0000016918-01-500025.txt : 20011019
0000016918-01-500025.hdr.sgml : 20011019
ACCESSION NUMBER: 0000016918-01-500025
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 9
CONFORMED PERIOD OF REPORT: 20010831
FILED AS OF DATE: 20011015
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: CONSTELLATION BRANDS INC
CENTRAL INDEX KEY: 0000016918
STANDARD INDUSTRIAL CLASSIFICATION: BEVERAGES [2080]
IRS NUMBER: 160716709
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0228
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-08495
FILM NUMBER: 1759492
BUSINESS ADDRESS:
STREET 1: 300 WILLOWBROOK OFFICE PARK
CITY: FAIRPORT
STATE: NY
ZIP: 14450
BUSINESS PHONE: 7162182169
MAIL ADDRESS:
STREET 1: 300 WILLOWBROOK OFFICE PARK
CITY: FAIRPORT
STATE: NY
ZIP: 14450
FORMER COMPANY:
FORMER CONFORMED NAME: CANANDAIGUA BRANDS INC
DATE OF NAME CHANGE: 19970902
FORMER COMPANY:
FORMER CONFORMED NAME: CANANDAIGUA WINE CO INC
DATE OF NAME CHANGE: 19920703
10-Q
1
q2document.txt
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended August 31, 2001
---------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- --------------------
COMMISSION FILE NUMBER 001-08495
CONSTELLATION BRANDS, INC.
--------------------------
(Exact name of registrant specified in its charter)
Delaware 16-0716709
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
300 WILLOWBROOK OFFICE PARK, FAIRPORT, NEW YORK 14450
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(716) 218-2169
-----------------------------------------------------
(Registrant's telephone number, including area code)
-----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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
--- ---
The number of shares outstanding with respect to each of the classes of common
stock of Constellation Brands, Inc., as of October 8, 2001, is set forth
below:
CLASS NUMBER OF SHARES OUTSTANDING
----- ----------------------------
Class A Common Stock, Par Value $.01 Per Share 37,291,021
Class B Common Stock, Par Value $.01 Per Share 6,074,445
- 1 -
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
------- --------------------
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
August 31, February 28,
2001 2001
----------- ------------
(unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash investments $ 6,768 $ 145,672
Accounts receivable, net 406,929 314,262
Inventories, net 769,117 670,018
Prepaid expenses and other current assets 70,987 61,037
----------- ------------
Total current assets 1,253,801 1,190,989
PROPERTY, PLANT AND EQUIPMENT, net 560,452 548,614
OTHER ASSETS 1,092,458 772,566
----------- ------------
Total assets $ 2,906,711 $ 2,512,169
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable $ 88,991 $ 4,184
Current maturities of long-term debt 75,854 54,176
Accounts payable 149,481 114,793
Accrued excise taxes 45,496 55,954
Other accrued expenses and liabilities 256,953 198,053
----------- ------------
Total current liabilities 616,775 427,160
----------- ------------
LONG-TERM DEBT, less current maturities 1,284,120 1,307,437
----------- ------------
DEFERRED INCOME TAXES 132,521 131,974
----------- ------------
OTHER LIABILITIES 33,238 29,330
----------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value-
Authorized, 1,000,000 shares;
Issued, none at August 31, 2001,
and February 28, 2001 - -
Class A Common Stock, $.01 par value-
Authorized, 120,000,000 shares;
Issued, 38,703,208 shares at
August 31, 2001, and 37,438,968
shares at February 28, 2001 387 374
Class B Convertible Common Stock,
$.01 par value-
Authorized, 20,000,000 shares;
Issued, 7,325,895 shares at
August 31, 2001, and 7,402,594 shares
at February 28, 2001 73 74
Additional paid-in capital 394,464 267,655
Retained earnings 515,575 455,798
Accumulated other comprehensive loss (28,853) (26,004)
----------- ------------
881,646 697,897
----------- ------------
Less-Treasury stock-
Class A Common Stock, 1,801,717 shares
at August 31, 2001, and 6,200,600 shares
at February 28, 2001, at cost (39,282) (79,271)
Class B Convertible Common Stock, 1,251,450
shares at August 31, 2001, and
February 28, 2001, at cost (2,207) (2,207)
----------- ------------
(41,489) (81,478)
----------- ------------
Less-Unearned compensation-restricted
stock awards (100) (151)
----------- ------------
Total stockholders' equity 840,057 616,268
----------- ------------
Total liabilities and stockholders' equity $ 2,906,711 $ 2,512,169
=========== ============
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
- 2 -
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
For the Six Months Ended August 31, For the Three Months Ended August 31,
----------------------------------- -------------------------------------
2001 2000 2001 2000
-------------- -------------- -------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited)
GROSS SALES $ 1,787,002 $ 1,603,190 $ 951,228 $ 828,668
Less - Excise taxes (403,362) (380,120) (209,698) (191,178)
-------------- -------------- -------------- --------------
Net sales 1,383,640 1,223,070 741,530 637,490
COST OF PRODUCT SOLD (944,014) (838,558) (503,854) (436,851)
-------------- -------------- -------------- --------------
Gross profit 439,626 384,512 237,676 200,639
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (280,702) (256,344) (148,675) (129,935)
-------------- -------------- -------------- --------------
Operating income 158,924 128,168 89,001 70,704
INTEREST EXPENSE, net (59,159) (54,814) (28,974) (27,187)
EQUITY IN LOSS OF JOINT VENTURE (137) - (137) -
-------------- -------------- -------------- --------------
Income before income taxes 99,628 73,354 59,890 43,517
PROVISION FOR INCOME TAXES (39,851) (29,342) (23,956) (17,407)
-------------- -------------- -------------- --------------
NET INCOME $ 59,777 $ 44,012 $ 35,934 $ 26,110
============== ============== ============== ==============
SHARE DATA:
Earnings per common share:
Basic $ 1.43 $ 1.20 $ 0.85 $ 0.71
============== ============== ============== ==============
Diluted $ 1.39 $ 1.18 $ 0.82 $ 0.70
============== ============== ============== ==============
Weighted average common shares outstanding:
Basic 41,834 36,530 42,414 36,600
Diluted 43,126 37,243 43,932 37,328
The accompanying notes to consolidated financial statements are an integral part of these statements.
- 3 -
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Six Months Ended August 31,
-----------------------------------
2001 2000
------------ ------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 59,777 $ 44,012
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of property, plant and equipment 27,290 23,240
Amortization of intangible assets 15,971 12,825
Loss on sale of assets 1,680 1,513
Amortization of discount on long-term debt 275 241
Equity in loss of joint venture 137 -
Stock-based compensation expense 51 -
Change in operating assets and liabilities,
net of effects from purchases of businesses:
Accounts receivable, net (64,236) (77,926)
Inventories, net 27,533 4,575
Prepaid expenses and other current assets (8,711) (10,177)
Accounts payable 13,467 20,655
Accrued excise taxes (10,561) 14,286
Other accrued expenses and liabilities 47,942 48,542
Other assets and liabilities, net (4,633) (3,813)
------------ ------------
Total adjustments 46,205 33,961
------------ ------------
Net cash provided by operating activities 105,982 77,973
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of businesses, net of cash acquired (471,971) -
Purchases of property, plant and equipment (28,795) (25,249)
Investment in joint venture (5,500) -
Proceeds from sale of assets 35,391 912
------------ ------------
Net cash used in investing activities (470,875) (24,337)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from equity offering, net of fees 139,522 -
Net proceeds from notes payable 85,727 18,212
Exercise of employee stock options 26,392 3,178
Proceeds from employee stock purchases 842 761
Principal payments of long-term debt (25,221) (220,509)
Payment of issuance costs of long-term debt (1,186) (1,547)
Proceeds from issuance of long-term debt, net of discount - 119,400
------------ ------------
Net cash provided by (used in) financing activities 226,076 (80,505)
------------ ------------
Effect of exchange rate changes on cash and cash investments (87) (3,289)
------------ ------------
NET DECREASE IN CASH AND CASH INVESTMENTS (138,904) (30,158)
CASH AND CASH INVESTMENTS, beginning of period 145,672 34,308
------------ ------------
CASH AND CASH INVESTMENTS, end of period $ 6,768 $ 4,150
============ ============
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Fair value of assets acquired, including cash acquired $ 537,821 $ -
Liabilities assumed (60,108) -
------------ ------------
Cash paid 477,713 -
Less - cash acquired (5,742) -
------------ ------------
Net cash paid for purchases of businesses $ 471,971 $ -
============ ============
Property, plant and equipment contributed to joint venture $ 30,020 $ -
============ ============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
- 4 -
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2001
1) MANAGEMENT'S REPRESENTATIONS:
The consolidated financial statements included herein have been prepared by
Constellation Brands, Inc. and its subsidiaries (the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
applicable to quarterly reporting on Form 10-Q and reflect, in the opinion of
the Company, all adjustments necessary to present fairly the financial
information for the Company. All such adjustments are of a normal recurring
nature. Certain information and footnote disclosures normally included in
financial statements, prepared in accordance with generally accepted accounting
principles, have been condensed or omitted as permitted by such rules and
regulations. These consolidated financial statements and related notes should be
read in conjunction with the consolidated financial statements and related notes
included in the Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 2001. Results of operations for interim periods are not necessarily
indicative of annual results.
Certain August 31, 2000, balances have been reclassified to conform to
current year presentation.
2) ACCOUNTING CHANGES:
Effective March 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative
Instruments and Hedging Activities", as amended, which establishes accounting
and reporting standards for derivative instruments and hedging activities. SFAS
No. 133 requires that the Company recognize all derivatives as either assets or
liabilities on the balance sheet and measure those instruments at fair value.
The adoption of SFAS No. 133 did not have a material impact on the Company's
consolidated financial position, results of operations, or cash flows. The
Company is exposed to market risk associated with changes in foreign currency
exchange rates. The Company has limited involvement with derivative financial
instruments and does not use them for trading purposes. The Company periodically
enters into derivative transactions solely to manage the volatility and to
reduce the financial impact relating to this risk.
The Company uses foreign currency exchange hedging agreements to reduce the
risk of foreign currency exchange rate fluctuations resulting primarily from
contracts to purchase inventory items that are denominated in various foreign
currencies. As these derivative contracts are designated to hedge the exposure
to variable cash flows of a forecasted transaction, the contracts are classified
as cash flow hedges. As such, the effective portion of the change in the fair
value of the derivatives is recorded each period in the balance sheet in
accumulated other comprehensive income/loss ("AOCI"), and is reclassified into
the statement of income, primarily as a component of cost of goods sold, in the
same period during which the hedged transaction affects earnings. The currency
forward exchange contracts used generally have maturity terms of twelve months
or less. The Company expects the entire balance in AOCI related to cash flow
hedges to be reclassified to the statement of income within the next twelve
months. The Company formally documents all relationships between hedging
instruments and hedged items in accordance with SFAS No. 133 requirements.
The Company has exposure to foreign currency risk, primarily in the United
Kingdom, as a result of having international subsidiaries. The Company uses
local currency borrowings to hedge its earnings and cash flow exposure to
adverse changes in foreign currency exchange rates. Such borrowings are
designated as a hedge of the foreign currency exposure of the net investment in
the foreign operation. Accordingly, the effective portion of the foreign
currency gain or loss on the hedging debt instrument is reported in AOCI as part
of the foreign currency translation adjustments. For the six months and three
- 5 -
months ended August 31, 2001, net losses of $1.6 million and $6.9 million,
respectively, are included in foreign currency translation adjustments within
AOCI.
3) ACQUISITIONS:
On October 27, 2000, the Company purchased all of the issued Ordinary
Shares and Preference Shares of Forth Wines Limited ("Forth Wines"). The
purchase price was $4.5 million and was accounted for using the purchase method;
accordingly, the acquired net assets were recorded at fair market value at the
date of acquisition. The excess of the purchase price over the fair market value
of the net assets acquired (goodwill), $2.2 million, is being amortized on a
straight-line basis over 40 years. The results of operations of Forth Wines are
reported in the Matthew Clark segment and have been included in the Consolidated
Statements of Income since the date of acquisition.
On March 5, 2001, in an asset acquisition, the Company acquired several
well-known premium wine brands, including Vendange, Nathanson Creek, Heritage,
and Talus, working capital (primarily inventories), two wineries in California,
and other related assets from Sebastiani Vineyards, Inc. and Tuolomne River
Vintners Group (the "Turner Road Vintners Assets"). The preliminary purchase
price of the Turner Road Vintners Assets, including assumption of indebtedness
of $9.4 million, was $289.8 million. The purchase price is subject to final
closing adjustments which the Company does not expect to be material. The
acquisition was financed by the proceeds from the sale of the February 2001
Senior Notes and revolving loan borrowings under the senior credit facility. The
Turner Road Vintners Assets acquisition was accounted for using the purchase
method; accordingly, the acquired net assets were recorded at fair market value
at the date of acquisition, subject to final appraisal. The excess of the
purchase price over the estimated fair market value of the net assets acquired
(goodwill), $181.0 million, is being amortized on a straight-line basis over 40
years. The results of operations of the Turner Road Vintners Assets are reported
in the Canandaigua Wine segment and have been included in the Consolidated
Statements of Income since the date of acquisition.
On March 26, 2001, in an asset acquisition, the Company acquired certain
wine brands, wineries, working capital (primarily inventories), and other
related assets from Corus Brands, Inc. (the "Corus Assets"). In this
acquisition, the Company acquired several well-known premium wine brands
primarily sold in the northwestern United States, including Covey Run, Columbia,
Ste. Chapelle and Alice White. The preliminary purchase price of the Corus
Assets, including assumption of indebtedness of $3.0 million, was $51.9 million
plus an earn-out over six years based on the performance of the brands. The
purchase price is subject to final closing adjustments which the Company does
not expect to be material. In connection with the transaction, the Company also
entered into long-term grape supply agreements with affiliates of Corus Brands,
Inc. covering more than 1,000 acres of Washington and Idaho vineyards. The
acquisition was financed with revolving loan borrowings under the senior credit
facility. The Corus Assets acquisition was accounted for using the purchase
method; accordingly, the acquired net assets were recorded at fair market value
at the date of acquisition, subject to final appraisal. The excess of the
purchase price over the estimated fair market value of the net assets acquired
(goodwill), $10.0 million, is being amortized on a straight-line basis over 40
years. The results of operations of the Corus Assets are reported in the
Canandaigua Wine segment and have been included in the Consolidated Statements
of Income since the date of acquisition.
- 6 -
On July 2, 2001, the Company purchased all of the outstanding capital stock
of Ravenswood Winery, Inc. ("Ravenswood"). Ravenswood produces, markets and
sells super-premium and ultra-premuim California wine, primarily under the
Ravenswood brand name. The preliminary purchase price of Ravenswood, including
assumption of indebtedness of $2.9 million, was $151.3 million. The purchase
price is subject to final closing adjustments which the Company does not expect
to be material. The purchase price was financed with revolving loan borrowings
under the senior credit facility. The Ravenswood acquisition was accounted for
using the purchase method; accordingly, the acquired net assets were recorded at
fair market value at the date of acquisition, subject to final appraisal. The
excess of the purchase price over the estimated fair market value of the net
assets acquired (goodwill), $122.6 million, will not be amortized and will be
tested for impairment at least annually. The Ravenswood acquisition was in line
with the Company's strategy of further penetrating the higher gross profit
margin super-premium and ultra-premium wine categories. The results of
operations of Ravenswood are reported in the Franciscan segment and have been
included in the Consolidated Statements of Income since the date of acquisition.
The unaudited pro forma results of operations for the six months and three
months ended August 31, 2001 (shown in the table below), reflect total
nonrecurring charges of $11.7 million ($0.16 per share on a diluted basis)
related to transaction costs, primarily for the acceleration of vesting of stock
options, which were incurred by Ravenswood prior to the acquisition.
The following table sets forth the unaudited pro forma results of
operations of the Company for the six months and three months ended August 31,
2001 and 2000. The unaudited pro forma results of operations for the six months
ended August 31, 2001 and 2000, and the three months ended August 31, 2000, give
effect to the acquisitions of the Turner Road Vintners Assets and Corus Assets
as if they occurred on March 1, 2000. The unaudited pro forma results of
operations for the six months and three months ended August 31, 2001 and 2000,
give effect to the acquisition of Ravenswood as if it occurred on March 1, 2000.
The unaudited pro forma results of operations for the six months and three
months ended August 31, 2000, do not give pro forma effect to the acquisition of
Forth Wines as if it occurred on March 1, 2000, as it is not significant. The
unaudited pro forma results of operations are presented after giving effect to
certain adjustments for depreciation, amortization of goodwill, interest expense
on the acquisition financing and related income tax effects. The unaudited pro
forma results of operations are based upon currently available information and
upon certain assumptions that the Company believes are reasonable under the
circumstances. The unaudited pro forma results of operations do not purport to
present what the Company's results of operations would actually have been if the
aforementioned transactions had in fact occurred on such date or at the
beginning of the period indicated, nor do they project the Company's financial
position or results of operations at any future date or for any future period.
For the Six Months For the Three Months
Ended August 31, Ended August 31,
----------------------------- ----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
(in thousands, except per share data)
Net sales $ 1,398,999 $ 1,353,774 $ 746,015 $ 701,424
Income before income taxes $ 84,768 $ 61,520 $ 47,696 $ 36,629
Net income $ 50,861 $ 36,911 $ 28,618 $ 21,977
Earnings per common share:
Basic $ 1.22 $ 1.01 $ 0.67 $ 0.60
============ ============ ============ ============
Diluted $ 1.18 $ 0.99 $ 0.65 $ 0.59
============ ============ ============ ============
Weighted average common shares outstanding:
Basic 41,834 36,530 42,414 36,600
Diluted 43,126 37,243 43,932 37,328
- 7 -
4) INVENTORIES:
Inventories are stated at the lower of cost (computed in accordance with
the first-in, first-out method) or market. Elements of cost include materials,
labor and overhead and consist of the following:
August 31, February 28,
2001 2001
------------ ------------
(in thousands)
Raw materials and supplies $ 37,796 $ 28,007
In-process inventories 453,414 450,650
Finished case goods 277,907 191,361
------------ ------------
$ 769,117 $ 670,018
============ ============
5) OTHER ASSETS:
The major components of other assets are as follows:
August 31, February 28,
2001 2001
------------ ------------
(in thousands)
Goodwill $ 745,744 $ 447,813
Trademarks 246,941 247,139
Distribution rights and agency
license agreements 87,052 87,052
Other 112,157 73,935
------------ ------------
1,191,895 855,939
Less - Accumulated amortization (99,437) (83,373)
------------ ------------
$ 1,092,458 $ 772,566
============ ============
6) INVESTMENT IN JOINT VENTURE:
On July 31, 2001, the Company and BRL Hardy Limited completed the formation
of Pacific Wine Partners LLC ("PWP"), a joint venture owned equally by the
Company and BRL Hardy Limited, the second largest wine company in Australia. PWP
produces, markets and sells a global portfolio of premium wine in the United
States, including a range of Australian imports, the fastest growing wine
segment in the United States. PWP has exclusive distribution rights in the
United States and the Caribbean to seven brands - Banrock Station, Hardys,
Leasingham, Barossa Valley Estate and Chateau Reynella from Australia; Nobilo
from New Zealand; and La Baume from France. The joint venture also owns
Farallon, a premium California coastal wine. In addition, PWP owns the Riverland
Vineyards winery and controls 1,400 acres of vineyards, all located in Monterey
County, California.
The Company contributed to PWP assets with a carrying amount of $30.0
million plus $5.5 million of cash. The Company sold assets with a carrying
amount of $31.2 million to BRL Hardy (USA) Inc. ("Hardy") and received $34.9
million in cash. Hardy contributed these assets plus $5.5 million of cash to
PWP. As of August 31, 2001, the Company's investment balance, which is accounted
for under the equity method, was $31.6 million and is included on the
Consolidated Balance Sheets in other assets. The carrying amount of the
investment is less than the Company's equity in the underlying net assets of PWP
by $8.7 million. This amount is included in earnings as the assets are used by
PWP. The Company and PWP are parties to the following agreements: administrative
and selling services agreement; crushing, wine production, bottling, storage,
and related services agreement; inventory supply agreement; sublease and
assumption agreements pertaining to certain vineyards, which agreements include
a market value adjustment provision; and a market value adjustment agreement
relating to a certain vineyard lease held by PWP. As of August 31, 2001, amounts
related to the above agreements were not material.
- 8 -
7) OTHER ACCRUED EXPENSES AND LIABILITIES:
The major components of other accrued expenses and liabilities are as
follows:
August 31, February 28,
2001 2001
------------ ------------
(in thousands)
Accrued advertising and promotions $ 52,671 $ 44,501
Accrued income taxes payable 39,230 21,122
Accrued grape purchases 36,009 -
Accrued salaries and commissions 21,916 24,589
Accrued interest 14,988 28,542
Other 92,139 79,299
------------ ------------
$ 256,953 $ 198,053
============ ============
8) BORROWINGS:
In July 2001, the Company exchanged $200.0 million aggregate principal
amount of 8% Series B Senior Notes due February 2008 (the "February 2001 Series
B Senior Notes") for all of the February 2001 Senior Notes. The terms of the
February 2001 Series B Senior Notes are identical in all material respects to
the February 2001 Senior Notes.
9) STOCKHOLDERS' EQUITY:
Equity offering -
---------------
During March 2001, the Company completed a public offering of 4,370,000
shares of its Class A Common Stock resulting in net proceeds to the Company,
after deducting underwriting discounts and expenses, of $139.5 million. The net
proceeds were used to repay revolving loan borrowings under the senior credit
facility of which a portion was incurred to partially finance the acquisition of
the Turner Road Vintners Assets.
Employee stock purchase plan -
----------------------------
The Company has a stock purchase plan under which 500,000 shares of the
Company's Class A Common Stock may be issued to eligible employees and directors
of the Company's United Kingdom subsidiaries. In connection with the Company's
May 2001 two-for-one stock split, the Company has submitted to the Inland
Revenue, for its approval, a revised plan to increase the number of shares
available under the plan to 1,000,000. Under the terms of the plan, participants
may purchase shares of the Company's Class A Common Stock through payroll
deductions. The purchase price may be no less than 80% of the closing price of
the stock on the day the purchase price is fixed by the committee administering
the plan. As of August 31, 2001, no shares have been issued.
10) EARNINGS PER COMMON SHARE:
Basic earnings per common share exclude the effect of common stock
equivalents and are computed by dividing income available to common stockholders
by the weighted average number of common shares outstanding during the period
for Class A Common Stock and Class B Convertible Common Stock. Diluted earnings
per common share reflect the potential dilution that could result if securities
or other contracts to issue common stock were exercised or converted into common
stock. Diluted earnings per common share assume the exercise of stock options
using the treasury stock method and assume the conversion of convertible
securities, if any, using the "if converted" method.
- 9 -
The computation of basic and diluted earnings per common share is as
follows:
For the Six Months For the Three Months
Ended August 31, Ended August 31,
------------------------ ------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
(in thousands, except per share data)
Income applicable to common shares $ 59,777 $ 44,012 $ 35,934 $ 26,110
========== ========== ========== ==========
Weighted average common shares
outstanding - basic 41,834 36,530 42,414 36,600
Stock options 1,292 713 1,518 728
---------- ---------- ---------- ----------
Weighted average common shares
outstanding - diluted 43,126 37,243 43,932 37,328
========== ========== ========== ==========
EARNINGS PER COMMON SHARE - BASIC $ 1.43 $ 1.20 $ 0.85 $ 0.71
========== ========== ========== ==========
EARNINGS PER COMMON SHARE - DILUTED $ 1.39 $ 1.18 $ 0.82 $ 0.70
========== ========== ========== ==========
Stock options to purchase 0.1 million and 1.7 million shares of Class A
Common Stock at a weighted average price per share of $42.68 and $26.14 were
outstanding during the six months and three months ended August 31, 2001 and
2000, respectively, but were not included in the computation of the diluted
earnings per common share because the stock options' exercise price was greater
than the average market price of the Class A Common Stock for the respective
periods.
11) COMPREHENSIVE INCOME:
Comprehensive income consists of net income, foreign currency translation
adjustments and net unrealized gains on derivative instruments for the six
months and three months ended August 31, 2001 and 2000. The reconciliation of
net income to comprehensive income is as follows:
For the Six Months For the Three Months
Ended August 31, Ended August 31,
------------------------ ------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
(in thousands)
Net income $ 59,777 $ 44,012 $ 35,934 $ 26,110
Other comprehensive income, net of tax:
Foreign currency translation adjustments (2,882) (19,113) 1,432 (7,847)
Cash flow hedges:
Net derivative gains, net of tax effect of $109 and
$30, respectively 219 - 47 -
Reclassification adjustments, net of tax effect of
$85 and $18, respectively (186) - 43 -
---------- ---------- ---------- ----------
Net cash flow hedges 33 - 90 -
---------- ---------- ---------- ----------
Total comprehensive income $ 56,928 $ 24,899 $ 37,456 $ 18,263
========== ========== ========== ==========
Accumulated other comprehensive loss includes the following components:
For the Six Months Ended August 31, 2001
------------------------------------------------------------
Foreign Net Accumulated
Currency Unrealized Other
Translation Gains on Comprehensive
Adjustments Derivatives Loss
---------------- ---------------- ----------------
Beginning balance, February 28, 2001 $ (26,004) $ - $ (26,004)
Current-period change (2,882) 33 (2,849)
---------------- ---------------- ----------------
Ending balance, August 31, 2001 $ (28,886) $ 33 $ (28,853)
================ ================ ================
- 10 -
12) CONDENSED CONSOLIDATING FINANCIAL INFORMATION:
The following information sets forth the condensed consolidating balance
sheets as of August 31, 2001 and 2000, and the condensed consolidating
statements of income and cash flows for the six months and three months ended
August 31, 2001 and 2000, for the parent company, the combined subsidiaries of
the Company which guarantee the Company's senior notes and senior subordinated
notes ("Subsidiary Guarantors"), the combined subsidiaries of the Company which
are not Subsidiary Guarantors, primarily Matthew Clark ("Subsidiary
Nonguarantors"), and the consolidated Company. The Subsidiary Guarantors are
wholly owned and the guarantees are full, unconditional, joint and several
obligations of each of the Subsidiary Guarantors. The accounting policies of the
parent company, the Subsidiary Guarantors and the Subsidiary Nonguarantors are
the same as those described for the Company in the Summary of Significant
Accounting Policies in Note 1 to the Company's consolidated financial statements
included in the Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 2001. There are no restrictions on the ability of the Subsidiary
Guarantors to transfer funds to the Company in the form of cash dividends, loans
or advances.
Parent Subsidiary Subsidiary
Company Guarantors Nonguarantors Eliminations Consolidated
----------- ------------ ------------- ------------ ------------
(in thousands)
Condensed Consolidating Balance Sheet
-------------------------------------
at August 31, 2001
------------------
Current assets:
Cash and cash investments $ 109 $ 6,557 $ 102 $ - $ 6,768
Accounts receivable, net 72,101 166,763 168,065 - 406,929
Inventories, net 24,889 616,081 128,232 (85) 769,117
Prepaid expenses and other
current assets 4,914 46,162 19,911 - 70,987
Intercompany (payable) receivable (151,827) 145,762 6,065 - -
----------- ------------ ------------ ------------ ------------
Total current assets (49,814) 981,325 322,375 (85) 1,253,801
Property, plant and equipment, net 29,650 339,256 191,546 - 560,452
Investments in subsidiaries 2,333,485 516,727 - (2,850,212) -
Other assets 88,137 756,307 248,014 - 1,092,458
----------- ------------ ------------ ------------ ------------
Total assets $ 2,401,458 $ 2,593,615 $ 761,935 $ (2,850,297) $ 2,906,711
=========== ============ ============ ============ ============
Current liabilities:
Notes payable $ 83,000 $ - $ 5,991 $ - $ 88,991
Current maturities of long-term debt 69,335 1,906 4,613 - 75,854
Accounts payable and other liabilities 67,242 145,732 193,460 - 406,434
Accrued excise taxes 7,392 20,925 17,179 - 45,496
----------- ------------ ------------ ------------ ------------
Total current liabilities 226,969 168,563 221,243 - 616,775
Long-term debt, less current maturities 1,270,290 13,454 376 - 1,284,120
Deferred income taxes 33,233 70,260 29,028 - 132,521
Other liabilities 473 9,383 23,382 - 33,238
Stockholders' equity:
Class A and class B common stock 460 6,434 64,867 (71,301) 460
Additional paid-in capital 394,464 1,220,056 436,466 (1,656,522) 394,464
Retained earnings 515,660 1,106,995 15,394 (1,122,474) 515,575
Accumulated other comprehensive
income (loss) 1,498 (1,530) (28,821) - (28,853)
Treasury stock and other (41,589) - - - (41,589)
----------- ------------ ------------ ------------ ------------
Total stockholders' equity 870,493 2,331,955 487,906 (2,850,297) 840,057
----------- ------------ ------------ ------------ ------------
Total liabilities and
stockholders' equity $ 2,401,458 $ 2,593,615 $ 761,935 $ (2,850,297) $ 2,906,711
=========== ============ ============ ============ ============
- 11 -
Parent Subsidiary Subsidiary
Company Guarantors Nonguarantors Eliminations Consolidated
----------- ------------ ------------- ------------ ------------
(in thousands)
Condensed Consolidating Balance Sheet
-------------------------------------
at February 28, 2001
--------------------
Current assets:
Cash and cash investments $ 142,104 $ 3,239 $ 329 $ - $ 145,672
Accounts receivable, net 80,299 116,784 117,179 - 314,262
Inventories, net 31,845 515,274 122,965 (66) 670,018
Prepaid expenses and other
current assets 6,551 33,565 20,921 - 61,037
Intercompany (payable) receivable (61,783) 54,169 7,614 - -
----------- ------------ ------------ ------------ ------------
Total current assets 199,016 723,031 269,008 (66) 1,190,989
Property, plant and equipment, net 30,554 320,143 197,917 - 548,614
Investments in subsidiaries 1,835,088 525,442 - (2,360,530) -
Other assets 87,764 434,782 250,020 - 772,566
----------- ------------ ------------ ------------ ------------
Total assets $ 2,152,422 $ 2,003,398 $ 716,945 $ (2,360,596) $ 2,512,169
=========== ============ ============ ============ ============
Current liabilities:
Notes payable $ - $ - $ 4,184 $ - $ 4,184
Current maturities of long-term debt 49,218 70 4,888 - 54,176
Accounts payable and other liabilities 111,388 58,448 143,010 - 312,846
Accrued excise taxes 9,411 35,474 11,069 - 55,954
----------- ------------ ------------ ------------ ------------
Total current liabilities 170,017 93,992 163,151 427,160
Long-term debt, less current maturities 1,305,302 758 1,377 - 1,307,437
Deferred income taxes 33,232 71,619 27,123 - 131,974
Other liabilities 437 2,953 25,940 - 29,330
Stockholders' equity:
Class A and class B common stock 448 6,434 64,867 (71,301) 448
Additional paid-in capital 267,655 742,343 436,466 (1,178,809) 267,655
Retained earnings 455,864 1,086,311 24,109 (1,110,486) 455,798
Accumulated other comprehensive
income (loss) 1,096 (1,012) (26,088) - (26,004)
Treasury stock and other (81,629) - - - (81,629)
----------- ------------ ------------ ------------ ------------
Total stockholders' equity 643,434 1,834,076 499,354 (2,360,596) 616,268
----------- ------------ ------------ ------------ ------------
Total liabilities and
stockholders' equity $ 2,152,422 $ 2,003,398 $ 716,945 $ (2,360,596) $ 2,512,169
=========== ============ ============ ============ ============
Condensed Consolidating Statement of Income
-------------------------------------------
for the Six Months Ended August 31, 2001
----------------------------------------
Gross sales $ 425,396 $ 1,024,384 $ 531,023 $ (193,801) $ 1,787,002
Less - excise taxes (67,947) (210,939) (124,476) - (403,362)
----------- ------------ ------------ ------------ ------------
Net sales 357,449 813,445 406,547 (193,801) 1,383,640
Cost of product sold (201,913) (638,755) (297,128) 193,782 (944,014)
----------- ------------ ------------ ------------ ------------
Gross profit 155,536 174,690 109,419 (19) 439,626
Selling, general and administrative
expenses (82,428) (89,415) (108,859) - (280,702)
----------- ------------ ------------ ------------ ------------
Operating income 73,108 85,275 560 (19) 158,924
Interest expense, net (7,922) (49,173) (2,064) - (59,159)
Equity in earnings (loss) of
subsidiary/joint venture 20,684 (8,852) - (11,969) (137)
----------- ------------ ------------ ------------ ------------
Income (loss) before income taxes 85,870 27,250 (1,504) (11,988) 99,628
Provision for income taxes (26,074) (6,566) (7,211) - (39,851)
----------- ------------ ------------ ------------ ------------
Net income (loss) $ 59,796 $ 20,684 $ (8,715) $ (11,988) $ 59,777
=========== ============ ============ ============ ============
- 12 -
Parent Subsidiary Subsidiary
Company Guarantors Nonguarantors Eliminations Consolidated
----------- ------------ ------------- ------------ ------------
(in thousands)
Condensed Consolidating Statement of Income
-------------------------------------------
for the Six Months Ended August 31, 2000
----------------------------------------
Gross sales $ 343,806 $ 932,316 $ 482,594 $ (155,526) $ 1,603,190
Less - excise taxes (62,838) (205,931) (111,351) - (380,120)
----------- ------------ ------------ ------------ ------------
Net sales 280,968 726,385 371,243 (155,526) 1,223,070
Cost of product sold (209,632) (522,232) (262,124) 155,430 (838,558)
----------- ------------ ------------ ------------ ------------
Gross profit 71,336 204,153 109,119 (96) 384,512
Selling, general and administrative
expenses (75,658) (77,068) (103,618) - (256,344)
----------- ------------ ------------ ------------ ------------
Operating (loss) income (4,322) 127,085 5,501 (96) 128,168
Interest expense, net (13,163) (39,341) (2,310) - (54,814)
Equity in earnings (loss) of subsidiary 54,599 (6,303) - (48,296) -
----------- ------------ ------------ ------------ ------------
Income before income taxes 37,114 81,441 3,191 (48,392) 73,354
Benefit from (provision for) income taxes 6,994 (26,842) (9,494) - (29,342)
----------- ------------ ------------ ------------ ------------
Net income (loss) $ 44,108 $ 54,599 $ (6,303) $ (48,392) $ 44,012
=========== ============ ============ ============ ============
Condensed Consolidating Statement of Income
-------------------------------------------
for the Three Months Ended August 31, 2001
------------------------------------------
Gross sales $ 231,270 $ 571,843 $ 274,598 $ (126,483) $ 951,228
Less - excise taxes (37,559) (108,724) (63,415) - (209,698)
----------- ------------ ------------ ------------ ------------
Net sales 193,711 463,119 211,183 (126,483) 741,530
Cost of product sold (89,426) (389,880) (151,004) 126,456 (503,854)
----------- ------------ ------------ ------------ ------------
Gross profit 104,285 73,239 60,179 (27) 237,676
Selling, general and administrative
expenses (40,732) (37,185) (70,758) - (148,675)
----------- ------------ ------------ ------------ ------------
Operating income (loss) 63,553 36,054 (10,579) (27) 89,001
Interest expense, net (2,557) (25,634) (783) - (28,974)
Equity in earnings (loss) of
subsidiary/joint venture 2,714 (15,181) - 12,330 (137)
----------- ------------ ------------ ------------ ------------
Income (loss) before income taxes 63,710 (4,761) (11,362) 12,303 59,890
(Provision for) benefit from
income taxes (27,749) 7,475 (3,682) - (23,956)
----------- ------------ ------------ ------------ ------------
Net income (loss) $ 35,961 $ 2,714 $ (15,044) $ 12,303 $ 35,934
=========== ============ ============ ============ ============
Condensed Consolidating Statement of Income
-------------------------------------------
for the Three Months Ended August 31, 2000
------------------------------------------
Gross sales $ 175,419 $ 489,133 $ 241,591 $ (77,475) $ 828,668
Less - excise taxes (31,864) (103,521) (55,793) - (191,178)
----------- ------------ ------------ ------------ ------------
Net sales 143,555 385,612 185,798 (77,475) 637,490
Cost of product sold (108,894) (276,413) (128,938) 77,394 (436,851)
----------- ------------ ------------ ------------ ------------
Gross profit 34,661 109,199 56,860 (81) 200,639
Selling, general and administrative
expenses (37,265) (26,956) (65,714) - (129,935)
----------- ------------ ------------ ------------ ------------
Operating (loss) income (2,604) 82,243 (8,854) (81) 70,704
Interest expense, net (6,969) (19,069) (1,149) - (27,187)
Equity in earnings (loss) of subsidiary 31,935 (14,991) - (16,944) -
----------- ------------ ------------ ------------ ------------
Income (loss) before income taxes 22,362 48,183 (10,003) (17,025) 43,517
Benefit from (provision for) income taxes 3,829 (16,248) (4,988) - (17,407)
----------- ------------ ------------ ------------ ------------
Net income (loss) $ 26,191 $ 31,935 $ (14,991) $ (17,025) $ 26,110
=========== ============ ============ ============ ============
- 13 -
Parent Subsidiary Subsidiary
Company Guarantors Nonguarantors Eliminations Consolidated
----------- ------------ ------------- ------------ ------------
(in thousands)
Condensed Consolidating Statement of Cash Flows
-----------------------------------------------
for the Six Months Ended August 31, 2001
----------------------------------------
Net cash provided by (used in)
operating activities $ 103,790 $ (2,450) $ 4,642 $ - $ 105,982
Cash flows from investing activities:
Purchases of businesses, net of
cash acquired (477,713) 5,742 - - (471,971)
Purchases of property, plant and
equipment (2,099) (20,080) (6,616) - (28,795)
Investment in joint venture - (5,500) - - (5,500)
Proceeds from sale of assets - 35,143 248 - 35,391
----------- ------------ ------------ ------------ ------------
Net cash (used in) provided by
investing activities (479,812) 15,305 (6,368) - (470,875)
----------- ------------ ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from equity offering, net
of fees 139,522 - - - 139,522
Net proceeds from notes payable 83,000 - 2,727 - 85,727
Exercise of employee stock options 26,392 - - - 26,392
Proceeds from employee stock
purchases 842 - - - 842
Principal payments of long-term debt (16,802) (7,677) (742) - (25,221)
Payment of issuance costs of
long-term debt (1,186) - - - (1,186)
----------- ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities 231,768 (7,677) 1,985 - 226,076
----------- ------------ ------------ ------------ ------------
Effect of exchange rate changes on
cash and cash investments 2,259 (1,860) (486) - (87)
----------- ------------ ------------ ------------ ------------
Net (decrease) increase in cash
and cash investments (141,995) 3,318 (227) - (138,904)
Cash and cash investments, beginning
of period 142,104 3,239 329 - 145,672
----------- ------------ ------------ ------------ ------------
Cash and cash investments, end of
period $ 109 $ 6,557 $ 102 $ - $ 6,768
=========== ============ ============ ============ ============
- 14 -
Parent Subsidiary Subsidiary
Company Guarantors Nonguarantors Eliminations Consolidated
----------- ------------ ------------- ------------ ------------
(in thousands)
Condensed Consolidating Statement of Cash Flows
-----------------------------------------------
for the Six Months Ended August 31, 2000
----------------------------------------
Net cash provided by (used in)
operating activities $ 109,544 $ (8,206) $ (23,365) $ - $ 77,973
Cash flows from investing activities:
Purchases of property, plant and
equipment (2,544) (14,613) (8,092) - (25,249)
Other 120 135 657 - 912
----------- ------------ ------------ ------------ ------------
Net cash used in investing activities (2,424) (14,478) (7,435) - (24,337)
----------- ------------ ------------ ------------ ------------
Cash flows from financing activities:
Principal payments of long-term debt (220,274) (31) (204) - (220,509)
Payment of issuance costs of
long-term debt (1,547) - - - (1,547)
Proceeds from issuance of long-term
debt, net of discount 119,400 - - - 119,400
Net proceeds from notes payable 16,500 - 1,712 - 18,212
Exercise of employee stock options 3,178 - - - 3,178
Proceeds from employee stock
purchases 761 - - - 761
----------- ------------ ------------ ------------ ------------
Net cash (used in) provided by
financing activities (81,982) (31) 1,508 - (80,505)
----------- ------------ ------------ ------------ ------------
Effect of exchange rate changes on
cash and cash investments (25,138) 24,359 (2,510) - (3,289)
----------- ------------ ------------ ------------ ------------
Net increase (decrease) in cash
and cash investments - 1,644 (31,802) - (30,158)
Cash and cash investments, beginning
of period - 231 34,077 - 34,308
----------- ------------ ------------ ------------ ------------
Cash and cash investments, end of
period $ - $ 1,875 $ 2,275 $ - $ 4,150
=========== ============ ============ ============ ============
13) BUSINESS SEGMENT INFORMATION:
The Company reports its operating results in five segments: Canandaigua
Wine (branded popular and premium wine and brandy, and other, primarily grape
juice concentrate and bulk wine); Barton (primarily beer and distilled spirits);
Matthew Clark (branded wine, cider and bottled water, and wholesale wine, cider,
distilled spirits, beer and soft drinks); Franciscan (primarily branded
super-premium and ultra-premium wine) and Corporate Operations and Other
(primarily corporate related items). Segment selection was based upon internal
organizational structure, the way in which these operations are managed and
their performance evaluated by management and the Company's Board of Directors,
the availability of separate financial results, and materiality considerations.
The accounting policies of the segments are the same as those described for the
Company in the Summary of Significant Accounting Policies in Note 1 to the
Company's consolidated financial statements included in the Company's Annual
Report on Form 10-K for the fiscal year ended February 28, 2001. The Company
evaluates performance based on operating income of the respective business
units.
- 15 -
Segment information is as follows:
For the Six Months For the Three Months
Ended August 31, Ended August 31,
----------------------------- ------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
(in thousands)
Canandaigua Wine:
-----------------
Net sales:
Branded:
External customers $ 363,030 $ 290,706 $ 196,949 $ 147,376
Intersegment 4,644 3,132 2,899 1,896
------------ ------------ ------------ ------------
Total Branded 367,674 293,838 199,848 149,272
------------ ------------ ------------ ------------
Other:
External customers 27,383 30,102 13,834 14,834
Intersegment 7,856 8,355 4,167 4,726
------------ ------------ ------------ ------------
Total Other 35,239 38,457 18,001 19,560
------------ ------------ ------------ ------------
Net sales $ 402,913 $ 332,295 $ 217,849 $ 168,832
Operating income $ 39,329 $ 18,200 $ 23,934 $ 10,382
Long-lived assets $ 186,694 $ 191,956 $ 186,694 $ 191,956
Total assets $ 940,926 $ 599,292 $ 940,926 $ 599,292
Capital expenditures $ 6,077 $ 7,757 $ 4,588 $ 5,048
Depreciation and amortization $ 16,159 $ 11,881 $ 8,043 $ 5,940
Barton:
-------
Net sales:
Beer $ 412,171 $ 375,293 $ 229,186 $ 212,159
Spirits 143,831 145,107 72,514 72,561
------------ ------------ ------------ ------------
Net sales $ 556,002 $ 520,400 $ 301,700 $ 284,720
Operating income $ 95,412 $ 89,448 $ 51,361 $ 50,613
Long-lived assets $ 79,612 $ 78,271 $ 79,612 $ 78,271
Total assets $ 736,343 $ 749,585 $ 736,343 $ 749,585
Capital expenditures $ 6,736 $ 2,986 $ 3,812 $ 1,650
Depreciation and amortization $ 9,150 $ 7,904 $ 4,388 $ 3,949
Matthew Clark:
--------------
Net sales:
Branded:
External customers $ 144,663 $ 145,486 $ 77,782 $ 75,892
Intersegment 481 497 379 476
------------ ------------ ------------ ------------
Total Branded 145,144 145,983 78,161 76,368
Wholesale 234,475 193,233 119,469 93,310
------------ ------------ ------------ ------------
Net sales $ 379,619 $ 339,216 $ 197,630 $ 169,678
Operating income $ 22,285 $ 22,596 $ 13,968 $ 12,222
Long-lived assets $ 142,055 $ 141,830 $ 142,055 $ 141,830
Total assets $ 629,582 $ 599,396 $ 629,582 $ 599,396
Capital expenditures $ 4,039 $ 6,101 $ 2,009 $ 3,692
Depreciation and amortization $ 9,419 $ 10,037 $ 4,746 $ 4,824
Franciscan:
-----------
Net sales:
External customers $ 58,087 $ 43,144 $ 31,796 $ 21,359
Intersegment 254 138 152 34
------------ ------------ ------------ ------------
Net sales $ 58,341 $ 43,282 $ 31,948 $ 21,393
Operating income $ 15,146 $ 9,658 $ 8,098 $ 4,242
Long-lived assets $ 147,535 $ 114,230 $ 147,535 $ 114,230
Total assets $ 575,280 $ 369,087 $ 575,280 $ 369,087
Capital expenditures $ 11,298 $ 8,333 $ 7,329 $ 4,553
Depreciation and amortization $ 6,236 $ 4,530 $ 3,013 $ 2,138
- 16 -
For the Six Months For the Three Months
Ended August 31, Ended August 31,
----------------------------- ------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
(in thousands)
Corporate Operations and Other:
-------------------------------
Net sales $ - $ - $ - $ -
Operating loss $ (13,248) $ (11,734) $ (8,360) $ (6,755)
Long-lived assets $ 4,556 $ 3,782 $ 4,556 $ 3,782
Total assets $ 24,580 $ 22,699 $ 24,580 $ 22,699
Capital expenditures $ 645 $ 72 $ 219 $ 41
Depreciation and amortization $ 2,297 $ 1,713 $ 1,146 $ 868
Intersegment eliminations:
--------------------------
Net sales $ (13,235) $ (12,123) $ (7,597) $ (7,133)
Consolidated:
Net sales $ 1,383,640 $ 1,223,070 $ 741,530 $ 637,490
Operating income $ 158,924 $ 128,168 $ 89,001 $ 70,704
Long-lived assets $ 560,452 $ 530,069 $ 560,452 $ 530,069
Total assets $ 2,906,711 $ 2,340,059 $ 2,906,711 $ 2,340,059
Capital expenditures $ 28,795 $ 25,249 $ 17,957 $ 14,984
Depreciation and amortization $ 43,261 $ 36,065 $ 21,336 $ 17,719
14) ACCOUNTING PRONOUNCEMENTS:
In May 2000, the Emerging Issues Task Force ("EITF") issued EITF Issue No.
00-14 ("EITF No. 00-14"), "Accounting for Certain Sales Incentives," which was
subsequently amended in April 2001. EITF No. 00-14 addresses the recognition,
measurement and income statement classification of certain sales incentives.
EITF No. 00-14 requires that sales incentives, including coupons, rebate offers,
and free product offers, given concurrently with a single exchange transaction
be recognized when incurred and reported as a reduction of revenue. In addition,
in April 2001, the EITF issued EITF Issue No. 00-25 ("EITF No. 00-25"), "Vendor
Income Statement Characterization of Consideration Paid to a Reseller of the
Vendor's Products." EITF No. 00-25 addresses the income statement classification
of certain consideration, other than directly addressed in EITF No. 00-14, from
a vendor to an entity that purchases the vendor's products for resale. EITF No.
00-25 requires that certain consideration from a vendor to a reseller of the
vendor's products be reported as a reduction of revenue. The Company currently
reports costs that fall under both EITF No. 00-14 and EITF No. 00-25 as selling,
general and administrative expenses. The Company is required to adopt EITF No.
00-14 and EITF No. 00-25 in its financial statements beginning March 1, 2002.
Upon adoption of EITF No. 00-14 and EITF No. 00-25, financial statements for
prior periods presented for comparative purposes are to be reclassified to
comply with the requirements of EITF No. 00-14 and EITF No. 00-25. The Company
believes the impact of EITF No. 00-14 and EITF No. 00-25 on its financial
statements will result in a material reclassification that will decrease
previously reported net sales and decrease previously reported selling, general
and administrative expenses, but will have no effect on operating income or net
income. The Company has not yet determined the amount of the reclassification.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 ("SFAS No. 141"), "Business
Combinations." SFAS No. 141 addresses financial accounting and reporting for
business combinations requiring all business combinations to be accounted for
using one method, the purchase method. In addition, SFAS No. 141 supersedes
Accounting Principles Board Opinion No. 16, "Business Combinations." SFAS No.
141 is effective immediately for all business combinations initiated after June
30, 2001, as well as for all business combinations accounted for by the purchase
method for which the date of acquisition is July 1, 2001, or later. The Company
is required to adopt SFAS No. 141 for all business combinations for which the
- 17 -
acquisition date was before July 1, 2001, for fiscal years beginning March 1,
2002. The adoption of the applicable provisions of SFAS No. 141 have not had a
material impact on the Company's financial statements. The Company believes that
the adoption of the remaining provisions of SFAS No. 141 will not have a
material impact on its financial statements.
In July 2001, the Financial Accounting Standards Board also issued
Statement of Financial Accounting Standards No. 142 ("SFAS No. 142"), "Goodwill
and Other Intangible Assets." SFAS No. 142 addresses financial accounting and
reporting for acquired goodwill and other intangible assets and supersedes
Accounting Principles Board Opinion No. 17, "Intangible Assets." Under SFAS No.
142, goodwill and indefinite lived intangible assets are no longer amortized but
are reviewed at least annually for impairment. Separable intangible assets that
are not deemed to have an indefinite life will continue to be amortized over
their useful lives. The Company is required to apply the provisions of SFAS No.
142 for all goodwill and intangible assets acquired prior to July 1, 2001, for
fiscal years beginning March 1, 2002. For goodwill and intangible assets
acquired after June 30, 2001, these assets will be subject immediately to the
nonamortization and amortization provisions of SFAS No. 142. The Company is
currently assessing the financial impact of SFAS No. 142 on its financial
statements.
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 143 ("SFAS No. 143"), "Accounting for
Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated retirement costs. The Company is required to adopt
SFAS No. 143 for fiscal years beginning March 1, 2003. The Company is currently
assessing the financial impact of SFAS No. 143 on its financial statements.
In October 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144 ("SFAS No. 144"), "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 supersedes Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," and the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30, "Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions," for the disposal of a
segment of a business (as previously defined in that Opinion). The Company is
required to adopt SFAS No. 144 for fiscal years beginning March 1, 2002. The
Company is currently assessing the financial impact of SFAS No. 144 on its
financial statements.
15) SUBSEQUENT EVENTS:
Acquisition by PWP -
------------------
On October 1, 2001, the Company announced that PWP entered into a
definitive agreement to acquire certain assets of Blackstone Winery, including
the Blackstone brand and the Codera wine business in Sonoma County ("the
Blackstone Assets"). The purchase price for the Blackstone Assets is
approximately $140 million and will be financed equally by the Company and
Hardy. The transaction is subject to satisfaction of customary closing
conditions and is expected to close on October 16, 2001. The Company cannot
guarantee, however, that this transaction will be completed upon the agreed upon
terms, or at all. The Company intends to use revolving loan borrowings under its
senior credit facility to fund the Company's portion of the transaction.
- 18 -
Equity Offering -
---------------
During October 2001, the Company sold 322,500 shares of its Class A Common
Stock in connection with a public offering of Class A Common Stock by
stockholders of the Company. The net proceeds to the Company, after deducting
underwriting discounts, of $12.1 million were used to repay borrowings under the
senior credit facility.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
------- -----------------------------------------------------------------------
OF OPERATIONS
-------------
INTRODUCTION
------------
The Company is a leader in the production and marketing of beverage alcohol
brands in North America and the United Kingdom, and a leading independent drinks
wholesaler in the United Kingdom. As the second largest supplier of wine, the
second largest importer of beer and the fourth largest supplier of distilled
spirits, the Company is the largest single-source supplier of these products in
the United States. In the United Kingdom, the Company is a leading marketer of
wine and the second largest producer and marketer of cider.
The Company reports its operating results in five segments: Canandaigua
Wine (branded popular and premium wine and brandy, and other, primarily grape
juice concentrate and bulk wine); Barton (primarily beer and distilled spirits);
Matthew Clark (branded wine, cider and bottled water, and wholesale wine, cider,
distilled spirits, beer and soft drinks); Franciscan (primarily branded
super-premium and ultra-premium wine); and Corporate Operations and Other
(primarily corporate related items).
On April 10, 2001, the Board of Directors of the Company approved a
two-for-one stock split of both the Company's Class A Common Stock and Class B
Common Stock, which was distributed in the form of a stock dividend on May 14,
2001, to stockholders of record on April 30, 2001. Pursuant to the terms of the
stock dividend, each holder of Class A Common Stock received one additional
share of Class A stock for each share of Class A stock held, and each holder of
Class B Common Stock received one additional share of Class B stock for each
share of Class B stock held. All share and per share amounts in this Quarterly
Report on Form 10-Q reflect the common stock split.
The following discussion and analysis summarizes the significant factors
affecting (i) consolidated results of operations of the Company for the three
months ended August 31, 2001 ("Second Quarter 2002"), compared to the three
months ended August 31, 2000 ("Second Quarter 2001"), and for the six months
ended August 31, 2001 ("Six Months 2002"), compared to the six months ended
August 31, 2000 ("Six Months 2001"), and (ii) financial liquidity and capital
resources for Six Months 2002. This discussion and analysis should be read in
conjunction with the Company's consolidated financial statements and notes
thereto included herein and in the Company's Annual Report on Form 10-K for the
fiscal year ended February 28, 2001 ("Fiscal 2001").
ACQUISITIONS IN FISCAL 2002 AND FISCAL 2001
On July 2, 2001, the Company acquired all of the outstanding capital stock
of Ravenswood Winery, Inc. ("Ravenswood"), a leading premium wine producer based
in Sonoma, California. Ravenswood produces, markets and sells super-premium and
ultra-premium California wine primarily under the Ravenswood brand name. The
vast majority of the wine Ravenswood produces and sells is red wine, including
the number one super-premium Zinfandel in the United States. The results of
operations of Ravenswood are reported in the Franciscan segment and have been
included in the consolidated results of operations of the Company since the date
of acquisition.
- 19 -
On March 26, 2001, in an asset acquisition, the Company acquired certain
wine brands, wineries, working capital (primarily inventories), and other
related assets from Corus Brands, Inc. (the "Corus Assets"). In this
acquisition, the Company acquired several well-known premium wine brands
primarily sold in the northwestern United States, including Covey Run, Columbia,
Ste. Chapelle and Alice White. In connection with the transaction, the Company
also entered into long-term grape supply agreements with affiliates of Corus
Brands, Inc. covering more than 1,000 acres of Washington and Idaho vineyards.
The results of operations of the Corus Assets are reported in the Canandaigua
Wine segment and have been included in the consolidated results of operations of
the Company since the date of acquisition.
On March 5, 2001, in an asset acquisition, the Company acquired several
well-known premium wine brands, including Vendange, Nathanson Creek, Heritage,
and Talus, working capital (primarily inventories), two wineries in California,
and other related assets from Sebastiani Vineyards, Inc. and Tuolomne River
Vintners Group (the "Turner Road Vintners Assets"). The results of operations of
the Turner Road Vintners Assets are reported in the Canandaigua Wine segment and
have been included in the consolidated results of operations of the Company
since the date of acquisition. The acquisition of the Turner Road Vintners
Assets is significant and the Company expects it to have a material impact on
the Company's future results of operations.
On October 27, 2000, the Company purchased all of the issued Ordinary
Shares and Preference Shares of Forth Wines Limited ("Forth Wines"). The results
of operations of Forth Wines are reported in the Matthew Clark segment and have
been included in the consolidated results of operations of the Company since the
date of acquisition.
JOINT VENTURE
On July 31, 2001, the Company and BRL Hardy Limited completed the formation
of Pacific Wine Partners LLC ("PWP"), a joint venture owned equally by the
Company and BRL Hardy Limited, the second largest wine company in Australia. PWP
produces, markets and sells a global portfolio of premium wine in the United
States, including a range of Australian imports, the fastest growing wine
segment in the United States. PWP has exclusive distribution rights in the
United States and the Caribbean to seven brands - Banrock Station, Hardys,
Leasingham, Barossa Valley Estate and Chateau Reynella from Australia; Nobilo
from New Zealand; and La Baume from France. The joint venture also owns
Farallon, a premium California coastal wine. In addition, PWP owns the Riverland
Vineyards winery and controls 1,400 acres of vineyards, all located in Monterey
County, California. The investment in PWP is accounted for using the equity
method; accordingly, the results of operations of PWP since July 31, 2001, have
been included in the equity in loss of joint venture line in the Consolidated
Statements of Income of the Company.
- 20 -
RESULTS OF OPERATIONS
---------------------
SECOND QUARTER 2002 COMPARED TO SECOND QUARTER 2001
NET SALES
The following table sets forth the net sales (in thousands of dollars) by
operating segment of the Company for Second Quarter 2002 and Second Quarter
2001.
Second Quarter 2002 Compared to Second Quarter 2001
---------------------------------------------------
Net Sales
---------------------------------------------------
%Increase/
2002 2001 (Decrease)
------------ ------------ ----------
Canandaigua Wine:
Branded:
External customers $ 196,949 $ 147,376 33.6 %
Intersegment 2,899 1,896 52.9 %
------------ ------------
Total Branded 199,848 149,272 33.9 %
------------ ------------
Other:
External customers 13,834 14,834 (6.7)%
Intersegment 4,167 4,726 (11.8)%
------------ ------------
Total Other 18,001 19,560 (8.0)%
------------ ------------
Canandaigua Wine net sales $ 217,849 $ 168,832 29.0 %
------------ ------------
Barton:
Beer $ 229,186 $ 212,159 8.0 %
Spirits 72,514 72,561 (0.1)%
------------ ------------
Barton net sales $ 301,700 $ 284,720 6.0 %
------------ ------------
Matthew Clark:
Branded:
External customers $ 77,782 $ 75,892 2.5 %
Intersegment 379 476 (20.4)%
------------ ------------
Total Branded 78,161 76,368 2.3 %
Wholesale 119,469 93,310 28.0 %
------------ ------------
Matthew Clark net sales $ 197,630 $ 169,678 16.5 %
------------ ------------
Franciscan:
External customers $ 31,796 $ 21,359 48.9 %
Intersegment 152 34 347.1 %
------------ ------------
Franciscan net sales $ 31,948 $ 21,393 49.3 %
------------ ------------
Corporate Operations and Other $ - $ - N/A
------------ ------------
Intersegment eliminations $ (7,597) $ (7,133) 6.5 %
------------ ------------
Consolidated Net Sales $ 741,530 $ 637,490 16.3 %
============ ============
Net sales for Second Quarter 2002 increased to $741.5 million from $637.5
million for Second Quarter 2001, an increase of $104.0 million, or 16.3%.
Canandaigua Wine
----------------
Net sales for Canandaigua Wine for Second Quarter 2002 increased to $217.8
million from $168.8 million for Second Quarter 2001, an increase of $49.0
million, or 29.0%. This increase resulted primarily from $46.7 million of sales
of the newly acquired brands from the Turner Road Vintners Assets and Corus
Assets acquisitions ("the March Acquisitions"), both completed in March 2001.
- 21 -
Barton
------
Net sales for Barton for Second Quarter 2002 increased to $301.7 million
from $284.7 million for Second Quarter 2001, an increase of $17.0 million, or
6.0%. This increase resulted primarily from an 8.0% increase in imported beer
sales, led by volume growth in the Mexican beer portfolio. Spirits sales
decreased slightly as a 3.9% growth in volume was more than offset by lower net
selling prices from the implementation of a net pricing strategy in the third
quarter of Fiscal 2001, which also resulted in lower promotion costs.
Matthew Clark
-------------
Net sales for Matthew Clark for Second Quarter 2002 increased to $197.6
million from $169.7 million for Second Quarter 2001, an increase of $28.0
million, or 16.5%. Excluding an adverse foreign currency impact of $11.2
million, net sales increased $39.1 million, or 23.1%. This local currency basis
increase resulted primarily from a 35.5% increase in wholesale sales, with the
majority of this growth coming from organic sales. Additionally, branded sales
increased 8.3% with an increase in wine sales being partially offset by a
decrease in cider sales.
Franciscan
----------
Net sales for Franciscan for Second Quarter 2002 increased to $31.9 million
from $21.4 million for Second Quarter 2001, an increase of $10.6 million, or
49.3%. This increase resulted from $5.4 million of sales of the newly acquired
brands from the Ravenswood acquisition, completed in July 2001, and organic
sales growth primarily due to volume increases in the Estancia, Veramonte and
Franciscan brands.
GROSS PROFIT
The Company's gross profit increased to $237.7 million for Second Quarter
2002 from $200.6 million for Second Quarter 2001, an increase of $37.0 million,
or 18.5%. The dollar increase in gross profit resulted primarily from sales of
the newly acquired brands from the March Acquisitions and the Ravenswood
acquisition, volume growth in the Barton Mexican beer portfolio, volume growth
in the Matthew Clark branded wine business and wholesale business, and volume
growth in the Franciscan fine wine portfolio. These increases were partially
offset by an adverse foreign currency impact. As a percent of net sales, gross
profit improved to 32.1% for Second Quarter 2002 versus 31.5% for Second Quarter
2001. The increase in gross profit margin resulted primarily from sales of
higher-margin wine brands acquired in the March Acquisitions and the Ravenswood
acquisition.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $148.7 million
for Second Quarter 2002 from $129.9 million for Second Quarter 2001, an increase
of $18.7 million, or 14.4%. The dollar increase in selling, general and
administrative expenses resulted primarily from advertising and promotion costs
associated with the brands acquired in the March Acquisitions and the Ravenswood
acquisition, as well as increases related to volume growth in the Matthew Clark
branded wine business and wholesale business, the Franciscan fine wine portfolio
and the Barton Mexican beer portfolio. Selling, general and administrative
expenses as a percent of net sales decreased to 20.0% for Second Quarter 2002 as
compared to 20.4% for Second Quarter 2001 as a decrease in Barton spirits
advertising and promotion
- 22 -
costs was greater than the decrease in Barton spirits net sales and the percent
increase in Matthew Clark wholesale sales was greater than the percent increase
in selling, general and administrative expenses.
OPERATING INCOME
The following table sets forth the operating income/(loss) (in thousands of
dollars) by operating segment of the Company for Second Quarter 2002 and Second
Quarter 2001.
Second Quarter 2002 Compared to Second Quarter 2001
---------------------------------------------------
Operating Income/(Loss)
---------------------------------------------------
2002 2001 %Increase
---------- ---------- ---------
Canandaigua Wine $ 23,934 $ 10,382 130.5%
Barton 51,361 50,613 1.5%
Matthew Clark 13,968 12,222 14.3%
Franciscan 8,098 4,242 90.9%
Corporate Operations and Other (8,360) (6,755) 23.8%
---------- ----------
Consolidated Operating Income $ 89,001 $ 70,704 25.9%
========== ==========
As a result of the above factors, consolidated operating income increased
to $89.0 million for Second Quarter 2002 from $70.7 million for Second Quarter
2001, an increase of $18.3 million, or 25.9%.
INTEREST EXPENSE, NET
Net interest expense increased to $29.0 million for Second Quarter 2002
from $27.2 million for Second Quarter 2001, an increase of $1.8 million, or
6.6%. The increase resulted primarily from an increase in average borrowings
primarily due to the financing of the March Acquisitions and the Ravenswood
acquisition, partially offset by a slight decrease in the average interest rate.
NET INCOME
As a result of the above factors, net income increased to $35.9 million for
Second Quarter 2002 from $26.1 million for Second Quarter 2001, an increase of
$9.8 million, or 37.6%.
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for Second Quarter
2002 were $110.3 million, an increase of $21.9 million over EBITDA of $88.4
million for Second Quarter 2001. EBITDA should not be construed as an
alternative to operating income or net cash flow from operating activities and
should not be construed as an indication of operating performance or as a
measure of liquidity.
- 23 -
SIX MONTHS 2002 COMPARED TO SIX MONTHS 2001
NET SALES
The following table sets forth the net sales (in thousands of dollars) by
operating segment of the Company for Six Months 2002 and Six Months 2001.
Six Months 2002 Compared to Six Months 2001
-------------------------------------------
Net Sales
-------------------------------------------
%Increase/
2002 2001 (Decrease)
------------ ------------ -----------
Canandaigua Wine:
Branded:
External customers $ 363,030 $ 290,706 24.9 %
Intersegment 4,644 3,132 48.3 %
------------ ------------
Total Branded 367,674 293,838 25.1 %
------------ ------------
Other:
External customers 27,383 30,102 (9.0)%
Intersegment 7,856 8,355 (6.0)%
------------ ------------
Total Other 35,239 38,457 (8.4)%
------------ ------------
Canandaigua Wine net sales $ 402,913 $ 332,295 21.3 %
------------ ------------
Barton:
Beer $ 412,171 $ 375,293 9.8 %
Spirits 143,831 145,107 (0.9)%
------------ ------------
Barton net sales $ 556,002 $ 520,400 6.8 %
------------ ------------
Matthew Clark:
Branded:
External customers $ 144,663 $ 145,486 (0.6)%
Intersegment 481 497 (3.2)%
------------ ------------
Total Branded 145,144 145,983 (0.6)%
Wholesale 234,475 193,233 21.3 %
------------ ------------
Matthew Clark net sales $ 379,619 $ 339,216 11.9 %
------------ ------------
Franciscan:
External customers $ 58,087 $ 43,144 34.6 %
Intersegment 254 138 84.1 %
------------ ------------
Franciscan net sales $ 58,341 $ 43,282 34.8 %
------------ ------------
Corporate Operations and Other $ - $ - N/A
------------ ------------
Intersegment eliminations $ (13,235) $ (12,123) 9.2 %
------------ ------------
Consolidated Net Sales $ 1,383,640 $ 1,223,070 13.1 %
============ ============
Net sales for Six Months 2002 increased to $1,383.6 million from $1,223.1
million for Six Months 2001, an increase of $160.6 million, or 13.1%.
Canandaigua Wine
----------------
Net sales for Canandaigua Wine for Six Months 2002 increased to $402.9
million from $332.3 million for Six Months 2001, an increase of $70.6 million,
or 21.3%. This increase resulted primarily from $83.6 million of sales of the
newly acquired brands from the March Acquisitions. This increase was partially
offset by declines in other wine brands due to the timing of seasonal
programming for the first quarter of Fiscal 2002 versus the first quarter of
Fiscal 2001 and Canandaigua Wine's grape juice concentrate business.
- 24 -
Barton
------
Net sales for Barton for Six Months 2002 increased to $556.0 million from
$520.4 million for Six Months 2001, an increase of $35.6 million, or 6.8%. This
increase resulted primarily from a 9.8% increase in imported beer sales, led by
volume growth in the Mexican beer portfolio. This increase was partially offset
by a slight decrease in spirits sales as a result of lower net selling prices
from the implementation of a net pricing strategy in the third quarter of Fiscal
2001 offset by spirits sales volume increases.
Matthew Clark
-------------
Net sales for Matthew Clark for Six Months 2002 increased to $379.6 million
from $339.2 million for Six Months 2001, an increase of $40.4 million, or 11.9%.
Excluding an adverse foreign currency impact of $25.8 million, net sales
increased $66.2 million, or 19.9%. This local currency basis increase resulted
primarily from a 30.1% increase in wholesale sales, with the majority of this
growth coming from organic sales. Additionally, branded sales increased 6.4%
with an increase in wine sales being partially offset by a decrease in cider and
drinks sales.
Franciscan
----------
Net sales for Franciscan for Six Months 2002 increased to $58.3 million
from $43.3 million for Six Months 2001, an increase of $15.1 million, or 34.8%.
This increase resulted from $5.4 million of sales of the newly acquired brands
from the Ravenswood acquisition and sales growth primarily due to volume
increases in the Estancia, Veramonte, and Franciscan brands.
GROSS PROFIT
The Company's gross profit increased to $439.6 million for Six Months 2002
from $384.5 million for Six Months 2001, an increase of $55.1 million, or 14.3%.
The dollar increase in gross profit resulted primarily from sales of the newly
acquired brands from the March Acquisitions and the Ravenswood acquisition,
volume growth in the Barton Mexican beer portfolio, volume growth in the
Franciscan fine wine portfolio and volume growth in the Matthew Clark wholesale
business and branded wine business. These increases were partially offset by a
decrease in Barton's spirits sales, an adverse foreign currency impact, a
decrease in Canandaigua Wine's organic wine sales and a volume decrease in
Matthew Clark's cider sales. As a percent of net sales, gross profit improved
slightly to 31.8% for Six Months 2002 versus 31.4% for Six Months 2001. The
increase in gross profit margin resulted primarily from sales of higher-margin
wine brands acquired in the March Acquisitions and the Ravenswood acquisition.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $280.7 million
for Six Months 2002 from $256.3 million for Six Months 2001, an increase of
$24.4 million, or 9.5%. The dollar increase in selling, general and
administrative expenses resulted primarily from advertising and promotion costs
associated with the brands acquired in the March Acquisitions and the Ravenswood
acquisition. Selling, general and administrative expenses as a percent of net
sales decreased to 20.3% for Six Months 2002 as compared to 21.0% for Six Months
2001 as a decrease in Barton spirits advertising and promotion costs was greater
than the decrease in Barton spirits net sales and the percent increase in
Matthew Clark wholesale sales was greater than the percent increase in selling,
general and administrative expenses.
- 25 -
OPERATING INCOME
The following table sets forth the operating income/(loss) (in thousands of
dollars) by operating segment of the Company for Six Months 2002 and Six Months
2001.
Six Months 2002 Compared to Six Months 2001
-------------------------------------------
Operating Income/(Loss)
-------------------------------------------
%Increase/
2002 2001 (Decrease)
---------- ---------- ----------
Canandaigua Wine $ 39,329 $ 18,200 116.1 %
Barton 95,412 89,448 6.7 %
Matthew Clark 22,285 22,596 (1.4)%
Franciscan 15,146 9,658 56.8 %
Corporate Operations and Other (13,248) (11,734) 12.9 %
---------- ----------
Consolidated Operating Income $ 158,924 $ 128,168 24.0 %
========== ==========
As a result of the above factors, consolidated operating income increased
to $158.9 million for Six Months 2002 from $128.2 million for Six Months 2001,
an increase of $30.8 million, or 24.0%.
INTEREST EXPENSE, NET
Net interest expense increased to $59.2 million for Six Months 2002 from
$54.8 million for Six Months 2001, an increase of $4.3 million, or 7.9%. The
increase resulted primarily from an increase in average borrowings primarily due
to the financing of the March Acquisitions and the Ravenswood acquisition,
partially offset by a slight decrease in the average interest rate.
NET INCOME
As a result of the above factors, net income increased to $59.8 million for
Six Months 2002 from $44.0 million for Six Months 2001, an increase of $15.8
million, or 35.8%.
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for Six Months 2002
were $202.2 million, an increase of $38.0 million over EBITDA of $164.2 million
for Six Months 2001. EBITDA should not be construed as an alternative to
operating income or net cash flow from operating activities and should not be
construed as an indication of operating performance or as a measure of
liquidity.
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
-----------------------------------------
GENERAL
The Company's principal use of cash in its operating activities is for
purchasing and carrying inventories. The Company's primary source of liquidity
has historically been cash flow from operations, except during the annual fall
grape harvests when the Company has relied on short-term borrowings. The annual
grape crush normally begins in August and runs through October. The Company
generally begins purchasing grapes in August with payments for such grapes
beginning to come due in September. The Company's short-term borrowings to
support such purchases generally reach their highest levels in November or
December. Historically, the Company has used cash flow from operating activities
to repay its short-term borrowings. The Company will continue to use its
short-term borrowings to support its working capital requirements. The Company
believes that cash provided by operating activities and its
- 26 -
financing activities, primarily short-term borrowings, will provide adequate
resources to satisfy its working capital, liquidity and anticipated capital
expenditure requirements for both its short-term and long-term capital needs.
SIX MONTHS 2002 CASH FLOWS
OPERATING ACTIVITIES
Net cash provided by operating activities for Six Months 2002 was $106.0
million, which resulted from $105.2 million in net income adjusted for noncash
items, plus $0.8 million representing the net change in the Company's operating
assets and liabilities. The net change in operating assets and liabilities
resulted primarily from increases in accrued grape purchases and accrued income
taxes, and a decrease in inventories, offset by a seasonal increase in accounts
receivable and a decrease in accrued interest.
INVESTING ACTIVITIES AND FINANCING ACTIVITIES
Net cash used in investing activities for Six Months 2002 was $470.9
million, which resulted primarily from net cash paid of $472.0 million for the
March Acquisitions and the Ravenswood acquisition and $28.8 million of capital
expenditures, partially offset by $35.4 million of proceeds from the sale of
assets.
Net cash provided by financing activities for Six Months 2002 was $226.1
million, which resulted primarily from net proceeds of $139.5 million from the
equity offering, proceeds of $85.7 million from net revolving loan borrowings
under the senior credit facility, and proceeds of $26.4 million from exercise of
employee stock options. These amounts were partially offset by principal
payments of long-term debt of $25.2 million.
DEBT
Total debt outstanding as of August 31, 2001, amounted to $1,449.0 million,
an increase of $83.2 million from February 28, 2001. The ratio of total debt to
total capitalization decreased to 63.3% as of August 31, 2001, from 68.9% as of
February 28, 2001.
SENIOR CREDIT FACILITY
As of August 31, 2001, under its senior credit facility, the Company had
outstanding term loans of $321.1 million bearing a weighted average interest
rate of 5.7%, $83.0 million of revolving loans bearing a weighted average
interest rate of 6.6%, undrawn revolving letters of credit of $19.1 million, and
$197.9 million in revolving loans available to be drawn.
SENIOR NOTES
As of August 31, 2001, the Company had outstanding $200.0 million aggregate
principal amount of 8 5/8% Senior Notes due August 2006 (the "Senior Notes").
The Senior Notes are currently redeemable, in whole or in part, at the option of
the Company.
As of August 31, 2001, the Company had outstanding (pound)1.0 million ($1.5
million) aggregate principal amount of 8 1/2% Series B Senior Notes due November
2009 (the "Sterling Series B Senior Notes"). In addition, the Company had
outstanding (pound)154.0 million ($223.4 million, net of $0.5 million
- 27 -
unamortized discount) aggregate principal amount of 8 1/2% Series C Senior Notes
due November 2009 (the "Sterling Series C Senior Notes") as of August 31, 2001.
The Sterling Series B Senior Notes and Sterling Series C Senior Notes are
currently redeemable, in whole or in part, at the option of the Company.
In July 2001, the Company exchanged $200.0 million aggregate principal
amount of 8% Series B Senior Notes due February 2008 (the "February 2001 Series
B Senior Notes") for all of the February 2001 Senior Notes. The terms of the
February 2001 Series B Senior Notes are identical in all material respects to
the February 2001 Senior Notes. The February 2001 Series B Senior Notes are
currently redeemable, in whole or in part, at the option of the Company. As of
August 31, 2001, the Company had outstanding $200.0 million aggregate principal
amount of February 2001 Series B Senior Notes.
SENIOR SUBORDINATED NOTES
As of August 31, 2001, the Company had outstanding $195.0 million ($193.7
million, net of $1.3 million unamortized discount) aggregate principal amount of
8 3/4% Senior Subordinated Notes due December 2003 (the "Original Notes"). The
Original Notes are currently redeemable, in whole or in part, at the option of
the Company.
Also, as of August 31, 2001, the Company had outstanding $200.0 million
aggregate principal amount of 8 1/2% Senior Subordinated Notes due March 2009
(the "Senior Subordinated Notes"). The Senior Subordinated Notes are redeemable
at the option of the Company, in whole or in part, at any time on or after March
1, 2004. The Company may also redeem up to $70.0 million of the Senior
Subordinated Notes using the proceeds of certain equity offerings completed
before March 1, 2002.
EQUITY OFFERING
During March 2001, the Company completed a public offering of 4,370,000
shares of its Class A Common Stock resulting in net proceeds to the Company,
after deducting underwriting discounts and expenses, of $139.5 million. The net
proceeds were used to repay revolving loan borrowings under the senior credit
facility of which a portion was incurred to partially finance the acquisition of
the Turner Road Vintners Assets.
During October 2001, the Company sold 322,500 shares of its Class A Common
Stock in connection with a public offering of Class A Common Stock by
stockholders of the Company. The net proceeds to the Company, after deducting
underwriting discounts, of $12.1 million were used to repay borrowings under the
senior credit facility.
ACCOUNTING PRONOUNCEMENTS
In May 2000, the Emerging Issues Task Force ("EITF") issued EITF Issue No.
00-14 ("EITF No. 00-14"), "Accounting for Certain Sales Incentives," which was
subsequently amended in April 2001. EITF No. 00-14 addresses the recognition,
measurement and income statement classification of certain sales incentives.
EITF No. 00-14 requires that sales incentives, including coupons, rebate offers,
and free product offers, given concurrently with a single exchange transaction
be recognized when incurred and reported as a reduction of revenue. In addition,
in April 2001, the EITF issued EITF Issue No. 00-25 ("EITF No. 00-25"), "Vendor
Income Statement Characterization of Consideration Paid to a Reseller of the
Vendor's Products." EITF No. 00-25 addresses the income statement classification
of certain consideration, other than directly addressed in EITF No. 00-14, from
a vendor to an entity that purchases the vendor's products for resale. EITF No.
00-25 requires that certain consideration from a vendor to a reseller of the
vendor's products be reported as a reduction of revenue. The Company currently
reports
- 28 -
costs that fall under both EITF No. 00-14 and EITF No. 00-25 as selling, general
and administrative expenses. The Company is required to adopt EITF No. 00-14 and
EITF No. 00-25 in its financial statements beginning March 1, 2002. Upon
adoption of EITF No. 00-14 and EITF No. 00-25, financial statements for prior
periods presented for comparative purposes are to be reclassified to comply with
the requirements of EITF No. 00-14 and EITF No. 00-25. The Company believes the
impact of EITF No. 00-14 and EITF No. 00-25 on its financial statements will
result in a material reclassification that will decrease previously reported net
sales and decrease previously reported selling, general and administrative
expenses, but will have no effect on operating income or net income. The Company
has not yet determined the amount of the reclassification.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 ("SFAS No. 141"), "Business
Combinations." SFAS No. 141 addresses financial accounting and reporting for
business combinations requiring all business combinations to be accounted for
using one method, the purchase method. In addition, SFAS No. 141 supersedes
Accounting Principles Board Opinion No. 16, "Business Combinations." SFAS No.
141 is effective immediately for all business combinations initiated after June
30, 2001, as well as for all business combinations accounted for by the purchase
method for which the date of acquisition is July 1, 2001, or later. The Company
is required to adopt SFAS No. 141 for all business combinations for which the
acquisition date was before July 1, 2001, for fiscal years beginning March 1,
2002. The adoption of the applicable provisions of SFAS No. 141 have not had a
material impact on the Company's financial statements. The Company believes that
the adoption of the remaining provisions of SFAS No. 141 will not have a
material impact on its financial statements.
In July 2001, the Financial Accounting Standards Board also issued
Statement of Financial Accounting Standards No. 142 ("SFAS No. 142"), "Goodwill
and Other Intangible Assets." SFAS No. 142 addresses financial accounting and
reporting for acquired goodwill and other intangible assets and supersedes
Accounting Principles Board Opinion No. 17, "Intangible Assets." Under SFAS No.
142, goodwill and indefinite lived intangible assets are no longer amortized but
are reviewed at least annually for impairment. Separable intangible assets that
are not deemed to have an indefinite life will continue to be amortized over
their useful lives. The Company is required to apply the provisions of SFAS No.
142 for all goodwill and intangible assets acquired prior to July 1, 2001, for
fiscal years beginning March 1, 2002. For goodwill and intangible assets
acquired after June 30, 2001, these assets will be subject immediately to the
nonamortization and amortization provisions of SFAS No. 142. The Company is
currently assessing the financial impact of SFAS No. 142 on its financial
statements.
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 143 ("SFAS No. 143"), "Accounting for
Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated retirement costs. The Company is required to adopt
SFAS No. 143 for fiscal years beginning March 1, 2003. The Company is currently
assessing the financial impact of SFAS No. 143 on its financial statements.
In October 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144 ("SFAS No. 144"), "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 supersedes Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," and the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30, "Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions," for the disposal of a
segment of a business (as previously defined in that Opinion). The Company is
required to adopt SFAS
- 29 -
No. 144 for fiscal years beginning March 1, 2002. The Company is currently
assessing the financial impact of SFAS No. 144 on its financial statements.
EURO CONVERSION ISSUES
Effective January 1, 1999, eleven of the fifteen member countries of the
European Union (the "Participating Countries") established fixed conversion
rates between their existing sovereign currencies and the euro. For three years
after the introduction of the euro, the Participating Countries can perform
financial transactions in either the euro or their original local currencies.
This will result in a fixed exchange rate among the Participating Countries,
whereas the euro (and the Participating Countries' currency in tandem) will
continue to float freely against the U.S. dollar and other currencies of the
non-participating countries. The Company does not believe that the effects of
the conversion will have a material adverse effect on the Company's business and
operations.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These forward-looking statements are
subject to a number of risks and uncertainties, many of which are beyond the
Company's control, that could cause actual results to differ materially from
those set forth in, or implied by, such forward-looking statements. All
statements other than statements of historical facts included in this Quarterly
Report on Form 10-Q, including statements regarding the Company's future
financial position and prospects, are forward-looking statements. All
forward-looking statements speak only as of the date of this Quarterly Report on
Form 10-Q. The Company undertakes no obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. For risk factors associated with the Company and its
business, which factors could cause actual results to differ materially from
those set forth in, or implied by, the Company's forward-looking statements,
reference should be made to the Company's filings with the Securities and
Exchange Commission, including its Annual Report on Form 10-K for the fiscal
year ended February 28, 2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
------- ----------------------------------------------------------
Information about market risks for the six months ended August 31, 2001,
does not differ materially from that discussed under Item 7A in the Company's
Annual Report on Form 10-K for the fiscal year ended February 28, 2001.
- 30 -
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------- ---------------------------------------------------
At the Annual Meeting of Stockholders of Constellation Brands, Inc. held on
July 17, 2001 (the "Annual Meeting"), the holders of the Company's Class A
Common Stock (the "Class A Stock"), voting as a separate class, elected the
Company's slate of director nominees designated to be elected by the holders of
the Class A Stock, and the holders of the Company's Class B Common Stock (the
"Class B Stock"), voting as a separate class, elected the Company's slate of
director nominees designated to be elected by the holders of the Class B Stock.
In addition, at the Annual Meeting, the holders of Class A Stock and the
holders of Class B Stock, voting together as a single class, voted upon the
proposal to ratify the selection of Arthur Andersen LLP, Certified Public
Accountants, as the Company's independent auditors for the fiscal year ending
February 28, 2002.
Set forth below is the number of votes cast for, against or withheld, as
well as the number of abstentions and broker nonvotes, as applicable, as to each
of the foregoing matters.
I. The results of the voting for the election of Directors of the Company
are as follows:
Directors Elected By the Holders of Class A Stock:
--------------------------------------------------
Nominee For Withheld
------------------- ---------- --------
Thomas C. McDermott 31,305,359 83,656
Paul L. Smith 31,305,259 83,756
Directors Elected By the Holders of Class B Stock:
--------------------------------------------------
Nominee For Withheld
-------------------- ---------- --------
George Bresler 60,680,120 5,400
Jeananne K. Hauswald 60,679,560 5,960
James A. Locke, III 60,680,040 5,480
Richard Sands 60,680,070 5,450
Robert Sands 60,673,380 12,140
II. The selection of Arthur Andersen LLP was ratified with the following
votes:
For: 91,788,340
Against: 278,534
Abstain: 7,661
Broker Nonvotes: N/A
- 31 -
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
------- --------------------------------
(a) See Index to Exhibits located on Page 33 of this Report.
(b) The following Reports on Form 8-K were filed with the Securities
and Exchange Commission during the quarter ended August 31,
2001:
(i) Form 8-K dated June 19, 2001. This Form 8-K reported
information under Item 5.
(ii) Form 8-K dated June 28, 2001. This Form 8-K reported
information under Item 5 and included (i) the Company's
Condensed Consolidated Balance Sheets as of May 31, 2001
and February 28, 2001; and (ii) the Company's Condensed
Consolidated Statements of Income for the three months
ended May 31, 2001 and May 31, 2000.
(iii) Form 8-K dated July 2, 2001. This Form 8-K reported
information under Item 5.
(iv) Form 8-K dated August 23, 2001. This Form 8-K reported
information under Item 5 and Item 7. The following
financial statements of Ravenswood Winery, Inc. were
filed with the Form 8-K:
The Ravenswood Winery, Inc. Balance Sheet at June
30, 2000 and 1999, and the related Statements of
Income, Shareholders' Equity and Cash Flows for
the fiscal years ended June 30, 2000, 1999 and
1998, and the report of Odenberg, Ullakko,
Muranishi & Co. LLP, independent accountants,
thereon, together with the notes thereto.
The Ravenswood Winery, Inc. Balance Sheet at March
31, 2001 (unaudited) and June 30, 2000, and the
related unaudited Statements of Income and Cash
Flows for the three months ended March 31, 2001
and 2000, and for the nine months ended March 31,
2001 and 2000, together with the notes thereto.
- 32 -
SIGNATURES
Pursuant to the requirements 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.
CONSTELLATION BRANDS, INC.
Dated: October 15, 2001 By: /s/ Thomas F. Howe
--------------------------------------
Thomas F. Howe, Senior Vice President,
Controller
Dated: October 15, 2001 By: /s/ Thomas S. Summer
--------------------------------------
Thomas S. Summer, Executive Vice
President and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
- 33 -
INDEX TO EXHIBITS
(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION.
2.1 Asset Purchase Agreement dated as of February 21, 1999 by and among
Diageo Inc., UDV Canada Inc., United Distillers Canada Inc. and the
Company (filed as Exhibit 2 to the Company's Current Report on Form 8-K
dated April 9, 1999 and incorporated herein by reference).
2.2 Stock Purchase Agreement, dated April 21, 1999, between Franciscan
Vineyards, Inc., Agustin Huneeus, Agustin Francisco Huneeus, Jean-Michel
Valette, Heidrun Eckes-Chantre Und Kinder Beteiligungsverwaltung II,
GbR, Peter Eugen Eckes Und Kinder Beteiligungsverwaltung II, GbR, Harald
Eckes-Chantre, Christina Eckes-Chantre, Petra Eckes-Chantre and the
Company (filed as Exhibit 2.1 on the Company's Current Report on Form
8-K dated June 4, 1999 and incorporated herein by reference).
2.3 Stock Purchase Agreement by and between Canandaigua Wine Company, Inc.
(a wholly-owned subsidiary of the Company) and Moet Hennessy, Inc. dated
April 1, 1999 (filed as Exhibit 2.3 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended May 31, 1999 and incorporated
herein by reference).
2.4 Purchase Agreement dated as of January 30, 2001, by and among Sebastiani
Vineyards, Inc., Tuolomne River Vintners Group and Canandaigua Wine
Company, Inc. (a wholly-owned subsidiary of the Company) (filed as
Exhibit 2.5 to the Company's Annual Report on Form 10-K for the fiscal
year ended February 28, 2001 and incorporated herein by reference).
2.5 Agreement and Plan of Merger by and among the Company, VVV Acquisition
Corp. and Ravenswood Winery, Inc. dated as of April 10, 2001 (filed as
Exhibit 2.5 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended May 31, 2001 and incorporated herein by reference).
(3) ARTICLES OF INCORPORATION AND BY-LAWS.
3.1 Restated Certificate of Incorporation of the Company (filed as Exhibit
3.1 to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 2000 and incorporated herein by reference).
3.2 By-Laws of the Company (filed as Exhibit 3.2 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended August 31, 2000 and
incorporated herein by reference).
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES.
4.1 Seventh Supplemental Indenture, dated as of August 21, 2001, among the
Company, Ravenswood Winery, Inc. and The Chase Manhattan Bank, as
Trustee (supplementing the Indenture dated December 27, 1993) (filed
herewith).
4.2 Fifth Supplemental Indenture, dated as of August 21, 2001, among the
Company, Ravenswood Winery, Inc. and BNY Midwest Trust Company
(successor to Harris Trust and Savings Bank), as Trustee (supplementing
the Indenture dated October 29, 1996) (filed herewith).
4.3 Supplemental Indenture No. 6, dated as of August 21, 2001, among the
Company, Ravenswood Winery, Inc. and BNY Midwest Trust Company
(successor trustee to Harris Trust and Savings Bank and The Bank of New
York, as applicable), as Trustee (supplementing the Indenture dated
February 25, 1999) (filed as Exhibit 4.6 to the Company's Registration
Statement on Form S-3
- 34 -
(Pre-effective Amendment No. 1) (Registration No. 333-63480) and
incorporated herein by reference).
4.4 Supplemental Indenture No. 1, dated as of August 21, 2001, among the
Company, Ravenswood Winery, Inc. and BNY Midwest Trust Company
(successor to Harris Trust and Savings Bank), as Trustee (supplementing
the Indenture dated November 17, 1999) (filed herewith).
4.5 Supplemental Indenture No. 1, dated as of August 21, 2001, among the
Company, Ravenswood Winery, Inc. and BNY Midwest Trust Company
(successor to Harris Trust and Savings Bank), as Trustee (supplementing
the Indenture dated February 21, 2001) (filed as Exhibit 4.7 to the
Company's Pre-effective Amendment No. 1 to its Registration Statement on
Form S-3 (Registration No. 333-63480) and incorporated herein by
reference).
4.6 Guarantee Assumption Agreement, dated as of July 2, 2001, by Ravenswood
Winery, Inc., in favor of The Chase Manhattan Bank, as administrative
agent, pursuant to the Credit Agreement dated as of October 6, 1999, as
amended (filed herewith).
4.7 Amendment No. 3 to the Credit Agreement, dated as of September 7, 2001
between the Company, certain principal subsidiaries, and The Chase
Manhattan Bank, as administrative agent for certain banks (filed
herewith).
(10) MATERIAL CONTRACTS.
10.1 Guarantee Assumption Agreement, dated as of July 2, 2001, by Ravenswood
Winery, Inc., in favor of The Chase Manhattan Bank, as administrative
agent, pursuant to the Credit Agreement dated as of October 6, 1999, as
amended (filed herewith as Exhibit 4.6).
10.2 Amendment No. 3 to the Credit Agreement, dated as of September 7, 2001
between the Company, certain principal subsidiaries, and The Chase
Manhattan Bank, as administrative agent for certain banks (filed
herewith as Exhibit 4.7).
(11) STATEMENT RE COMPUTATION OF PER SHARE EARNINGS.
11.1 Computation of per share earnings (filed herewith).
(15) LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION.
Not applicable.
(18) LETTER RE CHANGE IN ACCOUNTING PRINCIPLES.
Not applicable.
(19) REPORT FURNISHED TO SECURITY HOLDERS.
Not applicable.
(22) PUBLISHED REPORT REGARDING MATTERS SUBMITTED TO A VOTE OF SECURITY
HOLDERS.
Not applicable.
- 35 -
(23) CONSENTS OF EXPERTS AND COUNSEL.
Not applicable.
(24) POWER OF ATTORNEY.
Not applicable.
(99) ADDITIONAL EXHIBITS.
99.1 1989 Employee Stock Purchase Plan (Restated June 27, 2001) (filed
herewith).
99.2 Underwriting Agreement dated March 8, 2001 by and among the Company and
Salomon Smith Barney Inc., for itself and certain other Underwriters
named therein (filed herewith so as to be incorporated by reference into
Registration Statement No. 333-91587).
EX-4
3
exhibit4-1suppind7.txt
EXHIBIT 4.1
-----------
[Execution Copy]
SEVENTH SUPPLEMENTAL INDENTURE (this "Supplement"), dated as of August 21,
2001, is entered into by and among CONSTELLATION BRANDS, INC. (formerly known as
Canandaigua Brands, Inc.), a Delaware corporation (the "Company"), and
RAVENSWOOD WINERY, INC., a California corporation and an indirect wholly-owned
subsidiary of the Company (the "New Guarantor"), and THE CHASE MANHATTAN BANK
(f/k/a Chemical Bank), a New York banking corporation, as trustee (the
"Trustee").
RECITALS OF THE COMPANY AND THE NEW GUARANTOR
WHEREAS, the Company, the Guarantors and the Trustee have executed and
delivered an Indenture, dated as of December 27, 1993, as supplemented (the
"Indenture"), providing for the issuance by the Company of $130,000,000
aggregate principal amount of the Company's 8 3/4% Senior Subordinated Notes due
2003 (the "Securities"), and pursuant to which the Guarantors have agreed to
guarantee, jointly and severally, the full and punctual payment and performance
when due of all Indenture Obligations;
WHEREAS, the New Guarantor has become a Subsidiary and, pursuant to Section
1014(b) of the Indenture, is obligated to enter into this Supplement thereby
guaranteeing the punctual payment and performance when due of all Indenture
Obligations;
WHEREAS, pursuant to Section 901(e) of the Indenture, the Company, the New
Guarantor and the Trustee may enter into this Supplement without the consent of
any Holder;
WHEREAS, the execution and delivery of this Supplement have been duly
authorized by a Board Resolution of the respective Boards of Directors of the
Company and the New Guarantor; and
WHEREAS, all conditions and requirements necessary to make the Supplement
valid and binding upon the Company and the New Guarantor, and enforceable
against the Company and the New Guarantor in accordance with its terms, have
been performed and fulfilled;
NOW, THEREFORE, in consideration of the above premises, each of the parties
hereto agrees, for the benefit of the others and for the equal and proportionate
benefit of the Holders of the Securities, as follows:
ARTICLE ONE
THE NEW GUARANTEE
Section 101. For value received, the New Guarantor, in accordance with
Article Fourteen of the Indenture, hereby absolutely, unconditionally and
irrevocably guarantees (the "New Guarantee"), jointly and severally among itself
and the Guarantors, to the Trustee and the Holders, as if the New Guarantor was
the principal debtor, the punctual payment and performance when due of all
Indenture Obligations (which for purposes of the New Guarantee shall also be
deemed to include all commissions, fees, charges, costs and other expenses
(including reasonable legal fees and disbursements of one counsel) arising out
of or incurred by the Trustee or the Holders in connection with the enforcement
of the New Guarantee). The agreements made and obligations assumed hereunder by
the New Guarantor shall constitute and
- 2 -
shall be deemed to constitute a Guarantee under the Indenture and for all
purposes of the Indenture, and the New Guarantor shall be considered a Guarantor
for all purposes of the Indenture as if the New Guarantor was originally named
therein as a Guarantor.
Section 102. The New Guarantee shall be automatically and unconditionally
released and discharged upon the occurrence of the events set forth in Section
1014(c) of the Indenture.
Section 103. The New Guarantor hereby waives and will not in any manner
whatsoever claim or take the benefit or advantage of any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Subsidiary as a result of any payment by the New Guarantor under
its Guarantee under the Indenture.
ARTICLE TWO
MISCELLANEOUS
Section 201. Except as otherwise expressly provided or unless the context
otherwise requires, all terms used herein which are defined in the Indenture
shall have the meanings assigned to them in the Indenture. Except as
supplemented hereby, the Indenture (including the Guarantees incorporated
therein) and the Securities are in all respects ratified and confirmed and all
the terms and provisions thereof shall remain in full force and effect.
Section 202. This Supplement shall be effective as of the close of business
on July 2, 2001.
Section 203. The recitals contained herein shall be taken as the statements
of the Company and the New Guarantor, and the Trustee assumes no responsibility
for their correctness. The Trustee makes no representations as to the validity
or sufficiency of this Supplement.
Section 204. This Supplement shall be governed by and construed in
accordance with the laws of the jurisdiction which governs the Indenture and its
construction.
Section 205. This Supplement may be executed in any number of counterparts
each of which shall be an original, but such counterparts shall together
constitute but one and the same instrument.
- 3 -
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be
duly executed and attested all as of the day and year first above written.
CONSTELLATION BRANDS, INC.
By: /s/ Thomas S. Summer
-----------------------------------
Name: Thomas S. Summer
Title: Executive Vice President and
Chief Financial Officer
Attest:
/s/ David S. Sorce
-----------------------
Title:
RAVENSWOOD WINERY, INC.
By: /s/ Thomas S. Summer
-----------------------------------
Name: Thomas S. Summer
Title: Vice President and Treasurer
Attest:
/s/ David S. Sorce
-----------------------
Title:
THE CHASE MANHATTAN BANK
By: /s/ James D. Heaney
-----------------------------------
Name: James D. Heaney
Title: Vice President
Attest:
/s/ [illegible]
-----------------------
Title: Senior Trust Officer
EX-4
4
exhibit4-2suppind5.txt
EXHIBIT 4.2
-----------
[Execution Copy]
FIFTH SUPPLEMENTAL INDENTURE (this "Supplement"), dated as of August 21,
2001, is entered into by and among CONSTELLATION BRANDS, INC. (formerly known as
Canandaigua Brands, Inc.), a Delaware corporation (the "Company"), and
RAVENSWOOD WINERY, INC., a California corporation and an indirect wholly-owned
subsidiary of the Company (the "New Guarantor"), and BNY MIDWEST TRUST COMPANY
(successor to Harris Trust and Savings Bank), an Illinois banking corporation,
as trustee (the "Trustee").
RECITALS OF THE COMPANY AND THE NEW GUARANTOR
WHEREAS, the Company, the Guarantors and the Trustee have executed and
delivered an Indenture, dated as of October 29, 1996, as supplemented (the
"Indenture"), providing for the issuance by the Company of $65,000,000 aggregate
principal amount of the Company's 8 3/4% Senior Subordinated Notes due 2003 (the
"Securities"), and pursuant to which the Guarantors have agreed to guarantee,
jointly and severally, the full and punctual payment and performance when due of
all Indenture Obligations;
WHEREAS, the New Guarantor has become a Subsidiary and, pursuant to Section
1014(b) of the Indenture, is obligated to enter into this Supplement thereby
guaranteeing the punctual payment and performance when due of all Indenture
Obligations;
WHEREAS, pursuant to Section 901(e) of the Indenture, the Company, the New
Guarantor and the Trustee may enter into this Supplement without the consent of
any Holder;
WHEREAS, the execution and delivery of this Supplement have been duly
authorized by a Board Resolution of the respective Boards of Directors of the
Company and the New Guarantor; and
WHEREAS, all conditions and requirements necessary to make the Supplement
valid and binding upon the Company and the New Guarantor, and enforceable
against the Company and the New Guarantor in accordance with its terms, have
been performed and fulfilled;
NOW, THEREFORE, in consideration of the above premises, each of the parties
hereto agrees, for the benefit of the others and for the equal and proportionate
benefit of the Holders of the Securities, as follows:
ARTICLE ONE
THE NEW GUARANTEE
Section 101. For value received, the New Guarantor, in accordance with
Article Fourteen of the Indenture, hereby absolutely, unconditionally and
irrevocably guarantees (the "New Guarantee"), jointly and severally among itself
and the Guarantors, to the Trustee and the Holders, as if the New Guarantor was
the principal debtor, the punctual payment and performance when due of all
Indenture Obligations (which for purposes of the New Guarantee shall also be
deemed to include all commissions, fees, charges, costs and other expenses
(including reasonable legal fees and disbursements of one counsel) arising out
of or incurred by the Trustee or the Holders in connection with the enforcement
of the New Guarantee). The agreements made and obligations assumed hereunder by
the New Guarantor shall constitute and
- 2 -
shall be deemed to constitute a Guarantee under the Indenture and for all
purposes of the Indenture, and the New Guarantor shall be considered a Guarantor
for all purposes of the Indenture as if the New Guarantor was originally named
therein as a Guarantor.
Section 102. The New Guarantee shall be automatically and unconditionally
released and discharged upon the occurrence of the events set forth in Section
1014(c) of the Indenture.
Section 103. The New Guarantor hereby waives and will not in any manner
whatsoever claim or take the benefit or advantage of any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Subsidiary as a result of any payment by the New Guarantor under
its Guarantee under the Indenture.
ARTICLE TWO
MISCELLANEOUS
Section 201. Except as otherwise expressly provided or unless the context
otherwise requires, all terms used herein which are defined in the Indenture
shall have the meanings assigned to them in the Indenture. Except as
supplemented hereby, the Indenture (including the Guarantees incorporated
therein) and the Securities are in all respects ratified and confirmed and all
the terms and provisions thereof shall remain in full force and effect.
Section 202. This Supplement shall be effective as of the close of business
on July 2, 2001.
Section 203. The recitals contained herein shall be taken as the statements
of the Company and the New Guarantor, and the Trustee assumes no responsibility
for their correctness. The Trustee makes no representations as to the validity
or sufficiency of this Supplement.
Section 204. This Supplement shall be governed by and construed in
accordance with the laws of the jurisdiction which governs the Indenture and its
construction.
Section 205. This Supplement may be executed in any number of counterparts
each of which shall be an original, but such counterparts shall together
constitute but one and the same instrument.
- 3 -
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be
duly executed and attested all as of the day and year first above written.
CONSTELLATION BRANDS, INC.
By: /s/ Thomas S. Summer
---------------------------------
Name: Thomas S. Summer
Title: Executive Vice President
& Chief Financial Officer
Attest:
/s/ David S. Sorce
-------------------------
Title:
RAVENSWOOD WINERY, INC.
By: /s/ Thomas S. Summer
---------------------------------
Name: Thomas S. Summer
Title: Vice President & Treasurer
Attest:
/s/ David S. Sorce
-------------------------
Title:
BNY MIDWEST TRUST COMPANY
By: /s/ J. Bartolini
---------------------------------
Name: J. Bartolini
Title: Vice President
Attest:
/s/ [illegible]
-------------------------
Title: Assistant Secretary
EX-4
5
exhibit4-4suppind1.txt
EXHIBIT 4.4
-----------
[Execution Copy]
SUPPLEMENTAL INDENTURE NO. 1 (this "Supplement"), dated as of August 21,
2001, is entered into by and among CONSTELLATION BRANDS, INC. (formerly known as
Canandaigua Brands, Inc.), a Delaware corporation (the "Company"), RAVENSWOOD
WINERY, INC., a California corporation and an indirect wholly-owned subsidiary
of the Company (the "New Guarantor"), and BNY MIDWEST TRUST COMPANY (successor
to Harris Trust and Savings Bank), an Illinois banking corporation, as trustee
(the "Trustee").
RECITALS OF THE COMPANY AND THE NEW GUARANTOR
WHEREAS, the Company, the Guarantors and the Trustee have executed and
delivered an Indenture, dated as of November 17, 1999 (the "Indenture"),
providing for the issuance by the Company of (pound)150,000,000 aggregate
principal amount of the Company's 8 1/2% Senior Notes due 2009, pursuant to
which the Guarantors have agreed to guarantee, jointly and severally, the full
and punctual payment and performance when due of all Indenture Obligations;
WHEREAS, the New Guarantor has become a Subsidiary and, pursuant to Section
4.15 of the Indenture, is obligated to enter into this Supplement thereby
guaranteeing the punctual payment and performance when due of all Indenture
Obligations;
WHEREAS, pursuant to Section 8.01 of the Indenture, the Company, the New
Guarantor and the Trustee may enter into this Supplement without the consent of
any Holder;
WHEREAS, the execution and delivery of this Supplement have been duly
authorized by a Board Resolution of the respective Boards of Directors of the
Company and the New Guarantor; and
WHEREAS, all conditions and requirements necessary to make the Supplement
valid and binding upon the Company and the New Guarantor, and enforceable
against the Company and the New Guarantor in accordance with its terms, have
been performed and fulfilled;
NOW, THEREFORE, in consideration of the above premises, each of the parties
hereto agrees, for the benefit of the others and for the equal and proportionate
benefit of the Holders of the Securities, as follows:
ARTICLE ONE
THE NEW GUARANTEE
Section 1.01. For value received, the New Guarantor hereby absolutely,
unconditionally and irrevocably guarantees (the "New Guarantee"), jointly and
severally among itself and the Guarantors, to the Trustee and the Holders, as if
the New Guarantor was the principal debtor, the punctual payment and performance
when due of all Indenture Obligations (which for purposes of the New Guarantee
shall also be deemed to include all commissions, fees, charges, costs and other
expenses (including reasonable legal fees and disbursements of one counsel)
arising out of or incurred by the Trustee or the Holders in connection with the
enforcement of this New Guarantee). The agreements made and obligations assumed
hereunder by the New Guarantor
- 2 -
shall constitute and shall be deemed to constitute a Guarantee under the
Indenture and for all purposes of the Indenture, and the New Guarantor shall be
considered a Guarantor for all purposes of the Indenture as if the New Guarantor
was originally named therein as the Guarantor.
Section 1.02. The New Guarantee shall be released upon the occurrence of
the events as provided in the Indenture.
Section 1.03. The New Guarantor hereby waives, and will not in any manner
whatsoever claim or take the benefit or advantage of any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Subsidiary as a result of any payment by the New Guarantor under
its Guarantee under the Indentures.
ARTICLE TWO
MISCELLANEOUS
Section 2.01. Except as otherwise expressly provided or unless the context
otherwise requires, all terms used herein which are defined in the Indenture
shall have the meanings assigned to them in the Indenture. Except as
supplemented hereby, the Indenture (including the Guarantees incorporated
therein) and the notes issued pursuant thereto are in all respects ratified and
confirmed and all the terms and provisions thereof shall remain in full force
and effect.
Section 2.02 This Supplement shall be effective as of the close of business
on July 2, 2001.
Section 2.03. The recitals contained herein shall be taken as the
statements of the Company and the New Guarantor, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Supplement.
Section 2.04. This Supplement shall be governed by and construed in
accordance with the laws of the jurisdiction which governs the Indenture and its
construction.
Section 2.05. This Supplement may be executed in any number of counterparts
each of which shall be an original, but such counterparts shall together
constitute but one and the same instrument.
- 3 -
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be
duly executed and attested all as of the day and year first above written.
CONSTELLATION BRANDS, INC.
By: /s/ Thomas S. Summer
---------------------------------------
Name: Thomas S. Summer
Title: Executive Vice President & Chief
Financial Officer
Attest:
/s/ David S. Sorce
-------------------------
Title:
RAVENSWOOD WINERY, INC.
By: /s/ Thomas S. Summer
---------------------------------------
Name: Thomas S. Summer
Title: Vice President & Treasurer
Attest:
/s/ David S. Sorce
-------------------------
Title:
BNY MIDWEST TRUST COMPANY
By: /s/ J. Bartolini
---------------------------------------
Name: J. Bartolini
Title: Vice President
Attest:
/s/ [illegible]
-------------------------
Title: Assistant Secretary
EX-4
6
exhibit4-6guar.txt
EXHIBIT 4.6
-----------
[Execution Copy]
GUARANTEE ASSUMPTION AGREEMENT
GUARANTEE ASSUMPTION AGREEMENT dated as of July 2, 2001, by Ravenswood
Winery, Inc., a California corporation (the "Additional Subsidiary Guarantor"),
in favor of The Chase Manhattan Bank, as administrative agent for the lenders or
other financial institutions or entities party as "Lenders" to the Credit
Agreement referred to below (in such capacity, together with its successors in
such capacity, the "Administrative Agent").
Constellation Brands, Inc., a Delaware corporation, the Subsidiary
Guarantors referred to therein and the Administrative Agent are parties to a
Credit Agreement dated as of October 6, 1999 (as modified and supplemented and
in effect from time to time, the "Credit Agreement").
Pursuant to Section 6.09(a) of the Credit Agreement, the Additional
Subsidiary Guarantor hereby agrees to become a "Subsidiary Guarantor" for all
purposes of the Credit Agreement, and an "Obligor" for all purposes of the U.S.
Equity Pledge Agreement. Without limiting the foregoing, the Additional
Subsidiary Guarantor hereby, jointly and severally with the other Subsidiary
Guarantors, guarantees to each Lender and the Administrative Agent and their
respective successors and assigns the prompt payment in full when due (whether
at stated maturity, by acceleration or otherwise) of all Guaranteed Obligations
(as defined in Section 3.01 of the Credit Agreement) in the same manner and to
the same extent as is provided in Article III of the Credit Agreement. In
addition, the Additional Subsidiary Guarantor hereby makes the representations
and warranties set forth in Sections 4.01, 4.02 and 4.03 of the Credit
Agreement, and in Section 2 of the U.S. Equity Pledge Agreement, with respect to
itself and its obligations under this Agreement, as if each reference in such
Sections to the Loan Documents included reference to this Agreement.
The Additional Subsidiary Guarantor hereby agrees that Annex 1 of the U.S.
Equity Pledge Agreement shall be supplemented as provided in Attachment A
hereto.
- 2 -
IN WITNESS WHEREOF, the Additional Subsidiary Guarantor has caused this
Guarantee Assumption Agreement to be duly executed and delivered as of the day
and year first above written.
RAVENSWOOD WINERY, INC.
By /s/ Thomas S. Summer
-----------------------------------
Thomas S. Summer
Title: Vice President and Treasurer
Accepted and agreed:
THE CHASE MANHATTAN BANK, as
Administrative Agent
By /s/ B.B. Wuthrich
--------------------------------
Title: Vice President
- 3 -
ATTACHMENT A
Supplement to Annex 1 to U.S. Equity Pledge Agreement
-----------------------------------------------------
PLEDGED STOCK
-------------
RAVENSWOOD WINERY, INC.
ISSUER CERTIFICATE NOS. REGISTERED OWNER NUMBER OF SHARES
---------------- ---------------- ---------------- ----------------
N/A* N/A* N/A* N/A*
---------------- ---------------- ---------------- ----------------
* Ravenswood Winery, Inc. does not own any capital stock or other ownership
interests in another Person (as defined in the Credit Agreement).
EX-4
7
exhibit4-7.txt
EXHIBIT 4.7
-----------
AMENDMENT NO. 3
---------------
AMENDMENT NO. 3 dated as of September 7, 2001 between CONSTELLATION BRANDS,
INC. (formally known as Canandaigua Brands, Inc.), a Delaware corporation (the
"Borrower"); each of the Subsidiaries of the Borrower identified under the
caption "SUBSIDIARY GUARANTORS" on the signature pages hereto (individually, a
"Subsidiary Guarantor" and, collectively the "Subsidiary Guarantors" and,
together with the Borrower, the "Obligors"); and THE CHASE MANHATTAN BANK, as
administrative agent for the Lenders referred to below (in such capacity,
together with its successors in such capacity, the "Administrative Agent").
The Borrower, the Subsidiary Guarantors, certain financial institutions
(the "Lenders") and the Administrative Agent are parties to a Credit Agreement
dated as of October 6, 1999 (as amended by Amendment No. 1 thereto dated as of
February 13, 2001 and Amendment No. 2 thereto dated as of May 16, 2001 and as
otherwise in effect on the date hereof, the "Credit Agreement"). The Obligors
and the Administrative Agent (having previously obtained the authorization of
the Required Lenders) wish to amend the Credit Agreement in certain respects
and, accordingly, the parties hereto hereby agree as follows:
Section 1. DEFINITIONS. Except as otherwise defined in this Amendment No.
3, terms defined in the Credit Agreement(as amended hereby) are used herein as
defined therein.
Section 2. AMENDMENTS. Subject to the satisfaction of the conditions
specified in Section 4 hereof, but with effect on and after the date hereof, the
Credit Agreement is amended as follows:
(a) The definition of "Joint Venture Entity" in Section 1.01 of the
Credit Agreement is amended and restated to read in its entirety as
follows:
"'Joint Venture Entity' means any corporation, limited liability
company, partnership, association or other entity less than 100% of
the ownership interests of which are owned by the Borrower or any
Wholly-Owned Subsidiary of the Borrower.".
(b) Clause (i) of Section 7.06 of the Credit Agreement is amended and
restated to read in its entirety as follows:
"(i) additional Investments by the Borrower up to but not
exceeding $50,000,000 at any one time outstanding.".
Section 3. REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants to the Lenders and the Administrative Agent that (i) the
representations and warranties set forth in the Credit Agreement, and of each
Obligor in each of the other Loan Documents to which it is party (but as to such
other Loan Documents, in all material respects), are true and correct on and as
of the
Amendment No. 3
---------------
date hereof as if made on and as of the date hereof (or, if any such
representation or warranty is expressly stated to have been made as of a
specific date, such representation or warranty shall be true and correct as of
such specific date) and (ii) at the time of and immediately after giving effect
to this Amendment No. 3, no Default has occurred and is continuing.
Section 4. CONDITIONS PRECEDENT. The amendments set forth in Section 2
hereof shall become effective, as of the date hereof, upon the execution and
delivery of this Amendment No. 3 by the Obligors and the Administrative Agent.
Section 5. MISCELLANEOUS. Except as herein provided, the Credit Agreement
shall remain unchanged and in full force and effect. This Amendment No. 3 may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same amendatory instrument and any of the parties hereto
may execute this Amendment No. 3 by signing any such counterpart. This Amendment
No. 3 shall be governed by, and construed in accordance with, the law of the
State of New York.
Amendment No. 3
---------------
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 3 to
be duly executed and delivered as of the day and year first above written.
CONSTELLATION BRANDS, INC.
By /s/ Thomas S. Summer
------------------------------------
Title: Executive Vice President and
Chief Financial Officer
SUBSIDIARY GUARANTORS
ALLBERRY, INC.
BATAVIA WINE CELLARS, INC.
CANANDAIGUA EUROPE LIMITED
CANANDAIGUA WINE COMPANY, INC.
CLOUD PEAK CORPORATION
FRANCISCAN VINEYARDS, INC.
MT. VEEDER CORPORATION
POLYPHENOLICS, INC.
RAVENSWOOD WINERY, INC.
ROBERTS TRADING CORP.
By /s/ Thomas S. Summer
------------------------
Title: Treasurer
BARTON INCORPORATED
BARTON BRANDS, LTD.
BARTON BEERS, LTD.
BARTON BRANDS OF CALIFORNIA, INC.
BARTON BRANDS OF GEORGIA, INC.
BARTON CANADA, LTD.
BARTON DISTILLERS IMPORT CORP.
BARTON FINANCIAL CORPORATION
MONARCH IMPORT COMPANY
STEVENS POINT BEVERAGE CO.
By /s/ Thomas S. Summer
------------------------
Title: Vice President
CANANDAIGUA LIMITED
By /s/ Thomas S. Summer
------------------------
Title: Finance Director
Amendment No. 3
---------------
THE CHASE MANHATTAN BANK,
as Administrative Agent
By Illegible
------------------------
Title: Vice President
Amendment No. 3
---------------
EX-11
8
exhibit11-earnings.txt
EXHIBIT 11
----------
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(in thousands, except per share data)
For the Six Months Ended August 31,
---------------------------------------
2001 2000
----------------- -----------------
Basic Diluted Basic Diluted
------- ------- ------- -------
Income applicable to common shares $59,777 $59,777 $44,012 $44,012
======= ======= ======= =======
Shares:
Weighted average common shares
outstanding 41,834 41,834 36,530 36,530
Adjustments:
Stock options - 1,292 - 713
------- ------- ------- -------
Adjusted weighted average common
shares outstanding 41,834 43,126 36,530 37,243
======= ======= ======= =======
Earnings per common share $ 1.43 $ 1.39 $ 1.20 $ 1.18
======= ======= ======= =======
For the Three Months Ended August 31,
---------------------------------------
2001 2000
----------------- -----------------
Basic Diluted Basic Diluted
------- ------- ------- -------
Income applicable to common shares $35,934 $35,934 $26,110 $26,110
======= ======= ======= =======
Shares:
Weighted average common shares
outstanding 42,414 42,414 36,600 36,600
Adjustments:
Stock options - 1,518 - 728
------- ------- ------- -------
Adjusted weighted average common
shares outstanding 42,414 43,932 37,328 37,328
======= ======= ======= =======
Earnings per common share $ 0.85 $ 0.82 $ 0.71 $ 0.70
======= ======= ======= =======
EX-99
9
exhibit99-1espp.txt
EXHIBIT 99.1
------------
CONSTELLATION BRANDS, INC.
1989 EMPLOYEE STOCK PURCHASE PLAN
(RESTATED JUNE 27, 2001)
Constellation Brands, Inc. (the "Company") hereby amends and restates its
1989 Employee Stock Purchase Plan (the "Plan") as follows:
1. PURPOSE OF THE PLAN. The Plan is adopted to provide eligible employees
who wish to become shareholders in the Company and/or to increase their share
ownership with a convenient method of doing so through accumulated payroll
deductions. The Company's management and Board of Directors believe that
employee participation in the ownership of the business is to the mutual benefit
of the employees and the Company. The Company intends that the rights to
purchase stock of the Company granted under the Plan be considered options
issued under an "employee stock purchase plan" as that term is defined in
Section 423(b) of the Code.
2. CERTAIN DEFINITIONS.
2.1 "Account" means the funds accumulated as a bookkeeping matter with
respect to an eligible Employee as a result of deductions from such Employee's
Compensation for the purpose of purchasing stock under the Plan.
2.2 "Board" means the Board of Directors of the Company.
2.3 "Code" means the Internal Revenue Code of 1986, as amended.
2.4 "Committee" means the Human Resources Committee of the Board as it may
be constituted from time to time or such other committee designated by the
Board.
2.5 "Common Stock" means the Company's Class A Common Stock, $.01 par value
per share.
2.6 "Compensation" means total cash compensation, excluding overtime,
bonuses or special pay (or as otherwise defined by the Committee).
2.7 "Designated Subsidiary" means any Subsidiary which has been designated
by the Committee from time to time in its sole discretion as a Subsidiary whose
Employees are eligible to participate in the Plan.
2.8 "ESPP Agent" means the Company or a financial services or brokerage
firm designated by the Company to act as administrative agent of the Plan.
2.9 "Effective Date" means January 20, 1989.
2.10 "Employee" means any individual employed by the Company or any
Designated Subsidiary on the Enrollment Date of a particular Offering.
2.11 "Enrollment Date" means the first day of each Offering Period.
2.12 "Exercise Date" means the last day of each Offering Period or date
determined by the Committee within an Offering Period in the case of an option
that becomes partially exercisable over a number of dates during an Offering
Period.
2.13 "Fair Market Value" means, as of any date, the closing price of the
Common Stock on the New York Stock Exchange or other national securities
exchange on which the Common Stock is listed or admitted to trading as reported
on in the Wall Street Journal, Eastern Edition or such other national reference
service as the Committee may select. If such exchange is closed and/or no shares
of Common Stock are traded on such exchange on the referenced date, the Fair
Market Value shall be the closing price of the Common Stock the closing date for
the first preceding date on which such exchange is open and shares are traded.
2.14 "Offering Period" or "Offering" means the period or periods beginning
with the date an option is granted under the Plan and ending with the date (not
more than 27 months after such grant) determined by the Committee. During the
term of the Plan there may be a series of Offering Periods (which periods may be
consecutive or concurrent) and an Offering Period may have a number of Exercise
Dates within an Offering Period in the case of options that become partially
exercisable over a number of dates, provided that the final Offering Period will
end prior to the termination of the Plan.
2.15 "Purchase Price" shall mean: (i) an amount equal to 85% of the Fair
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower; or (ii) an amount that is greater than (i) as
determined by the Committee.
2.16 "Retirement" shall mean the termination of employment of an Employee
who is at least 60 years of age and has at least 10 years of service with the
Company (including, if the Committee so determines, service with entities
acquired by the Company).
2.17 "Subsidiary" shall mean any corporation, domestic or foreign, whether
or not such corporation now exists or is hereafter organized or acquired by the
Company or by a Subsidiary, in an unbroken chain of corporations beginning with
the Company if, at the time the option is granted, each of the corporations
other than the last corporation in an unbroken chain owns stock possessing 50%
or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
3. ADMINISTRATION.
3.1 The Plan will be administered by the Committee. The Committee will have
the full discretionary authority and final power to determine all issues
relating to the plan, including questions of policy and administrative procedure
that may arise in the administration of the Plan and will administer, or will
direct the ESPP Agent to administer, the Plan to qualify as an "employee stock
purchase plan" under Section 423 of the Code and the regulations thereunder, as
amended from time to time. Any decision or action taken by the Committee shall
be conclusive and binding on all parties.
3.2 The Committee has the power, subject to the express provisions of the
Plan, to: (a) establish the Offering Periods and determine the terms of options
granted with respect to each
Offering Period; (b) designate from time to time which Subsidiaries of the
Company will be Designated Subsidiaries; (c) construe and interpret the Plan and
options granted under it, and establish, amend and revoke rules and regulations
for its administration, including correcting any defect, omission or
inconsistency in the Plan, in a manner and to the extent it shall deem
appropriate to make the Plan fully effective; and (d) exercise such other powers
and perform such other acts in connection with the Plan as the Committee
determines will promote the best interests of the Company. The Committee may
delegate its authority under the Plan to one or more persons.
3.3. Expenses associated with administering the Plan (including but not
limited to expenses incurred in purchasing and selling shares and expenses of
the ESPP Agent) shall be borne by Employees or the Company as the Committee
deems appropriate.
4. SHARES SUBJECT TO THE PLAN.
4.1 The number of shares which may be issued pursuant to the terms of the
Plan is 2,250,000 shares of Common Stock (subject to adjustment as provided in
Section 18). If any option granted under the Plan terminates for any reason
without having been exercised, the Common Stock not purchased under such option
will again become available for issuance under the Plan.
4.2 The Common Stock subject to the Plan may be authorized and unissued
shares of Common Stock, previously issued shares of Common Stock acquired by the
Company and held as treasury shares or shares purchased on the open market. If
the total number of shares for which options are to be granted on any date
exceeds the number of shares then available under the Plan (after deduction of
all shares for which options have been exercised or are then outstanding), the
Committee will make a pro rata allocation of the shares remaining available in
as nearly a uniform manner as is practicable and equitable. In such event, the
payroll deductions to be made will be reduced accordingly.
5. ELIGIBILITY.
5.1 Any Employee who is employed by the Company or a Designated Subsidiary
on a given Enrollment Date will be eligible to participate in the Plan for that
Offering Period, excluding: (i) an Employee who on the Enrollment Date of a
particular Offering is customarily employed for less than or equal to seventeen
and one-half hours per week; (ii) an Employee who on the Enrollment Date of a
particular Offering is customarily employed for less than or equal or five (5)
months per year; or (iii) an Employee who on the Enrollment Date is a member of
the Committee.
5.2 An Employee will not be granted an option under the Plan (a) if,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own stock and/or hold outstanding options to purchase stock possessing
five percent (5%) or more of the total combined voting power or value of all
classes of stock of the Company or of any Subsidiary of the Company, or (b) to
the extent such option, together with any other options granted under any
employee stock purchase plan of the Company or its Subsidiaries, results in such
Employee having the right to purchase in a calendar year stock having a Fair
Market Value (determined based on the Fair
Market Value of the shares at the time such option is granted) that exceeds the
number of shares the Employee is permitted to purchase under Section 423(b)(8)
of the Code.
6. GRANT OF OPTIONS. The Committee will determine when to grant options to
purchase Common Stock of the Company under the Plan to eligible Employees to
commence an Offering Period and any special terms or conditions that may apply
to the Offering Period or options, provided that all employees granted options
for an Offering Period shall have the same rights and privileges to the extent
required by Code Section 423(b)(5). Unless otherwise determined by the
Committee, the options will be granted on each Enrollment Date on the terms and
conditions and to the participating Employees as set forth in this Plan.
7. PARTICIPATION.
7.1 An eligible Employee may become a participant in an Offering Period
under the Plan by completing an enrollment agreement authorizing payroll
deductions in form and substance satisfactory to the Committee and filing the
enrollment agreement with the Company or, if so designated by the Committee,
with the ESPP Agent. Unless otherwise permitted by the Committee, such forms
shall be filed with the Company or the ESPP Agent by the applicable Enrollment
Date.
7.2 Payroll deductions for an Employee will commence on the first payday
following the Enrollment Date and will continue through the Offering Period
unless the Employee withdraws as provided in Section 12 or unless the Plan is
terminated as provided in Section 17. Payroll deductions generally may not be
retroactive. However, if during the thirty (30) day period immediately preceding
the Enrollment Date of an Offering, the Company engages in a transaction which
has the effect of increasing the number of employees eligible to participate in
that Offering, and the Company deems it necessary to allow employees to submit
payroll deduction authorization forms after the Enrollment Date of that
Offering, retroactive payroll deductions may be made to reflect any elections to
participate in the Offering which occur after the Enrollment Date.
8. PAYROLL DEDUCTIONS.
8.1 An Employee will elect in the enrollment agreement to have payroll
deductions made on each payday during the Offering Period in an amount that does
not exceed 10% (or such lesser percentage as the Committee may determine) of the
Compensation which the Employee receives on each such payday. The deductions of
an Employee shall not be less than Two Dollars ($2.00) per week or Four Dollars
($4.00) every two weeks, depending on the Employee's pay cycle, or such other
minimum amounts as shall be established by the Committee.
8.2 All payroll deductions made for an Employee shall be credited to his or
her Account. The funds allocated to an Employee's Account shall be accounted for
separately as a bookkeeping matter but may be commingled with the general funds
of the Company until used to purchase Common Stock on an Exercise Date or
returned to the Employee. No interest will be paid or accrued on any funds in
the Accounts of participating Employees.
8.3 An Employee may discontinue such Employee's participation in the Plan
as provided in Section 12. An Employee's enrollment agreement shall be effective
for successive
Offering Periods unless the Employee withdraws as provided in Section 12. To
increase or decrease the amount of payroll deductions (within the limitations of
the Plan), with respect to a succeeding Offering Period, an Employee must
complete and file with the Company prior to the Enrollment Date for such
Offering Period, a new enrollment agreement authorizing a change in payroll
deduction amount. Such change in the amount of payroll deduction shall be
effective at the beginning of the next Offering Period following the Company's
receipt of the new enrollment agreement.
8.4 To the extent necessary to comply with Section 423(b)(8) of the Code
and Section 5.2 of the Plan, an Employee's payroll deductions will be decreased
and/or refunded by the Company at such time during any Offering Period which is
scheduled to end during the current calendar year (the "Current Offering
Period") if the aggregate of all such Employee's payroll deductions which were
previously used to purchase Common Stock under the Plan (and any other employee
stock purchase plans of the Company) in a prior Offering Period which ended
during the current calendar year plus all payroll deductions accumulated with
respect to the Current Offering Period exceeds the applicable limits of Code
Section 423(b)(8). Payroll deductions shall recommence at the rate provided in
such Employee's enrollment agreement at the beginning of the first Offering
Period which is scheduled to end in a subsequent calendar year, unless the
Employee withdraws as provided in Section 12 or the Plan is terminated as
provided in Section 17.
8.5 On the Exercise Date, or at the time some or all of the Common Stock
issued under the Plan is disposed of by the Employee, the Employee must make
adequate provision for amounts to be withheld by the Company for federal, state,
or other tax withholding obligations, if any, which arise upon the exercise of
the option or the disposition of the Common Stock. At any time, the Company may,
but will not be obligated to, withhold from the Employee's compensation the
amount necessary for the Company to satisfy applicable withholding obligations.
9. EXERCISE OF THE OPTION ON THE EXERCISE DATE. Each Employee who continues
to be an Employee in an Offering on the Exercise Date will be deemed to have
exercised his or her option on such date and to have purchased from the Company
the number of full shares of Common Stock reserved for the purpose of the Plan
as his or her accumulated payroll deductions on such date will pay for at the
Purchase Price; provided, that the number of shares that an Employee can
purchase in any single Offering Period cannot exceed 25,000 shares (subject to
adjustment as provided in Section 18) or such other maximum number established
by the Committee. Any balance in the Employee's Account (i.e., amounts not
sufficient to purchase a full share of Common Stock) shall remain in the Account
and be applied to the next Offering Period or Exercise Date (in the case of
Offering Periods with multiple Exercise Dates) unless such balance is withdrawn
pursuant to Section 12 or the Company decides to refund such balance pursuant to
Section 13.
10. EMPLOYEE'S RIGHTS AS A SHAREHOLDER. No Employee will have any right as
a shareholder with respect to any shares of Common Stock until the shares have
been purchased in accordance with Section 9 above and issued by the Company.
11. EVIDENCE OF STOCK OWNERSHIP.
11.1 Promptly following each Exercise Date, the number of shares of Common
Stock purchased by each Employee shall be deposited or credited to an account
established in the Employee's name at the ESPP Agent or certificated and
distributed to the Employee.
11.2 To the extent permitted by the ESPP Agent and the Committee, the
Employee may direct, by written notice to the ESPP Agent at the time of the
Employee's enrollment in the Plan, that the account with the ESPP Agent be
established in the names of the Employee and other person designated by the
Employee, as joint tenants with right of survivorship, tenants in common, or
community property, to the extent and in the manner permitted by applicable law.
11.3 An Employee may undertake a disposition (as that term is defined in
Section 424(c) of the Code) of the shares in the account established with the
ESPP Agent at any time, whether by sale, exchange, gift, or other transfer of
legal title, but in the absence of such a disposition of the shares, the
Committee may require that the shares remain in the Employee's account at the
ESPP Agent until the holding period set forth in Section 423(a) of the Code has
been satisfied. With respect to shares for which the Section 423(a) holding
period has been satisfied, the Employee may move those shares to another
brokerage account of the Employee's choosing or request that a stock certificate
be issued and delivered to him or her.
12. WITHDRAWAL.
12.1 An Employee may withdraw from an Offering in whole but not in part, at
any time prior to the next Exercise Date by delivering a withdrawal notice to
the Company or, if so directed by the Company, to the ESPP Agent, in which event
the Company will refund the entire balance of the Employee's deductions as soon
as practicable thereafter. A withdrawal from an Offering will effect a
withdrawal from any subsequent Offering unless the Employee re-enters the Plan
as provided in Section 12.2.
12.2 To re-enter the Plan, an Employee who has previously withdrawn must
file a new enrollment agreement in accordance with Section 7.1. The Employee's
re-entry into the Plan will not become effective until the next Offering
following the filing of the new enrollment agreement.
13. CARRYOVER OF ENROLLMENT. At the termination of each Offering, the
Employee will automatically be re-enrolled in the next Offering, and the balance
in the Employee's Account will be used for option exercises in the new Offering
(unless the Employee has withdrawn from the Offering) unless the Company decides
to refund such amount. Upon termination of the Plan, the balance of each
Employee's Account will be refunded to such Employee.
14. NO EMPLOYMENT RIGHTS. Neither the Plan nor any option granted hereunder
will confer upon the Employee any right with respect to continuance of
employment by the Company or any Subsidiary nor shall the Plan or any option
granted hereunder interfere in any way with the right of the Company or any
Subsidiary to terminate the employment of the Employee at any time, with or
without cause consistent with applicable law.
15. RIGHTS NOT TRANSFERABLE. An Employee may not sell, assign, transfer,
pledge, or otherwise dispose of or encumber either the payroll deductions
credited to such Employee's Account or any option (including any rights
thereunder) under the Plan other than by will or the laws of descent and
distribution, and such rights and interests shall not be subject to the debts,
contracts or liabilities of the Employee. During an Employee's lifetime, only
the Employee may exercise an option under the Plan.
16. TERMINATION OF EMPLOYMENT. Upon termination of employment for any
reason, excluding Retirement, any outstanding option shall be canceled and the
balance in the Account of a participating Employee will be paid to the Employee
or his or her estate. In the event that the Retirement of an Employee
participating in an Offering occurs prior to the Exercise Date applicable to
that Offering, no further payroll deductions will be taken from any Compensation
due and owing to such Employee at such time. If such Retirement occurs within
three months of the Exercise Date, such Employee may request in writing at any
time prior to the Exercise Date that the Employee's Account be applied as of the
Exercise Date for the purchase of Common Stock in the manner set forth in
Section 9 as if such Retirement had not occurred. If no such election is made,
the Employee's Account will be refunded in cash, without interest. If an
Employee's Retirement occurs before three months prior to the Exercise Date, all
outstanding options shall be canceled, future participation in the Offering
shall cease and the Employee's Account shall be refunded to the Employee.
17. AMENDMENT OR DISCONTINUANCE OF THE PLAN. To the extent permitted by
law, the Board may at any time and from time to time make such changes in the
Plan and additions to it as it deems advisable (including terminating the Plan);
provided, however, that except as provided in Sections 18 and 4.2 hereof, and
except with respect to changes or additions in order to make the Plan comply
with Section 423 of the Code, the Board may not make any changes or additions
which would adversely affect subscription rights previously granted under the
Plan and may not, without the approval of the stockholders of the Company, make
any changes or additions which would (a) increase the aggregate number of shares
of Common Stock subject to the Plan or which may be subscribed to by an
employee, (b) decrease the minimum purchase price for a share of Common Stock,
or (c) change any of the provisions of the Plan relating to eligibility for
participation in Offerings, provided that the Committee is authorized to
designate without stockholder approval the Designated Subsidiaries whose
Employees are eligible to participate in the Plan or an Offering.
18. CHANGES IN CAPITALIZATION. Notwithstanding any other provision of the
Plan, in the event of any change in the outstanding Common Stock, by reason of a
dividend payable in Common Stock, recapitalization, merger, consolidation,
split-up, combination or exchange of shares, or the like, appropriate
adjustments shall be made to the aggregate number and class of shares subject to
the Plan, the number and class of shares subject to outstanding subscription
rights, the maximum number of shares a participant may purchase during an
Offering Period and the purchase price per share (in the case of shares subject
to outstanding subscription rights).
19. NOTICES. All notices or other communications by an Employee to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, including the ESPP Agent, designated by the Company for the receipt
thereof.
20. CHANGE OF CONTROL.
20.1 Notwithstanding other provisions of the Plan, in the event of a
"Change in Control" of the Company (as defined in Section 20.2 below), all of
the options of a participating Employee shall become immediately exercisable at
an exercise price that is the lesser of 85% of the Fair Market Value of the
Common Stock on the Enrollment Date or the date of the Change in Control, unless
directed otherwise by a resolution of the Board or the Committee adopted prior
to and specifically relating to the occurrence of such Change in Control.
20.2 For purposes of this Section 20, "Change in Control" means:
(a) there shall be consummated:
(i) any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or pursuant to
which any shares of the Company's common stock are to be converted
into cash, securities or other property; provided, that the
consolidation or merger is not with a corporation which was a directly
or indirectly wholly-owned subsidiary of the Company immediately
before the consolidation or merger, or
(ii) any sale, lease, exchange, or other transfer (in one
transaction or a series or related transactions) of all, or
substantially all, of the assets of the Company (other than to one or
more directly or indirectly wholly-owned subsidiaries of the Company);
or
(b) the shareholders of the Company approve any plan or proposal for
the liquidation or dissolution of the Company; or
(c) any person (as such term is used in Sections 13(c) and 14(d) of
the Securities Exchange Act of 1934, as amended) shall become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act),
directly or indirectly, of shares of the Company's then outstanding common
stock representing the right to cast more than 30% of the votes entitled to
be case by all of the Company's then Outstanding Common Stock; provided,
that such person is not a directly or indirectly wholly-owned subsidiary of
the Company immediately before it acquires such shares; or
(d) individuals who constitute the Board on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof; provided, that any person becoming a director subsequent to the
date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Broad (either by a specific vote or by
approval of the proxy statement of the Company in which such person is
named as a nominee for director, without objection to such nomination)
shall be, for purposes of this clause (d), considered as though such person
were a member of the Incumbent Board.
21. TERMINATION OF THE PLAN. This Plan shall terminate at the earliest of
the following: (a) the date the Committee or the Board acts to terminate the
Plan in accordance with Section 17 above; or (b) the date when all shares
reserved under the Plan have been purchased. Upon the occurrence of such events,
on such date as the Board may determine, the Committee may (but
need not) permit a participating Employee to exercise the option to purchase
shares of Common Stock for as many full shares as the balance of such Employee's
Account will allow at the lower of Fair Market Value on the Enrollment Date or
the date on which the option is permitted to be exercised. If the Employee
elects to purchase shares, the remaining balance of his Account will be refunded
to the Employee after such purchase.
22. LIMITATIONS ON SALE OF COMMON STOCK PURCHASED UNDER THE PLAN. The Plan
is intended to provide Common Stock for investment and not for resale. The
Company does not, however, intend to restrict or influence any Employee in the
conduct of his or her own affairs. An Employee, therefore, may sell stock
purchased under the Plan at any time he or she chooses, subject to compliance
with any applicable federal or state securities laws and satisfaction of
applicable withholding taxes. THE EMPLOYEE ASSUMES THE RISK OF ANY MARKET
FLUCTUATIONS IN THE VALUE OF THE STOCK.
23. GOVERNMENTAL REGULATION. The Company's obligation to sell and deliver
shares of Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares of Common Stock.
24. NEW YORK LAW. The provisions of the Plan shall be governed by the laws
of the State of New York.
IN WITNESS WHEREOF, the Company has caused this restated Plan document to
be executed by its duly authorized officer as of this 27th day of June, 2001.
CONSTELLATION BRANDS, INC.
By: /s/ Richard Sands
----------------------------------------
Title: President and Chief Executive Officer
-------------------------------------
EX-99
10
exhibit99-2uwagmt.txt
EXHIBIT 99.2
------------
EXECUTION COPY
Constellation Brands, Inc.
Underwriting Agreement
New York, New York
March 8, 2001
To the Representatives named in Schedule I hereto of the Underwriters named
in Schedule II hereto
Ladies and Gentlemen:
Constellation Brands, Inc., a corporation incorporated under the laws of
the State of Delaware (the "Company"), proposes to sell to the several
underwriters named in Schedule II hereto (the "Underwriters"), for whom you (the
"Representatives") are acting as representatives, the number of shares of Class
A Common Stock, $.01 par value ("Common Stock"), of the Company set forth in
Schedule I hereto (said shares to be issued and sold by the Company being
hereinafter called the "Underwritten Securities"). The Company also proposes to
grant to the Underwriters an option to purchase up to the number of additional
shares of Common Stock set forth in Schedule I hereto to cover over-allotments
(the "Option Securities"; the Option Securities, together with the Underwritten
Securities, being hereinafter called the "Securities"). Any reference herein to
the Registration Statement, the Basic Prospectus, any Preliminary Final
Prospectus or the Final Prospectus shall be deemed to refer to and include the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
which were filed under the Exchange Act on or before the Effective Date of the
Registration Statement or the issue date of the Basic Prospectus, any
Preliminary Final Prospectus or the Final Prospectus, as the case may be (the
"Incorporated Documents"); and any reference herein to the terms "amend",
"amendment" or "supplement" with respect to the Registration Statement, the
Basic Prospectus, any Preliminary Final Prospectus or the Final Prospectus shall
be deemed to refer to and include the filing of any document under the Exchange
Act after the Effective Date of the Registration Statement or the issue date of
the Basic Prospectus, any Preliminary Final Prospectus or the Final Prospectus,
as the case may be, deemed to be incorporated therein by reference. Certain
terms used herein are defined in Section 17 hereof.
1. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to,
and agrees with, each Underwriter as set forth below in this Section 1.
(a) The Company meets the requirements for use of Form S-3 under the Act
and has prepared and filed with the Commission a registration statement (the
file number of which is set forth in Schedule I hereto) on Form S-3, including a
related ba-
- 2 -
sic prospectus, for registration under the Act of the offering and sale of the
Securities. The Company may have filed one or more amendments thereto, including
a Preliminary Final Prospectus, each of which has previously been furnished to
the Representatives. The Company will next file with the Commission one of the
following: (1) after the Effective Date of such registration statement, a final
prospectus supplement relating to the Securities in accordance with Rules 430A
and 424(b), (2) prior to the Effective Date of such registration statement, an
amendment to such registration statement (including the form of final prospectus
supplement) or (3) a final prospectus in accordance with Rules 415 and 424(b).
In the case of clause (1), the Company has included in such registration
statement, as amended at the Effective Date, all information (other than Rule
430A Information) required by the Act and the rules thereunder to be included in
such registration statement and the Final Prospectus. As filed, such final
prospectus supplement or such amendment and form of final prospectus supplement
shall contain all Rule 430A Information, together with all other such required
information, and, except to the extent the Representatives shall agree in
writing to a modification, shall be in all substantive respects in the form
furnished to the Representatives prior to the Execution Time or, to the extent
not completed at the Execution Time, shall contain only such specific additional
information and other changes (beyond that contained in the Basic Prospectus and
any Preliminary Final Prospectus) as the Company has advised the
Representatives, prior to the Execution Time, will be included or made therein.
The Registration Statement, at the Execution Time, meets the requirements set
forth in Rule 415(a)(1)(x).
(b) On the Effective Date the Registration Statement did or will, and when
the Final Prospectus is first filed (if required) in accordance with Rule 424(b)
and on the Closing Date (as defined herein) and on any date on which Option
Securities are purchased, if such date is not the Closing Date (a "settlement
date"), the Final Prospectus (and any supplement thereto) will, comply in all
material respects with the applicable requirements of the Act and the Exchange
Act and the respective rules thereunder; on the Effective Date and at the
Execution Time, the Registration Statement did not or will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein not
misleading; and, on the Effective Date, the Final Prospectus, if not filed
pursuant to Rule 424(b), will not, and on the date of any filing pursuant to
Rule 424(b) and on the Closing Date and any settlement date, the Final
Prospectus (together with any supplement thereto) will not, include any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; PROVIDED, HOWEVER, that the Company makes no
representations or warranties as to the information contained in or omitted from
the Registration Statement or the Final Prospectus (or any supplement thereto)
in reliance upon and in conformity with information fur-
- 3 -
nished in writing to the Company by or on behalf of any Underwriter through the
Representatives specifically for inclusion in the Registration Statement or the
Final Prospectus (or any supplement thereto).
(c) The Company's authorized equity capitalization is as set forth in the
Final Prospectus; the capital stock of the Company conforms in all material
respects to the description thereof contained in the Final Prospectus; the
outstanding shares of Common Stock have been duly and validly authorized and
issued and are fully paid and nonassessable; the Securities have been duly and
validly authorized, and, when issued and delivered to and paid for by the
Underwriters pursuant to this Agreement, will be fully paid and nonassessable;
the Securities are duly listed, and admitted and authorized for trading on the
New York Stock Exchange; the certificates for the Securities are in valid and
sufficient form; and the holders of outstanding shares of capital stock of the
Company are not entitled to preemptive or other rights to subscribe for the
Securities; and, except as set forth in the Final Prospectus, documents
incorporated by reference into the Final Prospectus (including documents filed
with the Company's annual report on Form 10-K) or the Constellation Brands UK
Share Save Scheme, no options, warrants or other rights to purchase, agreements
or other obligations to issue, or rights to convert any obligations into or
exchange any securities for, shares of capital stock of or ownership interests
in the Company are outstanding.
(d) No holders of securities of the Company have rights to the registration
of such securities under the Registration Statement.
(e) The Incorporated Documents, when they became effective or were filed
with the Commission, as the case may be, conformed in all material respects to
the requirements of the Act or the Securities Exchange Act, as applicable, and
the rules and regulations of the Commission thereunder, and none of such
documents contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and any further Incorporated Documents, when such
documents become effective or are filed with the Commission, as the case may be,
will conform in all material respects to the requirements of the Act or the
Exchange Act, as applicable, and the rules and regulations of the Commission
thereunder and will not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
(f) The Company and each of its consolidated subsidiaries (the
"Subsidiaries") have been duly incorporated and are validly existing as
corporations in good standing under the laws of their respective jurisdictions
of incorporation, with full power and authority (corporate and other) to own
their properties and conduct
- 4 -
their respective businesses as described in the Final Prospectus and are duly
qualified to transact business as foreign corporations in good standing under
the laws of each jurisdiction where the ownership or leasing of their respective
properties or the conduct of their respective businesses require such
qualification, except where the failure to so qualify would not have a material
adverse effect on the business, management, condition (financial or otherwise),
results of operations or business prospects of the Company and the Subsidiaries
considered as a whole (a "Material Adverse Effect"); the Company had at the
dates indicated an authorized capitalization as set forth in the Final
Prospectus, and the issued shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and non-assessable, and the
outstanding shares of capital stock that the Company owns (directly or
indirectly) of each of the Subsidiaries have been duly authorized and validly
issued, are fully paid and non-assessable and (except for directors' qualifying
shares) are owned beneficially by the Company free and clear of all liens,
encumbrances, equities and claims (collectively, "Liens") except for the Liens
under the Credit Agreement dated as of October 6, 1999, as amended by Amendment
No. 1 thereto on February 13, 2001, between the Company, the guarantors named
therein, the lenders signatory thereto, and The Chase Manhattan Bank, as
Administrative Agent, the Bank of Nova Scotia, as Syndication Agent, and Credit
Suisse First Boston and Citicorp USA, Inc., as Co-Documentation Agents (the
"Credit Agreement"). Neither the Company nor any Subsidiary is in violation of
its respective charter or bylaws and neither the Company nor any of the
Subsidiaries is in default (nor has an event occurred with notice, lapse of time
or both that would constitute a default) in the performance of any obligation,
agreement or condition contained in any agreement, lease, indenture or
instrument of the Company or any Subsidiary where such violation or default
would have a Material Adverse Effect.
(g) The Company has full power and authority to enter into this Agreement
and to issue, sell and deliver the Securities to be sold by it to the
Underwriters as provided herein. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby does not and will not conflict with or result in a breach or
violation by the Company or any Subsidiary, as the case may be, of any of the
terms or provisions of, constitute a default by the Company or any Subsidiary,
as the case may be, under, or result in the creation or imposition of any Liens
upon any of the assets of the Company or any Subsidiary, as the case may be,
pursuant to the terms of, (A) the Credit Agreement and any other indenture,
mortgage, deed of trust, loan agreement, lease or other agreement or instrument
to which the Company or any Subsidiary, as the case may be, is a party or to
which any of them or any of their respective properties is subject, (B) the
charter or bylaws of the Company or any Subsidiary, as the case may be, or (C)
any statute, judgment, decree, order, rule or regulation of any foreign or
domestic court, governmental agency or regulatory agency or body having
jurisdiction over the
- 5 -
Company or any of the Subsidiaries or any of their respective properties or
assets except, with respect to clauses (A) and (C) of this Section 1(g), for any
conflict, breach, violation, default or Liens that would not have a Material
Adverse Effect.
(h) The execution and delivery of this Agreement by the Company has been
duly authorized by all necessary corporate action, and this Agreement has been
duly executed and delivered by the Company and is the valid and legally binding
agreement of the Company.
(i) Except as described or referred to in the Final Prospectus, there is
not pending, or to the knowledge of the Company threatened, any action, suit,
proceeding, inquiry or investigation to which the Company or any of the
Subsidiaries is a party, or to which the property of the Company or any of the
Subsidiaries is subject, before or brought by any court or governmental agency
or body, which, if determined adversely to the Company or any of the
Subsidiaries, would, individually or in the aggregate, have a Material Adverse
Effect or might materially adversely affect the consummation of the offering of
the Securities pursuant to this Agreement; and all pending legal or governmental
proceedings to which the Company or any of the Subsidiaries is a party or that
affect any of their respective properties that are not described in the Final
Prospectus, including ordinary routine litigation incidental to the business,
would not, in the aggregate, result in a Material Adverse Effect.
(j) Arthur Andersen LLP are independent certified public accountants with
respect to the Company and its Subsidiaries, KPMG LLP are independent certified
public accountants with respect to certain product lines sold to the Company or
a Subsidiary by Diageo Inc., UDV Canada Inc. and United Distillers Canada Inc.
(the "Diageo Assets") and Ernst & Young LLP are independent certified public
accountants with respect to certain product lines sold to a Subsidiary of the
Company by Sebastiani Vineyards, Inc. and Tuolomne River Vintners Group (the
"Turner Road Vintners Wine Business"), in each case, within the meaning of Rule
101 of the Code of Professional Conduct of the American Institute of Certified
Public Accountants ("AICPA") and its interpretations and rulings thereunder. The
historical financial statements of the Company and the Diageo Assets (including
the related notes) included in or incorporated by reference in the Final
Prospectus comply as to form in all material respects with the requirements
applicable to a registration statement on Form S-3 under the Act; such
historical financial statements have been prepared in accordance with United
States generally accepted accounting principles ("GAAP") consistently applied
throughout the periods covered thereby and present fairly the financial position
of the Company or the Diageo Assets, as the case may be, at the respective dates
indicated and the results of their operations, and in the case of the Company,
its cash flows and statements of stockholders' equity for the respective periods
indi-
- 6 -
cated. The financial information included in or incorporated by reference in the
Final Prospectus and relating to the Company is derived from the accounting
records of the Company and its Subsidiaries and presents fairly the information
purported to be shown thereby. The unaudited pro forma combined financial
statements incorporated by reference in the Final Prospectus have been prepared
on a basis consistent with the historical financial statements included in or
incorporated by reference in the Final Prospectus (except for the pro forma
adjustments specified therein), include all material adjustments to the
historical financial statements required by Rule 11-02 of Regulation S-X under
the Act and the Exchange Act to reflect the transactions described in the Final
Prospectus or in the documents incorporated therein by reference, are based on
assumptions made on a reasonable basis and present fairly such transactions
described in the Final Prospectus or in the documents incorporated therein by
reference. The other historical financial and statistical information and data
included in the Final Prospectus or in the documents incorporated therein by
reference presents fairly, in all material respects, the information purported
to be shown thereby.
(k) Except as described in or contemplated by the Final Prospectus,
subsequent to November 30, 2000, (i) neither the Company nor any of the
Subsidiaries has sustained any loss or interference with its business or
properties from fire, flood, hurricane, accident or other calamity, whether or
not covered by insurance, or from any labor dispute or court or governmental
action, order or decree which would have a Material Adverse Effect; and, (ii)
there has not been any change in the capital stock (other than as a result of
the exercise of the Company's outstanding stock options, purchases under the
Company's 1989 Employee Stock Purchase Plan, as amended, any repurchases by the
Company under its Stock Repurchase Program or as a result of the conversion of
the Company's Class B Common Stock (par value $.01 per share) into Common Stock)
or long-term debt of the Company (except for the issuance and sale of the
Company's 8% Senior Notes due 2008, which was consummated on February 21, 2001)
or any of the Subsidiaries, or any other material adverse change, or any
development involving a prospective material adverse change, in or affecting the
business, condition (financial or otherwise), prospects or operations of the
Company and the Subsidiaries taken as a whole.
(l) Each of the Company and the Subsidiaries has good and marketable title
to all properties and assets, as described in the Final Prospectus as owned by
them free and clear of all Liens, except as provided under the Credit Agreement
as such as are described in the Final Prospectus or do not interfere with the
use made and proposed to be made of such properties by the Company and the
Subsidiaries and would not individually or in the aggregate result in a Material
Adverse Effect; and all of the leases and subleases material to the business of
the Company and the Subsidiaries taken as a whole, and under which the Company
or any of the Subsidiaries holds prop-
- 7 -
erties described in the Final Prospectus, are in full force and effect and
neither the Company nor any of the Subsidiaries has any notice of any claims of
any sort that have been asserted by anyone adverse to the rights of the Company
or any of the Subsidiaries under such leases or subleases, or affecting or
questioning the rights of the Company or any of the Subsidiaries to the
continued possession of the leased or subleased premises under any such lease or
sublease, which claims would have a Material Adverse Effect.
(m) Each of the Company and the Subsidiaries owns or possesses all
governmental and other licenses, permits, certificates, consents, orders,
approvals and other authorizations necessary to own, lease and operate its
properties and to conduct its business as presently conducted by it and
described in the Final Prospectus, except where the failure to own or possess
such licenses, permits, certificates, consents, orders, approvals and other
authorizations would not, individually or in the aggregate, have a Material
Adverse Effect (collectively, the "Material Licenses"); all of the Material
Licenses are valid and in full force and effect, except where the invalidity of
such Material License or the failure of such Material License to be in full
force and effect would not, individually or in the aggregate, have a Material
Adverse Effect; and none of the Company or any of its Subsidiaries has received
any notice of proceedings relating to revocation or modification of any such
Material Licenses which would, individually or in the aggregate, have a Material
Adverse Effect.
(n) Each of the Company and its Subsidiaries owns or possesses, or can
acquire on reasonable terms, adequate patents, patent rights, licenses,
inventions, copyrights, trademarks, service marks, trade names and know-how
(including trade secrets and other patentable and/or unpatentable proprietary or
confidential information or procedures) (collectively, "intellectual property")
necessary to carry on its business as presently operated by it, except where the
failure to own or possess or have the ability to acquire any such intellectual
property would not, individually or in the aggregate, have a Material Adverse
Effect; and none of the Company or any of its Subsidiaries has received any
notice or is otherwise aware of any infringement of or conflict with asserted
rights of others with respect to any intellectual property or of any facts which
would render any intellectual property invalid or inadequate to protect the
interest of the Company or any of its Subsidiaries therein and which
infringement or conflict would have a Material Adverse Effect.
(o) None of the Company or any of its Subsidiaries has taken, or will take,
directly or indirectly, any action designed to, or that might be reasonably
expected to, cause or result in stabilization or manipulation of the price of
the Securities.
- 8 -
(p) None of the Company or any of its Subsidiaries is an investment company
within the meaning of the Investment Company Act of 1940, as amended.
(q) Except as described in the Final Prospectus, the Company and its
Subsidiaries comply in all material respects with all Environmental Laws (as
defined below), except to the extent that failure to comply with such
Environmental Laws would not individually or in the aggregate have a Material
Adverse Effect. None of the Company or any of its Subsidiaries is the subject of
any pending or, to the knowledge of the Company, threatened foreign, federal,
state or local investigation evaluating whether any remedial action by the
Company or any of its Subsidiaries is needed to respond to a release of any
Hazardous Materials (as defined below) into the environment, resulting from the
Company's or any of the Subsidiaries' business operations or ownership or
possession of any of their properties or assets or is in contravention of any
Environmental Law that would, individually or in the aggregate, have a Material
Adverse Effect. None of the Company or any of its Subsidiaries has received any
notice or claim, nor are there pending or, to the knowledge of the Company,
threatened lawsuits against them, with respect to violations of an Environmental
Law or in connection with any release of any Hazardous Material into the
environment that would have a Material Adverse Effect. As used herein,
"Environmental Laws" means any foreign, federal, state or local law or
regulation applicable to the Company's or any of the Subsidiaries' business
operations or ownership or possession of any of their properties or assets
relating to environmental matters, and "Hazardous Materials" means those
substances that are regulated by or form the basis of liability under any
Environmental Laws.
(r) No relationship, direct or indirect, exists between or among the
Company and its Subsidiaries on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company on the other hand, which is
not described in the Final Prospectus or incorporated therein by reference which
would have a Material Adverse Effect.
(s) No labor problem exists with the employees of the Company or any of the
Subsidiaries or, to the knowledge of the Company, is imminent that, in either
case, would have a Material Adverse Effect.
(t) Except as disclosed in the Final Prospectus, all United States federal
income tax returns and all foreign tax returns of the Company and the
Subsidiaries required by law to be filed have been filed (taking into account
extensions granted by the applicable governmental agency) and all taxes shown by
such returns or otherwise assessed, which are due and payable, have been paid,
except for such taxes, if any, as are being contested in good faith and as to
which adequate reserves have been provided
- 9 -
and except for such taxes the payment of which would not individually or in the
aggregate result in a Material Adverse Effect. All other corporate franchise and
income tax returns of the Company and the Subsidiaries required to be filed
pursuant to applicable foreign, federal, state or local laws have been filed,
except insofar as the failure to file such returns would not individually or in
the aggregate result in a Material Adverse Effect, and all taxes shown on such
returns or otherwise assessed which are due and payable have been paid, except
for such taxes, if any, as are being contested in good faith and as to which
adequate reserves have been provided and except for such taxes the payment of
which would not, individually or in the aggregate, result in a Material Adverse
Effect.
(u) The Company and each of the Subsidiaries maintain (and in the future
will maintain) a system of internal accounting controls sufficient to provide
reasonable assurances that (A) transactions are executed in accordance with
management's general or specific authorization; (B) transactions are recorded as
necessary to permit preparation of financial statements in conformity with GAAP
and to maintain accountability for assets; (C) access to assets is permitted
only in accordance with management's general or specific authorization; and (D)
the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(v) The Company and each of the Subsidiaries is in compliance with, and
none of such entities has received any notice of any outstanding violation of,
all laws, regulations, ordinances and rules applicable to it and its operations,
except, in either case, where any failure by the Company or any of its
Subsidiaries to comply with any such law, regulation, ordinance or rule would
not, individually or in the aggregate, result in a Material Adverse Effect.
(w) Neither the issuance, sale or delivery of the Securities nor the
application of the proceeds thereof by the Company as set forth in the Final
Prospectus will violate Regulations T, U or X of the Board of Governors of the
Federal Reserve System or any other regulation of such Board of Governors.
(x) Each of the Company and the Subsidiaries is, and immediately after the
Closing Date will be, Solvent. As used herein, the term "Solvent" means, with
respect to any such entity on a particular date, that on such date (A) the fair
market value of the assets of such entity is greater than the amount that will
be required to pay the probable liabilities of such entity on its debts as they
become absolute and matured, (B) assuming the sale of the Securities as
contemplated by this Agreement and as described in the Final Prospectus, such
entity is not incurring debts or liabilities beyond its ability to pay as such
debts and liabilities mature, (C) such entity is able to realize
- 10 -
upon its assets and pay its debts and other liabilities, including contingent
obligations, as they mature and (D) such entity does not have unreasonably small
capital.
(y) Other than this Agreement, neither the Company nor any Subsidiary is a
party to any contract, agreement or understanding with any person that would
give rise to a valid claim against the Company or any Subsidiary or any
Underwriters for a brokerage commission, finders' fee or like payment in
connection with the offering and sale of the Securities.
(z) No forward-looking statement (within the meaning of Section 27A of the
Act and Section 21E of the Exchange Act) contained in the Final Prospectus has
been made or reaffirmed without a reasonable basis or has been disclosed other
than in good faith.
Any certificate signed by an officer of the Company and delivered to the
Underwriters or to counsel for the Underwriters at or prior to the Closing Date
pursuant to any section of this Agreement or the transactions contemplated
hereby shall be deemed a representation and warranty by the Company to each
Underwriter as to the matters covered thereby.
2. PURCHASE AND SALE.
(a) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company agrees to sell to
each Underwriter, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $64.152 per share, the amount
of the Underwritten Securities set forth opposite such Underwriter's name in
Schedule II hereto.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company hereby grants an
option to the several Underwriters to purchase, severally and not jointly, up to
285,000 Option Securities at the same purchase price per share as the
Underwriters shall pay for the Underwritten Securities. Said option may be
exercised only to cover over-allotments in the sale of the Underwritten
Securities by the Underwriters. Said option may be exercised in whole or in part
at any time (but not more than once) on or before the 30th day after the date of
the Final Prospectus upon written or telegraphic notice by the Representatives
to the Company setting forth the number of shares of the Option Securities as to
which the several Underwriters are exercising the option and the settlement
date. The number of shares of the Option Securities to be purchased by each
Underwriter shall be the same percentage of the total number of shares of the
Option Securities to be purchased by the several Underwriters as such
Underwriter is purchasing of the
- 11 -
Underwritten Securities, subject to such adjustments as the Representatives in
their absolute discretion shall make to eliminate any fractional shares.
3. DELIVERY AND PAYMENT. Delivery of and payment for the Underwritten
Securities and the Option Securities (if the option provided for in Section 2(b)
hereof shall have been exercised on or before the third Business Day prior to
the Closing Date) shall be made on the date and at the time specified in
Schedule I hereto or at such time on such later date not more than three
Business Days after the foregoing date as the Representatives shall designate,
which date and time may be postponed by agreement between the Representatives
and the Company or as provided in Section 9 hereof (such date and time of
delivery and payment for the Securities being herein called the "Closing Date").
Delivery of the Securities shall be made to the Representatives for the
respective accounts of the several Underwriters against payment by the several
Underwriters through the Representatives of the purchase price thereof to or
upon the order of the Company by wire transfer payable in same-day funds to an
account specified by the Company. Delivery of the Underwritten Securities and
the Option Securities shall be made through the facilities of The Depository
Trust Company unless the Representatives shall otherwise instruct.
If the option provided for in Section 2(b) hereof is exercised after the
third Business Day prior to the Closing Date, the Company will deliver the
Option Securities (at the expense of the Company) to the Representatives, on the
date specified by the Representatives (which shall be within three Business Days
after exercise of said option) for the respective accounts of the several
Underwriters, against payment by the several Underwriters through the
Representatives of the purchase price thereof to or upon the order of the
Company by wire transfer payable in same-day funds to an account specified by
the Company. If settlement for the Option Securities occurs after the Closing
Date, the Company will deliver to the Representatives on the settlement date for
the Option Securities, and the obligation of the Underwriters to purchase the
Option Securities shall be conditioned upon receipt of, supplemental opinions,
certificates and letters confirming as of such date the opinions, certificates
and letters delivered on the Closing Date pursuant to Section 6 hereof.
4. OFFERING BY UNDERWRITERS. It is understood that the several Underwriters
propose to offer the Securities for sale to the public as set forth in the Final
Prospectus.
5. AGREEMENTS. The Company agrees with the several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment thereof, to
become effective. Prior to the termination of the offering of the Securities,
the Company will not file any amendment of the Registration Statement or
supplement (including the Final Prospectus or any Preliminary Final Prospectus)
to the Basic Prospectus or any Rule 462(b) Registration Statement unless
- 12 -
the Company has furnished the Representatives a copy for their review prior to
filing and will not file any such proposed amendment or supplement to which the
Representatives reasonably object. Subject to the foregoing sentence, if the
Registration Statement has become or becomes effective pursuant to Rule 430A, or
filing of the Final Prospectus is otherwise required under Rule 424(b), the
Company will cause the Final Prospectus, properly completed, and any supplement
thereto to be filed with the Commission pursuant to the applicable paragraph of
Rule 424(b) within the time period prescribed and will provide evidence
satisfactory to the Representatives of such timely filing. The Company will
promptly advise the Representatives (1) when the Registration Statement, if not
effective at the Execution Time, shall have become effective, (2) when the Final
Prospectus, and any supplement thereto, shall have been filed (if required) with
the Commission pursuant to Rule 424(b) or when any Rule 462(b) Registration
Statement shall have been filed with the Commission, (3) when, prior to
termination of the offering of the Securities, any amendment to the Registration
Statement shall have been filed or become effective, (4) of any request by the
Commission or its staff for any amendment of the Registration Statement, or any
Rule 462(b) Registration Statement, or for any supplement to the Final
Prospectus or for any additional information, (5) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the institution or threatening of any proceeding for that purpose
and (6) of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any jurisdiction
or the institution or threatening of any proceeding for such purpose. The
Company will use its best efforts to prevent the issuance of any such stop order
or the suspension of any such qualification and, if issued, to obtain as soon as
possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of which
the Final Prospectus as then supplemented would include any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein in the light of the circumstances under which they were made
not misleading, or if it shall be necessary to amend the Registration Statement
or supplement the Final Prospectus to comply with the Act or the Exchange Act or
the respective rules thereunder, the Company promptly will (1) notify the
Representatives of such event, (2) prepare and file with the Commission, subject
to the second sentence of paragraph (a) of this Section 5, an amendment or
supplement which will correct such statement or omission or effect such
compliance and (3) supply any supplemented Final Prospectus to the
Representatives in such quantities as the Representatives may reasonably
request.
- 13 -
(c) As soon as practicable, the Company will make generally available to
its security holders and to the Representatives an earnings statement or
statements of the Company and its subsidiaries which will satisfy the provisions
of Section 11(a) of the Act and Rule 158 under the Act.
(d) The Company will furnish to the Representatives and counsel for the
Underwriters, without charge, signed copies of the Registration Statement
(including exhibits thereto) and to each other Underwriter a copy of the
Registration Statement (without exhibits thereto) and, so long as delivery of a
prospectus by an Underwriter or dealer may be required by the Act, as many
copies of each Preliminary Final Prospectus and the Final Prospectus and any
supplement thereto as the Representatives may reasonably request. The Company
will pay the expenses of printing or other production of all documents relating
to the offering.
(e) The Company will arrange, if necessary, for the qualification of the
Securities for sale under the laws of such jurisdictions as the Representatives
may designate, will maintain such qualifications in effect so long as required
for the distribution of the Securities and will pay any fee of the National
Association of Securities Dealers, Inc., in connection with its review of the
offering; provided that in no event shall the Company be obligated to qualify to
do business in any jurisdiction where it is not now so qualified or to take any
action that would subject it to service of process in suits, other than those
arising out of the offering or sale of the Securities, in any jurisdiction where
it is not now so subject.
(f) The Company will not, without the prior written consent of Salomon
Smith Barney Inc., offer, sell, contract to sell, pledge, or otherwise dispose
of (or enter into any transaction which is designed to, or might reasonably be
expected to, result in the disposition (whether by actual disposition or
effective economic disposition due to cash settlement or otherwise) by the
Company or any affiliate of the Company or any person in privity with the
Company or any affiliate of the Company), directly or indirectly, including the
filing (or participation in the filing) of a registration statement with the
Commission in respect of, or establish or increase a put equivalent position or
liquidate or decrease a call equivalent position within the meaning of Section
16 of the Exchange Act, any other shares of Common Stock or any securities
convertible into, or exercisable, or exchangeable for, shares of Common Stock,
or publicly announce an intention to effect any such transaction, until the
Business Day set forth on Schedule I hereto, PROVIDED, HOWEVER, that the Company
may issue and sell Common Stock pursuant to any stock option plan, stock
in-
- 14 -
centive plan, stock ownership plan or dividend reinvestment plan of the Company
in effect at the Execution Time (including pursuant to a registration statement
on Form S-8 filed after the Execution Time relating to shares of Common Stock to
be issued under such employee stock option plans, stock ownership plans or
dividend reinvestment plans) and the Company may issue Common Stock issuable
upon the conversion of securities or the exercise of warrants outstanding at the
Execution Time.
(g) The Company will not take, directly or indirectly, any action designed
to or that would constitute or that might reasonably be expected to cause or
result in, under the Exchange Act or otherwise, stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale of the
Securities.
6. Conditions to the Obligations of the Underwriters. The obligations of
the Underwriters to purchase the Underwritten Securities and the Option
Securities, as the case may be, shall be subject to the accuracy of the
representations and warranties on the part of the Company contained herein as of
the Execution Time, the Closing Date and any settlement date pursuant to Section
3 hereof, to the accuracy of the statements of the Company made in any
certificates pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective prior to the
Execution Time, unless the Representatives agree in writing to a later time, the
Registration Statement will become effective not later than (i) 6:00 PM New York
City time on the date of determination of the public offering price, if such
determination occurred at or prior to 3:00 PM New York City time on such date or
(ii) 9:30 AM on the Business Day following the day on which the public offering
price was determined, if such determination occurred after 3:00 PM New York City
time on such date; if filing of the Final Prospectus, or any supplement thereto,
is required pursuant to Rule 424(b), the Final Prospectus, and any such
supplement, will be filed in the manner and within the time period required by
Rule 424(b); and no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been instituted or threatened.
(b) The Company shall have requested and caused:
(i) McDermott, Will & Emery, special counsel for the Company, to have
furnished to the Underwriters their written opinion addressed to the
Underwriters, dated the Closing Date, in form and sub-
- 15 -
stance reasonably satisfactory to the Underwriters, substantially in the
form of Annex I hereto;
(ii) Nixon Peabody LLP, counsel for the Company, to have furnished to
the Underwriters their written opinion addressed to the Underwriters, dated
the Closing Date, in form and substance reasonably satisfactory to the
Underwriters, substantially in the form of Annex II hereto; and
(iii) each of Piper Marbury Rudnick & Wolfe LLP, Clifford Chance LLP
and Freshfields Bruckhaus Deringer, local counsel for the Company, to have
furnished to the Underwriters their written opinion addressed to the
Underwriters, dated the Closing Date, in form and substance reasonably
satisfactory to the Underwriters, substantially in the form of Annex III
hereto.
(c) The Representatives shall have received from Cahill Gordon & Reindel,
counsel for the Underwriters, such opinion or opinions, dated the Closing Date
and addressed to the Representatives, with respect to the issuance and sale of
the Securities, the Registration Statement, the Final Prospectus (together with
any supplement thereto) and other related matters as the Representatives may
reasonably require, and the Company shall have furnished to such counsel such
documents as they request for the purpose of enabling them to pass upon such
matters.
(d) The Company shall have furnished to the Representatives a certificate
of the Company, signed by the Chairman of the Board or the President and the
principal financial or accounting officer of the Company, dated the Closing
Date, to the effect that the signers of such certificate have carefully examined
the Registration Statement, the Final Prospectus, any supplements to the Final
Prospectus and this Agreement and that:
(i) the representations and warranties of the Company in this
Agreement are true and correct on and as of the Closing Date with the same
effect as if made on the Closing Date and the Company has complied with all
the agreements and satisfied all the conditions on its part to be performed
or satisfied at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or, to the Company's knowledge, threatened; and
- 16 -
(iii) since the date of the most recent financial statements included
or incorporated by reference in the Final Prospectus (exclusive of any
supplement thereto), there has been no material adverse effect on the
condition (financial or otherwise), prospects, earnings, business or
properties of the Company and its subsidiaries, taken as a whole, whether
or not arising from transactions in the ordinary course of business, except
as set forth in or contemplated in the Final Prospectus (exclusive of any
supplement thereto).
(e) The Company shall have requested and caused Arthur Andersen LLP to have
furnished to the Representatives, at the Execution Time and at the Closing Date,
letters (which may refer to letters previously delivered to one or more of the
Representatives), dated respectively as of the Execution Time and as of the
Closing Date, in form and substance satisfactory to the Representatives,
confirming that they are independent accountants within the meaning of the Act
and the Exchange Act and the respective applicable rules and regulations adopted
by the Commission thereunder and that they have performed a review of the
unaudited interim financial information of the Company for the nine-month
periods ended November 30, 2000 and November 30, 1999, and as of November 30,
2000, in accordance with Statement on Auditing Standards No. 71, and stating in
effect, except as provided in Schedule I hereto, that:
(i) in their opinion the audited financial statements and the
unaudited pro forma combined financial statements included in or
incorporated by reference in the Registration Statement and the Final
Prospectus and reported on by them comply as to form in all material
respects with the applicable accounting requirements of the Act and the
Exchange Act and the related rules and regulations adopted by the
Commission;
(ii) on the basis of a reading of the latest unaudited financial
statements made available by the Company and its Subsidiaries; their
limited review, in accordance with standards established under Statement on
Auditing Standards No. 71, of the unaudited interim financial information
for the nine-month periods ended November 30, 2000 and November 30, 1999,
and as of November 30, 2000, incorporated by reference in the Registration
Statement and the Final Prospectus; carrying out certain specified
procedures (but not an examination in accordance with generally accepted
auditing standards) which would not necessarily reveal matters of
significance with respect to the comments set forth in such letter; a
reading of the minutes of the meetings of the
- 17 -
stockholders, the Board of Directors and the Audit Committee and the Human
Resources Committee of the Company and the Subsidiaries; and inquiries of
certain officials of the Company who have responsibility for financial and
accounting matters of the Company and its subsidiaries as to transactions
and events subsequent to February 29, 2000, nothing came to their attention
which caused them to believe that:
(1) any unaudited financial statements included in or
incorporated by reference in the Registration Statement and the Final
Prospectus do not comply as to form in all material respects with
applicable accounting requirements of the Act and with the related
rules and regulations adopted by the Commission with respect to
financial statements included in or incorporated by reference in
quarterly reports on Form 10-Q under the Exchange Act; and said
unaudited financial statements are not in conformity with GAAP applied
on a basis substantially consistent with that of the audited financial
statements included in or incorporated by reference in the
Registration Statement and the Final Prospectus; and
(2) with respect to the period subsequent to November 30, 2000,
there were, at a specified date not more than five days prior to the
date of the letter, any changes in capital stock (other than as a
result of the exercise of the Company's outstanding stock options,
purchases under the Company's 1989 Employee Stock Purchase Plan, as
amended, any repurchases by the Company under its Stock Repurchase
Program or as a result of the conversion of the Company's Class B
Common Stock (par value $.01 per share) into Common Stock), increase
in long-term debt (except for the issuance and sale of the Company's
8% Senior Notes due 2008, which was consummated on February 21, 2001)
or any decreases in consolidated net current assets or stockholders'
equity of the consolidated companies as compared with the amounts
shown on the November 30, 2000 consolidated balance sheet included in
or incorporated by reference in the Registration Statement and the
Final Prospectus, or for the period from December 1, 2000, to such
specified date there were any decreases, as compared with the
corresponding period in the preceding year in consolidated net sales
or in total or per-share amounts of income before extraordinary items
or of net income, except in all instances for changes or decreases set
- 18 -
forth in such letter, in which case the letter shall be accompanied by
an explanation by the Company as to the significance thereof unless
said explanation is not deemed necessary by the Representatives;
(iii) they have performed certain other specified procedures as a
result of which they determined that certain information of an accounting,
financial or statistical nature (which is limited to accounting, financial
or statistical information derived from the general accounting records of
the Company and the Subsidiaries) set forth in the Registration Statement
and the Final Prospectus and in Exhibit 12 to the Registration Statement,
including the information set forth under the captions "Prospectus
Supplement Summary -- Summary Historical Consolidated Financial Data" and
"Selected Financial Data" in the Final Prospectus, the information included
in Items 1, 2, 6, 7, 7A, 8 and 11 of the Company's Annual Report on Form
10-K, incorporated by reference in the Registration Statement and the Final
Prospectus, the information included in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
November 30, 2000, incorporated by reference in the Registration Statement
and the Final Prospectus, agrees with the accounting records of the Company
and its Subsidiaries, excluding any questions of legal interpretation; and
(iv) on the basis of a reading of the unaudited pro forma combined
financial statements incorporated by reference in the Registration
Statement and the Final Prospectus (the "pro forma financial statements");
carrying out certain specified procedures; inquiries of certain officials
of the Company who have or had responsibility for financial and accounting
matters; and proving the arithmetic accuracy of the application of the pro
forma adjustments to the historical amounts in the pro forma financial
statements, nothing came to their attention which caused them to believe
that the pro forma financial statements do not comply as to form in all
material respects with the applicable accounting requirements of Rule 11-02
of Regulation S-X or that the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of such statements.
References to the Final Prospectus in this paragraph (e) include any
supplement thereto at the date of the letter.
- 19 -
(f) The Company shall have requested and caused KPMG LLP to have
furnished to the Representatives, at the Execution Time, a letter, dated as
of the Execution Time, in form and substance satisfactory to the
Representatives, confirming that they are independent accountants within
the meaning of the Act and the Exchange Act and the respective applicable
rules and regulations adopted by the Commission thereunder and stating in
effect, except as provided in Schedule I hereto, that:
(i) in their opinion the audited financial statements
incorporated by reference in the Registration Statement and the Final
Prospectus and reported on by them comply as to form in all material
respects with the applicable accounting requirements of the Act and
the Exchange Act and the related rules and regulations adopted by the
Commission; and
(ii) they have performed certain other specified procedures as a
result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Diageo Assets) incorporated by
reference in the Registration Statement and the Final Prospectus
included in the Company's Current Report on Form 8-K/A, Amendment No.
2, dated April 9, 1999 and filed on November 23, 1999, agrees with the
accounting records of the Diageo Assets, excluding any questions of
legal interpretation.
References to the Final Prospectus in this paragraph (f) include any
supplement thereto at the date of the letter.
(g) The Company shall have requested and caused Ernst & Young LLP to have
furnished to the Representatives, at the Execution Time, a letter dated as of
the Execution Time, in form and substance satisfactory to the Representatives,
confirming that they are independent accountants within the meaning of the Act
and the Exchange Act and the respective applicable rules and regulations adopted
by the Commission thereunder and stating in effect, except as provided in
Schedule I hereto, that they have performed certain specified procedures as a
result of which they determined that certain information of an accounting,
financial or statistical nature (which is limited to accounting, financial or
statistical information derived from the general accounting records of the
Turner Road Vintners Wine Business) included in the Final Prospectus, agrees
with the accounting records of the Turner Road Vintners Wine Business, excluding
any questions of legal interpretation.
- 20 -
References to the Final Prospectus in this paragraph (g) include any
supplement thereto at the date of the letter.
(h) Subsequent to the Execution Time or, if earlier, the dates as of which
information is given in the Registration Statement (exclusive of any amendment
thereof) and the Final Prospectus (exclusive of any supplement thereto), there
shall not have been (i) any change or decrease specified in the letter or
letters referred to in paragraphs (e) through (g) of this Section 6 or (ii) any
change, or any development involving a prospective change, in or affecting the
condition (financial or otherwise), earnings, business or properties of the
Company and its subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth in or
contemplated in the Final Prospectus (exclusive of any supplement thereto) the
effect of which, in any case referred to in clause (i) or (ii) above, is, in the
sole judgment of the Representatives, so material and adverse as to make it
impractical or inadvisable to proceed with the offering or delivery of the
Securities as contemplated by the Registration Statement (exclusive of any
amendment thereof) and the Final Prospectus (exclusive of any supplement
thereto).
(i) Prior to the Closing Date, the Company shall have furnished to the
Representatives such further information, certificates and documents as the
Representatives may reasonably request.
(j) Subsequent to the Execution Time, there shall not have been any
decrease in the rating of any of the Company's debt securities by any
"nationally recognized statistical rating organization" (as defined for purposes
of Rule 436(g) under the Act) or any notice given of any intended or potential
decrease in any such rating or of a possible change in any such rating that does
not indicate the direction of the possible change.
(k) The Securities shall have been listed and admitted and authorized for
trading on the Stock Exchange, and satisfactory evidence of such actions shall
have been provided to the Representatives.
(l) At the Execution Time, the Company shall have furnished to the
Representatives a letter substantially in the form of Exhibit A hereto from each
person or entity that is identified on Schedule III hereto, addressed to the
Representatives.
If any of the conditions specified in this Section 6 shall not have been
fulfilled in all material respects when and as provided in this Agreement, or if
any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material re-
- 21 -
spects reasonably satisfactory in form and substance to the Representatives and
counsel for the Underwriters, this Agreement and all obligations of the
Underwriters hereunder may be canceled at, or at any time prior to, the Closing
Date by the Representatives. Notice of such cancellation shall be given to the
Company in writing or by telephone or facsimile confirmed in writing.
The documents required to be delivered by this Section 6 shall be delivered
at the office of Cahill Gordon & Reindel, counsel for the Underwriters, at 80
Pine Street, New York, New York 10005, on the Closing Date.
7. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If the sale of the Securities
provided for herein is not consummated because any condition to the obligations
of the Underwriters set forth in Section 6 hereof is not satisfied, because of
any termination pursuant to Section 10 hereof or because of any refusal,
inability or failure on the part of the Company to perform any agreement herein
or comply with any provision hereof other than by reason of a default by any of
the Underwriters, the Company will reimburse the Underwriters severally through
Salomon Smith Barney Inc. on demand for all out-of-pocket expenses (including
reasonable fees and disbursements of counsel) that shall have been incurred by
them in connection with the proposed purchase and sale of the Securities.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each Underwriter, its
officers and directors, each person, if any, who controls any Underwriter and
each affiliate of any Underwriter which assists such Underwriter in the
distribution of the Securities, within the meaning of either Section 15 of the
Act or Section 20 of the Exchange Act, from and against any and all losses,
claims, damages and liabilities (including, without limitation, the legal fees
and other expenses incurred in connection with any suit, action or proceeding or
any claim asserted) caused by any untrue statement or alleged untrue statement
of a material fact contained in the registration statement for the registration
of the Securities as originally filed or any amendment thereof, or in the Basic
Prospectus, any Preliminary Final Prospectus or the Final Prospectus (as amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with any
written information furnished to the Company by or on behalf of any Underwriter
through the Representatives specifically for inclusion therein.
- 22 -
(b) Each Underwriter severally and not jointly agrees to indemnify and hold
harmless each of the Company, its directors, its officers and each person who
controls the Company within the meaning of either Section 15 of the Act or
Section 20 of the Exchange Act to the same extent as the foregoing indemnity
from the Company to each Underwriter, but only with reference to such losses,
claims, damages or liabilities which are caused by any untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
such Underwriter through the Representatives specifically for inclusion therein.
The Company acknowledges that the statements set forth in the last paragraph of
the cover page regarding delivery of the Securities and, under the heading
"Underwriting", (i) the list of Underwriters and their respective participation
in the sale of the Securities, (ii) the sentences related to concessions and
reallowances and (iii) the paragraphs related to stabilization, syndicate
covering transactions and penalty bids in any Preliminary Final Prospectus and
the Final Prospectus constitute the only information furnished in writing by or
on behalf of the several Underwriters for inclusion in any Preliminary Final
Prospectus or the Final Prospectus.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such person (the "Indemnified Person") shall promptly
notify the person or persons against whom such indemnity may be sought (each an
"Indemnifying Person") in writing, and such Indemnifying Person, upon request of
the Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others entitled
to indemnification pursuant to this Section 8 that the Indemnifying Person may
designate in such proceeding and shall pay the fees and expenses of such counsel
related to such proceeding. In any such proceeding, any Indemnified Person shall
have the right to retain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Person unless (i) such
Indemnifying Person and the Indemnified Person shall have mutually agreed to the
contrary, (ii) such Indemnifying Person has failed within a reasonable time to
retain counsel reasonably satisfactory to such Indemnified Person or (iii) the
named parties in any such proceeding (including any impleaded parties) include
an Indemnifying Person and an Indemnified Person and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that an Indemnifying Person
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all Indemnified Persons, and that all
such fees and expenses shall be reimbursed as they are incurred. Any such
separate firm for any Underwriter, each affiliate of any Under-
- 23 -
writer which assists such Underwriter in the distribution of the Securities and
such control persons of any Underwriter shall be designated in writing by the
Representatives, and any such separate firm for the Company, their respective
directors, their respective officers and such control persons of any of the
Company shall be designated in writing by the Company. The Indemnifying Person
shall not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, such Indemnifying Person agrees to indemnify each
Indemnified Person from and against any loss or liability by reason of such
settlement or judgment. No Indemnifying Person shall, without the prior written
consent of the Indemnified Person, effect any settlement of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Person, unless such settlement includes an unconditional release of
such Indemnified Person from all liability on claims that are the subject matter
of such proceeding.
(d) If the indemnification provided for in the first and second paragraphs
of this Section 8 is unavailable to an Indemnified Person or insufficient in
respect of any losses, claims, damages or liabilities referred to therein, then
the Company and the Underwriters severally agree to contribute to the amount
paid or payable by such Indemnified Person as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other hand from the offering of the Securities PROVIDED, HOWEVER, that in
no case shall any Underwriter (except as may be provided in an agreement among
underwriters relating to the offering of the Securities) be responsible for any
amount in excess of the underwriting discount or commission applicable to the
Securities purchased by such Underwriter or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and the
Underwriters on the other in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and the Underwriters on the other shall be deemed to be in the
same respective proportions as the net proceeds from the offering and sale of
the Securities (before deducting expenses) received by the Company and the total
underwriting commissions received by the Underwriters, in each case as set forth
in the table on the cover of the Final Prospectus. The relative fault of the
Company on the one hand and the Underwriters on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, on the one hand, or by the
Under-
- 24 -
writers on the other hand and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(e) The Company and each of the Underwriters severally agree that it would
not be just and equitable if contribution pursuant to this Section 8 were
determined by pro rata allocation or by any other method of allocation that does
not take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an Indemnified Person as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses incurred by such
Indemnified Person in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 8, in no event shall
any Underwriter be required to contribute any amount in excess of the amount by
which the total price at which the Securities underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages that
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(f) The remedies provided for in this Section 8 are not exclusive and shall
not limit any rights or remedies that may otherwise be available to any
indemnified party at law or in equity.
(g) The indemnity and contribution agreements contained in this Section 8
and the representations and warranties of the Company set forth in this
Agreement shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of any Underwriter or any person controlling any Underwriter or by or on behalf
of the Company, its respective officers or directors or any other person
controlling the Company and (iii) acceptance of and payment for any of the
Securities.
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9. DEFAULT BY AN UNDERWRITER. If any one or more Underwriters shall fail to
purchase and pay for any of the Securities agreed to be purchased by such
Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the amount of Securities set
forth opposite their names in Schedule II hereto bears to the aggregate amount
of Securities set forth opposite the names of all the remaining Underwriters)
the Securities which the defaulting Underwriter or Underwriters agreed but
failed to purchase; PROVIDED, HOWEVER, that in the event that the aggregate
amount of Securities which the defaulting Underwriter or Underwriters agreed but
failed to purchase shall exceed 10% of the aggregate amount of Securities set
forth in Schedule II hereto, the remaining Underwriters shall have the right to
purchase all, but shall not be under any obligation to purchase any, of the
Securities, and if such nondefaulting Underwriters do not purchase all the
Securities, this Agreement will terminate without liability to any nondefaulting
Underwriter or the Company. In the event of a default by any Underwriter as set
forth in this Section 9, the Closing Date shall be postponed for such period,
not exceeding five Business Days, as the Representatives shall determine in
order that the required changes in the Registration Statement and the Final
Prospectus or in any other documents or arrangements may be effected. Nothing
contained in this Agreement shall relieve any defaulting Underwriter of its
liability, if any, to the Company and any nondefaulting Underwriter for damages
occasioned by its default hereunder.
10. TERMINATION. This Agreement shall be subject to termination in the
absolute discretion of the Representatives, by notice given to the Company prior
to delivery of and payment for the Securities, if at any time prior to such time
(i) trading in the Company's Common Stock shall have been suspended by the
Commission or the New York Stock Exchange or trading in securities generally on
the New York Stock Exchange shall have been suspended or limited or minimum
prices shall have been established on such Exchange, (ii) a banking moratorium
shall have been declared either by federal or New York State authorities or
(iii) there shall have occurred any outbreak or escalation of hostilities,
declaration by the United States of a national emergency or war, or other
calamity or crisis the effect of which on financial markets is such as to make
it, in the sole judgment of the Representatives, impractical or inadvisable to
proceed with the offering or delivery of the Securities as contemplated by the
Final Prospectus (exclusive of any supplement thereto).
11. REPRESENTATIONS AND INDEMNITIES TO SURVIVE. The respective agreements,
representations, warranties, indemnities and other statements of the Company or
its officers and of the Underwriters set forth in or made pursuant to this
Agreement will remain in full
- 26 -
force and effect, regardless of any investigation made by or on behalf of any
Underwriter or the Company or any of the officers, directors or controlling
persons referred to in Section 8 hereof, and will survive delivery of and
payment for the Securities. The provisions of Sections 7 and 8 hereof shall
survive the termination or cancellation of this Agreement.
12. NOTICES. All communications hereunder will be in writing and effective
only on receipt, and, if sent to the Representatives, will be mailed, delivered
or telefaxed to the Salomon Smith Barney Inc. General Counsel (fax no.: (212)
816-7912) and confirmed to the General Counsel, Salomon Smith Barney Inc., at
388 Greenwich Street, New York, New York, 10013 Attention: General Counsel; with
a copy to Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005
(facsimile: (212) 269-5420), Attention: Daniel J. Zubkoff, Esq.; or, if sent to
the Company, will be mailed, delivered or telefaxed to the Company, 300
WillowBrook Office Park, Fairport, New York, 14450 (facsimile: (716) 218-2165),
Attention: General Counsel; with a copy to McDermott, Will & Emery, 227 West
Monroe Street, Chicago, Illinois 60606 (facsimile: (312) 984-7700), Attention:
Bernard Kramer, Esq.
13. SUCCESSORS. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers,
directors, employees, agents and controlling persons referred to in Section 8
hereof, and no other person will have any right or obligation hereunder.
14. APPLICABLE LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed within the State of New York.
15. COUNTERPARTS. This Agreement may be signed in one or more counterparts,
each of which shall constitute an original and all of which together shall
constitute one and the same agreement.
16. HEADINGS. The section headings used herein are for convenience only and
shall not affect the construction hereof.
- 27 -
17. DEFINITIONS. The terms which follow, when used in this Agreement, shall
have the meanings indicated.
"Act" shall mean the Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder.
"Basic Prospectus" shall mean the prospectus referred to in paragraph 1(a)
above contained in the Registration Statement at the Effective Date.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
legal holiday or a day on which banking institutions or trust companies are
authorized or obligated by law to close in New York City.
"Commission" shall mean the Securities and Exchange Commission.
"Effective Date" shall mean each date and time that the Registration
Statement, any post-effective amendment or amendments thereto and any Rule
462(b) Registration Statement became or become effective.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Execution Time" shall mean the date and time that this Agreement is
executed and delivered by the parties hereto.
"Final Prospectus" shall mean the prospectus supplement relating to the
Securities that was first filed pursuant to Rule 424(b) after the Execution
Time, together with the Basic Prospectus.
"Preliminary Final Prospectus" shall mean any preliminary prospectus
supplement to the Basic Prospectus which describes the Securities and the
offering thereof and is used prior to filing of the Final Prospectus, together
with the Basic Prospectus.
"Registration Statement" shall mean the registration statement referred to
in paragraph 1(a) above, including exhibits and financial statements, as amended
at the Execution Time (or, if not effective at the Execution Time, in the form
in which it shall become effective) and, in the event any post-effective
amendment thereto or any Rule 462(b) Registration Statement becomes effective
prior to the Closing Date, shall also mean such registration statement as so
amended or such Rule 462(b) Registration Statement, as the case may be. Such
term shall include any Rule 430A Information deemed to be included therein at
the Effective Date as provided by Rule 430A.
- 28 -
"Rule 415", "Rule 424", "Rule 430A" and "Rule 462" refer to such rules
under the Act.
"Rule 430A Information" shall mean information with respect to the
Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.
"Rule 462(b) Registration Statement" shall mean a registration statement
and any amendments thereto filed pursuant to Rule 462(b) relating to the
offering covered by the registration statement referred to in Section 1(a)
hereof.
- 29 -
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter and your acceptance shall represent a binding agreement among the Company
and the several Underwriters.
Very truly yours,
CONSTELLATION BRANDS, INC.
By: /s/ Thomas S. Summer
---------------------------------
Name: Thomas S. Summer
Title: Executive Vice President and
Chief Financial Officer
- 30 -
The foregoing Agreement is hereby
confirmed and accepted as of the
date specified in Schedule I hereto.
SALOMON SMITH BARNEY INC.
By: /s/ Andrew van der Vord
-------------------------------------
Name: Andrew van der Vord
Title: Managing Director
For itself and the other several Un-
derwriters, if any, named in Schedule
II to the foregoing Agreement.
SCHEDULE I
Underwriting Agreement dated March 8, 2001
Registration Statement No. 333-91587
Representative(s): Salomon Smith Barney Inc., J.P. Morgan Securities Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and UBS Warburg LLC
Title, Purchase Price and Description of Securities:
Title: Class A Common Stock, par value $.01 per share
Number of Underwritten Securities to be sold by the Company: 1,900,000
Number of Option Securities to be sold by the Company: 285,000
Price to Public per Share (include accrued dividends, if any): $67.00
Price to Public -- total: $127,300,000
Underwriting Discount per Share: $2.848
Underwriting Discount -- total:. $5,411,200
Proceeds to Company per Share: $64.152
Proceeds to Company -- total: $121,888,800
Other provisions: N/A
Closing Date, Time and Location: March 14, 2001 at 10:00 a.m. at Cahill Gordon &
Reindel, 80 Pine Street, New York, New York 10005
Type of Offering: Delayed
Date referred to in Section 5(f) after which the Company may offer or sell
securities issued or guaranteed by the Company without the consent of the
Representative(s): June 6, 2001
Modification of items to be covered by the letters from Arthur Andersen LLP,
KPMG LLP and Ernst & Young LLP delivered pursuant to Sections 6(e), (f) and (g),
respectively, at the Execution Time and/or the Closing Date, as applicable: N/A
SCHEDULE II
NUMBER OF UNDERWRITTEN
UNDERWRITERS SECURITIES TO BE PURCHASED
------------ --------------------------
Salomon Smith Barney Inc............................. 665,000
J.P. Morgan Securities Inc........................... 665,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated... 285,000
UBS Warburg LLC...................................... 285,000
---------
Total................................................ 1,900,000
=========
SCHEDULE III
George Bresler
Jeananne K. Hauswald
James A. Locke, III
Thomas A. McDermott
Paul L. Smith
Thomas S. Summer
Thomas Mullin
George H. Murray
Peter Aikens
Alexander Berk
Augustin Francisco Huneeus
Jon Moramarco
Richard Sands
Robert Sands
Marilyn Sands
CWC Partnership - I
CWC Partnership - II
MLR&R
Mac & Sally Sands Foundation Incorporated
Marvin Sands Master Trust
Trust for the benefit of the Grandchildren of Marvin and Marilyn Sands
ANNEX I
Form of Opinion of McDermott, Will & Emery
(i) The Company has been duly incorporated, is validly existing and in good
standing under the laws of the State of Delaware. The Company has the corporate
power and authority to execute, deliver and perform all of its respective
obligations under the Underwriting Agreement and the transactions contemplated
therein.
(ii) No consent, approval, authorization, order, registration or
qualification of or with any governmental authority or agency or, to our
knowledge, any court or similar body is required under the laws of the United
States, the State of New York and the General Corporation Law of the State of
Delaware for the execution, delivery or performance of the Underwriting
Agreement and the transactions contemplated therein by the Company or any
Subsidiary, as the case may be, except such as (i) have been obtained under the
Act and (ii) may be required under state securities or blue sky laws in
connection with the purchase and distribution of the Securities by the
Underwriters (as to which no opinion is required).
(iii) The execution, delivery and performance of the Underwriting Agreement
and the transactions contemplated therein by the Company and the application of
the net proceeds from the sale of the Securities in the manner described in the
Final Prospectus under the caption "Use of Proceeds" do not and will not (A)
conflict with the charter and by-laws of the Company, (B) conflict with,
constitute a breach of or a default by the Company or any Subsidiary, as the
case may be, under, or result in the creation or imposition of any lien,
security interest or encumbrance upon any of the assets of the Company or any
Subsidiary, as the case may be, pursuant to the terms of the Credit Agreement or
any other indenture, mortgage, deed of trust, loan or credit agreement, bond,
debenture, note, lease or other agreement or instrument listed on Exhibit I
hereto, (C) contravene the General Corporation Law of the State of Delaware or
any statute, rule or regulation under the laws of the United States and the
State of New York applicable to the Company or any of its properties or (D) to
the knowledge of such counsel, conflict with or violate any judgment, decree or
order of any court or governmental agency or court or body applicable to the
Company or any of its properties.
(iv) The Underwriting Agreement and the transactions contemplated therein
have been duly authorized by the Company. The Underwriting Agreement and any
documents relating to the transactions contemplated therein have been duly
executed and delivered by the Company, as applicable. The Securities have been
duly delivered to the Underwriters by the Company.
- 2 -
(v) The Securities conform in all material respects to the descriptions
thereof under the caption "Description of Class A Common Stock" in the Final
Prospectus. The statements made in the Final Prospectus under the captions
"Description of the Senior Credit Facilities" and "Certain United States Tax
Considerations to Non-United States Holders," insofar as they describe certain
provisions of the Credit Agreement or matters of law, are accurate in all
material respects.
(vi) Neither the Company nor any Subsidiary is required to register under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an
"investment company" as such term is defined in the 1940 Act.
(vii) Neither the issuance, sale or delivery of the Securities nor the
application of the proceeds thereof by the Company as set forth in the Final
Prospectus will violate Regulations T, U or X of the Board of Governors of the
Federal Reserve System or any other regulation of such Board of Governors.
(viii) The Company's authorized equity capitalization is as set forth in
the Final Prospectus; the capital stock of the Company conforms in all material
respects to the description thereof contained in the Final Prospectus; the
Securities are duly listed, and admitted and authorized for trading on the New
York Stock Exchange; the certificates for the Securities are in valid and
sufficient form; and the holders of outstanding shares of capital stock of the
Company are not entitled to preemptive or other rights to subscribe for the
Securities.
(ix) No holders of securities of the Company have rights to the
registration of such securities under the Registration Statement.
(x) The Registration Statement has become effective under the Act; any
required filing of the Basic Prospectus, any Preliminary Final Prospectus and
the Final Prospectus, and any supplements thereto, pursuant to Rule 424(b) has
been made in the manner and within the time period required by Rule 424(b); to
the knowledge of such counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued, no proceedings for that purpose have
been instituted or threatened and the Registration Statement and the Final
Prospectus (other than the financial statements and other financial information
contained therein, as to which such counsel need express no opinion) comply as
to form in all material respects with the applicable requirements of the Act and
the Exchange Act and the respective rules thereunder.
Such opinion shall also contain a statement that such counsel has
participated in conferences with officers and representatives of the Company and
the Subsidiaries, and representatives of the independent accountants of the
Company and the Underwriters at which the contents of the Registration Statement
and the Final Prospectus and related matters were
- 3 -
discussed and that although such counsel need not pass upon or assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Final Prospectus, and need not
make any independent check or verification thereof, except as set forth in
paragraph (v) of this form of opinion, based upon the foregoing, no facts came
to such counsel's attention to lead such counsel to believe that the
Registration Statement, as of the Effective Date or the date the Registration
Statement was last deemed amended, contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or that the Final
Prospectus (including the documents incorporated therein by reference (except to
the extent statements contained in such documents have been modified or
superseded by statements contained in the Final Prospectus)), as of its date and
as of the Closing Date, contained an untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. Such counsel need not express an
opinion or belief as to the financial statements, the notes thereto, schedules
and other financial data included therein, or incorporated by reference into, or
excluded from the Final Prospectus.
In rendering such opinions, such counsel may rely as to matters of fact, to
the extent such counsel deems proper, on certificates or statements of
responsible officers of the Company and certificates or other written statements
of officials of jurisdictions having custody of documents respecting corporate
existence or good standing.
EXHIBIT I TO ANNEX I
1. Importer Agreement by and between Barton Beers, Ltd. and Extrade, S.A. de
C.V. dated as of November 22, 1996.
2. Indenture dated as of December 27, 1993 among the Company, its subsidiaries
and Chemical Bank, as trustee, as amended by (i) the First Supplemental
Indenture dated as of August 3, 1994 among the Company, Canandaigua West,
Inc., and Chemical Bank, as trustee, (ii) the Second Supplemental Indenture
dated as of August 25, 1995 among the Company, V Acquisition Corp. (a
subsidiary of the Company now known as The Viking Distillery, Inc.), and
Chemical Bank, as trustee, (iii) Third Supplemental Indenture dated as of
December 19, 1997 among the Company, Canandaigua Europe Limited, Roberts
Trading Corp. and The Chase Manhattan Bank, as trustee, (iv) the Fourth
Supplemental Indenture dated as of October 2, 1998 among the Company,
Polyphenolics, Inc., and The Chase Manhattan Bank, as trustee, (v) the
Fifth Supplemental Indenture dated as of December 11, 1998 among the
Company, Canandaigua B.V., and The Chase Manhattan Bank, as trustee and
(vi) the Sixth Supplemental Indenture dated as of July 28, 1998 among the
Company, Barton Canada, Ltd., Simi Winery, Inc., Franciscan Vineyards,
Inc., Allberry, Inc., M.J. Lewis Corp., Cloud Peak Corporation, Mt. Veeder
Corporation, SCV-EPI Vineyards, Inc. and The Chase Manhattan Bank, as
trustee.
3. Indenture with respect to the 8 3/4% Series C Senior Subordinated Notes due
2003 dated as of October 29, 1996 among the Company, its Subsidiaries and
Harris Trust and Savings Bank, as trustee, as amended by (i) the First
Supplemental Indenture dated as of December 19, 1997 among the Company,
Canandaigua Europe Limited, Roberts Trading Corp. and Harris Trust and
Savings Bank, (ii) the Second Supplemental Indenture dated as of October 2,
1998 among the Company, Polyphenolics, Inc. and Harris Trust and Savings
Bank, (iii) the Third Supplemental Indenture dated as of December 11, 1998
among the Company, Canandaigua B.V. and Harris Trust and Savings Bank and
(iv) the Fourth Supplemental Indenture dated as of July 28, 1999, among the
Company, Barton Canada Ltd., Simi Winery, Inc., Franciscan Vineyards, Inc.,
Allberry, Inc., M.J. Lewis Corp., Cloud Peak Corporation, Mt. Veeder
Corporation, SCV-EPI Vineyards, Inc. and Harris Trust and Savings Bank, as
trustee.
4. Indenture dated as of February 25, 1999 among the Company, the Guarantors
named therein and Harris Trust and Savings Bank as trustee, as amended by
(i) Supplemental Indenture No. 1 dated as of February 25, 1999 among the
Company, the Guarantors named therein and Harris Trust and Savings Bank as
trustee, (ii) Supplemental Indenture No. 2 dated as of August 4, 1999 among
the Company, the Guarantors named
- 2 -
therein and Harris Trust and Savings Bank, as trustee, (iii) Supplemental
Indenture No. 3 dated as of August 6, 1999 among the Company, the New
Guarantors named therein and Harris Trust and Savings Bank, as trustee, and
(iv) Supplemental Indenture No. 4, dated as of May 15, 2000 among the
Company, as Issuer, its principal operating subsidiaries, as Guarantors and
Harris Trust and Savings Bank, as trustee, as further amended by
Supplemental Indenture No. 5, dated as of September 14, 2000 by and among
the Company, as Issuer, its principal operating subsidiaries as Guarantors
and The Bank of New York, as trustee.
5. Indenture dated as of November 17, 1999 among the Company, as Issuer,
certain principal subsidiaries, as Guarantors and Harris Trust and Savings
Bank, as trustee.
6. Barton Incorporated Management Incentive Plan.
7. Barton Brands, Ltd. Deferred Compensation Plan.
8. Marvin Sands Split Dollar Insurance Agreement.
9. Long-Term Stock Incentive Plan, which amends and restates the Canandaigua
Wine Company, Inc. Stock Option and Stock Appreciation Right Plan, as
amended by Amendment Number One to the Long-Term Stock Incentive Plan of
the Company, as further amended by Amendment Number Two to the Long-Term
Stock Incentive Plan of the Company, as further amended by Amendment Number
Three to the Long-Term Stock Incentive Plan.
10. Incentive Stock Option Plan of the Company, as amended by Amendment Number
One to the Incentive Stock Option Plan of the Company, as further amended
by Amendment Number Two to the Incentive Stock Option Plan of the Company.
11. Annual Management Incentive Plan of the Company, as amended by Amendment
Number One to the Annual Management Incentive Plan of the Company.
12. Asset Purchase Agreement dated February 21, 1999 by and among the Company
and Diageo Inc., UDV Canada Inc., and United Distillers Canada Inc.
13. Stock Purchase Agreement by and between Canandaigua Wine Company, Inc. and
Moet Hennessy, Inc., dated as of April 1, 1999.
14. Stock Purchase Agreement between Franciscan Vineyards, the Selling
Shareholders and Selling Stockholders named therein, and Canandaigua
Brands, Inc., dated April 21, 1999; Vineyard Purchase Agreement between
Canandiagua Brands, Inc. and Eckes Properties, Inc., dated as of April 21,
1999; Vineyard Purchase Agreement be-
- 3 -
tween Canandaigua Brands, Inc. and Stonewall Canyon Vineyards, LLC, dated
as of April 21, 1999; Grape Purchase Agreement, between Franciscan
Vineyards, Inc. Huneeus-Chantre Properties, LLC and Canandaigua Brands,
Inc., dated as of June 4, 1999, Guaranty, by Canandaigua Brands, Inc. in
favor of Huneeus-Chantre Properites LLC, dated as of June 4, 1999; Grape
Purchase Agreement, between Franciscan Vineyards, Inc. H/Q Vineyards LLC
and Canandaigua Brands, Inc.; Guaranty, by Canandaigua Brands, Inc. in
favor of H/Q Vineyards LLC, dated as of June 4, 1999; Wine Processing
Agreement, between Franciscan Vineyards, Inc., H/Q Wines LLC and
Canandaigua Brands, Inc., dated as of June 4, 1999; Guaranty, by
Canandaigua Brands, Inc. in favor of H/Q Wines LLC, dated as of June 4,
1999; ACSA Stock Agreement, among Alto de Casablanca S.A., Franciscan
Vineyards, Inc. and Asesoria e Inversiones Leo S.A., dated as of June 1,
1999; EVSA Stock Agreement, among Empresas Vitivinicolas S.A., Franciscan
Vineyards, Inc. and Asesoria e Inversiones Leo S.A., dated as of June 1,
1999; ACSA Distribution Agreement, by and between Franciscan Vineyards,
Inc., Alto de Casablanca S.A., H/Q Wines LLC, International Brand
Management, Ltd. and Canandaigua Brands, Inc., dated as of June 4, 1999;
Purchase Agreement among Sebastiani Vineyards, Inc., Tuolomne River
Vintners Group and Canandaigua Wine Company, Inc., dated as of January 30,
2001.
15. Credit Agreement, dated as of October 6, 1999, as amended by Amendment No.
1 thereto on February 13, 2001, between the Company, the guarantors named
therein, the lenders signatory thereto, and The Chase Manhattan Bank, as
Administrative Agent, the Bank of Nova Scotia, as Syndication Agent and
Credit Suisse First Boston and Citicorp USA, Inc., as Co-Documentation
Agents.
ANNEX II
Form of Opinion of Nixon Peabody LLP
(i) Each of the Subsidiaries of the Company listed on Exhibit I attached
hereto (the "Subsidiaries") is a corporation duly incorporated, in each case,
validly existing and in good standing under the laws of its respective
jurisdiction of incorporation. The Company and each of the Subsidiaries is duly
qualified and in good standing as a foreign corporation in each jurisdiction
listed for it on Exhibit II attached hereto. The Company and each Subsidiary has
all requisite corporate power to own, lease and license its respective
properties and conduct its business as now being conducted and as described in
the Final Prospectus. All of the issued and outstanding capital stock of each
Subsidiary has been duly authorized and validly issued and is fully paid and
non-assessable and were not issued in violation of any preemptive or similar
rights of stockholders arising under the corporate law of the state of
incorporation of such Subsidiary, the charter or bylaws of such Subsidiary, or,
to the best knowledge of such counsel, any agreement to which such Subsidiary is
party, and, to the best knowledge of such counsel, is owned by the Company, free
and clear of any lien, adverse claim, security interest, restriction on
transfer, shareholders' agreement, voting trust or other defect of title
whatsoever except for the liens under the Credit Agreement.
(ii) The execution, delivery and performance of the Underwriting Agreement
and the transactions contemplated therein by the Company, does not and will not
(A) conflict with the charter or bylaws of any Subsidiary, (B) contravene the
General Corporation Law of the State of Delaware or any statute, rule or
regulation under the laws of the State of New York applicable to the
Subsidiaries or any of their respective properties, or (C) to the knowledge of
such counsel, conflict with or violate any judgment, decree or order of any
court or governmental agency or court or body applicable to any of the
Subsidiaries or any of their respective properties.
(iii) To the best knowledge of such counsel after due inquiry, except as
described or referred to in the Final Prospectus: there is not pending or
threatened any action, suit, proceeding, inquiry or investigation, to which the
Company or any of the Subsidiaries is a party, or to which the property of the
Company or any of the Subsidiaries is subject, before or brought by any court or
governmental agency or body, which, if determined adversely to the Company or
any of the Subsidiaries, will individually or in the aggregate result in any
material adverse change in the business, financial position, net worth, results
of operations or prospects, or materially adversely affect the properties or
assets, of the Company and the Subsidiaries taken as a whole or will materially
adversely affect the consummation of the transactions contemplated by the Final
Prospectus; and all pending legal or governmental proceedings to which the
Company or any of the Subsidiaries is a party or that affect any of their
re-
- 2 -
spective properties, that are not described in the Final Prospectus, including
ordinary routine litigation incidental to the business, considered in the
aggregate, will not result in a material adverse change in the business,
financial position, net worth, results of operations or prospects, or materially
adversely affect the properties or assets, of the Company and the Subsidiaries
taken as a whole.
(iv) Each of the documents filed by the Company under the Exchange Act and
incorporated by reference into the Final Prospectus (collectively, the
"Documents"), at the time it was filed with the Commission, appeared on its face
to be appropriately responsive in all material respects to the requirements of
the Exchange Act, and the rules and regulations as promulgated by the Commission
under the Exchange Act, except that such counsel need not express any opinion as
to the financial statements, schedules, and other financial data included
therein or incorporated by reference therein, or excluded therefrom or the
exhibits thereto (except to the extent set forth in the next sentence of this
paragraph) and such counsel need not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Documents. To such
counsel's knowledge without having made any independent investigation and based
upon representations of officers of the Company as to factual matters, there
were no contracts or documents required to be filed as exhibits to such
Documents on the date they were filed which were not so filed.
(v) The outstanding shares of Common Stock have been duly and validly
authorized and issued and are fully paid and non-assessable; the Securities have
been duly and validly authorized, and, when issued and delivered to and paid for
by the Underwriters pursuant to this Agreement, will be fully paid and
non-assessable; and, except as set forth in the Final Prospectus, no options,
warrants or other rights to purchase, agreements, or other obligations to issue,
or rights to convert any obligations into or exchange any securities for shares
of capital stock of or ownership interest in the Company are outstanding.
EXHIBIT I TO ANNEX II
SUBSIDIARIES
SUBSIDIARY STATE OF INCORPORATION
---------- ----------------------
Barton Brands, Ltd. Delaware
Barton Incorporated Delaware
Batavia Wine Cellars, Inc. New York
Canandaigua Wine Company, Inc. New York
Franciscan Vineyards, Inc. Delaware
Barton Canada, Ltd. Illinois
EXHIBIT II TO ANNEX II
COMPANY FOREIGN QUALIFICATIONS
------- ----------------------
Canandaigua Brands, Inc. New York
California
Florida
Georgia
Michigan
Oklahoma
New Hampshire
North Carolina
New Jersey
Barton Incorporated None
Barton Brands, Ltd. California
Kentucky
Illinois
Florida
Maine
Oklahoma
New Hampshire
North Carolina
New Jersey
West Virginia
Batavia Wine Cellars, Inc. New Jersey
Canandaigua Wine Company, Inc. California
Washington
Oregon
Franciscan Vineyards, Inc. None
ANNEX III
Form of Opinion of Clifford Chance LLP, Freshfields Bruckhaus Deringer
and Piper Marbury Rudnick & Wolfe LLP
(i) [ ]* (the "Company") has been duly organized and is validly existing as
a corporation and is in good standing under the laws of its jurisdiction of
incorporation.
(ii) The execution, delivery, and performance by Constellation Brands, Inc.
of the Underwriting Agreement and the transactions contemplated therein and the
transactions contemplated by the Final Prospectus does not and will not (a)
conflict with the charter or By-Laws of the Company, (b) contravene any statute,
rule or regulation under the laws of its jurisdiction of incorporation
applicable to the Company and its properties, or (c) to such counsel's
knowledge, conflict with or violate any judgment, decree or order of any court
or governmental agency or court or body applicable to the Company and its
properties (except that no opinion need be expressed with respect to the
securities or Blue Sky laws of its jurisdiction of incorporation).
(iii) To the best knowledge of such counsel after due inquiry, except as
described or referred to in the Final Prospectus: there is not pending or
threatened any action, suit, proceeding, inquiry or investigation, to which the
Company or any of its subsidiaries is a party, or to which the property of the
Company or any of its subsidiaries is subject, before or brought by any court or
governmental agency or body, which, if determined adversely to the Company or
any of its subsidiaries, will individually or in the aggregate result in any
material adverse change in the business, financial position, net worth, results
of operations or prospects, or materially adversely affect the properties or
assets, of the Company and its subsidiaries taken as a whole; and all pending
legal or governmental proceedings to which the Company or any of its
subsidiaries is a party or that affect any of their respective properties, that
---------------------------
* The opinions in paragraphs (i), (ii) and (iii) will be given as to
Canandaigua Limited by Clifford Chance LLP. The opinions in paragraphs (i)
and (ii) will be given as to Barton Beers, Ltd. by Piper Marbury Rudnick
and Wolfe LLP. The opinions in paragraph (iii) will be given as Barton
Beers, Ltd. by Nixon Peabody LLP. The opinions in paragraph (i) will be
given as to Matthew Clark plc by Freshfields Bruckhaus Deringer. The
opinions in paragraph (iii) will be given as Matthew Clark plc by internal
counsel to Matthew Clark plc.
are not described in the Final Prospectus, including ordinary routine litigation
incidental to the business, considered in the aggregate, will not result in a
material adverse change in the business, financial position, net worth, results
of operations or prospects, or materially adversely affect the properties or
assets, of the Company and its subsidiaries taken as a whole.
EXHIBIT A
[Form of Lock-Up Agreement]
Constellation Brands, Inc.
--------------------------
Public Offering of Class A Common Stock
---------------------------------------
February 26, 2001
Salomon Smith Barney Inc.
J.P. Morgan Securities Inc.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
UBS Warburg LLC
Ladies and Gentlemen:
This letter is being delivered to you in connection with the proposed
Underwriting Agreement (the "Underwriting Agreement"), between Constellation
Brands, Inc., a Delaware corporation (the "Company"), and each of you as
representatives of a group of Underwriters named therein, relating to an
underwritten public offering of Class A Common Stock, $.01 par value (the
"Common Stock"), of the Company.
In order to induce you and the other Underwriters to enter into the
Underwriting Agreement, the undersigned will not, without the prior written
consent of Salomon Smith Barney Inc., offer, sell, contract to sell, pledge or
otherwise dispose of (or enter into any transaction which is designed to, or
might reasonably be expected to, result in the disposition (whether by actual
disposition or effective economic disposition due to cash settlement or
otherwise) by the undersigned or any affiliate of the undersigned or any person
in privity with the undersigned or any affiliate of the undersigned), directly
or indirectly, including the filing (or participation in the filing) of a
registration statement with the Securities and Exchange Commission in respect
of, or establish or increase a put equivalent position or liquidate or decrease
a call equivalent position within the meaning of Section 16 of the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder with respect to, any
shares of capital stock of the Company or any securities convertible into or
exercisable or exchangeable for such capital stock, or publicly announce an
intention to effect any such transaction, for a period of 90 days after the date
of the Underwriting Agreement, other than (i) shares of Common Stock disposed of
as bona fide gifts and (ii) shares of Common Stock sold upon exercise of stock
options pursuant to the Company's Cashless Exercise Program.
- 2 -
If for any reason the Underwriting Agreement shall be terminated prior to
the Closing Date (as defined in the Underwriting Agreement), the agreement set
forth above shall likewise be terminated.
Yours very truly,
-------------------------------------
Name:
Address: