FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended August 31,1997
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to to
---------------- ----------------
COMMISSION FILE NUMBER 0-7570
DELAWARE CANANDAIGUA BRANDS, INC. 16-0716709
AND ITS SUBSIDIARIES:
NEW YORK BATAVIA WINE CELLARS, INC. 16-1222994
NEW YORK CANANDAIGUA WINE COMPANY, INC. 16-1462887
DELAWARE BARTON INCORPORATED 36-3500366
DELAWARE BARTON BRANDS, LTD. 36-3185921
MARYLAND BARTON BEERS, LTD. 36-2855879
CONNECTICUT BARTON BRANDS OF CALIFORNIA, INC. 06-1048198
GEORGIA BARTON BRANDS OF GEORGIA, INC. 58-1215938
NEW YORK BARTON DISTILLERS IMPORT CORP. 13-1794441
DELAWARE BARTON FINANCIAL CORPORATION 51-0311795
WISCONSIN STEVENS POINT BEVERAGE CO. 39-0638900
ILLINOIS MONARCH IMPORT COMPANY 36-3539106
GEORGIA THE VIKING DISTILLERY, INC. 58-2183528
(State or other (Exact name of registrant as (I.R.S. Employer
jurisdiction of specified in its charter) Identification No.)
incorporation or
organization)
235 NORTH BLOOMFIELD ROAD, CANANDAIGUA, NEW YORK 14424
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(716) 393-4130
--------------
(Registrant's telephone number including area code)
THE FORMER NAME OF CANANDAIGUA BRANDS, INC. WAS CANANDAIGUA WINE COMPANY, INC.
------------------------------------------------------------------------------
THE FORMER NAME OF CANANDAIGUA WINE COMPANY, INC. (A SUBSIDIARY) WAS
--------------------------------------------------------------------
CANANDAIGUA WEST, INC.
----------------------
(Former name, if changed since last report)
116 BUFFALO STREET, CANANDAIGUA, NEW YORK 14424
-----------------------------------------------
(Former address, if changed since last report)
<PAGE>
Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding with respect to each of the classes of common
stock of Canandaigua Brands, Inc., as of September 26, 1997, is set forth below
(all of the Registrants, other than Canandaigua Brands, Inc., are direct or
indirect wholly-owned subsidiaries of Canandaigua Brands, Inc.):
CLASS NUMBER OF SHARES OUTSTANDING
----- ----------------------------
Class A Common Stock, Par Value $.01 Per Share 15,325,024
Class B Common Stock, Par Value $.01 Per Share 3,330,458
<PAGE>
Page 1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<CAPTION>
August 31, 1997 February 28, 1997
--------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash investments $ 4,278 $ 10,010
Accounts receivable, net 160,885 142,592
Inventories, net 334,756 326,626
Prepaid expenses and other current assets 20,562 21,787
----------- -----------
Total current assets 520,481 501,015
PROPERTY, PLANT AND EQUIPMENT, net 246,712 249,552
OTHER ASSETS 265,757 270,334
----------- -----------
Total assets $ 1,032,950 $ 1,020,901
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable $ 29,200 $ 57,000
Current maturities of long-term debt 40,119 40,467
Accounts payable 120,511 63,492
Accrued Federal and state excise taxes 19,727 17,058
Other accrued expenses and liabilities 73,713 68,556
----------- -----------
Total current liabilities 283,270 246,573
----------- -----------
LONG-TERM DEBT, less current maturities 298,995 338,884
----------- -----------
DEFERRED INCOME TAXES 62,695 61,395
----------- -----------
OTHER LIABILITIES 8,577 9,316
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A Common Stock, $.01 par value-
Authorized, 60,000,000 shares;
Issued, 17,515,029 shares at August 31, 1997,
and 17,462,332 shares at February 28, 1997 175 174
Class B Convertible Common Stock, $.01 par value-
Authorized, 20,000,000 shares;
Issued, 3,956,183 shares at August 31, 1997, and
February 28, 1997 40 40
Additional paid-in capital 223,806 222,336
Retained earnings 192,686 170,275
----------- -----------
416,707 392,825
----------- -----------
Less-Treasury stock-
Class A Common Stock, 2,267,119 shares at
August 31, 1997, and 1,915,468 shares at
February 28, 1997, at cost (35,087) (25,885)
Class B Convertible Common Stock, 625,725 shares
at August 31, 1997, and February 28, 1997, at cost (2,207) (2,207)
----------- -----------
(37,294) (28,092)
----------- -----------
Total stockholders' equity 379,413 364,733
----------- -----------
Total liabilities and stockholders' equity $ 1,032,950 $ 1,020,901
=========== ===========
<FN>
The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
</FN>
</TABLE>
<PAGE>
Page 2
<TABLE>
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
<CAPTION>
For the Six Months Ended August 31, For the Three Months Ended August 31,
----------------------------------- -------------------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
GROSS SALES $ 820,326 $ 754,866 $ 409,288 $ 378,037
Less - Excise taxes (212,791) (199,155) (107,764) (98,819)
---------- ---------- ---------- ----------
Net sales 607,535 555,711 301,524 279,218
COST OF PRODUCT SOLD (442,044) (412,969) (216,765) (209,383)
---------- ---------- ---------- ----------
Gross profit 165,491 142,742 84,759 69,835
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (111,483) (102,870) (56,258) (52,927)
---------- ---------- ---------- ----------
Operating income 54,008 39,872 28,501 16,908
INTEREST EXPENSE, net (16,024) (16,803) (7,545) (8,008)
---------- ---------- ---------- ----------
Income before provision for Federal
and state income taxes 37,984 23,069 20,956 8,900
PROVISION FOR FEDERAL AND
STATE INCOME TAXES (15,573) (9,627) (8,591) (3,959)
---------- ---------- ---------- ----------
NET INCOME $ 22,411 $ 13,442 $ 12,365 $ 4,941
========== ========== ========== ==========
SHARE DATA:
Net income per common and common
equivalent share:
Primary $ 1.17 $ 0.68 $ 0.64 $ 0.25
========== ========== ========== ==========
Fully diluted $ 1.15 $ 0.68 $ 0.64 $ 0.25
========== ========== ========== ==========
Weighted average common and common
equivalent shares outstanding:
Primary 19,235,529 19,794,740 19,241,969 19,653,489
Fully diluted 19,416,282 19,794,740 19,317,865 19,653,489
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
Page 3
<TABLE>
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
For the Six Months Ended August 31,
-----------------------------------
1997 1996
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 22,411 $ 13,442
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of property, plant and equipment 12,625 12,424
Deferred tax provision 4,900 -
Amortization of intangible assets 4,699 4,857
Stock option expense 350 13
Amortization of discount on long-term debt 172 -
(Gain) loss on sale of property, plant and equipment (883) 201
Change in operating assets and liabilities:
Accounts receivable, net (17,518) (9,872)
Inventories, net (8,131) 13,333
Prepaid expenses and other current assets 1,285 5,109
Accounts payable 57,408 43,569
Accrued Federal and state excise taxes 2,669 1,845
Other accrued expenses and liabilities 1,584 13,351
Other (717) (8,466)
---------- ----------
Total adjustments 58,443 76,364
---------- ----------
Net cash provided by operating activities 80,854 89,806
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net of minor disposals (18,213) (21,795)
Proceeds from sale of property, plant and equipment 8,512 5,200
---------- ----------
Net cash used in investing activities (9,701) (16,595)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt (40,409) (20,443)
Net repayments of notes payable (27,800) (49,300)
Purchases of treasury stock (9,233) (5,434)
Payment of issuance costs of long-term debt (388) -
Exercise of employee stock options 741 -
Proceeds from employee stock purchases 204 657
---------- ----------
Net cash used in financing activities (76,885) (74,520)
---------- ----------
NET DECREASE IN CASH AND CASH INVESTMENTS (5,732) (1,309)
CASH AND CASH INVESTMENTS, beginning of period 10,010 3,339
---------- ----------
CASH AND CASH INVESTMENTS, end of period $ 4,278 $ 2,030
========== ==========
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
Page 4
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997
1) MANAGEMENT'S REPRESENTATIONS:
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission applicable to quarterly reporting on Form
10-Q and reflect, in the opinion of the Company, all adjustments necessary to
present the financial information for Canandaigua Brands, Inc. and its
subsidiaries. All such adjustments are of a normal recurring nature. Certain
information and footnote disclosures normally included in financial statements,
prepared in accordance with generally accepted accounting principles, have been
condensed or omitted as permitted by such rules and regulations. These
consolidated financial statements and related notes should be read in
conjunction with the consolidated financial statements and related notes
included in the Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1997.
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Certain August 1996 balances have been reclassified to conform with current
year presentation.
3) 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.
Substantially all of the inventories are valued using the LIFO method. Elements
of cost include materials, labor and overhead and consist of the following:
August 31, February 28,
1997 1997
----------- -----------
(in thousands)
Raw materials and supplies $ 12,657 $ 14,191
Wines and distilled spirits in process 246,672 262,289
Finished case goods 100,748 72,526
----------- -----------
360,077 349,006
Less - LIFO reserve (25,321) (22,380)
----------- -----------
$ 334,756 $ 326,626
=========== ===========
Information related to the FIFO method of inventory valuation may be useful
in comparing operating results to those companies not using the LIFO method of
inventory valuation. If the FIFO method had been used, reported net income would
have been $1.7 million, or $0.09 per share on a fully diluted basis, higher for
the six months ended August 31, 1997, and reported net income would have been
$8.0 million, or $0.41 per share on a fully diluted basis, higher for the six
months ended August 31, 1996.
<PAGE>
Page 5
4) NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE:
Net income per common and common equivalent share is based on the weighted
average number of common and dilutive common equivalent shares outstanding
during each period. Dilutive common equivalent shares consist of stock options.
5) STOCK INCENTIVE PLANS:
At the Company's Annual Meeting of Stockholders held on July 22, 1997,
stockholders approved the amendment and restatement of the Company's Stock
Option and Stock Appreciation Right Plan as the Long-Term Stock Incentive Plan
and the adoption of the Company's Incentive Stock Option Plan.
Under the Long-Term Stock Incentive Plan, non-qualified stock options,
stock appreciation rights, restricted stock and other stock-based awards may be
granted to employees, officers and directors of the Company. Grants, in the
aggregate, may not exceed 4,000,000 shares of the Company's Class A Common
Stock.
Under the Incentive Stock Option Plan, incentive stock options may be
granted to employees, including officers, of the Company. Grants, in the
aggregate, may not exceed 1,000,000 shares of the Company's Class A Common
Stock. The exercise price of any incentive stock option may not be less than the
fair market value of the shares on the date of grant.
6) SUMMARIZED FINANCIAL INFORMATION - SUBSIDIARY GUARANTORS:
The subsidiary guarantors are wholly owned and the guarantees are full,
unconditional, joint and several obligations of each of the subsidiary
guarantors. Summarized financial information for the subsidiary guarantors is
set forth below. Separate financial statements for the subsidiary guarantors of
the Company are not presented because the Company has determined that such
financial statements would not be material to investors. The subsidiary
guarantors comprise all of the direct and indirect subsidiaries of the Company,
other than the non-guarantor subsidiaries which individually, and in the
aggregate, are inconsequential. There are no restrictions on the ability of the
subsidiary guarantors to transfer funds to the Company in the form of cash
dividends or loan repayments. The subsidiary guarantors may not loan funds to
the Company.
The following table presents summarized financial information for
subsidiary guarantors in connection with all of the Company's 8.75% Senior
Subordinated Notes:
August 31, February 28,
1997 1997
---------- -----------
(in thousands)
Balance Sheet Data:
Current assets $ 423,854 $ 401,870
Noncurrent assets $ 395,735 $ 403,068
Current liabilities $ 148,833 $ 100,009
Noncurrent liabilities $ 64,701 $ 65,300
<PAGE>
Page 6
<TABLE>
<CAPTION>
For the Six Months Ended For the Three Months Ended
August 31, August 31,
------------------------ --------------------------
1997 1996 1997 1996
(in thousands) -------- -------- -------- --------
<S> <C> <C> <C> <C>
Income Statement Data:
Net sales $514,338 $471,868 $253,064 $241,183
Gross profit $106,425 $ 94,422 $ 53,093 $ 48,867
Income before provision for Federal
and state income taxes $ 41,448 $ 34,112 $ 20,233 $ 18,302
Net income $ 24,768 $ 20,223 $ 12,103 $ 10,660
</TABLE>
7) ACCOUNTING PRONOUNCEMENTS:
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings per Share," (SFAS No. 128) and Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure," (SFAS
No. 129) were issued. SFAS No. 128 requires the Company to present basic and
diluted earnings per share in the financial statements. The Company is required
to adopt SFAS No. 128 for the year ending February 28, 1998, and restate
previously reported earnings per share. Early adoption is not permitted. The
Company believes the effect of adoption will not be material. SFAS No. 129
consolidates specific existing disclosure requirements and establishes standards
for disclosing information about an entity's capital structure. The Company is
required to adopt SFAS No. 129 for the year ending February 28, 1998. The
Company believes the effect of adoption will not be material.
In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," (SFAS No. 130) and Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information," (SFAS No. 131) were issued. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of financial statements. The Company is required to adopt SFAS No.
130 for interim periods and fiscal years beginning March 1, 1998.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company believes the effect of adoption
will not be material. SFAS No. 131 establishes standards for reporting
information about operating segments in annual financial statements and requires
reporting of selected information in interim financial statements. The Company
is required to adopt SFAS No. 131 for fiscal years beginning March 1, 1998, and
for interim periods beginning March 1, 1999. Restatement of comparative
information for earlier years is required in the initial year of adoption and
comparative information for interim periods in the initial year of adoption is
to be reported for interim periods in the second year of application. The
Company has not yet determined the impact of SFAS No. 131 on its financial
statements.
<PAGE>
Page 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
INTRODUCTION
- ------------
The following discussion and analysis summarizes the significant factors
affecting (i) consolidated results of operations of the Company for the three
months ended August 31, 1997 ("Second Quarter 1998"), compared to the three
months ended August 31, 1996 ("Second Quarter 1997"), and for the six months
ended August 31, 1997 ("Six Months 1998"), compared to the six months ended
August 31, 1996 ("Six Months 1997"), and (ii) financial liquidity and capital
resources for the six months ended August 31, 1997. This discussion and analysis
should be read in conjunction with the Company's consolidated financial
statements and notes thereto included herein and in the Company's Annual Report
on Form 10-K for the fiscal year ended February 28, 1997.
The Company operates primarily in the beverage alcohol industry. The
Company is principally a producer and supplier of wines and an importer and
producer of beers and distilled spirits. The Company's branded products and its
other products and services are marketed by three operating divisions:
Canandaigua Wine Company, Barton Beers and Barton Brands.
RESULTS OF OPERATIONS
- ---------------------
SECOND QUARTER 1998 COMPARED TO SECOND QUARTER 1997
NET SALES
The following table sets forth the net sales (in thousands of dollars) and
unit volumes (in thousands of cases), if applicable, for branded beverage
alcohol products and other products and services sold by the Company for Second
Quarter 1998 and Second Quarter 1997.
<TABLE>
<CAPTION>
Second Quarter 1998 Compared to Second Quarter 1997
---------------------------------------------------------------------
Net Sales Unit Volume
---------------------------------- -----------------------------
Branded Beverage %Increase/ %Increase/
Alcohol Products: 1998 1997 (Decrease) 1998 1997 (Decrease)
--------- --------- ---------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Wine $ 122,099 $ 116,746 4.6% 6,442 6,195 4.0%
Beer 108,383 90,457 19.8% 8,691 7,227 20.3%
Spirits 51,372 44,700 14.9% 2,575 2,356 9.3%
Other (a) 19,670 27,315 (28.0%) N/A N/A N/A
--------- --------- ----- ------ ------ -----
$ 301,524 $ 279,218 8.0% 17,708 15,778 12.2%
========= ========= ===== ====== ====== =====
<FN>
(a) Other consists primarily of non-branded concentrate sales, contract
bottling and other production services and bulk product sales, none of
which are sold in case quantities.
</FN>
</TABLE>
Net sales for Second Quarter 1998 increased to $301.5 million from $279.2
million for Second Quarter 1997, an increase of $22.3 million, or 8.0%. This
increase resulted primarily from (i) $17.9 million of additional beer sales,
largely Mexican beers, (ii) $6.7 million of additional spirits sales and (iii)
$6.4 million of additional table wine sales. These increases were partially
offset by lower sales of grape juice concentrate and sparkling wines. Unit
volume for branded beverage alcohol products for Second Quarter 1998 increased
12.2% as compared to Second Quarter 1997. The unit volume increase was largely
the result of increased sales of the Company's Mexican beer brands and its
spirits brands. The unit volume increase in wine was primarily the result of
increased sales of the Company's table wine brands.
<PAGE>
Page 8
GROSS PROFIT
The Company's gross profit increased to $84.8 million for Second Quarter
1998 from $69.8 million for Second Quarter 1997, an increase of $14.9 million,
or 21.4%. As a percent of net sales, gross profit increased to 28.1% for Second
Quarter 1998 from 25.0% for Second Quarter 1997. The dollar increase in gross
profit resulted primarily from higher gross profit from branded wine sales
related to cost structure improvements, pricing initiatives and additional sales
volume, increased sales of beer and higher gross profit from spirits brands
related to higher selling prices and increased volume.
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, gross profit reflected a reduction of $0.6 million and
$7.9 million in Second Quarter 1998 and Second Quarter 1997, respectively, due
to the Company's LIFO accounting method. The Company's gross profit for Second
Quarter 1998 reflects the cumulative effect of revised cost estimates, including
more favorable grape costs than had been estimated in first quarter 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $56.3 million for
Second Quarter 1998 from $52.9 million for Second Quarter 1997, an increase of
$3.3 million, or 6.3%. Selling, general and administrative expenses as a percent
of net sales decreased to 18.7% for Second Quarter 1998 as compared to 19.0% for
Second Quarter 1997. The dollar increase in selling, general and administrative
expenses resulted principally from selling and other expenses related to the
Company's increased sales volume and overall growth.
INTEREST EXPENSE, NET
Net interest expense decreased to $7.5 million for Second Quarter 1998 from
$8.0 million for Second Quarter 1997, a decrease of $0.5 million, or 5.8%. The
decrease was primarily due to a decrease in the Company's average borrowings
which was partially offset by an increase in the average interest rate.
PROVISION FOR FEDERAL AND STATE INCOME TAXES
The Company's effective tax rate for Second Quarter 1998 decreased to 41.0%
from 44.5% for Second Quarter 1997 as Second Quarter 1997 reflected the
cumulative impact of 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 above factors, net income increased to $12.4 million for
Second Quarter 1998 from $4.9 million for Second Quarter 1997, an increase of
$7.4 million, or 150.3%.
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for Second Quarter
1998 was $37.0 million, an increase of $11.4 million over EBITDA of $25.6
million for Second Quarter 1997. 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.
<PAGE>
Page 9
SIX MONTHS 1998 COMPARED TO SIX MONTHS 1997
NET SALES
The following table sets forth the net sales (in thousands of dollars) and
unit volumes (in thousands of cases), if applicable, for branded beverage
alcohol products and other products and services sold by the Company for Six
Months 1998 and Six Months 1997.
<TABLE>
<CAPTION>
Six Months 1998 Compared to Six Months 1997
------------------------------------------------------------------------
Net Sales Unit Volume
---------------------------------- -------------------------------
Branded Beverage %Increase/ %Increase/
Alcohol Products: 1998 1997 (Decrease) 1998 1997 (Decrease)
--------- --------- ---------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Wine $ 247,538 $ 240,404 3.0% 13,162 12,866 2.3%
Beer 205,996 163,314 26.1% 16,439 13,072 25.8%
Spirits 101,734 90,222 12.8% 5,124 4,759 7.7%
Other (a) 52,267 61,771 (15.4%) N/A N/A N/A
--------- --------- ----- ------ ------ -----
$ 607,535 $ 555,711 9.3% 34,725 30,697 13.1%
========= ========= ===== ====== ====== =====
<FN>
(a) Other consists primarily of non-branded concentrate sales, contract
bottling and other production services and bulk product sales, none of
which are sold in case quantities.
</FN>
</TABLE>
Net sales for Six Months 1998 increased to $607.5 million from $555.7
million for Six Months 1997, an increase of $51.8 million, or 9.3%. This
increase resulted primarily from (i) $42.7 million of additional beer sales,
largely Mexican beers, (ii) $11.5 million of additional spirits sales and (iii)
$10.7 million of additional table wine sales. These increases were partially
offset by lower sales of grape juice concentrate, sparkling wines and dessert
wines. Unit volume for branded beverage alcohol products for Six Months 1998
increased 13.1% as compared to Six Months 1997. The unit volume increase was
largely the result of increased sales of the Company's Mexican beer brands and
its spirits brands. The increase in table wine brands unit volume was partially
offset by a decrease in unit volume of dessert wine brands and sparkling wine
brands.
GROSS PROFIT
The Company's gross profit increased to $165.5 million for Six Months 1998
from $142.7 million for Six Months 1997, an increase of $22.7 million, or 15.9%.
As a percent of net sales, gross profit increased to 27.2% for Six Months 1998
from 25.7% for Six Months 1997. The dollar increase in gross profit resulted
primarily from increased sales of beer, higher gross profit from spirits brands
related to higher selling prices and increased volume, and higher gross profit
from branded wine and grape juice concentrate sales related to pricing
initiatives and cost structure improvements, partially offset by higher grape
costs.
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, gross profit reflected a reduction of $2.9 million and
$13.8 million in Six Months 1998 and Six Months 1997, respectively, due to the
Company's LIFO accounting method.
<PAGE>
Page 10
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $111.5 million
for Six Months 1998 from $102.9 million for Six Months 1997, an increase of $8.6
million, or 8.4%. Selling, general and administrative expenses as a percent of
net sales decreased to 18.4% for Six Months 1998 as compared to 18.5% for Six
Months 1997. The dollar increase in selling, general and administrative expenses
resulted principally from selling and other expenses related to the Company's
increased sales volume and overall growth.
INTEREST EXPENSE, NET
Net interest expense decreased to $16.0 million for Six Months 1998 from
$16.8 million for Six Months 1997, a decrease of $0.8 million, or 4.8%. The
decrease was primarily due to a decrease in the Company's average borrowings
which was partially offset by an increase in the average interest rate.
PROVISION FOR FEDERAL AND STATE INCOME TAXES
The Company's effective tax rate for Six Months 1998 decreased to 41.0%
from 41.7% for Six Months 1997 as Six Months 1997 reflected 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 above factors, net income increased to $22.4 million for
Six Months 1998 from $13.4 million for Six Months 1997, an increase of $9.0
million, or 66.7%.
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for Six Months 1998
was $71.3 million, an increase of $14.2 million over EBITDA of $57.2 million for
Six Months 1997. 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.
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. The Company will continue to use its
short-term borrowings to support its working capital requirements. The Company
believes that cash provided by operating activities and its financing
activities, primarily short-term borrowings, 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.
<PAGE>
Page 11
SIX MONTHS 1998 CASH FLOWS
OPERATING ACTIVITIES
Net cash provided by operating activities for Six Months 1998 was $80.9
million which resulted primarily from an increase of $61.7 million in operating
liabilities plus a net increase of $44.3 million in net income adjusted for
noncash items, partially offset by a net increase of $24.4 million in operating
assets. The increase of $61.7 million in operating liabilities was primarily due
to a $57.4 million increase in accounts payable primarily due to the purchase of
grapes associated with the 1997 harvest. The net increase of $24.4 million in
operating assets resulted principally from a $17.5 million increase in accounts
receivable primarily due to increased beer and spirits sales and an $8.1 million
net increase in inventory levels.
INVESTING ACTIVITIES AND FINANCING ACTIVITIES
Net cash used in investing activities for Six Months 1998 was $9.7 million
which resulted from $18.2 million of capital expenditures, including $7.2
million for vineyards, partially offset by proceeds from the sale of property,
plant and equipment of $8.5 million.
Net cash used in financing activities for Six Months 1998 was $76.9 million
which resulted primarily from principal payments of $40.4 million of long-term
debt, net repayments of $27.8 million of revolving loan borrowings under the
Company's bank credit agreement and repurchase of $9.2 million of the Company's
Class A Common Stock.
During January 1996, the Company's Board of Directors authorized the
repurchase of up to $30.0 million of its Class A Common Stock and Class B Common
Stock (the "Repurchase Program"). During May 1997, the Company completed the
Repurchase Program with the repurchase of 362,100 shares of its Class A Common
Stock at a cost of $9.2 million. With respect to the Repurchase Program, the
Company repurchased a total of 1,149,550 shares of Class A Common Stock at an
aggregate cost of $30.0 million, or at an average cost of $26.10 per share.
DEBT
Total debt outstanding as of August 31, 1997, amounted to $368.3 million, a
decrease of $68.0 million from February 28, 1997, resulting primarily from
principal payments of long-term debt and the net repayments of revolving loan
borrowings. The ratio of total debt to total capitalization decreased to 49.3%
as of August 31, 1997, from 54.5% as of February 28, 1997.
As of August 31, 1997, under its bank credit agreement, the Company had
outstanding term loans of $146.0 million bearing interest at 6.5%, $29.2 million
of revolving loans bearing interest at 7.3%, undrawn revolving letters of credit
of $8.1 million and $147.7 million available to be drawn in revolving loans.
As of August 31, 1997, the Company had outstanding $195.0 million aggregate
principal amount of 8 3/4% Senior Subordinated Notes due 2003. The notes are
unsecured and subordinated to the prior payment in full of all senior
indebtedness of the Company, which includes the bank credit agreement. The notes
are guaranteed, on a senior subordinated basis, by substantially all of the
Company's operating subsidiaries.
<PAGE>
Page 12
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Annual Meeting of Stockholders of Canandaigua Brands, Inc. (f/k/a
Canandaigua Wine Company, Inc.) ("Canandaigua"), held on July 22, 1997 (the
"Annual Meeting"), the holders of Canandaigua's Class A Common Stock (the "Class
A Stock"), voting as a separate class, elected management's slate of director
nominees designated to be elected by the holders of the Class A Stock, and the
holders of Canandaigua's Class B Common Stock (the "Class B Stock"), voting as a
separate class, elected management's slate of director nominees designated to be
elected by the holders of the Class B Stock.
In addition, at the Annual Meeting, the holders of Class A Stock and the
holders of Class B Stock, voting together as a single class, voted upon the
following proposals:
(i) Proposal to amend Canandaigua's Restated Certificate of Incorporation
to change the name of the Company from "Canandaigua Wine Company,
Inc." to "Canandaigua Brands, Inc.";
(ii) Proposal to approve the amendment and restatement of the Stock Option
and Stock Appreciation Right Plan as the Long-Term Stock Incentive
Plan;
(iii)Proposal to approve the Incentive Stock Option Plan;
(iv) Proposal to approve the Annual Management Incentive Plan; and
(v) Proposal to ratify the selection of Arthur Andersen LLP, Certified
Public Accountants, as Canandaigua's independent auditors for the
fiscal year ending February 28, 1998.
Set forth below is the number of votes cast for, against or withheld, as
well as the number of abstentions and broker nonvotes, as applicable, as to each
of the foregoing matters.
I. The results of the voting for the election of Directors of Canandaigua
are as follows:
Directors Elected By the Holders of Class A Stock:
--------------------------------------------------
For all nominees: 12,433,531
* Instructed: 466,671
Withheld from all nominees: 821,079
(* Number of votes withheld from a specified nominee as opposed
to withheld from all nominees.)
<PAGE>
Page 13
The tabulation with respect to each nominee is as follows:
George Bresler:
For: 12,433,531; Withheld: 1,287,750
James A. Locke, III:
For: 12,900,202; Withheld: 821,079
Directors Elected By the Holders of Class B Stock:
--------------------------------------------------
For all nominees: 32,274,990
* Instructed: 2,000
Withheld from all nominees: 350,930
(* Number of votes withheld from specified nominees as opposed
to withheld from all nominees.)
The tabulation with respect to each nominee is as follows:
Marvin Sands:
For: 32,274,990; Withheld: 352,930
Richard Sands:
For: 32,274,990; Withheld: 352,930
Robert Sands:
For: 32,274,990; Withheld: 352,930
Bertram E. Silk:
For: 32,276,990; Withheld: 350,930
II. The results of the voting with respect to the proposal to amend
Canandaigua's Restated Certificate of Incorporation to change the name
of the Company from Canandaigua Wine Company, Inc. to Canandaigua
Brands, Inc. are as follows:
For: 46,278,093
Against: 52,031
Abstain: 19,077
Broker Nonvotes: 0
III. The results of the voting with respect to the proposal to approve the
amendment and restatement of the Stock Option and Stock Appreciation
Right Plan as the Long-Term Stock Incentive Plan are as follows:
For: 33,189,896
Against: 7,817,261
Abstain: 85,208
Broker Nonvotes: 5,256,836
<PAGE>
Page 14
IV. The results of the voting with respect to the proposal to approve the
Incentive Stock Option Plan are as follows:
For: 33,857,121
Against: 7,139,505
Abstain: 95,739
Broker Nonvotes: 5,256,836
V. The results of the voting with respect to the proposal to approve the
Annual Management Incentive Plan are as follows:
For: 41,889,541
Against: 393,170
Abstain: 92,524
Broker Nonvotes: 3,973,966
VI. The results of the voting with respect to the proposal to ratify the
selection of Arthur Andersen LLP, Certified Public Accountants, as the
Company's independent auditors for the fiscal year ending February 28,
1998 are as follows:
For: 46,217,353
Against: 57,424
Abstain: 74,424
Broker Nonvotes: 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) See Index to Exhibits located on Page 19 of this Report.
(b) The following Report on Form 8-K was filed with the Securities
and Exchange Commission during the quarter ended August 31, 1997:
Form 8-K dated August 28, 1997. This Form 8-K reported
information under Item 5 (Other Events).
<PAGE>
Page 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CANANDAIGUA BRANDS, INC.
Dated: September 29, 1997 By: /s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Vice President,
Corporate Reporting and Controller
Dated: September 29, 1997 By: /s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Senior Vice
President and Chief Financial
Officer
(Principal Financial Officer and
Principal Accounting Officer)
SUBSIDIARIES
BATAVIA WINE CELLARS, INC.
Dated: September 29, 1997 By: /s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Controller
Dated: September 29, 1997 By: /s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
CANANDAIGUA WINE COMPANY, INC.
Dated: September 29, 1997 By: /s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Controller
Dated: September 29, 1997 By: /s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
<PAGE>
Page 16
BARTON INCORPORATED
Dated: September 29, 1997 By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, President and
Chief Operating Officer
Dated: September 29, 1997 By: /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary
(Principal Financial Officer and
Principal Accounting Officer)
BARTON BRANDS, LTD.
Dated: September 29, 1997 By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, Executive Vice
President
Dated: September 29, 1997 By: /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary
(Principal Financial Officer and
Principal Accounting Officer)
BARTON BEERS, LTD.
Dated: September 29, 1997 By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, Executive Vice
President
Dated: September 29, 1997 By: /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary
(Principal Financial Officer and
Principal Accounting Officer)
BARTON BRANDS OF CALIFORNIA, INC.
Dated: September 29, 1997 By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, Executive Vice
President
Dated: September 29, 1997 By: /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary
(Principal Financial Officer and
Principal Accounting Officer)
<PAGE>
Page 17
BARTON BRANDS OF GEORGIA, INC.
Dated: September 29, 1997 By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, Executive Vice
President
Dated: September 29, 1997 By: /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary
(Principal Financial Officer and
Principal Accounting Officer)
BARTON DISTILLERS IMPORT CORP.
Dated: September 29, 1997 By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, Executive Vice
President
Dated: September 29, 1997 By: /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary
(Principal Financial Officer and
Principal Accounting Officer)
BARTON FINANCIAL CORPORATION
Dated: September 29, 1997 By: /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, President and
Secretary
Dated: September 29, 1997 By: /s/ Charles T. Schlau
----------------------------------
Charles T. Schlau, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
STEVENS POINT BEVERAGE CO.
Dated: September 29, 1997 By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, Executive Vice
President
Dated: September 29, 1997 By: /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary
(Principal Financial Officer and
Principal Accounting Officer)
<PAGE>
Page 18
MONARCH IMPORT COMPANY
Dated: September 29, 1997 By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, Executive Vice
President
Dated: September 29, 1997 By: /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary
(Principal Financial Officer and
Principal Accounting Officer)
THE VIKING DISTILLERY, INC.
Dated: September 29, 1997 By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, Executive Vice
President
Dated: September 29, 1997 By: /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary
(Principal Financial Officer and
Principal Accounting Officer)
<PAGE>
Page 19
INDEX TO EXHIBITS
(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION.
Not applicable.
(3) ARTICLES OF INCORPORATION AND BY-LAWS.
3.1(a) Certificate of Amendment of the Certificate of Incorporation of
Canandaigua Wine Company, Inc. (now known as Canandaigua Brands, Inc.,
hereinafter in this Index to Exhibits, the "Company") (filed herewith).
3.1(b) Restated Certificate of Incorporation of the Company (filed as Exhibit
3.1 to the Company's Transition Report on Form 10-K for the Transition
Period from September 1, 1995 to February 29, 1996 and incorporated herein
by reference).
3.2 Amended and Restated By-Laws of the Company (filed herewith; filed for the
purpose of reflecting the Company's new name, Canandaigua Brands, Inc., in
the title of the By-Laws).
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES.
4.1 Specimen of Certificate of Class A Common Stock of the Company (filed as
Exhibit 1.1 to the Company's Registration Statement on Form 8-A dated April
28, 1992 and incorporated herein by reference).
4.2 Specimen of Certificate of Class B Common Stock of the Company (filed as
Exhibit 1.2 to the Company's Registration Statement on Form 8-A dated April
28, 1992 and incorporated herein by reference).
4.3 Indenture dated as of December 27, 1993 among the Company, its Subsidiaries
and The Chase Manhattan Bank (as successor to Chemical Bank) (filed as
Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended November 30, 1993 and incorporated herein by reference).
4.4 First Supplemental Indenture dated as of August 3, 1994 among the Company,
Canandaigua West, Inc. and The Chase Manhattan Bank (as successor to
Chemical Bank) (filed as Exhibit 4.5 to the Company's Registration
Statement on Form S-8 (Registration No. 33-56557) and incorporated herein
by reference).
4.5 Second Supplemental Indenture dated August 25, 1995, among the Company, V
Acquisition Corp. (a subsidiary of the Company now known as The Viking
Distillery, Inc.) and The Chase Manhattan Bank (as successor to Chemical
Bank ) (filed as Exhibit 4.5 to the Company's Annual Report on Form 10-K
for the fiscal year ended August 31, 1995 and incorporated herein by
reference).
4.6 Indenture with respect to the 8 3/4% Series C Senior Subordinated Notes Due
2003 dated as of October 29, 1996 among the Company, its Subsidiaries and
Harris Trust and Savings Bank (filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-4 (Registration No. 333-17673) and
incorporated herein by reference).
<PAGE>
Page 20
(10) MATERIAL CONTRACTS.
10.1 Amendment Number One to the Long-Term Stock Incentive Plan of the Company
(filed herewith).
10.2 Incentive Stock Option Plan of the Company (filed herewith).
10.3 Amendment Number One to the Incentive Stock Option Plan of the Company
(filed herewith).
10.4 Annual Management Incentive Plan of the Company (filed herewith).
(11) STATEMENT RE COMPUTATION OF PER SHARE EARNINGS.
Computation of per share earnings (filed herewith).
(15) LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION.
Not applicable.
(18) LETTER RE CHANGE IN ACCOUNTING PRINCIPLES.
Not applicable.
(19) REPORT FURNISHED TO SECURITY HOLDERS.
Not applicable.
(22) PUBLISHED REPORT REGARDING MATTERS SUBMITTED TO A VOTE OF SECURITY HOLDERS.
Not applicable.
(23) CONSENTS OF EXPERTS AND COUNSEL.
Not applicable.
(24) POWER OF ATTORNEY.
Not applicable.
(27) FINANCIAL DATA SCHEDULE.
Financial Data Schedule (filed herewith).
(99) ADDITIONAL EXHIBITS.
Not applicable.
EXHIBIT 3.1(a)
--------------
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
CANANDAIGUA WINE COMPANY, INC.
(Pursuant to Section 242 of the General Corporation Law)
Canandaigua Wine Company, Inc. (the "Corporation"), a corporation duly
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, DOES HEREBY CERTIFY THAT:
FIRST: The name of the Corporation is Canandaigua Wine Company, Inc.
SECOND: The Certificate of Incorporation of the Corporation was filed
on December 4, 1972.
THIRD: By unanimous written consent of the Board of Directors,
resolutions were duly adopted setting forth a proposed amendment
of the Certificate of Incorporation of the Corporation, declaring
its advisability, and directing that the amendment be considered
at the next annual meeting of stockholders of the Corporation.
The resolution setting forth the proposed amendment is as
follows:
RESOLVED: That the name of the Company be changed to
Canandaigua Brands, Inc. and that the officers of the
Company are hereby authorized and directed to submit for the
approval of the stockholders of the Company a proposal to
amend the Restated Certificate of Incorporation of the
Company (the "Restated Certificate") to effect the change of
name, and upon such approval and completion of all
formalities, to execute and file such Certificate of
Amendment to the Restated Certificate and such other
documents or instruments as may be necessary or desireable
to effect or reflect the name change in the State of
Delaware or in any other jurisdiction where the Company is
registered or qualified.
FOURTH: Thereafter, an annual meeting of stockholders of the Corporation
was duly called and held, upon notice in accordance with Section
222 of the General Corporation Law of the State of Delaware at
which meeting the
<PAGE>
Page 2
necessary number of shares required by statute were voted in
favor of the amendment.
FIFTH: The Certificate of Incorporation is hereby amended to change the
name of the Corporation. Paragraph 1 of the Certificate of
Incorporation, which sets forth the name of the Corporation, is
amended to read, in its entirety, as follows:
1. Name. The name of the Corporation is Canandaigua
Brands, Inc.
SIXTH: This amendment shall be effective as of September 1, 1997.
SEVENTH: This amendment was duly adopted in accordance with Section 242 of
the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment of
the Certificate of Incorporation to be executed by Richards Sands, its President
and Chief Executive Officer, this 25 day of August, 1997.
--
CANANDAIGUA WINE COMPANY, INC.
By: /s/ Richard Sands
-------------------------------------
Richard Sands,
President and Chief Executive Officer
EXHIBIT 3.2
-----------
BY-LAWS
OF
CANANDAIGUA BRANDS, INC.
(AS AMENDED AND RESTATED ON JANUARY 11, 1996)
ARTICLE I
STOCKHOLDERS
------------
SECTION 1.1 ANNUAL MEETINGS. An annual meeting of stockholders shall be held
for the election of directors at such date, time and place, either within or
without the State of Delaware, as may be designated by resolution of the Board
of Directors from time to time. Any other proper business may be transacted at
the annual meeting.
SECTION 1.2 SPECIAL MEETINGS. Special meetings of stockholders for any purpose
or purposes may be called at any time by the Board of Directors, or by a
committee of the Board of Directors which has been duly designated by the Board
of Directors, and whose powers and authority, as expressly provided in a
resolution of the Board of Directors, include the power to call such meetings,
but such special meetings may not be called by any other person or persons.
SECTION 1.3 NOTICE OF MEETINGS. Whenever stockholders are required or permitted
to take any action at a meeting, a written notice of the meeting shall be given
which shall state the place, date and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called. Unless
otherwise provided by law, the written notice of any meeting shall be given not
less than ten nor more than fifty days before the date of the meeting to each
stockholder entitled to vote at such meeting. If mailed, such notice shall be
deemed to be given when deposited in the mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation.
SECTION 1.4 ADJOURNMENTS. Any meeting of stockholders, annual or special, may
adjourn from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 1.5 QUORUM. The Corporation's authorized capital stock consists of
60,000,000 shares designated as Class A Common Stock (the "Class A Common") and
20,000,000 shares designated as Class B Common Stock (the "Class B Common"). At
each meeting of stockholders, except as otherwise provided by law, the
Corporation's Restated Certificate of Incorporation or these By-Laws, the
holders of a majority of the outstanding aggregate voting power of the Class A
Common and the Class B Common, present in person or by proxy,
<PAGE>
Page 2
shall constitute a quorum. In the absence of a quorum, the stockholders so
present may, by majority vote of such stockholders voting together as a single
class, adjourn the meeting from time to time in the manner provided in Section
1.4 of these By-Laws until a quorum shall attend. Shares of its own stock
belonging to the Corporation or to another corporation, if a majority of the
shares entitled to vote in the election of directors of such other corporation
is held, directly or indirectly, by the Corporation, shall neither be entitled
to vote nor be counted for quorum purposes; provided, however, that the
foregoing shall not limit the right of any corporation to vote stock, including
but not limited to its own stock, held by it in a fiduciary capacity.
SECTION 1.6 VOTING. Except as otherwise provided by law, Section 2.2 of these
By-Laws pertaining to the election of directors, or the Corporation's Restated
Certificate of Incorporation, all elections and questions shall be decided by
majority vote of all outstanding shares of stock entitled to vote thereon,
present in person or by proxy, voting together as a single class, provided that
the holders of the Class A Common shall have one (1) vote per share and the
holders of the Class B Common shall have ten (10) votes per share. Except as
otherwise required by law or by the Restated Certificate of Incorporation, the
Board of Directors may require a larger vote upon any election or question.
SECTION 1.7 ORGANIZATION. Meetings of stockholders shall be presided over by
the Chairman of the Board, if any, or in his absence by the Vice Chairman of the
Board, if any, or in his absence by the Chief Executive Officer, or in his
absence by the President or in the absence of the foregoing persons by a
chairman designated by the Board of Directors, or in the absence of such
designation by a chairman chosen at the meeting. The Secretary shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
SECTION 1.8 PROXIES. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for him by proxy,
but no such proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or another duly executed proxy bearing a later date with the Secretary of
the Corporation.
SECTION 1.9 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In order
that the Corporation may determine the stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, or to express
consent to corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock or for the purpose of any other lawful action, the Board of Directors
may fix, in advance, a record date, which shall not be more than sixty nor less
than ten days before the date of such meeting, nor more than sixty days prior to
any other action. If no record date is fixed: (1) the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day
<PAGE>
Page 3
next preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held; and (2) the record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
SECTION 1.10 LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the offices of the transfer agent. The list shall also be produced
and kept at the time and place of the meeting during the whole time thereof and
may be inspected by any stockholder who is present. The stock ledger shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list of stockholders or the books of the Corporation, or to vote in
person or by proxy at any meeting of stockholders.
SECTION 1.11 ACTION BY CONSENT OF STOCKHOLDERS. Unless otherwise restricted by
the Restated Certificate of Incorporation, any action required or permitted to
be taken at any annual or special meeting of the stockholders may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE II
BOARD OF DIRECTORS
------------------
SECTION 2.1 NUMBER; QUALIFICATIONS. The Board of Directors shall consist of one
or more members, the number thereof to be determined from time to time by
resolution of the Board of Directors. Directors shall be elected at the annual
meeting of stockholders and each director elected shall hold office until his
successor is elected and qualified. Directors need not be stockholders.
SECTION 2.2 ELECTION; RESIGNATION; REMOVAL; VACANCIES. At every meeting of
stockholders called for the election of directors, the holders of Class A
Common, voting as a class, shall be entitled to elect one-fourth (1/4) of the
number of directors to be elected at such meeting (rounded, if the total number
of directors to be elected at such meeting is not divisible by four (4), to the
next higher whole number), and the holders of Class B Common,
<PAGE>
Page 4
voting as a class, shall be entitled to elect the remaining number of directors
to be elected at such meeting. A plurality of the votes cast shall be sufficient
to elect. If the number of outstanding Class B Common shares is less than 12
1/2% of the total number of outstanding shares of Class A Common and Class B
Common, then the holders of the Class A Common shall be entitled to elect
one-fourth (1/4) of the number of directors to be elected at such meeting
(rounded, if the total number of directors to be elected at such meeting is not
divisible by four (4), to the next higher whole number) and shall be entitled to
participate with the holders of the Class B Common voting as a single class in
the election of the remaining number of directors to be elected at such meeting,
provided that the holders of Class A Common shall have one (1) vote per share
and the holders of Class B Common shall have ten (10) votes per share. If,
during the interval between annual meetings for the election of directors, the
number of directors who have been elected by either the holders of the Class A
Common or the Class B Common shall, by reason of resignation, death, retirement,
disqualification or removal, be reduced, the vacancy or vacancies in directors
so created may be filled by a majority vote of the remaining directors then in
office, even if less than a quorum, or by a sole remaining director. Any
director so elected by the remaining directors to fill any such vacancy may be
removed from office by the vote of the holders of the holders of a majority of
the shares of the Class A Common and the Class B Common voting as a single
class, provided that the holders of Class A Common shall have one (1) vote per
share and the holders of Class B Common shall have ten (10) votes per share.
SECTION 2.3 REGULAR MEETINGS. Regular meetings of the Board of Directors may be
held at such places within or without the State of Delaware and at such times as
the Board of Directors may from time to time determine, and if so determined
notices thereof need not be given.
SECTION 2.4 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
held at any time or place within or without the State of Delaware whenever
called by the Chairman, Chief Executive Officer, the President, any
Vice-President, the Secretary, or by any two members of the Board of Directors.
At least one days' notice thereof shall be given by the person or persons
calling the meeting, either personally, by mail or by telegram.
SECTION 2.5 TELEPHONIC MEETINGS PERMITTED. Members of the Board of Directors,
or any committee designated by the Board, may participate in a meeting of such
Board or committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this By-Law shall
constitute presence in person at such meeting.
SECTION 2.6 QUORUM; VOTE REQUIRED FOR ACTION. At all meetings of the Board of
Directors a majority of the whole Board shall constitute a quorum for the
transaction of business. Except in cases in which the Restated Certificate of
Incorporation or these By-Laws otherwise provide, the vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
SECTION 2.7 ORGANIZATION. Meetings of the Board of Directors shall be presided
over by the Chairman of the Board, if any, or in his absence by the Vice
Chairman of the Board, if
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any, or in his absence by the Chief Executive Officer, or in his absence by the
President, or in their absence by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his absence the chairman
of the meeting may appoint any person to act as secretary of the meeting.
SECTION 2.8 INFORMAL ACTION BY DIRECTORS. Unless otherwise restricted by the
Restated Certificate of Incorporation or these By-Laws, any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board or
such committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the Board or committee.
ARTICLE III
COMMITTEES
----------
SECTION 3.1 COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of the committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have
power or authority in reference to amending the Restated Certificate of
Incorporation of the Corporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of
dissolution, or amending these By-Laws; and, unless the resolution expressly so
provides, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock.
SECTION 3.2 COMMITTEE RULES. Unless the Board of Directors otherwise provides,
each committee designated by the Board may make, alter and repeal rules for the
conduct of its business. In the absence of such rules each committee shall
conduct its business in the same manner as the Board of Directors conducts its
business pursuant to Article II of these By-Laws.
ARTICLE IV
OFFICERS
--------
SECTION 4.1 EXECUTIVE OFFICERS; ELECTION; QUALIFICATIONS; TERM OF OFFICE;
RESIGNATION; REMOVAL; VACANCIES. The Board of Directors shall choose a President
and Secretary, and it
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may, if it so determines, choose a Chairman of the Board and a Vice Chairman of
the Board from among its members. The Board of Directors may also choose a Chief
Executive Officer, one or more Vice-Presidents, one or more Assistant
Secretaries, a Treasurer and one or more Assistant Treasurers, and may choose
such other officers as it may deem necessary, each of whom shall have such
titles and duties as shall be determined by the Board of Directors. Each such
officer shall hold office until the first meeting of the Board of Directors
after the annual meeting of stockholders next succeeding this election, and
until his successor is elected and qualified or until his earlier resignation or
removal. Any officer may resign at any time upon written notice to the
Corporation. The Board of Directors may remove any officer with or without cause
at any time, but such removal shall be without prejudice to the contractual
rights of such officer, if any, with the Corporation. Any number of offices may
be held by the same person. Any vacancy occurring in any office of the
Corporation by death, resignation, removal or otherwise may be filled for the
unexpired portion of the term by the Board of Directors at any regular or
special meeting.
SECTION 4.2 CHAIRMAN OF THE BOARD. The Chairman of the Board, if there be one,
shall preside at all meetings of the Board of Directors and stockholders, and
shall perform such other duties as the Board may direct.
SECTION 4.3 CHIEF EXECUTIVE OFFICER. The Board of Directors may designate
whether the Chairman of the Board, if one shall have been chosen, or the
President shall be the Chief Executive Officer of the Corporation. If a Chairman
of the Board has not been chosen, or if one has been chosen but not designated
Chief Executive Officer, then the President shall be the Chief Executive Officer
of the Corporation. The Chief Executive Officer shall be the principal executive
officer of the Corporation and shall in general supervise and control all of the
business and affairs of the Corporation, unless otherwise provided by the Board
of Directors. He shall preside at all meetings of the stockholders and shall see
that orders and resolutions of the Board of Directors are carried into effect.
He shall have general powers of supervision and shall be the final arbiter of
all differences among officers of the Corporation and his decision as to any
matter affecting the Corporation shall be final and binding as between the
officers of the Corporation subject only to the Board of Directors.
SECTION 4.4 PRESIDENT. If the Chairman of the Board has not been chosen Chief
Executive Officer or, if the Chairman of the Board has been so chosen, in the
event of his inability or refusal to act, the President shall perform the duties
of the Chief Executive Officer, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the Chief Executive Officer. At all
other times, the President shall have the active management of the business of
the Corporation under the general supervision of the Chief Executive Officer. In
general, he shall perform all duties incident to the office of President, and
such other duties as the Chief Executive Officer or the Board of Directors may
from time to time prescribe.
SECTION 4.5 VICE-PRESIDENTS. In the absence of the President or in the event of
his inability or refusal to act, the Vice-President (or in the event there be
more than one Vice-President, the Vice-Presidents in the order designated, or in
the absence of any designation, then in the order of their election) shall
perform the duties of the President, and
<PAGE>
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when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. The Vice-Presidents shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
SECTION 4.6 SECRETARY. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the Corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
Chief Executive Officer, under whose supervision he shall be. He shall have
custody of the corporate seal of the Corporation and he, or an Assistant
Secretary, shall have authority to affix the same to any instrument requiring it
and when so affixed, it may be attested by his signature or by the signature of
such Assistant Secretary. The Board of Directors may give general authority to
any other officer to affix the seal of the Corporation and to attest the
affixing by his signature.
SECTION 4.7 ASSISTANT SECRETARY. The Assistant Secretary, or if there be more
than one, the Assistant Secretaries in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election), shall, in the absence of the Secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
SECTION 4.8 TREASURER. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. He shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the Chief Executive Officer and the Board of Directors, at its regular meetings,
or when the Board of Directors so requires, an account of all his transactions
as Treasurer and of the financial condition of the Corporation. If required by
the Board of Directors, he shall give the Corporation a bond (which shall be
renewed every six years) in such sum and with such surety or sureties as shall
be satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and property of whatever kind in his possession or under his
control belonging to the Corporation.
SECTION 4.9 ASSISTANT TREASURER. The Assistant Treasurer, or if there be more
than one, the Assistant Treasurers in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election), shall, in the absence of the Treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
<PAGE>
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ARTICLE V
STOCK
-----
SECTION 5.1 CERTIFICATES. Every holder of stock shall be entitled to have a
certificate signed by or in the name of the Corporation by the Chairman or Vice
Chairman of the Board of Directors, if any, or the President or a
Vice-President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary, of the Corporation, certifying the class and number
of shares of the Corporation owned by him. Any of or all the signatures on the
certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent, or registrar at the date
of issue.
SECTION 5.2 LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW
CERTIFICATES. The Corporation may issue a new certificate of stock in the place
of any certificate theretofore issued by it, alleged to have been lost, stolen
or destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the Corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
SECTION 5.3 TRANSFERS OF STOCK. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
SECTION 5.4 REGISTERED STOCKHOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not he bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of the State of Delaware.
ARTICLE VI
MISCELLANEOUS
-------------
SECTION 6.1 FISCAL YEAR. The fiscal year of the Corporation shall be March 1 to
the last day of February, unless otherwise determined by resolution of the Board
of Directors.
SECTION 6.2 SEAL. The corporate seal shall have the name of the Corporation
inscribed thereon and shall be in such form as may be approved from time to time
by the Board of Directors.
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SECTION 6.3 WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND
COMMITTEES. Any written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of any
regular or special meeting of the stockholders, directors, or member of a
committee of directors need be specified in any written waiver of notice.
SECTION 6.4 INTERESTED DIRECTORS; QUORUM. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board or committee thereof which authorizes
the contract or transaction, or solely because his or their votes are counted
for such purpose, if: (1) the material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith authorizes
the contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (2) the material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (3) the contract or
transaction is fair as to the Corporation as of the time it is authorized,
approved or ratified, by the Board of Directors, a committee thereof, or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
SECTION 6.5 FORM OF RECORDS. Any records maintained by the Corporation in the
regular course of its business, including its stock ledger, books of account,
and minute books, may be kept on, or be in the form of, punch cards, magnetic
tape, photographs, micro photographs, or any other information storage device,
provided that the records so kept can be converted into clearly legible form
within a reasonable time. The Corporation shall so convert any records so kept
upon the request of any person entitled to inspect the same.
SECTION 6.6 AMENDMENT OF BY-LAWS. These By-Laws may be altered or repealed, and
new By-Laws made, by the Board of Directors, but the stockholders may make
additional By-Laws and may alter and repeal any By-Laws whether adopted by them
or otherwise.
EXHIBIT 10.1
------------
AMENDMENT NUMBER ONE TO THE
CANANDAIGUA WINE COMPANY, INC.
LONG-TERM STOCK INCENTIVE PLAN
This Amendment Number One to the Canandaigua Wine Company, Inc. Long-Term
Stock Incentive Plan (the "Plan") was approved pursuant to Section 19 of the
Plan by the Board of Directors of Canandaigua Brands, Inc. (f/k/a Canandaigua
Wine Company, Inc., the "Company"), acting in its capacity as the Committee
under the Plan. Capitalized terms used herein which are not otherwise defined
shall have the meanings ascribed to them in the Plan and Annex A thereto.
1. NAME. The name of the Plan is hereby changed to "Canandaigua Brands,
Inc. Long-Term Stock Incentive Plan."
2. DEFINITION OF COMMITTEE. The definition of the term "Committee" as used
in the Plan and defined in Annex A to the Plan is hereby amended and restated to
read in its entirety as follows:
"COMMITTEE" means the committee appointed from time to time by the
Company's Board of Directors to administer the Plan (the "Committee").
The full Board of Directors, in its discretion, may act as the
Committee under the Plan, whether or not a Committee has been
appointed, and shall do so with respect to grants of Awards to
non-employee directors. The Committee may delegate to one or more
members of the Committee or officers of the Company, individually or
acting as a committee, any portion of its authority, except as
otherwise expressly provided in the Plan. In the event of a delegation
to a member of the Committee, officer or a committee thereof, the term
"Committee" as used herein shall include the member of the Committee,
officer or committee with respect to the delegated authority.
Notwithstanding any such delegation of authority, the Committee
comprised of members of the Board of Directors and appointed by the
Board of Directors shall retain overall responsibility for the
operation of the Plan.
In witness whereof, Canandaigua Brands, Inc. has caused this instrument to
be executed as of September 15, 1997.
CANANDAIGUA BRANDS, INC.
By: /s/ Richard Sands
------------------------
Richard Sands, President
EXHIBIT 10.2
------------
CANANDAIGUA WINE COMPANY, INC.
INCENTIVE STOCK OPTION PLAN
This Incentive Stock Option Plan was approved by the Board of Directors of
the Company by unanimous written consent as of June 23, 1997 and shall be
effective upon approval by the stockholders of the Company. Certain capitalized
terms used in the Plan are defined in Annex A.
1. PURPOSE
The Plan is designed to enable the Company to attract and retain valued
employees and to provide them with incentives to maintain and enhance the
Company's long-term performance record by aligning the interests of the
Participants and the stockholders of the Company through the grant of Incentive
Stock Options.
2. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall
possess the authority, in its discretion, (a) to determine the employees of the
Company to whom Incentive Stock Options shall be granted and the time or times
at which such Incentive Stock Options shall be granted; (b) to determine at the
time of grant the number of shares to be subject to each Incentive Stock Option;
(c) to prescribe the form of the instrument representing such Incentive Stock
Option; (d) to establish any appropriate terms and conditions applicable to the
Incentive Stock Options, including any limitations on grants, vesting or
exercisability, and to make any amendments to such instruments or the Incentive
Stock Options which may, without limitation, include any acceleration of vesting
or exercisability, waiver of any condition or requirement or taking of other
action consistent with the purposes of the Plan; (e) to interpret and construe
the Plan; (f) to make and amend rules and regulations relating to the Plan; and
(g) to make all other determinations necessary or advisable for the
administration of the Plan. The Committee's determinations shall be conclusive
and binding on all Participants and all persons claiming under or through any
Participant. No member of the Committee shall be liable for any action taken or
decision made in good faith relating to the Plan or any Incentive Stock Option
granted under the Plan.
No outstanding Incentive Stock Option may be exercised by any person if the
Participant to whom the Incentive Stock Option is granted (x) is, or at any time
after the date of grant has been, in competition with the Company or its
affiliates or (y) has been terminated by the Company for Cause. The Committee
shall determine, in its discretion, whether a Participant's actions constitute
competition with the Company or its affiliates.
3. ELIGIBLE EMPLOYEES
All employees of the Company are eligible to receive Incentive Stock
Options under the Plan.
4. SHARES AVAILABLE
The total number of shares of the Company's Common Stock available for
Incentive Stock Options under the Plan in the aggregate shall be one million
shares. The maximum number of Shares which may be subject to Incentive Stock
Options granted to any individual Covered Employee in any fiscal year shall not
exceed 2 1/2% of the outstanding Common Stock as of the date the Plan is
approved by the Board of Directors. Shares subject to Incentive Stock Options
may be authorized and unissued shares or may be treasury shares.
If an Option expires, terminates or is cancelled without being exercised or
becoming vested, new Incentive Stock Options may thereafter be granted under the
Plan covering such shares unless the applicable Rules under Section 16(b) of the
Exchange Act or Sections 162(m) or 422 of the Code require otherwise.
<PAGE>
Page 2
5. INCENTIVE STOCK OPTIONS
The Committee shall make such awards of Incentive Stock Options as it
shall, in its discretion, determine. Only employees of the Company shall be
eligible to receive Incentive Stock Options. No Incentive Stock Options shall be
granted more than ten years after the date the Plan is approved by the Board of
Directors. Each Stock Option Award shall specify the following terms and
conditions, as well as any other terms, conditions, limitations and restrictions
specified by the Committee:
(a) EXERCISE PRICE. The exercise price per Share for each Incentive Stock
Option shall equal the Fair Market Value of the Common Stock on the
date the Incentive Stock Option is granted. If any Incentive Stock
Option is granted to a Participant who at the time of the Incentive
Stock Option is a Ten-Percent Holder, the exercise price of the
Incentive Stock Option shall be at least 110% of the Fair Market Value
on the date the Incentive Stock Option is made.
(b) DURATION OF OPTION. The duration of each Incentive Stock Option shall
be specified. Each Incentive Stock Option shall specify that it shall
not be exercisable after the expiration of ten years from the date
such option is granted unless a longer term is permitted or a shorter
term is required under Section 422 of the Code. In the case of an
Incentive Stock Option granted to a Ten-Percent Holder, the Incentive
Stock Option shall not, by its terms, be exercisable more than five
years from its date of grant.
(c) EXERCISE TERMS. Each Incentive Stock Option granted under the Plan
shall become exercisable in five equal annual installments commencing
on the first anniversary of the date of grant except as otherwise
provided by the Committee. Stock Options may be partially exercised
from time to time during the period extending from the time they first
become exercisable in accordance with the terms of the Incentive Stock
Option until the expiration of the exercise period specified in the
Incentive Stock Option. Incentive Stock Options may only be exercised
by the Participant (or his legal representative, if Participant is
disabled) during Participant's lifetime.
(d) PAYMENT OF EXERCISE PRICE. An Incentive Stock Option shall be
exercised upon such notice as is required by the Committee accompanied
by payment in full of the exercise price for the Shares being acquired
in such form as the Committee may provide in accordance with Section 6
of the Plan, together with all applicable withholding taxes as
provided in Section 7 of the Plan.
(e) MAXIMUM VALUE OF INCENTIVE STOCK OPTIONS. The aggregate Fair Market
Value (on the date of grant) of the Shares as to which all incentive
stock options granted under the Plan or any other plan of the Company
first become exercisable during any calendar year by a Participant
shall not exceed $100,000.
6. PAYMENT FOR EXERCISE OF INCENTIVE STOCK OPTIONS
The exercise price of Incentive Stock Options shall be paid to the Company
upon exercise in the manner which the Committee may determine, which may include
(a) delivery of cash or a check in the amount of the exercise price of the
Shares to be acquired under the Incentive Stock Option, (b) tendering previously
acquired Shares having a Fair Market Value at the time of delivery equal to the
exercise price of the Shares to be acquired under the Incentive Stock Option,
(c) delivery of irrevocable instructions to a broker or other agent acceptable
to the Company to promptly sell Shares received under the Incentive Stock Option
and to deliver to the Company the amount of proceeds to pay the exercise price
related to the Shares to be acquired under the Incentive Stock Option, or (d)
such other method of payment as the Committee in its discretion deems
appropriate, in each case together with all applicable withholding taxes as
provided in Section 7. Previously acquired Shares tendered in payment must have
been owned by Participant for at least six months prior to the tender in payment
of an Option.
7. WITHHOLDING TAXES
Whenever required by law in connection with an Incentive Stock Option, the
Company shall require the Participant to remit to the Company an amount
sufficient to satisfy any federal, state and/or local income and
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Page 3
employment withholding tax requirements prior to the delivery of any certificate
or certificates for Shares or to take any other appropriate action to satisfy
such withholding requirements, including any method permitted for payment under
Section 6 as determined by the Committee. To the extent permitted under such
rules as the Committee may promulgate and in compliance with any requirements to
avoid violations under Section 16(b) of the Exchange Act and related Rules, the
Participant may satisfy such obligation in whole or in part by electing to have
the Company withhold Shares from the Shares to which the Participant is
otherwise entitled under the Incentive Stock Option.
8. INCENTIVE STOCK OPTIONS NOT TRANSFERABLE
Unless transferability is permitted under certain conditions as determined
by the Committee and applicable IRS Rules for incentive stock options, no
Incentive Stock Option is transferable by the Participant other than by will or
the laws of descent and distribution. An Incentive Stock Option shall be
exercisable only by the Participant, the Participant's legal representative, or
the Participant's permitted transferees.
9. GENERAL RESTRICTION ON ISSUANCE OF STOCK CERTIFICATES
The Company shall not be required to deliver any certificate upon the
exercise of any Incentive Stock Option until it has been furnished with such
documents as it may deem necessary to insure compliance with any law or Rules of
the SEC or any other governmental authority having jurisdiction under the Plan.
Certificates for Shares delivered upon such grant or exercise shall bear legends
restricting transfer or other restrictions or conditions to the extent required
by law or determined by the Committee. Each Incentive Stock Option under the
Plan is subject to the condition that, if at any time the Committee shall
determine that the listing, registration or qualification of the Shares subject
to such Incentive Stock Option under any state or federal law or other
applicable Rule, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition of the granting of such Incentive Stock
Options or the issue or purchase of Shares thereunder, such Incentive Stock
Options may not vest or be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Committee.
10. TERMINATION OF EMPLOYMENT
If the employment of a Participant terminates by reason of the
Participant's Disability or death, any Incentive Stock Option may be exercised
by the Participant, the Participant's designated beneficiary or legal
representative or permitted transferee at any time on or prior to the earlier of
the expiration date of the Option or the expiration of one year after the date
of Disability or death but only if, and to the extent that the Participant was
entitled to exercise or receive the Incentive Stock Option at the date of
Disability or death and subject to such other terms and conditions as may be
specified in the Incentive Stock Option. In the event of the Participant's
Retirement or other termination of employment, any Incentive Stock Option may be
exercised by the Participant, the Participant's designated beneficiary or legal
representative at any time on or prior to the earlier of the expiration date of
the option or the expiration of thirty days after the date of Retirement or
termination but only if, and to the extent that, the Participant was entitled to
exercise the Incentive Stock Option at the date of Retirement or termination,
subject to such other terms and conditions as may be specified in the Incentive
Stock Option and the Plan. All Incentive Stock Options or any portion thereof
not yet vested or exercisable on the date of Disability or death shall terminate
immediately on the date of termination. All Incentive Stock Options or any
portion thereof not yet vested or exercisable on the date of termination other
than by reason of Disability or death shall terminate immediately on the date of
termination.
11. ADJUSTMENT OF INCENTIVE STOCK OPTIONS
In the event of any change in the Common Stock of the Company by reason of
any stock dividend, stock split, recapitalization, reorganization, merger,
consolidation, split-up, combination, or exchange of shares, or rights offering
to purchase Common Stock at a price substantially below fair market value, or of
any similar change affecting the Common Stock, the number and kind of shares
authorized under Section 4 for the Plan, the number and kind of shares which
thereafter are subject to Incentive Stock Options under the Plan and the number
and kind of unexercised Incentive Stock Options and the exercise price per share
shall be adjusted
<PAGE>
Page 4
automatically consistent with such change to prevent substantial dilution or
enlargement of the rights granted to, or available for, Participants in the
Plan.
12. NO EMPLOYMENT RIGHTS
The Plan and any Incentive Stock Options granted under the Plan shall not
confer upon any Participant any right with respect to continuance as an employee
of the Company, nor shall the Plan or such Incentive Stock Options interfere in
any way with the right of the Company to terminate the Participant's position as
an employee or director at any time.
13. RIGHTS AS A SHAREHOLDER
The recipient of any Incentive Stock Option under the Plan shall have no
rights as a shareholder with respect thereto unless and until certificates for
the underlying Shares are issued to the recipient, except as otherwise
specifically provided by the Committee.
14. SECTION 162(m) CONDITIONS
It is the intent of the Company that the Plan and Incentive Stock Options
granted under the Plan satisfy and be interpreted in a manner that satisfies any
applicable requirements of Code Section 162(m) as performance-based
compensation. Any provision, application or interpretation of the Plan
inconsistent with this intent to satisfy the standards in Code Section 162(m)
shall be disregarded. Notwithstanding anything to the contrary in the Plan, the
provisions of the Plan may at any time be bifurcated by the Committee in any
manner so that certain provisions of the Plan or any Incentive Stock Option
intended (or required in order) to satisfy the applicable requirements of Code
Section 162(m) are applicable only to Covered Employees.
15. AMENDMENT AND DISCONTINUANCE
The Plan and any Incentive Stock Option outstanding under the Plan may be
amended, modified or terminated by the Committee at any time and all Incentive
Stock Options shall be subject to the Plan as amended from time to time, except
that the Committee may not, without approval of the Participant to whom the
Incentive Stock Option was granted or his legal representative or permitted
transferee adversely affect the rights of such person under such Incentive Stock
Option. No amendment, modification, or termination of the Plan shall be
effective without stockholder approval if such approval is required under
applicable law or Rule or any regulation of the stock market on which the Common
Stock is traded.
16. CHANGE IN CONTROL
(a) Notwithstanding other provisions of the Plan, in the event of a Change
in Control of the Company, all of a Participant's Incentive Stock Options shall
become immediately vested and exercisable or fully earned at the maximum amount,
except with respect to Covered Employees for "performance based compensation" as
otherwise determined by the Committee.
(b) In the event of a Change in Control, in the discretion of the
Committee, each Participant who is a Section 16 insider with respect to whom the
Change in Control might result in a violation under Section 16(b) of the
Exchange Act, may receive, in exchange for the surrender of the Incentive Stock
Option, an amount of cash equal to the difference between the fair market value
(based on the kind and amount of any securities, cash, other property or other
consideration to be received with respect to each Share in the Change in Control
transaction as determined by the Committee) of the Common Stock covered by the
Incentive Stock Option and the option price of such Common Stock under the
Incentive Stock Option.
(c) Notwithstanding the foregoing, the Plan and any Incentive Stock Options
outstanding under the Plan shall be binding upon any successor to the Company,
whether such successor is the result of a direct or indirect purchase, merger,
consolidation or other acquisition of all or substantially all of the business
and/or assets of the Company.
<PAGE>
Page 5
17. GOVERNING LAW
The Plan and any Incentive Stock Option made pursuant to it shall be
construed under the laws of the State of Delaware.
Dated: June 23, 1997 CANANDAIGUA WINE COMPANY, INC.
--
By: /s/ Richard Sands
--------------------
Title: President
--------------------
Date of Stockholder Approval July 22, 1997
-------------
<PAGE>
Page 1
ANNEX A
TO
INCENTIVE STOCK OPTION PLAN
CERTAIN DEFINITIONS
Capitalized terms used in the Plan shall have the meanings set forth below:
"CAUSE" means, solely for the purposes of the Plan, gross negligence or willful
misconduct or commission of a felony or an act of moral turpitude determined by
the Committee to be detrimental to the best interests of the Company or, if the
Participant is subject to a written agreement with the Company "cause" shall
have the meaning set forth in that agreement.
"CHANGE IN CONTROL" means:
(a) there shall be consummated:
(i) any consolidation or merger of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which any
Shares are to be converted into cash, securities or other property,
provided that the consolidation or merger is not with a corporation
which was a direct or indirect wholly-owned subsidiary of the Company
or a parent of the Company immediately before the consolidation or
merger; or
(ii) any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all, or substantially all, of
the assets of the Company; or
(b) the stockholders of the Company approve any plan or proposal for the
liquidation or dissolution of the Company; or
(c) any person (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) shall become the beneficial owner (within the meaning of Rule
13d-3 under the Exchange Act), directly or indirectly, of 30% or more of
the voting control of the Company's then outstanding common stock, provided
that such person shall not be a wholly-owned subsidiary of the Company
immediately before it becomes such 30% beneficial owner of voting control;
or
(d) individuals who constitute the Company's Board of Directors on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least
a majority thereof, provided, however, that any person becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least three
quarters of the directors comprising the Incumbent Board (either by a
specific vote or by approval of the proxy statement of the Company in which
such person is named as a nominee for director, without objection to such
nomination) shall be, for purposes of this clause (d), considered as though
such person were a member of the Incumbent Board.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" means Canandaigua Wine Company, Inc. and its Subsidiaries, except
where the context indicates that only the parent company is intended.
"COMMITTEE" means the committee appointed by the Company's Board of Directors
(the "Committee") consisting of not fewer than the number of members of the
Board of Directors required under Code Section 162(m) and the Rules of the IRS
thereunder for determining performance based compensation which is deductible by
the Company who are "outside directors" as defined from time to time under the
IRS Rules and, to the extent possible are also "Non-Employee Directors" as
defined from time to time under the SEC Rules for approval of Incentive Stock
Options exempt from Section 16(b). If any member of the Committee does not
qualify as an "outside director", Incentive Stock Options under the Plan for
Covered Employees shall be administered by a subcommittee of the Committee
comprised solely of members who qualify as outside directors to the extent
desireable to preserve the deductibility of such compensation under Section
162(m) of the Code and such subcommittee shall constitute the Committee for all
purposes under the Plan. The full Board of Directors,
<PAGE>
Page 2
in its discretion, may act as the Committee under the Plan. The Committee may
delegate to selected officers of the Company individually or acting as a
committee any portion of its authority, except as otherwise expressly provided
in the Plan. In the event of a delegation to management, the term "Committee" as
used herein shall include the officer or committee with respect to the delegated
authority. Notwithstanding any such delegation of authority, the Committee
comprised of members of the Board of Directors shall retain overall
responsibility for the operation of the Plan. Management acting pursuant to
delegated authority shall not make awards under the Plan to any Covered
Employees or other Section 16 insider.
"COMMON STOCK" means the Class A Common Stock of the Company, par value $.01 per
Share.
"COVERED EMPLOYEE" means the Chief Executive Officer of the Company and the four
other most highly compensated officers of the Company as such term is defined
under the Rules promulgated under Section 162(m) of the Code and such other
officers as may be designated by the Committee.
"DISABILITY" means the inability of a Participant to perform his or her duties
for a period in excess of the applicable statutory short-term disability
coverage provided by the Company. The date of termination with respect to
Disability shall be the day following the date such short term disability
protection lapses.
"FAIR MARKET VALUE" of a Share means the closing price of the Common Stock on
the NASDAQ Stock Market or other national stock exchange on which the Common
Stock is actively traded for the date as reported in the WALL STREET JOURNAL,
Eastern Edition or such other standard reference service as the Committee may
select.
"IRS" means the Internal Revenue Service and, if the context permits, the courts
interpreting the Code.
"INCENTIVE STOCK OPTION" means any Stock Option granted under the Plan all of
which are designated as "incentive stock options" within the meaning of Section
422 of the Code or any successor or replacement provision.
"PARTICIPANT" means any employee of the Company who has received an Incentive
Stock Option under the Plan.
"PLAN" means the Incentive Stock Option Plan of the Company, as amended from
time to time.
"RETIREMENT" means a termination of employment by an employee who is at least 60
years of age and after at least 10 years of service with the Company (which
shall include entities acquired by the Company, if the Committee so determines).
"RULES" means rules, regulations and interpretations issued by the governmental
authority charged with administering any law and any judicial interpretations
applicable thereto.
"SEC" means the Securities and Exchange Commission.
"SHARES" means shares of the Company's Class A Common Stock, par value $.01 per
share.
"SUBSIDIARIES" means (a) all corporations of which at least fifty percent of the
voting stock is owned by the Company directly or through one or more
corporations at least fifty percent of whose voting stock is so owned, and (b)
partnerships or other entities in which the Company has, either directly or
indirectly, at least a fifty percent interest in the capital or profits.
"TEN PERCENT HOLDER" means a Participant who owns stock possessing more than ten
percent of the total combined voting power of all classes of capital stock
outstanding on the date of determination. OTHER TERMS: Any other terms used in
the Plan which are defined in Sections 83, 162(m) or 421 of the Internal Revenue
Code as amended, or the Rules thereunder or corresponding provisions of
subsequent laws and Rules in effect at the time Incentive Stock Options are
granted under the Plan, shall have the meanings set forth in such laws or Rules.
OTHER TERMS: Any other terms used in the Plan which are defined in Sections 83,
163(m) or 421 of the Internal Revenue Code as amended, or the Rules thereunder
or corresponding provisions of subsequent laws and Rules in effect at the time
Incentive Stock Options are granted under the Plan, shall have the meanings set
forth in such laws or Rules.
EXHIBIT 10.3
------------
AMENDMENT NUMBER ONE TO THE
CANANDAIGUA WINE COMPANY, INC.
INCENTIVE STOCK OPTION PLAN
This Amendment Number One to the Canandaigua Wine Company, Inc. Incentive
Stock Option Plan (the "Plan") was approved pursuant to Section 15 of the Plan
by the Board of Directors of Canandaigua Brands, Inc. (f/k/a Canandaigua Wine
Company, Inc., (the "Company"), acting in its capacity as the Committee under
the Plan. Capitalized terms used herein which are not otherwise defined shall
have the meanings ascribed to them in the Plan and Annex A thereto.
1. NAME. The name of the Plan is hereby changed to "Canandaigua Brands,
Inc. Incentive Stock Option Plan."
2. DEFINITION OF COMMITTEE. The definition of the term "Committee" as used
in the Plan and defined in Annex A to the Plan is hereby amended and restated to
read in its entirety as follows:
"COMMITTEE" means the committee appointed from time to time by the
Company's Board of Directors to administer the Plan (the "Committee").
The full Board of Directors, in its discretion, may act as the
Committee under the Plan, whether or not a Committee has been
appointed. The Committee may delegate to one or more members of the
Committee or officers of the Company, individually or acting as a
committee, any portion of its authority, except as otherwise expressly
provided in the Plan. In the event of a delegation to a member of the
Committee, officer or a committee thereof, the term "Committee" as
used herein shall include the member of the Committee, officer or
committee with respect to the delegated authority. Notwithstanding any
such delegation of authority, the Committee comprised of members of
the Board of Directors and appointed by the Board of Directors shall
retain overall responsibility for the operation of the Plan.
In witness whereof, Canandaigua Brands, Inc. has caused this instrument to
be executed as of September 15, 1997.
CANANDAIGUA BRANDS, INC.
By: /s/ Richard Sands
------------------------
Richard Sands, President
EXHIBIT 10.4
------------
CANANDAIGUA WINE COMPANY, INC.
ANNUAL MANAGEMENT INCENTIVE PLAN
This Annual Management Incentive Plan was approved by the Board of
Directors of the Company on June 23, 1997 and shall be effective upon approval
by the stockholders. Certain capitalized terms used in the Plan are defined in
Annex A.
1. PURPOSE
The Plan is designed to enable the Company to attract and retain valued
employees and to provide them with incentives to attain certain annual
performance goals.
2. ADMINISTRATION
The Plan shall be administered by a Committee of the Company's Board of
Directors. This Committee shall consist of at least two members of the Company's
Board of Directors, all of whom are (a) "outside directors" within the meaning
of Section 162(m), and (b) not eligible to participate in the Plan. Subject to
the Plan, the Committee shall possess the sole authority, in its discretion, to
(i) establish and administer the Performance Criteria and Performance Targets,
(ii) select the Participating Executives who will receive Bonuses under the
Plan, (iii) determine the amount of such Bonuses and any terms, conditions or
limitations on the payment of any Bonuses, (iv) interpret the Plan, (v) make and
amend rules and regulations relating to the Plan, and (vi) make all other
determinations necessary or advisable for the administration of the Plan.
3. TERMS AND CONDITIONS OF BONUSES
For each Performance Period, the Committee shall select, at the time the
Performance Criteria and Performance Targets are determined, the Participating
Executives. Each Participating Executive may receive a Bonus if and only if the
Performance Targets established by the Committee, relative to the applicable
Performance Criteria, are attained. The applicable Performance Period and
Performance Targets shall be determined by the Committee consistent with the
terms of the Plan and Section 162(m). The Committee may adjust Performance
Targets to take into account the effects of any Extraordinary Items equitably in
a manner consistent with the determination of the original Bonus, provided,
however, no such adjustment may be made with respect to any Bonus to a
Participating Executive which is intended to qualify as "performance based
compensation" unless such adjustment satisfies the requirements of Section
162(m) and the related Rules.
The Performance Target with respect to the Performance Criteria must be
established by the Committee in advance of the deadlines applicable under
Section 162(m) and while the performance relating to the Performance Target
remains substantially uncertain within the meaning of Section 162(m). At the
time the Performance Target is established, the Committee shall provide, in
terms of an objective formula or standard for each Participating Executive, the
method of computing the specific amount that will represent the maximum amount
of Bonus payable to the Participant if the Performance Target is attained.
Notwithstanding any other provision hereof, no Participating Executive
shall receive a Bonus under the Plan for any fiscal year or other Performance
Period in excess of $2 million. Any Bonuses awarded by the Committee under the
Plan shall be paid within 30 days after year-end financial results are reported
or, if later, as soon as practicable following the Committee's determinations
and certification under this Section. Any such payment shall be in cash or cash
equivalent, subject to applicable withholding requirements. Notwithstanding the
foregoing, the Committee may, in its sole discretion, defer the payout of any
Bonus. In the case of the delay of a Bonus otherwise payable at or after the
attainment and certification of the applicable Performance Target, any
additional amount payable as a result of the delay shall be limited to the
Moody's Average Corporate Bond Yield during the deferral period.
No Participating Executive shall receive any payment under the Plan unless
the Committee has certified, by resolution or other appropriate action in
writing, that the amount thereof has been accurately
<PAGE>
Page 2
determined in accordance with the terms, conditions and limits of the Plan and
that the Performance Target and any other material terms previously established
by the Committee or set forth in the Plan were in fact satisfied.
4. TERMINATION OF EMPLOYMENT
If the employment of a Participating Executive terminates by reason of such
Participating Executive's Retirement, Disability, death or involuntary
termination without Cause, a ratable portion of any applicable Bonus shall be
paid, subject to the attainment of the applicable Performance Target, at or
after the attainment and certification of the applicable Performance Target at
the end of the fiscal year or other Performance Period. The ratable portion of
the Bonus shall be determined by multiplying the bonus by a fraction, the
numerator of which is the number of full or partial months during the
Performance Period during which the Participating Executive was employed, and
the denominator of which is the number of calendar months in the Performance
Period. Upon termination of the Participating Executive's employment by
voluntary resignation or for Cause, all Bonuses for which the Participating
Executive may be eligible shall be forfeited unless the Committee otherwise
expressly so provides in a written contract or other written instrument.
5. ADJUSTMENTS
In the event of any change in the Company's applicable accounting
principles or practices by reason of any stock dividend, stock split,
recapitalization, reorganization, merger, consolidation, split-up, combination,
exchange of shares, rights offering or other similar change which occurs after
the Performance Targets are established for a given Performance Period, the
amount of the Bonuses paid under the Plan for such Performance Period shall be
automatically adjusted consistent with such change to prevent dilution or
enlargement of the Bonuses under the Plan.
6. NO EMPLOYMENT RIGHTS
The Plan shall not confer upon any Participating Executive any right with
respect to continuance as an employee of the Company, nor shall it interfere in
any way with the right of the Company to terminate the Participating Executive's
position as an employee.
7. DISCRETION OF COMPANY
Any decision made or action taken by the Company, the Committee or the
Board of Directors in connection with the creation, amendment, construction,
administration, interpretation or effect of the Plan shall be within the
absolute discretion of such entity and shall be conclusive and binding upon all
persons. No officer, director or member of the Committee shall have any
liability for actions taken or omitted under the Plan by the member or by any
other person.
8. AMENDMENT AND DISCONTINUANCE
The Plan may be amended, modified or terminated by the Committee at any
time, and all Bonuses shall be subject to the Plan as amended from time to time,
except that the Committee may not, without the approval of a Participating
Executive adversely affect any rights under the Plan. No amendment, modification
or termination shall be effective without the approval of the Board of Directors
and/or the stockholders if such approval is necessary to comply with the
applicable provisions of Section 162(m).
9. CHANGE OF CONTROL
Notwithstanding other provisions of the Plan, in the event of a Change of
Control of the Company, the Performance Period for a Participating Executive
shall end on the date of the Change of Control and the Performance Target shall
be adjusted to reflect the early termination of the Performance Period. If the
Performance Target, as adjusted, is deemed satisfied by the Committee, the
Participating Executive may receive a ratable portion of the Bonus that would
have been paid if the Performance Period had not been terminated early and the
Performance Target had been satisfied. The ratable portion of the Bonus shall be
determined by multiplying the original Bonus by a fraction, the numerator of
which is the number of months from the first day
<PAGE>
Page 3
of the Performance Period to the date of the Change of Control (including any
fractional month) and the denominator of which is the total number of months in
the original Performance Period.
The Plan shall be binding upon any successor to the Company, whether such
successor is the result of a direct or indirect purchase, merger, consolidation
or other acquisition of all or substantially all of the business and/or assets
of the Company.
10. SECTION 162(m) CONDITIONS
It is the intent of the Company that the Plan and Bonuses paid under the
Plan satisfy and be interpreted in a manner that satisfies any applicable
requirements of Section 162(m) as performance-based compensation. Any provision,
application or interpretation of the Plan inconsistent with this intent to
satisfy the standards in Section 162(m) shall be disregarded. Notwithstanding
anything to the contrary in the Plan, the provisions of the Plan may at any time
be bifurcated by the Committee in any manner so that certain provisions of the
Plan or any Bonus intended (or required in order) to satisfy the applicable
requirements of Section 162(m) are applicable only to persons whose compensation
is subject to Section 162(m).
11. NO FUNDING OF THE PLAN
The Company shall not be required to fund or otherwise segregate any cash
or any other assets which may at any time be paid to any Participating Executive
under the Plan. The Plan shall constitute an "unfunded" plan of the Company. The
Company shall not, by any provisions of the Plan, be deemed to be a trustee of
any property, and any rights of any Participating Executive shall be limited to
those of a general unsecured creditor.
12. NON-TRANSFERABILITY
Except as expressly provided by the Committee, no benefit payable under the
Plan shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, and any such attempted action shall
be void. This Section shall not apply to an assignment of a contingency or
payment due after the death of a Participating Executive to such Participating
Executive's legal representative or beneficiary.
13. EFFECTIVE DATE
The effective date of the Plan shall be the date the Plan is approved by
the Company's stockholders.
14. DEFINITIONS
Any terms or provisions used herein which are defined in Section 162(m)
shall have the meanings as therein defined.
15. GOVERNING LAW
To the extent not inconsistent with the provisions of Section 162(m), the
Plan shall be construed under the laws of the State of New York.
Dated: June 23, 1997 CANANDAIGUA WINE COMPANY, INC.
--
By: /s/ Richard Sands
--------------------
Title: President
--------------------
Date of Stockholder Approval: July 22, 1997
-------------
<PAGE>
Page 1
ANNEX A
TO
ANNUAL MANAGEMENT INCENTIVE PLAN
CERTAIN DEFINITIONS
Capitalized terms used in the Plan shall have the meanings set forth below:
"BONUS" means a cash payment or payment opportunity, as the context requires.
"CAUSE" means, solely for the purposes of the Plan, gross negligence or willful
misconduct or commission of a felony or an act of moral turpitude determined by
the Committee to be detrimental to the best interests of the Company or, if the
Participating Executive is subject to a written agreement with the Company
"cause" shall have the meaning set forth in that agreement.
"CHANGE OF CONTROL" means:
(a) there shall be consummated
(i) any consolidation or merger of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which any
Shares are to be converted into cash, securities or other property,
provided that the consolidation or merger is not with a corporation
which was a direct or indirect wholly-owned subsidiary of the Company
or a parent of the Company immediately before the consolidation or
merger; or
(ii) any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all, or substantially all, of
the assets of the Company; or
(b) the stockholders of the Company approve any plan or proposal for the
liquidation or dissolution of the Company; or
(c) any person (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) shall become the beneficial owner (within the meaning of
Rule 13d-3 under the Exchange Act), directly or indirectly, of 30% or
more voting control of the Company's then outstanding common stock,
provided that such person shall not be a wholly-owned subsidiary of
the Company immediately before it becomes such 30% beneficial owner of
voting control; or
(d) individuals who constitute the Company's Board of Directors on the
date hereof (the "Incumbent Board") cease for any reason to constitute
at least a majority thereof, provided, however, that any person
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by
a vote of at least three quarters of the directors comprising the
Incumbent Board (either by a specific vote or by approval of the proxy
statement of the Company in which such person is named as a nominee
for director without objection to such nomination) shall be, for
purposes of this clause (d), considered as though such person were a
member of the Incumbent Board.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" means Canandaigua Wine Company, Inc. and its Subsidiaries, except when
the context indicates that only the parent company is intended.
"COMMITTEE" means the committee appointed by the Board of Directors of the
Company to administer the Plan as provided in Section 2.
"DISABILITY" means the inability of a Participant to perform his or her duties
for a period in excess of the applicable statutory short-term disability
coverage provided by the Company. The date of termination with respect to
Disability shall be the day following the date such short-term disability
protection lapses.
<PAGE>
Page 2
"EXTRAORDINARY ITEMS" means (a) items presented as such (or other comparable
terms) on the Company's audited financial statements, (b) extraordinary, unusual
or nonrecurring items of gain or loss, (c) changes in tax or accounting laws or
Rules, and (d) the effects of mergers, acquisitions, divestitures, spin offs or
significant transactions, each of which are identified in the audited financial
statements and notes thereto or in the "management's discussion and analysis" of
the financial statements in a period report filed with the SEC under the
Exchange Act.
"PARTICIPATING EXECUTIVE" means a key employee (including any officer) of the
Company or one of its Subsidiaries selected by the Committee to participate in
the Plan.
"PERFORMANCE CRITERIA" means one or more of the following performance criteria
selected by the Committee with respect to any performance-based Award: (a)
increases in the Fair Market Value of a Share, (b) shareholder value added, (c)
cash flow, (d) earnings per share, (e) earnings of the Company before deducting
interest, taxes, depreciation and amortization, (f) return on equity, (g) return
on capital, (h) return on assets or net assets, (i) cost reduction or control,
(j) operating income or net operating income, (k) operating margins/sales in one
or more business segments or product lines, (l) return on operating revenue, and
(m) market share in one or more business segments or product lines. Performance
criteria may be established on a corporate, divisional, business unit or
consolidated basis and measured absolutely or relative to the Company's peers.
"PERFORMANCE PERIOD" means the fiscal year or years or other period established
by the Committee with respect to which the Performance Targets are set by the
Committee.
"PERFORMANCE TARGET" means one or more specific objective goal or goals (which
may be cumulative or alternative) that are timely set in writing by the
Committee for each Participant for the applicable Performance Period with
respect to any one or more of the Performance Criteria.
"PLAN" means the Annual Management Incentive Plan of the Company, as amended
from time to time.
"RETIREMENT" means a termination of employment by an employee who is at least 60
years of age and after at least 10 years of service with the Company (which
shall include entities acquired by the Company, if the Committee so determines).
"RULES" means rules, regulations and interpretations issued by the governmental
authority charged with administering any law and any judicial interpretations
applicable thereto.
"SECTION 162(m)" means Section 162(m) of the Code, together with the regulations
promulgated thereunder, all as amended from time to time.
"SHARES" means shares of the Company's Class A Common Stock, par value $.01 per
share.
"SUBSIDIARIES" means (a) all corporations of which at least fifty percent of the
voting stock is owned by the Company directly or through one or more
corporations at least fifty percent of whose voting stock is so owned, and (b)
partnerships or other entities in which the Company has, either directly or
indirectly, at least a fifty percent interest in the capital or profits.
<TABLE>
EXHIBIT 11
----------
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
(in thousands, except per share data)
(unaudited)
<CAPTION>
For the Six Months Ended August 31,
---------------------------------------------------------------
1997 1996
-------------------------- --------------------------
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 $ 22,411 $ 22,411 $ 13,442 $ 13,442
Adjustments -- -- -- --
-------- -------- -------- --------
Net income available to common and common equivalent
shares $ 22,411 $ 22,411 $ 13,442 $ 13,442
======== ======== ======== ========
Shares:
Weighted average common shares outstanding 18,665 18,665 19,553 19,553
Adjustments:
(1) Assumed exercise of incentive stock options 571 750 204 204
(2) Assumed exercise of stock options -- 1 38 38
-------- -------- -------- --------
Weighted average common and common equivalent
shares outstanding 19,236 19,416 19,795 19,795
======== ======== ======== ========
Net income per common and common equivalent share $ 1.17 $ 1.15 $ 0.68 $ 0.68
======== ======== ======== ========
<CAPTION>
For the Three Months Ended August 31,
---------------------------------------------------------------
1997 1996
-------------------------- --------------------------
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 $ 12,365 $ 12,365 $ 4,941 $ 4,941
Adjustments -- -- -- --
-------- -------- -------- --------
Net income available to common and common equivalent
shares $ 12,365 $ 12,365 $ 4,941 $ 4,941
======== ======== ======== ========
Shares:
Weighted average common shares outstanding 18,559 18,559 19,477 19,477
Adjustments:
(1) Assumed exercise of incentive stock options 683 758 152 152
(2) Assumed exercise of stock options -- 1 24 24
-------- -------- -------- --------
Weighted average common and common equivalent
shares outstanding 19,242 19,318 19,653 19,653
======== ======== ======== ========
Net income per common and common equivalent share $ 0.64 $ 0.64 $ 0.25 $ 0.25
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUGUST 31, 1997 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000016918
<NAME> CANANDAIGUA BRANDS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> AUG-31-1997
<CASH> 4,278
<SECURITIES> 0
<RECEIVABLES> 160,885
<ALLOWANCES> 0
<INVENTORY> 334,756
<CURRENT-ASSETS> 520,481
<PP&E> 357,630
<DEPRECIATION> 110,918
<TOTAL-ASSETS> 1,032,950
<CURRENT-LIABILITIES> 283,270
<BONDS> 298,995
0
0
<COMMON> 215
<OTHER-SE> 379,198
<TOTAL-LIABILITY-AND-EQUITY> 1,032,950
<SALES> 607,535
<TOTAL-REVENUES> 607,535
<CGS> 442,044
<TOTAL-COSTS> 553,527
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,024
<INCOME-PRETAX> 37,984
<INCOME-TAX> 15,573
<INCOME-CONTINUING> 22,411
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,411
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.15
</TABLE>
