------------------------- ---------------- ---------------
<S> <C> <C>
Fresno Vineyard.................................................... Fresno 3,713
Gravelly Ford Vineyard............................................. Madera 2,136
Lost Hills Vineyard................................................ Kern 1,410
Cawelo Vineyard.................................................... Kern 661
Mazzie Vineyard.................................................... Kern 619
-----
Total.......................................................... 8,539(1)
-----
-----
</TABLE>
- - --------------
(1) Includes 159 vineyard acres under development.
GRAPE PRODUCTION. The tonnage per acre and the overall yields of premium
varietal grapes from GSV's vineyards have increased in recent years due to,
among other factors, changes in product mix through vine grafting and
replanting. Generally, newly planted or replanted vines do not produce
significant amounts of fruit for three to four years after planting, while vines
grafted with a different variety of grape may bear a viable grape crop within 18
months of grafting. Replanting, however, allows the Company to plant new
varieties of rootstock, including disease-resistant varieties.
The following table shows GSV's net vine production by grape variety from
the 1994 to 1997 harvest years and the total grape tonnage produced by GSV
following each summer grape harvest.
NET PRODUCTION ACRES OWNED BY GSV AND TONS PRODUCED
<TABLE>
<CAPTION>
NET PRODUCTION ACRES
------------------------------------------
GRAPE VARIETY 1994 1995 1996 1997
- - ------------------------------------------------------------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
French Colombard........................................................ 3,162 3,114 3,114 2,965
Zinfandel (1)........................................................... 135 1,211 1,211 1,211
Chardonnay (2).......................................................... 0 875 875 1,124
Ruby Cabernet........................................................... 941 941 941 941
Merlot (1).............................................................. 125 537 687 687
Barbera................................................................. 379 379 379 379
Carnelian............................................................... 344 344 344 344
Chenin Blanc............................................................ 861 418 418 313
Other................................................................... 1,110 371 416 416
--------- --------- --------- ---------
Total Net Production Acres.......................................... 7,057 8,190 8,385 8,380
Total Tons Produced................................................. 68,311 59,183 72,896 88,209
</TABLE>
- - --------------
(1) Grafted in 1995.
(2) Grafted in 1995 and 1996.
Typically, the Company's vineyards yield approximately 8.8 tons per acre.
Due to a bountiful harvest in the summer of 1997, the Company picked a record
harvest of 88,000 tons of grapes, an average of approximately 10.4 tons of
grapes per acre. The Company expects its harvest in the summer of 1998 to return
to lower, more typical levels.
In May 1995, the Company began a major improvement and refurbishment program
and took approximately 2,750 acres, including all of its Lost Hills Vineyard,
temporarily out of production, in order to graft or replant new premium varietal
grape rootstock. This planned decline in grape production resulted in a
significant decline in tonnage produced in 1995 and 1996. The Company's grafted
premium varietal acreage started to mature in the 1997 harvest and the
production of premium varietal grapes increased. Presently, the Company's
vineyards are planted with 35% French Colombard, 14% Zinfandel,
39
<PAGE>
13% Chardonnay, 13% Ruby Cabernet, and 8% Merlot, with the remaining 17% of the
Company's vineyards planted with a number of other grape varieties.
In the Company's 1997 fiscal year, approximately $0.5 million was spent on
vineyard capital improvements, which included primarily Ruby Cabernet vineyard
development costs on approximately 160 acres at the Company's Gravelly Ford
vineyard. In the Company's current fiscal year, approximately $1.7 million will
be spent on the Company's vineyards, primarily on vineyard development costs. In
the future, the Company intends to replant approximately 300 acres each year.
While the Company historically grafted its vineyards to respond to the changing
demands for varietal grapes, the Company believes that replanting is a
preferable alternative, due to an overall increase in long-term yields of
replanted vineyards.
VITICULTURAL PRACTICES. The Company's vineyards and vineyard operations
benefit from above average soil and the availability of an economical and
dependable supply of high quality water. The large, contiguous vineyards are
almost entirely machine harvested, creating significant economies of scale,
especially during periods of larger than normal grape crops, as occurred in the
summer of 1997. Management believes that the Company's farming and harvesting
costs per acre of vineyard are below the average per acre farming cost of a
typical California vineyard.
The Company follows a progressive vineyard management philosophy. Short-term
needs such as pruning, fertilizing, pesticide spraying and harvesting are
competitively contracted to multiple service providers, reducing the Company's
capital equipment and labor costs and expenses. Pest control is managed in an
integrated manner, with the selective application of approved pesticides and the
introduction of beneficial predatory insects to vines.
WATER SUPPLY. The Company's Fresno, Gravelly Ford, Mazzie and Cawelo
Vineyards benefit from deep aquifers that provide a reliable and relatively
inexpensive water source. The Company irrigates these vineyards from wells
located on or near its vineyards. The quality of the water obtained from the
wells is good, and the wells have proven to be a plentiful and reliable source
of water for the Company's operations, even during the drought years of the late
1980s. The Company's Lost Hills Vineyard relies upon area water
district-supplied water, which is allocated among surrounding properties and
uses. The Company believes its sources of water will be available for the
foreseeable future, but various factors such as drought or contamination could
impair the Company's water supply.
AGRICULTURAL HAZARDS. Grape production is subject to many risks common to
agriculture that can materially and adversely affect the quality and quantity of
grapes produced. These hazards include, among other things, adverse weather such
as drought, frost, excessive rain, excessive heat or prolonged periods of cold
weather during the growing season. These weather conditions can materially and
adversely affect the quality and quantity of grapes produced by the Company. In
January 1997, severe flooding in the San Joaquin River Basin destroyed a number
of protective levees, damaging a portion of the Company's Gravelly Ford
vineyards, which damage was not entirely insured.
Vineyards are also susceptible to certain diseases, insects and pests, which
can increase farming expenses, reduce yields or kill vines. In the last ten
years phylloxera, a louse that feeds on the roots of grape vines, has infested
many vineyards in the wine grape producing regions of California and caused
grape yields to decrease. Within a few years of the initial infestation,
phylloxera can leave a vine entirely unproductive. Phylloxera infestation has
been widespread in California, particularly in Napa, Sonoma, Mendocino and
Monterey Counties, and most of the other wine grape producing areas of the state
are affected to some degree. As a result of this widespread problem, thousands
of vineyard acres throughout the State of California have been replanted with
phylloxera-resistant rootstock or, in some cases, taken out of production
completely.
In 1997, GSV discovered a phylloxera infestation in certain acres of the
Company's vineyards. The Company believes that the sandy, porous soil in its
Fresno, Madera and Kern County vineyards, as compared to the clay-like soil in
more northern regions such as Napa and Sonoma Counties, hinders the growth and
spread of phylloxera. Additionally, high soil temperatures and vine vigor in the
Central and
40
<PAGE>
Southern San Joaquin Valley mitigate root damage that can be caused by
phylloxera. Further, the Company has attacked the infestation with improved
irrigation management and soil fertilization. The grape production from the
Company's phylloxera-infested acres in the 1997 harvest did not evidence lower
yields than in other, unaffected acres. Thus, the Company does not believe that
phylloxera will have a material adverse effect on vineyard operations and
production, though there can be no assurances in that regard.
Other pests that may infest vineyards include leafhoppers, thrips,
nematodes, mites, insects, orange tortrix and various grapevine diseases.
Pesticides and the selection of resistant rootstocks reduce losses from these
pests, but do not eliminate the risk of such loss. Gophers, rabbits, deer and
birds can also pose a problem for vineyards, and wine grapevines are also
susceptible to certain virus infections which may cause reduction of yields. The
presence of potentially harmful nematodes in relatively high numbers has been
detected in certain acres of the Company's vineyards. The Company has countered
the infestation with improved irrigation management and soil fertilization. None
of these infestations or infections currently poses a major threat to the
Company's vineyards, although they could do so in the future.
ENVIRONMENTAL MATTERS. The Company's vineyard operations require the
periodic usage of various chemical herbicides, fungicides and pesticides, some
of which contain hazardous or toxic substances. The usage and storage of these
chemicals are, to varying degrees, subject to federal and state regulation.
COMPETITION
The markets in which the Company operates are highly competitive and are
dominated by companies with substantially greater financial, production,
personnel and other resources than the Company. In the area of bulk wine
production and processing, the Company competes primarily with JFJ Bronco and
Delicato Winery, as well as a number of smaller companies. The Company's
proprietary label case goods compete with the products of branded wineries and
with other alcoholic and, to a lesser degree, nonalcoholic beverages in the
retail stores where the Company's case goods products are sold and in the
beverage market place in general.
The Company also experiences competition from its current and potential
customers. There are an estimated 800 commercial wineries that produce and
market California wine, although, according to Fredrickson, seven wineries
account for approximately 76% of California wine sales, based on total volume of
California wine shipments in 1997. Certain major wineries, including many of the
Company's customers, grow a significant amount of the grapes they need to make
wine and produce wine for their own branded labels. The Company's position as a
low-cost high quality supplier of premium bulk wines and wine processing
services provides incentives to its customers to outsource their grape and wine
production needs to GSV.
Numerous wine producers in Europe, South America, South Africa and Australia
also compete with GSV by exporting their wine into the United States. California
grape and wine supply shortages in 1995, especially in red wines, prompted some
domestic national brand marketers to purchase wine from foreign sources. Most
imports are bottled wines; however, some wineries have imported bulk wine in
large tanks for bottling and sale in the United States. According to Fredrikson,
bulk table wine imports into the United States for these purposes increased from
approximately 605,000 gallons in 1995 to approximately 20.3 million gallons in
1997.
The Company does not believe that it faces a significant competitive threat
from new entrants into the wine grape growing and wine production markets due to
the substantial capital investments and lengthy start-up periods involved in the
development of productive vineyards and winemaking facilities and the
establishment of customer relationships. Rather, the expansion of the Company's
current competitors and the entry of the Company's customers into the bulk wine
business pose a more significant long-term competitive concern for the Company.
41
<PAGE>
CUSTOMERS
The Company's customers are among the leading branded wineries in
California, many of whom have developed lasting business relationships with the
Company. The Company provides premium bulk wine pursuant to long-term supply
agreements to wineries such as Sutter Home, Canandaigua, Sebastiani, Heublein
and Vincor and sells wine grapes to Gallo pursuant to long-term grape purchase
contracts. ADM, Boisset and Trader Joe's are among the Company's private label
case goods customers. The Company also provides various wine processing services
for Mondavi, Beringer and The Wine Group, among other wineries, and brandy
distillation and production for Heublein. The Company exports bulk wine
internationally to Vincor International Inc., Calona Wines Limited and Vin &
Sprit AB.
GOVERNMENT REGULATION
The wine industry is subject to extensive regulation by the Federal Bureau
of Alcohol, Tobacco and Firearms, various foreign agencies and state liquor 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 restrictions 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, sales
taxes or international tariffs, could materially adversely affect the financial
results of the Company.
TRADEMARKS
The Company's trademarks include GOLDEN STATE VINTNERS, and the proprietary
labels EDGEWOOD ESTATE, SUMMERFIELD, SUMMERFIELD RESERVE, MONTHAVEN, CUTLER
CREEK, BOUNTY, J. WILE, MUIRFIELD, WESTON and LEBLANC.
EMPLOYEES
The Company has approximately 172 full-time equivalent employees. The
Company believes that its relations with its employees are good. GSV also
periodically employs seasonal and contract labor through independent sources as
needed for vineyard development, pruning, harvesting as well as all wine
processing services and other related tasks, primarily during the late summer
and early fall months.
LEGAL PROCEEDINGS
In June 1998 Treana Winery ("Treana") filed an action in Marin County
Superior Court against Golden State Vintners, a California corporation and
wholly-owned subsidiary of the Company ("Golden State Vintners"), alleging
damages aggregating $2.7 million arising from two breach of contract claims
regarding the preparation of Chardonnay and Cabernet Sauvignon wines by Golden
State Vintners. Golden State Vintners has not yet responded to Treana's
complaint but intends to vigorously defend this action.
Another customer recently disputed the quality of wine products delivered by
the Company, which wine products were subsequently replaced by the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
PROPERTIES
CORPORATE HEADQUARTERS. The Company leases approximately 5,130 square feet
for its executive corporate office in Greenbrae, California under a sublease
expiring in May 2000. The Company believes that its existing executive office
facility will be adequate to meet the Company's needs for the foreseeable future
and that additional space will be available as needed at commercially reasonable
rates.
OTHER PROPERTIES. The Company owns all of the vineyards and winemaking
facilities described above under "Vineyard Operations" and "Winemaking
Facilities".
42
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and key employees of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- - --------------------------------- --- ------------------------------------------------------------------------
<S> <C> <C>
Jeffrey B. O'Neill (2)........... 41 President, Chief Executive Officer and Director
Brian R. Thompson................ 47 Chief Financial Officer and Secretary
Jeffrey J. Brown (1)(2).......... 37 Chairman of the Board of Directors, Assistant Secretary and Director
Nicholas B. Binkley (1).......... 52 Director
Douglas R. Wolter................ 31 Director
Keith R. Fox (2)................. 44 Director
W. Scott Hedrick................. 52 Director
Peter W. Mullin.................. 57 Director
John G. McDonald................. 61 Director
Gregory J. Forrest............... 52 Director
Lawrence E. Brink................ 51 Vice President, Production Operations
Michael B. Drobnick.............. 41 Vice President, Bulk Sales
Jeffrey L. Dye................... 44 Vice President, Case Goods
Peter M. Byck.................... 35 Vice President, Strategy and Business Development
Donald L. Stanley................ 61 General Manager, Reedley and Director of Wine Grape Procurement
Robert Darby..................... 56 Plant Manager, Fresno
</TABLE>
- - --------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
JEFFREY B. O'NEILL has been a director of the Company since April 1995 and
has served as the Company's President and Chief Executive Officer since October
1996. From July to October of 1996, Mr. O'Neill served as Executive Vice
President of the Company. Mr. O'Neill joined the predecessor to the Company in
1981 as a grape buyer and has held a number of executive positions with the
Company's predecessor entities, most recently serving as the President and Chief
Executive Officer of Golden State Vintners since 1986. He currently serves on
the Board of Directors of several leading agricultural concerns, including Fresh
International Corp.
BRIAN R. THOMPSON joined the Company in November 1995 as Chief Financial
Officer and Secretary. From 1988 to November 1995, Mr. Thompson served in a
number of executive positions, including Executive Vice President and Chief
Financial Officer, of Sun World International, Inc., a proprietary produce
company, which filed a petition under Federal bankruptcy laws in October 1994.
JEFFREY J. BROWN has been a director of the Company since April 1995 and
became Chairman of the Board and Assistant Secretary in October 1996. Since June
1993, Mr. Brown has been an executive officer and director of Forrest Binkley &
Brown Venture Co. ("Venture Co."), the general partner of Forrest Binkley &
Brown L.P. ("FBB"), the managing partner of SBIC Partners. Prior to the
formation of FBB in June 1993, Mr. Brown was a Senior Vice President of
BankAmerica Venture Capital, a position he held from April 1992 to May 1993. He
currently serves on the Board of Directors of a number of private companies.
NICHOLAS B. BINKLEY joined the Company's Board of Directors in October 1996.
Since June 1993, Mr. Binkley has been an executive officer and director of
Venture Co. Prior to the formation of FBB, Mr. Binkley was Vice Chairman of the
Board of Directors of BankAmerica Corporation, a position he held from April
1992 through May 1993. He currently serves on the Board of Directors of Vista
Medical Company, a medical device company, as well as a number of private
companies.
DOUGLAS R. WOLTER joined the Company's Board of Directors in October 1996.
He currently is a principal at Forrest Binkley & Brown Advisor Co. ("Advisor
Co."), an affiliate of FBB. Prior to that time, Mr.
43
<PAGE>
Wolter had been a senior analyst at Advisor Co. since August 1994 and prior to
joining Advisor Co., he attended Stanford Business School, graduating with a
Masters in Business Administration in June 1994.
KEITH R. FOX has been a director of the Company since April 1995. Since
February 1994, Mr. Fox has been an executive officer of Exeter Venture Advisors,
Inc., Exeter Equity Advisors, Inc. and Exeter Venture Management Corporation.
Mr. Fox serves on the Boards of Directors of a number of private companies and
is an independent trustee of more than 20 Scudder Kemper mutual funds.
W. SCOTT HEDRICK joined the Company's Board of Directors in April 1998.
Since 1979, Mr. Hedrick has served as a general partner of InterWest Partners, a
venture capital firm that he co-founded. Mr. Hedrick also serves on the Board of
Directors of Il Fornaio (America) Corporation and Office Depot, Inc., as well as
a number of private companies.
PETER W. MULLIN joined the Company's Board of Directors in April 1998. Since
1969, Mr. Mullin has served as Chief Executive Officer and Chairman of the Board
of Directors of Mullin Consulting, Inc., a consulting firm specializing in
executive compensation and benefit issues. Mr. Mullin serves on the Board of
Directors of Avery Dennison Corporation, as well as several private companies
and foundations.
JOHN G. MCDONALD joined the Company's Board of Directors in May 1998.
Professor McDonald is the Industrial Bank of Japan Professor of Finance at the
Graduate School of Business at Stanford University. Professor McDonald has
served on the faculty at Stanford's Graduate School of Business since 1968 and
received an endowed chair in 1978. Professor McDonald was elected to the Board
of Governors of the National Association of Securities Dealers, Inc. (the
"NASD") in 1987 and became Vice Chairman of the NASD in 1989. Professor McDonald
serves on the Board of Directors of Varian Associates, Inc., Scholastic Corp.,
TriNet Corp. Realty Trust Inc. and is an independent trustee of eight mutual
funds managed by The American Funds.
GREGORY J. FORREST joined the Company's Board of Directors in May 1998.
Since June 1993, Mr. Forrest has been an executive officer and director of
Venture Co. Prior to the formation of FBB, Mr. Forrest was Chief Executive
Officer of BankAmerica Venture Capital Corporation, a position he held from
April 1992 to May 1993. Mr. Forrest currently serves on the Board of Directors
of a number of private companies.
LAWRENCE E. BRINK joined GSV in April 1994 as Vice President, Production
Operations. Prior to that time, Mr. Brink served as Executive Vice President,
Winemaking of Joseph E. Seagram & Sons.
MICHAEL B. DROBNICK joined the Company in 1985 and has served as Vice
President, Bulk Sales since January 1996. Prior to joining the Company, Mr.
Drobnick held various sales management positions with different wine
distributors.
JEFFREY L. DYE has served as Vice President, Case Goods of GSV since
November 1992. Prior to joining the Company, Mr. Dye served in various executive
positions for several wineries and wine distributors.
PETER M. BYCK joined GSV in November 1997 as Vice President, Strategy and
Business Development. From 1992 to 1996, Mr. Byck served as Chief Executive
Officer of Applied Scanning Technology, Inc., a proprietary software and
scanning company. From 1990 to 1992, Mr. Byck was a Senior Consultant at the LEK
Partnership.
DONALD L. STANLEY joined the Company in 1989 and is currently the General
Manager at the Company's Reedley facility and Director of Wine Grape
Procurement. Prior to joining the Company, Mr. Stanley served in various
positions at Christian Brothers Winery.
ROBERT DARBY has been with the Company serving in various plant and
operating positions since 1987. Prior to that time, Mr. Darby was the Chief
Winemaker and Plant Manager for the JFJ Bronco Wine Company.
44
<PAGE>
The Board of Directors currently has nine directors. Pursuant to the terms
of the Amended and Restated Stockholders Agreement dated as of October 10, 1996
by and among the Company and the stockholders of the Company (the "Stockholders
Agreement"), the Board currently includes three nominees of SBIC Partners
(Messrs. Brown, Binkley and Wolter), one nominee of Exeter (Mr. Fox), and one
nominee of Mr. O'Neill. The Stockholders Agreement will terminate upon the
consummation of this offering if the offering results in gross proceeds to the
Company of at least $35 million.
Each member of the Board is elected to hold office until the next annual
meeting of stockholders and until his respective successor is elected and
qualified. Officers 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 and a Compensation
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
administers the Company's stock option plan.
The Company's Compensation Committee consists of Messrs. Brown, O'Neill and
Fox. During the Company's last completed fiscal year, Mr. O'Neill was an
executive officer of the Company and of Golden State Vintners and Mr. Brown was
an executive officer of the Company. See "Certain Relationships and Related
Transactions" for information regarding the interests of Messrs. O'Neill, Brown
and Fox in certain transactions and arrangements involving the Company.
No executive officer of the Company serves as a member of the Board of
Directors or Compensation Committee of any other entity which has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
COMPENSATION OF DIRECTORS
The Company currently pays its directors, other than Mr. O'Neill, $12,500
per year, plus full reimbursement for certain out-of-pocket expenses incurred in
connection with attendance at board and committee meetings. In October 1996, an
affiliate of Messrs. Brown, Binkley, Wolter and Forrest entered into a
management agreement with the Company, which calls for the payment of $125,000
to such affiliate for management services rendered to the Company. In April
1998, the Company adopted the Director Plan. Under the Director Plan, in April
1998, options to purchase an aggregate of 59,982 shares of Class B Common Stock
at an exercise price of $12.08 were granted to all of the then-current members
of the Board of Directors, other than Mr. O'Neill. In May 1998, options to
purchase 14,993 shares of Class B Common Stock were granted to Mr. McDonald at
an exercise price of $12.08. See "Certain Relationships and Related
Transactions".
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid to the Company's Chief
Executive Officer and to the Company's most highly compensated 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 and to Golden
State Vintners during the fiscal year ended June 30, 1997 (collectively, the
"Named Officers").
45
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS(1)
------------------
COMPENSATION OPTIONS TO
------------------------ PURCHASE ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMMON STOCK(3) COMPENSATION
- - --------------------------------------------------- ----------- ----------- ------------------ --------------
<S> <C> <C> <C> <C>
Jeffrey B. O'Neill (2) ............................ $ 309,331 $ 802,040 670,434 $ 14,947(4)
President and Chief Executive Officer
Brian R. Thompson ................................. 165,000 40,000 -- --
Chief Financial Officer and Secretary
Lawrence E. Brink ................................. 125,000 20,000 17,400 9,600(5)
Vice President, Production Operations
Jeffrey L. Dye .................................... 75,000 65,000 17,400 --
Vice President, Case Goods
Michael B. Drobnick ............................... 75,000 65,000 17,400 --
Vice President, Bulk Sales
</TABLE>
- - --------------
(1) For the period set forth in the table above, no Named Officer received
aggregate Other Annual Compensation in excess of the lesser of $50,000 or
10% of the total of such officer's salary and bonus, nor did any such Named
Officer receive any restricted stock award, stock appreciation right or
payment under any long-term incentive plan.
(2) This table sets forth all compensation awarded to, earned by or paid to Mr.
O'Neill for services rendered as an officer of the Company and as an officer
of Golden State Vintners during the fiscal year ended June 30,1997, which
compensation was paid by the Company.
(3) These options were granted pursuant to the Company's 1996 Option Plan.
(4) Consists of disability insurance premiums and car expenses paid by the
Company.
(5) Consists of a car allowance paid by the Company.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning stock options granted
to the Named Officers of the Company during fiscal 1997. No stock appreciation
rights were granted to such persons during such period.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(2)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED(#) FISCAL YEAR ($/SH)(1) DATE 5% 10%
- - ------------------------------------- ------------ ------------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey B. O'Neill................... 167,608 20.9 3.62 12/3/06 $ 76,624 $ 481,474
167,609 20.9 4.31 12/3/06 -- 365,884
167,608 20.9 5.17 12/3/06 -- 221,392
167,609 20.9 6.03 12/3/06 -- 76,902
Brian R. Thompson.................... -- -- -- -- -- --
Lawrence E. Brink.................... 17,400 2.0 4.79 1/1/07 -- 29,703
Jeffrey L. Dye....................... 17,400 2.0 4.79 1/1/07 -- 29,703
Michael B. Drobnick.................. 17,400 2.0 4.79 1/1/07 -- 29,703
</TABLE>
- - --------------
(1) The exercise price per share of these options was equal to or greater than
the fair market value of the Common Stock on the date of grant.
(2) The potential realizable value is calculated based on the term of the option
at its time of grant. It is calculated assuming that the stock price on the
date of grant appreciates at the indicated annual rate compounded annually
for the entire term of the option, and that the option is exercised and sold
46
<PAGE>
on the last day of its term for the appreciated stock price. No gain to the
optionee is possible unless the stock price increases over the option term,
which will benefit all stockholders.
AGGREGATED STOCK OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
No options or stock appreciation rights were exercised by the Named Officers
for the fiscal year ended June 30, 1997.
STOCK OPTION PLANS
1996 STOCK PLAN. The Company's 1996 Option Plan became effective in
December 1996 upon adoption by the Board of Directors. The 1996 Option Plan
provides for the grant of options in the form of incentive stock options and
nonstatutory stock options to officers, key employees and consultants of the
Company or its subsidiaries and members of the Board of Directors of the
Company. A total of 223,491 shares of Class B Common Stock and 362,834 shares of
Class A Common Stock have been reserved for issuance under the 1996 Option Plan.
Upon consummation of the offering, the 1996 Option Plan will be administered
by a committee (the "Committee") constituted so as to permit the 1996 Option
Plan to comply with Rule 16b-3 of the Exchange Act. The Board of Directors may
amend the 1996 Option Plan and, with the consent of each participant adversely
affected, the Committee may make such changes in the terms and conditions of
granted options as it shall deem advisable.
The purchase price per share of the shares of Common Stock underlying each
option granted under the 1996 Option Plan will be established by the Committee
but shall not be less than 100% of the fair market value of the Common Stock on
the date of grant, provided that if the optionee is a 10% stockholder of the
Company (as defined in Section 422(b)(6) of the Internal Revenue Code of 1986,
as amended) at the time such optionee is granted an incentive stock option, the
purchase price per share of the shares of Common Stock shall be not less than
110% of said fair market value.
The 1996 Option Plan provides that, in the event of the dissolution,
liquidation or sale of the Company, any merger or reorganization of the Company,
or acquisition by any person or group of beneficial ownership of more than 50%
of the Company's then outstanding shares of capital stock, the 1996 Option Plan
and each outstanding option granted thereunder shall terminate. Upon the
happening of such event, each participant under the 1996 Option Plan who is not
tendered a substitute option by the entity surviving such event or who does not
accept any such substituted option, shall have the right to exercise, in whole
or in part, any vested and exercisable options which have not then expired.
As of June 15, 1998, options to purchase a total of 362,834 shares of Class
A Common Stock and 159,500 shares of Class B Common Stock have been granted
under the 1996 Option Plan. Such options have per share exercise prices ranging
from $3.62 to $12.07, or a weighted average per share exercise price of $5.07.
DIRECTOR PLAN. The Company's Director Plan became effective in April 1998
upon adoption by the Board of Directors and approval by the stockholders. The
Director Plan provides for the grant of options in the form of nonstatutory
stock options to the non-employee members of the Board of Directors of the
Company. A total of 348,000 shares of Class B Common Stock have been reserved
for issuance under the Director Plan.
The purchase price per share of the shares of Common Stock underlying each
option granted under the Director Plan shall be the closing sale price of such
shares on the date of grant if the Common Stock is listed on any established
stock exchange or national market system or the price established by the
committee administering the Director Plan, which shall not be less than 100% of
the fair market value of the Common Stock on the date of grant.
47
<PAGE>
The Director Plan provides that, in the event of the dissolution or
liquidation of the Company, the merger or sale of all or substantially all
assets of the Company requiring shareholder approval, or acquisition by any
person or group of beneficial ownership of the securities of the Company
representing 50% or more of the combined voting power of the Company's then
outstanding shares, any options outstanding under the Director Plan that are not
yet exercisable and vested shall become fully exercisable and vested.
As of June 15, 1998, options to purchase a total of 74,975 shares of Class B
Common Stock have been granted under the Director Plan. Such options have per
share exercise prices of $12.08. None of such options have been exercised.
KEY MAN LIFE INSURANCE
The Company, through Golden State Vintners, currently maintains a life
insurance policy in the amount of $10 million on the life of Mr. O'Neill. The
Company has agreed to assign a $2 million portion of this policy to Mr.
O'Neill's family trust.
EMPLOYMENT AGREEMENT
From April 27, 1995 until December 31, 1997, Mr. O'Neill served as President
and Chief Executive Officer of Golden State Vintners pursuant to the Old
Agreement, which provided him with an annual salary of at least $300,000,
subject to annual increases, and an annual bonus based on a sliding scale of
EBITDA (as defined in the Old Agreement). Effective as of January 1, 1998, the
Company and Mr. O'Neill entered into a new employment agreement (the "New
Employment Agreement"), which provides for Mr. O'Neill to serve as President and
Chief Executive Officer of the Company on the terms and subject to the
conditions set forth therein. Under the New Employment Agreement, Mr. O'Neill
will receive annual compensation of $350,000, a bonus to be paid in the
discretion of the Board and the reimbursement of certain expenses. The New
Employment Agreement also provides for the payment of severance to Mr. O'Neill
equal to two years of his base compensation and for the acceleration of any
unvested options then held by Mr. O'Neill if his employment is terminated for
certain reasons, including any termination of his employment within six months
of a "Change in Control". The New Employment Agreement defines a Change in
Control to include the sale by the Company of all or substantially all of its
capital stock or assets or the consummation of any transaction or series of
related transactions, including any merger, reorganization or recapitalization,
in which any person or group acquires beneficial ownership of more than 50% of
the outstanding capital stock of the Company. The term of the New Employment
Agreement expires June 30, 2001.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law ("Delaware Law"),
the Company can indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act.
The Company's Certificate of Incorporation provides that the Company will
indemnify its directors, officers, employees and other agents to the fullest
extent permitted by law.
Prior to the consummation of the offering, the Company intends to enter into
agreements to indemnify its directors and officers in addition to the
indemnification provided for in the Company's Certificate of Incorporation.
These agreements will, among other things, indemnify the Company's directors and
certain of its officers for certain expenses (including attorneys' fees),
judgments, fines and settlement amounts incurred by such person in any action or
proceeding, including but not limited to any action by or in the right of the
Company, on account of services as a director or officer of the Company, or as a
director or officer of any other company or enterprise to which the person
provides services at the request of the Company. The Company has also purchased
liability insurance covering its directors and officers.
48
<PAGE>
In addition, the Company's Certificate of Incorporation provides that the
Company's directors shall not be liable for monetary damages for breach of such
directors' fiduciary duty of care to the Company and its stockholders except for
liability for breach of the director's duty of loyalty to the Company or its
stockholders, for acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware Law. This
provision in the Certificate of Incorporation does not eliminate the duty of
care, and in appropriate circumstances equitable remedies such as injunctive or
other forms of non-monetary relief will remain available under Delaware Law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal or state securities or environmental laws.
There is no pending litigation or proceeding involving a director, officer,
employee or other agent of the Company as to which indemnification is being
sought, nor is the Company aware of any pending or threatened litigation that
may result in claims for indemnification by any director, officer, employee or
other agent.
49
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INCORPORATION OF THE COMPANY
In connection with the formation and initial capitalization of the Company
in April 1995, the Company issued an aggregate of 1,885,000 shares of its
previously outstanding Class A Common Stock (the "Old Class A Stock") and
3,770,000 shares of its previously outstanding Class B Common Stock (the "Old
Class B Stock"), in each case at $1.72 per share, for an aggregate purchase
price of $9.75 million. Certain of these shares of Old Class B Stock were issued
to the following holders of record of more than five percent of the outstanding
stock of the Company (each, a "5% Stockholder") associated with Jeffrey J.
Brown, an officer and director of the Company, and Gregory J. Forrest, Nicholas
B. Binkley and Douglas R. Wolter, directors of the Company, and to the following
5% Stockholders associated with Keith R. Fox, a director of the Company:
<TABLE>
<CAPTION>
NAME SHARES OF OLD CLASS B STOCK
- - ---------------------------------------------------------------- ----------------------------
<S> <C>
SBIC Partners................................................... 1,885,000
EE Partners..................................................... 1,566,000
EV Lenders...................................................... 319,000
</TABLE>
GOLDEN STATE VINTNERS PURCHASE
Pursuant to a Stock Purchase Agreement dated April 27, 1995 (the "Stock
Purchase Agreement"), the Company purchased all of the outstanding capital stock
of Golden State Vintners (the "Golden State Vintners Purchase") from certain
shareholders of Golden State Vintners. Pursuant to the terms of the Stock
Purchase Agreement, the Company paid the purchase price for the Golden State
Vintners Purchase by delivering $20.9 million in cash and 523,980 shares of 6%
Junior Exchangeable Preferred Stock of the Company in the aggregate face amount
of $2.6 million. Certain of the shares of Golden State Vintners were sold to the
Company by Mr. O'Neill and an affiliated entity.
The execution of the Stock Purchase Agreement occurred substantially
contemporaneously with the closing of the refinancing of Golden State Vintners'
then-existing indebtedness. Pursuant to a Securities Purchase Agreement dated
April 21, 1995 (the "Hancock SPA"), the John Hancock Mutual Life Insurance
Company ("John Hancock") purchased for an aggregate consideration of $45 million
(1) senior secured first mortgage notes of Golden State Vintners with an
aggregate principal face amount of $35.0 million and (2) 100,000 shares of the
Company's 12% Senior Redeemable Exchangeable Preferred Stock ("Senior Preferred
Stock") and 1,200,829 shares of the Company's previously outstanding Class E
Common Stock for an aggregate consideration of $10.0 million. The Company
guaranteed the obligations of Golden State Vintners to John Hancock under the
Hancock SPA.
GRAPE GROUP TRANSACTION
In May 1995, the Company acquired the Lost Hills Vineyard, 1,750 acres of
wine grape vineyards located in Kern County, from the Grape Group, Inc. (the
"Grape Group") for a purchase price of approximately $4.6 million, payable via
the assumption of approximately $2.9 million of debt and the delivery of a
non-interest bearing promissory note in the principal amount of $1.7 million.
Mr. O'Neill owned 100% of the Grape Group at the time of the transaction. The
Company believes that the purchase of the Lost Hills Vineyard from the Grape
Group was negotiated at arms' length and that the Company paid a price equal to
the fair market value of such property.
SE VINEYARDS
The Company historically purchased grapes from SE Vineyards, a 300 acre
vineyard located in Kern County. Each of Messrs. Mullin and O'Neill owned 33.33%
of SE Vineyards until October 1996. For the Company's 1995, 1996 and 1997 fiscal
years, the Company purchased approximately $275,000, $400,000 and $1.4 million
of such grapes, respectively. The Company believes such grape purchases were at
competitive market prices negotiated at arms' length.
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<PAGE>
GSAC RECAPITALIZATION
In October 1996, the Company entered into a series of transactions to effect
the recapitalization of its capital structure (the "Recapitalization"). Pursuant
to a Securities Purchase Agreement dated as of August 22, 1996, the Company
acquired from certain stockholders 1,885,000 shares of Old Class A Stock and
985,156 shares of Old Class B Stock, at a price of $2.50 per share, for an
aggregate purchase price of approximately $7.2 million. Of the entities selling
stock to the Company, the following 5% Stockholders are associated with Mr. Fox:
<TABLE>
<CAPTION>
NAME SHARES OF OLD CLASS B STOCK SOLD
- - ----------------------------------------------------------- ---------------------------------
<S> <C>
EE Partners................................................ 818,438
EV Lenders................................................. 166,718
</TABLE>
As part of the Recapitalization, the Company redeemed 1,003,038 shares of
Junior Preferred Stock for an aggregate purchase price of approximately $1.7
million. Certain of these shares were held by Mr. O'Neill and by the following
entity associated with Mr. O'Neill and with a member of Mr. O'Neill's immediate
family:
<TABLE>
<CAPTION>
NAME SHARES OF JUNIOR PREFERRED STOCK SOLD
- - ------------------------------------------------------- -------------------------------------
<S> <C>
Jeffrey B. O'Neill..................................... 42,793
Mid-State Horticultural Company........................ 70,892
</TABLE>
Pursuant to a Stock Purchase Agreement dated October 10, 1996, the Company
sold an aggregate of 2,776,170 shares of Old Class B Stock at $2.50 per share,
for an aggregate purchase price of approximately $6.9 million. These shares were
sold to Mr. O'Neill and to the following 5% Stockholder associated with Messrs.
Forrest, Brown, Binkley and Wolter:
<TABLE>
<CAPTION>
NAME SHARES OF OLD CLASS B STOCK
- - ---------------------------------------------------------------- ----------------------------
<S> <C>
Jeffrey B. O'Neill.............................................. 599,172
SBIC Partners................................................... 2,176,998
</TABLE>
OTHER TRANSACTIONS WITH EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS
As compensation for certain investment banking services provided with
respect to the Recapitalization and certain related credit matters, the Company
paid approximately $400,000 in fees to Exeter Venture Management Corporation
("EV Management"), which is an affiliate of a 5% Stockholder and associated with
Mr. Fox. The Company paid EV Management $375,000 in fees in February 1997 as
consideration for certain investment banking services.
In October 1996, the Company agreed to pay an annual fee of $125,000 to
Forrest Binkley & Brown Partners L.P., an affiliate of SBIC Partners, a 5%
Stockholder, and of Messrs. Forrest, Brown, Binkley and Wolter, as compensation
for management services to be provided with respect to the Company's operations.
In December 1996, the Compensation Committee of the Board of Directors
granted to Mr. O'Neill options to purchase an aggregate of 670,434 shares of Old
Class B Stock. The options are exercisable for up to 167,608 shares at a price
of $3.62 per share up to an additional 167,609 shares at a price of $4.31 per
share, up to an additional 167,608 shares at a price of $5.17 per share, and up
to an additional 167,609 shares at a price of $6.03 per share. The options vest
in four equal annual installments commencing October 10, 1997.
In connection with the Golden State Vintners Acquisition, the Board of
Directors granted to Mr. O'Neill stock appreciation rights with respect to
145,000 shares of Old Class B Stock at a base price of $.003 per stock
appreciation right and 504,348 shares of Old Class B Stock, at a base price of
$1.72 per stock appreciation right. In November 1995, the Board of Directors
granted Mr. Thompson stock
51
<PAGE>
appreciation rights with respect to 145,000 shares of Old Class B Stock at a
base price of $2.59 per stock appreciation right. Effective as of December 31,
1997, the Company and Messrs. O'Neill and Thompson agreed to terminate such
stock appreciation rights in exchange for certain compensation and the grant of
non-qualified stock options. Pursuant to such agreement, Messrs. O'Neill and
Thompson were entitled to receive $6.97 million and $1.38 million, respectively.
In connection with the issuance of the Replacement Incentives, Messrs. O'Neill
and Thompson received their respective portions of the Executive Cash Payments,
as well as their respective Executive Promissory Notes. Messrs. O'Neill and
Thompson also received options to purchase 649,348 and 145,000 shares of Class B
Common Stock, respectively. The stock options were fully-vested on the date of
grant and are exercisable at $12.07 per share of Common Stock. Further, in
connection with the issuance of the Replacement Incentives, (1) the Company
accelerated the vesting of 139,992 options to purchase shares of Class A Common
Stock held by Mr. O'Neill, (2) Mr. O'Neill used his Executive Cash Payment to
immediately exercise options with respect to an aggregate of 307,600 shares of
Class A Common Stock and to pay certain income tax amounts arising from such
exercises and (3) Mr. Thompson used his Executive Cash Payment to exercise
options with respect 29,619 shares of Class B Common Stock.
In April 1998, SBIC Partners and Exeter agreed to certain co-sale rights and
rights of first refusal and Mr. O'Neill agreed not to seek to participate in the
next registered sale of Class B Common Stock by SBIC Partners and Exeter, if
any.
The Company's directors, other than Messrs. O'Neill and Forrest, have been
granted nonqualified stock optons under the Director Plan. See
"Management--Stock Option Plans--Director Plan".
Prior to the consummation of the offering, the Company anticipates filing
its Second Amended and Restated Certificate of Incorporation which, among other
things, will result in the conversion of all outstanding shares of Old Class B
Stock into shares of Class A Common Stock and the conversion of all outstanding
shares of Class K Common Stock and Class E Common Stock into shares of the
Company's newly-created Class B Common Stock.
The following table sets forth, with respect to each holder of common stock
of the Company who is an officer, director or 5% Stockholder, the aggregate
price paid by such holder for the shares of Common Stock of the Company
currently held by such holder, and the aggregate value of such Common Stock
(based upon an assumed initial public offering price of $17.50 per share for the
Common Stock):
<TABLE>
<CAPTION>
AGGREGATE
CONSIDERATION AGGREGATE VALUE OF
NAME OF HOLDER PAID FOR STOCK COMMON STOCK
- - --------------------------------------------------------- -------------- -------------------
<S> <C> <C>
SBIC Partners............................................ $ 8,700,728 $ 71,084,996
EE Partners.............................................. 1,288,900 13,082,335
EV Lenders............................................... 262,555 2,664,935
John Hancock............................................. 2,070,395 21,014,507
Jeffrey B. O'Neill....................................... 1,499,996 13,839,630
</TABLE>
Prior to the consummation of the offering, the Company will enter into
indemnification agreements with each of its directors and executive officers.
The agreements will require the Company to indemnify such individuals for
certain liability to which they may be subject as a result of their affiliation
with the Company, to the fullest extent permitted by Delaware Law.
Additionally, in April 1998, in connection with its participation in the
offering, John Hancock agreed to waive all prepayment penalties due with respect
to the Company's repurchase of the shares of Senior Preferred Stock held by John
Hancock.
The Company believes that the foregoing transactions were in its best
interests and on terms no less favorable to the Company than could be obtained
from unaffiliated third parties.
52
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Class A and Class B Common Stock as of June 15, 1998,
and as adjusted to reflect the sale by the Company and the Selling Stockholders
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
Named Officers and (4) all directors and Named Officers of the Company, as a
group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING CLASS B OWNED AFTER OFFERING
------------------------------------- SHARES ------------------------------------
NUMBER OF NUMBER OF PERCENT OF OFFERED IN NUMBER OF NUMBER OF PERCENT OF
CLASS A CLASS B TOTAL VOTING THE CLASS A CLASS B TOTAL VOTING
BENEFICIAL OWNERS SHARES SHARES POWER(1) OFFERING SHARES SHARES POWER(1)
- - ---------------------------------- ---------- ---------- ------------- ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
SBIC Partners, L.P. ............. 4,061,998 -- 67.5% 1,435,600 2,626,398 -- 56.5%
201 Main Street, Suite 2302
Fort Worth, TX 76102
Jeffrey B. O'Neill(2) ........... 906,772 673,733 16.2% -- 906,772 673,733 20.9%
500 Drake's Landing Road
Greenbrae, CA 94904
John Hancock Mutual Life
Insurance Company .............. -- 1,200,829 2.0% 396,274 -- 804,555 1.7%
John Hancock Place
200 Clarendon Street
Boston, MA 02117
Exeter (3) ....................... 899,844 -- 15.0% 318,126 581,718 -- 12.5%
10 East 53rd Street
New York, NY 10022
Jeffrey J. Brown (4) ............. 4,061,998 -- 67.5% -- 2,626,388 -- 56.5%
Nicholas B. Binkley (4) .......... 4,061,998 -- 67.5% -- 2,626,388 -- 56.5%
Douglas R. Wolter (4) ............ 4,061,998 -- 67.5% -- 2,626,388 -- 56.5%
Keith R. Fox (3) ................. 899,844 -- 15.0% -- 581,718 -- 12.5%
W. Scott Hedrick ................. -- -- -- -- -- -- --
Peter W. Mullin .................. -- 19,972 * -- -- 19,972 *
John G. McDonald ................. -- -- -- -- -- -- --
Gregory J. Forrest (4) ........... 4,061,998 -- 67.5% -- 2,626,388 -- 56.5%
Brian R. Thompson (5) ............ -- 145,000 * -- -- 145,000 *
Lawrence E. Brink (6) ............ -- 4,350 * -- -- 4,350 *
Jeffrey L. Dye (6) ............... -- 4,350 * -- -- 4,350 *
Michael B. Drobnick (6) .......... -- 4,350 * -- -- 4,350 *
All Directors and Named Officers
as a group (13 persons) (7) . 5,868,614 851,755 99.0% 2,150,000 4,114,888 851,755 90.3%
</TABLE>
- - --------------
* Represents beneficial ownership of less than 1% of the outstanding voting
power of all shares of Common Stock.
(1) Percent ownership is based on (i) before the offering, 7,329,273 shares of
Common Stock outstanding plus any shares issuable pursuant to options held
by the person in question which may be exercised within 60 days after April
30, 1998; and (ii) after the offering, an additional 2,150,000 shares of
Class B Common Stock issued by the Company in the offering. In calculating
the percent of total voting power, the voting power of shares of Class A
Common Stock (ten votes per share) and Class B Common Stock (one vote per
share) have been aggregated.
(2) Includes 906,772 shares of Class A Common Stock owned by Mr. O'Neill,
649,348 shares of Class B Common Stock issuable under presently exercisable
stock options and 24,385 shares of Class B Common Stock issuable on
conversion of shares of the Company's Junior Preferred Stock held by Mr.
O'Neill.
53
<PAGE>
(3) Represents 747,562 and 152,282 shares of Class A Common Stock held by EE
Partners and EV Lenders, respectively. Keith R. Fox, a director of the
Company, is an executive officer of Exeter Equity Advisors, Inc., which is
the general partner of Exeter Equity Advisors, L.P., the general partner of
EE Partners. Mr. Fox is also an executive officer of Exeter Venture
Advisors, Inc., which is the general partner of EV Lenders, and an executive
officer of Exeter Venture Management Corporation, which is an affiliate of
EV Partners and EV Lenders. Mr. Fox disclaims beneficial ownership of the
shares held by EV Partners and EV Lenders, except to the extent of his
pecuniary interest therein.
(4) Represents 4,061,998 shares of Class A Common Stock held by SBIC Partners.
Gregory J. Forrest and Nicholas B. Binkley, each a director of the Company,
and Jeffrey J. Brown, an officer and director of the Company, are each
executive officers, directors and shareholders of Venture Co. Messrs.
Forrest, Binkley and Brown collectively hold all of the outstanding limited
partnership interests in FBB. Mr. Wolter is a principal of Advisor Co., an
affiliate of SBIC Partners, FBB and Venture Co. Each of Messrs. Forrest,
Binkley, Brown and Wolter disclaims beneficial ownership of the shares held
by SBIC Partners, except to the extent of his pecuniary interest therein, if
any.
(5) Includes 29,619 shares of Class B Common Stock held by Mr. Thompson and
115,381 shares of Class B Common Stock issuable under presently exercisable
stock options.
(6) Includes 4,350 shares of Class B Common Stock issuable upon the exercise of
stock options exercisable within sixty days of June 15, 1998.
(7) Includes shares held by SBIC Partners and Exeter, and 961,956 shares of
Class B Common Stock issuable under stock options exercisable within 60 days
of June 15, 1998.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have outstanding 4,114,888
shares of Class A Common Stock and 5,364,385 shares of Class B Common Stock (or
and shares, respectively, if the Underwriters' over-allotment option
is exercised in full), assuming no exercise of outstanding options under the
Company's option plans or other stock option agreements.
The shares of Class B Common Stock sold in the offering will be freely
tradeable without restriction or limitation under the Securities Act, except for
any such shares held by "affiliates" of the Company, as such term is defined
under Rule 144 of the Securities Act, which shares will be subject to the resale
limitations under Rule 144. The remaining shares of Common Stock are "restricted
securities" within the meaning of Rule 144 and were issued and sold by the
Company in private transactions and may be publicly sold only if registered
under the Securities Act or sold in accordance with an applicable exemption from
registration, such as Rule 144.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned "restricted securities"
for at least one year, including an affiliate of the Company, would be entitled
to sell, within any three-month period, that number of shares that does not
exceed the greater of 1% of the then outstanding shares of Class B Common Stock
(approximately 53,643 shares) and the average weekly trading volume in the Class
B Common Stock during the four calendar weeks immediately preceding the date on
which the notice of sale is filed with the Commission, provided certain manner
of sale and notice requirements and requirements as to the availability of
current public information about the Company are satisfied. Under Rule 144(k), a
holder of "restricted securities" who is not deemed an affiliate of the issuer
and who has beneficially owned shares for at least two years would be entitled
to sell shares under Rule 144(k) without regard to the limitations described
above. As defined in Rule 144, an "affiliate" of an issuer is a person who
directly or indirectly through the use of one or more intermediaries controls,
or is controlled by, or is under common control with, such issuer. Substantially
all of the shares of Class A Common Stock are eligible for sale under Rule 144,
subject to lock-up arrangements with the Underwriters described below.
The Company, the Selling Stockholders, the Company's executive officers and
directors and certain other stockholders of the Company have agreed that, during
the period beginning from the date of this
54
<PAGE>
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 securities of the Company (other than pursuant to employee stock
option plans existing, or on the conversion or exchange of convertible or
exchangeable securities outstanding, on the date of this Prospectus) that are
substantially similar to the shares of Class B Common Stock or which are
convertible or exchangeable into securities which are substantially similar to
the shares of Class B Common Stock, without the prior written consent of the
Representatives of the Underwriters, except for the shares of Class B Common
Stock offered hereby and certain gift transactions.
The Company intends to file a registration statement under the Securities
Act following the date of this Prospectus to register the future issuance of up
to approximately 1.7 million shares of Class B Common Stock under the option
plans and options issued to employees, directors or consultants outside of the
option plans. Shares issued pursuant to such options after the effective date of
such registration statement will be freely tradable in the open market, subject
to the lock-up agreements with the Representatives described above and, in the
case of sales by affiliates, to certain requirements of Rule 144.
The Company is unable to estimate the number of shares that may be sold in
the future by its existing stockholders or the effect, if any, that sales of
shares by such stockholders will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Class B Common
Stock, or the prospect of such sales, could adversely affect the market price of
the Class B Common Stock.
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Upon consummation of this offering, the authorized capital stock of the
Company will consist of 6,000,000 shares of Class A Common Stock, par value $.01
per share, 54,000,000 shares of Class B Common Stock, par value $.01 per share,
and 5,000,000 shares of undesignated Preferred Stock, par value $.01 per share
(the "Preferred Stock"). Of the 54,000,000 shares of Class B Common Stock
authorized, 6,000,000 shares have been reserved for issuance upon conversion of
outstanding Class A Common Stock.
The following summary description of the capital stock of the Company does
not purport to be complete and is qualified in its entirety by reference to the
Company's Second Amended and Restated Certificate of Incorporation to be filed
prior to the consummation of the offering, the Certificate of Designations of
12% Senior Redeemable Exchangeable Preferred Stock (the "Senior Preferred
Certificate of Designations"), and the Certificate of Powers, Designations,
Preferences and Relative, Participating, Optional and Other Special Rights of
Junior Exchangeable Preferred Stock and Qualifications, Limitations and
Restrictions Thereof (the "Junior Preferred Certificate of Designations"),
copies of which are filed as exhibits to the Registration Statement of which
this Prospectus is a part.
COMMON STOCK
Upon completion of the offering, the Company will have outstanding 4,114,888
shares of Class A Common Stock and 5,364,385 shares of Class B Common Stock (or
and shares, respectively, if the Underwriters' over-allotment option
is exercised in full), assuming no exercise of outstanding options under the
Company's option plans or other stock option agreements.
Each share of Class A Common Stock is entitled to ten 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 cast or entitled to
be cast by all shares of Class A Common Stock and Class B Common Stock, voting
55
<PAGE>
together as a single class. Class A Common Stock is convertible at any time into
Class B Common Stock on a one-for-one basis. 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 Common Stock. There are no redemption or sinking fund provisions
applicable to the shares of Common Stock. All outstanding shares of Common Stock
are, and the Class B Common Stock to be outstanding upon completion of this
Offering will be, fully paid and nonassessable.
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, shares of Class A Common Stock will automatically convert into
Class B Common Stock, on a one-for-one basis, (a) upon the transfer of record or
beneficial ownership of such shares of Class A Common Stock to an entity or
person other than (i) Jeffrey B. O'Neill, SBIC Partners or Exeter (the "Original
Holders"), or (ii) an affiliate, beneficiary, family member or trust related to
the Original Holders, or (b) immediately following the date that the Original
Holders directly own an aggregate of less than 15% of the outstanding equity
interest of GSV.
PREFERRED STOCK
SENIOR PREFERRED STOCK
Following the consummation of this offering, pursuant to discussions between
the Company and the holder of the Senior Preferred Stock, the Company intends to
use a portion of the proceeds generated from the offering to repurchase all
outstanding shares of the Senior Preferred Stock. See Note 8 of Notes to
Consolidated Financial Statements for a description of the Senior Preferred
Stock.
JUNIOR PREFERRED STOCK
The Company anticipates that prior to the offering, it will redeem all
outstanding shares of its Junior Preferred Stock or that all holders of Junior
Preferred Stock will convert their shares of such stock into shares of the
Company's Class B Common Stock. See Note 8 of Notes to Consolidated Financial
Statements for a description of the Junior Preferred Stock.
UNDESIGNATED PREFERRED STOCK
The Company's Second Amended and Restated Certificate of Incorporation
authorizes 5,000,000 shares of undesignated Preferred Stock. 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 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.
56
<PAGE>
STOCKHOLDERS AGREEMENT
Pursuant to the terms of the Stockholders Agreement by and among the Company
and several stockholders (each, a "Stockholder"), SBIC Partners is entitled to
nominate three members of the Company's Board of Directors, and each of (i) Mr.
O'Neill and (ii) Exeter is entitled to nominate one member of the Company's
Board of Directors. Under certain circumstances more fully described in the
Senior Preferred Certificate of Designations, John Hancock is entitled to
nominate up to three members of the Company's Board of Directors, in which case
the size of the Board of Directors will be increased to provide for such
additional members. All committees of the Board of Directors and each board of
directors of each of the Company's subsidiaries must contain at least a majority
of members designated by SBIC Partners. The prior written consent of SBIC
Partners, which consent shall be subject to the sole discretion of SBIC
Partners, is required with respect to the following actions by the Company or
any of its subsidiaries:(i) any merger, consolidation, sale of assets or stock,
dissolution or liquidation; (ii) any amendment to the Certificate of
Incorporation or Bylaws; (iii) the acquisition or investment in any business
entity; (iv) any material change in the business presently conducted by the
Company or any subsidiary; (v) any loan, guaranty or material increase in
indebtedness; and (vi) certain transactions with Affiliates (as defined in the
Stockholders Agreement). The rights of each of SBIC Partners, Mr. O'Neill,
Exeter and John Hancock with respect to elections to the Board of Directors and
SBIC Partners' approval rights with respect to certain transactions terminate
with respect to a Stockholder once such Stockholder and its permitted
transferees hold in the aggregate less than 10% of the shares of Common Stock or
Junior Preferred Stock, as the case may be, initially held by such Stockholder
on October 10, 1996.
Subject to certain exceptions, if the Company authorizes the issuance or
sale of any equity securities of the Company or any securities containing
options or rights to acquire any equity securities of the Company, the Company
must first offer to sell to each Stockholder, at the same price and on the same
terms, a certain amount of such securities, options or rights corresponding to
each Stockholder's ownership of Class A Common Stock and Junior Preferred Stock.
The Stockholders Agreement also contains certain restrictions on the
Stockholders' ability to transfer their shares of Common Stock and Junior
Preferred Stock, as well as a provision pursuant to which SBIC Partners may
require the Stockholders and their Affiliates to sell all of the shares of
Common Stock and/or Junior Preferred Stock owned by them to any person or entity
to whom SBIC Partners proposes to transfer all of the Common Stock held by it.
The Stockholders Agreement provides that at the request of SBIC Partners,
the Company will solicit interests in and initiate discussions with potential
purchasers of the assets or capital stock of the Company and/or Golden State
Vintners or reorganize, recapitalize or refinance the senior or subordinated
debt or the equity of the Company in a manner reasonably acceptable to SBIC
Partners. In connection with such an event, the Stockholders agree to take all
necessary actions requested by SBIC Partners subject to certain conditions.
The Stockholders Agreement will terminate upon the consummation of this
offering if the offering results in gross proceeds to the Company of at least
$35 million.
REGISTRATION RIGHTS
In connection with the Company's incorporation in April 1995, the holders of
2,784,844 shares of Class A Common Stock and the holder of 1,200,829 shares of
Class B Common Stock received certain rights with respect to the registration
under the Securities Act of shares of GSV's capital stock (the "April
Registrable Securities"). If the Company proposes to register any of its
securities under the Securities Act, holders of April Registrable Securities 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
any underwriters involved in the registration have the right to limit the number
of April Registrable Securities included in such registration. In addition,
commencing April 27, 2000, subject to certain conditions and
57
<PAGE>
limitations, the holders of at least 15% of the April Registrable Securities
have the right on six occasions to require the Company to file a registration
statement under the Securities Act to register all or part of their April
Registrable Securities.
Pursuant to a Registration Rights Agreement dated October 10, 1996, the
holders of approximately 2,776,170 shares of Class A Common Stock and 99,862
shares of Class B Common Stock are entitled to certain rights with respect to
the registration under the Securities Act of shares of GSV's capital stock (the
"October Registrable Securities"). If the Company proposes to register any
October Registrable Securities (or securities convertible into or exchangeable
or exercisable for shares of such series and class) under the Securities Act,
either for its own account or for the account of other security holders, holders
of the October Registrable Securities are entitled to notice of such
registration and are entitled to include, at the Company's expense, such shares
therein. Such "piggyback rights" take priority over any similar rights held by
any other stockholder of the Company, including those stockholders holding April
Registrable Securities, provided among other conditions, that the underwriters
have the right to limit the number of October Registrable Securities included in
such registration to 25% of the aggregate number of shares registered thereby.
Additionally, commencing 180 days after the closing of this Offering, and
subject to certain conditions and limitations, holders of the October
Registrable Securities have the right to require on two occasions the Company to
file a registration statement under the Securities Act to register at least 15%
of the October Registrable Securities. Further, the holders of October
Registrable Securities may require the Company to register all or any portion of
such shares on Form S-3, when such form becomes available to the Company,
subject to certain conditions and limitations. SBIC Partners may, at any time,
require the Company to engage a reputable, nationally-recognized underwriter
reasonably acceptable to the Board of Directors to register shares of the
Company's Common Stock under the Securities Act and to include in such
registration that number of shares of Common Stock that equal up to 20% of the
aggregate number of shares of the capital stock of the Company held by SBIC
Partners and its affiliates.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware Law,
an anti-takeover law. In general, the statue 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
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).
TRANSFER AGENT AND REGISTRAR
The Company is in the process of engaging U.S. Stock Transfer Corporation as
the transfer agent and registrar for the Class B Common Stock.
LISTING
Application has been made for the quotation of the Class B Common Stock on
the Nasdaq National Market under the symbol "VINT". The Company has not applied
to list its shares of Class B Common Stock on any other exchange or quotation
system.
58
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the Class B Common Stock offered
hereby will be passed upon for the Company by Riordan & McKinzie, a Professional
Corporation, Los Angeles, California. Certain principals of Riordan & McKinzie
own an aggregate of 59,917 shares of Class B Common Stock. The validity of the
Class B Common Stock offered hereby will be passed upon for the Underwriters by
Sullivan & Cromwell, Los Angeles, California.
EXPERTS
The financial statements of Golden State Vintners, Inc. as of June 30, 1996
and 1997 and March 31, 1998 and for the period April 27, 1995 to June 30, 1995,
for the years ended June 30, 1996 and 1997 and for the nine months ended March
31, 1998 and the financial statements of Golden State Vintners ("Predecessor")
for the period July 1, 1994 to April 26, 1995 included in this prospectus and
the related financial statement schedule included elsewhere in the registration
statement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein and elsewhere in the registration
statement, and have been so included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
The statements in this Prospectus on page three in the second sentence of
the fourth paragraph, on page four in the third and fourth sentences of the
first paragraph, on page thirty-one in the third and fourth sentences of the
fifth paragraph, on page thirty-four in the first and second sentences of the
first paragraph, the second and third sentences of the second paragraph and the
second sentence of the third paragraph, on page thirty-eight in the fourth
sentence of the second paragraph, and on page forty-two in the second sentence
of the fourth paragraph and the fourth sentence of the fifth paragraph have been
reviewed and approved by Gomberg, Fredrikson & Associates, a wine industry
consulting firm.
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.
The Company intends to furnish to its stockholders annual reports containing
audited financial statements and quarterly reports containing unaudited interim
financial information for the first three fiscal quarters of each fiscal year of
the Company.
59
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets as of June 30, 1996 and 1997 and March 31, 1998........... F-3
Consolidated Statements of Operations for the Period July 1, 1994 to April 26, 1995
(Predecessor), for the Period April 27, 1995 to June 30, 1995, for the Years Ended
June 30, 1996 and 1997, and for the Nine Months Ended March 31, 1997 (Unaudited) and
1998................................................................................ F-4
Consolidated Statements of Stockholders' Equity for the Period July 1, 1994 to April
26, 1995 (Predecessor), for the Period April 27, 1995 to June 30, 1995, for the
Years Ended June 30, 1996 and 1997, and for the Nine Months Ended March 31, 1998.... F-5
Consolidated Statements of Cash Flows for the Period July 1, 1994 to April 26, 1995
(Predecessor), for the Period April 27, 1995 to June 30, 1995, for the Years Ended
June 30, 1996 and 1997, and for the Nine Months Ended March 31, 1997 (Unaudited) and
1998................................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
The accompanying consolidated financial statements have been adjusted to give
retroactive effect to the split of the Company's common stock which will result
in each share of common stock being split into 2.9 shares of common stock as
described in Note 15 to the consolidated financial statements. Such stock split
is expected to be completed prior to the effective date of the public offering.
The following report is in the form that will be furnished by Deloitte & Touche
LLP upon the effectiveness of such stock split assuming that from June 17, 1998
to the effective date of such stock split, no other events shall have occurred
that would materially affect the accompanying consolidated financial statements
or notes thereto.
"INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
of Golden State Vintners, Inc.
We have audited the accompanying consolidated balance sheets of Golden State
Vintners, Inc. and subsidiaries (the "Company") as of June 30, 1996 and 1997 and
March 31, 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for the period from April 27, 1995 to June
30, 1995, for the years ended June 30, 1996 and 1997 and for the nine-month
period ended March 31, 1998. We also audited the consolidated statements of
operations, stockholders' equity and cash flows of Golden State Vintners
("Predecessor") for the period from July 1, 1994 to April 26, 1995. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at June 30, 1996
and 1997 and March 31, 1998, and the results of its operations and its cash
flows for the period from April 27, 1995 to June 30, 1995, for the years ended
June 30, 1996 and 1997 and for the nine-month period ended March 31, 1998, in
conformity with generally accepted accounting principles. Further, in our
opinion, the Golden State Vintners financial statements present fairly, in all
material respects, the results of its operations and its cash flows for the
period from July 1, 1994 to April 26, 1995 in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for certain inventories in 1996 and in 1997.
Fresno, California
June 17, 1998
(June , 1998 as to Note 15)"
DELOITTE & TOUCHE LLP
Fresno, California
June 17, 1998
F-2
<PAGE>
GOLDEN STATE VINTNERS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
----------------------------- --------------
1996 1997 1998
------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents.......................................... $ 1,212,161 $ 1,218,525 $ 3,425,138
Trade receivables............................................. 7,486,944 5,640,252 10,086,418
Inventories................................................... 18,318,978 23,424,008 31,155,832
Refundable income taxes....................................... -- -- 3,709,491
Deferred income taxes......................................... 151,744 219,154 846,091
Refundable deposits and prepaid expenses...................... 1,380,410 869,996 658,350
------------- -------------- --------------
Total current assets........................................ 28,550,237 31,371,935 49,881,320
PROPERTY, PLANT AND EQUIPMENT -- Net.............................. 61,280,738 70,193,214 74,326,787
DEFERRED FINANCING COSTS.......................................... 603,758 546,186 431,809
------------- -------------- --------------
TOTAL ASSETS...................................................... $ 90,434,733 $ 102,111,335 $ 124,639,916
------------- -------------- --------------
------------- -------------- --------------
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank line of credit............................................. $ 9,000,000 $ 12,800,000 $ 18,300,000
Accounts payable................................................ 5,566,840 2,526,870 3,729,756
Payable to growers.............................................. 936,107 1,063,049 1,196,764
Payroll and related liabilities................................. 758,280 1,391,004 11,467,829
Other accrued liabilities....................................... 284,638 282,869 2,629,275
Income taxes payable............................................ -- 547,612 --
Current portion of long-term debt............................... 2,036,976 2,773,984 3,396,085
Accrued interest................................................ 632,648 600,486 916,324
------------- -------------- --------------
Total current liabilities..................................... 19,215,489 21,985,874 41,636,033
LONG-TERM DEBT.................................................... 42,973,404 49,780,591 48,022,914
DEFERRED INCOME TAXES............................................. 6,891,009 6,968,737 9,390,126
DEFERRED COMPENSATION............................................. 650,606 1,989,112 --
REDEEMABLE PREFERRED STOCK........................................ 10,033,987 8,813,415 8,914,630
COMMITMENTS AND CONTINGENCIES (Notes 11 and 12)...................
STOCKHOLDERS' EQUITY:.............................................
Common stock:
Class A common stock; 1,885,000 shares issued and outstanding
at June 30, 1996............................................ 6,500 -- --
Class B common stock; 3,770,000 shares issued and outstanding
at June 30, 1996 and 5,561,014 at June 30, 1997 and March
31, 1998.................................................... 13,000 19,176 19,176
Class E common stock; 1,200,829 shares issued and
outstanding................................................. 4,141 4,141 4,141
Class K common stock; 99,862 shares issued and outstanding at
June 30, 1997 and March 31, 1998............................ -- 344 344
Additional paid-in capital...................................... 11,796,754 8,844,136 8,844,136
Retained earnings (deficit)..................................... (1,150,157) 3,705,809 7,808,416
------------- -------------- --------------
Total stockholders' equity.................................. 10,670,238 12,573,606 16,676,213
------------- -------------- --------------
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS'
EQUITY.......................................................... $ 90,434,733 $ 102,111,335 $ 124,639,916
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
GOLDEN STATE VINTNERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SUCCESSOR
---------------------------------------------------------------------------------
PREDECESSOR NINE MONTHS ENDED MARCH 31,
-------------- YEAR ENDED JUNE 30,
JULY 1,1994 TO APRIL 27, 1995 TO ------------------------------ ------------------------------
APRIL 26, 1995 JUNE 30, 1995 1996 1997 1998
-------------- ----------------- -------------- -------------- 1997 --------------
--------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES, net:
Bulk wine.................. $ 23,741,308 $ 2,340,399 $ 33,816,249 $ 50,227,982 $ 47,400,845 $ 53,815,223
Wine grapes................ 12,874,703 -- 15,183,028 18,585,126 18,585,126 22,817,042
Case goods................. 4,591,784 1,696,304 11,335,407 15,829,183 11,808,908 15,080,553
Brandy and spirits......... 1,642,710 334 11,420,661 11,142,534 10,883,548 9,961,874
-------------- ----------------- -------------- -------------- -------------- --------------
Total revenues........... 42,850,505 4,037,037 71,755,345 95,784,825 88,678,427 101,674,692
COST OF SALES................ 34,771,874 3,948,872 58,468,362 71,661,816 66,846,120 75,624,507
-------------- ----------------- -------------- -------------- -------------- --------------
GROSS PROFIT................. 8,078,631 88,165 13,286,983 24,123,009 21,832,307 26,050,185
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES.... 3,363,255 950,808 5,042,425 7,408,179 5,314,977 13,066,398
-------------- ----------------- -------------- -------------- -------------- --------------
INCOME (LOSS) FROM
OPERATIONS................. 4,715,376 (862,643) 8,244,558 16,714,830 16,517,330 12,983,787
INTEREST EXPENSE............. (2,796,664) (919,590) (5,343,637) (5,879,945) (4,480,655) (5,203,209)
OTHER EXPENSE, net........... (45,020) (1,512) (394,370) (676,701) (677,130) (165,350)
-------------- ----------------- -------------- -------------- -------------- --------------
INCOME (LOSS) BEFORE INCOME
TAXES...................... 1,873,692 (1,783,745) 2,506,551 10,158,184 11,359,545 7,615,228
INCOME TAXES................. -- -- 583,000 3,988,000 4,464,000 2,877,000
-------------- ----------------- -------------- -------------- -------------- --------------
NET INCOME (LOSS)............ $ 1,873,692 $ (1,783,745) $ 1,923,551 $ 6,170,184 $ 6,895,545 $ 4,738,228
-------------- ----------------- -------------- -------------- -------------- --------------
-------------- ----------------- -------------- -------------- -------------- --------------
EARNINGS (LOSS) PER SHARE:
BASIC $ (.26) $ .09 $ .71 $ .91 $ .60
----------------- -------------- -------------- -------------- --------------
----------------- -------------- -------------- -------------- --------------
DILUTED $ (.26) $ .09 $ .71 $ .89 $ .57
----------------- -------------- -------------- -------------- --------------
----------------- -------------- -------------- -------------- --------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
GOLDEN STATE VINTNERS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------------------------- -------------------------------------------------
SERIES A SERIES B SERIES C CLASS A CLASS B CLASS E CLASS K
--------- ----------- --------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR:
BALANCE, JULY 1, 1994.............. $ 122,951 $ 77,049 $ -- $ -- $ -- $ -- $8,882,572
Conversion of warrants to
preferred stock................ -- -- $ 363,258 -- -- -- --
Capital stock redemptions........ -- -- (80,097) -- -- -- (11,404)
Net income....................... -- -- -- -- -- -- --
--------- ----------- --------- ----------- ----------- ----------- ----------
BALANCE, APRIL 26, 1995............ $ 122,951 $ 77,049 $ 283,161 $ -- $ -- $ -- $8,871,168
--------- ----------- --------- ----------- ----------- ----------- ----------
--------- ----------- --------- ----------- ----------- ----------- ----------
- - -------------------------------------------------------------------------------------------------------------------------
SUCCESSOR:
BALANCE, APRIL 27, 1995............ $ -- $ -- $ -- $ 6,500 $ 13,000 $ 4,141 $ --
Net loss......................... -- -- -- -- -- -- --
--------- ----------- --------- ----------- ----------- ----------- ----------
BALANCE, JUNE 30, 1995............. -- -- -- 6,500 13,000 4,141 --
Dividends paid................... -- -- -- -- -- -- --
Net income....................... -- -- -- -- -- -- --
--------- ----------- --------- ----------- ----------- ----------- ----------
BALANCE, JUNE 30, 1996............. -- -- -- 6,500 13,000 4,141 --
Repurchase of common stock....... -- -- -- (6,500) (3,397) -- --
Issuance of common stock......... -- -- -- -- 9,573 -- 344
Redemption of Junior Preferred
Stock.......................... -- -- -- -- -- -- --
Dividends paid................... -- -- -- -- -- -- --
Net income....................... -- -- -- -- -- -- --
--------- ----------- --------- ----------- ----------- ----------- ----------
BALANCE, JUNE 30, 1997............. -- -- -- -- 19,176 4,141 344
Dividends paid................... -- -- -- -- -- -- --
Net income....................... -- -- -- -- -- -- --
--------- ----------- --------- ----------- ----------- ----------- ----------
BALANCE, MARCH 31, 1998............ $ -- $ -- $ -- $ -- $ 19,176 $ 4,141 $ 344
--------- ----------- --------- ----------- ----------- ----------- ----------
--------- ----------- --------- ----------- ----------- ----------- ----------
<CAPTION>
ADDITIONAL RETAINED
PAID-IN EARNINGS
CAPITAL (DEFICIT) TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
PREDECESSOR:
BALANCE, JULY 1, 1994.............. $ -- $ 4,706,406 $13,788,978
Conversion of warrants to
preferred stock................ -- (363,258) --
Capital stock redemptions........ -- -- (91,501)
Net income....................... -- 1,873,692 1,873,692
----------- ----------- -----------
BALANCE, APRIL 26, 1995............ $ -- $ 6,216,840 $15,571,169
----------- ----------- -----------
----------- ----------- -----------
- - -----------------------------------
SUCCESSOR:
BALANCE, APRIL 27, 1995............ $11,796,754 $ -- $11,820,395
Net loss......................... -- (1,783,745) (1,783,745)
----------- ----------- -----------
BALANCE, JUNE 30, 1995............. 11,796,754 (1,783,745) 10,036,650
Dividends paid................... -- (1,289,963) (1,289,963)
Net income....................... -- 1,923,551 1,923,551
----------- ----------- -----------
BALANCE, JUNE 30, 1996............. 11,796,754 (1,150,157) 10,670,238
Repurchase of common stock....... (9,738,013) -- (9,747,910)
Issuance of common stock......... 7,190,077 -- 7,199,994
Redemption of Junior Preferred
Stock.......................... (404,682) -- (404,682)
Dividends paid................... -- (1,314,218) (1,314,218)
Net income....................... -- 6,170,184 6,170,184
----------- ----------- -----------
BALANCE, JUNE 30, 1997............. 8,844,136 3,705,809 12,573,606
Dividends paid................... -- (635,621) (635,621)
Net income....................... -- 4,738,228 4,738,228
----------- ----------- -----------
BALANCE, MARCH 31, 1998............ $ 8,844,136 $ 7,808,416 $16,676,213
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
GOLDEN STATE VINTNERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(SUCCESSOR)
(PREDECESSOR) --------------------------------------------------------------------
-------------- NINE MONTHS ENDED
JULY 1, 1994 APRIL 27, YEAR ENDED JUNE 30, MARCH 31,
TO APRIL 26, 1995 TO JUNE -------------------------- --------------------------
1995 30, 1995 1996 1997 1998
-------------- ------------ ------------ ------------ 1997 ------------
------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................. $ 1,873,692 $ (1,783,745) $ 1,923,551 $ 6,170,184 $ 6,895,545 $ 4,738,228
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and amortization... 1,926,064 754,557 3,319,119 4,206,932 3,524,704 3,767,650
Loss on disposal of assets...... -- -- 583,885 25,629 43,956 24,687
Accrual for deferred
compensation.................. -- -- 650,606 1,338,506 889,758 --
Accrual for incentive
compensation.................. -- -- -- -- -- 8,800,000
Deferred income taxes........... -- -- 172,476 10,319 -- 1,794,452
Changes in assets and
liabilities, net of effects of
acquisition of GSV:
Trade receivables............. (3,058,165) 3,421,309 (4,405,082) 1,846,692 60,010 (4,446,166)
Inventories................... 2,402,322 (1,738,448) (3,892,132) (5,198,884) (2,760,258) (8,046,682)
Prepaid expenses.............. (114,304) 107,336 (150,065) (216,586) 40,631 (509,907)
Accounts payable.............. (540,652) (987,514) 2,868,362 (3,039,970) (3,132,387) 1,202,886
Payable to growers............ (324,446) -- 693,674 126,942 227,288 133,715
Accrued interest.............. (53,806) 510,771 204,232 (32,162) (116,183) 315,838
Payroll and related
liabilities................. (41,792) (30,546) 519,755 632,724 445,289 (712,287)
Other accrued liabilities..... 106,926 (79,494) 185,632 (1,769) (155,582) 2,346,406
Income taxes payable.......... -- -- -- 547,612 1,423,662 (4,257,103)
-------------- ------------ ------------ ------------ ------------ ------------
Net cash provided by operating
activities.................. 2,175,839 174,226 2,674,013 6,416,169 7,386,433 5,151,717
-------------- ------------ ------------ ------------ ------------ ------------
INVESTING ACTIVITIES:
Purchases of property, plant and
equipment....................... (3,221,612) (8,967,237) (3,535,887) (4,777,797) (2,675,934) (5,524,230)
Acquisition of GSV................ -- (20,852,119) -- -- -- --
Refund (payment) of deposits...... -- (210,000) (117,000) 727,000 167,000 142,000
-------------- ------------ ------------ ------------ ------------ ------------
Net cash used in investing
activities.................... (3,221,612) (30,029,356) (3,652,887) (4,050,797) (2,508,934) (5,382,230)
-------------- ------------ ------------ ------------ ------------ ------------
FINANCING ACTIVITIES:
Borrowings on line of credit...... 21,404,853 700,000 25,102,910 24,708,097 19,788,097 52,000,000
Payments on line of credit........ (20,054,853) (950,000) (19,602,910) (20,908,097) (18,325,000) (46,500,000)
Cash overdraft.................... 18,403 392,154 (410,557) -- -- --
Borrowings on long-term debt...... 345,147 40,975,000 -- 2,568,922 611,442 --
Payments on long-term debt........ (526,909) (30,078,898) (1,765,407) (3,022,213) (2,659,245) (2,417,253)
Payment of financing costs........ (869,637) (735,880) (40,284) (114,208) (106,572) (10,000)
Payment of dividends.............. -- -- (1,289,963) (1,314,218) (678,597) (635,621)
Issuance of capital stock......... -- 19,750,000 -- 7,199,994 7,199,994 --
Repurchase of common stock........ (11,404) -- -- (9,747,910) (9,747,910) --
Redemption of preferred stock..... (80,097) -- -- (1,729,375) (1,729,375) --
-------------- ------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities.......... 225,503 30,052,376 1,993,789 (2,359,008) (5,647,166) 2,437,126
-------------- ------------ ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................... (820,270) 197,246 1,014,915 6,364 (769,667) 2,206,613
CASH AND EQUIVALENTS, BEGINNING OF
PERIOD............................ 820,270 -- 197,246 1,212,161 1,212,161 1,218,525
-------------- ------------ ------------ ------------ ------------ ------------
CASH AND EQUIVALENTS, END OF
PERIOD............................ $ -- $ 197,246 $ 1,212,161 $ 1,218,525 $ 442,494 $ 3,425,138
-------------- ------------ ------------ ------------ ------------ ------------
-------------- ------------ ------------ ------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
GOLDEN STATE VINTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE NINE MONTHS THEN
ENDED IS UNAUDITED)
1. ORGANIZATION AND OPERATIONS
Golden State Vintners, Inc. (the "Company"), formerly Golden State
Acquisition Corp., a Delaware corporation, was formed on April 26, 1995 for the
purpose of acquiring and holding for investment all of the outstanding capital
stock of Golden State Vintners ("GSV"), a California corporation. Such
acquisition occurred on April 27, 1995 (see Note 3). The Company constitutes the
successor company (Successor). The historical results of operations for the
period July 1, 1994 to April 26, 1995 are the results of GSV (Predecessor).
The Company processes and bottles wine, brandy and juice for sale, primarily
in bulk, to other wineries and processors located principally in California. The
Company experiences seasonal fluctuations in its revenues. Due to the inherent
seasonality of its grape harvesting and crushing operations, the Company
generally reports its highest revenues and net income in its first and second
fiscal quarters.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the Company, its wholly owned
subsidiary, GSV, and an 80% owned partnership, GSV International Trading
Company. All significant intercompany transactions and accounts have been
eliminated.
INTERIM FINANCIAL INFORMATION
The financial information as of March 31, 1997 and 1998 and for each of the
nine-months then ended includes all adjustments (consisting only of normal
recurring accruals) that the Company considers necessary for a fair presentation
of the financial position at such date and the operating results and cash flows
for those periods. Operating results for any quarter are not necessarily
indicative of the results for any future period. The financial information as of
March 31, 1997 and for the nine months then ended is unaudited.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of certain financial instruments, including cash,
receivables, accounts payable, and other accrued liabilities, approximate the
amounts recorded in the balance sheet because of the relatively short-term
maturities of these financial instruments. The fair value of bank, insurance
company and other long-term financing at March 31, 1998 approximate the amounts
recorded in the balance sheet based on information available to the Company with
respect to current interest rates and terms for similar debt instruments. It is
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.
F-7
<PAGE>
GOLDEN STATE VINTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE NINE MONTHS THEN
ENDED IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers cash equivalents
to include all short-term investments with an original maturity of three months
or less.
RECEIVABLES
Substantially all accounts receivable are due from major wineries and wine
distributors located principally in California. The Company performs periodic
credit evaluations of its customers' financial condition and generally does not
require collateral. Trade and other receivables at June 30, 1996 and 1997 and
March 31, 1998 are net of an allowance for doubtful accounts of $180,000,
$100,000 and $188,000, respectively.
INVENTORIES
The Company changed its method of costing wine inventories effective July 1,
1995 from the first-in, first-out ("FIFO") method, to the last-in, first-out
("LIFO") method. The Company also changed to the LIFO method for brandy
inventory effective July 1, 1996. Management believes that the LIFO method
matches current costs with current revenues and more clearly reflects the
Company's results of operations. Inventories at June 30, 1996 and 1997 and March
31, 1998 would have been higher by $135,525, $1,694,299 (including $519,997 for
brandy inventories) and $1,622,302 (including $751,689 for brandy inventories),
respectively, had the Company used FIFO cost rather than LIFO cost for valuation
of its inventories. The cumulative effect of these changes to the LIFO method on
the operating results as of the beginning of 1996 and 1997 and the pro forma
effects on the operating results of prior years have not been presented as the
effects are not readily determinable. Juice is stated at the lower of average
cost or net realizable value. Inventories of supplies are stated at the lower of
FIFO cost or market. Costs associated with the current year's unharvested grape
crop are deferred and recognized in the subsequent year when the grapes are
harvested. Wine inventories are classified as current assets in accordance with
recognized trade practice although some products will not be sold in the
following year.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation and
amortization are computed using the straight-line method over the estimated
lives of the related assets, as follows:
<TABLE>
<S> <C>
Land Improvements................................... 30 years
Vineyards........................................... 20 years
Buildings........................................... 7 to 48 years
Cooperage........................................... 10 to 30 years
Equipment........................................... 7 to 20 years
</TABLE>
Costs incurred in developing vineyards are capitalized until the vineyards
become commercially productive. Maintenance and repairs are charged to operating
costs as incurred. The cost of betterments is capitalized. Gains or losses on
the disposition of assets are included in income. Amortization of assets held
under capital leases is included in depreciation expense.
F-8
<PAGE>
GOLDEN STATE VINTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE NINE MONTHS THEN
ENDED IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In the year ended June 30, 1997, the Company adopted Financial Accounting
Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." The standard requires impairment losses to
be recorded on long-lived assets and certain intangible assets when the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Adoption of this standard had no impact on the
Company's financial statements.
DEFERRED FINANCING COSTS
Financing costs incurred to obtain new financing are deferred and amortized
over the term of the related loan. At June 30, 1996 and 1997 and March 31, 1998,
such costs were $603,758, $546,186 and $431,809, respectively, which were net of
accumulated amortization of $171,704, $316,138 and $447,180, respectively.
REVENUE RECOGNITION
Sales of bulk wine, juice and brandy are recognized at the time the product
specifications of the purchase contract are met and the product has been
accepted by the buyer, title has passed to the buyer, and there is no right of
return of the product. In certain cases the contract requirements may specify
that the Company store such product after it has been sold and may require the
buyer to pay a storage fee. Sales of wine grapes and cased goods are recognized
at the time of delivery to the customer. Wine processing and storage fees are
recognized as those services are provided. At June 30, 1996 and 1997 and at
March 31, 1998 revenues relating to product owned by others but held by the
Company were approximately $14,022,000, $27,646,000 and $46,774,000,
respectively.
MAJOR CUSTOMERS
Wine grape sales are primarily to one customer that accounted for
approximately 24% of revenues in the period July 1, 1994 to April 26, 1995
(Predecessor), approximately 15% and 17% of revenues in the years ended June 30,
1996 and 1997, respectively, and approximately 19% of revenues in each of the
nine-months ended March 31, 1997 and 1998, respectively. A significant portion
of the Company's wine grape sales contracts with this customer expires in 1998
such that revenues from sales of wine grapes to such customer after 1998 will
not be significant. The Company plans to use the remaining wine grape tonnage
for the production of bulk wine or cased goods.
The Company's brandy sales are primarily to one customer. Such sales,
together with bulk wine and case goods sales to such customer, accounted for
approximately 19% and 16% of revenues in the years ended June 30, 1996 and 1997,
respectively, and approximately 17% and 14% of revenues in each of the
nine-months ended March 31, 1997 and 1998, respectively.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("FAS 109"),
and provides deferred income taxes for the differences between the tax bases of
assets and liabilities and their related financial statement amounts using
current income tax rates.
F-9
<PAGE>
GOLDEN STATE VINTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE NINE MONTHS THEN
ENDED IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"), and recognizes compensation expense for certain
stock-based awards granted to employees as required by APB 25. Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"), became effective in fiscal year 1997 and requires
disclosure of certain pro forma information as if the Company adopted the fair
value method of accounting for stock-based compensation prescribed by FAS 123
(see Note 9).
EARNINGS (LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128").
This Statement simplifies the standards for computing earnings per share ("EPS")
and makes them comparable to international EPS standards. FAS 128 replaces the
presentation of primary EPS with a presentation of basic EPS. In addition,
entities with complex capital structures are required to provide disclosure of
diluted EPS. Basic earnings (loss) per share is computed by dividing income
(loss) available to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted earnings (loss) per share is
computed by dividing income (loss) available to common stockholders adjusted for
the effects of preferred stock dividends, interest on convertible debt, and
other changes in income or loss resulting from the presumed conversion of
potential common shares, if any, by the weighted average common shares
outstanding during the period plus potential common shares outstanding. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
Company.
F-10
<PAGE>
GOLDEN STATE VINTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE NINE MONTHS THEN
ENDED IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Basic and fully diluted earnings per share ("EPS") are determined as
follows:
<TABLE>
<CAPTION>
SUCCESSOR
---------------------------------------------------------------
APRIL 27, NINE MONTHS ENDED
1995 TO YEAR ENDED JUNE 30, MARCH 31,
JUNE 30, ------------------------ -----------------------
1995 1996 1997 1998
------------ ----------- ----------- 1997 ----------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BASIC EPS COMPUTATION
Numerator:
Net income (loss)........................... $(1,783,745) $ 1,923,551 $ 6,170,184 $6,895,545 $4,738,228
Less: Redeemable preferred stock
dividends................................. -- (1,289,962) (1,314,218) (678,597) (635,621)
------------ ----------- ----------- ----------- ----------
Income (loss) available to common
stockholders.............................. $(1,783,745) $ 633,589 $ 4,855,966 $6,216,948 $4,102,607
------------ ----------- ----------- ----------- ----------
------------ ----------- ----------- ----------- ----------
Denominator:
Weighted average common shares.............. 6,855,829 6,855,829 6,860,237 6,859,746 6,861,705
------------ ----------- ----------- ----------- ----------
------------ ----------- ----------- ----------- ----------
Basic EPS..................................... $ (.26) $ .09 $ .71 $ .91 $ .60
------------ ----------- ----------- ----------- ----------
------------ ----------- ----------- ----------- ----------
DILUTED EPS COMPUTATION
Numerator:
Income available to common stockholders..... $(1,783,745) $ 633,589 $ 4,855,966 $6,216,948 $4,102,607
Add: Junior Preferred Stock dividends....... -- -- -- 78,597 35,621
------------ ----------- ----------- ----------- ----------
Income available to common stockholders and
assumed conversions....................... $(1,783,745) $ 633,589 $ 4,855,966 $6,295,545 $4,138,228
------------ ----------- ----------- ----------- ----------
------------ ----------- ----------- ----------- ----------
Denominator:
Weighted average common shares outstanding.. 6,855,829 6,855,829 6,860,237 6,859,746 6,861,705
Junior Preferred Stock...................... -- -- -- 220,587 130,349
Stock options............................... -- -- -- -- 326,539
------------ ----------- ----------- ----------- ----------
Adjusted weighted average common shares..... 6,855,829 6,855,829 6,860,237 7,080,333 7,318,593
------------ ----------- ----------- ----------- ----------
------------ ----------- ----------- ----------- ----------
Diluted EPS................................... $ (.26) $ .09 $ .71 $ .89 $ .57
------------ ----------- ----------- ----------- ----------
------------ ----------- ----------- ----------- ----------
</TABLE>
Options to purchase 800,934 and 1,603,981 shares of common stock at various
prices per share were outstanding at June 30, 1997 and March 31, 1998,
respectively, but were not included in diluted EPS computations because the
exercise prices were greater than the estimated fair values of the common shares
for the period then ended.
EPS for the period July 1, 1994 to April 26, 1995 (Predecessor) has not been
presented as it is not considered meaningful in light of the significant changes
in capital structure resulting from the Company's acquisition of GSV. All share
and per share amounts related to the EPS computations have been adjusted
retroactively to give the effect of the stock split described in Note 15.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "Board') adopted
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," which requires that an enterprise report, by major components and as a
single total, the change in its net assets during the
F-11
<PAGE>
GOLDEN STATE VINTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE NINE MONTHS THEN
ENDED IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
period from nonowner sources. In June 1997, the Board also adopted Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise or Related Information," which requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments. Adoption of these statements will not impact the Company's
consolidated financial position, results of operations or cash flows; however,
the Company is assessing the impact of such statements on the disclosures made
in the notes to its consolidated financial statements. These statements are
effective for the Company's fiscal year beginning July 1, 1998.
3. ACQUISITION
On April 27, 1995, pursuant to a stock purchase agreement, the Company
purchased substantially all of the outstanding common and preferred stock of GSV
for cash consideration of $20,852,119. In addition, 523,980 shares of junior
exchangeable preferred stock (value of $2,024,502) were issued in connection
with this acquisition. The total value of the purchase transaction, including
transaction costs of $1,763,258, was $24,639,879.
The Company financed the purchase of GSV stock by issuing a combination of
debt and equity securities as follows:
- 100,000 shares of Senior Redeemable Exchangeable Preferred Stock (value,
$7,929,605)
- 1,200,829 shares of Class E common stock (value, $2,070,395)
- 1,885,000 shares of Class A common stock (value, $3,250,000)
- 3,770,000 shares of Class B common stock (value, $6,500,000)
- 523,980 shares of 6% Junior Exchangeable Preferred Stock (value,
$2,024,502)
- $35,000,000 Senior Secured First Mortgage Notes
- $8,000,000 revolving bank line of credit
Proceeds from the Senior Secured First Mortgage Notes and the revolving bank
line of credit were used to pay off existing GSV debt and certain transaction
costs.
The acquisition of GSV has been accounted for under the purchase accounting
method whereby the purchase price has been allocated to the assets acquired and
liabilities assumed based on their fair values at the date of acquisition. The
excess of estimated fair value of the net assets acquired over the purchase
price (approximately $11,517,000) was used to reduce the valuation assigned to
property, plant and equipment. Application of purchase accounting resulted in a
net increase in the recorded amount of net assets acquired of approximately
$7,826,000 at the acquisition date.
F-12
<PAGE>
GOLDEN STATE VINTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE NINE MONTHS THEN
ENDED IS UNAUDITED)
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, 1996 JUNE 30, 1997 MARCH 31, 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Bulk wine................................... $ 7,069,599 $ 12,033,151 $ 19,591,608
Cased and bottled wine...................... 1,333,063 964,418 4,133,731
Brandy...................................... 1,324,502 1,198,129 2,375,826
Juice, supplies and other................... 1,336,385 2,849,394 1,025,895
Unharvested crop costs...................... 7,255,429 6,378,916 4,028,772
-------------- -------------- --------------
Total..................................... $ 18,318,978 $ 23,424,008 $ 31,155,832
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30, 1996 JUNE 30, 1997
-------------- -------------- MARCH 31, 1998
--------------
<S> <C> <C> <C>
Land and improvements....................... $ 10,467,504 $ 11,657,660 $ 12,378,800
Vineyards................................... 25,813,207 26,167,912 26,203,023
Buildings................................... 6,511,391 10,008,507 11,092,317
Cooperage................................... 11,227,413 14,188,452 14,853,039
Equipment................................... 9,674,693 11,840,733 14,911,188
Construction in progress.................... 1,306,011 3,778,531 5,413,779
-------------- -------------- --------------
Total..................................... 65,000,219 77,641,795 84,852,146
Less accumulated depreciation and
amortization.............................. 3,719,481 7,448,581 10,525,359
-------------- -------------- --------------
Property, plant and equipment--net.......... $ 61,280,738 $ 70,193,214 $ 74,326,787
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
In December 1996, the Company purchased a wine processing facility,
including land, buildings, improvements, equipment and related personal
property, located near Soledad, California, for total consideration of
approximately $4,500,000. The Company financed approximately $3,800,000 and
$500,000 in two new debt agreements with a bank and the previous owner,
respectively.
In May 1997, the Company purchased a wine warehouse located near the
Company's Napa processing facility. The purchase price approximated $2,200,000
which included land, building, improvements and personal property. In connection
with this acquisition, GSV assumed two existing notes of $1,994,000 and $62,000.
F-13
<PAGE>
GOLDEN STATE VINTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE NINE MONTHS THEN
ENDED IS UNAUDITED)
6. BANK LINE OF CREDIT AND LONG-TERM DEBT
The Company has a revolving bank line of credit which provides for loans of
up to $22,500,000 with variable interest based on interest rate options elected
by the Company (8.85%, 7.46% and 8.50% at June 30, 1996 and 1997 and March 31,
1998, respectively). Borrowings on the line were $9,000,000, $12,800,000 and
$18,300,000 at June 30, 1996 and 1997 and March 31, 1998, respectively. Unused
availability under the line of credit was $4,200,000 at March 31, 1998. The
agreement expired in March 1998, however the Company renewed the line under
substantially the same terms in April 1998 (see Note 15).
F-14
<PAGE>
GOLDEN STATE VINTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE NINE MONTHS THEN
ENDED IS UNAUDITED)
6. BANK LINE OF CREDIT AND LONG-TERM DEBT (CONTINUED)
Long-term debt as of June 30, 1996 and 1997 and March 31, 1998 is as
follows:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
------------------------------ --------------
1996 1997 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Insurance company Senior Secured First Mortgage Notes, principal
and interest (9.69% through April 2000 and at 2.75% above the
short-term U.S. Treasury Note rate thereafter) payable
$370,000 monthly, balance of $18,845,000 due April 1, 2005.... $ 34,192,371 $ 33,020,446 $ 32,064,217
Bank term loan at variable market interest rate options elected
by the Company (7.84% at June 30, 1997), interest payable
monthly, annual principal payments of $325,000 in 1996 and
1997 and $413,000 thereafter, balance of $2,984,000 due on
March 5, 2005................................................. 4,550,000 5,875,000 5,462,000
Bank term loan at variable interest rate options elected by the
Company (7.84% at June 30, 1997), interest payable monthly,
annual principal payments of $560,000, balance of $1,680,000
due on March 5, 2005.......................................... -- 5,600,000 5,040,000
Insurance company note payable, interest at 11.6% payable
annually, annual principal payments of $200,000, balance of
$1,724,000 due on October 1, 2002............................. 2,724,156 2,724,156 2,524,156
Bank term loan, interest payable monthly at 8%, principal and
interest payable $19,790 monthly, balance of $1,926,000 due
January 15, 2000.............................................. -- 1,992,521 1,968,874
Unsecured loan due to related party, non-interest bearing,
discounted (at 10%) to present value, payable based on excess
cash flows (as defined)....................................... 847,929 828,750 829,848
Note payable, interest at 10%, payable semi-annually, principal
due May 5, 2000............................................... 500,000 500,000 500,000
Note payable, interest at 8% payable annually, principal due
December 20, 1998............................................. -- 500,000 500,000
Bank term loan, paid in 1997.................................... 1,350,000 -- --
Capital lease obligations and other loans, interest principally
at 8%......................................................... 845,924 1,513,702 2,529,904
-------------- -------------- --------------
Total......................................................... 45,010,380 52,554,575 51,418,999
Less current portion............................................ (2,036,976) (2,773,984) (3,396,085)
-------------- -------------- --------------
Long-term portion............................................... $ 42,973,404 $ 49,780,591 $ 48,022,914
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
F-15
<PAGE>
GOLDEN STATE VINTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE NINE MONTHS THEN
ENDED IS UNAUDITED)
6. BANK LINE OF CREDIT AND LONG-TERM DEBT (CONTINUED)
Substantially all of the Company's assets are pledged as collateral for
revolving bank loans and long-term debt. The insurance company loan agreement,
as amended, and bank credit agreements include various financial covenants
which, among other things, require that the Company maintain certain specified
financial ratios and restrict the amount of capital expenditures, additional
indebtedness and certain investments. Further, dividends may not be declared and
paid without prior approval. The Company was not in compliance with the capital
expenditures limitations of its bank credit agreements as of June 30, 1997, but
a waiver dated November 21, 1997 was subsequently obtained.
Under the terms of the insurance company Securities Purchase Agreement (the
"Agreement") dated April 21, 1995, the Company may, at its option, prepay the
outstanding Senior Secured First Mortgage Notes (the "Notes") in whole or in
part, after April 1, 1998 at a price equal to the aggregate principal amount of
the Notes being redeemed plus accrued interest thereon to the date of
redemption, plus a premium equal to the net present value of the excess of the
originally scheduled principal and related interest payments through the
original maturity date over the corresponding payments that would have been made
using the U.S. Treasury Notes rate (or the U.S. Treasury Note rate plus .75% if
redemption occurs after April 21, 2000), discounted at the U.S. Treasury Note
rate plus .75%. Prepayment of all outstanding Notes and accrued interest thereon
is required on the occurrence of certain events, as defined in the Agreement.
Scheduled annual maturities of long-term debt as of March 31, 1998 for years
ending June 30, are as follows:
<TABLE>
<S> <C>
1998.................................................. $ 455,132
1999.................................................. 3,506,389
2000.................................................. 5,586,359
2001.................................................. 3,161,772
2002.................................................. 3,505,569
Thereafter............................................ 35,203,778
-----------
Total............................................... $51,418,999
-----------
-----------
</TABLE>
F-16
<PAGE>
GOLDEN STATE VINTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE NINE MONTHS THEN
ENDED IS UNAUDITED)
7. INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
SUCCESSOR
PREDECESSOR ------------------------------------------------------------------
--------------- APRIL 27, 1995 YEAR ENDED JUNE 30,
JULY 1, 1994 TO TO --------------------------- NINE MONTHS ENDED
APRIL 26, 1995 JUNE 30, 1995 1996 1997 MARCH 31, 1998
--------------- ---------------- ------------ ------------- -------------------
<S> <C> <C> <C> <C> <C>
Current:
Federal.................. $ -- $ -- $ 113,736 $ 3,114,991 $ 832,556
State.................... -- -- 296,788 862,690 249,992
--------------- ---------------- ------------ ------------- -------------------
-- -- 410,524 3,977,681 1,082,548
Deferred:
Federal.................. -- -- 347,074 126,599 1,599,863
State.................... -- -- (174,598) (116,280) 194,589
--------------- ---------------- ------------ ------------- -------------------
-- -- 172,476 10,319 1,794,452
--------------- ---------------- ------------ ------------- -------------------
$ -- $ -- $ 583,000 $ 3,988,000 $ 2,877,000
--------------- ---------------- ------------ ------------- -------------------
--------------- ---------------- ------------ ------------- -------------------
</TABLE>
The Company's income tax provision differs from the amount determined by
applying the statutory federal income tax rate, due to the following:
<TABLE>
<CAPTION>
SUCCESSOR
PREDECESSOR -----------------------------------------------------------------
--------------- APRIL 27, 1995 YEAR ENDED JUNE 30,
JULY 1, 1994 TO TO ------------------------- NINE MONTHS ENDED
APRIL 26, 1995 JUNE 30, 1995 1996 1997 MARCH 31, 1998
--------------- ---------------- ------------ ----------- --------------------
<S> <C> <C> <C> <C> <C>
Federal statutory tax
(benefit) rate............. 35.00 % (35.00)% 35.00% 35.00% 35.00 %
Permanent items.............. 0.43 (39.65) .78 .29 .19
State income taxes, net of
federal.................... -- -- 3.22 4.85 3.85
Rate differential............ (1.00) 1.00 (1.00) (1.00) (1.00)
Change in valuation
allowance.................. (32.29) 75.01 8.62 -- (4.44)
Purchase accounting.......... -- -- (19.79) -- --
Other........................ (2.14) (1.36) (3.57) .12 4.18
------- ------- ------------ ----------- -------
-- % -- % 23.26% 39.26% 37.78 %
------- ------- ------------ ----------- -------
------- ------- ------------ ----------- -------
</TABLE>
F-17
<PAGE>
GOLDEN STATE VINTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE NINE MONTHS THEN
ENDED IS UNAUDITED)
Deferred income taxes at June 30, 1996 and 1997 and March 31, 1998 consist
of the following:
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
-------------------------- ------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Current assets (liabilities):.........................................
Inventory costing................................................... $ (418,570) $ (373,872) $ (309,151)
State franchise taxes............................................... 84,122 270,579 75,670
Compensation and benefits........................................... 173,200 61,263 59,976
Capitalized interest................................................ 160,207 128,852 77,760
Reserves............................................................ -- -- 856,800
Other............................................................... 152,785 132,332 85,036
------------ ------------ ------------
Total............................................................. $ 151,744 $ 219,154 $ 846,091
------------ ------------ ------------
------------ ------------ ------------
Long-term assets (liabilities):
Purchase accounting................................................. $ (5,033,711) $ (4,885,216) $ (4,737,735)
Accelerated depreciation............................................ (5,770,169) (5,949,469) (6,907,041)
Operating loss carryforwards........................................ 5,162,329 4,651,121 3,481,759
Tax credit carryforwards............................................ 572,274 450,246 450,246
Compensation and benefits........................................... 281,712 861,286 --
Other............................................................... 69,562 76,158 157,599
Valuation allowance................................................. (2,173,006) (2,172,863) (1,834,954)
------------ ------------ ------------
Total............................................................. $ (6,891,009) $ (6,968,737) $ (9,390,126)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The Company's tax returns for years 1992 through 1997 have not been examined
by the taxing authorities. In the opinion of management, adequate accruals have
been made for taxes due in those years. A valuation allowance has been provided
for the tax benefits of operating loss and tax credit carryforwards which may
not be realizable, due to certain limitations under section 382 of the Internal
Revenue Code, as well as uncertainty related to future taxable income.
As of March 31, 1998, the Company has federal operating loss carryforwards
which expire as follows:
<TABLE>
<S> <C>
2002.................................................. $ 3,082,000
2003.................................................. 3,623,000
2004.................................................. 3,214,000
2005.................................................. 321,000
2010.................................................. 2,024,000
-----------
Total............................................... $12,264,000
-----------
-----------
</TABLE>
Use of these operating loss carryforwards in any one year is limited to
approximately $1,400,000.
8. REDEEMABLE PREFERRED STOCK
The Company's redeemable preferred stock as of March 31, 1998 is as follows:
<TABLE>
<CAPTION>
AUTHORIZED ISSUED OUTSTANDING
PAR VALUE SHARES SHARES SHARES
----------- ----------- --------- ------------
<S> <C> <C> <C> <C>
8% Junior Preferred Stock......................................... $ .01 200,000 178,105 178,105
12% Senior Preferred Stock........................................ $ .01 100,000 100,000 100,000
</TABLE>
F-18
<PAGE>
GOLDEN STATE VINTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE NINE MONTHS THEN
ENDED IS UNAUDITED)
8. REDEEMABLE PREFERRED STOCK (CONTINUED)
The Junior Preferred shares have no voting rights, have liquidation
preferences to all classes of the Company's common stock, and are entitled to
cumulative dividends at the rate of 8% per year, payable semi-annually.
Effective October 1, 1996, the rate was increased to 8% from 6%. Shares
remaining at March 31, 1998 that were issued in connection with the Company's
acquisition of GSV are exchangeable at any time into 130,349 shares of Class B
common stock. The Junior Preferred Stock is subject to mandatory redemption of
89,052 and 89,053 shares on December 31, 2001 and 2002, respectively, or earlier
if a change in control of the Company occurs. On October 10, 1996, 345,875
shares were redeemed for $1,729,375 ($5 per share). At June 30, 1996, June 30,
1997 and March 31, 1998, the balance outstanding, less unamortized discounts,
was $2,006,831, $697,721 and $722,663, respectively.
In the event of liquidation, dissolution or winding up of the Company,
Junior Preferred stockholders shall be entitled to receive out of the assets of
the Company an amount in cash equal to $5 per share plus accrued but unpaid
dividends.
The Senior Preferred shares have no voting rights, have liquidation
preferences to other shareholders, are subject to mandatory redemption beginning
in 2005 and are entitled to cumulative dividends at the rate of 12% payable
semiannually. Under certain circumstances, the Senior Preferred Stock is
redeemable, at a premium, beginning in 2000. The carrying value of the Senior
Preferred Stock is being increased ratably to its redemption value of
$10,000,000. The shares are also exchangeable at any time, at the Company's
option, into 13.2% notes due 2007. At June 30, 1996, June 30, 1997 and March 31,
1998, the balance outstanding, less unamortized discounts, was $8,027,156,
$8,115,694 and $8,191,967, respectively.
In the event of liquidation, dissolution or winding up of the Company,
Senior Preferred stockholders shall be entitled to receive out of the assets of
the Company, before Junior Preferred stockholders, the amount of dividends
accrued and unpaid thereon to the date of final distribution to such holders,
whether or not declared to the date of such final distribution, $100 per share
plus a premium.
9. SHAREHOLDERS' EQUITY
COMMON STOCK
The Company's authorized capital stock is as follows at March 31, 1998:
<TABLE>
<CAPTION>
AUTHORIZED
PAR VALUE SHARES
----------- -----------
<S> <C> <C>
Class B.................................................... $ .003 7,250,000
Class E.................................................... $ .003 2,900,000
Class K.................................................... $ .003 1,450,000
</TABLE>
F-19
<PAGE>
GOLDEN STATE VINTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE NINE MONTHS THEN
ENDED IS UNAUDITED)
9. SHAREHOLDERS' EQUITY (CONTINUED)
Changes in the Company's common stock outstanding during the period April
27, 1995 to June 30, 1995 and the years ended June 30, 1996 and 1997 and nine
months ended March 31, 1998 are as follows:
<TABLE>
<CAPTION>
A B E K
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Shares outstanding, April 27, 1995....... 1,885,000 3,770,000 1,200,829 --
------------ ----------- ----------- ---------
Shares outstanding, June 30, 1995........ 1,885,000 3,770,000 1,200,829 --
------------ ----------- ----------- ---------
Shares outstanding, June 30, 1996........ 1,885,000 3,770,000 1,200,829 --
Issuance of stock........................ -- 2,776,170 -- 99,862
Repurchase of stock...................... (1,885,000) (985,156) -- --
------------ ----------- ----------- ---------
Shares outstanding, June 30, 1997........ -- 5,561,014 1,200,829 99,862
------------ ----------- ----------- ---------
Shares outstanding, March 31, 1998....... -- 5,561,014 1,200,829 99,862
------------ ----------- ----------- ---------
</TABLE>
Class E and K common stock have no voting rights, except that effective
April 21, 2000, the Class E common stockholders will be entitled to vote. Upon
dissolution, liquidation or winding up of the Company, and subject to the
liquidation preferences of the senior and junior preferred stock, liquidation
proceeds will be divided equally among the Class B, E, and K shareholders.
INCENTIVE STOCK AND STOCK OPTION PLANS
An incentive stock plan (terminated in 1996) provided for grants of stock
appreciation rights ("SARs") to officers, directors and certain key employees.
The SARs entitle the holder to receive cash payments equal to the excess of the
fair market value of the rights over the base price for such rights. SARs
outstanding as of June 30, 1997 have an unlimited term and generally become
exercisable over a two year period. Compensation expense recognized pursuant to
the Company's incentive stock plans was $650,606 and $1,338,506 for the years
ended June 30, 1996 and 1997, respectively, and $889,758 and $6,300,000 for the
nine months ended March 31, 1997 and 1998, respectively. During the nine months
ended March 31, 1998, the Company and the holders of the 794,348 SARs then
outstanding agreed to terminate such SARs in exchange for compensation in an
amount equal to the SARs obligation at December 31, 1997 of $8,289,110 and fully
vested non-qualified options to purchase 794,348 shares of the Company's common
stock at $12.07 per share. In connection with the SAR termination and the
president's bonus restructuring, which bonus restructuring equaled a net present
value of $2,500,000, such key employees received cash of approximately $5.4
million, during April 1998, and 7.5% promissory notes aggregating approximately
$5.4 million payable upon mutual agreement between the parties. Payroll and
related liabilities at March 31, 1998 includes $10.8 million related to such
items. Such cash received was utilized to exercise a total of 337,219
outstanding stock options as of April 29, 1998. In connection with a prior GSV
stock appreciation rights agreement, the president of GSV (and the Company) was
paid $1,162,384 at the time of GSV's acquisition. The Company's 1996 Stock
Option Plan covers 893,925 shares of authorized but unissued Class B common
stock. The Plan provides for the grant of incentive and nonstatutory stock
options to officers, key employees and others,
F-20
<PAGE>
GOLDEN STATE VINTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE NINE MONTHS THEN
ENDED IS UNAUDITED)
9. SHAREHOLDERS' EQUITY (CONTINUED)
at prices not less than fair value. Options granted generally become exercisable
25% annually and expire after 10 years. A summary of SAR and stock option
activity is as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
STOCK EXERCISE PRICE
OPTIONS SARS PER RIGHT/OPTION
----------- --------- -----------------
<S> <C> <C> <C>
Outstanding at April 27, 1995..................... -- --
Granted......................................... -- 649,348 $ 1.34
----------- ---------
Outstanding at June 30, 1995...................... -- 649,348 $ 1.34
Granted......................................... -- 145,000 $ 2.59
----------- ---------
Outstanding at June 30, 1996...................... -- 794,348 $ 1.57
Granted......................................... 800,934 -- $ 4.79
----------- ---------
Outstanding at June 30, 1997...................... 800,934 794,348 $ 3.19
Granted ($3.00 weighted average fair value per
option)....................................... 803,048 -- 11.99
Terminated...................................... -- 794,348 1.57
Outstanding at March 31, 1998..................... 1,603,981 -- 8.39
----------- ---------
----------- ---------
Exercisable at March 31, 1998..................... 994,581 -- $ 10.60
----------- ---------
----------- ---------
Available for grant at March 31, 1998............. 84,291 --
----------- ---------
----------- ---------
</TABLE>
FAS 123 requires the disclosure of pro forma net income amounts had the
Company adopted the fair value method prescribed by that statement. Under FAS
123, the fair value of stock-based awards to employees is calculated using
option pricing models, even though such models were developed to estimate the
fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option awards.
These models require certain subjective assumptions which greatly affect the
calculated values. The Company's calculations were made using the Black-Scholes
option pricing model with the following weighted average assumptions: expected
life, 6.3 years and 5 years as of June 30,1997 and March 31, 1998, respectively;
risk free interest rates, 5.9% and 6.0% as of June 30, 1997 and March 31, 1998,
respectively; no expected volatility, and no dividends during the expected term.
The Company's calculations are based on a multiple option valuation approach and
forfeitures are recognized as they occur. Pro forma net income for the nine
months ended March 31, 1998 would have been $119,400 less than net income as
reported if the computed fair values of the stock option awards had been
amortized to expense over the vesting period of the awards (no effect on net
income for the year ended June 30, 1997). Pro forma earnings per share for the
nine months ended March 31, 1998 would have been as follows: basic--$.58 and
fully diluted--$.55.
10. RETIREMENT PLANS
The Company's 401(k) plan provides retirement benefits to full-time
employees that meet certain eligibility requirements, was established in 1996.
Under the 401 (k) plan, employees may elect to have up to 15% of their annual
eligible compensation, subject to certain limitations, deferred and deposited
F-21
<PAGE>
GOLDEN STATE VINTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE NINE MONTHS THEN
ENDED IS UNAUDITED)
10. RETIREMENT PLANS (CONTINUED)
with a qualified trustee. The Company may elect to make an annual discretionary
contribution to the Plan of up to 25% of each participant's eligible
compensation, subject to certain limitations. Participants' voluntary
contributions to the Plan vest immediately and Company contributions are 100%
vested (20% per year after two years of service) after six years of continuous
service. The Company also contributes to a winery workers' retirement plan which
provides retirement benefits for union employees. Pension costs charged to
operations were $75,118 for the period July 1, 1994 to April 26, 1995
(Predecessor) and $2,505 for the period April 27, 1995 to June 30, 1995
(Successor). Retirement plan costs charged to operations were $36,704 and
$68,009 for the years ended June 30, 1996 and 1997, and $54,132 and $55,828 for
the nine-month periods ended March 31, 1997 and 1998 respectively.
11. LEASES
The Company leases cooperage and equipment under both capital and operating
lease arrangements. Future minimum payments by fiscal year and in aggregate
under such capital leases and noncancellable operating leases with terms of one
year or more consist of the following at March 31, 1998:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------------- -----------
<S> <C> <C>
1998.............................................................. $ 142,133 $ 78,573
1999.............................................................. 518,373 252,898
2000.............................................................. 534,572 230,091
2001.............................................................. 353,475 111,140
2002.............................................................. 311,762 101,770
Thereafter........................................................ 715,502 16,962
------------- -----------
Total minimum lease payments...................................... 2,575,817 $ 791,434
-----------
-----------
Amount representing interest...................................... 541,761
-------------
Net present value of minimum lease payments....................... 2,034,056
Less current maturities........................................... 530,913
-------------
$ 1,503,143
-------------
-------------
</TABLE>
The following is a summary of cost and accumulated amortization on
capitalized cooperage and equipment leases:
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
-------------------------- -------------
1996 1997 1998
----------- ------------- -------------
<S> <C> <C> <C>
Cooperage.......................................... $ 317,624 $ 678,785 $ 1,265,614
Equipment.......................................... 210,301 598,924 1,269,031
Less accumulated amortization...................... 59,958 151,731 274,791
----------- ------------- -------------
$ 467,967 $ 1,125,978 $ 2,259,854
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
F-22
<PAGE>
GOLDEN STATE VINTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE NINE MONTHS THEN
ENDED IS UNAUDITED)
11. LEASES (CONTINUED)
Rent expense totaled approximately $99,794 for the period July 1, 1994 to
April 26, 1995 (Predecessor), $40,461 for the period April 27, 1995 to June 30,
1995 (Successor) $381,107 and $667,616 for the years ended June 30, 1996 and
1997, and $572,092 and $455,070 for the nine-month periods ended March 31, 1997
and 1998, respectively.
12. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENT
The Company has an employment agreement with its president which extends to
June 30, 2001 and specifies that the president receive a fixed salary and an
annual bonus determined by the Board of Directors. The agreement extends
automatically on a year-to-year basis thereafter unless terminated by either
party.
GRAPE PURCHASE COMMITMENTS
The Company has certain grape purchase contracts with independent growers
that generally extend through 1998. Prices to be paid for grapes fluctuate with
prevailing market prices at the time of purchase. In certain cases, the Company
has contracted with its customers to sell a portion of these grapes at
prevailing market prices at the time of sale.
EQUIPMENT AND COOPERAGE PURCHASE COMMITMENTS
As of March 31, 1998, the Company has entered into contracts aggregating
approximately $5.6 million for the purchase of processing equipment and
cooperage.
CLAIMS
The Company is a party to claims aggregating approximately $3,500,000
arising from alleged negligent performance of services. The Company and its
legal counsel are in the preliminary stages of investigating the merits of such
claims and the availability of insurance coverage, if needed. As of March 31,
1998, the Company has accrued, based on its preliminary investigation, an amount
presently believed to be adequate to resolve these claims. Such amount is
substantially less than the aggregate of the amounts claimed.
13. RELATED PARTY TRANSACTIONS
In May 1995, the Company purchased a 1,750 acre vineyard located in Kern
County, California, from a company owned by the Company's president for
$4,590,000. In connection with this acquisition, the Company assumed two
existing promissory notes of $2,441,000 and $452,791 and executed a non-interest
bearing promissory note for $1,700,000 (discounted at 10% to $774,523) payable
to the seller.
The Company paid approximately $2,400,000 to affiliates of certain
stockholders during the year ended June 30, 1997 for investment banking and
financial advisory services related to certain capital stock repurchases.
F-23
<PAGE>
GOLDEN STATE VINTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE NINE MONTHS THEN
ENDED IS UNAUDITED)
13. RELATED PARTY TRANSACTIONS (CONTINUED)
During the period July 1, 1994 to April 26, 1995 and the years ended June
30, 1996 and 1997, the Company made grape purchases aggregating approximately
$275,000, $400,000 and $1,400,000, respectively, from a vineyard partially owned
by the Company's president.
14. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
SUCCESSOR
PREDECESSOR ----------------------------------
------------- APRIL 27, NINE MONTHS ENDED
JULY 1, 1994 1995 TO YEAR ENDED JUNE 30 MARCH 31
TO APRIL 28, JUNE 30, ---------------------- ----------------------
1995 1995 1996 1997 1997 1998
------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest paid............................. $ 2,672,874 $ 408,820 $4,938,618 $5,578,895 $4,278,328 $4,640,920
Income taxes paid......................... 166,109 40,441 388,250 3,206,000 3,040,000 5,340,000
Notes issued to acquire property, plant
and equipment........................... -- 4,168,314 -- 7,238,071 5,181,078 --
Property acquired under capital lease..... -- -- 407,503 778,593 242,126 1,280,578
Conversion of warrants to preferred
stock................................... 363,258 -- -- -- -- --
</TABLE>
15. SUBSEQUENT EVENTS
On April 1, 1998, the Company granted options to purchase 20,300 shares of
Class B Common Stock at $12.08 to certain employees.
On April 21, 1998, the Company renewed its revolving bank line of credit.
The renewal provides for borrowings up to $22,500,000 with variable interest
rate options, at the Company's election. The line of credit agreement expires on
March 5, 1999.
On April 24, 1998, the Company adopted the 1998 Director Stock Option Plan
(the "Plan"), which covers 348,000 shares of authorized but unissued Class K
Common Stock. Under the terms of the Plan, options may be granted to
non-employee members of the Company's Board of Directors at prices not less than
fair market value (as defined), are fully vested after one year and expire after
ten years. On April 24, 1998 and May 1, 1998 grants were made to non-employee
directors of options to purchase 59,982 and 14,993, respectively, shares of
Common Stock at fair market value on the date of grant. The Plan also provides
for annual grants of options to purchase an additional 10,005 shares of common
stock on May 1 of each year commencing May 1, 1999 to each non-employee director
who has remained in continuous service.
On April 23, 1998 and April 28, 1998, the Board of Directors and the
Company's stockholders, respectively, approved a recapitalization and stock
split, which will result in each share of the Company's common stock being split
into 2.9 shares of common stock. The recapitalization and stock split will be
effected by the filing of the Second Amended and Restated Certificate of
Incorporation of the Company with the Delaware Secretary of State. The
recapitalization will be in the form of (i) the creation of new Class A and
Class B Common Stock, (ii) the conversion of all outstanding shares of old Class
B Common Stock into new Class A Common Stock, (iii) the conversion of all
outstanding shares of Class E and Class K Common Stock into shares of new Class
B Common Stock, and (iv) the conversion of all outstanding shares of Junior
Preferred Stock into 130,349 shares of new Class B Common Stock. All common
stock related data in the accompanying financial statements of the Company
reflect the stock split for all periods presented.
F-24
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom Goldman, Sachs
& Co., Hambrecht & Quist LLC and J.P. Morgan Securities Inc. are acting as
representatives, has severally agreed to purchase from the Company and the
Selling Stockholders, the respective number of shares of Class B Common Stock
set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
CLASS B COMMON
UNDERWRITER STOCK
- - --------------------------------------------------------------------------- -----------------
<S> <C>
Goldman, Sachs & Co........................................................
Hambrecht & Quist LLC......................................................
J.P. Morgan Securities Inc.................................................
-----------------
Total.................................................................... 4,300,000
-----------------
-----------------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The Underwriters propose to offer the 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 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 and certain Selling Stockholders have granted the Underwriters
an option exercisable for 30 days after the date of this Prospectus to purchase
up to an aggregate of 645,000 additional shares of Class B Common Stock to cover
over-allotments, if any. If the Underwriters exercise their over-allotment
option, the 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
4,300,000 shares of Class B Common Stock offered.
The Company and the Selling Stockholders 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 the Prospectus, they will not offer, sell,
contract to sell or otherwise dispose of any securities of the Company (other
than pursuant to employee stock option plans existing, or on the conversion or
exchange of convertible or exchangeable securities outstanding, on the date of
this Prospectus) which are substantially similar to the shares of Class B Common
Stock or which are convertible into or exchangeable for securities which are
substantially similar to the shares of 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 Offering.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
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. The
initial public offering price was negotiated among the Company, the Selling
Stockholders and the representatives. Among the factors considered in
determining the initial public offering price of the Class B Common Stock, in
addition to prevailing market conditions, were the Company's historical
performance, estimates of the
U-1
<PAGE>
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.
Application has been made to list the Class B Common Stock on the Nasdaq
National Market under the symbol "VINT".
In connection with the offering, the Underwriters may purchase and sell the
shares in the open market. These transactions may include over-allotment and
stabilizing transactions and purchases to cover syndicated short positions
created in connection with the offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the shares; and syndicate short positions involve the
sale by the Underwriters of a greater number of shares than they are required to
purchase from the Company and the Selling Stockholders in the offering. The
Underwriters also may impose a penalty bid, whereby selling concessions allowed
to syndicate members or other broker-dealers in respect of the securities sold
in the offering for their account 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 shares, 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.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.
U-2
<PAGE>
- - ----------------------------------------------
----------------------------------------------
- - ----------------------------------------------
----------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, 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 INFORMATION 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
Use of Proceeds........................................................... 16
Dilution.................................................................. 16
Dividend Policy........................................................... 17
Capitalization............................................................ 18
Selected Consolidated Financial Data...................................... 19
Supplemental Pro Forma Consolidated Statement of Operations Data.......... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 21
Business.................................................................. 30
Management................................................................ 43
Certain Relationships and Related Transactions............................ 50
Principal and Selling Stockholders........................................ 53
Shares Eligible for Future Sale........................................... 54
Description of Capital Stock.............................................. 55
Legal Matters............................................................. 59
Experts................................................................... 59
Additional Information.................................................... 59
Index to Consolidated Financial Statements................................ F-1
Underwriting.............................................................. U-1
</TABLE>
-----------------------
THROUGH AND INCLUDING , 1998 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS B COMMON STOCK IN
THE UNITED STATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
4,300,000 SHARES
GOLDEN STATE
VINTNERS, INC.
CLASS B COMMON STOCK
(PAR VALUE $.01 PER SHARE)
---------------------
PROSPECTUS
---------------------
GOLDMAN, SACHS & CO.
HAMBRECHT & QUIST
J.P. MORGAN & CO.
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 and the National Association of Securities Dealers, Inc. filing fee. The
amounts shown include expenses of the Selling Stockholders that are borne by the
Registrant.
<TABLE>
<CAPTION>
PAYABLE BY
REGISTRANT
-------------
<S> <C>
SEC registration fee........................................................... $ 27,717
National Association of Securities Dealers, Inc. filing fee.................... 9,856
Nasdaq Stock Market listing fee................................................ 60,000
Blue Sky fees and expenses..................................................... 5,000
Accounting fees and expenses................................................... 600,000
Legal fees and expenses........................................................ 450,000
Printing and engraving expenses................................................ 250,000
Premium related to Director's and Officer's liability insurance................ 150,000
Registrar and Transfer Agent's fees............................................ 15,000
Miscellaneous fees and expenses................................................ 32,427
-------------
Total...................................................................... $ 1,600,000
-------------
-------------
</TABLE>
- - --------------
* to be provided by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "Delaware 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 "Securities Act"). The
Company's Second Amended and Restated Certificate of Incorporation, to be filed
prior to the consummation of the offering, will provide for indemnification of
the Registrant's directors, officers, employees and other agents to the extent
and under the circumstances permitted by the Delaware Law.
In addition, prior to the consummation of the offering, the Registrant will
enter into agreements to indemnify its directors and certain of its officers in
addition to the indemnification provided for in the Certificate of
Incorporation. These agreements, among other things, will indemnify the
Registrant's directors and certain of its officers for certain expenses
(including attorneys' fees), judgments, fines and settlement amounts incurred by
such person in any action or proceeding, including but not limited to any action
by or in the right of the Registrant, on account of services by that person as a
director or officer of the Registrant or as a director or officer of any
subsidiary of the Registrant, or as a director or officer of any other company
or enterprise that the person provides services to at the request of the
Registrant. The Registrant has also purchased directors' and officers' liability
insurance.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by the
Underwriters of the Registrant, its directors and officers, and by the
Registrant and the Selling Stockholders, severally but not jointly, of the
Underwriters, for certain liabilities, including liabilities arising under the
Securities Act, and affords certain rights of contribution with respect thereto.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since April 1995, the Registrant has sold and issued the following
unregistered securities, which amounts have been adjusted to reflect the
2.9-for-1 stock split to be consummated prior to the offering:
In April 1995, the Registrant sold an aggregate of 1,885,000 shares of Class
A Common Stock and 3,770,000 shares of Class B Common Stock to accredited
investors, at a price per share of $1.72, for an aggregate consideration of
$9,750,000.
In April 1995, the Registrant issued an aggregate of 523,980 shares of
Junior Preferred Stock with an aggregate face amount of $2,619,900 to accredited
investors in partial consideration for such accredited investors' sale to the
Registrant of shares of capital stock of Golden State Vintners.
In April 1995, the Registrant sold 100,000 shares of Senior Preferred Stock
to an accredited investor for an aggregate consideration of $10,000,000 and
issued 1,200,829 shares of Class E Common Stock to such accredited investor in
partial consideration for such accredited investor's purchase of senior secured
first mortgage notes with an aggregate principal face amount of $35,000,000 from
Golden State Vintners.
In April 1995, the Registrant granted to an officer of the Registrant stock
appreciation rights with respect to (i) 145,000 shares of Class A Common Stock
at a base price of $.003 per stock appreciation right and (ii) 504,348 shares of
Class A Common Stock, at a base price of $1.72 per stock appreciation. The
holder did not pay any consideration for these stock appreciation rights.
In November 1995, the Registrant granted to an officer of the Registrant
stock appreciation rights with respect to 145,000 shares of Class B Common Stock
at a base price of $2.59 per stock appreciation right. The holder did not pay
any consideration for these stock appreciation rights.
In October 1996, the Registrant sold an aggregate of 2,776,170 shares of
Class B Common Stock to accredited investors, at a price of $2.50 per share, for
an aggregate consideration of $6,949,998.
In November 1996, the Registrant sold an aggregate of 99,862 shares of Class
K Common Stock to accredited investors, at a price of $2.50 per share, for an
aggregate consideration of $250,000.
In December 1996, the Registrant granted to an officer of the Registrant
options to purchase 670,434 shares of Class A Common Stock under its 1996 Stock
Option Plan. The options are exercisable for up to 167,608 shares at a price of
$3.62 per share, up to an additional 167,609 shares at a price of $4.31 per
share, up to an additional 167,608 shares at a price of $5.17 per share, and up
to an additional 167,609 shares at a price of $6.03 per share. The optionee did
not pay cash consideration for these options.
Effective as of December 31, 1997, the Registrant terminated all outstanding
stock appreciation rights with respect to the Company's Common Stock. In
exchange for such rights, the Company granted to such holders options to
purchase an aggregate of 794,348 shares of the Registrant's Class B Common Stock
and an amount of cash equal to the difference between the base price of each
stock appreciation right and the fair market value of the Registrant's Common
Stock on December 31, 1997. The options were fully-vested on the date of grant
and are exercisable at a price of $12.07 per share.
In January 1998, the Registrant granted to several officers and a consultant
of the Registrant options to purchase an aggregate of 147,900 shares of Class B
Common Stock under its 1996 Stock Option Plan. The options are exercisable at a
price of $4.79 per share. The optionees did not pay cash consideration for these
options.
In April 1998, in connection with the exercise of options by two executive
officers, the Registrant issued 307,600 shares of Class A Common Stock and
issued 29,619 shares of Class B Common Stock. Each officer paid cash in
connection with the exercise of these options.
II-2
<PAGE>
In April 1998, the Registrant granted to several officers options to
purchase an aggregate of 20,300 shares of Class B Common Stock under its 1996
Stock Option Plan and, in April and May of 1998, granted to several non-employee
directors options to purchase an aggregate of 74,975 shares of Class B Common
Stock pursuant to the 1998 Director Stock Option Plan.
Immediately prior to the Offering, all outstanding shares of Class B Common
Stock, will be converted into shares of Class A Common Stock and all outstanding
shares of Class E Common Stock and Class K Common Stock were converted into
shares of the Company's newly-created Class B Common Stock.
The sales and issuances of the securities described above were deemed to be
exempt from registration under the Securities Act in reliance upon Section 4(2)
thereof, as transactions not involving a public offering, or, with respect to
stock appreciation rights and options issued to officers, in reliance upon the
exemption from registration provided by Rule 701 of the Commission. The
purchasers in such private offerings 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 issued in such
transactions. All recipients had adequate access, through employment or other
relationships, to information about the Registrant. No underwriter was employed
with respect to any such sales.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
The following Exhibits are attached hereto and incorporated herein by
reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- - -------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1+ Stock Purchase Agreement dated as of April 27, 1995 by and among the
Registrant, Golden State Vintners and certain shareholders of Golden State
Vintners.
2.2+ Preferred Stock Exchange Agreement dated as of April 27, 1995 among the
Registrant and the parties signatory thereto.
2.3+ Agreement for Purchase and Sale of Reedley Facility dated March 15, 1995
between the Registrant and Heublein, Inc.
2.4+ Vineyard Purchase Agreement dated May 16, 1995 between the Registrant and
The Grape Group, Inc.
2.5+ Asset Purchase Agreement of Soledad Facility dated September 4, 1996
between the Registrant and Vintners International Company, Inc., as
amended.
2.6+ Common Stock Subscription Agreement dated as of April 27, 1995 among the
Registrant and each of the signatories thereto.
2.7+ Purchase Agreement dated as of March 10, 1997 among the Registrant,
William D. Reid and Johnye B. Reid.
3.1+ Amended and Restated Certificate of Incorporation of the Registrant, as
amended.
3.2 Form of Second Amended and Restated Certificate of Incorporation of the
Registrant.
3.3+ Bylaws of the Registrant.
3.4+ Certificate of Designations of the 12% Senior Redeemable Preferred Stock
of the Registrant, as amended and currently in effect.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- - -------------------------------------------------------------------------------------
<C> <S>
3.5+ Certificate of Powers, Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of Junior Exchangeable
Preferred Stock and Qualifications, Limitations and Restrictions Thereof
of the Registrant, as amended and currently in effect.
4.1 Form of Class B Common Stock Certificate of the Registrant.
4.2+ Registration Rights Agreement dated as of April 27, 1995 by and among the
Registrant and certain holders of the Registrant's Common Stock.
4.3+ Registration Rights Agreement dated October 10, 1996 by and among the
Registrant and certain holders of the Registrant's Common Stock.
4.4+ Amended and Restated Stockholders Agreement dated as of October 10, 1996
by and among the Registrant and certain holders of the Registrant's
capital stock.
5.1 Form of Legal opinion of Riordan & McKinzie.
10.1+ 1996 Stock Option Plan ("1996 Stock Plan") of the Registrant.
10.2+ Form of Incentive Stock Option Agreement under the 1996 Stock Plan.
10.3+ Form of Nonqualified Stock Option Agreement under the 1996 Stock Plan.
10.4+ Form of Indemnity Agreement between the Registrant and its officers and
directors.
10.5+ Employment Agreement dated as of April 27, 1995 between the Registrant and
Jeffrey B. O'Neill.
10.6+ Securities Purchase Agreement dated April 21, 1995 among the Registrant,
Golden State Vintners and John Hancock Mutual Life Insurance Company
("John Hancock"), as amended.
10.7+ First Mortgage Note Due April 1, 2005 issued by Golden State Vintners in
favor of John Hancock in the principal amount of $35,000,000.00.
10.8+ Continuing Corporate Guaranty dated April 27, 1995 entered into by the
Registrant in favor of John Hancock.
10.9+ Security Agreement dated as of April 21, 1995 entered into by Golden State
Vintners in favor of John Hancock.
10.10+ Intercreditor Agreement dated as of April 21, 1995 among Golden State
Vintners, John Hancock and Sanwa Bank California ("Sanwa"), as amended.
10.11 Demand Promissory Note dated April 27, 1995 issued by the Registrant in
favor of Golden State Vintners in the principal amount of $1,300,000.00.
10.12 Intentionally omitted.
10.13+ Accounts Receivable Credit Agreement dated as of April 21, 1998 between
Sanwa and the Registrant.
10.14 Continuing Guaranty dated as of April 21, 1998 between the Registrant and
Sanwa.
10.15+ Term Loan Agreement dated as of May 1, 1995 between the Registrant and
Sanwa, as amended.
10.16+ Term Loan Agreement dated as of December 18, 1996 between the Registrant
and Sanwa, as amended.
10.17+ Sublease and Consent among the Registrant, Richard C. McKenzie and 100 Sir
Francis Drake Boulevard, Inc.
10.18+ Promissory Note dated May 5, 1995 between the Registrant and Heublein,
Inc.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- - -------------------------------------------------------------------------------------
<C> <S>
10.19+ Securities Purchase Agreement dated as of August 22, 1996 among the
Registrant and the parties signatory thereto.
10.20+ Stock Purchase Agreement dated as of October 10, 1996 among the
Registrant, SBIC Partners, L.P. and Jeffrey B. O'Neill, together with
Supplemental Signature Page thereto dated November 26, 1996 executed by
R&M Partners/GSV, G.P., Victor Palmieri and Peter Mullin.
10.21+ Letter Agreement dated October 9, 1996 between the Registrant and Exeter
Venture Management Corporation.
10.22+ Management Agreement dated May 31, 1997 between the Registrant and Forrest
Binkley & Brown Partners L.P.
10.23+ 1998 Director Stock Option Plan (the "Director Plan").
10.24+ Stock Option Agreement dated as of December 31, 1997 between the
Registrant and Jeffrey B. O'Neill.
10.25+ Stock Option Agreement dated as of December 31, 1997 between the
Registrant and Brian R. Thompson.
10.26+ Employment Agreement dated as of January 1, 1998 between the Registrant
and Jeffrey B. O'Neil.
10.27+ Promissory Note issued by the Registrant in favor of Cottonwood Vineyard
in the principal amount of $452,791.17.
10.28+ Promissory Note issued by the Registrant in favor of Vintners
International Company, Inc.
10.29 Form of Stock Option Agreement under the Director Plan.
10.30+ Promissory Note dated September 30, 1986 between the Registrant, as
assignee of original maker, The Grape Group and The Prudential Insurance
Company of America.
10.31+ Loan Note dated January 17, 1990 between the Registrant, as assignee of
original makers, William E. Reid and Johnye B. Reid, and Sumitomo Bank of
California.
10.32+ Promissory Note dated June 15, 1995 between the Registrant, as assignee of
original makers, William E. Reid and Johnye B. Reid,and Sumitomo Bank of
California.
10.33 Promissory Note dated January 1, 1998 between the Registrant and Jeffrey
B. O'Neil.
10.34 Promissory Note dated January 1, 1998 between the Registrant and Brian R.
Thompson.
21.1+ Subsidiaries of the Registrant.
23.1 Consent of Deloitte & Touche LLP Independent Auditors.
23.2 Consent of Riordan & McKinzie (included in Exhibit 5.1).
23.3 Consent of Gomberg, Fredrikson & Associates.
23.4 Consent of The Wine Spectator.
24.1+ Power of Attorney (included on page II-7 of this Registration Statement,
as originally filed).
27.1 Financial Data Schedule.
</TABLE>
- - --------------
+ Previously filed.
(b) Financial Statement Schedules
II-5
<PAGE>
SCHEDULE
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
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 Securities 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 Securities 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 Securities 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 Securities 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 Securities
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-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Company's Registration Statement on
Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Greenbrae, State of California, on the 16th day of
June, 1998.
GOLDEN STATE VINTNERS, INC.
By: /s/ JEFFREY B. O'NEILL
-----------------------------------------
Jeffrey B. O'Neill
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
NAME TITLE DATE
- - ------------------------------ -------------------------- -------------------
Chief Executive Officer,
/s/ JEFFREY B. O'NEILL President (Principal
- - ------------------------------ Executive Officer) and June 16, 1998
Jeffrey B. O'Neill Director
Chief Financial Officer
* and Secretary (Principal
- - ------------------------------ Financial Officer and June 16, 1998
Brian R. Thompson Accounting Officer)
* Chairman of the Board,
- - ------------------------------ Assistant Secretary and June 16, 1998
Jeffrey J. Brown Director
*
- - ------------------------------ Director June 16, 1998
Nicholas B. Binkley
*
- - ------------------------------ Director June 16, 1998
Douglas R. Wolter
*
- - ------------------------------ Director June 16, 1998
Keith R. Fox
*
- - ------------------------------ Director June 16, 1998
W. Scott Hedrick
*
- - ------------------------------ Director June 16, 1998
Peter W. Mullin
- - ------------------------------ Director June __, 1998
John G. McDonald
- - ------------------------------ Director June __, 1998
Gregory J. Forrest
*By: /s/ JEFFREY B. O'NEILL
-------------------------
Jeffrey B. O'Neill
ATTORNEY-IN-FACT
II-7
<PAGE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT END
PERIOD EXPENSES DEDUCTIONS OF PERIOD
----------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Predecessor:
Period from July 1, 1994 to April 26, 1995:
Allowance for uncollectible accounts.................... $ 80 $ -- $ -- $ 80
Successor:
Period from April 27, 1995 to June 30, 1995:
Allowance for uncollectible accounts.................... 80 -- -- 80
Year ended June 30, 1996:
Allowance for uncollectible accounts.................... 80 166 (66) 180
Year ended June 30, 1997:
Allowance for uncollectible accounts.................... 180 43 (123) 100
Nine-months ended March 31, 1998:
Allowance for uncollectible accounts.................... 100 90 (2) 188
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- - ----------- ----------------------------------------------------------------------------------------- -----------------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
2.1+ Stock Purchase Agreement dated as of April 27, 1995 by and among the Registrant, Golden
State Vintners and certain shareholders of Golden State Vintners.
2.2+ Preferred Stock Exchange Agreement dated as of April 27, 1995 among the Registrant and
the parties signatory thereto.
2.3+ Agreement for Purchase and Sale of Reedley Facility dated March 15, 1995 between the
Registrant and Heublein, Inc.
2.4+ Vineyard Purchase Agreement dated May 16, 1995 between the Registrant and The Grape
Group, Inc.
2.5+ Asset Purchase Agreement of Soledad Facility dated September 4, 1996 between the
Registrant and Vintners International Company, Inc., as amended.
2.6+ Common Stock Subscription Agreement dated as of April 27, 1995 among the Registrant and
each of the signatories thereto.
2.7+ Purchase Agreement dated as of March 10, 1997 among the Registrant, William D. Reid and
Johnye B. Reid.
3.1+ Amended and Restated Certificate of Incorporation of the Registrant, as amended.
3.2 Form of Second Amended and Restated Certificate of Incorporation of the Registrant.
3.3+ Bylaws of the Registrant.
3.4+ Certificate of Designations of the 12% Senior Redeemable Preferred Stock of the
Registrant, as amended and currently in effect.
3.5+ Certificate of Powers, Designations, Preferences and Relative, Participating, Optional
and Other Special Rights of Junior Exchangeable Preferred Stock and Qualifications,
Limitations and Restrictions Thereof of the Registrant, as amended and currently in
effect.
4.1 Form of Class B Common Stock Certificate of the Registrant.
4.2+ Registration Rights Agreement dated as of April 27, 1995 by and among the Registrant and
certain holders of the Registrant's Common Stock.
4.3+ Registration Rights Agreement dated October 10, 1996 by and among the Registrant and
certain holders of the Registrant's Common Stock.
4.4+ Amended and Restated Stockholders Agreement dated as of October 10, 1996 by and among the
Registrant and certain holders of the Registrant's capital stock.
5.1 Form of Legal opinion of Riordan & McKinzie.
10.1+ 1996 Stock Option Plan ("1996 Stock Plan") of the Registrant.
10.2+ Form of Incentive Stock Option Agreement under the 1996 Stock Plan.
10.3+ Form of Nonqualified Stock Option Agreement under the 1996 Stock Plan.
10.4+ Form of Indemnity Agreement between the Registrant and its officers and directors.
10.5+ Employment Agreement dated as of April 27, 1995 between the Registrant and Jeffrey B.
O'Neill.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- - ----------- ----------------------------------------------------------------------------------------- -----------------
<C> <S> <C>
10.6+ Securities Purchase Agreement dated April 21, 1995 among the Registrant, Golden State
Vintners and John Hancock Mutual Life Insurance Company ("John Hancock"), as amended.
10.7+ First Mortgage Note Due April 1, 2005 issued by Golden State Vintners in favor of John
Hancock in the principal amount of $35,000,000.00.
10.8+ Continuing Corporate Guaranty dated April 27, 1995 entered into by the Registrant in
favor of John Hancock.
10.9+ Security Agreement dated as of April 21, 1995 entered into by Golden State Vintners in
favor of John Hancock.
10.10+ Intercreditor Agreement dated as of April 21, 1995 among Golden State Vintners, John
Hancock and Sanwa Bank California ("Sanwa"), as amended.
10.11 Demand Promissory Note dated April 27, 1995 issued by the Registrant in favor of Golden
State Vintners in the principal amount of $1,300,000.00.
10.12 Intentionally omitted.
10.13+ Accounts Receivable Credit Agreement dated as of April 21, 1998 between Sanwa and the
Registrant.
10.14 Continuing Guaranty dated as of April 21, 1998 between the Registrant and Sanwa.
10.15+ Term Loan Agreement dated May 1, 1995 between the Registrant and Sanwa Bank of
California, as amended.
10.16+ Term Loan Agreement dated as of December 18, 1996 between the Registrant and Sanwa, as
amended.
10.17+ Sublease and Consent among the Registrant, Richard C. McKenzie and 100 Sir Francis Drake
Boulevard, Inc.
10.18+ Promissory Note dated May 5, 1995 issued by the Registrant in favor of Heublein, Inc.
10.19+ Securities Purchase Agreement dated as of August 22, 1996 among the Registrant and the
parties signatory thereto.
10.20+ Stock Purchase Agreement dated as of October 10, 1996 among the Registrant, SBIC
Partners, L.P. and Jeffrey B. O'Neill, together with Supplemental Signature Page thereto
dated November 26, 1996 executed by R&M Partners/GSV, G.P., Victor Palmieri and Peter
Mullin.
10.21+ Letter Agreement dated October 9, 1996 between the Registrant and Exeter Venture
Management Corporation.
10.22+ Management Agreement dated May 31, 1997 between the Registrant and Forrest Binkley &
Brown Partners L.P.
10.23+ 1998 Director Stock Option Plan (the "Director Plan").
10.24+ Stock Option Agreement dated as of December 31, 1997 between the Registrant and Jeffrey
B. O'Neill.
10.25+ Stock Option Agreement dated as of December 31, 1997 between the Registrant and Brian R.
Thompson.
10.26+ Employment Agreement dated as of January 1, 1998 between the Registrant and Jeffrey B.
O'Neill.
10.27+ Promissory Note issued by the Registrant in favor of Cottonwood Vineyard in the principal
amount of $452,791.17.
10.28+ Promissory Note issued by the Registrant in favor of Vintners International Company, Inc.
10.29 Form of Stock Option Agreement under the Director Plan.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- - ----------- ----------------------------------------------------------------------------------------- -----------------
<C> <S> <C>
10.30+ Promissory Note dated September 30, 1986 between the Registrant, as assignee of original
maker, The Grape Group, and The Prudential Insurance Company of America.
10.31+ Loan Note dated January 17, 1990 between the Registrant, as assignee of original makers,
William E. Reid and Johnye B. Reid, and Sumitomo Bank of California.
10.32+ Promissory Note dated June 15, 1995 between the Registrant, as assignee of original
makers, William E. Reid and Johnye B. Reid, and Sumitomo Bank of California.
10.33 Promissory Note dated January 1, 1998 between the Registrant and Jeffrey B. O'Neill.
10.34 Promissory Note dated January 1, 1998 between the Registrant and Brian R. Thompson.
21.1+ Subsidiaries of the Registrant.
23.1 Consent of Deloitte & Touche LLP Independent Auditors.
23.2 Consent of Riordan & McKinzie (included in Exhibit 5.1).
23.3 Consent of Gomberg, Fredrikson & Associates.
23.4 Consent of The Wine Spectator.
24.1 Power of Attorney (included on page II-7 of this Registration Statement, as originally
filed).
27.1 Financial Data Schedule.
</TABLE>
- - --------------
+ Previously filed.
<PAGE>
Exhibit 1.1
GOLDEN STATE VINTNERS, INC.
Class B Common Stock
(par value $0.01 per share)
------------------------------------------
UNDERWRITING AGREEMENT
.............., 1998
Goldman, Sachs & Co.,
Hambrecht & Quist LLC,
J.P. Morgan Securities Inc.,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
Golden State Vintners, 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 2,150,000 shares and, at the election of the Underwriters, up to . . . . . .
additional shares of Class B Common Stock, par value $0.01 per share ("Stock")
of the Company and the stockholders of the Company named in Schedule II hereto
(the "Selling Stockholders") propose, subject to the terms and conditions stated
herein, to sell to the Underwriters an aggregate of 2,150,000 shares and, at the
election of the Underwriters, up to . . . . . . . additional shares of Stock.
The aggregate of 4,300,000 shares to be sold by the Company and the Selling
Stockholders is herein called the "Firm Shares" and the aggregate of 645,000
additional shares to be sold by the Company and the Selling Stockholders is
herein called the "Optional Shares". The Firm Shares and the Optional Shares
that the Underwriters elect to purchase pursuant to Section 2 hereof are herein
collectively called the "Shares".
1. (a) The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-51443)
(the "Initial Registration Statement") in respect of the Shares has been
filed with the Securities and Exchange Commission (the "Commission"); the
Initial Registration Statement and any post-effective
1
<PAGE>
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, any post-effective amendment thereto or the Rule 462(b)
Registration 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 Registration Statement at the time it was declared
effective, each as amended at the time such part of the Initial
Registration Statement became effective or such part of the Rule 462(b)
Registration Statement, if any, became or hereafter becomes 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");
(ii) 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 or by a Selling Stockholder
expressly for use in the preparation of the answers therein to Items 7 and
11(m) of Form S-1;
(iii) 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 or
by a Selling Stockholder expressly for use in the preparation of the
answers therein to Items 7 and 11(m) of Form S-1;
2
<PAGE>
(iv) Neither the Company nor any of its 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 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;
(v) 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;
(vi) Each of the Company and Golden State Vintners, a California
corporation (the "Subsidiary"), has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware and the State of California, respectively, 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;
(vii) 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 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 and except as set forth in the Prospectus) are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims;
(viii) The Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, 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;
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(ix) The issue and sale of the Shares to be sold by the Company
and the compliance by the Company with all of the provisions of this
Agreement and the consummation of the transactions herein 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, in each case other than such conflicts, breaches, violations or
defaults which, individually or in the aggregate, (a) would not have a
material adverse effect on the Company and its subsidiaries and (b) would
not affect the validity, performance or consummation of the transactions
contemplated by this Agreement; 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 consummation by the Company of the transactions contemplated
by this Agreement, except (x) those which have been obtained, or (y) the
registration under the Act of the Shares and such consents, approvals,
authorizations, registrations or qualifications as may be required under
state securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters;
(x) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws (or equivalent
documents) or in default in the performance or observance of any material
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, in each case other than such violations or defaults which,
individually or in the aggregate, (a) would not have a material adverse
effect on the Company and its subsidiaries and (b) would not affect the
validity, performance or consummation of the transactions contemplated by
this Agreement;
(xi) 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 fair and accurate summaries thereof;
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;
(xii) 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, other than as set forth in the
Prospectus, to the best of the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by
others;
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(xiii) 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");
(xiv) Deloitte & Touche 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;
(xv) 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 reasonably be likely to
result in a material adverse effect upon the general affairs, management,
financial condition, stockholders' equity or results of operations of the
Company and its subsidiaries, and, except as described 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 which, individually or in the
aggregate, is reasonably likely to result in any material adverse change
upon the general affairs, management, financial condition, stockholders'
equity or results of operations of the Company and its subsidiaries; 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 where such infringement or
conflict is reasonably likely to result in any material adverse effect upon
the general affairs, management, financial condition, stockholders' equity
or results of operations of the Company and its subsidiaries;
(xvi) 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 (collectively, the "Laws"), with such exceptions as would not
reasonably be likely to result in a material adverse effect upon the
general affairs, management, financial position, stockholders' equity or
results of operations of the Company and its subsidiaries, 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 general affairs, management, financial
position, stockholders' equity or results of operations of the Company and
its subsidiaries; and
(xvii) 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
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equipment, business or assets. There are no past or present events,
conditions, activities or practices that could reasonably be expected to
prevent continued compliance by the Company and its subsidiaries in all
material respects 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 reasonably be likely to
have a material adverse effect on the current or future 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.
(b) Each of the Selling Stockholders severally represents and warrants to,
and agrees with, each of the Underwriters and the Company that:
(i) All consents, approvals, authorizations and orders necessary
for the execution and delivery by such Selling Stockholder of this
Agreement and the Power of Attorney and the Custody Agreement hereinafter
referred to, and for the sale and delivery of the Shares to be sold by such
Selling Stockholder hereunder, have been obtained; and such Selling
Stockholder has full right, power and authority to enter into this
Agreement, the Power-of-Attorney and the Custody Agreement and to sell,
assign, transfer and deliver the Shares to be sold by such Selling
Stockholder hereunder;
(ii) The sale of the Shares to be sold by such Selling
Stockholder hereunder and the compliance by such Selling Stockholder with
all of the provisions of this Agreement, the Power of Attorney and the
Custody 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 statute, indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which such Selling Stockholder is a party
or by which such Selling Stockholder is bound or to which any of the
property or assets of such Selling Stockholder is subject, nor will such
action result in any violation of the provisions of the Certificate of
Incorporation or By-laws of such Selling Stockholder if such Selling
Stockholder is a corporation or the Partnership Agreement of such Selling
Stockholder if such Selling Stockholder is a partnership or any statute or
any order, rule or regulation of any court or governmental agency or body
having jurisdiction over such Selling Stockholder or the property of such
Selling Stockholder, in each case other than such conflicts, breaches,
violations or defaults, which, individually or in the aggregate (a) would
not have a material adverse effect on such Selling Stockholder or on the
Company and its subsidiaries and (b) would not affect the validity,
performance or consummation of the transactions contemplated by this
Agreement, the Power-of-Attorney or the Custody Agreement;
(iii) Such Selling Stockholder has, and immediately prior to
each Time of Delivery (as defined in Section 4 hereof) such Selling
Stockholder will have, good and valid title to the
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Shares to be sold by such Selling Stockholder hereunder, free and clear of
all liens, encumbrances, equities or claims; and, upon delivery of such
Shares and payment therefor pursuant hereto, good and valid title to such
Shares, free and clear of all liens, encumbrances, equities or claims, will
pass to the several Underwriters;
(iv) 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, any securities of the Company that are
substantially similar to the Shares, including but not limited to any
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 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;
(v) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Shares;
(vi) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto are made in reliance upon and in conformity
with written information furnished to the Company by such Selling
Stockholder expressly for use therein, such Preliminary Prospectus and the
Registration Statement did, and the Prospectus and any further amendments
or supplements to the Registration Statement and the Prospectus, when they
become effective or are filed with the Commission, as the case may be,
will, conform in all material respects to the requirements of the Act and
the rules and regulations of the Commission thereunder and 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
not misleading;
(vii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Stockholder will deliver to you prior to or at
the First Time of Delivery (as hereinafter defined) a properly completed
and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations
in lieu thereof);
(viii) Certificates in negotiable form representing all of the
Shares to be sold by such Selling Stockholder hereunder have been placed in
custody under a Custody Agreement, in the form heretofore furnished to you
(the "Custody Agreement"), duly executed and delivered by such Selling
Stockholder to U.S. Stock Transfer Corporation, as custodian (the
"Custodian"), and such Selling Stockholder has duly executed and
delivered a Power of Attorney, in the form heretofore furnished to you
(the "Power of Attorney"), appointing the persons indicated in Schedule
II hereto, and each of them, as such Selling Stockholder's attorneys-in-
fact (the "Attorneys-in-Fact") with authority to execute and deliver
this Agreement on behalf of such Selling Stockholder, to determine the
purchase price to be paid by the Underwriters to the Selling Stockholders
as provided in Section 2 hereof, to authorize the delivery of the Shares
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<PAGE>
to be sold by such Selling Stockholder hereunder and otherwise to act on
behalf of such Selling Stockholder in connection with the transactions
contemplated by this Agreement and the Custody Agreement; and
(ix) The Shares represented by the certificates held in custody
for such Selling Stockholder under the Custody Agreement are subject to the
interests of the Underwriters hereunder; the arrangements made by such
Selling Stockholder for such custody, and the appointment by such Selling
Stockholder of the Attorneys-in-Fact by the Power of Attorney, are to that
extent irrevocable; the obligations of the Selling Stockholders hereunder
shall not be terminated by operation of law, whether by the death or
incapacity of any individual Selling Stockholder or, in the case of an
estate or trust, by the death or incapacity of any executor or trustee or
the termination of such estate or trust, or in the case of a partnership or
corporation, by the dissolution of such partnership or corporation, or by
the occurrence of any other event; if any individual Selling Stockholder or
any such executor or trustee should die or become incapacitated, or if any
such estate or trust should be terminated, or if any such partnership or
corporation should be dissolved, or if any other such event should occur,
before the delivery of the Shares hereunder, certificates representing the
Shares shall be delivered by or on behalf of the Selling Stockholders in
accordance with the terms and conditions of this Agreement and of the
Custody Agreements; and actions taken by the Attorneys-in-Fact pursuant to
the Powers of Attorney shall be as valid as if such death, incapacity,
termination, dissolution or other event had not occurred, regardless of
whether or not the Custodian, the Attorneys-in-Fact, or any of them, shall
have received notice of such death, incapacity, termination, dissolution or
other event.
2. Subject to the terms and conditions herein set forth, (a) the Company
and each of the Selling Stockholders agree, severally and not jointly, to sell
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company and each of the Selling Stockholders,
at a purchase price per share of $.............., the number of Firm Shares (to
be adjusted by you so as to eliminate fractional shares) determined by
multiplying the aggregate number of Shares to be sold by the Company and each of
the Selling Stockholders as set forth opposite their respective names in
Schedule II hereto by a fraction, the numerator of which is the aggregate number
of Firm Shares to be purchased by such Underwriter as set forth opposite the
name of such Underwriter in Schedule I hereto and the denominator of which is
the aggregate number of Firm Shares to be purchased by all of the Underwriters
from the Company and all of the Selling Stockholders hereunder 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 and each of the Selling
Stockholders agree, severally and not jointly, to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company and each of the Selling Stockholders, 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.
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The Company and the Selling Stockholders, as and to the extent indicated in
Schedule II hereto, hereby grant, severally and not jointly, to the Underwriters
the right to purchase at their election up to 645,000 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 shall be made [in proportion to the maximum number
of Optional Shares to be sold by the Company and the Selling Stockholders as
set forth in Schedule II hereto] [initially with respect to the Optional
Shares to be sold by the Company and thereafter among the Selling Stockholders
in proportion to the maximum number of Optional Shares to be sold by each
Selling Stockholder as set forth in Schedule II hereto]. Any such election to
purchase Optional Shares may be exercised only by written notice from you to
the Company and the Attorneys-in-Fact, given within a period of 30 calendar
days after the date of this Agreement and 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 Company and the Attorneys-in-Fact 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 and the Selling Stockholders shall be delivered by or on
behalf of the Company and the Selling Stockholders 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 (same-day) funds to the
accounts specified by the Company and the Custodian, on behalf of each of the
Selling Stockholders, at least 48 hours in advance. 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 time, on .............,
1998 or such other time and date as Goldman, Sachs & Co. and the Company and the
Selling Stockholders 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 and the Selling Stockholders 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 reasonably requested by the
Underwriters pursuant to Section 7, hereof, will be delivered at the offices of
Sullivan & Cromwell, 444 South Flower Street, Los Angeles, California 90071 (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
12:00 p.m., Los Angeles time, on the New
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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 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 events 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,
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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
of the Commission 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,
any securities of the Company that are substantially similar to the Shares,
including but not limited to any 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
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
pursuant to this 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"); and
(j) 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
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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.
6. The Company and each of the Selling Stockholders covenant and agree
with one another and with the several Underwriters that (a) 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 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 Blue
Sky Memorandum, closing documents (including any compilations thereof) and any
other documents in connection with the offering, purchase, sale and delivery of
the 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 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; (viii) any fees
and expenses of one counsel for the Selling Stockholders, (ix) fees and expenses
of the Attorney-in-Fact and the Custodian; and (ix) all other costs and expenses
incident to the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section; and (b) such Selling Stockholder will
pay or cause to be paid all costs and expenses incident to the performance of
such Selling Stockholder's obligations hereunder which are not otherwise
specifically provided for in this Section, including all expenses and taxes
incident to the sale and delivery of the Shares to be sold by such Selling
Stockholder to the Underwriters hereunder. In connection with clause (b) of the
preceding sentence, Goldman, Sachs & Co. agrees to pay New York State stock
transfer tax, and the Selling Stockholder agrees to reimburse Goldman, Sachs &
Co. for associated carrying costs if such tax payment is not rebated on the day
of payment and for any portion of such tax payment not rebated. It is
understood, however, that the Company shall bear, and the Selling Stockholders
shall not be required to pay or to reimburse the Company for, the cost of any
other matters not directly relating to the sale and purchase of the Shares
pursuant to this Agreement, and 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 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 and of the Selling Stockholders herein are, at and as of such Time
of Delivery, true and correct, the condition that the Company and the Selling
Stockholders shall have performed all of its and their 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
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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) Sullivan & Cromwell, counsel for the Underwriters, shall have
furnished to you such written 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
(xi) of subsection (c) below, as well as 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) Riordan & McKinzie, counsel for the Company and the Selling
Stockholder, 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 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) have been duly and validly authorized and issued and are
fully paid and non-assessable; and the Shares conform to the
description of the Stock contained in the Prospectus;
(iii) The Company has been qualified as a foreign corporation
for the transaction of business in the State of California and is in
good standing under the laws of California and of each other
jurisdiction in which it is so qualified;
(iv) The Subsidiary has been incorporated and is validly
existing as a corporation in good standing under the laws of the State
of California; and all of the issued shares of capital stock of the
Subsidiary have been duly and validly authorized and issued, are fully
paid and non-assessable, and (except for directors' qualifying shares
and except as otherwise set forth in the Prospectus) are owned
directly or indirectly by the Company free and clear, to the best
knowledge of such counsel, 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 officers of the Company or its
subsidiaries);
(v) To the best of such counsel's knowledge 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
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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 such
counsel's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(vi) This Agreement has been duly authorized, executed and
delivered by the Company;
(vii) The issue and sale of the Shares being delivered at
such Time of Delivery to be sold by the Company and the compliance by
the Company with all of the provisions of this Agreement and the
consummation of the transactions herein 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 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, in each case, other than such conflicts, breaches,
violations or defaults which, individually or in the aggregate, (a)
would not have a material adverse effect on the Company and its
subsidiaries and (b) would not affect the validity, performance or
consummation of the transactions contemplated by this Agreement;
(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 consummation by the Company or each of the Selling
Stockholders of the transactions contemplated by this Agreement,
except the registration under the Act of the Shares, and such
consents, approvals, authorizations, registrations or qualifications
as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by the
Underwriters;
(ix) Neither the Company nor the Subsidiary is in violation
of its Certificate of Incorporation or By-laws, or Articles of
Incorporation or Bylaws, respectively;
(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, 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; provided, however, that this opinion 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;
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(xi) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in
the Investment Company Act;
(xii) The Company and each of its subsidiaries have all
necessary licenses from the California Department of Alcohol Beverage
Control and necessary permits from the Federal Bureau of Alcohol,
Tobacco and Firearms which these regulatory agencies require to permit
the manufacture and sale of alcoholic beverages;
(xiii) No authorization, approval, or consent of either the
California Department of Alcohol Beverage Control or the Federal
Bureau of Alcohol, Tobacco and Firearms is required for the sale of
the Shares by the Company and the Selling Shareholders to the
Underwriters pursuant to this Agreement;
(xiv) 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 Federal Bureau of Alcohol, Tobacco and Firearms to
suspend or revoke the licenses and permits referred to in paragraph
(xii) above;
(In rendering the opinions in clauses (xii), (xiii) and (xiv)
above, such counsel may rely upon the opinion of Buchman & O'Brien as
to such matters, provided that such counsel shall state that they
believe that both you and they are justified in relying upon such
opinion);
(xv) 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 and other financial data derived from accounting
records contained 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;
(xvi) Such counsel shall also state that, 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 opinions in
subsections (ii) and (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 schedules
and other financial data derived from accounting records contained
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 and other financial data derived from accounting records
contained therein, as to which such counsel need express no opinion)
contained an untrue statement of a material fact or omitted to state a
material
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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 and other financial data
derived from accounting records contained 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 such counsel shall further state that, in
connection with the matters addressed in this paragraph, they
performed the following investigations with respect to all real
property described in the Prospectus as owned or leased by the Company
or the Subsidiary: (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
the Subsidiary;
(xvii) A Power-of-Attorney and a Custody Agreement have been
duly executed and delivered by each of the Selling Stockholders and
constitute valid and binding agreements of each such Selling
Stockholder in accordance with their terms;
(xviii) This Agreement has been duly executed and delivered by
or on behalf of each of the Selling Stockholders; and the sale of the
Shares to be sold by each such Selling Stockholder hereunder and the
compliance by such Selling Stockholder with all of the provisions of
this Agreement, the Power-of-Attorney and the Custody Agreement and
the consummation of the transactions herein and therein contemplated
will not conflict with or result in a breach or violation of any terms
or provisions of, or constitute a default under, any statute,
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument known to such counsel to which such Selling Stockholder
is a party or by which such Selling Stockholder is bound or to which
any of the property or assets of such Selling Stockholder is subject,
nor will such action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of such Selling Stockholder if
such Selling Stockholder is a corporation or the Partnership Agreement
of such Selling Stockholder if such Selling Stockholder is a
partnership or any order, rule or regulation known to such counsel of
any court or governmental agency or body having jurisdiction over such
Selling Stockholder or the property of such Selling Stockholder, in
each case, other than such conflicts, breaches, violations or defaults
which, individually or in the aggregate, (a) would not have a material
adverse effect on the Company and its subsidiaries and (b) would not
affect the validity, performance or consummation of the transactions
contemplated by this Agreement;
(xix) No consent, approval, authorization or order of any
court or governmental agency or body is required for the consummation
of the transactions contemplated by this Agreement in connection with
the Shares to be sold by each such
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Selling Stockholder hereunder, except those which have been obtained
and remain in full force and effect, such as have been obtained under
the Act and such as may be required under state securities or Blue Sky
laws in connection with the purchase and distribution of such Shares
by the Underwriters;
(xx) Immediately prior to such Time of Delivery, each such
Selling Stockholder had good and valid title to the Shares to be sold
at such Time of Delivery by such Selling Stockholder under this
Agreement, free and clear of all liens, encumbrances, equities or
claims, and full right, power and authority to sell, assign, transfer
and deliver the Shares to be sold by such Selling Stockholder
hereunder; and
(xxi) Good and valid title to such Shares, free and clear of
all liens, encumbrances, equities or claims, has been transferred to
each of the several Underwriters who have purchased such Shares in
good faith and without notice of any such lien, encumbrance, equity or
claim or any other adverse claim within the meaning of the Uniform
Commercial Code;
(In rendering the opinion in clause (xx) above, such counsel may
rely upon a certificate of each Selling Stockholder in respect of
matters of fact unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate with respect to such
factual matters is erroneous);
(d) 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, Deloitte &
Touche 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 (the executed copy of the
letter delivered prior to the execution of this Agreement is attached as
Annex I(a) hereto and a draft of the form of letter to be delivered on the
effective date of any post-effective amendment to the Registration
Statement and as of each Time of Delivery is attached as Annex I(b)
hereto);
(e)(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
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 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;
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(f) 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;
(g) The Shares at such Time of Delivery shall have been duly listed,
subject to notice of issuance, for quotation on Nasdaq;
(h) 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;
(i) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from each of the Directors and Executive
Officers of the Company and from each 5% or greater stockholder of the
Company, other than the Selling Stockholders hereunder, substantially to
the effect set forth in Subsection 1(b)(iv) hereof in form and substance
satisfactory to you; and
(j) The Company and the Selling Stockholders shall have furnished or
caused to be furnished to you at such Time of Delivery certificates of
officers of the Company and of the Selling Stockholders, respectively,
satisfactory to you as to the accuracy of the representations and
warranties of the Company and the Selling Stockholders, respectively,
herein at and as of such Time of Delivery, as to the performance by the
Company and the Selling Stockholders of all of their respective obligations
hereunder to be performed at or prior to such Time of Delivery, and as to
such other matters as you may reasonably request, and the Company shall
have furnished or caused to be furnished certificates as to the matters set
forth in subsections (a) and (e) of this Section.
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 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
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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 of the Selling Stockholders, severally in proportion to the
number of Shares to be sold by each of them hereunder and not jointly, agrees to
indemnify each Underwriter against any losses, claims, damages or liabilities to
which such Underwriter may become subject under the Act or otherwise, and to
reimburse the expenses of such Underwriter, to the same extent as indemnity and
reimbursement are provided by the Company pursuant to Section 8(a) above. In no
event, however, shall the liability of any Selling Stockholder for
indemnification, reimbursement and contribution under this Section 8 exceed the
gross proceeds (at the public offering price per Share) in respect of the Shares
offered and sold by such Selling Stockholder in the offering.
(c) Each Underwriter will indemnify and hold harmless the Company and each
Selling Stockholder against any losses, claims, damages or liabilities to which
the Company or such Selling Stockholder 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 and each Selling Stockholder for any legal or other
expenses reasonably incurred by the Company or such Selling Stockholder in
connection with investigating or defending any such action or claim as such
expenses are incurred.
(d) Promptly after receipt by an indemnified party under subsection (a),
(b) or (c) 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
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indemnified party from all liability arising out 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.
(e) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a),
(b) or (c) 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 and the Selling Stockholders 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 (d) 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 and the Selling Stockholders 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 and the Selling Stockholders 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 (before deducting expenses) received
by the Company and the Selling Stockholders bear to the total underwriting
discounts and commissions received by the Underwriters, 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 or the
Selling Stockholders 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, each of the Selling
Stockholders and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this subsection (e) 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 (e). 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 (e) 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
(e), 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 (e) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(f) The obligations of the Company and the Selling Stockholders under this
Section 8 shall be in addition to any liability which the Company and the
respective Selling Stockholders may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who
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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 or any Selling Stockholder 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 and the Selling Stockholders 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 and
the Selling Stockholders that you have so arranged for the purchase of such
Shares, or the Company and the Selling Stockholders notify you that they have so
arranged for the purchase of such Shares, you or the Company and the Selling
Stockholders shall have the right to postpone a 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 and
the Selling Stockholders 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 and the Selling Stockholders 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 and
the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased exceeds one-eleventh of the
aggregate number of all of the Shares to be purchased at such Time of Delivery,
or if the Company and the Selling Stockholders 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 and the Selling Stockholders to sell
the Optional Shares) shall thereupon terminate, without liability on the part of
any non-defaulting Underwriter or the Company or the Selling Stockholders,
except for the expenses to be borne by the Company and the Selling Stockholders
and the Underwriters as provided in Section 6 hereof and the indemnity and
21
<PAGE>
contribution agreements in Section 8 hereof; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company, the Selling Stockholders 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 of the Selling Stockholders, or any officer
or director or controlling person of the Company, or any controlling person of
any Selling Stockholder, and shall survive delivery of and payment for the
Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company nor the Selling Stockholders shall 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 and the Selling Stockholders as provided herein, the Company and each of
the Selling Stockholders pro rata (based on the number of Shares to be sold by
the Company and such Selling Stockholder hereunder) 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 and the Selling Stockholders 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; and in all dealings with any Selling Stockholder hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of such Selling Stockholder made or given by any
or all of the Attorneys-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail 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; if to any Selling Stockholder shall be delivered or sent by mail or
facsimile transmission to counsel for such Selling Stockholder at its address
set forth in Schedule II hereto; 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(d) 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
or the Selling Stockholders by you on request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and the Selling Stockholders and, to the
extent provided in Sections 8 and
22
<PAGE>
10 hereof, the officers and directors of the Company and each person who
controls the Company, any Selling Stockholder 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 6 counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement among each of the Underwriters, the Company and
each of the Selling Stockholders. 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, the form of which shall be
submitted to the Company and the Selling Stockholders for examination, upon
request, but without warranty on your part as to the authority of the signers
thereof.
23
<PAGE>
Any person executing and delivering this Agreement as Attorney-in-Fact for
a Selling Stockholder represents by so doing that he has been duly appointed as
Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing and
binding Power-of-Attorney which authorizes such Attorney-in-Fact to take such
action.
Very truly yours,
GOLDEN STATE VINTNERS, INC.
By: . . . . . . . . . . . . . . . . . . .
Name:
Title:
SELLING STOCKHOLDERS
By: . . . . . . . . . . . . . . . . . . .
Name:
Title:
As Attorney-in-Fact acting on behalf of
each of the Selling Stockholders
named in Schedule II to this
Agreement.
Accepted as of the date hereof at New York, New York,
Goldman, Sachs & Co.
Hambrecht & Quist LLC
J.P. Morgan Securities Inc.
By: .......................
Goldman, Sachs & Co.
On behalf of each of the Underwriters
24
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
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.
Hambrecht & Quist LLC
J.P. Morgan Securities Inc.
--------- -------
Total 4,300,000 645,000
--------- -------
</TABLE>
25
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
Number of Optional
Shares to be
Total Number of Sold if
Firm Shares Maximum Option
to be Sold Exercised
<S> <C> <C>
The Company. . . . . . . . . . . . . . 2,150,000
The Selling Stockholder(s):
SBIC Partners, L.P.(a) 1,435,600
The John Hancock Mutual Life
Insurance Company(b) 396,274
Exeter Equity Partners, L.P.(a) 159,063
Exeter Venture Lenders, L.P.(a) 159,063
--------- -------
Total . . . . . . . . . . . . . . . 4,300,000 645,000
--------- -------
</TABLE>
(a) This Selling Stockholder is represented by Riordan & McKinzie and has
appointed [Names of Attorneys-in-Fact (not less than two)], and each of them, as
the Attorneys-in-Fact for such Selling Stockholder.
(b) This Selling Stockholder is represented by [Name and Address of Counsel]
and has appointed [Names of Attorneys-in-Fact (not less than two)], and each of
them, as the Attorneys-in-Fact for such Selling Stockholder.
26
<PAGE>
ANNEX I
Pursuant to Section 7(d) 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
separately furnished to the representatives of the Underwriters (the
"Representatives");
(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 have been
separately furnished to the Representatives 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;
(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
<PAGE>
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, 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
2
<PAGE>
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.
3
<PAGE>
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
GOLDEN STATE VINTNERS, INC.
Golden State Vintners, Inc., a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "General
Corporation Law"),
DOES HEREBY CERTIFY THAT:
FIRST: The name of the corporation is Golden State Vintners, Inc.,
and that the corporation was originally incorporated on April 18, 1995 pursuant
to the General Corporation Law.
SECOND: The following resolutions amending and restating the
corporation's Certificate of Incorporation were approved by the Board of
Directors of the corporation by an Action by Unanimous Written Consent dated as
of April ___, 1998 and were duly adopted by the stockholders of the Corporation
in accordance with the provisions of Sections 242 and 245 of the General
Corporation Law by written consent of stockholders given in accordance with
Section 228 of the General Corporation Law, with written notice given to
stockholders who did not consent in writing:
"RESOLVED, that the Certificate of Incorporation of the corporation
(the "Certificate") be and it hereby is amended and restated to read in its
entirety as follows:
ARTICLE I
The name of the Corporation is Golden State Vintners, Inc.
(hereinafter, the "CORPORATION").
ARTICLE II
The registered office of the Corporation is to be located at 15 East
North Street, Dover, County of Kent, Delaware, 19901. The name of its
registered agent at that address is United Corporate Services, Inc.
<PAGE>
ARTICLE III
The purpose for which the Corporation is formed is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
ARTICLE IV
A. AUTHORIZED SHARES
The total number of shares of all classes of stock which the
Corporation has authority to issue is 65,000,000 shares, consisting of
60,000,000 shares of common stock and 5,000,000 shares of preferred stock as
follows:
1. 6,000,000 shares of Class A Common Stock, par value $0.01
per share (the "CLASS A COMMON");
2. 54,000,000 shares of Class B Common Stock, par value $0.01
per share (the "CLASS B COMMON");
3. 100,000 shares of 12% Senior Redeemable Exchangeable
Preferred Stock, par value $0.01 per share (the "SENIOR PREFERRED STOCK"); and
4. 4,900,000 shares of undesignated Preferred Stock, par value
$0.01 per share (the "PREFERRED STOCK");
PROVIDED, HOWEVER, that as shares of Class A Common are converted into shares of
Class B Common as specified herein, the authorized number of shares of Class A
Common shall be reduced proportionately and the authorized number of shares of
Class B Common shall be increased by a like amount; PROVIDED, FURTHER, that the
Corporation shall not, after completion of the transactions described in
Sections B and C below, issue additional shares of Class A Common except
(x) pursuant to options outstanding on the date hereof, (y) pursuant to
distributions of options, warrants or rights under Section E.6 below or
(z) pursuant to stock splits and stock dividends under Section E.8 below; and
PROVIDED, FURTHER, that as shares of Senior Preferred Stock are redeemed by the
Corporation in accordance with the Certificate of Powers, Designations,
Preferences and Relative, Participating, Optional and other Special Rights of
Senior Preferred Stock and Qualifications, Limitations and Restrictions thereof,
the authorized number of shares of Senior Preferred Stock shall be reduced
proportionately and the authorized number of shares of Preferred Stock shall be
increased by a like amount.
2.
<PAGE>
The Class A Common and Class B Common (collectively, the "COMMON
STOCK") shall have the rights, preferences and limitations separately set forth
below. The Senior Preferred Stock, the Preferred Stock and any other preferred
stock issued hereafter shall have the rights, preferences and limitations
separately set forth below.
B. CONVERSION
Upon the consummation of a firm commitment underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of the Corporation's
newly-authorized Class B Common (the "Public Offering"):
1. AUTOMATIC CONVERSION.
(a) Each share of the Corporation's presently outstanding
Class B Common Stock shall automatically be converted on a share-for-share basis
into a share of the Corporation's newly-authorized Class A Common; and
(b) Each share of the Corporation's presently outstanding
Class E Common Stock and Class K Common Stock shall automatically be converted
on a share-for-share basis into a share of the Corporation's newly-authorized
Class B Common.
2. MECHANICS OF AUTOMATIC CONVERSION. All holders of record of
shares of Class B Common Stock, Class E Common Stock and Class K Common Stock
(collectively, the "Old Common Stock") will be given at least 30 days' prior
written notice of the anticipated date of any automatic conversion referenced in
Section B.1 and four days' written notice of the actual date of such conversion.
Each such notice shall designate a place for automatic conversion of all of the
shares of the Old Common Stock pursuant to Section B.1. Such notice will be
sent by mail, first class, postage prepaid, to each record holder at such
holder's address appearing on the stock register of the Corporation. On or
before the date fixed for conversion, each holder of shares of the Old Common
Stock shall surrender his or its certificate or certificates for all such shares
to the Corporation at the place designated in such notice, and shall thereafter
receive certificates for the number of shares of Class A Common or Class B
Common, as the case may be. On the date fixed for conversion, all rights with
respect to the Old Common Stock will terminate, except only the rights of the
holders thereof, upon surrender of their certificate or certificates therefor,
to receive certificates for the number of shares of Class A Common or Class B
Common, as the case may be, into which such Old Common Stock has been converted.
If so required by the Corporation, certificates surrendered for conversion shall
be endorsed or accompanied by written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
by his or its attorney duly authorized in writing. All certificates evidencing
shares of Old Common Stock which are required to be surrendered for conversion
in
3.
<PAGE>
accordance with the provisions hereof shall, from and after the date such
certificates are so required to be surrendered, be deemed to have been retired
and cancelled and the shares of Old Common Stock represented thereby converted
into Class A Common or Class B Common, as the case may be, for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. As soon as practicable after the date of
such automatic conversion and the surrender of the certificate or certificates
for the Old Common Stock as aforesaid, the Corporation shall cause to be issued
and delivered to such holder, or to his or its written order, a certificate or
certificates for the number of shares of Class A Common or Class B Common in
accordance with the provisions hereof.
C. SPLIT OF COMMON STOCK
Upon the consummation of the Public Offering and immediately
following the conversion referenced in Section B.1, each share of the
Corporation's newly-authorized Class A Common and Class B Common issued and
outstanding at such time (but immediately before the issuance of shares in the
Public Offering) shall automatically be split and converted into 2.9 fully paid
and nonassessable shares of Class A Common or Class B Common, as the case may
be. No fractional shares of Common Stock shall be issued upon conversion of the
Common Stock. In lieu of any fractional shares to which the holder would
otherwise be entitled, the Corporation shall pay cash equal to such fraction
multiplied by the offering price per share of the Class B Common offered and
sold in the Public Offering, with such cash payment to be delivered to the
holders of such fractional shares in the manner described in Section B.2 above.
D. PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more
series, without further stockholder approval. The Board of Directors of the
Corporation is hereby expressly vested with authority to provide for the
issuance of shares of preferred stock in one or more classes or one or more
series, with such voting powers, full or limited, or no voting powers, and with
such designations, preferences and relative, participating, optional and other
special rights, and qualifications, limitations or restrictions thereof, if any,
as shall be stated and expressed in a resolution or resolutions providing for
such issuance adopted by the Board of Directors under the General Corporation
Law of the State of Delaware. Except as otherwise provided by applicable law,
the holders of the preferred stock of the Corporation shall only have such
voting rights as are provided for or expressed in the certificate of
designations relating to such preferred stock adopted by the Board of Directors
pursuant to the authority granted thereto in accordance with this Section D.
E. COMMON STOCK
Except as otherwise provided in this Section E or as otherwise
required by applicable law, all shares of Class A Common and Class B Common
shall be identical in all
4.
<PAGE>
respects and shall entitle the holders thereof to the same rights and
privileges, subject to the same qualifications, limitations and restrictions.
1. VOTING RIGHTS.
(a) CLASS A COMMON. Except as otherwise expressly
provided herein or as otherwise required by applicable law, (i) each outstanding
share of Class A Common shall be entitled to vote on each matter on which the
stockholders of the Corporation shall be entitled to vote and (ii) each holder
of Class A Common shall be entitled to ten (10) votes for each share of such
stock held by such holder.
(b) CLASS B COMMON. Except as otherwise expressly
provided herein or as otherwise required by applicable law, (i) each outstanding
shares of Class B Common shall be entitled to vote on each matter on which the
stockholders of the Corporation shall be entitled to vote and (ii) each holder
of Class B Common shall be entitled to one (1) vote for each share of such stock
held by such holder.
(c) CLASS VOTING. Except as otherwise expressly provided
herein or as otherwise required by applicable law, on any matter on which the
holders of shares of Class A Common and Class B Common are entitled to vote, all
classes of Common Stock entitled to vote shall vote together as a single class.
Notwithstanding the foregoing, holders of Class A Common and Class B Common are
entitled to vote as separate classes on any amendment to the Corporation's
Certificate of Incorporation that would increase or decrease the aggregate
number of authorized shares of either class, increase or decrease the par value
of the shares of either class, or alter or change the rights, privileges or
preferences of either class in any manner which would affect such class
adversely. This provision shall not be in limitation of the voting rights of
the Class A Common in Section E.12 below.
2. OPTIONAL CONVERSION OF CLASS A COMMON. At any time and from
time to time, each share of Class A Common shall be convertible, at the option
of the holder thereof and without the payment of any additional consideration
thereby, at the office of the Corporation or any transfer agent for the Class B
Common, on a share-for-share basis into one (1) fully paid and nonassessable
share of Class B Common.
3. AUTOMATIC CONVERSION OF CLASS A COMMON. The happening of
either of the following events (each, a "Conversion Event"), shall result in the
conversion of some or all shares of Class A Common into shares of Class B
Common, as follows:
(a) Upon the transfer of any shares of Class A Common by
any of SBIC Partners, L.P., Exeter Venture Lenders, L.P., Exeter Equity
Partners, L.P. or Jeffrey B. O'Neill (individually, an "Original Holder" and
collectively, the "Original Holders") to any persons other than to any other
Original Holder or to an affiliate (as such term is defined in
5.
<PAGE>
Rule 12b-2 of the Securities Exchange Act of 1934, as amended) as of the date
hereof of any such Original Holder (collectively, the "Permitted Transferees"),
or upon any subsequent transfer to any person who is not a Permitted Transferee,
each such share of Class A Common so transferred shall automatically be
converted on a share-for-share basis into one (1) share of Class B Common.
(b) Each share of Class A Common shall automatically be
converted into one (1) share of Class B Common if the aggregate equity interests
of the Corporation held by the Original Holders and any Permitted Transferees
thereof, calculated on a fully diluted basis, taking into account all
outstanding shares of Common Stock and all rights, options, warrants and other
securities convertible into or exchangeable for shares of Common Stock,
represent less than 15% of the Corporation's equity interests then outstanding.
4. MECHANICS OF OPTIONAL CONVERSION. Before any holder of
shares of Class A Common shall be entitled to convert the same into shares of
Class B Common, he or it shall surrender the certificate or certificates
therefor, endorsed or accompanied by written instrument or instruments of
transfer, in form satisfactory to the Corporation, duly executed by the
registered holder or by his attorney duly authorized in writing, at the office
of the Corporation or of any transfer agent for the Class B Common, and shall
give written notice to the Corporation at such office that such holder elects to
convert the same and shall state therein such holder's name or the names of the
nominees in which such holder wishes the certificate or certificates for shares
of Class B Common to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Class A Common,
or to his or its nominee or nominees, a certificate or certificates for the
number of shares of Class B Common to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of Class A
Common to be converted, and the person or persons entitled to receive the shares
of Class B Common issuable upon conversion shall be treated for all purposes as
the record holder or holders of such shares of Class B Common on such date.
From and after such date, all rights of the holder with respect to the
Class A Common so converted shall terminate, except only the right of such
holder, upon the surrender of his or its certificate or certificates therefor,
to receive certificates for the number of shares of Class B Common issuable upon
conversion thereof.
5. MECHANICS OF AUTOMATIC CONVERSION. Upon the happening of a
Conversion Event, each Original Holder, or the transferee thereof, as the case
may be, affected by such Conversion Event shall surrender to the Corporation
his or its certificate or certificates of Class A Common to be converted into
Class B Common, at the place designated by the Corporation, and shall thereafter
receive certificates for the number of shares of Class B Common to which such
holder is entitled. Upon the happening of a Conversion Event, all rights with
respect to the shares of Class A Common affected thereby will terminate, except
only the rights of the holders thereof, upon surrender of their certificate or
certificates therefor, to receive certificates for the number of shares of
Class B Common into which such Class A Common has been converted. If so
required by the Corporation, certificates surrendered for conversion shall be
6.
<PAGE>
endorsed or accompanied by written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
by his or its attorney duly authorized in writing. All certificates evidencing
shares of Class A Common which are required to be surrendered for conversion in
accordance with the provisions hereof shall, from and after the date of a
Conversion Event relating thereto, be deemed to have been retired and cancelled
and the shares of Class A Common represented thereby converted into Class B
Common for all purposes, notwithstanding the failure of the holder or holders
thereof to surrender such certificates pursuant to the terms hereof. As soon as
practicable after the date of such automatic conversion and the surrender of the
certificate or certificates for Class A Common as aforesaid, the Corporation
shall cause to be issued and delivered to such holder, or to his or its written
order, a certificate or certificates for the number of shares of Class B Common
in accordance with the provisions hereof.
6. DISTRIBUTIONS. The Board of Directors of the Corporation
may cause dividends to be paid to holders of shares of Common Stock out of funds
legally available for the payment of dividends. Any dividend or other
distribution on the Common Stock shall be payable ratably at the same rate on
shares of Class A Common and Class B Common, share and share alike; PROVIDED,
HOWEVER, that in the case of options, warrants or rights to acquire shares of
such Common Stock or securities convertible into or exchangeable for shares of
such Common Stock, the shares, options, warrants, rights or securities so
payable shall be payable in shares of, or options, warrants or rights to acquire
or securities convertible into or exchangeable for, Common Stock of the same
class upon which the dividend or distribution is being paid. The right of the
holders of Common Stock to receive dividends and other distributions is subject
to the rights of holders of all issued and outstanding Preferred Stock.
7. LIQUIDATION RIGHTS. In the event of any dissolution,
liquidation or winding up of the affairs of the Corporation, whether voluntary
or involuntary, after payment or provision for payment of the debts and other
liabilities of the Corporation, and subject to any liquidation preference set
forth in the certificate of designations with respect to any then-issued and
outstanding Preferred Stock, the remaining assets and funds of the Corporation,
if any, shall be divided among and paid ratably to the holders of Class A Common
and Class B Common, share and share alike. A merger or consolidation of the
Corporation with or into any other corporation or a sale or conveyance of all or
any part of the assets of the Corporation (which shall not in fact result in the
liquidation of the Corporation and the distribution of assets to stockholders)
shall not be deemed to be a voluntary or involuntary liquidation or dissolution
or winding up of the Corporation within the meaning of this Section E.7.
8. STOCK SPLITS AND STOCK DIVIDENDS.
(a) The Corporation shall not in any manner subdivide (by
stock split, stock dividend or otherwise) or combine (by reverse stock split or
otherwise) the outstanding Common Stock of one class unless the outstanding
Common Stock of the other class
7.
<PAGE>
shall be proportionately subdivided or combined. All such subdivisions shall be
payable in Class A Common only to the holders of Class A Common and in Class B
Common only to the holders of Class B Common.
(b) In the case of any reorganization, reclassification
or change of shares of the Common Stock (other than a change in par value or
from par to no par value 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 of all or substantially all of the assets of the
Corporation, each holder of a share of Common Stock, irrespective of class,
shall have the right at any time thereafter, so long as the conversion right
hereunder with respect to such share would exist had such event not occurred, 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, consolidation, merger, sale, lease or other
disposition by a holder of the number of shares of the class of Common Stock
into which such shares of Common Stock might have been converted immediately
prior to such reclassification, change, consolidation, merger, sale, lease or
other disposition. In the event of such a reorganization, reclassification,
change, consolidation, merger, sale, lease or other disposition: (1) the
holders of outstanding shares of Common Stock shall be entitled to receive the
same consideration, share and share alike, except for voting rights with respect
to securities receivable upon such reorganization, reclassification, change,
consolidation, merger, sale, lease or other disposition; and (2) effective
provision shall be made in the certificate of incorporation of the resulting or
surviving corporation or otherwise for the protection of the conversion rights
of the shares of Common Stock of each class that shall be applicable, as nearly
as reasonably may be, to any such other shares of stock and other securities and
property deliverable upon conversion of shares of Common Stock into which such
Common Stock might have been converted immediately prior to such event. The
Corporation shall not be a party to any merger, consolidation or
recapitalization pursuant to which any holder of shares of Common Stock would be
required to take (x) any voting securities which would cause such holder to
violate any law, regulation or other requirement of any governmental body
applicable to such holder, or (y) any securities convertible into voting
securities which, if such conversion took place, would cause such holder to
violate any law, regulation or other requirement of any governmental body
applicable to such holder other than securities which are specifically provided
to be convertible only in the event that such conversion may occur without any
such violation.
(c) The issuance of certificates for shares of any class
of Common Stock upon conversion or exchange of shares of any other class of
Common Stock shall be made without charge to the holders of such shares for any
issuance tax in respect thereof or other cost incurred by the Corporation in
connection with such conversion and the related issuance of shares of Common
Stock; PROVIDED, HOWEVER, that the Corporation shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the holder of the
Common Stock converted and no such issuance and delivery shall be made unless
and until the person requesting
8.
<PAGE>
such issuance has paid to the Corporation the amount of any such tax or has
established to the satisfaction of the Corporation that such tax has been paid.
9. REGISTRATION OF TRANSFER. The Corporation shall keep at its
principal office (or such other place as the Corporation reasonably designates)
a register for the registration of shares of Common Stock and Preferred Stock.
Upon the surrender at such place of any certificate representing shares of any
class of Common Stock or Preferred Stock, the Corporation shall, at the request
of the registered holder of such certificate (provided that such request is
permitted by this Certificate of Incorporation or any written agreement by and
among the Corporation and certain or all of its stockholders, in each case, as
then in effect), execute and deliver a new certificate or certificates in
exchange therefor representing in the aggregate the number of shares of such
class represented by the surrendered certificate, and the Corporation forthwith
shall cancel such surrendered certificate. Each such new certificate will be
registered in such name and will represent such number of shares of such class
as is requested by the holder of the surrendered certificate and will be
substantially identical in form to the surrendered certificate. The issuance of
new certificates shall be made without charge to the holders of the surrendered
certificates for any issuance tax in respect thereof or other cost incurred by
the Corporation in connection with such issuance.
10. REPLACEMENT. Upon receipt of evidence satisfactory to the
Corporation (an affidavit of the registered holder shall be deemed satisfactory)
of the ownership and the loss, theft, destruction or mutilation of any
certificate evidencing one or more shares of any class of Common Stock or
Preferred Stock, and in the case of any such loss, theft or destruction, upon
receipt of indemnity satisfactory to the Corporation or, in the case of any such
mutilation upon surrender of such certificate, the Corporation shall execute and
deliver in lieu of such certificate a new certificate of like kind representing
the number of shares of such class represented by such lost, stolen, destroyed
or mutilated certificate and dated the date of such lost, stolen, destroyed or
mutilated certificate.
11. NOTICES. All notices referred to herein shall be in
writing, shall be delivered personally or by first class mail, postage prepaid,
and shall be deemed to have been given when so delivered or mailed to the
Corporation at its principal executive offices and to any stockholder at such
holder's address as it appears in the stock records of the Corporation (unless
otherwise specified in a written notice to the Corporation by such holder),
PROVIDED, HOWEVER, that the Corporation also provide notice via facsimile to any
stockholder who provides the Corporation with a facsimile number for notice
purposes.
12. AMENDMENT AND WAIVER. So long as any shares of Class A
Common are outstanding, in addition to any other vote or consent of stockholders
required by law or by this Certificate of Incorporation, as amended or restated
from time to time, the consent of the holders of at least 85% of the shares of
Class A Common at the time outstanding, given in person or by proxy, either in
writing without a meeting or by vote at any meeting called for the
9.
<PAGE>
purpose, shall be necessary for effecting or validating any amendment,
alteration or repeal of any of the provisions of this Certificate of
Incorporation as amended or restated from time to time, which affects adversely
the rights, privileges or preferences of the holders of shares of Class A
Common.
ARTICLE V
The Board of Directors shall have the power and authority to adopt,
amend or repeal bylaws of the Corporation, except as otherwise provided in any
bylaw adopted by the stockholders of the Corporation entitled to vote; PROVIDED,
HOWEVER, that the fact that such power has been so conferred upon the directors
shall not divest the stockholders of the Corporation of the power, nor limit
their power, to adopt, amend or repeal bylaws of the Corporation.
ARTICLE VI
A director of the Corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (a) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the Delaware General Corporation Law,
or (d) for any transaction from which the director derived an improper personal
benefit.
ARTICLE VII
A. Each Person who was or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter, a "PROCEEDING"), by
reason of the fact that he or she, or a Person of whom he or she is the legal
representative, is or was a director or officer, of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the corporation to the fullest extent authorized by law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees and expenses, judgments, fines, excise taxes or penalties and
amounts paid or to be paid in settlement) reasonably incurred or suffered by
such Person in connection therewith and
10.
<PAGE>
such indemnification shall continue as to a Person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of his or
her heirs, executors and administrators; PROVIDED, HOWEVER, that, except as
provided in paragraph (B) hereof, the Corporation shall indemnify any such
Person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such Person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Article shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such Proceeding in advance of its final disposition; PROVIDED,
HOWEVER, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such Person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a Proceeding, shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Article or otherwise. The
Corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
B. If a claim under paragraph A of this Article is not paid in full
by the Corporation within thirty days after a written claim has been received by
the corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
General Corporation Law for the Corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, 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 or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors 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 the claimant has not met the applicable standard of
conduct.
C. The right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of its final disposition conferred in this
Article shall not be exclusive of any other right which any Person may have or
hereafter acquire under any statute,
11.
<PAGE>
provision of the Certificate of Incorporation, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
D. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
12.
<PAGE>
IN WITNESS WHEREOF, this Second Amended and Restated Certificate of
Incorporation has been signed by the President and Secretary of the Corporation
this _____ day of _________, 1998.
GOLDEN STATE VINTNERS, INC.,
a Delaware corporation
----------------------------------------
Jeffrey B. O'Neill, President
ATTEST:
- - ---------------------------
Jeffrey J. Brown
Chairman and Secretary
13.
<PAGE>
<TABLE>
<CAPTION>
<S><C>
[CERTIFICATE]
April 25, 1995
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
NUMBER SHARES
-S- SPECIMEN
GOLDEN STATE VINTNERS, INC.
54,000,000 SHARES OF CLASS B COMMON STOCK AUTHORIZED
THIS CERTIFIES THAT: ********SPECIMEN****************************************************************
--------------------------------------------------------------------------------
IS THE REGISTERED HOLDER OF ***********SPECIMEN*************************** FULLY PAID AND NON-ASSESSABLE SHARES OF THE CLASS B
-----------------------------------------------
COMMON STOCK OF
GOLDEN STATE VINTNERS, INC.
HEREINAFTER DESIGNATED "THE CORPORATION," TRANSFERABLE ONLY ON THE SHARE REGISTER OF THE CORPORATION UPON SURRENDER OF THIS
CERTIFICATE PROPERLY ENDORSED OR ASSIGNED.
This certificate and the shares represented hereby shall be held subject to all of the provisions of the Certificate of
Incorporation, as amended, and the Bylaws of said Corporation, a copy of each of which is on file at the office of the Corporation,
and made a part hereof as fully as though the provisions of said Articles of Incorporation and Bylaws were imprinted in full on this
certificate, to all of which the holder of this certificate, by acceptance hereof, assents and agrees to be bound.
IN WITNESS WHEREOF, THE CORPORATION HAS CAUSED THIS CERTIFICATE TO BE SIGNED BY ITS DULY AUTHORIZED OFFICERS.
DATED:
-----------------------
- - ------------------------------------------------------ -------------------------------------------------
Brian R. Thompson Secretary Jeffrey B. O'Neill President
</TABLE>
<PAGE>
FOR VALUE RECEIVED ___________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
/__________________/_______________________________________________
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
___________________________________________________________________
_________________________________________________SHARES REPRESENTED
BY THE WITHIN CERTIFICATE AND DO HEREBY IRREVOCABLY CONSTITUTE AND
APPOINT ___________________________________________________ATTORNEY
TO TRANSFER THE SAID SHARES ON THE SHARE REGISTER OF THE WITHIN NAMED
CORPORATION, WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED________________________ _____
IN PRESENCE OF _____________________\______________________________
\
____________________________________\______________________________
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE. IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE
WHATEVER.
<PAGE>
DRAFT
_____ __, 1998
Ladies and Gentlemen:
We have acted as counsel to Golden State Vintners, Inc., a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended (the "1933 Act"), of the sale in an
underwritten public offering of up to 2,150,000 authorized but unissued shares
of the Class B common stock, $0.01 par value per share (the "Common Stock") of
the Company (the "Company Shares"), and 2,150,000 shares of Class B Common Stock
sold by certain selling stockholders (collectively with the Company Shares, the
"Shares"). This opinion is delivered to you in connection with the Registration
Statement on Form S-1, Registration No. 333-51443, as amended to date (the
"Registration Statement"), for the aforementioned sale, filed with the
Securities and Exchange Commission (the "Commission") under the 1933 Act.
In rendering the opinion set forth herein, we have made such investigations
of fact and law, and examined such documents and instruments, or copies thereof
established to our satisfaction to be true and correct copies thereof, as we
have deemed necessary under the circumstances.
Based upon the foregoing and such other examinations of law and fact as we
have deemed necessary, and in reliance thereon, we are of the opinion that,
subject to the issuance of an appropriate order by the Commission declaring the
Registration Statement effective, and the compliance with applicable state
securities and "blue sky" laws, the Shares have been duly authorized and have
been, or in the case of the Company Shares, will be upon sale and delivery
thereof and receipt by the Company of full payment therefor as set forth in the
Registration Statement, validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus which is a part of the Registration Statement.
Very truly yours,
<PAGE>
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN
AVAILABLE EXEMPTION THEREFROM UNDER SAID ACT OF THE RULES AND REGULATIONS
PROMULGATED THEREUNDER."
-and-
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
DEMAND PROMISSORY NOTE
$1,300,000 April 27, 1995
For value received, Golden State Acquisition Corp. a Delaware
corporation (the "Company"), promises to pay on demand at any time on or after
April 27, 1995 to the order of Golden State Vintners, a California corporation,
the aggregate principal sum of $1,300,000.
Interest shall accrue on the outstanding principal amount of this Note
at a rate equal to the lesser of (i) 7.5% per annum or (ii) the highest rate
permitted by applicable law, and shall be payable at such time as the principal
of this Note becomes due and payable.
In the event the Company fails to pay any amounts due hereunder when
due, the Company shall pay to the holder hereof, in addition to such amounts
due, all cost of collection, including the reasonable attorneys fees and
disbursements.
The Company, or its successors and assigns, hereby waives diligence,
presentment, protest and demand and notice of protest, demand, dishonor and
nonpayment of this Note, and expressly agrees that this Note, or any payment
hereunder, may be extended from time to time and that the holder hereof may
accept security for this Note or release security for this Note, all without in
any way affecting the liability of the Company hereunder.
This Note shall be governed by the internal laws, not the laws of
conflicts, of the State of New York.
GOLDEN STATE ACQUISITION CORP.
By: /s/ Mark McDonnell
---------------------------
Its:
--------------------------
<PAGE>
[LOGO] EXHIBIT 10.14
CONTINUING GUARANTY
For value received and in consideration of the extension of credit by SANWA
BANK CALIFORNIA (the "Bank") to GOLDEN STATE VINTNERS (the "Debtor") or the
benefits to the undersigned derived therefrom, the undersigned (the
"Guarantor"), guarantees and promises to pay to the Bank any and all
Indebtedness (as defined below) and agrees as follows:
1. INDEBTEDNESS. The term "Indebtedness" is used herein in its most
comprehensive sense and includes any and all advances, debts, obligations,
guaranties and liabilities of the Debtor heretofore, now, or hereafter made,
incurred or created, whether direct or acquired by the Bank by assignment or
succession, whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, and whether the Debtor may be
liable individually or jointly with others, or whether recovery upon any
Indebtedness may be or hereafter becomes barred by any statute of limitations
or whether any Indebtedness may be or hereafter becomes otherwise
unenforceable.
2. GUARANTY. The Guarantor unconditionally agrees to pay to the Bank or its
order, on demand, an amount equal to the amount of the Indebtedness or
otherwise perform any obligation of the Debtor undertaken pursuant to any
Indebtedness. In addition to any maximum principal liability hereunder, the
Guarantor agrees to (i) bear the expenses enumerated hereunder in the
paragraph herein entitled "Attorneys' Fees" and (ii) pay interest on the
Indebtedness at the rate(s) applicable thereto. Notwithstanding the
foregoing, the Bank may allow the Indebtedness to exceed the Guarantor's
liability hereunder. Any payment by the Guarantor shall not reduce the
maximum principal obligation of the Guarantor hereunder unless written
notice to that effect is actually received by the Bank at or prior to the
time of such payment. Any payment by the Debtor or any other person shall not
reduce the Guarantor's maximum principal liability hereunder.
3. RIGHT TO AMEND OR MODIFY INDEBTEDNESS. The Guarantor authorizes the Bank,
at its sole discretion, with or without notice and without affecting the
Guarantor's liability hereunder, from time to time to: (i) change the time
or manner of payment of any Indebtedness by renewal, extension, modification,
acceleration or otherwise; (ii) alter or change any provision of any
Indebtedness including, but not limited to, the rate of interest thereon, and
any document, instrument or agreement (other than this Guaranty) evidencing,
guaranteeing, securing or related to any Indebtedness: (iii) release,
discharge, exonerate, substitute or add one or more parties liable on any
Indebtedness, or one or more endorsers, designers or guarantors for any
Indebtedness; (iv) obtain collateral for the payment of any Indebtedness
or any guaranty thereof; (v) release existing or after-acquired collateral
on such terms as the Bank, in its sole discretion, shall determine; (vi)
apply any sums received from the Debtor, any endorser, cosigner, other
guarantor or other person liable on any Indebtedness or from the sale or
collection of collateral or its proceeds to any indebtedness whatsoever owed
or to be owed to the Bank by the Debtor in any order or amount and regardless
of whether or not such indebtedness is guaranteed hereby, is secured by
collateral or is due and payable; and (vii) apply to any Indebtedness, in
any order or amount, regardless of whether such Indebtedness is secured by
collateral or is due and payable, any sums received from the Guarantor or from
the sale of collateral in which the Guarantor has granted the Bank a security
interest.
4. WAIVERS. The Guarantor hereby unconditionally and irrevocably
acknowledges and agrees to the matters set forth below:
A. DEFICIENCY. In the event that any Indebtedness is now or hereafter
secured by a deed of trust, the Guarantor waives any defense and all
rights and benefits of those laws purporting to state that no deficiency
judgment may be recovered on certain real property purchase money
obligations (as presently contained in Section 580b of the California
Code of Civil Procedure and as it may be amended or superseded in the
future) and those laws purporting to state that no deficiency judgment
may be recovered after a trustee's sale under a deed of trust (as
presently contained in Section 580d of the California Code of Civil
Procedure and as it may be amended or superseded in the future). THE
GUARANTOR ACKNOWLEDGES THAT A FORECLOSURE BY A TRUSTEE'S SALE UNDER A
DEED OF TRUST MAY RESULT IN THE DESTRUCTION OF THE GUARANTOR'S
SUBROGATION RIGHTS THAT MAY OTHERWISE EXIST AND THAT A DESTRUCTION OF
THOSE RIGHTS MAY CREATE A DEFENSE TO A DEFICIENCY JUDGEMENT. THE
GUARANTOR HEREBY SPECIFICALLY WAIVES ANY SUCH DEFENSE.
B. ELECTION OF REMEDIES. The Guarantor waives any defense based upon the
Guarantor's loss of a right against the Debtor arising from the Bank's
election of a remedy on any Indebtedness under bankruptcy or other debtor
relief laws or under any other laws, including, but not limited to,
those purporting to reduce the Bank's right against the Guarantor in
proportion to the principal obligation or any Indebtedness (as presently
contained in Section 2809 of the California Civil Code and as it may be
amended or superseded in the future).
Without limiting the generality of the foregoing, the Guarantor waives
all rights and defenses arising out of an election of remedies by the Bank,
even though that election of remedies, such as nonjudicial foreclosure with
respect to security for a guaranteed obligation, has destroyed the
Guarantor's rights of subrogation and reimbursement against the Debtor by
operation Section 580d of the California Code of Civil Procedure or
otherwise.
C. STATUTE OF LIMITATIONS. The Guarantor waives the benefit of the
statute of limitations affecting the Guarantor's liability hereunder or
the enforcement hereof.
D. ACTION AGAINST THE DEBTOR AND COLLATERAL (AND OTHER REMEDIES). The
Guarantor waives all right to require the Bank to: (i) proceed against
the Debtor, any endorser, cosigner, other guarantor or other person
liable on any Indebtedness: (ii) join the Debtor or any endorser,
cosigner, other guarantor or other person liable on any Indebtedness in
any action or actions that may be brought and prescribed by the Bank
solely and separately against the Guarantor on any Indebtedness; (iii)
proceed against any item or items of collateral securing any
Indebtedness or any guaranty thereof; or (iv) pursue or refrain from
pursuing any other remedy whatsoever in the Bank's power.
E. DEBTOR'S DEFENSES. The Guarantor waives any defense arising by reason
of any disability or other defense of the Debtor, the Debtor's successor
or any endorser, cosigner, other guarantor or other person liable on
any Indebtedness. Until all Indebtedness has been paid in full, even
though it may be in excess of the liability incurred hereby, the
Guarantor shall not have any right of subrogation and the Guarantor
waives any benefit or and right to participate in any collateral now or
hereafter held by the Bank. The Guarantor waives all presentments,
demands for performance, notices of nonperformance, protests, notices of
protest, notices of dishonor, notices of sale of any collateral securing
any Indebtedness or any guaranty thereof, and notice of the existence,
creation or incurring of new or additional Indebtedness.
F. DEBTOR'S FINANCIAL CONDITION. The Guarantor hereby recognizes,
acknowledges and agrees that advances may be made in the future from time
to time with respect to any Indebtedness without authorization from or
notice to the Guarantor even though the financial condition of the
Debtor, any endorser, cosigner, other guarantor or other person liable
on any Indebtedness may have deteriorated since the date of this
Guaranty. The Guarantor waives all right to require the Bank to disclose
any information with respect to: (i) any Indebtedness now existing or
hereafter incurred; (ii) the present or future financial condition,
credit or character of the Debtor, any endorser, cosigner, other
guarantor or other person liable on any Indebtedness; (iii) any present
or future
<PAGE>
collateral securing any Indebtedness or any guaranty thereof; or (iv) any
present or future action or inaction on the part of the Bank. The Debtor
or any endorser, cosigner, other guarantor or other person liable on any
Indebtedness. The Guarantor hereby assumes the responsibility for being
informed of the financial condition, credit and character of the Debtor
and of all circumstances bearing upon the risk of non-payment of any
Indebtedness which diligent inquiry would reveal.
5. RIGHT OF SET-OFF; GRANT OF SECURITY INTEREST. In addition to all liens
upon and rights of set-off against any monies, securities or other property
of the Guarantor given to the Bank by law, the Bank shall have a security
interest in and a right to set off against all monies, securities and other
property of the Guarantor now or hereafter in the possession of or on deposit
with the Bank, the Bank's agents or any one or more of them, whether held in
general or special account or deposit or for safekeeping or otherwise; and
each such security interest and right of set-off may be exercised without
demand upon or notices to the Guarantor. No action or inaction by the Bank
with respect to any security interest or right of set-off my be exercised
without demand upon or notice to the Guarantor. No action or inaction by
the Bank with respect to any security interest or right of set-off shall
be deemed a waiver thereof and every right of set-off and security interest
shall continue in full force and effect until specifically released by the
Bank in writing. The security interest created hereby shall secure all of
the Guarantor's obligations under this Guaranty.
6. RIGHT OF FORECLOSURE. The Bank may foreclose, either by judicial
foreclosure or by exercise of power of sale, any deed of trust securing any
Indebtedness even though such foreclosure may destroy or diminish the
Guarantor's rights against the Debtor. The Guarantor shall be liable to the
Bank for any part of any Indebtedness remaining unpaid after any such
foreclosure whether or not such foreclosure was for fair market value.
7. SUBORDINATION. Any indebtedness of the Debtor or any endorser, cosigner,
other Guarantor or other person liable on any Indebtedness now or hereafter
owed to the Guarantor is hereby subordinated to the Indebtedness. Such
indebtedness owed to the Guarantor shall, if the Bank so requests, be
collected, enforced and received by the Guarantor as Trustee for the Bank and
be paid over to the Bank on account of the Indebtedness but without reducing
or affecting in any manner the liability of the Guarantor set forth herein.
Should the Guarantor fail to collect the proceeds of any such indebtedness
owed to it and pay the proceeds to the Bank, the Bank, as the Guarantor's
attorney-in-fact, may do such acts and sign such documents in the Guarantor's
name as the Bank considers necessary to effect such collection.
8. INVALID, FRAUDULENT OR PREFERENTIAL PAYMENTS. The Guarantor agrees that,
to the extent the Debtor or any endorser, cosigner, other Guarantor or other
person liable on any Indebtedness makes a payment or payments to, or is
credited for any payment or payments made for or on behalf of the Debtor to
the Bank, which payment or payments, or any part thereof, is subsequently
invalidated, determined to be fraudulent or preferential, set aside or
requested to be repaid to any trustee, receiver, assignee or any other party
whether under any bankruptcy, state or federal law or under any common law or
equitable cause or otherwise, then, to the extent thereof, the obligation or
part thereof intended to be satisfied thereby shall be revived, reinstated
and continued in full force and effect as if such payment or payments had not
originally been made or credited.
9. JOINT AND SEVERAL OBLIGATIONS; INDEPENDENT OBLIGATIONS. If more than one
Guarantor signs this Guaranty, the obligations hereunder are joint and
several. The Guarantor's obligations hereunder are independent of the
obligations of the Debtor or any endorser, cosigner, other guarantor or other
person liable on any Indebtedness and a separate action or actions may be
brought and prosecuted against the Guarantor on any Indebtedness.
10. FINANCIAL INFORMATION. The Guarantor hereby agrees to deliver or cause
to be delivered to the Bank:
11. ACKNOWLEDGEMENT OF RECEIPT. Receipt of a true copy of this Guaranty is
hereby acknowledged by the Guarantor. The Guarantor understands and agrees
that this Guaranty shall not constitute a commitment of any nature whatsoever
by the Bank to renew or hereafter extend credit to the Debtor. The Guarantor
agrees that this Guaranty shall be effective with or without notice from the
Bank of the Bank's acceptance hereof.
12. CONTINUING GUARANTY. This Guaranty is continuing Guaranty. Revocation
shall be effective only upon written notice personally received by an officer
of the Bank at the originating office indicated below or actually received at
the originating office by United States mail postage prepaid. Notice shall
be effective at any office of the Bank should the originating office no
longer be in existence. Revocation shall be effective at the close of the
Bank's business day when such notice is actually received. Any revocation
shall be effective only as to the revoking party and shall not affect that
party's obligation with respect to any Indebtedness existing before such
revocation is effective.
13. NON-RELIANCE. In executing this Guaranty, the undersigned is not
relying, and has not relied, upon any statement or representation made by
the Bank, or any employee, agent or representative of the Bank, with respect
to the status, financial condition or other manners related to the Debtor or
the relationship between the Debtor and the Bank.
14. MULTIPLE GUARANTIES. If the Guarantor has executed or does execute more
than one Guaranty of any indebtedness of the Debtor to the Bank, the limits of
liability thereunder and hereunder shall be cumulative.
15. SEVERABILITY. Should any one or more provisions of this Guaranty be
determined to be illegal or unenforceable, all other provisions shall remain
effective.
16. CORPORATE OR PARTNERSHIP AUTHORITY. If the Debtor is a corporation or
partnership, the Bank need not inquire into the power of the Debtor or the
authority of its officers, directors, partners or agents acting or purporting
to act in its behalf any any credit granted in reliance upon the purported
exercise of such power or authority is guaranteed hereunder.
17. SEPARATE PROPERTY. Any married person who signs this Guaranty expressly
agrees that recourse may be had against such person's separate property for
all obligations hereunder.
18. ASSIGNMENT. The Bank may, with or without notice, assign this Guaranty in
whole or in part. This Guaranty shall inure to the benefit of the Bank, its
successors and assigns, and shall bind the Guarantor and the Guarantor's
heirs, executors, administrators, successors and assigns.
19. WAIVER OF JURY. The Guarantor and the Bank hereby expressly and
voluntarily waiver any and all rights, whether arising under the California
constitution, any rules of the California Code of Civil Procedure, common law
or otherwise, to demand a trial by jury in any action, matter, claim or cause
of action whatsoever arising out of or in any way related in this Guaranty or
any other agreement, document or transaction contemplated hereby.
20. DISPUTE RESOLUTION.
A. DISPUTES. It is understood and agreed that, upon the request of any
party to this Guaranty, any dispute, claim or controversy of any kind,
whether in contract or in tort, statutory or common law, legal or
equitable, now existing or hereinafter arising between the parties in any
way arising out of, pertaining to or in connection with: (i) this
Guaranty, or any related agreements, documents or instruments, (ii) all
past and present loans, credits, accounts, deposit accounts (whether
demand deposits or time deposits), safe deposit boxes, safekeeping
agreements, guarantees, letters of credit, goods or services, or other
transactions, contracts or agreements of any kind, (iii) any incidents,
omissions, acts, practices, or occurrences causing injury to any party
whereby another party or its agents, employees or representatives may be
liable, in whole or in part or (iv) any aspect of the past or present
relationships of the parties, shall be resolved through a two-step dispute
resolution process administered by the Judicial Arbitration & Mediation
Services, Inc. ("JAMS") as follows:
B. STEP I - MEDIATION. At the request of any party to the dispute, claim
or controversy, the matter shall be referred to the nearest office of JAMS
for mediation, which is an informal, non-binding conference or conferences
between the parties in which a retired judge or justice from the JAMS
panel will seek to guide the parties to a resolution of the case.
(2)
<PAGE>
C. STEP II - ARBITRATION (CONTRACTS NOT SECURED BY REAL PROPERTY).
Should any dispute, claim or controversy remain unresolved at the
conclusion of the Step I Mediation Phase, then (subject to the
restriction at the end of this subparagraph) all such remaining matters
shall be resolved by final and binding arbitration before a different
judicial panelist, unless the parties shall agree to have the mediator
panelist act as arbitrator. The bearing shall be conducted at a location
determined by the arbitrator in Los Angeles, California (or such other
city as may be agreed upon by the parties) and shall be administered by
and in accordance with the then existing Rules of Practice and Procedure
of JAMS and judgement upon any award rendered by the arbitrator may be
entered by any State or Federal Court having jurisdiction thereof. The
arbitrator shall determine which is the prevailing party and shall
include in the award that party's reasonable attorneys' fees and costs.
This subparagraph shall apply only if, at the time of the submission of
the matter to JAMS, the dispute or issues involved do not arise out of
any transaction which is accrued by real property collateral or, if so
secured, all parties consent to such submission.
As soon as practicable after selection of the arbitrator, the
arbitrator, or the arbitrator's designated representative, shall
determine a reasonable estimate of anticipated fees and costs of the
arbitrator and render a statement to each party setting forth that
party's pro-rata share of said fees and costs. Thereafter, each party
shall, within 10 days of receipt of said statement, deposit said sum
with the arbitrator. Failure of any party to make such a deposit shall
result in a forfeiture by the non-depositing party of the right to
prosecute or deferred the claim which is the subject of the arbitration,
but shall not otherwise serve to abate, stay or suspend the arbitration
proceedings.
D. STEP II - TRIAL BY COURT REFERENCE (CONTRACTS SECURED BY REAL
PROPERTY). If the dispute, claim or controversy is not one required or
agreed to be submitted to arbitration, as provided in the above
subparagraph, and has not been resolved by Step I mediation, then any
remaining dispute, claim or controversy shall be submitted for
determination by a trial on Order of Reference conducted by a retired
judge or justice from the panel of JAMS appointed pursuant to the
provisions of Section 638(l) of the California Code of Civil Procedure,
or any amendment, addition or successor section thereto, to hear the
case and report a statement of decision thereon. The parties intend this
general reference agreement to be specifically enforceable in accordance
with such section. If the parties are unable to agree upon a member of
the JAMS panel to act as referee, then one shall be appointed by the
Presiding Judge of the county wherein the hearing is to be held. The
parties shall pay in advance, to the referee, the estimated reasonable
fees and costs of the reference, as may be specified in advance by the
referee. The parties shall initially share equally, by paying their
proportionate amount of the estimated fees and costs of the reference.
Failure of any party to make such a fee deposit shall result in
a forfeiture by the non-depositing party of the right to prosecute or
defend any cause of action which is the subject of the reference, but
shall not otherwise serve to abate, stay or suspend the reference
proceeding.
E. PROVISIONAL REMEDIES, SELF HELP AND FORECLOSURE. No provision of,
or the exercise of any rights under any portion of this Dispute
Resolution provision, shall limit the right of any party to exercise
self help remedies such as set off, foreclosure against any real or
personal property collateral, or the obtaining of provisional or
ancillary remedies, such as injunctive relief or the appointment of a
receiver, from any court having jurisdiction before, during or after the
pendency of any arbitration. At the Bank's option, foreclosure under a
deed of trust or mortgage may be accomplished either by exercise of
power of sale under the deed of trust or mortgage, or by judicial
foreclosure. The institution and maintenance of an action for
provisional remedies, pursuit of provisional or ancillary remedies or
exercise of self help remedies shall not constitute a waiver of the
right of any party so submit the controversy or claim to arbitration.
21. ATTORNEYS' FEES. Whether or not any suit, action, dispute resolution
proceeding is instituted, the Guarantor agrees to pay reasonable attorneys'
fees and all other costs and expenses which may be incurred in the collection
of any Indebtedness, in the protection or preservation of, or realization on,
any collateral securing any Indebtedness and in the enforcement by the Bank
of this Guaranty.
22. GOVERNING LAW. This Guaranty shall be governed by and construed by
according to the laws of the State of California and the Guarantor
hereby submits to the jurisdiction of the courts of the State of California.
23. ENTIRE AGREEMENT. This Guaranty and all documents, instruments and
agreements mentioned herein constitute the entire and complete understanding
of the parties with respect to the transactions contemplated hereunder. All
previous conversations, memoranda and writings between the parties pertaining
to the transactions contemplated hereunder not incorporated or referenced in
this Guaranty or in such documents, instruments and agreements are superseded
hereby
24. HEADINGS. The headings used herein are solely for the purpose of
identification and have no legal significance.
25. ADDRESS OF THE BANK. The Bank's originating office under this Guaranty
is: Fresno CBC/Agribusiness Office. 2035 Fresno Street, Fresno, CA 93721.
26. MAXIMUM PRINCIPAL LIABILITY. THE MAXIMUM PRINCIPAL LIABILITY UNDER THIS
GUARANTY IS the amount of $36,475,000.00, plus interest at the rate(s)
applicable to any Indebtedness as set forth in this paragraph herein entitled
"Guaranty" and the expenses enumerated in the paragraph herein entitled
"Attorney's Fees".
This Guaranty is made as of April 21, 1998, which shall be the date of
this Guaranty.
Executed by the undersigned Guarantor as of the date set forth above.
GUARANTOR:
GOLDEN STATE ACQUISITION CORP.
BY: /s/ JEFFREY B. O'NEILL
-----------------------------
Jeffrey B. O'Neill, President
ADDRESS:
P.O. BOX 39
CUTLER, CA 93615
<PAGE>
GOLDEN STATE VINTNERS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
THIS NONQUALIFIED STOCK OPTION AGREEMENT (this "Agreement") is entered into
as of _________________, 1998 by and between Golden State Vintners, Inc., a
Delaware corporation (the "Company"), and _______________________ ("Optionee")
pursuant to the Golden State Vintners, Inc. 1998 Director Stock Option Plan (the
"Plan"). All capitalized terms not otherwise defined herein shall have the
meanings set forth in the Plan.
R E C I T A L S:
A. Optionee is a non-employee member of the Board of Directors of the
Company (the "Board") or of Golden State Vintners, a California corporation and
wholly-owned subsidiary of the Company (the "Subsidiary").
B. The Company desires to grant Optionee the right to purchase shares of
the Company's Class K Common Stock, par value $.01 per share (the "Class K
Common Stock"), pursuant to the terms and conditions of this Agreement and the
Plan.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the covenants hereinafter set forth,
the parties agree as follows:
1. OPTION; NUMBER OF SHARES. The Company hereby grants to Optionee the
right (the "Option") to purchase up to a maximum of __________ shares (the
"Shares") of Class K Common Stock at a price of $________ per share (the "Option
Price") to be paid in accordance with Section 6 hereof. This Option and the
right to purchase all or any portion of the Shares are subject to the terms and
conditions stated in this Agreement and in the Plan.
2. VESTING CRITERIA. The Option shall vest and become exercisable on the
first anniversary of the date of grant, provided that Optionee has remained in
continuous service as a director of the Company or the Subsidiary for the
preceding twelve (12)-month period and is a non-employee directors of the
Company or the Subsidiary on the applicable anniversary date.
3. TERM OF AGREEMENT. This Option, and Optionee's right to exercise this
Option, shall terminate when the first of the following occurs: (a) termination
pursuant to
<PAGE>
Sections 4(d)(ii), 4(d)(iii) or 4(d)(iv) of the Plan; or (b) the expiration of
ten (10) years from the date hereof.
4. TERMINATION OF SERVICE OR OTHER RELATIONSHIP. The termination for any
reason of Optionee's service or other relationship with the Company and the
Subsidiary shall not accelerate the vesting of the Option or affect the number
of Shares with respect to which the Option may be exercised, and this Option may
only be exercised with respect to that number of Shares which could have been
purchased under the Option had the Option been exercised by Optionee on the date
of such termination.
5. DEATH OF OPTIONEE; NO ASSIGNMENT. The rights of Optionee under this
Agreement may not be assigned or transferred except by will, by the laws of
descent or distribution and may be exercised during the lifetime of Optionee
only by such Optionee, provided that in the event of disability (within the
meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended) of
Optionee, a designee of Optionee (or the Optionee's legal representative if
Optionee has not designated anyone) may exercise the Option on behalf of
Optionee (provided the Option would have been exercisable by Optionee) until the
right to exercise the Option expires pursuant to Section 3 hereof. Any attempt
to sell, pledge, assign, hypothecate, transfer or otherwise dispose of the
Option in contravention of this Agreement or the Plan shall be void and shall
have no effect. If Optionee should die while Optionee is engaged in an
employment or other relationship with the Company and/or any Subsidiary, and
provided Optionee's rights hereunder shall have vested, in whole or in part,
pursuant to Section 2 hereof, Optionee's designee, legal representative, or
legatee, the successor trustee of Optionee's inter vivos trust or the person who
acquired the right to exercise the Option by reason of the death of Optionee
(individually, a "Successor") shall succeed to Optionee's rights under this
Agreement. After the death of Optionee, only a Successor may exercise the
Option.
6. EXERCISE OF OPTION. On or after the vesting of the Option in
accordance with Section 2 hereof and until termination of the Option in
accordance with Section 3 hereof, the Option may be exercised by Optionee (or
such other person specified in Section 5 hereof) to the extent exercisable as
determined under Section 2 hereof, upon delivery of the following to the Company
at its principal executive offices:
(a) a written notice of exercise which identifies this Agreement
and states the number of Shares then being purchased, provided that in no event
shall an Option be exercisable for a fractional share;
(b) a (i) check, (ii) cash, (iii) other shares which have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the shares as to which the Option shall be exercised and which have been owned
by the Non-Employee Director for at least six (6) months at the time of
exercise, (iv) in the event the shares of the Company's
2.
<PAGE>
Common Stock are publicly traded, delivery of a properly executed exercise
notice together with irrevocable instructions to a broker to promptly deliver to
the Company the amount of proceeds required to pay the exercise price, or (v)
any combination of the foregoing methods of payment in the amount of the
aggregate Option Price (or payment of the aggregate Option Price in such other
form of lawful consideration as the Committee may approve from time to time
under the provisions of Section 8 of the Plan);
(c) a check or cash in the amount reasonably requested by the
Company to satisfy the Company's withholding obligations under federal, state or
other applicable tax laws with respect to the taxable income, if any, recognized
by Optionee in connection with the exercise, in whole or in part, of the Option
(unless the Company and Optionee shall have made other arrangements for
deductions or withholding from Optionee's wages, bonus or other income paid to
Optionee by the Company or any Subsidiary, provided such arrangements satisfy
the requirements of applicable tax laws); and
(d) a written representation and undertaking, if requested by the
Company pursuant to Section 7(b) hereof, in such form and substance as the
Company may require, setting forth the investment intent of Optionee, or a
Successor, as the case may be, and such other agreements, representations and
undertakings as described in the Plan.
7. REPRESENTATIONS AND WARRANTIES OF OPTIONEE.
(a) Optionee represents and warrants that the Option is being
acquired by Optionee for Optionee's personal account, for investment purposes
only, and not with a view to the distribution, resale or other disposition
thereof.
(b) Optionee acknowledges that the Company may issue Shares upon
the exercise of the Option without registering such securities under the Act on
the basis of certain exemptions from such registration requirement.
Accordingly, Optionee agrees that Optionee's exercise of the Option may be
expressly conditioned upon Optionee's delivery to the Company of such
representations and undertakings as the Company may reasonably require in order
to secure the availability of such exemptions, including a representation that
Optionee is acquiring the Shares for investment and not with a present intention
of selling or otherwise disposing of such Shares.
(c) Optionee acknowledges receipt of this Agreement granting the
Option, and the Plan, and understands that all rights and liabilities connected
with the Option are set forth herein and in the Plan.
8. NO RIGHTS AS A STOCKHOLDER. Optionee shall have no rights as a
stockholder of any shares of Class K Common Stock issuable upon exercise of the
Option until a certificate
3.
<PAGE>
evidencing such shares shall have been issued to the Optionee, and no adjustment
shall be made for dividends or distributions or other rights in respect of any
share for which the record date is prior to the date upon which the Optionee
shall become the holder of record thereof, except as may be provided under
Section 6(b) of the Plan.
9. LIMITATION OF COMPANY'S LIABILITY FOR NONISSUANCE. Inability of the
Company to obtain, from any regulatory body having jurisdiction, authority
reasonably deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any shares of Common Stock hereunder and under the Plan
shall relieve the Company of any liability in respect of the nonissuance or sale
of such shares as to which such requisite authority shall not have been
obtained.
10. CONFIDENTIALITY. Optionee agrees to hold in the strictest of
confidence all material information, including without limitation all financial
information, provided to Optionee by the Company, and further agrees not to use
such information for any purpose adverse to the Company, not to duplicate such
information or to deliver such information to any other person.
11. THIS AGREEMENT SUBJECT TO PLAN. This Agreement is made under the
provisions of the Plan and shall be interpreted in a manner consistent with it.
To the extent that any provision in this Agreement is inconsistent with the
Plan, the provisions of the Plan shall control. A copy of the Plan is available
to Optionee at the Company's principal executive offices upon request and
without charge. The good faith interpretation of the Board of any provision of
the Plan, the Option or this Agreement, and any determination with respect
thereto or hereto by the Board, shall be final, conclusive and binding on all
parties.
12. RESTRICTIVE LEGENDS. Optionee hereby acknowledges that federal
securities laws and the securities laws of the state in which Optionee resides
may require the placement of certain restrictive legends upon the Shares issued
upon exercise of the Option, and Optionee hereby consents to the placing of any
such legends upon certificates evidencing the Shares as the Company, or its
counsel, may reasonably deem necessary; provided, however, that any such legend
or legends shall be removed when no longer applicable.
13. NOTICES. All notices, requests and other communications hereunder
shall be in writing and, if given by telecopy, shall be deemed to have been
validly delivered 12 hours after confirmation of transmission to the fax numbers
set forth below, if sent during usual business hours; if given by personal
delivery, shall be deemed to have been validly served, given or delivered upon
actual delivery; and, if mailed, shall be deemed to have been validly served,
given or delivered three business days after deposit in the United States mails,
as registered or certified mail, with proper postage prepaid and addressed to
the party or parties to be notified, at the following addresses (or such other
address(es) as a party may designate for itself by like notice):
4.
<PAGE>
If to the Company:
Golden State Vintners, Inc.
500 Drake's Landing Road
Greenbrae, CA 94904
Fax No.: (415) 461-4497
If to Optionee:
--------------------------
--------------------------
--------------------------
Fax No.:
---------------
14. NO RIGHT TO REELECTION. Nothing contained in this Agreement shall
confer, intend to confer or imply any obligation on the part of the Board to
nominate any of its members for reelection by the Company's stockholders, nor
confer upon any Optionee the right to remain a member of the Board for any
period of time, or at any particular rate of compensation.
15. GOVERNING LAW. This Agreement shall be construed under and governed
by the laws of the State of Delaware without regard to the conflict of law
provisions thereof.
16. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original and both of which together shall be deemed one
Agreement.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
5.
<PAGE>
IN WITNESS WHEREOF, the Company and Optionee have executed this
Agreement as of the date first above written.
THE COMPANY:
GOLDEN STATE VINTNERS, INC.,
a Delaware corporation
By:
-----------------------------
Jeffrey B. O'Neill
Chief Executive Officer
OPTIONEE:
-----------------------------------
6.
<PAGE>
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, HYPOTHECATED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION THEREFOR OR ANY
APPLICABLE EXEMPTION FROM REGISTRATION. THE SALE, TRANSFER OR OTHER DISPOSITION
OF THIS SECURITY IS ALSO SUBJECT TO COMPLIANCE WITH THE CONDITIONS SPECIFIED IN
THIS NOTE, AND NO SALE, TRANSFER OR OTHER DISPOSITION OF THIS SECURITY SHALL BE
VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED.
PROMISSORY NOTE
$4,733,500 Greenbrae, California
January 1, 1998
FOR VALUE RECEIVED, Golden State Vintners, Inc., a Delaware corporation
("Maker"), hereby promises to pay to Jeffrey B. O'Neill and permitted assigns
(the "Holder") the principal sum of Four Million Seven Hundred Thirty-Three
Thousand Five Hundred Dollars ($4,733,500), pursuant to the terms and conditions
set forth in this Promissory Note (the "Note"). The outstanding principal
amount of this Note shall become automatically due and payable within five (5)
business days (the "Initial Maturity Date") of the consummation by Maker of a
firm commitment underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offer and sale of the Maker's newly-created Class B Common Stock (the
"Public Offering"). If Maker shall not have consummated the Public Offering,
Maker shall pay the principal balance due under this Note in one lump sum
payment on November 30, 1998 (the "Second Maturity Date"). Any principal
payment on the Second Maturity Date shall also include the payment of interest
on the unpaid principal balance hereof, which shall accrue at the rate of seven
and one half percent (7.5%) per annum, such interest shall be deemed to have
accrued from January 1, 1998 to November 30, 1998.
1. PAYMENTS OF PRINCIPAL AND INTEREST.
(a) All payments of principal and interest due hereunder shall be
payable in lawful money of the United States of America mailed to Holder at
500 Drake's Landing Road, Greenbrae, California 94904, or at such other place as
Holder may designate to Maker in writing. In no event shall Holder be entitled
to interest exceeding the maximum rate permitted by law. Interest hereunder
shall be computed on the basis of a year of three hundred sixty five (365) days
for the actual number of days elapsed.
<PAGE>
(b) The principal balance of, and all accrued but unpaid interest, if
any, due on, this Note may be prepaid, in whole or in part, at any time, without
premium or penalty.
2. ACCELERATION OF MATURITY. If an Event of Default occurs, then, and in
every such case, the Holder may declare the aggregate outstanding principal of
and all accrued but unpaid interest on this Note to be immediately due and
payable. For purposes of this Note, an "Event of Default" means the failure by
Maker to make (a) the payment of the principal balance due hereunder by the
Initial Maturity Date or (b) the payment of the principal balance due hereunder
plus any and all interest within ten (10) days of the Second Maturity Date.
3. GENERAL PROVISIONS.
(a) NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the part
of Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any one or more of such failures or
delays constitute a course of performance or dealing on which Maker is entitled
to rely, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege. All rights and remedies existing hereunder are cumulative
to, and not exclusive of, any rights or remedies otherwise available.
(b) ASSIGNMENT. This Note shall be binding upon Maker and shall
inure to the benefit of Holder, his successors and assigns. Maker's obligations
hereunder may not be assigned or delegated without the prior written consent of
Holder.
(c) COSTS OF COLLECTION. If any action is brought to enforce or to
interpret this Note, the prevailing party shall be entitled to recover as an
element of its costs of the action, and not as damages, all attorneys' fees
actually incurred, regardless of any otherwise applicable court schedule used
for the determination thereof, and regardless of any otherwise applicable
determination of any court or arbitrator concerning the reasonableness of the
amount thereof. It is the express intent of the parties that, under all
circumstances, the prevailing party shall recover all attorneys' fees actually
incurred in bringing the action and in enforcing any judgment or award granted
therein, all of which shall be deemed to have accrued upon the commencement of
the action. The "prevailing party" shall be the party that is entitled to
recover its costs of the action, regardless of whether the action proceeds to
final judgment. Any judgment, order or award entered in the action shall
contain a specific provision providing for the recovery of attorneys' fees and
costs incurred in enforcing such judgment, order or award.
(d) WAIVERS OF MAKER. Maker hereby waives presentment, demand,
notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or endorsement of this note.
2.
<PAGE>
(e) GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA.
IN WITNESS WHEREOF, Maker has caused this note to be signed in its name as
of the date first above written.
GOLDEN STATE VINTNERS, INC.,
a Delaware corporation
By:
---------------------------------
Name: Jeffrey J. Brown
Its: Chairman of the Board
3.
<PAGE>
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, HYPOTHECATED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION THEREFOR OR ANY
APPLICABLE EXEMPTION FROM REGISTRATION. THE SALE, TRANSFER OR OTHER DISPOSITION
OF THIS SECURITY IS ALSO SUBJECT TO COMPLIANCE WITH THE CONDITIONS SPECIFIED IN
THIS NOTE, AND NO SALE, TRANSFER OR OTHER DISPOSITION OF THIS SECURITY SHALL BE
VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED.
PROMISSORY NOTE
$687,500 Greenbrae, California
January 1, 1998
FOR VALUE RECEIVED, Golden State Vintners, Inc., a Delaware corporation
("Maker"), hereby promises to pay to Brian R. Thompson and permitted assigns
(the "Holder") the principal sum of Six Hundred Eighty-Seven Thousand Five
Hundred Dollars ($687,500), pursuant to the terms and conditions set forth in
this Promissory Note (the "Note"). The outstanding principal amount of this
Note shall become automatically due and payable within five (5) business days
(the "Initial Maturity Date") of the consummation by Maker of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of the
Maker's newly-created Class B Common Stock (the "Public Offering"). If Maker
shall not have consummated the Public Offering, Maker shall pay the principal
balance due under this Note in one lump sum payment on November 30, 1998 (the
"Second Maturity Date"). Any principal payment on the Second Maturity Date
shall also include the payment of interest on the unpaid principal balance
hereof, which shall accrue at the rate of seven and one half percent (7.5%) per
annum, such interest shall be deemed to have accrued from January 1, 1998 to
November 30, 1998.
1. PAYMENTS OF PRINCIPAL AND INTEREST.
(a) All payments of principal and interest due hereunder shall be
payable in lawful money of the United States of America mailed to Holder at
500 Drake's Landing Road, Greenbrae, California 94904, or at such other place as
Holder may designate to Maker in writing. In no event shall Holder be entitled
to interest exceeding the maximum rate permitted by law. Interest hereunder
shall be computed on the basis of a year of three hundred sixty five (365) days
for the actual number of days elapsed.
<PAGE>
(b) The principal balance of, and all accrued but unpaid interest, if
any, due on, this Note may be prepaid, in whole or in part, at any time, without
premium or penalty.
2. ACCELERATION OF MATURITY. If an Event of Default occurs, then, and in
every such case, the Holder may declare the aggregate outstanding principal of
and all accrued but unpaid interest on this Note to be immediately due and
payable. For purposes of this Note, an "Event of Default" means the failure by
Maker to make (a) the payment of the principal balance due hereunder by the
Initial Maturity Date or (b) the payment of the principal balance due hereunder
plus any and all interest within ten (10) days of the Second Maturity Date.
3. GENERAL PROVISIONS.
(a) NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the part
of Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any one or more of such failures or
delays constitute a course of performance or dealing on which Maker is entitled
to rely, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege. All rights and remedies existing hereunder are cumulative
to, and not exclusive of, any rights or remedies otherwise available.
(b) ASSIGNMENT. This Note shall be binding upon Maker and shall
inure to the benefit of Holder, his successors and assigns. Maker's obligations
hereunder may not be assigned or delegated without the prior written consent of
Holder.
(c) COSTS OF COLLECTION. If any action is brought to enforce or to
interpret this Note, the prevailing party shall be entitled to recover as an
element of its costs of the action, and not as damages, all attorneys' fees
actually incurred, regardless of any otherwise applicable court schedule used
for the determination thereof, and regardless of any otherwise applicable
determination of any court or arbitrator concerning the reasonableness of the
amount thereof. It is the express intent of the parties that, under all
circumstances, the prevailing party shall recover all attorneys' fees actually
incurred in bringing the action and in enforcing any judgment or award granted
therein, all of which shall be deemed to have accrued upon the commencement of
the action. The "prevailing party" shall be the party that is entitled to
recover its costs of the action, regardless of whether the action proceeds to
final judgment. Any judgment, order or award entered in the action shall
contain a specific provision providing for the recovery of attorneys' fees and
costs incurred in enforcing such judgment, order or award.
2.
<PAGE>
(d) WAIVERS OF MAKER. Maker hereby waives presentment, demand,
notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or endorsement of this note.
(e) GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA.
IN WITNESS WHEREOF, Maker has caused this note to be signed in its name as
of the date first above written.
GOLDEN STATE VINTNERS, INC.,
a Delaware corporation
By:
-----------------------------
Name: Jeffrey J. Brown
Its: Chairman of the Board
3.
<PAGE>
EXHIBIT 23.1
The accompanying consolidated financial statements have been adjusted to give
retroactive effect to the split of the Company's common stock which will result
in each share of common stock being split into 2.9 shares of common stock as
described in Note 15 to the consolidated financial statements. Such stock split
is expected to be completed prior to the effective date of the public offering.
The following consent and report on schedule is in the form that will be
furnished by Deloitte & Touche LLP upon the effectiveness of such stock split
and the issuance of our report on the Company's consolidated financial
statements included in this Registration Statement, assuming that from June 17,
1998 to the effective date of such stock split, no other events shall have
occurred that would materially affect the accompanying consolidated financial
statements or notes thereto.
"INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Stockholders and Board of Directors
of Golden State Vintners, Inc.
We consent to the use in this Registration Statement relating to 4,300,000
shares of Class B Common Stock of Golden State Vintners, Inc. on Form S-1 of our
report dated June 17, 1998 (June , 1998 as to Note 15), appearing in the
Prospectus, which is a part of this Registration Statement, and to the
references to us under the headings "Selected Consolidated Financial Data" and
"Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedule of Golden State Vintners, Inc.
(the "Company") and Golden State Vintners ("Predecessor"), listed in Item 16.
This financial statement schedule is the responsibility of the Company's and the
Predecessor's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Fresno, California
June , 1998"
DELOITTE & TOUCHE LLP
Fresno, California
June 17, 1998
<PAGE>
CONSENT OF GOMBERG, FREDRIKSON & ASSOCIATES
We hereby consent to the references to this firm in the Prospectus which is
part of the Registration Statement on Form S-1 under the captions "Summary",
"Business" and "Experts". In giving such consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder and we do not thereby admit that
we are experts with respect to any part of the Registration Statement under the
meaning of the term "expert" as used in the Securities Act.
Gomberg, Fredrikson & Associates
/s/ Jon Fredrikson, President
Woodside, California
June 15, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF WINE SPECTATOR
We hereby consent to the reference to our company in the Prospectus
which is a part of the Registration Statement on Form S-1 under the captions
"Summary" and "Business". In giving such consent, we do not admit that we
come within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the rules and regulations of
the Securities and Exchange Commission thereunder and we do not thereby admit
that we are experts with respect to any part of the Registration Statement
under the meaning of the term "expert" as used in the Securities Act.
WINE SPECTATOR
/s/ NIKI SINGER
- - -------------------------
Name: Niki Singer
Title: Sr. Vice President
June 16, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 1997
AND MARCH 31, 1998 FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1997
<PERIOD-START> JUL-01-1997 JUL-01-1996
<PERIOD-END> MAR-31-1998 JUN-30-1997
<CASH> 3,425,138 1,218,525
<SECURITIES> 0 0
<RECEIVABLES> 10,274,418 5,740,252
<ALLOWANCES> 188,000 100,000
<INVENTORY> 31,155,832 23,424,008
<CURRENT-ASSETS> 49,881,320 31,371,935
<PP&E> 84,852,146 77,641,795
<DEPRECIATION> 10,525,359 7,448,581
<TOTAL-ASSETS> 124,639,916 102,111,335
<CURRENT-LIABILITIES> 41,636,033 21,985,874
<BONDS> 0 0
8,914,630 8,813,415
0 0
<COMMON> 23,661 23,661
<OTHER-SE> 16,652,552 12,549,945
<TOTAL-LIABILITY-AND-EQUITY> 124,639,916 102,111,335
<SALES> 101,674,692 95,784,825
<TOTAL-REVENUES> 101,674,692 95,784,825
<CGS> 75,624,507 71,661,819
<TOTAL-COSTS> 88,690,905 79,069,998
<OTHER-EXPENSES> 75,350 633,701
<LOSS-PROVISION> 90,000 43,000
<INTEREST-EXPENSE> 5,203,209 5,879,945
<INCOME-PRETAX> 7,615,228 10,158,184
<INCOME-TAX> 2,877,000 3,988,000
<INCOME-CONTINUING> 4,738,228 6,170,184
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,738,228 6,170,184
<EPS-PRIMARY> 0.60 0.71
<EPS-DILUTED> 0.57 0.71
</TABLE>
