<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 31, 1997
REGISTRATION NO. 333-17673
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
<TABLE>
<C> <S> <C> <C>
DELAWARE CANANDAIGUA WINE 16-0716709 2084
COMPANY, INC.
AND ITS SUBSIDIARY
GUARANTORS
NEW YORK BATAVIA WINE CELLARS, 16-1222994 2084
INC.
DELAWARE BISCEGLIA BROTHERS WINE 94-2248544 2087
CO.
CALIFORNIA CALIFORNIA PRODUCTS 94-0360780 2084
COMPANY
NEW YORK GUILD WINERIES & 16-1401046 2084
DISTILLERIES, INC.
SOUTH CAROLINA TENNER BROTHERS, INC. 57-0474561 2084
NEW YORK WIDMER'S WINE CELLARS, 16-1184188 2084
INC.
DELAWARE BARTON INCORPORATED 36-3500366 2085
DELAWARE BARTON BRANDS, LTD. 36-3185921 2085
MARYLAND BARTON BEERS, LTD. 36-2855879 5181
CONNECTICUT BARTON BRANDS OF 06-1048198 5181
CALIFORNIA, INC.
GEORGIA BARTON BRANDS OF 58-1215938 5181
GEORGIA, INC.
NEW YORK BARTON DISTILLERS IMPORT 13-1794441 5182
CORP.
DELAWARE BARTON FINANCIAL 51-0311795 6153
CORPORATION
WISCONSIN STEVENS POINT BEVERAGE 39-0638900 2082
CO.
NEW YORK MONARCH WINE COMPANY, 36-3547524 5181
LIMITED PARTNERSHIP
ILLINOIS BARTON MANAGEMENT, INC. 36-3539106 5181
NEW YORK VINTNERS INTERNATIONAL 16-1443663 2084
COMPANY, INC.
NEW YORK CANANDAIGUA WEST, INC. 16-1462887 2084
GEORGIA THE VIKING DISTILLERY, 58-2183528 5181
INC.
(State or other jurisdiction (Exact name of (I.R.S. Employer (Primary Standard
of incorporation or organization) registrant Identification No.) Industrial Classification
as specified in its Code Number)
charter)
</TABLE>
116 BUFFALO STREET
CANANDAIGUA, NEW YORK 14424
(716) 394-7900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OR
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
ROBERT SANDS
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
CANANDAIGUA WINE COMPANY, INC.
116 BUFFALO STREET
CANANDAIGUA, NEW YORK 14424
(716) 394-7900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
Copies to:
BERNARD S. KRAMER
MCDERMOTT, WILL & EMERY
227 WEST MONROE STREET
CHICAGO, ILLINOIS 60606-5096
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
--------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL HAVE FILED 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 SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CANANDAIGUA WINE COMPANY, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER OF CAPTION LOCATION OR HEADING IN PROSPECTUS
- ---------------------- -------------------------------------------
<S> <C>
A. INFORMATION ABOUT THE TRANSAC-
TION
- ---------------------------------
1. Forepart of Registration
Statement and Outside Front Forepart of Registration Statement and
Cover of Prospectus........... Outside Front Cover Page of Prospectus
2. Inside Front Cover and Outside
Back Cover Pages of Inside Front and Outside Back Cover Pages
Prospectus.................... of Prospectus; Available Information;
Incorporation of Certain Documents by
Reference
3. Risk Factors, Ratio of
Earnings to Fixed Charges, and Summary; Risk Factors; The Exchange Offer;
Other Information............. Selected Historical Financial Data;
Business; Management
4. Terms of the Transaction...... Summary; The Exchange Offer; Description of
Notes; Certain Federal Income Tax
Considerations; Incorporation of Certain
Documents by Reference
5. Pro Forma Financial
Information..................... Not Applicable
6. Material Contacts With the
Company Being Acquired........ Not Applicable
7. Additional Information
Required for Reoffering by
Persons and Parties Deemed to
be Underwriters............... Not Applicable
8. Interests of Named Experts and
Counsel......................... Legal Matters; Experts
9. Disclosure of Commission
Position on Indemnification
For Securities Act
Liabilities................... Not Applicable
</TABLE>
B. INFORMATION ABOUT THE REGISTRANT
<TABLE>
<S> <C>
10. Information With Respect to S-3 Summary; Available Information;
Registrants......................... Incorporation of Certain Documents by
Reference
11. Incorporation of Certain Information
by Reference........................ Incorporation of Certain Documents by
Reference
12. Information With Respect to S-2 or
S-3 Registrants..................... Not Applicable
13. Incorporation of Certain Information
by Reference........................ Not Applicable
14. Information With Respect to
Registrants Other than S-3 or S-2
Registrants......................... Not Applicable
</TABLE>
<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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION
JANUARY 31, 1997
CANANDAIGUA WINE COMPANY, INC.
OFFER TO EXCHANGE UP TO $65,000,000 AGGREGATE
PRINCIPAL AMOUNT OF ITS 8 3/4% SERIES C SENIOR
SUBORDINATED NOTES DUE 2003 FOR ANY AND ALL OF
ITS OUTSTANDING 8 3/4% SERIES B SENIOR
SUBORDINATED NOTES DUE 2003.
LOGO
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1997, UNLESS
EXTENDED.
Canandaigua Wine Company, Inc. (the "Company") hereby offers, upon the terms
and conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (which together constitute the "Exchange Offer"), to exchange up to
$65,000,000 aggregate principal amount of 8 3/4% Series C Senior Subordinated
Notes due 2003 of the Company (the "Exchange Notes") for any and all of the
issued and outstanding 8 3/4% Series B Senior Subordinated Notes due 2003 of
the Company (the "Old Notes," and together with the Exchange Notes, the
"Notes") from the holders thereof. As of the date of this Prospectus, there is
$65,000,000 aggregate principal amount of the Old Notes outstanding. The terms
of the Exchange Notes are identical in all material respects to the Old Notes,
except that the Exchange Notes have been registered under the Securities Act of
1933, as amended (the "Securities Act"), and therefore will not bear legends
restricting their transfer and will not contain provisions providing for
payment of liquidated damages under certain circumstances relating to the
Registration Rights Agreement (as defined herein), which provisions will
terminate as to all of the Notes upon the consummation of the Exchange Offer.
The maximum period of time that the Exchange Offer will remain in effect will
be from the date hereof through March 13, 1997.
Interest on the Exchange Notes will be payable semi-annually on June 15 and
December 15 of each year, commencing on June 15, 1997. The Exchange Notes will
mature on December 15, 2003. Except as described below, the Company may not
redeem the Exchange Notes prior to December 15, 1998. On or after such date,
the Company may redeem the Exchange Notes, in whole or in part, at the
redemption prices set forth herein, together with accrued and unpaid interest,
if any, to the date of redemption. In addition, upon the occurrence of a Change
of Control (as defined), each holder of Exchange Notes will have the right to
require the Company to make an offer to repurchase all or a portion of such
holder's Notes at a price equal to 101% of the principal amount thereof,
together with accrued and unpaid interest, if any, to the date of repurchase.
There can be no assurance, however, that in the event of a Change of Control
the Company will be able to obtain the necessary consents from the lender under
its Credit Facility (as defined) or, if necessary, the holders of the Original
Notes (as defined), to make any purchases requested by the holders of the
Exchange Notes or that the Company will have available funds sufficient to make
any purchases requested by the holders of Exchange Notes. See "Description of
Notes." The terms of the Notes are substantially identical to those of the
Company's 8 3/4% Senior Subordinated Notes due 2003, which were issued in a
registered offering on December 27, 1993 and of which $130.0 million aggregate
principal amount is outstanding (the "Original Notes").
The Exchange Notes will be unsecured obligations of the Company and will be
subordinated to all existing and future Senior Indebtedness (as defined) of the
Company. The Exchange Notes are guaranteed, jointly and severally, on a senior
subordinated basis (the "Guarantees") by substantially all of the Company's
subsidiaries (the "Guarantors"). The Guarantees will be unsecured obligations
of the Guarantors and will be subordinated to all existing and future Senior
Guarantor Indebtedness (as defined). The Exchange Notes will rank pari passu
with any existing or future senior subordinated indebtedness of the Company and
senior to all other subordinated indebtedness of the Company. The Indenture (as
defined) permits the Company to incur additional indebtedness, including Senior
Indebtedness under the Credit Facility (as defined), subject to certain
limitations. As of November 30, 1996, after giving effect to the sale of the
Old Notes to the Initial Purchasers (as defined) on October 29, 1996 (the "Old
Notes Offering") and the application of the net proceeds therefrom, the
aggregate amount of the Company's outstanding Senior Indebtedness was $328.8
million, the aggregate amount of the Company's outstanding Pari Passu
Indebtedness (as defined) was $130.0 million, and the aggregate amount of
outstanding Senior Guarantor Indebtedness was $327.8 million (including $327.4
million of outstanding indebtedness representing guarantees of Senior
Indebtedness). Revolving Loans (as defined) repaid from the net proceeds of the
Old Notes Offering may be re-borrowed from time to time. See "Use of Proceeds"
and "Description of Notes--Ranking."
The Old Notes were not registered under the Securities Act in reliance upon an
exemption from the registration requirements thereof. In general, the Old Notes
may not be offered or sold unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act. The Exchange Notes are being offered hereby in order to satisfy
certain obligations of the Company contained in the Registration Rights
Agreement (as defined). Based on interpretations by the staff of the Securities
and Exchange Commission (the "SEC") set forth in no-action letters issued to
third parties, the Company believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for the Old Notes may be offered for resale,
resold or otherwise transferred by any holder thereof (other than a holder that
is an "affiliate" of the Company with the meaning of Rule 405 promulgated under
the Securities Act) without compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holder's business, such holder has
no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes, and neither such holder nor any such
person is engaging in or intends to engage in a distribution of such Exchange
(continued on following page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE 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.
The date of this Prospectus is ,1997
<PAGE>
Notes. Notwithstanding the foregoing, each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with any resales of Exchange Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company and the Guarantors have agreed that, for a period of
180 days after the Expiration Date (as defined), they will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
The Old Notes are currently eligible for trading in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") market. There is no
established trading market for the Exchange Notes. The Company does not
currently intend to list the Exchange Notes on any securities exchange or to
seek approval for quotation through any automated quotation system.
Accordingly, there can be no assurance as to the development or liquidity of
any market for the Exchange Notes.
The Company will not receive any proceeds from the Exchange Offer. The Company
will pay all of the expenses incident to the Exchange Offer. Tenders of Old
Notes pursuant to the Exchange Offer may be withdrawn as provided herein at
any time prior to the Expiration Date (as defined). The Exchange Offer is
subject to certain customary conditions.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING OLD NOTES IN THE
EXCHANGE OFFER.
---------------
This prospectus incorporates documents by reference which are not presented
herein or delivered herewith. These documents are available upon request from
Canandaigua Wine Company, Inc., Attention: Robert S. Sands, Secretary, 116
Buffalo Street, Canandaigua, New York 14424; telephone number (716) 394-7900.
In order to ensure timely delivery of the documents, any request should be
made by , 1997.
i
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information, consolidated financial
statements and notes thereto included elsewhere in this Prospectus or
incorporated herein by reference. Unless the context indicates otherwise, the
term "Company" refers to Canandaigua Wine Company, Inc. and its subsidiaries,
all references to "net sales" refer to gross revenues less excise taxes and
returns and allowances to conform with the Company's method of classification;
all references to the Company's fiscal year shall refer to August 31 of the
indicated year except that references to fiscal 1997 shall refer to the
Company's fiscal year ending February 28, 1997; and all references to the
"Transition Period" shall refer to the six month transition period ended
February 29, 1996; all references to "Nine Months 1997" shall refer to the nine
months ended November 30, 1996; and all references to "November 1995 Nine
Months" shall refer to the nine months ended November 30, 1995. Market share
and industry data disclosed in this Prospectus have been obtained from the
following industry publications: Wines & Vines; The Gomberg-Fredrikson Report;
Jobson's Liquor Handbook; Jobson's Wine Handbook; Nielsen Wine Scan; Jobson's
Beer Handbook; Adams/Jobson's Handbook Advance; The U.S. Wine Market: Impact
Databank Review and Forecast; The U.S. Beer Market: Impact Databank Review and
Forecast; Beer Marketer's Insights; Beer Industry Update; U.S. Department of
the Treasury Statistical Releases; and the Maxwell Consumer Report. The Company
has not independently verified this data. References to market share data are
based on unit volume. Certain statements contained in this Prospectus which are
not historical facts are forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those
in the forward-looking statements. See "Risk Factors--Forward-Looking
Statements" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Cautionary Statements Related to Projected Results."
THE COMPANY
The Company is a leading producer and marketer of branded beverage alcohol
products, with over 125 national and regional brands which are distributed by
over 1,200 wholesalers throughout the United States and in selected
international markets. The Company is the second largest supplier of wines, the
third largest importer of beers and the fourth largest supplier of distilled
spirits in the United States. The Company's beverage alcohol brands are
marketed in five general categories: table wines, sparkling wines, dessert
wines, imported beer and distilled spirits, and include the following principal
brands:
. Table Wines: Almaden, Inglenook, Paul Masson, Taylor California Cellars,
Cribari, Manischewitz, Taylor, Marcus James, Deer Valley and Dunnewood
. Sparkling Wines: Cook's, J. Roget, Great Western and Taylor
. Dessert Wines: Richards Wild Irish Rose, Cisco and Taylor
. Imported Beer: Corona, Modelo Especial, St. Pauli Girl and Tsingtao
. Distilled Spirits: Barton, Fleischmann's, Mr. Boston, Montezuma,
Canadian LTD, Ten High, Inver House and Monte Alban
Based on available industry data, the Company believes that, during calendar
year 1995, it had a 22% share of the market for domestic wines, a 12% share of
the imported beer market and its distilled spirits brands had an 8% share of
the distilled spirits market in the United States. Within the market for
domestic wines, the Company believes it had a 28% share of the non-varietal
table wine market, a 12% share of the varietal table wine market, a 42% share
of the dessert wine market and a 29% share
1
<PAGE>
The Old Notes are currently eligible for trading in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") market. There is no
established trading market for the Exchange Notes. The Company does not
currently intend to list the Exchange Notes on any securities exchange or to
seek approval for quotation through any automated quotation system.
Accordingly, there can be no assurance as to the development or liquidity of
any market for the Exchange Notes.
The Company will not receive any proceeds from the Exchange Offer. The Company
will pay all of the expenses incident to the Exchange Offer. Tenders of Old
Notes pursuant to the Exchange Offer may be withdrawn as provided herein at
any time prior to the Expiration Date (as defined). The Exchange Offer is
subject to certain customary conditions.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING OLD NOTES IN THE
EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE 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.
The date of this Prospectus is ,1996
1-1
<PAGE>
of the sparkling wine market. Many of the Company's brands are leaders in their
respective categories in the United States, including Corona, the second
largest selling imported beer brand; Inglenook and Almaden, the fifth and sixth
largest selling wine brands, respectively; Richards Wild Irish Rose, the
largest selling dessert wine brand; Cook's champagne, the second largest
selling sparkling wine brand; Fleischmann's, the fourth largest blended whiskey
and fourth largest domestically bottled gin; Montezuma, the second largest
selling tequila brand; and Monte Alban, the largest selling mezcal brand.
The Company has diversified its product portfolio through a series of
strategic acquisitions that have resulted in an increase in the Company's net
sales from $176.6 million in fiscal 1991 to $1.1 billion for the twelve months
ended August 31, 1996, representing a compound annual growth rate of 43.9%.
During this same period, EBITDA (earnings before interest, taxes, depreciation
and amortization) has increased at a compound annual growth rate of 35.6% from
$20.7 million in fiscal 1991 to an aggregate of $95.1 million for the two six
month periods constituting the twelve months ended August 31, 1996. EBITDA for
the six month transition period ended February 29, 1996 (the "Transition
Period") and the six months ended August 31, 1996 (the "Six Months 1997")
includes approximately $14.3 million of items which the Company believes are
nonrecurring in nature, in part due to the Company's change in fiscal year.
Through its acquisitions, the Company has developed strong market positions in
the growing beverage alcohol product categories of varietal table wine and
imported beer. The Company ranks second and third in the varietal table wine
and imported beer categories, respectively. From 1992 through 1995, industry
shipments of varietal table wine and imported beer have each grown 35%. During
this period, the Company has strengthened its relationship with wholesalers,
expanded its distribution and enhanced its production capabilities as well as
acquired additional management, operational, marketing and research and
development expertise.
In October 1991, the Company acquired Cook's, Cribari, Dunnewood and other
brands and related facilities and assets (the "Guild Acquisition") from Guild
Wineries and Distillers ("Guild"). The Company acquired Barton Incorporated
("Barton") in June 1993 (the "Barton Acquisition"), further diversifying into
the imported beer and distilled spirits categories. In October 1993, the
Company acquired the Paul Masson, Taylor California Cellars and other brands,
and related facilities and assets of Vintners International Company, Inc.
("Vintners") (the "Vintners Acquisition"). In August 1994, the Company acquired
the Almaden, Inglenook and other brands, a grape juice concentrate business and
related facilities and assets (the "Almaden/Inglenook Product Lines") from
Heublein, Inc. ("Heublein") (the "Almaden/Inglenook Acquisition"). In September
1995, the Company acquired the Skol, Mr. Boston, Canadian LTD, Glenmore, Old
Thompson, Kentucky Tavern, and di Amore distilled spirits brands; the rights to
the Fleischmann's and Chi-Chi's distilled spirits brands under long term
license agreements; the U.S. rights to the Inver House, Schenley and El Toro
distilled spirits brands; and related facilities and assets from United
Distillers Glenmore, Inc. and certain of its North American affiliates
(collectively, "UDG") (collectively, the "UDG Acquisition," and together with
the Barton Acquisition, the Vintners Acquisition and the Almaden/Inglenook
Acquisition, the "Acquisitions"). See "Business--Recent Acquisitions."
CURRENT OPERATING ENVIRONMENT
The Company's growth through acquisitions over the past five years has
substantially expanded its portfolio of brands and has enabled it to become a
major participant in additional product categories of the beverage alcohol
business. This expansion has positioned the Company to benefit from faster
growing categories with over one-third of the Company's sales generated from
the growth categories of imported beer and varietal wines. However, recent
operating results have been negatively impacted by two factors: increases in
grape prices and certain costs and operating inefficiencies relating to the
consolidation of certain West Coast winery operations in connection with the
acquisitions.
2
<PAGE>
While the consolidation of certain wine operations has produced significant
overall synergies, some of the planned efficiencies have not materialized and
unanticipated costs have occurred. The Company believes that the unanticipated
production costs resulted from its rapid growth over the last three years,
combined with the lack of integrated production control systems and the
complexity of production at its newly consolidated Mission Bell Winery.
Additionally, as the Company has increased its wine and grape juice
concentrate business, it believes that it has become the second largest
purchaser of grapes for wine and concentrate in California. The Company's
profits are significantly influenced by grape price changes. Costs for grapes
have escalated dramatically over the last two grape harvests (fall 1995 and
fall 1996). Based on constant tonnage purchased, the Company's overall cost of
grapes increased 17.5% in the 1996 harvest.
In order to address these matters, the Company is taking a number of specific
steps to improve sales and margins, minimize unexpected costs related to
inefficiencies and realize opportunities for efficiencies afforded by the
Company's consolidation of its West Coast wine operations and its economies of
scale as a $1.1 billion participant in the beverage alcohol industry. There can
be no assurance, however, that the specific steps the Company is taking will
address such inefficiencies and unexpected costs that the Company has incurred.
Such steps include the following:
. The Company has launched a comprehensive reengineering effort in its wine
division (the "Reengineering Effort"). The Reengineering Effort is
intended to increase the efficiency of all of the Company's operating
processes, create smaller, more manageable business units and create
greater management accountability for its wine business.
. In connection with the Reengineering Effort, the Company is implementing
a new accounting and management information system to upgrade the type
and level of information the Company can generate, and to enable it to
manage its business more precisely.
. The Company has created a number of special task forces specifically to
address various issues related to inefficiencies at its West Coast wine
operations, and has relocated, in some cases temporarily and in others
permanently, personnel with particular expertise necessary to address
these matters. All aspects of the Company's wine and grape juice
concentrate production, material requirements planning functions,
warehousing logistics and bottling operations at the Company's Mission
Bell Winery in California are being reviewed and changed as necessary to
create greater efficiencies.
. The Company has instituted several price increases on its varietal and
non-varietal table wines in response to increased grape costs from the
1995 grape harvest. In general, it is both industry and Company practice
to make selling price adjustments around the time the wine produced with
the higher cost grapes is actually sold, which generally occurs in the
calendar year following the grape harvest. Over the last year the
industry and the Company have increased their selling prices. In the case
of the Company, these selling price increases, on an annualized basis,
have more than offset the increased costs associated with the fall 1995
harvest.
. The Company is in the process of recruiting new management in several key
positions and has previously hired a new President of its wine division
with extensive experience in the U.S. beverage industry, a new Vice
President and Controller of the wine division and an experienced manager
for its Mission Bell Winery. It is expected that the filling of these
positions has given, and will continue to give, the Company significantly
increased management depth and experience.
3
<PAGE>
BUSINESS STRATEGY
The Company's business strategy is to manage its existing portfolio of brands
and businesses in order to maximize profit and return on investment, and
reposition its portfolio of brands to benefit from growth trends in the
beverage alcohol industry. To achieve the foregoing, the Company intends to:
(i) adjust the price/volume relationships of certain brands; (ii) develop new
brands and introduce line extensions; (iii) expand geographic distribution; and
(iv) acquire businesses that meet its strategic and financial objectives.
THE PRIOR OFFERING
On December 27, 1993, the Company issued $130.0 million in aggregate
principal amount of Original Notes pursuant to an indenture (the "Original
Indenture"), among the Company, substantially all of its Subsidiaries and The
Chase Manhattan Bank (successor by merger to Chemical Bank), as trustee. The
Original Notes are fully and unconditionally guaranteed on a joint and several
basis by substantially all of the Company's subsidiaries.
----------------
The Company is a Delaware corporation organized in 1972 as the successor to a
business founded in 1945 by Marvin Sands, Chairman of the Board of the Company.
The Company's executive offices are located at 116 Buffalo Street, Canandaigua,
New York 14424, and its telephone number is (716) 394-7900.
4
<PAGE>
THE EXCHANGE OFFER
Registration Rights Agreement ....
The Old Notes were sold by the Company on
October 29, 1996 (the "Issue Date") to
Chase Securities Inc. and CS First Boston
Corporation (the "Initial Purchasers"), who
placed the Old Notes with institutional
investors. In connection therewith, the
Company and the Initial Purchasers executed
and delivered for the benefit of the
holders of the Old Notes an exchange and
registration rights agreement (the
"Registration Rights Agreement") providing,
among other things, for the Exchange Offer.
The Exchange Offer................ Exchange Notes are being offered in
exchange for a like principal amount of Old
Notes. As of the date hereof, $65,000,000
aggregate principal amount of Old Notes are
outstanding. The Company will issue the
Exchange Notes promptly following the
Expiration Date. See "Risk Factors--
Consequences of Failure to Exchange."
Expiration Date...................
5:00 p.m., New York City time, on ,
1997, unless the Exchange Offer is extended
as provided herein, in which case the term
"Expiration Date" means the latest date and
time to which the Exchange Offer is
extended. The maximum period of time that
the Exchange Offer will remain in effect
will be from the date hereof through March
13, 1997.
Interest.......................... Interest on the Exchange Notes will be
payable semi-annually on June 15 and
December 15 of each year, commencing on
June 15, 1997. The Exchange Notes will
mature on December 15, 2003.
Conditions to the Exchange Offer.. The Exchange Offer is subject to certain
customary conditions, which may be waived
by the Company. The Company reserves the
right to amend, terminate or extend the
Exchange Offer at any time prior to the
Expiration Date upon the occurrence of any
such condition. See "The Exchange Offer--
Conditions."
Procedures for Tendering Old Each holder of Old Notes wishing to accept
Notes............................ the Exchange Offer must complete, sign and
date the Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein,
and mail or otherwise deliver such Letter
of Transmittal, or such facsimile, together
with the Old Notes and any other required
documentation to the exchange agent (the
"Exchange Agent") at the address set forth
herein. By executing the Letter of
Transmittal, each holder of Old Notes will
represent to
5
<PAGE>
the Company, among other things, that (i)
the Exchange Notes acquired pursuant to the
Exchange Offer by the holder and any
beneficial owners of Old Notes are being
obtained in the ordinary course of business
of the person receiving such Exchange
Notes, (ii) neither the holder nor such
beneficial owner has an arrangement or
understanding with any person to
participate in the distribution of such
Exchange Notes, (iii) neither the holder
nor such beneficial owner nor any such
other person is engaging in or intends to
engage in a distribution of such Exchange
Notes and (iv) neither the holder nor such
beneficial owner is an "affiliate," as
defined under Rule 405 promulgated under
the Securities Act, of the Company. Each
broker-dealer that receives Exchange Notes
for its own account in exchange for Old
Notes, where such Old Notes were acquired
by such broker-dealer as a result of
market-making activities or other trading
activities (other than Old Notes acquired
directly from the Company), may participate
in the Exchange Offer but may be deemed an
"underwriter" under the Securities Act and,
therefore, must acknowledge in the Letter
of Transmittal that it will deliver a
prospectus in connection with any resale of
such Exchange Notes. The Letter of
Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it
is an "underwriter" within the meaning of
the Securities Act. See '"The Exchange
Offer--Procedures for Tendering" and '"Plan
of Distribution."
Special Procedures for Beneficial Any beneficial owner whose Old Notes are
Owners........................... registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender should
contact such registered holder promptly and
instruct such registered holder to tender
on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such
beneficial owner's own behalf, such
beneficial owner must, prior to completing
and executing the Letter of Transmittal and
delivering his Old Notes, either make
appropriate arrangements to register
ownership of the Old Notes in such
beneficial owner's name or obtain a
properly completed bond power from the
registered holder. The transfer of
registered ownership may take considerable
time. See "The Exchange Offer--Procedures
for Tendering."
Guaranteed Delivery Procedures.... Holders of Old Notes who wish to tender
their Old Notes and whose Old Notes are not
immediately
6
<PAGE>
available or who cannot deliver their Old
Notes, the Letter of Transmittal or any
other documents required by the Letter of
Transmittal to the Exchange Agent prior to
the Expiration Date must tender their Old
Notes according to the guaranteed delivery
procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
Withdrawal Rights.................
Tenders may be withdrawn as provided herein
at any time prior to 5:00 p.m., New York
City time, on the Expiration Date. See "The
Exchange Offer--Withdrawal of Tenders."
Acceptance of Old Notes and
Delivery of New Notes............. The Company will accept for exchange any
and all Old Notes which are properly
tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the
Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be
delivered promptly following the Expiration
Date. See "The Exchange Offer--Terms of the
Exchange Offer."
Exchange Agent.................... Harris Trust and Savings Bank is serving as
Exchange Agent in connection with the
Exchange Offer. See "The Exchange Offer--
Exchange Agent."
Use of Proceeds...................
There will be no cash proceeds to the
Company from the exchange pursuant to the
Exchange Offer.
Federal Income Tax Consequences...
The exchange of Old Notes for Exchange
Notes should not be a taxable exchange for
Federal income tax purposes. See "Certain
Federal Income Tax Considerations."
Consequences of Failure to
Exchange......................... Holders of Old Notes who do not exchange
their Old Notes for Exchange Notes pursuant
to the Exchange Offer will continue to be
subject to the restrictions on transfer of
such Old Notes as set forth in the legend
thereon as a consequence of the issuance of
the Old Notes pursuant to exemptions from,
or in transactions not subject to, the
registration requirements of the Securities
Act and applicable state securities laws.
In general, Old Notes may not be offered or
sold unless registered under the Securities
Act, except pursuant to an exemption from,
or in a transaction not subject to, the
Securities Act and applicable state
securities laws.
7
<PAGE>
SUMMARY DESCRIPTION OF THE NOTES
The Exchange Offer applies to $65,000,000 aggregate principal amount of Old
Notes. The terms of the Exchange Notes are identical in all material respects
to the Old Notes, except that the Exchange Notes have been registered under the
Securities Act and, therefore, will not bear legends restricting their transfer
and will not contain certain provisions providing for payment of liquidated
damages under certain circumstances relating to the Registration Rights
Agreement, which provisions will terminate as to all of the Notes upon the
consummation of the Exchange Offer. The Exchange Notes will evidence the same
debt as the Old Notes and, except as set forth in the immediately preceding
sentence, will be entitled to the benefits of the Indenture, under which both
the Old Notes were, and the Exchange Notes will be, issued. See "Description of
Notes."
Issuer............................ Canandaigua Wine Company, Inc.
Securities Offered for Exchange... $65,000,000 aggregate principal amount of 8
3/4% Series C Senior Subordinated Notes due
2003.
Maturity.......................... December 15, 2003.
Interest Payment Dates............ June 15 and December 15 of each year,
commencing on June 15, 1997.
Except as described below, the Company may
Optional Redemption............... not redeem the Exchange Notes prior to
December 15, 1998. On or after such date,
the Company may redeem the Exchange Notes,
in whole or in part, at the redemption
prices set forth herein, together with
accrued and unpaid interest, if any, to the
date of redemption.
Change of Control................. Upon the occurrence of a Change of Control,
each holder of Notes will have the right to
require the Company to purchase all or a
portion of such holder's Notes at a
purchase price in cash equal to 101% of the
principal amount thereof, together with
accrued and unpaid interest, if any, to the
date of purchase. In the event of a Change
of Control, the Company is prohibited under
the Credit Facility from purchasing the
Exchange Notes and all amounts outstanding
under the Credit Facility become due and
payable. In addition, the repurchase of the
Exchange Notes upon the occurrence of a
Change of Control (or otherwise) will be
prohibited by the Original Indenture unless
the Company has sufficient ability at such
time to make "Restricted Payments"
thereunder. See "Description of Notes--
Certain Covenants--Purchase of Notes Upon a
Change of Control." There can be no
assurance that in the event of a Change of
Control the Company will be able to obtain
the necessary consents from the lenders
under its Credit Facility or,
8
<PAGE>
if necessary, the holders of the Original
Notes, to make any purchases requested by
the holders of the Exchange Notes or that
the Company will have available funds
sufficient to make any purchases requested
by the holders of the Exchange Notes.
Neither the Company's Board of Directors
nor the trustee under the Indenture is
permitted to waive the right of the holders
of the Exchange Notes to require the
Company to purchase the holders' Exchange
Notes upon a Change of Control.
Subsidiary Guarantees.............
The Exchange Notes will be guaranteed,
jointly and severally, on a senior
subordinated basis by substantially all
existing direct and indirect subsidiaries
of the Company. As of November 30, 1996,
after giving effect to the sale of the Old
Notes and the application of the net
proceeds therefrom, the aggregate amount of
outstanding Senior Guarantor Indebtedness
was $327.8 million (including $327.4
million of outstanding indebtedness
representing guarantees of Senior
Indebtedness).
Ranking...........................
The Exchange Notes will be unsecured
subordinated obligations of the Company
and, as such, will be subordinated to all
existing and future Senior Indebtedness of
the Company. The Notes will rank pari passu
with all existing and future senior
subordinated indebtedness of the Company,
including the Original Notes. As of
November 30, 1996, after giving effect to
the sale of the Old Notes and the
application of the net proceeds therefrom,
the aggregate amount of outstanding Senior
Indebtedness of the Company was $328.8
million and the aggregate amount of
outstanding Pari Passu Indebtedness was
$130.0 million. Revolving Loans repaid from
the net proceeds of the Old Notes Offering
may be re-borrowed from time to time. See
"Use of Proceeds" and "Description of
Notes--Ranking."
Restrictive Covenants............. The Indenture relating to the Exchange
Notes contains certain covenants,
including, but not limited to, covenants
with respect to the following matters: (i)
limitation on indebtedness; (ii) limitation
on restricted payments; (iii) limitation on
transactions with affiliates; (iv)
limitation on senior subordinated
indebtedness; (v) limitation on liens; (vi)
limitation on sale of assets; (vii)
limitation on issuances of guarantees of
and pledges for indebtedness; (viii)
restriction on transfer of assets; (ix)
limitation on subsidiary capital stock; (x)
limitation on dividends and other payment
restrictions
9
<PAGE>
affecting subsidiaries; and (xi)
restrictions on consolidations, mergers and
the sale of assets. See "Description of
Notes--Certain Covenants."
Absence of a Public Market
for the Notes..................... The Exchange Notes generally will be freely
transferable (subject to the restrictions
discussed elsewhere herein) but will be new
securities for which initially there will
not be a market. Accordingly, there can be
no assurance as to the development or
liquidity of any market for the Exchange
Notes. The Company does not intend to apply
for listing of the Exchange Notes on any
national securities exchange or for
quotation through the National Association
of Securities Dealers Automated Quotation
System. See "Risk Factors--Lack of Public
Market; Restrictions on Transferability."
Certain Tax Consequences.......... Because the Old Notes were issued with
original issue discount ("OID"), the
Exchange Notes will also be deemed to have
been issued with OID. As a result, for
Federal income tax purposes, holders may be
required to include amounts in income prior
to the receipt of cash attributable
thereto. See "Certain Federal Income Tax
Consequences."
Risk Factors......................
Prior to tendering Old Notes in the
Exchange Offer, holders of Old Notes should
carefully consider all of the information
set forth in this Prospectus and, in
particular, should evaluate the specific
factors set forth under "Risk Factors"
beginning on page 13 for risks involved
with an investment in the Notes. Certain
statements contained in this Prospectus
which are not historical facts are forward-
looking statements that involve risks and
uncertainties that could cause actual
results to differ materially from those in
the forward-looking statements. See "Risk
Factors--Forward Looking Statements" and
"Management's Discussion and Analysis of
Financial Condition and Results of
Operations--Cautionary Statements Related
to Projected Results."
For additional information concerning the
Exchange Notes, see "Description of Notes."
10
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED AUGUST 31, SIX MONTHS ENDED NOVEMBER 30,
------------------------------------------------- ------------------ ------------------
FEB. 28, FEB. 29,
1991 1992(A) 1993(B) 1994(C)(D) 1995 1995 1996(E) 1995(E) 1996
-------- -------- -------- ---------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $176,559 $245,243 $306,308 $629,584 $906,544 $454,485 $535,024 $737,644 $873,444
Gross profit........... 45,495 70,557 91,377 182,373 252,733 126,791 138,816 203,195 224,425
Selling, general and
administrative
expenses............... (30,184) (46,491) (59,983) (121,388) (159,196) (79,925) (112,411) (129,375) (161,139)
Nonrecurring
restructuring expenses. -- -- -- (24,005) (2,238) (685) (2,404) (3,301) --
Operating income........ 15,311 24,066 31,394 36,980 91,299 46,181 24,001 70,519 63,286
Interest expense, net... (3,631) (6,182) (6,126) (18,056) (24,601) (13,141) (17,298) (19,507) (25,468)
Income before provision
for income taxes....... 11,680 17,884 25,268 18,924 66,698 33,040 6,703 51,012 37,818
Net income.............. $ 7,710 $ 11,356 $ 15,604 $ 11,733 $ 41,020 $ 20,320 $ 3,322 $ 31,112 $ 21,753
OTHER DATA:
Gross profit margin(f).. 25.8% 28.8% 29.8% 29.0% 27.9% 27.9% 25.9% 27.5% 25.7%
EBITDA(g)............... $ 20,737 $ 31,141 $ 40,069 $ 50,795 $112,011 $ 58,832 $ 37,959(h) $ 85,913 $ 89,123
EBITDA margin(i)........ 11.7% 12.7% 13.1% 8.1% 12.4% 12.9% 7.1% 11.6% 10.2%
Cash flows from
operating activities... $ 9,275 $ 16,199 $ 8,912 $ 27,179 $ 73,318 $(36,243) $(84,833) $(43,390) $ 15,364
Cash flows from
investing activities... $ 182 $ (9,347) $ 3,098 $(16,950) $(64,085) $(11,342) $(26,829) $(41,359) $(33,995)
Cash flows from
financing activities... $ (3,766) $(11,515) $(10,486) $(12,452) $ (6,548) $ 49,180 $110,821 $ 82,953 $ 20,289
Depreciation and
amortization........... $ 5,426 $ 7,075 $ 8,675 $ 13,815 $ 20,712 $ 12,651 $ 13,958 $ 15,394 $ 25,837
Capital expenditures.... $ 2,844 $ 4,713 $ 6,949 $ 7,853 $ 37,121 $ 11,342 $ 16,077 $ 32,753 $ 25,318
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
AS OF AUGUST 31, FEBRUARY 29, NOVEMBER 30,
---------------------------------------------- ------------ ------------
1991 1992(A) 1993(B) 1994(C)(D) 1995 1996(E) 1996
-------- -------- -------- ---------- -------- ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............ $147,207 $217,835 $355,182 $826,562 $785,921 $1,054,580 $1,119,513
Indebtedness (including
current maturities).... 63,134 62,174 129,131 339,123 227,992 479,713 520,498
Stockholders' equity.... 51,975 95,549 126,104 204,193 351,882 356,506 358,565
Cash dividends declared
per common share(j).... -- -- -- -- -- -- --
</TABLE>
- -------
(a) The Company acquired Guild on October 1, 1991, and accounted for this
acquisition utilizing the purchase method of accounting. Guild's results of
operations have been included in the Company's results of operations since
October 1, 1991.
(b) The Company acquired Barton on June 29, 1993, and accounted for the
acquisition utilizing the purchase method of accounting. Barton's results
of operations have been included in the Company's results of operations
since June 29, 1993.
(c) The Company acquired substantially all of the assets and businesses of
Vintners on October 15, 1993, and accounted for the acquisition utilizing
the purchase method of accounting. Vintners' results of operations have
been included in the Company's results of operations since October 15,
1993.
(d) The Company acquired substantially all of the assets and business
associated with the Almaden/Inglenook Product Lines from Heublein on August
5, 1994, utilizing the purchase method of accounting. The Almaden/Inglenook
Product Lines have been included in the Company's results of operations
since August 5, 1994.
(e) The Company acquired certain assets of UDG on September 1, 1995, and
accounted for the acquisition utilizing the purchase method of accounting.
UDG's results of operations have been included in the Company's results of
operations since September 1, 1995.
(f) Represents gross profit as a percentage of net sales.
(g) EBITDA represents operating income plus depreciation of property, plant and
equipment and amortization of intangible assets. EBITDA is presented here
as a measure of the Company's debt service ability. EBITDA should not be
construed as an alternative to operating income or net cash flow from
operating activities and should not be construed as an indication of
operating performance or as a measure of liquidity.
(h) EBITDA for the six months ended February 29, 1996 includes approximately
$14,300 of charges that the Company believes are nonrecurring in nature due
in part to the Company's change in fiscal year.
(i) Represents EBITDA as a percentage of net sales.
(j) The Company's policy is to retain all of its earnings to finance the
development and expansion of its business, and the Company has not paid any
cash dividends since its initial public offering in 1973. In addition, the
Company's current bank credit agreement prohibits and the Company's
indentures for the Original Notes and Old Notes restrict the payment of
cash dividends.
11
<PAGE>
RISK FACTORS
The Exchange Notes offered hereby involve a high degree of risk. In addition
to the other information in this Prospectus, the following principal risk
factors should be considered carefully by holders of Old Notes prior to making
a decision to tender their Old Notes in the Exchange Offer.
CONSEQUENCES OF FAILURE TO EXCHANGE; RESTRICTIONS ON TRANSFER OF THE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate
that it will register the Old Notes under the Securities Act. Based on
interpretations by the staff of the SEC set forth in no-action letters issued
to third parties, the Company believes that the Exchange Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold or otherwise transferred by any holder thereof (other than any such
holder that is an "affiliate" of the Company within the meaning of Rule 405
promulgated under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business,
such holder has no arrangement or understanding with any person to participate
in the distribution of such Exchange Notes and neither such holder nor any such
other person is engaging in or intends to engage in a distribution of such
Exchange Notes. Notwithstanding the foregoing, each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with any resale of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities (other than
Old Notes acquired directly from the Company.) The Company has agreed that, for
a period of 180 days from the date of this Prospectus, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
NECESSITY TO COMPLY WITH EXCHANGE OFFER PROCEDURES
To participate in the Exchange Offer, and to avoid the restrictions on
transfer of the Old Notes, holders of Old Notes must transmit a properly
completed Letter of Transmittal, including all other documents required by such
Letter of Transmittal, to the Exchange Agent at the address set forth below
under "The Exchange Offer--Exchange Agent" on or prior to the Expiration Date.
In addition, either (i) certificates for such Old Notes must be received by the
Exchange Agent along with a Letter of Transmittal or (ii) a timely confirmation
of a book-entry transfer of such Old Notes, if such procedure is available,
into the Exchange Agent's account at The Depository Trust Company pursuant to
the procedure for book-entry transfer described herein, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the holder must comply
with the guaranteed delivery procedures described herein. See "The Exchange
Offer."
RISK OF ADVERSE EFFECT ON THE COMPANY FROM INDEBTEDNESS AND RESTRICTIVE
COVENANTS
The Company has incurred substantial indebtedness to finance the
Acquisitions. As of November 30, 1996, after giving effect to the sale of the
Old Notes and the application of the net proceeds
12
<PAGE>
therefrom, the Company had $520.5 million of indebtedness outstanding, which
amount does not include $46.1 million of Revolving Loans available to be drawn
under the Credit Facility. Revolving Loans repaid from the net proceeds of the
Old Notes Offering may be re-borrowed from time to time. See "Use of
Proceeds." The Company's ability to satisfy its financial obligations under
the Exchange Notes and under its other indebtedness outstanding from time to
time will depend upon its future operating performance, which is subject to
prevailing economic conditions, levels of interest rates and financial,
business and other factors, many of which are beyond the Company's control.
Therefore, there can be no assurance that the Company's cash flow from
operations and cash provided by its financing activities will provide adequate
resources to satisfy its working capital, liquidity and anticipated capital
expenditure requirements.
The Company's current and future debt service obligations could have
important consequences to holders of the Exchange Notes, including the
following: (i) the Company's ability to obtain financing for future working
capital needs or acquisitions, or other purposes, may be limited; (ii) a
significant portion of the Company's cash flow from operations will be
dedicated to the payment of principal and interest on its indebtedness,
thereby reducing funds available for operations; and (iii) the Company may be
more vulnerable to adverse economic conditions than less leveraged competitors
and, thus, may be limited in its ability to withstand competitive pressures.
The Credit Facility, the Original Indenture and the Indenture contain
restrictive covenants including, among others, those restricting additional
liens, incurrence of additional indebtedness, the sale of assets, the payment
of dividends, transactions with affiliates, the making of investments and
certain other fundamental changes. The Credit Facility also contains
restrictions on capital expenditures and certain financial ratio tests
including current assets to current liabilities, maximum indebtedness to
tangible net worth, minimum interest and fixed charges coverages and minimum
levels of tangible net worth. These restrictions could limit the Company's
ability to conduct its business. A failure to comply with the obligations
contained in the Credit Facility, the Original Indenture or the Indenture
could result in an event of default under such agreements, which could permit
acceleration of the related debt and acceleration of debt under other
agreements that may contain cross-acceleration or cross-default provisions.
RISK OF ADVERSE EFFECTS ON THE HOLDERS OF EXCHANGE NOTES OCCURRING DUE TO
SUBORDINATION OF THE NOTES AND THE GUARANTEES AND ENCUMBRANCES ON COMPANY
ASSETS
The payment of principal of, premium, if any, and interest on the Exchange
Notes will be subordinated, to the extent set forth in the Indenture, to the
prior payment in full of existing and future Senior Indebtedness of the
Company, which includes the indebtedness under the Credit Facility. Therefore,
in the event of the liquidation, dissolution, reorganization, or any similar
proceeding regarding the Company, the assets of the Company will be available
to pay obligations on the Exchange Notes only after the Senior Indebtedness
has been paid in full, and there may not be sufficient assets to pay amounts
due on all or any of the Exchange Notes. In addition, the Company may not pay
principal of, premium, if any, interest on or any other amounts owing in
respect of the Exchange Notes, make any deposit pursuant to defeasance
provisions or purchase, redeem or otherwise retire the Exchange Notes, if any
Designated Senior Indebtedness (as defined) is not paid when due or any other
default on Designated Senior Indebtedness occurs and the maturity of such
indebtedness is accelerated in accordance with its terms unless, in either
case, such default has been cured or waived, any such acceleration has been
rescinded or such indebtedness has been repaid in full. Moreover, under
certain circumstances, if any nonpayment default exists with respect to
Designated Senior Indebtedness, the Company may not make any payments on the
Exchange Notes for a specified period of time, unless such default is cured or
waived or such indebtedness has been repaid in full. As of November 30, 1996,
after giving effect to the sale of the Old Notes and the application of the
net proceeds therefrom, the aggregate amount of outstanding Senior
Indebtedness that ranked senior in right of payment to the Exchange Notes was
$328.8 million, and the aggregate amount of outstanding Pari Passu
Indebtedness was $130.0 million. See "Description of Notes--
13
<PAGE>
Subordination." Revolving Loans repaid from the net proceeds of the Old Notes
Offering may be re-borrowed from time to time. See "Use of Proceeds."
The Guarantees will be subordinated in right of payment to the guarantees by
the Guarantors of the Company's obligations under the Credit Facility and will
be subordinated in the future to all future guarantees by the Guarantors of
Senior Indebtedness of the Company and any other Senior Guarantor Indebtedness.
As of November 30, 1996, after giving effect to the sale of the Old Notes and
the application of the net proceeds therefrom, the aggregate amount of
outstanding Senior Guarantor Indebtedness that ranked senior in right of
payment to the Guarantees was $327.8 million (including $327.4 million of
outstanding indebtedness representing guarantees of Senior Indebtedness).
The Exchange Notes will not be secured by any of the Company's assets. The
obligations of the Company under the Credit Facility, however, are secured by a
first priority security interest in a majority of the Company's assets. If the
Company becomes insolvent or is liquidated, or if payment under the Credit
Facility is accelerated, the lenders under the Credit Facility would be
entitled to exercise the remedies available to a secured lender under
applicable law and pursuant to instruments governing such indebtedness.
Accordingly, such lenders will have a prior claim on such of the Company's
assets. In any such event, because the Exchange Notes will not be secured by
any of the Company's assets, it is possible that there would be no assets
remaining from which claims of the holders of the Exchange Notes could be
satisfied or, if any such assets remained, such assets might be insufficient to
satisfy such claims fully. See "Capitalization," "Management's Discussions and
Analysis of Financial Condition and Results of Operations--Financial Liquidity
and Capital Resources," "Description of Notes" and Notes to the Consolidated
Financial Statements.
DEPENDENCY UPON OPERATIONS OF THE COMPANY'S SUBSIDIARIES
The Exchange Notes are obligations of the Company. As of November 30, 1996,
75.5% of the tangible assets of the Company were held by its subsidiaries.
Therefore, the Company's ability to make interest and principal payments when
due to holders of the Exchange Notes is dependent, in part, upon the operations
of its subsidiaries.
The Company's obligations under the Exchange Notes will be guaranteed,
jointly and severally, on a senior subordinated basis by the Guarantors. To the
extent any Guarantee were to be avoided as a fraudulent conveyance or held
unenforceable for any other reason, holders of the Exchange Notes would cease
to have any claim in respect of such Guarantor and would be creditors solely of
the Company and any Guarantor whose Guarantee was not avoided or held
unenforceable. In such event, the claims of the holders of the Exchange Notes
against the issuer of an invalid Guarantee would be subject to the prior
payment of all liabilities of such Guarantor. There can be no assurance that,
after providing for all prior claims, there would be sufficient assets to
satisfy the claims of the holders of the Exchange Notes relating to any voided
Guarantee. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Financial Liquidity and Capital Resources," "Description
of Credit Facility" and "Description of Notes."
RISK OF DEFAULT UNDER INDENTURE IN THE EVENT OF A CHANGE OF CONTROL
If a Change of Control shall occur at any time, then each holder of the
Exchange Notes shall have the right to require that the Company purchase such
holder's Notes for cash in an amount equal to 101% of the principal amount of
such Exchange Notes plus accrued and unpaid interest, if any, to the date of
purchase pursuant to procedures set forth in the Indenture. In the event of a
Change of Control, the Company is prohibited under the Credit Facility from
purchasing the Exchange Notes until either all amounts outstanding under the
Credit Facility are paid in full or the Company obtains the necessary consents
from the lenders under the Credit Facility to make any purchases requested by
the holders of the Exchange Notes. In addition, the repurchase of the Exchange
Notes upon the occurrence of a
14
<PAGE>
Change of Control (or otherwise) will be prohibited by the Original Indenture
unless the Company has sufficient ability at such time to make "Restricted
Payments" thereunder. There can be no assurance that, in the event of a Change
of Control, the Company will be able to obtain the necessary consents from the
lenders under the Credit Facility or, if necessary, the holders of the
Original Notes to make any purchases requested by the holders of the Exchange
Notes or that the Company will have available funds sufficient to make any
such purchases. The failure of the Company upon a Change of Control to offer
to purchase the Notes or to consummate the purchases requested by the holders
of the Exchange Notes will constitute an Event of Default under the Indenture.
Such Event of Default would permit acceleration of indebtedness under the
Credit Facility and would also permit acceleration of indebtedness under other
debt agreements that contain cross-acceleration or cross-default provisions.
Moreover, all amounts outstanding under the Credit Facility become due and
payable upon a Change of Control and it is an event of default under the
Credit Facility upon the occurrence of certain change of control events. See
"Description of Credit Facility," "Description of Notes--Events of Default,
and--Certain Covenants--Purchase of Notes Upon a Change of Control."
COMPETITION
The Company is in a highly competitive environment and its dollar sales and
unit volume could be negatively affected by its inability to maintain or
increase prices, changes in geographic or product mix, a general decline in
beverage alcohol consumption or the decision of its wholesale customers,
retailers or consumers to purchase competitive products instead of the
Company's products. Wholesaler, retailer and consumer purchasing decisions are
influenced by, among other things, the perceived absolute or relative overall
value of the Company's products, including their quality or pricing, compared
to competitive products. Unit volume and dollar sales could also be affected
by pricing, purchasing, financing, operational, advertising or promotional
decisions made by wholesalers and retailers which could affect their supply,
or consumer demand for, the Company's products.
GENERAL DECLINE IN CONSUMPTION OF BEVERAGE ALCOHOL PRODUCTS
The beverage alcohol industry in the United States consists of the
production, importation, marketing and distribution of beer, wine and
distilled spirits products. From 1978 through 1995 the overall per capita
consumption of beverage alcohol products by adults (ages 21 and over) has
declined, with annual beer consumption declining 14%, from 36.3 to 31.3
gallons per capita, annual wine consumption declining 40%, from 3.0 to 1.8
gallons per capita, and annual distilled spirits consumption declining 58%,
from 3.1 to 1.3 gallons per capita. These declines have been caused by a
variety of factors including: increased concerns about the health consequences
of consuming beverage alcohol products and about drinking and driving; a trend
toward a healthier diet including lighter, lower calorie beverages such as
diet soft drinks, juices and sparkling water products; the increased activity
of anti-alcohol consumer groups; an increase in the minimum drinking age from
18 to 21 in all states; and increased Federal and state excise taxes.
EXCISE TAXES AND GOVERNMENT REGULATIONS
The Federal government and individual states impose excise taxes on beverage
alcohol products in varying amounts which have been subject to change.
Increases in excise taxes on beverage alcohol products, if enacted, could
materially and adversely affect the Company's financial condition or results
of operations. In addition, the beverage alcohol products industry is subject
to extensive regulation by state and Federal agencies. The Federal Bureau of
Alcohol, Tobacco and Firearms and the various state liquor authorities
regulate such matters as licensing requirements, trade and pricing practices,
permitted and required labelling, advertising and relations with wholesalers
and retailers. In recent years, Federal and state regulators have required
warning labels and signage. There can be no assurance that new or revised
regulations or increased licensing fees and requirements will not have
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a material adverse effect on the Company's financial condition or results of
operations. See "Business--Government Regulation."
DIFFICULTY IN INTEGRATING ACQUISITIONS
To successfully implement its acquisition strategy, the Company must not only
negotiate, finance and consummate such acquisitions, but also integrate the
acquired businesses into its operations. The Company has experienced
difficulties in the past year in achieving operating efficiencies from the
consolidation of certain of its West Coast wine operations. There can be no
assurance that the Company will be able to integrate any existing or future
acquisitions successfully into its operations and achieve cost savings from
such integration.
DEPENDENCE ON DISTRIBUTION CHANNELS
The Company sells its products principally to wholesalers for resale to
retail outlets including grocery stores, package liquor stores, club and
discount stores and restaurants. The replacement or poor performance of the
Company's major wholesalers or the Company's inability to collect accounts
receivable from its major wholesalers could materially and adversely affect the
Company's results of operations and financial condition. Distribution channels
for beverage alcohol products have been characterized in recent years by rapid
change, including consolidations of certain wholesalers. Wholesalers and
retailers of the Company's products offer products which compete directly with
the Company's products for retail shelf space and consumer purchases.
Accordingly, there is a risk that these wholesalers or retailers may give
higher priority to products of the Company's competitors. There can be no
assurance that the Company's wholesalers and retailers will continue to
purchase the Company's products or provide the Company's products with adequate
levels of promotional support. See "Business--Marketing and Distribution."
RISK RELATED TO THE TERMINATION OR NON-RENEWAL OF IMPORTED BEER DISTRIBUTION
AGREEMENTS
All of the Company's imported beer products are marketed and sold pursuant to
exclusive distribution agreements with the suppliers of these products which
are subject to renewal from time to time. The Company's agreement to distribute
Corona and its other Mexican beer brands expires in December 2006 and, subject
to compliance with certain performance criteria and other terms of the
agreement, will be automatically renewed for additional terms of five years.
The Company's agreement for the importation of St. Pauli Girl expires in 1998
and, subject to compliance with certain performance criteria, may be extended
by the Company until 2003. The Company's Tsingtao agreement expires in December
1999 and, subject to compliance with certain performance criteria and other
terms of the agreement, will be automatically renewed until December 2002.
Prior to their expiration, these agreements may be terminated if the Company
fails to meet certain performance criteria or, in the case of the Mexican beer
brands, the supplier does not consent to certain key management changes, which
consent may not be unreasonably withheld. There can be no assurance that the
Company's beer distribution agreements will be renewed or not terminated prior
to expiration.
DEPENDENCE ON RAW MATERIALS
The Company's business is heavily dependent upon raw materials, such as
grapes, grape juice concentrate and packaging materials. The Company could
experience raw material supply, production or shipment difficulties which could
adversely affect its ability to supply goods to its customers. The Company is
also directly affected by increases in the cost of such raw materials. Grape
prices increased significantly during the 1995 harvest and the Company has
experienced higher than anticipated costs related to the purchase of grapes
from the 1996 fall harvest. By August 31, 1996, the Company was able to
increase prices, on an annualized basis, to offset the increased costs
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associated with the 1995 harvest. If the Company is unable to recover the
increased costs associated with the 1996 harvest in the form of selling price
increases or operational efficiencies, the Company's results of operations in
its fiscal year ended February 28, 1998 associated with the 1996 harvest could
be negatively affected.
COSTS ASSOCIATED WITH THE COMPANY'S REENGINEERING EFFORT
The Company's wine division is currently undergoing a Reengineering Effort.
In connection with the Reengineering Effort, the Company is in the process of
recruiting new management in several key positions. There can be no assurance
that the Reengineering Effort will generate positive results or offset the
costs related thereto. See "Summary--Current Operating Environment."
FORWARD-LOOKING STATEMENTS MAY NOT ACCURATELY PREDICT ACTUAL FUTURE
PERFORMANCE
Certain statements contained in this Prospectus which are not historical
facts are forward-looking statements that involve risks and uncertainties that
could cause actual results to differ materially from those set forth in the
forward-looking statements. Any estimated results for the Company's fiscal
year ended February 28, 1997 ("Fiscal 1997") should not be construed in any
manner as a guarantee that such results will in fact occur. These forward-
looking statements are based on assumptions which the Company believes are
reasonable. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Projected 1997 Results." However, there can be no
assurance that any forward-looking statement will be realized or that actual
results will not be significantly higher or lower than set forth in such
forward-looking statement. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Cautionary Statements Related
to Projected Results."
DEPENDENCE UPON MANAGEMENT
The Company's success depends in part on a few key management employees.
These key management employees are Marvin Sands, the Chairman of the Board,
Richard Sands, the President and Chief Executive Officer, Robert Sands,
Executive Vice President and General Counsel, and Ellis Goodman, Executive
Vice President of the Company and the Chief Executive Officer of Barton. If,
for any reason, such key personnel do not continue to be active in the
Company's management, operations could be adversely affected.
CONTROL BY SANDS FAMILY
The Company's capital stock consists of Class A Common Stock and Class B
Common Stock. Holders of Class A Common Stock are entitled to one vote per
share and are entitled, as a class, to elect one-fourth of the members of the
Board of Directors. Holders of Class B Common Stock are entitled to 10 votes
per share and are entitled, as a class, to elect the remaining directors. As
of December 6, 1996, the family of Marvin Sands, the founder and Chairman of
the Board of the Company, beneficially owned approximately 12% of the
outstanding shares of Class A Common Stock (exclusive of shares of Class A
Common Stock issuable pursuant to the conversion feature of the Class B Common
Stock owned by the Sands family) and approximately 85% of the outstanding
shares of Class B Common Stock. On all matters other than the election of
directors, the Sands family has the ability to vote approximately 62% of the
votes entitled to be cast by holders of the Company's capital stock, voting as
a single class. Consequently, the Sands family effectively has control of the
Company and would generally have sufficient voting power to determine the
outcome of any corporate transaction or other matter submitted to the
stockholders for approval.
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LACK OF PUBLIC MARKET; RESTRICTIONS ON TRANSFERABILITY
The Exchange Notes will constitute a new issue of securities with no
established trading market. Although the Initial Purchasers have informed the
Company that they currently intend to make a market in the Exchange Notes,
they are not obligated to do so and any such market making may be discontinued
at any time without notice. The Company does not intend to apply for listing
of the Exchange Notes on any securities exchange or for quotation through the
National Association of Securities Dealers Automated Quotation System.
Accordingly, no assurance can be given as to the continued development or
liquidity of the trading market for the Exchange Notes, or, in the case of
non-tendering holders of Old Notes, the trading market for the Old Notes
following the Exchange Offer.
The liquidity of, and trading market for, the Old Notes or the Exchange
Notes also may be adversely affected by general declines in the market for
similar securities. Such a decline may adversely affect such liquidity and
trading markets independent of the financial performance of, and prospects
for, the Company.
POTENTIAL TAX AND BANKRUPTCY CONSEQUENCES RESULTING FROM THE ISSUANCE OF OLD
NOTES WITH ORIGINAL ISSUE DISCOUNT
The Old Notes were issued with OID (i.e., the difference between the "stated
redemption price at maturity" of the Notes and the issue price of the Notes).
For Federal income tax purposes, the issue price of the Exchange Notes will
equal the issue price of the Old Notes. Thus, OID will accrue from the issue
date of the Exchange Notes (which is deemed to be October 29, 1996) and will
be includable as interest income periodically in a holder's gross income for
United States federal income tax purposes in advance of receipt of the cash
payments to which the income is attributable. See "Certain Federal Income Tax
Considerations--Taxation of the Notes--Original Issue Discount." Similar
results may apply under state tax laws. If a bankruptcy case were commenced by
or against the Company under the United States Bankruptcy Code after the
issuance of the Exchange Notes, the claim of a holder of the Exchange Notes
with respect to the principal amount thereof may be limited to an amount equal
to the sum of (i) the initial offering price and (ii) that portion of the
original issue discount that is not deemed to constitute "unmatured interest"
for purposes of the United States Bankruptcy Code. Any original issue discount
that was not amortized as of any such bankruptcy filing would constitute
"unmatured interest."
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on October 29, 1996 to the Initial
Purchasers, who placed the Old Notes with institutional investors. In
connection therewith, the Company and the Initial Purchasers entered into the
Registration Rights Agreement, pursuant to which the Company agreed, for the
benefit of the Holders of the Old Notes, that the Company would, at its sole
cost, (i) within 45 days following the original issuance of the Old Notes,
file with the SEC the Registration Statement (of which this Prospectus is a
part) under the Securities Act with respect to an issue of a series of new
notes of the Company identical in all material respects to the series of Old
Notes (except that such new notes would not contain terms with respect to
transfer restrictions) and (ii) cause such Registration Statement to be
declared effective under the Securities Act within 105 days following the
original issuance of the Old Notes. Upon the effectiveness of the Registration
Statement, the Company will offer, pursuant to this Prospectus, to the Holders
(as hereinafter defined) the opportunity to exchange their Old Notes for a
like principal amount of Exchange Notes, to be issued without a restrictive
legend and which may, generally, be reoffered and resold by the holder without
restrictions or limitations under the Securities Act. The term "Holder" with
respect to the Exchange Offer means any person in whose name Old Notes are
registered on the books of the Company or any other person who has obtained a
properly completed bond power from the registered holder.
The Company has not requested, and does not intend to request, an
interpretation by the staff of the SEC with respect to whether the Exchange
Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may
be offered for sale, resold or otherwise transferred by any holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act. Instead, based on interpretations by the staff of the SEC set
forth in no-action letters issued to third parties, the Company believes that
Exchange Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold and otherwise transferred by any holder of
such Exchange Notes (other than any such holder that is an "affiliate" of the
Company within the meaning of Rule 405 promulgated under the Securities Act)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such holder's business, such holder has no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes and neither such holder nor any other such person is engaging
in or intends to engage in a distribution of such Exchange Notes. Since the
SEC has not considered the Exchange Offer in the context of a no-action
letter, there can be no assurance that the staff of the SEC would make a
similar determination with respect to the Exchange Offer. Any Holder who is an
affiliate of the Company or who tenders in the Exchange Offer for the purpose
of participating in a distribution of the Exchange Notes cannot rely on such
interpretations by the staff of the SEC and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
a resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-
dealer as a result of market-making activities or other trading activities
must acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes. See "Plan of Distribution." The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Old Notes where such
Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities (other than Old Notes acquired directly
from the Company). The Company and the Guarantors have agreed that, for a
period of 180 days after the Expiration Date, they will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
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In the event that any change in law or applicable interpretations of the
staff of the SEC do not permit the Company to effect the Exchange Offer or do
not permit any Holder (including the Initial Purchasers), to participate in
the Exchange Offer, the Company will file with the SEC a shelf registration
statement (the "Shelf Registration Statement") to cover resales of Transfer
Restricted Securities by such holders who satisfy certain conditions relating
to the provision of information in connection with the Shelf Registration
Statement. As used herein, the term "Transfer Restricted Securities" means
each Old Note until (i) the date on which such Old Note has been exchanged for
a freely transferable Exchange Note in the Exchange Offer, (ii) the date on
which such Note has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement or (iii) the
date on which such Note is distributed to the public pursuant to Rule 144
under the Securities Act or is salable pursuant to Rule 144(k) under the
Securities Act.
Pursuant to the Registration Rights Agreement, the Company agreed to
commence the Exchange Offer (unless such Exchange Offer would not be permitted
by SEC policy) and to use its best efforts to consummate the Exchange Offer as
promptly as practicable, but in any event prior to 135 days after the Issue
Date. If applicable, the Company agreed to use its best efforts to keep the
Shelf Registration Statement effective for a period of three years after the
Issue Date. If (i) the Registration Statement or, as the case may be, the
Shelf Registration Statement, is not declared effective within 105 days after
the Issue Date, (ii) the Exchange Offer is not consummated on or prior to 135
days after the Issue Date, or (iii) the Shelf Registration Statement is filed
and declared effective within 105 days after the Issue Date but shall
thereafter cease to be effective (at any time that the Company is obligated to
maintain the effectiveness thereof) without being succeeded within 30 days by
an additional Registration Statement filed and declared effective (each such
event referred to in clauses (i) through (iii), a "Registration Default"), the
Company will pay liquidated damages to each holder of Transfer Restricted
Securities, during the period of such Registration Default, in an amount equal
to $0.192 per week per $1,000 principal amount of the Old Notes constituting
Transfer Restricted Securities held by such holder until the applicable
Registration Statement is filed or declared effective, the Exchange Offer is
consummated or the Shelf Registration Statement again becomes effective, as
the case may be. All accrued liquidated damages shall be paid to holders in
the same manner as interest payments on the Old Notes on semiannual payment
dates which correspond to interest payment dates for the Old Notes. Following
the cure of all Registration Defaults, the accrual of liquidated damages will
cease.
Holders will be required to make certain representations to the Company (as
described above) in order to participate in the Exchange Offer and will be
required to deliver information to be used in connection with the Shelf
Registration Statement in order to have their Old Notes included in the Shelf
Registration Statement and benefit from the provisions regarding liquidated
damages set forth in the preceding paragraphs. A Holder who sells Old Notes
pursuant to the Shelf Registration Statement generally will be required to be
named as a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which are
applicable to such a holder (including certain indemnification obligations).
The Old Notes are designated for trading in the PORTAL market. To the extent
Old Notes are tendered and accepted in the Exchange Offer, the principal
amount of outstanding Old Notes will decrease with a resulting decrease in the
liquidity in the market therefor. Following the consummation of the Exchange
Offer, Holders who were eligible to participate in the Exchange Offer but who
did not tender their Old Notes will not be entitled to certain rights under
the Registration Rights Agreement and such Old Notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for the Old Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
Notes validly tendered and not withdrawn prior
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to 5:00 p.m., New York City time, on the Expiration Date. The Company will
issue $1,000 principal amount of Exchange Notes in exchange for each $1,000
principal amount of outstanding Old Notes accepted in the Exchange Offer.
Holders may tender some or all of their Old Notes pursuant to the Exchange
Offer. However, Old Notes may be tendered only in integral multiples of
$1,000.
The form and terms of the Exchange Notes will be identical in all material
respects to the form and terms of the Old Notes, except that the Exchange
Notes have been registered under the Securities Act and therefore will not
bear legends restricting their transfer and will not contain certain
provisions providing for payment of liquidated damages under certain
circumstances relating to the Registration Rights Agreement, which provisions
will terminate upon the consummation of the Exchange Offer. The Exchange Notes
will evidence the same debt as the Old Notes and will be entitled to the
benefits of the Indenture under which the Old Notes were, and the Exchange
Notes will be, issued.
As of the date of this Prospectus, $65,000,000 aggregate principal amount of
the Old Notes are outstanding. The Company has fixed the close of business on
, 1997 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus, together with the Letter of
Transmittal, will be sent. As of such date, there were registered Holders.
Holders do not have any appraisal or dissenters' righters under the Delaware
General Corporation Law (the "DGCL") or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the SEC promulgated thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral notice (confirmed in writing) or
written notice thereof to the Exchange Agent. The Exchange Agent will act as
agent for the tendering Holders for the purpose of the exchange of Old Notes.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, any such unaccepted Old Notes will be returned, without expense, to
the tendering Holder thereof as promptly as practicable after the Expiration
Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1997, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral notice (confirmed in writing) or written notice
and will make a public announcement thereof prior to 9:00 a.m., New York City
time, on the next business day after each previously scheduled expiration
date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or, if any of the
conditions set forth below under "--Conditions" shall not have been satisfied,
to terminate the Exchange Offer, by giving oral notice (confirmed in writing)
or
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written notice of such delay, extension or termination to the Exchange Agent
or (ii) to amend the terms of the Exchange Offer in any manner. Any such delay
in acceptance, extension, termination or amendment will be followed as
promptly as practicable by a public announcement thereof. If the Exchange
Offer is amended in a manner determined by the Company to constitute a
material change, the Company will promptly disclose such amendment by means of
a prospectus supplement that will be distributed to the registered Holders,
and the Company will extend the Exchange Offer for a period of five to ten
business days, depending upon the significance of the amendment and the manner
of disclosure to the registered Holders, if the Exchange Offer would otherwise
expire during such five- to ten-business-day period.
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, termination or amendment of the Exchange
Offer, the Company shall have no obligation to publish, advertise or otherwise
communicate any such public announcements, other than by making a timely
release to the Dow Jones News Service.
PROCEDURES FOR TENDERING
The tender of Old Notes by a Holder thereof pursuant to one of the
procedures set forth below and the acceptance thereof by the Company will
constitute a binding agreement between such Holder and the Company in
accordance with the terms and subject to the conditions set forth herein and
in the Letter of Transmittal. This Prospectus, together with the Letter of
Transmittal, will first be sent on or about , 1997, to all Holders of Old
Notes known to the Company and the Exchange Agent.
Only a Holder of Old Notes may tender such Old Notes in the Exchange Offer.
A Holder who wishes to tender any Old Notes for exchange pursuant to the
Exchange Offer must transmit a properly completed and duly executed Letter of
Transmittal, or a facsimile thereof, including any other required documents,
to the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date. In addition, either (i) certificates for such Old Notes must
be received by the Exchange Agent along with the Letter of Transmittal or (ii)
a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation")
of such Old Notes, if such procedure is available, into the Exchange Agent's
account at The Depository Trust Company (the "Book-Entry Transfer Facility")
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date or (iii) the
Holder must comply with the guaranteed delivery procedures described below. To
be tendered effectively, the Old Notes, Letter of Transmittal and other
required documents must be received by the Exchange Agent at the address set
forth below under "--Exchange Agent" prior to 5:00 p.m., New York City time,
on the Expiration Date.
The method of delivery of Old Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the Holder and delivery will be deemed made only when actually received by the
Exchange Agent. Instead of delivery by mail, it is recommended that Holders
use an overnight or hand delivery service. If such delivery is by mail, it is
recommended that registered mail, return receipt requested, be used and proper
insurance be obtained. In all cases, sufficient time should be allowed to
assure delivery to the Exchange Agent before the Expiration Date. No Letter of
Transmittal or Old Notes should be sent to the Company.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such beneficial owner's own behalf, such
beneficial owner must, prior to completing and executing the Letter of
Transmittal and delivering such beneficial owner's Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such
beneficial
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owner's name or obtain a properly completed bond power form the registered
Holder. The transfer of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined herein)
unless the Old Notes tendered pursuant thereto are tendered (i) by a
registered Holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be by a member firm
of a registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 promulgated under the Exchange Act (an
"Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
Holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
Holder as such registered Holder's name appears on such Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old
Notes not properly tendered or any Old Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company
also reserves the right to waive any defects, irregularities or conditions of
tender as to particular Old Notes. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the instructions in the Letter
of Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be
cured within such time as the Company shall determine. Although the Company
intends to notify Holders of defects or irregularities with respect to tenders
of Old Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that the Company determines are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering Holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
By tendering, each Holder will represent to the Company, among other things,
that (i) the Exchange Notes acquired by the Holder and any beneficial owners
of Old Notes pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such Exchange Notes, (ii) neither
the Holder nor such beneficial owner has an arrangement or understanding with
any person to participate in the distribution of such Exchange Notes, (iii)
neither the Holder nor such beneficial owner nor any such other person is
engaging in or intends to engage in a distribution of such Exchange Notes and
(iv) neither the Holder nor any such other person is an "affiliate," as
defined under Rule 405 promulgated under the Securities Act, of the Company.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-
dealer as a result of market-making activities or other trading activities
(other than Old Notes acquired directly from the Company), may participate in
the
23
<PAGE>
Exchange Offer but may be deemed an "underwriter" under the Securities Act
and, therefore, must acknowledge in the Letter of Transmittal that it will
deliver a prospectus in connection with any resale of such Exchange Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. See "Plan of
Distribution."
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the Book-
Entry Transfer Facility, the Letter of Transmittal or facsimile thereof, with
any required signature guarantees and any other required documents, must, in
any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "--Exchange Agent" on or prior to the
Expiration Date or the guaranteed delivery procedures described below must be
complied with.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, the Letter
of Transmittal or any other required documents to the Exchange Agent prior to
the Expiration Date may effect a tender if:
a) the tender is made through an Eligible Institution;
b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate
number(s) of such Old Notes and the principal amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within three New York Stock Exchange trading days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof)
together with the certificate(s) representing the Old Notes, or a Book-
Entry Confirmation, and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the
Exchange Agent; and
c) such properly completed and executed Letter of Transmittal (or facsimile
thereof), as well as the certificate(s) representing all tendered Old
Notes in proper form for transfer, or a Book-Entry Confirmation, as the
case may be, and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within three New York
Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number or numbers and principal amount of
24
<PAGE>
such Old Notes), (iii) be signed by the Holder in the same manner as the
original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes into the name of the persons
withdrawing the tender and (iv) specify the name in which any such Old Notes
are to be registered, if different from that of the Depositor. If certificates
for Old Notes have been delivered or otherwise identified to the Exchange
Agent, then, prior to the release of such certificates, the withdrawing Holder
must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such Holder is an Eligible Institution. If Old
Notes have been tendered pursuant to the procedure for book-entry transfer
described above, any notice of withdrawal must specify the name and number of
the account at the Book-Entry Transfer Facility to be credited with the
withdrawn Old Notes and otherwise comply with the procedures of such facility.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by the Company in its sole
discretion, which determination shall be final and binding on all parties. Any
Old Notes so withdrawn will be deemed not to have been validly tendered for
purposes of the Exchange Offer and no Exchange Notes will be issued with
respect thereto unless the Old Notes so withdrawn are validly retendered.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described above under "--Procedures for Tendering" at any time
prior to the Expiration Date.
Any Old Notes which have been tendered but which are not accepted for
payment due to withdrawal, rejection of tender or termination of the Exchange
Offer will be returned as soon as practicable to the Holder thereof without
cost to such Holder (or, in the case of Old Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described above, such Old Notes
will be credited to an account maintained with such Book-Entry Transfer
Facility for the Old Notes).
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Old
Notes, and may terminate the Exchange Offer as provided herein before the
acceptance of such Old Notes, if:
a) the Exchange Offer shall violate applicable law or any applicable
interpretation of the staff of the SEC; or
b) any action or proceeding is instituted or threatened in any court or by
any governmental agency that might materially impair the ability of the
Company to proceed with the Exchange Offer or any material adverse
development has occurred in any existing action or proceeding with
respect to the Company; or
c) any governmental approval has not been obtained, which approval the
Company shall deem necessary for the consummation of the Exchange Offer.
If the Company receives an opinion of counsel that any of the conditions are
not satisfied, the Company may (i) refuse to accept any Old Notes and return
all tendered Old Notes to the tendering Holders (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at the Book-
Entry Transfer Facility pursuant to the book-entry transfer provisions
described above, such Old Notes will be credited to an account maintained with
such Book-Entry Transfer Facility), (ii) extend the Exchange Offer and retain
all Old Notes tendered prior to the expiration of the Exchange Offer, subject,
however, to the rights of Holders to withdraw such Old Notes (see "--
Withdrawal of Tenders"), or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Old Notes which
have not been withdrawn. If such waiver constitutes a material change to the
Exchange Offer, the Company will promptly disclose such waiver
25
<PAGE>
by means of a prospectus supplement that will be distributed to the registered
Holders, and the Company will extend the Exchange Offer for a period of five
to ten business days, depending upon the significance of the waiver and the
manner of disclosure to the registered Holders, if the Exchange Offer would
otherwise expire during such five- to ten-business-day period.
EXCHANGE AGENT
Harris Trust & Savings Bank has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance, request for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notice of Guaranteed Delivery should be directed to the Exchange Agent
addressed as follows:
By Mail or Hand/Overnight By Facsimile:
Delivery: (212) 701-7636
Harris Trust & Savings Bank
c/o Harris Trust Company of Confirm by Telephone:
New York (212) 701-7624
77 Water Street, 4th Floor
New York, NY 10005
Attn: Reorganization
Department
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, facsimile, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting fees and legal fees, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered Holder of the Old Notes tendered, or
if tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered Holder or any other persons) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering Holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, which is face value less accrued original issue discount, as reflected
in the Company's accounting records on the date of the exchange. Accordingly,
no gain or loss for accounting purposes will be recognized as a result of
consummation of the Exchange Offer. The expenses of the Exchange Offer and the
unamortized expenses related to the issuance of the Old Notes will be
amortized over the term of the Exchange Notes.
26
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. The net
proceeds from the Old Notes Offering were approximately $59.6 million (after
deduction of discounts to the Initial Purchasers and other expenses). Such net
proceeds were used to repay amounts outstanding under the Credit Facility,
including $50.0 million under the Revolving Loans and $9.6 million to repay
and permanently reduce the Term Loans. Revolving Loans repaid from the net
proceeds of the Old Notes Offering may be re-borrowed from time to time. The
Company will continue to use the Revolving Loans to support its working
capital requirements including purchases related to the 1996 grape harvest. In
addition, the Company intends to use the Revolving Loans to complete the Stock
Repurchase Program (as defined). As of January 10, 1997, the Company had
repurchased 785,200 shares of Class A Common Stock at an aggregate cost of
$20.7 million under the Stock Repurchase Program. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
The interest rate for the Term Loans and the Revolving Loans currently is
the sum of LIBOR plus 1.0% and/or the prime rate. The weighted average
interest rate on borrowings under the Credit Facility, as of November 30,
1996, was 6.5%. Both the Term Loans and the Revolving Loans expire in 2001.
The portion of the Term Loans and Revolving Loans repaid from the net proceeds
of the Old Notes Offering were incurred to finance working capital
requirements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Financial Liquidity and Capital Resources,"
"Description of Credit Facility" and "Plan of Distribution."
27
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited short-term debt and
capitalization of the Company as of November 30, 1996, after giving effect to
the sale of the Old Notes on October 29, 1996, and the application of the net
proceeds therefrom. This table should be read in conjunction with the
historical consolidated financial statements and the related Notes appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF NOVEMBER 30,
----------------------
1996
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Short-term debt:
Revolving Loans(a).................................... $130,000
Current maturities of Term Loans...................... 40,000
Current maturities of other long-term debt and
other short-term debt................................ 597
--------
Total short-term debt................................. $170,597
========
Long-term debt:
Term Loans............................................ $157,000
Other................................................. 1,204
8 3/4% Senior Subordinated Notes due 2003............. 130,000
8 3/4% Series B Senior Subordinated Notes due 2003,
net of unamortized discount of $3,303................ 61,697
--------
Total long-term debt (excluding current maturities)... 349,901
--------
Stockholders' equity:
Class A Common Stock, $.01 par value--
60,000,000 authorized shares; 17,460,832 shares
issued............................................... 174
Class B Common Stock, $.01 par value--
20,000,000 authorized shares; 3,956,183 shares
issued............................................... 40
Additional paid-in capital............................ 222,026
Retained earnings..................................... 164,353
Less--Treasury stock
Class A Common Stock, 1,913,207 shares, at cost....... (25,821)
Class B Common Stock, 625,725 shares, at cost......... (2,207)
--------
Total stockholders' equity.............................. 358,565
--------
Total capitalization.................................... $708,466
========
</TABLE>
- --------
(a) Net proceeds from the Old Notes Offering were used to repay amounts
outstanding under the Credit Facility, including $50,000 under the
Revolving Loans. Revolving Loans repaid from the net proceeds of the Old
Notes Offering may be re-borrowed from time to time. See "Use of
Proceeds." Under the terms of the Company's Credit Facility, for 30
consecutive days at any time during the fiscal quarters ending on May 31
and August 31 of each fiscal year, the aggregate outstanding principal
amount of the Revolving Loans combined with all drawn and undrawn
Revolving Letters of Credit (as defined) cannot exceed $60,000, plus the
amount expended by the Company related to certain capital expenditures at
any time during Fiscal 1997 up to $17,500. The Credit Facility expires in
June 2001. As of November 30, 1996, there were outstanding Revolving Loans
of $130,000 and $46,100 available to be drawn in Revolving Loans. See
"Description of Credit Facility."
28
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical consolidated financial and other data
should be read in conjunction with the consolidated financial statements and
related notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere herein. The summary selected
financial information for each of the five fiscal years ended August 31, 1995
and the six month period ended February 29, 1996 is derived from the Company's
consolidated financial statements for such fiscal years, which financial
statements have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports thereon. The summary financial
information for the six month period ended February 28, 1995 and the nine month
periods ended November 30, 1995 and 1996 and as of November 30, 1996 has been
derived from the unaudited financial statements, which, in the opinion of
management, include all adjustments necessary for a fair presentation of the
results of operations for such periods. The financial information for the six
months ended February 29, 1996 and the nine months ended November 30, 1995 and
1996 is not necessarily indicative of the results of operation for a full
fiscal year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED AUGUST 31, SIX MONTHS ENDED NOVEMBER 30,
------------------------------------------------- ------------------ ------------------
FEB. 28, FEB. 29,
1991 1992(A) 1993(B) 1994(C)(D) 1995 1995 1996(E) 1995(E) 1996
-------- -------- -------- ---------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.............. $176,559 $245,243 $306,308 $629,584 $906,544 $454,485 $535,024 $737,644 $873,444
Cost of product sold... (131,064) (174,686) (214,931) (447,211) (653,811) (327,694) (396,208) (534,449) (649,019)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit.......... 45,495 70,557 91,377 182,373 252,733 126,791 138,816 203,195 224,425
Selling, general and
administrative
expenses.............. (30,184) (46,491) (59,983) (121,388) (159,196) (79,925) (112,411) (129,375) (161,139)
Nonrecurring
restructuring
expenses.............. -- -- -- (24,005) (2,238) (685) (2,404) (3,301) --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income....... 15,311 24,066 31,394 36,980 91,299 46,181 24,001 70,519 63,286
Interest expense, net.. (3,631) (6,182) (6,126) (18,056) (24,601) (13,141) (17,298) (19,507) (25,468)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before provision
for income taxes...... 11,680 17,884 25,268 18,924 66,698 33,040 6,703 51,012 37,818
Provision for federal
and state income
taxes................. (3,970) (6,528) (9,664) (7,191) (25,678) (12,720) (3,381) (19,900) (16,065)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income............. $ 7,710 $ 11,356 $ 15,604 $ 11,733 $ 41,020 $ 20,320 $ 3,322 $ 31,112 $ 21,753
======== ======== ======== ======== ======== ======== ======== ======== ========
OTHER DATA:
Gross profit margin(f). 25.8% 28.8% 29.8% 29.0% 27.9% 27.9% 25.9% 27.5% 25.7%
EBITDA(g).............. $ 20,737 $ 31,141 $ 40,069 $ 50,795 $112,011 $ 58,832 $ 37,959(h) $ 85,913 $ 89,123
EBITDA margin(i)....... 11.7% 12.7% 13.1% 8.1% 12.4% 12.9% 7.1% 11.6% 10.2%
Cash flows from
operating activities.. $ 9,275 $ 16,199 $ 8,912 $ 27,179 $ 73,318 $(36,243) $(84,833) $(43,390) $ 15,364
Cash flows from
investing activities.. $ 182 $ (9,347) $ 3,098 $(16,950) $(64,085) $(11,342) $(26,829) $(41,359) $(33,995)
Cash flows from
financing activities.. $ (3,766) $(11,515) $(10,486) $(12,452) $ (6,548) $ 49,180 $110,821 $ 82,953 $ 20,289
Depreciation and
amortization.......... $ 5,426 $ 7,075 $ 8,675 $ 13,815 $ 20,712 $ 12,651 $ 13,958 $ 15,394 $ 25,837
Capital expenditures... $ 2,844 $ 4,713 $ 6,949 $ 7,853 $ 37,121 $ 11,342 $ 16,077 $ 32,753 $ 25,318
Ratio of earnings to
fixed charges(j)...... 3.3x 3.4x 4.4x 2.0x 3.5x 3.3x 1.4x 3.4x 2.4x
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
AS OF AUGUST 31, FEBRUARY 29, NOVEMBER 30,
---------------------------------------------- ------------ ------------
1991 1992(A) 1993(B) 1994(C)(D) 1995 1996(E) 1996
-------- -------- -------- ---------- -------- ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............ $147,207 $217,835 $355,182 $826,562 $785,921 $1,054,580 $1,119,513
Indebtedness (including
current maturities).... 63,134 62,174 129,131 339,123 227,992 479,713 520,498
Stockholders' equity.... 51,975 95,549 126,104 204,193 351,882 356,506 358,565
Cash dividends declared
per common share(k).... -- -- -- -- -- -- --
</TABLE>
See accompanying Notes to Selected Historical Financial Data
29
<PAGE>
NOTES TO SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS)
(a) The Company acquired Guild on October 1, 1991, and accounted for this
acquisition utilizing the purchase method of accounting. Guild's results
of operations have been included in the Company's results of operations
since October 1, 1991.
(b) The Company acquired Barton on June 29, 1993, and accounted for the
acquisition utilizing the purchase method of accounting. Barton's results
of operations have been included in the Company's results of operations
since June 29, 1993.
(c) The Company acquired substantially all of the assets and businesses of
Vintners on October 15, 1993, and accounted for the acquisition utilizing
the purchase method of accounting. Vintners' results of operations have
been included in the Company's results of operations since October 15,
1993.
(d) The Company acquired substantially all of the assets and business
associated with the Almaden/Inglenook Product Lines from Heublein on
August 5, 1994, utilizing the purchase method of accounting. The
Almaden/Inglenook Product Lines have been included in the Company's
results of operations since August 5, 1994.
(e) The Company acquired certain assets of UDG on September 1, 1995, and
accounted for the acquisition utilizing the purchase method of accounting.
UDG's results of operations have been included in the Company's results of
operations since September 1, 1995.
(f) Represents gross profit as a percentage of net sales.
(g) EBITDA represents operating income plus depreciation of property, plant
and equipment and amortization of intangible assets. EBITDA is presented
here as a measure of the Company's debt service ability. EBITDA should not
be construed as an alternative to operating income or net cash flow from
operating activities and should not be construed as an indication of
operating performance or as a measure of liquidity.
(h) EBITDA for the six months ended February 29, 1996 includes approximately
$14,300 of charges that the Company believes are nonrecurring in nature
due in part to the Company's change in fiscal year.
(i) Represents EBITDA as a percentage of net sales.
(j) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" represents income before provision for income taxes plus fixed
charges. "Fixed charges" consist of interest expense, including
amortization of debt issuance costs, and the portion of rental expense
which management believes is representative of the interest component of
lease expense.
(k) The Company's policy is to retain all of its earnings to finance the
development and expansion of its business, and the Company has not paid
any cash dividends since its initial public offering in 1973. In addition,
the Company's current bank credit agreement prohibits and the Company's
indentures for the Original Notes and Old Notes restrict the payment of
cash dividends.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The information contained herein includes certain forward-looking
statements. The Company desires to take advantage of the "safe harbor" which
is afforded such statements under the Private Securities Litigation Reform Act
of 1995 when they are accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those in the forward-looking statements. See "Cautionary
Statements Related to Projected Results."
GENERAL
On January 11, 1996, the Company changed its fiscal year end from the twelve
month period ending August 31 to the twelve month period ending the last day
of February. The Company believes that this change creates a better planning
and financial reporting cycle by allowing the Company to take into account new
costs from the fall grape harvest, other inventory costs, summer sales of
imported beer products and holiday shipments of wines and spirits products in
its fiscal planning and reporting process. The accompanying financial
statements for the six months ended February 29, 1996 (the "Transition
Period") are based on the newly adopted fiscal year. Accordingly, the reported
results for the Transition Period reflect the effect of, among other matters,
seasonal factors related primarily to the timing of advertising and promotion
expenditures and inventory levels during the six months ended February 29,
1996.
The Company's results of operations over recent years have been
significantly impacted by acquisitions. The Company acquired the outstanding
capital stock of Barton on June 29, 1993, the assets of Vintners on October
15, 1993, the Almaden/Inglenook Product Lines on August 5, 1994 and certain
assets from UDG on September 1, 1995. See "Business--Recent Acquisitions." The
Company financed the UDG Acquisition through an amendment to its then-existing
bank credit facility, primarily through an increase in the term loan facility
under that credit facility. See "--Financial Liquidity and Capital Resources."
The cost of grapes, a major component of the Company's raw materials for its
winemaking, increased significantly for the 1995 and 1996 harvests.The Company
uses the last-in, first-out ("LIFO") method of valuing its inventories. The
increased grape costs associated with the fall 1996 grape harvest therefore
increased the Company's costs of goods sold for the twelve months ending
February 28, 1997 ("Fiscal 1997"). As a result, gross profit margins for the
Company's wine business were adversely affected during the nine months ended
November 30, 1996 ("Nine Months 1997")..
PROJECTED FISCAL 1997 RESULTS
On September 5, 1996, the Company reduced its estimated net income per share
for Fiscal 1997 to a new range of $1.10 to $1.40. The Company's net income per
share for Nine Months 1997 was $1.10. For financial analysis purposes only,
the Company estimates that EBITDA for Fiscal 1997 will be in the range of
$102.5 million to $117.5 million. The Company's EBITDA for Nine Months 1997
was $89.1 million. EBITDA should not be construed as an alternative to
operating income or net cash flow from operating activities and should not be
construed as an indication of operating performance or as a measure of
liquidity. The Company revised its estimated net income per share for Fiscal
1997 as a result of below expectation performance of the Company's wine
division, offset in part by better than expected performance of the Company's
beer and spirits division. The Company believes its wine division performance
will be negatively impacted by (i) increased cost of product sold relating to
increased grape costs from the 1996 harvest which the Company does not expect
to offset through selling price increases in Fiscal 1997; (ii) inefficiencies
in its wine division operations; and (iii) decreased unit volume of its
branded wine products. These projected results are based on certain
assumptions, including the following: (i) the Company's unit volume sales of
branded wine products
31
<PAGE>
will continue to decrease at approximately the same rate as they decreased
during the Nine Months 1997; (ii) increases in the Company's costs will not
result in a LIFO adjustment materially in excess of the current estimate of
$29.0 million for Fiscal 1997; (iii) the Company will continue to experience
wine production operating inefficiencies, although at lower levels as compared
to the Nine Months 1997; (iv) the Company's beer and spirits division will
continue to experience strong growth; (v) the Company will not materially
change its selling prices, on an overall basis, as compared to current levels
at the end of the Nine Months 1997; and (vi) the Company's promotional levels
will continue at comparable rates to the Nine Months 1997. See "--Cautionary
Statements Related to Projected Results."
The projected results set forth above have not been examined by Arthur
Andersen LLP, the Company's independent public accountants, and such
accountants assume no responsibility for such projected results.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items in
the Company's consolidated statements of income expressed as a percentage of
net sales:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED AUGUST 31, SIX MONTHS ENDED NOVEMBER 30,
---------------------- ------------------------- ------------------
FEBRUARY 28, FEBRUARY 29,
1994 1995 1995 1996 1995 1996
---------- ---------- ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of product sold.... 71.0 72.1 72.1 74.1 72.5 74.3
---------- ---------- ----- ----- -------- --------
Gross profit.......... 29.0 27.9 27.9 25.9 27.5 25.7
Selling, general and
administrative
expenses............... 19.3 17.6 17.6 21.0 17.5 18.4
Nonrecurring 3.8 0.2 0.1 0.4 0.4 0.0
restructuring expenses. ---------- ---------- ----- ----- -------- --------
Operating income........ 5.9 10.1 10.2 4.5 9.6 7.3
Interest expense, net... 2.9 2.7 2.9 3.2 2.7 2.9
---------- ---------- ----- ----- -------- --------
Income before
provision for
income taxes....... 3.0 7.4 7.3 1.3 6.9 4.4
Provision for federal 1.1 2.9 2.8 0.7 2.7 1.9
and state income taxes. ---------- ---------- ----- ----- -------- --------
Net income............ 1.9% 4.5% 4.5% 0.6% 4.2% 2.5%
========== ========== ===== ===== ======== ========
</TABLE>
NINE MONTHS ENDED NOVEMBER 30, 1996, COMPARED TO NINE MONTHS ENDED NOVEMBER
30, 1995
Net Sales
Net sales for the Company's Nine Months 1997 increased to $873.4 million
from $737.6 million for the nine months ended November 30, 1995, ("November
1995 Nine Months"), an increase of $135.8 million, or approximately 18.4%.
This increase resulted primarily from (i) $52.1 million of additional imported
beer sales, primarily Mexican beers; (ii) the inclusion of $49.0 million of
net sales of products and services from the UDG Acquisition during the period
from March 1, 1996 through August 31, 1996; (iii) $19.8 million of increased
net sales of the Company's varietal table wine products resulting from selling
price increases implemented between October 1995 and May 1996, as well as
additional unit volume; (iv) $17.2 million of higher sales of grape juice
concentrate; (v) $7.6 million of additional sales of spirits brands; partially
offset by $5.1 million of decreased sales of the Company's non-varietal table
wine brands and a decrease of $4.8 million in sales of other nonbranded
products and services.
32
<PAGE>
For purposes of computing the net sales and unit volume comparative data for
the table below and for the remainder of the discussion of net sales, sales of
spirits products acquired in the UDG Acquisition have been included for the
period from March 1, 1995 through August 31, 1995, which was prior to the UDG
Acquisition.
The table below sets forth the net sales (in thousands of dollars) and unit
volumes (in thousands of cases) for the branded beverage alcohol products,
branded wine products, each category of branded wine products, beer and
spirits brands sold by the Company for Nine Months 1997 and the November 1995
Nine Months:
NINE MONTHS ENDED NOVEMBER 30, 1996, COMPARED TO NINE MONTHS ENDED NOVEMBER
30, 1995
<TABLE>
<CAPTION>
NET SALES UNIT VOLUME
----------------------------- -------------------------
1996 1995 % INC/(DEC) 1996 1995 % INC/(DEC)
-------- -------- ----------- ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Branded Beverage Alcohol
Products (1)........... $771,098 $697,512 10.5% 47,008 43,421 8.2%
Branded Wine Products... 392,629 377,095 4.1 20,809 21,485 (3.1)
Non-varietal Table
Wines................ 164,148 169,258 (3.0) 10,190 10,901 (6.5)
Varietal Table Wines.. 124,419 104,628 18.9 5,214 4,928 5.8
Sparkling Wines....... 54,127 53,075 2.0 2,296 2,364 (2.9)
Dessert Wines......... 49,935 50,134 (0.4) 3,109 3,292 (5.6)
Beer.................... 237,628 185,514 28.1 18,964 14,985 26.6
Spirits (2)............. 141,266 134,348 5.1 7,235 6,928 4.4
</TABLE>
- --------
(1) The sum of net sales and unit volume amounts from the categories may not
equal total Branded Beverage Alcohol Products because miscellaneous items
affecting net sales and unit volume may be included in total Branded
Beverage Alcohol Products but not reflected in the category information.
(2) For comparison purposes only, net sales of $41,514 and unit volume of
2,001 of distilled spirits brands acquired in the September 1, 1995, UDG
Acquisition have been included in the table for the nine months ended
November 30, 1995. These amounts represent net sales and unit volume of
those brands for the period March 1, 1995, through August 31, 1995, which
was prior to the UDG Acquisition.
Net sales and unit volume of the Company's branded beverage alcohol products
for Nine Months 1997 increased 10.5% and 8.2%, respectively, as compared to
the November 1995 Nine Months. The net sales increase resulted from higher
imported beer sales, price increases on most of the Company's branded wine
products, particularly varietal table wine brands, and increased sales of the
Company's spirits brands. Unit volume increases were led by substantial growth
in the Company's imported beer brands and increases in its varietal table wine
and spirits brands, partially offset by declines in unit volume of non-
varietal table wines, dessert wines and sparkling wines.
Net sales and unit volume of the Company's non-varietal table wine products
declined by 3.0% and 6.5%, respectively, for Nine Months 1997 as compared to
the November 1995 Nine Months. The Company believes that the decline in unit
volume reflects the impact of the Company's selling price increases and other
competitive pressures.
Net sales and unit volume of the Company's varietal table wine brands
increased by 18.9% and 5.8%, respectively. Net sales increased at a greater
rate than unit volume due to selling price increases instituted between
October 1995 and May 1996. Net sales and unit volume of the Company's varietal
table wine products such as chardonnay, cabernet sauvignon and merlot, which
represent more than half of the Company's varietal table wine volume,
increased substantially in Nine
33
<PAGE>
Months 1997. While unit volume of white zinfandel products declined in Nine
Months 1997, net sales for these products were virtually unchanged due to the
Company's selling price increases.
Net sales of the Company's sparkling wines increased 2.0%, while unit volume
decreased by 2.9% during Nine Months 1997 as compared to the November 1995
Nine Months. The company believes that the decline in unit volume is
consistent with industry trends as well as the impact of price increases
implemented in May 1996.
Net sales and unit volume of the Company's dessert wine brands declined by
0.4% and 5.6%, respectively, during Nine Months 1997. The Company believes
that, although the decline in
unit volume was mitigated by selling price increases, these results reflect
the continuing trend of consumer preferences away from the dessert wine
category.
Net sales and unit volume of the Company's beer brands increased 28.1% and
26.6%, respectively, during Nine Months 1997. These increases were largely due
to the Company's Mexican beer brands, which represented over 70% of total beer
sales, which continued strong growth trends. The Company believes that the
growth in its Mexican beers is related to the growth of the Hispanic
population in the Company's distribution areas, the continued popularity of
imported beers in general and the narrowing retail price gap between imported
beers and domestic beers.
Net sales and unit volume of the Company's distilled spirits brands
increased by 5.1% and 4.4%, respectively, in Nine Months 1997 as compared to
the November 1995 Nine Months. Excluding the impact of the UDG Acquisition,
spirits net sales and unit volume increased by 8.8% and 2.9%, respectively,
reflecting strong brandy sales, increases in tequila and liqueurs and the
introduction of a number of new products. Net sales and unit volume of the
brands acquired in the UDG Acquisition increased by 1.0% and 6.4%,
respectively, in Nine Months 1997, with net sales growth lagging unit volume
increases due to the impact of downward selling price adjustments for these
brands to be more in line with the pricing strategy of the rest of the
Company's spirits portfolio.
Gross Profit
The Company's gross profit increased to $224.4 million in Nine Months 1997
from $203.2 million in the November 1995 Nine Months, an increase of $21.2
million, or 10.4%. This change in gross profit resulted primarily from (i)
approximately $20.5 million of gross profit from sales generated during the
period from March 1, 1996, through August 31, 1996, from the business acquired
from UDG; (ii) approximately $16.8 million of additional gross profit from
increases in beer sales; and (iii) approximately $16.1 million of lower gross
profit primarily due to increased cost of product sold, particularly higher
grape costs in the fall 1996 harvest and additional costs resulting from
inefficiencies in the production of wine and grape juice concentrate,
particularly at the Company's newly consolidated West Coast operations,
partially offset by additional net sales resulting primarily from selling
price increases of the Company's branded wines and grape juice concentrate
products and a partial reduction of certain grape contract loss reserves
established in connection with the 1993 Vintners' Acquisition, which reduction
corresponds to the increase in grape costs relative to the contract pricing
and the termination of certain unfavorable contracts. The Company's increased
production costs stemmed from low bulk wine conversion rates and bottling
inefficiencies. The Company also experienced high imported concentrate and
bulk freight costs. The Company has instituted a series of steps to address
these matters, including a reengineering effort to redesign more effectively
its work processes, organizational structure and information systems.
Gross profit as a percentage of net sales was 25.7% for Nine Months 1997 as
compared to 27.5% in the November 1995 Nine Months. The decline in the gross
profit margin was largely due to higher costs, particularly grape costs, of
wine and grape juice concentrate products, partially offset by increased
selling prices on most of the Company's branded wines and grape juice
concentrate products.
34
<PAGE>
The Company has experienced significant increases in its cost of grapes in
both the 1995 and 1996 harvests. The Company believes that these increases in
grape costs were due to an imbalance in supply and demand in the varieties
which the Company purchases.
In general, the preferred method of accounting for inventory valuation is
the last-in, first-out method ("LIFO") because, in most circumstances, it
results in a better matching of costs and revenues. For comparison purposes to
companies using the first-in, first-out method of accounting for inventory
valuation ("FIFO") only, the Company's Nine Months 1997 results reflect a
reduction in gross profit of approximately $21.8 million due to the Company's
LIFO accounting method. For comparison purposes, results for the Company's
November 1995 Nine Months reflected an addition to gross profit of
approximately $0.2 million due to LIFO.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for Nine Months 1997 were
$161.1 million, an increase of $31.8 million as compared to the November 1995
Nine Months. Of this amount, $13.9 million was due primarily to increased
personnel and related expenses stemming from the Company's reengineering
efforts and the continued expansion of the Company's management capabilities
and other expenses consistent with the Company's growth; $11.3 million related
to the UDG Acquisition; and $6.6 million was due to additional advertising,
promotion and selling expenses associated with increased unit volume exclusive
of sales related to the UDG Acquisition during the period from March 1, 1996,
through August 31, 1996.
Interest Expense, Net
Net interest expense totaled $25.5 million in Nine Months 1997, an increase
of $6.0 million as compared to the November 1995 Nine Months, primarily due to
additional interest expense from the UDG Acquisition financing and increased
borrowing levels related to working capital needs.
Provision for Federal and State Income Taxes
The Company's effective tax rate for NIne Months 1997 increased to 42.5%
from 39.0% for the November 1995 Nine Months due to a higher effective tax
rate in California caused by statutory limitations on the Company's ability to
utilize certain deductions.
Net Income
As a result of the foregoing, net income for Nine Months 1997 was $21.8
million, a decrease of $9.4 million as compared to the November 1995 Nine
Months.
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for Nine Months 1997
was $89.1 million. EBITDA should not be construed as an alternative to
operating income or net cash flow from operating activities and should not be
construed as an indication of operating performance or as a measure of
liquidity.
SIX MONTH TRANSITION PERIOD ENDED FEBRUARY 29, 1996, COMPARED TO
SIX MONTHS ENDED FEBRUARY 28, 1995
Net Sales
Net sales for the Transition Period increased to $535.0 million from $454.5
million for the six months ended February 28, 1995 (the "February 1995 Six
Months"), an increase of $80.5 million, or 17.7%. In addition to the sales of
products and services from the UDG Acquisition, the Company had
35
<PAGE>
additional net sales of $23.6 million from its imported beer brands and $14.1
million from its varietal wine products, partially offset by lower sales of
bulk wine, non-varietal wine, contract bottling services, grape juice
concentrate and dessert wine.
For purposes of computing the net sales and unit volume comparative data
below, sales of products acquired in the UDG Acquisition have been included in
the Company's results for the entire Transition Period and the entire February
1995 Six Months, which was prior to the UDG Acquisition.
The following table sets forth the net sales (in thousands of dollars) and
unit volumes (in thousands of cases) for the branded beverage alcohol
products, branded wine products, each category of branded wine product, beer
and spirits brands sold by the Company for the Transition Period and the
February 1995 Six Months:
SIX MONTHS ENDED FEBRUARY 29, 1996, COMPARED TO SIX MONTHS ENDED FEBRUARY 28,
1995
<TABLE>
<CAPTION>
NET SALES UNIT VOLUME
----------------------------------- -----------------------------------
TRANSITION FEBRUARY 1995 % INCREASE TRANSITION FEBRUARY 1995 % INCREASE
PERIOD SIX MONTHS (DECREASE) PERIOD SIX MONTHS (DECREASE)
---------- ------------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Branded Beverage Alcohol
Products (1)........... $474,450 $443,204 7.1% 28,748 26,786 7.3%
Branded Wine Products... 268,782 255,881 5.0 14,783 14,537 1.7
Non-varietal wines.... 116,128 117,805 (1.4) 7,325 7,699 (4.9)
Varietal wines........ 78,182 64,049 22.1 3,637 2,971 22.4
Dessert wines......... 32,640 33,435 (2.4) 2,033 2,137 (4.9)
Sparkling wines....... 41,831 40,592 3.1 1,788 1,731 3.3
Beer.................... 115,757 92,131 25.6 9,316 7,444 25.1
Spirits (2)............. 91,219 96,547 (5.5) 4,648 4,793 (3.0)
</TABLE>
- --------
(1) The sum of the net sales and unit volume amounts from the individual
categories do not equal total Branded Beverage Alcohol Products because
miscellaneous items reducing net sales and adding to unit volume are
included in total Branded Beverage Alcohol Products but are not reflected
in the category information.
(2) For comparison purposes only, net sales of $50,622 and unit volume of
2,340 of distilled spirits have been included in the table for the six
months ended February 28, 1995, which was prior to the UDG Acquisition.
Net sales and unit volume of the Company's branded beverage alcohol products
for the Transition Period increased 7.1% and 7.3%, respectively, as compared
to the February 1995 Six Months. These increases were principally due to
increased net sales and unit volume of the Company's imported beer brands and
varietal table wine brands.
Net sales of the Company's branded wine products increased by $12.9 million,
or 5.0%, for the Transition Period as compared to the February 1995 Six
Months. Unit volume of the Company's branded wine products increased by
approximately 246,000 cases, or 1.7%. Of the $12.9 million increase in net
sales, (i) $8.6 million was due to higher average selling prices per case due
to a combination of price increases implemented by the Company between October
1995 and January 1996 and a change in the product mix in favor of higher-
priced categories; and (ii) $4.3 million was due to increased shipments of the
Company's varietal table wines and sparkling wines, partially offset by lower
shipments of non-varietal table wines and dessert wines. The Company believes
that the increase in unit volume was partially due to the fulfillment of a
backlog of orders at the end of fiscal 1995 caused by production and shipping
delays associated with the consolidation of certain of its California wineries
(the "Restructuring Plan"). The backlog of unfilled orders from August 1995
was substantially eliminated in the first three months of the Transition
Period.
36
<PAGE>
Net sales and unit volume of the Company's non-varietal table wine brands
for the Transition Period decreased by 1.4% and 4.9%, respectively, as
compared to the February 1995 Six Months. The decline in net sales was less
than the decline in unit volume as a result of the selling price increases
implemented by the Company. The Company believes that the volume decline is
consistent with a general change in consumer preferences from non-varietal
table wines to varietal table wines and may also reflect the impact of the
Company's price increases.
Net sales and unit volume of the Company's varietal table wine brands for
the Transition Period increased 22.1% and 22.4%, respectively, as compared to
the February 1995 Six Months. With the price increases implemented in the
Transition Period, the phasing out of introductory pricing on varietal wine
line extensions, and changes in mix, the average price per case of varietal
wine has virtually returned to the level the Company experienced in the
February 1995 Six Months. In addition, the Company initiated a second round of
price increases on most of its varietal wine brands which were implemented
over the first three months of Fiscal 1997.
Net sales and unit volume of the Company's sparkling wine brands increased
by 3.1% and 3.3%, respectively, in the Transition Period as compared to the
February 1995 Six Months. While these results were better than the industry
growth rate in the category during this period, they reflect comparisons to
lower sales for the Company in the February 1995 Six Months relative to the
industry.
Net sales and unit volume of the Company's dessert wine brands decreased by
2.4% and 4.9%, respectively, in the Transition Period as compared to the
February 1995 Six Months, reflecting the continuing decline in the consumption
of beverage dessert wines, partially offset by increases in the sale of
traditional dessert wines such as ports and sherries.
Net sales and unit volume of the Company's beer brands for the Transition
Period increased by 25.6% and 25.1%, respectively, as compared to the February
1995 Six Months. These increases were principally driven by growth in the
Company's Mexican beer brands, which represented over 70% of total beer sales.
Net sales and unit volume of the Company's distilled spirits brands declined
by 5.5% and 3.0%, respectively, in the Transition Period as compared to the
February 1995 Six Months. Excluding the impact of the UDG Acquisition, net
sales and unit volume of the Company's distilled spirits brands grew by 6.2%
and 5.0%, respectively, in the Transition Period, led by higher brandy,
tequila, liqueur and rum sales, partially offset by lower whiskey, gin and
vodka sales. Unit sales of the brands acquired in the UDG Acquisition were
11.5% lower than in the February 1995 Six Months, accounting for lower overall
spirits sales. During the period from 1993 to 1995, the brands acquired in the
UDG Acquisition declined in excess of industry rates. The Company believes
that these declines resulted from noncompetitive retail pricing and
promotional activities.
Gross Profit
Gross profit for the Transition Period was $138.8 million, an increase of
$12.0 million, as compared to gross profit of $126.8 million for the February
1995 Six Months. This increase in gross profit resulted from $18.5 million of
additional gross profit from sales generated from the business acquired from
UDG and $1.0 million from ongoing operations, which was offset in part by $7.5
million of (i) overtime, freight and other expenses and restructuring charges
related to production and shipping delays associated with the relocation of
West Coast bottling operations to the Company's Mission Bell winery, employee
bonuses and certain nonrecurring expenses; and (ii) as a result of the change
in the Company's fiscal year end, increased cost of product sold due to the
different amount and composition of inventory levels at the end of February
versus the end of August, the Company's former fiscal year end. The $1.0
million increase in gross profit from ongoing operations resulted from a $7.3
million increase in gross profit, primarily due to increased sales and gross
margins from the Company's imported beer business, partially offset by $6.3
million of lower gross profits in the Company's wine and grape juice
concentrate businesses, which was due primarily to higher grape costs which
were only partially recovered by selling price increases in the Transition
Period.
37
<PAGE>
Gross profit as a percentage of net sales declined from 27.9% to 25.9% in
the Transition Period. This decline was due primarily to the impact of higher
grape and other costs in the Transition Period, partially offset by the higher
gross profit sales of brands acquired from UDG and improved gross profit as a
percentage of net sales in the Company's imported beer business. The gross
profit percentage was positively impacted by the UDG Acquisition, as gross
profit as a percentage of net sales on the business acquired from UDG was
34.7%.
Selling, General and Administrative Expenses
Selling, general and administrative expenses totalled $112.4 million for the
Transition Period, an increase of $32.5 million as compared to the February
1995 Six Months. Exclusive of $11.1 million of nonrecurring costs including,
as a result of the change in the Company's fiscal year end, the recognition of
higher than normal advertising and promotion expenses in the Transition Period
due to the seasonality of these expenses and employee bonuses and other
nonrecurring costs and $8.3 million related to the UDG Acquisition, selling,
general and administrative expenses increased by $13.1 million, or 16.3%, as
compared to the February 1995 Six Months. Advertising and promotion increases
of $6.7 million were related primarily to the Almaden/Inglenook Product Lines
which were acquired in August 1994 and which the Company did not advertise or
promote at a full level in the first several months after their acquisition.
The Company also incurred increased advertising and promotion expenses related
to the increased sales of its imported beers. Selling expenses increased by
$5.4 million primarily as a result of the Almaden/Inglenook Product Line
acquisitions, with the Transition Period including a full complement of sales
and marketing personnel to service the brands that were not in place for the
entire period in the February 1995 Six Months. The Transition Period also
included additional sales personnel in the Company's spirits and imported beer
divisions. Other general and administrative expenses increased by $1.0
million.
Excluding the nonrecurring costs referred to above and the UDG Acquisition,
selling, general and administrative expenses as a percent of net sales
increased to 19.3% from 17.6% in the February 1995 Six Months due to the
inclusion of a full complement of advertising, promotion and selling expense
related to the Almaden/Inglenook Product Lines.
Nonrecurring Restructuring Expenses
The Company incurred net restructuring charges of $2.4 million in the
Transition Period, as compared to restructuring charges of $0.7 million in the
February 1995 Six Months. The restructuring expenses in the Transition Period
represent $3.1 million of incremental, nonrecurring expenses such as overtime
and freight expense related to production and shipment delays associated with
the Restructuring Plan, offset by a net reduction of $0.7 million in accrued
liabilities associated with the Restructuring Plan to take into account lower
than expected expenses for severance and facility holding and closure costs.
See the Notes to the Company's Consolidated Financial Statements included
herein.
Interest Expense, Net
Net interest expense increased $4.2 million to $17.3 million in the
Transition Period as compared to the February 1995 Six Months. The increase
resulted from additional interest expense associated with the borrowings
related to the UDG Acquisition, amounting to $5.1 million, and increased
working capital requirements due primarily to higher grape costs and the UDG
Acquisition, partially offset by net reductions in the Company's Term Loans
and Revolving Loans using proceeds of the Company's November 18, 1994 public
equity offering.
Provision for Federal and State Income Taxes
The Company's effective tax rate for the Transition Period increased to
50.4% from 38.5% for the February 1995 Six Months due to a higher effective
tax rate in California caused by statutory limitations on the Company's
ability to utilize certain deductions.
38
<PAGE>
Net Income
As a result of the foregoing, net income for the Transition Period was $3.3
million, a decrease of $17.0 million as compared to the February 1995 Six
Months.
FISCAL YEAR ENDED AUGUST 31, 1995, COMPARED TO FISCAL YEAR ENDED AUGUST 31,
1994
Net Sales
Net sales for the 1995 fiscal year increased to $906.5 million from $629.6
million for the fiscal year ended August 31, 1994, an increase of $276.9
million, or approximately 44.0%. This increase resulted from the inclusion of
(i) $234.7 million of net sales of products acquired in the Almaden/Inglenook
Acquisition; (ii) an overall increase of $25.8 million in net sales of Company
products, excluding the impact of the net sales of products that were acquired
during fiscal 1994; and (iii) an additional $16.4 million of net sales of
Vintners' products resulting from inclusion of these products in the Company's
portfolio for the entire first quarter of fiscal 1995 versus only six weeks in
the first quarter of fiscal 1994. Excluding the impact of the additional six
weeks of net sales of Vintners' products during the first quarter of fiscal
1995 and all of the net sales resulting from the Almaden/Inglenook Acquisition
during the 1995 fiscal year, the Company's net sales increased 4.1% as
compared to the fiscal year ended August 31, 1994. This was principally due to
increased net sales of imported beer brands and varietal table wines.
For purposes of computing the net sales and unit volume comparative data
below, sales of products acquired in the Vintners and Almaden/Inglenook
Acquisitions have been included in the entire period for the fiscal year ended
August 31, 1995 and the entire fiscal year ended August 31, 1994, part of
which was prior to the Vintners Acquisition and the Almaden/Inglenook
Acquisition.
The following table sets forth the net sales (in thousands of dollars) and
unit volumes (in thousands of cases) for the branded beverage alcohol
products, branded wine products, each category of branded wine products, beer
and spirits brands sold by the Company for the 1995 and 1994 fiscal years:
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
<TABLE>
<CAPTION>
NET SALES UNIT VOLUME
---------------------------- ------------------------
% INCREASE % INCREASE
1995 1994 (DECREASE) 1995 1994 (DECREASE)
-------- -------- ---------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Branded Beverage Alcohol
Products (1)............ $795,290 $750,180 6.0% 50,547 47,688 6.0%
Branded Wine Products
(2)..................... 487,101 486,838 0.1 28,019 28,657 (2.2)
Non-varietal wines..... 223,391 234,541 (4.8) 14,577 15,594 (6.5)
Varietal wines......... 128,679 106,559 20.8 6,032 4,943 22.0
Dessert wines.......... 68,094 71,320 (4.5) 4,474 4,794 (6.7)
Sparkling wines........ 66,937 74,418 (10.1) 2,936 3,326 (11.7)
Beer..................... 216,159 173,883 24.3 17,471 14,100 23.9
Spirits (2) (3).......... 92,400 88,549 4.3 5,041 4,847 4.0
</TABLE>
- --------
(1) The sum of the net sales and unit volume amounts from the categories do
not equal total Branded Beverage Alcohol Products because miscellaneous
items affecting net sales and unit volume are included in total Branded
Beverage Alcohol Products but are not reflected in the category
information.
39
<PAGE>
(2) For comparison purposes only, the following amounts of net sales and unit
volume of brands acquired in the Vintners Acquisition and the
Almaden/Inglenook Acquisition have been included in the table for Fiscal
Year 1994;
<TABLE>
<CAPTION>
NET
SALES UNIT VOLUME
-------- -----------
<S> <C> <C>
Non-varietal wines...................................... $113,754 7,964
Varietal wines.......................................... 53,622 2,818
Dessert wines........................................... 1,637 78
Sparkling wines......................................... 7,701 265
Spirits................................................. 3,566 134
</TABLE>
These amounts represent net sales and unit volume of brands from the
Vintners Acquisition for the period September 1, 1993, through October 14,
1993, which was prior to the Vintners Acquisition, and net sales and unit
volume of brands from the Almaden/Inglenook Acquisition for the period
September 1, 1993, through August 4, 1994, which was prior to the
Almaden/Inglenook Acquisition.
(3) The Spirits category includes for both years presented case goods sales of
a number of brandy products under brands acquired in the Vintners and
Almaden/Inglenook Acquisitions.
Net sales and unit volume of the Company's branded beverage alcohol products
for the fiscal year ended August 31, 1995, each increased 6% as compared to
the fiscal year ended August 31, 1994. This increase was principally due to
increased net sales and unit volume of the Company's imported beer brands and
varietal table wine brands.
Net sales and unit volume of the Company's branded wine products for fiscal
1995 increased 0.1% and decreased 2.2%, respectively, as compared to fiscal
1994. These results were primarily due to lower non-varietal table wine,
sparkling wine and dessert wine sales offset by improved varietal wine sales.
The Company's results were also negatively affected by a backlog in fulfilling
orders at the end of fiscal 1995 due to production and shipment delays
associated with the relocation of West Coast bottling operations to the
Company's Mission Bell winery under the Restructuring Plan. The backlog was
substantially eliminated in the first three months of the Transition Period.
The Company also increased prices on selected branded wine products during the
Transition Period in response to increased grape costs associated with the
1995 harvest and to phase out introductory pricing on recently introduced line
extensions of varietal wine products.
Net sales and unit volume of the Company's non-varietal table wine brands
for fiscal 1995 declined 4.8% and 6.5%, respectively, as compared to fiscal
1994. The Company believes these declines are consistent with a general
decline in the consumption of non-varietal table wine products reflecting
changing consumer preferences toward varietal table wines.
Net sales and unit volume of the Company's varietal table wine brands for
fiscal 1995 increased 20.8% and 22.0%, respectively, as compared to fiscal
1994. These increases reflect the continuation of the Company's strategy to
expand distribution into new markets and increase penetration of existing
markets primarily through line extensions and promotional activities. As part
of this strategy, the Company also offered certain new and existing products
at highly competitive prices.
Net sales and unit volume of the Company's dessert wine brands for fiscal
1995 decreased 4.5% and 6.7%, respectively, as compared to fiscal 1994. The
Company believes those declines are consistent with a general decline in
consumption of dessert wines. Declines in the Company's beverage dessert wines
were partially offset by growth in higher priced traditional dessert wines
such as port and sherry.
Net sales and unit volume of the Company's sparkling wine brands for fiscal
1995 declined 10.1% and 11.7%, respectively, as compared to fiscal 1994. These
declines were primarily the result of strong competition and weak consumer
demand for sparkling wine.
40
<PAGE>
Net sales and unit volume of the Company's beer brands for fiscal 1995
increased 24.3% and 23.9%, respectively, as compared to fiscal 1994. These
increases resulted primarily from increased sales of the Company's Corona
brand and its other Mexican beer brands, which represented over 70% of total
beer sales.
Net sales and unit volume of the Company's spirits brands for fiscal 1995
increased 4.3% and 4.0%, respectively, as compared to fiscal 1994. The growth
is due to increased shipments of brandy, vodka, and tequila.
Gross Profit
Gross profit for the fiscal year ended August 31, 1995, increased to $252.7
million from $182.4 million for the fiscal year ended August 31, 1994, an
increase of $70.3 million, or approximately 38.6%. This increase resulted from
the inclusion of the Almaden/Inglenook Product Lines with those of the
Company, and to a lesser extent from increased sales of imported beer brands
and the inclusion of Vintners' product lines with those of the Company. The
Company's gross profit as a percentage of net sales decreased to 27.9% for the
fiscal year ended August 31, 1995, from 29.0% for the fiscal year ended August
31, 1994. The Company's gross profit percentages decreased as a result of the
inclusion of operations acquired in the Almaden/Inglenook Acquisition, which
had a lower gross profit percentage than the remainder of the Company's
operations, and reduced gross profit percentages on sales of certain of the
Company's table wine brands in fiscal 1995 as compared to fiscal 1994. The
cost of grapes, a major component of the Company's raw materials for its
winemaking, increased significantly for the 1995 harvest compared with the
1994 harvest.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the fiscal year ended
August 31, 1995 increased to $159.2 million from $121.4 million for the fiscal
year ended August 31, 1994, an increase of $37.8 million, or approximately
31.1%. This increase primarily resulted from the additional expenses
associated with the sales and marketing of the products acquired in the
Almaden/Inglenook Acquisition, and to a lesser extent, higher advertising and
promotion expenses associated with certain wine brands. As a percentage of net
sales, selling, general and administrative expenses decreased to 17.6% for
fiscal 1995 as compared to 19.3% for fiscal 1994 as a result of increased
economies of scale.
Nonrecurring Restructuring Expenses
In fiscal 1995, the Company incurred a nonrecurring restructuring charge of
$2.2 million related to its Restructuring Plan which reduced net income per
share by $0.07 on a fully diluted basis as compared to a nonrecurring
restructuring charge of $24.0 million in fiscal 1994, also related to the
Restructuring Plan, which reduced net income per share by $0.91 on a fully
diluted basis. See the Notes to the Company's Consolidated Financial
Statements included herein.
Interest Expense, Net
Net interest expense increased $6.5 million to $24.6 million in the fiscal
year ended August 31, 1995, as compared to the fiscal year ended August 31,
1994. The increase is primarily due to borrowings related to the Vintners and
Almaden/Inglenook Acquisitions.
Net Income
Net income for the fiscal year ended August 31, 1995, increased to $41.0
million from $11.7 million for the fiscal year ended August 31, 1994, an
increase of $29.3 million, or approximately
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249.6%. Fully diluted earnings per share increased to $2.13 in the fiscal year
ended August 31, 1995, from $0.74 in the fiscal year ended August 31, 1994, a
187.8% improvement.
Excluding the impact of the nonrecurring restructuring expenses, net income
was $42.4 million in fiscal 1995 as compared to $26.6 million in fiscal 1994.
This represents an improvement in net income of $15.8 million or 59.4%.
Excluding the impact of the nonrecurring restructuring expenses, fully diluted
earnings per common share increased to $2.20 from $1.65, an increase of 33.3%.
These increases were due to the contribution of the Almaden/Inglenook Product
Lines and other products acquired in the Almaden/Inglenook Acquisition and
increased sales of imported beer brands.
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
General
The Company's principal use of cash in its operating activities is for
purchasing and carrying inventories. The Company's primary source of liquidity
has historically been cash flow from operations, except during the annual fall
grape harvests when the Company has relied on short-term borrowings. The
annual grape crush normally begins in August and runs through October. The
Company generally begins purchasing grapes in August with payments for such
grapes beginning to come due in September. The Company's short-term borrowings
to support such purchases generally reach their highest levels in November or
December. Historically, the Company has used cash flow from operating
activities to repay its short-term borrowings.
During January 1996, the Company's Board of Directors authorized the
repurchase of up to $30.0 million of the Company's Class A Common Stock and
Class B Common Stock (the "Stock Repurchase Program"). The repurchase of
shares of common stock will be accomplished, from time to time, depending upon
market conditions, through open market or privately negotiated transactions.
The Company may finance such repurchases through cash generated from
operations or through the Credit Facility. The repurchased shares will become
treasury shares and may be used for general corporate purposes. As of January
10, 1997, the Company had repurchased 785,200 shares of Class A Common Stock
at an aggregate cost of $20.7 million.
The Company's cash requirements have increased during the past twelve months
due to increased grape costs, operating inefficiencies at its West Coast wine
operations, and increased working capital needs from the Company's expanded
business. These increased working capital needs are primarily the result of
the UDG Acquisition and increased sales, which in turn have resulted in higher
accounts receivable and inventory levels. The Company's wine business requires
that substantially all of its grape purchases be made during the annual fall
harvest, thereby increasing inventory levels to their peak levels in this
period of time. These inventory levels are subsequently reduced during the
next twelve months as wine and grape juice concentrate products are produced,
bottled and shipped to customers. Substantially all of the Company's inventory
is sold within twelve months. See "Risk Factors--Difficulty in Integrating
Acquisitions," and "--Dependence on Raw Materials." The Company used the net
proceeds of the Old Notes Offering to repay amounts outstanding under the
Credit Facility, including $50.0 million under the Revolving Loans and
approximately $9.6 million to repay and permanently reduce the Term Loans. The
Company will continue to use the Revolving Loans to support its working
capital requirements. In addition, the Company intends to use the Revolving
Loans to complete the Stock Repurchase Program. Revolving Loans repaid from
the net proceeds of the Offering may be re-borrowed from time to time. The
Company believes that the Revolving Loans, its financing activities, including
the issuance of the Notes, and cash provided by operating activities will
provide adequate resources to satisfy its working capital, liquidity and
anticipated capital expenditure requirements for both its short-term and long-
term capital needs and to complete the Stock Repurchase Program.
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Cash Flows for Nine Months Ended November 30, 1996
Operating Activities
Net cash provided by operating activities in Nine Months 1997 was $15.4
million. The net cash provided by operating activities for Nine Months 1997
resulted principally from net income adjusted for noncash items and a net
increase in operating liabilities (primarily an $18.5 million increase in
accounts payable associated with the 1996 grape harvest and an $18.0 million
increase in other accrued expenses and liabilities principally the result of
an increase of $7.2 million in accrued income taxes and an increase of $4.3
million in accrued interest), partially offset by a net increase in operating
assets (primarily a $55.6 million increase in accounts receivable associated
with higher seasonal sales of products and a $31.8 million increase in
inventories as a result of the purchase of grapes from the 1996 grape
harvest).
Investing Activities and Financing Activities
Net cash used in investing activities in Nine Months 1997 was $34.0 million,
resulting primarily from $25.3 million of capital expenditures and the final
$13.8 million earn-out payment to the former Barton stockholders, offset in
part by proceeds from the sale of property, plant and equipment of $5.2
million, resulting principally from the May 1996 sale of the Company's Central
Cellars winery, located in Lodi, California.
Net cash provided by financing activities in Nine Months 1997 was $20.3
million, resulting principally from net proceeds of $61.7 million from the
issuance of additional subordinated notes and net proceeds of $18.7 million
from revolving loan borrowings under the Company's bank credit facility,
partially offset by principal payments of $39.6 million of long-term debt and
repurchases of $20.0 million of the Company's Class A Common Stock.
As of January 10, 1997, under its Credit Facility, the Company had
outstanding Term Loans of $185.9 million bearing interest at 6.5%, $70.0
million of Revolving Loans bearing interest at 6.4% and $9.3 million of
Revolving Letters of Credit. As of January 10, 1997, under the Credit
Facility, $105.7 million of Revolving Loans were available to be drawn by the
Company. The Company's Credit Facility requires compliance with certain
financial covenants, including a fixed charge ratio that must exceed 1.0. In
the event the Company is not in compliance with these covenants, and after a
forty-five day cure period, the maturity of the outstanding Revolving Loans,
Term Loans and the Revolving Letters of Credit may be accelerated.
As of January 10, 1997, the Company had outstanding an aggregate principal
amount of $195.0 million of 8 3/4% Senior Subordinated Notes due 2003, being
the Original Notes and the Old Notes. The terms of the Notes offered hereby
are substantially identical to the terms of the Original Notes.
Capital Expenditures
During the Transition Period and the Nine Months 1997, the Company expended
approximately $16.1 million and $25.3 million, respectively, for capital
expenditures. Capital expenditures for the remainder of Fiscal 1997 and Fiscal
1998 are expected to be approximately $5.7 million and $20.5 million,
respectively. In addition to the above, the Company is in the process of
purchasing, leasing and developing vineyards. See "Business--Sources and
Availability of Raw Materials." The Company expects that in Fiscal 1998
capital expenditures for currently identified projects could range from $11.5
million to $22.5 million.
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Commitments
The Company has agreements with suppliers to purchase various spirits and
blends of which certain agreements are denominated in British pounds sterling.
The future obligations under these agreements, based upon exchange rates at
November 30, 1996, aggregate approximately $28.0 million to $43.0 million for
contracts expiring through December 2005.
At November 30, 1996, the Company had open currency forward contracts to
purchase British pounds sterling of $500,000 which mature February 28, 1997.
The Company's use of such contracts is limited to the management of currency
rate risks related to purchases denominated in a foreign currency. The
Company's strategy is to enter into currency exchange contracts that are
matched to specific purchases and not to enter into any speculative contracts.
Other
The Company engages in operations at its facilities for the purpose of
disposing of waste and by-products generated in its production process. These
operations include the treatment of wastewater to comply with regulatory
requirements prior to disposal in public facilities or upon property owned by
the Company or others and do not constitute a material part of the Company's
overall cost of product sold. Expenditures for the purpose of maintaining or
improving the Company's wastewater treatment facilities have not constituted a
material part of the Company's maintenance or capital expenditures over the
last three fiscal years and the Company does not expect to incur any such
material expenditures during Fiscal 1997. During the last three fiscal years,
the Company has not incurred, nor does it expect to incur in Fiscal 1997, any
material expenditures related to remediation of previously contaminated sites
or other nonrecurring environmental matters.
CAUTIONARY STATEMENTS RELATED TO PROJECTED RESULTS
The Company makes forward-looking statements from time to time and desires
to take advantage of the "safe harbor" which is afforded such statements under
the Private Securities Litigation Reform Act of 1995 when they are accompanied
by meaningful cautionary statements identifying important factors that could
cause actual results to differ materially from those in the forward-looking
statements.
The statements contained in the foregoing "Management's Discussion and
Analysis of Financial Condition and Results of Operations," including under
"Projected Fiscal 1997 Results," and elsewhere in this Prospectus which are
not historical facts are forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those
set forth in the forward-looking statements. Any projections of future results
of operations, and in particular, (i) the Company's estimated net income per
share for Fiscal 1997, and (ii) the Company's estimated cash flows as measured
by EBITDA for Fiscal 1997, should not be construed in any manner as a
guarantee that such results will in fact occur. There can be no assurance that
any forward-looking statement will be realized or that actual results will not
be significantly higher or lower than set forth in such forward-looking
statement. In addition to the risks and uncertainties of ordinary business
operations, the forward-looking statements of the Company contained in this
Prospectus are also subject to the following risks and uncertainties:
. The Company believes that its future results of operations are inherently
difficult to predict due to the Company's use of the LIFO method of
accounting for inventory valuation, particularly as it relates to the
Company's purchase of grapes from the 1996 fall harvest. In particular,
the Company found it necessary to revise its estimate of the impact of
LIFO in the first quarter, second quarter and third quarter of the
current fiscal year versus its previous estimates. There are no
assurances that the Company may not have to revise this estimate further.
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. The Company could experience worse than expected production
inefficiencies or other raw material supply, production or shipment
difficulties which could adversely affect (i) its ability to supply goods
to its customers and (ii) the willingness of its wholesale or retail
customers to purchase the Company's products. The Company could also
experience higher than expected increases in its cost of product sold as
a result of inefficiencies or if raw materials such as grapes,
concentrate or packaging materials are in short supply or if the Company
experiences increased overhead costs. The Company believes that further
production inefficiencies and higher than expected other costs related to
such matters as loss rates, imported concentrate costs, freight costs and
yields will negatively impact its results.
. Manufacturing economies related to such matters as bottling line speeds
and warehousing capabilities could fail to develop when planned. The
Company believes that worse than expected bottling line and warehouse
efficiencies will negatively impact its results.
. The Company is in a highly competitive environment and its dollar sales
and unit volume could be negatively affected by its inability to maintain
or increase prices, changes in geographic or product mix, a general
decline in beverage alcohol consumption or the decision of its wholesale
customers, retailers or consumers to purchase competitive products
instead of the Company's products. The Company believes its branded wine
unit volume has been negatively impacted by the effect price increases
have had on its competitive positioning. This could limit the Company's
ability to increase the selling prices of its branded wine products
further to offset anticipated higher costs in Fiscal 1997, and could
require selling price decreases of its branded wine products in the
future to maintain volume. Wholesaler, retailer and consumer purchasing
decisions are influenced by, among other things, the perceived absolute
or relative overall value of the Company's products, including their
quality or pricing, compared to competitive products. Unit volume and
dollar sales could also be affected by pricing, purchasing, financing,
operational, advertising or promotional decisions made by wholesalers and
retailers which could affect their supply of, or consumer demand for, the
Company's products. The Company has also experienced a substantial
increase in its sales of its imported beer products, particularly its
Mexican brands. The Company does not believe that the high growth rate in
its imported beer business will be sustainable over an extended period of
time.
. The Company could experience higher than expected selling, general and
administrative expenses if it finds it necessary to increase its number
of personnel or its advertising or promotional expenditures to maintain
its competitive position or for other reasons.
. The Company is currently undergoing a Reengineering Effort involving the
evaluation of its business processes and organizational structure and
could make changes in its business in response to this effort which are
not currently contemplated.
. The Company could experience difficulties or delays in the development,
production, testing and marketing of new products.
. The Company could experience changes in its ability to obtain or hedge
against foreign currency, foreign exchange rates and fluctuations in
those rates. The Company could also be affected by nationalizations or
unstable governments or legal systems or intergovernmental disputes.
These currency, economic and political uncertainties may affect the
Company's results, especially to the extent these matters, or the
decisions, policies or economic strength of the Company's suppliers,
affect the Company's Mexican, German, Chinese and other imported beer
products.
. The forward-looking statements contained herein are based on estimates
which the Company believes are reasonable. This means that the Company's
actual results could differ materially from such estimates as a result of
being negatively affected as described above, or otherwise, or positively
affected.
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INDUSTRY
The beverage alcohol industry in the United States consists of the
production, importation, marketing and distribution of beer, wine and
distilled spirits products. Over the past five years there has been increasing
consolidation at the supplier, wholesaler and, in certain markets, retailer
tiers of the beverage alcohol industry. As a result, it has become
advantageous for certain suppliers to expand their portfolio of brands through
acquisitions and internal development in order to take advantage of economies
of scale and to increase their importance to a more limited number of
wholesalers and, in certain markets, retailers. From 1978 through 1995, the
overall per capita consumption of beverage alcohol products in the United
States has generally declined. However, consumption of table wine, and in
particular varietal table wine, and imported beer, has increased during the
period.
The following table sets forth the industry unit volumes for shipments of
beverage alcohol products in the Company's five principal beverage alcohol
product categories in the United States for the five calendar years ended
December 31, 1995:
<TABLE>
<CAPTION>
INDUSTRY DATA 1991 1992 1993 1994 1995
- ------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Domestic Table Wines (a)(b)............. 285,282 308,169 300,953 307,481 318,546
Domestic Dessert Wines (a)(c)........... 35,181 32,449 29,698 27,634 25,439
Domestic Sparkling Wines (a)............ 24,386 23,794 23,600 22,855 22,298
Imported Beer (d)....................... 109,212 114,590 127,418 144,527 155,177
Distilled Spirits (e)................... 147,025 148,017 144,162 139,497 137,810
</TABLE>
- --------
(a) Units are in thousands of gallons. Data exclude sales of wine coolers.
(b) Includes other special natural (flavored) wines under 14% alcohol.
(c) Includes dessert wines, other special natural (flavored) wines over 14%
alcohol and vermouth.
(d) Units are in thousands of cases (2.25 gallons per case).
(e) Units are in thousands of 9-liter cases (2.378 gallons per case).
Table Wines. Wines containing 14% or less alcohol by volume are generally
referred to as table wines. Within this category, table wines are further
characterized as either "non-varietal" or "varietal." Non-varietal wines
include wines named after the European regions where similar types of wines
were originally produced (e.g., burgundy), niche products and proprietary
brands. Varietal wines are those named for the grape that comprises the
principal component of the wine. Table wines that retail at less than $5.75
per 750 ml. bottle are generally considered to be popularly priced while those
that retail at $5.75 or more per 750 ml. bottle are considered premium wines.
During the period from 1991 to 1995, shipments of domestic table wines
increased at an average compound annual rate of 3%. Shipments of varietal
table wines have grown at an average compound annual rate of 13% since 1991,
while shipments of non-varietal table wines have generally declined over the
same period. The Company believes that the growth in wine shipments was partly
the result of the November 1991 television broadcast of The French Paradox on
CBS' 60 Minutes program, which discussed the healthful benefits of moderate
red wine consumption. These findings have been supported by other studies,
including a 60 Minutes update on The French Paradox in 1995. More recently, in
January 1996 the Dietary Guidelines for Americans, released jointly by the
U.S. Agriculture Department and the Department of Health and Human Services,
acknowledged that moderate drinking may lower the risk of heart attacks.
Based on shipments of California table wines, which constituted
approximately 88% of the total domestically produced table wine market in
1995, shipments of all table wines increased 6% for the first eight months of
calendar 1996 over the same period in 1995. Shipments of varietal table wines
in the first eight months of calendar 1996 increased by 10% over the same
period in the prior year.
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Shipments of imported table wines, which constituted 16% of the United States
table wine market in 1995, grew by a compound annual rate of 6% between 1991
and 1995.
Dessert Wines. Wines containing more than 14% alcohol by volume are
generally referred to as dessert wines. Dessert wines generally fall into the
same price categories as table wines. In 1995, shipments of domestic dessert
wines decreased 8% as compared to 1994. During the period from 1991 to 1995,
shipments of domestic dessert wines declined at an average compound annual
rate of 8%. Dessert wine consumption in the United States has been declining
for many years, reflecting the impact of an increase in federal excise taxes
in 1991 and a general shift in consumer preferences to table wines.
Sparkling Wines. Sparkling wines include effervescent wines like champagne
and spumante. Sparkling wines generally fall into the same price categories as
table wines. Shipments of sparkling wines declined at an average compound
annual rate of 2% from 1991 to 1995. The Company believes that the decline in
sparkling wine consumption between 1991 and 1995 reflects concerns about
drinking and driving, as a large part of sparkling wine consumption occurs
outside the home at social gatherings and restaurants. Based on shipments of
California sparkling wines, which constituted 88% of the domestically produced
sparkling wine market in 1995, shipments of all sparkling wines increased 4%
in the first eight months of 1996, as compared to the same period a year ago.
Imported Beer. Imported beers, along with microbrews and super-premium
priced domestic beers, are generally priced above the leading domestic premium
brands. Shipments of imported beers have increased at an average compound rate
of 9% from 1991 to 1995. Imported beer shipments have increased 12% for the
first six months of calendar 1996, and shipments of Mexican beers have
increased 29% during the first six months as compared to the same period in
1995. Shipments of imported beers as a percentage of the United States beer
market, increased to 6.0% in 1995 from 5.5% in 1994.
Distilled Spirits. Shipments of distilled spirits in the United States
declined at an average compound annual rate of 2% from 1991 to 1995. Shipments
of distilled spirits have been affected by many of the same trends evident in
the rest of the beverage alcohol industry. Over the past five years, sales of
most types of spirits have declined.
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<PAGE>
BUSINESS
The Company is a leading producer and marketer of branded beverage alcohol
products, with over 125 national and regional brands which are distributed by
over 1,200 wholesalers throughout the United States and in selected
international markets. The Company is the second largest supplier of wines,
the third largest importer of beers and the fourth largest supplier of
distilled spirits in the United States. The Company's beverage alcohol brands
are marketed in five general categories: table wines, sparkling wines, dessert
wines, imported beer and distilled spirits, and include the following
principal brands:
. Table Wines: Inglenook, Almaden, Paul Masson, Taylor California Cellars,
Cribari, Manischewitz, Taylor, Marcus James, Deer Valley and Dunnewood
. Sparkling Wines: Cook's, J. Roget, Great Western and Taylor
. Dessert Wines: Richards Wild Irish Rose, Cisco and Taylor
. Imported Beer: Corona, Modelo Especial, St. Pauli Girl and Tsingtao
. Distilled Spirits: Barton, Fleischmann's, Mr. Boston, Montezuma, Canadian
LTD, Ten High, Inver House and Monte Alban
Based on available industry data, the Company believes that during calendar
year 1995 it had a 22% share of the market for domestic wines, a 12% share of
the imported beer market and its distilled spirits brands had an 8% share of
the distilled spirits market in the United States. Within the market for
domestic wines, the Company believes it had a 28% share of the non-varietal
table wine market, a 12% share of the varietal table wine market, a 42% share
of the dessert wine market and a 29% share of the sparkling wine market. Many
of the Company's brands are leaders in their respective categories in the
United States, including Corona, the second largest selling imported beer
brand; Inglenook and Almaden, the fifth and sixth largest selling wine brands,
respectively; Richards Wild Irish Rose, the largest selling dessert wine
brand; Cook's champagne, the second largest selling sparkling wine brand;
Fleischmann's, the fourth largest blended whiskey and fourth largest
domestically bottled gin; Montezuma, the second largest selling tequila brand;
and Monte Alban, the largest selling mezcal brand.
The Company has diversified its product portfolio through a series of
strategic acquisitions that have resulted in an increase in the Company's net
sales from $176.6 million in fiscal 1991 to $1.1 billion for the twelve months
ended August 31, 1996. Through these acquisitions, the Company developed
strong market positions in the growing beverage alcohol product categories of
varietal table wine and imported beer. The Company ranks second and third in
the varietal table wine and imported beer categories, respectively. From 1992
through 1995, industry shipments of varietal table wine and imported beer have
each grown 35%. During this period, the Company has also strengthened its
relationship with wholesalers, expanded its distribution and enhanced its
production capabilities as well as acquired additional management,
operational, marketing and research and development expertise.
THE ACQUISITIONS
The Barton Acquisition. On June 29, 1993, the Company acquired all of the
outstanding shares of capital stock of Barton. Barton was the eighth largest
supplier of distilled spirits and fourth largest importer of beer in the
United States. With this acquisition, the Company acquired the right to
distribute Corona and Modelo Especial beer in 25 primarily western states,
national distribution rights for St. Pauli Girl and Tsingtao and a diversified
line of distilled spirits including Barton Gin and Vodka, Ten High Bourbon
Whiskey and Montezuma Tequila.
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The Vintners Acquisition. On October 15, 1993, the Company acquired
substantially all of the assets of Vintners, and assumed certain liabilities.
Vintners was the United States' fifth largest supplier of wine with two of the
country's most highly recognized brands, Paul Masson and Taylor California
Cellars. With this acquisition, the Company acquired the Paul Masson, Taylor
California Cellars, Taylor, Deer Valley, St. Regis (nonalcoholic) and Great
Western brands and related facilities.
The Almaden/Inglenook Acquisition. On August 5, 1994, the Company acquired
the Inglenook and Almaden brands, currently the fifth and sixth largest
selling table wines in the United States, a grape juice concentrate business,
and wineries in Madera and Escalon, California, from Heublein. The Company
also acquired Belaire Creek Cellars, Chateau La Salle and Charles Le Franc
table wines, Le Domaine champagne and Almaden, Hartley and Jacques Bonet
brandy. The accounts receivable and the accounts payable related to the
acquired assets were not acquired by the Company.
Following the Almaden/Inglenook Acquisition, the Company entered into the
Restructuring Plan to consolidate certain of its California winery operations.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Notes to the Company's consolidated financial
statements included herein.
The UDG Acquisition. On September 1, 1995, the Company acquired from UDG,
the Skol, Mr. Boston, Canadian LTD, Glenmore, Old Thompson, Kentucky Tavern,
and di Amore distilled spirits brands; the rights to the Fleischmann's and
Chi-Chi's distilled spirits brands under long term license agreements; the
U.S. rights to Inver House, Schenley and El Toro distilled spirits brands; and
inventories and other related assets. The UDG Acquisition also included two of
UDG's production facilities, one located in Owensboro, Kentucky, and the other
located in Albany, Georgia. In addition, the transaction included multiyear
agreements under which UDG will supply the Company with bulk whisky and the
Company will supply UDG with services including continued packaging of various
UDG brands not acquired by the Company. The aggregate consideration for the
brands and other assets acquired from UDG consisted of $141.8 million in cash,
plus transaction costs of $2.3 million, and assumption of certain current
liabilities. The source of the cash payment made at closing, together with
payment of other costs and expenses required by the UDG Acquisition, was
financing provided by the Company pursuant to a Term Loan under the Credit
Facility.
CURRENT OPERATING ENVIRONMENT
The Company's growth through acquisitions over the past five years has
substantially expanded its portfolio of brands and has enabled it to become a
major participant in additional product categories of the beverage alcohol
business. This expansion has positioned the Company to benefit from faster
growing categories with over one-third of the Company's sales generated from
the growth categories of imported beer and varietal wines. However, recent
operating results have been negatively impacted by two factors: increases in
grape prices and certain costs and operating inefficiencies relating to the
consolidation of certain West Coast winery operations in connection with the
acquisitions.
While the consolidation of certain wine operations has produced significant
overall synergies, some of the planned efficiencies have not materialized and
unanticipated costs have occurred. The Company believes that the unanticipated
production costs resulted from its rapid growth over the last three years,
combined with the lack of integrated production control systems and the
complexity of production at its newly consolidated Mission Bell Winery.
Additionally, as the Company has increased its wine and grape juice
concentrate business, it has become the second largest purchaser of grapes for
wine and concentrate in California. The Company's profits are significantly
influenced by grape price changes. Costs for grapes have escalated
dramatically over the last two grape harvests (fall 1995 and fall 1996). Based
on constant tonnage purchased, the Company's overall cost of grapes increased
17.5% in the 1996 harvest.
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<PAGE>
In order to address these matters, the Company is taking a number of
specific steps to improve sales and margins, minimize unexpected costs related
to inefficiencies and realize opportunities for efficiencies afforded by the
Company's consolidation of its West Coast wine operations and its economies of
scale as a $1.1 billion participant in the beverage alcohol industry. Such
steps include the following:
. The Company has launched a comprehensive Reengineering Effort in its wine
division. The Reengineering Effort is intended to increase the efficiency
of all of the Company's operating processes, create smaller, more
manageable business units and create greater management accountability
for its wine business. Organizational changes include the creation of
Accountable Business Units organized by product categories which will be
accountable for production and marketing, and Customer Business Centers,
organized by region, which are responsible for sales, customer service
and product delivery. The Company intends, through the creation of remote
distribution centers, to store inventory closer to its customers, thereby
reducing delivery times. The Company believes these efforts will reduce
the overall amount of inventory it and its customers carry, thus reducing
capital employed and offering benefits to its customers that cannot
currently be obtained from competitors. The Company will be implementing
the distribution center concept on a measured basis to determine its
efficacy.
. In connection with the Reengineering Effort, the Company is implementing
a new accounting and management information system to upgrade the type
and level of information the Company can generate, and to enable it to
manage its business more precisely.
. The Company has created a number of special task forces specifically to
address various issues related to inefficiencies at its West Coast wine
operations, and has relocated, in some cases temporarily and in others
permanently, personnel with particular expertise necessary to address
these matters. All aspects of the Company's wine and grape juice
concentrate production, material requirements planning functions,
warehousing logistics and bottling operations at the Company's Mission
Bell Winery in California, are being reviewed and changed as necessary to
create greater efficiencies.
. The Company has instituted several price increases on its varietal and
non-varietal table wines in response to increased grape costs from the
1995 grape harvest. In general, it is both industry and Company practice
to make selling price adjustments around the time the wine produced with
the higher cost grapes is actually sold, which generally occurs in the
calendar year following the grape harvest. Over the last year the
industry and the Company have increased their selling prices. In the case
of the Company, these selling price increases, on an annualized basis,
have more than offset the increased costs associated with the fall 1995
harvest.
. The Company is in the process of recruiting new management in several key
positions and has previously hired a new President of its wine division
with extensive experience in the U.S. beverage industry, a new Vice
President and Controller of the wine division and an experienced manager
for its Mission Bell Winery. It is expected that the filling of these
positions has given, and will continue to give, the Company significantly
increased management depth and experience.
BUSINESS STRATEGY
The Company's business strategy is to manage its existing portfolio of
brands and businesses in order to maximize profit and return on investment,
and reposition its portfolio of brands to benefit from growth trends in the
beverage alcohol industry. To achieve the foregoing, the Company intends to:
(i) adjust the price/volume relationships of certain brands; (ii) develop new
brands and introduce line extensions; (iii) expand geographic distribution;
and (iv) acquire businesses that meet its strategic and financial objectives.
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PRODUCT CATEGORIES
The Company produces, imports and markets beverage alcohol products in five
principal product categories: table wines, dessert wines, sparkling wines,
imported beer and distilled spirits. The table below sets forth the net sales
(in thousands of dollars) and unit volumes (in thousands of gallons) for all
of the table, dessert and sparkling wines, grape juice concentrate and other
wine-related products and services sold by the Company and under brands and
products acquired in the Vintners Acquisition and the Almaden/Inglenook
Acquisition for the 1994 and 1995 fiscal years and the twelve months ended
August 31, 1996.
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
1994 1995 AUGUST 31, 1996
---------------- ---------------- ---------------
NET NET NET
TOTAL WINES SALES VOLUME SALES VOLUME SALES VOLUME
- ----------- -------- ------- -------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Company....................... $245,083 36,613 $209,957 35,481 $220,308 34,399
Vintners...................... 125,923 20,461 141,790 20,949 148,558 20,425
Almaden/ 237,853 46,269 251,779 45,000 256,555 44,540
Inglenook.................... -------- ------- -------- ------- -------- ------
Total......................... $608,859 103,343 $603,526 101,430 $625,421 99,364
======== ======= ======== ======= ======== ======
</TABLE>
Table Wines. The Company sells over 40 different brands of non-varietal
table wines, substantially all of which are marketed in the popularly priced
segment, which constituted approximately 42% of the domestic table wine market
in the United States for the 1995 calendar year, the latest year for which
data is available. The Company also sells over 15 different brands of varietal
table wines in both the popularly priced and premium categories. The table
below sets forth the unit volumes (in thousands of gallons) for the domestic
table wines sold by the Company and under domestic table wine brands acquired
in the Vintners Acquisition and the Almaden/Inglenook Acquisition for the 1994
and 1995 fiscal years, and the twelve months ended August 31, 1996:
<TABLE>
<CAPTION>
TWELVE MONTHS
1994 1995 ENDED AUGUST 31,
TABLE WINES VOLUME VOLUME 1996
- ----------- ------ ------ ----------------
<S> <C> <C> <C>
Non-varietal..................................... 52,610 47,774 44,682
Varietal......................................... 12,794 16,344 17,971
------ ------ ------
Total (a)........................................ 65,404 64,118 62,653
====== ====== ======
</TABLE>
- --------
(a) Excludes sales of wine coolers but includes sales of wine in bulk.
The Company's table wine brands include:
Inglenook: The fifth largest selling table wine brand and the seventh
largest varietal wine in the United States with a significant restaurant and
bar presence.
Almaden: The sixth largest selling table wine brand and the eleventh largest
varietal wine brand in the United States. Almaden is one of the oldest and
best known table wines in the United States.
Paul Masson: The tenth largest selling table wine brand in the United
States. Paul Masson is offered in all major varietal and non-varietal product
categories in a full range of sizes.
Taylor California Cellars: The thirteenth largest domestic selling table
wine brand in the United States. This brand is also offered in all major
varietal and non-varietal product categories in a full range of sizes.
Cribari: A well-known brand of both varietal and non-varietal table wines,
marketed in the popularly priced segment.
51
<PAGE>
Manischewitz: The largest selling brand of kosher wine in the United States.
Taylor: One of the United States' oldest brands of non-varietal wine,
marketed primarily in the eastern half of the United States.
Deer Valley: This line of California varietal and non-varietal table wines
introduced in 1989 has had significant success in California. The Company has
been expanding its distribution of this brand in other regions of the country.
Dunnewood: Unit volumes of this varietal wine from California's North Coast
region have also increased significantly. This brand is marketed at the lower
end of the premium price category.
The Company also markets a selection of popularly priced imported table
wines. These brands include:
Marcus James: One of the largest selling imported varietal wines in the
United States. Marcus James is a line of varietal table wines which includes
White Zinfandel, Chardonnay, Cabernet Sauvignon and Merlot. The Company owns
the Marcus James brand and contracts for its production in Brazil.
Santa Carolina: The fourth largest table wine brand imported from Chile.
Santa Carolina is a line of varietal wines which include Chardonnay, Cabernet
and Merlot. The Company began to distribute this brand on May 20, 1996, under
an exclusive distribution agreement.
Mateus: The second largest selling Portuguese table wine and a highly
recognized brand name. This brand is imported by the Company under a
distribution agreement.
Partager: A popularly priced table wine with both varietal and non-varietal
products. The Company owns the Partager brand and contracts for its production
in Chile.
The Company's unit volume sales of imported wine increased steadily from 1.9
million gallons in fiscal 1994 to 2.4 million gallons for the twelve months
ended August 31, 1996. The improvement in unit volume of imported wine is
attributable primarily to increased sales of the Marcus James varietal wine
brand.
Dessert Wines. With the exception of the premium dessert wine brands
acquired in the Vintners Acquisition, the Company markets its dessert wines in
the lower end of the popularly priced category. The popularly priced category
represented approximately 89% of the dessert wine market in calendar 1995, the
latest year for which data is available. The table below sets forth the unit
volumes (in thousands of gallons) for the domestic dessert wines sold by the
Company and under domestic dessert wine brands acquired in the Vintners
Acquisition for the 1994 and 1995 fiscal years, and the twelve months ended
August 31, 1996.
<TABLE>
<CAPTION>
TWELVE MONTHS
1994 1995 ENDED
VOLUME VOLUME AUGUST 31, 1996
------ ------ ---------------
<S> <C> <C> <C>
Dessert Wines..................................... 12,037 10,962 10,098
</TABLE>
The Company's dessert wines include:
Richards Wild Irish Rose: The largest selling dessert wine brand in the
United States and the Company's leading dessert wine brand.
Taylor: Premium traditional dessert wines, including port and sherry.
Cisco: One of the leading dessert wine brands in the United States. Cisco is
a flavored dessert wine positioned higher in price than Richards Wild Irish
Rose.
52
<PAGE>
The Company's unit volumes of dessert wines have declined over the last
three years. The decline can be attributed to a general decline in dessert
wine consumption in the United States. The Company's unit volume sales of its
dessert wine brands (including the brands acquired from Vintners) have
decreased 16% from fiscal 1994 through the twelve months ended August 31,
1996.
Sparkling Wines. The Company markets substantially all of its sparkling
wines in the popularly priced segment, which constituted approximately 46% of
the domestic sparkling wine market in calendar 1995, the latest year for which
data is available. The table below sets forth the unit volumes (in thousands
of gallons) for the domestic sparkling wines sold by the Company and under
domestic sparkling wine brands acquired in the Vintners Acquisition and the
Almaden/Inglenook Acquisition for the 1994 and 1995 fiscal years, and the
twelve months ended August 31, 1996:
<TABLE>
<CAPTION>
TWELVE MONTHS
1994 1995 ENDED
VOLUME VOLUME AUGUST 31, 1996
------ ------ ---------------
<S> <C> <C> <C>
Sparkling Wines................................... 7,353 6,500 6,565
</TABLE>
The Company's sparkling wine brands include:
Cook's: The second largest selling domestic sparkling wine in the United
States. This brand of champagne is marketed in a bell shaped bottle and is
cork-finished, packaging generally associated with higher priced products.
J. Roget: The fourth largest selling domestic sparkling wine in the United
States, priced slightly below Cook's.
Great Western: A premium priced champagne.
Taylor: A premium priced champagne.
Codorniu: The second largest Spanish sparkling wine imported in the United
States, sold in the premium price category. The Company sells this brand under
an exclusive distribution agreement.
Grape Juice Concentrate. As a related part of its wine business, the Company
produces grape juice concentrate. Grape juice concentrate is sold to the food
and wine industries as a raw material for the production of juice-based
products, no-sugar-added foods and beverages. Grape juice concentrate competes
with other domestically produced and imported fruit-based concentrates. The
Company believes that it is the leading grape juice concentrate producer in
the United States. The table below sets forth the unit volumes (in thousands
of gallons) for the grape juice concentrate sold by the Company and the grape
juice concentrate business acquired in the Almaden/Inglenook Acquisition for
the 1994 and 1995 fiscal years, and the twelve months ended August 31, 1996:
<TABLE>
<CAPTION>
TWELVE MONTHS
1994 1995 ENDED
VOLUME VOLUME AUGUST 31, 1996
------ ------ ---------------
<S> <C> <C> <C>
Grape Juice Concentrate........................... 11,826 11,017 11,863
</TABLE>
Other Wine Products and Related Services. The Company's other wine related
products and services include: grape juice; St. Regis, the leading
nonalcoholic line of wines in the United States; wine coolers sold primarily
under the Sun Country brand name; cooking wine; and wine for the production of
vinegar. The Company also provides various bottling and distillation
production services for third parties.
Beer. The Company is the third largest marketer of imported beers in the
United States. The Company distributes three of the top 20 imported beers in
the United States: Corona, Modelo Especial and St. Pauli Girl. The table below
sets forth the net sales (in thousands of dollars) and unit volumes
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<PAGE>
(in thousands of cases) for the beer sold by Barton and the Company for the
1994 and 1995 fiscal years and the twelve months ended August 31, 1996:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED AUGUST 31,
1994 1995 1996
---------------------- ---------------------------- ----------------------------
NET SALES VOLUME NET SALES VOLUME NET SALES VOLUME
--------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C>
$173,883 14,100 $216,159 17,471 $279,070 22,388
</TABLE>
The Company's principal imported beer brands include:
Corona: The second largest selling imported beer in the United States and
the number one selling beer in Mexico. The Company believes that Corona is the
largest selling import in the territory in which it is distributed by the
Company. The Company has represented the supplier of Corona since 1978 and
currently sells Corona and its related Mexican beer brands in 25 primarily
western states.
Modelo Especial: One of the family of products imported from the supplier of
Corona, Modelo Especial has grown to be the fifteenth largest selling imported
beer in the United States.
St. Pauli Girl: The sixteenth largest selling imported beer in the United
States, and the second largest selling German import.
Tsingtao: The largest selling Chinese beer in the United States.
The Company's other imported beer brands include Pacifico and Negra Modelo
from Mexico, Peroni from Italy and Double Diamond from the United Kingdom. The
Company owns and operates the Stevens Point Brewery, a regional brewer located
in Wisconsin, which produces Point Special, among other brands.
Net sales and unit volumes of the Company's beer brands have grown during
the previous three fiscal years primarily as a result of the increased sales
of Corona and the Company's other Mexican beer brands. During the two years
ended August 31, 1996, net sales and unit volume of the Company's beer brands
increased at an annual rate of 27% and 26%, respectively.
Distilled Spirits. The Company is the fourth largest supplier of distilled
spirits in the United States. The Company produces, bottles, imports and
markets a diversified line of quality distilled spirits, and also exports
distilled spirits to more than 15 foreign countries. The table below sets
forth the net sales (in thousands of dollars) and unit volumes (in thousands
of 9-liter cases) for the distilled products case goods sold by Barton and
under brands acquired in the Vintners Acquisition and the Almaden/ Inglenook
Acquisition for the 1994 and 1995 fiscal years and the twelve months ended
August 31, 1996, and for the brands and products acquired in the UDG
Acquisition for the twelve months ended August 31, 1994, 1995, and 1996:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
1994 1995 AUGUST 31, 1996
--------------- --------------- ---------------------
NET NET NET
SPIRITS SALES VOLUME SALES VOLUME SALES VOLUME
- ------- -------- ------ -------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Barton/Vintners/Almaden/Inglenook. $ 88,549 5,678 $ 92,400 5,917 $ 98,166 6,021
UDG............................... 101,916 4,941 92,136 5,013 83,274 4,867
-------- ------ -------- ------ ---------- --------
Total............................. $190,465 10,619 $184,536 10,930 $181,440 10,888
======== ====== ======== ====== ========== ========
</TABLE>
The Company's leading distilled spirits brands include:
Barton Gin and Vodka: The fifth largest domestically bottled gin and the
fifth largest domestically bottled vodka.
54
<PAGE>
Fleischmann's Vodka, Gin and Preferred: The fourth largest blended whiskey
and the fourth largest domestically bottled gin.
Mr. Boston: A highly recognized name with a full line of spirits, including
cordials, cocktails, flavored brandies, gin and vodka.
Montezuma: The second largest selling tequila in the United States.
Canadian LTD: The fifth largest domestically bottled Canadian whisky.
Ten High Bourbon: The seventh largest bourbon brand in the United States.
Inver House: The fifth largest domestically bottled Scotch whisky.
Monte Alban: A premium priced product which the Company believes is the
largest selling mezcal in the United States.
Paul Masson Grande Amber: The fourth largest selling aged brandy in the
United States, and one of the fastest-growing domestic brandies.
Other products include Skol Vodka, Gin and Rum; Crystal Palace Gin and
Vodka; Glenmore spirits; Chi-Chi's cocktails; Lauder's, House of Stuart and
Highland Mist Scotch whiskies; Old Thompson; Kentucky Gentleman, Kentucky
Tavern, Very Old Barton and Tom Moore bourbon whiskies; di Amore liqueurs;
Schenley spirits; Sabroso coffee liqueur; Northern Light, Canadian Host and
Canadian Supreme Canadian whiskies and Imperial, Barton Reserve and Barton
Premium blended whiskies. Substantially all of the Company's spirits unit
volume consists of products marketed in the price value segment.
During the two years ended August 31, 1996, net sales and unit volumes of
distilled spirits brands sold by Barton and under brands acquired in the
Vintners and Almaden/Inglenook Acquisitions increased at an annual rate of 5%
and 3%, respectively. Unit volumes of vodka, tequila and brandy have
increased, while Scotch and bourbon have experienced decreases in unit volume.
During the two years ended August 31, 1996, the net sales of brands acquired
in the UDG Acquisition declined in excess of industry rates. The Company
believes that these declines resulted from noncompetitive retail pricing and
promotional activities of the brands' previous owner. The Company has
implemented pricing and promotional activities which have reduced the rate of
decline during Fiscal 1997.
In addition to the branded products described above, the Company also sells
distilled spirits in bulk and provides contract production and bottling
services. These activities accounted for net sales during the 1994 and 1995
fiscal years and for the twelve months ended August 31, 1996 of $7.0 million,
$5.8 million, and $21.3 million, respectively. The significant increase in
contract production services is a result of the UDG Acquisition.
MARKETING AND DISTRIBUTION
The Company's products are distributed and sold throughout the United States
through over 1,200 wholesalers, as well as through state alcoholic beverage
control agencies. The Company employs a full-time, in-house marketing and
sales organization of approximately 300 people to develop and service its
sales to wholesalers and state agencies. The Company's sales force is
organized in separate sales divisions: a beer division, a spirits division and
a wine division. The Company believes that the organization of its sales force
into separate divisions positions it to maintain a high degree of
55
<PAGE>
focus on each of its principal product categories. For the 1994 and 1995
fiscal years and the twelve months ended August 31, 1996, gross sales to the
Company's largest wholesaler, Southern Wine and Spirits, represented 12.3%,
10.6% and 8.0% of the Company's gross sales, respectively.
The Company's marketing strategy places primary emphasis upon promotional
programs directed at its broad national distribution network (and to the
retailers served by that network). The Company has extensive marketing
programs for its brands including promotional programs on both a national
basis and regional basis in accordance with the strength of the brands, point-
of-sale materials, consumer media advertising, event sponsorship, market
research, trade advertising and public relations.
TRADEMARKS AND DISTRIBUTION AGREEMENTS
The Company's wine and distilled spirits products are sold under a number of
trademarks. Most of these trademarks are owned by the Company.
The Company also produces and sells wines and distilled spirits products
under exclusive license or distribution agreements. Significant agreements
include: a long term license agreement with Nabisco Brands Company for a term
which expires in 2008 and which automatically renews for successive additional
20 year terms unless cancelled by the Company for the Fleischmann's spirits
brands; a long term license agreement with Hiram Walker & Sons, Inc. for a
term which expires in 2116 for the Ten High, Crystal Palace, Northern Light
and Imperial Spirits brands; and a long term license agreement with the B.
Manischewitz Company for a term which expires in 2042 for the Manischewitz
brand of kosher wines.
The Company also has other less significant license and distribution
agreements related to the sale of wine and distilled spirits with terms of
various durations.
All of the Company's imported beer products are marketed and sold pursuant
to exclusive distribution agreements with the suppliers of these products.
These agreements have terms that vary
and prohibit the Company from importing other beers from the same country. The
Company's agreement to distribute Corona and its other Mexican beer brands
exclusively throughout 25 states expires in December 2006 and, subject to
compliance with certain performance criteria and other terms under the
agreement, will be automatically renewed for additional terms of five years.
Under this agreement, the Mexican supplier has the right to consent to Mr.
Goodman's successor as Chairman and Chief Executive Officer of Barton's beer
subsidiary, which consent may not be unreasonably withheld, and, if such
consent is properly withheld, to terminate the agreement. The Company's
agreement for the importation of St. Pauli Girl expires in 1998 and, subject
to compliance with certain performance criteria, may be extended by the
Company until 2003. The Company's agreement for the exclusive importation of
Tsingtao throughout the entire United States expires in December 1999 and,
subject to compliance with certain performance criteria and other terms under
the agreement, will be automatically renewed until December 2002. Prior to
their expiration, these agreements may be terminated if the Company fails to
meet certain performance criteria. The Company believes it is currently in
compliance with its imported beer distribution agreements. From time to time,
the Company has failed, and may in the future fail, to satisfy certain
performance criteria in its distribution agreements. Although there can be no
assurance that its beer distribution agreements will be renewed, given the
Company's long term relationships with its suppliers, the Company expects that
such agreements will be renewed prior to their expiration and does not believe
that these agreements will be terminated.
COMPETITION
The beverage alcohol industry is highly competitive. The Company competes on
the basis of quality, price, brand recognition and distribution. The Company's
beverage alcohol products compete with other alcoholic and nonalcoholic
beverages for consumer purchases, as well as shelf space in
56
<PAGE>
retail stores and marketing focus by the Company's wholesalers. The Company
competes with numerous multinational producers and distributors of beverage
alcohol products, many of which have significantly greater resources than the
Company. The Company's principal competitors include E & J Gallo Winery and
The Wine Group in the wine category, Heineken USA, Molson Breweries USA,
Labatt's USA and Guinness Import Company in the imported beer category, and
Jim Beam Brands in the distilled spirits category.
PRODUCTION
The Company's wines are produced from several varieties of wine grapes grown
principally in California and New York. The grapes are crushed at the
Company's wineries and stored as wine, grape juice or concentrate. Such grape
products may be made into wine for sale under the Company's brand names, sold
to other companies for resale under their own labels, or shipped to customers
in the form of juice, juice concentrate, unfinished wines, high-proof grape
spirits or brandy. Most of the Company's wines are bottled and sold within 18
months after the grape crush. The Company's inventories of wines, grape juice
and concentrate are usually at their highest levels in November and December,
immediately after the crush of each year's grape harvest, and are
substantially reduced prior to the subsequent year's crush.
The bourbon whiskeys, domestic blended whiskeys and light whiskeys marketed
by the Company are primarily produced and aged by the Company at its
distillery in Bardstown, Kentucky, though it may from time to time supplement
its inventories through purchases from other distillers. At its Atlanta and
Albany, Georgia, facilities, the Company produces all of the neutral grain
spirits and whiskeys used by it in the production of vodka, gin and blended
whiskey sold by it to customers in the state of Georgia. The Company's
requirements of Canadian and Scotch whiskies, and tequila, mezcal, and the
neutral grain spirits used by it in the production of gin and vodka for sale
outside of Georgia, and other spirits products, are purchased from various
suppliers.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The principal components in the production of the Company's branded beverage
alcohol products are: packaging materials, primarily glass; grapes; and other
agricultural products, such as grain.
The Company utilizes glass and PET bottles and other materials, such as
caps, corks, capsules, labels and cardboard cartons, in the bottling and
packaging of its products. Glass bottle costs are one of the largest
components of the Company's cost of product sold. The glass bottle industry is
highly concentrated with only a small number of producers. The Company has
traditionally obtained, and continues to obtain, its glass requirements from a
limited number of producers. The Company has not experienced difficulty in
satisfying its requirements with respect to any of the foregoing and considers
its sources of supply to be adequate. However, the inability of any of the
Company's glass bottle suppliers to satisfy the Company's requirements could
adversely affect the Company's operations.
Most of the Company's annual grape requirements are satisfied by purchases
from each year's harvest, which normally begins in August and runs through
October. Costs for grapes have escalated dramatically over the last two grape
harvests (fall 1995 and fall 1996). The Company believes that it has adequate
sources of grape supplies to meet its sales expectations for Fiscal 1997.
However, in the event demand for certain wine products exceeds expectations
for Fiscal 1997, the Company could experience shortages.
The Company purchases grapes from over 700 independent growers principally
in the San Joaquin Valley and Monterey regions of California and in New York
State. The Company enters into written purchase agreements with a majority of
these growers on a year-to-year basis. However, in connection with the
Vintners Acquisition and the Almaden/Inglenook Acquisition, the Company
57
<PAGE>
acquired certain long-term grape purchase contracts. In addition, the
Company's negligible purchases of grapes from the Napa Valley and related
regions minimize its exposure to phylloxera and other agricultural risks.
However, phylloxera in these regions has caused certain wineries to increase
their purchases of grapes from the San Joaquin and Monterey regions. The
Company has recently purchased approximately 1,000 acres of vineyards in
California and leases a small number of additional acres in California for
vineyard plantings. The Company continues to consider the purchase or lease of
additional vineyards, and additional land for vineyard plantings, to
supplement its grape supply. The Company is also planting vineyards on land in
California currently owned by the Company.
The distilled spirits manufactured by the Company require various
agricultural products, neutral grain spirits and bulk spirits. The Company
fulfills its requirements through purchases from various sources, through
contractual arrangements and through purchases on the open market. The Company
believes that adequate supplies of the aforementioned products are available
at the present time.
GOVERNMENT REGULATION
The Company's operations are subject to extensive federal and state
regulation. These regulations cover, among other matters, sales promotion,
advertising and public relations, labeling and packaging, changes in officers
or directors, ownership or control, distribution methods and relationships,
and requirements regarding brand registration and the posting of prices and
price changes. All of the Company's facilities are also subject to federal,
state and local environmental laws and regulations and the Company is required
to obtain permits and licenses to operate its facilities. The Company believes
that it is in compliance in all material respects with all presently
applicable governmental laws and regulations and that the cost of
administration of compliance with such laws and regulations does not have, and
is not expected to have, a material adverse impact on the Company's financial
condition or results of operations.
EMPLOYEES
The Company had 2,518 full-time employees as of November 30, 1996, as
compared to 2,538 employees as of November 30, 1995. As of November 30, 1996,
approximately 1,200 employees were covered by collective bargaining
agreements. Additional workers may be employed by the Company during the grape
crushing season. The Company considers its employee relations to be good.
PROPERTIES
The Company currently operates 12 wineries, three distilling and bottling
plants, two bottling plants and a brewery, all of which include warehousing
and distribution facilities on the premises. The Company considers its
principal facilities to be the Mission Bell winery in Madera, California; the
Canandaigua, New York winery; the Monterey Cellars winery in Gonzales,
California; the distilling and bottling facility located in Bardstown,
Kentucky; and the bottling facility located in Owensboro, Kentucky. All of
these facilities are owned by the Company other than a winery in Escalon,
California, and bottling plants in Carson, California, and Batavia, New York,
each of which is leased.
In New York, the Company operates three wineries located in Canandaigua,
Naples and Batavia. The Company currently operates 9 winery facilities in
California. The Mission Bell winery is a crushing, wine production, bottling
and distribution facility and a grape juice concentrate production facility.
The Monterey Cellars winery is a crushing, wine production and bottling
facility. The other wineries operated in California are located in Escalon,
Lodi, McFarland, Madera, Fresno, and Ukiah. The Escalon facility is operated
under a long term lease with an option to buy. The Company recently purchased
approximately 1,000 acres of vineyards in California and leases a small number
of additional acres in California for vineyard plantings.
58
<PAGE>
The Company operates five facilities that produce, bottle and store distilled
spirits. It owns production, bottling and storage facilities in Bardstown,
Kentucky, and Atlanta and Albany, Georgia, and operates bottling plants in
Owensboro, Kentucky, and Carson, California. The Carson plant is operated under
a management contract and a sublease, each of which is scheduled to expire on
December 31, 1997, subject to a one year extension at the option of the
sublessor. The Carson plant receives distilled spirits in bulk from Bardstown
and outside vendors, which it bottles and distributes. The Company also
performs contract bottling at the Carson plant. The Bardstown facility
distills, bottles and warehouses whiskey for the Company's account and on a
contractual basis for other participants in the industry. The Owensboro
facility bottles and warehouses whiskey for the Company's account and performs
contract bottling. The Company also owns production plants in Atlanta and
Albany, Georgia, which produce vodka, gin and blended whiskeys.
The Company owns a brewery in Stevens Point, Wisconsin, where it produces and
bottles Point beer and brews and packages on a contract basis for a variety of
brewing and other food and beverage industry members. In addition, the Company
owns and maintains its corporate headquarters in Canandaigua, New York, where
it also leases additional office space, and leases office space in Chicago,
Illinois, for its Barton headquarters.
The Company believes that all of its facilities are in good condition and
working order and have adequate capacity to meet its needs for the foreseeable
future.
Most of the Company's real property has been pledged under the terms of
collateral security mortgages as security for the payment of outstanding loans
under the Credit Facility. See "Description of Credit Facility".
LEGAL PROCEEDINGS
The Company and its subsidiaries are subject to litigation from time to time
in the ordinary course of business. Although the amount of any liability with
respect to such litigation cannot be determined, in the opinion of management,
such liability will not have a material adverse effect on the Company's
financial condition or results of operations.
In connection with an investigation in the State of New Jersey into
regulatory trade practices in the beverage alcohol industry, one employee of
the Company was arrested in March 1994 and another employee subsequently came
under investigation in connection with providing "free goods" to retailers in
violation of New Jersey beverage alcohol laws. A proposed consent order has
been received from the appropriate regulatory agency by the Company which
would, when finalized, fully resolve the matter without any material effect on
the Company.
With respect to the following described litigation, on November 8, 1996, the
District Court entered summary judgment in favor of the Company and the other
defendants. The Court's judgment resolves all claims against all of the
defendants in this litigation. The time period in which plaintiffs could have
filed a notice of appeal to the United States Court of Appeals for the Second
Circuit expired on December 12, 1996, without any such notice being filed.
On November 13, 1995, a purported stockholder of the Company filed a class
action in the United States District Court for the Southern District of New
York, VENTRY, ET AL. V. CANANDAIGUA WINE COMPANY, INC., ET AL. (the "Ventry
Class Action"). On November 16, 1995, another purported stockholder of the
Company filed a class action in the United States District Court for the
Southern District of New York, BRICKELL PARTNERS, ET AL. V. CANANDAIGUA WINE
COMPANY, INC., ET AL. (the "Brickell Class Action"). On December 6, 1995, a
third purported stockholder of the Company filed a class action in the United
States District Court for the Southern District of New York, BABICH, ET AL. V.
CANANDAIGUA WINE COMPANY, INC., ET AL. (and this class action together with the
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Brickell Class Action and the Ventry Class Action, the "Class Actions"). The
defendants in the Class Actions were the Company, Richard Sands and Lynn K.
Fetterman. The Class Actions were consolidated and a consolidated complaint was
filed on January 16, 1996. The Class Actions asserted violations of Section
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder and sought to recover damages in an unspecified amount which the
class members allegedly sustained by purchasing the Company's common stock at
artificially inflated prices. The complaints in the Class Actions alleged that
the Company's public documents and statements were materially incomplete and,
as a result, misleading.
On April 8, 1996, the Company filed a motion to dismiss the consolidated
complaint and oral argument was held on September 25, 1996. After oral
argument, the Court stated that it intended to construe the Company's motion to
dismiss as a motion for summary judgment. As noted above, on November 8, 1996,
the District Court entered summary judgment in favor of the Company and the
other defendants.
MANAGEMENT
The following table sets forth information with respect to the current
directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION/OFFICE HELD
---- --- --------------------
<S> <C> <C>
Marvin Sands............ 73 Chairman of the Board
Richard Sands........... 45 President, Chief Executive Officer and Director
Robert Sands............ 38 Executive Vice President, General Counsel, Secretary and Director
Ellis M. Goodman........ 59 Chief Executive Officer of Barton Incorporated
Daniel C. Barnett....... 47 Senior Vice President and President of Wine Division
Bertram E. Silk......... 65 Senior Vice President and Director
George Bresler.......... 72 Director
James A. Locke, III..... 54 Director
</TABLE>
Marvin Sands is the founder of the Company, which is the successor to a
business he started in 1945. He has been a director of the Company and its
predecessor since 1946 and was Chief Executive Officer until October 1993.
Marvin Sands is the father of Richard Sands and Robert Sands.
Richard Sands, Ph.D., has been employed by the Company in various capacities
since 1979. He was elected Executive Vice President and a director in 1982,
became President and Chief Operating Officer in May 1986 and was elected Chief
Executive Officer in October 1993. He is a son of Marvin Sands and the brother
of Robert Sands.
Robert Sands was appointed Executive Vice President, General Counsel in
October 1993. In January 1995, he was appointed Secretary of the Company. He
was elected a director of the Company in January 1990 and served as Vice
President, General Counsel since June 1990. From June 1986, until his
appointment as Vice President, General Counsel, Mr. Sands was employed by the
Company as General Counsel. He is a son of Marvin Sands and the brother of
Richard Sands.
Ellis M. Goodman is the Chief Executive Officer of Barton and serves in that
capacity under the terms of an employment agreement with Barton. By virtue of
his position and responsibilities with Barton, Mr. Goodman is deemed an
executive officer of the Company. From July 1993 to January 1996, Mr. Goodman
served as a director of the Company. Also, from July 1993 to October 1993, he
served as a Vice President of the Company and from October 1993 to January
1996, Mr. Goodman served as an Executive Vice President of the Company. Mr.
Goodman has been Chief Executive Officer of Barton since 1987 and Chief
Executive Officer of Barton Brands, Ltd. (predecessor to Barton) since 1982.
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Daniel C. Barnett joined the Company during November 1995 as a Senior Vice
President and President of the Company's wine division. From July 1994 to
October 1995, Mr. Barnett served as President and Chief Executive Officer of
Koala Springs International, a juice beverage company. Prior to that, from
April 1991 to June 1994, Mr. Barnett was Vice President and General Manager of
Nestle USA's beverage businesses. From October 1988 to April 1991, he was
President of Weyerhauser's baby diaper division.
Bertram E. Silk has been a director and Vice President of the Company since
1973 and was elected Senior Vice President in October 1993. He has been
employed by the Company since 1965. Currently, Mr. Silk is responsible for
industry relations with respect to labor unions in California, as well as for
various trade association and international alcohol beverage industry matters.
Immediately prior to his current position, he was in charge of the Company's
grape grower relations in California. Before moving from Canandaigua, New York
to California in 1989, Mr. Silk was in charge of production for the Company.
From 1989 to August 1994, Mr. Silk was in charge of the Company's grape juice
concentrate business in California.
George Bresler has served as a director of the Company since 1992 and has
been engaged in the practice of law since 1957. From August 1987 through July
1992, Mr. Bresler was a partner in the law firm of Bresler and Bab, New York,
New York. Currently, Mr. Bresler is a partner in the law firm of Rosner,
Bresler, Goodman & Bucholz in New York, New York.
James A. Locke, III has served as a director of the Company since 1983. Since
January 1, 1996, Mr. Locke has been a partner in the law firm of Nixon,
Hargrave, Devans and Doyle LLP, Rochester, New York, which firm is the
Company's principal outside counsel. For twenty years prior to joining this
firm, Mr. Locke was a partner in the law firm of Harter, Secrest and Emery,
Rochester, New York.
Directors of the Company hold office until the next Annual Meeting of
Stockholders of the Company and until their successors are elected and
qualified. Executive officers of the Company hold office until the next Annual
Meeting of the Board of Directors and until their successors are chosen and
qualify.
EXECUTIVE COMPENSATION AND STOCK OWNERSHIP
The current annual base compensation for the Company's four most highly
compensated officers is as follows: Marvin Sands--$478,170; Richard Sands--
$469,480; Robert Sands--$456,026 and Ellis Goodman--$412,000. In addition,
Ellis Goodman has an employment agreement with Barton which expires in December
1999, but will be automatically extended for additional one-year periods unless
Mr. Goodman or Barton notifies the other, within a specified time period, of
the desire not to extend such employment agreement.
As of December 6, 1996, the directors and principal officers of the Company
listed above as a group beneficially owned approximately 14% of the outstanding
shares of Class A Common Stock (exclusive of shares of Class A Common Stock
issuable pursuant to the conversion feature of the Class B Common Stock
beneficially owned by officers and directors) and approximately 85% of the
outstanding shares of Class B Common Stock.
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<PAGE>
DESCRIPTION OF CREDIT FACILITY
On September 1, 1995, the Company, its principal operating subsidiaries, and
a syndicate of 20 banks (the "Syndicate Banks"), for which The Chase Manhattan
Bank ("Chase") acts as Administrative Agent, entered into the Third Amended
and Restated Credit Agreement. The Third Amended and Restated Credit
Agreement, as amended, is referred to as the "Credit Facility." The following
summary of the principal terms of the Credit Facility does not purport to be
complete and is subject to the detailed provisions of the Credit Facility, a
copy of which is available upon request.
As of November 30, 1996, the Credit Facility consisted of (i) a $216.0
million Term Loan facility due in August 2001 ("Term Loans"), (ii) a $185.0
million Revolving Loan facility, including all drawn or undrawn letters of
credit ("Revolving Letters of Credit"), which expires in June 2001 ("Revolving
Loans"), and (iii) a $13.7 million irrevocable standby Letter of Credit (the
"Barton Letter of Credit") related to certain earn-out payments related to the
Barton Acquisition. The Barton Letter of Credit expired on December 31, 1996.
The Term Loans and the Revolving Loans, at the Company's option, can be
either a base rate loan or a Eurodollar rate loan. In addition, the Revolving
Loans can be a money market loan. A base rate loan bears interest at the rate
per annum equal to the higher of (1) the Federal Funds rate for such day plus
1/2 of 1%, or (2) the Chase prime commercial lending rate. A Eurodollar rate
loan bears interest at LIBOR plus a margin. The interest rate margin for
Eurodollar rate loans may be decreased
by up to 0.50% or increased by up to 0.25% depending on the Company's debt
coverage ratio (as defined in the Credit Facility). The interest rate on a
money market loan is determined by a competitive bid process among the
Syndicate Banks. As of November 30, 1996, the interest rate margin on a
Eurodollar rate loan was 1%.
As of November 30, 1996, the Term Loans bore interest at a per annum rate of
6.5% with quarterly principal payments of $10.0 million and a final payment of
$7.0 million in August 2001.
The $185.0 million Revolving Loan facility may be utilized by the Company
either in the form of Revolving Loans or as Revolving Letters of Credit up to
a maximum of $20.0 million. Additionally, availability of Revolving Loans is
subject to a formula based on the amount of certain eligible receivables and
certain eligible inventory and is reduced by the amount of Revolving Letters
of Credit. As of November 30, 1996, there were outstanding Revolving Loans of
$130.0 million bearing interest at 6.7%, undrawn Revolving Letters of Credit
of $8.9 million and $46.1 million available to be drawn in Revolving Loans.
The Revolving Loans are required to be prepaid in such amounts that, for a
single period of at least thirty consecutive days at any time during the
fiscal quarters ending on May 31 and August 31 of each fiscal year, the
aggregate principal amount of Revolving Loans outstanding, together with drawn
and undrawn Revolving Letters of Credit, will not exceed $60.0 million, plus
the amount expended by the Company relating to certain capital expenditures at
any time during Fiscal 1997 up to $17.5 million.
Each of the Company's operating subsidiaries has guaranteed, jointly and
severally, the Company's obligations under the Credit Facility. The Syndicate
Banks have been given security interests in substantially all of the assets of
the Company and its subsidiaries. The Company and its subsidiaries are subject
to customary secured lending covenants including those restricting additional
liens, the incurrence of additional indebtedness, the sale of assets, the
payment of dividends, transactions with affiliates, the making of certain
investments and certain other fundamental changes. The Company and its
subsidiaries are also required to maintain a minimum level of interest rate
protection instruments and the following financial covenants above specified
levels: debt coverage ratio; tangible net worth; fixed charges ratio; and
operating cash flow to interest expense. Among the most restrictive covenants
contained in the Credit Facility, the Company is required to maintain a fixed
charge ratio not less than 1.0 to 1.0 at the last day of each fiscal quarter
for the most recent four
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quarter periods. The Credit Facility permits the Company to repurchase up to
$30.0 million of the Company's outstanding Common Stock.
The Company may prepay the principal of the Term Loans and the Revolving
Loans at its discretion. The Revolving Loans and the Term Loan are required to
be prepaid and the Revolving Loans commitment, the Term Loan commitment and
the Barton Letter of Credit commitment will be automatically reduced in the
following aggregate amounts: (i) the amount equal to 100% of the net proceeds
from insurance, condemnation awards or other compensation arising out of
certain casualty events; (ii) the amount equal to 50% of the net proceeds of
certain capital contributions or the sale of certain equity interests; (iii)
the amount equal to the excess of (A) the amount equal to 50% of excess cash
flow for the period of four fiscal quarters ending on each August 31 over (B)
the aggregate amount of prepayments of the Term Loan made during such period
and, after payment in full of the Term Loan, the aggregate amount of voluntary
reductions made during such period of Revolving Loan commitments; (iv) the
amount equal to 100% of the net proceeds of any sales of assets, other than
assets disposed of in the ordinary course of business, when such sales of
assets in the aggregate exceed $15.0 million; (v) 100% of net proceeds in
excess of $50 million from the issuance of certain subordinated indebtedness
(including the Notes); and (vi) in full upon certain changes of control
(including a Change of Control under the Indenture) if such event requires the
Company to redeem or offer to redeem certain subordinated indebtedness under
the terms thereof.
Events of Default. Events of Default under the Credit Facility include,
among other things, (a) failure of the Company or any subsidiary to pay when
due principal of or interest on the loans, fees, other amounts owing under the
Credit Facility and such default shall continue for two or more business days;
(b) failure of the Company or any subsidiary to pay when due principal of or
interest on any other Indebtedness or any amount under any interest rate
protection agreement or the Barton acquisition agreement, provided that such
payment due is in an aggregate amount greater than or equal to $100,000; or
any event relating to Indebtedness in an aggregate principal amount greater
than or equal to $100,000 or any event specified in any interest rate
protection agreement occurs that permits acceleration of such Indebtedness or
the payments due under such interest rate protection agreement; (c) default by
the Company or any subsidiary in the due observance or performance of certain
agreements and covenants contained in the Credit Facility or other documents
related thereto; (d) material inaccuracy of any representation or warranty
made by the Company or any subsidiary in connection with the Credit Facility
or other documents related thereto; (e) a final judgment against the Company
or any subsidiary in excess of $500,000 (exclusive of judgment amounts covered
by insurance) or in excess of $5.0 million (regardless of insurance coverage)
that remains undischarged (unless a stay of execution has been procured) for
45 days; (f) the occurrence of certain events respecting pension plans; (g) a
reasonable basis shall exist for the assertion against the Company or any
subsidiary of material claims or liabilities respecting hazardous materials;
(h) Marvin Sands or members of his immediate family or a trust for their
benefit shall cease to own in the aggregate and on a fully diluted basis
common stock of the Company having by its terms voting power to elect at least
50% (in number of votes) of the board of directors of the Company or certain
other change-of-control events shall occur; (i) the face amount of the Barton
Letter of Credit shall not be reduced as scheduled; and (j) certain bankruptcy
related events.
Change of Control Under the Notes. All amounts outstanding under the Credit
Facility must be repaid in full before the Company can purchase any Original
Notes or any Notes upon a Change of Control. See "Risk Factors--Change of
Control Offer."
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DESCRIPTION OF NOTES
The Old Notes were, and the Exchange Notes will be, issued under an
Indenture (the "Indenture") dated as of October 29, 1996, between the Company,
the Guarantors and Harris Trust and Savings Bank, as trustee (the "Trustee"),
copies of which are available upon request. The terms of the Exchange Notes
are identical in all material respects to the Old Notes, except that the
Exchange Notes have been registered under the Securities Act and therefore
will not bear legends restricting their transfer and will not contain certain
provisions providing for the payment of liquidated damages under certain
circumstances related to the Registration Rights Agreement, which provisions
will terminate upon the consummation of the Exchange Offer.
The following summary of the material provisions of the Indenture does not
purport to be complete, and where reference is made to particular provisions
of the Indenture, such provisions, including the definitions of certain terms,
are qualified in their entirety by reference to all of the provisions of the
Indenture and those terms made a part of the Indenture by the Trust Indenture
Act. For definitions of certain capitalized terms used in the following
summary, see "--Certain Definitions."
GENERAL
The Exchange Notes will mature on December 15, 2003, will be limited to
$65,000,000 aggregate principal amount and will be unsecured senior
subordinated obligations of the Company. Each Exchange Note will bear interest
at the rate set forth on the cover page hereof from October 29, 1996 or from
the most recent interest payment date to which interest has been paid, payable
semi-annually on June 15 and December 15 in each year, commencing June 15,
1997, to the Person in whose name the Exchange Note (or any predecessor
Exchange Note) is registered at the close of business on the June 1 or
December 1 next preceding such interest payment date.
Payment of the Notes is guaranteed by the Guarantors on a senior
subordinated basis. The Guarantors are comprised of substantially all the
direct and indirect Wholly Owned Subsidiaries of the Company.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes will be exchangeable and transferable (subject to compliance
with transfer restrictions imposed by applicable securities laws for so long
as the Notes are not registered for resale under the Securities Act), at the
office or agency of the Company in the City of New York maintained for such
purposes (which initially will be the Trustee); provided, however, that
payment of interest may be made at the option of the Company by check mailed
to the Person entitled thereto as shown on the security register. The Notes
will be issued only in fully registered form without coupons, in denominations
of $1,000 and any integral multiple thereof. (Section 302) No service charge
will be made for any registration of transfer, exchange or redemption of
Notes, except in certain circumstances for any tax or other governmental
charge that may be imposed in connection therewith. (Section 305)
The Company currently has outstanding $130.0 million aggregate principal
amount of Original Notes pursuant to the Original Indenture, the terms of
which are substantially similar to the Notes and Indenture, respectively.
OPTIONAL REDEMPTION
The Notes will be subject to redemption at any time on or after December 15,
1998, at the option of the Company, in whole or in part, on not less than 30
nor more than 60 days' prior notice in amounts of $1,000 or an integral
multiple thereof at the following redemption prices (expressed as percentages
of the principal amount), if redeemed during the 12-month period beginning
December 15 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
1998.............................................................. 104.375%
1999.............................................................. 102.917%
2000.............................................................. 101.458%
</TABLE>
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and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the redemption date (subject to the
right of holders of record on regular record dates to receive interest due on
an Interest Payment Date).
Notwithstanding the preceding paragraph, the Company will not be permitted
to redeem the Original Notes unless, substantially concurrently with such
redemption, the Company redeems an aggregate principal amount of Notes
(rounded to the nearest integral multiple of $1,000) equal to the product of
(1) a fraction, the numerator of which is the aggregate principal amount of
Original Notes to be so redeemed and the denominator of which is the aggregate
principal amount of Original Notes outstanding immediately prior to such
proposed redemption, and (2) the aggregate principal amount of Notes
outstanding immediately prior to such proposed redemption.
If less than all of the Notes are to be redeemed, the Trustee shall select
the Notes or portions thereof to be redeemed pro rata, by lot or by any other
method the Trustee shall deem fair and reasonable. (Sections 203, 1101 and
1108)
SINKING FUND
The Notes are not entitled to the benefit of any sinking fund.
RANKING
The payment of the principal of, premium, if any, and interest on, the Notes
and all other Indenture Obligations are subordinated, as set forth in the
Indenture, in right of payment to the prior payment in full of all Senior
Indebtedness in cash or cash equivalents or in any other form acceptable to
the holders of Senior Indebtedness. The Notes are senior subordinated
indebtedness of the Company ranking pari passu with all other existing and
future senior subordinated indebtedness of the Company and senior to all
existing and future Subordinated Indebtedness of the Company.
During the continuance of any default in the payment of any Designated
Senior Indebtedness, no payment (other than payments previously made pursuant
to the provisions described under "--Defeasance or Covenant Defeasance of
Indenture") or distribution of any assets of the Company of any kind or
character (excluding certain permitted equity or certain debt securities)
shall be made by the Company on account of principal of, premium, if any, or
interest on, the Notes or any other Indenture Obligations or on account of the
purchase, redemption, defeasance or other acquisition of or in respect of the
Notes unless and until such default shall have been cured or waived or shall
have ceased to exist or the Designated Senior Indebtedness with respect to
which such payment default shall have occurred shall have been discharged or
paid in full in cash or cash equivalents or in any other form acceptable to
the holders of such Senior Indebtedness, after which the Company shall resume
making any and all required payments in respect of the Notes, including any
missed payments.
During the continuance of any non-payment default with respect to any
Designated Senior Indebtedness pursuant to which the maturity thereof may be
accelerated (a "Non-payment Default") and after receipt by the Trustee and the
Company from a representative of the holders of Designated Senior Indebtedness
of written notice of such default, no payment (other than payments previously
made pursuant to the provisions described under "--Defeasance or Covenant
Defeasance of Indenture") or distribution of any assets of the Company of any
kind or character (excluding certain permitted equity or certain debt
securities) shall be made by the Company on account of any principal of,
premium, if any, or interest on, the Notes or any other Indenture Obligations
or on account of the purchase, redemption, defeasance or other acquisition of
or in respect of the Notes for the period specified below (the "Payment
Blockage Period").
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The Payment Blockage Period shall commence upon the receipt of notice of the
Nonpayment Default by the Trustee from a representative of the holder of any
Designated Senior Indebtedness and shall end on the earliest of (i) the first
date on which more than 179 days shall have elapsed since the receipt of such
written notice (provided such Designated Senior Indebtedness as to which
notice was given shall not theretofore have been accelerated), (ii) the date
on which such Nonpayment Default is cured, waived or ceases to exist or on
which such Designated Senior Indebtedness is discharged or paid in full in
cash or cash equivalents or in any other manner acceptable to the holders of
Designated Senior Indebtedness or (iii) the date on which such Payment
Blockage Period shall have been terminated by written notice to the Company or
the Trustee from the representatives of holders of Designated Senior
Indebtedness initiating such Payment Blockage Period, after which, in the case
of clauses (i), (ii) and (iii), the Company shall resume making any and all
required payments in respect of the Notes, including any missed payments. In
no event will a Payment Blockage Period extend beyond 179 days from the date
of the receipt by the Company or the Trustee of the notice initiating such
Payment Blockage Period (such 179-day period referred to as the "Initial
Period"). Any number of notices of Nonpayment Defaults may be given during the
Initial Period; provided that during any 365 consecutive day period only one
such period during which payment of principal of, or interest on, the Notes
may not be made may commence and the duration of such period may not exceed
179 days. No Nonpayment Default with respect to Designated Senior Indebtedness
which existed or was continuing on the date of the commencement of any Payment
Blockage Period will be, or can be, made the basis for the commencement of a
second Payment Blockage Period, whether or not within a period of 365
consecutive days, unless such default has been cured or waived for a period of
not less than 90 consecutive days. (Section 1203)
If the Company fails to make any payment on the Notes when due or within any
applicable grace period, whether or not on account of the payment blockage
provisions referred to above, such failure would constitute an Event of
Default under the Indenture and would enable the holders of the Notes to
accelerate the maturity thereof. See "--Events of Default."
The Indenture provides that in the event of any insolvency or bankruptcy
case or proceeding, or any receivership, liquidation, reorganization or other
similar case or proceeding in connection therewith, relative to the Company or
to its creditors, as such, or to its assets, or any liquidation, dissolution
or other winding up of the Company, whether voluntary or involuntary, or any
assignment for the benefit of creditors or any other marshalling of assets or
liabilities of the Company, all Senior Indebtedness must be paid in full in
cash or cash equivalents or in any other form acceptable to the holders of
Senior Indebtedness, before any payment or distribution (excluding
distributions of certain permitted equity or certain debt securities) is made
on account of the principal of, premium, if any, or interest on the Notes or
any other Indenture Obligations.
By reason of such subordination, in the event of liquidation or insolvency,
creditors of the Company who are holders of Senior Indebtedness may recover
more, ratably, than the holders of the Notes, and, funds which would be
otherwise payable to the holders of the Notes will be paid to the holders of
the Senior Indebtedness to the extent necessary to pay the Senior Indebtedness
in full in cash or cash equivalents or in any other form acceptable to the
holders of Senior Indebtedness, and the Company may be unable to meet its
obligations fully with respect to the Notes.
Each Guarantee of a Guarantor is an unsecured senior subordinated obligation
of such Guarantor, ranking pari passu with, or senior in right of payment to,
all other existing and future Indebtedness of such Guarantor that is expressly
subordinated to Senior Guarantor Indebtedness. The Indebtedness evidenced by
the Guarantees is subordinated to Senior Guarantor Indebtedness to the same
extent as the Notes are subordinated to Senior Indebtedness and during any
period when payment on the Notes is blocked by Designated Senior Indebtedness,
payment on the Guarantees is similarly blocked.
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"Senior Indebtedness" means the principal of, premium, if any, and interest
(including interest accruing after the filing of a petition initiating any
proceeding under any state, federal or foreign bankruptcy law whether or not
allowable as a claim in such proceeding) on any Indebtedness of the Company
(other than as otherwise provided in this definition), whether outstanding on
the date of the Original Indenture or thereafter created, incurred or assumed,
and whether at any time owing, actually or contingent, unless, in the case of
any particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Notes. Without
limiting the generality of the foregoing, "Senior Indebtedness" shall include
(i) the principal of, premium, if any, and interest (including interest
accruing after the filing of a petition initiating any proceeding under any
state, federal or foreign bankruptcy laws whether or not allowable as a claim
in such proceeding) and all other obligations of every nature of the Company
from time to time owed to the lenders (or their agent) under the Credit
Agreement; provided, however, that any Indebtedness under any refinancing,
refunding or replacement of the Credit Agreement shall not constitute Senior
Indebtedness to the extent that the Indebtedness thereunder is by its express
terms subordinate to any other Indebtedness of the Company and (ii)
Indebtedness under Interest Rate Agreements. Notwithstanding the foregoing,
"Senior Indebtedness" shall not include (i) Indebtedness evidenced by the
Notes, (ii) Indebtedness that is subordinate or junior in right of payment to
any Indebtedness of the Company, (iii) Indebtedness which when incurred and
without respect to any election under Section 1111(b) of Title 11 United
States Code, is without recourse to the Company, (iv) Indebtedness which is
represented by Redeemable Capital Stock, (v) any liability for foreign,
federal, state, local or other taxes owed or owing by the Company to the
extent such liability constitutes Indebtedness, (vi) Indebtedness of the
Company to a Subsidiary or any other Affiliate of the Company or any of such
Affiliate's subsidiaries, (vii) that portion of any Indebtedness which at the
time of issuance is issued in violation of the Indenture and (viii)
Indebtedness owed by the Company for compensation to employees or for
services.
"Designated Senior Indebtedness" means (i) all Senior Indebtedness under the
Credit Agreement and (ii) any other Senior Indebtedness which is incurred
pursuant to an agreement (or series of related agreements) simultaneously
entered into providing for Indebtedness, or commitments to lend, of at least
$30,000,000 at the time of determination and is specifically designated in the
instrument evidencing such Senior Indebtedness or the agreement under which
such Senior Indebtedness arises as "Designated Senior Indebtedness" by the
Company.
"Senior Guarantor Indebtedness" means the principal of, premium, if any, and
interest (including interest accruing after the filing of a petition
initiating any proceeding under any state, federal or foreign bankruptcy laws
whether or not allowable as a claim in such proceeding) on any Indebtedness of
any Guarantor (other than as otherwise provided in this definition), whether
outstanding on the date of the Original Indenture or thereafter created,
incurred or assumed, and whether at any time owing, actually or contingent,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to any
Guarantee. Without limiting the generality of the foregoing, "Senior Guarantor
Indebtedness" shall include the principal of, premium, if any, and interest
(including interest accruing after the filing of a petition initiating any
proceeding under any state, federal or foreign bankruptcy laws whether or not
allowable as a claim in such proceeding) and all other obligations of every
nature of any Guarantor from time to time owed to the lenders (or their agent)
under the Credit Agreement; provided, however, that any Indebtedness under any
refinancing, refunding or replacement of the Credit Agreement shall not
constitute Senior Guarantor Indebtedness to the extent that the Indebtedness
thereunder is by its express terms subordinate to any other Indebtedness of
any Guarantor. Notwithstanding the foregoing, "Senior Guarantor Indebtedness"
shall not include (i) Indebtedness evidenced by the Guarantees, (ii)
Indebtedness that is subordinate or junior in right of payment to any
Indebtedness of any Guarantor, (iii) Indebtedness which when incurred and
without respect to any election under Section 1111(b) of Title 11 United
States Code, is without
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recourse to any Guarantor, (iv) Indebtedness which is represented by
Redeemable Capital Stock, (v) any liability for foreign, federal, state, local
or other taxes owed or owing by any Guarantor to the extent such liability
constitutes Indebtedness, (vi) Indebtedness of any Guarantor to a Subsidiary
or any other Affiliate of the Company or any of such Affiliate's subsidiaries,
(vii) that portion of any Indebtedness which at the time of issuance is issued
in violation of the Indenture and (viii) Indebtedness owed by any Guarantor
for compensation to employees or for services.
As of November 30, 1996, after giving effect to the sale of the Old Notes
and the application of the net proceeds therefrom, the aggregate amount of
outstanding Senior Indebtedness was approximately $328.8 million, the
aggregate amount of outstanding Pari Passu Indebtedness was $130.0 million and
the aggregate amount of outstanding Senior Guarantor Indebtedness was
approximately $327.8 million (including $327.4 million of outstanding
indebtedness representing guarantees of Senior Indebtedness). See "Risk
Factors--Subordination of the Notes and the Guarantees; Asset Encumbrances"
and "Capitalization."
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Indebtedness.
(a) The Company will not, and will not permit any of its Subsidiaries to,
create, issue, assume, guarantee, or otherwise in any manner become directly
or indirectly liable for or with respect to or otherwise incur (collectively,
"incur") any Indebtedness (including any Acquired Indebtedness), except that
the Company and any Guarantor may incur Indebtedness (including any Acquired
Indebtedness) and any Subsidiary that is not a Guarantor may incur Acquired
Indebtedness if, in each case, the Consolidated Fixed Charge Coverage Ratio
for the Company for the four full fiscal quarters immediately preceding the
incurrence of such Indebtedness taken as one period (and after giving pro
forma effect to (i) the incurrence of such Indebtedness and (if applicable)
the application of the net proceeds therefrom, including to refinance other
Indebtedness, as if such Indebtedness was incurred, and the application of
such proceeds occurred, at the beginning of such four-quarter period; (ii) the
incurrence, repayment or retirement of any other Indebtedness by the Company
and its Subsidiaries since the first day of such four-quarter period as if
such Indebtedness was incurred, repaid or retired at the beginning of such
four-quarter period (except that, in making such computation, the amount of
Indebtedness under any revolving credit facility shall be computed based upon
the average daily balance of such Indebtedness during such four- quarter
period); (iii) in the case of Acquired Indebtedness, the related acquisition
as if such acquisition occurred at the beginning of such four quarter period;
and (iv) any acquisition or disposition by the Company and its Subsidiaries of
any company or any business or any assets out of the ordinary course of
business, whether by merger, stock purchase or sale or asset purchase or sale,
as if such acquisition or disposition occurred at the beginning of such four
quarter period or any related repayment of Indebtedness, in each case since
the first day of such four-quarter period, assuming such acquisition or
disposition had been consummated on the first day of such four-quarter period)
is at least equal to 2.25:1.00. (Section 1008)
(b) The foregoing limitation will not apply to the incurrence of any of the
following (collectively "Permitted Indebtedness"):
(i) Indebtedness of the Company and any Subsidiary under the Credit
Agreement in an aggregate principal amount at any one time outstanding not
to exceed (x) $50,000,000 under any term loans made pursuant thereto, minus
all principal payments made in respect of any term loans, (y) $100,000,000
under any revolving credit facility thereunder and (z) $28,200,000 of
"Letter of Credit Liabilities" (as defined in the Credit Agreement as in
effect on the date of the Original Indenture) in respect to the Barton
Letter of Credit, less any reduction on such "Letter of
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Credit Liabilities" (whether through payments or reductions of the face
amount of the Barton Letter of Credit);
(ii) Indebtedness of the Company pursuant to the Notes and Indebtedness
of any Guarantor pursuant to a Guarantee;
(iii) Indebtedness of the Company or any Subsidiary outstanding on the
date of the Indenture and listed on Schedule I thereto;
(iv) Indebtedness of the Company owing to a Subsidiary; provided that any
Indebtedness of the Company owing to a Subsidiary that is not a Guarantor
is made pursuant to an intercompany note in the form attached to the
Indenture and is subordinated in right of payment from and after such time
as the Notes shall become due and payable (whether at Stated Maturity,
acceleration or otherwise) to the payment and performance of the Company's
obligations under the Notes; provided further that any disposition, pledge
or transfer of any such Indebtedness to a Person (other than a disposition,
pledge or transfer to a Subsidiary or a pledge to or for the benefit of the
lenders under the Credit Agreement) shall be deemed to be an incurrence of
such Indebtedness by the obligor not permitted by this clause (iv);
(v) Indebtedness of a Wholly Owned Subsidiary owing to the Company or
another Wholly Owned Subsidiary; provided that, with respect to
Indebtedness owing to a Wholly Owned Subsidiary that is not a Guarantor,
(x) any such Indebtedness is made pursuant to an intercompany note in the
form attached to the Indenture and (y) any such Indebtedness shall be
subordinated in right of payment from and after such time as the
obligations under the Guarantee by such Wholly Owned Subsidiary shall
become due and payable to the payment and performance of such Wholly Owned
Subsidiary's obligations under its Guarantee; provided further that (a) any
disposition, pledge or transfer of any such Indebtedness to a Person (other
than a disposition, pledge or transfer to the Company or a Wholly Owned
Subsidiary or a pledge to or for the benefit of the lenders under the
Credit Agreement) shall be deemed to be an incurrence of such Indebtedness
by the obligor not permitted by this clause (v), and (b) any transaction
pursuant to which any Wholly Owned Subsidiary, which has Indebtedness owing
to the Company or any other Wholly Owned Subsidiary, ceases to be a Wholly
Owned Subsidiary shall be deemed to be the incurrence of Indebtedness by
such Wholly Owned Subsidiary that is not permitted by this clause (v);
(vi) guarantees of any Subsidiary made in accordance with the provisions
of "--Limitation on Issuances of Guarantees of and Pledges for
Indebtedness";
(vii) obligations of the Company entered into in the ordinary course of
business pursuant to Interest Rate Agreements designed to protect the
Company or any Subsidiary against fluctuations in interest rates in respect
of Indebtedness of the Company or any of its Subsidiaries, as long as such
obligations at the time incurred do not exceed the aggregate principal
amount of such Indebtedness then outstanding or in good faith anticipated
to be outstanding within 90 days of such incurrence;
(viii) any renewals, extensions, substitutions, refundings, refinancings
or replacements (collectively, a "refinancing") of any Indebtedness
described in clauses (ii) and (iii) of this definition of "Permitted
Indebtedness," including any successive refinancings so long as the
aggregate principal amount of Indebtedness represented thereby is not
increased by such refinancing plus the lesser of (1) the stated amount of
any premium, interest or other payment required to be paid in connection
with such a refinancing pursuant to the terms of the Indebtedness being
refinanced or (2) the amount of premium, interest or other payment actually
paid at such time to refinance the Indebtedness, plus, in either case, the
amount of expenses of the Company incurred in
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connection with such refinancing and, in the case of Pari Passu
Indebtedness or Subordinated Indebtedness, such refinancing does not reduce
the Average Life to Stated Maturity or the Stated Maturity of such
Indebtedness; and
(ix) Indebtedness, in addition to that described in clauses (i) through
(viii) of this definition of "Permitted Indebtedness," and any renewals,
extensions, substitutions, refinancings or replacements of such
Indebtedness, not to exceed $25,000,000 outstanding at any one time in the
aggregate.
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to holders
of, any shares of the Company's Capital Stock (other than dividends or
distributions payable solely in shares of its Qualified Capital Stock or in
options, warrants or other rights to acquire such Qualified Capital Stock);
(ii) purchase, redeem or otherwise acquire or retire for value, directly
or indirectly, any shares of the Capital Stock of the Company or any
Affiliate thereof (other than any Wholly Owned Subsidiary of the Company)
or options, warrants or other rights to acquire such Capital Stock;
(iii) make any principal payment on, or repurchase, redeem, defease,
retire or otherwise acquire for value, prior to any scheduled principal
payment, sinking fund or maturity, any Pari Passu Indebtedness or
Subordinated Indebtedness;
(iv) declare or pay any dividend or distribution on any Capital Stock of
any Subsidiary to any Person (other than the Company or any of its Wholly
Owned Subsidiaries) or purchase, redeem or otherwise acquire or retire for
value any Capital Stock of any Subsidiary held by any Person (other than
the Company or any of its Wholly Owned Subsidiaries);
(v) incur, create or assume any guarantee of Indebtedness of any
Affiliate (other than a Wholly Owned Subsidiary of the Company); or
(vi) make any Investment in any Person (other than any Permitted
Investments)
(any of the foregoing payments described in clauses (i) through (vi), other
than any such action that is a Permitted Payment, collectively, "Restricted
Payments") unless after giving effect to the proposed Restricted Payment (the
amount of any such Restricted Payment, if other than cash, as determined by
the Board of Directors of the Company, whose determination shall be conclusive
and evidenced by a board resolution), (1) no Default or Event of Default shall
have occurred and be continuing and such Restricted Payment shall not be an
event which is, or after notice or lapse of time or both, would be, an "event
of default" under the terms of any Indebtedness of the Company or its
Subsidiaries; (2) immediately before and immediately after giving effect to
such transaction on a pro forma basis, the Company could incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) under the
provisions described under "--Limitation on Indebtedness"; and (3) the
aggregate amount of all such Restricted Payments declared or made after the
date of the Original Indenture does not exceed the sum of:
(A) 50% of the aggregate cumulative Consolidated Net Income of the
Company accrued on a cumulative basis during the period beginning on the
first day of the Company's fiscal quarter commencing prior to the date of
the Original Indenture and ending on the last day of the Company's last
fiscal quarter ending prior to the date of the Restricted Payment (or, if
such aggregate cumulative Consolidated Net Income shall be a loss, minus
100% of such loss);
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(B) the aggregate Net Cash Proceeds received after the date of the
Original Indenture by the Company from the issuance or sale (other than to
any of its Subsidiaries) of its shares of Qualified Capital Stock or any
options, warrants or rights to purchase such shares of Qualified Capital
Stock of the Company (except, in each case, to the extent such proceeds are
used to purchase, redeem or otherwise retire Capital Stock or Subordinated
Indebtedness as set forth below);
(C) the aggregate Net Cash Proceeds received after the date of the
Original Indenture by the Company (other than from any of its Subsidiaries)
upon the exercise of any options or warrants to purchase shares of
Qualified Capital Stock of the Company; and
(D) the aggregate Net Cash Proceeds received after the date of the
Original Indenture by the Company from debt securities or Redeemable
Capital Stock that have been converted into or exchanged for Qualified
Capital Stock of the Company to the extent such debt securities or
Redeemable Capital Stock are originally sold for cash plus the aggregate
Net Cash Proceeds received by the Company at the time of such conversion or
exchange.
(b) Notwithstanding the foregoing, and in the case of clauses (ii), (iii)
and (iv) below, so long as there is no Default or Event of Default continuing,
the foregoing provisions shall not prohibit the following actions (clauses (i)
through (iv) being referred to as a "Permitted Payment"):
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would be
permitted by the provisions of paragraph (a) of this Section and such
payment shall be deemed to have been paid on such date of declaration for
purposes of the calculation required by paragraph (a) of this Section;
(ii) the repurchase, redemption, or other acquisition or retirement of
any shares of any class of Capital Stock of the Company in exchange for
(including any such exchange pursuant to the exercise of a conversion right
or privilege in connection therewith cash is paid in lieu of the issuance
of fractional shares or scrip), or out of the Net Cash Proceeds of, a
substantially concurrent issue and sale for cash (other than to a
Subsidiary) of other shares of Qualified Capital Stock of the Company;
provided that the Net Cash Proceeds from the issuance of such shares of
Qualified Capital Stock are excluded from clause (3)(B) of paragraph (a) of
this Section;
(iii) any repurchase, redemption, defeasance, retirement, refinancing or
acquisition for value or payment of principal of any Subordinated
Indebtedness in exchange for, or out of the net proceeds of, a
substantially concurrent issuance and sale for cash (other than to any
Subsidiary of the Company) of any Qualified Capital Stock of the Company,
provided that the Net Cash Proceeds from the issuance of such shares of
Qualified Capital Stock are excluded from clause (3)(B) of paragraph (a) of
this Section; and
(iv) the repurchase, redemption, defeasance, retirement, refinancing or
acquisition for value or payment of principal of any Subordinated
Indebtedness (other than Redeemable Capital Stock) (a "refinancing")
through the issuance of new Subordinated Indebtedness of the Company,
provided that any such new Subordinated Indebtedness (1) shall be in a
principal amount that does not exceed the principal amount so refinanced
(or, if such Subordinated Indebtedness provides for an amount less than the
principal amount thereof to be due and payable upon a declaration or
acceleration thereof, then such lesser amount as of the date of
determination), plus the lesser of (I) the stated amount of any premium,
interest or other payment required to be paid in connection with such a
refinancing pursuant to the terms of the Indebtedness being refinanced or
(II) the amount of premium, interest or other payment actually paid at such
time to refinance the Indebtedness, plus, in either case, the amount of
expenses of the Company incurred in connection with such refinancing; (2)
has an Average Life to Stated Maturity greater than the remaining Average
Life to Stated Maturity of the Notes; (3) has a Stated Maturity for its
final
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scheduled principal payment later than the Stated Maturity for the final
scheduled principal payment of the Notes; and (4) is expressly subordinated
in right of payment to the Notes at least to the same extent as the
Indebtedness to be refinanced. (Section 1009)
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly, enter into or
suffer to exist any transaction or series of related transactions (including,
without limitation, the sale, purchase, exchange or lease of assets, property
or services) with any Affiliate of the Company (other than the Company or a
Wholly Owned Subsidiary) unless (i) such transaction or series of transactions
is in writing on terms that are no less favorable to the Company or such
Subsidiary, as the case may be, than would be available in a comparable
transaction in arm's-length dealings with an unrelated third party, (ii) with
respect to any transaction or series of transactions involving aggregate
payments in excess of $5,000,000, the Company delivers an officers'
certificate to the Trustee certifying that such transaction or series of
related transactions complies with clause (i) above and such transaction or
series of related transactions has been approved by the Board of Directors of
the Company, and (iii) with respect to a transaction or series of related
transactions involving aggregate value in excess of $10,000,000, the Company
delivers to the Trustee an opinion of an independent investment banking firm
of national standing stating that the transaction or series of transactions is
fair to the Company or such Subsidiary; provided, however, that this provision
shall not apply to any transaction with an officer or director of the Company
entered into in the ordinary course of business (including compensation or
employee benefit arrangements with any officer or director of the Company).
(Section 1010)
Limitation on Senior Subordinated Indebtedness. The Company will not, and
will not permit any Guarantor to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise in any manner become directly or
indirectly liable for or with respect to or otherwise permit to exist any
Indebtedness that is subordinate in right of payment to any Indebtedness of
the Company or such Guarantor, as the case may be, unless such Indebtedness is
also pari passu with the Notes or the Guarantee of such Guarantor or
subordinate in right of payment to the Notes or such Guarantee to at least the
same extent as the Notes or such Guarantee are subordinate in right of payment
to Senior Indebtedness or Senior Guarantor Indebtedness, as the case may be,
as set forth in the Indenture. (Section 1011)
Limitation on Liens. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, create, incur, affirm or suffer to
exist any Lien of any kind upon any of its property or assets (including any
intercompany notes), owned at the date of the Indenture or acquired after the
date of the Indenture, or any income or profits therefrom, except if the Notes
(or a Guarantee, in the case of Liens of a Guarantor) are directly secured
equally and ratably with (or prior to in the case of Liens with respect to
Subordinated Indebtedness or Indebtedness of a Guarantor subordinated in right
of payment to any Guarantee) the obligation or liability secured by such Lien,
excluding, however, from the operation of the foregoing any of the following:
(a) any Lien existing as of the date of the Indenture;
(b) any Lien arising by reason of (1) any judgment, decree or order of any
court, so long as such Lien is adequately bonded and any appropriate legal
proceedings which may have been duly initiated for the review of such
judgment, decree or order shall not have been finally terminated or the period
within which such proceedings may be initiated shall not have expired; (2)
taxes not yet delinquent or which are being contested in good faith; (3)
security for payment of workers' compensation or other insurance; (4) good
faith deposits in connection with tenders, leases, contracts (other than
contracts for the payment of money); (5) zoning restrictions, easements,
licenses, reservations, provisions, covenants, conditions, waivers,
restrictions on the use of property or minor irregularities of title (and with
respect to leasehold interests, mortgages, obligations, liens and other
encumbrances incurred, created, assumed or permitted to exist and arising by,
through or under a landlord or owner of the leased property, with or without
consent of the lessee), none of which materially impairs the use of any
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parcel of property material to the operation of the business of the Company or
any Subsidiary or the value of such property for the purpose of such business;
(6) deposits to secure public or statutory obligations, or in lieu of surety
or appeal bonds; (7) certain surveys, exceptions, title defects, encumbrances,
easements, reservations of, or rights of others for, rights of way, sewers,
electric lines, telegraph or telephone lines and other similar purposes or
zoning or other restrictions as to the use of real property not interfering
with the ordinary conduct of the business of the Company or any of its
Subsidiaries; or (8) operation of law in favor of mechanics, materialmen,
laborers, employees or suppliers, incurred in the ordinary course of business
for sums which are not yet delinquent or are being contested in good faith by
negotiations or by appropriate proceedings which suspend the collection
thereof;
(c) any Lien now or hereafter existing on property of the Company or any
Guarantor securing Senior Indebtedness or Senior Guarantor Indebtedness, in
each case which Indebtedness is permitted under the provisions of "--
Limitation on Indebtedness" and provided that the provisions described under
"--Limitation on Issuances of Guarantees of and Pledges for Indebtedness" are
complied with;
(d) any Lien securing Acquired Indebtedness created prior to (and not
created in connection with, or in contemplation of) the incurrence of such
Indebtedness by the Company or any Subsidiary, in each case which Indebtedness
is permitted under the provisions of "Limitation on Indebtedness"; provided
that any such Lien only extends to the assets that were subject to such lien
securing such Acquired Indebtedness prior to the related transaction by the
Company or its Subsidiaries; and
(e) any extension, renewal, refinancing or replacement, in whole or in part,
of any Lien described in the foregoing clauses (a) through (d) so long as the
amount of security is not increased thereby. (Section 1012)
Limitation on Sale of Assets. (a) The Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, consummate an Asset Sale
unless (i) at least 75% of the proceeds from such Asset Sale are received in
cash and (ii) the Company or such Subsidiary receives consideration at the
time of such Asset Sale at least equal to the Fair Market Value of the shares
or assets sold (other than in the case of an involuntary Asset Sale, as
determined by the Board of Directors of the Company and evidenced in a board
resolution).
(b) If all or a portion of the Net Cash Proceeds of any Asset Sale are not
required to be applied to repay permanently any Senior Indebtedness or Senior
Guarantor Indebtedness then outstanding as required by the terms thereof, or
the Company determines not to apply such Net Cash Proceeds to the permanent
prepayment of such Senior Indebtedness or Senior Guarantor Indebtedness or if
no such Senior Indebtedness or Senior Guarantor Indebtedness is then
outstanding, then the Company may within 12 months of the Asset Sale, invest
the Net Cash Proceeds in other properties and assets that (as determined by
the Board of Directors of the Company) replace the properties and assets that
were the subject of the Asset Sale or in properties and assets that will be
used in the businesses of the Company or its Subsidiaries existing on the date
of the Original Indenture or reasonably related thereto. The amount of such
Net Cash Proceeds neither used to permanently repay or prepay Senior
Indebtedness or Senior Guarantor Indebtedness nor used or invested as set
forth in this paragraph constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds equals $10,000,000 or more,
the Company shall apply the Excess Proceeds to the repayment of the Notes and
any Pari Passu Indebtedness required to be repurchased under the instrument
governing such Pari Passu Indebtedness as follows: (a) the Company shall make
an offer to purchase (an "Offer") from all holders of the Notes in accordance
with the procedures set forth in the Indenture in the maximum principal amount
(expressed as a multiple of $1,000) of Notes that may be purchased out of an
amount (the "Note Amount") equal to the product of such Excess Proceeds
multiplied by a fraction, the numerator of which is the outstanding principal
amount of the Notes, and the denominator of which is the sum of the
outstanding
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principal amount of the Notes and such Pari Passu Indebtedness (subject to
proration in the event such amount is less than the aggregate Offered Price
(as defined) of all Notes tendered) and (b) to the extent required by such
Pari Passu Indebtedness to permanently reduce the principal amount of such
Pari Passu Indebtedness, the Company shall make an offer to purchase or
otherwise repurchase or redeem Pari Passu Indebtedness (a "Pari Passu Offer")
in an amount (the "Pari Passu Debt Amount") equal to the excess of the Excess
Proceeds over the Note Amount; provided that in no event shall the Pari Passu
Debt Amount exceed the principal amount of such Pari Passu Indebtedness plus
the amount of any premium required to be paid to repurchase such Pari Passu
Indebtedness. The offer price shall be payable in cash in an amount equal to
100% of the principal amount of the Notes plus accrued and unpaid interest, if
any, to the date (the "Offer Date") such Offer is consummated (the "Offered
Price"), in accordance with the procedures set forth in the Indenture. To the
extent that the aggregate Offered Price of the Notes tendered pursuant to the
Offer is less than the Note Amount relating thereto or the aggregate amount of
Pari Passu Indebtedness that is purchased is less than the Pari Passu Debt
Amount (the amount of such shortfall, if any, constituting a "Deficiency"),
the Company shall use such Deficiency in the business of the Company and its
Subsidiaries. Upon completion of the purchase of all the Notes tendered
pursuant to an Offer and the purchase of the Pari Passu Indebtedness pursuant
to a Pari Passu Offer, the amount Of Excess Proceeds, if any, shall be reset
at zero.
(d) Whenever the Excess Proceeds received by the Company exceed $7,000,000,
such Excess Proceeds shall be set aside by the Company in a separate account
pending (i) deposit with the depositary or a paying agent of the amount
required to purchase the Notes or Pari Passu Indebtedness tendered in an Offer
or a Pari Passu Offer, (ii) delivery by the Company of the Offered Price to
the holders of the Notes or Pari Passu Indebtedness tendered in an Offer or a
Pari Passu Offer and (iii) application, as set forth above, of Excess Proceeds
in the business of the Company and its Subsidiaries. Such Excess Proceeds may
be invested in Temporary Cash Investments, provided that the maturity date of
any such investment made after the amount of Excess Proceeds exceeds
$7,000,000 shall not be later than the earlier of three months or the Offer
Date, if known. The Company shall be entitled to any interest or dividends
accrued, earned or paid on such Temporary Cash Investments, provided that the
Company shall not withdraw such interest from the separate account if an Event
of Default has occurred and is continuing.
(e) If the Company becomes obligated to make an Offer pursuant to clause (c)
above, the Notes shall be purchased by the Company, at the option of the
holder thereof, in whole or in part in integral multiples of $1,000, on a date
that is not earlier than 45 days and not later than 60 days from the date the
notice is given to holders, or such later date as may be necessary for the
Company to comply with the requirements under the Exchange Act, subject to
proration in the event the Note Amount is less than the aggregate Offered
Price of all Notes tendered.
(f) The Company shall comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other applicable
securities laws or regulations in connection with an Offer.
(g) The Company will not, and will not permit any Subsidiary to, create or
permit to exist or become effective any restriction (other than restrictions
existing under (i) Indebtedness as in effect on the date of the Indenture as
such Indebtedness may be refinanced from time to time, provided that such
restrictions are no less favorable to the Holders of Notes than those existing
on the date of the Indenture or (ii) any Senior Indebtedness and any Senior
Guarantor Indebtedness) that would materially impair the ability of the
Company to make an Offer to purchase the Notes or, if such Offer is made, to
pay for the Notes tendered for purchase. (Section 1013)
Limitation on Issuances of Guarantees of and Pledges for Indebtedness. (a)
The Company will not permit any Subsidiary, other than the Guarantors,
directly or indirectly, to secure the payment of any Senior Indebtedness of
the Company and the Company will not, and will not permit a Subsidiary
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to, pledge any intercompany notes representing obligations of any Subsidiary
(other than a Guarantor) to secure the payment of any Senior Indebtedness
unless (x) such Subsidiary simultaneously executes and delivers a supplemental
indenture to the Indenture providing for a guarantee of payment of the Notes
by such Subsidiary, which guarantee shall be on the same terms as the
guarantee of the Senior Indebtedness (if a guarantee of Senior Indebtedness is
granted by any such Subsidiary) except that the guarantee of the Notes need
not be secured and shall be subordinated to the claims against such Subsidiary
in respect of Senior Indebtedness to the same extent as the Notes are
subordinated to Senior Indebtedness of the Company under the Indenture and (y)
such Subsidiary waives and will not in any manner whatsoever claim or take the
benefit or advantage of any rights of reimbursement, indemnity or subrogation
or any other rights the Company or any other Subsidiary has as a result of any
payment by such Subsidiary under its guarantee.
(b) The Company will not permit any Subsidiary, other than the Guarantors,
directly or indirectly to guarantee, assume or in any other manner become
liable with respect to any Indebtedness of the Company unless (i) such
Subsidiary simultaneously executes and delivers a supplemental indenture to
the Indenture providing for a guarantee of the Notes on the same terms as the
guarantee of such Indebtedness except that (A) such guarantee need not be
secured unless required pursuant to""--Limitation on Liens," (B) if the Notes
are subordinated in right of payment to such Indebtedness, the guarantee under
the supplemental indenture shall be subordinated to the guarantee of such
Indebtedness to the same extent as the Notes are subordinated to such
Indebtedness under the Indenture and (C) if such Indebtedness is by its terms
expressly subordinated to the Notes, any such assumption, guarantee or other
liability of such Subsidiary with respect to such Indebtedness shall be
subordinated to such Subsidiary's assumption, guarantee or other liability
with respect to the Notes to the same extent as such Indebtedness is
subordinated to the Notes and (ii) such Subsidiary waives and will not in any
manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the
Company or any other Subsidiary as a result of any payment by such Subsidiary
under its Guarantee.
(c) Each guarantee created pursuant to the provisions described in the
foregoing paragraph is referred to as a "Guarantee" and the issuer of each
such Guarantee is referred to as a "Guarantor." Notwithstanding the foregoing,
any Guarantee by a Subsidiary of the Notes shall provide by its terms that it
shall be automatically and unconditionally released and discharged upon (i)
any sale, exchange or transfer, to any Person not an Affiliate of the Company,
of all of the Company's Capital Stock in, or all or substantially all the
assets of, such Subsidiary, which is in compliance with the terms of the
Indenture or (ii) the release by the holders of the Indebtedness of the
Company described in clauses (a) and (b) above of their security interest or
their guarantee by such Subsidiary (including any deemed release upon payment
in full of all obligations under such Indebtedness), at a time when (A) no
other Indebtedness of the Company has been secured or guaranteed by such
Subsidiary, as the case may be, or (B) the holders of all such other
Indebtedness which is secured or guaranteed by such Subsidiary also release
their security interest in, or guarantee by, such Subsidiary (including any
deemed release upon payment in full of all obligations under such
Indebtedness). (Section 1014)
Restriction on Transfer of Assets. The Company will not sell, convey,
transfer or otherwise dispose of its assets or property to any of its
Subsidiaries (other than to the Guarantors), except for sales, conveyances,
transfers or other dispositions made in the ordinary course of business. For
purposes of this provision, any sale, conveyance, transfer, lease or other
disposition of property or assets, having a Fair Market Value in excess of (a)
$2,000,000 for any sale, conveyance, transfer or disposition or series of
related sales, conveyances, transfers, leases or dispositions and (b)
$10,000,000 in the aggregate for all such sales, conveyances, transfers,
leases or dispositions in any fiscal year of the Company shall not be
considered "in the ordinary course of business." (Section 1015)
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Purchase of Notes Upon a Change of Control. If a Change of Control shall
occur at any time, then each holder of Notes shall have the right to require
that the Company purchase such holder's Notes in whole or in part in integral
multiples of $1,000, at a purchase price (the "Change of Control Purchase
Price") in cash in an amount equal to 101% of the principal amount of such
Notes, plus accrued and unpaid interest, if any, to the date of purchase (the
"Change of Control Purchase Date"), pursuant to the offer described below (the
"Change of Control Offer") and the other procedures set forth in the
Indenture.
Within 15 days following any Change of Control, the Company shall notify the
Trustee thereof and give written notice of such Change of Control to each
holder of Notes by first-class mail, postage prepaid, at his address appearing
in the security register, stating, among other things, the purchase price and
that the purchase date shall be a Business Day no earlier than 30 days nor
later than 60 days from the date such notice is mailed, or such later date as
is necessary to comply with requirements under the Exchange Act; that any Note
not tendered will continue to accrue interest; that, unless the Company
defaults in the payment of the purchase price, any Notes accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest after
the Change of Control Purchase Date; and certain other procedures that a
holder of Notes must follow to accept a Change of Control Offer or to withdraw
such acceptance. (Section 1016)
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by holders of the
Notes seeking to accept the Change of Control Offer. The Credit Facility
prohibits the purchase of the Notes by the Company prior to full repayment of
indebtedness under the Credit Facility and, upon a Change of Control, all
amounts outstanding under the Credit Facility become due and payable. There
can be no assurance that in the event of a Change in Control the Company will
be able to obtain the necessary consents from the lenders under the Credit
Facility to consummate a Change of Control Offer. Neither the Company's Board
of Directors nor the trustee under the Indenture is permitted to waive the
right of the holders of the Exchange Notes to require the Company to purchase
the holders' Exchange Notes upon a Change of Control. As of January 10, 1997,
the amount of borrowings outstanding and letters of credit under the Credit
Facility was $265.2 million. In addition, the Original Notes are pari passu
with the Notes and contain similar repurchase requirements upon a Change of
Control. Except for the Notes and the Original Notes, there are currently no
other outstanding securities or liabilities of the Company that are pari passu
with the Exchange Notes and contain similar repurchase requirements upon a
Change of Control. The failure of the Company to make or consummate the Change
of Control Offer or pay the Change of Control Purchase Price when due will
result in an Event of Default and will give the Trustee and the holders of the
Notes the rights described under "--Events of Default."
The definition of "Change of Control" in the Indenture is defined to mean
the occurrence of any of the following events: (i) any "person" or "group" (as
such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other
than Permitted Holders, is or becomes the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be
deemed to have beneficial ownership of all shares that such Person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 30% of the voting
power of the total outstanding Voting Stock of the Company voting as one
class, provided that the Permitted Holders "beneficially own" (as so defined)
a percentage of Voting Stock having a lesser percentage of the voting power
than such other Person and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the
Board of Directors of the Company; (ii) during any period of two consecutive
years, individuals who at the beginning of such period constituted the Board
of Directors of the Company (together with any new directors whose election to
such Board or whose nomination for election by the shareholders of the
Company, was approved by a vote of 66 2/3% of the directors then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of such Board of Directors then in office;
(iii) the Company consolidates with or merges with or into any Person or
conveys, transfers or leases all or substantially all of its assets to any
Person, or any corporation consolidates with or merges into or with the
Company, in any such event pursuant to a transaction in which the outstanding
Voting
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Stock of the Company is changed into or exchanged for cash, securities or
other property, other than any such transaction where the outstanding Voting
Stock of the Company is not changed or exchanged at all (except to the extent
necessary to reflect a change in the jurisdiction of incorporation of the
Company) or where (A) the outstanding Voting Stock of the Company is changed
into or exchanged for (x) Voting Stock of the surviving corporation which is
not Redeemable Capital Stock or (y) cash, securities and other property (other
than Capital Stock of the surviving corporation) in an amount which could be
paid by the Company as a Restricted Payment in accordance with "--Limitation
on Restricted Payments" (and such amount shall be treated as a Restricted
Payment subject to the provisions in the Indenture described under "--
Limitation on Restricted Payments") and (B) no "person" or "group" other than
Permitted Holders owns immediately after such transaction, directly or
indirectly, more than the greater of (1) 30% of the voting power of the total
outstanding Voting Stock of the surviving corporation voting as one class and
(2) the percentage of such voting power of the surviving corporation held,
directly or indirectly, by Permitted Holders immediately after such
transaction; or (iv) the Company is liquidated or dissolved or adopts a plan
of liquidation or dissolution other than in a transaction which complies with
the provisions described under "--Consolidation, Merger, Sale of Assets."
"Permitted Holders" means as of the date of determination (i) Marvin Sands,
Richard Sands and Robert Sands; (ii) family members or the relatives of the
Persons described in clause (i); (iii) any trusts created for the benefit of
the Persons described in clauses (i), (ii) or (iv) or any trust for the
benefit of any such trust; or (iv) in the event of the incompetence or death
of any of the persons described in clauses (i) and (ii), such Person's estate,
executor, administrator, committee or other personal representative or
beneficiaries, in each case who at any particular date shall beneficially own
or have the right to acquire, directly or indirectly, Capital Stock of the
Company.
The term "all or substantially all" as used in the definition of "Change of
Control" has not been interpreted under New York law (which is the governing
law of the Indenture) to represent a specific quantitative test. As a
consequence, in the event the holders of the Notes elected to exercise their
rights under the Indenture and the Company elected to contest such election,
there could be no assurance as to how a court interpreting New York law would
interpret the phrase.
The definition of "Change of Control" is limited in scope. As a result the
provisions of the Indenture will not afford holders of Notes the right to
require the Company to purchase the Notes in the event of a highly leveraged
transaction or certain transactions with the Company's management or its
affiliates, including a reorganization, restructuring, merger or similar
transaction (including, in certain circumstances, an acquisition of the
Company by management or its affiliates) involving the Company that may
adversely affect holders of the Notes, if such transaction is not a
transaction defined as a Change of Control. A transaction involving the
Company's management or its affiliates, or a transaction involving a
recapitalization of the Company, will result in a Change of Control if it is
the type of transaction specified by such definition.
The existence of a holder's right to require the Company to purchase such
holder's Notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction which constitutes a Change of Control.
The Company will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, and any other applicable securities laws or
regulations in connection with a Change of Control Offer.
The Company will not, and will not permit any Subsidiary to, create or
permit to exist or become effective any restriction (other than restrictions
existing under Indebtedness as in effect on the date of the Indenture) that
would materially impair the ability of the Company to make a Change of Control
Offer to purchase the Notes or, if such Change of Control Offer is made, to
pay for the Notes tendered for purchase. (Section 1016)
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Limitation on Subsidiary Capital Stock. The Company will not permit any
Subsidiary of the Company to issue any Capital Stock, except for (i) Capital
Stock issued to and held by the Company or a Wholly Owned Subsidiary, and (ii)
Capital Stock issued by a Person prior to the time (A) such Person becomes a
Subsidiary, (B) such Person merges with or into a Subsidiary or (C) a
Subsidiary merges with or into such Person, provided that such Capital Stock
was not issued or incurred by such Person in anticipation of the type of
transaction contemplated by subclauses (A), (B) or (C). (Section 1017)
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer
to exist or become effective any encumbrance or restriction on the ability of
any Subsidiary of the Company to (i) pay dividends or make any other
distribution on its Capital Stock, (ii) pay any Indebtedness owed to the
Company or a Subsidiary of the Company, (iii) make any Investment in the
Company or a Subsidiary of the Company or (iv) transfer any of its properties
or assets to the Company or any Subsidiary, except (a) any encumbrance or
restriction pursuant to an agreement in effect on the date of the Indenture
and listed as a schedule thereto; (b) any encumbrance or restriction, with
respect to a Subsidiary that is not a Subsidiary of the Company on the date of
the Indenture, in existence at the time such Person becomes a Subsidiary of
the Company and, in the case of clauses (a) and (b), not incurred in
connection with, or in contemplation of, such Person becoming a Subsidiary;
(c) any encumbrance or restriction existing under any agreement that extends,
renews, refinances or replaces the agreements containing the encumbrances or
restrictions in the foregoing clauses (a) and (b), or in this clause (c),
provided that the terms and conditions of any such encumbrances or
restrictions are not materially less favorable to the holders of the Notes
than those under or pursuant to the agreement evidencing the Indebtedness so
extended, renewed, refinanced or replaced (except that an encumbrance or
restriction that is not more restrictive than those set forth in the Indenture
shall in any event be permitted); and (d) any encumbrance or restriction
created pursuant to an asset sale agreement, stock sale agreement or similar
instrument pursuant to which an Asset Sale permitted under "--Limitation on
Sale of Assets" is to be consummated, so long as such restriction or
encumbrance shall be effective only for a period from the execution and
delivery of such agreement or instrument through a termination date not later
than 270 days after such execution and delivery. (Section 1018)
Provision of Financial Statements. Whether or not the Company is subject to
Section 13(a) or 15(d) of the Exchange Act, the Company will, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which the Company would have been
required to file with the Commission pursuant to such Sections 13(a) or 15(d)
if the Company were so subject, such documents to be filed with the Commission
on or prior to the respective dates (the "Required Filing Dates") by which the
Company would have been required so to file such documents if the Company were
so subject. The Company will also in any event (x) within 15 days of each
Required Filing Date (i) transmit by mail to all Holders, as their names and
addresses appear in the security register, without cost to such Holders and
(ii) file with the Trustee copies of the annual reports, quarterly reports and
other documents which the Company would have been required to file with the
Commission pursuant to Section 13(a) or 15(d) of the Exchange Act if the
Company were subject to such Sections and (y) if filing such documents by the
Company with the Commission is not permitted under the Exchange Act, promptly
upon written request and payment of the reasonable cost of duplication and
delivery, supply copies of such documents to any prospective Holder at the
Company's cost. (Section 1019)
Additional Covenants. The Indenture also contains covenants with respect to
the following matters: (i) payment of principal, premium and interest; (ii)
maintenance of an office or agency in the City of New York; (iii) arrangements
regarding the handling of money held in trust; (iv) maintenance of corporate
and partnership existence; (v) payment of taxes and other claims; (vi)
maintenance of properties; and (vii) maintenance of insurance.
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CONSOLIDATION, MERGER, SALE OF ASSETS
The Company shall not, in a single transaction or through a series of
related transactions, consolidate with or merge with or into any other Person
or sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets as an entirety to any Person or
group of affiliated Persons, or permit any of its Subsidiaries to enter into
any such transaction or transactions if such transaction or transactions, in
the aggregate, would result in a sale, assignment, conveyance, transfer, lease
or disposal of all or substantially all of the properties and assets of the
Company and its Subsidiaries on a Consolidated basis to any other Person or
group of affiliated Persons, unless at the time and after giving effect
thereto: (i) either (a) the Company shall be the continuing corporation or (b)
the Person (if other than the Company) formed by such consolidation or into
which the Company is merged or the Person which acquires by sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all of the
properties and assets of the Company and its Subsidiaries on a Consolidated
basis (the "Surviving Entity") shall be a corporation duly organized and
validly existing under the laws of the United States of America, any state
thereof or the District of Columbia and such Person assumes, by a supplemental
indenture in a form reasonably satisfactory to the Trustee, all the
obligations of the Company under the Notes and the Indenture, and the
Indenture shall remain in full force and effect; (ii) immediately before and
immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction on a pro forma basis, the Consolidated Net Worth of
the Company (or the Surviving Entity if the Company is not the continuing
obligor under the Indenture) is equal to or greater than the Consolidated Net
Worth of the Company immediately prior to such transaction; (iv) immediately
before and immediately after giving effect to such transaction on a pro forma
basis (on the assumption that the transaction occurred on the first day of the
four-quarter period immediately prior to the consummation of such transaction
with the appropriate adjustments with respect to the transaction being
included in such pro forma calculation), the Company (or the Surviving Entity
if the Company is not the continuing obligor under the Indenture) could incur
$1.00 of additional Indebtedness under the provisions of "--Certain
Covenants--Limitation on Indebtedness" (other than Permitted Indebtedness);
(v) each Guarantor, if any, unless it is the other party to the transactions
described above, shall have by supplemental indenture confirmed that its
Guarantee shall apply to such Person's obligations under the Indenture and the
Notes; (vi) if any of the property or assets of the Company or any of its
Subsidiaries would thereupon become subject to any Lien, the provisions of "--
Certain Covenants--Limitation on Liens" are complied with; and (vii) the
Company or the Surviving Entity shall have delivered, or caused to be
delivered, to the Trustee, in form and substance reasonably satisfactory to
the Trustee, an officers' certificate and an opinion of counsel, each to the
effect that such consolidation, merger, transfer, sale, assignment,
conveyance, lease or other transaction and the supplemental indenture in
respect thereto comply with the Indenture and that all conditions precedent
herein provided for relating to such transaction have been complied with.
(Section 801(a))
Each Guarantor shall not, and the Company will not permit a Guarantor to, in
a single transaction or through a series of related transactions merge or
consolidate with or into any other corporation (other than the Company or any
other Guarantor) or other entity, or sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of its properties and assets on
a Consolidated basis to any entity (other than the Company or any other
Guarantor) unless at the time and after giving effect thereto: (i) either (1)
such Guarantor shall be the continuing corporation or partnership or (2) the
entity (if other than such Guarantor) formed by such consolidation or into
which such Guarantor is merged or the entity which acquires by sale,
assignment, conveyance, transfer, lease or disposition the properties and
assets of such Guarantor shall be a corporation duly organized and validly
existing under the laws of the United States, any state thereof or the
District of Columbia and shall expressly assume by a supplemental indenture,
executed and delivered to the Trustee, in a form reasonably satisfactory to
the Trustee, all the obligations of such Guarantor under its Guarantee and the
Indenture; (ii) immediately before and immediately after giving effect to such
transaction, no Default or Event of
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Default shall have occurred and be continuing; and (iii) such Guarantor shall
have delivered to the Trustee an officers' certificate and an opinion of
counsel in form and substance reasonably satisfactory to the Trustee, each
stating that such consolidation, merger, sale, assignment, conveyance,
transfer, lease or disposition and such supplemental indenture comply with the
Indenture, and thereafter all obligations of the predecessor shall terminate.
The provisions of this paragraph shall not apply to any transaction (including
any Asset Sale made in accordance with "--Certain Covenants--Limitation on
Sale of Assets") with respect to any Guarantor if the Guarantee of such
Guarantor is released in connection with such transaction in accordance with
subparagraph (c) of "--Certain Covenants--Limitation on Issuances of
Guarantees of and Pledges for Indebtedness" and Section 1414 of the Indenture.
(Section 801(b))
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraphs
in which the Company or any Guarantor is not the continuing corporation, the
successor Person formed or remaining shall succeed to, and be substituted for,
and may exercise every right and power of, the Company or such Guarantor, as
the case may be, and the Company or such Guarantor, as the case may be, would
be discharged from all obligations and covenants under the Indenture and the
Notes. (Section 802)
EVENTS OF DEFAULT
An Event of Default will occur under the Indenture if:
(i) there shall be a default in the payment of any interest on any Note
when it becomes due and payable, and such default shall continue for a
period of 30 days;
(ii) there shall be a default in the payment of the principal of (or
premium, if any, on) any Note at its Maturity (upon acceleration, optional
or mandatory redemption, required repurchase or otherwise);
(iii) (a) there shall be a default in the performance, or breach, of any
covenant or agreement of the Company or any Guarantor under the Indenture
(other than a default in the performance, or breach, of a covenant or
agreement which is specifically dealt with in clauses (i) or (ii) or in
clauses (b), (c) and (d) of this clause (iii)) and such default or breach
shall continue for a period of 30 days after written notice has been given,
by certified mail, (x) to the Company by the Trustee or (y) to the Company
and the Trustee by the holders of at least 25% in aggregate principal
amount of the outstanding Notes, specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" under the Indenture; (b) there shall be a default in the
performance or breach of the provisions described in "--Consolidation,
Merger, Sale of Assets"; (c) the Company shall have failed to make or
consummate an Offer in accordance with the provisions of "--Certain
Covenants--Limitation on Sale of Assets," or (d) the Company shall have
failed to make or consummate a Change of Control Offer in accordance with
the provisions of "--Certain Covenants--Purchase of Notes Upon a Change of
Control";
(iv) one or more defaults shall have occurred under any agreements,
indentures or instruments under which the Company, any Guarantor or any
Subsidiary then has outstanding Indebtedness in excess of $10,000,000 in
the aggregate and, if not already matured at its final maturity in
accordance with its terms, such Indebtedness shall have been accelerated;
(v) any Guarantee shall for any reason cease to be, or be asserted in
writing by any Guarantor or the Company not to be, in full force and effect
and enforceable in accordance with its terms, except to the extent
contemplated by the Indenture and any such Guarantee;
(vi) one or more judgments, orders or decrees for the payment of money in
excess of $5,000,000, either individually or in the aggregate (net of
amounts covered by insurance, bond,
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surety or similar instrument), shall be entered against the Company, any
Guarantor, any Subsidiary or any of their respective properties and shall
not be discharged and either (a) any creditor shall have commenced an
enforcement proceeding upon such judgment, order or decree or (b) there
shall have been a period of 60 consecutive days during which a stay of
enforcement of such judgment or order, by reason of an appeal or otherwise,
shall not be in effect;
(vii) any holder or holders of at least $10,000,000 in aggregate
principal amount of Indebtedness of the Company, any Guarantor or any
Subsidiary after a default under such Indebtedness shall notify the Trustee
of the intended sale or disposition of any assets of the Company, any
Guarantor or any Subsidiary that have been pledged to or for the benefit of
such holder or holders to secure such Indebtedness or shall commence
proceedings, or take any action (including by way of set-off), to retain in
satisfaction of such Indebtedness or to collect on, seize, dispose of or
apply in satisfaction of Indebtedness, assets of the Company, any Guarantor
or any Subsidiary (including funds on deposit or held pursuant to lock-box
and other similar arrangements);
(viii) there shall have been the entry by a court of competent
jurisdiction of (a) a decree or order for relief in respect of the Company,
any Guarantor or any Subsidiary in an involuntary case or proceeding under
any applicable Bankruptcy Law or (b) a decree or order adjudging the
Company, any Guarantor or any Subsidiary bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company, any Guarantor or any Subsidiary under any applicable federal
or state law, or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the Company, any
Guarantor or any Subsidiary or of any substantial part of their respective
properties, or ordering the winding up or liquidation of their affairs, and
any such decree or order for relief shall continue to be in effect, or any
such other decree or order shall be unstayed and in effect, for a period of
60 consecutive days; or
(ix) (a) the Company, any Guarantor or any Subsidiary commences a
voluntary case or proceeding under any applicable Bankruptcy Law or any
other case or proceeding to be adjudicated bankrupt or insolvent, (b) the
Company, any Guarantor or any Subsidiary consents to the entry of a decree
or order for relief in respect of the Company, any Guarantor or such
Subsidiary in an involuntary case or proceeding under any applicable
Bankruptcy Law or to the commencement of any bankruptcy or insolvency case
or proceeding against it, (c) the Company, any Guarantor or any Subsidiary
files a petition or answer or consent seeking reorganization or relief
under any applicable federal or state law, (d) the Company, any Guarantor
or any Subsidiary (x) consents to the filing of such petition or the
appointment of, or taking possession by, a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of the Company, any
Guarantor or such Subsidiary or of any substantial part of their respective
properties, (y) makes an assignment for the benefit of creditors or (z)
admits in writing its inability to pay its debts generally as they become
due or (e) the Company, any Guarantor or any Subsidiary takes any corporate
action in furtherance of any such actions in this paragraph (ix). (Section
501)
If an Event of Default (other than as specified in clauses (viii) and (ix)
of the prior paragraph) shall occur and be continuing, the Trustee or the
holders of not less than 25% in aggregate principal amount of the Notes then
outstanding may, and the Trustee at the request of such holders shall, declare
all unpaid principal of, premium, if any, and accrued interest on all the
Notes to be due and payable immediately, by a notice in writing to the Company
(and to the Trustee if given by the holders of the Notes); provided that so
long as the Credit Agreement is in effect, such declaration shall not become
effective until the earlier of (a) five business days after receipt of such
notice of acceleration from the holders or the Trustee by the agent under the
Credit Agreement or (b) acceleration of the Indebtedness under the Credit
Agreement. Thereupon such principal shall become immediately due and payable,
and the Trustee may, at its discretion, proceed to protect and enforce the
rights of the holders of Notes
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by appropriate judicial proceeding. If an Event of Default specified in clause
(viii) or (ix) of the prior paragraph occurs and is continuing, then all the
Notes shall ipso facto become and be immediately due and payable, in an amount
equal to the principal amount of the Notes, together with accrued and unpaid
interest, if any, to the date the Notes become due and payable, without any
declaration or other act on the part of the Trustee or any Holder. The Trustee
or, if notice of acceleration is given by the Holders, the Holders shall give
notice to the agent under the Credit Agreement of any such acceleration.
After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the holders of a
majority in aggregate principal amount of Notes outstanding, by written notice
to the Company and the Trustee, may rescind and annul such declaration and its
consequences if (a) the Company has paid or deposited with the Trustee a sum
sufficient to pay (i) all sums paid or advanced by the Trustee under the
Indenture and the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, (ii) all overdue interest on
all Notes, and (iii) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Notes; and (b) all
Events of Default, other than the non-payment of principal of the Notes which
have become due solely by such declaration of acceleration, have been cured or
waived; and (c) the rescission will not conflict with any judgment or decree.
(Section 502)
The holders of not less than a majority in aggregate principal amount of the
Notes outstanding may on behalf of the holders of all the Notes waive any past
defaults under the Indenture and its consequences, except a default in the
payment of the principal of, premium, if any, or interest on any Note, or in
respect of a covenant or provision which under the Indenture cannot be
modified or amended without the consent of the holder of each Note
outstanding. (Section 513)
The Company is also required to notify the Trustee within five business days
of the occurrence of any Default. (Section 501)
The Trust Indenture Act of 1939 contains limitations on the rights of the
Trustee, should it become a creditor of the Company or any Guarantor, to
obtain payment of claims in certain cases or to realize on certain property
received by it in respect of any such claims, as security or otherwise. The
Trustee is permitted to engage in other transactions, provided that if it
acquires any conflicting interest it must eliminate such conflict upon the
occurrence of an Event of Default or else resign.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, elect to have the
obligations of the Company and any Guarantor and any other obligor upon the
Notes, if any, discharged with respect to the outstanding Notes
("defeasance"). Such defeasance means that the Company shall be deemed to have
paid and discharged the entire indebtedness represented by the outstanding
Notes, except for (i) the rights of holders of outstanding Notes to receive
payments in respect of the principal of, premium, if any, and interest on such
Notes when such payments are due, (ii) the Company's obligations with respect
to the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes, and the maintenance of an office
or agency for payment and money for security payments held in trust, (iii) the
rights, powers, trusts, duties and immunities of the Trustee, and (iv) the
defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to have the obligations of the Company and any
Guarantor released with respect to certain covenants that are described in the
Indenture ("covenant defeasance") and any omission to comply with such
obligations shall not constitute a Default or an Event of Default with respect
to the Notes. In the event covenant defeasance occurs, certain events (not
including non-payment, enforceability of any Guarantee, bankruptcy and
insolvency events) described under "--Events of Default" will no longer
constitute an Event of Default with respect to the Notes. (Sections 401, 402
and 403)
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In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes, cash in United States dollars, U.S. Government
Obligations (as defined in the Indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm
of independent public accountants, to pay and discharge the principal of,
premium, if any, and interest on the outstanding Notes on the Stated Maturity
of such principal or installment of principal (or on any date after December
15, 1998 (such date being referred to as the "Defeasance Redemption Date"), if
when exercising either defeasance or covenant defeasance, the Company has
delivered to the Trustee an irrevocable notice to redeem all of the
outstanding Notes on the Defeasance Redemption Date); (ii) in the case of
defeasance, the Company shall have delivered to the Trustee an opinion of
independent counsel in the United States stating that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel in the United States shall confirm that,
the holders of the outstanding Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such defeasance had not
occurred; (iii) in the case of covenant defeasance, the Company shall have
delivered to the Trustee an opinion of independent counsel in the United
States to the effect that the holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such covenant defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit or
insofar as clause (vii) or (viii) under the first paragraph under "--Events of
Default" are concerned, at any time during the period ending on the 91st day
after the date of deposit; (v) such defeasance or covenant defeasance shall
not cause the Trustee for the Notes to have a conflicting interest with
respect to any securities of the Company or any Guarantor; (vi) such
defeasance or covenant defeasance shall not result in a breach or violation
of, or constitute a default under, the Indenture or any other material
agreement or instrument to which the Company or any Guarantor is a party or by
which it is bound; (vii) the Company shall have delivered to the Trustee an
opinion of independent counsel to the effect that (A) the trust funds will not
be subject to any rights of holders of Senior Indebtedness or Senior Guarantor
Indebtedness, including, without limitation, those arising under the Indenture
and (B) after the 91st day following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally; (viii) the Company
shall have delivered to the Trustee an officers' certificate stating that the
deposit was not made by the Company with the intent of preferring the holders
of the Notes or any Guarantee over the other creditors of the Company or any
Guarantor with the intent of defeating, hindering, delaying or defrauding
creditors of the Company, any Guarantor or others; (ix) no event or condition
shall exist that would prevent the Company from making payments of the
principal of, premium, if any, and interest on the Notes on the date of such
deposit or at any time ending on the 91st day after the date of such deposit;
and (x) the Company shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent provided for relating to either the defeasance or the covenant
defeasance, as the case may be, have been complied with. (Section 404)
SATISFACTION AND DISCHARGE
The Indenture shall cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the Notes, as expressly
provided for in the Indenture) as to all outstanding Notes when (a) either (i)
all the Notes theretofore authenticated and delivered (except lost, stolen or
destroyed Notes which have been replaced or paid) cancelled or have been
delivered to the Trustee for cancellation or (ii) all Notes not theretofore
delivered to the Trustee cancelled or for cancellation (x) have become due and
payable, (y) will become due and payable at their Stated Maturity within one
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year, or (z) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the Company, and
the Company or any Guarantor has irrevocably deposited or caused to be
deposited with the Trustee funds in an amount sufficient to pay and discharge
the entire indebtedness on the Notes not theretofore delivered to the Trustee
cancelled or for cancellation, including principal of, premium, if any, and
accrued interest at such Stated Maturity or redemption date; (b) the Company
or any Guarantor has paid or caused to be paid all other sums payable under
the Indenture by the Company or any Guarantor; and (c) the Company has
delivered to the Trustee an officers' certificate and an opinion of counsel
each stating that (i) all conditions precedent under the Indenture relating to
the satisfaction and discharge of the Indenture have been complied with and
(ii) such satisfaction and discharge will not result in a breach or violation
of, or constitute a default under, the Indenture or any other material
agreement or instrument to which the Company or any Guarantor is a party or by
which the Company or any Guarantor is bound. (Section 1301)
MODIFICATIONS AND AMENDMENTS
Modifications and amendments of the Indenture may be made by the Company,
each Guarantor, if any, and the Trustee with the consent of the Holders of not
less than a majority in aggregate outstanding principal amount of the Notes;
provided, however, that no such modification or amendment may, without the
consent of the holder of each outstanding Note affected thereby: (i) change
the Stated Maturity of the principal of, or any installment of interest on,
any Note or reduce the principal amount thereof or the rate of interest
thereon or any premium payable upon the redemption thereof, or change the coin
or currency in which the principal of any Note or any premium or the interest
thereon is payable, or impair the right to institute suit for the enforcement
of any such payment on or after the Stated Maturity thereof; (ii) amend,
change or modify the obligation of the Company to make and consummate an Offer
with respect to any Asset Sale or Asset Sales in accordance with "--Certain
Covenants--Limitation on Sale of Assets" or the obligation of the Company to
make and consummate a Change of Control Offer in the event of a Change of
Control in accordance with "--Certain Covenants--Purchase of Notes Upon a
Change of Control," including amending, changing or modifying any definitions
with respect thereto; (iii) reduce the percentage in principal amount of
outstanding Notes, the consent of whose holders is required for any such
supplemental indenture, or the consent of whose holders is required for any
waiver; (iv) modify any of the provisions relating to supplemental indentures
requiring the consent of holders or relating to the waiver of past defaults or
relating to the waiver of certain covenants, except to increase the percentage
of outstanding Notes required for such actions or to provide that certain
other provisions of the Indenture cannot be modified or waived without the
consent of the holder of each Note affected thereby; (v) except as otherwise
permitted under "--Consolidation, Merger, Sale of Assets," consent to the
assignment or transfer by the Company or any Guarantor of any of its rights
and obligations under the Indenture; or (vi) amend or modify any of the
provisions of the Indenture relating to the subordination of the Notes or any
Guarantee in any manner adverse to the holders of the Notes or any Guarantee.
(Section 902)
The holders of not less than a majority in aggregate principal amount of the
Notes outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture. (Section 1021)
GOVERNING LAW
The Indenture, the Notes and the Guarantees are governed by, and construed
in accordance with the laws of the State of New York, without giving effect to
the conflicts of law principles thereof.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made in same day funds. All payments of
principal and interest will be made by the Company in same day funds. The
Notes will trade in the Same-Day Funds
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Settlement System of The Depository Trust Company (the "Depositary" or "DTC")
until maturity, and secondary market trading activity for the Notes will
therefore settle in same day funds.
BOOK-ENTRY DELIVERY AND FORM
The Exchange Notes are to be issued in the form of one "Global Note". The
Global Note will be deposited on the date of the closing of the sale of the
Exchange Offer with the Trustee as custodian for the Depository Trust Company,
New York, New York ("DTC") and registered in the name of Cede & Co. or such
other nominee as DTC may designate. If any Holders elect to take physical
delivery of their certificates instead of holding their interest through the
Global Note (and thus are unable to trade through DTC), such certificates will
be issued in registered form without interest coupons ("Certificated Notes").
The Global Certificates. The Company expects that pursuant to procedures
established by DTC (i) upon deposit of the Global Note, DTC or its custodian
will credit, on its internal system, the respective principal amount of the
individual beneficial interests represented by such Global Note to the
accounts of persons who have accounts with DTC and (ii) ownership of
beneficial interests in the Global Note will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by DTC or
its nominee (with respect to interest of participants) and the records of
participants (with respect to interests of persons other than participants).
Ownership of beneficial interests in the Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Holders of the Notes may hold their interests
in the Global Note directly through DTC if they are participants in such
system, or indirectly through organizations which are participants in such
system.
So long as DTC, or its nominee, is the registered owner or holder of the
Global Note, DTC or such nominee, as the case may be, will be considered the
sole record owner or holder of the Notes represented by the Global Note for
all purposes under the Indenture and the Notes. No beneficial owner of an
interest in the Global Note will be able to transfer such interest except in
accordance with DTC's applicable procedures, in addition to those provided for
under the Indenture.
Payments of the principal of, premium (if any) and interest (including
liquidated damages) on, the Global Note will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of the Company, the
Trustee or any Paying Agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
the principal of, premium (if any) and interest (including liquidated damages)
on, the Global Note will credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the
principal amount of such Global Note as shown on the records of DTC or its
nominee. The Company also expects that payments by participants to owners of
beneficial interests in the Global Note held through such participants will be
governed by standing instructions and customary practice, as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules. If a holder requires physical delivery of
Certificated Notes for any reason, including to sell Notes to persons in
states which require physical delivery of such Notes or to pledge such Notes,
such holder must transfer its interest in the Global Note in accordance with
the normal procedures of DTC and the procedures set forth in the Indenture.
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DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provision of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such
as banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a participant, either directly or indirectly
("indirect participants").
Neither the Company nor the Trustee will have any responsibility for the
performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
Subject to certain conditions, any person having a beneficial interest in
the Global Note may, upon request to the Trustee, exchange such beneficial
interest for Notes in the form of Certificated Notes. Upon any such issuance,
the Trustee is required to register such Certificated Notes in the name of,
and cause the same to be delivered to, such person or persons (or the nominee
of any thereof). In addition, if DTC is at any time unwilling or unable to
continue as a depositary for the Global Note and a successor depositary is not
appointed by the Company within 90 days, the Company will issue Certificated
Notes in exchange for the Global Note.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person becomes a Subsidiary or (ii) assumed in connection with the
acquisition of assets from such Person, in each case, other than Indebtedness
incurred in connection with, or in contemplation of, such Person becoming a
Subsidiary or such acquisition. Acquired Indebtedness shall be deemed to be
incurred on the date of the related acquisition of assets from any Person or
the date the acquired Person becomes a Subsidiary.
"Affiliate" means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (ii) any other Person
that owns, directly or indirectly, 5% or more of such Person's Capital Stock
or any officer or director of any such Person or other Person or, with respect
to any natural Person, any person having a relationship with such Person by
blood, marriage or adoption not more remote than first cousin or (iii) any
other Person 10% or more of the voting Capital Stock of which are beneficially
owned or held directly or indirectly by such specified Person. For the
purposes of this definition, "control" when used with respect to any specified
Person means the power to direct the management and policies of such Person
directly or indirectly, whether through ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
Sale and Leaseback Transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of (i) any Capital
Stock of any Subsidiary; (ii) all or substantially all of the properties and
assets of any division or line of business of the Company or its Subsidiaries;
or (iii) any other properties or assets of the Company or any Subsidiary,
other than in the ordinary course of business. For the purposes of this
definition, the term "Asset Sale" shall not include (x) any transfer of
properties and assets (A) that is governed by the first paragraph under "--
Consolidation, Merger, Sale of Assets" or (B) that is of the
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Company to any Wholly Owned Subsidiary, or of any Subsidiary to the Company or
any Wholly Owned Subsidiary in accordance with the terms of the Indenture or
(y) transfers of properties and assets in any given fiscal year with an
aggregate Fair Market Value of less than $1,000,000.
"Average Life to Stated Maturity" means, as of the date of determination
with respect to any Indebtedness, the quotient obtained by dividing (i) the
sum of the products of (a) the number of years from the date of determination
to the date or dates of each successive scheduled principal payment of such
Indebtedness multiplied by (b) the amount of each such principal payment by
(ii) the sum of all such principal payments.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978, as
amended, or any similar United States Federal or State law relating to
bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization
or relief of debtors or any amendment to, succession to or change in any such
law.
"Barton Letter of Credit" means the "Barton Letter of Credit" issued to
American National Bank and Trust Company of Chicago, as escrowee, under the
Credit Agreement.
"Capital Lease Obligation" means any obligations of the Company and its
Subsidiaries on a Consolidated basis under any capital lease of real or
personal property which, in accordance with GAAP, has been recorded as a
capitalized lease obligation.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of the Indenture such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Company" means Canandaigua Wine Company, Inc., a corporation incorporated
under the laws of Delaware, until a successor Person shall have become such
pursuant to the applicable provisions of the Indenture, and thereafter
"Company" shall mean such successor Person.
"Consolidated Fixed Charge Coverage Ratio" of the Company means, for any
period, the ratio of (a) the sum of Consolidated Net Income (Loss),
Consolidated Interest Expense, Consolidated Income Tax Expense and
Consolidated Non-cash Charges deducted in computing Consolidated Net Income
(Loss) in each case, for such period, of the Company and its Subsidiaries on a
Consolidated basis, all determined in accordance with GAAP to (b) the sum of
Consolidated Interest Expense for such period and cash and non-cash dividends
paid on any Preferred Stock of the Company during such period; provided that
(i) in making such computation, the Consolidated Interest Expense attributable
to interest on any Indebtedness computed on a pro forma basis and (A) bearing
a floating interest rate, shall be computed as if the rate in effect on the
date of computation had been the applicable rate for the entire period and (B)
which was not outstanding during the period for which the computation is being
made but which bears, at the option of the Company, a fixed or floating rate
of interest, shall be computed by applying at the option of the Company,
either the fixed or floating rate and (ii) in making such computation, the
Consolidated Interest Expense of the Company attributable to interest on any
Indebtedness under a revolving credit facility computed on a pro forma basis
shall be computed based upon the average daily balance of such Indebtedness
during the applicable period.
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"Consolidated Income Tax Expense" means for any period, as applied to the
Company, the provision for federal, state, local and foreign income taxes of
the Company and its Consolidated Subsidiaries for such period as determined in
accordance with GAAP on a Consolidated basis.
"Consolidated Interest Expense" of the Company means, without duplication,
for any period, the sum of (a) the interest expense of the Company and its
Consolidated Subsidiaries for such period, on a Consolidated basis, including,
without limitation, (i) amortization of debt discount, (ii) the net cost under
interest rate contracts (including amortization of discounts), (iii) the
interest portion of any deferred payment obligation and (iv) accrued interest,
plus (b) (i) the interest component of the Capital Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by the Company during such
period and (ii) all capitalized interest of the Company and its Consolidated
Subsidiaries, in each case as determined in accordance with GAAP on a
Consolidated basis.
"Consolidated Net Income (Loss)" of the Company means, for any period, the
Consolidated net income (or loss) of the Company and its Consolidated
Subsidiaries for such period as determined in accordance with GAAP on a
Consolidated basis, adjusted, to the extent included in calculating such net
income (loss), by excluding, without duplication, (i) all extraordinary gains
or losses (less all fees and expenses relating thereto), (ii) the portion of
net income (or loss) of the Company and its Consolidated Subsidiaries
allocable to minority interests in unconsolidated Persons to the extent that
cash dividends or distributions have not actually been received by the Company
or one of its Consolidated Subsidiaries, (iii) net income (or loss) of any
Person combined with the Company or any of its Subsidiaries on a "pooling of
interests" basis attributable to any period prior to the date of combination,
(iv) any gain or loss, net of taxes, realized upon the termination of any
employee pension benefit plan, (v) net gains (but not losses) (less all fees
and expenses relating thereto) in respect of dispositions of assets other than
in the ordinary course of business, or (vi) the net income of any Subsidiary
to the extent that the declaration of dividends or similar distributions by
that Subsidiary of that income is not at the time permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulations
applicable to that Subsidiary or its stockholders.
"Consolidated Net Worth" of any Person means the Consolidated stockholders'
equity (excluding Redeemable Capital Stock) of such Person and its
subsidiaries, as determined in accordance with GAAP on a Consolidated basis.
"Consolidated Non-cash Charges" of the Company means, for any period, the
aggregate depreciation, amortization and other non-cash charges of the Company
and its Consolidated subsidiaries for such period, as determined in accordance
with GAAP (excluding any non-cash charge which requires an accrual or reserve
for cash charges for any future period).
"Consolidation" means, with respect to any Person, the consolidation of the
accounts of such Person and each of its subsidiaries if and to the extent the
accounts of such Person and each of its subsidiaries would normally be
consolidated with those of such Person, all in accordance with GAAP. The term
"Consolidated" shall have a similar meaning.
"Credit Agreement" means the Credit Agreement, dated as of June 29, 1993,
between the Company, the Subsidiaries of the Company identified on the
signature pages thereof under the caption "Subsidiary Guarantors," the lenders
named therein and The Chase Manhattan Bank, as agent, including any ancillary
documents executed in connection therewith, as such agreement has and may be
amended, renewed, extended, substituted, refinanced, restructured, replaced,
supplemented or otherwise modified from time to time (including, without
limitation, any successive renewals, extensions, substitutions, refinancings,
restructurings, replacements, supplementations or other modifications of the
foregoing). For all purposes under the Indenture, "Credit Agreement" shall
include any amendments, renewals, extensions, substitutions, refinancings,
restructurings, replacements,
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supplements or any other modifications that increase the principal amount of
the Indebtedness or the commitments to lend thereunder and have been made in
compliance with the provisions of "--Certain Covenants--Limitation on
Indebtedness"; provided that, for purposes of the definition of "Permitted
Indebtedness," no such increase may result in the principal amount of
Indebtedness of the Company under the Credit Agreement exceeding the amount
permitted by subparagraph (b)(i) of "--Certain Covenants--Limitation on
Indebtedness."
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy.
"GAAP" or "Generally Accepted Accounting Principles" means generally
accepted accounting principles in the United States, consistently applied,
which are in effect on the date of the Indenture.
"Guarantee" means the guarantee by any Guarantor of the Company's Indenture
Obligations pursuant to a guarantee given in accordance with the Indenture,
including the Guarantees by the Guarantors and any Guarantee delivered
pursuant to provisions of "--Certain Covenants--Limitation on Issuances of
Guarantees of and Pledges for Indebtedness."
"Guaranteed Debt" of any Person means, without duplication, all Indebtedness
of any other Person referred to in the definition of Indebtedness contained in
this Section guaranteed directly or indirectly in any manner by such Person,
or in effect guaranteed directly or indirectly by such Person through an
agreement (i) to pay or purchase such Indebtedness or to advance or supply
funds for the payment or purchase of such Indebtedness, (ii) to purchase, sell
or lease (as lessee or lessor) property, or to purchase or sell services,
primarily for the purpose of enabling the debtor to make payment of such
Indebtedness or to assure the holder of such Indebtedness against loss, (iii)
to supply funds to, or in any other manner invest in, the debtor (including
any agreement to pay for property or services without requiring that such
property be received or such services be rendered), (iv) to maintain working
capital or equity capital of the debtor, or otherwise to maintain the net
worth, solvency or other financial condition of the debtor or (v) otherwise to
assure a creditor against loss; provided that the term "guarantee" shall not
include endorsements for collection or deposit, in either case in the ordinary
course of business.
"Guarantor" means the Subsidiaries listed on the signature pages of the
Indenture as guarantors or any other guarantor of the Indenture Obligations.
"Indebtedness" means, with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services, excluding any trade payables and other
accrued current liabilities arising in the ordinary course of business, but
including, without limitation, all obligations, contingent or otherwise, of
such Person in connection with any letters of credit issued under letter of
credit facilities, acceptance facilities or other similar facilities and in
connection with any agreement to purchase, redeem, exchange, convert or
otherwise acquire for value any Capital Stock of such Person, or any warrants,
rights or options to acquire such Capital Stock, now or hereafter outstanding,
(ii) all obligations of such Person evidenced by bonds, notes, debentures or
other similar instruments, (iii) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even if the rights and remedies of the seller or
lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade payables arising
in the ordinary course of
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business, (iv) all obligations under Interest Rate Agreements of such Person,
(v) all Capital Lease Obligations of such Person, (vi) all Indebtedness
referred to in clauses (i) through (v) above of other Persons and all
dividends of other Persons, the payment of which is secured by (or for which
the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien, upon or with respect to property
(including, without limitation, accounts and contract rights) owned by such
Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness, (vii) all Guaranteed Debt of such Person, (viii)
all Redeemable Capital Stock valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued and unpaid dividends,
and (ix) any amendment, supplement, modification, deferral, renewal,
extension, refunding or refinancing of any liability of the types referred to
in clauses (i) through (viii) above. For purposes hereof, the "maximum fixed
repurchase price" of any Redeemable Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on
any date on which Indebtedness shall be required to be determined pursuant to
the Indenture, and if such price is based upon, or measured by, the Fair
Market Value of such Redeemable Capital Stock, such Fair Market Value to be
determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock.
"Indenture Obligations" means the obligations of the Company and any other
obligor under the Indenture or under the Notes, including any Guarantor, to
pay principal of, premium, if any, and interest when due and payable, and all
other amounts due or to become due under or in connection with the Indenture,
the Notes and the performance of all other obligations to the Trustee and the
Holders under the Indenture and the Notes, according to the terms thereof.
"Interest Rate Agreements" means one or more of the following agreements
which shall be entered into by one or more financial institutions: interest
rate protection agreements (including, without limitation, interest rate
swaps, caps, floors, collars and similar agreements) and/or other types of
interest rate hedging agreements from time to time.
"Investments" means, with respect to any Person, directly or indirectly, any
advance, loan (including guarantees), or other extension of credit or capital
contribution to (by means of any transfer of cash or other property to others
or any payment for property or services for the account or use of others), or
any purchase, acquisition or ownership by such Person of any Capital Stock,
bonds, notes, debentures or other securities issued or owned by, any other
Person and all other items that would be classified as investments on a
balance sheet prepared in accordance with GAAP.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable,
now owned or hereafter acquired.
"Maturity" when used with respect to any Note means the date on which the
principal of such Note becomes due and payable as therein provided or as
provided in the Indenture, whether at Stated Maturity, the Offer Date or the
redemption date and whether by declaration of acceleration, Offer in respect
of Excess Proceeds, Change of Control, call for redemption or otherwise.
"Net Cash Proceeds" means (a) with respect to any Asset Sale by any Person,
the proceeds thereof in the form of cash or Temporary Cash Investments
including payments in respect of deferred payment obligations when received in
the form of, or stock or other assets when disposed for, cash or Temporary
Cash Investments (except to the extent that such obligations are financed or
sold with recourse to the Company or any Subsidiary) net of (i) brokerage
commissions and other actual fees and expenses (including fees and expenses of
counsel and investment bankers) related to such Asset Sale, (ii) provisions
for all taxes payable as a result of such Asset Sale, (iii) payments made to
retire Indebtedness where payment of such Indebtedness is secured by the
assets or properties the subject of such Asset Sale, (iv) amounts required to
be paid to any Person (other than the Company or any
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Subsidiary) owning a beneficial interest in the assets subject to the Asset
Sale and (v) appropriate amounts to be provided by the Company or any
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as reflected in an officers'
certificate delivered to the Trustee and (b) with respect to any issuance or
sale of Capital Stock or options, warrants or rights to purchase Capital
Stock, or debt securities or Capital Stock that have been converted into or
exchanged for Capital Stock, as referred to under "--Certain Covenants--
Limitation on Restricted Payments," the proceeds of such issuance or sale in
the form of cash or Temporary Cash Investments, including payments in respect
of deferred payment obligations when received in the form of, or stock or
other assets when disposed for, cash or Temporary Cash Investments (except to
the extent that such obligations are financed or sold with recourse to the
Company or any Subsidiary), net of attorneys' fees, accountants' fees and
brokerage, consultation, underwriting and other fees and expenses actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Original Notes" means the Company's outstanding 8 3/4% Senior Subordinated
Notes due 2003.
"Pari Passu Indebtedness" means any Indebtedness of the Company or a
Guarantor that is pari passu in right of payment to the Notes or a Guarantee,
as the case may be.
"Permitted Investment" means (i) Investments in any Wholly Owned Subsidiary
or any Person which, as a result of such Investment, becomes a Wholly Owned
Subsidiary; (ii) Indebtedness of the Company or a Subsidiary described under
clauses (iv) and (v) of the definition of "Permitted Indebtedness"; (iii)
Temporary Cash Investments; (iv) Investments acquired by the Company or any
Subsidiary in connection with an Asset Sale permitted under "--Certain
Covenants--Limitation on Sale of Assets" to the extent such Investments are
non-cash proceeds as permitted under such covenant; (v) guarantees of
Indebtedness otherwise permitted by the Indenture; and (vi) Investments in
existence on the date of the Original Indenture.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivisions thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred stock whether now outstanding, or issued after the date of
the Original Indenture, and including, without limitation, all classes and
series of preferred or preference stock.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any Capital Stock that, either by its terms
or by the terms of any security into which it is convertible or exchangeable
or otherwise, is or upon the happening of an event or passage of time would
be, required to be redeemed prior to any Stated Maturity of the principal of
the Notes or is redeemable at the option of the holder thereof at any time
prior to any such Stated Maturity, or is convertible into or exchangeable for
debt securities at any time prior to any such Stated Maturity at the option of
the holder thereof.
"Sale and Leaseback Transaction" means any transaction or series of related
transactions pursuant to which the Company or a Subsidiary sells or transfers
any property or asset in connection
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with the leasing, or the resale against installment payments, of such property
or asset to the seller or transferor.
"Securities Act" means the Securities Act of 1933, as amended.
"Stated Maturity" when used with respect to any Indebtedness or any
installment of interest thereon, means the dates specified in such
Indebtedness as the fixed date on which the principal of such Indebtedness or
such installment of interest is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company or a Guarantor
subordinated in right of payment to the Notes or a Guarantee, as the case may
be.
"Subsidiary" means any Person a majority of the equity ownership or the
Voting Stock of which is at the time owned, directly or indirectly, by the
Company or by one or more other Subsidiaries, or by the Company and one or
more other Subsidiaries.
"Temporary Cash Investments" means (i) any evidence of Indebtedness of a
Person, other than the Company or its Subsidiaries, maturing not more than one
year after the date of acquisition, issued by the United States of America, or
an instrumentality or agency thereof and guaranteed fully as to principal,
premium, if any, and interest by the United States of America, (ii) any
certificate of deposit, maturing not more than one year after the date of
acquisition, issued by, or time deposit of, a commercial banking institution
that is a member of the Federal Reserve System and that has combined capital
and surplus and undivided profits of not less than $500,000,000, whose debt
has a rating, at the time as of which any investment therein is made, of "P-1"
(or higher) according to Moody's Investors Service, Inc. ("Moody's") or any
successor rating agency or "A-1" (or higher) according to Standard and Poor's
Corporation ("S&P") or any successor rating agency, (iii) commercial paper,
maturing not more than one year after the date of acquisition, issued by a
corporation (other than an Affiliate or Subsidiary of the Company) organized
and existing under the laws of the United States of America with a rating, at
the time as of which any investment therein is made, of "P-1" (or higher)
according to Moody's or "A-1" (or higher) according to S&P and (iv) any money
market deposit accounts issued or offered by a domestic commercial bank having
capital and surplus in excess of $500,000,000.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Voting Stock" means stock of the class or classes pursuant to which the
holders thereof have the general voting power under ordinary circumstances to
elect at least a majority of the board of directors, managers or trustees of a
corporation (irrespective of whether or not at the time stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency).
"Wholly Owned Subsidiary" means (i) a Subsidiary all the Capital Stock of
which is owned by the Company or another Wholly Owned Subsidiary and (ii)
Monarch Wine Company, Limited Partnership, so long as the Company owns
directly or indirectly at least 99% of the outstanding interests in such
partnership and is the general partner thereof.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
Set forth below is a summary of the material United States Federal tax
considerations applicable to the exchange of Old Notes for Exchange Notes
pursuant to the Exchange Offer. McDermott, Will & Emery, counsel for the
Company, has reviewed the following discussion and is of the opinion that it
fairly summarizes the material U.S. Federal income tax considerations to
holders of Notes. The following summary is not exhaustive of all possible tax
considerations. Moreover, this summary does not consider all tax aspects that
might be relevant to a particular holder of Notes in light of his or her
personal circumstances nor does it deal with particular types of holders of
Notes that are subject to special treatment under the Code (as hereinafter
defined), such as insurance companies, financial institutions and dealers. The
following discussions and opinions of McDermott, Will & Emery are based upon
the Internal Revenue Code of 1986, as amended (the "Code"), its legislative
history, existing and proposed regulations thereunder (including regulations
concerning the treatment of debt instruments issued with OID (the "OID
Regulations"), published rulings and court decisions all as in effect and
existing on the date hereof and all of which are subject to change at any
time, which change may be applied retroactively in a manner that could
adversely affect holders of the Notes.
The Company has not sought and will not seek any rulings from the IRS with
respect to the tax consequences of the Exchange Offer. There can be no
assurance that the IRS will not take a different position concerning the tax
consequences of the Exchange Offer or of the purchase, ownership or
disposition of the Exchange Notes or that any such different position would
not be sustained.
This summary applies only to those persons who are the initial holders of
the Old Notes and who held the Old Notes, and who will hold the Exchange
Notes, as capital assets. The summary does not address the tax consequences to
taxpayers who purchase the Notes from such initial holders or taxpayers who
are subject to special rules (such as dealers in securities or currencies,
financial institutions, tax-exempt organizations and insurance companies), or
aspects of Federal income taxation that may be relevant to a prospective
investor based upon such investor's particular tax situation.
Although the matter is not entirely free from doubt, the exchange of an Old
Note for an Exchange Note pursuant to the Exchange Offer should not be treated
as an exchange or otherwise as a taxable event for Federal income tax
purposes. Accordingly, the Exchange Notes should have the same issue price as
the Old Notes and each holder should have the same adjusted basis and holding
period in the Exchange Notes as it had in the Old Notes immediately before the
Exchange Offer.
Notwithstanding the foregoing, the IRS might attempt to treat the Exchange
Offer as an "exchange" for Federal income tax purposes. In such event, the
Exchange Offer could be treated as a taxable transaction in which case a
holder could be required to recognize gain or loss equal to the difference
between such holder's tax basis in the Old Notes and the issue price of the
Exchange Notes, and the amount of OID on such Exchange Notes, if any, could be
different from the amount of OID on the Old Notes. In addition, if the issue
price of the Exchange Notes is deemed to be less than the adjusted issue price
of the Old Notes, the Company could recognize cancellation of indebtedness
income in an amount equal to such difference.
HOLDERS OF OLD NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO
THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE EXCHANGE OF OLD NOTES FOR
EXCHANGE NOTES PURSUANT TO THE EXCHANGE OFFER, INCLUDING THE APPLICABILITY OF
ANY STATE, LOCAL OR FOREIGN TAX LAWS TO WHICH THEY MAY BE SUBJECT AS WELL AS
WITH RESPECT TO THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL AND OTHER TAX LAWS.
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CONSEQUENCES FOR U.S. HOLDERS
As used herein, a "U.S. Holder" means a holder of a Note that is a citizen
or individual resident of the United States, a corporation or partnership
created or organized in or under the laws of the United States, or of any
political subdivision thereof, an estate the income of which is includible in
its gross income for U.S. Federal income tax purposes without regard to its
source or a "U.S. Trust". A U.S. Trust is any trust if, and only if, (i) a
court within the United States is able to exercise primary supervision over
the administration of the trust and (ii) one or more U.S. trustees have the
authority to control all substantial decisions of the trust. A non-U.S.
citizen is considered a resident alien, and hence a U.S. Holder, if that
person is present in the United States at least 183 days in the calendar year
and for an aggregate of at least 183 days during a three-year period, counting
for such purposes all of the days present in the current year, one-third of
the days present in the immediately preceding year, and one-sixth of the days
present in the second preceding year.
ISSUE PRICE
The issue price of the Exchange Notes will equal the issue price of the Old
Notes.
TAXATION OF THE NOTES
Payments of Interest
Interest paid on a Note, to the extent considered "qualified stated
interest" (as defined below), will generally be taxable to a U.S. Holder as
ordinary income at the time it accrues or is received in accordance with the
holder's method of accounting for Federal income tax purposes.
Original Issue Discount
Because the Old Notes were issued with OID, the Exchange Notes will also be
deemed to have been issued with OID. For Federal income tax purposes, a Note
will be issued with OID if its "stated redemption price at maturity" exceeds
its "issue price" by more than a de minimis amount. The stated redemption
price at maturity of a Note will be the sum of all cash payments (including
principal and interest) required to be made thereunder until maturity, other
than "qualified stated interest" payments. Qualified stated interest is stated
interest that is unconditionally payable at least annually at a single fixed
rate that appropriately takes into account the length of the interval between
payments. Since the interest payable on the Notes constitutes qualified stated
interest, a Note will bear OID only to the extent of the excess of the Note's
face amount over its issue price.
A U.S. Holder of a Note will be required to include OID in income
periodically over the term of a Note without regard to when the cash or other
payments attributable to such income are received. In general, a U.S. Holder
must include in gross income for Federal income tax purposes the sum of the
daily portions of OID with respect to the Note for each day during the taxable
year on which such holder holds the Note ("Accrued OID"). The daily portion is
determined by allocating to each day of any accrual period within a taxable
year a pro rata portion of the OID allocable to such accrual period. The
amount of such OID is equal to the adjusted issue price of the Note at the
beginning of the accrual period multiplied by the yield to maturity of the
Note. For purposes of computing OID, the Company will use six-month accrual
periods that end on the days in the calendar year corresponding to the
maturity date of the Notes and the date six months prior to such maturity
date, with the exception of an initial short accrual period. The adjusted
issue price of a Note at the beginning of any accrual period is the issue
price of the Note increased by the Accrued OID for all prior accrual periods
and decreased by any cash payments on the Notes (other than qualified stated
interest). Under these rules, U.S. Holders will have to include in gross
income increasingly greater amounts of OID in each successive accrual period.
Each payment made under a Note (except for payments of qualified stated
interest and certain early redemption payments discussed below) will be
treated first as a payment of OID (which was previously includable in income)
to the extent of OID that has accrued as of the date of payment
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and has not been allocated to prior payments and second as a payment of
principal (which is not includable in income).
Optional Redemption
Under the OID Regulations, for purposes of determining the amount of OID,
the Company will be presumed to exercise its option to redeem the Notes at any
time on or after December 15, 1998, if, by utilizing the date of exercise of
the call option as the maturity date and the Redemption Price (as defined in
the Indenture) as the stated redemption price at maturity, the yield on the
Notes would be lower than such yield would be if the option were not
exercised. See "Description of Notes--Optional Redemption."
If the Company's option to redeem the Notes were presumed exercised on a
given date (the "Presumed Exercise Date"), the Notes would bear OID in an
amount equal to the sum of all payments for which the Notes could be redeemed
(the "Redemption Amount") over their issue price. For purposes of calculating
the current inclusion of such OID, the yield on the Notes would be computed on
their issue date by treating the Presumed Exercise Date as the maturity date
of the Notes and the Redemption Amount as their stated redemption price at
maturity. If the Company's option to redeem the Notes were presumed exercised
but were not exercised in fact on the Presumed Exercise Date, the Notes would
be treated, for certain purposes, as if the option were exercised and new debt
instruments were issued on the Presumed Exercise Date for an amount of cash
equal to the adjusted issue price of the Notes on that date.
The Notes will be subject to redemption at the option of the holders should
the Company experience a Change of Control. See "Description of Notes--Certain
Covenants--Purchase of Notes Upon a Change of Control." Such additional
redemption rights should not affect, and will not be treated by the Company as
affecting, the determination of the yield or maturity of the Notes for
purposes of the calculation of OID. The tax treatment of these redemptions and
the optional redemptions described above should be governed by the rules for
dispositions generally. See "--Disposition of Notes."
Disposition of Notes
Generally, any sale or redemption of a Note will result in taxable gain or
loss equal to the difference between the amount of cash and the fair market
value of other property received (except to the extent the consideration
received is attributable to qualified stated interest not previously taken
into account, which consideration is treated as interest received) and the
holder's adjusted tax basis in the Note. If a holder purchases a Note for its
issue price, the holder's adjusted tax basis for determining gain or loss on
the sale or other disposition of a Note will initially equal the issue price
of the Note and will be increased by any Accrued OID includable in such
holder's gross income and decreased by the amount of any cash payments
received by such holder with respect to the Notes regardless of whether such
payments are denominated as principal or interest (other than payments of
qualified stated interest). Any gain or loss upon a sale or other disposition
of a Note will generally be capital gain or loss, which will be long term if
the Note has been held by the holder for more than one year.
Backup Withholding
A holder may be subject, under certain circumstances, to backup withholding
at a 31% rate with respect to payments received with respect to the Notes.
This withholding generally applies only if the holder (i) fails to furnish his
or her social security or other taxpayer identification number ("TIN"), (ii)
furnishes an incorrect TIN, (iii) is notified by the Internal Revenue Service
(the "Service") that he or she has failed to property report payments of
interest and dividends and the Service has notified the Company that he or she
is subject to backup withholding, or (iv) fails, under certain circumstances,
to provide a certified statement, signed under penalty of perjury, that the
TIN provided is his or her correct number and that he or she is not subject to
backup withholding. Any amount withheld from a payment
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to a holder under the backup withholding rules is allowable as a credit
against such holder's Federal income tax liability, provided that the required
information is furnished to the Service. Certain holders (including, among
others, corporations and foreign individuals who comply with certain
certification requirements described below under "Foreign Holders") are not
subject to backup withholding. Holders should consult their tax advisors as to
their qualification for exemption from backup withholding and the procedure
for obtaining such an exemption.
FOREIGN HOLDERS
The following discussion is a summary of certain United States Federal tax
consequences to Non-U.S. Holders. As used herein, a "Non-U.S. Holder" is any
holder of a Note who is not a U.S. Holder.
A Non-U.S. Holder that is engaged in a trade or business within the United
States will be subject to tax on any income or gain that is effectively
connected with such trade or business ("U.S. trade or business income") in
essentially the same manner as a U.S. Holder, as discussed above. A Non-U.S.
Holder that is a foreign corporation engaged in a U.S. trade or business also
may be subject to the branch profits tax with respect to income or gain on the
Note.
Payments of principal and interest (including OID) on the Notes by the
Company that are not U.S. trade or business income to a Non-U.S. Holder will
not be subject to United States Federal income tax provided that, in the case
of interest (including OID), (1) the Non-U.S. Holder does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote, (2) the Non-U.S. Holder is
not a controlled foreign corporation that is related to the Company through
stock ownership, (3) the Non-U.S. Holder is not a bank receiving interest on a
loan entered into in the ordinary course of business, and (4) either the
beneficial owner of the Note certifies to the Company or its agent under
penalties of perjury that it is a Non-U.S. Holder and provides its name and
address, or a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its
trade or business (a "financial institution") and that holds a Note on behalf
of such owner, certifies to the Company or its agent, under penalties of
perjury, that such statement has been received by it from the beneficial owner
or by another financial institution between it and the beneficial owner, and
furnishes the Company or its agent with a copy of such statement. A Non-U.S.
Holder that does not qualify for such exemption will be subject to United
States Federal income tax, payable by withholding, at a flat rate of 30% (or a
lower applicable treaty rate) on interest payments and payments (including
redemption proceeds) attributable to OID on the Notes provided that such
payments are not U.S. trade or business income. If such payments are U.S.
trade or business income, such Foreign Person will be required to provide to
the Company a properly executed Internal Revenue Service Form 4224 in order to
claim an exemption from withholding tax.
In general, gain (to the extent it is not U.S. trade or business income)
recognized by a Non-U.S. Holder upon the redemption, sale or exchange of a
Note will not be subject to United States Federal income tax unless such Non-
U.S. Holder is an individual present in the United States for 183 days or more
during the taxable year in which the Note is redeemed, sold or exchanged, and
certain other requirements are met.
A Note held by an individual who at the time of his or her death is not a
citizen or resident of the United States will not be includable in such
individual's gross estate subject to United States Federal estate tax as a
result of such individual's death if the individual did not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote and the interest (including
OID) on the Note would not have been U.S. trade or business income if it had
been received by such individual at the time of his or her death.
Information reporting and backup withholding will generally not apply to
payments made on a Note to a Non-U.S. Holder provided that the certification
described in clause (4) of the third paragraph in this section is received,
and provided further that the payor does not have actual knowledge that the
information is false.
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PLAN OF DISTRIBUTION
Based on interpretations by the staff of the SEC set forth in no-action
letters issued to third parties, the Company believes that the Exchange Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by any holder thereof (other than
any such holder that is an "affiliate" of the Company within the meaning of
Rule 405 promulgated under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
holder's business, such holder has no arrangement or understanding with any
person to participate in the distribution of such Exchange Notes and neither
such holder nor any such other person is engaging in or intends to engage in a
distribution of such Exchange Notes. Accordingly, any holder who is an
affiliate of the Company or any holder using the Exchange Offer to participate
in a distribution of the Exchange Notes will not be able to rely on such
interpretations by the staff of the SEC and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
a resale transaction. Notwithstanding the foregoing, each broker-dealer that
receives Exchange Notes for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with any resale of Exchange Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company and the Guarantors have agreed that, for a
period of 180 days after the Expiration Date, they will make this Prospectus,
as amended or supplemented, available to any broker-dealer for use in
connection with any such resale.
The Company and the Guarantors will not receive any proceeds from any sale
of Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers
for their own account pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were
received by it for its own account pursuant to the Exchange Offer and any
broker-dealer that participates in a distribution of such Exchange Notes may
be deemed to be an "underwriter" within the meaning of the Securities Act and
any profit on any such resale of Exchange Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that,
by acknowledging that it will deliver and by delivering, a prospectus as
required, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company and the
Guarantors will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Company and the Guarantors
have agreed to pay all expenses incident to the Exchange Offer (including the
expenses of one counsel for the holders of the Old Notes) other than
commissions or concessions of any brokers or dealers and will indemnify the
holders of the Old Notes (including any broker-dealers) participating in the
Exchange Offer against certain liabilities, including liabilities under the
Securities Act.
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LEGAL MATTERS
Certain matters with respect to the validity of the Exchange Notes will be
passed upon for the Company by McDermott, Will & Emery, Chicago, Illinois.
EXPERTS
The consolidated financial statements of the Company included or
incorporated in this Prospectus and elsewhere in this Registration Statement
to the extent and for the periods indicated in their reports have been audited
by Arthur Andersen LLP, independent public accountants, and are included
herein in reliance upon the authority of said firm as experts in giving said
reports.
The financial statements incorporated in this Registration Statement by
reference to the Current Report on Form 8-K/A (Amendment No. 1) which amends
and forms part of Canandaigua Wine Company, Inc.'s Current Report on Form 8-K
dated August 29, 1995, have been so incorporated in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company has filed with the SEC a Registration Statement on Form S-4
(together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the Securities Act, for the registration
of the securities offered hereby. This Prospectus, which constitutes a part of
the Registration Statement, does not contain all of the information set forth
in the Registration Statement, certain items of which are contained in
exhibits and schedules to the Registration Statement as permitted by the rules
and regulations of the SEC. For further information with respect to the
Company and the securities offered hereby, reference is made to the
Registration Statement, including the exhibits thereto, and financial
statements and notes filed as a part thereof. Statements made in this
Prospectus concerning the contents of any document referred to herein are not
necessarily complete. With respect to each document filed with the SEC 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.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the SEC. Such reports, proxy statements and other information
may be inspected at the public reference facilities maintained by the SEC at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at its regional
offices located at the Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material can be obtained from the public
reference section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The Company has made certain filings to the
SEC electronically. The SEC maintains a Web site that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the SEC at the following address: http: //
www.sec.gov.
The Company's Class A Common Stock and Class B Common Stock are quoted on
the Nasdaq Stock Market (National Market), and reports, proxy and information
statements and other information concerning the Company can be inspected at
the public reference facilities maintained by the Nasdaq Stock Market at 1735
K Street, N.W. Washington, D.C. 20006.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person,
a copy of the Indenture and the Company's Restated Certificate of
Incorporation and Bylaws. Requests should be directed to: Canandaigua Wine
Company, Inc., Attention: Robert S. Sands, Secretary, 116 Buffalo Street,
Canandaigua, New York 14424; telephone number (716) 394-7900.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the SEC pursuant to the
Exchange Act are incorporated herein by reference:
(1) the Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1995;
(2) the Company's Proxy Statement for its Annual Meeting of Stockholders
held on January 18, 1996;
(3) the Company's Quarterly Report on Form 10-Q for the quarterly period
ended November 30, 1995;
(4) the Company's Transition Report on Form 10-K for the Transition Period
ended February 29, 1996;
(5) the Company's Quarterly Reports on Form 10-Q for the quarterly periods
ended May 31, 1996 and August 31, 1996 and the Company's Quarterly
Reports on Form 10-Q and Form 10-Q/A for the quarterly period ended
November 30, 1996; and
(6) the Company's Current Reports on Form 8-K dated August 29, 1995;
October 31, 1995; April 29, 1996; September 5, 1996; October 11, 1996;
October 29, 1996 and December 19, 1996; and Form 8-K/A dated August 29,
1995.
All reports and other documents filed with the SEC by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date of this Prospectus and prior to the termination of the offering relating
to this Prospectus shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof from the date of filing of such documents.
Any statement incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified, replaced, or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person,
a copy of any or all of the documents incorporated by reference herein (other
than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into the information that this Prospectus
incorporates). Requests should be directed to: Canandaigua Wine Company, Inc.,
Attention: Robert S. Sands, Secretary, 116 Buffalo Street, Canandaigua, New
York 14424; telephone number (716) 394-7900.
99
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets as of November 30, 1996 (unaudited), February
29, 1996,
February 28, 1995 (unaudited), August 31, 1995, and 1994................. F-3
Consolidated Statements of Income for the nine month periods ended
November 30, 1996 (unaudited), and November 30, 1995 (unaudited), for the
six month periods ended
February 29, 1996, and February 28, 1995 (unaudited), and for the years
ended
August 31, 1995, 1994, and 1993.......................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the nine
month period ended November 30, 1996 (unaudited), for the six month
period ended February 29, 1996, and for the years ended August 31, 1995,
1994, and 1993........................................................... F-5
Consolidated Statements of Cash Flows for the nine month periods ended
November 30, 1996 (unaudited), and November 30, 1995 (unaudited), for the
six month periods ended
February 29, 1996, and February 28, 1995 (unaudited), and for the years
ended
August 31, 1995, 1994, and 1993.......................................... F-6
Notes to Consolidated Financial Statements................................ F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Canandaigua Wine Company, Inc.:
We have audited the accompanying consolidated balance sheets of Canandaigua
Wine Company, Inc. (a Delaware corporation) and subsidiaries as of February
29, 1996 and August 31, 1995 and 1994, and the related consolidated statements
of income, changes in stockholders' equity and cash flows for the six months
ended February 29, 1996 and each of the three years in the period ended August
31, 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Canandaigua Wine Company,
Inc. and subsidiaries as of February 29, 1996 and August 31, 1995 and 1994,
and the results of their operations and their cash flows for the six months
ended February 29, 1996 and each of the three years in the period ended August
31, 1995, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Rochester, New York, May 17, 1996
F-2
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOVEMBER 30, FEBRUARY 29, FEBRUARY 28, AUGUST 31, AUGUST 31,
1996 1996 1995 1995 1994
------------ ------------ ------------ ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash invest-
ments................ $ 4,997 $ 3,339 $ 3,090 $ 4,180 $ 1,495
Accounts receivable,
net.................. 198,106 142,471 120,538 115,448 122,124
Inventories, net...... 373,631 341,838 319,836 256,811 301,053
Prepaid expenses and
other current assets. 14,598 30,372 26,298 25,070 29,377
---------- ---------- -------- -------- --------
Total current as-
sets............... 591,332 518,020 469,762 401,509 454,049
PROPERTY, PLANT AND
EQUIPMENT, NET......... 251,218 250,638 195,839 217,505 194,283
OTHER ASSETS............ 276,963 285,922 167,316 166,907 178,230
---------- ---------- -------- -------- --------
Total assets........ $1,119,513 $1,054,580 $832,917 $785,921 $826,562
========== ========== ======== ======== ========
LIABILITIES AND STOCK-
HOLDERS' EQUITY
----------------------
CURRENT LIABILITIES:
Notes payable......... $ 130,000 $ 111,300 $ 7,000 $ -- $ 19,000
Current maturities of
long-term debt....... 40,597 40,797 37,857 29,133 31,001
Accounts payable...... 79,567 59,730 45,438 62,091 75,506
Accrued Federal and
state excise taxes... 22,849 19,699 23,564 15,633 16,657
Other accrued expenses
and liabilities...... 63,906 68,440 77,192 67,896 96,061
---------- ---------- -------- -------- --------
Total current lia-
bilities........... 336,919 299,966 191,051 174,753 238,225
---------- ---------- -------- -------- --------
LONG-TERM DEBT, less
current maturities..... 349,901 327,616 239,791 198,859 289,122
---------- ---------- -------- -------- --------
DEFERRED INCOME TAXES... 64,194 58,194 43,831 49,827 43,774
---------- ---------- -------- -------- --------
OTHER LIABILITIES....... 9,934 12,298 30,077 10,600 51,248
---------- ---------- -------- -------- --------
COMMITMENTS AND CONTIN-
GENCIES
STOCKHOLDERS' EQUITY:
Class A Common Stock,
$.01 par value-
Authorized,
60,000,000 shares:
Issued, 17,460,832
shares at November
30, 1996, 17,423,082
shares at February
29, 1996, 17,343,889
shares at
February 28, 1995,
17,400,082 shares at
August 31, 1995, and
13,832,597 shares at
August 31, 1994...... 174 174 173 174 138
Class B Convertible
Common Stock, $.01
par value-Authorized,
20,000,000 shares;
Issued 3,956,183
shares at
November 30, 1996,
3,991,683 shares at
February 29, 1996,
4,015,626 shares at
February 28, 1995,
3,996,683 shares at
August 31, 1995, and
4,015,776 shares at
August 31, 1994...... 40 40 40 40 40
Additional paid-in
capital.............. 222,026 221,133 216,967 219,894 113,348
Retained earnings..... 164,353 142,600 118,578 139,278 98,258
---------- ---------- -------- -------- --------
386,593 363,947 335,758 359,386 211,784
---------- ---------- -------- -------- --------
Less-Treasury stock-
Class A Common Stock,
1,913,207 shares at
November 30, 1996,
1,165,786 shares at
February 29, 1996,
1,215,296 shares at
February 28, 1995,
1,186,655 shares at
August 31, 1995, and
1,215,296 shares at
August 31, 1994, at
cost................. (25,821) (5,234) (5,384) (5,297) (5,384)
Class B Convertible
Common Stock, 625,725
shares at November
30, 1996, February
29, 1996, February
28, 1995, August 31,
1995, and 1994, at
cost................. (2,207) (2,207) (2,207) (2,207) (2,207)
---------- ---------- -------- -------- --------
(28,028) (7,441) (7,591) (7,504) (7,591)
---------- ---------- -------- -------- --------
Total stockholders'
equity............. 358,565 356,506 328,167 351,882 204,193
---------- ---------- -------- -------- --------
Total liabilities
and stockholders'
equity............. $1,119,513 $1,054,580 $832,917 $785,921 $826,562
========== ========== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-3
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
NOVEMBER 30, FEBRUARY 29, FEBRUARY 28, AUGUST 31,
-------------------------- ------------ ------------ -------------------------------------
1996 1995 1996 1995 1995 1994 1993
------------ ------------ ------------ ------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
GROSS SALES............. $ 1,180,849 $ 983,955 $ 738,415 $ 592,305 $ 1,185,074 $ 861,059 $ 389,417
Less--Excise taxes..... (307,405) (246,311) (203,391) (137,820) (278,530) (231,475) (83,109)
------------ ------------ ----------- ----------- ----------- ----------- -----------
Net sales............ 873,444 737,644 535,024 454,485 906,544 629,584 306,308
COST OF PRODUCT SOLD.... (649,019) (534,449) (396,208) (327,694) (653,811) (447,211) (214,931)
------------ ------------ ----------- ----------- ----------- ----------- -----------
Gross profit........... 224,425 203,195 138,816 126,791 252,733 182,373 91,377
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... (161,139) (129,375) (112,411) (79,925) (159,196) (121,388) (59,983)
NONRECURRING -- (3,301) (2,404) (685) (2,238) (24,005) --
RESTRUCTURING EXPENSES. ------------ ------------ ----------- ----------- ----------- ----------- -----------
Operating income...... 63,286 70,519 24,001 46,181 91,299 36,980 31,394
INTEREST EXPENSE, net... (25,468) (19,507) (17,298) (13,141) (24,601) (18,056) (6,126)
------------ ------------ ----------- ----------- ----------- ----------- -----------
Income before
provision for Federal
and state income
taxes................. 37,818 51,012 6,703 33,040 66,698 18,924 25,268
PROVISION FOR FEDERAL (16,065) (19,900) (3,381) (12,720) (25,678) (7,191) (9,664)
AND STATE INCOME TAXES. ------------ ------------ ----------- ----------- ----------- ----------- -----------
NET INCOME.............. $ 21,753 $ 31,112 $ 3,322 $ 20,320 $ 41,020 $ 11,733 $ 15,604
============ ============ =========== =========== =========== =========== ===========
SHARE DATA:
Net income per common
and common equivalent
share:
Primary................ $1.10 $1.55 $.17 $1.11 $2.14 $.74 $1.30
===== ===== ==== ===== ===== ==== =====
Fully diluted.......... $1.10 $1.55 $.17 $1.11 $2.13 $.74 $1.20
===== ===== ==== ===== ===== ==== =====
Weighted average common
shares outstanding:
Primary................ 19,864,901 20,038,649 20,006,267 18,343,870 19,147,935 15,783,583 11,963,652
Fully diluted.......... 19,864,901 20,038,649 20,006,267 18,346,513 19,296,269 16,401,598 15,203,114
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-4
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN RETAINED TREASURY
CLASS A CLASS B CAPITAL EARNINGS STOCK TOTAL
------- ------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, August 31,
1992................... $ 96 $41 $ 32,338 $ 70,921 ($7,847) $ 95,549
Conversion of 1,165
Class B Convertible
Common shares to Class
A Common shares........ -- -- -- -- -- --
Issuance of 1,000,000
Class A Common shares.. 10 -- 13,584 -- -- 13,594
Conversion of 7% Con-
vertible debentures to
Class A Common shares.. -- -- 976 -- -- 976
Employee stock purchase
of 21,071 treasury
shares................. -- -- 266 -- 64 330
Issuance of 4,104 trea-
sury shares to stock
incentive plan......... -- -- 38 -- 13 51
Net income for fiscal -- -- -- 15,604 -- 15,604
1993................... ---- --- -------- -------- -------- --------
BALANCE, August 31,
1993................... 106 41 47,202 86,525 (7,770) 126,104
Conversion of 52,800
Class B Convertible
Common shares to Class
A Common shares........ 1 (1) -- -- -- --
Conversion of 7% Con-
vertible debentures to
Class A Common shares.. 31 -- 58,925 -- -- 58,956
To write-off unamortized
deferred financing
costs on
debentures converted,
net of amortization.... -- -- (1,569) -- -- (1,569)
To write-off interest
accrued on debentures,
net of tax
effect................. -- -- 850 -- -- 850
Employee stock purchase
of 58,955 treasury
shares................. -- -- 878 -- 179 1,057
To record exercise of
2,250 Class A stock op-
tions.................. -- -- 10 -- -- 10
To record 500,000 Class
A stock options related
to the Vintners Acqui-
sition................. -- -- 4,210 -- -- 4,210
To record 600,000 Class
A stock options related
to the
Almaden/Inglenook asset
purchase............... -- -- 2,842 -- -- 2,842
Net income for fiscal -- -- -- 11,733 -- 11,733
1994................... ---- --- -------- -------- -------- --------
BALANCE, August 31,
1994................... 138 40 113,348 98,258 (7,591) 204,193
Conversion of 19,093
Class B Convertible
Common shares to Class
A Common shares........ -- -- -- -- -- --
Issuance of 3,000,000
Class A Common shares.. 30 -- 90,353 -- -- 90,383
Exercise of 432,067
Class A stock options
related to the Vintners
Acquisition............ 5 -- 13,013 -- -- 13,018
Employee stock purchase
of 28,641 treasury
shares................. -- -- 546 -- 87 633
To record exercise of
114,075 Class A stock
options................ 1 -- 1,324 -- -- 1,325
To record tax benefit on
stock options exer-
cised.................. -- -- 1,251 -- -- 1,251
To record tax benefit on
disposition of employee
stock purchases........ -- -- 59 -- -- 59
Net income for fiscal -- -- -- 41,020 -- 41,020
1995................... ---- --- -------- -------- -------- --------
BALANCE, August 31,
1995................... 174 40 219,894 139,278 (7,504) 351,882
Conversion of 5,000
Class B Convertible
Common shares to Class
A Common shares........ -- -- -- -- -- --
To record exercise of
18,000 Class A stock
options................ -- -- 238 -- -- 238
Employee stock purchase
of 20,869 treasury
shares................. -- -- 593 -- 63 656
To record issuance of
10,000 Class A stock
options................ -- -- 134 -- -- 134
To record tax benefit on
stock options exer-
cised.................. -- -- 198 -- -- 198
To record tax benefit on
disposition of employee
stock purchases........ -- -- 76 -- -- 76
Net income for Transi- -- -- -- 3,322 -- 3,322
tion Period............ ---- --- -------- -------- -------- --------
BALANCE, February 29,
1996................... $174 $40 $221,133 $142,600 ($7,441) $356,506
Conversion of 35,500
Class B Convertible
Common shares to Class
A Common shares (unau-
dited)................. -- -- -- -- -- --
To record exercise of
2,250 Class A stock op-
tions
(unaudited)............ -- -- 10 -- -- 10
To record the repurchase
of 785,200 shares of
Class A common stock
(unaudited)............ -- -- -- -- (20,702) (20,702)
Employee stock purchase
of 37,779 treasury
shares
(unaudited)............ -- -- 883 -- 115 998
Net income for nine
months ended November
30, 1996 -- -- -- 21,753 -- 21,753
(unaudited)............ ---- --- -------- -------- -------- --------
BALANCE, November 30, $174 $40 $222,026 $164,353 ($28,028) $358,565
1996 (unaudited)....... ==== === ======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE SIX MONTHS FOR THE YEARS
ENDED ENDED ENDED
----------------------- ------------------------- ----------------------------
NOVEMBER 30, AUGUST 31,
FEBRUARY 29, FEBRUARY 28,
1996 1995 1996 1995 1995 1994 1993
----------- ----------- ------------ ------------ -------- -------- --------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income............. $21,753 $ 31,112 $ 3,322 $ 20,320 $ 41,020 $ 11,733 $ 15,604
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Depreciation of
property, plant and
equipment............. 18,662 11,011 9,521 9,786 15,568 10,534 7,389
Amortization of
intangible assets..... 7,175 4,383 4,437 2,865 5,144 3,281 1,286
Deferred tax provision
(benefit)............. 10,000 19,175 1,991 57 19,232 (4,319) 1,028
Loss (gain) on sale of
property, plant and
equipment............. 201 (39) 81 -- (33) -- (524)
Amortization of
discount on long-term
debt.................. 29 -- -- -- -- -- --
Accrued interest on
converted debentures,
net of taxes.......... -- -- -- -- -- 161 --
Restructuring
charges--fixed asset
write-down............ -- (2,050) 275 -- (2,050) 13,935 --
Change in operating
assets and
liabilities, net of
effects from
purchases of
businesses:
Accounts receivable,
net................. (55,635) (70,417) (27,008) 1,586 7,392 (17,946) (5,761)
Inventories, net..... (31,793) (35,460) (70,172) (18,783) 41,528 784 8,966
Prepaid expenses..... 9,176 (3,106) (2,350) 3,079 (3,884) 1,703 (8,571)
Accounts payable..... 18,510 28,966 (2,362) (30,068) (13,415) 2,680 (18,948)
Accrued Federal and
state excise taxes.. 3,150 (7,458) 4,066 6,907 (1,025) 4,405 845
Other accrued
expenses and
liabilities......... 17,951 (7,812) (8,564) (28,175) (20,784) 4,023 6,687
Other.................. (3,815) (11,695) 1,930 (3,817) (15,375) (3,795) 911
------- -------- -------- -------- -------- -------- --------
Total adjustments.... (6,389) (74,502) (88,155) (56,563) 32,298 15,446 (6,692)
------- -------- -------- -------- -------- -------- --------
Net cash provided by
(used in) operating
activities.......... 15,364 (43,390) (84,833) (36,243) 73,318 27,179 8,912
------- -------- -------- -------- -------- -------- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from sale of
property, plant and
equipment............. 5,171 1,394 555 -- 1,336 -- 1,337
Purchases of property,
plant and equipment,
net of minor
disposals............. (25,318) (32,753) (16,077) (11,342) (37,121) (7,853) (6,949)
Payment of accrued
Earn-Out Amounts...... (13,848) (10,000) (11,307) -- (28,300) (4,000) --
Purchases of
businesses, net of
cash acquired......... -- -- -- -- -- 3 8,710
Purchase of brands..... -- -- -- -- -- (5,100) --
------- -------- -------- -------- -------- -------- --------
Net cash (used in)
provided by
investing
activities.......... (33,995) (41,359) (26,829) (11,342) (64,085) (16,950) 3,098
------- -------- -------- -------- -------- -------- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds (repayment)
of notes payable,
short-term
borrowings............ 18,700 118,500 111,300 57,100 50,100 (2,035) (9,835)
Repayment of notes
payable from equity
offering proceeds..... -- -- -- (22,100) (22,100) -- --
Repayment of notes
payable from proceeds
of Term Loan.......... -- -- -- (47,000) (47,000) -- --
Payment of fees for
subordinated notes
offering.............. (1,478) -- -- -- -- (4,624) --
Principal payments of
long-term debt........ (39,612) (51,072) (14,579) (7,474) (57,906) (6,856) (981)
Proceeds from issuance
of subordinated
notes, net of
discount.............. 61,668 -- -- -- -- -- --
</TABLE>
F-6
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE SIX MONTHS FOR THE YEARS
ENDED ENDED ENDED
----------------------- ------------------------- ----------------------------
NOVEMBER 30, AUGUST 31,
FEBRUARY 29, FEBRUARY 28,
1996 1995 1996 1995 1995 1994 1993
----------- ----------- ------------ ------------ ------- --------- --------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Proceeds of Term Loan,
long-term debt........ $ -- $ 13,219 $ 13,220 $ 47,000 $47,000 $ -- $ --
Repayment of Term Loan
from equity offering
proceeds, long-term
debt.................. -- -- -- (82,000) (82,000) -- --
Proceeds from equity
offering, net......... -- -- -- 103,313 103,400 -- --
Purchases of treasury
stock................. (19,997) -- -- -- -- -- --
Proceeds from employee
stock purchases....... 998 1,292 656 -- 633 1,056 330
Exercise of employee
stock options......... 10 1,014 224 341 1,325 10 --
Fractional shares paid
for debenture
conversions........... -- -- -- -- -- (3) --
------- -------- --------- -------- ------- --------- --------
Net cash provided by
(used in) financing
activities.......... 20,289 82,953 110,821 49,180 (6,548) (12,452) (10,486)
------- -------- --------- -------- ------- --------- --------
NET INCREASE (DECREASE)
IN CASH AND CASH
INVESTMENTS............ 1,658 (1,796) (841) 1,595 2,685 (2,223) 1,524
CASH AND CASH
INVESTMENTS, beginning
of period.............. 3,339 3,090 4,180 1,495 1,495 3,718 2,194
------- -------- --------- -------- ------- --------- --------
CASH AND CASH
INVESTMENTS, end of
period................. $ 4,997 $ 1,294 $ 3,339 $ 3,090 $ 4,180 $ 1,495 $ 3,718
======= ======== ========= ======== ======= ========= ========
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW
INFORMATION:
Cash paid during the
period for:
Interest............. $21,636 $ 13,877 $ 14,720 $ 14,068 $25,082 $ 14,727 $ 5,910
======= ======== ========= ======== ======= ========= ========
Income taxes......... $ 4,156 $ 2,832 $ 3,612 $ 9,454 $11,709 $ 15,751 $ 5,670
======= ======== ========= ======== ======= ========= ========
SUPPLEMENTAL DISCLOSURES
OF NONCASH INVESTING
AND FINANCING
ACTIVITIES:
Fair value of assets
acquired, including
cash acquired......... $ -- $144,936 $ 144,927 $ -- $ -- $ 428,442 $135,280
Liabilities assumed.... -- (3,155) (3,147) -- -- (153,827) (52,851)
------- -------- --------- -------- ------- --------- --------
Cash paid.............. -- 141,781 141,780 -- -- 274,615 82,429
Less--Amounts
borrowed.............. -- (141,781) (141,780) -- -- (276,860) (68,835)
Less--Issuance of
Class A Common Stock.. -- -- -- -- -- -- (13,594)
Less--Issuance of
Class A Common Stock
options............... -- -- -- -- -- (7,052) --
Add--Receivable from
Seller................ -- -- -- -- -- 9,297 --
------- -------- --------- -------- ------- --------- --------
Net cash paid for
acquisition........... $ -- $ -- $ -- $ -- $ -- $ -- $ --
======= ======== ========= ======== ======= ========= ========
Goodwill reduction on
settlement of
disputed final
closing net asset
statement for
Vintners Acquisition.. $ 5,894 $ -- $ -- $ -- $ -- $ -- $ --
======= ======== ========= ======== ======= ========= ========
Accrued Earn-Out
Amounts............... $ -- $ -- $ 15,155 $ -- $10,000 $ 28,300 $ 4,000
======= ======== ========= ======== ======= ========= ========
Issuance of Class A
Common Stock for
conversion of
debentures............ $ -- $ -- $ -- $ -- $ -- $ 58,960 $ 976
======= ======== ========= ======== ======= ========= ========
Write-off of
unamortized deferred
financing costs on
debentures............ $ -- $ -- $ -- $ -- $ -- $ 1,569 $ --
======= ======== ========= ======== ======= ========= ========
Write-off unpaid
accrued interest on
debentures through
conversion date....... $ -- $ -- $ -- $ -- $ -- $ 1,371 $ --
======= ======== ========= ======== ======= ========= ========
Issuance of treasury
shares to stock
incentive plan........ $ -- $ -- $ -- $ -- $ -- $ -- $ 51
======= ======== ========= ======== ======= ========= ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-7
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 1996 AND NOVEMBER 30, 1996 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of business--
Canandaigua Wine Company, Inc. and its subsidiaries (the Company) operates
in the beverage alcohol industry. The Company is a producer and supplier of
wines, an importer and producer of beers and distilled spirits, and a producer
and supplier of grape juice concentrate in the United States. It maintains a
portfolio of over 125 national and regional brands of beverage alcohol which
are distributed by over 1,200 wholesalers throughout the United States and
selected international markets. Its beverage alcohol brands are marketed in
five general categories: table wines, sparkling wines, dessert wines, imported
beer and distilled spirits.
Year-end change--
The Company changed its fiscal year end from the twelve month period ending
August 31 to the twelve month period ending on the last day of February. The
period from September 1, 1995, through February 29, 1996, is hereinafter
referred to as the "Transition Period".
Principles of consolidation--
The consolidated financial statements of the Company include the accounts of
Canandaigua Wine Company, Inc., and all of its subsidiaries. All intercompany
accounts and transactions have been eliminated.
Unaudited financial statements--
The consolidated financial statements as of November 30, 1996 and February
28, 1995, for the nine month periods ended November 30, 1996, and November 30,
1995, and for the six month period ended February 28, 1995, have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission applicable to interim reporting and
reflect, in the opinion of the Company, all adjustments necessary to present
fairly the financial information for Canandaigua Wine Company, Inc., and its
subsidiaries. All such adjustments are of a normal recurring nature.
Management's use of estimates and judgment--
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
disclosure 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.
Cash investments--
Cash investments consist of money market funds and a certificate of deposit
and are stated at cost, which approximates market value. These investments
amounted to approximately $17,000 (unaudited) at November 30, 1996, $1,732,000
at February 29, 1996, and $12,900 (unaudited) at February 28, 1995, and
$2,462,000 and $10,000 at August 31, 1995 and 1994, respectively.
Fair value of financial instruments--
To meet the reporting requirements of Statement of Financial Accounting
Standards No. 107 ("Disclosures About Fair Value of Financial Instruments"),
the Company calculates the fair value of financial instruments and includes
this additional information in the notes to the financial statements when the
fair value is different than the book value of those financial instruments.
When the fair value is equal to the book value, no additional disclosure is
made. The Company uses quoted market prices
F-8
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
whenever available to calculate these fair values. When quoted market prices
are not available, the Company uses standard pricing models for various types
of financial instruments (such as forwards, options, swaps, etc.) which take
into account the present value of estimated future cash flows.
Interest rate futures and currency forward contracts--
From time to time, the Company enters into interest rate futures and a
variety of currency forward contracts in the management of interest rate risk
and foreign currency transaction exposure. Unrealized gains and losses on
interest rate futures are deferred and recognized as a component of interest
expense over the borrowing period. Unrealized gains and losses on foreign
currency forward contracts are deferred and recognized as a component of the
related transactions in the accompanying financial statements. Discounts or
premiums on forward contracts are recognized over the life of the contract.
Inventories--
Inventories are valued at the lower of cost (computed in accordance with the
last-in, first-out (LIFO) or first-in, first-out (FIFO) methods) or market.
The percentage of inventories valued using the LIFO method is 94% at November
30, 1996, and February 29, 1996, 95% at February 28, 1995, and 94% and 95% at
August 31, 1995 and 1994, respectively. Replacement cost of the inventories
determined on a FIFO basis is approximately $386,421,000 (unaudited) at
November 30, 1996, $332,849,000 at February 29, 1996, $306,991,000 (unaudited)
at February 28, 1995, and $240,895,000 and $289,209,000 at August 31, 1995 and
1994, respectively. The net realizable value of the Company's inventories was
in excess of $373,631,000 (unaudited), $341,838,000, $319,836,000 (unaudited),
$256,811,000 and $301,053,000 at November 30, 1996, February 29, 1996,
February 28, 1995, and August 31, 1995 and 1994, respectively.
A substantial portion of barreled whiskey and brandy will not be sold within
one year because of the duration of the aging process. All barreled whiskey
and brandy are classified as in-process inventories and are included in
current assets, in accordance with industry practice. Bulk wine inventories
are also included as work in process within current assets, in accordance with
the general practices of the wine industry, although a portion of such
inventories may be aged for periods greater than one year.
Warehousing, insurance, ad valorem taxes and other carrying charges
applicable to barreled whiskey and brandy held for aging are included in
inventory costs.
Elements of cost include materials, labor and overhead and consist of the
following:
<TABLE>
<CAPTION>
NOVEMBER 30, FEBRUARY 29, FEBRUARY 28, AUGUST 31, AUGUST 31,
1996 1996 1995 1995 1994
------------ ------------ ------------ ---------- ----------
(UNAUDITED) (UNAUDITED)
(in thousands)
<S> <C> <C> <C> <C> <C>
Raw materials and sup-
plies.................. $ 25,930 $ 24,197 $ 42,478 $ 19,753 $ 25,225
Wines and distilled
spirits in process..... 269,959 254,956 212,483 174,399 209,999
Finished case goods..... 77,742 62,685 64,875 62,659 65,829
--------- --------- --------- --------- ---------
$ 373,631 $ 341,838 $ 319,836 $ 256,811 $ 301,053
========= ========= ========= ========= =========
</TABLE>
Property, plant and equipment--
Property, plant and equipment is stated at cost. Major additions and
betterments are charged to property accounts, while maintenance and repairs
are charged to operations as incurred. The cost of properties sold or
otherwise disposed of and the related allowance for depreciation are
eliminated from the accounts at the time of disposal and resulting gains and
losses are included as a component of operating income.
F-9
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Depreciation--
Depreciation is computed primarily using the straight-line method over the
following estimated useful lives:
<TABLE>
<CAPTION>
DESCRIPTION DEPRECIABLE LIFE
----------- ----------------
<S> <C>
Buildings and improvements 10 to 33 1/3 years
Machinery and equipment 7 to 15 years
Motor vehicles 3 to 7 years
</TABLE>
Amortization of assets capitalized under capital leases is included with
depreciation expense. Amortization is calculated using the straight-line
method over the shorter of the estimated useful life of the asset or the lease
term.
Other assets--
Other assets, which consist of goodwill, distribution rights, agency license
agreements, trademarks, deferred financing costs, cash surrender value of
officers' life insurance and other amounts, are stated at cost, net of
accumulated amortization. Amortization is calculated on a straight-line or
effective interest basis over periods ranging from five to forty years. At
February 29, 1996, the weighted average of the remaining useful lives of these
assets was approximately thirty-seven years. The face value of the officers'
life insurance policies totaled $2,852,000 for all periods presented.
Advertising and Promotion Costs--
The Company generally expenses advertising and promotion costs as incurred,
shown or distributed. Prepaid advertising costs at November 30, 1996, February
29, 1996, February 28, 1995 and August 31, 1995 and 1994, are not material.
Advertising expense for the nine months ended November 30, 1996, the
comparable nine months ended November 30, 1995, the Transition Period, the
comparable six months ended February 28, 1995, and the years ended August 31,
1995 and 1994, were approximately $81,369,000 (unaudited), $70,747,000
(unaudited), $60,187,000, $41,658,000 (unaudited), $84,246,000 and $64,540,000
respectively.
Income taxes--
The Company uses the liability method of accounting for income taxes. The
liability method accounts for deferred income taxes by applying statutory
rates in effect at the balance sheet date to the difference between the
financial reporting and tax basis of assets and liabilities.
Environmental--
Environmental expenditures that relate to current operations are expensed or
capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable, and the cost can be
reasonably estimated. Generally, the timing of these accruals coincides with
completion of a feasibility study or the Company's commitment to a formal plan
of action. At November 30, 1996, February 29, 1996, February 28, 1995, and
August 31, 1995 and 1994, liabilities for environmental costs totaled $417,000
(unaudited), $465,000, $250,000 (unaudited), $550,000 and $100,000,
respectively, and are recorded in other accrued liabilities.
Net income per common and common equivalent share--
Primary net income per common and common equivalent share is based on the
weighted average number of common and common equivalent shares (stock options
determined under the treasury stock method) outstanding during the year for
Class A Common Stock and Class B Convertible Common
F-10
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock. Fully diluted earnings per common and common equivalent share assumes
the conversion of the 7% convertible subordinated debentures under the "if
converted method" and assumes exercise of stock options using the treasury
stock method.
Other--
Certain fiscal 1995, 1994 and 1993 balances have been reclassified to
conform with current period presentation.
2. ACQUISITIONS:
Barton--
On June 29, 1993, pursuant to the terms of a Stock Purchase Agreement (the
Stock Purchase Agreement) among the Company, Barton Incorporated (Barton) and
the former Barton stockholders (the Selling Stockholders), the Company
acquired from the Selling Stockholders all of the outstanding shares of the
capital stock of Barton (the Barton Acquisition), a marketer of imported beers
and imported distilled spirits and a producer and marketer of distilled
spirits and domestic beers.
The aggregate consideration for Barton consisted of approximately
$65,510,000 in cash, one million shares of the Company's Class A Common Stock
and payments of up to an aggregate amount of $57,300,000 (the Earn-Out
Amounts) which are payable to the Selling Stockholders in cash over a three
year period upon the satisfaction of certain performance goals and achievement
of targets for earnings before interest and taxes. In addition, the Company
paid approximately $1,981,000 of direct acquisition costs, $2,269,000 of
direct financing costs, and assumed liabilities of approximately $47,926,000.
The purchase price was funded through a $50,000,000 term loan (see Note 7),
through $18,835,000 of revolving loans under the Company's Credit Agreement
(see Note 7), and through approximately $925,000 of accrued expenses. In
addition, one million shares of the Company's Class A Common Stock were issued
at $13.59 per share, which reflects the closing market price of the stock at
the closing date, discounted for certain restrictions on the issued shares. Of
these shares, 428,571 were delivered to the Selling Stockholders and 571,429
were delivered into escrow to secure the Selling Stockholders' indemnification
obligations to the Company. The 571,429 shares were released from escrow and
delivered to the Selling Stockholders in fiscal 1995.
The Earn-Out Amounts consist of four payments scheduled to be made over a
three year period ending November 29, 1996. The first payment of $4,000,000
was required to be made to the Selling Stockholders upon satisfaction of
certain performance goals. These goals were satisfied and this payment was
accrued at August 31, 1993, and was made on December 31, 1993. The second
payment of $28,300,000 was accrued at August 31, 1994, and was made on
December 30, 1994, as a result of satisfaction of certain performance goals
and achievement of targets for earnings before interest and taxes at August
31, 1994. The third payment of $10,000,000 was accrued at August 31, 1995, and
was made to the Selling Stockholders on November 30, 1995, as a result of the
achievement of targets for earnings before interest and taxes at August 31,
1995. The final remaining payment has been accrued as of February 29, 1996, as
a result of the achievement of certain targets for earnings before interest
and taxes and is to be made by November 29, 1996. Such payment obligations are
secured by the Company's irrevocable standby letter of credit (see Note 7)
under the Credit Agreement in an original maximum face amount of $28,200,000
and are subject to acceleration in certain events as defined in the Stock
Purchase Agreement. All Earn-Out Amounts have been accounted for as additional
purchase price for the Barton Acquisition when the contingency was satisfied
in accordance with the Stock Purchase Agreement and allocated based upon the
fair market value of the underlying assets.
F-11
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pursuant to Barton's Phantom Stock Plan (the Phantom Stock Plan) effective
April 1, 1990, and amended and restated for Units (as defined in the Phantom
Stock Plan) granted after March 31, 1992, certain participants received
payments at closing amounting in the aggregate to $1,959,000 in connection
with the Barton Acquisition. Certain other participants will receive payments
only upon vesting in the Phantom Stock Plan during years subsequent to the
acquisition. All participants under the Phantom Stock Plan may receive
additional payments in the event of satisfaction of the performance goals set
forth in the Stock Purchase Agreement and upon release of the shares held in
escrow. In January 1995, Barton paid approximately $840,000 to participants
which included $403,000 relating to the satisfaction of requirements for
releasing stock from escrow and on November 30, 1995, paid $403,000. As of
February 29, 1996, all remaining payments to be made in accordance with the
Phantom Stock Plan, totaling $892,000, have been accrued as all performance
criteria has been satisfied. Payments of $605,000 will be made by November 30,
1996, and payments of $277,000 will be made by April 1, 1997, and $10,000 will
be made by February 10, 2024. At August 31, 1995 and 1994, $581,000 and
$554,000, respectively, were accrued under the Phantom Stock Plan. All amounts
accrued and paid under the Phantom Stock Plan were in addition to the purchase
price and were charged to operations in the period earned.
The Barton Acquisition was accounted for using the purchase method.
Accordingly, Barton's assets were recorded at fair market value at the date of
acquisition. The fair market value of Barton totaled $236,178,000 which was
adjusted for negative goodwill of $47,235,000 and an additional deferred tax
liability of $36,075,000 based on the difference between the fair market value
of Barton's assets and liabilities as adjusted for allocation of negative
goodwill and the tax basis of those assets and liabilities which was allocated
on a pro rata basis to noncurrent assets. The results of operations of Barton
have been included in the Consolidated Statements of Income since the date of
the acquisition.
Vintners--
On October 15, 1993, the Company acquired substantially all the tangible and
intangible assets of Vintners International Company, Inc. (Vintners) other
than cash and the Hammondsport Winery (the Vintners Assets), and assumed
certain current liabilities associated with the ongoing business (the Vintners
Acquisition). Vintners was the United States' fifth largest supplier of wine
with two of the country's most highly recognized brands, Paul Masson and
Taylor California Cellars. The wineries acquired from Vintners are the
Gonzales winery in Gonzales, California, and the Paul Masson wineries in
Madera and Soledad, California. In addition, the Company leased from Vintners
the Hammondsport winery in Hammondsport, New York. The lease was for a period
of 18 months from the date of the Vintners Acquisition. The lease expired
during fiscal 1995.
The aggregate purchase price of $148,900,000 (the Cash Consideration) is
subject to adjustment based upon the determination of the Final Net Current
Asset Amount (as defined below). In addition, the Company incurred $8,961,000
of direct acquisition and financing costs. The Company also delivered options
to Vintners and Household Commercial of California, Inc., one of Vintners'
lenders, to purchase an aggregate of 500,000 shares (the Vintners Option
Shares) of the Company's Class A Common Stock, at an exercise price per share
of $18.25, which are exercisable at any time until October 15, 1996. These
options have been recorded at $8.42 per share, based upon an independent
appraisal and $4,210,000 has been reflected as a component of additional paid-
in capital. On November 18, 1994, 432,067 of the Vintners Option Shares were
exercised (see Note 10).
The Cash Consideration was funded by the Company pursuant to (i)
approximately $12,600,000 of Revolving Loans under the Credit Facility of
which $11,200,000 funded the Cash Consideration and
F-12
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$1,400,000 funded the payment of direct acquisition costs; (ii) an accrued
liability of approximately $7,700,000 for the holdback described below and
(iii) the $130,000,000 Subordinated Loan (see Note 7).
At closing, the Company held back from the Cash Consideration approximately
10% of the then estimated net current assets of Vintners purchased by the
Company and deposited an additional $2,800,000 of the Cash Consideration into
an escrow pending consent of both parties for its release. If the amount of
the net current assets as determined after the closing (the Final Net Current
Asset Amount) is greater than 90% and less than 100% of the amount of net
current assets estimated at closing (the Estimated Net Current Asset Amount),
then the Company shall pay into the established escrow an amount equal to the
Final Net Current Asset Amount less 90% of the Estimated Net Current Asset
Amount. If the Final Net Current Asset Amount is greater than the Estimated
Net Current Asset Amount, then, in addition to the payment described above,
the Company shall pay an amount equal to such excess, plus interest from the
closing, to Vintners. If the Final Net Current Asset Amount is less than 90%
of the Estimated Net Current Asset Amount, then the Company shall be paid such
deficiency out of the escrow account. As of February 29, 1996, no adjustment
to the established escrow was required and the Final Net Current Asset Amount
has not been determined (see Note 17).
The Vintners Acquisition was accounted for using the purchase method;
accordingly, the Vintners Assets were recorded at fair market value at the
date of acquisition. The excess of the purchase price over the estimated fair
market value of the net assets acquired (goodwill), $44,151,000, is being
amortized on a straight-line basis over forty years. The results of operations
of Vintners have been included in the Consolidated Statements of Income since
the date of acquisition.
Almaden/Inglenook--
On August 5, 1994, the Company acquired the Inglenook and Almaden brands,
the fifth and sixth largest selling table wines in the United States, a grape
juice concentrate business and wineries in Madera and Escalon, California,
from Heublein, Inc. (Heublein) (the Almaden/Inglenook Acquisition). The
Company also acquired Belaire Creek Cellars, Chateau La Salle and Charles Le
Franc table wines, Le Domaine champagne and Almaden, Hartley and Jacques Bonet
brandy. The accounts receivable and the accounts payable related to the
acquired assets were not acquired by the Company.
The aggregate consideration for the acquired brands and other assets
consisted of $130,600,000 in cash, assumption of certain current liabilities
and options to purchase an aggregate of 600,000 shares of Class A Common Stock
(the Almaden Option Shares). Of the Almaden Option Shares, 200,000 were
exercisable at a price of $30 per share and the remaining 400,000 were
exercisable at a price of $35 per share. All of the options expired on August
5, 1996, unexercised. The 200,000 and 400,000 options have been recorded at
$5.83 and $4.19 per share, respectively, based upon an independent appraisal,
and $2,842,000 has been reflected as a component of additional paid-in
capital. The source of the cash payment made at closing, together with payment
of other costs and expenses required by the Almaden/Inglenook Acquisition, was
financing provided by the Company pursuant to a term loan under the Credit
Facility (see Note 7).
The cash purchase price was subject to adjustment based upon the
determination of the Final Net Asset Amount as defined in the Asset Purchase
Agreement; and, based upon the final closing statement delivered to the
Company by Heublein, was reduced by $9,297,000 which was paid to the Company
in November 1994.
F-13
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Heublein also agreed not to compete with the Company in the United States
and Canada for a period of five years following the closing of the
Almaden/Inglenook Acquisition in the production and sale of grape juice
concentrate or sale of packaged wines bearing the designation "Chablis" or
"Burgundy" except where, among other exceptions, such designations are
currently used with certain brands retained by Heublein. Certain companies
acquired by Heublein, however, may compete directly with the Company.
The Almaden/Inglenook Acquisition was accounted for using the purchase
method; accordingly, the Almaden/Inglenook assets were recorded at fair market
value at the date of acquisition. During fiscal 1995, the Company terminated
certain of its long-term grape contracts acquired in connection with the
Almaden/Inglenook Acquisition. As a result, the estimated loss reserve at the
date of acquisition was reduced by approximately $23,751,000, with a
corresponding reduction in goodwill (see Note 11). The excess of purchase
price over the estimated fair market value of the net assets acquired
(goodwill), $24,028,000, is being amortized on a straight-line basis over
forty years. The results of operations of Almaden/Inglenook have been included
in the Consolidated Statements of Income since the date of the acquisition.
UDG Acquisition--
On September 1, 1995, the Company through its wholly-owned subsidiary,
Barton Incorporated (Barton), acquired certain of the assets of United
Distillers Glenmore, Inc., and certain of its North American affiliates
(collectively, UDG) (the UDG Acquisition). The acquisition was made pursuant
to an Asset Purchase Agreement dated August 29, 1995 (the Purchase Agreement),
entered into between Barton and UDG. The acquisition included all of UDG's
rights to the Fleischmann's, Skol, Mr. Boston, Canadian LTD, Old Thompson,
Kentucky Tavern, Chi-Chi's, Glenmore and di Amore distilled spirits brands;
the U.S. rights to Inver House, Schenley and El Toro distilled spirits brands;
and related inventories and other assets. The acquisition also included two of
UDG's production facilities; one located in Owensboro, Kentucky, and the other
located in Albany, Georgia. In addition, pursuant to the Purchase Agreement,
the parties entered into multiyear agreements under which Barton will (i)
purchase various bulk distilled spirits brands from UDG and (ii) provide
packaging services for certain of UDG's distilled spirits brands as well as
warehousing services.
The aggregate consideration for the acquired brands and other assets
consisted of $141,780,000 in cash, plus transaction costs of $2,300,000, and
assumption of certain current liabilities. The source of the cash payment made
at closing, together with payment of other costs and expenses required by the
UDG Acquisition, was financing provided by the Company pursuant to a term loan
under the Credit Facility (see Note 7).
The following table sets forth the unaudited pro forma results of operations
of the Company for the nine months ended November 30, 1996 and 1995, the
audited results of operations of the Company for the Transition Period and the
unaudited comparable six month period ended February 28, 1995. The comparable
nine and six month periods ended November 30, 1995, and February 28, 1995,
respectively, unaudited pro forma results of operations give effect to the UDG
Acquisition as if it occurred on September 1, 1994. The unaudited pro forma
results of operations are presented after giving effect to certain adjustments
for depreciation, amortization of goodwill, interest expense on the
acquisition financing and related income tax effects. The unaudited pro forma
results of operations are based upon currently available information and upon
certain assumptions that the Company believes are reasonable under the
circumstances. The unaudited pro forma results of operations do not purport to
represent what the Company's results of operations would actually have been if
the aforementioned transactions in fact had occurred on such dates or to
project the Company's financial position or results of operations at any
future date or for any future period.
F-14
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE SIX MONTHS ENDED
-------------------------- -------------------------
NOVEMBER 30, FEBRUARY 29, FEBRUARY 28,
1996 1995 1996 1995
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (AUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
(in thousands, except share data)
Net sales........................ $ 873,444 $ 779,157 $ 535,024 $ 505,107
Income before provision for
income taxes.................... $ 37,818 $ 54,495 $ 6,703 $ 37,318
Net income....................... $ 21,753 $ 33,254 $ 3,322 $ 22,951
Share data:
Net income per common and common
equivalent share:
Primary........................ $1.10 $1.66 $.17 $1.25
Fully diluted.................. $1.10 $1.66 $.17 $1.25
Weighted average shares
outstanding:
Primary........................ 19,864,901 20,038,649 20,006,267 18,343,870
Fully diluted.................. 19,864,901 20,038,649 20,006,267 18,346,513
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT:
The major components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
AUGUST 31,
------------------
NOVEMBER 30, FEBRUARY 29, FEBRUARY 28,
1996 1996 1995 1995 1994
------------ ------------ ------------ -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
(in thousands)
Land.................... $ 16,402 $ 16,867 $ 13,814 $ 15,257 $ 13,814
Buildings and improve-
ments.................. 74,663 76,694 62,583 65,084 62,440
Machinery and equipment. 234,883 226,432 168,767 197,266 168,222
Motor vehicles.......... 5,379 5,814 2,552 5,204 2,552
Construction in pro- 24,954 12,404 19,643 12,171 8,989
gress.................. -------- -------- -------- -------- --------
356,281 338,211 267,359 294,982 256,017
Less--Accumulated depre- (105,063) (87,573) (71,520) (77,477) (61,734)
ciation................ -------- -------- -------- -------- --------
$251,218 $250,638 $195,839 $217,505 $194,283
======== ======== ======== ======== ========
</TABLE>
F-15
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. OTHER ASSETS:
The major components of other assets are as follows:
<TABLE>
<CAPTION>
AUGUST 31,
NOVEMBER 30, FEBRUARY 29, FEBRUARY 28, ------------------
1996 1996 1995 1995 1994
------------ ------------ ------------ -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
(in thousands)
Goodwill................ $151,153 $156,489 $ 79,511 $ 70,141 $ 88,459
Distribution rights,
agency license
agreements and
trademarks............. 119,316 119,316 72,970 83,536 72,970
Other................... 26,676 23,123 23,195 23,187 22,296
-------- -------- -------- -------- --------
297,145 298,928 175,676 176,864 183,725
Less--Accumulated
amortization........... (20,182) (13,006) (8,360) (9,957) (5,495)
-------- -------- -------- -------- --------
$276,963 $285,922 $167,316 $166,907 $178,230
======== ======== ======== ======== ========
</TABLE>
5. OTHER ACCRUED EXPENSES AND LIABILITIES:
The major components of other accrued expenses and liabilities are as
follows:
<TABLE>
<CAPTION>
AUGUST 31,
NOVEMBER 30, FEBRUARY 29, FEBRUARY 28, ---------------
1996 1996 1995 1995 1994
------------ ------------ ------------ ------- -------
(UNAUDITED) (UNAUDITED)
(in thousands)
<S> <C> <C> <C> <C> <C>
Accrued Earn-Out
Amounts................ $ -- $13,848 $ -- $10,000 $28,300
Accrued loss on
noncancelable grape
contracts.............. 1,176 1,719 13,646 10,862 14,410
Other................... 62,730 52,873 63,546 47,034 53,351
------- ------- ------- ------- -------
$63,906 $68,440 $77,192 $67,896 $96,061
======= ======= ======= ======= =======
</TABLE>
6. OTHER LIABILITIES:
The major components of other liabilities are as follows:
<TABLE>
<CAPTION>
AUGUST 31,
---------------
NOVEMBER 30, FEBRUARY 29, FEBRUARY 28,
1996 1996 1995 1995 1994
------------ ------------ ------------ ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
(in thousands)
Accrued loss on
noncancelable grape
contracts.............. $1,171 $ 8,937 $27,170 $ 7,374 $48,254
Other................... 8,763 3,361 2,907 3,226 2,994
------ ------- ------- ------- -------
$9,934 $12,298 $30,077 $10,600 $51,248
====== ======= ======= ======= =======
</TABLE>
F-16
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. BORROWINGS:
Borrowings consists of the following:
<TABLE>
<CAPTION>
AUGUST 31,
-----------------
FEBRUARY 28,
NOVEMBER 30, 1996 FEBRUARY 29, 1996 1995 1995 1994
-------------------------- -------------------------- ------------ -------- --------
LONG- LONG-
CURRENT TERM TOTAL CURRENT TERM TOTAL TOTAL TOTAL TOTAL
-------- -------- -------- -------- -------- -------- ------------ -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(in thousands)
Notes Payable:
Senior Credit
Facility:
Revolving Credit $130,000 $ -- $130,000 $111,300 $ -- $111,300 $ 7,000 $ -- $ 19,000
Loans............... ======== ======== ======== ======== ======== ======== ======== ======== ========
Long-term Debt:
Senior Credit
Facility:
Term loan, variable
rate, aggregate
proceeds of $246,000,
due in installments
through August 2001... $ 40,000 $157,000 $197,000 $ 40,000 $196,000 $236,000 $135,000 $ 91,000 $177,000
Senior Subordinated
Notes:
8.75% redeemable after
December 15, 1998,
due 2003.............. -- 130,000 130,000 -- 130,000 130,000 130,000 130,000 130,000
8.75% Series B
redeemable after
December 15, 1998,
due 2003 (less
unamortized discount
of $3,303--effective
rate 9.76%)........... -- 61,697 61,697 -- -- -- -- -- --
Capitalized Lease
Agreements:
Capitalized facility
and equipment leases
at interest rates
ranging from 8.9% to
11.5%, due in monthly
installments through
fiscal 1998........... 479 -- 479 679 293 972 2,137 1,338 2,292
Industrial Development
Agencies:
7.50% 1980 issue,
original proceeds
$2,370, due in annual
installments of $118
through fiscal 2000... 118 237 355 118 356 474 592 592 592
Other Long-term Debt:
Loans payable--5%
secured by cash
surrender value of
officers' life
insurance policies.... -- 967 967 -- 967 967 967 967 967
Notes payable at
prime................. -- -- -- -- -- -- 8,632 3,775 8,632
Promissory note at
prime rate, due in
equal annual
installments through -- -- -- -- -- -- 320 320 640
fiscal 1996........... -------- -------- -------- -------- -------- -------- -------- -------- --------
$ 40,597 $349,901 $390,498 $ 40,797 $327,616 $368,413 $277,648 $227,992 $320,123
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
F-17
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Senior credit facility--
The Company and a syndicate of 20 banks (the Syndicate Banks) for which The
Chase Manhattan Bank acts as agent, entered into a third amended and restated
credit agreement (the Credit Agreement) dated September 1, 1995 which provided
for (i) a $246,000,000 Term Loan (the Term Loan) Facility and (ii) a
$185,000,000 Revolving Credit (the Revolving Credit Loans) Facility and (iii)
a $25,000,000 Letter of Credit (Barton Letter of Credit) Facility related to
the stockholder contingent payments incurred with the Barton Acquisition. On
September 1, 1995 the Company borrowed $155,000,000 on the Term Loan in
connection with the UDG Acquisition. This Third Amended and Restated Credit
Agreement was further amended (i) as of December 20, 1995 to permit the use of
Revolving Loans to repurchase up to $30,000,000 of its Class A and Class B
Common Stock, (ii) as of January 10, 1996 to accommodate the change in the
Company's fiscal year end, and (iii) as of May 17, 1996 to, among other
things, modify certain financial covenants, effective February 29, 1996, to
which the Company is subject. Term loans under the Senior Credit Facility may
be either base rate loans or Eurodollar rate loans. Base rate loans have an
interest rate equal to the higher of either the Federal Funds rate plus 0.5%
or the prime rate. Eurodollar loans have an interest rate equal to the London
Interbank Offering Rate (LIBOR) plus a margin of 1.00% (unaudited), 0.75%,
1.25% (unaudited), 1.00%, 1.25%, and 1.63% at November 30, 1996, February 29,
1996, February 28, 1995, and August 31, 1995, 1994 and 1993 respectively. The
interest rate margin for Eurodollar loans ranges from 0.5% to 1.25% depending
on the Company's debt coverage ratio (as defined by the Senior Credit
Facility). The principal of the Term Loan is to be repaid in 23 quarterly
installments of $10,000,000 with a final payment of $7,000,000, which is due
on August 15, 2001.
The $185,000,000 Revolving Credit Loans, available under the Senior Credit
Facility, may be utilized by the Company either in the form of Revolving
Credit Loans or as Revolving Letters of Credit up to a maximum of $20,000,000.
At November 30, 1996, February 29, 1996, February 28, 1995, and August 31,
1995 and 1994, the Company had available to be drawn Revolving Credit Loans of
$46,099,000 (unaudited), $68,680,000, $176,670,000 (unaudited), $172,461,000
and $163,753,000, respectively. The Revolving Credit Loans have the same
borrowing options and margins as the Term Loan Facility and in addition the
Company may borrow under a money market option. The interest rate is
determined by a competitive bid process among the Syndicate Banks. For 30
consecutive days at any time during the fiscal quarters ending on May 31 and
August 31 of each fiscal year, the aggregate outstanding principal amount of
Revolving Credit Loans combined with Letters of Credit cannot exceed
$60,000,000. The weighted average interest rate on the Revolving Credit Loans
was 6.58% (unaudited), 7.27% (unaudited), 6.76%, 6.97% (unaudited), 7.16% and
6.07% for the nine months ended November 30, 1996, the comparable nine month
period ended November 30, 1995, for the Transition Period, the comparable six
month period ended February 28, 1995 and the fiscal years ended August 31,
1995, and 1994, respectively.
The Syndicate Banks have been given security interest in substantially all
of the assets of the Company including mortgage liens on certain real
property. The Credit Facility requires the Company to meet certain covenants
and provides for restrictions on mergers, consolidations, sale of assets,
payment of dividends, and incurring of other debt, liens or guarantees and
making of investments. The primary financial covenants as defined in the
Credit Facility require the maintenance of minimum tangible net worth and
maximum debt ratio, fixed charge and interest coverage ratios.
The Revolving Credit Loans require commitment fees based on the daily
average unused portion of the Revolving Credit Facility. The fee is based upon
the Company's debt ratio as defined in the Credit Agreement and can range from
0.2% to 0.375%. At November 30, 1996 and February 29, 1996, the commitment fee
percentages were 0.325% and 0.25%, respectively. Commitment fees totaled
F-18
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
approximately $234,500 (unaudited), $585,000 (unaudited), $142,600, $269,600
(unaudited), $635,000, $223,000 and $228,000 for the nine months ended November
30, 1996, the comparable nine month period ended November 30, 1995, for the
Transition Period, the comparable six month period ended February 28, 1995 and
the fiscal years ended August 31, 1995, 1994 and 1993 respectively.
At February 29, 1996, the Company maintains in accordance with the Senior
Credit Facility an interest rate cap agreement, in an amount equal to
$61,000,000, which protects the Company against three-month LIBOR exceeding
8.75% per annum and expires in September 1996 and an interest rate collar
agreement in the amount of $20,000,000 which protects the Company against three
month LIBOR exceeding 6.25% per annum with a floor rate of 4.75% per annum
expiring in September 1997.
Senior subordinated notes --
During fiscal 1994, the Company borrowed $130,000,000 under a senior
subordinated loan agreement (the Subordinated Loan). The Company repaid the
Subordinated Loan in December 1993 with the proceeds from the $130,000,000
Senior Subordinated Notes (the Notes) offering together with revolving loan
borrowings. The Notes are due in 2003 with a stated interest rate of 8.75% per
annum. Interest is payable semi-annually on June 15 and December 15 of each
year. The Notes are unsecured and subordinated to the prior payment in full of
all senior indebtedness of the Company, which includes the Senior Credit
Facility. The Notes are guaranteed, on a senior subordinated basis, by all of
the Company's significant operating subsidiaries.
On October 29, 1996, the Company issued $65,000,000 aggregate principal
amount of unsecured Series B Senior Subordinated Notes (the "Series B Notes")
due 2003 at a stated rate of 8.75% per annum. The net proceeds from the sale of
the Series B Notes were used to repay amounts outstanding under its bank credit
facility, including revolving loans. Interest on the Series B Notes will be
payable semiannually on June 15 and December 15 of each year. The Series B
Notes are redeemable at the option of the Company, in whole or in part, on or
after December 15, 1998. The Series B Notes are unsecured and subordinated to
the prior payment in full of all senior indebtedness of the Company, which
includes the Senior Credit Facility, and the Series B Notes are guaranteed, on
a senior subordinated basis, by substantially all of the Company's operating
subsidiaries.
The Trust Indentures relating to the Notes and the Series B Notes contain
certain covenants, including, but not limited to, (i) limitation on
indebtedness; (ii) limitation on restricted payments; (iii) limitation on
transactions with affiliates; (iv) limitation on senior subordinated
indebtedness; (v) limitation on liens; (vi) limitation on sale of assets; (vii)
limitation on issuance of guarantees of and pledges for indebtedness; (viii)
restriction on transfer of assets; (ix) limitation on subsidiary capital stock;
(x) limitation on the creation of any restriction on the ability of the
Company's subsidiaries to make distributions and other payments; and (xi)
restrictions on mergers, consolidations and the transfer of all or
substantially all of the assets of the Company to another person. The
limitation on indebtedness covenant is governed by a rolling four quarter fixed
charge coverage ratio covenant requiring a specified minimum.
Convertible subordinated debentures --
On July 23, 1986, the Company issued $60,000,000 7% convertible subordinated
debentures used to expand the Company's operations through capital expenditures
and acquisitions. The debentures were convertible at any time prior to
maturity, unless previously redeemed, into Class A Common Stock of the Company
at a conversion price of $18.22 per share, subject to adjustment in the event
of future issuances of common stock.
During fiscal 1993, an aggregate principal amount of $976,000 of these
debentures was converted to 53,620 shares of Class A Common Stock.
F-19
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On October 18, 1993, the Company called its convertible debentures for
redemption on November 19, 1993, at a redemption price of 102.1% plus accrued
interest. Bondholders had until November 19, 1993, to convert their debentures
to common stock; any debentures remaining unconverted after that date would be
redeemed for cash in accordance with the terms of the original indenture.
During the period September 1, 1993, through November 19, 1993, debentures
in an aggregate principal amount of $58,960,000 were converted to 3,235,882
shares of the Company's Class A Common Stock at a price of $18.22 per share.
Debentures in an aggregate principal amount of approximately $63,000 were
redeemed. Interest was accrued on the debentures until the date of conversion
but was forfeited by the debenture holders upon conversion. Accrued interest
of approximately $1,370,000, net of the related tax effect of $520,000, was
recorded as an addition to additional paid-in capital.
At the redemption date, the capitalized debenture issuance costs of
approximately $2,246,000, net of accumulated amortization of approximately
$677,000, were recorded as a reduction of additional paid-in capital.
Loans payable --
Loans payable, secured by officers' life insurance policies, carry an
interest rate of 5%. The notes carry no due dates and it is management's
intention not to repay the notes during the next fiscal year.
Capitalized lease agreements--Industrial Development Agencies --
Certain capitalized lease agreements require the Company to make lease
payments equal to the principal and interest on certain bonds issued by
Industrial Development Agencies (IDA's). The bonds are secured by the leases
and the related facilities. These transactions have been treated as capital
leases with the related assets acquired to date of $10,731,000 included in
property, plant and equipment and the lease commitments included in long-term
debt. Accumulated amortization of the foregoing assets under capital leases at
November 30, 1996, February 29, 1996, February 28, 1995, and August 31, 1995
and 1994, is approximately $9,926,000 (unaudited), $9,436,000, $8,783,000
(unaudited), $9,109,000 and $8,456,000, respectively.
Among the provisions under the debenture and lease agreements are covenants
that define minimum levels of working capital and tangible net worth and the
maintenance of certain financial ratios as defined in the debt agreements.
Debt payments--
Principal payments required under long-term debt obligations during the next
five fiscal years are as follows:
<TABLE>
<CAPTION>
FEBRUARY 29, 1996:
------------------
(IN THOUSANDS)
<S> <C>
1997............ $ 40,797
1998............ 40,411
1999............ 40,119
2000............ 40,119
2001............ 40,000
Thereafter...... 166,967
--------
$368,413
========
</TABLE>
F-20
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES:
The provision for Federal and state income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS ENDED YEARS ENDED
FEBRUARY 29, 1996 AUGUST 31,
------------------------ -----------------------
STATE &
FEDERAL LOCAL TOTAL 1995 1994 1993
(in thousands) ------- ------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Current income tax (benefit)
provision...................... $ (116) $1,506 $1,390 $ 6,446 $11,510 $8,636
Deferred income tax (benefit) 2,224 (233) 1,991 19,232 (4,319) 1,028
provision...................... ------ ------ ------ ------- ------- ------
$2,108 $1,273 $3,381 $25,678 $ 7,191 $9,664
====== ====== ====== ======= ======= ======
</TABLE>
The components of the deferred income tax provision (benefit) are as
follows:
<TABLE>
<CAPTION>
FOR THE FOR THE YEARS ENDED
SIX MONTHS ENDED AUGUST 31,
FEBRUARY 29, ------------------------
1996 1995 1994 1993
---------------- ------- ------- ------
(in thousands)
<S> <C> <C> <C> <C>
Accelerated tax depreciation
and amortization............. $ 4,752 $10,089 $ 4,610 $ 758
LIFO reserve.................. (2,007) 1,871 1,306 (202)
Prepaid advertising........... (922) 792 258 701
Inventory reserves............ 1,868 5,163 (2,186) (249)
Restructuring costs........... 2,155 3,144 (8,843) --
Other accruals................ (3,855) (1,827) 536 20
------- ------- ------- ------
$ 1,991 $19,232 $(4,319) $1,028
======= ======= ======= ======
</TABLE>
The deferred tax provision has been increased by approximately $45,000 and
$235,000 in fiscal 1994 and 1993, respectively, for the impact of the change
in the federal statutory rate.
A reconciliation of total tax provision to the amount computed by applying
the expected U.S. Federal income tax rate to income before provision for
income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE YEARS ENDED AUGUST 31, 1996
SIX MONTHS ENDED ------------------------------------------------
FEBRUARY 29, 1996 1995 1994 1993
------------------ ------------------ -------------- --------------
% OF % OF
% OF % OF PRE- PRE-
PRE-TAX PRE- TAX TAX TAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
--------- -------- ------- --------- ------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
"Expected" tax provi-
sion................... $ 2,346 35.0 $23,344 35.0 $6,623 35.0 $8,758 34.7
State and local income
taxes, net of federal
income tax benefit..... 827 12.3 2,395 3.6 644 3.4 870 3.4
Nondeductible meals and
entertainment expenses. 205 3.1 290 .4 87 .5 48 .2
Miscellaneous items, 3 -- (351) (.5) (163) (.9) (12) (.1)
net.................... --------- ------- ------- ---- ------ ---- ------ ----
$ 3,381 50.4 $25,678 38.5 $7,191 38.0 $9,664 38.2
========= ======= ======= ==== ====== ==== ====== ====
</TABLE>
F-21
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred tax liabilities (assets) are comprised of the following:
<TABLE>
<CAPTION>
FEBRUARY 29, AUGUST 31,
------------ ----------------
1996 1995 1994
(in thousands) ------------ ------- -------
<S> <C> <C> <C>
Depreciation & amortization................ $66,746 $55,015 $40,152
LIFO reserve............................... 2,638 4,644 2,672
Prepaid advertising........................ 2,201 3,107 2,281
Restructuring costs........................ (3,963) (6,133) (9,482)
Inventory reserves......................... 3,648 1,718 (3,734)
Other accruals............................. (9,685) (5,027) 2,511
------- ------- -------
$61,585 $53,324 $34,400
======= ======= =======
</TABLE>
At February 29, 1996, the Company has state and U.S. Federal net operating
loss carryforwards of $15,655,000 and $3,880,000, respectively, to offset
future taxable income that, if not otherwise utilized, will expire at February
28, 2001 and 2011, respectively.
9. PROFIT SHARING RETIREMENT PLANS AND RETIREMENT SAVINGS PLAN:
The Company's profit sharing retirement plans, which cover substantially all
employees, provide for contributions by the Company in such amounts as the
Board of Directors may annually determine and for voluntary contributions by
employees. The plans have qualified as tax-exempt under the Internal Revenue
Code and conform with the Employee Retirement Income Security Act of 1974.
Company contributions to the plans, including the Barton plan described below,
were $2,792,000 (unaudited) and $3,819,000 (unaudited) for the nine months
ended November 30, 1996 and 1995, respectively, $3,608,000 in the Transition
Period, $3,830,000, $3,414,000, and $1,290,000 in fiscal 1995, 1994 and 1993,
respectively.
In connection with the Barton Acquisition, the Company assumed Barton's
profit sharing and 401(k) plan which covers all salaried employees of Barton.
The amount of Barton's contribution under the profit sharing portion of the
plan is at the discretion of its Board of Directors, subject to limitations of
the plan. Contribution expense was $1,731,000 (unaudited) and $1,252,000
(unaudited) for the nine months ended November 30, 1996 and 1995,
respectively, and $1,095,000 in the Transition Period, $1,430,000 in fiscal
1995, $1,395,000 in fiscal 1994, and $230,000 from the date of acquisition to
August 31, 1993. Pursuant to the 401(k) portion of the plan, participants may
defer up 8% of their compensation for the year and receive no matching
contribution from Barton.
The Company's retirement savings plan, established pursuant to Section
401(k) of the Internal Revenue Code, permits substantially all full-time
employees of the Company to defer a portion of their compensation on a pre-tax
basis. Participants, exclusive of Barton employees, may defer up to 10% of
their compensation for the year and the Company makes a matching contribution
of 25% of the first 4% of compensation an employee defers. Company
contributions to this plan were $544,000 (unaudited) and $270,000 (unaudited)
for the nine months ended November 30, 1996 and 1995, respectively, $325,000
in the Transition Period and $281,000, $207,000, and $131,000 in fiscal 1995,
1994 and 1993, respectively.
F-22
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. STOCKHOLDERS' EQUITY:
Common stock --
The Company has two classes of common stock: Class A Common Stock and Class
B Convertible Common Stock. Class B Convertible Common Stock shares are
convertible into shares of Class A Common Stock on a one-to-one basis at any
time at the option of the holder. Holders of Class B Convertible Common Stock
are entitled to ten votes per share. Holders of Class A Common Stock are
entitled to only one vote per share but are entitled to a cash dividend
premium. If the Company pays a cash dividend on Class B Convertible Common
Stock, each share of Class A Common Stock will receive an amount at least ten
percent greater than the amount of the cash dividend per share paid on Class B
Convertible Common Stock. In addition, the Board of Directors may declare and
pay a dividend on Class A Common Stock without paying any dividend on Class B
Convertible Common Stock.
At February 29, 1996, there were 16,257,296 shares of Class A Common Stock
and 3,365,958 shares of Class B Convertible Common Stock outstanding, net of
treasury stock.
On June 28, 1993, the Company approved an increase in the number of
authorized shares of the Company's Class A Common Stock from 15,000,000 shares
to 60,000,000 shares and an increase in the number of authorized shares of the
Company's Class B Convertible Common Stock from 5,000,000 shares to 20,000,000
shares.
Stock repurchase authorization --
On January 11, 1996, the Company's Board of Directors authorized the
repurchase of up to $30,000,000 of its Class A and Class B Common stock. The
Company may finance such purchases, which will become treasury shares, through
cash generated from operations or through the Credit Facility. No shares were
repurchased as of February 29, 1996, and 785,200 shares of Class A Common
stock totaling $20,702,000 (unaudited) were repurchased during the nine months
ended November 30, 1996.
Preferred stock --
The Company is authorized to issue up to 1,000,000 shares of preferred
stock, par value $.01 per share, in one or more series. The Board of Directors
of the Company is entitled to authorize the issuance of preferred stock with
such rights, qualifications, limitations and restrictions as may be determined
by the Board. No preferred stock has been issued as of February 29, 1996.
Stock option and stock appreciation right plan--
Canandaigua Wine Company, Inc. has in place a Stock Option and Stock
Appreciation Right Plan (the Plan). Under the Plan, nonqualified stock options
and incentive stock options may be granted to purchase and stock appreciation
rights may be granted with respect to, in the aggregate, not more than
3,000,000 shares of the Company's Class A Common Stock. Options and stock
appreciation rights may be issued to employees, officers or directors of the
Company. Nonemployee directors are eligible to receive only nonqualified stock
options and stock appreciation rights. The option price of any incentive stock
option may not be less than the fair market value of the shares on the date of
grant. The exercise price of any nonqualified stock option must equal or
exceed 50% of the fair market value of the shares on the date of grant.
Options are exercisable as determined by the Compensation
F-23
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Committee of the Board of Directors. Changes in the status of the Plan during
the nine months ended November 30, 1996, the Transition Period and fiscal
1995, 1994 and 1993 are summarized as follows:
<TABLE>
<CAPTION>
NOVEMBER AUGUST 31,
30, FEBRUARY 29, --------------------------
1996 1996 1995 1994
----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Options outstanding at
beginning of period.... 1,093,725 733,925 563,500 452,375
Options granted......... 263,850 571,050 289,000 125,000
Options exercised....... (2,250) (18,000) (114,075) (2,250)
Options
forfeited/canceled..... (37,400) (193,250) (4,500) (11,625)
----------- ------------ ------------ ------------
Options outstanding at
end
of period.............. 1,317,925 1,093,725 733,925 563,500
Number of options at end of period:
Exercisable........... 28,675 28,675 39,675 2,250
Available for grant... 1,513,100 1,739,550 2,117,350 2,401,850
Price range of options:
Granted during period. $17.00 $35.75-49.00 $33.25-44.75 $22.25-30.25
Outstanding at end of
period............... $4.44-30.00 $4.44-36.00 $4.44-44.75 $4.44-30.25
Exercised during the pe-
riod................... $4.44 $4.44-33.25 $4.44-24.25 $4.44
</TABLE>
Employee stock purchase plan--
In fiscal 1989, the Company approved a stock purchase plan under which
1,125,000 shares of Class A Common Stock can be issued. Under the terms of the
plan, eligible employees may purchase shares of the Company's Class A Common
Stock through payroll deductions. The purchase price is the lower of 85% of
the fair market value of the stock on the first or last day of the purchase
period. During the nine months ended November 30, 1996, the Transition Period
and fiscal 1995, 1994 and 1993, employees purchased 37,779 (unaudited),
20,869, 28,641, 58,955 and 21,071 shares, respectively.
Stock Offering--
During November 1994, the Company completed a public offering and sold
3,000,000 shares of its Class A Common Stock (the Stock Offering), resulting
in net proceeds to the Company of approximately $95,515,000 after
underwriters' discounts and commissions and expenses. In connection with the
offering, 432,067 of the Vintners Option Shares were exercised and the Company
received proceeds of $7,885,000. Under the terms of the amended Credit
Agreement, approximately $82,000,000 was used to repay a portion of the Term
Loan under the Company's Credit Facility. The balance of net proceeds was used
to repay Revolving Credit Loans under the Credit Facility.
F-24
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. COMMITMENTS AND CONTINGENCIES:
Operating leases--
Future payments under noncancelable operating leases having initial or
remaining terms of one year or more are as follows:
<TABLE>
<CAPTION>
FEBRUARY 29, 1996
-----------------
(IN THOUSANDS)
<S> <C>
1997................................. $1,169
1998................................. 923
1999................................. 766
2000................................. 742
2001................................. 732
2002................................. 724
Thereafter........................... 1,802
------
$6,858
======
</TABLE>
Rental expense was approximately $3,569,000 (unaudited) and $3,325,000
(unaudited) for the nine months ended November 30, 1996 and 1995,
respectively, $2,382,000 in the Transition Period, $4,193,000 in fiscal 1995,
$3,318,000 in fiscal 1994 and $1,841,000 in fiscal 1993.
Purchase commitments and contingencies--
The Company has four agreements with certain suppliers to purchase blended
Scotch whisky through December 31, 1999. The purchase prices under the
agreements are denominated in British pounds sterling and based upon exchange
rates at February 29, 1996, the Company's aggregate future obligation will be
approximately $1,376,000 to $1,681,000 for the contracts expiring on December
31, 1996, and approximately $10,730,000 to $24,748,000 for the contracts
expiring through December 31, 1999.
The Company has two agreements to purchase Canadian blended whisky through
December 31, 1999 at a purchase price of approximately $2,819,000 to
$13,035,000. The Company also has two agreements to purchase Canadian new
distillation whisky (including dumping charges) through December 2002 at
purchase prices of approximately $15,129,000 to $16,626,000. In addition, the
Company has an agreement to purchase corn whiskey through April 1999 at a
purchase price of approximately $562,000.
All of the Company's imported beer products are marketed and sold pursuant
to exclusive distribution agreements from the suppliers of these products. The
agreements have terms that vary and require compliance with certain terms and
conditions. The Company's agreement to distribute Corona and its other Mexican
beer brands exclusively throughout 25 states was renewed effective January
1994 and expires in December 1998 with automatic renewal thereafter for one
year periods from year to year unless terminated. The remaining agreements
expire through the year 2003. Prior to their expiration, these agreements may
be terminated if the Company fails to meet certain performance criteria. At
February 29, 1996, the Company believes it is in compliance with all of its
material distribution agreements and given the Company's long-term
relationships with its suppliers, the Company does not believe that these
agreements will be terminated.
In connection with the Vintners Acquisition and the Almaden/Inglenook
Acquisition, the Company assumed purchase contracts with certain growers and
suppliers. In addition, the Company has also
F-25
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
entered into other purchase contracts with various growers and suppliers in
the normal course of business. Under the grape purchase contracts, the Company
is committed to purchase all grape production yielded from a specified number
of acres for a period of time ranging up to sixteen years. The actual tonnage
and price of grapes that must be purchased by the Company will vary each year
depending on certain factors, including weather, time of harvest, overall
market conditions and the agricultural practices and location of the growers
and suppliers under contract.
The Company purchased $113,880,000 of grapes under these contracts during
the Transition Period. Based on current production yields and published grape
prices, the Company estimates that the aggregate purchases under these
contracts over the remaining term of the contracts will be approximately
$730,574,000. During fiscal 1994, in connection with the Vintners Acquisition
and the Almaden/Inglenook Acquisition, the Company established a reserve for
the estimated loss on these firm purchase commitments of approximately
$62,664,000 which was subsequently reduced during fiscal 1995, to reflect the
effects of the termination payments to cancel contracts with certain growers
(see Note 2). The remaining reserve for the estimated loss on the remaining
contracts is approximately $2,347,000 (unaudited) at November 30, 1996 and
$10,656,000 at February 29, 1996.
The Company's aggregate obligations under grape crush and processing
contracts will be approximately $5,662,000 over the remaining term of the
contracts which expire through fiscal 2000.
Currency forward contracts--
At February 29, 1996, the Company had open currency forward contracts to
purchase British pound sterling of $3,129,000, which mature through September
1996; the fair market value, based upon February 29, 1996, market rates was
$3,164,000. At August 31, 1995, there were no currency forward contracts
outstanding. At August 31, 1994, the Company had open currency forward
contracts to purchase German marks of $6,674,000 and British pounds sterling
of $579,000, both of which matured within 12 months; their fair market values,
based upon August 31, 1994, market exchange rates, were $7,382,000 and
$614,000, respectively.
Employment contracts--
The Company has employment contracts with certain of its executive officers
and certain other management personnel with remaining terms ranging up to five
years. These agreements provide for minimum salaries, as adjusted for annual
increases, and may include incentive bonuses based upon attainment of
specified management goals. In addition, these agreements also provide for
severance payments in the event of specified termination of employment. The
aggregate commitment for future compensation and severance, excluding
incentive bonuses, was approximately $5,278,000 as of February 29, 1996, of
which approximately $1,879,000 is accrued in other liabilities as of February
29, 1996.
Legal matters--
The Company is subject to litigation from time to time in the ordinary
course of business. Although the amount of any liability with respect to such
litigation cannot be determined, in the opinion of management, such liability
will not have a material adverse effect on the Company's financial condition
or results of operations.
12. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
The Company sells its products principally to wholesalers for resale to
retail outlets including grocery stores, package liquor stores, club and
discount stores and restaurants. Gross sales to the five largest wholesalers
of the Company represented 16.9%, 21.6%, 23.7% and 25.1% of the Company's
F-26
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
gross sales for the Transition Period and for the fiscal years ended August
31, 1995, 1994 and 1993, respectively. Gross sales to the Company's largest
wholesaler represented 10.6% and 12.3% of the Company's gross sales for the
fiscal years ended August 31, 1995 and 1994; no single wholesaler was
responsible for greater than 10% of gross sales during the Transition Period
and the fiscal year ended August 31, 1993. Gross sales to the Company's five
largest wholesalers are expected to continue to represent a significant
portion of the Company's revenues. The Company's arrangements with certain of
its wholesalers may, generally, be terminated by either party with prior
notice. The Company performs ongoing credit evaluations of its customers'
financial position, and management of the Company is of the opinion that any
risk of significant loss is reduced due to the diversity of customers and
geographic sales area.
13. RESTRUCTURING PLAN:
The Company provided for costs to restructure the operations of its
California wineries (the Restructuring Plan) in the fourth quarter of fiscal
1994. Under the Restructuring Plan, all bottling operations at the Central
Cellars Winery in Lodi, California, and the branded wine bottling operations
at the Monterey Cellars Winery in Gonzales, California, were moved to the
Mission Bell Winery located in Madera, California. The Monterey Cellars Winery
will continue to be used as a crushing, winemaking and contract bottling
facility. The Central Cellars Winery was closed in the fourth quarter of
fiscal 1995 and was sold for its approximate net book value subsequent to
February 29, 1996. In fiscal 1994, the Restructuring Plan reduced income
before taxes and net income by approximately $24,005,000 and $14,883,000,
respectively, or $.91 per share on a fully diluted basis. Of the total pretax
charge in fiscal 1994, approximately $16,481,000 was to recognize estimated
losses associated with the revaluation of land, buildings and equipment
related to facilities described above, to their estimated net realizable
value; and approximately $7,524,000 related to severance and other benefits
associated with the elimination of 260 jobs. In fiscal 1995, the Restructuring
Plan reduced income before income taxes and net income by approximately
$2,238,000 and $1,376,000, respectively, or $.07 per share on a fully diluted
basis. Of this total pretax charge in fiscal 1995, $4,288,000 relates to
equipment relocation and employee hiring and relocation costs, offset by a
decrease of $2,050,000 in the valuation reserve as compared to fiscal 1994,
primarily related to the land, buildings and equipment at the Central Cellars
Winery. The Company also expended approximately $19,071,000 in fiscal 1995 for
capital expenditures to expand storage capacity and install certain relocated
equipment. In the Transition Period, the expense incurred in connection with
the Restructuring Plan reduced income before taxes and net income by
approximately $2,404,000 and $1,192,000, respectively, or $.06 per share.
These charges represent incremental, nonrecurring expenses of $3,982,000
primarily incurred for overtime and freight expenses resulting from
inefficiencies related to the Restructuring Plan, offset by a reduction in the
accrual for restructuring expenses of $1,578,000, primarily for severance and
facility holding and closure costs. The Company expended approximately
$6,644,000 during the Transition Period, for capital expenditures to expand
storage capacity. As of February 29, 1996, employment has been reduced by 177
jobs and no additional reductions are expected. As of November 30, 1996,
February 29, 1996, August 31, 1995 and 1994, the Company had accrued
approximately $592,000 (unaudited), $1,186,000, $4,251,000 and $9,106,000,
respectively, relating to the Restructuring Plan.
F-27
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. SUMMARIZED FINANCIAL INFORMATION - SUBSIDIARY GUARANTORS:
The following table presents summarized financial information for subsidiary
guarantors in connection with the Company's 8.75% Series C Senior Subordinated
Notes:
<TABLE>
<CAPTION>
NOVEMBER 30, FEBRUARY 29, FEBRUARY 28, AUGUST 31, AUGUST 31,
1996 1996 1995 1995 1994
------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
(in thousands)
Balance Sheet Data:
Current assets........ $446,473 $404,655 $358,723 $303,497 $356,331
Noncurrent assets..... $306,147 $306,647 $160,267 $175,198 $162,407
Current liabilities... $140,089 $122,923 $101,876 $ 90,730 $129,252
Noncurrent liabili-
ties................. $ 58,544 $ 67,132 $ 71,732 $ 62,315 $ 93,177
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE SIX FOR THE YEARS
ENDED NOVEMBER 30, MONTHS ENDED ENDED AUGUST 31,
------------------- ------------------------- ---------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1995 1996 1995 1995 1994 1993
--------- --------- ------------ ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(in thousands)
Income Statement Data:
Net sales............. $ 718,676 $ 597,164 $416,839 $334,885 $716,969 $514,466 $122,450
Gross profit.......... $ 127,306 $ 99,787 $ 73,843 $ 62,883 $131,489 $ 81,454 $ 25,378
Income (loss) before
provision for Federal
and state income tax-
es................... $ 34,602 $ 31,940 $ 17,083 $ 22,690 $ 52,756 $ (7,048) $ 8,898
Net income (loss)..... $ 19,903 $ 19,615 $ 8,466 $ 13,954 $ 32,445 $ (4,370) $ 5,495
</TABLE>
15. ACCOUNTING PRONOUNCEMENTS:
In March 1995, Statement of Financial Accounting Standards No. 121 (SFAS No.
121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," was issued. This statement requires companies to
review long-lived assets, including certain intangibles and goodwill, for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company will be
required to adopt SFAS No. 121 in fiscal 1997. The Company believes the effect
of adoption will not be material.
In October 1995, Statement of Financial Accounting Standards No. 123 (SFAS
No. 123), "Accounting for Stock-Based Compensation," was issued. This statement
encourages companies to use the fair value based method to measure compensation
cost, which is then recognized over the service period (usually the vesting
period). Companies which continue to measure compensation cost using the
intrinsic value method as prescribed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees", will be required to disclose pro forma net income
and, if presented, earnings per share as if the fair value based method had
been applied. The Company will be required to adopt SFAS No. 123 on a
prospective basis beginning in fiscal 1997. The Company has elected to apply
the provisions of APB Opinion No. 25 and will comply with the disclosure
requirements in the notes to its fiscal 1997 consolidated financial statements.
F-28
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. FEBRUARY FISCAL YEAR FINANCIAL DATA (UNAUDITED):
The financial data presented below summarizes unaudited activity for the
1996, 1995 and 1994 fiscal years ended the last day of February.
<TABLE>
<CAPTION>
FULL YEAR FULL YEAR FULL YEAR
RECAST RECAST RECAST
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
(in thousands)
GROSS SALES.......................... $1,331,184 $1,046,792 $ 635,983
Less--Excise taxes................. (344,101) (257,239) (165,049)
---------- ---------- ---------
Net Sales........................ 987,083 789,553 470,934
COST OF PRODUCT SOLD................. (722,325) (566,713) (332,463)
---------- ---------- ---------
Gross profit..................... 264,758 222,840 138,471
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ (191,683) (141,653) (93,903)
NONRECURRING RESTRUCTURING EXPENSES.. (3,957) (24,690) --
---------- ---------- ---------
Operating income................. 69,118 56,497 44,568
INTEREST EXPENSE--NET................ (28,758) (22,911) (11,495)
---------- ---------- ---------
Income before provision for Federal
and state income taxes ........... 40,360 33,586 33,073
PROVISION FOR FEDERAL AND STATE
INCOME TAXES ....................... (16,339) (12,928) (12,629)
---------- ---------- ---------
NET INCOME........................... $ 24,021 $ 20,658 $ 20,444
========== ========== =========
</TABLE>
17. SUBSEQUENT EVENTS (UNAUDITED):
Vintners Holdback--
On September 26, 1996, the Company reached a final settlement with the
company formerly known as Vintners International Company, Inc. and its lenders
on the disputed final closing net asset statement. As a result, the Company
will record a purchase price reduction for the Vintners Acquisition, which will
reduce recorded goodwill by approximately $5,894,000 (see Note 2).
F-29
<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 ANY 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>
<S> <C>
Summary.................................................................... 1
Risk Factors............................................................... 12
The Exchange Offer......................................................... 19
Use of Proceeds............................................................ 27
Capitalization............................................................. 28
Selected Historical Financial Data......................................... 29
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 31
Industry................................................................... 46
Business................................................................... 48
Management................................................................. 60
Description of Credit Facility............................................. 62
Description of Notes....................................................... 64
Certain Federal Income Tax Considerations.................................. 93
Plan of Distribution....................................................... 97
Legal Matters.............................................................. 98
Experts.................................................................... 98
Available Information...................................................... 98
Incorporation of Certain Documents by Reference............................ 99
Index to Consolidated Financial Statements................................. F-1
</TABLE>
PROSPECTUS
CANANDAIGUA WINE
COMPANY, INC.
OFFER TO EXCHANGE UP TO $65,000,000 AGGREGATE PRINCIPAL AMOUNT OF ITS 8 3/4%
SERIES C SENIOR SUBORDINATED NOTES DUE 2003 FOR ANY AND ALL OF ITS 8 3/4%
SERIES B SENIOR SUBORDINATED NOTES DUE 2003
LOGO
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The General Corporation Law of Delaware (Section 102) allows a corporation
to eliminate the personal liability of directors of a corporation to the
corporation or to any of its stockholders for monetary damage for a breach of
his/her fiduciary duty as a director, except in the case where the director
breached his/her duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or knowingly violated a law, authorized the payment of
a dividend or approved a stock repurchase in violation of Delaware corporate
law or obtained an improper personal benefit. The Restated Certificate of
Incorporation of the Company contains a provision which eliminates directors'
personal liability as set forth above.
The General Corporation Law of Delaware (Section 145) gives Delaware
corporations broad powers to indemnify their present and former directors and
officers and those of affiliated corporations against expenses incurred in the
defense of any lawsuit to which they are made parties by reason of being or
having been such directors or officers, subject to specified conditions and
exclusions; gives a director or officer who successfully defends an action the
right to be so indemnified; and authorizes the Company to buy directors' and
officers' liability insurance. Such indemnification is not exclusive of any
other right to which those indemnified may be entitled under any bylaw,
agreement, vote of stockholders or otherwise.
The Company's Restated Certificate of Incorporation provides for
indemnification to the fullest extent authorized by Section 145 of the General
Corporation Law of Delaware for directors, officers and employees of the
Company and also to persons who are serving at the request of the Company as
directors, officers or employees of other corporations (including
subsidiaries); provided that, with respect to proceedings initiated by such
indemnitee, indemnification shall be provided only if such proceedings were
authorized by the Board of Directors. This right of indemnification is not
exclusive of any other right which any person may acquire under any statute,
bylaw, agreement, contract, vote of stockholders or otherwise.
The Company maintains directors' and officers' liability insurance and
corporate reimbursement policies insuring directors and officers against loss
arising from claims made arising out of the performance of their duties.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
*2.1 Asset Purchase Agreement dated August 2, 1991 between the Registrant
and Guild Wineries and Distilleries, as assigned to an acquiring
subsidiary (filed as Exhibit 2(a) to the Registrant's Report on Form
8-K dated October 1, 1991 and incorporated herein by reference).
*2.2 Stock Purchase Agreement dated April 27, 1993 among the Registrant,
Barton Incorporated and the stockholders of Barton Incorporated,
Amendment No. 1 to Stock Purchase Agreement dated May 3, 1993, and
Amendment No. 2 to Stock Purchase Agreement dated June 29, 1993 (filed
as Exhibit 2(a) to the Registrant's Current Report on Form 8-K dated
June 29, 1993 and incorporated herein by reference).
*2.3 Asset Sale Agreement dated September 14, 1993 between the Registrant
and Vintners International Company, Inc. (filed as Exhibit 2(a) to the
Registrant's Current Report on Form 8-K dated October 15, 1993 and
incorporated herein by reference).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
*2.4 Amendment dated as of October 14, 1993 to Asset Sale Agreement dated
as of September 14, 1993 by and between Vintners International
Company, Inc. and the Registrant (filed as Exhibit 2(b) to the
Registrant's Current Report on Form 8-K dated October 15, 1993 and
incorporated herein by reference).
*2.5 Amendment No. 2 dated as of January 18, 1994 to Asset Sale Agreement
dated as of September 14, 1993 by and between Vintners International
Company, Inc. and the Registrant (filed as Exhibit 2.1 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended February 28, 1994 and incorporated herein by reference).
*2.6 Asset Purchase Agreement dated August 3, 1994 between the Registrant
and Heublein, Inc. (filed as Exhibit 2(a) to the Registrant's Current
Report on Form 8-K dated August 5, 1994 and incorporated herein by
reference).
*2.7 Amendment dated November 8, 1994 to Asset Purchase Agreement between
Heublein, Inc. and Registrant (filed as Exhibit 2.2 to the
Registrant's Registration Statement on Form S-3 (Amendment No. 2)
(Registration No. 33-55997) filed with the Securities and Exchange
Commission on November 8, 1994 and incorporated herein by reference).
*2.8 Amendment dated November 18, 1994 to Asset Purchase Agreement between
Heublein, Inc. and the Registrant (filed as Exhibit 2.8 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1994 and incorporated herein by reference).
*2.9 Amendment dated November 30, 1994 to Asset Purchase Agreement between
Heublein, Inc. and the Registrant (filed as Exhibit 2.9 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended November 30, 1994 and incorporated herein by reference).
*2.10 Asset Purchase Agreement among Barton Incorporated (a wholly-owned
subsidiary of the Registrant), United Distillers Glenmore, Inc.,
Schenley Industries, Inc., Medley Distilling Company, United
Distillers Manufacturing, Inc., and The Viking Distillery, Inc., dated
August 29, 1995 (filed as Exhibit 2(a) to the Registrant's Current
Report on Form 8-K, dated August 29, 1995 and incorporated herein by
reference).
*3.1 Restated Certificate of Incorporation of the Registrant (filed as
Exhibit 3.1 to the Registrant's Transition Report on Form 10-K for the
fiscal period ended February 29, 1996 and incorporated herein by
reference).
*3.2 Amended and Restated By-laws of the Registrant (filed as Exhibit 3.2
to the Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended November 30, 1995 and incorporated herein by reference).
*4.1 Form of Note.
*4.2 Indenture.
*4.3 Specimen of Certificate of Class A Common Stock of the Company (filed
as Exhibit 1.1 to the Registrant's Statement on Form 8-A dated April
28, 1992 and incorporated herein by reference).
*4.4 Specimen of Certificate of Class B Common Stock of the Company (filed
as Exhibit 1.2 to the Registrant's Statement on Form 8-A dated April
28, 1992 and incorporated herein by reference).
*4.5 Indenture dated as of December 27, 1993 among the Registrant, its
Subsidiaries and Chemical Bank (filed as Exhibit 4.1 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended November 30, 1993 and incorporated herein by reference).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
*4.6 First Supplemental Indenture dated as of August 3, 1994 among the
Registrant, Canandaigua West, Inc. and Chemical Bank (filed as Exhibit
4.5 to the Registrant's Registration Statement on Form S-8
(Registration No. 33-56557) and incorporated herein by reference).
*4.7 Second Supplemental Indenture dated August 25, 1995, among the
Registrant, V Acquisition Corp. (a subsidiary of the Registrant now
known as The Viking Distillery, Inc.) and Chemical Bank (filed as
Exhibit 4.5 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended August 31, 1995 and incorporated herein by
reference).
*4.8 Registration Rights Agreement.
*5.1 Opinion of McDermott, Will & Emery.
8.1 Opinion of McDermott, Will & Emery regarding Certain Tax Matters.
*10.1 The Canandaigua Wine Company, Inc. Stock Option and Stock Appreciation
Right Plan (filed as Appendix B of the Company's Definitive Proxy
Statement dated December 23, 1987 and incorporated herein by
reference.
*10.2 Amendment No. 1 to the Canandaigua Wine Company, Inc. Stock Option and
Stock Appreciation Right Plan (filed as Exhibit 10.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended August 31, 1992
and incorporated herein by reference).
*10.3 Amendment No. 2 to the Canandaigua Wine Company, Inc. Stock Option and
Stock Appreciation Right Plan (filed as Exhibit 28 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended November
30, 1992 and incorporated herein by reference.
*10.4 Amendment No. 3 to the Canandaigua Wine Company, Inc. Stock Option and
Stock Appreciation Right Plan (filed as Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1993 and incorporated herein by reference).
*10.5 Amendment No. 4 to the Canandaigua Wine Company, Inc. Stock Option and
Stock Appreciation Right Plan (filed as Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended November 30, 1993 and incorporated herein by reference).
*10.6 Amendment No. 5 to the Canandaigua Wine Company, Inc. Stock Option and
Stock Appreciation Right Plan (filed as Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended February 28, 1994 and incorporated herein by reference).
*10.7 Amendment No. 6 to the Canandaigua Wine Company, Inc. Stock Option and
Stock Appreciation Right Plan (filed as Exhibit 10.7 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1995 and incorporated herein by reference).
*10.8 Amendment No. 7 to the Canandaigua Wine Company, Inc. Stock Option and
Stock Appreciation Right Plan (filed as Exhibit 10.8 to the
Registrant's Transition Report on Form 10-K for the fiscal period
ended February 29, 1996 and incorporated herein by reference).
*10.9 Employment Agreement between Barton Incorporated and Ellis M. Goodman
dated as of October 1, 1991 as amended by Amendment to Employment
Agreement between Barton Incorporated and Ellis M. Goodman dated as of
June 29, 1993 (filed as Exhibit 10.5 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended August 31, 1993 and
incorporated herein by reference).
*10.10 Barton Incorporated Management Incentive Plan (filed as Exhibit 10.6
to the Registrant's Annual Report on Form 10-K for the fiscal year
ended August 31, 1993 and incorporated herein by reference).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
*10.11 Ellis M. Goodman Split Dollar Insurance Agreement (filed as Exhibit
10.7 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended August 31, 1993 and incorporated herein by reference).
*10.12 Barton Brands, Ltd. Deferred Compensation Plan (filed as Exhibit 10.8
to the Registrant's Annual Report on Form 10-K for the fiscal year
ended August 31, 1993 and incorporated herein by reference).
*10.13 Marvin Sands Split Dollar Insurance Agreement (filed as Exhibit 10.9
to the Registrant's Annual Report on Form 10-K for the fiscal year
ended August 31, 1993 and incorporated herein by reference).
*10.14 Amendment and Restatement dated as of June 29, 1993 of Credit
Agreement among the Registrant, its subsidiaries and certain banks for
which The Chase Manhattan Bank (National Association) acts as agent
(filed as Exhibit 2(b) to the Registrant's Current Report on Form 8-K
dated June 29, 1993 and incorporated herein by reference).
*10.15 Amendment No. 1 dated as of October 15, 1993 to Amendment and
Restatement dated as of June 29, 1993 of Credit Agreement among the
Registrant, its subsidiaries and certain banks for which The Chase
Manhattan Bank (National Association) acts as agent (filed as Exhibit
2(c) to the Registrant's Current Report on Form 8-K dated October 15,
1993 and incorporated herein by reference).
*10.16 Senior Subordinated Loan Agreement dated as of October 15, 1993 among
the Registrant, its subsidiaries and certain banks for which The Chase
Manhattan Bank (National Association) acts as agent (filed as Exhibit
2(d) to the Registrant's Current Report on Form 8-K dated October 15,
1993 and incorporated herein by reference).
*10.17 Second Amendment and Restatement dated as of August 5, 1994 of
Amendment and Restatement of Credit Agreement dated as of June 29,
1993 among the Registrant, its subsidiaries and certain banks for
which The Chase Manhattan Bank (National Association) acts as agent
(filed as Exhibit 2(b) to the Registrant's Current Report on Form 8-K
dated August 5, 1994 and incorporated herein by reference).
*10.18 Amendment No. 1 (dated as of August 5, 1994) to Second Amendment and
Restatement dated as of August 5, 1994 of Amendment and Restatement of
Credit Agreement dated as of June 29, 1993 among the Registrant, its
subsidiaries and certain banks for which The Chase Manhattan Bank
(National Association) acts as agent (filed as Exhibit 10.16 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1994 and incorporated herein by reference).
*10.19 Third Amended and Restated Credit Agreement between the Registrant,
its principal operating subsidiaries, and certain banks for which The
Chase Manhattan Bank (National Association) acts as Administrative
Agent, dated as of September 1, 1995 (filed as Exhibit 2(b) to the
Registrant's Current Report on Form 8-K, dated August 29, 1995 and
incorporated herein by reference).
*10.20 Amendment No. 1, dated as of December 20, 1995 to Third Amended and
Restated Credit Agreement between the Registrant, its principal
operating subsidiaries, and certain banks for which The Chase
Manhattan Bank (National Association) acts as Administrative Agent
(filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended November 30, 1995 and incorporated
herein by reference).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
*10.21 Amendment No. 2, dated as of January 10, 1996, to Third Amended and
Restated Credit Agreement between the Registrant, its principal
operating subsidiaries, and certain banks for which The Chase
Manhattan Bank (National Association) acts as Administrative Agent
(filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended November 30, 1995 and incorporated
herein by reference).
*10.22 Letter agreement, addressing compensation, between the Registrant and
Lynn Fetterman, dated March 22, 1990 (filed as Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended November 30, 1995 and incorporated herein by reference).
*10.23 Letter agreement, effective as of October 7, 1995, as amended,
addressing compensation, between the Registrant and Daniel Barnett
(filed as Exhibit 10.23 to the Registrant's Transition Report on Form
10-K for the fiscal period ended February 29, 1996 and incorporated
herein by reference).
*10.24 Amendment No. 3, dated as of May 17, 1996, to Third Amended and
Restated Credit Agreement between the Registrant, its principal
operating subsidiaries, and certain banks for which The Chase
Manhattan Bank (National Association) acts as Administrative Agent
(filed as Exhibit 10.24 to the Registrant's Transition Report on Form
10-K for the fiscal period ended February 29, 1996 and incorporated
herein by reference).
*10.25 Amendment No. 4, dated as of May 17, 1996, to Third Amended and
Restated Credit Agreement between the Registrant, its principal
operating subsidiaries, and certain banks for which The Chase
Manhattan Bank (successor by merger to The Chase Manhattan Bank, N.A.)
act as Administrative Agent (filed as Exhibit 10.3 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended May 31,
1996 and incorporated herein by reference).
*10.26 Amendment No. 5, dated as of October 10, 1996, to Third Amended and
Restated Credit Agreement between the Registrant, its principal
operating subsidiaries, and certain banks for which The Chase
Manhattan Bank (successor by merger to The Chase Manhattan Bank, N.A.)
acts as administrative agent.
*10.27 Amendment No. 8 to the Canandaigua Wine Company, Inc. Stock Option and
Stock Appreciation Right Plan.
11.1 Statement regarding Computation of Per Share Earnings.
12.1 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Price Waterhouse LLP.
*23.3 Consent of McDermott, Will & Emery (included in Exhibit 5.1).
*24.1 Powers of Attorney (included on signature page).
*25.1 Statement of Eligibility of Trustee.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees.
*99.4 Form of Letter to Clients.
</TABLE>
- --------
*Previously Filed.
(b) Financial Statement Schedules:
All schedules have been omitted either as inapplicable or because the
required information is included in the financial statements or notes thereto.
II-5
<PAGE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.
(b) 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 for 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.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF CANANDAIGUA, STATE OF NEW YORK ON JANUARY 31, 1997.
Canandaigua Wine Company, Inc.
/s/ Richard Sands
By: _____________________________________
Richard Sands
President and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board of January 31, 1997
________________________________________ Directors
Marvin Sands
/s/ Richard Sands President, Chief Executive January 31, 1997
________________________________________ Officer and a Director (Principal
Richard Sands Executive Officer and Principal
Financial Officer)
* Executive Vice President, General January 31, 1997
________________________________________ Counsel, Secretary and a Director
Robert Sands
* Senior Vice President and a January 31, 1997
________________________________________ Director
Bertram E. Silk
* Director January 31, 1997
________________________________________
James A. Locke, III
* Director January 31, 1997
________________________________________
</TABLE> George Bresler
/s/ Richard Sands
*By: ___________________________
Richard Sands
Attorney-in-Fact
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS RICHARD SANDS AND ROBERT SANDS AND EACH OF
THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES (INCLUDING HIS CAPACITY AS A DIRECTOR AND/OR OFFICER OF
CANANDAIGUA WINE COMPANY, INC.) TO SIGN ANY OR ALL AMENDMENTS (INCLUDING PRE-
EFFECTIVE AND POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND
TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION
THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-
IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES,
MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY
THE FOLLOWING PERSON IN THE CAPACITY AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Thomas F. Howe Vice President and Controller January 31, 1997
________________________________________ (Principal Accounting Officer)
Thomas F. Howe
</TABLE>
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF CANANDAIGUA, STATE OF NEW YORK ON JANUARY 31, 1997.
Batavia Wine Cellars, Inc.
/s/ Ned Cooper
By: _________________________________
Ned Cooper, President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Richard Sands Vice President and a January 31, 1997
____________________________________ Director (Principal
Richard Sands Financial Officer)
* Secretary and a Director January 31, 1997
____________________________________
Robert Sands
/s/ Ned Cooper President (Principal January 31, 1997
____________________________________ Executive Officer)
Ned Cooper
</TABLE>
/s/ Richard Sands
*By: __________________________
Richard Sands
Attorney-in-Fact
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS RICHARD SANDS AND ROBERT SANDS AND EACH OF
THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES (INCLUDING HIS CAPACITY AS A DIRECTOR AND/OR OFFICER OF
BATAVIA WINE CELLARS, INC.) TO SIGN ANY OR ALL AMENDMENTS (INCLUDING PRE-
EFFECTIVE AND POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND
TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION
THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-
IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES,
MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY
THE FOLLOWING PERSON IN THE CAPACITY AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Thomas F. Howe Controller (Principal January 31, 1997
____________________________________ Accounting Officer)
Thomas F. Howe
</TABLE>
II-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF CANANDAIGUA, STATE OF NEW YORK ON JANUARY 31, 1997.
Bisceglia Brothers Wine Co.
/s/ Richard Sands
By: _________________________________
Richard Sands, President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Richard Sands President and a Director January 31, 1997
____________________________________ (Principal Executive Officer
Richard Sands and Principal Financial
Officer)
* Secretary and a Director January 31, 1997
____________________________________
</TABLE> Robert Sands
/s/ Richard Sands
*By: __________________________
Richard Sands
Attorney-in-Fact
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS RICHARD SANDS AND ROBERT SANDS AND EACH OF
THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES (INCLUDING HIS CAPACITY AS A DIRECTOR AND/OR OFFICER OF
BISCEGLIA BROTHERS WINE CO.) TO SIGN ANY OR ALL AMENDMENTS (INCLUDING PRE-
EFFECTIVE AND POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND
TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION
THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-
IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES,
MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY
THE FOLLOWING PERSON IN THE CAPACITY AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Thomas F. Howe Controller (Principal January 31, 1997
____________________________________ Accounting Officer)
Thomas F. Howe
</TABLE>
II-9
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF CANANDAIGUA, STATE OF NEW YORK ON JANUARY 31, 1997.
California Products Company
/s/ Richard Sands
By: _________________________________
Richard Sands, President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Richard Sands President and a Director January 31, 1997
____________________________________ (Principal Executive Officer
Richard Sands and Principal Financial
Officer)
* Secretary and a Director January 31, 1997
____________________________________
</TABLE> Robert Sands
/s/ Richard Sands
*By: __________________________
Richard Sands
Attorney-in-fact
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS RICHARD SANDS AND ROBERT SANDS AND EACH OF
THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES (INCLUDING HIS CAPACITY AS A DIRECTOR AND/OR OFFICER OF
CALIFORNIA PRODUCTS COMPANY) TO SIGN ANY OR ALL AMENDMENTS (INCLUDING PRE-
EFFECTIVE AND POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND
TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION
THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-
IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES,
MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY
THE FOLLOWING PERSON IN THE CAPACITY AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Thomas F. Howe Controller (Principal January 31, 1997
___________________________________ Accounting Officer)
Thomas F. Howe
</TABLE>
II-10
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF CANANDAIGUA, STATE OF NEW YORK ON JANUARY 31, 1997.
Guild Wineries & Distilleries, Inc.
/s/ Richard Sands
By: _________________________________
Richard Sands, President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Richard Sands President and a Director January 31, 1997
____________________________________ (Principal Executive Officer
Richard Sands and Principal Financial
Officer)
* Secretary and a Director January 31, 1997
____________________________________
</TABLE> Robert Sands
/s/ Richard Sands
*By: __________________________
Richard Sands
Attorney-in-Fact
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS RICHARD SANDS AND ROBERT SANDS AND EACH OF
THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES (INCLUDING HIS CAPACITY AS A DIRECTOR AND/OR OFFICER OF
GUILD WINERIES & DISTILLERIES, INC.) TO SIGN ANY OR ALL AMENDMENTS (INCLUDING
PRE-EFFECTIVE AND POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT,
AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN
CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING
UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND
AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND
NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND
PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING
ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS
SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE
HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY
THE FOLLOWING PERSON IN THE CAPACITY AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Thomas F. Howe Controller (Principal January 31, 1997
____________________________________ Accounting Officer)
Thomas F. Howe
</TABLE>
II-11
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF CANANDAIGUA, STATE OF NEW YORK ON JANUARY 31, 1997.
Tenner Brothers, Inc.
/s/ Richard Sands
By: _________________________________
Richard Sands, President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Richard Sands President and a Director January 31, 1997
____________________________________ (Principal Executive Officer
Richard Sands and Principal Financial
Officer)
* Secretary and a Director January 31, 1997
____________________________________
</TABLE> Robert Sands
/s/ Richard Sands
*By: __________________________
Richard Sands Attorney-in-
Fact
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS RICHARD SANDS AND ROBERT SANDS AND EACH OF
THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES (INCLUDING HIS CAPACITY AS A DIRECTOR AND/OR OFFICER OF
TENNER BROTHERS, INC.) TO SIGN ANY OR ALL AMENDMENTS (INCLUDING PRE-EFFECTIVE
AND POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND TO FILE THE
SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH,
WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-
FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM
EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT
THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN
PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND
AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY
DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY
THE FOLLOWING PERSON IN THE CAPACITY AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Thomas F. Howe Controller (Principal January 31, 1997
____________________________________ Accounting Officer)
Thomas F. Howe
</TABLE>
II-12
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF CANANDAIGUA, STATE OF NEW YORK ON JANUARY 31, 1997.
Widmer's Wine Cellars, Inc.
/s/ Richard Sands
By: _________________________________
Richard Sands, President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Richard Sands President and a Director January 31, 1997
____________________________________ (Principal Executive Officer
Richard Sands and Principal Financial
Officer)
* Secretary and a Director January 31, 1997
____________________________________
</TABLE> Robert Sands
/s/ Richard Sands
By_____________________________
Richard Sands
Attorney-in-Fact
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS RICHARD SANDS AND ROBERT SANDS AND EACH OF
THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES (INCLUDING HIS CAPACITY AS A DIRECTOR AND/OR OFFICER OF
WIDMER'S WINE CELLARS, INC.) TO SIGN ANY OR ALL AMENDMENTS (INCLUDING PRE-
EFFECTIVE AND POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND
TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION
THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-
IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES,
MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY
THE FOLLOWING PERSON IN THE CAPACITY AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Thomas F. Howe Controller (Principal January 31, 1997
____________________________________ Accounting Officer)
Thomas F. Howe
</TABLE>
II-13
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF CHICAGO, STATE OF ILLINOIS ON JANUARY 31, 1997.
Barton Incorporated
/s/ Ellis M. Goodman
By: _________________________________
Ellis M. Goodman
Chairman of the Board of
Directors and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Ellis M. Goodman Chairman of the Board of January 31, 1997
____________________________________ Directors and Chief
Ellis M. Goodman Executive Officer (Principal
Executive Officer)
* President and a Director January 31, 1997
____________________________________
Alexander L. Berk
* Vice President and a January 31, 1997
____________________________________ Director
Edward L. Golden
* Executive Vice President, January 31, 1997
____________________________________ Treasurer, Assistant
Raymond E. Powers Secretary and a Director
(Principal Financial Officer
and Principal Accounting
Officer)
* Director January 31, 1997
____________________________________
</TABLE> William F. Hackett
/s/ Richard Sands
*By: __________________________
Richard Sands
Attorney-in-Fact
II-14
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF CHICAGO, STATE OF ILLINOIS ON JANUARY 31, 1997.
Barton Brands, Ltd.
/s/ Ellis M. Goodman
By: _________________________________
Ellis M. Goodman, Chairman of the
Board of Directors
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Ellis M. Goodman Chairman of the Board of January 31, 1997
____________________________________ Directors (Principal
Ellis M. Goodman Executive Officer)
* President and a Director January 31, 1997
____________________________________
Edward L. Golden
* Executive Vice President, January 31, 1997
____________________________________ Treasurer and Assistant
Raymond E. Powers Secretary (Principal
Financial Officer and
Principal Accounting
Officer)
* Executive Vice President and January 31, 1997
____________________________________ a Director
Alexander L. Berk
</TABLE>
/s/ Richard Sands
*By: __________________________
Richard Sands
Attorney-in-Fact
II-15
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF CHICAGO, STATE OF ILLINOIS ON JANUARY 31, 1997.
Barton Beers, Ltd.
/s/ Ellis M. Goodman
By: ____________________________
Ellis M. Goodman, Chairman of the
Board of Directors
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Ellis M. Goodman Chairman of the Board of January 31, 1997
____________________________________ Directors (Principal
Ellis M. Goodman Executive Officer)
* Executive Vice President, January 31, 1997
____________________________________ Treasurer and Assistant
Raymond E. Powers Secretary (Principal
Financial Officer and
Principal Accounting
Officer)
* Executive Vice President and January 31, 1997
____________________________________ a Director
Alexander L. Berk
* President and a Director January 31, 1997
____________________________________
William F. Hackett
</TABLE>
/s/ Richard Sands
*By: __________________________
Richard Sands
Attorney-in-Fact
II-16
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF CHICAGO, STATE OF ILLINOIS ON JANUARY 31, 1997.
Barton Brands of California, Inc.
/s/ Ellis M. Goodman
By: _________________________________
Ellis M. Goodman, President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Ellis M. Goodman President and a Director January 31, 1997
____________________________________ (Principal Executive
Ellis M. Goodman Officer)
* Vice President and a January 31, 1997
____________________________________ Director
Edward L. Golden
* Executive Vice President and January 31, 1997
____________________________________ a Director
Alexander L. Berk
* Executive Vice President, January 31, 1997
____________________________________ Treasurer, Assistant
Raymond E. Powers Secretary and a Director
(Principal Financial Officer
and Principal Accounting
Officer)
</TABLE>
/s/ Richard Sands
*By: __________________________
Richard Sands
Attorney-in-Fact
II-17
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF CHICAGO, STATE OF ILLINOIS ON JANUARY 31, 1997.
Barton Brands of Georgia, Inc.
/s/ Ellis M. Goodman
By: _________________________________
Ellis M. Goodman, President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Ellis M. Goodman President and a Director January 31, 1997
____________________________________ (Principal Executive
Ellis M. Goodman Officer)
* Vice President and a January 31, 1997
____________________________________ Director
Edward L. Golden
* Executive Vice President and January 31, 1997
____________________________________ a Director
Alexander L. Berk
* Executive Vice President, January 31, 1997
____________________________________ Treasurer and Assistant
Raymond E. Powers Secretary (Principal
Financial Officer and
Principal Accounting
Officer)
</TABLE>
/s/ Richard Sands
*By: __________________________
Richard Sands
Attorney-in-Fact
II-18
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF CHICAGO, STATE OF ILLINOIS ON JANUARY 31, 1997.
Barton Distillers Import Corp.
/s/ Ellis M. Goodman
By: _________________________________
Ellis M. Goodman, President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Ellis M. Goodman President and a Director January 31, 1997
____________________________________ (Principal Executive
Ellis M. Goodman Officer)
* Executive Vice President and January 31, 1997
____________________________________ a Director
Alexander L. Berk
* Executive Vice President, January 31, 1997
____________________________________ Treasurer, Assistant
Raymond E. Powers Secretary and a Director
(Principal Financial Officer
and Principal Accounting
Officer)
</TABLE>
/s/ Richard Sands
*By:___________________________
Richard Sands
Attorney-in-Fact
II-19
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF CHICAGO, STATE OF ILLINOIS ON JANUARY 31, 1997
Barton Financial Corporation
/s/ Raymond E. Powers
By: _________________________________
Raymond E. Powers, President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Raymond E. Powers President and Secretary January 31, 1997
____________________________________ (Principal Executive
Raymond E. Powers Officer)
* Treasurer and a Director January 31, 1997
____________________________________ (Principal Financial Officer
Charles T. Schlau and Principal Accounting
Officer)
* Director January 31, 1997
____________________________________
Charles B. Campbell, Jr.
</TABLE>
/s/ Richard Sands
*By: __________________________
Richard Sands
Attorney-in-Fact
II-20
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF CHICAGO, STATE OF ILLINOIS ON JANUARY 31, 1997.
Stevens Point Beverage Co.
/s/ Ellis M. Goodman
By: _________________________________
Ellis M. Goodman, Chairman of the
Board of Directors
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Ellis M. Goodman Chairman of the Board of January 31, 1997
____________________________________ Directors
Ellis M. Goodman
* Chief Executive Officer, January 31, 1997
____________________________________ President and a Director
James P. Ryan (Principal Executive
Officer)
* Executive Vice President and January 31, 1997
____________________________________ a Director
Alexander L. Berk
* Executive Vice President, January 31, 1997
____________________________________ Treasurer, Assistant
Raymond E. Powers Secretary and a Director
(Principal Financial Officer
and Principal Accounting
Officer)
</TABLE>
/s/ Richard Sands
*By: __________________________
Richard Sands
Attorney-in-Fact
II-21
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF CHICAGO, STATE OF ILLINOIS ON JANUARY 31, 1997.
Monarch Wine Company, Limited
Partnership
/s/ Ellis M. Goodman
By: ____________________________
Ellis M. Goodman, President and
Chairman of the Board of Directors
of Barton Management, Inc., its
general partner
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Ellis M. Goodman President and Chairman of January 31, 1997
____________________________________ the Board of Directors of
Ellis M. Goodman Barton Management, Inc.
(Principal Executive
Officer)
* Executive Vice President and January 31, 1997
____________________________________ a Director of Barton
Alexander L. Berk Management, Inc.
* Executive Vice President, January 31, 1997
____________________________________ Treasurer, Assistant
Raymond E. Powers Secretary and a Director of
Barton Management, Inc.
(Principal Financial Officer
and Principal Accounting
Officer)
</TABLE>
/s/ Richard Sands
*By: __________________________
Richard Sands
Attorney-in-Fact
II-22
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF CHICAGO, STATE OF ILLINOIS ON JANUARY 31, 1997.
Barton Management, Inc.
/s/ Ellis M. Goodman
By:__________________________________
Ellis M. Goodman, President and
Chairman of the Board of Directors
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Ellis M. Goodman President and Chairman of January 31, 1997
____________________________________ the Board of Directors
Ellis M. Goodman (Principal Executive
Officer)
* Executive Vice President and January 31, 1997
____________________________________ a Director
Alexander L. Berk
* Executive Vice President, January 31, 1997
____________________________________ Treasurer, Assistant
Raymond E. Powers Secretary and a Director
(Principal Financial Officer
and Principal Accounting
Officer)
</TABLE>
/s/ Richard Sands
*By: __________________________
Richard Sands
Attorney-in-Fact
II-23
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF CANANDAIGUA, STATE OF NEW YORK ON JANUARY 31, 1997.
Vintners International Company, Inc.
/s/ Richard Sands
By: _________________________________
Richard Sands, President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Richard Sands President and a Director January 31, 1997
____________________________________ (Principal Executive Officer
Richard Sands and Principal Financial
Officer)
* Secretary and a Director January 31, 1997
____________________________________
Robert Sands
</TABLE>
/s/ Richard Sands
*By: __________________________
Richard Sands
Attorney-in-Fact
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS RICHARD SANDS AND ROBERT SANDS AND EACH OF
THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES (INCLUDING HIS CAPACITY AS A DIRECTOR AND/OR OFFICER OF
VINTNERS INTERNATIONAL COMPANY, INC.) TO SIGN ANY OR ALL AMENDMENTS (INCLUDING
PRE-EFFECTIVE AND POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT,
AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN
CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING
UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND
AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND
NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND
PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING
ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS
SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE
HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY
THE FOLLOWING PERSON IN THE CAPACITY AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Thomas F. Howe Controller (Principal January 31, 1997
____________________________________ Accounting Officer)
Thomas F. Howe
</TABLE>
II-24
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF CANANDAIGUA, STATE OF NEW YORK ON JANUARY 31, 1997.
Canandaigua West, Inc.
/s/ Richard Sands
By: _________________________________
Richard Sands, President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Richard Sands President and a Director January 31, 1997
____________________________________ (Principal Executive Officer
Richard Sands and Principal Financial
Officer)
* Vice President, Secretary January 31, 1997
____________________________________ and a Director
Robert Sands
</TABLE>
/s/ Richard Sands
*By: __________________________
Richard Sands
Attorney-in-Fact
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS RICHARD SANDS AND ROBERT SANDS AND EACH OF
THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES (INCLUDING HIS CAPACITY AS A DIRECTOR AND/OR OFFICER OF
CANANDAIGUA WEST, INC.) TO SIGN ANY OR ALL AMENDMENTS (INCLUDING PRE-EFFECTIVE
AND POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND TO FILE THE
SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH,
WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-
FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM
EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT
THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN
PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND
AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY
DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY
THE FOLLOWING PERSON IN THE CAPACITY AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Thomas F. Howe Controller (Principal January 31, 1997
____________________________________ Accounting Officer)
Thomas F. Howe
</TABLE>
II-25
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF CHICAGO, STATE OF ILLINOIS ON JANUARY 31, 1997.
The Viking Distillery, Inc.
/s/ Ellis M. Goodman
By: _________________________________
Ellis M. Goodman, President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Ellis M. Goodman President and a Director January 31, 1997
____________________________________ (Principal Executive
Ellis M. Goodman Officer)
* Executive Vice President and January 31, 1997
____________________________________ a Director
Alexander L. Berk
* Vice President and a January 31, 1997
____________________________________ Director
Edward L. Golden
* Executive Vice President, January 31, 1997
____________________________________ Treasurer, Assistant
Raymond E. Powers Secretary (Principal
Financial Officer and
Principal Accounting
Officer)
</TABLE>
/s/ Richard Sands
*By: __________________________
Richard Sands
Attorney-in-Fact
II-26
<PAGE>
EXHIBIT 8.1
[McDERMOTT, WILL & EMERY LETTERHEAD]
December 9, 1996
Canandaigua Wine Company, Inc.
116 Buffalo Street
Canandaigua, NY 14424
Re: Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
We have acted as counsel to Canandaigua Wine Company, Inc. (the "Company")
in connection with the above-referenced registration statement on Form S-4 (the
"Registration Statement") filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act"), for the registration
of $65,000,000 aggregate principal amount of 8 3/4% Series C Senior Subordinated
Notes due 2003 (the "Exchange Notes") of the Company to be offered in exchange
(the "Exchange") for the Company's outstanding 8 3/4% Series B Senior
Subordinated Notes due 2003 (the "Old Notes").
We have reviewed the information that appears under the caption "Certain
Federal Income Tax Considerations" in the prospectus that is included in the
Registration Statement. In our opinion the foregoing discussion is accurate in
all material respects.
Very truly yours,
/s/ McDermott, Will & Emery
<PAGE>
EXHIBIT 11.1
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the Nine Months Ended November 30,
--------------------------------------------
1996 1995
---------------------- ---------------------
(unaudited) (unaudited)
Fully Fully
Net income per common and common equivalent share: Primary Diluted Primary Diluted
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net income available to common and common equivalent shares $21,753 $21,753 $31,112 $31,112
Adjustments:
Assumed exercise of convertible debt - - - -
------- ------- ------- -------
Net income available to common and common equivalent shares $21,753 $21,753 $31,112 $31,112
------- ------- ------- -------
Shares:
Weighted average common shares outstanding 19,482 19,482 19,577 19,577
Adjustments:
(1) Assumed exercise of convertible debt - - - -
(2) Assumed exercise of incentive stock options 363 363 282 282
(3) Assumed exercise of stock options 20 20 180 180
------- ------- ------- -------
Weighted average common and common equivalent shares outstanding 19,865 19,865 20,039 20,039
------- ------- ------- -------
Net income per common and common equivalent share $1.10 $1.10 $1.55 $1.55
======= ======= ======= =======
<CAPTION>
For the Six Months Ended
------------------------------------------
February 29, 1996 February 28, 1995
----------------- -------------------
(Unaudited)
Fully Fully
Net income per common and common equivalent share: Primary Diluted Primary Diluted
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income available to common and common equivalent shares $3,322 $3,322 $20,320 $20,320
Adjustments:
Assumed exercise of convertible debt - - - -
------ ------ ------- -------
Net income available to common and common equivalent shares $3,322 $3,322 $20,320 $20,320
------ ------ ------- -------
Shares:
Weighted average common shares outstanding 19,611 19,611 17,989 17,989
Adjustments:
(1) Assumed exercise of convertible debt - - - -
(2) Assumed exercise of incentive stock options 260 260 284 285
(3) Assumed exercise of stock options 135 135 71 73
------ ------ ------- -------
Weighted average common and common equivalent shares outstanding 20,006 20,006 18,344 18,347
------ ------ ------- -------
Net income per common and common equivalent share $.17 $.17 $1.11 $1.11
====== ====== ======= =======
<CAPTION>
For the Years Ended August 31,
-----------------------------------------------------------
1995 1994 1993
----------------- ----------------- ----------------
Fully Fully Fully
Net income per common and common equivalent share: Primary Diluted Primary Diluted Primary Diluted
------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net income available to common and common equivalent shares $41,020 $41,020 $11,733 $11,733 $15,604 $15,604
Adjustments:
Assumed exercise of convertible debt - - - 419 - 2,597
------- ------- ------- ------- ------- -------
Net income available to common and common equivalent shares $41,020 $41,020 $11,733 $12,152 $15,604 $18,201
------- ------- ------- ------- ------- -------
Shares:
Weighted average common shares outstanding 18,776 18,776 15,423 15,423 11,820 11,820
Adjustments:
(1) Assumed exercise of convertible debt - - - 544 - 3,239
(2) Assumed exercise of incentive stock options 252 302 227 257 144 144
(3) Assumed exercise of stock options 120 218 134 177 - -
------- ------- ------- ------- ------- -------
Weighted average common and common equivalent shares outstanding 19,148 19,296 15,784 16,401 11,964 15,203
------- ------- ------- ------- ------- -------
Net income per common and common equivalent share $2.14 $2.13 $.74 $.74 $1.30 $1.20
======= ======= ======= ======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 12.1
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(in thousands of dollars)
<TABLE>
<CAPTION>
For the Nine Months Ended For the Six Months Ended
November 30, February 29, February 28,
----------------------- ------------ ------------
1996 1995 1996 1995
--------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Earnings: (a)
Income before provision for income taxes $37,818 $51,012 $ 6,703 $33,040
Add fixed charges 26,911 20,997 18,382 14,138
----------- ------------ ------------ ------------
Earnings $64,729 $72,009 $25,085 $47,178
=========== ============ =========== ===========
Fixed Charges:
Interest on debt and capitalized leases $25,468 $19,507 $17,298 $13,141
Amortization of direct financing costs 1,174 1,238 908 829
Interest element of rentals 269 252 176 168
---------- ------------ ----------- ------------
Total fixed charges $26,911 $20,997 $18,382 $14,138
=========== ============ =========== ===========
Ratio of Earnings to Fixed Charges 2.4 3.4 1.4 3.3
=========== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended August 31,
--------------------------------------------------------
1995 1994 1993 1992 1991
--------- ------- ------- -------- ----------
<S> <C> <C> <C> <C> <C>
Earnings: (a)
Income before provision for income taxes $66,698 $18,924 $25,268 $17,884 $11,680
Add fixed charges 26,586 19,492 7,515 7,599 5,140
--------- --------- --------- --------- -----------
Earnings $93,284 $38,416 $32,783 $25,483 $16,820
========== ========== ========== ========== ===========
Fixed Charges:
Interest on debt and capitalized leases $24,601 $18,056 $6,273 $6,510 $4,586
Amortization of direct financing costs 1,650 1,171 628 602 109
Interest element of rentals 335 265 614 487 445
--------- --------- --------- --------- -----------
Total fixed charges $26,586 $19,492 $7,515 $7,599 $5,140
========== ========== ========== ========== ===========
Ratio of Earnings to Fixed Charges 3.5 2.0 4.4 3.4 3.3
========== ========== ========== ========== ===========
</TABLE>
(a) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" represents income before provision for income taxes plus fixed
charges. "Fixed charges" consist of interest expense, including
amortization of debt issuance costs, and the portion of rental expense
which management believes is representative of the interest component of
lease expense.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Rochester, New York,
January 31, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-4 of Canandaigua Wine Company, Inc. of our report dated
September 25, 1995 relating to the Statement of Assets and Liabilities and
Statement of Identified Income and Expenses of the Product Lines Acquired of
United Distillers Glenmore, Inc. and Affiliates, which appears in the Current
Report on Form 8-K/A (Amendment No. 1) which amends and forms part of
Canandaigua Wine Company, Inc.'s Current Report on Form 8-K dated August 29,
1995. We also consent to the reference to us under the heading "Experts" in
such Registration Statement.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Stamford, Connecticut
January 31, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's November 30, 1996 Form 10-Q and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000016918
<NAME> CANANDAIGUA WINE COMPANY, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> NOV-30-1996
<CASH> 4,997
<SECURITIES> 0
<RECEIVABLES> 198,106
<ALLOWANCES> 0
<INVENTORY> 373,631
<CURRENT-ASSETS> 591,332
<PP&E> 356,281
<DEPRECIATION> 105,063
<TOTAL-ASSETS> 1,119,513
<CURRENT-LIABILITIES> 336,919
<BONDS> 349,901
0
0
<COMMON> 214
<OTHER-SE> 358,351
<TOTAL-LIABILITY-AND-EQUITY> 1,119,513
<SALES> 873,444
<TOTAL-REVENUES> 873,444
<CGS> 649,019
<TOTAL-COSTS> 810,158
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,468
<INCOME-PRETAX> 37,818
<INCOME-TAX> 16,065
<INCOME-CONTINUING> 21,753
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,753
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.10
</TABLE>
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
OFFER TO EXCHANGE
8 3/4% SERIES C SENIOR SUBORDINATED NOTES DUE 2003
FOR ANY AND ALL OUTSTANDING
8 3/4% SERIES B SENIOR SUBORDINATED NOTES DUE 2003
OF
CANANDAIGUA WINE COMPANY, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON _______________, 1997, UNLESS EXTENDED
(THE "EXPIRATION DATE")
EXCHANGE AGENT:
HARRIS TRUST AND SAVINGS BANK
C/O HARRIS TRUST COMPANY OF NEW YORK
IF YOU WISH TO ACCEPT THE EXCHANGE OFFER,
THIS LETTER OF TRANSMITTAL SHOULD BE COMPLETED,
SIGNED AND SUBMITTED BY REGISTERED OR CERTIFIED MAIL,
BY FACSIMILE WITH ORIGINAL TO FOLLOW,
BY OVERNIGHT COURIER OR BY HAND TO:
Harris Trust and Savings Bank
c/o Harris Trust Company of New York
77 Water Street
4th Floor
New York, NY 10005
Attn: Reorganization Department
By Facsimile:
(212) 701-7636
Confirm by Telephone:
(212) 701-7624
<PAGE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO A
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
By execution hereof, the undersigned acknowledges receipt of the Prospectus
dated ______________, 199__ (the "Prospectus") of Canandaigua Wine Company, Inc.
(the "Company") which, together with this Letter of Transmittal and the
instructions hereto (the "Letter of Transmittal"), describes the Company's offer
(the "Exchange Offer") to exchange $1,000 in principal amount of a new series of
notes known as 8 3/4% Series C Senior Subordinated Notes due 2003 (the "Exchange
Notes") for each $1,000 in principal amount of outstanding 8 3/4% Series B
Senior Subordinated Notes due 2003 (the "Old Notes"). The terms of the Exchange
Notes are identical in all material respects (including principal amount,
interest rate and maturity) to the terms of the Old Notes for which they may be
exchanged pursuant to the Exchange Offer, except that the offering of the
Exchange Notes will have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), and, therefore, the Exchange Notes will not bear
legends restricting the transfer thereof.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE EXCHANGE NOTES FOR THEIR OLD
NOTES PURSUANT TO THE EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT WITHDRAW)
THEIR OLD NOTES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
Holders whose Old Notes are not immediately available or who cannot deliver
their Old Notes and all other documents required hereby to the Exchange Agent on
or prior to the Expiration Date may tender their Old Notes according to the
guaranteed delivery procedures set forth in the Prospectus under the caption
"The Exchange Offer--Guaranteed Delivery Procedures."
All capitalized terms used herein and not defined herein shall have the
meaning ascribed to them in the Prospectus.
This Letter of Transmittal is to be used by Holders if: (i) certificates
representing Old Notes are to be physically delivered to the Exchange Agent
herewith by such Holder; (ii) tender of Old Notes is to be made by book-entry
transfer to the Exchange Agent's account at The Depository Trust Company ("DTC")
pursuant to the procedures set forth in the Prospectus under "The Exchange Offer
- - Book-Entry Transfer" by any financial institution that is a participant in DTC
and whose name appears on a security position listing as the owner of Old Notes
(such participants, acting on behalf of Holders, are referred to herein,
together with such Holders, as "Acting Holders"); or (iii) tender of Old Notes
is to be made according to the
-2-
<PAGE>
guaranteed delivery procedures set forth in the Prospectus under "The Exchange
Offer - Guaranteed Delivery Procedures." DELIVERY OF DOCUMENTS TO DTC DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Unless the context requires otherwise, the term "Holder" for purposes of
this Letter of Transmittal means any person: (i) in whose name Old Notes are
registered on the books of the Company or any other person who has obtained a
properly completed bond power from the registered holder or (ii) whose Old Notes
are held of record by DTC who desires to deliver such Old Notes by book-entry
transfer at DTC.
The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER
THEIR OLD NOTES MUST COMPLETE THIS LETTER IN ITS ENTIRETY.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE
PROSPECTUS, THIS LETTER OF TRANSMITTAL OR THE NOTICE OF GUARANTEED DELIVERY MAY
BE DIRECTED TO THE EXCHANGE AGENT.
List below the Old Notes to which this Letter of Transmittal relates. If
the space provided below is inadequate, list the certificate numbers and
principal amounts on a separate signed schedule and affix the schedule to this
Letter of Transmittal.
-3-
<PAGE>
===============================================================================
DESCRIPTION OF OLD NOTES TENDERED HEREWITH
Name(s) and Certificate Aggregate
Address(es) of Number(s)/*/ Principal Amount
Registered Tendered (if less
Holder(s) (Please (Attach signed list than all)/**////
fill in) if necessary)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Total
*Need not be completed by Holders tendering by book-entry
transfer.
**Unless otherwise indicated, the Holder will be deemed to
have tendered the full aggregate principal amount represented
by Old Notes. See Instruction 2.
================================================================================
/__/ CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE DEPOSITORY
TRUST COMPANY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution _______________________________
DTC Participant Number_______________________________________
Transaction Code Number______________________________________
Name of Participant Contact Person___________________________
Telephone number_____________________________________________
/__/ CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s) of Old Notes________________________
Window Ticket No. (if any)__________________________________________
Date of Execution of Notice of Guaranteed Delivery__________________
-4-
<PAGE>
Name of Eligible Institution that Guaranteed Delivery
---------------------------------------------------------------------
DTC Book-Entry Account Number
_______________________________________
If Delivered by Book-Entry Transfer:
Name of Tendering Institution
_________________________________________
Transaction Code Number
_______________________________________________
/__/ CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
_________________________________________________________________
Address:
______________________________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making activities or other trading
activities, it acknowledges that it will deliver a prospectus in connection
with any resale of such Exchange Notes; however, by so acknowledging and by
delivering a prospectus, the undersigned will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
-5-
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of Old Notes
indicated above. Subject to, and effective upon, the acceptance for exchange of
the Old Notes tendered herewith, the undersigned hereby exchanges, sells,
assigns and transfers to, or upon the order of, the Company all right, title and
interest in and to such Old Notes. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent as the true and lawful agent and
attorney-in-fact of the undersigned (with full knowledge that said Exchange
Agent also acts as the agent of the Company and as Trustee under the Indenture
for the Old Notes and the Exchange Notes) with respect to the tendered Old Notes
with full power of substitution to (i) deliver certificates for such Old Notes
to the Company, or transfer ownership of such Old Notes on the account books
maintained by DTC, together, in either such case, with all accompanying
evidences of transfer and authenticity to, or upon the order of, the Company and
(ii) present such Old Notes for transfer on the books of the Company and receive
all benefits and otherwise exercise all rights of beneficial ownership of such
Old Notes, all in accordance with the terms of the Exchange Offer. The power of
attorney granted in this paragraph shall be deemed irrevocable and coupled with
an interest.
The undersigned represents and warrants that it has full power and
authority to tender, exchange, sell, assign and transfer the Old Notes tendered
hereby and to acquire Exchange Notes issuable upon the exchange of such tendered
Old Notes, and that, when the Old Notes are accepted for exchange, the Company
will acquire good and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim.
The undersigned also warrants that it will, upon request, execute and deliver
any additional documents deemed by the Exchange Agent or the Company to be
necessary or desirable to complete the exchange, sale, assignment and transfer
of tendered Old Notes or transfer ownership of such Old Notes on the account
books maintained by DTC.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer -Conditions." The undersigned
recognizes that as a result of these conditions (which may be waived, in whole
or in part, by the Company), as more particularly set forth in the Prospectus,
the Company may not be required to exchange any of the Old Notes tendered hereby
and, in such event, certificates for such Old Notes not exchanged will be
returned (except as noted below with respect to tenders through DTC), without
expense, to the
-6-
<PAGE>
(Exhibit 99.1)
undersigned at the address shown below the signature of the undersigned.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance upon interpretations by the staff of the Securities and Exchange
Commission set forth in no-action letters issued to third parties that the
Exchange Notes issued in exchange for the Old Notes pursuant to the Exchange
Offer may be offered for resale, resold and otherwise transferred by Holders
thereof (other than any such Holder that is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such Holder's
business, such Holder has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes and neither such Holder
nor any other such person is engaging in or intends to engage in a distribution
of such Exchange Notes. If the undersigned is not a broker-dealer, the
undersigned represents that it is not engaged in, and does not intend to engage
in, a distribution of the Exchange Notes. If the undersigned is a broker-dealer
that will receive Exchange Notes for its own account in exchange for Old Notes,
the undersigned represents that such Old Notes were acquired as a result of
market-making activities or other trading activities and acknowledges that it
will deliver a prospectus in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
The undersigned represents to the Company that (i) the Exchange Notes
acquired by the Holder and any beneficial owners of Old Notes pursuant to the
Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, (ii) neither the Holder nor any such
beneficial owner has an arrangement or understanding with any person to
participate in the distribution of such Exchange Notes, (iii) neither the
Holder, nor such beneficial owner, nor any such other person is engaged in or
intends to engage in a distribution of the Exchange Notes and (iv) neither the
Holder nor any such other person is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act or, if such Holder is an affiliate,
that such Holder will comply with the registration and prospectus delivery
requirements of the Act to the extent applicable.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, bankruptcy or incapacity of the undersigned
and every obligation of the undersigned hereunder shall be binding upon the
heirs, personal representatives, successors and assigns of the undersigned.
-7-
<PAGE>
TENDERED OLD NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION
DATE.
Unless otherwise indicated under "Special Issuance Instructions,"
certificates representing the Exchange Notes issued in exchange for the Old
Notes accepted for exchange will be issued, and any Old Notes not tendered or
not exchanged will be returned, in the name(s) of the undersigned (or in either
such event in the case of Old Notes tendered by DTC, by credit to the account at
DTC). Similarly, unless otherwise indicated under "Special Delivery
Instructions," certificates representing the Exchange Notes issued in exchange
for the Old Notes accepted for exchange and any certificates for Old Notes not
tendered or not exchanged (and accompanying documents, as appropriate) will be
sent to the undersigned at the address shown below the undersigned's signatures,
unless, in either event, tender is being made through DTC. In the event that
both "Special Issuance Instructions" and "Special Delivery Instructions" are
completed, certificates representing the Exchange Notes issued in exchange for
the Old Notes accepted for exchange will be issued, and any Old Notes not
tendered or not exchanged will be returned, in the name(s) of, and said
certificates will be sent to, the person(s) so indicated. The undersigned
recognizes that the Company has no obligation pursuant to the "Special Issuance
Instructions" and "Special Delivery Instructions" to transfer any Old Notes from
the name of the registered Holder(s) thereof if the Company does not accept for
exchange any of the Old Notes so tendered.
-8-
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS OF OLD NOTES REGARDLESS
OF WHETHER OLD NOTES ARE BEING PHYSICALLY DELIVERED HEREWITH)
This Letter of Transmittal must be signed by the Holder(s) of Old Notes
exactly as their name(s) appear(s) on certificate(s) for Old Notes or, if
tendered by a participant in DTC, exactly as such participant's name appears on
a security position listing as the owner of Old Notes, or by person(s)
authorized to become registered Holder(s) by endorsements and documents
transmitted with this Letter of Transmittal. If signature is by a trustee,
executor, administrator, guardian, attorney-in-fact, officer or other person
acting in a fiduciary or representative capacity, such person must set forth his
or her full title below under "Capacity" and submit evidence satisfactory to the
Issuers of such person's authority to so act. See Instruction 3 herein.
If the signature appearing below is not of the registered Holder(s) of the
Old Notes, then the registered Holder(s) must sign a valid proxy.
X_____________________________ Date:_____________________________________
X_____________________________ Date:_____________________________________
SIGNATURE(S) OF HOLDER(S) OR
AUTHORIZED SIGNATORY
Name(s): _________________________ Address:__________________________________
__________________________ ___________________________________
(PLEASE PRINT) (INCLUDING ZIP CODE)
Capacity:_________________________ Area Code and Telephone No.:______________
Social Security No.:______________________________
PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN
SIGNATURE GUARANTEE (SEE INSTRUCTION 3 HEREIN)
Certain Signatures Must Be Medallion Stamp Guaranteed by an Eligible Institution
- --------------------------------------------------------------------------------
(Name of Eligible Institution Guaranteeing Signatures)
- --------------------------------------------------------------------------------
(Address (including zip code) and Telephone Number (including area code) of
Firm)
- --------------------------------------------------------------------------------
(Authorized Signature)
- --------------------------------------------------------------------------------
(Printed Name)
- --------------------------------------------------------------------------------
(Title)
Date:______________________
-9-
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTION 4 HEREIN)
To be completed ONLY if certificates for Old Notes in a principal amount not
tendered are to be issued in the name of, or the Exchange Notes issued pursuant
to the Exchange Offer are to be issued to the order of, someone other than the
person or persons whose signature(s) appear(s) within this Letter of Transmittal
or issued to an address different from that shown in the box entitled
"Description of Old Notes Tendered Herewith" within this Letter of Transmittal,
or if Old Notes tendered by book-entry transfer that are not accepted for
purchase are to be credited to a different account maintained at DTC.
Name:...................................................................
(Please Print)
Address:................................................................
(Please Print)
........................................................................
Zip Code
........................................................................
Taxpayer Identification or Social Security Number
(See Substitute Form W-9 herein)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTION 4 HEREIN)
To be completed ONLY if certificates for Old Notes in a principal amount not
tendered or not accepted for purchase or the Exchange Notes issued pursuant to
the Exchange Offer are to be sent to someone other than the person or persons
whose signature(s) appear(s) within this Letter of Transmittal or to an address
different from that shown in the box entitled "Description of Old Notes Tendered
Herewith" within this Letter of Transmittal.
Name:.......................................................................
(Please Print)
Address:....................................................................
(Please Print)
............................................................................
Zip Code
.............................................................................
Taxpayer Identification or Social Security Number
(See Substitute Form W-9 herein)
-10-
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES FOR OLD NOTES.
Certificates for all physically delivered Old Notes or confirmation of any book-
entry transfer to the Exchange Agent's account at DTC of Old Notes tendered by
book-entry transfer, as well as a properly completed and duly executed copy of
this Letter of Transmittal or facsimile thereof with original to follow, and any
other documents required by this Letter of Transmittal, must be received by the
Exchange Agent at its address set forth herein on or prior to the Expiration
Date.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE TENDERED OLD
NOTES AND ANY OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER
AND, EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY
WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. INSTEAD OF DELIVERY BY MAIL, IT
IS RECOMMENDED THAT THE HOLDER USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IF
SUCH DELIVERY IS BY MAIL, IT IS SUGGESTED THAT REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, PROPERLY INSURED, BE USED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
COMPANY.
Holders whose Old Notes are not immediately available or who cannot deliver
their Old Notes and all other required documents to the Exchange Agent on or
prior to the Expiration Date may tender their Old Notes pursuant to the
guaranteed delivery procedure set forth in the Prospectus under "The Exchange
Offer--Guaranteed Delivery Procedures." Pursuant to such procedure: (i) such
tender must be made by or through an Eligible Institution (as defined therein);
(ii) on or prior to the Expiration Date the Exchange Agent must have received
from such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting
forth the name and address of the tendering Holder, the certificate number(s) of
such Old Notes (if available) and the principal amount of Old Notes tendered and
stating that the tender is being made thereby, and (iii) all tendered Old Notes
(or a confirmation of any book-entry transfer of such Old Notes into the
Exchange Agent's account at DTC) as well as this Letter of Transmittal and all
other documents required by this Letter of Transmittal must be received by the
Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date, all as provided in the Prospectus
-11-
<PAGE>
under the caption "The Exchange Offer--Guaranteed Delivery Procedures."
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old
Notes not properly tendered or any Old Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in this Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Although the Company intends
to notify Holders of defects or irregularities with respect to tenders of Old
Notes, neither the Company, the Exchange Agent nor any other person shall be
under any duty to give notification of defects or irregularities with respect to
tenders of Old Notes, nor shall any of them incur any liability for failure to
give such notification. Tenders of Old Notes will not be deemed to have been
made until such defects or irregularities have been cured or waived. Any Old
Notes received by the Exchange Agent that the Company determines are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering Holders,
unless otherwise provided in this Letter of Transmittal, as soon as practicable
following the Expiration Date.
2. PARTIAL TENDERS; WITHDRAWALS. Tenders of Old Notes will be accepted in
denominations of $1000 and integral multiples in excess thereof. If less than
the entire principal amount of any Old Notes evidenced by a submitted
certificate is tendered, the tendering Holder should fill in the principal
amount tendered in the third column of the chart entitled "Description of Old
Notes Tendered Herewith." The entire principal amount of Old Notes delivered to
the Exchange Agent will be deemed to have been tendered unless otherwise
indicated. If the entire principal amount of all Old Notes is not tendered, Old
Notes for the principal amount of Old Notes not tendered and a certificate or
certificates representing Exchange Notes issued in exchange for any Old Notes
accepted will be sent to the Holder at his or her registered address, unless
otherwise indicated under "Special Issuance Instructions" or "Special Delivery
Instructions" or unless tender is made through DTC, promptly after the Old Notes
are accepted for exchange.
-12-
<PAGE>
Tenders of Old Notes pursuant to the Exchange Offer are irrevocable, except
that Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date. To be effective, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at its
address set forth herein prior to 5:00 p.m. New York City time on the Expiration
Date. Any such notice of withdrawal must specify the person named in the Letter
of Transmittal as having tendered Old Notes to be withdrawn, the certificate
numbers of the Old Notes to be withdrawn, the principal amount of Old Notes
delivered for exchange, a statement that such Holder is withdrawing its election
to have such Old Notes exchanged, and the name of the registered Holder of such
Old Notes, and must be signed by the Holder in the same manner as the original
signature on the Letter of Transmittal (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
Trustee register the transfer of such Old Notes into the name of the person(s)
withdrawing the tender, and specify the name in which any such Old Notes are to
be registered, if different from the person having deposited the Old Notes.
If certificates for Old Notes have been delivered or otherwise identified
to the Exchange Agent, then, prior to the release of such certificates, the
withdrawing Holder must also submit the serial numbers of the particular
certificates to be withdrawn and a signed notice of withdrawal with signatures
Medallion Stamp guaranteed by an Eligible Institution unless such Holder is an
Eligible Institution. If Old Notes have been tendered pursuant to the procedure
for book-entry transfer described above, any notice of withdrawal must specify
the name and number of the account at DTC to be credited with the withdrawn Old
Notes and otherwise comply with the procedures of such facility. All questions
as to the validity, form and eligibility (including time of receipt) of such
notices will be determined by the Company in its sole discretion, which
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Old Notes so withdrawn are validly retendered. Properly withdrawn Old Notes
may be retendered by following one of the procedures described in the Prospectus
under "The Exchange Offer - Procedures for Tendering" at any time prior to the
Expiration Date.
Any Old Notes which have been tendered but which are not accepted for
payment due to withdrawal, rejection of tender or termination of the Exchange
Offer will be returned as soon as practicable to the Holder thereof without cost
to such Holder (or, in the case of Old Notes tendered by book-entry transfer
into the Exchange Agent's account at DTC pursuant to the book-
-13-
<PAGE>
entry transfer procedures described above, such Old Notes will be credited to an
account maintained with DTC for the Old Notes).
3. SIGNATURE ON LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the
registered Holder(s) of the Old Notes tendered hereby, the signature must
correspond with name(s) as written on the face of certificates without
alteration, enlargement or any change whatsoever. If any of the Old Notes
tendered hereby are owned of record by two or more joint owners, all such owners
must sign this Letter of Transmittal.
If a number of Old Notes registered in different names are tendered, it
will be necessary to complete, sign and submit as many separate copies of this
Letter of Transmittal as there are different registrations of Old Notes.
If this Letter of Transmittal is signed by the registered Holder(s) of Old
Notes tendered hereby, such Holder(s) need not and should not endorse any
tendered Old Note, nor provide a separate bond power.
If this Letter of Transmittal is signed by a person other than the
registered Holder(s) of the Old Notes tendered, such Old Notes must either be
properly endorsed or accompanied by a properly completed separate bond power in
form satisfactory to the Company and duly executed by the registered Holder(s),
in either case signed exactly as the name or names of the registered Holder(s)
appear(s) on the Old Notes, and with the signatures on the bond power Medallion
Stamp guaranteed by an Eligible Institution.
If this Letter of Transmittal, any certificates for Old Notes or separate
bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, proper evidence satisfactory to the Company of
their authority so to act must be submitted with this Letter of Transmittal.
Endorsements on certificates for Old Notes or signatures on separate bond
powers required by this Instruction 3 must be Medallion Stamp guaranteed by a
Eligible Institution.
Signatures on this Letter of Transmittal need not be Medallion Stamp
guaranteed by an Eligible Institution, unless the Old Notes are tendered: (i) by
a registered Holder who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal;
or (ii) for the account of an Eligible Institution.
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<PAGE>
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering Holders should
indicate, in the applicable spaces, the name and address to which Exchange Notes
or substitute Old Notes for principal amounts not tendered or not accepted for
exchange are to be issued or sent, if different from the name and address of the
person signing this Letter of Transmittal (or in the case of tender of the Old
Notes through DTC, if different from DTC). In the case of issuance in a
different name, the taxpayer identification or social security number of the
person named must also be indicated.
5. TRANSFER TAXES. The Company shall pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, certificates representing Exchange Notes or Old Notes for principal
amounts not tendered or accepted for exchange are to be delivered to, or are to
be registered or issued in the name of, any person other than the registered
Holder(s) of the Old Notes tendered hereby, or if tendered Old Notes are
registered in the name of any person(s) other than the person(s) signing this
Letter of Transmittal, or if a transfer tax is imposed for any reason other than
the exchange of Old Notes pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered Holder or any other
person) will be payable by the tendering Holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted herewith, the
amount of such transfer taxes will be billed directly to such tendering Holder.
Except as provided in this Instruction 5, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
6. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend,
waive, or modify, in whole or in part, any of the conditions to the Exchange
Offer set forth in the Prospectus.
7. MUTILATED, LOST, STOLEN OR DESTROYED NOTES. Any tendering Holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated herein for further instructions.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance, as well as requests for additional copies of the Prospectus and this
Letter of Transmittal, may be directed to the Exchange Agent at the address and
telephone number set forth herein. Holders may also contact their broker,
dealer, commercial bank, trust company or other nominee for assistance
concerning the Exchange Offer.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF WITH
ORIGINAL TO FOLLOW (TOGETHER WITH CERTIFICATES FOR OLD NOTES OR CONFIRMATION OF
BOOK-ENTRY TRANSFER AND ALL OTHER
-15-
<PAGE>
REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE
EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
(DO NOT WRITE IN SPACE BELOW)
================================================================================
Certificate Surrendered Old Notes Tendered Old Notes Accepted
Delivery Prepared by Checked by Date
================================================================================
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<PAGE>
IMPORTANT TAX INFORMATION
Under federal income tax laws, a Holder whose tendered Old Notes are
accepted for payment is required to provide the Exchange Agent (as payer) with
such Holder's correct TIN on Substitute Form W-9 below or otherwise establish a
basis for exemption from backup withholding. If such Holder is an individual,
the TIN is his social security number. If the Exchange Agent is not provided
with the correct TIN, a $50 penalty may be imposed by the Internal Revenue
Service, and payments made with respect to Old Notes purchased pursuant to the
Exchange offer may be subject to backup withholding.
Certain Holders (including, among others, all corporations and certain
foreign persons) are not subject to these backup withholding and reporting
requirements. Exempt Holders should indicate their exempt status on Substitute
Form W-9. A foreign person may qualify as an exempt recipient by submitting to
the Exchange Agent a properly completed Internal Revenue Service Form W-8,
signed under penalties of perjury, attesting to the Holder's exempt status. A
Form W-8 can be obtained from the Exchange Agent. See the enclosed "Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any payments made to the Holder or other payee. Backup withholding is
not an additional federal income tax. Rather, the federal income tax liability
of persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments made with respect to the Exchange
Notes, the Holder is required to provide the Exchange Agent, with either: (i)
the Holder's correct TIN by completing the form below, certifying that the TIN
provided on Substitute Form W-9 is correct (or that such Holder is awaiting a
TIN) and that (A) the Holder has not been notified by the Internal Revenue
Service that the Holder is subject to backup withholding as a result of failure
to report all interest or dividends or (B) the Internal Revenue Service has
notified the Holder that the Holder is no longer subject to backup withholding;
or (ii) an adequate basis for exemption.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The Holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered Holder of
the Old Notes. If the Old Notes are held in more than one name or are held not
in the name of the actual owner, consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which number to report.
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<PAGE>
<TABLE>
<CAPTION>
PAYER'S NAME:____________________________________________
<S> <C> <C>
SUBSTITUTE Part 1 - PLEASE PROVIDE YOUR
TIN IN THE BOX AT RIGHT AND ------------------------------------
FORM W-9 CERTIFY BY SIGNING AND Social Security Number
DATING BELOW
OR
------------------------------------
Employer Identification Number
Department of the Treasury Part 2 - Certification. Under Penalties
Internal Revenue Service of Perjury, I certify that:
(1) The number shown on this form is
my correct Taxpayer Identification
Payer's Request for Taxpayer Number (or I am waiting for a number
Identification Number (TIN) to be issued to me) and
(2) I am not subject to backup
withholding because I have not been
notified by the Internal Revenue Service Part 3 -
("IRS") that I am subject to backup
withholding as a result of failure to Awaiting TIN [ ]
report all interest or dividends, or the
IRS has notified me that I am no longer
subject to backup withholding.
</TABLE>
Certificate Instruction - You must cross
out item (2) in Part 2 above if you have
been notified by the IRS that you are
subject to backup withholding because of
underreporting interest or dividends on
your tax return. However, if after being
notified by the IRS that you were subject
to backup withholding you received
another notification from the IRS stating
that you are no longer subject to backup
withholding, do not cross out item (2).
SIGNATURE DATE
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO HOLDERS OF EXCHANGE NOTES PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION
OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number within 60 days, 31 percent of all
reportable payments made to me thereafter will be withheld until I provide a
number.
- --------------------------------------------------------------------------------
Signature Date
-18-
<PAGE>
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
HARRIS TRUST AND SAVINGS BANK
C/O HARRIS TRUST COMPANY OF NEW YORK
By Mail, Hand or Overnight Courier: By Facsimile:
Harris Trust and Savings Bank (212) 701-7636
c/o Harris Trust Company of New York
77 Water Street, 4th Floor
New York, NY 10005 Confirm by Telephone:
Attn: Reorganization Department (212) 701-7624
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