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 May 31, 1999
------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ 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
NEW YORK CANANDAIGUA EUROPE LIMITED 16-1195581
ENGLAND AND WALES CANANDAIGUA LIMITED -----
NEW YORK POLYPHENOLICS, INC. 16-1546354
NEW YORK ROBERTS TRADING CORP. 16-0865491
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 specified in its charter) Identification
of incorporation No.)
or organization)
300 WILLOWBROOK OFFICE PARK, FAIRPORT, NEW YORK 14450
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(716) 218-2169
-----------------------------------------------------------------
(Registrants' telephone number, including area code)
-----------------------------------------------------------------
(Former name, former address and former fiscal year,
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 July 9, 1999, 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 14,801,772
Class B Common Stock, Par Value $.01 Per Share 3,189,599
<PAGE>
- 1 -
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
May 31, February 28,
1999 1999
------------ ------------
(unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash investments $ 1,930 $ 27,645
Accounts receivable, net 327,700 260,433
Inventories, net 547,835 508,571
Prepaid expenses and other current assets 56,197 59,090
----------- -----------
Total current assets 933,662 855,739
PROPERTY, PLANT AND EQUIPMENT, net 458,229 428,803
OTHER ASSETS 614,719 509,234
----------- -----------
Total assets $ 2,006,610 $ 1,793,776
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable $ 17,306 $ 87,728
Current maturities of long-term debt 13,007 6,005
Accounts payable 134,339 122,746
Accrued excise taxes 41,223 49,342
Other accrued expenses and liabilities 173,378 149,451
----------- -----------
Total current liabilities 379,253 415,272
----------- -----------
LONG-TERM DEBT, less current maturities 1,073,140 831,689
----------- -----------
DEFERRED INCOME TAXES 83,870 88,179
----------- -----------
OTHER LIABILITIES 22,409 23,364
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value-
Authorized, 1,000,000 shares;
Issued, none at May 31, 1999,
and February 28, 1999 - -
Class A Common Stock, $.01 par value-
Authorized, 120,000,000 shares;
Issued, 17,965,173 shares at May 31, 1999,
and 17,915,359 shares at February 28, 1999 180 179
Class B Convertible Common Stock, $.01 par value-
Authorized, 20,000,000 shares;
Issued, 3,815,324 shares at May 31, 1999,
and 3,849,173 shares at February 28, 1999 38 39
Additional paid-in capital 240,882 239,912
Retained earnings 291,927 281,081
Accumulated other comprehensive income-
Cumulative translation adjustment (3,323) (4,173)
----------- -----------
529,704 517,038
----------- -----------
Less-Treasury stock-
Class A Common Stock, 3,168,306 shares at
May 31, 1999, and February 28, 1999,
at cost (79,559) (79,559)
Class B Convertible Common Stock, 625,725 shares
at May 31, 1999, and February 28, 1999, at cost (2,207) (2,207)
----------- -----------
(81,766) (81,766)
----------- -----------
Total stockholders' equity 447,938 435,272
----------- -----------
Total liabilities and stockholders' equity $ 2,006,610 $ 1,793,776
=========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
<PAGE>
- 2 -
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
For the Three Months Ended May 31,
----------------------------------
1999 1998
----------- -----------
(unaudited) (unaudited)
GROSS SALES $ 704,990 $ 422,869
Less - Excise taxes (174,821) (109,941)
---------- ----------
Net sales 530,169 312,928
COST OF PRODUCT SOLD (374,046) (220,867)
---------- ----------
Gross profit 156,123 92,061
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (110,502) (61,332)
NONRECURRING CHARGES (5,510) -
---------- ----------
Operating income 40,111 30,729
INTEREST EXPENSE, net (22,034) (8,527)
---------- ----------
Income before income taxes 18,077 22,202
PROVISION FOR INCOME TAXES (7,231) (9,103)
---------- ----------
NET INCOME $ 10,846 $ 13,099
========== ==========
SHARE DATA:
Earnings per common share:
Basic $ 0.60 $ 0.70
========== ==========
Diluted $ 0.59 $ 0.68
========== ==========
Weighted average common shares outstanding:
Basic 17,977 18,748
Diluted 18,447 19,328
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE>
- 3 -
<TABLE>
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
For the Three Months Ended May 31,
----------------------------------
1999 1998
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,846 $ 13,099
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation of property, plant and equipment 9,399 6,000
Amortization of intangible assets 4,364 2,508
Stock-based compensation expense 763 25
Loss on sale of assets 344 -
Amortization of discount on long-term debt 103 93
Change in operating assets and liabilities,
net of effects from purchase of business:
Accounts receivable, net (67,551) (26,957)
Inventories, net 12,819 31,989
Prepaid expenses and other current assets 2,885 4,628
Accounts payable 11,649 (8,035)
Accrued excise taxes (8,084) 3,844
Other accrued expenses and liabilities 17,969 (2,328)
Other assets and liabilities, net (1,117) (2,097)
--------- ---------
Total adjustments (16,457) 9,670
--------- ---------
Net cash (used in) provided by operating
activities (5,611) 22,769
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of business (185,500) -
Purchases of property, plant and equipment (11,321) (5,628)
Proceeds from sale of assets 715 -
Purchase of joint venture minority interest - (706)
--------- ---------
Net cash used in investing activities (196,106) (6,334)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 264,080 -
Exercise of employee stock options 309 348
Net repayments of notes payable (70,396) (11,900)
Principal payments of long-term debt (16,253) (6,000)
Payment of issuance costs of long-term debt (3,230) -
Proceeds from employee stock purchases - 650
--------- ---------
Net cash provided by (used in) financing
activities 174,510 (16,902)
--------- ---------
Effect of exchange rate changes on cash and
cash investments 1,492 -
--------- ---------
NET DECREASE IN CASH AND CASH INVESTMENTS (25,715) (467)
CASH AND CASH INVESTMENTS, beginning of period 27,645 1,232
--------- ---------
CASH AND CASH INVESTMENTS, end of period $ 1,930 $ 765
========= =========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Fair value of assets acquired $ 187,160 $ -
Liabilities assumed (1,660) -
--------- ---------
Cash paid for purchase of business $ 185,500 $ -
========= =========
<FN>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
- 4 -
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999
1) MANAGEMENT'S REPRESENTATIONS:
The condensed consolidated financial statements included herein have been
prepared by Canandaigua Brands, Inc. and its subsidiaries (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 fairly the
financial information for the Company. 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, 1999.
2) ACQUISITIONS:
On April 9, 1999, in an asset acquisition, the Company acquired several
well-known Canadian whisky brands, including Black Velvet, production facilities
located in Alberta and Quebec, Canada, case goods and bulk whisky inventories
and other related assets from affiliates of Diageo plc (the "Black Velvet
Acquisition"). Other principal brands acquired in the transaction were Golden
Wedding, OFC, MacNaughton, McMaster's and Triple Crown. In connection with the
transaction, the Company also entered into multi-year agreements with Diageo to
provide packaging and distilling services for various brands retained by Diageo.
The purchase price was approximately $185.5 million and was financed by the
proceeds from the sale of the "$200 Million Notes" (as defined in Note 6).
The Black Velvet Acquisition was accounted for using the purchase method;
accordingly, the acquired assets were recorded at fair market value at the date
of acquisition. The excess of the purchase price over the estimated fair market
value of the net assets acquired (goodwill), $22.3 million, is being amortized
on a straight-line basis over 40 years. The results of operations of the Black
Velvet Acquisition have been included in the Consolidated Statements of Income
since the date of acquisition.
The following table sets forth the unaudited pro forma results of
operations of the Company for the three months ended May 31, 1999 and 1998,
which gives effect to the acquisition of Matthew Clark plc ("Matthew Clark") and
the Black Velvet Acquisition as if they occurred on March 1, 1998. The unaudited
pro forma results of operations are presented after giving effect to certain
adjustments for depreciation, amortization of goodwill, interest expense on the
acquisition financing and related income tax effects. The unaudited pro forma
results of operations are based upon currently available information and upon
certain assumptions that the Company believes are reasonable under the
circumstances. The unaudited pro forma results of operations do not purport to
present what the Company's results of operations would actually have been if the
aforementioned transactions had in fact occurred on such date or at the
beginning of the period indicated, nor do they project the Company's financial
position or results of operations at any future date or for any future period.
<PAGE>
- 5 -
For the Three Months Ended May 31,
----------------------------------
1999 1998
---------- ----------
(in thousands, except per share data)
Net sales $ 538,433 $ 495,328
Income before income taxes $ 19,328 $ 24,931
Net income $ 11,596 $ 14,959
Earnings per common share:
Basic $ 0.65 $ 0.80
========== ==========
Diluted $ 0.63 $ 0.77
========== ==========
Weighted average common shares outstanding:
Basic 17,977 18,748
Diluted 18,447 19,328
3) INVENTORIES:
Inventories are stated at the lower of cost (computed in accordance with
the first-in, first-out method) or market. Elements of cost include materials,
labor and overhead and consist of the following:
May 31, February 28,
1999 1999
---------- ------------
(in thousands)
Raw materials and supplies $ 29,430 $ 32,388
Wine and distilled spirits in process 355,969 344,175
Finished case goods 162,436 132,008
---------- ------------
$ 547,835 $ 508,571
========== ============
4) OTHER ASSETS:
The major components of other assets are as follows:
May 31, February 28,
1999 1999
---------- ------------
(in thousands)
Goodwill $ 334,244 $ 311,908
Distribution rights, agency
license agreements and trademarks 269,612 179,077
Other 50,035 53,779
---------- ------------
653,891 544,764
Less - Accumulated amortization (39,172) (35,530)
---------- ------------
$ 614,719 $ 509,234
========== ============
<PAGE>
- 6 -
5) OTHER ACCRUED EXPENSES AND LIABILITIES:
The major components of other accrued expenses and liabilities are as
follows:
May 31, February 28,
1999 1999
----------- ------------
(in thousands)
Accrued advertising and promotions $ 34,448 $ 38,604
Accrued interest 25,804 11,384
Accrued salaries and commissions 8,652 15,584
Other 104,474 83,879
----------- ------------
$ 173,378 $ 149,451
=========== ============
6) BORROWINGS:
On March 4, 1999, the Company issued $200.0 million aggregate principal
amount of 8 1/2% Senior Subordinated Notes due March 2009 (the "$200 Million
Notes"). The net proceeds of the offering (approximately $195.0 million) were
used to fund the Black Velvet Acquisition and to pay the fees and expenses
related thereto with the remainder of the net proceeds to be used for general
corporate purposes or to fund future acquisitions. Interest on the $200 Million
Notes is payable semiannually on March 1 and September 1 of each year, beginning
September 1, 1999. The $200 Million Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after March 1, 2004. The Company
may also redeem up to $70.0 million of the $200 Million Notes using the proceeds
of certain equity offerings completed before March 1, 2002. The $200 Million
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 $200
Million Notes are guaranteed, on a senior subordinated basis, by certain of the
Company's significant operating subsidiaries.
7) EARNINGS PER COMMON SHARE:
Basic earnings per common share exclude the effect of common stock
equivalents and are computed by dividing income available to common stockholders
by the weighted average number of common shares outstanding during the period
for Class A Common Stock and Class B Convertible Common Stock. Diluted earnings
per common share reflect the potential dilution that could result if securities
or other contracts to issue common stock were exercised or converted into common
stock. Diluted earnings per common share assume the exercise of stock options
using the treasury stock method and assume the conversion of convertible
securities, if any, using the "if converted" method.
<PAGE>
- 7 -
The computation of basic and diluted earnings per common share is as
follows:
For the Three Months Ended May 31,
----------------------------------
1999 1998
---------- ----------
(in thousands, except per share data)
Income applicable to common shares $ 10,846 $ 13,099
========== ==========
Weighted average common shares
outstanding - basic 17,977 18,748
Stock options 470 580
---------- ----------
Weighted average common shares
outstanding - diluted 18,447 19,328
========== ==========
EARNINGS PER COMMON SHARE - BASIC $ 0.60 $ 0.70
========== ==========
EARNINGS PER COMMON SHARE - DILUTED $ 0.59 $ 0.68
========== ==========
8) SUMMARIZED FINANCIAL INFORMATION - SUBSIDIARY GUARANTORS:
The following table presents summarized financial information for the
Company, the parent company, the combined subsidiaries of the Company which
guarantee the Company's senior subordinated notes ("Subsidiary Guarantors") and
the combined subsidiaries of the Company which are not Subsidiary Guarantors,
primarily Matthew Clark ("Subsidiary Nonguarantors"). The Subsidiary Guarantors
are wholly owned and the guarantees are full, unconditional, joint and several
obligations of each of the Subsidiary Guarantors. 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 Matthew Clark, the Company's Canadian
subsidiary, and certain other 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, loans or advances.
<TABLE>
<CAPTION>
Parent Subsidiary Subsidiary
Company Guarantors Nonguarantors Eliminations Consolidated
----------- ----------- ------------- ------------ ------------
(in thousands)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
May 31, 1999
- ------------
Current assets $ 105,046 $ 548,134 $ 280,482 $ - $ 933,662
Noncurrent assets $ 648,682 $ 1,043,815 $ 453,590 $(1,073,139) $ 1,072,948
Current liabilities $ 94,923 $ 128,172 $ 156,158 $ - $ 379,253
Noncurrent liabilities $ 1,072,275 $ 69,292 $ 37,852 $ - $ 1,179,419
February 28, 1999
- -----------------
Current assets $ 114,243 $ 532,028 $ 209,468 $ - $ 855,739
Noncurrent assets $ 646,133 $ 396,125 $ 421,867 $ (526,088) $ 938,037
Current liabilities $ 157,648 $ 126,803 $ 130,821 $ - $ 415,272
Noncurrent liabilities $ 815,421 $ 73,178 $ 54,633 $ - $ 943,232
<PAGE>
- 8 -
<CAPTION>
Parent Subsidiary Subsidiary
Company Guarantors Nonguarantors Eliminations Consolidated
----------- ---------- ------------- ------------ ------------
(in thousands)
Income Statement Data:
<S> <C> <C> <C> <C> <C>
For the three months
- --------------------
ended May 31, 1999
- ------------------
Net sales $ 154,623 $ 299,219 $ 168,210 $ (91,883) $ 530,169
Gross profit $ 39,431 $ 69,875 $ 46,817 $ - $ 156,123
(Loss) income before
income taxes $ (5,023) $ 15,537 $ 7,563 $ - $ 18,077
Net (loss) income $ (3,014) $ 9,322 $ 4,538 $ - $ 10,846
For the three months
- --------------------
ended May 31, 1998
- ------------------
Net sales $ 111,152 $ 262,578 $ 822 $ (61,624) $ 312,928
Gross profit $ 34,389 $ 57,337 $ 335 $ - $ 92,061
(Loss) income before
income taxes $ (107) $ 22,182 $ 127 $ - $ 22,202
Net (loss) income $ (63) $ 13,035 $ 127 $ - $ 13,099
</TABLE>
9) BUSINESS SEGMENT INFORMATION:
The Company reports its operating results in four segments: Canandaigua
Wine (branded wine and brandy, and other, primarily grape juice concentrate);
Barton (primarily beer and spirits); Matthew Clark (branded wine, cider and
bottled water, and wholesale wine, cider, spirits, beer and soft drinks); and
Corporate Operations and Other (primarily corporate related items). Segment
selection was based upon internal organizational structure, the way in which
these operations are managed and their performance evaluated by management and
the Company's Board of Directors, the availability of separate financial
results, and materiality considerations. The accounting policies of the segments
are the same as those described in the summary of significant accounting
policies. The Company evaluates performance based on profits of the respective
business units.
<PAGE>
- 9 -
Segment information is as follows:
For the Three Months Ended May 31,
----------------------------------
1999 1998
---------- ----------
(in thousands)
Canandaigua Wine:
- -----------------
Net sales:
Branded:
External customers $ 142,641 $ 126,798
Intersegment 1,750 -
---------- -----------
Total Branded 144,391 126,798
---------- -----------
Other:
External customers 19,130 19,139
Intersegment 38 -
---------- -----------
Total Other 19,168 19,139
---------- -----------
Net sales $ 163,559 $ 145,937
Operating profit $ 5,607 $ 7,440
Long-lived assets $ 192,128 $ 185,416
Total assets $ 623,786 $ 604,537
Capital expenditures $ 5,638 $ 4,836
Depreciation and amortization $ 5,536 $ 5,591
Barton:
- -------
Net sales:
Beer $ 146,611 $ 118,796
Spirits 54,139 47,372
---------- -----------
Net sales $ 200,750 $ 166,168
Operating profit $ 31,497 $ 25,788
Long-lived assets $ 79,784 $ 51,220
Total assets $ 709,962 $ 468,297
Capital expenditures $ 916 $ 760
Depreciation and amortization $ 3,161 $ 2,692
Matthew Clark:
- --------------
Net sales:
Branded $ 74,375 $ -
Wholesale 92,422 -
---------- ------------
Net sales $ 166,797 $ -
Operating profit $ 7,330 $ -
Long-lived assets $ 169,393 $ -
Total assets $ 648,222 $ -
Capital expenditures $ 4,656 $ -
Depreciation and amortization $ 4,426 $ -
<PAGE>
- 10 -
For the Three Months Ended May 31,
----------------------------------
1999 1998
------------ ------------
(in thousands)
Corporate Operations and Other:
- -------------------------------
Net sales $ 885 $ 823
Operating loss $ (4,323) $ (2,499)
Long-lived assets $ 16,924 $ 7,027
Total assets $ 24,640 $ 7,133
Capital expenditures $ 111 $ 32
Depreciation and amortization $ 640 $ 226
Intersegment eliminations:
- --------------------------
Net sales $ (1,822) $ -
Consolidated:
- -------------
Net sales $ 530,169 $ 312,928
Operating profit $ 40,111 $ 30,729
Long-lived assets $ 458,229 $ 243,663
Total assets $ 2,006,610 $ 1,079,967
Capital expenditures $ 11,321 $ 5,628
Depreciation and amortization $ 13,763 $ 8,509
10) COMPREHENSIVE INCOME:
Comprehensive income consists of net income and foreign currency
translation adjustments for the three month period ended May 31, 1999. For the
three month period ended May 31, 1998, comprehensive income consisted of net
income, exclusively. The reconciliation of net income to comprehensive net
income is as follows:
For the Three Months Ended May 31,
----------------------------------
1999 1998
------------ ------------
(in thousands)
Net income $ 10,846 $ 13,099
Other comprehensive income:
Cumulative translation adjustment 850 -
------------ ------------
Total comprehensive income $ 11,696 $ 13,099
============ ============
<PAGE>
- 11 -
11) ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. SFAS No. 133 requires that every
derivative be recorded as either an asset or liability in the balance sheet and
measured at its fair value. SFAS No. 133 also requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting.
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137 ("SFAS No. 137"), "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133". SFAS No. 137 delays the effective date of SFAS No. 133
for one year. With the issuance of SFAS No. 137, the Company is required to
adopt SFAS No. 133 on a prospective basis for interim periods and fiscal years
beginning March 1, 2001. The Company believes the effect of the adoption on its
financial statements will not be material based on the Company's current risk
management strategies.
12) SUBSEQUENT EVENTS:
On June 4, 1999, the Company completed the purchase of all the outstanding
capital stock of Franciscan Vineyards, Inc. ("Franciscan"), and related
vineyards and assets. The purchase price was approximately $209.9 million in
cash and assumed debt, net of cash acquired, of approximately $28.9 million.
Also, on June 4, 1999, the Company completed its purchase of all the outstanding
capital stock of Simi Winery, Inc. ("Simi"). The cash purchase price was
approximately $55.8 million. The purchases will be accounted for using the
purchase method; accordingly, the acquired assets will be recorded at fair
market value at the date of acquisition. The Franciscan and Simi operations will
be managed together as a separate business segment of the Company.
<PAGE>
- 12 -
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 May 31, 1999 ("First Quarter 2000"), compared to the three months
ended May 31, 1998 ("First Quarter 1999"), and (ii) financial liquidity and
capital resources for First Quarter 2000. 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, 1999.
The Company operates primarily in the beverage alcohol industry in the
United States and the United Kingdom. The Company reports its operating results
in four segments: Canandaigua Wine (branded wine and brandy, and other,
primarily grape juice concentrate); Barton (primarily beer and spirits); Matthew
Clark (branded wine, cider and bottled water, and wholesale wine, cider,
spirits, beer and soft drinks); and Corporate Operations and Other (primarily
corporate related items).
RECENT ACQUISITIONS
On December 1, 1998, the Company acquired control of Matthew Clark plc
("Matthew Clark") and has since acquired all of Matthew Clark's outstanding
shares (the "Matthew Clark Acquisition"). Prior to the Matthew Clark
Acquisition, the Company was principally a producer and supplier of wine and an
importer and producer of beer and distilled spirits in the United States. The
Matthew Clark Acquisition established the Company as a leading British producer
of cider, wine and bottled water and as a leading beverage alcohol wholesaler in
the United Kingdom. The results of operations of Matthew Clark have been
included in the consolidated results of operations of the Company since the date
of acquisition, December 1, 1998.
On April 9, 1999, in an asset acquisition, the Company acquired several
well-known Canadian whisky brands, including Black Velvet, production facilities
located in Alberta and Quebec, Canada, case goods and bulk whisky inventories
and other related assets from affiliates of Diageo plc (collectively, the "Black
Velvet Acquisition"). In connection with the transaction, the Company also
entered into multi-year agreements with Diageo to provide packaging and
distilling services for various brands retained by Diageo. The results of
operations from the Black Velvet Acquisition have been included in the
consolidated results of operations of the Company since the date of acquisition.
On June 4, 1999, the Company purchased all of the outstanding capital stock
of Franciscan Vineyards, Inc. ("Franciscan") and in related transactions
purchased vineyards, a winery, equipment and other vineyard related assets
located in Northern California (collectively, the "Franciscan Acquisition").
Also on June 4, 1999, the Company purchased all of the outstanding capital
stock of Simi Winery, Inc. ("Simi"). (The acquisition of the capital stock of
Simi is hereafter referred to as the "Simi Acquisition".) The Simi Acquisition
includes the Simi winery, equipment, vineyards, inventory and worldwide
ownership of the Simi brand name.
The Matthew Clark, Black Velvet and Franciscan Acquisitions are significant
and the Company expects them to have a material impact on the Company's future
results of operations.
<PAGE>
- 13 -
RESULTS OF OPERATIONS
- ---------------------
FIRST QUARTER 2000 COMPARED TO FIRST QUARTER 1999
NET SALES
The following table sets forth the net sales (in thousands of dollars) by
operating segment of the Company for First Quarter 2000 and First Quarter 1999.
First Quarter 2000 Compared to First Quarter 1999
-------------------------------------------------
Net Sales
-------------------------------------------------
%Increase/
2000 1999 (Decrease)
---------- ---------- ----------
Canandaigua Wine:
Branded:
External customers $ 142,641 $ 126,798 12.5 %
Intersegment 1,750 - N/A
---------- ----------
Total Branded 144,391 126,798 13.9 %
---------- ----------
Other:
External customers 19,130 19,139 (0.1)%
Intersegment 38 - N/A
---------- ----------
Total Other 19,168 19,139 0.2 %
---------- ----------
Canandaigua Wine net sales $ 163,559 $ 145,937 12.1 %
---------- ----------
Barton:
Beer $ 146,611 $ 118,796 23.4 %
Spirits 54,139 47,372 14.3 %
---------- ----------
Barton net sales $ 200,750 $ 166,168 20.8 %
---------- ----------
Matthew Clark:
Branded $ 74,375 $ - N/A
Wholesale 92,422 - N/A
---------- ----------
Matthew Clark net sales $ 166,797 $ - N/A
---------- ----------
Corporate Operations and Other $ 885 $ 823 7.5 %
---------- ----------
Intersegment eliminations $ (1,822) $ - N/A
---------- ----------
Consolidated Net Sales $ 530,169 $ 312,928 69.4 %
========== ==========
Net sales for First Quarter 2000 increased to $530.2 million from $312.9
million for First Quarter 1999, an increase of $217.2 million, or 69.4%.
CANANDAIGUA WINE
Net sales for Canandaigua Wine for First Quarter 2000 increased to $163.6
million from $145.9 million for First Quarter 1999, an increase of $17.6
million, or 12.1%. This increase resulted primarily from (i) sales of Arbor Mist
and Mystic Cliffs, which were introduced in the second quarter of fiscal 1999,
(ii) growth in the Company's international business and (iii) an increase in the
Company's bulk wine sales. These increases were partially offset by declines in
other wine brands and in the Company's grape juice concentrate business.
<PAGE>
- 14 -
BARTON
Net sales for Barton for First Quarter 2000 increased to $200.8 million
from $166.2 million for First Quarter 1999, an increase of $34.6 million, or
20.8%. This increase resulted primarily from an increase in sales of imported
beer brands led by Barton's Mexican portfolio as well as from $7.2 million of
sales of products and services acquired in the Black Velvet Acquisition, which
was completed in April 1999.
MATTHEW CLARK
Net sales for Matthew Clark for First Quarter 2000 were $166.8 million.
GROSS PROFIT
The Company's gross profit increased to $156.1 million for First Quarter
2000 from $92.1 million for First Quarter 1999, an increase of $64.1 million, or
69.6%. The dollar increase in gross profit was primarily related to sales from
the Matthew Clark and Black Velvet Acquisitions, both completed after First
Quarter 1999, as well as increased Barton beer and Canandaigua Wine wine sales.
As a percent of net sales, gross profit remained flat at 29.4% for both First
Quarter 2000 and First Quarter 1999, as margin improvements within each product
line were offset by additional sales of lower-margin products such as imported
beer and U.K. wholesale sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $110.5 million
for First Quarter 2000 from $61.3 million for First Quarter 1999, an increase of
$49.2 million, or 80.2%. The dollar increase in selling, general and
administrative expenses resulted primarily from the addition of the Matthew
Clark business and expenses related to the brands acquired in the Black Velvet
Acquisition. The Company also increased its marketing and promotional costs to
generate additional sales volume, particularly of Canandaigua Wine wine and
Barton beer brands. Selling, general and administrative expenses as a percent of
net sales increased to 20.8% for First Quarter 2000 as compared to 19.6% for
First Quarter 1999. The increase in percent of net sales resulted primarily from
(i) Canandaigua Wine's investment in brand building and efforts to increase
market share and (ii) the Matthew Clark Acquisition, as Matthew Clark's selling,
general and administrative expenses as a percent of net sales is typically at
the high end of the range of the Company's operating segments' percentages.
NONRECURRING CHARGES
The Company incurred nonrecurring charges of $5.5 million in First Quarter
2000 related to the closure of a production facility within the Matthew Clark
operating segment in the United Kingdom and to a management reorganization
within the Canandaigua Wine operating segment. No such charges were incurred in
First Quarter 1999.
<PAGE>
- 15 -
OPERATING INCOME
The following table sets forth the operating profit/(loss) (in thousands of
dollars) by operating segment of the Company for First Quarter 2000 and First
Quarter 1999.
First Quarter 2000 Compared to First Quarter 1999
-------------------------------------------------
Operating Profit/(Loss)
-------------------------------------------------
%Increase/
2000 1999 (Decrease)
---------- ---------- ----------
Canandaigua Wine $ 5,607 $ 7,440 (24.6)%
Barton 31,497 25,788 22.1 %
Matthew Clark 7,330 - N/A
Corporate Operations and Other (4,323) (2,499) 73.0 %
---------- ----------
Consolidated Operating Profit $ 40,111 $ 30,729 30.5 %
========== ==========
As a result of the above factors, consolidated operating income increased
to $40.1 million for First Quarter 2000 from $30.7 million for First Quarter
1999, an increase of $9.4 million, or 30.5%. Operating income for the
Canandaigua Wine operating segment was down $1.8 million, or 24.6%, due to the
nonrecurring charge of $2.6 million related to the segment's management
reorganization, as well as additional marketing expenses associated with new
product introductions. Exclusive of the nonrecurring charge, operating income
increased by 9.8% to $8.2 million in First Quarter 2000. Operating income for
the Matthew Clark operating segment, excluding nonrecurring charges of $2.9
million, was $10.3 million.
INTEREST EXPENSE, NET
Net interest expense increased to $22.0 million for First Quarter 2000 from
$8.5 million for First Quarter 1999, an increase of $13.5 million or 158.4%. The
increase resulted primarily from additional interest expense associated with the
borrowings related to the Matthew Clark and Black Velvet Acquisitions.
NET INCOME
As a result of the above factors, net income decreased to $10.8 million for
First Quarter 2000 from $13.1 million for First Quarter 1999, a decrease of $2.3
million, or 17.2%.
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for First Quarter 2000
were $53.9 million, an increase of $14.6 million over EBITDA of $39.2 million
for First Quarter 1999. 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,
<PAGE>
- 16 -
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.
FIRST QUARTER 2000 CASH FLOWS
OPERATING ACTIVITIES
Net cash used in operating activities for First Quarter 2000 was $5.6
million, which resulted from $25.8 million in net income adjusted for noncash
items, less $31.4 million representing the net change in the Company's operating
assets and liabilities. The net change in operating assets and liabilities
resulted primarily from a seasonal increase in accounts receivable, partially
offset by an increase in accrued interest due to higher debt outstanding related
to the Matthew Clark and Black Velvet Acquisitions.
INVESTING ACTIVITIES AND FINANCING ACTIVITIES
Net cash used in investing activities for First Quarter 2000 was $196.1
million, which resulted primarily from net cash paid of $185.5 million for the
Black Velvet Acquisition and $11.3 million of capital expenditures, including
$1.3 million for vineyards.
Net cash provided by financing activities for First Quarter 2000 was $174.5
million, which resulted primarily from proceeds of $264.1 million from issuance
of long-term debt, including $200.0 million of long-term debt incurred in
connection with the Black Velvet Acquisition. This amount was partially offset
by repayment of $70.4 million of net revolving loan borrowings, principal
payments of $16.3 million of long-term debt, and payment of $3.2 million of
long-term debt issuance costs.
DEBT
Total debt outstanding as of May 31, 1999, amounted to $1,103.5 million, an
increase of $178.0 million from February 28, 1999. The ratio of total debt to
total capitalization increased to 71.1% as of May 31, 1999, from 68.0% as of
February 28, 1999.
THE COMPANY'S CREDIT AGREEMENT
As of May 31, 1999, under its bank credit agreement, the Company had
outstanding term loans of $690.1 million bearing interest at 7.6%, $9.1 million
of revolving loans bearing interest at 7.6%, undrawn revolving letters of credit
of $3.8 million, and $287.1 million in revolving loans available to be drawn.
During June 1999, the Company, certain of its principal operating
subsidiaries, and a syndicate of banks, for which The Chase Manhattan Bank acts
as administrative agent, entered into a Second
<PAGE>
- 17 -
Amended and Restated Credit Agreement (the "Credit Agreement") which amends and
restates the Company's First Amended and Restated Credit Agreement. The Credit
Agreement recasts certain incremental revolving loans provided for under the
Company's First Amended and Restated Credit Agreement into amortizing term loans
which are known as "Incremental Facility Loans". The Credit Agreement also
amended the financial covenants for the debt coverage ratio and the interest
coverage ratio to reflect $200.0 million of Incremental Facility Loans which
were borrowed by the Company to finance the Franciscan Acquisition.
The Incremental Facility Loans have a final maturity on December 1, 2005
and, subject to certain mandatory prepayment requirements, shall be repaid in
quarterly installments, starting at $0.5 million in December 1999. The rate of
interest payable on the Incremental Facility Loans, at the Company's option, is
a function of the London interbank offering rate (LIBOR) plus a margin, federal
funds rate plus a margin, or the prime rate plus a margin. The margin is
adjustable based upon the Company's Debt Ratio (as defined in the Credit
Agreement). The initial margin on the Incremental Facility Loans will be 1.75%
(for prime rate based borrowings) and 2.75% (for LIBOR based borrowings).
The Company financed the purchase price for the Simi Acquisition with
revolving loan borrowings under the Credit Agreement.
SENIOR SUBORDINATED NOTES
As of May 31, 1999, the Company had outstanding $195.0 million aggregate
principal amount of 8 3/4% Senior Subordinated Notes due December 2003 (the
"Notes"). The Notes are currently redeemable, in whole or in part, at the option
of the Company.
On March 4, 1999, the Company issued $200.0 million aggregate principal
amount of 8 1/2% Senior Subordinated Notes due March 2009 (the "$200 Million
Notes"). The Company used the proceeds from the sale of the $200 Million Notes
to fund the Black Velvet Acquisition ($185.5 million) and to pay the fees and
expenses related thereto with the remainder of the net proceeds to be used for
general corporate purposes or to fund future acquisitions. The $200 Million
Notes are redeemable at the option of the Company, in whole or in part, at any
time on or after March 1, 2004. The Company may also redeem up to $70.0 million
of the $200 Million Notes using the proceeds of certain equity offerings
completed before March 1, 2002. A brief description of the $200 Million Notes is
contained in Note 6 to the Company's consolidated financial statements located
in Part I, Item 1 of this Quarterly Report on Form 10-Q.
ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. SFAS No. 133 requires that every
derivative be recorded as either an asset or liability in the balance sheet and
measured at its fair value. SFAS No. 133 also requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting.
<PAGE>
- 18 -
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137 ("SFAS No. 137"), "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133". SFAS No. 137 delays the effective date of SFAS No. 133
for one year. With the issuance of SFAS No. 137, the Company is required to
adopt SFAS No. 133 on a prospective basis for interim periods and fiscal years
beginning March 1, 2001. The Company believes the effect of adoption on its
financial statements will not be material based on the Company's current risk
management strategies.
YEAR 2000 ISSUE
For purposes of the following Year 2000 discussion, the information
presented includes the effect of the Franciscan and Simi Acquisitions. The
Company has in place detailed programs to address Year 2000 readiness in its
internal systems and with its key customers and suppliers. The Year 2000 issue
is the result of computer logic that was written using two digits rather than
four to define the applicable year. Any computer logic that processes
date-sensitive information may recognize the date using "00" as the year 1900
rather than the year 2000, which could result in miscalculations or system
failures.
Pursuant to the Company's readiness programs, all major categories of
information technology systems and non-information technology systems (i.e.,
equipment with embedded microprocessors) in use by the Company, including
manufacturing, sales, financial and human resources, have been inventoried and
assessed. In addition, plans have been developed for the required systems
modifications or replacements. With respect to its information technology
systems, the Company has completed the entire assessment phase and approximately
85% of the remediation phase. With respect to its non-information technology
systems, the Company has completed the entire assessment phase and approximately
80% of the remediation phase. Selected areas, both internal and external, are
being tested to assure the integrity of the Company's remediation programs. The
testing is expected to be completed by September 1999. The Company plans to have
all internal mission-critical information technology and non-information
technology systems Year 2000 compliant by September 1999.
The Company is also communicating with its major customers, suppliers and
financial institutions to assess the potential impact on the Company's
operations if those third parties fail to become Year 2000 compliant in a timely
manner. While this process is not yet complete, based upon responses to date, it
appears that many of those customers and suppliers have only indicated that they
have in place Year 2000 readiness programs, without specifically confirming that
they will be Year 2000 compliant in a timely manner. Risk assessment, readiness
evaluation, action plans and contingency plans related to the Company's
significant customers and suppliers are expected to be completed by September
1999. The Company's key financial institutions have been surveyed and it is the
Company's understanding that they are or will be Year 2000 compliant on or
before December 31, 1999.
The costs incurred to date related to its Year 2000 activities have not
been material to the Company, and, based upon current estimates, the Company
does not believe that the total cost of its Year 2000 readiness programs will
have a material adverse impact on the Company's financial condition, results of
operations or cash flows.
The Company's readiness programs also include the development of
contingency plans to protect its business and operations from Year 2000-related
interruptions. These plans should be complete by September 1999 and, by way of
examples, will include back-up procedures, identification of alternate
suppliers, where possible, and increases in inventory levels. Based upon the
Company's current
<PAGE>
- 19 -
assessment of its non-information technology systems, the Company does not
believe it necessary to develop an extensive contingency plan for those systems.
There can be no assurances, however, that any of the Company's contingency plans
will be sufficient to handle all problems or issues which may arise.
The Company believes that it is taking reasonable steps to identify and
address those matters that could cause serious interruptions in its business and
operations due to Year 2000 issues. However, delays in the implementation of new
systems, a failure to fully identify all Year 2000 dependencies in the Company's
systems and in the systems of its suppliers, customers and financial
institutions, a failure of such third parties to adequately address their
respective Year 2000 issues, or a failure of a contingency plan could have a
material adverse effect on the Company's business, financial condition, results
of operations or cash flows. For example, the Company would experience a
material adverse impact on its business if significant suppliers of beer, glass
or other raw materials, or utility systems fail to timely provide the Company
with necessary inventories or services due to Year 2000 systems failures.
The statements set forth herein concerning Year 2000 issues which are not
historical facts are forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. In particular, the costs associated with the
Company's Year 2000 programs and the time-frame in which the Company plans to
complete Year 2000 modifications are based upon management's best estimates.
These estimates were derived from internal assessments and assumptions of future
events. These estimates may be adversely affected by the continued availability
of personnel and system resources, and by the failure of significant third
parties to properly address Year 2000 issues. Therefore, there can be no
guarantee that any estimates, or other forward-looking statements will be
achieved, and actual results could differ significantly from those contemplated.
EURO CONVERSION ISSUES
Effective January 1, 1999, eleven of the fifteen member countries of the
European Union (the "Participating Countries") established fixed conversion
rates between their existing sovereign currencies and the euro. For three years
after the introduction of the euro, the Participating Countries can perform
financial transactions in either the euro or their original local currencies.
This will result in a fixed exchange rate among the Participating Countries,
whereas the euro (and the Participating Countries' currency in tandem) will
continue to float freely against the U.S. dollar and other currencies of the
non-participating countries. The Company does not believe that the effects of
the conversion will have a material adverse effect on the Company's business and
operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ----------------------------------------------------------
Information about market risks for the three months ended May 31, 1999,
does not differ materially from that discussed under Item 7A in the Company's
Annual Report on Form 10-K for the fiscal year ended February 28, 1999.
<PAGE>
- 20 -
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) See Index to Exhibits located on Page 26 of this Report.
(b) The following Reports on Form 8-K were filed with the Securities and
Exchange Commission during the quarter ended May 31, 1999:
(i) Form 8-K dated February 25, 1999. This Form 8-K reported
information under Item 7 (Financial Statements and Exhibits).
(ii) Form 8-K dated April 9, 1999. This Form 8-K reported information
under Item 2 (Acquisition or Disposition of Assets) and Item 7
(Financial Statements and Exhibits).
(iii)Form 8-K dated April 12, 1999. This Form 8-K reported
information under Item 5 (Other Events).
(iv) Form 8-K dated April 15, 1999. This Form 8-K reported information
under Item 5 (Other Events) and included (i) the Company's
Condensed Consolidated Balance Sheets for the fiscal years ended
February 28, 1999 and February 28, 1998; (ii) the Company's
Condensed Consolidated Statements of Income for the three months
ended February 28, 1999 (unaudited) and February 28, 1998
(unaudited); and (iii) the Company's Condensed Consolidated
Statements of Income for the twelve months ended February 28,
1999 and the twelve months ended February 28, 1998.
(v) Form 8-K dated April 22, 1999. This Form 8-K reported information
under Item 5 (Other Events).
<PAGE>
- 21 -
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: July 14, 1999 By: /s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Vice President,
Corporate Reporting and Controller
Dated: July 14, 1999 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: July 14, 1999 By: /s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Controller
Dated: July 14, 1999 By: /s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
CANANDAIGUA WINE COMPANY, INC.
Dated: July 14, 1999 By: /s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Controller
Dated: July 14, 1999 By: /s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
<PAGE>
- 22 -
CANANDAIGUA EUROPE LIMITED
Dated: July 14, 1999 By: /s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Controller
Dated: July 14, 1999 By: /s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
CANANDAIGUA LIMITED
Dated: July 14, 1999 By: /s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Authorized Officer
Dated: July 14, 1999 By: /s/ Thomas S.
----------------------------------
Thomas S. Summer, Finance Director
(Principal Financial Officer and
Principal Accounting Officer)
POLYPHENOLICS, INC.
Dated: July 14, 1999 By: /s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Vice President and
Controller
Dated: July 14, 1999 By: /s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Vice President
and Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
ROBERTS TRADING CORP.
Dated: July 14, 1999 By: /s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Controller
Dated: July 14, 1999 By: /s/ Thomas S. Summer
--------------------------------
Thomas S. Summer, President and
Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
<PAGE>
- 23 -
BARTON INCORPORATED
Dated: July 14, 1999 By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, President and
Chief Executive Officer
Dated: July 14, 1999 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: July 14, 1999 By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, Executive Vice
President
Dated: July 14, 1999 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: July 14, 1999 By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, Executive Vice
President
Dated: July 14, 1999 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: July 14, 1999 By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, President
Dated: July 14, 1999 By: /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary (Principal Financial
Officer and Principal Accounting
Officer)
<PAGE>
- 24 -
BARTON BRANDS OF GEORGIA, INC.
Dated: July 14, 1999 By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, President
Dated: July 14, 1999 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: July 14, 1999 By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, President
Dated: July 14, 1999 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: July 14, 1999 By: /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, President and
Secretary
Dated: July 14, 1999 By: /s/ Charles T. Schlau
----------------------------------
Charles T. Schlau, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
STEVENS POINT BEVERAGE CO.
Dated: July 14, 1999 By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, Executive Vice
President
Dated: July 14, 1999 By: /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary (Principal Financial
Officer and Principal Accounting
Officer)
<PAGE>
- 25 -
MONARCH IMPORT COMPANY
Dated: July 14, 1999 By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, President
Dated: July 14, 1999 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: July 14, 1999 By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, President
Dated: July 14, 1999 By: /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary (Principal Financial
Officer and Principal Accounting
Officer)
<PAGE>
- 26 -
INDEX TO EXHIBITS
(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION.
2.1 Asset Purchase Agreement dated as of February 21, 1999 by and among Diageo
Inc., UDV Canada Inc., United Distillers Canada Inc. and the Company (filed
as Exhibit 2 to the Company's Current Report on Form 8-K dated April 9,
1999 and incorporated herein by reference).
2.2 Stock Purchase Agreement, dated April 21, 1999, between Franciscan
Vineyards, Inc., Agustin Huneeus, Agustin Francisco Huneeus, Jean-Michel
Valette, Heidrun Eckes-Chantre Und Kinder Beteiligungsverwaltung II, GbR,
Peter Eugen Eckes Und Kinder Beteiligungsverwaltung II, GbR, Harald
Eckes-Chantre, Christina Eckes-Chantre, Petra Eckes-Chantre and Canandaigua
Brands, Inc. (filed as Exhibit 2.1 on the Company's Current Report on Form
8-K dated June 4, 1999 and incorporated herein by reference).
2.3 Stock Purchase Agreement by and between Canandaigua Wine Company, Inc. (a
wholly-owned subsidiary of the Company) and Moet Hennessy, Inc. dated April
1, 1999 (including a list briefly identifying the contents of all omitted
schedules thereto) (filed herewith). The Company will furnish
supplementally to the Commission, upon request, a copy of any omitted
schedule.
(3) ARTICLES OF INCORPORATION AND BY-LAWS.
3.1 Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 1998 and incorporated herein by reference).
3.2 Amended and Restated By-Laws of the Company (filed as Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended August
31, 1998 and incorporated herein by reference).
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES.
4.1 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).
4.2 First Supplemental Indenture, dated as of August 3, 1994, among the
Company, Canandaigua West, Inc. (a subsidiary of the Company now known as
Canandaigua Wine Company, 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).
4.3 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).
<PAGE>
- 27 -
4.4 Third Supplemental Indenture, dated as of December 19, 1997, among the
Company, Canandaigua Europe Limited, Roberts Trading Corp. and The Chase
Manhattan Bank (filed as Exhibit 4.4 to the Company's Annual Report on Form
10-K for the fiscal year ended February 28, 1998 and incorporated herein by
reference).
4.5 Fourth Supplemental Indenture, dated as of October 2, 1998, among the
Company, Polyphenolics, Inc. and The Chase Manhattan Bank (filed as Exhibit
4.5 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended November 30, 1998 and incorporated herein by reference).
4.6 Fifth Supplemental Indenture, dated as of December 11, 1998, among the
Company, Canandaigua B.V., Canandaigua Limited and The Chase Manhattan Bank
(filed as Exhibit 4.6 to the Company's Annual Report on Form 10-K for the
fiscal year ended February 28, 1999 and incorporated herein by reference).
4.7 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).
4.8 First Supplemental Indenture, dated as of December 19, 1997, among the
Company, Canandaigua Europe Limited, Roberts Trading Corp. and Harris Trust
and Savings Bank (filed as Exhibit 4.6 to the Company's Annual Report on
Form 10-K for the fiscal year ended February 28, 1998 and incorporated
herein by reference).
4.9 Second Supplemental Indenture, dated as of October 2, 1998, among the
Company, Polyphenolics, Inc. and Harris Trust and Savings Bank (filed as
Exhibit 4.8 to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended November 30, 1998 and incorporated herein by reference).
4.10 Third Supplemental Indenture, dated as of December 11, 1998, among the
Company, Canandaigua B.V., Canandaigua Limited and Harris Trust and Savings
Bank (filed as Exhibit 4.10 to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1999 and incorporated herein by
reference).
4.11 First Amended and Restated Credit Agreement, dated as of November 2, 1998,
between the Company, its principal operating subsidiaries, and certain
banks for which The Chase Manhattan Bank acts as Administrative Agent
(filed as Exhibit 4.1 to the Company's Current Report on Form 8-K dated
December 1, 1998 and incorporated herein by reference).
4.12 Second Amended and Restated Credit Agreement, dated as of May 12, 1999,
between the Company, its principal operating subsidiaries, and certain
banks for which The Chase Manhattan Bank acts as Administrative Agent
(filed as Exhibit 4.2 to the Company's Current Report on Form 8-K dated
June 4, 1999 and incorporated herein by reference).
4.13 Incremental Facility Loan Agreement, dated as of May 27, 1999, between the
Company, its principal operating subsidiaries, and certain banks for which
The Chase Manhattan Bank acts as Administrative Agent (filed as Exhibit 4.3
to the Company's Current Report on Form 8-K dated June 4, 1999 and
incorporated herein by reference).
<PAGE>
- 28 -
4.14 Indenture with respect to 8 1/2% Senior Subordinated Notes due 2009, dated
as of February 25, 1999, among the Company, as issuer, its principal
operating subsidiaries, as Guarantors, and Harris Trust and Savings Bank,
as Trustee (filed as Exhibit 99.1 to the Company's Current Report on Form
8-K dated February 25, 1999 and incorporated herein by reference).
4.15 Supplemental Indenture No. 1, dated as of February 25, 1999, by and among
the Company, as Issuer, its principal operating subsidiaries, as
Guarantors, and Harris Trust and Savings Bank, as Trustee (filed as Exhibit
99.2 to the Company's Current Report on Form 8-K dated February 25, 1999
and incorporated herein by reference).
(10) MATERIAL CONTRACTS.
First Amendment to the Supplemental Executive Retirement 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 2.3
-----------
STOCK PURCHASE AGREEMENT
by and between
CANANDAIGUA WINE COMPANY, INC.,
a New York corporation,
and
MOET HENNESSY, INC.,
a Delaware corporation
APRIL 1, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1 DESCRIPTION OF TRANSACTION..............................1
1.1 Purchase and Sale...........................................1
1.2 Purchase Price; Payment.....................................1
1.3 Taxes.......................................................2
1.4 Closing.....................................................2
1.5 Section 338 Elections.......................................3
1.6 Further Action..............................................3
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SELLER................4
2.1 Organization, Standing, Etc.;
Corporate Authorization; Enforceability...................4
2.2 Capitalization; Subsidiaries................................4
2.3 Compliance with Other Instruments and Laws..................5
2.4 Governmental Authorizations And Consents....................5
2.5 Financial Statements........................................6
2.6 Absence of Certain Changes or Events........................6
2.7 Assets......................................................7
2.8 Trade Rights................................................7
2.9 Benefit Plans...............................................8
2.10 Litigation..................................................10
2.11 Taxes.......................................................10
2.12 Contracts...................................................11
2.13 Insurance...................................................12
2.14 Environmental Quality.......................................13
2.15 Brokers.....................................................14
2.16 Real Property...............................................14
2.17 Accounts Receivable.........................................14
2.18 Inventory...................................................14
2.19 Labor Matters...............................................15
2.20 Major Distributors and Suppliers............................15
2.21 Year 2000...................................................15
2.22 Disclosure..................................................16
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
Page
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PURCHASER.............16
3.1 Organization, Standing, Etc.;
Corporate Authorization; Enforceability...................16
3.2 Compliance with Other Instruments and Laws..................16
3.3 Governmental Authorizations and Consents....................16
3.4 Financing Arrangements......................................17
3.5 Brokers.....................................................17
3.6 Purchase for Own Account....................................17
ARTICLE 4 COVENANTS OF SELLER.....................................17
4.1 Conduct of Business.........................................17
4.2 Access......................................................18
4.3 No-Shop Provision...........................................19
4.4 Disclosure..................................................19
4.5 Intercompany Payables and Receivables.......................19
4.6 Benefit Plans...............................................19
4.7 Termination of Contracts....................................20
4.8 Records of the Company......................................20
4.9 Restrictive Covenants.......................................20
4.10 Estoppel Certificates.......................................21
4.11 Resignations................................................21
4.12 Title Matters...............................................21
4.13 Computer Sublease and Software Licenses.....................22
ARTICLE 5 COVENANTS OF PURCHASER..................................22
5.1 Confidentiality.............................................22
5.2 Investigation...............................................22
5.3 Insurance...................................................22
5.4 Employees...................................................23
5.5 Disclosure..................................................24
ARTICLE 6 COVENANTS OF ALL PARTIES................................24
6.1 Best Efforts; Further Assurances............................24
6.2 Certain Filings.............................................24
ii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
Page
6.3 Public Announcements........................................25
6.4 Consents....................................................25
6.5 Tax Returns.................................................25
6.6 Identification of Inventory.................................26
6.7 Transition Services.........................................27
6.8 Distributors................................................27
ARTICLE 7 CONDITIONS TO OBLIGATION OF PURCHASER TO CLOSE..........28
7.1 Accuracy of Representations and Warranties..................28
7.2 Performance.................................................28
7.3 Certificate.................................................28
7.4 No Injunction...............................................28
7.5 HSR Act.....................................................28
7.6 Legal Opinion...............................................28
7.7 Consents and Estoppel Certificates..........................28
7.8 Stock Certificate...........................................28
7.9 Physical Inventory..........................................29
7.10 Grape Supply Contract.......................................29
7.11 Termination of Agreements...................................29
7.12 Warehousing Agreement and Computer Transactions.............29
7.13 AMS Software................................................29
7.14 Assignment of Intellectual Property Rights..................29
ARTICLE 8 CONDITIONS TO OBLIGATION OF SELLER TO CLOSE.............29
8.1 Accuracy of Representations and Warranties..................29
8.2 Performance.................................................30
8.3 Certificate.................................................30
8.4 No Injunction...............................................30
8.5 HSR Act.....................................................30
8.6 Consents....................................................30
8.7 Physical Inventory..........................................30
8.8 Payment.....................................................30
iii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
Page
8.9 Warehousing Agreement and Computer Transactions.............30
ARTICLE 9 TERMINATION.............................................30
9.1 Right to Terminate Agreement................................30
9.2 Effect of Termination.......................................31
9.3 Failure to Close............................................31
ARTICLE 10 CERTAIN REMEDIES AND LIMITATIONS........................32
10.1 Expiration of Representations, Warranties and Covenants.....32
10.2 Indemnification.............................................33
10.3 Defense of Third Party Actions..............................34
10.4 Subrogation.................................................36
10.5 Exclusivity.................................................36
10.6 Retention of Records........................................36
10.7 Notice as to Representations................................36
ARTICLE 11 MISCELLANEOUS...........................................37
11.1 Memorandum; Disclaimer of Projections.......................37
11.2 Expenses....................................................37
11.3 Notices.....................................................37
11.4 Assignment..................................................39
11.5 Entire Agreement; Amendment; Governing Law; Etc.............39
11.6 Counterparts................................................39
11.7 Venue.......................................................39
11.8 Third Party Rights..........................................39
11.9 Titles and Headings.........................................39
11.10 Exhibits and Schedules......................................39
11.11 Pronouns....................................................39
11.12 Severability................................................40
11.13 Time of Essence.............................................40
11.14 Interpretation..............................................40
11.15 Attorneys' Fees.............................................40
iv.
<PAGE>
TABLE OF EXHIBITS
EXHIBIT DESCRIPTION
A Pro Forma Balance Sheet
B Disclosure Schedule
C Form of Opinion of Cooley Godward LLP
D Form of Grape Supply Contract
TABLE OF SCHEDULES
SCHEDULE DESCRIPTION
2.3(c) Instruments
2.4 Consents of Seller
2.5 Financial Statements
2.8(b) Trade Rights
2.9(a) Benefit Plans
2.9(m) Welfare Benefit Plans
2.11 Taxes
2.12 Material Contracts
2.13 Insurance
2.14(a) Hazardous Materials
2.16 Real Property
2.18 Inventory
2.20(a)(1) Major Distributors
2.20(a)(2) Current Distributors
2.20(b) Major Suppliers
2.21 Year 2000 Compliance
3.3 Consents of Purchaser
4.1 Conduct of Business
4.10 Estoppel Certificates
4.12 Permitted Exceptions to Title
5.4(a) Employees and Independent Contractors
5.4(c) Employee Benefits to be Provided by Purchaser
6.7 Transition Services
10.2(b)(4) Distributor Relationships to be Discontinued by Purchaser
v.
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
April 1, 1999 by and between CANANDAIGUA WINE COMPANY, INC., a New York
corporation ("Purchaser"), and MOET HENNESSY, INC., a Delaware corporation
("Seller").
RECITALS
A. Seller owns all of the outstanding capital stock of Simi Winery,
Inc., a California corporation (the "Company").
B. Purchaser wishes to purchase such stock from Seller, and Seller
wishes to sell such stock to Purchaser, on the terms and subject to the
conditions of this Agreement (the "Purchase").
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as
follows:
ARTICLE 1
DESCRIPTION OF TRANSACTION
1.1 PURCHASE AND SALE. On the terms and subject to the conditions of this
Agreement, on the Closing Date (as defined in Section 1.4), Seller shall sell,
transfer, convey, assign and deliver to Purchaser, and Purchaser shall purchase
and accept, all of the outstanding capital stock of the Company (the "Shares").
1.2 PURCHASE PRICE; PAYMENT.
(a) The initial purchase price for the Shares shall be the sum of
$55,800,000 (the "Initial Purchase Price"). The Initial Purchase Price shall be
paid by Purchaser at the Closing (as defined in Section 1.4) by wire transfer of
immediately available funds to an account specified by Seller.
(b) Attached hereto as Exhibit A is a pro forma balance sheet of the
Company as of December 31, 1998 that gives effect to the transactions
contemplated by Sections 4.5 and 4.6 (the "Pro Forma Balance Sheet"). Other than
giving effect to the transactions contemplated by Sections 4.5 and 4.6, the Pro
Forma Balance Sheet has been prepared in the same manner, and according to the
same accounting principles, as the Balance Sheet (as defined in Section 2.5).
(c) As soon as practicable after the Closing Date, but in no event
later than 45 days after the Closing Date, Seller shall prepare at its own cost
and expense a balance sheet of the Company as at the Closing Date (the "Closing
Balance Sheet") and shall deliver it to Purchaser. The Closing Balance Sheet
will reflect the completion of all transactions contemplated by Sections 4.5 and
4.6 and shall be prepared in the same manner, according to the same accounting
principles and taking into account the same types of adjustments (and only such
adjustments) as the Pro Forma Balance Sheet. For purposes of illustration only,
Exhibit A
1.
<PAGE>
contains an example of the Closing Balance Sheet as if the Closing
Date were January 31, 1999. Purchaser shall cause the Company (1) to make
available to Seller and its representatives complete access to all data and
financial information and personnel reasonably requested by them in connection
with the preparation of the Closing Balance Sheet and (2) to provide Seller and
its representatives complete access to the books and records of the Company for
periods prior to the Closing Date in connection with the preparation of the
Closing Balance Sheet.
(d) Purchaser shall have 30 days after receipt of the Closing Balance
Sheet to raise any objections to the Closing Balance Sheet by giving written
notice thereof to Seller within such time period. Any objections to the Closing
Balance Sheet not resolved within 10 days after notice of such objection is
given by Purchaser shall be referred to an independent accounting firm (the
"Firm") for resolution. The Firm shall be mutually agreed upon by Seller and
Purchaser or, if Seller and Purchaser are unable to agree on the Firm within 15
days after the notice of objection is given by Purchaser, the Firm shall be a
"big five" accounting firm appointed by Seller's and Purchaser's primary
contacts at Ernst & Young LLP and Arthur Andersen LLP, respectively, neither of
which firms or contacts shall be eligible for appointment. The determination of
the Firm shall be given in writing within 30 days after the referral to the
Firm, shall be binding upon the parties and shall constitute the Closing Balance
Sheet for all purposes of this Agreement. Purchaser and Seller shall share
equally the fees and expenses incurred in connection with such Firm's review.
(e) After the Firm delivers its determination or such earlier date as
Purchaser and Seller agree on the Closing Balance Sheet (the "Determination
Date"), there shall be a purchase price adjustment (the "Price Adjustment")
equal to the difference between the pro forma net book value of the Company as
of December 31, 1998, determined by subtracting the total liabilities set forth
on the Pro Forma Balance Sheet from the total assets set forth on the Pro Forma
Balance Sheet (the "Base Book Value"), and the net book value of the Company as
of the Closing Date, determined by subtracting the total liabilities set forth
on the Closing Balance Sheet from the total assets set forth on the Closing
Balance Sheet (the "Closing Book Value"). For purposes of illustration only,
Exhibit A contains a calculation of the Price Adjustment as if the Closing Date
were January 31, 1999. If the Closing Book Value is greater than the Base Book
Value, Purchaser shall pay the Price Adjustment to Seller, and if the Closing
Book Value is less than the Base Book Value, Seller shall pay the Price
Adjustment to Purchaser. The payment of the Price Adjustment shall be made
within three business days following the Determination Date by wire transfer of
immediately available funds to an account specified by the party entitled to
receive the Price Adjustment.
1.3 TAXES. Any transfer, sales, use, real estate transfer or documentary
stamp or similar taxes imposed by any taxing authority applicable to, imposed
upon or arising out of the sale of the Shares and the other transactions
contemplated by this Agreement will be paid by Seller.
1.4 CLOSING. The consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Cooley Godward LLP,
One Maritime Plaza, 20th Floor, San Francisco, California, at 10:00 a.m. on a
date to be agreed by Purchaser and Seller (the "Closing Date"), which shall be
no later than the third business day after the satisfaction or waiver of the
conditions set forth in Articles 7 and 8.
2.
<PAGE>
1.5 SECTION 338 ELECTIONS.
(a) As soon as practicable after the Closing, Purchaser and Seller
shall make a joint election under Section 338(h)(10) of the Internal Revenue
Code of 1986, as amended (the "Code"), and Treasury Regulation Section
1.338(h)(10)-1 (and any comparable election under state or local law) with
respect to the Purchase (each, an "Election"). At the Closing, Purchaser and
Seller will jointly complete (to the extent possible) and execute, or cause to
be completed (to the extent possible) and executed, two copies of Form 8023.
Also, Purchaser and Seller will cooperate with each other to take all actions
necessary and appropriate (including executing and filing such additional forms,
returns, elections, schedules and other documents as may be required) to effect
and preserve a timely Election in accordance with the provisions of Treasury
Regulation Section 1.338(h)(10)-1 (or any comparable provisions of state or
local law) or any successor provisions. Purchaser and Seller shall report the
Purchase pursuant to this Agreement consistent with the Elections and shall take
no position inconsistent therewith in any tax return or any proceeding before
any taxing authority or otherwise.
(b) In connection with the Elections, Purchaser and Seller shall act
together in good faith to determine and agree upon a "Modified Aggregate Deemed
Sales Price" of the Shares (within the meaning of, and in accordance with,
Treasury Regulation Section 1.338(h)(10)-1(f)). The "Modified Aggregate Deemed
Sales Price" shall be allocated among the respective assets of the Company in
accordance with Section 338(b)(5) of the Code and Treasury regulations
promulgated thereunder (the "Allocations") based on the appraised fair market
value of such assets. Purchaser shall select and instruct the appraiser, and the
fees and costs of the appraiser shall be paid by Purchaser. Upon the
determination of the "Modified Aggregate Deemed Sales Price" and the receipt of
the appraisal (which will be completed no later than 30 days following the
Closing Date or ten days following the Determination Date, whichever is later),
Purchaser and Seller shall each complete the attachments and schedules to the
Form 8023. If, after completion of the appraisal contemplated by Section 1.5(b),
either Purchaser or Seller reasonably concludes that a revised Form 8023 is
necessary, Purchaser and Seller shall promptly complete and execute or cause to
be completed and executed two copies of a revised Form 8023 that is consistent
with the results of such appraisal. Once the Form 8023 has been completed,
Purchaser and Seller shall file such form, attachments and schedules with the
Internal Revenue Service and provide a copy thereof to the other party.
Purchaser and Seller shall (1) be bound by such determinations and Allocations
for purposes of determining any taxes, (2) prepare and file their tax returns on
a basis consistent with such determinations and Allocations and (3) take no
position inconsistent with such determinations and Allocations on any applicable
tax return, in any proceeding before any taxing authority or otherwise. In the
event that any such Allocation is disputed by any taxing authority, the party
receiving notice of the dispute shall promptly notify the other party hereto
concerning resolution of the dispute. Any liability for taxes assessable against
Seller or the Company arising from the Purchase shall be borne by Seller.
1.6 FURTHER ACTION. If, at any time after the Closing, any further action
is reasonably determined by Purchaser to be necessary to carry out the purposes
of this Agreement or to vest Purchaser with full right, title and possession of
and to the Shares, the officers and directors of Purchaser shall be fully
authorized to take such action.
3.
<PAGE>
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLER
Except as set forth in the Disclosure Schedule attached hereto as
Exhibit B (the "Disclosure Schedule"), of which the Schedules referred to in
this Article 2 are a part, Seller represents and warrants to Purchaser as
follows:
2.1 ORGANIZATION, STANDING, ETC.; CORPORATE AUTHORIZATION; ENFORCEABILITY.
(a) The Company is duly organized, validly existing and in good
standing under the laws of California and has all requisite power and authority
to carry on its business as currently conducted and to own or lease and to
operate its properties. Seller is duly organized, validly existing and in good
standing under the laws of Delaware and has all requisite power and authority to
own the Shares. The Company is qualified to do business and is in good standing
in each jurisdiction in which the property owned, leased or operated by it, or
the nature of the business conducted by it, makes such qualification necessary
and in which the failure to so qualify would have a material adverse effect on
the business, operations or financial condition of the Company (a "Material
Adverse Effect on the Business").
(b) The execution and delivery of this Agreement and all other
documents and instruments executed or to be executed by Seller pursuant to this
Agreement, and the consummation of the transactions contemplated hereby and
thereby, have been duly authorized by all necessary corporate and other action
on the part of Seller. This Agreement has been duly executed and delivered by a
duly authorized officer of Seller and all other documents and instruments
executed or to be executed by Seller pursuant to this Agreement have been, or
will have been by Closing or at the time of their respective executions and
deliveries, duly executed and delivered by a duly authorized officer of Seller.
(c) This Agreement constitutes the valid and legally binding
obligation of Seller, enforceable in accordance with its terms, except as such
enforceability may be limited by equitable principles and by applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium or similar laws
relating to or affecting the rights of creditors generally.
2.2 CAPITALIZATION; SUBSIDIARIES.
(a) The authorized equity securities of the Company consist solely of
1,000 shares of Common Stock, no par value per share, of which 250 shares are
issued and outstanding and constitute the Shares. Seller is and will be on the
Closing Date the record and beneficial owner of the Shares, free and clear of
all liens, mortgages, pledges, charges, security interests or other
encumbrances. No subscriptions, options, warrants, preemptive rights, calls or
rights of any kind to purchase any shares of capital stock of the Company
currently bind Seller or the Company, and no securities directly or indirectly
convertible into or exchangeable for any shares of the Company's capital stock
are outstanding.
(b) The Company does not own any shares of capital stock or other
securities of, or have an ownership interest in, any corporation, partnership,
association or other entity.
4.
<PAGE>
2.3 COMPLIANCE WITH OTHER INSTRUMENTS AND LAWS.
(a) The execution and delivery of this Agreement and all other
documents and instruments executed or to be executed by Seller pursuant to this
Agreement, the consummation of the transactions contemplated hereby and thereby
and the performance of Seller's obligations hereunder or thereunder will not
conflict with or result in any violation of or default under any provision of
(1) the certificate of incorporation or bylaws of Seller, (2) the articles of
incorporation or bylaws of the Company, as in effect immediately prior to the
Closing, or (3) any mortgage, indenture, trust, lease, partnership or other
agreement, contract, instrument, permit, concession, grant, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Seller or the Company or any of their respective properties.
(b) The Company is not (1) in violation of any term of its articles of
incorporation or bylaws, (2) in violation of any Material Contract (as defined
in Section 2.12) or in material violation of any other mortgage, indenture,
trust, lease, partnership or other agreement, contract, instrument, permit,
concession, grant, franchise or license applicable to the Company or any of its
properties, or (3) in violation of any judgment, decree or order that names the
Company and of which the Company is aware. The Company is not in violation of
any law, ordinance, rule or regulation applicable to it or any of its
properties, which violation either individually or when aggregated with all
other such violations would have a Material Adverse Effect on the Business.
(c) Schedule 2.3(c) hereto sets forth all licenses, memberships,
permits, approvals, variances and other authorizations of all governmental or
regulatory agencies, whether Federal, state or local, held by the Company
(collectively, the "Instruments"). The Instruments represent all licenses,
memberships, permits, approvals, variances and other authorizations of all
governmental or regulatory agencies, whether Federal, state or local, that are
necessary for the operation of the Company's business. Each of the Instruments
is valid and existing under all applicable laws and is in full force and effect
in all material respects. The Company is not in breach of or default under, nor
has any event occurred that (immediately or upon the giving of notice or the
passage of time or both) would constitute a default by the Company under, any of
the Instruments. The Company has not received any notice from, or given any
notice to, any other party indicating that the Company (1) is in material
default under, or in material breach or violation of, any of the Instruments or
(2) does not have any license, membership, permit, approval, variance or other
authorization of a governmental or regulatory agency, whether Federal, state or
local, that is necessary for the operation of the Company's business.
2.4 GOVERNMENTAL AUTHORIZATIONS AND CONSENTS. Except as specifically set
forth on Schedule 2.4, no consents, licenses, permits, approvals or
authorizations of, or registrations or declarations with, any governmental
authority, agency, bureau or commission, or any third party, are required to be
obtained or made by Seller or the Company in connection with the execution,
delivery or performance of this Agreement, other than a filing with the Federal
Trade Commission and the Department of Justice under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act").
5.
<PAGE>
2.5 FINANCIAL STATEMENTS. Seller has delivered to Purchaser the unaudited
balance sheet of the Company (the "Balance Sheet") as of December 31, 1998 (the
"Balance Sheet Date") and the related unaudited consolidated statements of
income and cash flow for the year then ended (such financial statements,
including the notes thereto, hereinafter being referred to as the "Financial
Statements"). All of the Financial Statements have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis and
in accordance with the same accounting policies as have been used for the
corresponding accounts for the last three fiscal years, except that the
Financial Statements do not contain all the footnote disclosures required by
generally accepted accounting principles; provided, however, that the omission
of such footnote disclosures does not make the Financial Statements, taken as a
whole, misleading in any material respect. The Financial Statements present
fairly in all material respects the financial position of the Company as of the
dates thereof and the results of its operations for the periods then ended. The
Company has no debts, obligations, guaranties of the obligations of others or
liabilities of the type required to be disclosed in the Balance Sheet under
generally accepted accounting principles, except for (1) debts, obligations,
guaranties and liabilities reflected or reserved against in the Balance Sheet
and (2) debts, obligations, guaranties and liabilities incurred or entered into
in the ordinary course of business after the Balance Sheet Date.
2.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except for (a) transactions and
other matters contemplated by this Agreement and any changes, indebtedness,
agreements, encumbrances, damages, liabilities or obligations arising directly
therefrom and (b) matters disclosed in the Financial Statements, the Company has
not, between the Balance Sheet Date and the date of this Agreement:
(a) conducted the Company's business other than in the ordinary course
of business;
(b) declared, set aside, made or paid any dividend or other
distribution in respect of its capital stock or purchased or redeemed, directly
or indirectly, any shares of its capital stock;
(c) made any payment on any indebtedness, including accounts payable,
other than payments made in the ordinary course of business pursuant to
arrangements made on an arm's-length basis for goods or services;
(d) incurred any material indebtedness for money borrowed, or issued
or sold any debt securities, other than in the ordinary course of business;
(e) mortgaged, pledged or subjected to any lien, lease, security
interest or other charge or encumbrance any of its properties or assets,
tangible or intangible, other than in the ordinary course of business;
(f) acquired or disposed of any assets or properties except in the
ordinary course of business;
(g) granted to any officer or director of the Company or Employee (as
defined in Section 5.4) any increase in compensation or benefits payable
(including severance benefits), except in the ordinary course of business;
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(h) amended, terminated, canceled, knowingly waived or given or
received written notice thereof with respect to any material right of the
Company, whether under any contract, lease or otherwise, or canceled or
knowingly waived any material debt or obligation due to the Company, except in
the ordinary course of business;
(i) discharged or paid any material obligation or liability other than
in the ordinary course of business;
(j) settled any claim, action or proceeding pending or threatened
against the Company or relating to the Company's business before any court or
governmental or regulatory authority or body for an amount in excess of $10,000
individually or $25,000 in the aggregate;
(k) entered into (1) any contract or agreement with an obligation for
payment in excess of $10,000 per annum or $25,000 in the aggregate, (2) any
contract or agreement that is not consistent with the conduct of the Company's
business in the ordinary course or (3) contracts or agreements, other than
vendor purchase orders issued in the ordinary course of the Company's business,
that in the aggregate obligate the Company to pay more than $150,000; or
(l) suffered any material damage, destruction or loss (whether or not
covered by insurance) to any of the assets or properties used in or necessary to
conduct the Company's business.
2.7 ASSETS. Except as provided in the following sentence, the Company has
good and marketable title to the assets reflected on the Balance Sheet (other
than the Real Property (as defined in Section 2.16)) and to all assets acquired
by the Company after the Balance Sheet Date but prior to Closing (other than the
Real Property), each to the extent such assets were not disposed of by the
Company in the ordinary course of business prior to Closing. Such assets are
owned free and clear of all liens, mortgages, pledges, charges, security
interests or encumbrances except for (a) liens for current taxes not yet due and
payable or being contested in good faith by appropriate proceedings or (b) such
imperfections of title or other liens or encumbrances that would not,
individually or in the aggregate, materially interfere with the Company's
ownership or use of the assets. The Company owns or has sufficient rights to all
assets that are used in or necessary to conduct the Company's business (other
than the Real Property). All items of tangible personal property that are used
in or necessary to conduct the Company's business are in good condition and in a
state of good maintenance and repair (ordinary wear and tear excepted) and are
suitable for the purposes used.
2.8 TRADE RIGHTS.
(a) For the purposes of this Agreement, "Trade Rights" means (1) all
domestic and foreign trademarks, trade dress, service marks, trade names, brand
names, intent to use applications, World Wide Web domain names, logos or other
commercial symbols, all good will associated with any of the foregoing and any
domestic or foreign applications for registration of the foregoing, (2) all
domestic and foreign copyrights, copyright registrations and copyright
applications, (3) all domestic and foreign contracts or agreements granting any
right, title, license or privilege with respect to the intellectual property
rights of any third party including, without limitation, publicity and privacy
rights, and rights acquired under work-for-
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hire arrangements, (4) all domestic and foreign patents and patent applications,
and all divisions, continuations, continuations-in-part and reissues of any of
the foregoing, and (6) all inventions, know-how, discoveries, improvements and
trade secrets, (7) all royalty rights and (8) all employee covenants,
assignments of intellectual property rights and restrictions concerning
intellectual property and non-competition.
(b) Schedule 2.8(b) hereto lists all Trade Rights that are registered,
trade names, brand names, World Wide Web domain names, and logos, in each case
currently used by or being prepared for use by the Company in its business, and
all domestic or foreign applications for registration of any of the foregoing.
All Trade Rights shown on Schedule 2.8(b) have been properly registered where
indicated on Schedule 2.8(b), all pending registrations and applications have
been properly made and filed and all annual, maintenance, renewal and other fees
relating to the registrations or applications for registration of such Trade
Rights are current.
(c) In order to conduct the Company's business, the Company does not
require any Trade Rights that it does not already own or have the right to use
perpetually without the payment of any royalty, commission, fee or other
consideration. The Company is not infringing and has not infringed any Trade
Rights of another, nor, to Seller's and the Company's knowledge, is any other
person infringing the Trade Rights of the Company. The Company has not granted
any license or made any assignment of any Trade Right, nor does the Company pay
any royalties or other consideration for the right to use any Trade Rights of
others. Neither Seller nor the Company has received notice of any inquiries,
investigations, claims or litigation challenging or threatening to challenge the
Company's right, title and interest with respect to its continued use and right
to preclude others from using the Trade Rights currently used by or being
prepared for use by the Company in its business.
2.9 BENEFIT PLANS.
(a) Schedule 2.9(a) hereto sets forth a complete and correct list of
all (1) "employee benefit plans," as such term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
maintained by the Company or to which the Company contributes or is obligated to
contribute thereunder with respect to Employees ("Employee Benefit Plans"), (2)
all "employee pension plans," as such term is defined in Section 3(2) of ERISA,
maintained by the Company or to which the Company contributes or is obligated to
contribute thereunder on behalf of Employees ("Pension Plans") and (3) any other
plan or compensation arrangement, whether written or unwritten, that provides to
employees, former employees, officers or directors of the Company any
compensation or other benefits in excess of base salary and wages including, but
not limited to, any bonus or incentive plan, stock rights plan, deferred
compensation arrangement, life insurance, stock purchase plan, severance pay
plan or fringe benefit plan (collectively, "Other Plans").
(b) The Company has no withdrawal or other liability (contingent or
otherwise) under Title IV of ERISA with respect to any multiple employer plan
subject to Section 4063 or 4064 of ERISA or any "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA.
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(c) Each of the Employee Benefit Plans and Pension Plans intended to
qualify under Section 401 of the Code so qualify and the trusts maintained
pursuant thereto are exempt from Federal income taxation under Section 501 of
the Code.
(d) All contributions and premiums required by law or by the terms of
any Employee Benefit Plan or Pension Plan or any employee benefit plan or
pension plan sponsored or contributed to by any trade or business that is under
common control with the Company or that is treated as a single employer with the
Company under Sections 414(b), (c), (m) or (o) of the Code (an "ERISA
Affiliate") that are defined benefit plans or money purchase plans or any
agreement relating thereto have been made to any funds or trusts established
thereunder or in connection therewith, and no accumulated funding deficiencies
exist in any of such plans subject to Section 412 of the Code.
(e) The "benefit liabilities," as defined in Section 4001(a)(16) of
ERISA, of each of the Employee Benefit Plans and Pension Plans subject to Title
IV of ERISA using the actuarial assumptions that would be used by the Pension
Benefit Guaranty Corporation (the "PBGC") in the event it terminated each such
plan do not exceed the fair market value of the assets of each such plan.
(f) Within the past six years, there has been no "reportable event,"
as that term is defined in Section 4043 of ERISA and the regulations thereunder,
with respect to any of the Employee Benefit Plans or Pension Plans subject to
Title IV of ERISA that would require the giving of notice, or any event
requiring notice to be provided, under Section 4041(c)(3)(C) or Section 4063(a)
of ERISA.
(g) There has been no material violation of ERISA with respect to the
filing of applicable returns, reports, documents and notices regarding any of
the Employee Benefit Plans or Pension Plans with the Secretary of Labor or the
Secretary of the Treasury or the furnishing of such notices or documents to the
participants or beneficiaries of the Employee Benefit Plans or Pension Plans.
(h) Except as disclosed on Schedule 2.9(a), correct and complete
copies of the following documents, with respect to each of the Employee Benefit
Plans and Pension Plans (as applicable), have been made available to Purchaser:
(1) any plans and related trust documents, and all amendments thereto; (2) Forms
5500 for the past three years and schedules thereto; (3) financial statements
and actuarial valuations for the past three years; (4) the most recent Internal
Revenue Service determination letter; and (5) the most recent summary plan
descriptions (including letters or other documents updating such descriptions).
(i) There are no pending legal proceedings and, to Seller's and the
Company's knowledge, there are no legal proceedings that have been asserted or
threatened against any of the Employee Benefit Plans or Pension Plans, the
assets of any such plans, the Company, the plan administrator or any fiduciary
of the Employee Benefit Plans or Pension Plans with respect to the operation of
such plans (other than routine, uncontested claims for benefits).
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(j) Each of the Employee Benefit Plans and Pension Plans has been
maintained in all material respects in accordance with its terms and applicable
law.
(k) Neither the Company nor, to Seller's or the Company's knowledge,
any "party in interest," as defined in Section 3(14) of ERISA, with respect to
the Employee Benefit Plans or Pension Plans, has engaged in a "prohibited
transaction" within the meaning of Section 4975 of the Code or Section 406 of
ERISA.
(l) Within the last six years, neither the Company nor any ERISA
Affiliate has terminated any Employee Benefit Plan or Pension Plan subject to
Title IV of ERISA, or incurred any outstanding liability under Section 4062 of
ERISA to the PBGC or to a trustee appointed under Section 4042 of ERISA that
could reasonably be expected to have a Material Adverse Effect on the Business.
(m) The Company does not maintain a welfare benefit plan providing
continuing benefits to current or former employees of the Company after the
termination of employment (other than as required by Section 4980B of the Code
and at the former employee's own expense).
(n) No Employee Benefit Plan, Pension Plan or employment agreement
will require the payment of severance benefits, separation pay, remuneration
triggered by a change in control provision or any similar compensation as a
result of the consummation of the transactions contemplated by this Agreement.
2.10 LITIGATION. There are no actions, arbitration proceedings, suits,
governmental investigations or other legal or equitable proceedings pending or,
to Seller's and the Company's knowledge, threatened against (a) the Company or
its properties, at law or in equity or before any court, arbitrator or
arbitration panel, governmental department, commission, board, agency, authority
or instrumentality, domestic or foreign, or that have been settled, dismissed or
resolved on or since the Balance Sheet Date or (b) the Seller that relates to
the Shares, questions the validity of the Agreement or could reasonably be
expected to result in an adverse effect on the Company's business. The Company
is not subject to any judgment, stipulation, order or decree naming the Company
or any of its Affiliates and arising from any action, arbitration proceeding,
suit, governmental investigation or other legal or equitable proceeding.
2.11 TAXES. With respect to Taxes (as defined below):
(a) The Company has filed or will file or cause to be filed (or
extensions of the time for filing have been or will be duly filed), within the
time prescribed by law, all returns and reports ("Returns") required to be filed
under Federal, state or local laws by the Company for all taxable periods ending
on or prior to the Closing Date;
(b) All Returns are true, correct and complete in all respects;
(c) Seller has either delivered to Purchaser or made available for
inspection by Purchaser or its representatives or agents complete and correct
copies of all Returns (prepared on a pro forma basis to reflect the operations
of the Company only) filed, and all tax audit reports and statements of Tax
deficiencies received with respect to any delinquent Tax assessed against
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or agreed to by the taxpayer with respect to the operations of the Company,
within the past seven years;
(d) The Company has, within the time and in the manner prescribed by
law, paid (and until the Closing will, within the time and in the manner
prescribed by law, pay) all Taxes attributable to the Company that are shown to
be due and payable on Returns filed prior to the Closing and, since the Balance
Sheet Date, the Company has not incurred any Taxes other than in the ordinary
course of business;
(e) The Company has complied in all respects with all applicable laws
relating to the withholding of Taxes and the payment and reporting of withheld
Taxes to the proper governmental authorities;
(f) The Company has not been notified in writing of any proposed or
asserted deficiency or adjustment for any Taxes against the Company, and no such
deficiency or adjustment has been assessed against the Company;
(g) No Federal, state or local audits or other administrative
proceedings or court proceedings are presently pending or have been the subject
of a notice of audit with regard to any Taxes attributable to the Company's
business, and no waiver or consent extending any statute of limitations for the
assessment or collection of any Taxes attributable to the Company's business,
which waiver or consent remains in effect, has been executed by or on behalf of
the Company, nor are any requests for such waiver or consent pending;
(h) Except for liens for Taxes not yet due and payable, there are no
liens or other encumbrances for Taxes upon any of the assets of the Company;
(i) The Company has no liability for the Taxes of any other person,
whether by any tax-sharing, tax-indemnity or other agreement or contract, or as
transferor, transferee or successor, or under any applicable law, or otherwise;
(j) No power of attorney that is currently in force will be used for
taxable periods beginning on or after the Closing Date with respect to any
matter relating to Taxes of the Company; and
(k) For purposes of this Agreement, "Taxes" in the plural and "Tax" in
the singular shall refer to all or any taxes, charges, fees, levies or other
assessments of whatever kind or nature including, without limitation, all net
income, gross income, gross receipts, value added, unitary, sales, use, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, escheat, estimated, severance, stamp, occupancy or property
taxes, customs duties, fees, assessments or charges of any kind whatsoever,
including the recapture of any tax items, (together with any interest and any
penalties, additions to tax or additional amounts) imposed by any taxing
authority (domestic or foreign) upon or payable by the Company as a result of
conduct of the Company's business.
2.12 CONTRACTS. Seller has made available to Purchaser a copy or
description of each outstanding written or oral (a) contract or arrangement for
the employment of any person by the Company other than oral contracts for
at-will employment of an employee providing for an
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annual base salary of less than $50,000, (b) collective bargaining agreement to
which the Company is a party, (c) mortgage, indenture, note or installment
obligation or other instrument or contract for or relating to any borrowing of
an amount in excess of $25,000 by the Company (other than intercompany
indebtedness), (d) guaranty of any obligation in excess of $25,000 (excluding
any endorsement made in the ordinary course of business for collection) by the
Company, (e) agreement between the Company and Seller or any affiliate of Seller
or any officer or director thereof, or a company or business (other than the
Company) controlling, controlled by or under common control with such person or
entity (an "Affiliate"), (f) lease of real or personal property under which the
Company is lessor, (g) lease of real property under which the Company is lessee,
(h) lease of personal property under which the Company is lessee and under which
the Company is obligated to make annual payments of more than $5,000, (i)
agreement for the purchase by the Company of equipment involving outstanding
commitments in excess of $25,000, (j) agreement (including agreements to which
the Company is not a party of which the Company or Seller is aware) limiting the
freedom of the Company to compete in any line of business, with any person or
other entity or in any geographical area, (k) contract or arrangement between
the Company and any person described in Section 2.20 or pursuant to which the
Company distributes its product or acquires any grapes or grape products that is
currently in effect, (l) domestic and foreign contract or agreement to which the
Company is a party granting any right, title, license or privilege with respect
to the intellectual property rights of the Company or any third party, including
without limitation, software licenses other than software licenses for
pre-packaged, general application software generally sold on an off-the-shelf
basis, and (m) other agreement, contract or obligation of the Company, other
than a lease for tangible personal property, that either (i) calls for or
involves the payment, potential payment or accrued obligation by the Company,
from the date hereof through the earliest date such agreement, contract or
obligation can be terminated unilaterally by the Company without penalty, of an
amount in excess of $25,000, (ii) calls for or involves the payment, potential
payment or accrued obligation by the other party, from the date hereof through
the earliest date such agreement, contract or obligation can be terminated
unilaterally by the other party without penalty, of an amount in excess of
$25,000 or (iii) cannot be terminated by the Company without penalty within one
year from the date hereof. A list or description of each of the items described
in clauses (a)-(m) of the previous sentence ("Material Contracts") is set forth
on Schedule 2.12. All of the Material Contracts are in full force and effect and
enforceable, except as such enforceability may be limited by equitable
principles and by applicable bankruptcy, insolvency, reorganization,
arrangement, moratorium or similar laws relating to or affecting the rights of
creditors generally. There does not exist any breach or default of any Material
Contract on the part of the Company, and there does not exist any event,
occurrence or condition, including the consummation of the transactions
contemplated hereunder, that (after notice, passage of time, or both) would
constitute a breach or default thereunder on the part of the Company. To
Seller's and the Company's knowledge, there does not exist any breach or default
under any Material Contract by a party thereto (other than the Company). All
written or oral mortgages, indentures, trusts, leases, partnerships or other
agreements or contracts to which the Company is a party or by which the
Company's properties are bound that do not constitute Material Contracts do not,
in the aggregate, obligate the Company to pay more than $150,000 prior to the
earliest date each such contract may be terminated unilaterally by the Company
without penalty.
2.13 INSURANCE. Schedule 2.13 contains a list of all material insurance
policies maintained by or on behalf of or covering the Company (the "Policies").
Seller has made
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available to Purchaser copies of all current declaration sheets relating to the
Policies. The Policies are in full force and effect, no notices of cancellation
or nonrenewal have been received by the Company or Seller with respect thereto
and all premiums due thereon have been paid.
2.14 ENVIRONMENTAL QUALITY.
(a) The Company has not used, generated, manufactured, installed,
released, discharged, stored or disposed of any "Hazardous Materials," as
defined below, on, under, in or about the site of its properties or elsewhere.
To the Seller's and the Company's knowledge, there are no Hazardous Materials
below, on, under, in or about the Real Property, other than such Hazardous
Materials, the presence of which, individually or in the aggregate, will not
have a Material Adverse Effect on the Business. The term "Hazardous Materials"
shall mean any substance, material or waste that is regulated by any local
government authority, the State of California, or the United States Government
including, without limitation, any material or substance that is (1) defined as
a "hazardous waste," "hazardous material," "hazardous substance," "extremely
hazardous waste" or "restricted hazardous waste" under any provision of
California or any other applicable law, (2) petroleum, (3) asbestos, (4)
designated as a "hazardous substance" pursuant to Section 311 of the Clean Water
Act, 33 U.S.C. ss. 1251 et seq. (33 U.S.C. ss. 1321) or listed pursuant to
Section 307 of the Clean Water Act (33 U.S.C. ss. 1317), (5) defined as a
"hazardous waste" pursuant to Section 1004 of the Resource Conservation and
Recovery Act, 42 U.S.C. ss. 6901 et seq. (42 U.S.C. ss. 6903), or (6) defined as
a "hazardous substance" pursuant to Section 101 of the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. ss. 9601 et
seq. (42 U.S.C. ss. 9601).
(b) The conduct of the Company's business complies with all applicable
Federal, state and local laws, ordinances and regulations pertaining to air and
water quality, Hazardous Materials, waste, disposal or other environmental
matters ("Environmental Laws"), including the Clean Water Act, the Safe Drinking
Water Act, the Clean Air Act, the Federal Water Pollution Control Act, the Solid
Waste Disposal Act, the Resource Conservation Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the Emergency Planning
and Community Right-to-Know Act, the Toxic Substances Control Act, the
Occupational Safety and Health Act, and the environmental rules, regulations and
ordinances of the State of California, the city and county in which the
Company's business is conducted, the Environmental Protection Agency and all
other applicable Federal, state, regional and local agencies and bureaus.
(c) The Company (1) is in compliance with all applicable Environmental
Laws in all of its activities and operations, (2) is not involved in any suit or
administrative proceeding alleging any violation by the Company of any
Environmental Law, (3) has not received any notice or request for information
from any governmental agency or authority or other third party with respect to a
release or threatened release of any Hazardous Material, the presence of any
Hazardous Material on any Real Property or a violation or alleged violation of
any Environmental Law, and has not received notice of any claim from any person
or entity relating to property damage or to personal injuries from exposure to
any Hazardous Material, and (4) has not failed to timely file any report
required to be filed, failed to acquire any necessary certificates, approvals
and permits or failed to generate and maintain any required data, documentation
and records under all applicable Environmental Laws.
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2.15 BROKERS. No agent, broker, person or firm acting on behalf of the
Company or Seller is, or will be, entitled to any commission or broker's or
finder's fees from any of the parties hereto, or from any person controlling,
controlled by or under common control with any of the parties hereto, in
connection with any of the transactions contemplated herein, except for
Hambrecht & Quist LLC, whose fees and expenses will be paid by Seller.
2.16 REAL PROPERTY. Schedule 2.16 sets forth the legal description of all
real property owned, used or occupied by the Company (collectively, the "Real
Property"). Except for liens, encumbrances and imperfections of title described
in clauses (a) and (b) of Section 2.7, the Company has good and marketable title
to all Real Property that it owns in fee and has good and valid leasehold
interests in and to all Real Property that it leases, which leasehold interests
are not subject to any rights of any third person that are superior to such
leasehold interests other than encumbrances, restrictions, covenants and
easements of record that would not materially interfere with the Company's use
and enjoyment of such Real Property. The Company has all necessary certificates,
permits and licenses, including but not limited to all water and irrigation
licenses and permits, to use and operate its current business at or on the Real
Property. The Company has not violated or failed to hold any valid and effective
certificates of occupancy, or certificates relating to electrical work, zoning
or other permits and licenses (including, without limitation, building, housing,
safety, fire, health and similar permits and approvals) required by applicable
law with respect to any Real Property, which violations or failures would have a
Material Adverse Effect on the Business. Schedule 2.16 contains a complete,
current and correct list of all leases pursuant to which the Company leases Real
Property, including all amendments thereto (collectively, the "Leases"). Seller
has delivered to Purchaser complete, current and correct copies of the Leases,
and no changes have been made thereto since the date of delivery. Neither the
whole nor any portion of the Real Property is subject to any governmental decree
or order to be sold nor, to Seller's and the Company's knowledge, is being
condemned, expropriated or otherwise taken by any public authority with or
without payment of compensation therefor nor has any such condemnation,
expropriation or taking been proposed. All structures, buildings, fixtures and
other improvements, together with the systems and facilities servicing such
structures, buildings, fixtures and other improvements, located on the Real
Property (collectively, the "Improvements") are (a) in good working order and
repair (ordinary wear and tear excepted) and (b) suitable for the use presently
being made of such Improvements by the Company. The Real Property that contains
vineyards has adequate water supply and irrigation systems to support the
vineyards consistent with industry practices.
2.17 ACCOUNTS RECEIVABLE. The accounts and notes receivable of the Company
as set forth on the Pro Forma Balance Sheet, and all accounts receivable of the
Company that have arisen since the date of the Pro Forma Balance Sheet (net of
any reserve therefor established in the Closing Balance Sheet), were generated
in the ordinary course of business and are valid and enforceable obligations due
to the Company; provided, however, that (without limiting the foregoing
representation) Seller is not guaranteeing that such accounts and notes
receivable will be collected. Such accounts and notes receivable are subject to
no valid defense or offsets except routine customer complaints of an immaterial
nature.
2.18 INVENTORY. All inventory, including all raw materials, work in
process, finished goods and supplies, reflected on the Pro Forma Balance Sheet
(subject to the reserves reflected therein), or acquired by the Company since
the date of the Pro Forma Balance Sheet (subject to
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the reserves established in the Closing Balance Sheet), to the extent owned by
the Company as of the effective dates of this representation, consists of
inventory of (a) a quality equivalent to the quality of inventory held or
produced by the Company in the ordinary course of business during the past three
years and (b) a quantity usable and saleable in the ordinary course of business.
All inventory is valued in accordance with generally accepted accounting
principles at the lower of cost or market and has been valued in this manner for
at least the last three years. All such inventory is located on the Real
Property.
2.19 LABOR MATTERS. Within the last five years, the Company has not
experienced any labor disputes, union organization attempts or work stoppage due
to labor disagreements in connection with the Company's business. The Company is
in compliance in all material respects with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours. To Seller's and the Company's knowledge, the Company is not
engaged in any unfair labor practice. There is no unfair labor practice charge
or complaint pending or, to Seller's and the Company's knowledge, threatened
against the Company; and there is no labor strike, dispute, request for
representation, slowdown or stoppage pending or, to Seller's and the Company's
knowledge, threatened against the Company. The Company is not a party to any
collective bargaining agreement.
2.20 MAJOR DISTRIBUTORS AND SUPPLIERS.
(a) Schedule 2.20(a)(1) contains a list of all domestic distributors
appointed by Schieffelin & Somerset Co. to distribute the Company's products for
each of the two most recent fiscal years showing the total unit purchases by
each such distributor during each such year. As of the date of this Agreement,
neither the Company nor Seller has received notice that any of such distributors
intends to materially decrease its level of purchases of the Company's products
from that reflected on Schedule 2.20(a)(1) following the Closing. Schedule
2.20(a)(2) contains a list of all domestic distributors of the Company's
products as of March 31, 1999.
(b) Schedule 2.20(b) contains a list of all grape suppliers of the
Company for each of the two most recent fiscal years showing the total dollar
amount of purchases from each such supplier during each such year. As of the
date of this Agreement, neither the Company, Domaine Chandon nor Seller has
received notice that any of such grape suppliers intends to materially decrease
the quantity of grapes sold by such grape supplier to the Company from that
reflected on Schedule 2.20(b) following the Closing or to materially change the
quality of grapes or prices thereof.
2.21 Year 2000. The hardware, software, firmware, middleware,
microprocessors and other imbedded chips and other information technology owned
by the Company and used in its business (the "Computer Equipment") will
accurately receive, provide and process date and time data (including, but not
limited to, calculating, comparing and sequencing) from, into and between the
20th and 21st centuries, including the years 1999 and 2000 and leap year
calculations, and will not malfunction or cease to function in any material
respect or provide invalid or incorrect results as a result of date and time
data. To Seller's and the Company's knowledge, the failure of the computer
systems used by any of the Company's suppliers or distributors to properly
process date and time data during this period will not have a Material Adverse
Effect on the Business.
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2.22 DISCLOSURE. No representation or warranty made by Seller in this
Agreement or in the certificates, documents or other instruments delivered
pursuant to this Agreement, taken as a whole, as of the respective dates thereof
contains any untrue statement of a material fact, or omits to state a material
fact necessary to make the statements or facts contained herein or therein, in
light of the circumstances under which they were made, taken as a whole, not
misleading, except as the accuracy or completeness thereof may be affected by
this Agreement and the transactions contemplated hereby.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller as follows:
3.1 ORGANIZATION, STANDING, ETC.; CORPORATE AUTHORIZATION; ENFORCEABILITY.
(a) Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of its state of organization, and has all requisite
power and authority to enter into this Agreement, to carry out the transactions
contemplated hereby and to perform its obligations hereunder.
(b) The execution and delivery of this Agreement and all other
documents and instruments executed or to be executed by Purchaser pursuant to
this Agreement, and the consummation of the transactions contemplated hereby and
thereby, have been duly authorized by all necessary action on the part of
Purchaser. This Agreement and all other documents and instruments executed or to
be executed by Purchaser pursuant to this Agreement have been, or will have
been, at the time of their respective executions and deliveries, duly executed
and delivered by a duly authorized officer of Purchaser.
(c) This Agreement constitutes the valid and legally binding
obligation of Purchaser, enforceable in accordance with its terms, except as
such enforceability may be limited by equitable principles and by applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium or similar laws
relating to or affecting the rights of creditors generally.
3.2 COMPLIANCE WITH OTHER INSTRUMENTS AND LAWS. The execution and delivery
of this Agreement and all other documents and instruments executed or to be
executed by Purchaser pursuant to this Agreement, and the consummation of the
transactions contemplated hereby and thereby will not conflict with or result in
any violation or default under any provision of (a) the certificate of
incorporation or bylaws of Purchaser, or (b) of any mortgage, indenture, trust,
lease, partnership or other material agreement or contract or other instrument,
permit, concession, grant, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Purchaser or any of its
properties.
3.3 GOVERNMENTAL AUTHORIZATIONS AND CONSENTS. Except as specifically set
forth on Schedule 3.3, no consents, licenses, permits, approvals or
authorizations of, or registrations or declarations with, any governmental
authority, bureau, agency or commission, or any third party, are required to be
obtained or made by Purchaser in connection with the execution, delivery or
performance of this Agreement, other than (a) a filing with the Federal Trade
Commission and
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the Department of Justice under the HSR Act and (b) other consents, licenses,
permits, approvals, authorizations, registrations or declarations required under
(1) the Federal Alcohol Administration Act and the rules and regulations
promulgated by the Bureau of Alcohol, Tobacco and Firearms thereunder, (2) the
California Alcoholic Beverage Control Act and any rules and regulations
promulgated by the California Department of Alcoholic Beverage Control, (3) the
California Food and Agricultural Code and any rules and regulations promulgated
by the California Department of Food and Agriculture and (4) other statutes,
rules and regulations governing the production, labeling, packaging, sale and
distribution of alcoholic beverages.
3.4 FINANCING ARRANGEMENTS. Purchaser currently has equity or debt
financing sufficient to fund, at the Closing, the payment of the Initial
Purchase Price and the other expenses to be paid by Purchaser under this
Agreement.
3.5 BROKERS. No agent, broker, person or firm acting on behalf of
Purchaser is, or will be, entitled to any commission or broker's or finder's
fees from any of the parties hereto, or from and person controlling, controlled
by or under common control with any of the parties hereto, in connection with
any of the transactions contemplated herein, except for Fisher & Company LLC,
whose fees and expenses will be paid by Purchaser.
3.6 PURCHASE FOR OWN ACCOUNT. Purchaser is acquiring the Shares for its
own account and for investment, and not with a view to, or for sale in
connection with, any distribution of the Shares.
ARTICLE 4
COVENANTS OF SELLER
4.1 CONDUCT OF BUSINESS. Between the date of this Agreement and the
Closing Date, except as contemplated by the other provisions of this Agreement
or as set forth in the Disclosure Schedule in Schedule 4.1, and except as may be
necessary to carry out the transactions contemplated by this Agreement or any
transaction or other matter disclosed in the Disclosure Schedule, Seller shall
not permit the Company to, without Purchaser's consent (which consent shall not
be unreasonably withheld, conditioned or delayed by Purchaser):
(a) conduct the Company's business other than in the ordinary course
of business;
(b) declare, set aside, make or pay any dividend or other distribution
in respect of its capital stock or purchase or redeem, directly or indirectly,
any shares of its capital stock;
(c) amend the articles of incorporation or bylaws of the Company;
(d) make any payment on any indebtedness, including accounts payable,
other than payments made in the ordinary course of business pursuant to
arrangements made on an arm's-length basis for goods or services;
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(e) incur any material indebtedness for money borrowed, or issue or
sell any debt securities, other than in the ordinary course of business;
(f) mortgage, pledge or subject to any lien, lease, security interest
or other charge or encumbrance any of its properties or assets, tangible or
intangible, other than in the ordinary course of business;
(g) acquire or dispose of any assets or properties except in the
ordinary course of business;
(h) grant to any officer or director of the Company or Employee any
increase in compensation or benefits payable (including severance benefits);
(i) amend, terminate, cancel, knowingly waive or give written notice
thereof with respect to any material right of the Company, whether under any
contract, lease or otherwise, or cancel or knowingly waive any material debt or
obligation due to the Company, except in the ordinary course of business;
(j) discharge or pay any material obligation or liability other than
in the ordinary course of business;
(k) settle any claim, action or proceeding pending or threatened
against the Company or relating to the Company's business before any court or
governmental or regulatory authority or body for an amount in excess of $10,000
individually or $25,000 in the aggregate;
(l) enter into (1) any contract or agreement with an obligation for
payment in excess of $10,000 per annum or $25,000 in the aggregate, (2) any
contract or agreement that is not consistent with the conduct of the Company's
business in the ordinary course or (3) contracts or agreements, other than
vendor purchase orders issued in the ordinary course of the Company's business,
that in the aggregate obligate the Company to pay more than $150,000; or
(m) agree to do any of the foregoing.
Except as otherwise directed or consented to in writing by Purchaser, between
the date hereof and the Closing Date Seller shall, or shall cause the Company
to, take any and all actions necessary to cause all contracts for the purchase
of grapes and grape products that are in force on the date hereof and that are
renewable at the option of the Company to be so renewed in accordance with their
respective terms; provided, however, that Seller need not renew or cause the
Company to renew any contracts that (a) are set forth on Schedule 4.1 or (b) by
their terms can be renewed by the Company after the Closing.
4.2 ACCESS. Between the date of this Agreement and the Closing Date, and
subject to the provisions of any Non-Disclosure Agreement that may be in effect
between Seller, the Company or Hambrecht & Quist LLC, on the one hand, and
Purchaser, on the other hand (the "Non-Disclosure Agreement"), Seller shall,
after receiving at least 24 hours' advance notice from Purchaser, give Purchaser
reasonable access (during normal business hours) to the books, records
(including tax returns), contracts, properties, officers and designated
employees (to be agreed upon by Purchaser and Seller) of Seller or the Company
for the purpose of enabling
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Purchaser to further familiarize itself, at Purchaser's sole expense, with the
Company's business. At the reasonable request of Purchaser, Seller will, and
will cause the Company and its Affiliates to, introduce Purchaser to (a)
landlords who lease Real Property to the Company and (b) grape suppliers who
have supplied the Company with grapes during any of the three most recently
completed fiscal years of the Company.
4.3 NO-SHOP PROVISION. From and after the date of this Agreement until the
earlier of the Closing Date or the termination of this Agreement pursuant to its
terms, Seller will not, and will instruct the Company and the Company's and
Seller's respective directors, officers, employees, representatives, investment
bankers, agents and Affiliates not to, (1) solicit or initiate the submission of
any Acquisition Proposal (as defined below) by any person, entity or group
(other than Purchaser and its Affiliates, agents and representatives) or (2)
participate in any discussions or negotiations or enter into any agreement or
understanding with any person, entity or group (other than Purchaser and its
Affiliates, agents and representatives) in connection with any Acquisition
Proposal. Upon execution of this Agreement, Seller will cease, and will cause
the Company to cease, all current discussions relating to any Acquisition
Proposal (other than discussions with Purchaser and its Affiliates, agents and
representatives). For the purposes of this Agreement, an "Acquisition Proposal"
means any proposal or offer for any merger, exchange offer, sale of shares,
consolidation, sale of all or substantially all of the assets of or similar
corporate transaction with respect to the Company (other than sales of assets in
the ordinary course of business in immaterial amounts or as otherwise permitted
under the terms of this Agreement).
4.4 DISCLOSURE. From the date of this Agreement until the Closing, Seller
shall promptly disclose to Purchaser any facts that come to the attention of
Seller that would result in a material inaccuracy in any representation or
warranty or material breach of any covenant contained in this Agreement.
4.5 INTERCOMPANY PAYABLES AND RECEIVABLES. Prior to the Closing Date,
Seller will:
(a) cause all Affiliates of Seller and Affiliates of the Company
(other than Seller) to assign to Seller for nominal consideration all accounts
payable and other indebtedness of the Company owing to such Affiliates;
(b) contribute to the capital of the Company all accounts payable and
other indebtedness of the Company owing to Seller (including that owing to
Seller by virtue of the assignments contemplated by clause (a) above); and
(c) cause the Company to distribute to Seller all accounts receivable
and other indebtedness owing to the Company by Seller, its Affiliates and any
other Affiliates of the Company;
in each case in the manner illustrated by the Pro Forma Balance Sheet.
4.6 BENEFIT PLANS. On or prior to the Closing Date, Seller will cause the
Company to terminate its participation in each Employee Benefit Plan, Pension
Plan and Other Plan. In addition, Seller will assume in their entirety the
benefits-related liabilities of the types designated on the Pro Forma Balance
Sheet. Seller shall be solely responsible and liable for any and all
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liabilities relating to each Employee Benefit Plan, Pension Plan and Other Plan
and each similar plan covering employees of any ERISA Affiliate that was in
place prior to the Closing. Seller shall be solely responsible and liable for
providing health care coverage pursuant to the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), for any employee of the
Company who becomes eligible for such coverage before the Closing. Seller shall
indemnify Purchaser and the Company for any liability arising from or relating
to such Employee Benefit Plans, Pension Plans, and Other Plans and similar plans
maintained by ERISA Affiliates.
4.7 TERMINATION OF CONTRACTS. On or prior to the Closing Date, Seller
shall cause the Company and Schieffelin & Somerset Co. to terminate all
contracts, agreements and understandings between them and to grant to each other
a general release from any claims, liabilities or other obligations of the other
party arising thereunder.
4.8 RECORDS OF THE COMPANY. The originals or complete and correct copies
of all of the books, records, accounts, files, logs, ledgers, journals,
advertising materials, agreements, contracts and other documents (including such
of the foregoing as are stored electronically in computer databases) held by
Seller and used by the Company in connection with the conduct of its business as
of the Closing Date and any Company stock records it is obligated to hold shall
be delivered or made available to Purchaser at the Closing in form and format
reasonably satisfactory to Purchaser.
4.9 RESTRICTIVE COVENANTS. Seller acknowledges that the Company has
developed trade secrets and confidential information concerning the production,
sale and distribution of premium varietal wines (the "Business") and that the
agreements and covenants contained in this Section 4.9 are essential to protect
the Business following the consummation of the transactions contemplated by this
Agreement. Accordingly,
(a) From and after the date hereof, Seller shall, and shall cause its
Affiliates to, keep secret, retain in strictest confidence and not disclose to
any other person any confidential information of the Company, including without
limitation any confidential "know-how," trade secrets, supplier, distributor or
customer lists, details of contracts, pricing policies, operational methods,
marketing plan or strategies, product development techniques or plans related to
the Business ("Confidential Information"). The term "Confidential Information"
does not include, and there shall be no obligation hereunder with respect to,
(1) information that becomes available in the winemaking industry or to the
general public other than as a result of disclosure by Seller or any of its
Affiliates, (2) general business methods applicable to the Business or (3)
information that is made available to Seller or any of its Affiliates by a third
party without breach of any confidentiality obligations. Neither Seller nor any
of its Affiliates shall have any obligation hereunder to keep confidential any
of the Confidential Information to the extent disclosure thereof is required by
law, or determined in good faith by Seller to be necessary or appropriate to
comply with any legal or regulatory order, regulation or requirement; provided,
however, that in the event disclosure is required by law, Seller or the
Affiliate concerned shall provide Purchaser with prompt notice of such
requirement so that Purchaser may seek an appropriate protective order.
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(b) For a period of two years following the Closing Date, Seller shall
not, and shall cause its Affiliates not to, directly or indirectly, (1) solicit
for employment any Employee or encourage any Employee to leave his or her
employment with the Company, (2) hire Roger P. Goldschmidt, or (3) solicit or
intentionally induce any distributor, supplier, lender or lessor to discontinue
or reduce the extent of his, her or its business with the Company; provided,
however, that clause (3) will not restrict Seller and its Affiliates from
engaging in general marketing activities targeted at persons or entities
including those known by Seller or its Affiliates to be distributors, suppliers,
lenders or lessors of the Company unless such marketing activities were
undertaken with the intent of inducing such distributors, suppliers, lenders or
lessors to discontinue or reduce the extent of his, her or its business with the
Company; and provided, further, that clause (3) will not restrict Domaine
Chandon from purchasing grapes from suppliers who have historically provided
grapes both to the Company and Domaine Chandon provided that, with respect to
grape suppliers that are bound by contract on the Closing Date to sell grapes to
both the Company and Domaine Chandon, Domaine Chandon does not seek to purchase
more grapes from such supplier than provided by such contract and does not seek
to cause such supplier not to sell grapes to the Company or Purchaser.
(c) In the event Seller or any of its Affiliates breaches, or
threatens to commit a breach of, any of the provisions of Section 4.9(a) or (b)
(the "Restrictive Covenants"), Purchaser shall have the right and remedy to
enjoin the breaching party from violating or threatening to violate the
Restrictive Covenants and to have the Restrictive Covenants specifically
enforced by any court of competent jurisdiction, it being agreed that any breach
or threatened breach of the Restrictive Covenants would cause irreparable injury
to Purchaser and that money damages would not provide an adequate remedy to
Purchaser. Such right and remedy is in addition to, and not in lieu of, any
other rights and remedies available to Purchaser at law or in equity.
4.10 ESTOPPEL CERTIFICATES. Seller shall obtain or cause the Company to
obtain estoppel certificates in a form reasonably acceptable to Purchaser from
the persons set forth on Schedule 4.10 hereto.
4.11 RESIGNATIONS. Seller shall cause all of the Company's directors and
officers, other than Roger P. Goldschmidt, to resign, or shall remove such
directors and officers, immediately before the Closing.
4.12 TITLE MATTERS. No later than 15 days prior to the Closing Date, Seller
will deliver or cause to be delivered to Purchaser preliminary title reports for
the Real Property, dated after the date of this Agreement. Purchaser shall use
its commercially reasonable efforts to obtain title insurance with respect to
the Real Property simultaneously with or as soon as practicable following the
Closing. Purchaser shall bear the cost of the title insurance premiums, and the
policies of title insurance shall contain only such exceptions thereto as are
set forth in Schedule 4.12 and other encumbrances, restrictions, covenants and
easements of record that would not materially interfere with the Company's use
and enjoyment of the Real Property. Seller shall, at its expense, use its
commercially reasonable efforts to cure any defects in title with respect to the
Real Property that are necessary to permit the issuance of the title insurance
policies.
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4.13 COMPUTER SUBLEASE AND SOFTWARE LICENSES. Domaine Chandon and the
Company shall enter into a sublease of the 14 Compaq DeskPro computers used by
the Company but leased by Domaine Chandon (the "PCs"). The terms of the sublease
for the PCs shall be reasonably acceptable to Seller and Purchaser and are
anticipated to be identical to the terms upon which the PCs are leased by
Domaine Chandon, including any option to purchase the PCs. Notwithstanding the
foregoing, if the lessor of the PCs will not permit a sublease of the PCs,
Seller shall cause Domaine Chandon to purchase the PCs from the lessor pursuant
to the terms of the lease, at Purchaser's cost, if requested by Purchaser not
less than seven business days prior to the Closing Date. Upon payment by
Purchaser of Domaine Chandon's cost to purchase the PCs, Domaine Chandon shall
transfer title to the PCs to the Company. Seller shall use reasonable efforts to
obtain licenses for the Company to software installed on the PCs prior to the
Closing, if such software is identified by Purchaser no later than 30 days prior
to the Closing Date as software that will be used by the Company after the
Closing.
ARTICLE 5
COVENANTS OF PURCHASER
5.1 CONFIDENTIALITY. Purchaser shall hold in strict confidence, and shall
cause each of its Affiliates, directors, officers, employees, agents, attorneys,
accountants and representatives and those of their respective Affiliates
("Associates") to hold in strict confidence, all documents and information
obtained with respect to Seller, the Company and the Company's business.
Purchaser shall not permit any of such documents or information to be improperly
utilized or to be disclosed or conveyed to any other person or entity, and
Purchaser shall comply in all respects with the provisions of the Non-Disclosure
Agreement. The foregoing obligations shall apply from the date hereof until the
Closing Date. Without limiting the generality of the foregoing, and except as
required by law or pursuant to valid legal process (in which case Purchaser will
provide Seller with reasonable advance notice of such disclosure) or as
contemplated by Section 6.3 of this Agreement, until the Closing Date, (a)
Purchaser shall not disclose to any person, or permit any of its Associates to
disclose to any person or entity, any of the terms or provisions hereof, and (b)
Purchaser shall not contact any customers, suppliers or employees of the Company
except as contemplated by Section 4.2.
5.2 INVESTIGATION. In conducting its review of the business, operations
and legal affairs of the Company, Purchaser shall not intentionally or
materially interfere in any manner with the business or operations of Seller or
the Company or with the performance of any of Seller's or the Company's
employees or other service providers.
5.3 INSURANCE. Purchaser shall cause the Company to obtain or retain and
continuously maintain, from the Closing Date until the expiration of the
representations, warranties and covenants pursuant to Section 10.1, insurance
policies (other than insurance policies that relate solely to employee benefits)
on terms and with coverage no less favorable than those currently maintained by
the Company (or any Affiliate of the Company for the benefit of the Company) on
the date hereof.
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5.4 EMPLOYEES.
(a) For the purposes of this Agreement, "Employee" means any employee
of the Company who is actively at work immediately prior to the Closing. A list
of all Employees and individuals providing services to the Company as
independent contractors is set forth on Schedule 5.4(a).
(b) Purchaser will assume all responsibility for compensation and any
employee benefits payable to Employees (other than pursuant to the Company's
Employee Benefit Plans, Pension Plans and Other Plans in place on or before the
Closing Date) for services rendered to the Company from and after the Closing
Date, such compensation and benefits to be determined by Purchaser, subject to
Purchaser's obligations under Section 5.4(c). Nothing herein shall restrict
Purchaser in the exercise of its independent business judgment, subject to
Purchaser's obligations under Section 5.4(c), as to the terms and conditions
under which such employment shall continue, the duration of such employment, the
basis on which such employment is terminated or the compensation or benefits
provided to Employees. Nothing herein shall be deemed to constitute an agreement
to employ any Employee for any length of time.
(c) For a period of not less than one year beginning on the Closing
Date, Purchaser will provide or will cause the Company to provide each Employee
with benefits that are substantially similar to those provided to
similarly-situated employees of Purchaser (such benefits being described on
Schedule 5.4(c)); provided, however, that Purchaser may, in lieu of providing to
the Employees a particular benefit that is provided to similarly-situated
employees of Purchaser, provide the Employees with a benefit that is of the same
type as such benefit but that is substantially similar to the benefit of such
type that was provided to the Employees by the Company immediately prior to the
Closing. Purchaser shall:
(1) cause the group health plan or plans made available to the
Employees from and after the Closing (A) to prevent any lapse in coverage
between the termination of the coverage of the group health plans provided by
the Company immediately prior to the Closing and the effective date of the
coverage provided by Purchaser following the Closing, (B) to not include any
waiting period or preexisting condition or other limitation on the coverage of
the Employees and (C) to apply toward any applicable deductible or deductibles
for the 1999 calendar year an amount equal to the amount paid by each Employee
that was applied to the deductible under the Company group health plan in which
such Employee participated immediately prior to the Closing;
(2) provide, or shall cause the Company to provide, coverage
required by COBRA to each Employee and to each qualified beneficiary of each
Employee who is entitled to COBRA coverage under any Purchaser employee benefit
plan as a result of a qualifying event occurring after the Closing;
(3) cause each Employee to be credited with all service with the
Company both before and after the Closing for the purposes of determining (A)
vesting and eligibility for each Purchaser employee benefit plan and each
Purchaser pension plan in which such Employee participates after the Closing,
(B) any vacation entitlement under any vacation
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plan or policy of the Company in effect after the Closing and (C) any
entitlement to any other payroll practice, severance policy or perquisite that
is determined in whole or in part by length of service; and
(4) cause each Employee to be eligible to participate in the
Canandaigua Brands, Inc. 401(k) and Profit Sharing Plan sponsored by Purchaser.
(d) In the event the Company has any employee who is not (or who is
expected not to be) actively at work immediately prior to the Closing, but who
is reasonably expected to return to work within three months after the Closing,
Seller and Purchaser will negotiate in good faith and in an expeditious manner
to determine the obligations of the respective parties with respect to such
employee.
5.5 DISLCOSURE. From the date of this Agreement until the Closing,
Purchaser shall promptly disclose to Seller any material inaccuracy in any
representation or warranty or material breach of any covenant contained in this
Agreement of which Purchaser's President, Senior Vice President, Vice President
and General Counsel or William Newlands is consciously aware. No failure by
Purchaser to make any disclosure required by this Section 5.5 shall impair or
limit any right to indemnification under this Agreement based on any inaccuracy
or breach that is not disclosed; provided that any such known inaccuracy shall
be treated as if it were excluded from the certificate described in Section
10.7(b), and Purchaser shall be deemed to have waived the closing condition in
Section 7.1 with respect to such inaccuracy as contemplated by Section 10.7(b).
ARTICLE 6
COVENANTS OF ALL PARTIES
6.1 BEST EFFORTS; FURTHER ASSURANCES. On the terms and subject to the
conditions of this Agreement, each party will use all its reasonable best
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary or desirable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement. At any time and from
time to time following the Closing, each party will promptly execute and deliver
such other documents, certificates, agreements and other writings and to take
such other actions as may be necessary or desirable in order to consummate or
implement expeditiously the transactions contemplated by this Agreement and to
effect the transfer of the Shares to Purchaser.
6.2 CERTAIN FILINGS. Seller and Purchaser shall cooperate with one another
in timely (a) furnishing such information as may be required in connection with
any filing with any governmental body, agency, official or authority that is
required, (b) taking such actions and making any such filings that are required
and (c) obtaining any actions, consents, approvals or waivers that are required
to be obtained from parties to any Material Contracts in connection with the
consummation of the transactions contemplated by this Agreement including,
without limitation, making any filings and responding to any second requests
under the HSR Act. The filing fees payable in connection with the filing under
the HSR Act shall be shared equally by Purchaser and Seller.
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6.3 PUBLIC ANNOUNCEMENTS. The parties will not issue any press release or
make any public statement with respect to this Agreement or the transactions
contemplated hereby without the prior consent of Purchaser and Seller (which
consent shall not be unreasonably withheld, conditioned or delayed), except that
no such consent will be required for a press release or public statement (a)
that is required to be made by applicable law, (b) made by Purchaser that
announces the execution of this Agreement and generally describes Purchaser's
goals in connection with the acquisition and intentions regarding the future
operations of the Company, subject to Seller's reasonable advance consultation,
or (c) made by Purchaser or Seller to announce the consummation of the
transactions contemplated by this Agreement, subject to the other party's
reasonable advance consultation.
6.4 CONSENTS. Seller shall cause the Company to promptly request and use
all commercially reasonable efforts to obtain the consent from all parties to
the Material Contracts, where such consent is required as a result of the
Purchase (collectively, the "Contract Consents"). Seller shall not permit the
Company, without Purchaser's approval (which will not be unreasonably withheld,
conditioned or delayed), to agree to amend or modify in any material respect any
Material Contract in order to obtain a Contract Consent.
6.5 TAX RETURNS.
(a) Seller shall prepare and submit to Purchaser Returns prepared on a
pro forma basis to reflect the Company's Taxes for any taxable period in the
last five years that, under applicable law, ends with or prior to the Closing
Date, and shall prepare and submit to Purchaser for its review and approval
(which review and approval shall not be unreasonably withheld, conditioned or
delayed) not later than 15 days before the due date of such Return (or any
extension thereof) all Returns, prepared on a pro forma basis to reflect the
Company's Taxes, for any taxable period that, under applicable law, does not end
on or prior to the Closing Date but that includes any portion of the Pre-Closing
Tax Period (as defined below). Seller shall file or cause to be filed when due
the consolidated Returns containing the information in the Returns described
above and shall pay all Taxes shown to be due thereon.
(1) Any Return referred to in this Section 6.5 shall be prepared
on a basis consistent with Returns prepared for prior taxable periods. If
Purchaser reasonably determines that changes or supplements are required on any
pro forma Return described in this Section 6.5, the parties shall meet in an
effort to agree on any such changes.
(2) Purchaser shall deliver to Seller such information and data
concerning the operations of the Company as they relate to any Taxes for the
Pre-Closing Tax Period and make available such knowledgeable employees of
Purchaser and the Company as Seller may reasonably request, including providing
the information and the data required by Seller's customary tax and accounting
questionnaires, in order to enable Seller to complete and file all Returns that
it may be required to file with respect to the Pre-Closing Tax Period operations
of the Company with respect to such operations, and otherwise to enable it to
satisfy accounting, tax and other legitimate requirements.
(b) Purchaser and Seller will furnish or cause to be furnished to each
other as promptly as practicable such information (including access to books and
records) and assistance
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relating to the Company as is reasonably requested for the filing of any Return,
determining a Tax liability or right to refund, the preparation for any audit or
other proceeding, the prosecution or defense of any claim, suit or proceeding
relating to any proposed adjustment, and the enforcement of this Agreement, and
shall cooperate with each other in the conduct of any Tax audit or other Tax
proceedings involving the Company. The parties shall execute and deliver such
powers of attorney and other documents as are reasonably requested to carry out
the provisions and purposes of this Agreement.
(c) Purchaser and its successors and assigns will preserve and retain
all books, records, Returns, schedules, work papers, and other documents
(including, without limitation, appraisals and other background information)
reasonably related to any Returns, claims, audits or other proceedings that
relate to the Pre-Closing Tax Period until the expiration of the statutory
period of limitations (including extensions) for the taxable periods to which
such documents relate or until the Final Determination (as defined below) of any
payments that may be required with respect to such taxable periods, whichever
period is longer. Purchaser and Seller and their successors shall make such
documents available to each other's representatives upon reasonable notice for
purposes specified in such notice and at reasonable times, it being understood
that such representatives shall be entitled to make copies of any such materials
as shall be reasonably determined to be necessary.
(d) Each of the parties will permit representatives of the other
parties to meet with their employees (and the employees of their successors) and
employees of the Company on a mutually convenient basis in order to enable such
representatives to obtain additional information and explanations of any
document described in this Section 6.5. The parties shall make available, or
cause to be made available, to the representatives of the other party sufficient
work space and facilities to perform the activities described in this Section
6.5. Any information obtained pursuant to this Section 6.5 shall be kept
confidential, except as may be otherwise necessary in connection with the filing
of Returns or claims or refund or in conducting any audit or other proceeding.
(e) The following terms, as used herein, have the following meaning:
(1) "Final Determination" means the later to occur of: (a) a
decision of the United States Tax Court, or a judgment, decree or other order by
another court of competent jurisdiction, which has become final and
unappealable; (b) a closing agreement under Code Section 7121; and (c) any other
final disposition by reason of an agreement between the affected party or
parties and the appropriate tax authority, the expiration of the applicable
statute of limitations, or otherwise.
(2) "Pre-Closing Tax Period" means any period ending with, on or
prior to the Closing Date with respect to which the Company is required to
report and/or pay any Tax.
6.6 INDENTIFICATION OF INVENTORY. During the three business days
immediately preceding the Closing Date, or on such other date as Seller and
Purchaser shall agree, Seller and Purchaser shall jointly conduct a physical
inventory of the inventory of the Company as of such date, containing such
samples and conducting such tests of inventory as shall be reasonably
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requested by Purchaser. Such physical inventory shall describe all of the
inventory and identify the quantity and quality of inventory present and shall
be utilized in the preparation of the Closing Balance Sheet.
6.7 TRANSITION SERVICES. For a period of up to six months after the
Closing Date, Seller will provide and make available to Purchaser and the
Company reasonable access to data processing services including those described
on Schedule 6.7, and will perform administrative and ministerial functions, in
each case reasonably requested by Purchaser and the Company to facilitate the
continued operations and functions of the Company's business on a transitional
basis, including providing payroll information for purposes of continuing
employment tax requirements. Purchaser will use reasonable efforts to effect a
transition as expeditiously as possible. Purchaser shall pay Seller the amounts
set forth on Schedule 6.7 and shall reimburse Seller for any other incremental
out-of-pocket costs incurred by Seller in providing the transition services
contemplated by this Section 6.7 promptly upon delivery of reasonable
documentation of such costs to Purchaser by Seller.
6.8 DISTRIBUTORS.
(a) Not later than seven days following the date hereof, Seller shall
cause Schieffelin & Somerset Co. to send to each distributor of the Company's
products listed on Schedule 10.2(b)(4) notice, in a form reasonably acceptable
to the Purchaser, that Schieffelin & Somerset Co. will cease to act as the
representative or supplier of the Company's products.
(b) Not later than fourteen days following the date hereof (1) Seller
shall cause Schieffelin & Somerset Co. to notify each distributor of the
Company's products (other than those distributors listed on Schedule
10.2(b)(4)), in a manner reasonably acceptable to the Purchaser, that
Schieffelin & Somerset Co. will cease to act as the representative or supplier
of the Company's products, and within the same period of time (2) Purchaser
shall send to each such distributor identified on Schedule 2.20(a)(2) (other
than those distributors listed on Schedule 10.2(b)(4)) (the "Proposed
Distributors") its standard Distributorship Agreement or a confirmation letter
which shall be reasonably acceptable to Seller, as applicable, offering each
such distributor the opportunity to assume the distributorship of the Company's
products following the Closing Date. Each such Distributorship Agreement and
confirmation letter shall contain a release of Schieffelin & Somerset Co. and
its affiliates, which shall be reasonably acceptable to Seller, with respect to
all claims and liabilities arising from the cessation by Schieffelin & Somerset
Co. of its supply of the Company's product to such distributor.
(c) Throughout the post-Closing portion of the advance notice period
required under each agreement as to which Schieffelin & Somerset Co. sends a
notice as contemplated in Sections 6.8(a) and 6.8(b) (in the case where such
distributor does not accept the offer made by the Purchaser as contemplated in
Section 6.8(b)(2)), Purchaser shall cause the Company to continue to sell to
Schieffelin & Somerset Co., on the current terms and conditions, the Company's
products required by Schieffelin & Somerset Co. to satisfy its obligations under
each such agreement with respect to the Company's products; provided, that the
Company shall not be obligated to supply Schieffelin & Somerset Co. with respect
to any such distributor for more than 90 days, or such shorter period as
provided by the applicable contract, after effective notice is
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given nor more than the usual and customary volume ordered by any such
distributor during the same periods in prior years.
ARTICLE 7
CONDITIONS TO OBLIGATION OF PURCHASER TO CLOSE
The obligation of Purchaser to effect the Purchase and otherwise consummate
the transactions that are to be consummated at the Closing are subject to the
satisfaction, as of the Closing Date, of the following conditions (any of which
may be waived by Purchaser in whole or in part in writing):
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Seller set forth in Article 2 shall be accurate in all material
respects as of the Closing, as though made on and as of the Closing Date, except
to the extent that (a) any such representation or warranty refers specifically
to a date other than the Closing Date, in which case such representation or
warranty shall have been accurate in all material respects as of such other
date, (b) the accuracy of any of such representations and warranties, other than
the representations and warranties contained in Section 2.3(a)(1) and (2), is
affected by any of the transactions contemplated by this Agreement and (c) a
representation or warranty is modified in an updated Disclosure Schedule
delivered to Purchaser at the Closing, if the facts and circumstances disclosed
in such updated Disclosure Schedule, when taken as a whole, have not resulted
and could not reasonably be expected to result in a Material Adverse Effect on
the Business.
7.2 PERFORMANCE. Seller shall have performed in all material respects all
obligations required by this Agreement to be performed by Seller on or before
the Closing Date.
7.3 CERTIFICATE. Purchaser shall have received from a duly authorized
officer of Seller a certificate dated the Closing Date confirming that the
conditions in Sections 7.1 and 7.2 have been met.
7.4 NO INJUNCTION. There shall not be in effect at the Closing (a) any
claim for damages by a party not affiliated with Purchaser related to the
Purchase that, if determined adversely, would have a Material Adverse Effect on
the Business or (b) any injunction or other binding order of any court or other
tribunal having jurisdiction over Purchaser that prohibits the Purchase.
7.5 HSR ACT. Any applicable waiting period under the HSR Act relating to
the transactions contemplated hereby shall have expired or been terminated.
7.6 LEGAL OPINION. Purchaser shall have received from Cooley Godward LLP,
counsel to Seller, an opinion in substantially the form of Exhibit C attached
hereto.
7.7 CONSENTS AND ESTOPPEL CERTIFICATES. The consents, licenses, approvals,
releases and authorizations specified on Schedule 2.4, to the extent they are
required to be obtained prior to Closing, and the estoppel certificates
described in Section 4.10, shall have been obtained.
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7.8 STOCK CERTIFICATE. Seller shall have delivered to Purchaser a
certificate representing the Shares, registered in the name of Seller, and such
other instruments of assignment, transfer, conveyance and endorsement as are
sufficient in the reasonable opinion of Purchaser, consistent with the terms of
this Agreement, to transfer, assign, convey and deliver to Purchaser the Shares
as contemplated by this Agreement.
7.9 PHYSICAL INVENTORY. The physical inventory required to be conducted
pursuant to Section 6.6 shall have been completed.
7.10 GRAPE SUPPLY CONTRACT. The grape supply contract attached as Exhibit D
shall have been entered into by Domaine Chandon.
7.11 TERMINATION OF AGREEMENTS. The agreements described in Section 4.7
shall have been terminated as contemplated by Section 4.7.
7.12 WAREHOUSING AGREEMENT AND COMPUTER TRANSACTIONS
(a) Domaine Chandon and the Company shall have entered into a written
agreement providing for warehousing of overflow inventory on terms reasonably
acceptable to Domaine Chandon and Purchaser; and
(b) The transactions contemplated by Section 4.13 shall have been
completed in all material respects.
7.13 AMS SOFTWARE. In the event that Purchaser elects to use the AMS
software following the Closing as contemplated by Schedule 6.7 and so notifies
Seller in writing at least three business days prior to the Closing Date, the
Company shall be able to license such software effective as of the Closing Date
for a license fee not to exceed $10,000. Seller shall have the right to pay any
difference between the actual license fee and $10,000 to cause this condition to
be satisfied; provided, however, the Company's level of usage of the AMS
software subsequent to the Closing Date is comparable to the Company's level of
usage at the Closing Date.
7.14 ASSIGNMENT OF INTELLECTUAL PROPERTY RIGHTS. Schieffelin & Somerset Co.
shall have assigned to the Company all Trade Rights owned by Schieffelin &
Somerset Co. that specifically relate to the Company's products.
ARTICLE 8
CONDITIONS TO OBLIGATION OF SELLER TO CLOSE
The obligation of Seller to effect the Purchase and otherwise consummate
the transactions that are to be consummated at the Closing is subject to the
satisfaction, as of the Closing Date, of the following conditions (any of which
may be waived by Seller in whole or in part in writing):
8.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser set forth in Article 3 shall be accurate in all material
respects as of the Closing, as though made on and as of the Closing Date, except
to the extent that any of such
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representations and warranties refers specifically to a date other than the
Closing Date, in which such case such representation or warranty shall have been
accurate in all material respects of such other date.
8.2 PERFORMANCE. Purchaser shall have performed in all material respects
all obligations required by this Agreement to be performed by Purchaser on or
before the Closing Date.
8.3 CERTIFICATE. Seller shall have received from a duly authorized officer
of Purchaser a certificate dated the Closing Date confirming, to such person's
knowledge, that the conditions in Sections 8.1 and 8.2 have been met.
8.4 NO INJUNCTION. There shall not be in effect at the Closing (a) any
claim for damages by a party not affiliated with Seller, related to the Purchase
that, if determined adversely, would have a Material Adverse Effect on the
Business or (b) any injunction or other binding order of any court or other
tribunal having jurisdiction over Seller that prohibits the Purchase.
8.5 HSR ACT. Any applicable waiting period under the HSR Act relating to
the transactions contemplated hereby shall have expired or been terminated.
8.6 CONSENTS. The consents, licenses, approvals, releases and
authorizations specified on Schedule 3.3, to the extent they are required to be
obtained prior to Closing, shall have been obtained.
8.7 PHYSICAL INVENTORY. The physical inventory required to be conducted
pursuant to Section 6.6 shall have been completed.
8.8 PAYMENT. Purchaser shall have delivered the Initial Purchase Price to
Seller.
8.9 WAREHOUSING AGREEMENT AND COMPUTER TRANSACTIONS.
(a) Purchaser (on behalf of the Company) shall have entered into a
written agreement with Domaine Chandon providing for warehousing of overflow
inventory on terms reasonably acceptable to Domaine Chandon and Purchaser; and
(b) The transactions contemplated by Section 4.13 shall have been
completed in all material respects.
ARTICLE 9
TERMINATION
9.1 RIGHT TO TERMINATE AGREEMENT. This Agreement may be terminated prior
to the Closing:
(a) by the mutual agreement of Seller and Purchaser;
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(b) by Purchaser by written notice to Seller at any time after 90 days
after signing (but only after 120 days after signing in the case of a failure of
a condition set forth in Section 8.4 or 8.5 to be satisfied), if the Closing
shall not have occurred on or prior to such date, unless the failure of the
Closing to have occurred on or prior to such date is attributable solely to the
failure of Purchaser to perform any material obligation to be performed by it
hereunder on or prior to the Closing Date or the failure of any condition set
forth in Article 8 to be satisfied;
(c) by Seller by written notice to Purchaser at any time after 90 days
after signing (but only after 120 days after signing in the case of a failure of
a condition set forth in Section 7.4 or 7.5 to be satisfied), if the Closing
shall not have occurred on or prior to such date, unless the failure of the
Closing to have occurred on or prior to such date is attributable solely to the
failure of Seller to perform any material obligation to be performed by it
hereunder on or prior to the Closing Date or the failure of any condition set
forth in Article 7 to be satisfied;
(d) by Purchaser by written notice to Seller if Seller has materially
breached any covenant contained in this Agreement if (1) Purchaser delivers
written notice of such breach to Seller and (2) if curable, such breach is not
cured within 30 days after such notice is received; or
(e) by Seller by written notice to Purchaser if Purchaser has
materially breached any covenant contained in this Agreement if (1) Seller
delivers written notice of such breach to Purchaser and (2) if curable, such
breach is not cured within 30 days after such notice is received.
9.2 EFFECT OF TERMINATION. Upon the termination of this Agreement pursuant
to Section 9.1:
(a) Purchaser shall promptly cause to be returned to Seller all
documents and information obtained in connection with this Agreement and the
transactions contemplated by this Agreement and all documents and information
obtained in connection with Purchaser's investigation of the Company's business,
operations and legal affairs, including any copies made by or supplied to
Purchaser or any of Purchaser's agents of any such documents or information; and
(b) No party hereto shall have any obligation or liability to the
other parties hereto, except that the parties hereto shall remain bound by the
provisions of this Section 9.2 and Sections 5.1, 6.3 and 9.3 and Article 11 and
by the provisions of the Non-Disclosure Agreement and except that nothing in
this Section 9.2(b) shall be construed as eliminating the liability of a party
for breach of this Agreement.
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9.3 FAILURE TO CLOSE.
(a) If Purchaser fails to consummate the transactions contemplated on
its part to occur on the Closing Date, in circumstances whereby this Agreement
has not been terminated and all conditions of the Closing set forth in Article 7
have been satisfied in all material respects or waived, Seller's sole remedy
shall be (1) to require Purchaser to consummate and specifically perform the
Purchase in accordance with the terms of this Agreement or (2) to terminate this
Agreement pursuant to Section 9.1(e) and obtain damages to the extent provided
by law and to obtain reimbursement of Seller's out-of-pocket expenses as set
forth in Section 11.2.
(b) If Seller fails to consummate the transactions contemplated on its
part to occur on the Closing Date, in circumstances whereby this Agreement has
not been terminated and all conditions of the Closing set forth in Article 8
have been satisfied in all material respects or waived, Purchaser's sole remedy
shall be (1) to require Seller to consummate and specifically perform the
Purchase in accordance with the terms of this Agreement or (2) to terminate this
Agreement pursuant to Section 9.1(d) and obtain damages to the extent provided
by law and to obtain reimbursement of Purchaser's out-of-pocket expenses as set
forth in Section 11.2.
(c) If any legal action or other legal proceeding is brought in order
to force a party to consummate and specifically perform the Purchase pursuant to
this Section 9.3 or otherwise, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements in addition to any other
relief to which the prevailing party may be entitled.
ARTICLE 10
CERTAIN REMEDIES AND LIMITATIONS
10.1 EXPIRATION OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations and warranties contained herein shall be deemed to have been
made as of the Closing, as though made on and as of the Closing Date, except to
the extent that any such representation or warranty refers specifically to a
date other than the Closing Date. All representations, warranties, covenants and
agreements of Seller and Purchaser contained in this Agreement shall survive the
execution and delivery of this Agreement and shall continue in full force and
effect for a period of two years after the Closing Date, and all liability with
respect to such representations, warranties, covenants and agreements shall
thereupon be extinguished. Notwithstanding the foregoing, (a) the
representations and warranties of Seller contained in Sections 2.1 and 2.2, the
first sentence of Section 2.7 and the second sentence of Section 2.16 shall
continue in full force and effect indefinitely; provided, however, that the
second sentence of Section 2.16 shall expire with respect to each parcel of Real
Property when title insurance for such parcel is obtained by Purchaser, (b) the
representations and warranties of Seller contained in Sections 2.9, 2.11 and
2.14 shall continue in full force and effect until 90 days after any applicable
statute of limitations (taking into account any waiver or tolling thereof) with
respect to any legal, arbitration, governmental or other proceeding that may
arise thereunder or relate thereto shall have run, (c) the representations and
warranties of Purchaser contained in Section 3.1 shall continue in full force
and effect indefinitely, (d) the representations and warranties of Purchaser
contained in Section 3.6 shall continue in full force and effect until 90 days
after any applicable statute of limitations (taking into account any waiver or
tolling
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thereof) with respect to any legal, arbitration, governmental or other
proceeding that may arise thereunder or relate thereto shall have run and (e)
any covenants or agreements contained herein by Seller or Purchaser that by
their terms are to be performed after the Closing Date shall survive until fully
discharged. The obligations of the parties pursuant to Section 10.2 with respect
to claims made pursuant to a particular representation, warranty, covenant or
agreement shall expire simultaneously with such representation, warranty,
covenant or agreement; provided, however, that such obligations shall survive
with respect to any pending claim until the pending claim is settled or
otherwise satisfied if written notice of such claim, specifying in reasonable
detail the factual basis therefor and the amount or estimated amount thereof, is
given to the party from whom indemnification is sought prior to the expiration
of the representation, warranty, covenant or agreement upon which it is based.
To the extent a survival period specified herein exceeds an applicable statute
of limitations, the provisions of this Section 10.1 shall constitute a tolling
by Seller or Purchaser, as applicable, of such statute of limitations for a
period of time not to extend beyond the termination of such survival period.
10.2 INDEMNIFICATION.
(a) Subject to the limitations set forth herein, Purchaser shall
indemnify and hold harmless Seller, its Affiliates (including, in particular,
Schieffelin & Somerset Co.) and their respective officers, directors, employees
and agents from, against and in respect of any Losses (as defined below)
suffered by them as a result of:
(1) the failure of any representation or warranty made by
Purchaser to have been true both when made and, if applicable, when deemed to
have been made as of the Closing;
(2) any material breach of any covenant or other agreement of
Purchaser contained in this Agreement;
(3) any liabilities or obligations of the Company (A) to the
extent that they are included on the Closing Balance Sheet, (B) that are
contractual obligations under contracts or agreements that are disclosed in the
Disclosure Schedule or not required to be disclosed therein pursuant to this
Agreement, (C) disclosed in the Disclosure Schedule specifically as exceptions
to Section 2.10 or (D) that arise from or are based on any actions, transactions
or other events that are taken or occur after the Closing Date; and
(4) any claims by the Proposed Distributors who accept
Purchaser's offer to distribute the Company's products following the Closing
arising from actions taken by the Company after the Closing or actions taken by
Purchaser or any of its other Affiliates.
(b) Subject to the limitations set forth herein, Seller shall
indemnify and hold harmless Purchaser, its Affiliates and their respective
officers, directors, employees and agents from, against and in respect of any
Losses suffered by them as a result of:
(1) the failure of any representation or warranty made by Seller
to have been true both when made and, if applicable, when deemed to have been
made as of the Closing;
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(2) any material breach of any covenant or other agreement of
Seller contained in this Agreement;
(3) any liabilities or obligations of the Company to the extent
that they arise from or are based on any actions, transactions, events or
circumstances that are taken, occur or are in existence on or before the Closing
Date, other than: (A) liabilities or obligations to the extent that they are
included on the Closing Balance Sheet, (B) liabilities or obligations that are
disclosed in the Disclosure Schedule specifically as exceptions to Section 2.10
and (C) contractual obligations under contracts or agreements that are disclosed
in the Disclosure Schedule or not required to be disclosed therein pursuant to
this Agreement; provided, however, that the fact that a liability or obligation
is not covered by this clause (3) shall not prevent such liability or obligation
from being covered by clause (1) above; and
(4) any claims by distributors of the Company's products listed
on Schedule 10.2(b)(4) based upon, arising from or relating to contracts,
agreements or understandings entered into by the Company or any of its
Affiliates (including, in particular, Schieffelin & Somerset Co.) with any such
distributor prior to the Closing.
(c) No amounts shall be paid or payable hereunder: (1) with respect to
claims asserted by the indemnified party against the indemnifying party
hereunder after the expiration of the representation, warranty, covenant or
agreement upon which such claims are based; (2) to Purchaser, its Affiliates or
their respective officers, directors, employees or agents with respect to any
claim under Section 10.2(b)(1) or (3), other than a claim based on Sections 2.1
or 2.2, the first sentence of Section 2.7 or the second sentence of Section
2.16, after an aggregate amount of $25,000,000 has been paid or is payable by
Seller under this Article 10 to Purchaser, its Affiliates and their respective
officers, directors, employees and agents; (3) to Purchaser, its Affiliates or
their respective officers, directors, employees or agents with respect to any
claim under Section 10.2(b)(1) or (3), other than a claim based on Section 2.9
or 2.11, except to the extent that the aggregate indemnifiable Losses actually
suffered by Purchaser, its Affiliates and their respective officers, directors,
employees and agents exceed $500,000, and Seller shall only be obligated to
indemnify for such Losses to the extent they exceed such amount; (4) to Seller,
its Affiliates or their respective officers, directors, employees or agents with
respect to any claim under Section 10.2(a)(1) or (3) after an aggregate amount
of $25,000,000 has been paid or is payable by Purchaser under this Article 10 to
Seller, its Affiliates or their respective officers, directors, employees and
agents, and (5) to Seller, its Affiliates or their respective officers,
directors, employees or agents with respect to any claim under Section
10.2(a)(1) except to the extent that the aggregate indemnifiable Losses actually
suffered by Seller, its Affiliates and their respective officers, directors,
employees and agents exceed $500,000, and Purchaser shall only be obligated to
indemnify for such Losses to the extent they exceed such amount.
(d) For the purposes of this Agreement, "Losses" shall mean the net
amount (after deduction of the amount of any insurance proceeds reasonably
determined by the parties to be recoverable, or actually recovered, and net of
any tax benefit) of any claims, losses, liabilities, damages, deficiencies,
costs and expenses, including, without limitation, reasonable attorneys' fees
and expenses, and expenses of investigation and defense. Without limiting the
generality of the foregoing, Losses shall include any costs reasonably incurred
by Purchaser or the Company in replacing, or losses incurred as a result of an
inability to replace, any grape supply (including
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grapes produced on leased Real Property) that the Company is unable to maintain
that it would have been able to maintain if the representations and warranties
of Seller contained in this Agreement were true both when made and, if
applicable, when deemed to have been made as of the Closing.
(e) Subject to the limitations of Section 10.7, no investigation by
either Seller or Purchaser prior to or after the date of this Agreement shall
diminish or obviate any of the representations, warranties, covenants and
agreements of the parties contained in this Agreement.
10.3 DEFENSE OF THIRD PARTY ACTIONS. If either Purchaser, its Affiliates or
any of their respective directors, officers, employees or agents, on the one
hand, or Seller, its Affiliates or any of their respective directors, officers,
employees or agents, on the other hand (the "Indemnitee"), receives notice or
otherwise obtains knowledge of any matter or any threatened matter that may give
rise to an indemnification claim against Seller, on the one hand, or Purchaser,
on the other hand (the "Indemnifying Party"), then the Indemnitee shall promptly
deliver to the Indemnifying Party a written notice describing such matter in
reasonable detail; provided, however, that the failure to give such notice will
not affect the right of the Indemnitee to indemnification hereunder except to
the extent that such failure prejudices the ability of the indemnifying party to
defend any Indemnification Claim or take any other remedial action. The
Indemnifying Party shall have the right, at its option, to assume the defense of
any such matter with its own counsel. If the Indemnifying Party elects to assume
the defense of and indemnification for any such matter, then:
(a) notwithstanding anything to the contrary contained in this
Agreement, the Indemnifying Party shall not be required to pay or otherwise
indemnify the Indemnitee against any attorneys' fees or other expenses incurred
on behalf of the Indemnitee in connection with such matter following the
Indemnifying Party's election to assume the defense of such matter; provided,
however, that the Indemnitee shall have the right to participate in the defense
at its own expense;
(b) the Indemnitee shall make available to the Indemnifying Party all
books, records and other documents and materials that are under the direct or
indirect control of the Indemnitee or any of the Indemnitee's agents and that
the Indemnifying Party considers necessary or desirable for the defense of such
matter, subject to any mutually acceptable joint defense or confidentiality
agreements that may be entered into in the future;
(c) the Indemnitee shall execute such documents and take such other
actions as the Indemnifying Party may reasonably request for the purpose of
facilitating the defense of, or any settlement, compromise or adjustment
relating to, such matter;
(d) the Indemnitee shall otherwise fully cooperate as reasonably
requested by the Indemnifying Party in the defense of such matter;
(e) the Indemnitee shall not admit any liability with respect to such
matter; and
(f) if the terms of any settlement, compromise or adjustment require
no more than the payment of money, which amount will be paid by the Indemnifying
Party, the
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Indemnifying Party shall have the exclusive right to settle, compromise or
adjust the matter and shall have the right to do so without the consent of the
Indemnitee; otherwise, the consent of the Indemnitee shall be required for such
settlement, compromise or adjustment, which consent will not be unreasonably
withheld, conditioned or delayed.
If the Indemnifying Party elects not to assume the defense of and
indemnification for such matter, then the Indemnitee shall proceed diligently to
defend such matter with the assistance of counsel reasonably satisfactory to the
Indemnifying Party; provided, however, that the Indemnitee shall not settle,
adjust or compromise such matter, or admit any liability with respect to such
matter, without the prior written consent of the Indemnifying Party, such
consent not to be unreasonably withheld, conditioned or delayed; provided
further that no consent of the Indemnifying Party shall be required if the
Indemnifying Party is denying its obligation to indemnify the Indemnitee with
respect to such matter if the Indemnitee settles, adjusts or compromises such
matter in good faith.
10.4 SUBROGATION. To the extent that the Indemnifying Party makes or is
required to make any indemnification payment to the Indemnitee, the Indemnifying
Party shall be entitled to exercise, and shall be subrogated to, any rights and
remedies (including rights of indemnity, rights of contribution and other rights
of recovery) that the Indemnitee or any of the Indemnitee's affiliates may have
against any other person with respect to any Losses, circumstances or matters to
which such indemnification payment is related. The Indemnitee shall permit the
Indemnifying Party to use the name of the Indemnitee and the names of the
Indemnitee's affiliates in any transaction or in any proceeding or other matter
involving any of such rights or remedies; and the Indemnitee shall take such
actions, at the expense of the Indemnifying Party, as the Indemnifying Party may
reasonably request for the purpose of perfecting or exercising the Indemnifying
Party's right of subrogation hereunder.
10.5 EXCLUSIVITY. From and after the Closing, except in the case of fraud
and except that a party shall be entitled to equitable remedies (other than
rescission) in connection with a breach by the other party of a covenant, the
right of each party hereto to assert indemnification claims and receive
indemnification payments pursuant to this Article 10 shall be the sole and
exclusive right and remedy exercisable by such party with respect to any breach
by the other party hereto of any covenant, agreement, representation or warranty
contained in this Agreement. Neither Purchaser nor Seller shall be entitled to
rescind the Purchase by virtue of any failure of any party's representations and
warranties herein to have been true or any breach of any party's obligations
hereunder.
10.6 RETENTION OF RECORDS. From and after the date of this Agreement,
Purchaser shall preserve, and shall cause the Company to preserve, all books,
records and other documents, materials and information relevant to the
representations, warranties and covenants set forth in this Agreement for a
period of six years following the date of this Agreement or for such longer
period as the rights of the parties hereunder may exist.
10.7 NOTICE AS TO REPRESENTATIONS. Without limiting any of the other
obligations of the respective parties hereunder, if at any time after the date
of this Agreement, Purchaser shall have any reason to believe that any
representation or warranty made by Sellers hereunder may have been untrue,
Purchaser shall promptly provide Seller written notice to that effect,
indicating
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the basis for Purchaser's belief that such representation or warranty may have
been untrue. In the event that (a) prior to the Closing, Seller determines that
one or more of its representations and warranties will not be accurate as of the
Closing, (b) Seller so notifies Purchaser of the inaccuracy by delivering a
certificate pursuant to Section 7.3 that excludes such inaccuracy from the scope
of the certificate, (c) the certificate described in clause (b) above states
that the inaccuracies give rise to the condition in Section 7.1 being not
satisfied and (d) Purchaser waives the closing condition in Section 7.1 and
elects to proceed with the Closing and accept the certificate described in
clause (b) above, then neither Purchaser, its Affiliates nor their respective
officers, directors, employees and agents shall be entitled to any
indemnification claim for any Losses resulting from the inaccuracies excluded
from the certificate (including any claim based upon the making of such
representation and warranty upon the execution of this Agreement). Under no
circumstances shall the delivery of a certificate described in clause (b) above
impair or eliminate any indemnification claim based on any inaccuracy excluded
from such certificate if the conditions of clauses (c) and (d) above are not
satisfied.
ARTICLE 11
MISCELLANEOUS
11.1 MEMORANDUM; DISCLAIMER OF PROJECTIONS. Neither party makes any
representation or warranty, implied or otherwise, to the other party except as
specifically made in this Agreement. Seller makes no representation or warranty
to Purchaser with respect to (a) the information set forth in the Confidential
Memorandum distributed by Hambrecht & Quist LLC in connection with the offering
of the Company's business or (b) any financial projection or forecast delivered
by or on behalf of Seller or the Company to Purchaser. Purchaser acknowledges
that (w) there are uncertainties inherent in attempting to make such projections
and forecasts, (x) it is familiar with such uncertainties, (y) it is taking full
responsibility for making its own evaluation of the adequacy and accuracy of all
such projections and forecasts so furnished to it and (z) it shall have no claim
against Seller or its officers, directors or stockholders with respect thereto.
11.2 EXPENSES. Except as otherwise specifically provided in Section 9.3:
(a) Except as otherwise specifically provided in this Agreement with
respect to a particular type of expense or cost, if the Purchase is consummated
or this Agreement is terminated pursuant to Section 9.1(a), (b) or (c), Seller
and Purchaser shall pay their own respective expenses and costs incidental to
the preparation of this Agreement, the performance and compliance with all
respective agreements contained in this Agreement to be performed or complied
with by them and the consummation of the transactions contemplated hereby.
(b) If the Agreement is terminated pursuant to Section 9.1(e), Purchaser
shall pay all of the expenses and costs of Purchaser and Seller incidental to
the preparation of this Agreement, the performance and compliance with all
agreements contained in this Agreement and the consummation of the transactions
contemplated hereby including, without limitation, the fees and expenses of
their respective counsel and investment bankers.
37.
<PAGE>
(c) If the Agreement is terminated pursuant to Section 9.1(d), Seller
shall pay all of the expenses and costs of Seller and Purchaser incidental to
the preparation of this Agreement, the performance and compliance with all
agreements contained in this Agreement and the consummation of the transactions
contemplated hereby including, without limitation, the fees and expenses of
their respective counsel and investment bankers.
11.3 NOTICES. All notices, instructions and other communications given
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (a) by registered or certified
mail, return receipt requested, postage prepaid, or (b) via a reputable
nationwide overnight courier service, in each case to the address set forth
below. Any such notice, instruction or communication shall be deemed to have
been delivered three business days after it is sent prepaid, or one business day
after it is sent via a reputable nationwide overnight courier service.
If to Purchaser, to:
Canandaigua Wine Company, Inc.
116 Buffalo Street
Canandaigua, NY 14424
Attn: Ronald C. Fondiller, Esq.
Vice President and General Counsel
Tel: (716) 396-7631
Fax: (716) 396-8870
with a copy to:
Canandaigua Brands, Inc.
300 Willowbrook Office Park
Fairport, NY 14450
Attn: Robert S. Sands, Esq.
Executive Vice President and General Counsel
Tel: (716) 218-2120
Fax: (716) 218-2160
If to Seller, to:
Moet Hennessy, Inc.
Two Park Avenue
Suite 1830
New York, NY 10016
Attention: Anna Hayes Levin, Esq.
Tel: (212) 340-7488
Fax: (212) 340-7620
with a copy to:
Cooley Godward LLP
38.
<PAGE>
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
Attention: Christopher A. Westover, Esq.
Tel: (415) 693-2000
Fax: (415) 951-3699
or, in each case, to such other address as may be specified in writing to the
other parties.
Any party may give any notice, instruction or communication in
connection with this Agreement using any other means (including personal
delivery, telecopy or ordinary mail), but no such notice, instruction or
communication shall be deemed to have been delivered unless and until it is
actually received by the party to whom it was sent. Any party may change the
address to which notices, instructions or communications are to be delivered by
giving the other parties to this Agreement notice thereof in the manner set
forth in this Section 11.3.
11.4 ASSIGNMENT. No party may assign or otherwise transfer this Agreement
or any of its rights hereunder to any person or entity without the prior written
consent of the other party, which consent shall not be unreasonably withheld,
conditioned or delayed; provided, however, that Purchaser may assign this
Agreement to any Affiliate of Purchaser without the consent of Seller, but such
an assignment shall not release Purchaser from any of its obligations hereunder.
Subject to the foregoing, this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their successors and assigns.
11.5 ENTIRE AGREEMENT; AMENDMENT; GOVERNING LAW; ETC. This Agreement
(together with the Exhibits and Schedules hereto) and the Non-Disclosure
Agreement embody the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof. This Agreement may be amended,
modified, waived, discharged or terminated only by (and any consent hereunder
shall be effective only if contained in) an instrument in writing signed by the
party against which enforcement of such amendment, modification, waiver,
discharge, termination or consent is sought. This Agreement shall be construed
in accordance with and governed by the laws of the State of California as such
laws apply to contracts between California residents to be performed entirely
within the State of California.
11.6 COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which is an original, but all of which shall constitute one instrument.
11.7 VENUE. If any legal proceeding or other action relating to this
Agreement or any of the other agreements being executed and delivered in
connection herewith, or any of the transactions contemplated hereby or thereby,
is brought or otherwise initiated, the venue therefor shall be in San Francisco,
California, which shall be deemed to be a convenient forum. Each of the parties
hereto hereby expressly and irrevocably consents and submits to the jurisdiction
of the United States District Court for the Northern District of California and
to the jurisdiction of the Superior Court in and for the City and County of San
Francisco of the State of California in connection with any such legal
proceeding or other action.
11.8 THIRD PARTY RIGHTS. The parties do not intend to confer any benefit
hereunder on any person or entity other than the parties hereto and their
respective successors in interest.
39.
<PAGE>
11.9 TITLES AND HEADINGS. Titles and headings of sections of this Agreement
and the "Table of Contents," the "Table of Exhibits" and the "Table of
Schedules" included herewith, are for convenience of reference only and shall
not affect the construction of any provision of this Agreement.
11.10 EXHIBITS AND SCHEDULES. Each of the Exhibits and Schedules referred
to herein and attached hereto is an integral part of this Agreement and is
incorporated herein by this reference.
11.11 PRONOUNS. All pronouns and any variations thereof used in this
Agreement shall be deemed to refer to the masculine, feminine or neuter,
singular or plural, as appropriate.
11.12 SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any jurisdiction, as to such jurisdiction, shall be
ineffective to the extent of such invalidity or unenforceability, without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
11.13 TIME OF ESSENCE. Time is of the essence of this Agreement.
11.14 INTERPRETATION. Each party acknowledges that such party, either
directly or through such party's representatives, has participated in the
drafting of this Agreement and any applicable rule of construction that
ambiguities are to be resolved against the drafting party should not be applied
in connection with the construction or interpretation of this Agreement.
11.15 ATTORNEYS FEES. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement, including
Section 10.2, is brought by either party hereto, the prevailing party shall be
entitled to recover all or a portion of its reasonable attorneys' fees, costs
and disbursements from the losing party, in addition to any other relief to
which the prevailing party is entitled. In the case of a claim for
indemnification or the payment of money:
(a) The prevailing party shall be the party who proposes an amount of
indemnification or payment in writing (prior to the commencement of such action
or proceeding) that is closest to the amount eventually awarded by the tribunal,
unless such award is appealed, in which case the final amount awarded on appeal
shall be the benchmark. For the purposes of this clause (a), all claims and
counter-claims pending in a single proceeding shall be aggregated in order to
determine the amount proposed by a given party.
(b) The prevailing party shall be entitled to be reimbursed for the
percentage of its reasonable attorneys' fees and expenses equal to (1) one half
of the difference between the proposed amount of indemnification or payment by
the prevailing party and the proposed amount of indemnification or payment by
the other party (the "Spread"), less the difference between the prevailing
party's proposed amount of indemnification and the amount eventually awarded by
the court, divided by (2) the Spread.
(c) Notwithstanding Section 11.15(b), if the amount eventually awarded
by the tribunal is less than the defending party's proposed amount of
indemnification or payment,
40.
<PAGE>
the defending party shall be entitled to be reimbursed for all of its reasonable
attorneys' fees and expenses, and if the amount eventually awarded by the
tribunal is more than the plaintiff's proposed amount of indemnification or
payment, the plaintiff shall be entitled to be reimbursed for all of its
reasonable attorneys' fees and expenses.
In all other cases, the prevailing party shall be determined based on how
the outcome of the action or proceeding compares to the positions taken by the
parties in the action or proceeding and there shall only be a prevailing party
if one of the parties is substantially successful in the action or proceeding
and the other party is not. In such cases, the prevailing party shall be
entitled to be reimbursed for all of its reasonable attorneys' fees and
expenses.
41.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement to
be executed as of the date first above written.
PURCHASER
CANANDAIGUA WINE COMPANY, INC.
a New York corporation
By: /s/ Daniel C. Barnett
Its:President and
Chief Executive Officer
SELLER
MOET HENNESSY, INC.,
a Delaware corporation
By: /s/ Illegible
Its:Senior Vice President
<PAGE>
The Registrant has omitted from this filing the Exhibits and Schedules listed in
the Table of Exhibits and Table of Schedules included on page v of this
Agreement. The Registrant will furnish supplementally to the Commission, upon
request, a copy of any omitted Exhibit or Schedule.
EXHIBIT 10
----------
FIRST AMENDMENT
TO THE
CANANDAIGUA BRANDS, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Canandaigua Brands, Inc. Supplemental Executive Retirement Plan (the
"SERP") is hereby amended, effective with respect to benefit credits to
participants for periods from March 1, 1998, and thereafter, as follows:
I
The phrase, "Employer Basic Contributions and Employer Supplemental
Contributions", shall be substituted for the phrase, "Employer Basic
Contributions", each time it appears in Sections 1.2 and 2.2 of the SERP.
II
Except as amended herein, the SERP, as adopted effective March 1,
1998, shall remain in full force and effect.
Executed in multiple originals this 26th day of March, 1999.
---- -----
CANANDAIGUA BRANDS, INC.
By: /s/ George H. Murray
-----------------------------
Its: Chief Human Resources Officer
-----------------------------
EXHIBIT 11
----------
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(in thousands, except per share data)
For the Three Months Ended May 31,
---------------------------------------
1999 1998
----------------- -----------------
Basic Diluted Basic Diluted
------- ------- ------- -------
Income applicable to common shares $10,846 $10,846 $13,099 $13,099
======= ======= ======= =======
Shares:
Weighted average common shares
outstanding 17,977 17,977 18,748 18,748
Adjustments:
Stock options - 470 - 580
------- ------- ------- -------
Adjusted weighted average common
shares outstanding 17,977 18,447 18,748 19,328
======= ======= ======= =======
Earnings per common share $ 0.60 $ 0.59 $ 0.70 $ 0.68
======= ======= ======= =======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
This schedule contains summary financial information extracted from the
Company's May 31, 1999 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> 3-MOS
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-END> MAY-31-1999
<CASH> 1,930
<SECURITIES> 0
<RECEIVABLES> 327,700
<ALLOWANCES> 0
<INVENTORY> 547,835
<CURRENT-ASSETS> 933,662
<PP&E> 591,682
<DEPRECIATION> 133,453
<TOTAL-ASSETS> 2,006,610
<CURRENT-LIABILITIES> 379,253
<BONDS> 1,073,140
0
0
<COMMON> 218
<OTHER-SE> 447,720
<TOTAL-LIABILITY-AND-EQUITY> 2,006,610
<SALES> 530,169
<TOTAL-REVENUES> 530,169
<CGS> 374,046
<TOTAL-COSTS> 374,046
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,034
<INCOME-PRETAX> 18,077
<INCOME-TAX> 7,231
<INCOME-CONTINUING> 10,846
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,846
<EPS-BASIC> 0.60
<EPS-DILUTED> 0.59
</TABLE>
