<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
REDHOOK ALE BREWERY, INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
REDHOOK ALE BREWERY, INCORPORATED
3400 PHINNEY AVENUE NORTH
SEATTLE, WASHINGTON 98103
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
MAY 19, 1998
TO THE HOLDERS OF COMMON STOCK
AND SERIES B PREFERRED STOCK
OF REDHOOK ALE BREWERY, INCORPORATED:
The Annual Meeting of Shareholders of Redhook Ale Brewery, Incorporated, a
Washington corporation (the "Company"), will be held on May 19, 1998, at 2:00
p.m., Pacific Daylight Time, at the Redhook Ale Brewery, 14300 N.E. 145th
Street, Woodinville, Washington, for the following purposes as more fully
described in the accompanying Proxy Statement:
1. To elect nine directors to serve until the 1999 Annual Meeting of
Shareholders or until their earlier retirement, resignation or removal;
2. To ratify the appointment of Ernst & Young LLP as independent auditors
for the Company's fiscal year ending December 31, 1998; and
3. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Only holders of record of the Company's Common Stock at the close of
business on March 27, 1998, will be entitled to vote at the meeting.
By order of the Board of Directors
PAUL S. SHIPMAN,
President, Chief Executive Officer and
Chairman of the Board
Seattle, Washington
April 6, 1998
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY CARD AND
MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
<PAGE> 3
PROXY STATEMENT
ANNUAL MEETING AND PROXY SOLICITATION INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the management of Redhook Ale Brewery, Incorporated, a Washington
corporation (the "Company"), for use at the Annual Meeting of Shareholders on
May 19, 1998, and at any adjournments thereof. This Proxy Statement is being
sent to all shareholders of record as of the close of business on March 27,
1998.
At the close of business on March 27, 1998, there were 7,687,486 shares of
Common Stock and 1,289,872 shares of Series B Preferred Stock of the Company
outstanding. Only holders of record of the shares outstanding at such time will
be entitled to vote at the meeting. The presence at the meeting of at least a
majority of such shares, either in person or by proxy, is required for a quorum.
If you are a shareholder of record, you may vote by using the proxy card
enclosed with this Proxy Statement. When your proxy card is returned properly
signed, the shares represented will be voted according to your directions. If
your proxy card is signed and returned without specifying a vote or an
abstention on any proposal, it will be voted FOR each of the nine individuals
nominated to serve as a director, and FOR the ratification of the appointment of
Ernst & Young LLP as independent auditors.
On each matter properly brought before the meeting, shareholders will be
entitled to one vote for each share of Common Stock and Series B Preferred Stock
held. Under Washington law and the Company's Restated Articles of Incorporation
and Amended and Restated Bylaws, if a quorum exists at the meeting: (a) the nine
nominees for director who receive the greatest number of votes cast in the
election of directors will be elected; and (b) the proposal to ratify the
appointment of auditors will be approved if the number of votes cast in favor of
the proposal exceeds the number of votes cast against it.
Shareholders may abstain from voting for one or more of the nominees for
director and may abstain from voting on the proposal to ratify the appointment
of auditors. Abstention from voting for one or more of the nominees for director
will make it less likely that the nominee will be one of the nine nominees for
director who receive the greatest number of votes cast. Abstention from voting
on the proposal to ratify the appointment of auditors will have no effect, since
approval of this proposal is based solely on the number of votes actually cast.
If you execute a proxy, you may revoke it by taking one of the following
three actions: (a) by giving written notice of the revocation to the Secretary
of the Company at its principal executive offices; (b) by executing a proxy with
a later date and delivering it to the Secretary of the Company at its principal
executive offices; or (c) by personally attending and voting at the meeting.
The Company will bear the expense of preparing, printing and distributing
proxy materials to its shareholders. In addition to solicitations by mail, there
may be incidental personal solicitation at nominal cost by directors, officers,
employees or agents of the Company. The Company will also reimburse brokerage
firms and other intermediaries for their expenses in forwarding proxy materials
to beneficial owners of the Company's Common Stock.
1
<PAGE> 4
BOARD OF DIRECTORS
The business of the Company is managed under the direction of a Board of
Directors consisting of nine directors. The following individuals are currently
serving as directors: Paul S. Shipman, Gordon A. Bowker, John T. Carleton, Frank
H. Clement, David R. English, Jerry D. Jones, Bruce M. Sandison, Walter F.
Walker and Dennis P. Weston.
COMPENSATION OF DIRECTORS
Nonemployee directors participate in the Redhook Ale Brewery, Incorporated
Directors Stock Option Plan (the "Directors Plan") and receive a fee of $500 for
each Board and Committee meeting attended. The Directors Plan provides for
grants of stock options covering 4,000 shares of Common Stock to be made
automatically on the date of each annual meeting of shareholders to each
nonemployee director of the Company, so long as shares of Common Stock remain
available under the Directors Plan. The exercise price under each option is the
fair market value of the Common Stock on the date of grant. Each option expires
ten years after grant or one year after the death of the recipient director.
Options granted under the Directors Plan vest six months after the option is
granted. During the fiscal year ended December 31, 1997, each of the directors,
other than Messrs. English, Sandison and Shipman, was granted options under the
Directors Plan, at an exercise price of $7.625 per share, covering 4,000 shares
of Common Stock. Messrs. English and Sandison did not receive option grants, in
accordance with the policy of their employer Anheuser-Busch, Incorporated
("A-B").
COMMITTEES OF THE BOARD
The Board has standing Audit, Compensation, Nominating, Succession and
Marketing Practices Committees. The Audit Committee, currently composed of
Messrs. Carleton, Clement, Sandison and Weston, reviews the Company's internal
accounting procedures and consults with and reviews the services provided by the
Company's independent auditors. The Compensation Committee, currently composed
of Messrs. Carleton, Clement, Jones and Sandison, reviews and recommends to the
Board the compensation and benefits to be provided to the Company's officers and
reviews general policy matters relating to employee compensation and benefits.
The Nominating Committee, currently composed of Messrs. Bowker, Carleton and
Walker, recommends to the Board nominees for vacant Board positions, reviews and
reports to the Board on the nominees to be included in the slate of directors
for election at the annual meeting of shareholders and develops a plan of
succession to be used in the event of the President or Chief Executive Officer's
resignation, disability, removal or death. The Succession Committee, currently
composed of Messrs. Bowker, Carleton and English, is responsible for making
recommendations to the Board of Directors as to the election of a successor to
the Company's Chief Executive Officer if the Chief Executive Officer dies or is
permanently disabled, his employment is terminated, or he otherwise ceases to
act as Chief Executive Officer. The Marketing Practices Committee, currently
composed of Messrs. English, Jones and Walker, is responsible for reviewing the
introduction by the Company of new products or new formulations, the Company's
marketing practices and compliance with applicable laws, and makes
recommendations to the Board of Directors as to such matters.
MEETINGS OF THE BOARD AND COMMITTEES
The full Board of Directors met four times during the Company's fiscal year
ended December 31, 1997. No incumbent member attended fewer than 75% of the
total number of meetings of the Board of Directors and of any Board committees
of which he was a member during that fiscal year. The Audit Committee met four
times during 1997 and the Compensation Committee met two times during 1997. The
other committees did not meet during 1997.
2
<PAGE> 5
NOMINEES FOR DIRECTOR
The following individuals, each of whom currently serves as a director of
the Company, have been nominated for re-election at the meeting:
PAUL S. SHIPMAN is one of the Company's founders and has served as its
President since September 1981, Chairman of the Board since November 1992, and
Chief Executive Officer since June 1993. Prior to founding the Company, Mr.
Shipman was a marketing analyst for the Chateau Ste. Michelle Winery from 1978
to 1981. Mr. Shipman received his Bachelor's degree in English from Bucknell
University in 1975 and his Master's degree in Business Administration from the
Darden Business School, University of Virginia, in 1978. Mr. Shipman also serves
as a director of Gargoyles, Inc.
GORDON A. BOWKER is one of the Company's founders and has served as a
Director of the Company since 1981. He was a Vice President of the Company from
1981 to April 1994. From 1981 to March 1989 he also served as Treasurer and from
1981 to June 1993, as Secretary. He founded, and from 1971 to 1987 served as
Chairman of, Starbucks Coffee Company. Mr. Bowker also serves as a director of
Peet's Coffee and Tea, Inc., Apanage, Inc., TLA, Inc., Summersun-Terraplug, Inc.
and Seabear, Inc.
JOHN T. CARLETON has served as a Director of the Company since September
1993. He is a Senior Vice President of Benaroya Capital Company, a private
investment company, which he joined in October 1995. Mr. Carleton was a Senior
Vice President of G.E. Capital Equity Capital Group, Inc., a private equity
investment company, from March 1993 to September 1995. Before that, Mr. Carleton
was Vice President, Acquisitions of the Dyson-Kissner-Moran Corporation, a
private investment company, from February 1987 to March 1993. From 1982 to 1987,
he was the Director, Corporate Development of Norton Company. He joined Norton
Company, a multi-national manufacturing company, in 1971 and became general
manager of one of its largest business units. Mr. Carleton also serves as a
director for Multiple Zones International, Inc.
FRANK H. CLEMENT has served as a Director of the Company since March 1989.
He has served as Vice President of Investments at PaineWebber, Inc., a
registered broker dealer, in Seattle, Washington, since 1975. Mr. Clement also
serves on the advisory board of the Institute of Brewing Studies in Boulder, CO,
and the School of Management, S.U.N.Y. at Buffalo, Buffalo, NY.
DAVID R. ENGLISH has served as a Director of the Company since July 1996.
Mr. English, an employee of Anheuser-Busch, Incorporated, has served in his
current position as Vice-President -- Michelob, Specialty Beers and New Products
since February 1996. He served as Senior Brand Manager -- Busch and Busch Light,
from 1992 until February 1996.
JERRY D. JONES is one of the Company's founders and has served as a
Director since 1981. He is a prominent consultant to world-class ski areas
worldwide. He has served as the President of Atlas Resort Management since
October 1993, President of Willowston Development Co. since 1997, President of
Resort Management from October 1992, and President of Beaver Creek Resort from
1987 to 1990. From October 1986 to October 1989, he was Executive Vice President
of Vail Associates in Vail, Colorado.
BRUCE M. SANDISON has served as a Director of the Company since November
1994. Mr. Sandison has been the Vice President, Wholesaler System Development
for A-B since January 1994, in which capacity he is responsible for various
activities and programs that are designed to enhance the long-term strength of
the A-B beer wholesaler system. He served as Assistant Treasurer at
Anheuser-Busch Companies from June 1989 to January 1994.
WALTER F. WALKER, CFA, has served as a Director of the Company since April
1994. Mr. Walker has been the President of the Seattle Supersonics National
Basketball Association basketball team, a subsidiary of Ackerley Communications,
Inc., since September 1994. From March to September 1994, he served as President
of Walker Capital, Inc., a money management firm. From July 1987 to March 1994,
Mr. Walker served as a Vice President of Goldman, Sachs & Co., a registered
broker-dealer. From 1976 to 1985, Mr. Walker was a professional basketball
player in the National Basketball Association. Mr. Walker serves as a director
of Gargoyles, Inc., Advanced Digital Information Corp. and Washington Special
Olympics. Mr. Walker also serves on the University of Virginia Board of
Visitors.
3
<PAGE> 6
DENNIS P. WESTON, CPA, has served as a Director of the Company since
September 1993. Mr. Weston is the President of the Venture Capital Division of
Fluke Capital Management, L.P., a venture capital investment firm which he
joined in March 1982. Prior to his appointment as President in December 1993,
Mr. Weston held the positions of General Manager of the Computer Facilities
Division and Chief Operating Officer. From August 1978 to March 1982, Mr. Weston
was Assistant to the President of Harold W. Johnson, Inc. and from September
1973 to August 1978, held positions with Moss, Adams & Co., a firm of Certified
Public Accountants. Mr. Weston also serves as a director of Innovation, Inc. and
Washington Special Olympics, and is a member of the Board of Visitors of Central
Washington University and the Program in Entrepreneurial Innovation at the
University of Washington School of Business.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
OWNERSHIP INFORMATION
The following table sets forth, as of March 16, 1998, certain information
regarding beneficial ownership of the Company's Common Stock (a) by each person
known to the Company to be the beneficial owner of more than five percent of the
outstanding Common Stock, (b) by each director and nominee for director, (c) by
the Chief Executive Officer and the other executive officers of the Company
whose total annual salary and bonus, for the fiscal year ended December 31,
1997, exceeded $100,000, and (d) by all of the Company's executive officers and
directors as a group. Unless otherwise noted, the named beneficial owner has
sole voting and investment power.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENT OF
COMMON STOCK COMMON STOCK
NAME AND ADDRESS BENEFICIALLY OWNED(1) OUTSTANDING(1)
---------------- --------------------- --------------
<S> <C> <C>
Busch Investment Corporation(2).................. 2,243,342 25.0%
One Busch Place
St. Louis, Missouri 63118
GE Capital Redhook Investment Corp.(3)........... 714,286 9.3%
29260 Long Ridge Road
Stamford, Connecticut 06927
Paul S. Shipman(4)(5)............................ 489,400 6.4%
Jerry D. Jones(4)(6)(7).......................... 246,589 3.2%
Frank H. Clement(8).............................. 241,147 3.1%
Gordon A. Bowker(4)(7)........................... 157,947 2.1%
Walter F. Walker(9).............................. 114,217 1.5%
John T. Carleton(10)............................. 14,400 *
Dennis P. Weston(11)............................. 11,857 *
Bruce M. Sandison(12)............................ 2,000 *
David R. English................................. 0 *
David J. Mickelson(13)........................... 71,400 *
Allen L. Triplett(14)............................ 68,400 *
Bradley A. Berg(15).............................. 52,000 *
Pamela J. Hinckley(16)........................... 49,140 *
All executive officers and directors as a group
(13 individuals)(17)........................... 1,518,497 19.8%
</TABLE>
- ---------------
* Less than 1%.
(1) Includes shares of Common Stock subject to options currently exercisable or
exercisable within 60 days of March 16, 1998. Shares subject to an option
are not deemed outstanding for purposes of computing the percentage
ownership of any person other than the person holding the option.
4
<PAGE> 7
(2) Includes 1,289,872 shares of Common Stock issuable upon conversion of
Series B Preferred Stock. Such Series B Preferred shares are not deemed
outstanding for purposes of computing the percentage ownership of Common
Stock of any person other than Busch Investment Corporation, a wholly-owned
subsidiary of A-B.
(3) GE Capital Redhook Investment Corp. is a wholly-owned subsidiary of General
Electric Capital Corporation.
(4) The address for Messrs. Shipman, Jones and Bowker is c/o Redhook Ale
Brewery, Incorporated, 3400 Phinney Avenue North, Seattle, Washington
98103.
(5) Includes 84,000 shares subject to options exercisable within 60 days of
March 16, 1998, and 13,300 shares held by Mr. Shipman's children. Excludes
9,600 shares held by the estate of Mr. Shipman's mother.
(6) Includes 10,000 shares held by Mr. Jones as trustee for his child.
(7) Includes 14,857 shares subject to options exercisable within 60 days of
March 16, 1998.
(8) Includes 14,857 shares subject to options exercisable within 60 days of
March 16, 1998, 33,436 shares held by Mr. Clement's spouse and 30,430
shares held by Mr. Clement as trustee for his children.
(9) Includes 10,857 shares subject to options exercisable within 60 days of
March 16, 1998.
(10) Includes 10,757 shares subject to options exercisable within 60 days of
March 16, 1998.
(11) Includes 10,000 shares subject to options exercisable within 60 days of
March 16, 1998. Does not include 32,643 shares owned by Fluke Capital
Management, L.P., of which Mr. Weston is the President of the Venture
Capital Division. Mr. Weston disclaims beneficial ownership of such shares.
(12) Includes 2,000 shares subject to options exercisable within 60 days of
March 16, 1998.
(13) Includes 29,400 shares subject to options exercisable within 60 days of
March 16, 1998.
(14) Includes 26,400 shares subject to options exercisable within 60 days of
March 16, 1998.
(15) Includes 47,000 shares subject to options exercisable within 60 days of
March 16, 1998.
(16) Includes 44,400 shares subject to options exercisable within 60 days of
March 16, 1998.
(17) Includes 309,385 shares subject to options exercisable within 60 days of
March 16, 1998.
The following table sets forth, as of March 16, 1998, certain information
regarding beneficial ownership of the Company's Series B Preferred Stock. The
Series B Preferred Stock has voting rights and is convertible into an equivalent
number of shares of the Company's Common Stock at any time. If all of the Series
B Preferred Stock were converted as of March 16, 1998, it would represent 14.4%
of the post-conversion outstanding Common Stock. The named beneficial owner has
sole voting and investment power.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENT OF
SERIES B PREFERRED STOCK SERIES B PREFERRED STOCK
NAME AND ADDRESS BENEFICIALLY OWNED OUTSTANDING
---------------- ------------------------ ------------------------
<S> <C> <C>
Busch Investment Corporation............... 1,289,872 100.0%
One Busch Place
St. Louis, Missouri 63118
</TABLE>
5
<PAGE> 8
CERTAIN TRANSACTIONS
The Company has adopted a policy of not engaging in business transactions
with its officers, directors and affiliates except upon terms that are deemed to
be fair and reasonable by a majority of the Company's disinterested directors.
In October 1994, the Company entered into an alliance with Anheuser-Busch,
Inc. ("A-B") (the "Alliance") consisting of a long-term distribution agreement
(the "A-B Distribution Agreement") and an investment in the Company (the "A-B
Investment Agreement"). The A-B Investment Agreement contains provisions under
which related-party transactions are generally permitted only pursuant to the
reasonable demands of the Company's business and upon fair and reasonable terms
no less favorable to the Company than would be obtained in a comparable
arm's-length transaction with an unrelated party. Sales through A-B under the
A-B Distribution Agreement totaled $27.7 million in 1997, net of an Alliance fee
of approximately 2% of sales through A-B. Other Alliance fees paid by the
Company to A-B totaled $191,000 in 1997. In addition, the Company purchased
certain materials through A-B totaling $2.4 million in 1997.
Pursuant to an agreement between the Company and GE Capital Redhook
Investment Corp. ("GE Capital"), dated July 25, 1995, in connection with the
termination of the rights of certain shareholders to designate Board members, GE
Capital has the right to designate one nominee for election to the Company's
Board of Directors, so long as GE Capital owns at least 500,000 shares of Common
Stock. GE Capital did not exercise this right in 1998. In addition, the Company
entered into a registration rights agreement obligating it, under certain
circumstances, to effect the registration under the Securities Act of 1933, as
amended, of the Common Stock issued in August 1995, upon conversion of the
Series A Preferred Stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), requires that the Company's officers and directors, and persons
who own more than ten percent of a registered class of the Company's equity
securities, file reports of ownership and changes of ownership with the
Securities and Exchange Commission (the "SEC"). Officers, directors and greater
than ten percent shareholders are required by SEC regulation to furnish the
Company with copies of all such reports they file.
Based solely on its review of the copies of such reports received by the
Company, and on written representations by the Company's officers and directors
regarding their compliance with the applicable reporting requirements under
Section 16(a) of the Exchange Act, the Company believes that, with respect to
its fiscal year ended December 31, 1997, all filing requirements applicable to
its officers and directors, and all of the persons known to the Company to own
more than ten percent of its Common Stock were complied with by such persons.
6
<PAGE> 9
EXECUTIVE COMPENSATION
EXECUTIVE OFFICER COMPENSATION
COMPENSATION SUMMARY. The following table sets forth information regarding
compensation earned during the Company's fiscal years ended December 31, 1997,
1996 and 1995 by the Chief Executive Officer and the other executive officers
whose total annual salary and bonus for the fiscal year ended December 31, 1997,
exceeded $100,000 (the "named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-----------------
ANNUAL COMPENSATION SECURITIES
NAME AND FISCAL -------------------------------------- UNDERLYING
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OTHER(1) STOCK OPTIONS(#)
------------------ ------ ---------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Paul S. Shipman............................ 1997 $180,000 $ -- $22,000 50,000
President, Chief Executive Officer and 1996 168,750 -- 18,674 --
Chairman of the Board of Directors 1995 155,990 54,688 6,000 25,000
Bradley A. Berg............................ 1997 144,500 -- 20,164 30,000
Executive Vice President 1996 135,000 -- 19,783 --
and Chief Financial Officer 1995 119,792 43,750 4,250 12,500
David J. Mickelson......................... 1997 120,000 -- 19,186 30,000
Executive Vice President 1996 112,000 -- 18,863 --
and Chief Operating Officer 1995 100,875 35,700 5,418 12,500
Pamela J. Hinckley......................... 1997 107,500 -- 16,287 20,000
Vice President, Sales and Marketing 1996 100,000 -- 15,986 --
1995 91,292 32,200 4,911 10,000
Allen L. Triplett.......................... 1997 107,500 -- 16,092 20,000
Vice President, Brewing 1996 100,000 -- 15,986 --
1995 91,292 32,200 4,911 10,000
</TABLE>
- ---------------
(1) Represents the Company's matching contribution under the 401(k) Plan in each
year and, beginning in 1996, includes auto allowance or imputed income
related to company-provided car totaling between $12,000 and $15,600 per
officer.
7
<PAGE> 10
OPTION GRANTS. The following table sets forth information on stock options
granted to the named executive officers during the Company's fiscal year ended
December 31, 1997.
OPTION GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE AT
NUMBER OF TOTAL ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF STOCK PRICE
UNDERLYING GRANTED EXERCISE APPRECIATION FOR OPTION TERM(2)
OPTIONS TO EMPLOYEES PRICE EXPIRATION ---------------------------------
GRANTED(1)($) IN FISCAL YEAR ($ PER SHARE) DATE 0% 5% 10%
------------- -------------- -------------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Paul S. Shipman....... 50,000 18.5% $10.125 2/4/07 $ 0 $318,000 $807,000
Bradley A. Berg....... 30,000 11.1 $10.125 2/4/07 0 191,000 484,000
David J. Mickelson.... 30,000 11.1 $10.125 2/4/07 0 191,000 484,000
Pamela J. Hinckley.... 20,000 7.4 $10.125 2/4/07 0 127,000 323,000
Allen L. Triplett..... 20,000 7.4 $10.125 2/4/07 0 127,000 323,000
</TABLE>
- ---------------
(1) These options were granted at fair market value on the date of grant and
vest over five years with 20% of each grant becoming exercisable annually on
the anniversary date of grant. Each option has a maximum term of ten years
and options terminate: (a) six months after termination of employment
following death or disability; (b) three months after termination of
employment without cause; and (c) immediately after termination of
employment for cause. Under the 1992 Stock Option Plan, the Board of
Directors retains the discretion to modify the terms, including the price
and vesting, of outstanding options. Certain changes in control of the
Company can trigger accelerated vesting of stock options.
(2) Potential realizable value is based on the assumption that the Common Stock
of the Company appreciates at the annual rate shown (compounded annually)
from the date of grant until the expiration of the 10 year option term.
These numbers are calculated based on the requirements promulgated by the
SEC and do not reflect the Company's estimate of future stock price growth.
FISCAL YEAR END OPTIONS. The following table shows information concerning
the number and value of unexercised options held by the named executive officers
on December 31, 1997. No options were exercised by the named executive officers
during the Company's fiscal year ended December 31, 1997.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END(#) AT FISCAL YEAR-END(1)($)
----------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C>
Paul S. Shipman...... 74,000 81,000 $ -0- $-0-
Bradley A. Berg...... 41,000 61,500 -0- -0-
David J. Mickelson... 23,400 39,100 23,040 -0-
Pamela J. Hinckley... 40,400 27,600 86,340 -0-
Allen L. Triplett.... 22,400 27,600 23,040 -0-
</TABLE>
- ---------------
(1) Represents the aggregate fair market value on December 31, 1997, of the
shares of Common Stock subject to outstanding options, less the aggregate
exercise price of such options. There is no guarantee that if and when these
options are exercised they will have this value.
8
<PAGE> 11
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
composed exclusively of directors who are neither employees nor eligible to
participate in any of the Company's executive compensation programs.
The Committee is responsible for establishing and administering the overall
compensation policies applicable to the Company's senior management. The
Committee is also responsible for establishing the general policies applicable
to the granting, vesting and other terms of stock options granted to employees
under the Company's stock option plan, and for determining the size and terms of
the option grants made to the Company's executive officers, among others.
The Committee views its charter as being to insure that the Company's
officer compensation programs are structured and implemented in a manner that
recognizes the Company's need to attract and retain the caliber of executives
and other key employees required for the Company to compete in a highly
competitive and rapidly evolving business sector, while also recognizing and
emphasizing the importance and value of achieving targeted performance
objectives and enhancing long-term shareholder value.
Under the Company's executive compensation programs, there are three
primary components to an executive's compensation: base salary, an annual
incentive payment, and long-term incentives in the form of stock options. The
base salary for a particular executive is determined in the first instance by
comparison to the existing executive salary structure within the Company, as
well as comparison to compensation paid to executives of comparably sized and
situated craft beer companies and other similarly-sized public companies. Annual
incentive payments are based on the executive team accomplishments and the
Company's results for the year relative to financial and operational objectives
set at the beginning of the year and other relevant and significant
accomplishments during the year. Annual bonus payments under the incentive plan
are generally computed as a percentage of the executive's base salary, with the
actual percentages being a function of the extent to which goals were achieved
as well as other significant accomplishments. Finally, the Company provides
long-term incentives to executives through the annual grant of stock options.
The options generally vest over five years and have an exercise price equal to
the fair market value of the Company's stock at the time of the grant, with the
number of options awarded based on the executive's position. Since fair market
value stock options can only produce value to an executive if the price of the
Company's stock increases above the exercise price, these option grants provide
a direct link between executive compensation and the Company's stock price
performance. The Committee believes that stock options directly motivate an
executive to maximize long-term shareholder value. The options also utilize
vesting periods that encourage key executives to continue in the employ of the
Company.
The Committee met on February 5, 1997 and November 17, 1997 and considered
the financial results for the year relative to sales and earnings goals for the
Company and also considered other significant operational and financial
achievements. After full consideration, the Committee decided to not pay out a
bonus for any executive officer due to shortfalls from sales and earnings goals,
and the Company's stock price performance.
The Committee currently consists of Messrs. Carleton, Clement, Jones and
Sandison.
Compensation Committee
John T. Carleton
Frank H. Clement
Jerry D. Jones
Bruce M. Sandison
9
<PAGE> 12
COMPARATIVE PERFORMANCE GRAPH
Set forth below is a graph comparing the cumulative total return to
shareholders on the Company's Common Stock with the cumulative total return of
the Russell 2000 Index and an index comprised of four other publicly-traded
craft beer companies (the "Peer Group") for the period beginning on August 16,
1995, the date of the Company's initial public offering (the "Offering"), and
ended on December 31, 1997.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG REDHOOK ALE BREWERY, INCORPORATED COMMON STOCK,
THE RUSSELL 2000 INDEX AND
THE COMPANY'S PEER GROUP INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD PEER GROUP
(FISCAL YEAR COVERED) REDHOOK RUSSELL 2000 INDEX
<S> <C> <C> <C>
8/16/95 100 100 100
12/31/95 153 105 126
12/31/96 57 120 57
12/31/97 31 145 38
</TABLE>
The Company's Peer Group is comprised of four publicly-traded craft beer
companies. Three of the four companies in the Peer Group completed initial
public offerings subsequent to the Company's initial public offering on August
16, 1995, and are therefore added to the Peer Group return computation as of the
date and at the per share price at which their respective offerings were
effective. As required, the returns of each of the component companies in the
Peer Group return are calculated and weighted according to their respective
market capitalization at the beginning of the period that they entered the Peer
Group return calculation. The Peer Group is composed of: Big Rock Brewery
(NASDAQ: BEERF) beginning August 16, 1995 at $9.75 per share; Pete's Brewing
(NASDAQ: WIKD) beginning November 6, 1995 at $18 per share; Boston Beer Company
(NYSE: SAM) beginning November 20, 1995 at $20 per share; and Pyramid Brewing
(formerly Hart Brewing) (NASDAQ: PMID) beginning December 13, 1995 at $19 per
share.
The total return on the Company's Common Stock, the Russell 2000 Index and
the Peer Group Index assumes the value of each investment was $100 on August 16,
1995, and that any dividends were reinvested. Return information is historical
and not necessarily indicative of future performance.
10
<PAGE> 13
EXECUTIVE OFFICER EMPLOYMENT AGREEMENTS
Each of Messrs. Shipman, Berg, Mickelson and Triplett, and Ms. Hinckley has
executed an agreement containing confidentiality restrictions, as well as
certain provisions regarding noncompetition during his or her term of employment
with the Company. The Company provides each of its executive officers with an
annual compensation plan under which they receive a specified minimum salary
plus additional cash and stock-based incentives depending on attainment of
various performance goals.
Mr. Shipman's current employment agreement expires September 30, 2001,
subject to earlier termination by the Company with or without cause. The
agreement provides for a minimum base salary of the greater of $150,000, or an
amount that is 25% more than the next highest paid officer. Mr. Shipman is also
eligible for bonuses based on the Company's achieving certain net income goals,
and other performance measures. If terminated by the Company without cause, the
agreement provides that Mr. Shipman will receive his annual base compensation
for the remainder of the agreement's term or two years, whichever is shorter.
The agreement further provides that Mr. Shipman is prohibited from divulging
confidential information and competing with the Company following termination of
the agreement for two years, or until September 30, 2001, whichever occurs
sooner.
Effective December 31, 1997, the Company renewed employment agreements with
Messrs. Berg, Mickelson and Triplett and Ms. Hinckley. These agreements expire
December 31, 1999, subject to earlier termination by the Company with or without
cause. The agreements provide the officers with the following minimum base
salaries: Mr. Berg $144,500; Mr. Mickelson $120,000; Mr. Triplett $107,500; and
Ms. Hinckley $107,500. These officers are also eligible for bonuses dependent on
the Company's achieving certain goals, and other performance measures. If
terminated by the Company without cause, the agreements provide that each
officer will receive his or her annual base compensation for up to two years
from the date that notice of employment termination is received, subject to
certain conditions. The agreements also provide that the officers are prohibited
from divulging confidential information and from competing with the Company for
two years following termination of employment.
PROPOSAL 1 -- ELECTION OF DIRECTORS
Nine directors are to be elected at the annual meeting, to serve until the
next Annual Meeting of Shareholders or until their earlier retirement,
resignation or removal. Paul S. Shipman, Gordon A. Bowker, John T. Carleton,
Frank H. Clement, David R. English, Jerry D. Jones, Bruce M. Sandison, Walter F.
Walker and Dennis P. Weston, all of whom are currently directors of the Company,
have been nominated by the Board of Directors for election at the annual
meeting. The accompanying proxy will be voted for these nominees, except where
authority to so vote is withheld. Should any nominee be unable to serve, the
proxy will be voted for such person as is designated by the Board of Directors.
Pursuant to an agreement between the Company and GE Capital, GE Capital has the
right to designate one nominee for election to the Company's Board of Directors,
so long as GE Capital owns at least 500,000 shares of Common Stock. GE Capital
did not exercise this right in 1998.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES NAMED IN
PROPOSAL 1.
11
<PAGE> 14
PROPOSAL 2 -- APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of Ernst & Young LLP as
independent auditors for the Company's fiscal year ending December 31, 1998.
This firm has audited the accounts of the Company since 1991. The firm performed
audit services in connection with the examination of the financial statements of
the Company for its fiscal year ended December 31, 1997. In addition, the firm
has rendered other services, including the review of financial statements and
related information in various registration statements and filings with the SEC.
If this proposal does not receive the affirmative approval of a majority of
the votes cast on the proposal, the Board of Directors will reconsider the
appointment. Representatives of Ernst & Young LLP will be present at the annual
meeting, will have the opportunity to make a statement if they desire to do so,
and will be available to respond to appropriate questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
An eligible shareholder who desires to have a qualified proposal considered
for inclusion in the proxy statement prepared in connection with the Company's
1999 Annual Meeting of Shareholders must deliver a copy of the proposal to the
Secretary of the Company, at the Company's principal executive offices, no later
than December 1, 1998.
The Company's Restated Bylaws outline procedures, including minimum notice
provisions, that govern the nomination of directors by shareholders and certain
other matters that a shareholder proposes to bring before the annual meeting. A
copy of the pertinent provisions of the Restated Bylaws is available upon
request to Bradley A. Berg, Redhook Ale Brewery, Incorporated, 3400 Phinney
Avenue North, Seattle, Washington 98103.
IT IS IMPORTANT THAT PROXIES ARE RETURNED PROMPTLY AND THAT YOUR SHARES ARE
REPRESENTED. SHAREHOLDERS ARE URGED TO MARK, SIGN AND DATE THE ENCLOSED PROXY
CARD AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
REDHOOK ALE BREWERY, INCORPORATED
April 6, 1998
Seattle, Washington
12
<PAGE> 15
PROXY
REDHOOK ALE BREWERY, INCORPORATED
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, having received the Notice of Annual Meeting of
Shareholders of Redhook Ale Brewery, Incorporated (the "Company"), and the
related Proxy Statement dated April 6, 1998, hereby appoints Paul S. Shipman and
Bradley A. Berg, and each of them, proxies for the undersigned, with full power
of substitution, and authorizes them to attend the Annual Meeting of
Shareholders of the Company on May 19, 1998, and any adjournments thereof, and
to vote thereat all shares of Common Stock of the Company that the undersigned
would be entitled to vote if personally present, such proxies being instructed
to vote as specified below, or, to the extent not specified, to vote FOR the
election as directors of all nominees named below and FOR Proposal 2 and to vote
in their discretion on any other matters presented at the meeting or any
adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER SPECIFIED
ON THE REVERSE BY THE UNDERSIGNED. EXCEPT AS OTHERWISE SPECIFIED, THIS PROXY
WILL BE VOTED FOR THE ELECTION AS DIRECTORS OF ALL NOMINEES NAMED ON THE REVERSE
SIDE AND FOR THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT
AUDITORS.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
- FOLD AND DETACH HERE -
<PAGE> 16
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF THE NOMINEES
NAMED BELOW AND FOR PROPOSAL 2.
Please mark
your votes as
indicated in
this example.
/X/
PROPOSAL 1: ELECTION OF DIRECTORS FOR WITHHOLD
authority to vote
for all nominees
named below
[ ] [ ]
Nominees: Paul S. Shipman, Gordon A. Bowker,
John T. Carleton, Frank H. Clement,
David R. English, Jerry D. Jones, Bruce M. Sandison,
Walter F. Walker and Dennis P. Weston.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST ABOVE).
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF FOR AGAINST ABSTAIN
INDEPENDENT AUDITORS [ ] [ ] [ ]
PLEASE SIGN AND DATE THIS PROXY CARD AND RETURN IT PROMPTLY
IN THE ENCLOSED ENVELOPE.
Signature__________________________________________________
Signature, if held jointly_________________________________
Dated:_______________________________________________, 1998
Please sign name exactly as it appears hereon. If shares are held by joint
tenants, both should sign. When signing as an attorney, executor, administrator,
trustee, or guardian, please give full title as such.
- FOLD AND DETACH HERE -
