<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
COMMISSION FILE NUMBER 0-26542
---------------------------
REDHOOK ALE BREWERY, INCORPORATED
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1141254
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3400 PHINNEY AVENUE NORTH 98103-8624
SEATTLE, WASHINGTON
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 548-8000
Indicate by check mark whether the registrant (1) has 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
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Common stock, par value $.005 per share: 7,687,486 shares outstanding
as of March 31, 1999.
Page 1 of 14 sequentially numbered pages
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REDHOOK ALE BREWERY, INCORPORATED
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Balance Sheets
March 31, 1999 and December 31, 1998 ......................... 3
Statements of Operations
Three Months Ended March 31, 1999 and 1998.................... 4
Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998.................... 5
Notes to Financial Statements..................................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................ 8
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K..................................... 13
</TABLE>
2
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PART I.
ITEM 1. FINANCIAL STATEMENTS
REDHOOK ALE BREWERY, INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents ............................................ $ 3,329,964 $ 3,010,448
Accounts Receivable .................................................. 1,688,358 1,525,708
Inventories .......................................................... 2,525,934 2,267,410
Income Taxes Receivable .............................................. 469,882 469,272
Other ................................................................ 364,349 303,623
----------- -----------
Total Current Assets ............................................... 8,378,487 7,576,461
Fixed Assets, Net ...................................................... 79,621,730 80,211,312
Assets Held for Sale ................................................... 721,963 1,105,475
Other Assets ........................................................... 636,217 634,781
----------- -----------
Total Assets ..................................................... $89,358,397 $89,528,029
=========== ===========
LIABILITIES, PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable ..................................................... $ 2,680,884 $ 2,231,602
Accrued Salaries, Wages and Payroll Taxes ............................ 1,319,775 1,451,936
Refundable Deposits .................................................. 1,323,036 1,310,366
Other Accrued Expenses ............................................... 478,905 466,734
Current Portion of Long-Term Debt .................................... 450,000 450,000
----------- -----------
Total Current Liabilities .......................................... 6,252,600 5,910,638
----------- -----------
Long-Term Debt, Net of Current Portion ................................. 7,762,500 7,875,000
----------- -----------
Deferred Income Taxes .................................................. 2,263,487 2,405,889
----------- -----------
Convertible Redeemable Preferred Stock ................................. 16,021,755 16,010,655
----------- -----------
Common Stockholders' Equity:
Common Stock, Par Value $0.005 per Share, Authorized, 50,000,000
Shares; Issued and Outstanding, 7,687,486 Shares in 1999 and 1998... 38,438 38,438
Additional Paid-In Capital ........................................... 56,888,633 56,888,633
Retained Earnings .................................................... 130,984 398,776
----------- -----------
Total Common Stockholders' Equity ................................ 57,058,055 57,325,847
----------- -----------
Total Liabilities, Preferred Stock and
Common Stockholders' Equity .................................. $89,358,397 $89,528,029
=========== ===========
</TABLE>
See Accompanying Notes
3
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REDHOOK ALE BREWERY, INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Sales .......................................... $ 7,674,896 $ 8,504,610
Less Excise Taxes .............................. 702,647 809,623
----------- -----------
Net Sales ...................................... 6,972,249 7,694,987
Cost of Sales .................................. 5,100,069 6,140,847
----------- -----------
Gross Profit ................................... 1,872,180 1,554,140
Selling, General and Administrative Expenses ... 2,172,419 2,329,186
----------- -----------
Operating Income (Loss) ........................ (300,239) (775,046)
Interest Expense ............................... 130,418 181,458
Other Income-- Net ............................. 35,745 15,300
----------- -----------
Income (Loss) before Income Taxes .............. (394,912) (941,204)
Income Tax Expense (Benefit) ................... (138,220) (225,888)
----------- -----------
Net Income (Loss) .............................. $ (256,692) $ (715,316)
=========== ===========
Basic Earnings (Loss) per Share ................ $ (0.03) $ (0.09)
=========== ===========
Diluted Earnings (Loss) per Share .............. $ (0.03) $ (0.09)
=========== ===========
</TABLE>
See Accompanying Notes
4
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REDHOOK ALE BREWERY, INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
------------ ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Loss ............................................. $ (256,692) $(715,316)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operating Activities:
Depreciation and Amortization .................... 813,189 906,085
Deferred Income Tax Provision .................... (142,402) 142,161
Net Change in Operating Assets and Liabilities ... (52,772) (56,884)
----------- ---------
Net Cash Provided by Operating Activities ............ 361,323 276,046
----------- ---------
INVESTING ACTIVITIES
Expenditures for Fixed Assets ........................ (284,138) (266,725)
Proceeds from Sale of Assets and Other ............... 354,831 --
----------- ---------
Net Cash Provided by (Used in) Investing Activities .. 70,693 (266,725)
----------- ---------
FINANCING ACTIVITIES
Repayments on Debt ................................... (112,500) (146,654)
Officer Note Repayment and Other, Net ................ -- 83,000
----------- ---------
Net Cash Used in Financing Activities ................ (112,500) (63,654)
----------- ---------
Increase (Decrease) in Cash and Cash Equivalents ..... 319,516 (54,333)
Cash and Cash Equivalents:
Beginning of Year .................................. 3,010,448 892,165
----------- ---------
End of Period ...................................... $ 3,329,964 $ 837,832
=========== =========
</TABLE>
See Accompanying Notes
5
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REDHOOK ALE BREWERY, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying financial statements and related notes should be read
in conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K. The accompanying financial statements
include the accounts of Redhook Ale Brewery, Incorporated (the "Company") and
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. These financial statements are unaudited and condensed, and
do not contain all of the information required by generally accepted accounting
principles to be included in a full set of financial statements. In the opinion
of management, all material adjustments necessary to present fairly the
financial position, results of operations and cash flows of the Company, for the
periods presented, have been made. All such adjustments were of a normal,
recurring nature. The results of operations for such interim periods are not
necessarily indicative of the results of operations for the full year.
2. EARNINGS (LOSS) PER SHARE
The calculation of adjusted weighted-average shares outstanding for
purposes of computing diluted earnings per share includes the dilutive effect of
all outstanding convertible redeemable preferred stock and outstanding stock
options for the periods in which the Company reports net income. The calculation
uses the treasury stock method in determining the resulting incremental average
equivalent shares outstanding when they are dilutive.
The following table sets forth the computation of basic and diluted
earnings (loss) per common share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Basic earnings (loss) per share computation:
Numerator:
Net income (loss) ............................ $ (256,692) $ (715,316)
----------- -----------
Denominator:
Weighted-average common shares ............... 7,687,486 7,687,486
----------- -----------
Basic earnings (loss) per share .......... $ (0.03) $ (0.09)
=========== ===========
Diluted earnings (loss) per share computation:
Numerator:
Net income (loss) ............................ $ (256,692) $ (715,316)
----------- -----------
Denominator:
Weighted-average common shares ............... 7,687,486 7,687,486
----------- -----------
Diluted earnings (loss) per share ...... $ (0.03) $ (0.09)
=========== ===========
</TABLE>
6
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REDHOOK ALE BREWERY, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------- ----------
<S> <C> <C>
Finished goods ........................... $1,075,659 $ 862,246
Raw materials ............................ 911,928 998,133
Promotional merchandise .................. 280,407 222,042
Packaging materials ...................... 257,940 184,989
---------- ----------
$2,525,934 $2,267,410
========== ==========
</TABLE>
Finished goods include beer held in fermentation prior to the filtration
and packaging process.
4. ASSETS HELD FOR SALE
In January 1998, production at the Fremont Brewery was significantly
reduced and the brewery served as a backup facility to the Woodinville Brewery.
During the quarter ended June 30, 1998, the Company analyzed its current and
future production capacity requirements and its plans for the Fremont Brewery
production assets. Based upon that analysis, the Company decided to permanently
curtail the Fremont Brewery operations and sell substantially all of those
production assets. In accordance with FASB Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
("Statement 121"), the Fremont production assets were written down to an
estimate of their net realizable value in the quarter ended June 30, 1998. The
write-down was recorded through a non-cash valuation provision totaling $5.2
million. The special valuation provision, net of the related income tax benefit,
totaled $3.4 million.
The assets are presented as Assets Held for Sale on the balance sheet as
of March 31, 1999, at their estimated fair market value of $722,000. The Company
has received deposits on substantially all of the remaining equipment and
currently expects to sell that equipment during 1999 for an amount approximately
equal to its estimated net realizable value.
The special valuation provision and the related assets held for sale
were recorded in the three-month period ended June 30, 1998, as follows:
<TABLE>
<S> <C>
Brewery equipment ............................................. $ 8,577,598
Building ...................................................... 1,068,824
-----------
9,646,422
Less accumulated depreciation and amortization ................ (3,389,772)
-----------
Net book value ................................................ 6,256,650
Estimated net realizable value of Assets Held for Sale ........ (1,184,000)
-----------
Estimated impairment .......................................... 5,072,650
Reserve for disposal related costs ............................ 100,000
-----------
Special Valuation Provision ................................... 5,172,650
Income tax benefit ............................................ (1,810,428)
-----------
Special Valuation Provision, net of income tax benefit ........ $ 3,362,222
===========
</TABLE>
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's Financial Statements and Notes thereto included herein.
OVERVIEW
Since its formation, the Company has focused its business activities on
the brewing, marketing and selling of craft beers. For the three months ended
March 31, 1999, the Company had gross sales of $7,675,000, a decrease of 9.8%
from the three months ended March 31, 1998. The Company believes that
period-to-period comparisons of its financial results should not be relied upon
as an accurate indicator of future performance. The Company's sales consist
predominantly of sales of beer to third-party distributors and Anheuser-Busch,
Inc. ("A-B") through the Distribution Alliance. In addition, the Company derives
other revenues from the sale of beer, food, apparel and other retail items in
its brewery pubs. The Company is required to pay Federal and certain state
excise taxes on sales of its beer. The Federal excise tax burden on beer sales
increases from $7 to $18 per barrel on annual production over 60,000 barrels and
thus, if sales volume increases, federal excise taxes would increase as a
percentage of sales.
The Company's sales volume declined 11.9% to 43,100 barrels for the
three months ended March 31, 1999, compared to 48,900 barrels in the same period
in 1998. In addition to the level of consumer demand in existing markets, the
Company's sales are also affected by other factors such as competitive
considerations, including the increased number of craft brewers and promotional
pricing, the opening of new distribution territories and new product
introductions. Sales in the craft beer industry generally reflect a degree of
seasonality, with the first and fourth quarters historically being the slowest
and the rest of the year typically demonstrating relatively stronger sales. The
Company has historically operated with little or no backlog, and its ability to
predict sales for future periods is limited.
Under normal circumstances, the Company generally operates its brewing
facilities up to five days per week, two shifts per day. The Company has
increased its company-wide annual production capacity from approximately 3,000
barrels at its first brewery in the Ballard neighborhood of Seattle in 1982 to
approximately 350,000 barrels as of March 31, 1999, after the 75,000 barrel
decrease related to the Fremont Brewery (see discussion below). Production
capacity of each facility is added in phases until the facility reaches its
maximum designed production capacity. The timing of each phase is affected by
the availability of capital, construction constraints and anticipated sales in
new and existing markets. The Portsmouth, New Hampshire brewery began commercial
production during October 1996. The Portsmouth Brewery's current production
capacity is approximately 100,000 barrels per year, and its maximum designed
production capacity is approximately 250,000 barrels per year. Additional
capital expenditures and production personnel will be required to bring the
Portsmouth Brewery to its maximum designed capacity.
The Company's maximum designed production capacity at March 31, 1999,
totaled 500,000 barrels per year. The Company's capacity utilization has a
significant impact on gross profit. When facilities are operating at their
maximum designed production capacities, profitability is favorably affected by
spreading fixed and semivariable operating costs, such as depreciation and
production salaries, over a larger sales base. Most capital costs associated
with building a new brewery, and fixed and semivariable costs related to
operating a new brewery, are incurred prior to, or upon commencement of,
production at a facility. Because the actual production level may be
substantially below the facility's maximum designed production capacity, gross
margins are negatively impacted. This impact is reduced when actual production
levels increase.
In January 1998, production at the Fremont Brewery was significantly
reduced, and the brewery served as a backup facility to the Woodinville Brewery.
During the quarter ended June 30, 1998, the Company analyzed its current and
future production capacity requirements and its plans for the Fremont Brewery
production assets. Based upon that analysis, the Company decided to permanently
curtail the Fremont Brewery operations and sell substantially all of those
production assets. In compliance with Statement 121, the Fremont production
assets were written down to an estimate of their net realizable value in the
quarter ended June 30, 1998. The
8
<PAGE> 9
write-down was recorded through a non-cash valuation provision totaling $5.2
million. The special valuation provision, net of the related income tax benefit,
totaled $3.4 million.
In addition to capacity utilization, the Company expects other factors
to influence profit margins, including higher costs associated with the
development of new distribution territories, such as increased shipping,
marketing and sales personnel costs; fees related to the distribution agreement
with A-B; changes in packaging and other material costs; and changes in product
sales mix. The incremental cost of shipping beer from the Company's breweries
will increase if the volume of beer supplied to more distant markets increases.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Certain Considerations: Issues and Uncertainties."
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
items from the Company's Statements of Operations expressed as a percentage of
net sales.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1999 1998
----- -----
<S> <C> <C>
Sales ................................................ 110.1% 110.5%
Less Excise Taxes .................................... 10.1 10.5
----- -----
Net Sales ............................................ 100.0 100.0
Cost of Sales ........................................ 73.1 79.8
----- -----
Gross Profit ......................................... 26.9 20.2
Selling, General and Administrative Expenses ......... 31.2 30.3
----- -----
Operating Income (Loss) .............................. (4.3) (10.1)
Interest Income (Expense)-- Net ...................... (1.4) (2.1)
----- -----
Income (Loss) Before Income Taxes .................... (5.7) (12.2)
Provision (Benefit) for Income Taxes ................. (2.0) (2.9)
===== =====
Net Income (Loss) .................................... (3.7)% (9.3)%
===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Sales. Total sales decreased 9.8% to $7,675,000 in the first quarter of
1999, compared to $8,505,000 in first quarter 1998, primarily due to an 11.9%
decrease in total sales volume. Total sales volumes in the 1999 first quarter
decreased to 43,100 barrels from 48,900 barrels in 1998 first quarter. West
Coast sales decreased 13.6% for the same period, including a 13.2% decline in
Washington State, the Company's largest market. The competitive landscape has
been affected by the increase in the number of craft beer companies and the
number of different products they offer, as well as increased competition from
imported beers. Sales other than wholesale beer sales, primarily retail pub
revenues, totaled $701,000 in the three months ended March 31, 1999, compared to
$690,000 in comparable 1998 period. At March 31, 1999 and 1998, the Company's
products were distributed in 48 states.
Excise Taxes. Excise taxes paid on barrels sold decreased to $703,000,
or 10.1% of net sales in the 1999 first quarter, compared to $810,000, or 10.5%
of net sales in the 1998 first quarter.
Cost of Sales. Cost of sales decreased to $5,100,000 in the first three
months of 1999, compared to $6,141,000 in comparable 1998 period, primarily due
to the lower sales volume, decreased packaging costs and the positive effect of
curtailing production at the Fremont Brewery. Cost of sales, as a percentage of
net sales, decreased to 73.1% in the first quarter of 1999, compared to 79.8% in
first quarter 1998. The combined utilization rate of maximum designed capacity
for the operating breweries was 34.5% and 34.0% for quarters ended March 31,
1999 and 1998, respectively. The slight increase reflects the Fremont Brewery
shutdown in the first half of 1998, offset partially by lower total volume.
9
<PAGE> 10
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $2,172,000 in the 1999 first quarter,
compared to $2,329,000 in the 1998 first quarter due primarily to cost saving
measures that reduced sales and marketing costs. As a percentage of net sales,
these expenses were 31.2% and 30.3% for three months ended March 31, 1999 and
1998, respectively. The Company expects these costs to increase significantly,
beginning in the three-month period ended June 30, 1999, due to the undertaking
of an aggressive advertising and promotional program in certain of its markets.
Interest Expense. Interest expense totaled $130,000 for the first
quarter of 1999, compared to $181,000 for the comparable 1998 period, reflecting
lower outstanding debt and lower interest rates.
Other Income -- Net. Other income -- net, increased to $36,000 in the
1999 first quarter, compared to $15,000 in 1998 first quarter. The increase was
due to an increase in the average balance of interest-bearing deposits in 1999.
Income Taxes. The Company's effective income tax rate increased to a 35%
benefit for the first quarter of 1999 from a 24% benefit for the first quarter
of 1998. The difference between the 1999 and 1998 effective rates is primarily
the result of higher pre-tax losses expected in 1999, relative to other
components of the tax provision calculation, such as the exclusion of a portion
of meals and entertainment expenses from tax return deductions.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $3,330,000 and $3,010,000 of cash and cash equivalents
at March 31, 1999 and December 31, 1998, respectively. At March 31, 1999, the
Company had working capital of $2,126,000. The Company's long-term debt as a
percentage of total capitalization (long-term debt, preferred stock and common
stockholders' equity) was 10.1% and 10.2% as of March 31, 1999 and December 31,
1998, respectively. Cash provided by operating activities totaled $361,000 and
$276,000 for the three months ended March 31, 1999 and 1998, respectively.
On June 5, 1997, the Company converted the $9 million outstanding
balance of its secured bank facility (the "Secured Facility") to a five-year
term loan with a 20-year amortization schedule. As of March 31, 1999, there was
$8.2 million outstanding on the Secured Facility, and the Company's one-month
IBOR-based borrowing rate was approximately 6.3%. In addition, the Company has a
$10 million revolving credit facility (the "Revolving Facility") with the same
bank through July 1, 2001, and as of March 31, 1999, there were no borrowings
outstanding on this facility. The Revolving Facility is secured with the same
assets that are collateral for the Secured Facility. Interest accrues at a
variable rate based on the Inter Bank Offered Rate ("IBOR"), plus 1.25% to 2.00%
for the Secured Facility, and plus 1.00% to 1.75% on the Revolving Facility,
depending on the Company's debt-to-tangible net worth ratio. The Company can fix
the rate by selecting IBOR for one- to twelve-month periods as a base. Beginning
June 6, 1999, the interest rate for the Revolving Facility will be the
applicable LIBOR plus 1.00% to 2.00%, depending on the Company's debt-to-cash
flow ratio.
The Company has required capital principally for the construction and
development of its technologically-advanced production facilities. To date, the
Company has financed its capital requirements through cash flow from operations,
bank borrowings and the sale of common and preferred stock. The Company expects
to meet its future financing needs, including the significant planned increase
in advertising expenditures, and working capital and capital expenditure
requirements, through cash on hand, operating cash flow, proceeds from the sale
of Assets Held for Sale and, to the extent required and available, bank
borrowings and offerings of debt or equity securities.
Capital expenditures for the first quarter of 1999 totaled $284,000.
Capital expenditures for 1999 are expected to total approximately $850,000.
10
<PAGE> 11
The Company has certain commitments, contingencies and uncertainties
relating to its normal operations. Management believes that any such
commitments, contingencies or uncertainties, including any environmental
uncertainties, will not have a material adverse effect on the Company's
financial position or results of operations.
CERTAIN CONSIDERATIONS: ISSUES AND UNCERTAINTIES
The Company does not provide forecasts of future financial performance
or sales volumes, although this Quarterly Report contains certain other types of
forward-looking statements that involve risks and uncertainties. The Company
may, in discussions of its future plans, objectives and expected performance in
periodic reports filed by the Company with the Securities and Exchange
Commission (or documents incorporated by reference therein) and in written and
oral presentations made by the Company, include forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, or
Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements are based on assumptions that the Company believes
are reasonable, but are by their nature inherently uncertain. In all cases,
there can be no assurance that such assumptions will prove correct or that
projected events will occur. Actual results could differ materially from those
projected depending on a variety of factors, including, but not limited to, the
issues discussed below, the successful execution of market development and other
plans and the availability of financing. While Company management is optimistic
about the Company's long-term prospects, the following issues and uncertainties,
among others, should be considered in evaluating its business prospects and any
forward-looking statements.
Effect of Competition on Future Sales. The domestic market in which the
Company's craft beers are sold is highly competitive due to the proliferation of
small craft brewers, including contract brewers, the increase in the number of
products offered by such brewers, the introduction of fuller-flavored products
by major national brewers and increased competition from imported beers. The
Company's revenue growth rate began to slow in late 1996, and sales declined in
1997, 1998 and in the first quarter of 1999, due primarily to slower sales in
the highly competitive draft beer market. If negative sales trends were to
continue, the Company's future sales and results of operations would be
adversely affected. The Company has historically operated with little or no
backlog and, therefore, its ability to predict sales for future periods is
limited.
Sales Prices. Future prices the Company charges for its products may
decrease from historical levels, depending on competitive factors in the
Company's various markets. The Company has participated in price promotions with
its wholesalers and their retail customers in most of its markets. The number of
markets in which the Company participates in price promotions and the frequency
of such promotions are expected to increase in the future.
Variability of Gross Margin and Cost of Sales. The Company anticipates
that its future gross margins will fluctuate and may decline as a result of many
factors, including disproportionate depreciation and other fixed and
semivariable operating costs, during periods when the Company's breweries are
producing below maximum designed production capacity. The Company's high level
of fixed and semivariable operating costs causes gross margin to be very
sensitive to relatively small increases or decreases in sales volume. In
addition, other factors that could affect cost of sales include changes in:
shipping costs, availability and prices of raw materials and packaging
materials, mix between draft and bottled product sales, and Federal or state
excise taxes. Also, as sales volumes through the Distribution Alliance increase,
the alliance fee, and other staging and administrative costs, would increase.
Advertising and Promotional Costs. While the Company has previously done
very limited advertising, based upon market and competitive considerations the
Company has determined that a significant increase in such spending is
appropriate. Accordingly, in 1999 the Company is undertaking a brand investment
program that will significantly increase advertising over the next year with the
objective of establishing momentum towards capturing a larger share of the
fragmented craft beer market. This increased spending is expected to
significantly increase the Company's net losses and decrease its stockholders'
equity. In addition, market and competitive considerations could require an
increase in other promotional costs associated with developing existing and new
markets.
11
<PAGE> 12
Relationship with Anheuser-Busch, Incorporated. Most of the Company's
future sales are expected to be through the Distribution Alliance with A-B. If
the Distribution Alliance were to be terminated, or if the relationship between
A-B and the Company were to deteriorate, the Company's sales and results of
operations could be materially adversely affected. While the Company believes
that the benefits of the Distribution Alliance, in particular access to
distributors and distribution efficiencies, offset costs associated with the
Alliance, there can be no assurance that these costs will not have a negative
impact on the Company's profit margins in the future.
Dependence on Third-Party Distributors. The Company relies heavily on
third-party distributors for the sale of its products to retailers. The
Company's most significant non-Alliance wholesaler, K&L Distributors, Inc., an
A-B affiliated wholesaler in the Seattle area, accounted for approximately 15.5%
of the Company's sales in the first quarter of 1999. Substantially all of the
remaining sales volumes are now through the Distribution Alliance to A-B
affiliated distributors, most of whom are independent wholesalers. A disruption
of wholesalers' or A-B's ability to distribute products efficiently due to any
significant operational problems such as wide-spread labor union strikes, or the
loss of K&L or the termination of the Distribution Alliance, could have a
material adverse impact on the Company's sales and results of operations.
Customer Acceptance, Consumer Trends and Public Attitudes. If consumers
were unwilling to accept the Company's products or if the recent trends toward
drinking craft beers were to change further, it could adversely impact the
Company's sales and results of operations. The alcoholic beverage industry has
become the subject of considerable societal and political attention in recent
years due to increasing public concern over alcohol-related social problems,
including drunk driving, underage drinking and health consequences from the
misuse of alcohol. If beer consumption in general were to come into disfavor
among domestic consumers, or if the domestic beer industry were subjected to
significant additional governmental regulation, the Company's sales and results
of operations could be adversely affected.
Impact of Year 2000. Some of the Company's computer programs were
written using two digits rather than four to define the applicable year. As a
result, those computer programs have time-sensitive software that recognize a
date using "00" as the year 1900 rather than the year 2000. In addition, some of
the microprocessors and control systems integrated in the Company's operations
are not programmed to recognize dates beyond the year 1999. This could cause a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices, operate certain production equipment or engage in similar normal
business activities.
The Company completed an assessment on a significant portion of its
information systems and completed a software upgrade so that those computer
systems will function properly with respect to dates in the year 2000 and
thereafter. In addition, the Company expects to complete the assessment of the
remaining systems, primarily related to production operations, in early 1999 and
have all critical systems tested and compliant before the end of 1999. The costs
associated with all software upgrades or modifications are currently expected to
be less than $50,000.
The Company is working directly with key vendors, service providers and
business partners, such as A-B, malt and packaging suppliers, and utilities, in
order to avoid any business interruptions in the year 2000 and thereafter. Steps
are being taken to understand key third parties' ability to continue providing
services and products through the change to 2000. The Company sent out detailed
questionnaires to key third parties to verify Year 2000 readiness and is
conducting on-going risk analysis based upon the responses to those
questionnaires. However, the Company has no means of ensuring that external
agents will be Year 2000 ready. The inability of third parties to complete their
Year 2000 compliance process in a timely fashion could have a material adverse
effect on the Company's results of operations.
In addition, the Company is in the process of completing its contingency
planning for all risk areas. The contingency plans include, among other things,
manual "work-arounds" for potential software and hardware failures, and an
increase in year-end inventory to allow for production disruptions that could
occur in January 2000.
12
<PAGE> 13
The project is expected to be completed prior to any potential negative
impact on the Company's operations or information systems. The Company believes
that the new software will not pose significant operational problems for its
computer systems. However, if such modifications and conversions are not made,
or are not completed timely, the Year 2000 compliance issue could have a
significant negative adverse impact on the results of operations of the Company.
The costs and timing of the project are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved, and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income, and Statement No. 131, Disclosures about Segments of an Enterprise and
Related Information. In February 1998, the FASB issued Statement No. 132,
Disclosures about Pensions and Other Postretirement Benefits. All of those
statements are effective for the year ended December 31, 1998. Statement Nos.
130 and 132 are not applicable to the Company's operations. The disclosures
prescribed by Statement No. 131 are not required for the Company because retail
pub revenues, the largest component of sales other than wholesale beer sales, do
not meet the minimum quantitative thresholds.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have any derivative financial instruments as of
March 31, 1999. However, the Company is exposed to interest rate risk. The
Company's long-term debt bears interest at a rate that is tied to a variable
rate. Information pertaining to the Company's debt balance and terms is set
forth in Item 7. "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and in Note 5 of "Notes to Financial Statements"
included in the Company's Annual Report on Form 10-K.
PART II.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following exhibits are filed as part of this report.
10.38 Third Amendment to Amended and Restated Credit Agreement between
U.S. Bank of Washington, National Association and Registrant,
dated February 22, 1999.
10.39 Amended and Restated Rights Agreement between Registrant and
ChaseMellon Shareholder Services, LLC, dated as of May 12, 1999.
10.40 First Amendment to Employment Agreement between Registrant and
Paul Shipman, dated May 6, 1999.
27 Financial Data Schedule for the three months ended March 31,
1999.
(b) REPORTS ON FORM 8-K
None were filed during the quarter ended March 31, 1999.
ITEMS 1, 2, 3, 4 AND 5 OF PART II ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
13
<PAGE> 14
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Seattle,
State of Washington, on May 13, 1999.
REDHOOK ALE BREWERY, INCORPORATED
BY: /s/ Bradley A. Berg
---------------------------------------
Bradley A. Berg
Executive Vice President and
Chief Financial Officer
BY: /s/ Anne M. Mueller
---------------------------------------
Anne M. Mueller
Controller and Treasurer,
Principal Accounting Officer
DATE: May 13, 1999
14
<PAGE> 1
EXHIBIT 10.38
THIRD AMENDMENT
TO AMENDED AND RESTATED CREDIT AGREEMENT
This third amendment to amended and restated credit agreement
("Amendment"), dated as of February 22, 1999, is made and entered into by and
between REDHOOK ALE BREWERY, INCORPORATED, a Washington corporation
("Borrower"), and U.S. BANK NATIONAL ASSOCIATION, a national banking
association, successor by merger to U. S. Bank of Washington, National
Association ("U.S. Bank"). Words and phrases with initial capital letters have
the meanings given to them in Article I of this Amendment.
R E C I T A L S :
A. On or about June 5, 1995, U.S. Bank and Borrower entered into that
certain amended and restated credit agreement (together with all amendments,
supplements, exhibits, and modifications thereto, the "Credit Agreement"),
whereby U.S. Bank agreed to make loans and advances of credit to Borrower on the
terms and conditions set forth therein.
B. Borrower and U.S. Bank have entered into two amendments to the Credit
Agreement, dated as of July 25, 1996, and September 15, 1997, respectively,
whereby U.S. Bank extended the Commitment Period of the Revolving Loan.
C. In accordance with the terms of an October 22, 1998, commitment
letter, Borrower and U.S. Bank have agreed to modify the terms of the Revolving
Loan and to extend the Commitment Period to July 1, 2001. The purpose of this
Amendment is to set forth the terms and conditions of U.S. Bank's and Borrower's
agreements.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
set forth herein, the parties agree as follows:
Article I. DEFINITIONS AND AMENDMENT
1.1 Defined Terms. As used in this Amendment, words and phrases with
initial capital letters shall have the meanings given to them in the Credit
Agreement, except as otherwise defined herein, or as the context otherwise
requires.
1.2 Modified and Additional Defined Terms. Section 1.1 of the Credit
Agreement is modified to amend in their entirety (if presently defined in
Section 1.1 of the Credit Agreement) or add (if not presently defined in Section
1.1 of the Credit Agreement) the following defined terms:
"Acquisition Loan" has the meaning set forth in Section 2.7 herein and
includes all modifications and renewals of any Acquisition Loan.
"Acquisition Note" has the meaning set forth in Section 2.8 herein and
includes all modifications, renewals, and replacement of any Acquisition Note.
"Amortization Term" has the meaning set forth in Section 2.10 herein.
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<PAGE> 2
"Borrowing Notice" has the meaning set forth in Section 4.2 herein.
"Borrowing Period" has the meaning set forth in Section 2.5(b) herein.
"Cash Flow" means, for any period, Net Income, plus depreciation and
amortization, plus Interest Expense, plus increases in deferred tax accounts,
plus other non-cash expenses, less extraordinary gains from any sale of
Borrower's assets to the extent such sales are not in the ordinary course of
Borrower's business, less increases in noncurrent assets not funded with new
equity, new long-term Consolidated Indebtedness or Borrower's own cash that was
available at the beginning of such period, and less dividends and distributions
paid to Borrower's shareholders, in each case, for or during such period.
"Conversion Notice" has the meaning set forth in Section 2.7 herein.
"Debt Service" means, for any period, the sum of Interest Expense for
such period plus the sum of scheduled payments of principal for such period,
whether or not made, with respect to Consolidated Indebtedness of Borrower,
including any scheduled payments under leases that are or should be capitalized
pursuant to GAAP.
"Funded Debt" means, as of the date of measurement, the Consolidated
interest-bearing Indebtedness of Borrower.
"Funded Debt Ratio" means the ratio, determined as of the last day of
each fiscal quarter of Borrower, beginning with the fiscal quarter ending March
31, 1999, of Funded Debt to Cash Flow (calculated on a rolling four-quarter
basis as of the last day of each fiscal quarter of Borrower).
"Interest Period" means, as to any LIBOR Rate Borrowing, a period of
one, two, three, six, or twelve months commencing on the date the LIBOR
Borrowing Rate becomes applicable thereto; provided, however, that (a) the first
day of each Interest Period must be a Business Day; (b) no Interest Period shall
be selected which would extend beyond the expiration of the Borrowing Period
applicable to such LIBOR Rate Borrowing or beyond the maturity date of the
Acquisition Loan or Term Loan, as applicable; (c) any Interest Period which
would otherwise expire on a day which is not a Business Day shall be extended to
the next succeeding Business Day, unless the result of such extension would be
to extend such Interest Period into another calendar month in which event the
Interest Period shall end on the immediately preceding Business Day; (d) any
Interest Period that begins on the last Business Day of a calendar month (or on
a day for which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Business Day of a
calendar month; and (e) no Interest Period shall extend beyond a date on which
Borrower is required to make a scheduled payment of principal unless the
aggregate principal amount of Prime Rate Borrowings and LIBOR Rate Borrowings
with Interest Periods expiring on or before such date equals or exceeds the
amount required to be paid on such date.
"LIBOR Borrowing Rate" means the LIBOR Rate plus the applicable margin
determined in accordance with Section 4.1 herein.
-2-
<PAGE> 3
"LIBOR Rate" means, for any Interest Period, the average offered rate
for deposits in United States Dollars (rounded upwards, if necessary, to the
nearest one-sixteenth of one percent) for delivery of such deposits on the first
day of such Interest Period, for the number of months therein, which appears on
Telerate Page 3750 as of 11:00 a.m., London time (or such other time as of which
such rate appears) on the day that is two Business Days preceding the first day
of such Interest Period; or the rate for such deposits determined by U.S. Bank
at such time based on such other published service of general application as
shall be selected by U.S. Bank for such purposes; provided, that if U.S. Bank is
unable to determine the rate in the foregoing manner, U.S. Bank may determine
that the LIBOR Rate is equal to the rates offered to U.S. Bank for deposits in
United States Dollars (rounded upwards, if necessary, to the nearest
one-sixteenth of one percent) in the interbank Eurodollar market at such time
for delivery on the first day of such Interest Period for the number of months
therein; and provided, further, that in any case the LIBOR Rate shall be
adjusted to take into account the maximum reserves required to be maintained for
Eurocurrency liabilities by banks during each such Interest Period as specified
in Regulation D of the Board of Governors of the Federal Reserve System or any
successor regulation.
"LIBOR Rate Borrowing" means any Loan or portion of a Loan that accrues
interest at a LIBOR Borrowing Rate, as selected by Borrower. The minimum amount
of each LIBOR Rate Borrowing shall be $500,000.
"Loans" means any loan made by U.S. Bank to Borrower pursuant to this
Agreement or any of the other Loan Documents, as well as all renewals and
modifications of, or amendments to, any Loan.
"Loan Documents" means this Agreement, the Notes, the Security
Agreement, the Existing Loan Documents, and the Commitment Letter, together with
all other agreements, instruments, and documents arising out of or relating to
this Agreement or the Loans, and includes all renewals and modifications
thereof.
"Notes" means any note evidencing a Loan, as well as all renewals,
replacements, and amendments of any Note.
"Prime Borrowing Rate" means the Prime Rate.
"Security Agreement" means that certain security agreement executed and
delivered by Borrower under the terms of the Third Amendment, and includes all
amendments, renewals, and modifications of the Security Agreement.
"Telerate Page 3750" means the display designated as such on
Teleratesystem Incorporated (or such other page as may replace page 3750 on that
service for the purpose of displaying London interbank offered rates of major
banks for United States Dollar deposits).
"Term Loan" has the meaning set forth in Section 3.1 herein and includes
all modifications and renewals of the Term Loan.
"Term Note" has the meaning set forth in Section 3.2 herein and includes
all modifications, replacement, and renewals of the Term Note.
-3-
<PAGE> 4
"Third Amendment" means that certain third amendment to amended and
restated credit agreement, dated as of February 22, 1999, by and between
Borrower and U.S. Bank, and includes all amendments, supplements, exhibits, and
modifications to the Third Amendment.
"U.S. Bank" means U.S. Bank National Association, a national banking
association, successor by merger to U. S. Bank of Washington, National
Association, and its successors and assigns.
1.3 Deleted Defined Terms. Section 1.1 of the Credit Agreement is hereby
amended by the deletion of the following defined terms:
(a) "IBOR Borrowing Rate;"
(b) "IBOR Rate;"
(c) "IBOR Rate Borrowing;"
(d) "Incremental Rate;"
(e) "Revolving Term Loan;" and
(f) "Revolving Term Note."
1.4 LIBOR Rate. The Credit Agreement is hereby amended by replacing each
defined term that includes the abbreviation "IBOR" with "LIBOR," such that
references to the defined terms "IBOR Borrowing Rate," "IBOR Rate," and "IBOR
Rate Borrowing" now are read as "LIBOR Borrowing Rate," "LIBOR Rate," and "LIBOR
Rate Borrowing."
1.5 Incorporation of Recitals and Exhibits. The foregoing recitals are
incorporated into this Amendment by reference. All references to "Exhibits"
contained herein are references to exhibits attached to this Amendment, the
terms and conditions of which are made a part of this Amendment for all
purposes.
1.6 Amendment. The Credit Agreement and the other Loan Documents are
hereby amended as set forth herein. Except as specifically provided herein, all
of the terms and conditions of the Credit Agreement and each of the other Loan
Documents shall remain in full force and effect throughout the terms of the
Loans and any extensions or renewals thereof.
Article II. REVOLVING LOAN AND ACQUISITION LOANS
2.1 Revolving Loan. Article II of the Credit Agreement is hereby amended
in its entirety to read as follows:
ARTICLE II. REVOLVING LOAN
2.1 Revolving Loan Commitment. Subject to and upon the terms and
conditions set forth herein and in reliance upon the representations,
warranties, and covenants of Borrower contained herein or made pursuant
hereto, U.S. Bank
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<PAGE> 5
will advance funds to Borrower from time to time during the period ending on
July 1, 2001 ("Commitment Period"), in an aggregate amount not exceeding at
any one time $10,000,000, less the aggregate amount of all Acquisition Loans
then outstanding ("Revolving Loan"). Borrower may borrow, repay without
penalty or premium (except as provided in Section 4.12 hereof), and reborrow
hereunder, either the full amount of the Revolving Loan or any lesser sum.
2.2 Use of Proceeds. The proceeds of the Revolving Loan shall be used by
Borrower for general corporate purposes, including financing of Capital
Expenditures in accordance with the terms of this Agreement; provided that,
and subject to the other limitations set forth in Articles VII and VIII of
this Agreement, usage of the Revolving Loan for an acquisition of all or
substantially all of the assets of a brewery or an investment in the capital
stock of a brewery is limited to $10,000,000 per occurrence and $10,000,000
in the aggregate, without U.S. Bank's prior written consent. Notwithstanding
anything to the contrary in this Section 2.2, Borrower shall not use any
proceeds of the Revolving Loan to repay any Acquisition Loan.
2.3 Revolving Note. The Revolving Loan shall be evidenced by a
promissory note in the form attached to the Third Amendment as Exhibit A
("Revolving Note").
2.4 Revolving Loan Interest Rates. Subject to Section 4.9 herein,
Borrower shall pay interest on the principal amount outstanding under the
Revolving Loan from time to time at a per annum rate of interest equal to
the applicable Prime Borrowing Rate for any Prime Rate Borrowing, and at the
applicable LIBOR Borrowing Rate for any LIBOR Rate Borrowing, pursuant to
the other terms and conditions hereof and subject to adjustment as set forth
in Section 4.1 of this Agreement.
2.5 Repayment of Revolving Loan.
(a) Until the Revolving Loan shall have been paid in full, Borrower
shall pay in arrears to U.S. Bank an amount equal to all accrued interest on
the Revolving Loan on the first day of the first month following the initial
advance under the Revolving Loan and on the same day of each month
thereafter.
(b) Borrower shall repay each advance that is in an amount of $100,000
or more within 120 days of its disbursement ("Borrowing Period"). Within the
Borrowing Period, Borrower may repay any advance that was made in an amount
of $100,000 or more by converting it to an Acquisition Loan as provided in
Section 2.7 of this Agreement. Borrower shall pay U.S. Bank all outstanding
principal, accrued interest, and other charges with respect to the Revolving
Loan on July 1, 2001.
2.6 Revolving Loan Fee. Borrower shall pay U.S. Bank a nonrefundable fee
of $50,000 for the Revolving Loan, of which $25,000 shall be
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<PAGE> 6
paid concurrently with the execution of the Third Amendment and, unless U.S.
Bank's obligation to make advances under the Revolving Loan has been
terminated and all outstanding principal, accrued interest, and other
charges with respect to the Revolving Loan have been paid before July 1,
1999, the remaining $25,000 shall be paid on or before July 1, 1999.
2.7 Acquisition Loans. Subject to and upon the terms and conditions set
forth herein, and in reliance by U.S. Bank upon the representations,
warranties, and covenants of Borrower contained herein or made pursuant
hereto, Borrower may elect to convert any advance under the Revolving Loan
to a term loan ("Acquisition Loan"), by giving U.S. Bank at least ten
Business Days' written notice prior to the expiration of the Borrowing
Period ("Conversion Notice"). The Conversion Notice shall state (a) the date
and amount of the advance that Borrower has elected to convert to an
Acquisition Loan; (b) the effective date of the conversion to an Acquisition
Loan (which must be no later than the expiration of the Borrowing Period),
and (c) an Amortization Term of up to 120 months for the requested
Acquisition Loan. Borrower may elect to convert advances under the Revolving
Loan to Acquisition Loans only so long as no Default or Event of Default
exists and in amounts of not less than $100,000.
2.8 Acquisition Notes. Each Acquisition Loan shall be evidenced by a
promissory note substantially in the form attached to the Third Amendment as
Exhibit B ("Acquisition Note"). Each Acquisition Note shall state the
principal amount of the Acquisition Loan evidenced by the Acquisition Note,
shall be dated as of the effective date of the Acquisition Loan, and shall
provide for the Acquisition Note's maturity on the date five years after the
date of the first required principal and interest payment.
2.9 Acquisition Loan Interest Rates. Subject to Section 4.9 herein,
Borrower shall pay interest from the date of the Acquisition Note on the
principal amount thereof remaining unpaid from time to time at a per annum
rate of interest equal to the applicable Prime Borrowing Rate for any Prime
Rate Borrowing, and at the applicable LIBOR Borrowing Rate for any LIBOR
Rate Borrowing, pursuant to the other terms and conditions hereof and
subject to adjustment as set forth in Section 4.1 of this Agreement.
2.10 Repayment of Acquisition Loans.
(a) With respect to each Acquisition Loan, commencing on the first day
of the first month following the date of the Acquisition Note evidencing
such Loan, and continuing on the first day of each month thereafter,
Borrower shall pay U.S. Bank all accrued interest on the principal balance
of the Acquisition Loan.
(b) With respect to each Acquisition Loan, in addition to the interest
payments required in Section 2.10(a), Borrower shall make monthly payments
of principal to U.S. Bank in 60 equal, consecutive installments of principal
sufficient
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<PAGE> 7
to repay the initial principal balance of such Acquisition Loan over the
amortization period, not to exceed 120 months, that Borrower selected for
the Acquisition Loan in its Conversion Notice ("Amortization Term").
Borrower's monthly principal payments with respect to each Acquisition Loan
shall commence on the first day of the first month following the date of the
Acquisition Note evidencing such Loan, and shall continue on the first day
of each month thereafter.
(c) Borrower shall pay U.S. Bank all outstanding principal, accrued
interest, and other charges with respect to an Acquisition Loan on the date
five years after the date of the first required principal and interest
payment with respect to such Loan, whether or not and regardless of when
made. Borrower understands and agrees that a substantial portion of the
principal balance will be outstanding and unpaid on the maturity date of any
Acquisition Loan for which Borrower has selected an Amortization Term of
more than 60 months.
2.11 Acquisition Loan Fee. Concurrently with Borrower's delivery of any
Conversion Notice to U.S. Bank, Borrower shall pay a nonrefundable fee for
the requested Acquisition Loan equal to 0.25 percent of the requested
Acquisition Loan's principal balance.
2.2 Renewal Revolving Note. Concurrently with the execution of this
Amendment, Borrowing shall execute and deliver to U.S. Bank a renewal promissory
note in the form attached hereto as Exhibit A ("Renewal Revolving Note"). The
Renewal Revolving Note shall be made in substitution for, but not in payment of
the renewal revolving note dated as of September 15, 1997, which shall be marked
"renewed" and retained by U.S. Bank until the Revolving Loan has been paid in
full and U.S. Bank's commitment to make advances under the Revolving Loan has
terminated. Upon execution of this Amendment, the Renewal Revolving Note shall
be a "Revolving Note" for all purposes of the Credit Agreement and the other
Loan Documents.
Article III. TERM LOAN
Article III of the Credit Agreement is hereby amended in its entirety to
read as follows:
ARTICLE III. TERM LOAN
3.1 Term Loan. Prior to the date of the Third Amendment and on the terms
and conditions of this Agreement, U.S. Bank made a term loan to Borrower in
the initial principal amount of $10,000,000 and with an outstanding
principal balance, as of the date of the Third Amendment, of $8,250,000, the
repayment of which, as well as other terms and conditions, are subject to
this Agreement, as amended ("Term Loan").
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<PAGE> 8
3.2 Term Note. The Term Loan is evidenced by and repayable with interest
in accordance with the terms of a promissory note in the form attached to
the Third Amendment as Exhibit C (the "Term Note").
3.3 Interest Rates. Subject to Section 4.9 herein, Borrower shall pay
interest on the principal amount of the Term Loan remaining unpaid from time
to time at a per annum rate of interest equal to the applicable Prime
Borrowing Rate for any Prime Rate Borrowing, and at the applicable LIBOR
Borrowing Rate for any LIBOR Rate Borrowing, pursuant to the other terms and
conditions of this Agreement and subject to adjustment as set forth in
Section 4.1 of this Agreement.
3.4 Repayment.
(a) Borrower shall pay in arrears to U.S. Bank an amount equal to all
accrued interest on the Term Loan; such monthly payments of interest
commenced on July 1, 1996, and shall continue on the first day of each month
thereafter.
(b) In addition to the interest payments required in Section 3.4(a),
Borrower shall make monthly payments of principal to Lender in 60 equal,
consecutive installments of $37,500, such monthly installments commenced on
July 1, 1997, and shall continue on the first day of each month thereafter
until June 5, 2002, at which time the entire principal and any accrued and
unpaid interest on the Term Loan shall be paid in full.
Article IV. GENERAL PROVISIONS APPLICABLE TO THE LOANS
4.1 Interest Rates. Section 4.1 of the Credit Agreement is hereby
amended in its entirety to read as follows:
4.1 Interest Rates.
(a) Subject to the terms of this Section 4.1 and Section 4.9, and during
the period commencing with the date of the Third Amendment and ending on
June 5, 1999, the interest rates for the Loans shall be adjusted based on
the Capital Ratio, as established for any preceding fiscal quarter of
Borrower by the financial statements delivered to U.S. Bank pursuant to
Section 6.1(a) of this Agreement, whether as initially submitted or as
revised, as set forth in the following matrix:
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<PAGE> 9
- --------------------------------------------------------------------------------
DATE OF THIRD AMENDMENT TO JUNE 6, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL RATIO PRIME BORROWING RATE LIBOR BORROWING RATE
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Less than or equal to Prime LIBOR Rate
0.5:1.0 Rate plus 1 percent
(100 basis points)
- --------------------------------------------------------------------------------------------
Less than or equal to Prime LIBOR Rate
1.0:1.0 and greater than Rate plus 1.25 percent
0.5:1.0 (125 basis points)
- --------------------------------------------------------------------------------------------
Less than or equal to Prime LIBOR Rate
1.25:1.0 and greater than Rate plus 1.75 percent
1.0:1.0 (175 percent basis points)
- --------------------------------------------------------------------------------------------
Greater than Prime Rate Not
1.25:1.0 plus 2.5 percent Available
(250 basis points) After Default
(Default Rate)
- --------------------------------------------------------------------------------------------
</TABLE>
(b) Subject to the terms of this Section 4.1 and Section 4.9, for the
period commencing on June 6, 1999, and continuing thereafter, (i) the interest
rates for the Term Loan shall be adjusted based on the Capital Ratio on the
terms and as set forth in Section 4.1(a) herein, and (ii) the interest rates for
the Revolving Loan and the Acquisition Loans shall be adjusted based on the
Funded Debt Ratio, as established for any preceding fiscal quarter of Borrower
by the financial statements delivered to U.S. Bank pursuant to Section 6.1(a) of
this Agreement, whether as initially submitted or as revised, as set forth in
the following matrix:
- --------------------------------------------------------------------------------
JUNE 6, 1999, AND THEREAFTER
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
REVOLVING LOANS ACQUISITION LOANS
-----------------------------------------------------------------------------
PRIME
FUNDED DEBT RATIO BORROWING LIBOR PRIME LIBOR BORROWING RATE
RATE BORROWING RATE BORROWING RATE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than or equal to Prime LIBOR Rate Prime Rate LIBOR Rate
2.25:1.0 Rate plus 1 percent plus 0.25 percent plus 1.25 percent
(100 basis (25 basis points) (125 basis points)
points)
- ----------------------------------------------------------------------------------------------------
Less than or equal to Prime LIBOR Rate Prime Rate LIBOR Rate
3.0:1.0 and greater Rate plus 1.25 percent plus 0.25 percent plus 1.5 percent
than 2.25:1.0 (125 basis (25 basis points (150 basis points)
points)
- ----------------------------------------------------------------------------------------------------
Less than or equal to Prime LIBOR Rate Prime Rate LIBOR Rate
3.75:1.0 and greater Rate plus 1.5 percent plus 0.25 percent plus 1.75 percent
than 3.0 :1.0 (150 basis (25 basis points (175 basis points)
points)
- ----------------------------------------------------------------------------------------------------
Greater than Prime LIBOR Rate Prime Rate LIBOR Rate
3.75:1.0 Rate plus 2.0 percent plus 0.25 percent plus 2.25 percent
(200 basis (25 basis points (225 basis points)
points)
- ----------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 10
(c) Any adjustment of the Prime Borrowing Rate provided for in this
Section 4.1 shall be effective as of the first day of the month following
the month in which U.S. Bank receives Borrower's financial statements
establishing a ratio in a new range of Capital Ratios or Funded Debt Ratios,
as the case may be, for the immediately preceding fiscal quarter. Any
adjustment of the LIBOR Borrowing Rate provided for in this Section 4.1
shall be effective as of the first day following the Interest Periods that
expire after the month in which U.S. Bank receives Borrower's financial
statements establishing a ratio in a new range of Capital Ratios or Funded
Debt Ratios, as the case may be, for the immediately preceding fiscal
quarter.
(d) If any audit of Borrower's annual financial statements by
independent certified public accountants does not confirm the Capital Ratio
or the Funded Debt Ratio, as the case may be, reflected in any of that
fiscal year's quarterly financial statements delivered by Borrower to U.S.
Bank, then the interest rates shall be automatically adjusted to the
applicable interest rates set forth in the matrix retroactive to the first
day of the month following the month in which U.S. Bank received a quarterly
financial statement of Borrower subsequently corrected by such audit.
Following any retroactive adjustment of interest rates, if Borrower (i) owes
additional interest to U.S. Bank, Borrower will pay such interest
immediately upon demand by U.S. Bank, or (ii) has paid more interest than
would have accrued at the adjusted rates, U.S. Bank will refund to Borrower
such excess, immediately upon Borrower's demand.
4.2 Manner of Borrowing. Section 4.2 of the Credit Agreement is hereby
amended in its entirety to read as follows:
4.2 Manner of Borrowing.
(a) Whenever Borrower desires to use the LIBOR Borrowing Rate, Borrower
shall give U.S. Bank irrevocable notice (either in writing or orally and
promptly confirmed in writing) between 8:00 a.m. and 1:00 p.m. (Seattle,
Washington time) two Business Days prior to the desired effective date of
the LIBOR Borrowing Rate ("Borrowing Notice"). Any oral Borrowing Notice
shall be given by, and any written Borrowing Notice or confirmation of an
oral Borrowing Notice shall be signed by Paul Shipman, Bradley Berg, David
Mickelson, or Anne Mueller, each of whom is authorized to request Loans,
until written notice by Borrower of the revocation of such authority is
received by U.S. Bank. Each Borrowing Notice shall specify the requested
effective date of the LIBOR Borrowing Rate, the Interest Period, the amount
of the LIBOR Rate Borrowing, and whether Borrower is requesting a new
advance at the LIBOR Borrowing Rate, conversion of all or any portion of the
Prime Rate Borrowing to a LIBOR Rate Borrowing, or a new Interest Period for
an outstanding LIBOR Rate Borrowing. Notwithstanding any other term of this
Agreement, Borrower may elect the LIBOR Borrowing Rate to apply to Loans or
portions thereof only in the minimum principal amount of $500,000. In the
event Borrower has not given U.S. Bank a Borrowing Notice two Business Days
in advance of the expiration of any Interest Period of Borrower's intent to
convert a LIBOR Rate Borrowing to a new LIBOR Rate Borrowing at the
expiration of such Interest Period, then such LIBOR Rate Borrowing shall
automatically, at the expiration of such Interest Period, be deemed to be a
Prime Rate Borrowing.
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<PAGE> 11
(b) Borrower may obtain LIBOR Borrowing Rate quotes from U.S. Bank
between 8:00 a.m. and 1:00 p.m. (Seattle, Washington time) on any Business
Day. Borrower may request an advance, conversion of any portion of a Prime
Rate Borrowing to a LIBOR Rate Borrowing or a new Interest Period for an
existing LIBOR Rate Borrowing, at such rate only by giving U.S. Bank notice
in accordance with the provisions of this Section 4.2 before 1:00 p.m.
(Seattle, Washington time) on such day. Each Borrowing Notice shall be
irrevocable. Each Borrowing Notice requesting a new advance or conversion of
an advance to an Acquisition Loan (as opposed to an interest rate renewal or
interest rate conversion) shall be deemed to constitute a representation and
warranty by Borrower that, as of the date of the Borrowing Notice, (i) the
statements set forth in Article VIII are true and correct, (ii) no material
adverse change in Borrower's financial condition, except as previously
disclosed to U.S. Bank in writing, has occurred subsequent to December 31,
1997, and (iii) no Default or Event of Default has occurred and is
continuing.
(c) Any Loans made pursuant to this Section 4.2 shall be conclusively
presumed to have been made to or for the benefit of Borrower when made in
accordance with such a request from an authorized Person and direction for
disposition or when such Loan is deposited to the credit of the account of
Borrower with U.S. Bank or is transmitted to any other bank with directions
to credit the same to the account of Borrower at such bank, regardless of
whether Persons other than those authorized hereunder to make requests for
Loans have authority to draw against any such account. Borrower acknowledges
that U.S. Bank cannot effectively determine whether a particular request for
an advance under a Loan is valid, authorized, or authentic. It is
nevertheless important to Borrower that it has the privilege of making
requests for advances under the Loans in accordance with this Section 4.2.
Therefore, to induce U.S. Bank to lend funds in response to such requests
and in consideration for U.S. Bank's agreement to receive and consider such
requests, Borrower assumes all risks of the validity, authenticity, and
authorization of such requests, whether or not the individual making such
requests has authority to request advances under the Loans and whether or
not the aggregate sum owing exceeds the maximum principal amount permitted
to be outstanding under such Loan. U.S. Bank shall not be responsible under
principles of contract, tort, or otherwise for the amount of an authorized
or invalid advance under a Loan, except for its negligence or willful
misconduct; rather, Borrower agrees to repay any sums with interest as
provided herein.
Article V. NEGATIVE COVENANTS
5.1 Tangible Net Worth. Section 7.15 of the Credit Agreement is hereby
amended in its entirety to read as follows:
7.15 Tangible Net Worth. Permit Consolidated Tangible Net Worth at any
time during the terms of the Loans to be less than $65,000,000.
5.2 Debt Service Coverage. Section 7.17 of the Credit Agreement is
hereby amended in its entirety to read as follows:
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<PAGE> 12
7.17 Debt Service Coverage. Permit the ratio of (a) the sum of Cash Flow
for the immediately preceding four fiscal quarters of Borrower, plus, to the
extent accounted for during such period, $3,362,000 (representing Borrower's
"special valuation provision"), to (b) Debt Service for the immediately
preceding four fiscal quarters of Borrower to be less than (x) 1.05:1 during
any fiscal quarter of Borrower ending before July 1, 2001, and (y) 1.25:1
during any fiscal quarter of Borrower thereafter.
Article VI. CONDITIONS PRECEDENT
U.S. Bank shall have no obligation to modify the terms of the Loans as
provided in this Amendment unless the following conditions have been fulfilled
to the satisfaction of U.S. Bank:
(a) U.S. Bank shall have received this Amendment and the Renewal
Revolving Note, duly executed and delivered by Borrower.
(b) All corporate proceedings of Borrower and its Subsidiaries shall be
satisfactory in form and substance to U.S. Bank, and U.S. Bank shall have
received all information and copies of all documents, including records of
all corporate proceedings, that U.S. Bank has requested in connection
therewith, such documents where appropriate to be certified by proper
corporate authorities or Governmental Bodies. Borrower shall provide U.S.
Bank with the following documents prior to or upon the execution of this
Amendment:
(i) Copies of the articles of incorporation of Borrower,
together with all amendments thereto, certified by Borrower to be true and
complete; and
(ii) An incumbency certificate confirming the continued validity
of existing resolutions of the directors of Borrower in the form attached to
this Amendment as Exhibit D.
(c) U.S. Bank shall have received an amendment to the Deed of Trust in
the form attached to this Amendment as Exhibit E.
(d) U.S. Bank shall have received a commitment to issue a modification
endorsement to title policy number H713928, insuring U.S. Bank's first lien
under the Deed of Trust and otherwise in form and substance satisfactory to
U.S. Bank.
(e) U.S. Bank shall have received, duly executed and delivered by
Borrower, a security agreement substantially in the form attached hereto as
Exhibit F, granting to U.S. Bank a first priority and exclusive security
interest in personal property of Borrower as more particularly described
therein.
(f) U.S. Bank shall have received, duly executed and delivered by
Borrower, such financing statements or other instruments, in form and
substance satisfactory to
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<PAGE> 13
U.S. Bank, that U.S. Bank may deem appropriate to perfect its security
interests in any Collateral.
(g) U.S. Bank shall have received the loan fee that is payable under
Section 2.1 of this Amendment.
(h) There shall not then exist any Default or Event of Default hereunder
as of the date hereof.
(i) All representations and warranties of Borrower contained herein or
made in writing in connection herewith shall be true and correct as of the
date hereof.
(j) There shall have been no material adverse change in the financial
condition of Borrower subsequent to September 30, 1998.
Article VII. GENERAL PROVISIONS
7.1 Year 2000. Borrower has reviewed and assessed its business
operations and computer systems and applications to address the "Year 2000
Problem" (that is, that computer applications and equipment used by the
Borrower, directly or indirectly through third parties, may be unable to
properly perform date-sensitive functions before, during and after January 1,
2000). Borrower reasonably believes that the Year 2000 Problem will not result
in a material adverse change in Borrower's business condition (financial or
otherwise), operations, properties or prospects or ability to repay the
Revolving Loan or any Acquisition Loan to U.S. Bank. Borrower is in the process
of implementing the plan to remediate Year 2000 Problems and will complete
implementation of such plan with respect to any material Year 2000 Problems, and
testing thereof, by September 30, 1999. Borrower agrees that this representation
will be true and correct on and shall be deemed made by Borrower on each date
Borrower requests any advance under any of the Loans or delivers any information
to U.S. Bank. Borrower will promptly deliver to U.S. Bank such information
relating to this representation as U.S. Bank requests from time to time If this
representation is false or misleading in any material respect, an Event of
Default shall have occurred and U.S. Bank shall be entitled to exercise its
remedies under Section 9.2 of the Credit Agreement, but only with respect to the
Revolving Note and any one or more of the Acquisition Notes. The occurrence of
an Event of Default under this Section 7.1 shall not entitle U.S. Bank to
declare the unpaid principal balance of the Term Note to be immediately due and
payable or to have any other effect on the Term Note's terms and conditions.
7.2 Notices. The name of the Person to whom notices to U.S. Bank must be
given and the address of such Person is changed to:
U.S. Bank National Association
10800 N.E. 8th Avenue, Suite 1000
Bellevue, Washington 98004
Attention: Matthew D. Hill
Facsimile No.: (425) 450-5989
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<PAGE> 14
7.3 Representations and Warranties. Borrower hereby represents and
warrants to U.S. Bank that, to the best knowledge and belief of Borrower, as of
the date of this Amendment, there exists no Default or Event of Default. All
representations and warranties of Borrower contained in the Credit Agreement and
the other Loan Documents, or otherwise made in writing in connection therewith,
are true and correct as of the date of this Amendment. Borrower acknowledges and
agrees that all of Borrower's Indebtedness to U.S. Bank is payable without
offset, defense, or counterclaim.
7.4 Guaranties. The parties hereby acknowledge and agree that all
guaranties now existing or hereafter obtained by U.S. Bank shall remain in full
force and effect, are valid and enforceable in accordance with their terms, and
are not subject to offset, defense, or counterclaim.
7.5 Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall constitute an original agreement, but all of
which together shall constitute one and the same agreement.
7.6 STATUTORY NOTICE. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY,
EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.
IN WITNESS WHEREOF, U.S. Bank and Borrower have caused this Amendment to
be duly executed by their respective duly authorized officers or agents as of
the date first above written.
REDHOOK ALE BREWERY, INCORPORATED
By: /s/ BRADLEY A. BERG
---------------------------------------
Bradley A. Berg, Executive Vice
President and Chief Financial Officer
U.S. BANK NATIONAL ASSOCIATION
By: /s/ MATT HILL
---------------------------------------
Matthew D. Hill, Assistant
Vice President
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<PAGE> 15
By execution of this Amendment, the undersigned Guarantor
approves of the changes to the Credit Agreement set forth herein, agrees to be
bound by Section 7.4 herein, reaffirms its Guaranty, and acknowledges and agrees
that its obligations under its Guaranty are not subject to any defense, offset,
or counterclaim.
REDHOOK OF NEW HAMPSHIRE, INC.
By: /s/ BRADLEY A. BERG
---------------------------------------
Bradley A. Berg, Executive Vice
President
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<PAGE> 16
EXHIBIT A
to Third Amendment to Amended and Restated Credit Agreement
RENEWAL REVOLVING NOTE
$10,000,000 February 22, 1999
For value received, the undersigned, REDHOOK ALE BREWERY, INCORPORATED,
a Washington corporation ("Borrower"), promises to pay to the order of U.S. BANK
NATIONAL ASSOCIATION, successor by merger to U. S. Bank of Washington, National
Association ("U.S. Bank"), at its principal place of business, at Post Office
Box 5308, Portland, Oregon 97228-5308, or such other place or places as the
holder hereof may designate in writing, the principal sum of Ten Million Dollars
($10,000,000) or so much thereof as advanced by U.S. Bank in lawful immediately
available money of the United States of America, in accordance with the terms
and conditions of that certain amended and restated credit agreement dated as of
June 5, 1995, by and between Borrower and U.S. Bank (together with all
supplements, exhibits, modifications, and amendments thereto, including the
third amendment to amended and restated credit agreement ("Third Amendment") of
even date herewith, the "Credit Agreement"). Borrower also promises to pay
interest on the unpaid principal balance hereof, commencing as of the date
hereof, in like money in accordance with the terms and conditions and at the
rate or rates provided for in the Credit Agreement. All principal, interest, and
other charges are due and payable in full on July 1, 2001.
Borrower and all endorsers, sureties, and guarantors hereof jointly and
severally waive presentment for payment, demand, notice of nonpayment, notice of
protest, and protest of this Note, and all other notices in connection with the
delivery, acceptance, performance, default, dishonor, or enforcement of the
payment of this Note except such notices as are specifically required by this
Note or by the Credit Agreement, and they agree that the liability of each of
them shall be unconditional without regard to the liability of any other party
and shall not be in any manner affected by any indulgence, extension of time,
renewal, waiver, or modification granted or consented to by U.S. Bank. Borrower
and all endorsers, sureties, and guarantors hereof (1) consent to any and all
extensions of time, renewals, waivers, or modifications that may be granted by
U.S. Bank with respect to the payment or other provisions of this Note and the
Credit Agreement; (2) consent to the release of any property now or hereafter
securing this Note with or without substitution; and (3) agree that additional
makers, endorsers, guarantors, or sureties may become parties hereto without
notice to them and without affecting their liability hereunder.
This Note is made in substitution for, but not in payment of, that
certain renewal revolving note dated as of September 15, 1997, is the Renewal
Revolving Note referred to in the Third Amendment, is a "Revolving Note" for
purposes of the Credit Agreement and as such is entitled to all of the benefits
and obligations specified in the Credit Agreement, including but not limited to
any Collateral and any conditions to making advances hereunder. This Note is
secured by the lien of the Deed of Trust encumbering real and personal property
in King County, Washington, dated August 9, 1993, and recorded with the Division
of Records and Elections of King County, Washington, on August 10, 1993, under
recording No. 9308101757, to which
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<PAGE> 17
reference is hereby made for a description of the nature and extent of the
security provided thereby and the rights and limitations of rights of U.S. Bank
and of Borrower in respect of such security. Terms defined in the Credit
Agreement are used herein with the same meanings. Reference is made to the
Credit Agreement for provisions for the repayment of this Note and the
acceleration of the maturity hereof.
REDHOOK ALE BREWERY, INCORPORATED
By:
------------------------------------------
Bradley A. Berg, Executive Vice President
and Chief Financial Officer
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<PAGE> 18
EXHIBIT B
to Third Amendment to Amended and Restated Credit Agreement
ACQUISITION NOTE
$
-------------------- -------------, ----
For value received, the undersigned, REDHOOK ALE BREWERY, INCORPORATED,
a Washington corporation ("Borrower"), promises to pay to the order of U.S. BANK
NATIONAL ASSOCIATION ("U.S. Bank"), at Post Office Box 5308, Portland, Oregon
97228-5308, or such other place or places as the holder hereof may designate in
writing, the principal sum of _______________ Dollars ($___________) in lawful
immediately available money of the United States of America, in accordance with
the terms and conditions of that certain amended and restated credit agreement
dated as of June 5, 1995, by and between Borrower and U.S. Bank (together with
all supplements, exhibits, modifications, and amendments thereto, including the
third amendment to amended and restated credit agreement ("Third Amendment"),
dated as of February 22, 1999, the "Credit Agreement"). Borrower also promises
to pay interest on the unpaid principal balance hereof, commencing as of the
date hereof, in like money in accordance with the terms and conditions and at
the rate or rates provided for in the Third Amendment and the Credit Agreement.
All principal, interest, and other charges are due and payable in full on
_____________, ____.
Borrower and all endorsers, sureties, and guarantors hereof jointly and
severally waive presentment for payment, demand, notice of nonpayment, notice of
protest, and protest of this Note, and all other notices in connection with the
delivery, acceptance, performance, default, dishonor, or enforcement of the
payment of this Note except such notices as are specifically required by this
Note or by the Credit Agreement, and they agree that the liability of each of
them shall be unconditional without regard to the liability of any other party
and shall not be in any manner affected by any indulgence, extension of time,
renewal, waiver, or modification granted or consented to by U.S. Bank. Borrower
and all endorsers, sureties, and guarantors hereof (1) consent to any and all
extensions of time, renewals, waivers, or modifications that may be granted by
U.S. Bank with respect to the payment or other provisions of this Note and the
Credit Agreement; (2) consent to the release of any property now or hereafter
securing this Note with or without substitution; and (3) agree that additional
makers, endorsers, guarantors, or sureties may become parties hereto without
notice to them and without affecting their liability hereunder.
This Note is one of the Acquisition Notes referred to in the Credit
Agreement, is a "Note" for all purposes of the Credit Agreement and as such is
entitled to all of the benefits and obligations specified in the Credit
Agreement, including but not limited to any Collateral and any conditions to
making advances hereunder. This Note is secured by the lien of the Deed of Trust
encumbering real and personal property in King County, Washington, dated August
9, 1993, and recorded with the Division of Records and Elections of King County,
Washington, on August 10, 1993, under recording No. 9308101757, to which
reference is hereby made for a description of the nature and extent of the
security provided thereby and the rights and limitations of rights of U.S. Bank
and of Borrower in respect of such security. Terms defined in the Credit
Agreement
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<PAGE> 19
are used herein with the same meanings. Reference is made to the Credit
Agreement for provisions for the repayment of this Note and the acceleration of
the maturity hereof.
REDHOOK ALE BREWERY, INCORPORATED
By:
----------------------------------------
Title:
-------------------------------------
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<PAGE> 20
EXHIBIT C
To Third Amendment to Amended and Restated Credit Agreement
REVOLVING TERM NOTE
$10,000,000 June 5, 1995
For value received, the undersigned, REDHOOK ALE BREWERY, INC., a
Washington corporation ("Borrower"), promises to pay to the order of U. S. BANK
OF WASHINGTON, NATIONAL ASSOCIATION ("U. S. Bank"), at its principal place of
business, 1420 Fifth Avenue, Seattle, Washington 98111-0720, or such other place
or places as the holder hereof may designate in writing, the principal sum of
Ten Million Dollars ($10,000,000) or so much thereof as advanced by U. S. Bank
in lawful, immediately available money of the United States of America, in
accordance with the terms and conditions of that certain amended and restated
credit agreement of even date herewith by and between Borrower and U. S. Bank
(together with all supplements, exhibits, amendments and modifications thereto,
the "Credit Agreement"). Borrower also promises to pay interest on the unpaid
principal balance hereof, commencing as of the first date of an advance
hereunder, in like money in accordance with the terms and conditions, and at the
rate or rates provided for in the Credit Agreement. All principal, interest, and
other charges are due and payable in full on June 5, 1997; provided that the
maturity date may be extended to June 5, 2002, in accordance with Section 3.5 of
the Credit Agreement.
Borrower and all endorsers, sureties, and guarantors hereof jointly and
severally waive presentment for payment, demand, notice of nonpayment, notice of
protest, and protest of this Note, and all other notices in connection with the
delivery, acceptance, performance, default, dishonor, or enforcement of the
payment of this Note except such notices as are specifically required by this
Note or by the Credit Agreement, and they agree that the liability of each of
them shall be unconditional without regard to the liability of any other party
and shall not be in any manner affected by any indulgence, extension of time,
renewal, waiver, or modification granted or consented to by U. S. Bank. Borrower
and all endorsers, sureties, and guarantors hereof (1) consent to any and all
extensions of time, renewals, waivers, or modifications that may be granted by
U. S. Bank with respect to the payment or other provisions of this Note and the
Credit Agreement; (2) consent to the release of any property now or hereafter
securing this Note with or without substitution; and (3) agree that additional
makers, endorsers, guarantors, or sureties may become parties hereto without
notice to them and without affecting their liability hereunder.
This Note is the Revolving Term Note referred to in the Credit
Agreement, which is in substitution, but not in payment of the Existing Note,
and as such is entitled to all of the benefits and obligations specified in the
Credit Agreement, including but not limited to any Collateral and any conditions
to making advances hereunder. This Note is secured by a deed of trust covering
real and personal property located in King County, Washington, dated August 9,
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<PAGE> 21
1993, and recorded with the Division of Records and Elections of King County,
Washington on August 10, 1993, under recording number 9308101757, to which
reference is hereby made for a description of the nature and extent of the
security provided thereby and the rights and limitations of rights of U.S. Bank
and of Borrower in respect of such security. Terms defined in the Credit
Agreement are used herein with the same meanings. Reference is made to the
Credit Agreement for provisions for the repayment of this Note and the
acceleration of the maturity hereof.
REDHOOK ALE BREWERY, INC.
By: /s/ BRADLEY A. BERG
-----------------------------
Bradley A. Berg
Executive Vice President and
Chief Financial Officer
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<PAGE> 22
EXHIBIT D
To Third Amendment to Amended and Restated Credit Agreement
CERTIFICATE AS TO AUTHORIZING RESOLUTIONS
AND INCUMBENCY CERTIFICATE
The undersigned hereby certifies that he is the Secretary of Redhook Ale
Brewery, Incorporated, a Washington corporation ("Company"), that as such he is
authorized to execute this Certificate on behalf of the Company, and that:
(a) annexed hereto as Exhibit A is a true an correct copy of the
resolutions duly adopted by written consent of the Board of Directors of the
Company;
(b) such resolutions have been entered in the minute book of the
Company, have not been modified or rescinded, and remain in full force and
effect; and
(c) the following persons whose names, titles and signatures appear
below are now duly qualified to hold their respective offices as of the date
hereof:
<TABLE>
<CAPTION>
Name Signature Office
- ---- --------- ------
<S> <C> <C>
Paul Shipman /s/ PAUL S. SHIPMAN President
------------------------------------------------
Executive Vice President and Chief
Bradley A. Berg /s/ BRADLEY A. BERG Financial Officer
------------------------------------------------
</TABLE>
DATED this 22nd day of February, 1999.
/s/ DOUGLASS A. RAFF
Douglass A. Raff, Secretary
<PAGE> 23
EXHIBIT A
ADOPTION OF RESOLUTIONS FOR CREDIT AGREEMENT
RESOLVED that the President and Executive Vice President (Chief
Financial Officer) of the Corporation are, or either one of them is,
authorized to borrow money or obtain credit in the name of and on behalf
of the Corporation from time to time from U.S. Bank National Association
("U.S. Bank"), including, without limitation, the revolving loan to be
extended through July 1, 2001, by U.S. Bank to the Corporation pursuant
to the terms of a proposed third amendment to Amended and Restated
Credit Agreement between the Corporation and U.S. Bank, expected to be
dated on or about December 28, 1998.
RESOLVED, FURTHER, that the President and Executive Vice President
(Chief Financial Officer) of the Corporation are, or either one of them
is, authorized to execute and deliver in the name of an on behalf of the
Corporation to U.S. Bank promissory notes, real property mortgages,
deeds of trust, amendments to deeds of trust, loan or letter of credit
agreements, security agreements, pledge agreements, unconditional
guaranties, general guaranties guaranteeing the indebtedness of others
to U.S. Bank, and powers of attorney authorizing U.S. Bank to execute in
the name of this Corporation notes showing U.S. Bank as payee. All such
general guaranties guaranteeing the indebtedness of others hereby are
deemed to benefit the Corporation, directly or indirectly.
RESOLVED, FURTHER, that the President and Executive Vice President
(Chief Financial Officer) of the Corporation are, or either one of them
is, authorized to grant to U.S. Bank a security interest in those assets
of the Corporation that said officer shall consider necessary or
expedient to secure payment and performance of liabilities and
obligations of the Corporation to U.S. Bank of every kind and
description, direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising; and in furtherance
thereof perform any and all acts in the name of the Corporation as
necessary, including, but not limited to:
(a) endorsing, signing and delivering to U.S. Bank promissory
notes, security agreements, chattel paper, and all other
documents, instruments, and agreements issued or executed by
others and owned by the Corporation; and
(b) executing in the name of the Corporation and delivering to
U.S. Bank security agreements, chattel paper, financing
statements, general collateral agreements, and such agreements
of any and every character as U.S. Bank shall require in
relation to the Corporation's discounting,
<PAGE> 24
transferring, pledging, or granting security interests in
assets of the Corporation or in which the Corporation has an
interest or in relation to U.S. Bank's collection and sale
thereof.
RESOLVED, FURTHER, that the President and Executive Vice President
(Chief Financial Officer) of the Corporation are, or either one of them
is, authorized to designate additional alternate individuals as being
authorized to request advances under the revolving loan extended by U.S.
Bank to the Corporation and in all cases, to do and perform such other
acts and things, to pay any and all fees and costs, and to execute and
deliver such documents and agreements as they may in their discretion
deem reasonably necessary or proper in order to carry into effect the
provisions of these resolutions. The following persons are authorized to
request advances and authorize payments under the revolving loan until
U.S. Bank receives written notice of revocation of their authority: Paul
Shipman, Bradley Berg, David Mickelson or David Kirske.
RESOLVED, FURTHER, that these resolutions shall constitute a continuing
authority to the designated person or persons to act on behalf of the
Corporation, and the powers and authority herein granted shall continue
until revoked by the Corporation, with formal written notice of such
revocation given to U.S. Bank.
RESOLVED, FURTHER, that the Secretary of the Corporation is hereby
authorized to certify and deliver to U.S. Bank a true copy of the
foregoing resolutions.
RESOLVED, FURTHER, that these resolutions shall be retroactive and act
as a ratification of the execution of all said documents, if any, that
may have been executed before the date of adoption of these resolutions.
<PAGE> 25
EXHIBIT E
to Third Amendment to Amended and Restated Credit Agreement
Recording Requested By And
When Recorded Return To:
U.S. Bank National Association
10800 N.E. 8th Street, Suite 1000
Bellevue, WA 98004
Attn: Matthew D. Hill
SECOND AMENDMENT TO DEED OF TRUST
(WOODINVILLE BREWERY)
Grantor: REDHOOK ALE BREWERY, INCORPORATED, a Washington corporation
Trustee: COMMONWEALTH LAND AND TITLE INSURANCE COMPANY
Beneficiary: U.S. BANK NATIONAL ASSOCIATION, successor by merger to U. S.
Bank of Washington, National Association
Reference Number of Amended Document: 9308101757
Abbreviated Legal Description: Portion of SW Quarter of SE Quarter of S15,
TS26N, R5E, W.M., in King County, Washington.
Assessor's Property Tax Parcel: 152605-9042-000; 152605-9042-001;
152605-9042-002; 152605-9042-003; 152605-9121-03;
AND 1562605-9121-02
A. On or about August 9, 1993, Grantor executed that certain
deed of trust recorded in the real property records of King County, Washington,
on August 10, 1993 under recording number 9308101757 ("Deed of Trust"),
encumbering the real property described in the Deed of Trust. In this Amendment,
words and phrases with initial capital letters shall have the meanings given to
them in the Deed of Trust, unless otherwise defined herein or the context
otherwise requires.
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<PAGE> 26
B. Grantor and Beneficiary are parties to that certain amended and
restated credit agreement dated as of June 5, 1995, as amended by the first
amendment to amended and restated credit agreement dated as of July 25, 1996,
the second amendment to amended and restated credit agreement dated as of
September 15, 1997, and the third amendment to amended and restated credit
agreement of even date herewith ("Third Amendment") (as so amended, the "Credit
Agreement").
C. Subject to the terms and conditions of the Third Amendment,
Beneficiary and Grantor agreed to modify the terms of the revolving loan and to
extend the revolving loan's commitment period.
NOW, THEREFORE, the parties to this Amendment agree as follows:
1. The Deed of Trust is hereby amended to reflect that the Credit
Agreement has been amended by the Third Amendment, and that:
(a) The definition of the term "Note" is hereby amended in its entirety
to read as follows:
NOTE. The word "Note" means any note evidencing a loan made by
Beneficiary to Grantor pursuant to the amended and restated credit agreement
between Grantor and Beneficiary dated as of June 5, 1995, or made pursuant
to any amendment, supplement, or modification to such credit agreement,
including without limitation the renewal revolving note dated as of February
22, 1999, in the principal amount of $10,000,000, the revolving term note
dated as of June 5, 1995 in the principal amount of $10,000,000, and any
acquisition note made payable by Grantor to Beneficiary. Any of the Notes
may contain a variable interest rate.
(b) The Indebtedness shall include Grantor's liability for waste on the
premises or to any of the improvements, including without limitation Grantor's
liability arising from its failure to comply with the requirements set forth on
page 2 of the Deed of Trust under the heading "Nuisance, Waste," or for wrongful
retention of any rents and other income arising from or related to the premises,
insurance proceeds, or condemnation awards, and the cost of any appraisal of the
Property, whether or not obtained in any action for a deficiency judgment.
(c) Notwithstanding anything to the contrary in the Deed of Trust or any
of the Related Documents, Grantor's obligation to indemnify and hold Beneficiary
harmless in accordance with the terms of that certain certificate and indemnity
regarding hazardous substances of even date herewith, shall not be secured by
the lien of the Deed of Trust.
(d) The obligations and liabilities of Grantor for waste on the premises
or to any improvements or for wrongful retention of any rents, or other income
arising from or related to the premises, insurance proceeds, or condemnation
awards shall
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survive any termination, satisfaction, assignment, entry of judgment or
foreclosure, delivery of trustee's deed in a nonjudicial foreclosure proceeding,
or delivery of a deed in lieu of foreclosure.
(e) All notices, requests, consents, demands, approvals, and other
communications under the Deed of Trust, the Credit Agreement, or any of the
Related Documents shall be deemed to have been duly given, made, or served if
made in writing and delivered personally, via facsimile, or mailed by first
class mail, postage prepaid, as follows:
(i) If to Grantor:
Redhook Ale Brewery, Incorporated
3400 Phinney Avenue North
Seattle, Washington 98103
Facsimile number: (206) 548-1305
Attention: Bradley Berg
(ii) If to Beneficiary:
U.S. Bank National Association
10800 N.E. 8th Street, Suite 1000
Bellevue, Washington 98004
Facsimile number: (425) 450-5989
Attention: Matthew D. Hill
(iii) If to Guarantor:
Redhook of New Hampshire, Inc.
3400 Phinney Avenue North
Seattle, Washington 98103
Facsimile number: (206) 548-1305
Attention: Bradley Berg
The designation of the persons to be so notified or the address of such
persons for the purposes of such notice may be changed from time to time by
similar notice in writing, except that any communication with respect to a
change of address shall be deemed to be given or made when received by the party
to whom such communication was sent.
2. Except as specifically provided for herein, all of the terms and
conditions of the Deed of Trust shall remain in full force and effect, and the
priority of the Deed of Trust shall not be affected by this Amendment or any of
the modifications to any of the Notes or Related Documents.
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<PAGE> 28
IN WITNESS WHEREOF, Grantor and Beneficiary have executed this Amendment
to be effective as of February 22, 1999.
GRANTOR:
REDHOOK ALE BREWERY, INCORPORATED, a Washington
corporation
By: /s/ BRADLEY A. BERG
----------------------------------------------
Its: Executive Vice President
and Chief Financial Officer
BENEFICIARY:
U.S. BANK NATIONAL ASSOCIATION,
successor by merger to U.S. Bank of
Washington National Association
By: /s/ MATT HILL
-------------
Matthew D. Hill, Assistant Vice President
State of Washington )
) ss.
County of King )
I certify that I know or have satisfactory evidence that _______________
is the person who appeared before me, and said person acknowledged that he/she
signed this instrument, on oath stated that he/she was authorized to execute the
instrument and acknowledged it as the ________________________ of Redhook Ale
Brewery, Incorporated, to be the free and voluntary act of such party for the
uses and purposes mentioned in the instrument.
Dated: February __, 1999.
----------------------------------------
Notary Public for Washington
----------------------------------------
----------------------------------------
Residing at:
----------------------------
My appointment expires:
-----------------
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<PAGE> 29
State of Washington )
) ss.
County of King )
I certify that I know or have satisfactory evidence that Matthew D. Hill
is the person who appeared before me, and said person acknowledged that he
signed this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the Assistant Vice President of U.S. Bank
National Association to be the free and voluntary act of such party for the uses
and purposes mentioned in the instrument.
Dated: February __, 1999.
----------------------------------------
Notary Public for Washington
----------------------------------------
----------------------------------------
Residing at:
----------------------------
My appointment expires:
-----------------
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<PAGE> 30
EXHIBIT F
to Third Amendment to Amended and Restated Credit Agreement
SECURITY AGREEMENT
This security agreement ("Agreement") is made and entered into as of
February 22, 1999, by REDHOOK ALE BREWERY, INCORPORATED, a Washington
corporation ("Borrower"), for the benefit of U.S. BANK NATIONAL ASSOCIATION, a
national banking association ("U.S. Bank"). Words and phrases with initial
capital letters have the meanings given to them in Article I of this Agreement.
R E C I T A L S :
A. On or about June 5, 1995, Borrower and U.S. Bank entered into that
certain amended and restated credit agreement (together with all supplements,
exhibits, and amendments thereto, referred to as the "Credit Agreement"),
whereby U.S. Bank agreed to make loans and advances of credit to Borrower on the
terms and conditions set forth therein. Concurrently with the execution of this
Agreement, Borrower and U.S. Bank entered into the third amendment to amended
and restated credit agreement ("Third Amendment") whereby U.S. Bank and Borrower
agreed to modify the terms of the Loans.
B. Borrower's grant to U.S. Bank of a security interest in all of its
assets as security for the Secured Obligations is among the agreed upon
modifications to the Loans.
NOW, THEREFORE, in order for U.S. Bank to modify the Loans in accordance
with the terms of the Third Amendment, Borrower agrees as follows:
ARTICLE I. DEFINITIONS
Unless otherwise defined herein, terms defined in the Credit Agreement
shall have the same meanings when used herein. For the purposes of this
Agreement, the following terms shall have the following meanings:
"Account" means any right to payment for goods sold or leased or for
services rendered that is not evidenced by an Instrument or Chattel Paper,
whether or not it has been earned by performance.
"Account Debtor" means the party who is obligated on or under any
Account, Chattel Paper, or General Intangible.
"Assignee Deposit Account" shall have the meaning set forth in Section
5.7 hereof.
"Chattel Paper" means all interest of Borrower in writings that evidence
both a monetary obligation and a security interest in or a lease of specific
goods, including any group of writings consisting of both a security agreement
or a lease and an Instrument or series of Instruments.
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<PAGE> 31
"Collateral" means all property, real, personal, and mixed, tangible and
intangible, wherever located, now owned or hereafter acquired by Borrower, or in
which Borrower has or later obtains an interest, including but not limited to
Accounts, Chattel Paper, Deposit Accounts, Documents, Equipment, Financial
Assets, General Intangibles, Goods, Instruments, Inventory, Investment Property,
Trademarks, and Vehicles, and all products, profits, rents, and proceeds of such
property. As used in this Agreement, "Collateral" shall not include any property
owned by any Subsidiary of Borrower.
"Deposit Account" means a demand, time, savings, passbook, or like
account maintained with a bank, savings and loan association, credit union, or
like organization, other than an account evidenced by a certificate of deposit.
"Document" means all of Borrower's right, title, and interest in or to
any document of title as defined in RCW 62A.1-201 and any receipt of the kind
described in RCW 62A.7-201(2).
"Equipment" means all of Borrower's right, title, and interest in and to
Goods that are used or bought for use primarily in business and that are not
included within the definition of Inventory, including but not limited to all
machinery, equipment, furnishings, fixtures, vehicles, tools, supplies, and
other equipment of any kind and nature and all additions, substitutions, and
replacements of any of the foregoing, together with all attachments, components,
parts, accessories, improvements, upgrades, and accessories installed thereon or
affixed thereto.
"Event of Default" means an occurrence of an Event of Default as defined
in the Credit Agreement.
"Financial Assets" means all of Borrower's right, title, and interest in
and to any financial asset as defined in RCW 62A.8-102.
"General Intangibles" means all personal property (including things in
action) other than Goods, Accounts, Chattel Paper, Documents, Financial Assets,
Instruments, Investment Property, and money, including but not limited to all
Trademarks, insurance proceeds, patents, copyrights, trade names, trade secrets,
goodwill, registration, license rights, licenses, permits, corporate and other
business records, rights to refunds or indemnification, and all other intangible
personal property of Borrower of every kind and nature.
"Goods" means all things that are movable or that are fixtures, not
including money, Documents, Financial Assets, Instruments, Accounts, Chattel
Paper, Investment Property, or General Intangibles.
"Instrument" means any negotiable instrument or other writing that
evidences a right to the payment of money and is not itself a security agreement
or lease and is of a type that is in the ordinary course of business transferred
by delivery with any necessary endorsement or assignment.
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<PAGE> 32
"Inventory" means all Goods held by Borrower for sale or lease,
furnished or to be furnished by Borrower under any contract of service, or held
by Borrower as raw materials, work in progress, or materials used or consumed in
Borrower's business.
"Investment Property" means all of Borrower's right, title, and interest
in and to any investment property as defined in RCW 62A.9-115.
"Secured Obligations" means any past, present, or future Indebtedness of
Borrower to U.S. Bank, and includes but is not limited to (a) any indebtedness,
obligation, or liability of any kind arising in any way of Borrower to U.S.
Bank, now existing or hereafter created, under the Credit Agreement, the Notes,
or the other Loan Documents, including any refinancing, renewal, replacement,
extension, amendment, or substitution of such indebtedness, (b) any liability or
obligation of Borrower hereunder, (c) the obligations of Borrower under any
guaranty executed by Borrower and delivered to U.S. Bank, whereby Borrower
guarantees the Indebtedness of any Person other than Borrower to U.S. Bank, and
(d) any cost, expense, or liability, including but not limited to reasonable
attorney fees, that may be incurred and advances that may be made by U.S. Bank
in any way in connection with any of the foregoing or any security therefor.
"Trademark" means (a) any trademark, trade name, corporate name, company
name, business name, fictitious business name, trade style, service mark, logo
or other source or business identifier, and the goodwill associated therewith,
now existing or hereafter adopted or acquired, (b) any registration or recording
of any Trademark, and any application in connection therewith, whether in the
United States Patent and Trademark Office or in any similar office or agency of
the United States or of any state of the United States, or any other country or
any political subdivision of another country or otherwise, and (c) all renewals
of any Trademark.
"Vehicle" means any car, truck, trailer, construction or earth-moving
equipment, or other vehicle covered by a certificate of title of any state,
including but not limited to any tires or other appurtenances to any Vehicle.
ARTICLE II. GRANT OF SECURITY INTEREST
As security for the payment and satisfaction of the Secured Obligations,
Borrower hereby grants to U.S. Bank a continuing security interest in and
assigns to U.S. Bank all of Borrower's right, title, and interest in the
Collateral and all products, profits, rents, and proceeds thereof.
ARTICLE III. COVENANTS OF BORROWER
Borrower shall fully perform each of the following covenants:
3.1 Obligations to Pay.
(a) Borrower shall pay to U.S. Bank, in timely fashion and in full, all
amounts payable by Borrower to U.S. Bank, pursuant to the Credit Agreement, the
Notes, and the other Loan Documents; and
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<PAGE> 33
(b) Borrower shall pay and reimburse U.S. Bank for all expenditures
including reasonable attorney fees and legal expenses in connection with the
exercise by U.S. Bank of any of its rights or remedies under the Credit
Agreement or the other Loan Documents.
3.2 Performance. Borrower shall fully perform in a timely fashion every
covenant, agreement, and obligation set forth in the Credit Agreement and the
other Loan Documents.
3.3 Further Documentation. At its own expense, Borrower shall execute
and deliver any financing statement, any renewal, substitution, or correction
thereof, or any other document; shall procure any document; and shall take such
further action as U.S. Bank reasonably may require in obtaining the full
benefits of this Agreement.
3.4 Filing Fees. Borrower shall pay all costs of filing any financing,
continuation, or termination statement with respect to the security interests
granted herein.
3.5 Pledges. Borrower shall deliver and pledge to U.S. Bank, endorsed or
accompanied by instruments of assignment or transfer satisfactory to U.S. Bank,
any Instruments, Investment Property, Documents, General Intangibles, or Chattel
Paper that U.S. Bank may specify from time to time.
3.6 Maintenance of Records. Borrower shall keep and maintain at its own
cost and expense satisfactory and complete records of the Collateral including
but not limited to a record of all payments received and all credits granted
with respect to the Collateral and all other dealings with the Collateral.
Borrower shall deliver and turn over to U.S. Bank all books and records
pertaining to the Collateral at any time after the occurrence and during the
continuation of an Event of Default, if so demanded by U.S. Bank.
3.7 Disposition of Collateral. Except for the sale of Equipment that was
used in Borrower's location at Phinney Avenue North, Seattle, Washington, or in
the ordinary course of Borrower's business or as otherwise allowed in the Credit
Agreement, Borrower shall not sell or transfer any of the Collateral or release,
compromise, or settle any obligation or material receivable due to Borrower.
3.8 Indemnification. Borrower agrees to pay, and to indemnify U.S. Bank
and hold U.S. Bank harmless from, all liabilities, costs, and expenses including
but not limited to reasonable legal fees and expenses with respect to or
resulting from (a) any delay in paying any excise, sales, or other taxes that
may be payable or determined to be payable with respect to any of the
Collateral, (b) any delay by Borrower in complying with any requirement of law
applicable to any of the Collateral, or (c) any of the transactions contemplated
by this Agreement. In any reasonable suit, proceeding, or action brought by U.S.
Bank to enforce payment of any sum owing on any Account or to enforce any
provisions of any Account, Borrower will indemnify U.S. Bank and hold U.S. Bank
harmless from all expense, loss, or damage suffered by reason of any defense,
setoff, counterclaim, recoupment, or reduction allowed with respect to the
Account to the extent arising out of a breach by Borrower of any
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<PAGE> 34
obligation under the Account or arising out of any other agreement,
indebtedness, or liability at any time owing to or in favor of such Account
Debtor or its successors from Borrower.
3.9 Limitations on Amendments, Modifications, Terminations, Waivers, and
Extensions of Contracts and Agreements Giving Rise to Accounts. Except, in each
case, in the ordinary course of Borrower's business or consistent with industry
practice, Borrower will not (a) amend, modify, terminate, waive, or extend any
provision of any agreement giving rise to an Account in any manner that could
reasonably be expected to have a material adverse effect on the aggregate value
of the Accounts as Collateral or (b) fail to exercise promptly and diligently
every material right that it may have under each agreement giving rise to an
Account, other than any right of termination.
3.10 Limitations on Discounts, Compromises, and Extensions of Accounts.
Borrower will not grant any extension of the time of payment of any of the
Accounts; compromise, compound, or settle the same for less than the full amount
thereof; release, wholly or partially, any Person liable for the payment
thereof; or allow any credit or discount whatsoever thereon, except, in each
case, in the ordinary course of Borrower's business or consistent with industry
practice.
3.11 Further Identification of Collateral. Borrower will furnish to U.S.
Bank, upon its reasonable request, statements and schedules further identifying
and describing the Collateral and such other reports in connection with the
Collateral as U.S. Bank may reasonably request.
3.12 Notices. Borrower will advise U.S. Bank promptly in reasonable
detail at its address set forth in Section 7.9 of the occurrence of any event
that could reasonably be expected to have a material adverse effect on the
Collateral or on the liens created hereunder, including any lien (other than
liens created hereby or permitted under the Credit Agreement) on or claim
asserted against any of the Collateral.
3.13 Changes in Locations, Name, Etc. Borrower will not (a) change the
location of its chief executive office/chief place of business or remove its
books and records from the locations specified on Schedule II to this Agreement,
(b) except in the ordinary course of Borrower's business and consistent with
prior practice, permit any of the Inventory or Equipment (excluding Vehicles) to
be kept at locations other than those listed on Schedule II, or (c) change its
name, identity, or structure to such an extent that any financing statement
filed by U.S. Bank in connection with this Agreement would become seriously
misleading, unless it shall have given U.S. Bank at least ten days' prior
written notice thereof.
3.14 Trademarks.
(a) Borrower (either itself or through licensees) will, in a manner
consistent with prior practice, (i) continue to use its Trademarks in order to
maintain such Trademarks in full force, free from any claim of abandonment for
nonuse that would materially decrease the aggregate value of the Trademarks,
(ii) maintain the quality of products and services offered under such
Trademarks, (iii) employ such Trademarks with the appropriate notice of
registration, (iv) not adopt or use any mark that is confusingly similar to or a
colorable imitation of such
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<PAGE> 35
Trademarks unless U.S. Bank shall have obtained a perfected security interest in
such mark pursuant to this Agreement, and (v) not (and not permit any licensee
or sublicensee thereof to) do any act or knowingly omit to do any act whereby
any currently-used Trademark may become invalidated.
(b) Borrower will notify U.S. Bank immediately if it knows, or has
reason to know, of (i) any application or registration relating to any Trademark
material to its business that may become abandoned or dedicated, or (ii) any
adverse determination or development (including but not limited to the
institution of, or any adverse determination or development in, any proceeding
in the United States Patent and Trademark Office or any court or tribunal in any
country) regarding Borrower's ownership of any material Trademark or its right
to register, keep, or maintain the same.
(c) Whenever Borrower, either by itself or through any agent, employee,
licensee, or designee, shall file an application for the registration of any
material Trademark with the United States Patent and Trademark Office, Borrower
shall report such filing to U.S. Bank within 30 days after the last day of the
calendar month in which such filing occurs. Borrower shall execute and deliver
to U.S. Bank all agreements, instruments, powers of attorney, documents, and
papers that U.S. Bank may request to evidence U.S. Bank's security interest in
any Trademark and in the goodwill and general intangibles of Borrower relating
to or represented by the Trademark. Borrower hereby constitutes U.S. Bank its
attorney-in-fact to execute and file all such writings for the foregoing
purposes, with all acts of such attorney being hereby ratified and confirmed;
and such power, being coupled with an interest, is irrevocable until all Secured
Obligations are paid in full.
(d) Borrower will take all reasonable and necessary steps, including but
not limited to all reasonable and necessary steps in any proceeding before the
United States Patent and Trademark Office or any similar office or agency in any
other country or any political subdivision thereof to which Borrower has applied
for any Trademark, to maintain and pursue each application, to obtain the
relevant registration, and to maintain each registration of material Trademarks,
including but not limited to filing applications for renewal, affidavits of use,
and affidavits of incontestability.
(e) If any Trademark that is included in the Collateral is infringed,
misappropriated, or diluted by a third party, Borrower shall promptly notify
U.S. Bank after it learns thereof and shall take such action as Borrower
reasonably deems appropriate under the circumstances to protect such Trademark.
3.15 Vehicles. Upon request by U.S. Bank, the application for
certificate of title to any vehicle indicating U.S. Bank's first priority lien
on such Vehicle, and any other necessary documentation, shall be filed in each
office in each jurisdiction that U.S. Bank deems advisable to perfect its lien
on any Vehicle constituting Collateral.
3.16 Insurance. Borrower agrees to insure the Collateral against all
hazards in form and amount consistent with the prior practices of Borrower and
reasonably acceptable to U.S. Bank. If Borrower fails to obtain such insurance,
U.S. Bank shall have the right, but not the obligation, to obtain either
insurance covering both Borrower's and U.S. Bank's interest in the
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<PAGE> 36
Collateral, or insurance covering only U.S. Bank's interest in the Collateral.
Borrower agrees to pay such premium that would be charged for insurance that
Borrower is required to maintain by this Section 3.16. This amount may be added
to the outstanding balance of the Loans, and interest thereon shall be charged
at the rate specified in any applicable Loan Document, or U.S. Bank may demand
immediate payment. Any unpaid insurance premium advanced by U.S. Bank shall be
secured under the terms of this Agreement. U.S. Bank will have no liability
whatsoever for any loss which may occur by reason of the omission or lack of
coverage of any such insurance. Any insurer shall make payable jointly to the
Borrower and U.S. Bank as secured party (or otherwise as its interest may
appear) any loss payments from casualty/property loss insurance covering any of
the Collateral in excess of $100,000.
3.17 Copy of Financing Statement. Borrower agrees that a carbon,
photographic, or other reproduction of a financing statement or this Agreement
is sufficient as a financing statement.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
Borrower hereby makes the following representations and warranties:
4.1 Title to Collateral. Borrower has good and marketable title to all
the Collateral, free and clear of all liens excepting only the security
interests created pursuant to this Agreement or permitted pursuant to the Credit
Agreement.
4.2 No Impairment of Collateral. None of the Collateral shall be
impaired or jeopardized because of the security interest herein granted.
4.3 Other Agreements. The execution and delivery of this Agreement, the
consummation of the transactions provided for herein, and the fulfillment of the
terms hereof will not result in the breach of any of the terms, conditions, or
provisions of, or constitute a default under, or conflict with, or cause any
acceleration of any obligation under any (a) agreement or other instrument to
which Borrower is a party or by which Borrower is bound or (b) Applicable Law.
4.4 No Approvals. No Governmental Approvals of any nature are required
in connection with the security interests herein granted.
4.5 Authority. Borrower has full power and authority to assign to U.S.
Bank and to grant to U.S. Bank a security interest in the Collateral.
4.6 Location of Records. The address of the office where the books and
records of Borrower are kept concerning the Collateral is set forth on Schedule
II.
4.7 Location of Collateral. The locations of all Inventory and Equipment
of Borrower are described on Schedule II.
4.8 Name. Borrower, but not necessarily any of its Subsidiaries,
conducts its business only under the name "Redhook Ale Brewery, Incorporated."
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4.9 Accounts. The amount represented by Borrower to U.S. Bank from time
to time as owing by each Account Debtor or by all Account Debtors in respect of
the Accounts will at such time be the materially correct amount actually owing
by such Account Debtor or Debtors thereunder. No material amount payable to
Borrower under or in connection with any Account is evidenced by any Instrument
or Chattel Paper that has not been delivered to U.S. Bank.
4.10 Chief Executive Office. Borrower's chief executive office and chief
place of business is located at the address set forth on Schedule II.
4.11 Trademarks. Schedule I hereto includes all Trademarks owned by
Borrower in its own name as of the date hereof. To the best of Borrower's
knowledge, the Trademarks are valid, subsisting, unexpired, and enforceable and
have not been abandoned. Except as set forth in Schedule I, none of the
Trademarks is the subject of any licensing or franchise agreement. No holding,
decision, or judgment that would limit, cancel, or question the validity of the
Trademarks has been rendered by any Governmental Body. No action or proceeding
is pending that seeks to limit, cancel, or question the validity of such
Trademarks and that would, if adversely determined, have a material adverse
effect on the aggregate value of the Trademarks.
4.12 Governmental Obligors. No Account Debtor is a Governmental Body.
ARTICLE V. U.S. BANK'S RIGHTS WITH RESPECT
TO THE COLLATERAL
5.1 No Duty on U.S. Bank's Part. U.S. Bank shall not be required (except
at its option upon the occurrence and during the continuation of any Event of
Default) to realize upon any Accounts, Financial Assets, Instruments, Investment
Property, Chattel Paper, or General Intangibles; collect the principal,
interest, or payment due thereon, exercise any rights or options of Borrower
pertaining thereto; make presentment, demand, or protest; give notice of
protest, nonacceptance, or nonpayment; or do any other thing for the protection,
enforcement, or collection of such Collateral. The powers conferred on U.S. Bank
hereunder are solely to protect U.S. Bank's interests in the Collateral and
shall not impose any duty upon U.S. Bank to exercise any such powers. U.S. Bank
shall be accountable only for amounts that U.S. Bank actually receives as a
result of the exercise of such powers; and neither U.S. Bank nor any of its
officers, directors, employees, or agents shall be responsible to Borrower for
any act or failure to act hereunder.
5.2 Negotiations with Account Debtors. During the existence of any Event
of Default, U.S. Bank may, in its sole discretion, extend or consent to the
extension of the time of payment or maturity of any Instruments, Accounts,
Chattel Paper, or General Intangibles.
5.3 Right to Assign. Except as otherwise provided in the Credit
Agreement, U.S. Bank may assign or transfer the whole or any part of the Secured
Obligations and may transfer therewith U.S. Bank's security interests in the
whole or any part of the Collateral; and all obligations, rights, powers, and
privileges herein provided shall inure to the benefit of the assignee and shall
bind the successors and assigns of the parties hereto.
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5.4 Duties Regarding Collateral. Beyond the safe custody thereof, U.S.
Bank shall not have any duty as to any Collateral in its possession or control,
or as to any preservation of any rights of or against other parties.
5.5 Collection From Account Debtors. During the existence of any Event
of Default, Borrower shall, upon demand by U.S. Bank (and without any grace or
cure period), notify all Account Debtors to make payment to U.S. Bank of any
amounts due or to become due. Borrower authorizes U.S. Bank to contact the
Account Debtors for the purpose of having all or any of them pay their
obligations directly to U.S. Bank. Upon demand by U.S. Bank, Borrower shall
enforce collection of any indebtedness owed to it by Account Debtors.
5.6 Inspection. U.S. Bank and its designees, from time to time at
reasonable times and intervals, may inspect the Equipment and Inventory and
inspect, audit, and make copies of and extracts from all records and all other
papers in the possession of Borrower.
5.7 Assignee Deposit Account. Upon demand by U.S. Bank, during the
existence of an Event of Default, Borrower will transmit and deliver to U.S.
Bank, in the form received, immediately after receipt, all cash, checks, drafts,
Chattel Paper, Instruments, or other writings for the payment of money including
Investment Property (properly endorsed, where required, so that the items may be
collected by U.S. Bank) that may be received by Borrower at any time. All items
or amounts that are delivered by Borrower to U.S. Bank, or collected by U.S.
Bank from the Account Debtors, shall be deposited to the credit of a Deposit
Account ("Assignee Deposit Account") of Borrower with U.S. Bank, as security for
the payment of the Secured Obligations. Borrower shall have no right to withdraw
any funds deposited in the Assignee Deposit Account. U.S. Bank may, from time to
time in its discretion, and shall, upon the request of Borrower made not more
than twice in any week, apply all or any of the balance, representing collected
funds, in the Assignee Deposit Account, to payment of the Secured Obligations,
whether or not then due, in such order of application, not inconsistent with the
terms of the Credit Agreement and this Agreement, as U.S. Bank may determine;
and U.S. Bank may, from time to time in its discretion, release all or any of
such balance to Borrower.
ARTICLE VI. U.S. BANK'S RIGHTS AND REMEDIES
6.1 General. During the existence of any Event of Default, U.S. Bank may
exercise its rights and remedies in the Credit Agreement and in any other Loan
Documents and any other rights and remedies at law and in equity, simultaneously
or consecutively, all of which rights and remedies shall be cumulative. The
choice of one or more rights or remedies shall not be construed as a waiver or
election barring other rights and remedies. Borrower hereby acknowledges and
agrees that U.S. Bank is not required to exercise all rights and remedies
available to it equally with respect to all the Collateral and that U.S. Bank
may select less than all the Collateral with respect to which the rights and
remedies as determined by U.S. Bank may be exercised.
6.2 Notice of Sale; Duty to Assemble Collateral. In addition to or in
conjunction with the rights and remedies referred to in Section 6.1 hereof:
-9-
<PAGE> 39
(a) Written notice mailed to Borrower at the address designated herein
ten days or more prior to the date of public or private sale of any of the
Collateral shall constitute reasonable notice.
(b) If U.S. Bank requests, Borrower will assemble the Collateral and
make it available to U.S. Bank at places that U.S. Bank shall reasonably select,
whether on Borrower's premises or elsewhere.
ARTICLE VII. GENERAL PROVISIONS
7.1 Entire Agreement. This Agreement, together with the Credit Agreement
and the other Loan Documents, sets forth all the promises, covenants,
agreements, conditions, and understandings between the parties hereto with
respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements and understandings, inducements, or conditions,
express or implied, oral or written, with respect thereto, except as contained
or referred to herein. This Agreement may not be amended, waived, discharged, or
terminated orally, but only by an instrument in writing signed by the party
against whom enforcement of such amendment, waiver, discharge, or termination is
sought.
7.2 Invalidity. If any provision of this Agreement shall for any reason
be held to be invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provision hereunder, but this Agreement shall be
construed as if such invalid or unenforceable provision had never been contained
herein.
7.3 Nonwaiver and Nonexclusive Rights and Remedies.
(a) No right or remedy herein conferred upon or reserved to U.S. Bank is
intended to be to the exclusion of any other right or remedy, but each and every
such right or remedy shall be cumulative and shall be in addition to every other
right or remedy given hereunder and now or hereafter existing at law or in
equity.
(b) No delay or omission by U.S. Bank in exercising any right or remedy
accruing upon an Event of Default shall impair any such right or remedy, or
shall be construed to be a waiver of any such Event of Default, or an
acquiescence therein, nor shall it affect any subsequent Event of Default of the
same or of a different nature.
7.4 Termination of Security Interest. When all the Secured Obligations
have been paid in full, the security interest provided herein shall terminate
and U.S. Bank shall return to Borrower all Collateral then held by U.S. Bank, if
any, and upon written request of Borrower, shall execute, in form for filing,
termination statements of the security interests herein granted. Thereafter, no
party hereto shall have any further rights or obligations hereunder.
7.5 Successors and Assigns. All rights of U.S. Bank hereunder shall
inure to the benefit of its successors and assigns, and all obligations of
Borrower shall be binding upon its successors and assigns.
-10-
<PAGE> 40
7.6 U.S. Bank's Appointment as Attorney-in-Fact.
(a) Borrower hereby irrevocably constitutes and appoints U.S. Bank and
any officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of Borrower and in the name of Borrower or in its own name, from time
to time during the existence of an Event of Default, in U.S. Bank's discretion,
for the purpose of carrying out the terms of this Agreement, to take any and all
appropriate action, and to execute any and all documents and instruments that
may be necessary or desirable to accomplish the purposes of this Agreement; and
without limiting the generality of the foregoing, Borrower hereby gives U.S.
Bank the power and right, on behalf of Borrower, without consent by or notice to
Borrower, to do the following during the existence of an Event of Default:
(i) to transfer to U.S. Bank or to any other Person all or any of the
Collateral, to endorse any Instruments pledged to U.S. Bank, and to fill in
blanks in any transfers of Collateral, powers of attorney, or other
documents delivered to U.S. Bank;
(ii) to pay or discharge taxes and liens levied or placed on or
threatened against the Collateral, to effect any repairs or any insurance
called for by the terms of this Agreement, and to pay all or any part of the
premiums therefor and the costs thereof;
(iii) to take possession of, endorse, and collect any checks, drafts,
notes, acceptances, or other instruments for the payment of moneys due under
any Account, Instrument, or General Intangible or with respect to any other
Collateral and to file any claim or to take any other action or proceeding
in any court of law or equity or otherwise deemed appropriate by U.S. Bank
for the purpose of collecting all such moneys due under any Account,
Financial Assets, Instrument, Investment Property, or General Intangible or
with respect to any other Collateral whenever payable; and
(iv) to direct any party liable for any payment under any of the
Collateral to make payment of all moneys due or to become due thereunder
directly to U.S. Bank or as U.S. Bank shall direct; to ask for, demand,
collect, and receive payment of and receipt for, any and all moneys, claims
and other amounts due or to become due at any time in respect of or arising
out of any Collateral; to sign and endorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, notices, and other documents in
connection with any of the Collateral; to commence and prosecute any suits,
actions, or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral and to enforce any other right in
respect of any Collateral; to defend, settle, compromise, or adjust any
suit, action, or proceeding brought against Borrower with respect to any
Collateral and, in connection therewith, to give such discharge or releases
as U.S. Bank may deem appropriate; to assign any Trademark (along with the
goodwill of the business to which any such Trademark pertains) throughout
the world for such terms, on such
-11-
<PAGE> 41
conditions, and in such manner as U.S. Bank shall in its sole discretion
determine; and generally, to sell, transfer, pledge, and make any agreement
with respect to or otherwise deal with any of the Collateral as fully and
completely as though U.S. Bank were the absolute owner thereof for all
purposes; and to do, at U.S. Bank's option and Borrower's expense, at any
time or from time to time, all acts and things that U.S. Bank deems
necessary to protect, preserve or realize upon the Collateral and U.S.
Bank's liens thereon and to effect the intent of this Agreement, all as
fully and effectively as Borrower might do.
(b) Borrower hereby ratifies all that said attorneys shall lawfully do
or cause to be done by virtue of this appointment. This power of attorney is a
power coupled with an interest and shall be irrevocable until all Secured
Obligations are paid in full.
(c) Borrower also authorizes U.S. Bank, at any time and from time to
time, to execute, in connection with the sale provided for in Article VI hereof,
any endorsements, assignments, or other instruments of conveyance or transfer
with respect to the Collateral.
(d) The powers conferred on U.S. Bank hereunder are solely to protect
U.S. Bank's interests in the Collateral and shall not impose any duty upon U.S.
Bank to exercise any such powers. U.S. Bank shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers,
and neither it nor any of its officers, directors, employees, or agents shall be
responsible to Borrower for any act or failure to act hereunder.
7.7 Performance by U.S. Bank of Borrower's Obligations. If Borrower
fails to perform or comply with any of its agreements contained herein and U.S.
Bank, as provided for by the terms of this Agreement, shall itself perform or
comply, or otherwise cause performance or compliance, with such agreement, the
expense of U.S. Bank incurred in connection with such performance or compliance,
together with interest thereon at the rate provided for in the Credit Agreement
upon the occurrence of an Event of Default, shall be payable by Borrower to U.S.
Bank on demand and shall constitute Secured Obligations.
7.8 Governing Law. This Agreement and the rights and obligations of the
parties hereunder shall be construed and enforced in accordance with and shall
be governed by the laws of the state of Washington, without regard to the
state's rules and principles relating to conflicts of law.
7.9 Notices. All notices, requests, consents, demands, approvals, and
other communications hereunder shall be deemed to have been duly given, made, or
served if given, made or served in accordance with the notice provisions of
Section 10.1 of the Credit Agreement.
7.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original Agreement, but all of
which together shall constitute one and the same instrument.
-12-
<PAGE> 42
IN WITNESS WHEREOF, Borrower and U.S. Bank have caused this Agreement to
be duly executed by their respective duly authorized officers or agents, to be
effective as of February 22, 1999.
REDHOOK ALE BREWERY, INCORPORATED
By: /s/ BRADLEY A. BERG
-------------------
Bradley A. Berg,
Executive Vice President and
Chief Financial Officer
ACCEPTED BY: U.S. BANK NATIONAL ASSOCIATION,
a national banking association
By: /s/ MATT HILL
-------------
Matthew D. Hill, Assistant Vice
President
-13-
<PAGE> 43
SCHEDULE I
TRADEMARK REGISTRATIONS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Mark Country Reg. No. Issued
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALLARD BITTER Canada 426,849 May 6, 1994
- ----------------------------------------------------------------------------------------------------------
BALLARD BITTER Mexico 484957 November 30, 1994
- ----------------------------------------------------------------------------------------------------------
BALLARD BITTER U.S. 1,755,631 MARCH 2, 1993
- ----------------------------------------------------------------------------------------------------------
BALLARD BITTER State: New Vol. 90 Pg 26 February 15, 1995
Hampshire
- ----------------------------------------------------------------------------------------------------------
BLACK HOOK U.S. 1,299,809 OCTOBER 9, 1984
- ----------------------------------------------------------------------------------------------------------
BLACK HOOK Mexico 484959 November 30, 1994
- ----------------------------------------------------------------------------------------------------------
BLACK HOOK State: New Vol. 90 Pg 24 February 15, 1995
Hampshire
- ----------------------------------------------------------------------------------------------------------
BLACKHOOK PORTER & DESIGN U.S. 1,296,703 SEPTEMBER 18, 1984
- ----------------------------------------------------------------------------------------------------------
BLUELINE U.S. 1,892,301 MAY 2, 1995
- ----------------------------------------------------------------------------------------------------------
DESIGN (BALLARD BITTER) U.S. 1,409,762 SEPTEMBER 16, 1986
- ----------------------------------------------------------------------------------------------------------
DESIGN (WINTERHOOK) U.S. 1,493,423 JUNE 21, 1988
- ----------------------------------------------------------------------------------------------------------
FORECASTERS U.S. 1,929,789 OCTOBER 24, 1995
- ----------------------------------------------------------------------------------------------------------
RED HOOK Canada 418,500 October 22, 1993
- ----------------------------------------------------------------------------------------------------------
RED HOOK Hong Kong 2375/93 June 18, 1993
- ----------------------------------------------------------------------------------------------------------
RED HOOK Japan 2601613 November 30, 1993
- ----------------------------------------------------------------------------------------------------------
RED HOOK South Korea 247,104 August 17, 1992
- ----------------------------------------------------------------------------------------------------------
RED HOOK Mexico 484960 November 30, 1994
- ----------------------------------------------------------------------------------------------------------
RED HOOK Singapore 7563/91 August 13, 1991
- ----------------------------------------------------------------------------------------------------------
RED HOOK Taiwan 556831 April 16, 1992
- ----------------------------------------------------------------------------------------------------------
RED HOOK U.S. 1,253,138 OCTOBER 4, 1983
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-14-
<PAGE> 44
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Mark Country Reg. No. Issued
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RED HOOK ALE & DESIGN U.S. 1,332,480 APRIL 23, 1985
- -----------------------------------------------------------------------------------------------------
RED HOOK BLUELINE AND DESIGN U.S. 1,802,237 NOVEMBER 2, 1993
- -----------------------------------------------------------------------------------------------------
RED HOOK DOUBLE BLACK Japan 4143687 May 8, 1998
- -----------------------------------------------------------------------------------------------------
RED HOOK ESB State: New Vol 90 Pg 25 February 15, 1995
Hampshire
- -----------------------------------------------------------------------------------------------------
RED HOOK ESB AND DESIGN U.S. 1,940,873 DECEMBER 12, 1995
- -----------------------------------------------------------------------------------------------------
RED HOOK DOUBLE BLACK STOUT U.S. 2,093,507 SEPTEMBER 2, 1997
- -----------------------------------------------------------------------------------------------------
TROLLEYMAN U.S. 1,929,788 OCTOBER 24, 1995
- -----------------------------------------------------------------------------------------------------
WHEAT HOOK Canada 413,666 June 18, 1993
- -----------------------------------------------------------------------------------------------------
WHEAT HOOK Mexico 484958 November 30, 1994
- -----------------------------------------------------------------------------------------------------
WHEAT HOOK U.S. 1,682,181 APRIL 7, 1992
- -----------------------------------------------------------------------------------------------------
WHEAT HOOK State: New Vol 90 Pg 7 February 15, 1995
Hampshire
- -----------------------------------------------------------------------------------------------------
WHEATHOOK and Design State: 18,915 May 10, 1989
Washington
- -----------------------------------------------------------------------------------------------------
WINTERHOOK U.S. 1,490,430 MAY 31, 1988
- -----------------------------------------------------------------------------------------------------
WINTERHOOK State: New March 20, 1996
Hampshire
- -----------------------------------------------------------------------------------------------------
TRADEMARK APPLICATIONS
- -----------------------------------------------------------------------------------------------------
BALLARD BITTER, IPA and Design U.S. 75/479,479 May 5, 1998
- -----------------------------------------------------------------------------------------------------
ESB Japan 1997-103375 April 3, 1997
- -----------------------------------------------------------------------------------------------------
RED HOOK Japan 1997-103376 April 3, 1997
- -----------------------------------------------------------------------------------------------------
RED HOOK Logo Community 440966 December 11, 1996
- -----------------------------------------------------------------------------------------------------
</TABLE>
-15-
<PAGE> 45
SCHEDULE II
Address of
Chief executive office: 3400 Phinney Avenue North
Seattle, WA 98103
Address of Office where
Books and records are kept: Same as Chief Executive Office
Addresses of locations of
Collateral: Washington
-16-
<PAGE> 1
REDHOOK ALE BREWERY, INC.
AND
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
AMENDED AND RESTATED
RIGHTS AGREEMENT
Dated as of May 12, 1999
<PAGE> 2
AMENDED AND RESTATED RIGHTS AGREEMENT
THIS RIGHTS AGREEMENT is hereby amended and restated as of May
12, 1999, between Redhook Ale Brewery, Incorporated, a
Washington corporation (the "Company"), and ChaseMellon
Shareholder Services, L.L.C., as successor Rights Agent (the
"Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one Right (as hereinafter defined) for each share of Common Stock,
par value $.005 per share, of the Company (the "Common Stock") outstanding at
the Close of Business (as hereinafter defined) on October 2, 1995 (the "Record
Date") and has authorized the issuance of one Right (as such number may
hereafter be adjusted pursuant to the provisions of this Rights Agreement) with
respect to each share of Common Stock that shall become outstanding between the
Record Date and the earliest of the Distribution Date, the Redemption Date or
the Expiration Date (as such terms are hereinafter defined); provided however,
that Rights may be issued with respect to shares of Common Stock that shall
become outstanding after the Distribution Date and prior to the earlier of the
Redemption Date or the Expiration Date in accordance with the provisions of
Section 23. Each Right shall initially represent the right to purchase one
Common Share.
On September 22, 1995, the Company and the Rights Agent (as successor to
this Rights Agreement) entered into a Rights Agreement, which permitted the
amendment thereof. On February 25, 1999, the Board of Directors of the Company
authorized the amendment and restatement of the Rights Agreement.
Accordingly, in consideration of the premises and the mutual agreements
set forth in this Rights Agreement, the Company and the Rights Agent hereby
agree as follows:
SECTION 1 CERTAIN DEFINITIONS
For purposes of this Rights Agreement, the following terms have the
meanings indicated:
"Acquiring Person" shall mean any Person which, alone or together with
all Affiliates and Associates of such Person, shall be the Beneficial Owner of
20% of more of the Common Shares then outstanding, but shall not include (a) the
Company, any Subsidiary of the Company, any employee benefit plan of the Company
or of any of its Subsidiaries, or any Person holding Common Shares for or
pursuant to the terms of any such employee benefit plan, (b) any such Person who
has become such a Beneficial Owner solely because (i) of a change in the
aggregate number of Common Shares outstanding since the last date on which such
Person acquired Beneficial Ownership of any Common Shares or (ii) it acquired
such Beneficial Ownership in the good-faith belief that such acquisition would
not (y) cause such Beneficial Ownership to exceed 20% of the Common Shares then
outstanding and such Person relied in good faith in
2
<PAGE> 3
computing the percentage of its Beneficial Ownership on publicly filed reports
or documents of the Company that are inaccurate or out-of-date or (z) otherwise
cause a Distribution Date or the adjustment provided for in Section 11(a) to
occur, or (c) the Affiliated Group, to the extent the Affiliated Group has
become such a beneficial owner solely as a result of one or more of the
following events: (i) the acquisition or purchase by the Affiliated Group of
beneficial ownership of Common Stock, if such purchase or acquisition does not
result in the Affiliated Group holding in excess of 30% in aggregate of the
outstanding Common Stock, as calculated on a Fully Diluted Basis, (ii) any
Involuntary Acquisition by the Affiliated Group, (iii) any increase in the
percentage ownership of the Affiliated Group of the Common Stock resulting
solely from the cancellation, retirement or acquisition by the Company or any
Subsidiary of the Company of any Common Stock or other securities of the
Company, (iv) any purchase or acquisition of beneficial ownership of Common
Stock by the Affiliated Group if the Affiliated Group disposes of shares of
Common Stock equal to the number of shares so purchased or acquired within 10
Business Days of the date of such purchase or acquisition or (v) any other
action by the Affiliated Group if the Affiliated Group eliminates the
consequences of such action within 10 Business Days of the date that it has
occurred. Notwithstanding clause (b) of the prior sentence, if any Person that
is not an Acquiring Person due to such clause (b) does not reduce its percentage
of Beneficial Ownership of Common Shares to below 20% by the Close of Business
on the fifth Business Day after notice from the Company (the date of notice
being the first day) that such Person's Beneficial Ownership of Common Shares so
exceeds 20%, such Person shall, at the end of such five Business Day period,
become an Acquiring Person (and such clause (b) shall no longer apply to such
Person). For purposes of this definition, the determination whether any Person
acted in "good faith" shall be conclusively determined by the Company's Board of
Directors, acting by a vote of those directors of the Company whose approval
would be required to redeem the Rights under Section 24.
"Affiliate" and "Associate" when used with reference to any Person,
shall have the respective meanings ascribed to such terms in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act, as in effect on the date
of this Rights Agreement.
"Affiliated Group" shall mean Anheuser-Busch Companies, Inc. ("A-BC"),
any Subsidiary of A-BC (other than any limited partnership the sole equity
interest in which held by A-BC or any Subsidiary of A-BC is a limited
partnership interest) and any Group of which A-BC or any Subsidiary of A-BC
(other than any limited partnership the sole equity interest in which held by
A-BC or any Subsidiary of A-BC is a limited partnership interest) is a member or
any of the foregoing.
A Person shall be deemed the "Beneficial Owner" of, and shall be deemed
to "beneficially own" and shall be deemed to have "Beneficial Ownership" of, any
securities:
(a) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire within 60 days of
such time pursuant to any agreement, arrangement or understanding (whether or
not in writing), or
3
<PAGE> 4
upon the exercise of conversion rights, exchange rights, warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the "Beneficial
Owner" of, or to "beneficially own," securities tendered pursuant to a tender or
exchange offer made by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted for payment
or exchange;
(b) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or dispose of or has
"beneficial ownership" of (as determined pursuant to Rule 13d-3 of the General
Rules and Regulations under the Exchange Act), including pursuant to any
agreement, arrangement or understanding (whether or not in writing); provided,
however, that a Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," any security under this subparagraph (b) as a result of an
agreement, arrangement or understanding to vote such security (1) arising solely
from a revocable proxy or consent given in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the Exchange Act and the
applicable rules and regulations thereunder, or (2) made in connection with, or
to otherwise participate in, a proxy or consent solicitation made, or to be
made, pursuant to, and in accordance with, the applicable provisions of the
Exchange Act and the applicable rules and regulations thereunder, whether or not
such agreement, arrangement or understanding described in clause (1) or (2)
above, is also then reportable by such Person on Schedule 13D under the Exchange
Act (or any comparable or successor report); or
(c) which are beneficially owned, directly or indirectly, by
any other Person (or any Affiliate or Associate thereof) with which such Person
or any of such Person's Affiliates or Associates has any agreement, arrangement
or understanding (whether or not in writing) for the purpose of acquiring,
holding, voting (except pursuant to a revocable proxy as described in clause (1)
to subparagraph (b) of this definition) or disposing of any voting securities of
the Company; provided, however, that nothing in this definition shall
cause a person engaged in business as an underwriter of securities to be the
"Beneficial Owner" of, or to "beneficially own," any securities acquired through
such person's participation in good faith in a firm commitment underwriting
until the expiration of forty days after the date of such acquisition.
"Book Value," when used with reference to Common Shares issued by any
Person, shall mean the amount of such Person's equity applicable to each Common
Share, determined (a) in accordance with generally accepted accounting
principles in effect on the date as of which such Book Value is to be
determined, (b) using all the consolidated assets and all the consolidated
liabilities of such Person on the date as of which such Book Value is to be
determined, except that no value shall be included in such assets for goodwill
arising from consummation of a business combination, and (c) after giving effect
to (i) the exercise of all rights, options and warrants to purchase such Common
Shares (other than the Rights), and the conversion of all securities convertible
into such Common Shares, at an exercise or conversion price, per Common Share,
that is less than such Book Value before giving effect to such exercise or
conversion (whether or not exercisability or convertibility is conditioned upon
occurrence
4
<PAGE> 5
of a future event), (ii) all dividends and other distributions on the capital
stock of such Person declared prior to the date as of which such Book Value is
to be determined and to be paid or made after such date, and (iii) any other
agreement, arrangement or understanding (written or oral), or transaction or
other action prior to the date as of which such Book Value is to be determined
that would have the effect of thereafter reducing such Book Value.
"Business Combination" shall have the meaning set forth in Section
11(c)(i).
"Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions in New York, New York, or
Seattle, Washington, are authorized or obligated by law or executive order to
close.
"Close of Business: on any given date shall mean 5 p.m., New York City
time, on such date; provided, however, that if such date is not a Business Day,
"Close of Business" shall mean 5 p.m., New York City time, on the next
succeeding Business Day.
"Common Shares," when used with reference to the Company prior to a
Business Combination, shall mean the shares of Common Stock of the Company or
any other shares of capital stock of the Company into which the Common Stock
shall be reclassified or changed. "Common Shares," when used with reference to
any Person (other than the Company prior to a Business Combination), shall mean
shares of capital stock of such Person (if such Person is a corporation) of any
class or series, or units of equity interests in such Person (if such Person is
not a corporation) of any class or series, the terms of which do not limit (as a
maximum amount and not merely in proportional terms) the amount of dividends or
income payable or distributable on such class or series or the amount of assets
distributable on such class or series upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person and do not provide that
such class or series is subject to redemption at the option of such Person, or
any shares of capital stock or units of equity interests into which the
foregoing shall be reclassified or changed; provided, however, that, if at any
time there shall be more than one such class or series of capital stock or
equity interests of such Person, "Common Shares" of such Person shall include
all such classes and series substantially in the proportion of the total number
of shares or other units of each such class or series outstanding at such time.
"Common Stock" shall have the meaning set forth in the introductory
paragraph of this Rights Agreement.
"Company" shall have the meaning set forth in the introductory paragraph
of this Rights Agreement; provided, however, that if there is a Business
Combination, "Company" shall have the meaning set forth in Section 11(c)(iii).
The term "control" with respect to any Person shall mean the power to
direct the management and policies of such Person, directly or indirectly, by or
through stock ownership, agency or otherwise, or pursuant to or in connection
with an agreement,
5
<PAGE> 6
arrangement or understanding (written or oral) with one or more other Persons by
or through stock ownership, agency or otherwise; and the terms "controlling" and
"controlled" shall have meanings correlative to the foregoing.
"Distribution Date" shall have the meaning set forth in Section 3(b).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as in
effect on the date in question, unless otherwise specifically provided in this
Rights Agreement.
"Exchange Consideration" shall have the meaning set forth in Section
11(b)(i).
"Expiration Date" shall have the meaning set forth in Section 7(a).
"Fully Diluted Basis" shall mean that, for purposes of calculating any
Person's percentage ownership of the Common Stock, except as described below,
all outstanding options or warrants to acquire Common Stock, or securities
convertible or exchangeable into Common Stock, shall be assumed to be exercised,
converted and exchanged into the shares of Common Stock into which they,
pursuant to their terms, may then or thereafter upon the passage of time be
exercised, converted or exchanged. For purposes of determining the aggregate
shares of outstanding Common Stock, unexercised stock options issued to
employees or directors for compensatory purposes pursuant to an employee stock
option or other stock incentive plan approved by a majority of the Qualified
Directors of the Board of Directors of the Company shall not be deemed to have
been exercised except that for purposes of determining the aggregate shares of
Common Stock held by such Person, all such stock options held by such Person
shall be deemed to be exercised.
"Group" shall mean any Group as defined by Sections 13(d)(3) and
14(d)(2) of the Exchange Act.
"Involuntary Acquisition" shall mean, with respect to any Person, the
purchase or acquisition of beneficial ownership of Common Stock by such Person
as a result of any stock split, dividend, distribution, rights offering by the
Company or any Subsidiary of the Company, recapitalization of the Company,
reclassification or other change in the terms of the Securities held by such
Person, adjustment in the conversion or exchange ratio of any convertible or
exchangeable security or exercise, conversion or exchange of any option, right,
warrant or convertible or exchangeable security held by such Person.
"Major Part," when used with reference to the assets of the Company and
its Subsidiaries as of any date, shall mean assets (a) having a fair market
value aggregating 50% or more of the total fair market value of all the assets
of the Company and its Subsidiaries (taken as a whole) as of the date in
question, (b) accounting for 50% or more of the total value (net of depreciation
and amortization) of all the assets of the Company and its Subsidiaries (taken
as a whole) as would be shown on a consolidated or combined balance sheet of the
Company and its Subsidiaries as of the date in question, prepared in accordance
with generally accepted accounting principles then in effect, or (c) accounting
for 50% or more of the total amount of net income or revenues of the Company and
its Subsidiaries (taken as a whole) as would be shown
6
<PAGE> 7
on a consolidated or combined statement of income of the Company and its
Subsidiaries for the period of 12 months ending on the last day of the Company's
monthly accounting period next preceding the date in question, prepared in
accordance with generally accepted accounting principles then in effect.
"Market Value," when used with reference to Common Shares on any date,
shall mean the average of the daily closing prices, per share, of such Common
Shares for the period that is the shorter of (a) 30 consecutive Trading Days
immediately prior to the date in question and (b) the number of consecutive
Trading Days beginning on the Trading Day immediately after the date of the
first public announcement of the event requiring a determination of the Market
Value and ending on the Trading Day immediately prior to the record date of such
event; provided, however, that, in the event that the Market Value of such
Common Shares is to be determined in whole or in part during a period following
the announcement by the issuer of such Common Shares of any action of the type
described in Section 12(a) that would require an adjustment thereunder, then,
and in each such case, the Market Value of such Common Shares shall be
appropriately adjusted to reflect the effect of such action on the market price
of such Common Shares. The closing price for each Trading Day shall be the
closing price quoted on the composite tape for securities listed on the New York
Stock Exchange, or, if such securities are not quoted on such composite tape or
if such securities are not listed on such exchange, on the principal United
States securities exchange registered under the Exchange Act (or any recognized
foreign stock exchange) on which such securities are listed or, if such
securities are not listed on any such exchange, the average of the closing bid
and asked quotations with respect to a share of such securities on the National
Association of Securities Dealers, Inc. Automated Quotations System or such
other system then in use or, if no such quotations are available, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in such securities selected by the Company's Board of Directors.
If on any such Trading Day no market maker is making a market in such
securities, the closing price of such securities on such Trading Day shall be
deemed to be the fair value of such securities as determined in good faith by
the Company's Board of Directors (whose determination shall be described in a
statement filed with the Rights Agent and shall be binding on the Rights Agent,
the holders of Rights and all other Persons).
"Permitted Offer" shall mean (i) a tender offer or an exchange offer for
all outstanding shares of Common Stock at a price and on terms determined by at
least a majority of the members of the Board of Directors who are not officers
or employees of the Company and who are not Acquiring Persons or Affiliates,
Associates, nominees or representatives of an Acquiring Person, after receiving
advice from one or more investment banking firms, to be (a) at a price and on
terms that are fair to and in the best interests of the Company's shareholders
(taking into account all factors that such members of the Board deem relevant
including, without limitation, prices that could reasonably be achieved if the
Company or its assets were sold in an orderly basis designed to realize maximum
value) and (b) otherwise in the best interests of the Company and its
shareholders, or (ii) a tender offer or exchange offer resulting in acceptance
by shareholders holding, in aggregate, 90% or more of the outstanding
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Common Stock (other than shares beneficially owned by the Acquiring Person, by
its Affiliate, and by officers and directors of the Company).
"Person" shall mean an individual, corporation, limited liability
company, partnership, joint venture, association, trust, unincorporated
organization or other entity.
"Preferred Shares" shall mean shares of the Company's Preferred Stock,
par value $.005 per share, having such rights and preferences as shall be set by
the Board of Directors in issuing such shares. Any reference in this Rights
Agreement to Preferred Shares shall be deemed to include any authorized fraction
of a Preferred Share, unless the context otherwise requires.
"Principal Party" shall mean the Surviving Person in a Business
Combination; provided, however, that, if such Surviving Person is a direct or
indirect Subsidiary of any other Person, "Principal Party" shall mean the Person
which is the ultimate parent of such Surviving Person and which is not itself a
Subsidiary of another Person. In the event ultimate control of such Surviving
Person is shared by two or more Persons, "Principal Party" shall mean that
Person which is immediately controlled by such two or more Persons.
"Purchase Price" with respect to each Right shall mean $120, subject to
adjustment as provided herein, and shall be payable in lawful money of the
United States of America. All references herein to the Purchase Price shall mean
the Purchase Price as in effect at the time in question.
"Record Date" shall have the meaning set forth in the introductory
paragraph of this Rights Agreement.
"Redemption Date" shall have the meaning set forth in Section 24(a).
"Redemption Price" with respect to each Right shall mean $.001, as such
amount may from time to time be adjusted in accordance with Section 12. All
references in this Rights Agreement to the Redemption Price shall mean the
Redemption Price as in effect at the time in question.
"Registered Common Shares" shall mean Common Shares that are, as of the
date of consummation of a Business Combination, and have continuously been for
the 12 months immediately preceding such date, registered under Section 12 of
the Exchange Act.
"Right Certificate" shall mean a certificate evidencing a Right in
Substantially the form attached to this Rights Agreement as Exhibit A.
"Right" shall mean the right to purchase Common Shares (or other
securities) as provided in this Rights Agreement.
"Securities Act" shall mean the Securities Act of 1933, as in effect on
the date in question, unless otherwise specifically provided in this Rights
Agreement.
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"Subsidiary" shall mean a Person, at least a majority of the total
outstanding voting power (being the power under ordinary circumstances (and not
merely upon the happening of a contingency) to vote in the election of directors
of such Person (if such Person is a corporation) or to participate in the
management and control of such Person (if such Person is not a corporation)) of
which is owned, directly or indirectly, by another Person or by one or more
other subsidiaries of such other Person or by such other Person or by one or
more other Subsidiaries of such other Person.
"Surviving Person" shall mean (a) the Person which is the continuing or
surviving Person in a consolidation or merger specified in Section 11(c)(i)(A)
or 11(c)(i)(B) or (b) the Person to which the Major Part of the assets of the
Company and its Subsidiaries is sold, leased, exchanged or otherwise transferred
or disposed of in a transaction specified in Section 11(c)(i)(C); provided,
however, that if the Major Part of the assets of the Company and its
subsidiaries is sold, leased, exchanged or otherwise transferred or disposed of
in one or more related transactions specified in Section 11(c)(i)(C) to more
than one Person, the "Surviving Person" in such case shall mean the Person that
acquired assets of the Company and/or its Subsidiaries with the greatest fair
market value in such transaction or transactions.
"Trading Day" shall mean a day on which the principal national
securities exchange (or principal recognized foreign stock exchange, as the case
may be) on which any securities or Rights, as the case may be, are listed or
admitted to trading is open for the transaction of business or, if the
securities or Rights in question are not listed or admitted to trading on any
national securities exchange (or recognized foreign stock exchange, as the case
may be), a Business Day.
SECTION 2 APPOINTMENT OF RIGHTS AGENT
The Company hereby appoints the Rights Agent to act as agent for the
Company in accordance with the terms and conditions of this Rights Agreement,
and the Rights Agent hereby accepts such appointment. The Company may from time
to time appoint one or more co-Rights Agents as it may deem necessary or
desirable (the term "Rights Agent" being used in this Rights Agreement to refer,
collectively, to the Rights Agent together with any such co-Rights Agents). In
the event the Company appoints one or more co-Rights Agents, the respective
duties of the Rights Agent and any co-Rights Agents shall be as the Company
shall determine.
SECTION 3 ISSUE OF RIGHTS AND RIGHT CERTIFICATES
(a) One Right shall be associated with each Common Share
outstanding on the Record Date, each additional Common Share that shall become
outstanding between the Record Date and the earliest of the Distribution Date,
the Redemption Date and the Expiration Date and each additional Common Share
with which Rights are issued after the Distribution Date but prior to the
earlier of the Redemption Date and the Expiration Date as provided in Section
23; provided, however, that if the number of outstanding Rights are combined
into a smaller number of outstanding Rights pursuant to Section 12(a) the
appropriate fractional Right
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<PAGE> 10
determined pursuant to such Section shall thereafter be associated with each
such Common Share.
(b) Until the earlier of(i) the Close of Business on the
tenth Business Day after the Date that the Company learns that a Person has
become an Acquiring Person and (ii) the Close of Business on such date, if any,
as may be designated by the Company's Board of Directors following the
commencement of, or first public disclosure of an intent to commence, a tender
or exchange offer by any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any of its Subsidiaries,
or any Person holding Common Shares for or pursuant to the terms of any such
employee benefit plan) for outstanding Common Shares, if upon consummation of
such tender or exchange offer such Person could be the Beneficial Owner of 20%
or more of the outstanding Common Shares (unless such Person shall be a member
of the Affiliated Group, in which case the threshold shall be Beneficial
Ownership in excess of 30%, calculated on a Fully-Diluted Basis) (the Close of
Business on the earlier of dates set forth in (i) and (ii) being the
"Distribution Date"), (y) the Rights will be evidenced by the certificates for
Common Shares registered in the names of the holders thereof and not by separate
Right Certificates and (z) the Rights, including the right to receive Right
Certificates, will be transferable only in connection with the transfer of
Common Shares. As soon as practicable after the Distribution Date, the Rights
Agent will send, by first-class, postage-prepaid mail, to each record holder of
Common Shares as of the Distribution Date, at the address of such holder shown
on the records of the Company, a Right Certificate evidencing one whole Right
for each Common Share (or for the number of Common Shares with which one whole
Right is then associated if the number of Rights per Common Share held by such
record holder has been adjusted in accordance with the proviso in Section 3(a)).
If the number of Rights associated with each Common Share has been adjusted in
accordance with the proviso in Section 3(a), at the time of distributing the
Right Certificates the Company may make any necessary and appropriate rounding
adjustments so that Right Certificates representing only whole numbers of Rights
are distributed and cash is paid in lieu of any fractional Right in accordance
with Section 15(a). As of and after the Distribution Date, the Rights will be
evidenced solely by such Right Certificates.
(c) With respect to any certificate for Common Shares, until
the earliest of the Distribution Date, the Redemption Date and the Expiration
Date, the Rights associated with the Common Shares represented by any such
certificate shall be evidenced by such certificate alone, the registered holders
of the Common Shares shall also be the registered holders of the associated
Rights and the surrender for transfer of any such certificate shall also
constitute the transfer of the Rights associated with the Common Shares
represented thereby.
(d) Certificates issued for Common Shares after the Record
Date (including, without limitation, upon transfer or exchange of outstanding
Common Shares), but prior to the earliest of the Distribution Date, the
Redemption Date and the Expiration Date, shall have printed on, written on or
otherwise affixed to them the following legend:
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<PAGE> 11
This certificate also evidences and entitles the holder hereof
to certain Rights as set forth in the Rights Agreement dated as of
September 22, 1995, as it may be amended from time to time (the "Rights
Agreement"), between Redhook Ale Brewery, Incorporated ("Redhook") and
First Interstate Bank of Washington, N.A., as Rights Agent (or between
Redhook and any successor Rights Agent under the Rights Agreement), the
terms of which are hereby incorporated herein by reference and a copy of
which is on file at the principal executive offices of Redhook. Under
certain circumstances, as set forth in the Rights Agreement, such Rights
will be evidenced by separate certificates and will no longer be
evidenced by this certificate. Redhook will mail to the holder of this
certificate a copy of the Rights Agreement without charge after receipt
of a written request therefor. Rights beneficially owned by Acquiring
Persons or their Affiliates or Associates (as such terms are defined in
the Rights Agreement) and by any subsequent holder of such Rights are
null and void and nontransferable.
Notwithstanding the requirements of this paragraph (d), the omission of a legend
shall not affect the enforceability of any part of this Rights Agreement or the
rights of any holder of Rights.
SECTION 4 FORM OF RIGHT CERTIFICATES
The Right Certificates (and the form of election to purchase and
form of assignment to be printed on the reverse side thereof) shall be
in substantially the form set forth as Exhibit A and may have such marks
of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as
are not inconsistent with the provisions of this Rights Agreement, or as
may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any
stock exchange on which the Rights may from time to time be listed, or
to conform to usage. Subject to the provisions of Sections 7, 11 and 23,
the Right Certificates, whenever issued, shall be dated as of the
Distribution Date, and on their face shall entitle the holders thereof
to purchase such number of Preferred Shares as shall be set forth
therein for the Purchase Price set forth therein.
SECTION 5 EXECUTION, COUNTERSIGNATURE AND REGISTRATION
(a) The Right Certificates shall be executed on behalf of
the Company by the Chairman of the Board of Directors, the Chief Executive
Officer, the President, the Chief Operating Officer, the Chief Financial Officer
or a Vice President (whether preceded by any additional title) of the Company,
either manually or by facsimile signature, and have affixed thereon the
Company's seal or a facsimile thereof, which shall be attested by the Secretary,
an Assistant Secretary or a Vice President
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(whether preceded by any additional title, provided that such Vice President
shall not have also executed the Right Certificates) of the Company, either
manually or by facsimile signature. The Right Certificates shall be manually
countersigned by the Rights Agent and shall not be valid or obligatory for any
purpose unless so countersigned. In case any officer of the Company who shall
have signed any of the Right Certificates shall cease to be such an officer of
the Company before countersignature by the Rights Agent and issuance and
delivery by the Company, such Right Certificates may nevertheless be
countersigned by the Rights Agent and issued and delivered by the Company with
the same force and effect as though the person who signed such Right Certificate
had not ceased to be such an officer of the Company; and any Right Certificate
may be signed on behalf of the Company by any person who, at the actual date of
execution of such Right Certificate, shall be a proper officer of the Company to
sign such Right Certificate, although at the date of execution of this Rights
Agreement any such person was not such an officer of the Company.
(b) Following the Distribution Date, the Rights Agent will
keep or cause to be kept, at the office designated in Section 25 (the
"Designated Office"), books for registration and transfer of the Right
Certificates issued under this Rights Agreement. Such books shall show the names
and addresses of the respective holders of the Right Certificates, the number of
Rights evidenced by each Right Certificate, the certificate number of each Right
Certificate and the date of each Right Certificate.
SECTION 6 TRANSFER, SPLIT-UP, COMBINATION AND EXCHANGE OF RIGHT CERTIFICATES;
LOST, STOLEN, DESTROYED OR MUTILATED RIGHT CERTIFICATES;
UNCERTIFICATED RIGHTS
(a) Subject to the provisions of Sections 7(e) and 15, at
any time after the Distribution Date, and at or prior to the Close of Business
on the earlier of the Redemption Date and the Expiration Date, any Right
Certificate or Right Certificates may be transferred, split up, combined or
exchanged for another Right Certificate or Right Certificates representing, in
the aggregate, the same number of Rights as the Right Certificate or Right
Certificates surrendered then represented. Any registered holder desiring to
transfer, split up, combine or exchange any Right Certificate shall make such
request in writing delivered to the Rights Agent and shall surrender the Right
Certificate or Right Certificates to be transferred, split up, combined or
exchanged at the Designated Office of the Rights Agent; provided, however, that
neither the Rights Agent nor the Company shall be obligated to take any action
whatsoever with respect to the transfer of any Right Certificate surrendered for
transfer until the registered holder shall have completed and signed the
certification contained in the form of assignment on the reverse side of such
Right Certificate and shall have provided such additional evidence of the
identify of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request. Thereupon the Rights
Agent shall, subject to the provisions of Sections 7(e) and 15, countersign and
deliver to the Person entitled thereto a Right Certificate or Right
Certificates, as the case may be, as so requested. The Company may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split-up, combination or exchange of
Right Certificates.
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(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a valid Right Certificate, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to them, and, at
the Company's request, reimbursement to the Company and the Rights Agent of all
reasonable expenses incidental thereto, and upon surrender to the Rights Agent
and cancellation of the Right Certificate if mutilated, the Company will make a
new Right Certificate of like tenor and deliver such new Right Certificate to
the Rights Agent for delivery to the registered owner in lieu of the Right
Certificate so lost, stolen, destroyed or mutilated.
(c) Notwithstanding any other provision of this Rights
Agreement, the Company and the Rights Agent may amend this Rights Agreement to
provide for uncertificated Rights in addition to or in place of Rights evidenced
by Rights Certificates.
SECTION 7 EXERCISE OF RIGHTS; EXPIRATION DATE OF RIGHTS
(a) Subject to Section 7(e) and except as otherwise provided
in this Rights Agreement (including Section 11), each Right shall entitle the
registered holder thereof, upon exercise thereof as provided in this Rights
Agreement, to purchase for the Purchase Price, at any time after the
Distribution Date and at or prior to the earlier of (i) the Close of Business on
September 22, 2005 (the Close of Business on such date being the "Expiration
Date"), and (ii) the Redemption Date, upon payment of the Purchase Price, one
Common Share, subject to adjustment from time to time as provided in Sections 11
and 12.
(b) The registered holder of any Right Certificate may
exercise the Rights evidenced thereby (except as otherwise provided in this
Rights Agreement) in whole or in part at any time after the Distribution Date,
upon surrender of the Right Certificate, with the form of election to purchase
on the reverse side thereof duly executed, to the Rights Agent at the Designated
Office of the Rights Agent in Seattle, Washington, together with payment of the
Purchase Price for the Common Shares as to which the Rights are exercised, at or
prior to the earlier of (i) the Expiration Date and (ii) the Redemption Date.
(c) Upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase duly executed,
accompanied by payment of the Purchase Price for the Common Shares to be
purchased together with an amount equal to any applicable transfer tax, in
lawful money of the United States of America, in cash or by certified check or
money order payable to the order of the Company, the Rights Agent shall
thereupon (i) either (A) promptly requisition from any transfer agent of the
Common Shares (or make available, if the Rights Agent is the transfer agent)
certificates for the number of Common Shares to be purchased and the Company
hereby irrevocably authorizes its transfer agent to comply with all such
requests or (B) if the Company shall have elected to deposit the Common Shares
with a depositary agent under a depositary arrangement, promptly requisition
from the depositary agent depositary receipts representing the number of Common
Shares to be purchased (in
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which case certificates for the Common Shares to be represented by such receipts
shall be deposited by the transfer agent with the depositary agent) and the
Company will direct the depositary agent to comply with all such requests, (ii)
when appropriate, promptly requisition from the Company the amount of cash to be
paid in lieu of the issuance of fractional shares in accordance with Section 15,
(iii) promptly after receipt of such certificates or depositary receipts, cause
the same to be delivered to or upon the order of the registered holder of such
Right Certificate, registered in such name or names as may be designated by such
holder, and (iv) when appropriate, after receipt promptly deliver such cash to
or upon the order of the registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate
shall exercise fewer than all the Rights evidenced thereby, a new Right
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent and delivered to the registered holder of
such Right Certificate or to his or her duly authorized assigns, subject to the
provisions of Section 15.
(e) Notwithstanding anything in this Rights Agreement to the
contrary, any Rights that are at any time beneficially owned by an Acquiring
Person or any Affiliate or Associate of an Acquiring Person shall be null and
void and nontransferable, and any holder of any such Right (including any
purported transferee or subsequent holder) shall not have any right to exercise
or transfer any such Right.
(f) Notwithstanding anything in this Rights Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder of any Right
Certificates upon the occurrence of any purported exercise as set forth in this
Section 7 unless such registered holder shall have (i) completed and signed the
certificate contained in the form of election to purchase set forth on the
reverse side of the Right Certificate surrendered for such exercise and (ii)
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request.
(g) The Company may temporarily suspend, for a period of
time not to exceed 90 calendar days after the Distribution Date, the
exercisability of the Rights in order to prepare and file a registration
statement under the Securities Act, on an appropriate form, with respect to the
Common Shares purchasable upon exercise of the Rights and permit such
registration statement to become effective, provided, however, that no such
suspension shall remain effective after, and the Rights shall without any
further action by the Company or any other Person become exercisable immediately
upon, the effectiveness of such registration statement. Upon any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended and shall issue a
further public announcement at such time as the suspension is no longer in
effect. Notwithstanding any provision in this Rights Agreement to the contrary,
the Rights shall not be exercisable in any jurisdiction if the requisite
qualification under the blue sky or
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securities laws of such jurisdiction shall not have been obtained or the
exercise of the Rights shall not be permitted under applicable law.
SECTION 8 CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES
All Right Certificates surrendered or presented for the purpose
of exercise, transfer, split-up, combination or exchange shall, and any
Right Certificate surrendered or presented for any purpose that
represents Rights that have become null and void and nontransferable
pursuant to Section 7(e) shall, if surrendered or presented to the
Company or to any of its agents, be delivered to the Rights Agent for
cancellation or in canceled from, or, if surrendered or presented to the
Rights Agent, shall be canceled by it, and no Right Certificates shall
be issued in lieu thereof except as expressly permitted by this Rights
Agreement. The Company shall deliver to the Rights Agent for
cancellation and retirement, and the Rights Agent shall so cancel and
retire, any Right Certificate purchased or acquired by the Company. The
Rights Agent shall deliver all canceled Right Certificates to the
Company, or shall, at the Company's written request, destroy such
canceled Right Certificates, and in such case shall deliver a
certificate of destruction thereof to the Company.
SECTION 9 RESERVATION AND AVAILABILITY OF COMMON SHARES
(a) The Company covenants and agrees that it will cause to
be reserved and kept available out of its authorized and unissued Common Shares
or any authorized and issued Common Shares held in its treasury, free from
preemptive rights or any right of first refusal, a number of Common Shares
sufficient to permit the exercise in full of all outstanding Rights.
(b) In the event that there shall not be sufficient Common
Shares issued but not outstanding, or authorized but unissued, to permit the
exercise or exchange of Rights in accordance with Section 11, the Company
covenants and agrees that it will take all such action as may be necessary to
authorize additional Common Shares for issuance upon the exercise or exchange of
Rights pursuant to Section 11.
(c) The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all Shares delivered upon
exercise or exchange of Rights shall, at the time of delivery of the
certificates for such Common Shares (subject to the payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and
non-assessable shares.
(d) So long as the Common Shares issuable upon the exercise
or exchange of Rights are to be listed on any national securities exchange, the
Company covenants and agrees to use its best efforts to cause, from and after
such time as the Rights become exercisable or exchangeable, all Common Shares
reserved for such issuance to be listed on such securities exchange upon
official notice of issuance upon such exercise or exchange.
(e) The Company further covenants and agrees that it will
pay when due and payable any and all federal and state transfer taxes and
charges that
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may be payable in respect of the issuance or delivery of Right Certificates or
of any Common Shares upon the exercise or exchange of Rights. The Company shall
not, however, be required to pay any transfer tax that may be payable in respect
of any transfer or delivery of Right Certificates to a Person other than or in
respect of the issuance or delivery of certificates for the Common Shares in a
name other than that of, the registered holder of the Right Certificate
evidencing Rights surrendered for exercise or exchange or to issue or deliver
any certificates for Common Shares upon the exercise or exchange of any Rights
until any such tax shall have been paid (any such tax being payable by the
holder of such Right Certificate at the time of surrender) or until it has been
established to the Company's satisfaction that no such tax is due.
SECTION 10 COMMON SHARES RECORD DATE
Each Person in whose name any certificate for Common Shares is
issued upon the exercise or exchange of Rights shall for all purposes be
deemed to have become the holder of record of the Common Shares
represented thereby on, and such certificate shall be dated, the date on
which the Right Certificate evidencing such Rights was duly surrendered
and payment of any Purchase Price (and any applicable transfer taxes)
was made; provided, however, that if the date of such surrender and
payment is a date on which the Common Shares transfer books of the
Company are closed, such Person shall be deemed to have become the
record holder of such shares on, and such certificate shall be dated,
the next succeeding Business day on which the Common Shares transfer
books of the Company are open.
SECTION 11 CERTAIN ADJUSTMENTS IN RIGHTS; EXCHANGE OF RIGHTS FOR SHARES;
BUSINESS COMBINATIONS
(a) Upon a Person becoming an Acquiring Person unless the
event causing such Person to become an Acquiring Person is a Permitted Offer, or
an event described in Section 11(c), then proper provision shall be made so that
each holder of a Right, (except as provided in Section 7(e)), shall thereafter
have a right to receive, upon exercise thereof for the Purchase Price in
accordance with the terms of this Rights Agreement, such number of Common Shares
as shall equal the result obtained by multiplying the Purchase Price by a
fraction, the numerator of which is the number of Common Shares for which a
Right is then exercisable and the denominator of which is 50% of the Market
Value of the Common Shares on a date on which a Person becomes an Acquiring
Person. As soon as practicable after a Person becomes an Acquiring Person
(provided the Company shall not have elected to make the exchange permitted by
Section 11(b)(i) for all outstanding Rights), the Company covenants and agrees
to use its best efforts to:
(i) Prepare and file a registration statement under
the Securities Act, on an appropriate form, with respect to the Common Shares
purchasable upon exercise of the Rights,
(ii) Cause such registration statement to become
effective as soon as practicable after such filing;
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(iii) Cause such registration statement to remain
effective (with a prospectus at all times meeting the requirements of the
Securities Act) until the Expiration Date; and
(iv) Qualify or register the Common Shares
purchasable upon exercise of the Rights under the blue sky or securities laws of
such jurisdictions as may be necessary or appropriate.
(b) (i) The Company's Board of Directors may, at its
option, at any time after a Person becomes an Acquiring Person, mandatorily
exchange all or part of the then-outstanding and exercisable Rights (which shall
not include Rights that shall have become null and void and nontransferable
pursuant to the provisions of Section 7(e)) for consideration per Right
consisting of one-half of the securities that would be issuable at such time
upon the exercise of one Right in accordance with Section 11(a) (the
consideration issuable per Right pursuant to this Section 11(b)(i) being the
"Exchange Consideration"). The Company's Board of Directors may, at its option,
issue, in substitution for Common Shares, Preferred Shares, or other equity
securities that the Board of Directors has deemed to have the same value as
Common Shares if there are sufficient shares of Preferred Shares issued but not
outstanding or authorized but unissued. If the Company's Board of Directors
elects to exchange all the rights for the Exchange Consideration pursuant to
this Section 11(b)(i) prior to the physical distribution of the Right
Certificates, the Corporation may distribute the Exchange Consideration in lieu
of distributing Right Certificates, in which case for purposes of this Rights
Agreements holders of Rights shall be deemed to have simultaneously received and
surrendered for exchange Right Certificates on the date of such distribution.
(ii) Any action of the Company's Board of Directors
ordering the exchange of any Rights pursuant to Section 11(b)(i) shall be
irrevocable and, immediately upon the taking of such action and without any
further action and without any notice, the right to exercise any such Right
pursuant to Section 11(a) shall terminate and the only right thereafter of a
holder of such Right shall be to receive the Exchange Consideration in exchange
for each such Right held by such holder or, if the Exchange Consideration shall
not have been paid, to exercise any such Right pursuant to Section 11(c)(i). The
Company shall promptly give public notice of any such exchange; provided,
however, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company promptly shall mail a notice
of any such exchange to all holders of such Rights at their last addresses as
they appear on the registry books of the Rights Agent. Any notice that is mailed
in the manner provided in this Rights Agreement shall be deemed given, whether
or not the holder receives the notice. Each such notice of exchange will state
the method by which the exchange of the Rights for the Exchange Consideration
will be effected and, in the event of any partial exchange, the number of Rights
that will be exchanged. Any partial exchange shall be effected pro rata based on
the number of Rights (other than Rights that shall have become null and void and
nontransferable pursuant to the provisions of Section 7(e)) held by each holder
of Rights.
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(c) (i) In the event that, following a Distribution
Date, directly or indirectly, any transactions specified in the following clause
(A), (B) or (C) of this Section 11(c)(i) (each such transaction being a
"Business Combination") shall be consummated:
(A) the Company shall consolidate with, or merge with and into, any
other Person;
(B) any Person shall merge with and into the Company and, in
connection with such merger, all or part of the Common Shares shall be changed
into or exchanged for capital stock or other securities of the Company or of any
other Person or cash or any other property, or
(C) the Company shall sell, lease, exchange or otherwise transfer or
dispose of (or one or more of its Subsidiaries shall sell, lease, exchange or
otherwise transfer or dispose of), in one or more transactions, the Major Part
of the assets of the Company and its Subsidiaries (taken as a whole) to any
other Person or Persons, then, in each such case, proper provision shall be made
so that each holder of a Right, except as provided in Section 7(e), shall
thereafter have the right to receive, upon the exercise thereof for the Purchase
Price in accordance with the terms of this Rights Agreement, the securities
specified below (or, at such holder's option, if any Business Combination is
consummated at any time after a Person becomes an Acquiring Person, the
securities specified in Section 11(a)):
(1) If the Principal Party in such Business
Combination has Registered Common Shares outstanding, each Right shall
thereafter represent the right to receive, upon the exercise thereof for the
Purchase Price in accordance with the terms of this Rights Agreement, such
number of Registered Common Shares of such Principal Party, free and clear of
all liens, encumbrances or other adverse claims, as shall have an aggregate
Market Value equal to the result obtained by multiplying the Purchase Price by
two, or
(2) If the Principal Party in such Business
Combination does not have Registered Common Shares outstanding, each Right shall
thereafter represent the right to receive, upon the exercise thereof for the
Purchase Price in accordance with the terms of this Rights Agreement, at the
election of the holder of such Right at the time of the exercise thereof, any
of:
(x) such number of Common Shares of the
Surviving Person in such Business Combination as shall have an aggregate Book
Value immediately after giving effect to such Business Combination equal to the
result obtained by multiplying the Purchase Price by two;
(y) such number of Common Shares of the
Principal Party in such Business Combination (if the Principal Party is not also
the Surviving Person in such Business Combination) as shall have an aggregate
Book
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Value immediately after giving effect to such Business Combination equal to the
result obtained by multiplying the Purchase Price by two; or
(z) if the Principal Party in such Business
Combination is an Affiliate of one or more Persons which has Registered Common
Shares outstanding, such number of Registered Common Shares of whichever of such
Affiliates of the Principal Party has Registered Common Shares with the greatest
aggregate Market Value on the date of consummation of such Business Combination
as shall have an aggregate Market Value on the date of such Business Combination
equal to the result obtained by multiplying the Purchase price by two.
(ii) The Company shall not consummate any Business
Combination unless each issuer of Common Shares for which Rights may be
exercised, as set forth in this Section 11(c), shall have sufficient authorized
Common Shares that have not been issued or reserved for issuance (and that
shall, when issued upon exercise thereof in accordance with this Rights
Agreement, be validly issued, fully paid and nonassessable and free of
preemptive rights, rights of first refusal or any other restrictions or
limitations on the transfer or ownership thereof) to permit the exercise in full
of the Rights in accordance with this Section 11(c) and unless prior thereto:
(A) a registration statement under the Securities Act, on an
appropriate form, with respect to the Rights and the Common Shares of such
issuer purchasable upon exercise of the Rights shall be effective under the
Securities Act; and
(B) the Company and each such issuer shall have:
(1) executed and delivered to the Rights Agent a
supplemental agreement providing for the assumption by such issuer of the
obligations set forth in this Section 11(c) (including the obligation of such
issuer to issue Common Shares upon the exercise of Rights in accordance with the
terms set forth in Sections 11(c)(i) and 11(c)(iii) and further providing that
such issuer, at its own expense, will use its best efforts to:
(x) cause a registration statement under the
Securities Act, on an appropriate form, with respect to the Rights and the
Common Shares of such issuer purchasable upon exercise of the Rights to remain
effective (with a prospectus at all times meeting the requirements of the
Securities Act) until the Expiration Date;
(y) qualify or register the Rights and the
Common Shares of such issuer purchasable upon exercise of the Rights under the
blue sky or securities laws of such jurisdictions as may be necessary or
appropriate; and
(z) list the Rights and the Common Shares of
such issuer purchasable upon exercise of the Rights on each national securities
exchange on which the Common Shares were listed prior to the consummation of the
Business Combination or, if the Common Shares were not listed on a national
securities exchange prior to the consummation of the Business Combination, on a
national securities exchange;
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(2) furnished to the Rights Agent a written opinion
of independent counsel stating that such supplemental agreement is a valid,
binding and enforceable agreement of such issuer; and
(3) filed with the Rights Agent a certificate of a
nationally recognized firm of independent accountants setting forth the number
of Common Shares of such issuer that may be purchased upon the exercise of each
Right after the consummation of such Business Combination.
(iii) After consummation of any Business Combination
and subject to the provisions of Sections 11(c)(ii), (A) each issuer of Common
Shares for which Rights may be exercised as set forth in this Section 11(c)
shall be liable for, and shall assume, by virtue of such Business Combination,
all the obligations and duties of the Company pursuant to this Rights Agreement,
(B) the term "Company" shall thereafter be deemed to refer to such issuer, (C)
each such issuer shall take such steps in connection with such consummation as
may be necessary to ensure that the provisions of this Rights Agreement
(including the provisions of Sections 11(a) and 11(b)) shall thereafter be
applicable, as nearly as reasonably may be, in relation to its Common Shares
thereafter deliverable upon the exercise of the Rights, and (D) the number of
Common Shares of each such issuer thereafter receivable upon exercise of any
Right shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions of Sections 11(a) and
12(a), and the provisions of Sections 7, 9 and 10 with respect to the Common
Shares shall apply, as nearly as reasonably may be, on like terms to any such
Common Shares.
(d) In the event that the number of Common Shares that are
authorized by the Company's articles of incorporation but not outstanding or
reserved for issuance for purposes other than upon exercise of the Rights is not
sufficient to permit the exercise in full of the Rights in accordance with
Section 11, the Company shall, to the extent permitted by applicable law and
regulation, (A) determine the excess of (1) the value of the Common Shares
issuable upon the exercise of a Right (computed using the Current Market Price
used to determine the number of Common Shares) (the "Current Value") over (2)
the Purchase Price (such excess is herein referred to as the "Spread"), and (B)
with respect to each Right, make adequate provision to substitute for the Common
Shares, upon the exercise of the Rights and payment of the applicable Purchase
Price, (1) cash, (2) a reduction in the Purchase Price, (3) Preferred Stock or
other equity securities of the Company (including, without limitation, shares,
or units of shares, of preferred stock that the Board of Directors of the
Company has deemed to have the same value as shares of Common Stock (such shares
of preferred stock are herein referred to as "Common Share Equivalents")), (4)
debt securities of the Company, (5) other assets or (6) any combination of the
foregoing, having an aggregate value equal to the Current Value, where such
aggregate value has been determined by the Board of Directors of the Company
based upon the advice of a nationally recognized investment banking firm
selected by the Board of Directors of the Company
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provided, however, if the Company shall not have made adequate provision to
deliver value pursuant to clause (B) above within 30 days following the later of
(x) the first occurrence of the event significant to the rights specifically and
(y) the date on which the Company's right of redemption pursuant to Section
23(a) expires (the later of (x) and (y) being referred to herein as the "Trigger
Date,") then the Company shall be obligated to deliver, upon the surrender for
exercise of a Right and without requiring payment of the Purchase Price, Common
Shares (to the extent available) and then, if necessary, cash, which shares
and/or cash have an aggregate value equal to the Spread. If the Board of
Directors of the Company shall determine in good faith that it is likely that
sufficient additional Common Shares could be authorized for issuance upon
exercise in full of the Rights, the 30-day period set forth above may be
extended to the extent necessary, but not more than 90 days after the Trigger
Date, in order that the Company may seek Shareholder approval for the
authorization of such additional shares (such period, as it may be extended, the
"Substitution Period"). To the extent that the Company determines that some
action need be taken pursuant to the first and/or second sentences of this
Section 11(d), the Company (x) shall provide, subject to Section 7(e) hereof,
that such action shall apply uniformly to all outstanding Rights, and (y) may
suspend the exercisability of the Rights until the expiration of the
Substitution Period in order to seek any authorization of additional shares
and/or to decide the appropriate form of distribution to be made pursuant to
such first sentence and to determine the value thereof. In the event of any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect. For purposes
of this Section 11(d), the value of the Common Shares shall be the Current
Market Price per share of the Common Shares on the Trigger Date and the value of
any Common Share Equivalent shall be deemed to have the same value as the Common
Shares on such date.
SECTION 12 CERTAIN ADJUSTMENTS
(a) To preserve the actual or potential economic value of
the Rights, if at any time after the date of this Rights Agreement there shall
be any change in the Common Shares whether by reason of stock dividends, stock
splits, recapitalizations, mergers, consolidations, combinations or exchanges of
securities, split-ups, split-offs, spin-offs, liquidations, other similar
changes in capitalization, any distribution or issuance of cash, assets,
evidences of indebtedness or subscription rights, options or warrants to holders
of Common Shares (other than the Rights or regular quarterly cash dividends), or
otherwise, then, in each such event the Company's Board of Directors shall make
such appropriate adjustments in the number of Common Shares (or the number and
kind of other securities) issuable upon exercise of each Right, the Purchase
Price and Redemption Price in effect at such time and the number of Rights
outstanding at such time (including the number of Rights or fractional Rights
associated with each Common Share) such that following such adjustment such
event shall not have had the effect or reducing or limiting the benefits the
holders of the Rights would have had absent such event.
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(b) If, as a result of an adjustment made pursuant to
Section 12(a), the holder of any Right thereafter exercised shall become
entitled to receive any securities other than Common Shares, then the number of
such securities so receivable upon exercise of any Right thereafter shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions of Sections 11(a) and 12(a), and the
provisions of Sections 7, 9 and 10 with respect to the Common Shares shall
apply, as nearly as reasonably may be, on like terms to any such other
securities.
(c) All Rights originally issued by the Company subsequent
to any adjustment made to the amount of Common Shares or other securities
relating to a Right shall evidence the right to purchase, for the Purchase
Price, the adjusted number and kind of securities purchasable from time to time
under this Rights Agreement upon exercise of the Rights, all subject to further
adjustment as provided in this Rights Agreement.
(d) Irrespective of any adjustment or change in the Purchase
Price or the number of Common Shares or number or kind of other securities
issuable upon the exercise of the Rights, the Right Certificates theretofore and
thereafter issued may continue to express the terms that were expressed in the
initial Right Certificates issued under this Rights Agreement.
(e) In any case in which action taken pursuant to Section
12(a) requires that an adjustment be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date
the Common Shares and/or other securities, if any, issuable upon such exercise
over and above the Common Shares and/or other securities, if any, issuable
before giving effect to such adjustment; provided, however, that the Company
shall deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional securities upon the
occurrence of the event requiring such adjustment.
SECTION 13 CERTIFICATE OF ADJUSTMENT
Whenever an adjustment is made as provided in Section 11 or 12, the
Company shall (a) promptly prepare a certificate setting forth such adjustment
and a brief statement of the facts accounting for such adjustments, (b) promptly
file with the Rights Agent and with each transfer agent for the Common Shares a
copy of such certificate, and (c) mail a brief summary thereof to each holder of
a Right Certificate (or, prior to the Distribution Date, of the Common Shares)
in accordance with Section 25. The Rights Agent shall be fully protected is
relying on any such certificate and on any adjustment therein contained.
SECTION 14 ADDITIONAL COVENANTS
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(a) Notwithstanding any other provision of this Rights
Agreement, no adjustment to the number of Common Shares (or fractions of a
share) or other securities for which a Right is exercisable or the number of
Rights outstanding or associated with each Common Share or any similar or other
adjustment shall be made or be effective if such adjustment would have the
effect of reducing or limiting the benefits the holders of the Rights would have
had absent such adjustment, including, without limitation, the benefits under
Sections 11 and 12, unless the terms of this Rights Agreement are amended so as
to preserve such benefits.
(b) The Company covenants and agrees that, after the
Distribution Date, except as permitted by Section 26, it will not take (or
permit any Subsidiary of the Company to take) any action if at the time such
action is taken it is reasonably foreseeable that such action will reduce or
otherwise limit the benefits the holders of the Rights would have had absent
such action, including, without limitation, the benefits under Sections 11 and
12. Any action taken by the Company during any period after any Person becomes
an Acquiring Person but prior to the Distribution Date shall be null and void
unless such action could be taken under this Section 14(b) from and after the
Distribution Date.
SECTION 15 FRACTIONAL RIGHTS AND FRACTIONAL SHARES
(a) The Company may, but shall not be required to, issue
fractions of Rights or distribute Right Certificates that evidence fractional
Rights. In lieu of such fractional Rights, the Company may pay to the registered
holders of the Right Certificates with regard to which such fractional Rights
would otherwise be issuable an amount in cash equal to the same fraction of the
current market value of a whole Right. For purposes of this Section 15(a), the
current market value of a whole Right shall be the closing price of the Rights
(as determined pursuant to the second and third sentences of the definition of
Market Value contained in Section 1) for the Trading Day immediately prior to
the date on which such fractional Rights would have been otherwise issuable.
(b) The Company may, but shall not be required to, issue
fractions of Common Shares upon exercise of the Rights or distribute
certificates that evidence fractional Common Shares. In lieu of fractional
Common Shares, the Company may elect to (i) utilize a depository arrangement as
provided by the terms of the Common Shares or (ii) in the case of a fraction of
a Common Share, pay to the registered holders of Right Certificates at the time
such Rights are exercised as provided in this Rights Agreement an amount in cash
equal to the same fraction of the current market value of one Common Share. For
purposes of this Section 15(b), the current Market Value of a Common Share shall
be the closing price of a Common Share (as determined pursuant to the second and
third sentences of the definition of Market Value contained in Section 1) for
the Trading Day immediately prior to the date of such exercise. If, as a result
of an adjustment made pursuant to Section 12(a), the holder of any Right
thereafter exercised shall become entitled to receive any securities other than
Common Shares, the provisions of this Section 15(b) shall apply, as nearly as
reasonably may be, on like terms to such other securities.
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<PAGE> 24
(c) The Company may, but shall not be required to, issue
fractions of Preferred Shares upon exchange of Rights pursuant to Section 11(b),
or to distribute certificates that evidence fractional Preferred Shares. In lieu
of such fractional Preferred Shares, the Company may pay to the registered
holders of Right Certificates with regard to which such fractional Preferred
Shares would otherwise be issuable an amount in cash equal to the same fraction
of the current Market Value of one Common Share as of the date on which a Person
became an Acquiring Person.
(d) The holder of Rights by the acceptance of the Rights
expressly waives his or her right to receive any fractional Rights or any
fractional shares upon exercise of a Right, except as provided in this Section
15.
SECTION 16 RIGHTS OF ACTION
(a) All rights of action in respect of this Rights Agreement
are vested in the respective registered holders of the Right Certificates (and,
prior to the Distribution Date, the registered holders of the Common Shares),
and any registered holder of any Right Certificate (or, prior to the
Distribution Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Shares) may, in his or her own behalf and for
his or her own benefit, enforce, and may institute and maintain any suit, action
or proceeding against the Company to enforce, or otherwise act in respect of,
his or her right to exercise the Rights evidenced by such Right Certificate in
the manner provided in such Right Certificate and in the Rights Agreement.
Without limiting the foregoing or any remedies available to the holders of
Rights, it is specifically acknowledged that the holders of Rights would not
have an adequate remedy at law for any breach in this Rights Agreement and shall
be entitled to specific performance of the obligations of any Person under, and
injunctive relief against actual or threatened violations of the obligations of
any Person subject to, this Rights Agreement.
(b) Any holder of Rights who prevails in an action to
enforce the provisions of this Rights Agreement shall be entitled to recover the
reasonable costs and expenses, including attorneys' fees, incurred in such
action.
SECTION 17 TRANSFER AND OWNERSHIP OF RIGHTS AND RIGHT CERTIFICATES
(a) Prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares.
(b) After the Distribution Date, the Right Certificates will
be transferable, subject to Section 7(e), only on the registry books of the
Rights Agent if surrendered at the Designated Office, duly endorsed or
accompanied by a proper instrument of transfer.
(c) The Company and the Rights Agent may deem and treat the
Person in whose name a Right Certificate (or, prior to the Distribution Date,
the associated Common Shares certificate) is registered as the absolute owner
thereof and
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of the Rights evidenced thereby (notwithstanding any notations of ownership or
writing on the Right Certificate or the associated certificate for Common Shares
made by anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent shall be affected by
any notice to the contrary.
SECTION 18 RIGHT CERTIFICATE HOLDER NOT DEEMED A SHAREHOLDER
No holder, as such, of any Right Certificate shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of the Common
Shares or of any other securities of the Company that may at any time be
issuable on the exercise of the Rights represented thereby, nor shall anything
contained in this Rights Agreement or in any Right Certificate be construed to
confer upon the holder of any Right Certificate, as such, any of the rights of a
shareholder of the Company, including, without limitation, any right to vote for
the election of directors or on any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting shareholders or to receive
dividends or other distributions or subscription rights, or otherwise, until the
Right or Rights evidenced by such Right Certificate shall have been exercised in
accordance with the provisions of this Rights Agreement.
SECTION 19 CONCERNING THE RIGHTS AGENT
(a) The Company agrees to pay to the Rights Agent reasonable
and customary compensation for all services rendered by it under this Rights
Agreement and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in administering and
executing this Rights Agreement and exercising and performing its duties under
this Rights Agreement.
(b) The Rights Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Rights Agreement in reliance on any
Right Certificate or certificate for the Common Shares or for other securities
of the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
Person or Persons.
SECTION 20 MERGER OR CONSOLIDATION OR CHANGE OF RIGHTS AGENT
(a) Any Person into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any Person
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any Person succeeding to the stock
transfer or corporate trust business of the Rights Agent or any successor Rights
Agent, shall be the successor to the Rights Agent under this Rights Agreement
without the execution or
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filing of any paper or any further act on the part of any of the parties to this
Rights Agreement, provided, however, that such Person would be ineligible for
appointment as a successor Rights Agent under the provisions of Section 22. In
case, at the time such successor Rights Agent shall succeed to the agency
created by this Rights Agreement, any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and, in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and, in all such cases, such
Right Certificates shall have the full force provided in the Right Certificates
and in this Rights Agreement.
(b) In case at any time the name of the Rights Agent shall
be changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Right Certificates so countersigned; and, in
case at that time any of the Right Certificates shall not have been
countersigned, the Rights Agent may countersign such Right Certificates either
in its prior name or in its changed name; and, in all such cases, such Right
Certificates shall have the full force provided in the Right Certificates and in
this Rights Agreement.
SECTION 21 DUTIES OF RIGHTS AGENT
The Rights Agent undertakes the duties and obligations imposed by this
Rights Agreement upon the following terms and conditions, by all of which the
Company and the holders of Right Certificates (or, prior to the Distribution
Date, of the Common Shares), by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken, suffered or omitted by it in good faith and in accordance with such
opinion.
(b) Whenever in the performance of its duties under this
Rights Agreement the Rights Agent shall deem it necessary or desirable that any
fact or matter (including, without limitation, the identify of any Acquiring
Person) be proved or established by the Company prior to taking, refraining from
taking or suffering any action under this Rights Agreement, such fact or matter
(unless other evidence in respect thereof be specifically prescribed in this
Rights Agreement) may be deemed to be conclusively proved and established by a
certificate signed by any one of the Chairman of the Board of Directors, the
Chief Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, an Executive Vice President (whether preceded by any
additional title), the Treasurer or the Secretary of the Company and delivered
to the Rights Agent, and such certificate shall be full authorization to the
Rights Agent for any action taken or suffered in good faith by it under the
provisions of this Rights Agreement in reliance upon such certificate.
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(c) The Rights Agent shall be liable under this Rights
Agreement only for its own negligence, bad faith or willful misconduct. Anything
to the contrary notwithstanding, in no event shall the Rights Agent be liable
for special, punitive, indirect, consequential or incidental loss or damage of
any kind whatsoever (including but not limited to lost profits), even if the
Rights Agent has been advised of the likelihood of such loss or damage.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Rights Agreement or
in the Right Certificates (except as to its countersignature thereof) or be
required to verify the same, but all such statements and recitals are and shall
be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility
in respect of the validity of this Rights Agreement or the execution and
delivery hereof (except the due execution of this Rights Agreement by the Rights
Agent) or in respect of the validity or executions of any Right Certificate
(except its countersignature thereof); nor shall it be responsible for any
breach by the Company of any covenant or condition contained in this Rights
Agreement or in any Right Certificate; nor shall it be responsible for any
adjustment required under the provisions of Section 11 or 12 or responsible for
the manner, method or amount of any such adjustment or the ascertaining of the
existence of facts that would require any such adjustment (except with respect
to the exercise of Rights evidenced by Right Certificates after actual notice of
any such adjustment); nor shall it by any act under this Rights Agreement be
deemed to make any representation or warranty as to the authorization or
reservation of any Common Shares or other such securities to be issued pursuant
to this Rights Agreement or any Right Certificate or as to whether any Common
Shares or other securities will, when so issued, be validly authorized and
issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performance
by the Rights Agent of the provisions of this Rights Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties under this
Rights Agreement from any one of the Chairman of the Board of Directors, the
Chief Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, a Vice President (whether preceded by any additional title),
the Secretary or the Treasurer of the Company in connection with its duties, and
it shall not be liable for any action taken or suffered to be taken by it in
good faith in accordance with the instructions of any such officer.
(h) The Rights Agent and any shareholders, director, officer
or employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Company or become pecuniarily interested in any
transaction in which
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the Company may be interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not the Rights Agent under
this Rights Agreement. Nothing in this Rights Agreement shall preclude the
Rights Agent from acting in any other capacity for the Company or for any other
legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty under this Rights
Agreement either itself or by or through its attorneys or agents, and the Rights
Agent shall not be answerable or accountable for any act, default, neglect or
misconduct of any such attorneys or agents or for any loss to the Company
resulting from any such act, default, neglect or misconduct provided reasonable
care was exercised in the selection and continued employment thereof.
SECTION 22 CHANGE OF RIGHTS AGENT
The Rights Agent or any successor Rights Agent may resign and be
discharged from its duties under this Rights Agreement upon 30 days' notice in
writing mailed to the Company and to each transfer agent of the Common Shares by
registered or certified mail, and to the holders of the Right Certificates (or,
prior to the Distribution Date, of the Common Shares) by first-class mail. The
Company may remove the Rights Agent or any successor Rights Agent upon 30 days'
notice in writing mailed to the Rights Agent or successor Rights Agent, as the
case may be, and to each transfer agent of the Common Shares by registered or
certified mail, and to the holders of the Right Certificates (or, prior to the
Distribution Date, of the Common Shares) by first-class mail. If the Rights
Agent shall resign or be removed or shall otherwise become incapable of acting,
the Company shall appoint a successor to the Rights Agent. If the Company shall
fail to make such appointment within a period of 30 days after giving notice of
such removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Right Certificate (or, prior to the Distribution Date, of the Common Shares)
(who shall, with such notice, submit his or her Right Certificate or, prior to
the Distribution Date, the certificate representing his or her Common Shares,
for inspection by the Company), then the registered holder of any Right
Certificate (or, prior to the Distribution Date, of the Common Shares) may apply
to any court of competent jurisdiction for the appointment of a new Rights
Agent. Any successor Rights Agent, whether appointed by the Company or by such a
court, shall be a Person in good standing organized and doing business under the
laws of the United States or of the state of New York (or of any other state of
the United States so long as such corporation is authorized to conduct a stock
transfer or corporate trust business in the state of New York) and having an
office in the State of New York, which is authorized under such laws to exercise
stock transfer or corporate trust powers and is subject to supervision or
examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$50,000,000. After appointment, the successor Rights Agent shall be vested with
the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; provided, however,
that the predecessor Rights Agent shall deliver and transfer to the successor
Rights Agent any property at the time held by it under this Rights Agreement,
and execute and deliver any further
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assurance, conveyance, act or deed necessary for the purpose. Not later than the
effective date of any such appointment, the Company shall file notice thereof in
writing with the predecessor Rights Agent and each transfer of the Common Shares
and mail a notice thereof in writing to the registered holders of the Right
Certificates (or, prior to the Distribution Date, of the Common Shares). Failure
to give any notice provides for in this Section 22, however, or any defect
therein shall not affect the legality or validity of the resignation or removal
of the Rights Agent or the appointment of the successor Rights Agent, as the
case may be.
SECTION 23 ISSUANCE OF ADDITIONAL RIGHTS AND RIGHT CERTIFICATES
Notwithstanding any of the provisions of this Rights Agreement or of the
Rights to the contrary, the Company may, at its option, issue new Right
Certificates evidencing Rights in such form as may be approved by its Board of
Directors to reflect any adjustment or change made in accordance with the
provisions of this Rights Agreement. In addition, in connection with the
issuance or sale of Common Shares following the Distribution Date and prior to
the earlier of the Redemption Date and the Expiration Date, the Company (a)
shall issue, with respect to Common Shares so issued or sold pursuant to the
exercise of stock options or under any employee plan or arrangement, or upon the
exercise, conversions or exchange of securities, notes or debentures issued by
the Company, and (b) may issue, in any other case, if deemed necessary or
appropriate by the Company's Board of Directors, Right Certificates representing
the appropriate number of Rights in connection with such issuance or sale;
provided, however, that (i) no such Right Certificate shall be issued if, and to
the extent that, the Company shall be advised by counsel that such issuance
would create a significant risk of material adverse tax consequences to the
Company or the Person to whom such Right Certificate would be issued and (ii) no
such Right Certificate shall be issued if, and to the extent that, appropriate
adjustment shall otherwise have been made in lieu of the issuance thereof.
SECTION 24 REDEMPTION AND TERMINATION
(a) The Company's Board of Directors may, at its option, at
any time prior to the earlier of (i) the Close of Business on the tenth Business
Day following the date that the Company learns that a Person has become an
Acquiring Person and (ii) the Expiration Date, order the redemption of all, but
not fewer than all, the then-outstanding Rights at the Redemption Price (the
date of such redemption being the "Redemption Date"), and the Company, at its
option, may pay the Redemption Price either in cash or Common Shares or other
securities of the Company deemed by the Company's Board of Directors, in the
exercise of its sole discretion, to be at least equivalent in value to the
Redemption Price.
(b) Immediately upon the action of the Company's Board of
Directors ordering the redemption of the Rights in accordance with Section
24(a), and without any further action and without any notice, the right to
exercise the Rights will terminate and the only right thereafter of the holders
of Rights shall be to receive the Redemption Price. Within 10 Business Days
after the action of the Company's Board of
29
<PAGE> 30
Directors ordering the redemption of the Rights, the Company shall give notice
of such redemption to the holders of the then-outstanding Rights by mailing such
notice to all such holders at their last addresses as they appear upon the
registry books of the Rights Agent or, prior to the Distribution Date, on the
registry books of the transfer agent for the Common Shares. Each such notice or
redemption will state the method by which payment of the Redemption Price will
be made. The notice, if mailed in the manner provided in this Rights Agreement,
shall be conclusively presumed to have been duly given, whether or not the
holder of Rights receives such notice. In any case, failure to give such notice
by mail, or any defect in the notice, to any particular holder of Rights shall
not affect the sufficiency of the notice to other holders of Rights.
SECTION 25 NOTICES
Notices or demands authorized by this Rights Agreement to be given or
made by the Rights Agent or by the holder of a Right Certificate (or, prior to
the Distribution Date, of the Common shares) to or on the Company shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing with the Rights Agent) as
follows:
Redhook Ale Brewery, Incorporated
Seattle, WA 98103
Attention: President
Subject to the provisions of Section 22, notices or demands authorized by this
Rights Agreement to be given or made by the Company or by the holder of a Right
Certificate (or, prior to the Distribution Date, of the Common Shares) to or on
the Rights Agent shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Company) as follows:
ChaseMellon Shareholder Services, L.L.C.
520 Pike Street, Suite 1220
Seattle, WA 98101
Notices or demands authorized by this Rights Agreement to be given or made by
the Company or the Rights Agent to any holder of a Right Certificate (or, prior
to the Distribution Date, of the Common Shares) shall be sufficiently given or
made if sent by first-class mail, postage prepaid, addressed to such holder at
such holder's address as shown on the registry books of the Rights Agent or,
prior to the Distribution Date, on the registry books of the transfer agent for
the Common Shares.
SECTION 26 SUPPLEMENTS AND AMENDMENTS
At any time prior to the Distribution Date and subject to the last
sentence of this Section 26, the Company may, and the Rights Agent shall if the
Company so directs, supplement or amend any provision of this Rights Agreement
(including, without limitation, the date on which the Distribution Date shall
occur, the time during which the Rights may be redeemed pursuant to Section 24)
without the approval of any holder of the Rights. From and after the
Distribution Date and subject to applicable law, the
30
<PAGE> 31
Company may, and the Rights Agent shall if the Company so directs, amend this
Rights Agreement without the approval of any holder of Right Certificates to (a)
cure any ambiguity or correct or supplement any provision contained in this
Rights Agreement that may be defective or inconsistent with any other provision
of this Rights Agreement, (b) shorten or lengthen any time period, or (c) make
any other provisions in regard to matters or questions arising under this Rights
Agreement that the Company may deem necessary or desirable and that shall not
adversely affect the interests of the holders of Right Certificates (other than
an Acquiring Person or an Affiliate or Associate of an Acquiring Person). Any
supplement or amendment adopted during any period after any Person has become an
Acquiring Person but prior to the Distribution Date shall be null and void
unless such supplement or amendment could have been adopted under the prior
sentence from and after the Distribution Date. Any supplement or amendment to
this Rights Agreement duly approved by the Company shall become effective
immediately upon execution of the Company, whether or not also executed by the
Rights Agent. In addition, notwithstanding anything to the contrary contained in
this Rights Agreement, no supplement or amendment to this Rights Agreement shall
be made that (x) reduces the Redemption Price (except as required by Section
12(a)), (y) provides for an earlier Expiration Date, or (z) changes the last two
sentences in the definition of Acquiring Person contained in Section 1.
SECTION 27 SUCCESSORS
All the covenants and provisions of this Rights Agreement by or for the
benefit of the Company or the Rights Agent shall bind and inure to the benefit
of their respective successors and assigns under this Rights Agreement.
SECTION 28 BENEFITS OF THIS RIGHTS AGREEMENT; DETERMINATIONS AND ACTIONS BY THE
COMPANY'S BOARD OF DIRECTORS
(a) Nothing in this Rights Agreement shall be construed to
give to any Person other than the Company, the Rights Agent and the registered
holders of the Right Certificates (and, prior to the Distribution Date, of the
Common Shares) any legal or equitable right, remedy or claim under this Rights
Agreement; provided, however, that this Rights Agreement shall be for the sole
and exclusive benefit of the Company, the Rights Agent and the registered
holders of the Right Certificates (and, prior to the Distribution Date, of the
Common Shares).
(b) Except as explicitly otherwise provided in this Rights
Agreement, the Company's Board of Directors shall have the exclusive power and
authority to administer this Rights Agreement and to exercise all rights and
powers specifically granted to the Company's Board of Directors or to the
Company, or as may be necessary or advisable in the administration of this
Rights Agreement, including, without limitation, the right and power to (i)
interpret the provisions of this Rights Agreement and (ii) make all
determinations deemed necessary or advisable for the administration of this
Rights Agreement (including, without limitation, a determination to redeem or
not redeem the Rights or to amend this Rights Agreement and a determination of
whether there is an Acquiring Person).
31
<PAGE> 32
SECTION 29 SEVERABILITY; CONFLICT WITH OTHER AGREEMENTS
If any term, provision, covenant or restriction of this Rights Agreement
is held by a court of competent jurisdiction or other authority to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Rights Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated. In the event any provision
of this Rights Agreement is found to violate, or conflict with, the terms of the
Investment Agreement in the form entered into between the Company and
Anheuser-Busch, Incorporated, as of October 18, 1994 as such provision relates
to the Affiliated Group, such provision shall be deemed modified to the minimum
extent necessary to eliminate such conflict.
SECTION 30 GOVERNING LAW
This Rights Agreement and each Right Certificate issued under this
Rights Agreement shall be deemed to be a contract made under the laws of the
state of Washington and for all purposes shall be governed by and construed in
accordance with the law of Washington applicable to contract to be made and
performed entirely within Washington.
SECTION 31 COUNTERPARTS, EFFECTIVENESS
This Rights Agreement may be executed in any number of counterparts,
each of which shall for all purposes be deemed to be an original, and all of
which shall together constitute but one and the same instrument. This Rights
Agreement shall be effective as of the Close of Business on the date of this
Rights Agreement first set forth above.
SECTION 32 DESCRIPTIVE HEADINGS
Descriptive headings of the several Sections of this Rights Agreement
are inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions of this Rights Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Rights Agreement
to be duly executed as of the day and year first above written.
REDHOOK ALE BREWERY, INCORPORATED
By: /s/ PAUL S. SHIPMAN
-------------------------------------
Paul Shipman
Its: President and
Chief Executive Officer
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
By: /s/ THOMAS L. COOPER
-------------------------------------
Its: Assistant Vice President
32
<PAGE> 33
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 1 CERTAIN DEFINITIONS......................................................... 2
SECTION 2 APPOINTMENT OF RIGHTS AGENT................................................. 9
SECTION 3 ISSUE OF RIGHTS AND RIGHT CERTIFICATES...................................... 9
SECTION 4 FORM OF RIGHT CERTIFICATES.................................................. 11
SECTION 5 EXECUTION, COUNTERSIGNATURE AND REGISTRATION................................ 11
SECTION 6 TRANSFER, SPLIT-UP, COMBINATION AND EXCHANGE OF RIGHT CERTIFICATES;
LOST, STOLEN, DESTROYED OR MUTILATED RIGHT CERTIFICATES; UNCERTIFICATED
RIGHTS...................................................................... 12
SECTION 7 EXERCISE OF RIGHTS; EXPIRATION DATE OF RIGHTS............................... 13
SECTION 8 CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES.......................... 15
SECTION 9 RESERVATION AND AVAILABILITY OF COMMON SHARES............................... 15
SECTION 10 COMMON SHARES RECORD DATE................................................... 16
SECTION 11 CERTAIN ADJUSTMENTS IN RIGHTS; EXCHANGE OF RIGHTS FOR SHARES;
BUSINESS COMBINATIONS....................................................... 16
SECTION 12 CERTAIN ADJUSTMENTS......................................................... 21
SECTION 13 CERTIFICATE OF ADJUSTMENT................................................... 22
SECTION 14 ADDITIONAL COVENANTS........................................................ 23
SECTION 15 FRACTIONAL RIGHTS AND FRACTIONAL SHARES..................................... 23
SECTION 16 RIGHTS OF ACTION............................................................ 24
SECTION 17 TRANSFER AND OWNERSHIP OF RIGHTS AND RIGHT CERTIFICATES..................... 24
SECTION 18 RIGHT CERTIFICATE HOLDER NOT DEEMED A SHAREHOLDER........................... 25
SECTION 19 CONCERNING THE RIGHTS AGENT................................................. 25
SECTION 20 MERGER OR CONSOLIDATION OR CHANGE OF RIGHTS AGENT........................... 26
SECTION 21 DUTIES OF RIGHTS AGENT...................................................... 26
SECTION 22 CHANGE OF RIGHTS AGENT...................................................... 28
SECTION 23 ISSUANCE OF ADDITIONAL RIGHTS AND RIGHT CERTIFICATES........................ 29
SECTION 24 REDEMPTION AND TERMINATION.................................................. 29
</TABLE>
<PAGE> 34
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 25 NOTICES..................................................................... 30
SECTION 26 SUPPLEMENTS AND AMENDMENTS.................................................. 31
SECTION 27 SUCCESSORS.................................................................. 32
SECTION 28 BENEFITS OF THIS RIGHTS AGREEMENT; DETERMINATIONS AND ACTIONS BY THE
COMPANY'S BOARD OF DIRECTORS................................................ 32
SECTION 29 SEVERABILITY; CONFLICT WITH OTHER AGREEMENTS................................ 32
SECTION 30 GOVERNING LAW............................................................... 33
SECTION 31 COUNTERPARTS, EFFECTIVENESS................................................. 33
SECTION 32 DESCRIPTIVE HEADINGS........................................................ 33
</TABLE>
<PAGE> 1
EXHIBIT 10.40
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT (this "Amendment") to the Employment Agreement
dated October 18, 1994 (the "Agreement"), between Redhook Ale Brewery,
Incorporated ("Employer") and Paul Shipman ("Employee"), is made effective as of
the date this Amendment has been signed by the Employer and the Employee.
Capitalized terms used but not defined in this Amendment will have the meanings
given those terms in the Agreement.
1. Section 7(d) of the Agreement is amended to read as follows in
its entirety:
d. Restriction on Stock Transfers. Employee shall continuously maintain
ownership of a minimum of two hundred fifty thousand (250,000) shares of
Employer's common stock until the earlier of (i) two (2) years following the
termination of this Agreement, or (ii) September 30, 2001. The number of
restricted shares shall be counted by assuming any stock split, stock dividend,
combination, recapitalization, reclassification or other change in the terms of
common stock occurring after the effective date of this Agreement had not
occurred.
2. Except as amended hereby, the Agreement shall remain in
full force and effect.
3. This Amendment may be executed in more than one
counterpart, by facsimile signature, each counterpart deemed an original
instrument and such counterparts in the aggregate constituting one and the same
instrument.
IN WITNESS WHEREOF, the undersigned have executed this First Amendment,
pursuant to Section 12(b) of the Agreement.
"Employer"
Date: May 6, 1999 By: /s/ BRADLEY A. BERG
-------------------------------------
Bradley A. Berg
Its: Executive Vice President
"Employee"
Date: May 6, 1999 By: /s/ PAUL S. SHIPMAN
-------------------------------------
Paul S. Shipman
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,329,964
<SECURITIES> 0
<RECEIVABLES> 1,698,358
<ALLOWANCES> 10,000
<INVENTORY> 2,525,934
<CURRENT-ASSETS> 8,378,487
<PP&E> 89,660,508
<DEPRECIATION> 10,038,778
<TOTAL-ASSETS> 89,358,397<F1>
<CURRENT-LIABILITIES> 6,252,600
<BONDS> 7,762,500
16,021,755
0
<COMMON> 38,438
<OTHER-SE> 57,019,617
<TOTAL-LIABILITY-AND-EQUITY> 89,358,397
<SALES> 6,972,249<F2>
<TOTAL-REVENUES> 6,972,249<F2>
<CGS> 5,100,069
<TOTAL-COSTS> 7,272,488
<OTHER-EXPENSES> (35,745)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 130,418
<INCOME-PRETAX> (394,912)
<INCOME-TAX> (138,220)
<INCOME-CONTINUING> (256,692)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (256,692)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
<FN>
<F1>Total Assets includes Assets Held for Sale of $721,963.
<F2>Sales and Total Revenues are net of federal and state excise taxes.
</FN>
</TABLE>
