Filed Pursuant to Rule 424(b)(2)
Registration # 333-63480
Prospectus supplement
To prospectus dated September 24, 2001
[LOGO]
Constellation Brands, Inc.
$250,000,000
8 1/8% Senior Subordinated Notes due 2012
Interest on the notes will be payable on January 15 and July 15 of each year,
beginning July 15, 2002. The notes will mature on January 15, 2012. Interest
will accrue from January 23, 2002.
We may redeem the notes, in whole or in part, at any time prior to their
maturity on or after January 15, 2007 at the redemption prices described
herein. In addition, at any time on or before January 15, 2005, we may redeem
up to 35% of the notes with the net cash proceeds of certain equity offerings
at the redemption prices described herein. If we sell certain of our assets or
experience specific kinds of changes in control, we must offer to repurchase
the notes.
The notes will be unsecured and subordinated in right of payment to all of our
existing and future senior indebtedness. The notes will be guaranteed on a
senior subordinated unsecured basis by each of our subsidiaries that guarantee
any of our other indebtedness or other indebtedness of the guarantors of the
notes. If we fail to make payments on the notes, our subsidiary guarantors must
make them instead.
See "Risk factors" beginning on page S-5 for a discussion of certain risks that
you should consider in connection with an investment in the notes.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
The underwriters have agreed to purchase the notes from us at 98.88% of their
principal amount for total proceeds to us of $247,200,000, before deducting
expenses. The underwriters propose to offer the notes from time to time for
sale in one or more negotiated transactions, or otherwise, at varying prices to
be determined at the time of each sale.
The notes will not be listed on any securities exchange. Currently, there is no
public market for the notes.
The underwriters expect to deliver the notes to purchasers on or about January
23, 2002 through The Depository Trust Company.
Sole Book-Running
Manager
JPMorgan
Deutsche Banc Alex. Brown
Salomon Smith Barney
UBS Warburg
Barclays Capital Fleet Securities, Inc. Scotia Capital
The date of this prospectus supplement is January 17, 2002.
This prospectus supplement and the accompanying prospectus dated September
24, 2001, relate to the offer and sale by us of our 8 1/8% Senior Subordinated
Notes due 2012. You should rely only on the information contained or
incorporated by reference in this prospectus supplement and the accompanying
prospectus. Neither we nor the underwriters have authorized anyone to provide
you with different information. We are not making an offer to sell these
securities in any state where the offer is not permitted. You should not assume
that the information contained or incorporated by reference in this prospectus
supplement or the accompanying prospectus is accurate as of any date other than
the date on the front of this prospectus supplement.
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TABLE OF CONTENTS
Prospectus Supplement
Page
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Prospectus Supplement Summary.......................... S-1
Risk Factors........................................... S-5
Use of Proceeds........................................ S-9
Capitalization......................................... S-9
Description of the Notes............................... S-10
The Guarantors......................................... S-44
Certain United States Federal Income Tax Considerations S-44
Underwriting........................................... S-47
Legal Opinions......................................... S-48
Experts................................................ S-48
Available Information.................................. S-48
Incorporation of Certain Documents by Reference........ S-48
Prospectus
Constellation Brands, Inc.............................. 1
The Guarantors......................................... 1
Risk Factors........................................... 1
Use of Proceeds........................................ 6
Dividend Policy........................................ 6
Ratio of Earnings to Fixed Charges..................... 6
Description of Debt Securities......................... 6
Description of Preferred Stock......................... 12
Description of Depositary Shares....................... 13
Description of Class A Common Stock.................... 15
Plan of Distribution................................... 17
Legal Opinions......................................... 18
Experts................................................ 18
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S-i
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus contain
"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 our control, that could cause actual
results to differ materially from those set forth in, or implied by, our
forward-looking statements. All statements other than statements of historical
facts included in this prospectus supplement and the accompanying prospectus,
including the statements under "Prospectus Supplement Summary," regarding our
business strategy, future operations, financial position, estimated revenues,
projected costs, prospects, plans and objectives of management, as well as
information concerning expected actions of third parties, are forward-looking
statements. When used in this prospectus supplement and the accompanying
prospectus, the words "anticipate," "intend," "estimate," "expect," "project"
and similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain such identifying words. All
forward-looking statements speak only as of the date of this prospectus
supplement. Neither we nor the underwriters undertake any obligation to update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we can
give no assurance that such expectations will prove to be correct. Important
factors that could cause our actual results to differ materially from our
expectations, or "cautionary statements," are disclosed under "Risk Factors"
and elsewhere in this prospectus supplement and the accompanying prospectus.
The cautionary statements qualify all forward-looking statements attributable
to us or persons acting on our behalf.
CURRENCIES
In this prospectus supplement references to "dollars" and "$" are references
to U.S. dollars, and references to "U.S." are references to the United States
of America. In addition, references to "pounds sterling," "sterling" and
"(Pounds)" are references to the United Kingdom currency. Any translations in
this prospectus supplement should not be construed as representations that the
amounts in pounds sterling actually represent U.S. dollar amounts or could be
converted into U.S. dollars at the rate indicated in this prospectus supplement
or at any other rate.
INTELLECTUAL PROPERTY
We own or have rights to various trademarks, copyrights and trade names used
in our business including the following: Alice White, Almaden, Arbor Mist,
Blackthorn, Black Velvet, Canadian Ltd, Columbia, Cook's, Covey Run, Diamond
White, Dunnewood, Estancia, Estate Cellars, Fleischmann's, Fleischmann's Royal,
Fleischmann's Schenley, Franciscan, Franciscan Oakville Estate, Gaymor's Olde
English, Golden Wedding, Grant's of St. James, Inglenook, J. Roget, K cider,
MacNaughton, Marcus James, McMaster's, Montezuma, Motif, Mr. Boston, Mystic
Cliffs, Nectar Valley, Oakville Estate, OFC, Paul Masson, Paul Masson Grande
Amber Brandy, QC, Ravenswood, St. Regis, Ste. Chapelle, Simi, Stone's, Stowells
of Chelsea, Talus, Taylor, Triple Crown and Vendange. This prospectus
supplement, the accompanying prospectus, and the documents incorporated by
reference also include trademarks, service marks and trade names of other
companies.
S-ii
PROSPECTUS SUPPLEMENT SUMMARY
The following summary highlights selected information from this prospectus
supplement, the accompanying prospectus and the documents incorporated by
reference and may not contain all the information that is important to you. We
encourage you to read this prospectus supplement, the accompanying prospectus
and the documents incorporated by reference in their entirety. Unless we
indicate otherwise, the terms "Company," "we," "us" and "our" refer to
Constellation Brands, Inc. together with its subsidiaries. Constellation
Brands, Inc. is a Delaware corporation that was incorporated on December 4,
1972. On September 19, 2000, the Company changed its name to Constellation
Brands, Inc. from Canandaigua Brands, Inc. On April 10, 2001, the Board of
Directors of the Company approved a two-for-one stock split of our class A
common stock and class B common stock, which was distributed in the form of a
stock dividend on May 14, 2001.
Constellation Brands, Inc.
We are a leader in the production and marketing of beverage alcohol brands
in North America and the United Kingdom. As the second largest supplier of
wine, the second largest marketer of imported beer and the fourth largest
supplier of distilled spirits, we are the largest single-source supplier of
these products in the United States. In the United Kingdom, we are a leading
marketer of wine, the second largest producer and marketer of cider and a
leading independent drinks wholesaler. With our broad product portfolio, we
believe we are distinctly positioned to satisfy an array of consumer
preferences across all beverage alcohol categories. Leading brands in our
portfolio include Franciscan Oakville Estate, Simi, Estancia, Ravenswood,
Corona Extra, Modelo Especial, St. Pauli Girl, Almaden, Arbor Mist, Talus,
Vendange, Alice White, Black Velvet, Fleischmann's, Schenley, Ten High,
Stowells of Chelsea, Blackthorn and K.
Our products are distributed by more than 1,000 wholesale distributors in
North America. In the United Kingdom, we distribute our branded products and
those of other companies to more than 16,500 customers. We operate 30
production facilities throughout the world and purchase products for resale
from other producers.
Since our founding in 1945 as a producer and marketer of wine products, we
have grown through a combination of internal growth and acquisitions. Our
internal growth has been driven by leveraging our existing portfolio of leading
brands, developing new products, new packaging and line extensions, and
focusing on the faster growing sectors of the beverage alcohol industry. Since
1991, we have successfully integrated a number of major acquisitions that have
broadened our portfolio and increased our market share, net sales and cash
flow. For the twelve months ended November 30, 2001, our net sales and earnings
before interest, taxes, depreciation and amortization ("EBITDA") were $2.7
billion and $405.5 million, respectively.
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The Offering
Issuer................ Constellation Brands, Inc.
Securities Offered.... $250,000,000 aggregate principal amount of 8 1/8% Senior
Subordinated Notes due 2012.
Maturity Date......... January 15, 2012.
Interest Payment Dates January 15 and July 15 of each year, commencing July 15, 2002.
Optional Redemption... We will have the right to redeem the notes, in whole or in part, at
any time on or after January 15, 2007 at the redemption prices set
forth under "Description of the Notes--Optional Redemption,"
together with accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time before January 15, 2005, we
may redeem up to 35% of the aggregate principal amount of the
notes with the net cash proceeds of certain equity offerings at a
redemption price equal to 108.125% of the principal amount to be
redeemed, together with accrued and unpaid interest, if any, to the
date of redemption, provided that at least 65% of the aggregate
principal amount of the notes remains outstanding immediately after
the redemption.
Change of Control..... Upon the occurrence of a "Change of Control," each holder of the
notes will have the right to require us to repurchase such holder's
notes at a price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of repurchase.
Guarantees............ The notes will be fully and unconditionally guaranteed on an
unsecured, senior subordinated basis by each of our subsidiaries that
guarantee any of our other indebtedness or other indebtedness of the
guarantors of the notes.
Ranking............... The notes will be unsecured and:
. subordinate in right of payment to all of our existing and future
senior indebtedness;
. equal in right of payment with all of our senior subordinated
indebtedness; and
. senior in right of payment to all of our subordinated
indebtedness.
Similarly, the guarantees of the notes provided by our subsidiaries
will be subordinate in right of payment to all existing and future
indebtedness of the applicable guarantor that is deemed to be senior
indebtedness under the indenture governing the notes, equal in right
of payment with any future debt of the applicable guarantor that is
senior subordinated indebtedness and senior in right of payment to
all debt of the applicable guarantor that is subordinated
indebtedness.
S-2
As of November 30, 2001, our outstanding indebtedness that would
have been deemed to be senior indebtedness would have been
approximately $1.1 billion (excluding unused commitments under
our senior credit facility).
Restrictive Covenants The indenture relating to the notes will contain certain covenants,
including, but not limited to, covenants with respect to the following
matters:
. limitation on indebtedness;
. limitation on restricted payments;
. limitation on transactions with affiliates;
. limitation on senior subordinated indebtedness;
. limitation on liens;
. limitation on sale of assets;
. limitation on issuances of guarantees;
. limitation on subsidiary capital stock;
. limitation on dividends and other payment restrictions affecting
subsidiaries; and
. restrictions on consolidations, mergers and the sale of assets.
Use of Proceeds...... We estimate that the net proceeds from this offering will be
approximately $246.7 million. We intend to use these proceeds to
redeem, and to pay accrued and unpaid interest due on, all of our
outstanding 8 3/4% Senior Subordinated Notes due 2003. We will use
the remaining proceeds to repay a portion of the outstanding
indebtedness under our senior credit facility. See "Use of Proceeds."
Our principal executive offices are located at 300 WillowBrook Office Park,
Fairport, New York 14450, and our telephone number is 585-218-2169. We maintain
a website at http://www.cbrands.com. The information on our website is not part
of this prospectus supplement or the accompanying prospectus.
S-3
Summary Historical Consolidated Financial Data
The following table sets forth our summary income statement data for each of
the nine month periods ended November 30, 2001 and 2000, and for each of the
three fiscal years in the period ended February 28, 2001, and our summary
balance sheet data as of November 30, 2001. The income statement data for the
three fiscal years in the period ended February 28, 2001, have been derived
from our audited historical financial statements incorporated by reference into
this prospectus supplement. The income statement data for the nine month
periods ended November 30, 2001 and 2000, and the balance sheet data as of
November 30, 2001, have been derived from our unaudited historical financial
statements incorporated by reference into this prospectus supplement. "Other
Data" below, not directly derived from our historical financial statements,
have been presented to provide additional analysis. The summary historical
consolidated financial data below reflect results of Matthew Clark since
December 1, 1998, results of the Black Velvet assets (including Black Velvet,
production facilities located in Alberta and Quebec, Canada, case goods and
bulk whiskey inventories and other related assets from affiliates of Diageo
plc) since April 9, 1999, results of the Franciscan Estates and Simi
acquisitions since June 4, 1999, results of the Turner Road Vintners assets
(including Vendage, 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) since March
5, 2001, results of the Corus assets (including certain wine brands, wineries,
working capital (primarily inventories) and other related assets from Corus
Brands, Inc.) since March 26, 2001, and results of Ravenswood Winery, Inc.
since July 2, 2001.
In the opinion of our management, the unaudited interim data include all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the data for such periods. Interim results for the nine month
periods ended November 30, 2001 and 2000, are not necessarily indicative of
results that can be expected in future periods.
For purposes of the table below, EBITDA is defined as net income before
interest expense, income taxes, depreciation and amortization, losses on
disposal of fixed assets, and nonrecurring and onetime charges. Management
believes that EBITDA is a measure commonly used by analysts and investors to
determine a company's ability to service and incur debt. Accordingly, this
information has been presented to permit a more complete analysis. EBITDA
should not be considered as a substitute for net income or cash flow data
prepared in accordance with generally accepted accounting principles or as a
measure of profitability or liquidity. EBITDA margin is computed as EBITDA as a
percentage of net sales. For the purpose of calculating the ratio of earnings
to fixed charges, "earnings" represent income before provision for income taxes
plus fixed charges. "Fixed charges" consist of interest expensed and
capitalized, amortization of debt issuance costs, amortization of discount on
debt and the portion of rental expense management believes is representative of
the interest component of lease expense.
For the For the For the For the
Nine Months Ended Year Ended Year Ended Year Ended
November 30, February 28, February 29, February 28,
-------------------- ------------ ------------ ------------
2001 2000 2001 2000 1999
--------- --------- ------------ ------------ ------------
(unaudited)
(in millions)
Income Statement Data:
Net sales.................................... $ 2,147.0 $ 1,852.6 $2,396.7 $2,340.5 $1,497.3
Gross profit................................. 698.0 592.6 757.5 722.5 448.0
Selling, general and administrative expenses. (430.3) (379.2) (486.6) (481.9) (299.5)
Operating income............................. 267.7 213.4 270.9 235.1 145.9
Interest expense, net........................ (86.4) (81.8) (108.7) (106.1) (41.5)
Net income................................... 109.4 79.0 97.3 77.4 50.5
Other Data:
EBITDA....................................... $ 332.8 $ 270.4 $ 343.6 $ 305.3 $ 188.3
EBITDA margin................................ 15.5 % 14.6 % 14.3% 13.0% 12.6%
Depreciation and amortization............... $ 64.0 $ 55.1 $ 70.4 $ 64.7 $ 38.6
Amortization of intangible assets............ 24.0 19.3 25.8 23.8 11.3
Ratio of earnings to fixed charges.......... 3.0x 2.5x 2.4x 2.1x 3.2x
As of
November 30,
2001
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(unaudited)
(in millions)
Balance Sheet Data:
Working capital......................... $ 589.8
Total assets............................ 3,127.5
Long-term debt, less current maturities. 1,259.1
Total debt.............................. 1,498.6
Total stockholders' equity.............. 905.3
S-4
RISK FACTORS
Before you buy any of the notes offered by this prospectus supplement and
the accompanying prospectus, you should be aware that there are various risks,
including those described below and in the accompanying prospectus. You should
consider carefully these risk factors together with all of the other
information in this prospectus supplement and the accompanying prospectus,
including the section "Risk Factors," which begins on page 1 of the
accompanying prospectus, and the documents that are incorporated by reference
before you decide to acquire any notes.
Our indebtedness could have a material adverse effect on our financial health.
We have incurred substantial indebtedness to finance our acquisitions and we
may incur substantial additional indebtedness in the future to finance further
acquisitions. As of November 30, 2001, we had approximately $1.5 billion of
indebtedness outstanding, which does not include approximately $125.9 million
of revolving loans we had available to draw under our senior credit facility.
Our ability to satisfy our debt obligations outstanding from time to time will
depend upon our future operating performance, which is subject to prevailing
economic conditions, levels of interest rates and financial, business and other
factors, many of which are beyond our control. Therefore, there can be no
assurance that our cash flow from operations will be sufficient to meet all of
our debt service requirements and to fund our capital expenditure requirements.
Our current and future debt service obligations and covenants could have
important consequences to you if you purchase the notes offered by this
prospectus supplement. These consequences may include the following:
. our ability to obtain financing for future working capital needs or
acquisitions or other purposes may be limited;
. a significant portion of our cash flow from operations will be dedicated
to the payment of principal and interest on our indebtedness, thereby
reducing funds available for operations;
. our ability to conduct our business could be limited by restrictive
covenants; and
. we may be more vulnerable to adverse economic conditions than our less
leveraged competitors and, thus, may be limited in our ability to
withstand competitive pressures.
The restrictive covenants in our senior credit facility and the indentures
under which our debt securities are issued include, among others, those
restricting additional liens, additional borrowing, the sale of assets, changes
of control, the payment of dividends, transactions with affiliates, the making
of investments and certain other fundamental changes. Our senior credit
facility also contains restrictions on acquisitions and certain financial ratio
tests including a debt coverage ratio, a senior debt coverage ratio, a fixed
charges ratio and an interest coverage ratio. These restrictions could limit
our ability to conduct business. A failure to comply with the obligations
contained in the senior credit facility or the indentures could result in an
event of default under such agreements, which could require us to immediately
repay the related debt and also debt under other agreements that may contain
cross-acceleration or cross-default provisions.
Your right to receive payments on the notes is junior to our senior credit
facility and other unsubordinated indebtedness, and the guarantees of our
guarantors are junior to all of our guarantors' unsubordinated indebtedness.
According to the indenture under which the notes will be issued the payment
of the principal, any premium and interest on the notes and each guarantee of
the notes is subordinate in right of payment to the prior payment in full of
all our senior indebtedness or the senior indebtedness of the applicable
guarantor. Our senior indebtedness includes our obligations under, and the
guarantors' guarantees of our obligations with respect to, our senior credit
facility and our outstanding senior notes.
S-5
As a result, upon any distribution to our creditors or the creditors of the
guarantors in a bankruptcy, liquidation or reorganization or similar proceeding
relating to us or the guarantors of our or their property, the holders of our
senior indebtedness and the senior indebtedness of the guarantors will be
entitled to be paid in full in cash before any payment may be made with respect
to these notes or the guarantees.
In addition, all payments on the notes and the guarantees will be blocked in
the event of a payment default on senior indebtedness and may be blocked for
certain periods of time in the event of certain nonpayment defaults on senior
indebtedness.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to us or the guarantors, holders of notes will participate
with all other holders of our senior subordinated indebtedness and the senior
subordinated indebtedness of the guarantors in the assets remaining after we
and the guarantors have paid all of our senior indebtedness. However, because
the indenture requires that amounts otherwise payable to holders of notes in a
bankruptcy or similar proceeding be paid to holders of senior indebtedness
instead, holders of notes may receive less, ratably, than holders of senior
indebtedness or other nonsubordinated claims against us or any of the
guarantors in any such proceeding. In any of these cases, we and the guarantors
may not have sufficient funds to pay all of our creditors and holders of notes
may receive less, ratably than the holders of senior debt.
As of November 30, 2001, the notes and the guarantees would have been
subordinated to approximately $1.1 billion of senior indebtedness (excluding
unused commitments under our senior credit facility). We will be permitted to
borrow substantial additional indebtedness, including senior indebtedness, in
the future under the terms of the indenture under which the notes will be
issued.
The notes are unsecured and the stock of some of our subsidiaries is pledged to
secure our senior credit facility.
The notes are not secured by any of our assets. Our obligations under our
senior credit facility, however, are secured by (i) first priority pledges of
100% of the capital stock of Canandaigua Limited and all of our domestic
operating subsidiaries and (ii) first priority pledges of 65% of the capital
stock held by us of Matthew Clark plc; B.B. Servicios, S.A. de C.V.;
Canandaigua World Sales Limited; and Schenley Distilleries Inc./Les
Distilleries Schenley Inc. If the Company becomes insolvent or is liquidated,
or if payment under our senior credit facility is accelerated, the lenders
under the facility would be entitled to exercise the remedies available to a
secured lender under applicable law and pursuant to the agreement governing
such indebtedness. In any such event, because the notes will not be secured by
any of our assets, it is possible that there would be no assets remaining from
which claims of the holders of the notes could be satisfied or, if any such
assets remained, such assets might be insufficient to satisfy such claims fully.
Our ability to make payments on the notes depends on our ability to receive
dividends from our subsidiaries, and some of our foreign subsidiaries are not
guarantors of the notes.
We are a holding company and conduct almost all of our operations through
our subsidiaries. As of November 30, 2001, approximately 91% of our tangible
assets were held by our subsidiaries. The capital stock of our subsidiaries
represents substantially all the assets of the holding company. Accordingly, we
are dependent on the cash flows of our subsidiaries to meet our obligations,
including the payment of the principal and interest on the notes. See
"Description of the Notes."
The notes are guaranteed, jointly and severally, by each of our subsidiaries
that guarantee any of our other indebtedness or other indebtedness of the
guarantors of the notes. Holders of the notes will not have a direct claim on
assets of subsidiaries that do not guarantee the notes (including, most
significantly, the assets of Matthew Clark). For the nine months ended November
30, 2001, approximately $599.7 million of our net sales were from the
operations of Matthew Clark, which is not a guarantor of the notes, and
approximately $1.5 billion of our net sales were from our operations and the
operations of the guarantors of the notes. Under U.S. bankruptcy law and
comparable provisions of state fraudulent transfer laws, a court could
subordinate or void any guarantee if it found that the guarantee was incurred
with actual intent to hinder, delay or defraud creditors or
S-6
the guarantor did not receive fair consideration or reasonably equivalent value
for the guarantee and the guarantor was any of the following: (i) insolvent or
was rendered insolvent because of the guarantee; (ii) engaged in a business or
transaction for which its remaining assets constituted unreasonably small
capital; or (iii) intended to incur, or believed that it would incur, debts
beyond its ability to pay at maturity. To the extent any guarantee were to be
voided as a fraudulent conveyance or held unenforceable for any other reason,
holders of the notes would cease to have any claim in respect of such guarantor
and would be solely our creditors and any guarantor whose guarantee was not
voided or held unenforceable. In such event, the claims of the holders of the
notes against the issuer of an invalid guarantee would be subject to the prior
payment of all liabilities of such guarantor. There can be no assurance that,
after providing for all prior claims, there would be sufficient assets to
satisfy the claims of the holders of the notes relating to any voided guarantee.
We may not be able to purchase the notes in the event of a change of control.
Upon the occurrence of certain specific kinds of change of control events,
we will be required to make an offer to repurchase the notes at 101% of their
principal amount plus accrued interest and we will be required to repay our
senior credit facility in full. However, it is possible that we will not have
sufficient funds at the time of the change of control to make the required
repurchase of notes or to repay our senior credit facility. Even if we did have
sufficient funds to carry out such a repurchase, the financial effect of the
repurchase could cause us to default on our other indebtedness. See
"Description of the Notes--Certain Covenants--Purchase of Notes Upon a Change
of Control."
We have a material amount of goodwill, and if we are required to write down
goodwill to comply with new accounting standards, it would reduce our net
income, which in turn could materially and adversely affect our results of
operations.
Approximately $580.5 million (net of accumulated amortization), or 18.6%, of
our total assets as of November 30, 2001, represented unamortized goodwill.
Goodwill is the amount by which the costs of an acquisition accounted for using
the purchase method exceeds the fair market value of the net assets acquired.
We are required to record goodwill as an intangible asset on our balance sheet
and to amortize it over a period of years. We have historically amortized
goodwill on a straight-line basis over a period of 40 years. Even though it
reduces our net income for accounting purposes, a portion of our amortization
of goodwill is deductible for tax purposes. Currently, we are required to
evaluate periodically whether we can recover our remaining goodwill from the
undiscounted future cash flows that we expect to receive from the operations of
acquired businesses. If these undiscounted cash flows are less than the
carrying value of the associated goodwill, the goodwill is deemed to be
impaired and we must reduce the carrying value of the goodwill to equal the
discounted future cash flows and take the amount of the reduction as a charge
against our net income.
On July 20, 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard ("SFAS") No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 became effective on July 1, 2001, for
acquisitions occurring on or after that date and will be adopted by us on March
1, 2002, for acquisitions that occurred prior to July 1, 2001. SFAS No. 142
results in goodwill no longer being amortized. Instead, goodwill is subject to
a periodic impairment evaluation based on the fair value of the reporting unit.
Reductions in our net income caused by the write-down of goodwill could
materially and adversely affect our results of operations.
We are controlled by the Sands family.
Our outstanding capital stock consists of class A common stock and class B
common stock. Holders of class A common stock are entitled to one vote per
share and are entitled, as a class, to elect one fourth of the members of our
board of directors. Holders of class B common stock are entitled to 10 votes
per share and are entitled, as a class, to elect the remaining directors. As of
November 30, 2001, the Sands family beneficially owned
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approximately 6% of the outstanding shares of class A common stock (exclusive
of shares of class A common stock issuable pursuant to the conversion feature
of the class B common stock owned by the Sands family) and approximately 93% of
the outstanding shares of class B common stock. On the same basis, on all
matters other than the election of directors, the Sands family had the ability
to vote approximately 59% of the votes entitled to be cast by holders of our
outstanding capital stock, voting as a single class. Consequently, we are
essentially controlled by the Sands family and they would generally have
sufficient voting power to determine the outcome of any corporate transaction
or other matter submitted to our stockholders for approval.
There is no public market for the notes, an active trading market for the notes
may not develop and the market price of the notes may be lower than the
offering price.
The notes will constitute a new issue of securities with no established
trading market, and there can be no assurance as to (i) the liquidity of any
such market that may develop, (ii) the ability of holders of notes to sell
their notes or (iii) the price at which the holders of notes would be able to
sell their notes. If such a market were to exist, the notes could trade at
prices that may be higher or lower than their principal amount or purchase
price, depending on many factors, including prevailing interest rates, the
market for similar notes and our financial performance. We have been advised by
the underwriters that, following completion of this offering, the underwriters
presently intend to make a market in the notes. However, the underwriters are
not obligated to do so, and any market-making activity with respect to the
notes may be discontinued at any time without notice. In addition, such
market-making activity will be subject to the limits imposed by the Securities
Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended,
and may be limited during an exchange offer or the pendency of an applicable
shelf registration statement. There can be no assurance that even following
registration of the notes an active trading market will exist for the notes or
that the trading market will be liquid.
S-8
USE OF PROCEEDS
The net proceeds from the sale of the notes in this offering, after
deducting the underwriters' discount and our estimated offering fees and
expenses, are estimated to be approximately $246.7 million.
In December 1993, we issued $130.0 million aggregate principal amount of
8 3/4% Senior Subordinated Notes due 2003. In October 1996, we issued $65.0
million aggregate principal amount of restricted 8 3/4% Series B Senior
Subordinated Notes due 2003, which in February 1997 we exchanged for $65.0
million aggregate principal amount of unrestricted 8 3/4% Series C Senior
Subordinated Notes due 2003. As a result, we currently have outstanding $195.0
million aggregate principal amount of 8 3/4% Senior Subordinated Notes due
2003. The terms of the 8 3/4% Senior Subordinated Notes due 2003, although
issued in two separate series, are identical in all material respects.
The net proceeds from the sale of the notes will be used to redeem, and to
pay interest due on, all of our outstanding 8 3/4% Senior Subordinated Notes
due 2003. We will use the remaining proceeds to repay a portion of the
outstanding indebtedness under our senior credit facility.
As of November 30, 2001, our 8 3/4% Senior Subordinated Notes due 2003 had a
weighted average interest rate of 9.08% per annum and will mature on December
15, 2003. As of November 30, 2001, our senior credit facility had a weighted
average interest rate of 3.87% per annum and will mature on December 1, 2004.
CAPITALIZATION
The following table sets forth our unaudited capitalization
. as of November 30, 2001, and
. as adjusted to reflect the effect of this offering and the application
of the net proceeds from this offering.
Since November 30, 2001, there has been no material change in our
capitalization.
November 30, 2001
------------------------------
Actual As Adjusted
------------- -------------
(in millions)
Long-term debt (including current maturities):
Senior Credit Facility--Revolving Credit Loans............. $ 155.0 $ 103.3
Senior Credit Facility--Term Loans......................... 303.8 303.8
8 5/8% Senior Notes due 2006............................... 200.0 200.0
8% Senior Notes due 2008................................... 200.0 200.0
8 1/2% Series B Senior Notes due 2009...................... 1.4(a) 1.4(a)
8 1/2% Series C Senior Notes due 2009...................... 218.8(b) 218.8(b)
8 3/4% Senior Subordinated Notes due 2003.................. 193.8 --
8 1/2% Senior Subordinated Notes due 2009.................. 200.0 200.0
8 1/8% Senior Subordinated Notes due 2012 offered hereby... -- 250.0
Other...................................................... 25.8 25.8
------------- -------------
Total debt............................................. 1,498.6 1,503.1
------------- -------------
Total stockholders' equity.................................... 905.3 903.6
------------- -------------
Total capitalization................................... $2,403.9 $2,406.7
============= =============
--------
(a) Represents (Pounds)1.0 million converted at a rate of (Pounds)1.00 =
$1.4241.
(b) Represents (Pounds)154.0 million less (Pounds)0.4 million unamortized
discount, converted at a rate of (Pounds)1.00 = $1.4241.
S-9
DESCRIPTION OF THE NOTES
The notes constitute a series of debt securities (which are more fully
described in the accompanying prospectus) to be issued under an indenture and a
supplemental indenture thereto (together, the "Indenture") to be dated as of
January 23, 2002, by and among the Company, the Guarantors and BNY Midwest
Trust Company, as trustee (the "Trustee"), copies of which will be made
available to prospective purchasers of the notes upon request. The Indenture
will not be limited in amount and we may issue additional amounts of notes from
time to time subject to the limitations set forth under "Certain
Covenants--Limitation on Indebtedness" and certain other provisions set forth
in the Indenture.
The Indenture is more fully described in the accompanying prospectus. The
following is a summary of the material provisions of the Indenture does not
purport to be complete, and where reference is made to particular provisions of
the Indenture, such provisions, including the definitions of certain terms, are
qualified in their entirety by reference to all of the provisions of the
Indenture and those terms made a part of the Indenture by the Trust Indenture
Act of 1939. The following description of the terms of the notes supplements
the description of the general terms and provisions of the debt securities set
forth in the accompanying prospectus. If these descriptions are inconsistent,
then the description in this prospectus supplement shall govern. For
definitions of certain capitalized terms used in the following summary, see
"--Certain Definitions."
General
The notes will mature on January 15, 2012 and will be unsecured senior
subordinated obligations of the Company. Each note will bear interest at the
rate of 8 1/8% per year from January 23, 2002 or from the most recent interest
payment date to which interest has been paid, payable semi-annually on January
15 and July 15 of each year (each, an "Interest Payment Date"), commencing July
15, 2002, to the Person in whose name the note (or any predecessor note) is
registered at the close of business on the January 1 or July 1 next preceding
such interest payment date.
Payment of the notes is guaranteed unconditionally by the Guarantors on a
senior subordinated basis. The Guarantors are all of the direct and indirect
Domestic Restricted Subsidiaries of the Company and direct and indirect Foreign
Restricted Subsidiaries that in each case guarantee Other Indebtedness. The
Guarantors (except Canandaigua B.V. and M.J. Lewis Corp.) have also guaranteed
all obligations of the Company under the Credit Agreement. No holder of any
other Indebtedness of the Company will have the benefit of any guarantees which
the holders of the notes do not have.
Principal of, premium, if any, and interest on the notes will be payable,
and the notes will be exchangeable and transferable, at the office or agency of
the Company in the City of New York maintained for such purposes (which
initially will be the Trustee); provided, however, that payment of interest may
be made at the option of the Company by check mailed to the Person entitled
thereto as shown on the security register. The notes will be issued only in
fully registered form without coupons, in denominations of $1,000 and any
integral multiple thereof. No service charge will be made for any registration
of transfer, exchange or redemption of notes, except in certain circumstances
for any tax or other governmental charge that may be imposed in connection
therewith.
Optional Redemption
The notes will be redeemable, in whole or in part, at the option of the
Company at any time on or after January 15, 2007, at the redemption prices
(expressed as percentages of the principal amount) set forth below plus accrued
and unpaid interest, if any, to the redemption date (subject to the right of
Holders of record on regular record dates to receive interest due on the
relevant Interest Payment Date), if redeemed during the 12-month period
beginning January 15 of the years indicated below:
Redemption
Year Price
---- ----------
2007............... 104.063%
2008............... 102.708%
2009............... 101.354%
2010 and thereafter 100.000%
S-10
In addition, at any time and from time to time on or prior to January 15,
2005, the Company may redeem in the aggregate up to 35% of the originally
issued aggregate principal amount of the notes with the net cash proceeds of
one or more Public Equity Offerings by the Company at a redemption price in
cash equal to 108.125% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of redemption (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant Interest Payment Date); provided, however, that at least 65% of the
originally issued aggregate principal amount of the notes must remain
outstanding immediately after giving effect to each such redemption (excluding
any notes held by the Company or any of its Affiliates). Notice of any such
redemption must be given within 60 days after the date of the closing of the
relevant Public Equity Offering of the Company.
In the event that less than all of the notes are to be redeemed at any time
pursuant to an optional redemption, selection of such notes for redemption will
be made by the Trustee in compliance with the requirements of the principal
U.S. securities exchange, if any, on which the notes are listed or, if the
notes are not then listed on a U.S. securities exchange, on a pro rata basis,
by lot or by such method as the Trustee shall deem fair and appropriate;
provided, however, that no notes of a principal amount of $1,000 or less shall
be redeemed in part; provided further, however, that if a partial redemption is
made with the net cash proceeds of a Public Equity Offering by the Company,
selection of the notes or portions thereof for redemption shall be made by the
Trustee only on a pro rata basis or on as nearly a pro rata basis as is
practicable (subject to the procedures of The Depository Trust Company), unless
such method is otherwise prohibited. Notice of redemption shall be mailed by
first-class mail at least 30 but not more than 60 days before the redemption
date to each Holder of notes to be redeemed at its registered address. If any
note is to be redeemed in part only, the notice of redemption that relates to
such note shall state the portion of the principal amount thereof to be
redeemed. A new note in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original note. On and after the redemption date, interest will cease to
accrue on notes or portions thereof called for redemption as long as the
Company has deposited with the paying agent for the notes funds in satisfaction
of the applicable redemption price pursuant to the Indenture.
Sinking Fund
The notes will not be entitled to the benefit of any sinking fund.
Subordination of the Notes
The payment of the principal of, premium, if any, and interest on the notes
is subordinated in right of payment, to the extent and in the manner provided
in the Indenture, to the prior payment in full in cash of all Senior
Indebtedness.
Upon any payment or distribution of assets or securities of the Company of
any kind or character, whether in cash, property or securities (excluding any
payment or distribution of Permitted Junior Securities and excluding any
payment from the trust described under "Legal Defeasance and Covenant
Defeasance" and "--Satisfaction and Discharge" (a "Defeasance Trust Payment")),
upon any dissolution or winding-up or total liquidation or reorganization of
the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all Senior Indebtedness shall first be paid
in full in cash before the Holders of the notes or the Trustee on behalf of
such Holders shall be entitled to receive any payment by the Company of the
principal of, premium, if any, or interest on the notes, or any payment by the
Company to acquire any of the notes for cash, property or securities, or any
distribution by the Company with respect to the notes of any cash, property or
securities (excluding any payment or distribution of Permitted Junior
Securities and excluding any Defeasance Trust Payment). Before any payment may
be made by, or on behalf of, the Company of the principal of, premium, if any,
or interest on the notes upon any such dissolution or winding-up or total
liquidation or reorganization, any payment or distribution of assets or
securities of the Company of any kind or character, whether in cash, property
or securities (excluding any payment or distribution of Permitted Junior
Securities and excluding any Defeasance Trust Payment), to which the Holders of
the notes or the Trustee on their behalf would
S-11
be entitled, but for the subordination provisions of the Indenture, shall be
made by the Company or by any receiver, trustee in bankruptcy, liquidation
trustee, agent or other Person making such payment or distribution, directly to
the holders of the Senior Indebtedness (pro rata to such holders on the basis
of the respective amounts of Senior Indebtedness held by such holders) or their
representatives or to the trustee or trustees or agent or agents under any
agreement or indenture pursuant to which any of such Senior Indebtedness may
have been issued, as their respective interests may appear, to the extent
necessary to pay all such Senior Indebtedness in full in cash after giving
effect to any prior or concurrent payment, distribution or provision therefor
to or for the holders of such Senior Indebtedness.
No direct or indirect payment (excluding any payment or distribution of
Permitted Junior Securities and excluding any Defeasance Trust Payment) by or
on behalf of the Company of principal of, premium, if any, or interest on the
notes, whether pursuant to the terms of the notes, upon acceleration, pursuant
to an offer to purchase or otherwise, will be made if, at the time of such
payment, there exists a default in the payment of all or any portion of the
obligations on any Designated Senior Indebtedness, whether at maturity, on
account of mandatory redemption or prepayment, acceleration or otherwise, and
such default shall not have been cured or waived or the benefits of this
sentence waived by or on behalf of the holders of such Designated Senior
Indebtedness. In addition, during the continuance of any non-payment event of
default with respect to any Designated Senior Indebtedness pursuant to which
the maturity thereof may be immediately accelerated, and upon receipt by the
Trustee of written notice (a "Payment Blockage Notice") from the holder or
holders of such Designated Senior Indebtedness or the trustee or agent acting
on behalf of the holders of such Designated Senior Indebtedness, then, unless
and until such event of default has been cured or waived or has ceased to exist
or such Designated Senior Indebtedness has been discharged or repaid in full in
cash or the benefits of these provisions have been waived by the holders of
such Designated Senior Indebtedness, no direct or indirect payment (excluding
any payment or distribution of Permitted Junior Securities and excluding any
Defeasance Trust Payment) will be made by or on behalf of the Company of
principal of, premium, if any, or interest on the notes, to such Holders,
during a period (a "Payment Blockage Period") commencing on the date of receipt
of such notice by the Trustee and ending 179 days thereafter. Notwithstanding
anything in the subordination provisions of the Indenture or the notes to the
contrary, (x) in no event will a Payment Blockage Period extend beyond 179 days
from the date the Payment Blockage Notice in respect thereof was given, (y)
there shall be a period of at least 181 consecutive days in each 360-day period
when no Payment Blockage Period is in effect and (z) not more than one Payment
Blockage Period may be commenced with respect to the notes during any period of
360 consecutive days. No event of default that existed or was continuing on the
date of commencement of any Payment Blockage Period with respect to the
Designated Senior Indebtedness initiating such Payment Blockage Period (to the
extent the holder of Designated Senior Indebtedness, or trustee or agent,
giving notice commencing such Payment Blockage Period had knowledge of such
existing or continuing event of default) may be, or be made, the basis for the
commencement of any other Payment Blockage Period by the holder or holders of
such Designated Senior Indebtedness or the trustee or agent acting on behalf of
such Designated Senior Indebtedness, whether or not within a period of 360
consecutive days, unless such event of default has been cured or waived for a
period of not less than 90 consecutive days.
The failure to make any payment or distribution for or on account of the
notes by reason of the provisions of the Indenture described under this
"Subordination of the Notes" heading will not be construed as preventing the
occurrence of any Event of Default in respect of the notes. See "Events of
Default" below.
Because of the subordination provisions described above, in the event of
insolvency of the Company, funds that would otherwise be payable to Holders of
the notes will be paid to the holders of Senior Indebtedness to the extent
necessary to pay the Senior Indebtedness in full in cash, and the Company may
be unable to meet fully its obligations with respect to the notes.
At the time of the issuance of the notes, the Credit Agreement and the
Outstanding Senior Notes are expected to be the only material outstanding
Senior Indebtedness. Subject to the restrictions set forth in the Indenture, in
the future the Company may issue additional Senior Indebtedness.
S-12
Guarantees of the Notes
The Indenture will provide that each of the Guarantors will unconditionally
guarantee on a joint and several basis all of the Company's obligations under
the notes, including its obligations to pay principal, premium, if any, and
interest with respect to the notes. The Guarantees will be general unsecured
obligations of the Guarantors. The obligations of each Guarantor under its
Guarantee will be subordinated and junior in right of payment to the prior
payment in full of all existing and future Senior Guarantor Indebtedness of
such Guarantor to substantially the same extent as the notes are subordinated
to all existing and future Senior Indebtedness of the Company. The Guarantors
(except for Canandaigua B.V. and M.J. Lewis Corp.) have also guaranteed all
obligations of the Company under the Credit Agreement. The obligations under
the Credit Agreement are secured by (i) first priority pledges of 100% of the
capital stock of Canandaigua Limited and all of the Company's domestic
operating subsidiaries and (ii) first priority pledges of 65% of the capital
stock held by the Company of Matthew Clark; B.B. Servicios, S.A. de C.V.;
Canandaigua World Sales Limited; and Schenley Distilleries Inc./Les
Distelleries Schenley Inc. The obligations of each Guarantor are limited to the
maximum amount which, after giving effect to all other contingent and fixed
liabilities of such Guarantor (including any Senior Indebtedness Incurred after
the Issue Date) and after giving effect to any collections from or payments
made by or on behalf of any other Guarantor in respect of the obligations of
such other Guarantor under its Guarantee or pursuant to its contribution
obligations under the Indenture, will result in the obligations of such
Guarantor under its Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under federal or state law. Each Guarantor that makes a
payment or distribution under a Guarantee shall be entitled to a contribution
from each other Guarantor in a pro rata amount, based on the net assets of each
Guarantor determined in accordance with GAAP.
The Company shall cause each Restricted Subsidiary issuing a Guarantee after
the Issue Date to execute and deliver to the Trustee a supplemental indenture
in form reasonably satisfactory to the Trustee pursuant to which such
Restricted Subsidiary shall become a party to the Indenture and thereby
unconditionally guarantee all of the Company's Obligations under the notes and
the Indenture on the terms set forth therein. Thereafter, such Restricted
Subsidiary shall (unless released in accordance with the terms of the
Indenture) be a Guarantor for all purposes of the Indenture.
The Indenture will provide that if the notes are defeased in accordance with
the terms of the Indenture, or if, subject to the requirements of the first
paragraph under "Consolidation, Merger, Sale of Assets" all or substantially
all of the assets of any Guarantor or all of the Capital Stock of any Guarantor
are sold (including by issuance or otherwise) by the Company in a transaction
constituting an Asset Sale, and if (x) the Net Cash Proceeds from such Asset
Sale are used in accordance with the covenant described under "Certain
Covenants--Limitation on Sale of Assets" or (y) the Company delivers to the
Trustee an Officers' Certificate to the effect that the Net Cash Proceeds from
such Asset Sale shall be used in accordance with the covenant described under
"Certain Covenants--Limitation on Asset Sales" and within the time limits
specified by such covenant, then such Guarantor or the Guarantors, as the case
may be (in the event of a defeasance of the notes or a sale or other
disposition of all of the Capital Stock of such Guarantor) or the corporation
acquiring such assets (in the event of a sale or other disposition of all or
substantially all of the assets of such Guarantor) shall be released and
discharged of its Guarantee obligations in respect of the Indenture and the
notes.
Any Guarantor that is designated an Unrestricted Subsidiary pursuant to and
in accordance with "Certain Covenants--Designation of Unrestricted
Subsidiaries" below shall upon such Designation be released and discharged of
its Guarantee obligations in respect of the Indenture and the notes and any
Unrestricted Subsidiary whose Designation is revoked pursuant to "Certain
Covenants--Designation of Unrestricted Subsidiaries" below will be required to
become a Guarantor in accordance with the procedure described above.
As of November 30, 2001, on a pro forma basis after giving effect to the
offering of the notes and the application of the net proceeds from the
offering, the aggregate amount of outstanding Senior Indebtedness would have
been approximately $1.1 billion, the aggregate amount of outstanding Pari Passu
Indebtedness would
S-13
have been approximately $200.0 million and the aggregate amount of outstanding
Senior Guarantor Indebtedness would have been approximately $1.0 billion
(including $1.0 billion of outstanding Indebtedness representing guarantees of
Senior Indebtedness). See "Risk Factors--Your right to receive payments on the
notes is junior to our senior credit facility and other unsubordinated
indebtedness, and the guarantees of our guarantors are junior to all of our
guarantors' unsubordinated indebtedness" and "Risk Factors--The notes are
unsecured and the stock of some of our subsidiaries is pledged to secure our
senior credit facility" and "Capitalization."
Certain Covenants
The Indenture contains, among others, the following covenants:
Limitation on Indebtedness. (a) The Company will not, and will not permit
any of its Restricted Subsidiaries to, Incur any Indebtedness (including any
Acquired Indebtedness), except that the Company and any Guarantor may Incur
Indebtedness (including any Acquired Indebtedness) and any Restricted
Subsidiary that is not a Guarantor may Incur Acquired Indebtedness if, in each
case, the Consolidated Fixed Charge Coverage Ratio for the Company for the four
full fiscal quarters immediately preceding the Incurrence of such Indebtedness
taken as one period, and after giving pro forma effect to:
(i) the Incurrence of such Indebtedness and (if applicable) the
application of the net proceeds therefrom, including to refinance other
Indebtedness, as if such Indebtedness was Incurred, and the application of
such proceeds occurred, at the beginning of such four-quarter period;
(ii) the Incurrence, repayment or retirement of any other Indebtedness by
the Company and its Restricted Subsidiaries since the first day of such
four-quarter period as if such Indebtedness was Incurred, repaid or retired
at the beginning of such four-quarter period (except that, in making such
computation, the amount of Indebtedness under any revolving credit facility
shall be computed based upon the average daily balance of such Indebtedness
during such four-quarter period);
(iii) in the case of Acquired Indebtedness, the related acquisition as if
such acquisition occurred at the beginning of such four-quarter period; and
(iv) any acquisition or disposition by the Company and its Restricted
Subsidiaries of any company or any business or any assets out of the
ordinary course of business, whether by merger, stock purchase or sale or
asset purchase or sale, or any related repayment of Indebtedness, in each
case since the first day of such four-quarter period, assuming such
acquisition or disposition had been consummated on the first day of such
four-quarter period,
is at least equal to 2.00:1.00.
(b) The foregoing limitation will not apply to the incurrence of any of the
following (collectively "Permitted Indebtedness"):
(i) Indebtedness of the Company and any Restricted Subsidiary under the
Credit Agreement in an aggregate principal amount at any one time
outstanding not to exceed an amount equal to the greater of (x) $1.0
billion, minus the amount of any repayment of such Indebtedness under the
Credit Agreement pursuant to "Certain Covenants--Limitation on Sale of
Assets" below and (y) the Borrowing Base;
(ii) Indebtedness of the Company pursuant to the notes and other
Indebtedness outstanding on the Issue Date (other than Indebtedness under
the Credit Agreement);
(iii) Indebtedness of any Guarantor pursuant to a Guarantee;
(iv) Indebtedness of the Company owing to a Restricted Subsidiary;
provided that any Indebtedness of the Company owing to a Restricted
Subsidiary that is not a Guarantor is made pursuant to an intercompany note
in the form attached to the Indenture and is subordinated in right of
payment from and after such time as the notes shall become due and payable
(whether at Stated Maturity, acceleration or otherwise) to the
S-14
payment and performance of the Company's obligations under the notes;
provided, further that any disposition, pledge or transfer of any such
Indebtedness to a Person (other than a disposition, pledge or transfer to a
Restricted Subsidiary or a pledge to or for the benefit of the lenders under
the Credit Agreement) shall be deemed to be an Incurrence of such
Indebtedness by the obligor not permitted by this clause (iv);
(v) Indebtedness of a Restricted Subsidiary owing to the Company or a
Wholly Owned Restricted Subsidiary; provided that, with respect to
Indebtedness owing to a Wholly Owned Restricted Subsidiary that is not a
Guarantor, (x) any such Indebtedness is made pursuant to an intercompany
note in the form attached to the Indenture and (y) any such Indebtedness
shall be subordinated in right of payment from and after such time as the
obligations under the Guarantee by such Wholly Owned Restricted Subsidiary
shall become due and payable to the payment and performance of such Wholly
Owned Restricted Subsidiary's obligations under its Guarantee; provided,
further that (a) any disposition, pledge or transfer of any such
Indebtedness to a Person (other than a disposition, pledge or transfer to
the Company or a Restricted Subsidiary or a pledge to or for the benefit of
the lenders under the Credit Agreement) shall be deemed to be an Incurrence
of such Indebtedness by the obligor not permitted by this clause (v), and
(b) any transaction pursuant to which any Restricted Subsidiary, which has
Indebtedness owing to the Company or any other Restricted Subsidiary, ceases
to be a Restricted Subsidiary shall be deemed to be the Incurrence of
Indebtedness by such Restricted Subsidiary that is not permitted by this
clause (v);
(vi) guarantees of any Restricted Subsidiary made in accordance with the
provisions of "Certain Covenants--Limitation on Guarantees by Restricted
Subsidiaries";
(vii) Hedging Obligations of the Company or any Guarantor entered into in
the ordinary course of business (and not for speculative purposes) designed
to protect against fluctuations in: (x) interest rates in respect of
Indebtedness of the Company or any of its Restricted Subsidiaries, as long
as such obligations at the time incurred do not exceed the aggregate
principal amount of such Indebtedness then outstanding or in good faith
anticipated to be outstanding within 90 days of such Incurrence; (y)
currencies or (z) commodities;
(viii) any renewals, extensions, substitutions, refundings, refinancings
or replacements (each, a "refinancing") of any Indebtedness described in
clauses (ii) and (iii) of this definition of "Permitted Indebtedness,"
including any successive refinancings so long as the aggregate principal
amount of Indebtedness represented thereby is not increased by such
refinancing plus the lesser of (1) the stated amount of any premium,
interest or other payment required to be paid in connection with such a
refinancing pursuant to the terms of the Indebtedness being refinanced or
(2) the amount of premium, interest or other payment actually paid at such
time to refinance the Indebtedness, plus, in either case, the amount of
expenses of the Company incurred in connection with such refinancing and, in
the case of Pari Passu Indebtedness or Subordinated Indebtedness, such
refinancing does not reduce the Average Life to Stated Maturity or the
Stated Maturity of such Indebtedness; and
(ix) Indebtedness, in addition to that described in clauses (i) through
(viii) of this definition of "Permitted Indebtedness," and any renewals,
extensions, substitutions, refinancings or replacements of such
Indebtedness, not to exceed $75.0 million outstanding at any one time in the
aggregate.
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to holders
of, any shares of the Company's Capital Stock (other than dividends or
distributions payable solely in shares of its Qualified Capital Stock or in
options, warrants or other rights to acquire such Qualified Capital Stock);
(ii) purchase, redeem or otherwise acquire or retire for value, directly
or indirectly, any shares of the Capital Stock of the Company or any
Affiliate thereof (other than any Wholly Owned Restricted Subsidiary of the
Company) or options, warrants or other rights to acquire such Capital Stock;
S-15
(iii) make any principal payment on, or repurchase, redeem, defease,
retire or otherwise acquire for value, prior to any scheduled principal
payment, sinking fund or maturity, any Subordinated Indebtedness;
(iv) declare or pay any dividend or distribution on any Capital Stock of
any Restricted Subsidiary to any Person (other than the Company or any of
its Restricted Subsidiaries) or purchase, redeem or otherwise acquire or
retire for value any Capital Stock of any Restricted Subsidiary held by any
Person (other than the Company or any of its Wholly Owned Restricted
Subsidiaries);
(v) Incur, create or assume any guarantee of Indebtedness of any
Affiliate (other than a Wholly Owned Restricted Subsidiary of the Company);
or
(vi) make any Investment in any Person (other than any Permitted
Investments)
(any of the foregoing payments described in clauses (i) through (vi), other
than any such action that is a Permitted Payment, collectively, "Restricted
Payments"), unless after giving effect to the proposed Restricted Payment (the
amount of any such Restricted Payment, if other than cash, as determined by the
Board of Directors of the Company, whose determination shall be conclusive and
evidenced by a board resolution), (1) no Default or Event of Default shall have
occurred and be continuing and such Restricted Payment shall not be an event
which is, or after notice or lapse of time or both, would be, an "event of
default" under the terms of any Indebtedness of the Company or its Restricted
Subsidiaries; (2) immediately before and immediately after giving effect to
such transaction on a pro forma basis, the Company could Incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) under the
provisions described under "Certain Covenants--Limitation on Indebtedness"; and
(3) the aggregate amount of all such Restricted Payments declared or made after
the date of the Indenture does not exceed the sum of:
(A) 50% of the aggregate cumulative Consolidated Net Income of the
Company accrued on a cumulative basis during the period beginning December
1, 1998 and ending on the last day of the Company's last fiscal quarter
ending prior to the date of the Restricted Payment (or, if such aggregate
cumulative Consolidated Net Income shall be a loss, minus 100% of such
loss); plus
(B) the aggregate Net Cash Proceeds received after February 25, 1999 by
the Company from the issuance or sale (other than to any of its
Subsidiaries) of its shares of Qualified Capital Stock or any options,
warrants or rights to purchase such shares of Qualified Capital Stock of the
Company (except, in each case, to the extent such proceeds are used to
purchase, redeem or otherwise retire Capital Stock or Subordinated
Indebtedness as set forth below); plus
(C) the aggregate Net Cash Proceeds received after February 25, 1999 by
the Company (other than from any of its Subsidiaries) upon the exercise of
any options or warrants to purchase shares of Qualified Capital Stock of the
Company; plus
(D) the aggregate Net Cash Proceeds received after February 25, 1999 by
the Company from debt securities or Redeemable Capital Stock that have been
converted into or exchanged for Qualified Capital Stock of the Company to
the extent such debt securities or Redeemable Capital Stock are originally
sold for cash plus the aggregate Net Cash Proceeds received by the Company
at the time of such conversion or exchange; plus
(E) in the event the Company or any Restricted Subsidiary makes an
Investment in a Person that, as a result of or in connection with such
Investment becomes a Restricted Subsidiary, an amount equal to the Company's
or any Restricted Subsidiary's existing Investment in such Person that was
previously treated as a Restricted Payment; plus
(F) so long as the Designation thereof was treated as a Restricted
Payment made after the Issue Date, with respect to any Unrestricted
Subsidiary that has been redesignated as a Restricted Subsidiary after the
Issue Date in accordance with "Certain Covenants--Designation of
Unrestricted Subsidiaries," an amount equal to the Company's Investment in
such Unrestricted Subsidiary (provided that such amount shall not in any
case exceed the Designation Amount with respect to such Restricted
Subsidiary upon its Designation); plus
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(G) $50.0 million; minus
(H) the Designation Amount (measured as of the date of Designation) with
respect to any Subsidiary of the Company which has been designated as an
Unrestricted Subsidiary after the Issue Date in accordance with the covenant
"Certain Covenants--Designation of Unrestricted Subsidiaries;" minus
(I) the aggregate amount of all Restricted Payments made after February
25, 1999 through the date of the Indenture.
(b) Notwithstanding the foregoing, and in the case of clauses (ii), (iii)
and (iv) below, so long as there is no Default or Event of Default continuing,
the foregoing provisions shall not prohibit the following actions (clauses (i)
through (iv) being referred to as a "Permitted Payment"):
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would be
permitted by the provisions of paragraph (a) above and such payment shall be
deemed to have been paid on such date of declaration for purposes of the
calculation required by paragraph (a) above;
(ii) the repurchase, redemption, or other acquisition or retirement of
any shares of any class of Capital Stock of the Company in exchange for
(including any such exchange pursuant to the exercise of a conversion right
or privilege or in which cash is paid in lieu of the issuance of fractional
shares or scrip), or out of the Net Cash Proceeds of, a substantially
concurrent issue and sale for cash (other than to a Subsidiary) of other
shares of Qualified Capital Stock of the Company; provided that the Net Cash
Proceeds from the issuance of such shares of Qualified Capital Stock are
excluded from clause (3)(B) of paragraph (a) above;
(iii) any repurchase, redemption, defeasance, retirement, refinancing or
acquisition for value or payment of principal of any Subordinated
Indebtedness in exchange for, or out of the Net Cash Proceeds of, a
substantially concurrent issuance and sale for cash (other than to any
Subsidiary of the Company) of any Qualified Capital Stock of the Company,
provided that the Net Cash Proceeds from the issuance of such shares of
Qualified Capital Stock are excluded from clause (3)(B) of paragraph (a)
above;
(iv) the repurchase, redemption, defeasance, retirement, refinancing or
acquisition for value or payment of principal of any Subordinated
Indebtedness (other than Redeemable Capital Stock) (a "refinancing") through
the issuance of new Subordinated Indebtedness of the Company, provided that
any such new Subordinated Indebtedness issued for such purpose (1) shall be
in a principal amount that does not exceed the principal amount so
refinanced (or, if such Subordinated Indebtedness provides for an amount
less than the principal amount thereof to be due and payable upon a
declaration or acceleration thereof, then such lesser amount as of the date
of determination), plus the lesser of (x) the stated amount of any premium,
interest or other payment required to be paid in connection with such a
refinancing pursuant to the terms of the Indebtedness being refinanced or
(y) the amount of premium, interest or other payment actually paid at such
time to refinance the Indebtedness, plus, in either case, the amount of
expenses of the Company Incurred in connection with such refinancing; (2)
has an Average Life to Stated Maturity greater than the remaining Average
Life to Stated Maturity of the notes; (3) has a Stated Maturity for its
final scheduled principal payment later than the Stated Maturity for the
final scheduled principal payment of the notes; and (4) is expressly
subordinated in right of payment to the notes at least to the same extent as
the Indebtedness to be refinanced.
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, enter
into or suffer to exist any transaction or series of related transactions
(including, without limitation, the sale, purchase, exchange or lease of
assets, property or services) with any Affiliate of the Company (other than the
Company or a Wholly Owned Restricted Subsidiary) unless:
(i) such transaction or series of transactions is in writing on terms
that are no less favorable to the Company or such Restricted Subsidiary, as
the case may be, than would be available in a comparable transaction in
arm's-length dealings with an unrelated third party;
S-17
(ii) with respect to any transaction or series of transactions involving
aggregate payments in excess of $10.0 million, the Company delivers an
officers' certificate to the Trustee certifying that such transaction or
series of related transactions complies with clause (i) above and such
transaction or series of related transactions has been approved by the Board
of Directors of the Company; and
(iii) with respect to a transaction or series of related transactions
involving aggregate value in excess of $25.0 million, the Company delivers
to the Trustee an opinion of an independent investment banking firm of
national standing in the United States, or an independent public accounting
firm of national standing in the United States, stating that the transaction
or series of transactions is fair to the Company or such Restricted
Subsidiary;
provided, however, that this provision shall not apply to any transaction with
an officer or director of the Company entered into in the ordinary course of
business (including compensation or employee benefit arrangements with any
officer or director of the Company).
Limitation on Senior Subordinated Indebtedness. The Company will not, and
will not permit any Guarantor to, directly or indirectly, create, Incur, issue,
assume, guarantee or otherwise in any manner become directly or indirectly
liable for or with respect to or otherwise permit to exist any Indebtedness
that is subordinate in right of payment to any Indebtedness of the Company or
such Guarantor, as the case may be, unless such Indebtedness is also pari passu
with the notes or the Guarantee of such Guarantor or subordinate in right of
payment to the notes or such Guarantee to at least the same extent as the notes
or such Guarantee are subordinate in right of payment to Senior Indebtedness or
Senior Guarantor Indebtedness, as the case may be, as set forth in the
Indenture.
Limitation on Liens. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, Incur, affirm or
suffer to exist any Lien of any kind upon any of its property or assets
(including any intercompany notes), owned at the date of the Indenture or
acquired after the date of the Indenture, or any income or profits therefrom,
except if the notes (or a Guarantee, in the case of Liens of a Guarantor) are
directly secured equally and ratably with (or prior to in the case of Liens
with respect to Subordinated Indebtedness or Indebtedness of a Guarantor
subordinated in right of payment to any Guarantee) the obligation or liability
secured by such Lien, excluding, however, from the operation of the foregoing
any of the following:
(a) any Lien existing as of the date of the Indenture;
(b) any Lien arising by reason of
(1) any judgment, decree or order of any court, so long as such Lien
is adequately bonded and any appropriate legal proceedings which may
have been duly initiated for the review of such judgment, decree or
order shall not have been finally terminated or the period within which
such proceedings may be initiated shall not have expired;
(2) taxes not yet delinquent or which are being contested in good
faith;
(3) security for payment of workers' compensation or other insurance;
(4) good faith deposits in connection with tenders, leases or
contracts (other than contracts for the payment of money);
(5) zoning restrictions, easements, licenses, reservations,
provisions, covenants, conditions, waivers, restrictions on the use of
property or minor irregularities of title (and with respect to leasehold
interests, mortgages, obligations, liens and other encumbrances
incurred, created, assumed or permitted to exist and arising by, through
or under a landlord or owner of the leased property, with or without
consent of the lessee), none of which materially impairs the use of any
parcel of property material to the operation of the business of the
Company or any Restricted Subsidiary or the value of such property for
the purpose of such business;
S-18
(6) deposits to secure public or statutory obligations, or in lieu of
surety or appeal bonds;
(7) certain surveys, exceptions, title defects, encumbrances,
easements, reservations of, or rights of others for, rights of way,
sewers, electric lines, telegraph or telephone lines and other similar
purposes or zoning or other restrictions as to the use of real property
not interfering with the ordinary conduct of the business of the Company
or any of its Restricted Subsidiaries;
(8) operation of law in favor of mechanics, materialmen, laborers,
employees or suppliers, incurred in the ordinary course of business for
sums which are not yet delinquent or are being contested in good faith
by negotiations or by appropriate proceedings which suspend the
collection thereof; or
(9) standard custodial, bailee or depository arrangements (including
(x) in respect of deposit accounts with banks and other financial
institutions and (y) standard customer agreements in respect of accounts
for the purchase and sale of securities and other property with
brokerage firms or other types of financial institutions);
(c) any Lien now or hereafter existing on property of the Company or any
Guarantor securing Senior Indebtedness or Senior Guarantor Indebtedness, in
each case which Indebtedness is permitted under the provisions of "Certain
Covenants--Limitation on Indebtedness" and provided that the provisions
described under "Certain Covenants--Limitation on Guarantees of Restricted
Subsidiaries" are complied with;
(d) any Lien securing Acquired Indebtedness created prior to (and not
created in connection with, or in contemplation of) the incurrence of such
Indebtedness by the Company or any Restricted Subsidiary, in each case which
Indebtedness is permitted under the provisions of "Certain
Covenants--Limitation on Indebtedness"; provided that any such Lien only
extends to the assets that were subject to such lien securing such Acquired
Indebtedness prior to the related transaction by the Company or its
Restricted Subsidiaries; and
(e) any extension, renewal, refinancing or replacement, in whole or in
part, of any Lien described in the foregoing clauses (a) through (d) so long
as the amount of security is not increased thereby.
Limitation on Sale of Assets. (a) The Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, consummate an
Asset Sale (other than an Asset Swap permitted by clause (g) below) unless (i)
at least 75% of the proceeds from such Asset Sale are received in cash;
provided, however that the amount of (A) any liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet or the
notes thereto) of the Company or any Restricted Subsidiary that are assumed by
the transferee in such Asset Sale and from which the Company or such Restricted
Subsidiary is released and (B) any notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are
immediately converted by the Company or such Restricted Subsidiary into cash,
shall be deemed cash for purposes of this covenant and (ii) the Company or such
Restricted Subsidiary receives consideration at the time of such Asset Sale at
least equal to the Fair Market Value of the shares or assets sold (other than
in the case of an involuntary Asset Sale, as determined by the Board of
Directors of the Company and evidenced in a board resolution).
(b) If all or a portion of the Net Cash Proceeds of any Asset Sale are not
required to be applied to repay permanently any Senior Indebtedness or Senior
Guarantor Indebtedness then outstanding as required by the terms thereof, or
the Company determines not to apply such Net Cash Proceeds to the permanent
prepayment of such Senior Indebtedness or Senior Guarantor Indebtedness or if
no such Senior Indebtedness or Senior Guarantor Indebtedness is then
outstanding, then the Company may within 12 months of the Asset Sale, invest
the Net Cash Proceeds in other properties and assets that (as determined by the
Board of Directors of the Company) replace the properties and assets that were
the subject of the Asset Sale or in properties and assets that will be used in
the businesses of the Company or its Restricted Subsidiaries as existing at
such time or reasonably related thereto. The amount of such Net Cash Proceeds
neither used to permanently repay or prepay Senior Indebtedness or Senior
Guarantor Indebtedness nor used or invested as set forth in this paragraph
constitutes "Excess Proceeds."
S-19
(c) When the aggregate amount of Excess Proceeds equals $10.0 million or
more, the Company shall apply the Excess Proceeds to the repayment of the notes
and any Pari Passu Indebtedness required to be repurchased under the instrument
governing such Pari Passu Indebtedness as follows: (a) the Company shall make
an offer to purchase (an "Offer") from all holders of the notes in accordance
with the procedures set forth in the Indenture in the maximum principal amount
(expressed as a multiple of $1,000) of notes that may be purchased out of an
amount (the "Note Amount") equal to the product of such Excess Proceeds
multiplied by a fraction, the numerator of which is the outstanding principal
amount of the notes, and the denominator of which is the sum of the outstanding
principal amount of the notes and such Pari Passu Indebtedness (subject to
proration in the event such amount is less than the aggregate Offered Price (as
defined) of all notes tendered) and (b) to the extent required by such Pari
Passu Indebtedness to permanently reduce the principal amount of such Pari
Passu Indebtedness, the Company shall make an offer to purchase or otherwise
repurchase or redeem Pari Passu Indebtedness (a "Pari Passu Offer") in an
amount (the "Pari Passu Debt Amount") equal to the excess of the Excess
Proceeds over the Note Amount; provided that in no event shall the Pari Passu
Debt Amount exceed the principal amount of such Pari Passu Indebtedness plus
the amount of any premium required to be paid to repurchase such Pari Passu
Indebtedness. The offer price shall be payable in cash in an amount equal to
100% of the principal amount of the notes plus accrued and unpaid interest, if
any, to the date (the "Offer Date") such Offer is consummated (the "Offered
Price"), in accordance with the procedures set forth in the Indenture. To the
extent that the aggregate Offered Price of the notes tendered pursuant to the
Offer is less than the Note Amount relating thereto or the aggregate amount of
Pari Passu Indebtedness that is purchased is less than the Pari Passu Debt
Amount (the amount of such shortfall, if any, constituting a "Deficiency"), the
Company shall use such Deficiency in the business of the Company and its
Restricted Subsidiaries. Upon completion of the purchase of all the notes
tendered pursuant to an Offer and the purchase of the Pari Passu Indebtedness
pursuant to a Pari Passu Offer, the amount of Excess Proceeds, if any, shall be
reset at zero.
(d) If the Company becomes obligated to make an Offer pursuant to clause (c)
above, the notes shall be purchased by the Company, at the option of the holder
thereof, in whole or in part in integral multiples of $1,000, on a date that is
not earlier than 45 days and not later than 60 days from the date the notice is
given to holders, or such later date as may be necessary for the Company to
comply with the requirements under the Exchange Act, subject to proration in
the event the Note Amount is less than the aggregate Offered Price of all notes
tendered.
(e) The Company shall comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other applicable
securities laws or regulations in connection with an Offer.
(f) The Company will not, and will not permit any Subsidiary to, create or
permit to exist or become effective any restriction (other than restrictions
existing under (i) Indebtedness as in effect on the date of the Indenture as
such Indebtedness may be refinanced from time to time, provided that such
restrictions are no less favorable to the Holders of Notes than those existing
on the date of the Indenture or (ii) any Senior Indebtedness and any Senior
Guarantor Indebtedness) that would materially impair the ability of the Company
to make an Offer to purchase the notes or, if such Offer is made, to pay for
the notes tendered for purchase.
(g) The Company will not, and will not permit any Restricted Subsidiary, to
engage in any Asset Swaps, unless: (i) at the time of entering into such Asset
Swap, and immediately after giving effect to such Asset Swap, no Default or
Event of Default shall have occurred and be continuing or would occur as a
consequence thereof; (ii) in the event such Asset Swap involves an aggregate
amount in excess of $10.0 million, the terms of such Asset Swap have been
approved by a majority of the members of the board of directors of the Company
which determination shall include a determination that the Fair Market Value of
the assets being received in such swap are at least equal to the Fair Market
Value of the assets being swapped and (iii) in the event such Asset Swap
involves an aggregate amount in excess of $20.0 million, the Company has also
received a written opinion from an independent banking firm of nationally
recognized standing that such Asset Swap is fair to the Company or such
Restricted Subsidiary, as the case may be, from a financial point of view.
S-20
Limitation on Guarantees by Restricted Subsidiaries. The Indenture will
provide that in the event the Company (i) organizes or acquires any Domestic
Restricted Subsidiary after the date of the Indenture that is not a Guarantor
and causes or permits such Restricted Subsidiary to, directly or indirectly,
guarantee the payment of any Indebtedness ("Other Indebtedness") of the Company
or any Guarantor or (ii) causes or permits any Foreign Restricted Subsidiary
that is not a Guarantor to, directly or indirectly, guarantee the payment of
any Other Indebtedness, then, in each case the Company shall cause such
Restricted Subsidiary to simultaneously execute and deliver a supplemental
indenture to the Indenture pursuant to which it will become a Guarantor under
the Indenture; provided, however, that in the event a Domestic Restricted
Subsidiary is acquired in a transaction in which a merger agreement is entered
into, such Domestic Restricted Subsidiary shall not be required to execute and
deliver such supplemental indenture until the consummation of the merger
contemplated by any such merger agreement; provided, further, that if such
Other Indebtedness is (i) Indebtedness that is ranked pari passu in right of
payment with the notes or the Guarantees of such Restricted Subsidiary, as the
case may be, the Guarantee of such Subsidiary shall be pari passu in right of
payment with the guarantee of the Other Indebtedness; or (ii) Subordinated
Indebtedness, the Guarantee of such Restricted Subsidiary shall be senior in
right of payment to the guarantee of the Other Indebtedness (which guarantee of
such Subordinated Indebtedness shall provide that such guarantee is
subordinated to the Guarantees of such Subsidiary to the same extent and in the
same manner as the Other Indebtedness is subordinated to the notes or the
Guarantee of such Restricted Subsidiary, as the case may be). The Guarantee of
a Guarantor shall be released upon the sale or transfer of all or substantially
all of the assets or all of the Capital Stock of such Guarantor; provided,
that, either (i) such sale or transfer complies with the provisions set forth
in "Certain Covenants--Limitation on Sale of Assets" or (ii) such sale or
transfer need not comply with the provisions set forth in "Certain
Covenants--Limitation on Sale of Assets" because the Capital Stock so sold or
transferred does not constitute an "Asset Sale" by operation of the provisions
of clause (y) of the last sentence of the definition of Asset Sale.
Purchase of Notes Upon a Change of Control. If a Change of Control shall
occur at any time, then each holder of notes shall have the right to require
that the Company purchase such holder's notes in whole or in part in integral
multiples of $1,000, at a purchase price (the "Change of Control Purchase
Price") in cash in an amount equal to 101% of the principal amount of such
notes, plus accrued and unpaid interest, if any, to the date of purchase (the
"Change of Control Purchase Date"), pursuant to the offer described below (the
"Change of Control Offer") and the other procedures set forth in the Indenture.
Within 15 days following any Change of Control, the Company shall notify the
Trustee thereof and give written notice of such Change of Control to each
holder of notes by first-class mail, postage prepaid, at his address appearing
in the security register, stating, among other things, the purchase price and
that the purchase date shall be a Business Day no earlier than 30 days nor
later than 60 days from the date such notice is mailed, or such later date as
is necessary to comply with requirements under the Exchange Act; that any note
not tendered will continue to accrue interest; that, unless the Company
defaults in the payment of the purchase price, any notes accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest after
the Change of Control Purchase Date; and certain other procedures that a holder
of notes must follow to accept a Change of Control Offer or to withdraw such
acceptance.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the notes that might be delivered by holders of the
notes seeking to accept the Change of Control Offer. The Credit Agreement
prohibits the purchase of the notes by the Company prior to full repayment of
indebtedness under the Credit Agreement and, upon a Change of Control, all
amounts outstanding under the Credit Agreement become due and payable. There
can be no assurance that in the event of a Change in Control the Company will
be able to obtain the necessary consents from the lenders under the Credit
Agreement to consummate a Change of Control Offer. The failure of the Company
to make or consummate the Change of Control Offer or pay the Change of Control
Purchase Price when due will result in an Event of Default and will give the
Trustee and the holders of the notes the rights described under "Events of
Default."
S-21
The definition of "Change of Control" in the Indenture is defined to mean
the occurrence of any of the following events:
(i) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act), other than Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a Person shall be deemed to have beneficial ownership of
all shares that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 30% of the voting power of the total outstanding
Voting Stock of the Company voting as one class, provided that the Permitted
Holders "beneficially own" (as so defined) a percentage of Voting Stock
having a lesser percentage of the voting power than such other Person and do
not have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of the Board of Directors of the
Company;
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election to such Board or whose
nomination for election by the shareholders of the Company, was approved by
a vote of 66 2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute
a majority of such Board of Directors then in office;
(iii) the Company consolidates with or merges with or into any Person or
conveys, transfers or leases all or substantially all of its assets to any
Person, or any corporation consolidates with or merges into or with the
Company, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company is changed into or exchanged for
cash, securities or other property, other than any such transaction where
the outstanding Voting Stock of the Company is not changed or exchanged at
all (except to the extent necessary to reflect a change in the jurisdiction
of incorporation of the Company) or where (A) the outstanding Voting Stock
of the Company is changed into or exchanged for (x) Voting Stock of the
surviving corporation which is not Redeemable Capital Stock or (y) cash,
securities and other property (other than Capital Stock of the surviving
corporation) in an amount which could be paid by the Company as a Restricted
Payment in accordance with "Certain Covenants--Limitation on Restricted
Payments" (and such amount shall be treated as a Restricted Payment subject
to the provisions in the Indenture described under "Certain
Covenants--Limitation on Restricted Payments") and (B) no "person" or
"group" other than Permitted Holders owns immediately after such
transaction, directly or indirectly, more than the greater of (1) 30% of the
voting power of the total outstanding Voting Stock of the surviving
corporation voting as one class and (2) the percentage of such voting power
of the surviving corporation held, directly or indirectly, by Permitted
Holders immediately after such transaction; or
(iv) the Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution other than in a transaction which complies with
the provisions described under "Consolidation, Merger, Sale of Assets."
"Permitted Holders" means as of the date of determination (i) Marilyn Sands,
Richard Sands and Robert Sands; (ii) family members or the relatives of the
persons described in clause (i) or the Mac and Sally Sands Foundation,
Incorporated; (iii) any trusts created for the benefit of the Persons described
in clauses (i), (ii) or (v) or for the benefit of Andrew Stern or any trust for
the benefit of any such trust; (iv) any partnerships that are controlled by
(and a majority of the partnership interests in which are owned by) any of the
Persons described in clauses (i), (ii), (iii) or (v) or by any partnership that
satisfies the conditions of this clause (iv); or (v) in the case of Marvin
Sands and in the event of the incompetence or death of any of the persons
described in clauses (i) and (ii), such person's estate, executor,
administrator, committee or other personal representative or beneficiaries, in
each case who at any particular date shall beneficially own or have the right
to acquire, directly or indirectly, Capital Stock of the Company.
The term "all or substantially all" as used in the definition of "Change of
Control" has not been interpreted under New York law (which is the governing
law of the Indenture) to represent a specific quantitative test. As a
consequence, in the event the holders of the notes elected to exercise their
rights under the Indenture and the
S-22
Company elected to contest such election, there could be no assurance as to how
a court interpreting New York law would interpret the phrase.
The definition of "Change of Control" is limited in scope. As a result the
provisions of the Indenture will not afford holders of notes the right to
require the Company to purchase the notes in the event of a highly leveraged
transaction or certain transactions with the Company's management or its
affiliates, including a reorganization, restructuring, merger or similar
transaction (including, in certain circumstances, an acquisition of the Company
by management or its affiliates) involving the Company that may adversely
affect holders of the notes, if such transaction is not a transaction defined
as a Change of Control. A transaction involving the Company's management or its
affiliates, or a transaction involving a recapitalization of the Company, will
result in a Change of Control if it is the type of transaction specified by
such definition.
The existence of a holder's right to require the Company to purchase such
holder's notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction which constitutes a Change of Control.
The Company will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, and any other applicable securities laws or
regulations in connection with a Change of Control Offer.
The Company will not, and will not permit any Subsidiary to, create or
permit to exist or become effective any restriction (other than restrictions
existing under Indebtedness as in effect on the date of the Indenture) that
would materially impair the ability of the Company to make a Change of Control
Offer to purchase the notes or, if such Change of Control Offer is made, to pay
for the notes tendered for purchase.
Limitation on Restricted Subsidiary Capital Stock. The Company will not
permit any Restricted Subsidiary of the Company to issue any Capital Stock,
except for:
(i) Capital Stock issued to and held by the Company or a Wholly Owned
Restricted Subsidiary;
(ii) Capital Stock issued by a Person prior to the time (A) such Person
becomes a Restricted Subsidiary, (B) such Person merges with or into a
Restricted Subsidiary or (C) a Restricted Subsidiary merges with or into
such Person; provided that such Capital Stock was not issued or incurred by
such Person in anticipation of the type of transaction contemplated by
subclauses (A), (B) or (C); and
(iii) Capital Stock issued by a Restricted Subsidiary, where immediately
after giving effect to such issuance or sale, such Restricted Subsidiary
would no longer constitute a Restricted Subsidiary.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary of the Company to
(i) pay dividends or make any other distribution on its Capital Stock,
(ii) pay any Indebtedness owed to the Company or a Restricted Subsidiary,
(iii) make any Investment in the Company or a Restricted Subsidiary, or
(iv) transfer any of its properties or assets to the Company or any
Restricted Subsidiary,
except
(a) any encumbrance or restriction pursuant to an agreement in effect on
the date of the Indenture;
(b) any encumbrance or restriction, with respect to a Restricted
Subsidiary that is not a Restricted Subsidiary on the date of the Indenture,
in existence at the time such Person becomes a Restricted
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Subsidiary and, in the case of clauses (a) and (b), not incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary;
(c) any encumbrance or restriction existing under any agreement that
extends, renews, refinances or replaces the agreements containing the
encumbrances or restrictions in the foregoing clauses (a) and (b), or in
this clause (c); provided that the terms and conditions of any such
encumbrances or restrictions are not materially less favorable to the
holders of the notes than those under or pursuant to the agreement
evidencing the Indebtedness so extended, renewed, refinanced or replaced
(except that an encumbrance or restriction that is not more restrictive than
those set forth in the Indenture shall in any event be permitted); and
(d) any encumbrance or restriction created pursuant to an asset sale
agreement, stock sale agreement or similar instrument pursuant to which an
Asset Sale permitted under "Certain Covenants--Limitation on Sale of Assets"
is to be consummated, so long as such restriction or encumbrance shall be
effective only for a period from the execution and delivery of such
agreement or instrument through a termination date not later than 270 days
after such execution and delivery.
Designation of Unrestricted Subsidiaries. The Company may designate after
the Issue Date any Subsidiary of the Company as an "Unrestricted Subsidiary"
under the Indenture (a "Designation") only if:
(i) no Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to such Designation;
(ii) at the time of and after giving effect to such Designation, the
Company could Incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the Consolidated Fixed Change Coverage Ratio of the
first paragraph of "Certain Covenants--Limitation on Indebtedness"; and
(iii) the Company would be permitted to make an Investment (other than a
Permitted Investment) at the time of Designation (assuming the effectiveness
of such Designation) pursuant to paragraph (a) of "Certain
Covenants--Limitation on Restricted Payments" above in an amount (the
"Designation Amount") equal to the amount of the Company's Investment in
such Subsidiary on such date.
Neither the Company nor any Restricted Subsidiary shall at any time (x)
provide credit support for, subject any of its property or assets (other than
the Capital Stock of any Unrestricted Subsidiary) to the satisfaction of, or
guarantee, any Indebtedness of any Unrestricted Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness) or (y) be
directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary. For purposes of the foregoing, the Designation of a Subsidiary of
the Company as an Unrestricted Subsidiary shall be deemed to include the
Designation of all of the Subsidiaries of such Subsidiary.
The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") only if:
(i) no Default or Event of Default shall have occurred and be continuing
at the time of and after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if Incurred at such
time, have been permitted to be Incurred for all purposes of the Indenture.
All Designations and Revocations must be evidenced by resolutions of the
Board of Directors of the Company, delivered to the Trustee certifying
compliance with the foregoing provisions.
Provision of Financial Statements. Whether or not the Company is subject to
Section 13(a) or 15(d) of the Exchange Act, the Company will, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which the Company would have been
required to file with
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the Commission pursuant to such Sections 13(a) or 15(d) if the Company were so
subject, such documents to be filed with the Commission on or prior to the
respective dates (the "Required Filing Dates") by which the Company would have
been required so to file such documents if the Company were so subject. The
Company will also in any event (x) within 15 days of each Required Filing Date
(i) transmit by mail to all Holders, as their names and addresses appear in the
security register, without cost to such Holders and (ii) file with the Trustee
copies of the annual reports, quarterly reports and other documents which the
Company would have been required to file with the Commission pursuant to
Section 13(a) or 15(d) of the Exchange Act if the Company were subject to such
Sections and (y) if filing such documents by the Company with the Commission is
not permitted under the Exchange Act, promptly upon written request and payment
of the reasonable cost of duplication and delivery, supply copies of such
documents to any prospective Holder at the Company's cost.
Additional Covenants. The Indenture also contains covenants with respect to
the following matters: (i) payment of principal, premium and interest; (ii)
maintenance of an office or agency in the City of New York; (iii) arrangements
regarding the handling of money held in trust; (iv) maintenance of corporate
and partnership existence; (v) payment of taxes and other claims; (vi)
maintenance of properties; and (vii) maintenance of insurance.
Consolidation, Merger, Sale of Assets
The Company shall not, in a single transaction or through a series of
related transactions, consolidate with or merge with or into any other Person
or sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets as an entirety to any Person or
group of affiliated Persons, or permit any of its Restricted Subsidiaries to
enter into any such transaction or transactions if such transaction or
transactions, in the aggregate, would result in a sale, assignment, conveyance,
transfer, lease or disposal of all or substantially all of the properties and
assets of the Company and its Restricted Subsidiaries on a Consolidated basis
to any other Person or group of affiliated Persons, unless at the time and
after giving effect thereto:
(i) either (a) the Company shall be the continuing corporation or (b) the
Person (if other than the Company) formed by such consolidation or into
which the Company is merged or the Person which acquires by sale,
assignment, conveyance, transfer, lease or disposition of all or
substantially all of the properties and assets of the Company and its
Restricted Subsidiaries on a Consolidated basis (the "Surviving Entity")
shall be a corporation duly organized and validly existing under the laws of
the United States of America, any state thereof or the District of Columbia
and such Person assumes, by a supplemental indenture in a form reasonably
satisfactory to the Trustee, all the obligations of the Company under the
notes and the Indenture, and the Indenture shall remain in full force and
effect;
(ii) immediately before and immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing;
(iii) immediately after giving effect to such transaction on a pro forma
basis, the Consolidated Net Worth of the Company (or the Surviving Entity if
the Company is not the continuing obligor under the Indenture) is equal to
or greater than the Consolidated Net Worth of the Company immediately prior
to such transaction;
(iv) immediately before and immediately after giving effect to such
transaction on a pro forma basis (on the assumption that the transaction
occurred on the first day of the four-quarter period immediately prior to
the consummation of such transaction with the appropriate adjustments with
respect to the transaction being included in such pro forma calculation),
the Company (or the Surviving Entity if the Company is not the continuing
obligor under the Indenture) could incur $1.00 of additional Indebtedness
under the provisions of "Certain Covenants--Limitation on Indebtedness"
(other than Permitted Indebtedness);
(v) each Guarantor, if any, unless it is the other party to the
transactions described above, shall have by supplemental indenture confirmed
that its Guarantee shall apply to such Person's obligations under the
Indenture and the notes;
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(vi) if any of the property or assets of the Company or any of its
Restricted Subsidiaries would thereupon become subject to any Lien, the
provisions of "Certain Covenants--Limitation on Liens" are complied with; and
(vii) the Company or the Surviving Entity shall have delivered, or caused
to be delivered, to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an officers' certificate and an opinion of
counsel, each to the effect that such consolidation, merger, transfer, sale,
assignment, conveyance, lease or other transaction and the supplemental
indenture in respect thereto comply with the Indenture and that all
conditions precedent herein provided for relating to such transaction have
been complied with.
Each Guarantor shall not, and the Company will not permit a Guarantor to, in
a single transaction or through a series of related transactions merge or
consolidate with or into any other corporation (other than the Company or any
other Guarantor) or other entity, or sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of its properties and assets on a
Consolidated basis to any entity (other than the Company or any other
Guarantor) unless at the time and after giving effect thereto:
(i) either (1) such Guarantor shall be the continuing corporation or
partnership or (2) the entity (if other than such Guarantor) formed by such
consolidation or into which such Guarantor is merged or the entity which
acquires by sale, assignment, conveyance, transfer, lease or disposition the
properties and assets of such Guarantor shall be a corporation duly
organized and validly existing under the Laws of the United States, any
state thereof or the District of Columbia and shall expressly assume by a
supplemental indenture, executed and delivered to the Trustee, in a form
reasonably satisfactory to the Trustee, all the obligations of such
Guarantor under its Guarantee and the Indenture;
(ii) immediately before and immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; and
(iii) such Guarantor shall have delivered to the Trustee an officers'
certificate and an opinion of counsel in form and substance reasonably
satisfactory to the Trustee, each stating that such consolidation, merger,
sale, assignment, conveyance, transfer, lease or disposition and such
supplemental indenture comply with the Indenture, and thereafter all
obligations of the predecessor shall terminate.
The provisions of this paragraph shall not apply to any transaction (including
any Asset Sale made in accordance with "Certain Covenants--Limitation on Sale
of Assets") with respect to any Guarantor (i) if the Guarantee of such
Guarantor is released in connection with such transaction in accordance with
the last sentence of "Certain Covenants--Limitation on Guarantees by Restricted
Subsidiaries" or (ii) if such transaction need not comply with the provisions
set forth in "Certain Covenants--Limitation on Sale of Assets" because the
properties or assets so sold, assigned, conveyed, transferred, leased or
otherwise disposed of do not constitute an "Asset Sale" by operation of the
provisions of clause (y) of the last sentence of the definition of Asset Sale.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraphs in
which the Company or any Guarantor is not the continuing corporation, the
successor Person formed or remaining shall succeed to, and be substituted for,
and may exercise every right and power of, the Company or such Guarantor, as
the case may be, and the Company or such Guarantor, as the case may be, would
be discharged from all obligations and covenants under the Indenture and the
notes.
Events of Default
An Event of Default will occur under the Indenture if:
(i) there shall be a default in the payment of any interest on any Note
when it becomes due and payable, and such default shall continue for a
period of 30 days;
(ii) there shall be a default in the payment of the principal of (or
premium, if any, on) any Note at its Maturity (upon acceleration, optional
or mandatory redemption, required repurchase or otherwise);
S-26
(iii) (a) there shall be a default in the performance, or breach, of any
covenant or agreement of the Company or any Guarantor under the Indenture
(other than a default in the performance, or breach, of a covenant or
agreement which is specifically dealt with in clauses (i) or (ii) or in
clauses (b), (c) and (d) of this clause (iii)) and such default or breach
shall continue for a period of 30 days after written notice has been given,
by certified mail, (x) to the Company by the Trustee or (y) to the Company
and the Trustee by the holders of at least 25% in aggregate principal amount
of the outstanding notes, specifying such default or breach and requiring it
to be remedied and stating that such notice is a "Notice of Default" under
the Indenture; (b) there shall be a default in the performance or breach of
the provisions described in "Consolidation, Merger, Sale of Assets"; (c) the
Company shall have failed to make or consummate an Offer in accordance with
the provisions of "Certain Covenants--Limitation on Sale of Assets," or (d)
the Company shall have failed to make or consummate a Change of Control
Offer in accordance with the provisions of "Certain Covenants--Purchase of
Notes Upon a Change of Control";
(iv) one or more defaults shall have occurred under any agreements,
indentures or instruments under which the Company, any Guarantor or any
Subsidiary then has outstanding Indebtedness in excess of $10.0 million in
the aggregate and, if not already matured at its final maturity in
accordance with its terms, such Indebtedness shall have been accelerated;
(v) any Guarantee shall for any reason cease to be, or be asserted in
writing by any Guarantor or the Company not to be, in full force and effect
and enforceable in accordance with its terms, except to the extent
contemplated by the Indenture and any such Guarantee;
(vi) one or more judgments, orders or decrees for the payment of money in
excess of $15.0 million, either individually or in the aggregate (net of
amounts covered by insurance, bond, surety or similar instrument), shall be
entered against the Company, any Guarantor, any Subsidiary or any of their
respective properties and shall not be discharged and either (a) any
creditor shall have commenced an enforcement proceeding upon such judgment,
order or decree or (b) there shall have been a period of 60 consecutive days
during which a stay of enforcement of such judgment or order, by reason of
an appeal or otherwise, shall not be in effect;
(vii) any holder or holders of at least $10.0 million in aggregate
principal amount of Indebtedness of the Company, any Guarantor or any
Subsidiary after a default under such Indebtedness shall notify the Trustee
of the intended sale or disposition of any assets of the Company, any
Guarantor or any Subsidiary that have been pledged to or for the benefit of
such holder or holders to secure such Indebtedness or shall commence
proceedings, or take any action (including by way of set-off), to retain in
satisfaction of such Indebtedness or to collect on, seize, dispose of or
apply in satisfaction of Indebtedness, assets of the Company, any Guarantor
or any Subsidiary (including funds on deposit or held pursuant to lock-box
and other similar arrangements);
(viii) there shall have been the entry by a court of competent
jurisdiction of (a) a decree or order for relief in respect of the Company,
any Guarantor or any Subsidiary in an involuntary case or proceeding under
any applicable Bankruptcy Law or (b) a decree or order adjudging the
Company, any Guarantor or any Subsidiary bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company, any Guarantor or any Subsidiary under any applicable federal or
state law, or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the Company, any
Guarantor or any Subsidiary or of any substantial part of their respective
properties, or ordering the winding up or liquidation of their affairs, and
any such decree or order for relief shall continue to be in effect, or any
such other decree or order shall be unstayed and in effect, for a period of
60 consecutive days; or
(ix) (a) the Company, any Guarantor or any Subsidiary commences a
voluntary case or proceeding under any applicable Bankruptcy Law or any
other case or proceeding to be adjudicated bankrupt or insolvent, (b) the
Company, any Guarantor or any Subsidiary consents to the entry of a decree
or order for
S-27
relief in respect of the Company, any Guarantor or such Subsidiary in an
involuntary case or proceeding under any applicable Bankruptcy Law or to the
commencement of any bankruptcy or insolvency case or proceeding against it,
(c) the Company, any Guarantor or any Subsidiary files a petition or answer
or consent seeking reorganization or relief under any applicable federal or
state law, (d) the Company, any Guarantor or any Subsidiary (x) consents to
the filing of such petition or the appointment of, or taking possession by,
a custodian, receiver, liquidator, assignee, trustee, sequestrator or
similar official of the Company, any Guarantor or such Subsidiary or of any
substantial part of their respective properties, (y) makes an assignment for
the benefit of creditors or (z) admits in writing its inability to pay its
debts generally as they become due or (e) the Company, any Guarantor or any
Subsidiary takes any corporate action in furtherance of any such actions in
this paragraph (ix).
If an Event of Default (other than as specified in clauses (viii) and (ix)
of the prior paragraph) shall occur and be continuing, the Trustee or the
holders of not less than 25% in aggregate principal amount of the notes then
outstanding may, and the Trustee at the request of such Holders shall, declare
all unpaid principal of, premium, if any, and accrued interest on all the notes
to be due and payable immediately, by a notice in writing to the Company (and
to the Trustee if given by the Holders of the notes); provided that so long as
the Credit Agreement is in effect, such declaration shall not become effective
until the earlier of (a) five business days after receipt of such notice of
acceleration from the Holders or the Trustee by the agent under the Credit
Agreement or (b) acceleration of the Indebtedness under the Credit Agreement.
Thereupon such principal shall become immediately due and payable, and the
Trustee may, at its discretion, proceed to protect and enforce the rights of
the holders of notes by appropriate judicial proceeding. If an Event of Default
specified in clause (viii) or (ix) of the prior paragraph occurs and is
continuing, then all the notes shall ipso facto become and be immediately due
and payable, in an amount equal to the principal amount of the notes, together
with accrued and unpaid interest, if any, to the date the notes become due and
payable, without any declaration or other act on the part of the Trustee or any
Holder. The Trustee or, if notice of acceleration is given by the Holders, the
Holders shall give notice to the agent under the Credit Agreement of any such
acceleration.
After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the holders of a
majority in aggregate principal amount of notes outstanding, by written notice
to the Company and the Trustee, may rescind and annul such declaration and its
consequences if (a) the Company has paid or deposited with the Trustee a sum
sufficient to pay (i) all sums paid or advanced by the Trustee under the
Indenture and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, (ii) all overdue interest on all notes,
and (iii) to the extent that payment of such interest is lawful, interest upon
overdue interest at the rate borne by the notes; and (b) all Events of Default,
other than the nonpayment of principal of the notes which have become due
solely by such declaration of acceleration, have been cured or waived; and (c)
the rescission will not conflict with any judgment or decree.
The holders of not less than a majority in aggregate principal amount of the
notes outstanding may on behalf of the holders of all the notes waive any past
defaults under the Indenture and its consequences, except a default in the
payment of the principal of, premium, if any, or interest on any note, or in
respect of a covenant or provision which under the Indenture cannot be modified
or amended without the consent of the holder of each Note outstanding.
The Company is also required to notify the Trustee within five business days
of the occurrence of any Default.
The Trust Indenture Act contains limitations on the rights of the Trustee,
should it become a creditor of the Company or any Guarantor, to obtain payment
of claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided that if it acquires any conflicting
interest it must eliminate such conflict upon the occurrence of an Event of
Default or else resign.
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Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding notes ("Legal
Defeasance"). Such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire indebtedness represented by the outstanding
notes, except for:
(i) the rights of holders of the notes to receive payments in respect of
the principal of, premium, if any, and interest on the notes when such
payments are due;
(ii) the Company's obligations with respect to the notes concerning
issuing temporary notes, registration of notes, mutilated, destroyed, lost
or stolen notes and the maintenance of an office or agency for payments;
(iii) the rights, powers, trust, duties and immunities of the Trustee and
the Company's obligations in connection therewith; and
(iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
reorganization and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(i) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the holders of the notes cash in U.S. dollars, non-callable
U.S. government obligations, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any,
and interest on the notes on the stated date for payment thereof or on the
applicable redemption date, as the case may be;
(ii) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that (A) the Company has received from, or there
has been published by, the Internal Revenue Service a ruling or (B) since
the date of the Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the holders of the notes will not
recognize income, gain or loss for federal income tax purposes as a result
of such Legal Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that the holders of the
notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
(iv) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit (other than a Default or Event of Default with
respect to the Indenture resulting from the Incurrence of Indebtedness, all
or a portion of which will be used to defease the notes concurrently with
such Incurrence);
(v) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, the Indenture or any
other material agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries
is bound;
S-29
(vi) the Company shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Company with the
intent of preferring the holders of the notes over any other creditors of
the Company or with the intent of defeating, hindering, delaying or
defrauding any other creditors of the Company or others;
(vii) the Company shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with;
(viii) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that (A) the trust funds will not be subject to any
rights of holders of Indebtedness of the Company other than the notes and
(B) assuming no intervening bankruptcy of the Company between the date of
deposit and the 91st day following the deposit and that no Holder of the
notes is an insider of the Company, after the 91st day following the
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; and
(ix) certain other customary conditions precedent specified in the
Indenture are satisfied.
Satisfaction and Discharge
The Indenture shall cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the notes, as expressly
provided for in the Indenture) as to all outstanding notes when:
(a) either (i) all the notes theretofore authenticated and delivered
(except lost, stolen or destroyed notes which have been replaced or paid)
canceled or have been delivered to the Trustee for cancellation or (ii) all
notes not theretofore delivered to the Trustee canceled or for cancellation
(x) have become due and payable, (y) will become due and payable at their
Stated Maturity within one year, or (z) are to be called for redemption
within one year under arrangements satisfactory to the Trustee for the
giving of notice of redemption by the Trustee in the name, and at the
expense, of the Company, and the Company or any Guarantor has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire indebtedness on the notes not
theretofore delivered to the Trustee canceled or for cancellation, including
principal of, premium, if any, and accrued interest at such Stated Maturity
or redemption date;
(b) the Company or any Guarantor has paid or caused to be paid all other
sums payable under the Indenture by the Company or any Guarantor; and
(c) the Company has delivered to the Trustee an officers' certificate and
an opinion of counsel each stating that (i) all conditions precedent under
the Indenture relating to the satisfaction and discharge of the Indenture
have been complied with and (ii) such satisfaction and discharge will not
result in a breach or violation of, or constitute a default under, the
Indenture or any other material agreement or instrument to which the Company
or any Guarantor is a party or by which the Company or any Guarantor is
bound.
Modifications and Amendments
Modifications and amendments of the Indenture may be made by the Company,
each Guarantor, if any, and the Trustee with the consent of the Holders of not
less than a majority in aggregate outstanding principal amount of the notes;
provided, however, that no such modification or amendment may, without the
consent of the holder of each outstanding note affected thereby:
(i) change the Stated Maturity of the principal of, or any installment of
interest on, any note or reduce the principal amount thereof or the rate of
interest thereon or any premium payable upon the redemption thereof, or
change the coin or currency in which the principal of any note or any
premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the Stated Maturity
thereof;
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(ii) amend, change or modify the obligation of the Company to make and
consummate an Offer with respect to any Asset Sale or Asset Sales in
accordance with "Certain Covenants--Limitation on Sale of Assets" or the
obligation of the Company to make and consummate a Change of Control Offer
in the event of a Change of Control in accordance with "Certain
Covenants--Purchase of Notes Upon a Change of Control," including amending,
changing or modifying any definitions with respect thereto;
(iii) reduce the percentage in principal amount of outstanding notes, the
consent of whose holders is required for any such supplemental indenture, or
the consent of whose holders is required for any waiver;
(iv) modify any of the provisions relating to supplemental indentures
requiring the consent of holders or relating to the waiver of past defaults
or relating to the waiver of certain covenants, except to increase the
percentage of outstanding notes required for such actions or to provide that
certain other provisions of the Indenture cannot be modified or waived
without the consent of the holder of each note affected thereby;
(v) except as otherwise permitted under "Consolidation, Merger, Sale of
Assets," consent to the assignment or transfer by the Company or any
Guarantor of any of its rights and obligations under the Indenture; or
(vi) amend or modify any of the provisions of the Indenture relating to
the subordination of the notes or any Guarantee in any manner adverse to the
holders of the notes or any Guarantee.
The holders of not less than a majority in aggregate principal amount of the
notes outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture.
Governing Law
The Indenture, the notes and the Guarantees will be governed by, and
construed in accordance with the laws of the State of New York, without giving
effect to the conflicts of law principles thereof.
Book-Entry, Delivery and Form
The notes will be issued in the form of one or more global securities. The
global securities will be deposited with, or on behalf of, The Depository Trust
Company, or DTC, and registered in the name of Cede & Co., as nominee of DTC,
or will remain in the custody of the trustee pursuant to the FAST Balance
Certificate Agreement between DTC and the trustee. Except as set forth below,
the global securities may be transferred, in whole and not in part, only to DTC
or another nominee of DTC. Investors may hold their beneficial interests in the
global securities directly through DTC if they have an account with DTC or
indirectly through organizations that have accounts with DTC.
The description of the operations and procedures of DTC set forth below is
provided solely as a matter of convenience. These operations and procedures are
solely within the control of DTC and are subject to change by DTC from time to
time. The Company takes no responsibility for these operations or procedures,
and purchasers of the notes are urged to contact DTC or its participants
directly to discuss these matters.
DTC has advised the Company that it is:
. a limited purpose trust company organized under the laws of the State of
New York;
. a "banking organization" within the meaning of the New York Banking Law;
. a member of the Federal Reserve System;
. a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, as amended; and
. a "clearing agency" registered under Section 17A of the Exchange Act.
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DTC was created to hold securities for its participants and to facilitate
the clearance and settlement of securities transactions among its participants
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of certificates. DTC's participants
include securities brokers and dealers, banks; trust companies; clearing
corporations and some other organizations. Indirect access to DTC's system is
also available to other entities such as banks, brokers, dealers and trust
companies; these indirect participants clear through or maintain a custodial
relationship with a participant in DTC, either directly or indirectly.
Investors who are not DTC participants may beneficially own securities held by
or on behalf of DTC only through participants or indirect participants in DTC.
The Company expects that pursuant to procedures established by DTC:
. upon the issuance and deposit of the global securities, DTC will credit,
on its book-entry registrations and transfer system, the aggregate
principal amount of notes represented by such global securities to the
accounts of participants in DTC designated by the underwriter with an
interest in the global securities; and
. ownership of the notes will be shown on, and the transfer of ownership of
the notes will be effected only through, records maintained by DTC, with
respect to the interests of participants in DTC, and the records of
participants and indirect participants, with respect to the interests of
persons other than participants in DTC.
The laws of some jurisdictions may require that some purchasers of
securities take physical delivery of the securities in definitive form.
Accordingly, the ability to transfer interests in the notes represented by a
global note to these persons may be limited. In addition, because DTC can act
only on behalf of its participants, who in turn act on behalf of persons who
hold interests through participants, the ability of a person having an interest
in notes represented by a global note to pledge or transfer that interest to
persons or entities that do not participate in DTC's system, or to otherwise
take actions in respect of that interest, may be affected by the lack of a
physical definitive security in respect of the interest.
So long as DTC or its nominee is the registered owner of a global note, DTC
or the nominee, as the case may be, will be considered the sole owner or holder
of the notes represented by the global note for all purposes under the
indenture. Except as provided below, owners of beneficial interests in a global
note:
. will not be entitled to have notes represented by the global note
registered in their names;
. will not receive or be entitled to receive physical delivery of
certificated notes; and
. will not be considered the owners or holders of the notes under the
indenture for any purpose, including with respect to the giving of any
direction, instruction or approval to the trustee under the indenture.
Accordingly, each holder owning a beneficial interest in a global note must
rely on the procedures of DTC and, if the holder is not a participant or an
indirect participant in DTC, on the procedures of the DTC participant through
which the holder owns its interest, to exercise any rights of a holder of notes
under the indenture or the global note. We understand that under existing
industry practice, if we request any action of holders of notes, or a holder
that is an owner of a beneficial interest in a global note desires to take any
action that DTC, as the holder of the global note, is entitled to take, then
DTC would authorize its participants to take the action and the participants
would authorize holders owning through participants to take the action or would
otherwise act upon the instruction of such holders. Neither the Company nor the
Trustee will have any responsibility or liability for any aspect of the records
relating to or payments made on account of notes by DTC, or for maintaining,
supervising or reviewing any records of DTC relating to the notes.
Payments with respect to the principal of, and premium, if any, and interest
on, any notes represented by a global note registered in the name of DTC or its
nominee on the applicable record date will be payable by the trustee to or at
the direction of DTC or its nominee in its capacity as the registered holder of
the global note representing those notes under the indenture. Under the terms
of the indenture, the Company and the Trustee may treat the persons in whose
names the notes, including the global notes, are registered as the owners of
the notes
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for the purpose of receiving payment on the notes and for any and all other
purposes whatsoever. Accordingly, neither the Company nor the Trustee has or
will have any responsibility or liability for the payment of amounts to owners
of beneficial interests in a global note, including principal, premium, if any,
and interest. Payments by the participants and the indirect participants in DTC
to the owners of beneficial interests in a global note will be governed by
standing instructions and customary industry practice and will be the
responsibility of the participants or the indirect participants and DTC.
Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds.
Although DTC has agreed to the above procedures to facilitate transfers of
interests in the global notes among participants in DTC, it is under no
obligation to perform or to continue to perform the procedures, and the
procedures may be discontinued at any time. Neither the Company nor the Trustee
will have any responsibility for the performance by DTC or its participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
Same-Day Settlement and Payment
Settlement for the notes will be made in same day funds. All payments of
principal and interest will be made by the Company in same day funds. The notes
will trade in the Same-Day Funds Settlement System of DTC until maturity, and
secondary market trading activity for the notes will therefore settle in same
day funds.
Certain Definitions
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person becomes a Restricted Subsidiary or (ii) assumed in connection
with the acquisition of assets from such Person, in each case, other than
Indebtedness incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary or such acquisition. Acquired Indebtedness
shall be deemed to be incurred on the date of the related acquisition of assets
from any Person or the date the acquired Person becomes a Restricted Subsidiary.
"Affiliate" means, with respect to any specified Person:
(i) any other Person directly or indirectly controlling or controlled by
or under direct or indirect common control with such specified Person;
(ii) any other Person that owns, directly or indirectly, 5% or more of
such Person's Capital Stock or any officer or director of any such Person or
other Person or, with respect to any natural Person, any person having a
relationship with such Person by blood, marriage or adoption not more remote
than first cousin;
(iii) any other Person 10% or more of the voting Capital Stock of which
are beneficially owned or held directly or indirectly by such specified
Person.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person directly or indirectly, whether through ownership of voting securities,
by contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
Sale and Leaseback Transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of:
(i) any Capital Stock of any Restricted Subsidiary;
(ii) all or substantially all of the properties and assets of any
division or line of business of the Company or its Restricted Subsidiaries;
or
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(iii) any other properties or assets of the Company or any Restricted
Subsidiary, other than in the ordinary course of business.
For the purposes of this definition, the term "Asset Sale" shall not include
(x) any transfer of properties and assets (A) that is governed by the first
paragraph under "Consolidation, Merger, Sale of Assets" or (B) that is of the
Company to any Restricted Subsidiary, or of any Subsidiary to the Company or
any Subsidiary in accordance with the terms of the Indenture or (y) transfers
of properties and assets in any given fiscal year with an aggregate Fair Market
Value of less than $3.0 million.
"Asset Swap" means the execution of a definitive agreement, subject only to
customary closing conditions, that the Company in good faith believes will be
satisfied, for a substantially concurrent purchase and sale, or exchange of
Productive Assets between the Company or any of its Restricted Subsidiaries and
another Person or group of affiliated Persons; it being understood that an
Asset Swap may include a cash equalization payment made in connection therewith
provided that such cash payment, if received by the Company or its
Subsidiaries, shall be deemed to be proceeds received from an Asset Sale and
applied in accordance with "Certain Covenants --Limitation on Asset Sales."
"Average Life to Stated Maturity" means, as of the date of determination
with respect to any Indebtedness, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from the date of determination to
the date or dates of each successive scheduled principal payment of such
Indebtedness multiplied by (b) the amount of each such principal payment by
(ii) the sum of all such principal payments.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978, as
amended, or any similar United States Federal or State law relating to
bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization
or relief of debtors or any amendment to, succession to or change in any such
law.
"Borrowing Base" means the sum of (i) 85% of accounts receivable of the
Company and its Subsidiaries and (ii) 50% of the net book value of the
inventory of the Company and its Subsidiaries, in each case, as determined on a
consolidated basis in accordance with GAAP.
"Capital Lease Obligation" means any obligations of the Company and its
Restricted Subsidiaries on a Consolidated basis under any capital lease of real
or personal property which, in accordance with GAAP, has been recorded as a
capitalized lease obligation.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of the Indenture such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Company" means Constellation Brands, Inc., a corporation incorporated under
the laws of Delaware, until a successor Person shall have become such pursuant
to the applicable provisions of the Indenture, and thereafter "Company" shall
mean such successor Person.
"Consolidated Fixed Charge Coverage Ratio" of the Company means, for any
period, the ratio of (a) the sum of Consolidated Net Income (Loss),
Consolidated Interest Expense, Consolidated Income Tax Expense and Consolidated
Non-cash Charges deducted in computing Consolidated Net Income (Loss) in each
case, for such period, of the Company and its Restricted Subsidiaries on a
Consolidated basis, all determined in accordance
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with GAAP to (b) the sum of Consolidated Interest Expense for such period and
cash and non-cash dividends paid on any Preferred Stock of the Company and its
Restricted Subsidiaries during such period; provided that (i) in making such
computation, the Consolidated Interest Expense attributable to interest on any
Indebtedness computed on a pro forma basis and (A) bearing a floating interest
rate, shall be computed as if the rate in effect on the date of computation had
been the applicable rate for the entire period and (B) which was not
outstanding during the period for which the computation is being made but which
bears, at the option of the Company, a fixed or floating rate of interest,
shall be computed by applying at the option of the Company, either the fixed or
floating rate and (ii) in making such computation, the Consolidated Interest
Expense of the Company attributable to interest on any Indebtedness under a
revolving credit facility computed on a pro forma basis shall be computed based
upon the average daily balance of such Indebtedness during the applicable
period.
"Consolidated Income Tax Expense" means for any period, as applied to the
Company, the provision for federal, state, local and foreign income taxes of
the Company and its Consolidated Restricted Subsidiaries for such period as
determined in accordance with GAAP on a Consolidated basis.
"Consolidated Interest Expense" of the Company means, without duplication,
for any period, the sum of (a) the interest expense of the Company and its
Consolidated Restricted Subsidiaries for such period, on a Consolidated basis,
including, without limitation, (i) amortization of debt discount, (ii) the net
cost under interest rate contracts (including amortization of discounts), (iii)
the interest portion of any deferred payment obligation and (iv) accrued
interest, plus (b) (i) the interest component of the Capital Lease Obligations
paid, accrued and/or scheduled to be paid or accrued by the Company during such
period and (ii) all capitalized interest of the Company and its Restricted
Subsidiaries, in each case as determined in accordance with GAAP on a
consolidated basis. Whenever pro forma effect is to be given to an acquisition
or disposition of assets for the purpose of calculating the Consolidated Fixed
Charge Coverage Ratio, the amount of Consolidated Interest Expense associated
with any Indebtedness Incurred in connection with such acquisition or
disposition of assets, shall be calculated on a pro forma basis in accordance
with Regulation S-X under the Securities Act, as in effect on the date of such
calculation.
"Consolidated Net Income (Loss)" of the Company means, for any period, the
Consolidated net income (or loss) of the Company and its Consolidated
Restricted Subsidiaries for such period as determined in accordance with GAAP
on a Consolidated basis, adjusted, to the extent included in calculating such
net income (loss), by excluding, without duplication,
(i) all extraordinary gains or losses (less all fees and expenses
relating thereto),
(ii) the portion of net income (or loss) of the Company and its
Restricted Subsidiaries allocable to minority interests in unconsolidated
Persons to the extent that cash dividends or distributions have not actually
been received by the Company or one of its Restricted Subsidiaries,
(iii) net income (or loss) of any Person combined with the Company or any
of its Restricted Subsidiaries on a "pooling of interests" basis
attributable to any period prior to the date of combination,
(iv) any gain or loss, net of taxes, realized upon the termination of any
employee pension benefit plan,
(v) net gains (but not losses) (less all fees and expenses relating
thereto) in respect of dispositions of assets other than in the ordinary
course of business, or
(vi) the net income of any Restricted Subsidiary to the extent that the
declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is not at the time permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental
regulations applicable to that Restricted Subsidiary or its stockholders.
Whenever pro forma effect is to be given to an acquisition or disposition of
assets for the purpose of calculating the Consolidated Fixed Charge Coverage
Ratio, the amount of income or earnings related to such assets shall be
calculated on a pro forma basis in accordance with Regulation S-X under the
Securities Act, as in effect on the date of such calculation.
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"Consolidated Net Tangible Assets" means with respect to any Person, as of
any date of determination, the book value of such Persons total assets, less
goodwill, deferred financing costs and other intangibles and less accumulated
amortization, shown on the most recent balance sheet of such Person, determined
on a consolidated basis in accordance with GAAP.
"Consolidated Net Worth" of any Person means the Consolidated stockholders'
equity (excluding Redeemable Capital Stock) of such Person and its
subsidiaries, as determined in accordance with GAAP on a Consolidated basis.
"Consolidated Non-cash Charges" of the Company means, for any period, the
aggregate depreciation, amortization and other non-cash charges of the Company
and its Consolidated Restricted Subsidiaries for such period, as determined in
accordance with GAAP on a Consolidated basis (excluding any non-cash charge
which requires an accrual or reserve for cash charges for any future period).
"Consolidation" means, with respect to any Person, the consolidation of the
accounts of such Person and each of its subsidiaries if and to the extent the
accounts of such Person and each of its subsidiaries would normally be
consolidated with those of such Person, all in accordance with GAAP. The term
"Consolidated" shall have a similar meaning.
"Credit Agreement" means the Credit Agreement, dated as of October 6, 1999,
as amended by Amendment No. 1 thereto on February 13, 2001, Amendment No. 2
thereto on May 16, 2001, Amendment No. 3 thereto on September 7, 2001 and
Amendment No. 4 thereto on January 15, 2002, between the Company, the
Subsidiaries of the Company identified on the signature pages thereof, the
lenders named therein 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 (also referred to in this
prospectus supplement as the "senior credit facility") including any deferrals,
renewals, extensions, replacements, refinancings or refundings thereof or
amendments, modifications or supplements thereto and any agreements therefor
(including any of the foregoing that increase the principal amount of
Indebtedness or the commitments to lend thereunder and have been made in
compliance with the provisions of "Certain Covenants--Limitation on
Indebtedness"; provided that, for purposes of the definition of "Permitted
Indebtedness," no such increase may result in the principal amount of
Indebtedness of the Company under the Credit Agreement exceeding the amount
permitted by subparagraph (b)(1) of "Certain Covenants--Limitation on
Indebtedness"), whether by or with the same or any other lender, creditor,
group of lenders or group of creditors, and including related notes, guarantees
and note agreements and other instruments and agreements executed in connection
therewith.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) any Indebtedness outstanding
under the Credit Agreement and (ii) any other Senior Indebtedness which, at the
time of determination has an aggregate principal amount outstanding, together
with any commitments to lend additional amounts, of at least $50.0 million if
the instrument governing such other Senior Indebtedness expressly states that
such Indebtedness is "Designated Senior Indebtedness" for purposes of the
Indenture.
"Designation" has the meaning set forth under "Certain
Covenants--Designation of Unrestricted Subsidiaries."
"Designation Amounts" has the meaning set forth under "Certain
Covenants--Designation of Unrestricted Subsidiaries."
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"Domestic Restricted Subsidiary" means a Restricted Subsidiary of the
Company organized under the laws of the United States or any political
subdivision thereof or the operations of which are located substantially inside
the United States.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing
buyer under no compulsion to buy.
"Foreign Restricted Subsidiary" means a Restricted Subsidiary of the Company
not organized under the laws of the United States or any political subdivision
thereof and the operations of which are located substantially outside of the
United States.
"GAAP" or "Generally Accepted Accounting Principles" means generally
accepted accounting principles in the United States, consistently applied,
which are in effect on the date of the Indenture.
"Guarantee" means the guarantee by each Guarantor of the Company's Indenture
Obligations pursuant to a guarantee given in accordance with the Indenture,
including the Guarantees by the Guarantors and any Guarantee delivered pursuant
to provisions of "Certain Covenants--Limitation on Guarantees of Restricted
Subsidiaries."
"Guaranteed Debt" of any Person means, without duplication, all Indebtedness
of any other Person referred to in the definition of Indebtedness contained in
this Section guaranteed directly or indirectly in any manner by such Person, or
in effect guaranteed directly or indirectly by such Person through an agreement:
(i) to pay or purchase such Indebtedness or to advance or supply funds
for the payment or purchase of such Indebtedness,
(ii) to purchase, sell or lease (as lessee or lessor) property, or to
purchase or sell services, primarily for the purpose of enabling the debtor
to make payment of such Indebtedness or to assure the holder of such
Indebtedness against loss,
(iii) to supply funds to, or in any other manner invest in, the debtor
(including any agreement to pay for property or services without requiring
that such property be received or such services be rendered),
(iv) to maintain working capital or equity capital of the debtor, or
otherwise to maintain the net worth, solvency or other financial condition
of the debtor or
(v) otherwise to assure a creditor against loss; provided that the term
"guarantee" shall not include endorsements for collection or deposit, in
either case in the ordinary course of business.
"Guarantor" means the Subsidiaries listed on the signature pages of the
Indenture as guarantors and each other Subsidiary, formed, created or acquired
after the Issue Date, required to become a Guarantor after the Issue Date,
pursuant to "Certain Covenants--Limitation on Guarantees by Restricted
Subsidiaries."
"Hedging Agreement" means, with respect to any Person, all interest rate
swap or similar agreements or foreign currency or commodity hedge, exchange or
similar agreements of such Person.
"Hedging Obligations" means, with respect to any Person, the Obligations of
such Person under Hedging Agreements.
"Holders" mean the registered Holders of the notes.
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"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred" and "Incurring" shall have
meanings correlative to the foregoing). Indebtedness of any Acquired Person or
any of its Subsidiaries existing at the time such Acquired Person becomes a
Subsidiary (or is merged into or consolidated with the Company or any
Subsidiary), whether or not such Indebtedness was Incurred in connection with,
as a result of, or in contemplation of, such Acquired Person becoming a
Subsidiary (or being merged into or consolidated with the Company or any
Subsidiary), shall be deemed Incurred at the time any such Acquired Person
becomes a Subsidiary or merges into or consolidates with the Company or any
Subsidiary.
"Indebtedness" means, with respect to any Person, without duplication,
(i) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services, excluding any trade
payables and other accrued current liabilities arising in the ordinary
course of business, but including, without limitation, all obligations,
contingent or otherwise, of such Person in connection with any letters of
credit issued under letter of credit facilities, acceptance facilities or
other similar facilities and in connection with any agreement to purchase,
redeem, exchange, convert or otherwise acquire for value any Capital Stock
of such Person, or any warrants, rights or options to acquire such Capital
Stock, now or hereafter outstanding,
(ii) all obligations of such Person evidenced by bonds, notes, debentures
or other similar instruments,
(iii) all indebtedness created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such
Person (even if the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of
such property), but excluding trade payables arising in the ordinary course
of business,
(iv) all Hedging Obligations of such Person,
(v) all Capital Lease Obligations of such Person,
(vi) all Indebtedness referred to in clauses (i) through (v) above of
other Persons and all dividends of other Persons, the payment of which is
secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien, upon or with
respect to property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed or
become liable for the payment of such Indebtedness,
(vii) all Guaranteed Debt of such Person,
(viii) all Redeemable Capital Stock valued at the greater of its
voluntary or involuntary maximum fixed repurchase price plus accrued and
unpaid dividends, and
(ix) any amendment, supplement, modification, deferral, renewal,
extension, refunding or refinancing of any liability of the types referred
to in clauses (i) through (viii) above.
For purposes hereof, the "maximum fixed repurchase price" of any Redeemable
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Redeemable Capital Stock as if such
Redeemable Capital Stock were purchased on any date on which Indebtedness shall
be required to be determined pursuant to the Indenture, and if such price is
based upon, or measured by, the Fair Market Value of such Redeemable Capital
Stock, such Fair Market Value to be determined in good faith by the board of
directors of the issuer of such Redeemable Capital Stock.
"Indenture Obligations" means the obligations of the Company and any other
obligor under the Indenture or under the notes, including any Guarantor, to pay
principal of, premium, if any, and interest when due and payable, and all other
amounts due or to become due under or in connection with the Indenture, the
notes and the
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performance of all other obligations to the Trustee and the Holders under the
Indenture and the notes, according to the terms thereof.
"Insolvency or Liquidation Proceeding" means, with respect to any Person,
any liquidation, dissolution or winding up of such Person, or any bankruptcy,
reorganization, insolvency, receivership or similar proceeding with respect to
such Person, whether voluntary or involuntary.
"Investments" means, with respect to any Person, directly or indirectly, any
advance, loan (including guarantees), or other extension of credit or capital
contribution to (by means of any transfer of cash or other property to others
or any payment for property or services for the account or use of others), or
any purchase, acquisition or ownership by such Person of any Capital Stock,
bonds, notes, debentures or other securities issued or owned by, any other
Person and all other items that would be classified as investments on a balance
sheet prepared in accordance with GAAP.
"Issue Date" means the original issue date of the notes.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable,
now owned or hereafter acquired.
"Maturity" when used with respect to any Note means the date on which the
principal of such Note becomes due and payable as therein provided or as
provided in the Indenture, whether at Stated Maturity, the Offer Date or the
redemption date and whether by declaration of acceleration, Offer in respect of
Excess Proceeds, Change of Control, call for redemption or otherwise.
"Net Cash Proceeds" means (a) with respect to any Asset Sale by any Person,
the proceeds thereof in the form of cash or Temporary Cash Investments
including payments in respect of deferred payment obligations when received in
the form of, or stock or other assets when disposed for, cash or Temporary Cash
Investments (except to the extent that such obligations are financed or sold
with recourse to the Company or any Restricted Subsidiary) net of (i) brokerage
commissions and other actual fees and expenses (including fees and expenses of
counsel and investment bankers) related to such Asset Sale, (ii) provisions for
all taxes payable as a result of such Asset Sale, (iii) payments made to retire
Indebtedness where payment of such Indebtedness is secured by the assets or
properties the subject of such Asset Sale, (iv) amounts required to be paid to
any Person (other than the Company or any Restricted Subsidiary) owning a
beneficial interest in the assets subject to the Asset Sale and (v) appropriate
amounts to be provided by the Company or any Restricted Subsidiary, as the case
may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company or any Restricted
Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as reflected in an officers'
certificate delivered to the Trustee and (b) with respect to any issuance or
sale of Capital Stock or options, warrants or rights to purchase Capital Stock,
or debt securities or Capital Stock that have been converted into or exchanged
for Capital Stock, as referred to under "Certain Covenants--Limitation on
Restricted Payments," the proceeds of such issuance or sale in the form of cash
or Temporary Cash Investments, including payments in respect of deferred
payment obligations when received in the form of, or stock or other assets when
disposed for, cash or Temporary Cash Investments (except to the extent that
such obligations are financed or sold with recourse to the Company or any
Restricted Subsidiary), net of attorneys' fees, accountants' fees and
brokerage, consultation, underwriting and other fees and expenses actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Obligations" means any principal, interest (including, without limitation,
Post-Petition Interest), penalties, fees, indemnifications, reimbursement
obligations, damages and other liabilities payable under the documentation
governing any Indebtedness.
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"Other Indebtedness" has the meaning set forth under "Certain
Covenants--Limitation on Guarantees by Restricted Subsidiaries."
"Outstanding Senior Notes" means the Company's 8 5/8% Senior Notes due 2006,
8% Senior Notes due 2008, 8 1/2% Series B Senior Notes due 2009 and 8 1/2%
Series C Senior Notes due 2009.
"Outstanding Senior Subordinated Notes" means the Company's 8 3/4% Senior
Subordinated Notes due 2003 and 8 1/2% Senior Subordinated Notes due 2009.
"Pari Passu Indebtedness" means any Indebtedness of the Company or a
Guarantor that is pari passu in right of payment to the notes or a Guarantee,
as the case may be.
"Permitted Investment" means:
(i) Investments in any Wholly Owned Restricted Subsidiary or any Person
which, as a result of such Investment, becomes a Wholly Owned Restricted
Subsidiary;
(ii) Indebtedness of the Company or a Restricted Subsidiary described
under clauses (iv) and (v) of the definition of "Permitted Indebtedness";
(iii) Temporary Cash Investments;
(iv) Investments acquired by the Company or any Restricted Subsidiary in
connection with an Asset Sale permitted under "Certain Covenants--Limitation
on Sale of Assets" to the extent such Investments are non-cash proceeds as
permitted under such covenant;
(v) guarantees of Indebtedness otherwise permitted by the Indenture;
(vi) Investments in existence as of the date of the Indenture; and
(vii) Investments in joint ventures in an aggregate amount not to exceed
at any one time the greater of (x) $50.0 million and (y) 5.0% of
Consolidated Net Tangible Assets.
"Permitted Junior Securities" means any securities of the Company or any
successor corporation provided for by a plan of reorganization or readjustment
that are (i) equity securities without special covenants or (ii) debt
securities expressly subordinated in right of payment to all Senior
Indebtedness that may at the time be outstanding, to substantially the same
extent as, or to a greater extent than, the notes are subordinated as provided
in the Indenture, in any event pursuant to a court order so providing and as to
which (a) the rate of interest on such securities shall not exceed the
effective rate of interest on the notes on the date of the Indenture, (b) such
securities shall not be entitled to the benefits of covenants or defaults
materially more beneficial to the holders of such securities than those in
effect with respect to the notes on the date of the Indenture and (c) such
securities shall not provide for amortization (including sinking fund and
mandatory prepayment provisions) commencing prior to the date six months
following the final scheduled maturity date of the Senior Indebtedness (as
modified by the plan of reorganization of readjustment pursuant to which such
securities are issued).
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivisions thereof.
"Post-Petition Interest" means, with respect to any Indebtedness of any
Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding against such Person in
accordance with and at the contract rate (including, without limitation, any
rate applicable upon default) specified in the agreement or instrument
creating, evidencing or governing such Indebtedness, whether or not, pursuant
to applicable law or otherwise, the claim for such interest is allowed as a
claim in such Insolvency or Liquidation Proceeding.
S-40
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred stock whether now outstanding, or issued after the date of
the Issue Date, and including, without limitation, all classes and series of
preferred or preference stock.
"Productive Assets" means assets of a kind used or usable by the Company and
its Restricted Subsidiaries in their businesses (including without limitation,
contracts, leases, licenses, or other agreements of value to the Company or any
of its Restricted Subsidiaries), provided, however, that productive assets to
be acquired by the Company or any Restricted Subsidiary shall be, in the good
faith judgment of management of the Company or such Restricted Subsidiary,
assets which are reasonably related, ancillary or complementary to the business
of the Company and its Restricted Subsidiaries as conducted on the Issue Date.
"Public Equity Offering" means, with respect to the Company, an underwritten
public offering of Qualified Capital Stock of the Company pursuant to an
effective registration statement filed under the Securities Act (excluding
registration statements filed on Form S-8).
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any Capital Stock that, either by its terms
or by the terms of any security into which it is convertible or exchangeable or
otherwise, is or upon the happening of an event (other than as a result of a
change of control provision substantially similar to that contained in "Certain
Covenants--Purchase of Notes Upon a Change of Control") or passage of time
would be, required to be redeemed prior to any Stated Maturity of the principal
of the notes or is redeemable at the option of the holder thereof at any time
prior to any such Stated Maturity, or is convertible into or exchangeable for
debt securities at any time prior to any such Stated Maturity at the option of
the holder thereof.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a resolution of
the Board of Directors of the Company delivered to the Trustee, as an
Unrestricted Subsidiary pursuant to "Certain Covenants--Designation of
Unrestricted Subsidiaries" above. Any such designation may be revoked by a
resolution of the Board of Directors of the Company delivered to the Trustee,
subject to the provisions of such covenant.
"Sale and Leaseback Transaction" means any transaction or series of related
transactions pursuant to which the Company or a Restricted Subsidiary sells or
transfers any property or asset in connection with the leasing, or the resale
against installment payments, of such property or asset to the seller or
transferor.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Guarantor Indebtedness" means, at any date: (a) all Obligations of
the Guarantors under the Credit Agreement; provided, however, that any
Indebtedness under any refinancing, refunding or replacement of the Credit
Agreement shall not constitute Senior Guarantor Indebtedness to the extent that
the Indebtedness thereunder is by its express terms subordinate to any other
Indebtedness of any Guarantors; (b) all Hedging Obligations of the Guarantors;
(c) all Obligations of the Guarantors under stand-by letters of credit; and (d)
all other Indebtedness of the Guarantors for borrowed money, including
principal, premium, if any, and interest (including Post-Petition Interest) on
such Indebtedness, unless the instrument under which such Indebtedness of the
Guarantors for money borrowed is Incurred expressly provides that such
Indebtedness for money borrowed is not senior or superior in right of payment
to the notes, and all renewals, extensions, modifications, amendments or
refinancings thereof. Notwithstanding the foregoing, Senior Guarantor
Indebtedness shall not include (a) to the extent that it may constitute
Indebtedness, any Obligation for federal, state, local or other taxes; (b) any
Indebtedness among or between the Guarantors and any Subsidiary of the
Guarantors or any Affiliate of the Guarantors or any of such Affiliate's
Subsidiaries, unless and for so long as such Indebtedness has been pledged to
secure obligations under or in respect of Senior Guarantor Indebtedness; (c) to
the extent that it may constitute
S-41
Indebtedness, any Obligation in respect of any trade payable Incurred for the
purchase of goods or materials, or for services obtained, in the ordinary
course of business; (d) that portion of any Indebtedness that is Incurred in
violation of the Indenture; (e) Indebtedness evidenced by the notes; (f)
Indebtedness of the Guarantors that is expressly subordinate or junior in right
of payment to any other Indebtedness of the Guarantors; (g) to the extent that
it may constitute Indebtedness, any obligation owing under leases (other than
Capital Lease Obligations) or management agreements; (h) any obligation that by
operation of law is subordinate to any general unsecured obligations of the
Guarantors; (i) Indebtedness represented by the Outstanding Senior Subordinated
Notes; (j) Indebtedness incurred by Guarantors as part of the purchase price of
the acquisition of assets or a business; and (k) Indebtedness of the Guarantors
to the extent such Indebtedness is owed to and held by any federal, state,
local or other governmental authority.
"Senior Indebtedness" means, at any date,
(a) all Obligations of the Company under the Credit Agreement; provided,
however, that any Indebtedness under any refinancing, refunding or
replacement of the Credit Agreement shall not constitute Senior Indebtedness
to the extent that the Indebtedness thereunder is by its express terms
subordinate to any other Indebtedness of the Company;
(b) all Hedging Obligations of the Company;
(c) all Obligations of the Company under stand-by letters of credit; and
(d) all other Indebtedness of the Company for borrowed money, including
principal, premium, if any, and interest (including Post-Petition Interest)
on such Indebtedness, unless the instrument under which such Indebtedness of
the Company for money borrowed is Incurred expressly provides that such
Indebtedness for money borrowed is not senior or superior in right of
payment to the notes, and all renewals, extensions, modifications,
amendments or refinancings thereof.
Notwithstanding the foregoing, Senior Indebtedness shall not include:
(a) to the extent that it may constitute Indebtedness, any Obligation for
federal, state, local or other taxes;
(b) any Indebtedness among or between the Company and any Subsidiary of
the Company or any Affiliate of the Company or any of such Affiliate's
Subsidiaries, unless and for so long as such Indebtedness has been pledged
to secure obligations under or in respect of Senior Indebtedness;
(c) to the extent that it may constitute Indebtedness, any Obligation in
respect of any trade payable Incurred for the purchase of goods or
materials, or for services obtained, in the ordinary course of business;
(d) that portion of any Indebtedness that is Incurred in violation of the
Indenture;
(e) Indebtedness evidenced by the notes;
(f) Indebtedness of the Company that is expressly subordinate or junior
in right of payment to any other Indebtedness of the Company;
(g) to the extent that it may constitute Indebtedness, any obligation
owing under leases (other than Capital Lease Obligations) or management
agreements;
(h) any obligation that by operation of law is subordinate to any general
unsecured obligations of the Company;
(i) Indebtedness represented by the Outstanding Senior Subordinated Notes;
(j) Indebtedness incurred by the Company as part of the purchase price of
the acquisition of assets or a business; and
S-42
(k) Indebtedness of the Company to the extent such Indebtedness is owed
to and held by any Federal, state, local or other governmental authority.
"Stated Maturity" when used with respect to any Indebtedness or any
installment of interest thereon, means the dates specified in such Indebtedness
as the fixed date on which the principal of such Indebtedness or such
installment of interest is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company or a Guarantor
subordinated in right of payment to the notes, the Outstanding Senior
Subordinated Notes or a Guarantee, as the case may be.
"Subsidiary" means any Person a majority of the equity ownership or the
Voting Stock of which is at the time owned, directly or indirectly, by the
Company or by one or more other Subsidiaries, or by the Company and one or more
other Subsidiaries.
"Temporary Cash Investments" means:
(i) any evidence of Indebtedness of a Person, other than the Company or
its Subsidiaries, maturing not more than one year after the date of
acquisition, issued by the United States of America, or an instrumentality
or agency thereof and guaranteed fully as to principal, premium, if any, and
interest by the United States of America,
(ii) any certificate of deposit, maturing not more than one year after
the date of acquisition, issued by, or time deposit of, a commercial banking
institution that is a member of the Federal Reserve System and that has
combined capital and surplus and undivided profits of not less than $500.0
million, whose debt has a rating, at the time as of which any investment
therein is made, of "P-1" (or higher) according to Moody's Investors
Service, Inc. ("Moody's") or any successor rating agency or "A-1" (or
higher) according to Standard and Poor's Corporation ("S&P") or any
successor rating agency,
(iii) commercial paper, maturing not more than one year after the date of
acquisition, issued by a corporation (other than an Affiliate or Subsidiary
of the Company) organized and existing under the laws of the United States
of America with a rating, at the time as of which any investment therein is
made, of "P-1" (or higher) according to Moody's or "A-1" (or higher)
according to S&P and
(iv) any money market deposit accounts issued or offered by a domestic
commercial bank having capital and surplus in excess of $500.0 million.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to "Certain Covenants--Designation of Unrestricted Subsidiaries"
above. Any such designation may be revoked by a resolution of the Board of
Directors of the Company delivered to the Trustee, subject to the provisions of
such covenant.
"Voting Stock" means stock of the class or classes pursuant to which the
holders thereof have the general voting power under ordinary circumstances to
elect at least a majority of the board of directors, managers or trustees of a
corporation (irrespective of whether or not at the time stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency).
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary all the
Capital Stock of which (other than directors' qualifying shares and up to 5% of
the issued and outstanding Capital Stock which may be owned by executive
officers of such Subsidiary) is owned by the Company or another Wholly Owned
Restricted Subsidiary.
S-43
THE GUARANTORS
The guarantors of the notes are the following subsidiaries of the Company:
Allberry, Inc., Barton Beers, Ltd., Barton Brands of California, Inc., Barton
Brands of Georgia, Inc., Barton Brands, Ltd., Barton Canada, Ltd., Barton
Distillers Import Corp., Barton Financial Corporation, Barton Incorporated,
Batavia Wine Cellars, Inc., Canandaigua B.V., Canandaigua Europe Limited,
Canandaigua Limited, Canandaigua Wine Company, Inc., Cloud Peak Corporation,
Franciscan Vineyards, Inc., M.J. Lewis Corp., Monarch Import Company, Mt.
Veeder Corporation, Polyphenolics, Inc., Ravenswood Winery, Inc., Roberts
Trading Corp., and Stevens Point Beverage Co.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain material U.S. federal income tax
consequences of the purchase, ownership and disposition of the notes, based
upon the Internal Revenue Code of 1986, as amended, and existing regulations,
rulings and judicial decisions as of the date of this prospectus supplement.
Such authorities may be repealed, revoked or modified, possibly with
retroactive effect, so as to result in U.S. federal income tax consequences
different from those discussed below. Except as specifically set forth in this
prospectus supplement, this summary deals only with notes held as capital
assets by initial holders, and does not deal with special situations, such as
those of dealers in securities or currencies, financial institutions, banks,
tax-exempt organizations, insurance companies, holders that are partnerships or
other pass-through entities and holders whose "functional currency" is not the
U.S. dollar, or special rules with respect to "straddle," "conversion,"
"hedging" or "constructive sales" transactions. This summary does not address
the effect of any state, local, or foreign tax laws that may apply, or the
application of the federal estate tax or the alternative minimum tax. This
summary is not binding on the Internal Revenue Service or the courts. No ruling
has been sought or will be sought from the Internal Revenue Service with
respect to the positions and issues discussed herein, and there can be no
assurance that the Internal Revenue Service will not take a different position
concerning the tax consequences of the purchase, ownership or disposition of
the notes or that any such position would not be sustained. Prospective
investors are urged to consult their tax advisors regarding the particular tax
consequences of purchasing, holding and disposing of notes that may be specific
to them, including the tax consequences arising under any state, local or
foreign laws.
As used in this prospectus supplement, the term "U.S. Holder" means a
beneficial owner of a note who or that is for U.S. federal income tax purposes
(i) a citizen or resident of the United States,
(ii) a corporation created or organized in or under the laws of the
United States or any political subdivision thereof,
(iii) an estate the income of which is subject to U.S. federal income
taxation regardless of source, or
(iv) a trust if both: (A) a U.S. court is able to exercise primary
supervision over the administration of the trust, and one or more U.S.
persons have the authority to control all substantial decisions of the
trust, or (B) such trust has a valid election in effect under applicable
U.S. Treasury Regulations to be treated as a U.S. person.
As used in this prospectus supplement, the term "Non-U.S. Holder" means a
beneficial owner of a note that is for U.S. federal income tax purposes a
nonresident alien, or a corporation, estate, trust that is not a U.S. Holder.
U.S. Holders
Interest. Interest (including Additional Interest, if any) on the notes
generally will be taxable to a U.S. Holder as ordinary interest income at the
time accrued or received in accordance with the U.S. Holder's regular method of
accounting for federal income tax purposes.
S-44
Dispositions. Upon the sale, exchange, retirement or other disposition of a
note, a U.S. Holder generally will recognize taxable gain or loss equal to the
difference between the amount realized on the disposition (other than any
amounts attributable to accrued but unpaid interest) and the holder's adjusted
tax basis in the note. The gain or loss generally will be capital gain or loss.
To the extent that the amount realized represents accrued but unpaid interest
not previously taken into income, however, such amounts must be taken into
account as interest income.
For certain non-corporate U.S. Holders, including individuals, the rate of
taxation of capital gains will depend upon the holder's holding period in the
note, with a preferential rate generally available for notes held for more than
one year. The deductibility of capital losses is subject to limitations.
Non-U.S. Holders
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a note that is a Non-U.S. Holder.
Interest. Subject to the discussion below concerning backup withholding,
payments of interest on a note to any Non-U.S. Holder will generally not be
subject to U.S. federal income or withholding tax, provided that
(i) the holder is not (A) a direct or indirect owner, taking into account
certain attribution rules, of 10% or more of the total combined voting power
of all voting stock of the issuer or (B) a controlled foreign corporation
related to the issuer through stock ownership,
(ii) such interest payments are not effectively connected with the
conduct by the Non-U.S. Holder of a trade or business within the United
States, and
(iii) the issuer or its paying agent receives (A) from the Non-U.S.
Holder, a properly completed Form W-8BEN, or substitute Form W-8BEN, under
penalties of perjury, which provides the Non-U.S. Holder's name and address
and certifies that the Non-U.S. Holder of the note is a Non-U.S. Holder or
(B) from a security clearing organization, bank or other financial
institution that holds the notes in the ordinary course of its trade or
business (a "financial institution") on behalf of the Non-U.S. Holder,
certification under penalties of perjury that such a Form W-8BEN or
substitute Form W-8BEN has been received by it, or by another such financial
institution, from the Non-U.S. Holder, and a copy of the Form W-8BEN or
substitute Form W-8BEN, is furnished to the payor.
A Non-U.S. Holder that does not qualify for exemption from withholding under
the preceding paragraph generally will be subject to a 30% withholding tax, or
lower applicable treaty rate, on the gross amount received. To the extent a
Non-U.S. Holder seeks a reduced rate of withholding under a treaty, such holder
must provide the issuer or its paying agent with a properly completed Form
W-8BEN.
If the payments of interest on a note are effectively connected with the
conduct by a Non-U.S. Holder of a trade or business in the United States, such
payments will be subject to U.S. federal income tax on a net basis at the rates
applicable to United States persons generally (subject to modification under an
applicable income tax treaty) and, with respect to corporate holders, may also
be subject to a 30% branch profits tax. If payments are subject to U.S. federal
income tax on a net basis in accordance with the rules described in the
preceding sentence, those payments will not be subject to withholding tax so
long as the holder provides the issuer or its paying agent with a properly
executed Form W-8ECI.
Non-U.S. Holders should consult any applicable income tax treaties, which
may provide for a lower rate of withholding tax, exemption from or reduction of
branch profits tax, or other rules different from those described above.
S-45
Dispositions. Subject to the discussion below concerning backup
withholding, any gain realized by a Non-U.S. Holder on the sale, exchange,
retirement or other disposition of a note generally will not be subject to U.S.
federal income or withholding tax, unless
(i) such gain is effectively connected with the conduct by such Non-U.S.
Holder of a trade or business within the United States,
(ii) the Non-U.S. Holder is an individual who is present in the United
States for 183 days or more in the taxable year of the disposition and
certain other conditions are satisfied, or
(iii) the Non-U.S. Holder is subject to tax pursuant to the provisions of
U.S. tax law applicable to certain U.S. expatriates.
Information Reporting and Backup Withholding
Payments with respect to the notes and the proceeds upon the sale or other
disposition of the notes may be subject to information reporting and possibly
U.S. backup withholding tax. Backup withholding will not apply to a U.S. Holder
who furnishes its correct taxpayer identification number and provides other
certifications. Backup withholding will not apply to payments made by the
issuer in respect of the notes to a Non-U.S. Holder, if the holder certifies,
under penalty of perjury, that it is not a U.S. person and provides its name
and address, provided that neither the issuer nor its paying agent has actual
knowledge that the holder is a U.S. person, or the Non-U.S. Holder otherwise
establishes an exemption. Copies of information returns may be made available,
under the provisions of a specific treaty or agreement, to the tax authorities
of the country in which the Non-U.S. Holder resides.
Payment of proceeds from the disposition of notes to or through the United
States office of any broker, U.S. or foreign, will be subject to information
reporting and backup withholding unless the owner certifies as to its non-U.S.
status under penalty of perjury or otherwise establishes an exemption, provided
that the broker does not have actual knowledge that the holder is a U.S. person
or that the conditions of any other exemption are not, in fact, satisfied. The
payment of the proceeds from the disposition of a note to or through a non-U.S.
office of a non-U.S. broker that is not a "U.S. related person," as defined in
applicable Treasury Regulations, will not be subject to information reporting
or backup withholding. In the case of the payment of proceeds from the
disposition of a note to or through a non-U.S. office of a broker that is a
U.S. person or a "U.S. related person," the regulations require information
reporting on the payment unless the broker has documentary evidence in its
files that the owner is not a U.S. person and the broker has no knowledge to
the contrary. Backup withholding will not apply to payments made through a
non-U.S. foreign office of a broker that is a U.S. person or a "U.S. related
person," absent actual knowledge that the payee is a U.S. person.
The rate of backup withholding tax is currently 30% and is scheduled to be
reduced gradually to 28% by the year 2006. Amounts withheld under the backup
withholding rules do not constitute a separate United States federal income
tax. Rather, any amount withheld under the backup withholding rules will be
allowed as a refund or a credit against a holder's U.S. federal income tax
liability, if any, provided that the requisite procedures are followed.
S-46
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
dated the date of this prospectus supplement, we have agreed to sell to the
underwriters named below, and each underwriter has severally agreed to purchase
from us, the principal amount of the notes that appears opposite its name below:
Underwriter Principal Amount
----------- ----------------
J.P. Morgan Securities Inc.... $122,767,750
Deutsche Banc Alex. Brown Inc. 33,482,250
Salomon Smith Barney Inc...... 33,482,250
UBS Warburg LLC............... 33,482,250
Barclays Bank PLC............. 8,928,500
Fleet Securities, Inc......... 8,928,500
Scotia Capital (USA) Inc...... 8,928,500
------------
Total......................... $250,000,000
============
The underwriting agreement provides that the underwriters will purchase all
of the notes if any of them are purchased.
The underwriters have advised us that they propose to offer the notes from
time to time for sale in one or more negotiated transactions, or otherwise, at
market prices prevailing at the time of sale at prices related to such
prevailing market prices or at negotiated prices. The underwriters may effect
such transactions by selling the note to or through dealers, and such dealers
may receive compensation in the form of underwriting discounts, concessions or
commission for the underwriters and/or the purchasers of the notes for whom
they may act as agent. The underwriters and any dealers that participate with
the underwriters in the distribution of the notes may be deemed to be
underwriters, and any discounts or commissions received by them and any profit
on the resale of the notes by them may be deemed to be underwriting discounts
or commission, under the Securities Act of 1933, as amended.
The notes are a new issue of securities, and there is currently no
established trading market for the notes. We do not intend to apply for the
notes to be listed on any securities exchange or to arrange for the notes to be
quoted on any quotation system. The underwriters have advised us that they
intend to make a market in the notes, but they are not obligated to do so. The
underwriters may discontinue any market making in the notes at any time at
their sole discretion. Accordingly, we cannot assure you that a liquid trading
market will develop for the notes, that you will be able to sell your notes at
a particular time or that the prices that you receive when you sell will be
favorable.
We have agreed that we will not offer or sell any of our debt securities
(other than the notes) for a period of time beginning on the date of this
prospectus supplement and ending on January 23, 2002.
We have also agreed to pay our expenses related to the offering, which we
estimate will be $500,000.
We have also agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended, or to contribute to payments which the underwriter may be required to
make respect of any such liabilities.
The distribution of this prospectus supplement and the accompanying
prospectus and the offering of the notes may, in certain jurisdictions, be
restricted by law. We and the underwriters require from the persons who receive
this prospectus supplement and the accompanying prospectus to inform themselves
of and observe all those restrictions. Neither we nor the underwriters accept
any legal responsibility for any violation by any person.
In the ordinary course of business, certain of the underwriters and/or their
respective affiliates have provided in the past and may provide in the future
investment banking, commercial lending, financial advisory and other services
to us and our affiliates. The Chase Manhattan Bank, an affiliate of J.P. Morgan
Securities Inc., Citicorp USA, Inc., an affiliate of Salomon Smith Barney Inc.,
Deutsche Bank, New York and/or Cayman Islands Branch, an affiliate of Deutsche
Banc Alex. Brown Inc., Barclays Bank PLC, Fleet National Bank, an affiliate of
Fleet Securities, Inc., and The Bank of Nova Scotia, an affiliate of Scotia
Capital (USA) Inc., are lenders under our senior credit facility, a portion of
which will be repaid with the proceeds of this offering.
S-47
LEGAL OPINIONS
The validity of the notes offered hereby will be passed upon for us by
McDermott, Will & Emery. Certain legal matters in connection with the offering
will be passed upon for the underwriters by Cahill Gordon & Reindel, New York,
New York.
EXPERTS
The audited consolidated financial statements of Constellation Brands, Inc.
incorporated by reference in this prospectus and elsewhere in the registration
statement to the extent and for the periods indicated in their reports have
been audited by Arthur Andersen LLP, independent public accountants, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in giving said reports.
The audited financial statements of Ravenswood Winery, Inc. as of June 30,
2000 and 1999 and for the three years in the period ended June 30, 2000
incorporated by reference in this prospectus and elsewhere in the Pre-Effective
Amendment No. 1 to Form S-3 File No. 333-63480 and included in the Form 8-K
filed on August 24, 2001 have been audited by Odenberg, Ullakko, Muranishi &
Co. LLP, independent public accountants, and are incorporated by reference
herein upon the authority of said firm as experts in giving said report.
AVAILABLE INFORMATION
We file reports and other information with the SEC pursuant to the
information requirements of the Exchange Act. Our filings with the SEC may be
inspected without charge at the office of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, registration statements and certain other
filings made with the SEC through its Electronic Data Gathering, Analysis and
Retrieval system are publicly available through the SEC's website located at
http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with it, which means that we can disclose
important business and financial information to you by referring you to those
documents. The information incorporated by reference is considered to be part
of this prospectus supplement, and the information that we file with the SEC
later will automatically update and supersede this information. We incorporate
by reference the documents listed below and any filings that we make with the
SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of this prospectus supplement:
. Annual Report on Form 10-K for the fiscal year ended February 28, 2001;
. Quarterly Reports on Form 10-Q for the fiscal quarters ended May 31,
2001, August 31, 2001 and November 30, 2001; and
. Current Reports on Form 8-K filed on March 7, 2001, March 14, 2001,
April 12, 2001 (reporting our results for the three month period and the
twelve month period ended February 28, 2001, and announcing our
two-for-one stock split), April 12, 2001 (reporting the proposed
acquisition by us of Ravenswood Winery, Inc.), June 20, 2001, June 28,
2001, July 3, 2001, August 24, 2001, September 5, 2001, September 28,
2001, October 2, 2001 and January 3, 2002.
This prospectus supplement and the accompanying prospectus incorporate
important business and financial information about us that is not included in
or delivered with this prospectus supplement and the accompanying prospectus.
You may request a copy of this information and any of the filings identified
above, at no cost, by writing or telephoning us at: Constellation Brands, Inc.,
Attention: David S. Sorce, Secretary, 300 WillowBrook Office Park, Fairport,
New York 14450; telephone number 585-218-2169.
S-48
PROSPECTUS
[CONSTELLATION BRANDS LOGO]
$750,000,000
Constellation Brands, Inc.
Debt Securities, Preferred Stock and Class A Common Stock
-------------
We may sell from time to time for proceeds of up to $750,000,000:
. our debt securities;
. shares of our preferred stock, which may be represented by depositary
shares;
. shares of our class A common stock; or
. any combination of the foregoing.
The debt securities may be guaranteed by our subsidiaries identified in this
prospectus.
We will provide specific terms of the securities which we may offer in
supplements to this prospectus. You should read this prospectus and any
supplement carefully before you invest. Securities may be sold for U.S.
dollars, foreign currency or currency units.
Our class A common stock is listed on the New York Stock Exchange under the
symbol "STZ."
See "Risk Factors" beginning on page 1 for a discussion of certain factors
that you should consider before purchasing any securities.
-------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
-------------
The date of this prospectus is September 24, 2001.
TABLE OF CONTENTS
Page
----
About This Prospectus........................... i
Where You Can Find More Information............. i
Information Regarding Forward-Looking Statements ii
Constellation Brands, Inc....................... 1
The Guarantors.................................. 1
Risk Factors.................................... 1
Use of Proceeds................................. 6
Dividend Policy................................. 6
Ratio of Earnings to Fixed Charges.............. 6
Description of Debt Securities.................. 6
Description of Preferred Stock.................. 12
Description of Depositary Shares................ 13
Description of Class A Common Stock............. 15
Plan of Distribution............................ 17
Legal Opinions.................................. 18
Experts......................................... 18
-----------------
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-3 that we
filed with the Securities and Exchange Commission using a "shelf" registration
process. Under this process, we may sell any combination of the securities
described in this prospectus in one or more offerings up to a total dollar
amount of $750,000,000. This prospectus provides you with a general description
of the securities we may offer. Each time we offer to sell securities, we will
provide a supplement to this prospectus that will contain specific information
about the terms of that offering. The prospectus supplement may also add,
update, or change information contained in this prospectus. You should read
both this prospectus and any prospectus supplement together with the additional
information described under the heading "Where You Can Find More Information",
below.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy reports, statements or other
information at the SEC's public reference rooms in Washington, D.C., New York,
New York or Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. Our SEC filings are also
available to the public from commercial document retrieval services, at the
website maintained by the SEC at "http://www.sec.gov", and at our own website
at "http://www.cbrands.com". You should be aware that other information
contained on our website is not part of this document.
As noted above, we have filed with the SEC a registration statement on Form
S-3 to register the securities. This prospectus is part of that registration
statement and, as permitted by the SEC's rules, does not contain all the
information set forth in the registration statement. For further information
you may refer to the registration statement and to the exhibits and schedules
filed as part of the registration statement. You can review and copy the
registration statement and its exhibits and schedules at the public reference
facilities maintained by the SEC as described above. The registration
statement, including its exhibits and schedules, is also available on SEC's
website.
i
The SEC allows us to "incorporate by reference" the information we file with
it, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus, and the information that we file with the SEC
later will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings we make with the
SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934:
. Annual Report on Form 10-K for the fiscal year ended February 28, 2001;
. Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2001;
. Current Reports on Form 8-K filed on March 7, 2001, March 14, 2001,
April 12, 2001 (reporting our results for the three month period and the
twelve month period ended February 28, 2001, and announcing our
two-for-one stock split), April 12, 2001 (reporting the proposed
acquisition by us of Ravenswood Winery, Inc.), June 20, 2001, June 28,
2001, July 3, 2001, August 24, 2001, and September 5, 2001; and
. The description of our class A common stock, par value $.01 per share,
and class B common stock, par value $.01 per share, contained in Item 1
of our registration statement on Form 8-A filed on October 4, 1999.
You may request a copy of these filings, at no cost, by writing or
telephoning us at: Constellation Brands, Inc., Attention: David S. Sorce,
Secretary, 300 WillowBrook Office Park, Fairport, New York 14450; telephone
number 716-218-2169.
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not
authorized anyone else to provide you with different or additional information.
You should not assume that the information in this prospectus or any prospectus
supplement is accurate as of any date other than the date on the front of those
documents.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act. These forward-looking statements are subject to a number of risks
and uncertainties, many of which are beyond our control, that could cause
actual results to differ materially from those set forth in, or implied by, our
forward-looking statements. All statements other than statements of historical
facts included in this prospectus regarding our business strategy, future
operations, financial position, estimated revenues, projected costs, prospects,
plans and objectives of management, as well as information concerning expected
actions of third parties, are forward-looking statements. When used in this
prospectus, the words "anticipate," "intend," "estimate," "expect," "project"
and similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain such identifying words. All
forward-looking statements speak only as of the date of this prospectus. We do
not undertake any obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we can give no assurance that such expectations will
prove to be correct. Important factors that could cause our actual results to
differ materially from our expectations, or "cautionary statements," are
disclosed under "Risk Factors" and elsewhere in this prospectus. The cautionary
statements qualify all forward-looking statements attributable to us or persons
acting on our behalf.
ii
CONSTELLATION BRANDS, INC.
Constellation Brands, Inc. is a leader in the production and marketing of
beverage alcohol brands in North America and the United Kingdom. As the second
largest supplier of wine, the second largest marketer of imported beer and the
fourth largest supplier of distilled spirits, we are the largest single-source
supplier of these products in the United States. In the United Kingdom, we are
a leading marketer of wine, the second largest producer and marketer of cider
and a leading independent drinks wholesaler. With our broad portfolio, we
believe we are distinctly positioned to satisfy an array of consumer
preferences across all beverage alcohol categories. Leading brands in our
portfolio include: Franciscan Oakville Estate, Simi, Estancia, Ravenswood,
Corona Extra, Modelo Especial, St. Pauli Girl, Almaden, Arbor Mist, Talus,
Vendange, Alice White, Black Velvet, Fleischmann's, Schenley, Ten High,
Stowells of Chelsea, Blackthorn and K.
Our products are distributed by more than 1,000 wholesale distributors in
North America. In the United Kingdom, we distribute our branded products and
those of other companies to more than 16,500 customers. We operate 30
production facilities throughout the world and purchase products for resale
from other producers.
Since our founding in 1945 as a producer and marketer of wine products, we
have grown through a combination of internal growth and acquisitions. Our
internal growth has been driven by leveraging our existing portfolio of leading
brands, developing new products, new packaging and line extensions, and
focusing on the faster growing sectors of the beverage alcohol industry. Since
1991, we have successfully integrated a number of major acquisitions that have
broadened our portfolio and increased our market share, net sales and cash flow.
THE GUARANTORS
The guarantors of the debt securities are the following companies, each of
which is a direct or indirect subsidiary of Constellation Brands, Inc.:
Allberry, Inc., Barton Beers, Ltd., Barton Brands of California, Inc., Barton
Brands of Georgia, Inc., Barton Brands, Ltd., Barton Canada, Ltd., Barton
Distillers Import Corp., Barton Financial Corporation, Barton Incorporated,
Batavia Wine Cellars, Inc., Canandaigua B.V., Canandaigua Europe Limited,
Canandaigua Limited, Canandaigua Wine Company, Inc., Cloud Peak Corporation,
Franciscan Vineyards, Inc., M.J. Lewis Corp., Monarch Import Company, Mt.
Veeder Corporation, Polyphenolics, Inc., Ravenswood Winery, Inc., Roberts
Trading Corp., and Stevens Point Beverage Co.
If so provided in a prospectus supplement, each of the guarantors will fully
and unconditionally guarantee on a joint and several basis our obligations
under the debt securities, subject to certain limitations.
RISK FACTORS
Before you buy any shares of our class A common stock offered by this
prospectus, you should be aware that there are various risks, including those
described below. You should consider carefully these risk factors, together
with all of the other information in this prospectus, any prospectus supplement
and the documents that are incorporated by reference before you decide to
acquire any shares of class A common stock.
Our indebtedness could have a material adverse effect on our financial health.
We have incurred substantial indebtedness to finance our acquisitions and we
may incur substantial additional indebtedness in the future to finance further
acquisitions. As of May 31, 2001, we had approximately $1.4 billion of
indebtedness outstanding, which does not include approximately $268.1 million
of revolving loans we had available to draw under our senior credit facility.
Our ability to satisfy our debt obligations outstanding from time to time will
depend upon our future operating performance, which is subject to prevailing
economic conditions, levels of interest rates and financial, business and other
factors, many of which are beyond our control. Therefore, there can be no
assurance that our cash flow from operations will be sufficient to meet all of
our debt service requirements and to fund our capital expenditure requirements.
1
Our current and future debt service obligations and covenants could have
important consequences to you if you purchase our class A common stock. These
consequences may include the following:
. our ability to obtain financing for future working capital needs or
acquisitions or other purposes may be limited;
. a significant portion of our cash flow from operations will be dedicated
to the payment of principal and interest on our indebtedness, thereby
reducing funds available for operations;
. our ability to conduct our business could be limited by restrictive
covenants; and
. we may be more vulnerable to adverse economic conditions than our less
leveraged competitors and, thus, may be limited in our ability to
withstand competitive pressures.
The restrictive covenants in our senior credit facility and the indentures
under which our debt securities are issued include, among others, those
restricting additional liens, additional borrowing, the sale of assets, changes
of control, the payment of dividends, transactions with affiliates, the making
of investments and certain other fundamental changes. Our senior credit
facility also contains restrictions on acquisitions and certain financial ratio
tests including a debt coverage ratio, a senior debt coverage ratio, a fixed
charges ratio and an interest coverage ratio. These restrictions could limit
our ability to conduct business. A failure to comply with the obligations
contained in the senior credit facility or the indentures could result in an
event of default under such agreements, which could require us to immediately
repay the related debt and also debt under other agreements that may contain
cross-acceleration or cross-default provisions.
Our acquisition or joint venture strategies may not be successful.
We have made a number of acquisitions and anticipate that we may, from time
to time, acquire additional businesses, assets or securities of companies that
we believe would provide a strategic fit with our business. In addition, we
recently entered into a joint venture under the name Pacific Wine Partners LLC
("PWP") with BRL Hardy, the second largest wine company in Australia. PWP may
itself acquire businesses and we may enter into additional joint ventures.
Acquired businesses will need to be integrated with our existing operations.
There can be no assurance that we will effectively assimilate the business or
product offerings of acquired companies into our business or product offerings.
Any acquisitions will also be accompanied by risks such as potential
exposure to unknown liabilities of acquired companies, the possible loss of key
employees and customers of the acquired business, and the incurrence of
amortization expenses if any acquisition is accounted for as a purchase.
Acquisitions are subject to risks associated with the difficulty and expense of
integrating the operations and personnel of the acquired companies, the
potential disruption to our business and the diversion of management time and
attention.
We share control of PWP equally with BRL Hardy, and we may not have majority
interest or control of any future joint venture. There is the risk that our
joint venture partners may at any time have economic, business or legal
interests or goals that are inconsistent with those of the joint venture or us.
There is also risk that our joint venture partners may be unable to meet their
economic or other obligations and that we may be required to fulfill those
obligations alone.
Failure by us or an entity in which we have a joint venture interest to
adequately manage the risks associated with any acquisitions or joint ventures
could have a material adverse effect on our financial condition or results of
operations.
The termination or non-renewal of imported beer distribution agreements could
have a material adverse effect on our business.
All of our imported beer products are marketed and sold pursuant to
exclusive distribution agreements with the suppliers of these products which
are subject to renewal from time to time. Our exclusive agreement to distribute
Corona Extra and our other Mexican beer brands in 25 primarily western U.S.
states expires in
2
December 2006 and, subject to compliance with certain performance criteria,
continued retention of certain personnel and other terms of the agreement, will
be automatically renewed for additional terms of five years. Changes in control
of Constellation Brands, Inc. or its subsidiaries involved in importing the
Mexican beer brands, or changes in the chief executive officer of such
subsidiaries, may be a basis for the supplier, unless it consents to such
changes, to terminate the agreement. The supplier's consent to such changes may
not be unreasonably withheld. Prior to their expiration, these agreements may
be terminated if we fail to meet certain performance criteria. We believe that
we are currently in compliance with all of our material imported beer
distribution agreements. From time to time we have failed, and may in the
future fail, to satisfy certain performance criteria in our distribution
agreements. It is possible that our beer distribution agreements may not be
renewed or may be terminated prior to expiration.
Our business could be adversely affected by a general decline in the
consumption of products we sell.
In the United States, notwithstanding the fact that there have been modest
increases in consumption of beverage alcohol products in the most recent few
years, the overall per capita consumption of beverage alcohol products by
adults (ages 21 and over) has declined substantially over the past 20 years. A
decline in consumption could be caused by a variety of factors, including:
. a general decline in economic conditions;
. increased concern about the health consequences of consuming beverage
alcohol products and about drinking and driving;
. a trend toward a healthier diet including lighter, lower calorie
beverages such as diet soft drinks, juices and water products;
. the increased activity of anti-alcohol consumer groups; and
. increased federal and state excise taxes.
We have a material amount of goodwill, and if we are required to write down
goodwill to comply with new accounting standards, it would reduce our net
income, which in turn could materially and adversely affect our results of
operations.
Approximately $594.7 million (net of accumulated amortization), or 21.7%, of
our total assets as of May 31, 2001, represented unamortized goodwill. Goodwill
is the amount by which the costs of an acquisition accounted for using the
purchase method exceeds the fair market value of the net assets acquired. We
are required to record goodwill as an intangible asset on our balance sheet and
to amortize it over a period of years. We have historically amortized goodwill
on a straight-line basis over a period of 40 years. Even though it reduces our
net income for accounting purposes, a portion of our amortization of goodwill
is deductible for tax purposes. Currently, we are required to evaluate
periodically whether we can recover our remaining goodwill from the
undiscounted future cash flows that we expect to receive from the operations of
acquired businesses. If these undiscounted cash flows are less than the
carrying value of the associated goodwill, the goodwill is deemed to be
impaired and we must reduce the carrying value of the goodwill to equal the
discounted future cash flows and take the amount of the reduction as a charge
against our net income.
On July 20, 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard ("SFAS") No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 became effective on July 1, 2001, for
acquisitions occurring on or after that date and will be adopted by us on March
1, 2002, for acquisitions that occurred prior to July 1, 2001. SFAS No. 142
results in goodwill no longer being amortized. Instead, goodwill is subject to
a periodic impairment evaluation based on the fair value of the reporting unit.
Reductions in our net income caused by the write-down of goodwill could
materially and adversely affect our results of operations.
3
An increase in excise taxes and government restrictions could have a material
adverse effect on our business.
In the United States, the federal government and individual states impose
excise taxes on beverage alcohol products in varying amounts which have been
subject to change. Increases in excise taxes on beverage alcohol products, if
enacted, could materially and adversely affect our financial condition or
results of operations. In addition, the beverage alcohol products industry is
subject to extensive regulation by state and federal agencies. The U.S. Bureau
of Alcohol, Tobacco and Firearms and the various state liquor authorities
regulate such matters as licensing requirements, trade and pricing practices,
permitted and required labeling, advertising and relations with wholesalers and
retailers. In recent years, federal and state regulators have required warning
labels and signage. In the United Kingdom, our subsidiary Matthew Clark plc
carries on its operations under a Customs and Excise License. Licenses are
required for all premises where wine is produced. Matthew Clark holds a license
to act as an excise warehouse operator and registrations have been secured for
the production of cider and bottled water. New or revised regulations or
increased licensing fees and requirements could have a material adverse effect
on our financial condition or results of operations.
We rely on the performance of wholesale distributors for the success of our
business.
In the United States, we sell our products principally to wholesalers for
resale to retail outlets including grocery stores, package liquor stores, club
and discount stores and restaurants. The replacement or poor performance of our
major wholesalers or our inability to collect accounts receivable from our
major wholesalers could materially and adversely affect our results of
operations and financial condition. Distribution channels for beverage alcohol
products have been characterized in recent years by rapid change, including
consolidations of certain wholesalers. In addition, wholesalers and retailers
of our products offer products that compete directly with our products for
retail shelf space and consumer purchases. Accordingly, there is a risk that
these wholesalers or retailers may give higher priority to products of our
competitors. In the future, our wholesalers and retailers may not continue to
purchase our products or provide our products with adequate levels of
promotional support.
We generally do not have long-term supply contracts and we are subject to
substantial price fluctuations for grapes and grape-related materials, and we
have a limited group of suppliers of glass bottles.
Our business is heavily dependent upon raw materials, such as grapes, grape
juice concentrate, grains, alcohol and packaging materials from third-party
suppliers. We could experience raw material supply, production or shipment
difficulties which could adversely affect our ability to supply goods to our
customers. We are also directly affected by increases in the costs of such raw
materials. In the past we have experienced dramatic increases in the cost of
grapes. Although we believe we have adequate sources of grape supplies, in the
event demand for certain wine products exceeds expectations, we could
experience shortages. One of our largest components of cost of goods sold is
that of glass bottles, which have only a small number of producers. The
inability of any of our glass bottle suppliers to satisfy our requirements
could adversely affect our business.
Competition could have a material adverse effect on our business.
We are in a highly competitive industry and the dollar amount and unit
volume of our sales could be negatively affected by our inability to maintain
or increase prices, changes in geographic or product mix, a general decline in
beverage alcohol consumption or the decision of our wholesale customers,
retailers or consumers to purchase competitors' products instead of our
products. Wholesaler, retailer and consumer purchasing decisions are influenced
by, among other things, the perceived absolute or relative overall value of our
products, including their quality and pricing, compared to competitive
products. Unit volume and dollar sales could also be affected by pricing,
purchasing, financing, operational, advertising or promotional decisions made
by wholesalers and retailers which could affect their supply of, or consumer
demand for, our products. We could
4
also experience higher than expected selling, general and administrative
expenses if we find it necessary to increase the number of our personnel or our
advertising or promotional expenditures to maintain our competitive position or
for other reasons.
We are controlled by the Sands family.
Our outstanding capital stock consists of class A common stock and class B
common stock. Holders of class A common stock are entitled to one vote per
share and are entitled, as a class, to elect one fourth of the members of our
board of directors. Holders of class B common stock are entitled to 10 votes
per share and are entitled, as a class, to elect the remaining directors. As of
July 31, 2001, the Sands family beneficially owned approximately 11% of the
outstanding shares of class A common stock (exclusive of shares of class A
common stock issuable pursuant to the conversion feature of the class B common
stock owned by the Sands family) and approximately 93% of the outstanding
shares of class B common stock. On the same basis, on all matters other than
the election of directors, the Sands family has the ability to vote
approximately 62% of the votes entitled to be cast by holders of our
outstanding capital stock, voting as a single class. Consequently, we are
essentially controlled by the Sands family and they would generally have
sufficient voting power to determine the outcome of any corporate transaction
or other matter submitted to our stockholders for approval.
5
USE OF PROCEEDS
Except as we may otherwise set forth in a prospectus supplement, we will use
the net proceeds from the sale of the securities offered by this prospectus for
working capital and general corporate purposes. Pending the application of the
proceeds, we will invest the proceeds in certificates of deposit, U.S.
government securities or other interest bearing securities.
DIVIDEND POLICY
Our policy is to retain all of our earnings to finance the development and
expansion of our business. In addition, the indentures for our outstanding
senior notes and our outstanding senior subordinated notes, and our existing
senior credit facility, restrict the payment of dividends. Any supplemental
indentures for the debt securities offered by this prospectus may also restrict
or prohibit the payment of dividends.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our historical ratio of earnings to fixed
charges. For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" represent income before provision for income taxes plus fixed
charges. "Fixed charges" consist of interest expensed and capitalized,
amortization of debt issuance costs, amortization of discount on debt, and the
portion of rental expense that management believes is representative of the
interest component of lease expense. Because we did not have any preferred
stock outstanding during the periods indicated below, our ratio of earnings to
combined fixed charges and preference dividends for each period is the same as
the ratio of earnings to fixed charges.
For the For the For the
Three Months Fiscal Year Fiscal Year
Ended Ended Ended For the Fiscal Years
May 31, February 28, February 29, Ended February 28,
------------ ------------ ------------ --------------------
2001 2000 2001 2000 1999 1998 1997
---- ---- ------------ ------------ ---- ---- ----
Ratio of earnings to fixed charges 2.2x 2.0x 2.4x 2.1x 3.2x 3.2x 3.1x
DESCRIPTION OF DEBT SECURITIES
We may offer debt securities under this prospectus, any of which may be
issued as convertible or exchangeable debt securities. The following
description of the terms of the debt securities sets forth certain general
terms and provisions of the debt securities to which any prospectus supplement
may relate. We will set forth the particular terms of the debt securities we
offer in a prospectus supplement. The extent, if any, to which the following
general provisions apply to particular debt securities will be described in the
applicable prospectus supplement. The following description of general terms
relating to the debt securities and the indenture under which the debt
securities will be issued are summaries only and therefore are not complete.
You should read the indenture and the prospectus supplement regarding any
particular issuance of debt securities.
The debt securities will represent our unsecured general obligations, unless
otherwise provided in the prospectus supplement. If so provided in a prospectus
supplement, the debt securities will have the benefit of the guarantees from
the guarantors. Our subsidiaries are separate and distinct legal entities and
have no obligation, contingent or otherwise, to pay any amounts due pursuant to
the debt securities or to make any funds available therefor, whether by
dividends, loans or other payments, other than as expressly provided in the
guarantees.
Our ability to service our indebtedness, including the debt securities, is
dependent primarily upon the receipt of funds from our subsidiaries. The
payment of dividends or the making of loans and advances to us by our
6
subsidiaries are subject to contractual, statutory or regulatory restrictions,
are contingent upon the earnings of those subsidiaries and are subject to
various business considerations. Further, any right we may have to receive
assets of any of our subsidiaries upon liquidation or recapitalization of any
such subsidiaries (and the consequent right of the holders of debt securities
to participate in those assets) will be subject to the claims of our
subsidiaries' creditors. Even in the event that we are recognized as a creditor
of a subsidiary, our claims would still be subject to any security interest in
the assets of such subsidiary and any indebtedness of such subsidiary senior to
our claim.
The debt securities will be issued under an indenture that we have entered
into with the guarantors and the trustee. The indenture is subject to, and is
governed by, the Trust Indenture Act of 1939.
Except to the extent set forth in a prospectus supplement, the indenture
does not contain any covenants or restrictions that afford holders of the debt
securities special protection in the event of a change of control or highly
leveraged transaction.
The following is a summary of certain provisions of the debt securities that
may be issued under the indenture dated February 25, 1999, and is not complete.
Debt securities may also be issued under the indenture dated February 21, 2001,
as amended, on the same terms as certain debt securities currently outstanding.
A description of such debt securities shall be contained in a prospectus
supplement. You should carefully read the provisions of particular debt
securities we may issue and the indenture under which the debt securities are
issued, including the definitions in those documents of certain terms and of
those terms made a part of those documents by the Trust Indenture Act.
General
The indenture does not limit the aggregate principal amount of debt
securities which may be issued under it and provides that debt securities may
be issued in one or more series, in such form or forms, with such terms and up
to the aggregate principal amount that we may authorize from time to time. Our
board of directors will establish the terms of each series of debt securities
and such terms will be set forth or determined in the manner provided in an
officers' certificate or by a supplemental indenture. The particular terms of
the debt securities offered pursuant to any prospectus supplement will be
described in the prospectus supplement. All debt securities of one series need
not be issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of any holder, for issuances of additional debt
securities of that series.
Unless otherwise provided in the prospectus supplement, debt securities may
be presented for registration of transfer and exchange and for payment or, if
applicable, for conversion or exchange at the office of the trustee. At our
option, the payment of interest may also be made by check mailed to the address
of the person entitled to such payment as it appears in the debt security
register.
The applicable prospectus supplement will describe the following terms of
any debt securities in respect of which this prospectus is being delivered (to
the extent applicable to the debt securities):
(1)the title of the debt securities of the series, and whether the debt
securities are senior debt securities or subordinated debt securities;
(2)the total principal amount of the debt securities of the series and any
limit on the total principal amount;
(3)the price (expressed as a percentage of the principal amount of the debt
securities) at which we will issue the debt securities of the series;
(4)the terms, if any, by which holders may convert or exchange the debt
securities of the series into or for common stock or other of our
securities or property;
7
(5)if the debt securities of the series are convertible or exchangeable,
any limitations on the ownership or transferability of the securities or
property into which holders may convert or exchange the debt securities;
(6)the date or dates, or the method for determining the date or dates, on
which we will be obligated to pay the principal of the debt securities
of the series and the amount of principal we will be obligated to pay;
(7)the rate or rates, which may be fixed or variable, at which the debt
securities of the series will bear interest, if any, or the method by
which the rate or rates will be determined;
(8)the date or dates, or the method for determining the date or dates, from
which any interest will accrue on the debt securities of the series, the
dates on which we will be obligated to pay any such interest, the
regular record dates if any, for the interest payments, or the method by
which the dates shall be determined, the persons to whom we will be
obligated to pay interest, and the basis upon which interest shall be
calculated if other than that of a 360-day year consisting of twelve
30-day months;
(9)the place or places where the principal of, and any premium, interest or
other amounts payable (if any) on, the debt securities of the series
will be payable, where the holders of the debt securities may surrender
debt securities for conversion, transfer or exchange, and where notices
or demands to or upon us in respect of the debt securities and the
indenture may be served;
(10)any provisions relating to the issuance of the debt securities at an
original issue discount;
(11)the period or periods during which, the price or prices (including any
premium or make-whole amount) at which, the currency or currencies in
which, and the other terms and conditions upon which, we may redeem the
debt securities of the series, at our option, if we have such an option;
(12)any obligation of ours to redeem, repay or purchase debt securities
pursuant to any sinking fund or analogous provision or at the option of
a holder of debt securities, and the terms and conditions upon which we
will redeem, repay or purchase all or a portion of the debt securities
of the series pursuant to that obligation;
(13)if other than denominations of $1,000 and any integral multiple thereof,
the denominations in which the debt securities shall be issuable;
(14)if the principal amount payable on any maturity date will not be
determinable on any one or more dates prior to the maturity date, the
amount which will be deemed to be the principal amount as of any date
for any purpose, including the principal amount which will be due and
payable upon any maturity other than the maturity date, or the manner of
determining that amount;
(15)any events of default in lieu of or in addition to those described in
this prospectus and remedies relating to such events of default;
(16)if other than the trustee, the identity of each security registrar or
paying agent for debt securities of the series;
(17)the currency or currencies in which we will sell the debt securities and
in which the debt securities of the series will be denominated and
payable;
(18)whether the amount of payment of principal of, and any premium,
make-whole amount, or interest on, the debt securities of the series may
be determined with reference to an index, formula or other method and
the manner in which the amounts will be determined;
(19)whether the principal of, and any premium, make-whole amount, interest
or additional payments on, the debt securities of the series are to be
payable, at our election or at the election of the holder of the debt
securities, in a currency or currencies other than that in which the
debt securities are denominated or stated to be payable, the period or
periods during which, and the terms and conditions upon which, this
election may be made, and the time and manner of, and identity of the
exchange rate agent with
8
responsibility for, determining the exchange rate between the currency
or currencies in which the debt securities are denominated or stated to
be payable and the currency or currencies in which the debt securities
will be payable;
(20)any applicable U.S. federal income tax consequences, including whether
and under what circumstances we will pay any additional amounts as
contemplated in the applicable indenture on the debt securities to any
holder who is not a United States person in respect of any tax,
assessment or governmental charge withheld or deducted and, if we will
pay additional amounts, whether we will have the option, and on what
terms to redeem the debt securities instead of paying the additional
amounts;
(21)if receipt of certain certificates or other documents or satisfaction of
other conditions will be necessary for any purpose, including, without
limitation, as a condition to the issuance of the debt securities in
definitive form (whether upon original issue or upon exchange of a
temporary debt security), the form and terms of such certificates,
documents or conditions;
(22)any other covenant or warranty included for the benefit of the debt
securities of the series;
(23)whether the debt securities will be issued in whole or in part in the
form of one or more global securities and, in such case, the depositary
for such a global security and the circumstances under which any global
security may be exchanged for debt securities registered in the name of,
and under which any transfer of such global security may be registered
in the name of, any person other than the depositary;
(24)whether the debt securities are defeasible;
(25)whether and the extent that the debt securities shall be guaranteed by
the guarantors and the form of any such guarantee;
(26)any proposed listing of the debt securities of the series on any
securities exchange; and
(27)any other specific terms of the debt securities.
Unless otherwise indicated in the prospectus supplement relating to the debt
securities, principal of and any premium or interest on the debt securities
will be payable, and the debt securities will be exchangeable and transfers
thereof will be registrable, at the office of the trustee at its principal
executive offices. However, at our option, payment of interest may be made by
check mailed to the address of the person entitled thereto as it appears in the
debt security register. Any payment of principal and any premium or interest
required to be made on an interest payment date, redemption date or at maturity
which is not a business day need not be made on such date, but may be made on
the next succeeding business day with the same force and effect as if made on
the applicable date, and no interest shall accrue for the period from and after
such date.
Unless otherwise indicated in the prospectus supplement relating to debt
securities, the debt securities will be issued only in fully registered form,
without coupons, in denominations of $1,000 or any integral multiple thereof.
No service charge will be made for any transfer or exchange of the debt
securities, but we may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection with a transfer or exchange.
Debt securities may be issued under the indenture as Original Issue Discount
Securities (as defined below) to be offered and sold at a substantial discount
from their stated principal amount. In addition, under U.S. Treasury
Regulations it is possible that the debt securities that are offered and sold
at their stated principal amount would, under certain circumstances, be treated
as issued at an original issue discount for federal income tax purposes.
Federal income tax consequences and other special considerations applicable to
any such Original Issue Discount Securities (or other debt securities treated
as issued at an original issue discount) will be described in the prospectus
supplement relating to such securities. "Original Issue Discount Security"
means any debt
9
security that does not provide for the payment of interest prior to maturity or
which is issued at a price lower than its principal amount and which provides
that upon redemption or acceleration of its stated maturity an amount less than
its principal amount shall become due and payable.
Global Securities
The debt securities of a series may be issued in the form of one or more
global securities that will be deposited with a depositary or its nominees
identified in the prospectus supplement relating to the debt securities. In
such a case, one or more global securities will be issued in a denomination or
aggregate denominations equal to the portion of the aggregate principal amount
of outstanding debt securities of the series to be represented by such global
security or securities.
Unless and until it is exchanged in whole or in part for debt securities in
definitive registered form, a global security may not be registered for
transfer or exchange except as a whole by the depositary for such global
security to a nominee of the depositary and except in the circumstances
described in the prospectus supplement relating to the debt securities. The
specific terms of the depositary arrangement with respect to a series of debt
securities will be described in the prospectus supplement relating to such
series.
Guarantees
In order to enable us to obtain more favorable interest rates and terms of
payment of principal of, premiums (if any), and interest on the debt
securities, the debt securities may (if so specified in the prospectus
supplement) be guaranteed, jointly and severally by all of the guarantors
pursuant to guarantees. Guarantees will not be applicable to or guarantee our
obligations with respect to the conversion of the debt securities into shares
of our other securities. Each guarantee will be an unsecured obligation of each
guarantor issuing such guarantee. The ranking of a guarantee and the terms of
the subordination, if any, will be set forth in the prospectus supplement.
The indenture provides that, in the event any guarantee would constitute or
result in a violation of any applicable fraudulent conveyance or similar law of
any relevant jurisdiction, the liability of the guarantor under such guarantee
will be reduced to the maximum amount (after giving effect to all other
contingent and other liabilities of such guarantor) permissible under the
applicable fraudulent conveyance or similar law.
Modification of the Indenture
We and the trustee may modify the indenture with respect to the debt
securities of any series, with or without the consent of the holders of debt
securities, under certain circumstances to be described in a prospectus
supplement.
Defeasance; Satisfaction and Discharge
The prospectus supplement will outline the conditions under which we may
elect to have certain of our obligations under the indenture discharged and
under which the indenture obligations will be deemed to be satisfied.
Defaults and Notice
The debt securities will contain events of default to be specified in the
applicable prospectus supplement, including, without limitation:
. failure to pay the principal of, or premium, if any, on any debt
security of such series when due and payable (whether at maturity, by
call for redemption, through any mandatory sinking fund, by redemption
at the option of the holder, by declaration or acceleration or
otherwise);
. failure to make a payment of any interest on any debt security of such
series when due;
10
. our, or any guarantor's, failure to perform or observe any other
covenants or agreements in the indenture or in the debt securities of
such series;
. certain events of bankruptcy, insolvency or reorganization of us or any
guarantor;
. any guarantee in respect of such series of debt securities shall for any
reason cease to be, or be asserted in writing by any guarantor thereof
or us not to be, in full force and effect, and enforceable in accordance
with its terms; and
. certain cross defaults.
If an event of default with respect to debt securities of any series shall
occur and be continuing, the trustee or the holders of not less than 25% in
aggregate principal amount of the then outstanding debt securities of such
series may declare the principal amount (or, if the debt securities of such
series are issued at an original issue discount, such portion of the principal
amount as may be specified in the terms of the debt securities of such series)
of all debt securities of such series or such other amount or amounts as the
debt securities or supplemental indenture with respect to such series may
provide, to be due and payable immediately.
The indenture provides that the trustee will, within 90 days after the
occurrence of a default, give to holders of debt securities of any series
notice of all uncured defaults with respect to such series known to it.
However, in the case of a default that results from the failure to make any
payment of the principal of, premium, if any, or interest on the debt
securities of any series, or in the payment of any mandatory sinking fund
installment with respect to debt securities of such series, the trustee may
withhold such notice if it in good faith determines that the withholding of
such notice is in the interest of the holders of debt securities of such series.
The indenture contains a provision entitling the trustee to be indemnified
by holders of debt securities before proceeding to exercise any trust or power
under the indenture at the request of such holders. The indenture provides that
the holders of a majority in aggregate principal amount of the then outstanding
debt securities of any series may direct the time, method and place of
conducting any proceedings for any remedy available to the trustee, or of
exercising any trust or power conferred upon the trustee with respect to the
debt securities of such series. However, the trustee may decline to follow any
such direction if, among other reasons, the trustee determines in good faith
that the actions or proceedings as directed may not lawfully be taken, would
involve the trustee in personal liability or would be unduly prejudicial to the
holders of the debt securities of such series not joining in such direction.
The right of a holder to institute a proceeding with respect to the
indenture is subject to certain conditions including, that the holders of a
majority in aggregate principal amount of the debt securities of such series
then outstanding make a written request upon the trustee to exercise its power
under the indenture, indemnify the trustee and afford the trustee reasonable
opportunity to act. Even so, the holder has an absolute right to receipt of the
principal of, premium, if any, and interest when due, to require conversion or
exchange of debt securities if the indenture provides for convertibility or
exchangeability at the option of the holder and to institute suit for the
enforcement of such rights.
Concerning the Trustee
The prospectus supplement with respect to particular debt securities will
describe any relationship that we may have with the trustee for such debt
securities.
Reports to Holders of Debt Securities
We intend to furnish to holders of debt securities all quarterly and annual
reports that we furnish to holders of our common stock.
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DESCRIPTION OF PREFERRED STOCK
Our board of directors is authorized to issue in one or more series, without
stockholder approval, up to 1,000,000 shares of preferred stock. The shares can
be issued with such designations, preferences, qualifications, privileges,
limitations, restrictions, options, voting powers (full or limited), conversion
or exchange rights and other special or relative rights as the board of
directors shall from time to time fix by resolution. Thus, without stockholder
approval, our board of directors could authorize the issuance of preferred
stock with voting, conversion and other rights that could dilute the voting
power and other rights of holders of our common stock. The prospectus
supplement relating to a series of preferred stock will set forth the dividend,
voting, conversion, exchange, repurchase and redemption rights, if applicable,
the liquidation preference, and other specific terms of such series of the
preferred stock. We currently have no shares of preferred stock outstanding.
The applicable prospectus supplement will describe the specific terms of any
preferred stock being offered. The following terms may be included:
. the specific designation, number of shares, seniority and purchase price;
. any liquidation preference per share;
. any date of maturity;
. any redemption, repayment or sinking fund provisions;
. any dividend rate or rates and the dates on which any such dividends
will be payable (or the method by which such rates or dates will be
determined);
. any voting rights;
. if other than the currency of the United States, the currency or
currencies (including composite currencies) in which such preferred
stock is denominated and in which payments will or may be payable;
. the method by which amounts in respect of such preferred stock may be
calculated and any commodities, currencies or indices, or value, rate or
price, relevant to such calculation;
. whether the preferred stock is convertible or exchangeable and, if so,
the securities or rights into which it is convertible or exchangeable,
and the terms and conditions upon which such conversions or exchanges
will be effected;
. the place or places where dividends and other payments on the preferred
stock will be payable; and
. any additional voting, dividend, liquidation, redemption and other
rights, preferences, privileges, limitations and restrictions.
As described under "Description of Depositary Shares" below we may, at our
option, elect to offer depositary shares evidenced by depositary receipts, each
representing an interest (to be specified in the prospectus supplement relating
to the particular series of the preferred stock) in a share of the particular
series of the preferred stock issued and deposited with a depositary.
All shares of preferred stock offered by this prospectus, or issuable upon
conversion, exchange or exercise of securities, will, when issued, be fully
paid and non-assessable.
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DESCRIPTION OF DEPOSITARY SHARES
The description set forth below and in any prospectus supplement of certain
provisions of the deposit agreement and of the depositary shares and depositary
receipts is not complete. You should carefully review the prospectus supplement
and the form of deposit agreement and form of depositary receipts relating to
each series of the preferred stock.
General
We may, at our option, elect to have shares of preferred stock be
represented by depositary shares. The shares of any series of the preferred
stock underlying the depositary shares will be deposited under a separate
deposit agreement that we will enter with a bank or trust company having its
principal office in the United States and a combined capital and surplus of at
least $50,000,000. This bank or trust company will be considered the
depositary. The prospectus supplement relating to a series of depositary shares
will set forth the name and address of the depositary. Subject to the terms of
the deposit agreement, each owner of a depositary share will be entitled, in
proportion to the applicable interest in the number of shares of preferred
stock underlying such depositary share, to all the rights and preferences of
the preferred stock underlying such depositary share (including dividend,
voting, redemption, conversion, exchange and liquidation rights).
The depositary shares will be evidenced by depositary receipts issued
pursuant to the deposit agreement, each of which will represent the applicable
interest in a number of shares of a particular series of the preferred stock
described in the applicable prospectus supplement.
Unless otherwise specified in the prospectus supplement, a holder of
depositary shares is not entitled to receive the shares of preferred stock
underlying the depositary shares.
If required by law or applicable securities exchange rules, engraved
depositary receipts will be prepared. Pending their preparation, the depositary
may, upon our written order, issue temporary depositary receipts substantially
identical to the definitive depositary receipts. Definitive depositary receipts
will thereafter be prepared without unreasonable delay.
Dividends and Other Distributions
The depositary will distribute all cash dividends or other cash
distributions received in respect of the preferred stock to the record holders
of depositary shares representing such preferred stock in proportion to the
numbers of depositary shares owned by the holders on the relevant record date.
In the event of a distribution other than in cash, the depositary will
distribute property received by it to the record holders of depositary shares
entitled to such property, as nearly as practicable, in proportion to the
number of depositary shares owned by the holder. However, if the depositary
determines that it is not feasible to make such distribution, it may, with our
approval, sell such property and distribute the net proceeds from such sale to
the holders.
The deposit agreement also contains provisions relating to the manner in
which any subscription or similar rights we offer to holders of preferred stock
shall be made available to holders of depositary shares.
Conversion and Exchange
If any preferred stock underlying the depositary shares is subject to
provisions relating to its conversion or exchange as set forth in the
prospectus supplement relating thereto, each record holder of depositary shares
will have the right or obligation to convert or exchange such depositary shares
pursuant to its terms.
Redemption of Depositary Shares
If a series of preferred stock underlying the depositary shares is subject
to redemption, the depositary shares will be redeemed from the proceeds
received by the depositary resulting from the redemption, in whole or in part,
of the series of preferred stock held by the depositary. The redemption price
per depositary share will be equal to
13
the aggregate redemption price payable with respect to the number of shares of
preferred stock underlying the depositary shares. Whenever we redeem preferred
stock from the depositary, the depositary will redeem as of the same redemption
date a proportionate number of depositary shares representing the shares of
preferred stock that were redeemed. If less than all the depositary shares are
to be redeemed, the depositary shares to be redeemed will be selected by lot or
pro rata as we may determine.
After the date fixed for redemption, the depositary shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the depositary shares will cease, except the right to receive the
redemption price payable upon such redemption. Any funds we deposit with the
depositary for any depositary shares which the holders fail to redeem will be
returned to us after a period of two years from the date we deposit such funds.
Voting
Upon receipt of notice of any meeting or action in lieu of any meeting at
which the holders of any shares of preferred stock underlying the depositary
shares are entitled to vote, the depositary will mail the information contained
in such notice to the record holders of the depositary shares relating to such
preferred stock. Each record holder of such depositary shares on the record
date (which will be the same date for the preferred stock) will be entitled to
instruct the depositary as to the exercise of the voting rights pertaining to
the number of shares of preferred stock underlying such holder's depositary
shares. The depositary will endeavor, as practicable, to vote the number of
shares of preferred stock underlying such depositary shares in accordance with
such instructions, and we will agree to take all action which may be deemed
necessary by the depositary in order to enable the depositary to do so.
Amendment of the Deposit Agreement
The form of depositary receipt evidencing the depositary shares and any
provision of the deposit agreement may at any time be amended by agreement
between us and the depositary. However, any amendment which materially and
adversely alters the rights of the existing holders of depositary shares will
not be effective unless such amendment has been approved by at least a majority
of the depositary shares then outstanding.
Charges of Depositary
We will pay all transfer and other taxes and governmental charges that arise
solely from the existence of the depositary arrangements. We will pay charges
of the depositary in connection with the initial deposit of the preferred stock
and any exchange or redemption of the preferred stock. Holders of depositary
shares will pay all other transfer and other taxes and governmental charges,
and, in addition, such other charges as are expressly provided in the deposit
agreement to be for their accounts.
Miscellaneous
We, or at our option, the depositary, will forward to the holders of
depositary shares all of our reports and communications which we are required
to furnish to the holders of preferred stock.
Neither we nor the depositary will be liable if we or the depositary is
prevented or delayed by law or any circumstances beyond our or its control in
performing our or its obligations under the deposit agreement. Our obligations
and the depositary's obligations under the deposit agreement will be limited to
performance in good faith and neither we nor the depositary will be obligated
to prosecute or defend any legal proceeding in respect of any depositary share
or preferred stock unless satisfactory indemnity has been furnished. Both we
and the depositary may rely upon written advice of counsel or accountants, or
information provided by persons presenting preferred stock for deposit, holders
of depositary shares or other persons believed to be competent and on documents
believed to be genuine.
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Resignation and Removal of Depositary; Termination of the Deposit Agreement
The depositary may resign at any time by delivering notice to us of its
election to do so, and we may at any time remove the depositary. Any such
resignation or removal will take effect upon the appointment of a successor
depositary and its acceptance of such appointment. We will appoint a successor
depositary within 60 days after delivery of the notice of resignation or
removal. We may terminate the deposit agreement or it may be terminated by the
depositary if a period of 90 days expires after the depositary has delivered
written notice to us of its election to resign and we have not appointed a
successor depositary. Upon termination of the deposit agreement, the depositary
will discontinue the transfer of depositary receipts, will suspend the
distribution of dividends to the holders of depositary receipts, and will not
give any further notices (other than notice of such termination) or perform any
further acts under the deposit agreement except that the depositary will
continue to deliver preferred stock certificates, together with dividends and
distributions and the net proceeds of any sales of rights, preferences,
privileges or other property in exchange for depositary receipts surrendered.
Upon our request, the depositary will deliver to us all books, records,
certificates evidencing preferred stock, depositary receipts and other
documents relating to the subject matter of the deposit agreement.
DESCRIPTION OF CLASS A COMMON STOCK
If we offer shares of class A common stock, the prospectus supplement will
set forth the number of shares offered, the public offering price, information
regarding our dividend history and class A common stock prices as reflected on
the New York Stock Exchange, including a recent reported last sale price of the
class A common stock.
Our authorized common stock consists of 140,000,000 shares, of which
120,000,000 shares are class A common stock, par value $.01 per share, and
20,000,000 shares are class B common stock, par value $.01 per share. At July
31, 2001, we had 36,470,672 shares of class A common stock outstanding and held
of record by 933 stockholders, and 6,075,245 shares of class B common stock
outstanding and held of record by 272 stockholders. In addition, at July 31,
2001, options to purchase an aggregate of 6,707,155 shares of class A common
stock were outstanding.
All shares of class A common stock and class B common stock currently
outstanding are, and the shares of class A common stock offered hereby will be,
validly issued and fully paid and non-assessable, not subject to redemption
(except as described below) and without preemptive or other rights to subscribe
for or purchase any proportionate part of any new or additional issues of stock
of any class or of securities convertible into stock of any class.
The following descriptions of our class A common stock and certain
provisions of our Restated Certificate of Incorporation and Amended and
Restated By-Laws are summaries and are not complete. You should carefully
review the provisions of our certificate of incorporation and by-laws and
appropriate provisions of the Delaware General Corporation Law.
General
The rights of holders of class A common stock and class B common stock are
identical except for voting, dividends and conversion rights.
Voting
Holders of class A common stock are entitled to one vote per share and
holders of class B common stock are entitled to 10 votes per share. Holders of
class A common stock, voting as a class, are entitled to elect at least one
fourth of the members of our board of directors to be elected at a meeting of
stockholders, and holders of class B common stock, voting as a class, are
entitled to elect the remaining directors. If the number of outstanding shares
of class B common stock is less than 12% of the aggregate number of outstanding
shares of class A common
15
stock and class B common stock, the holders of class A common stock will become
entitled to elect at least one fourth of the directors voting as a class and to
elect the remaining directors voting together as a single class with holders of
class B common stock, provided that the holders of class A common stock shall
have one vote per share and the holders of class B common stock shall have 10
votes per share.
On all other matters submitted to a vote of the stockholders, the holders of
class A common stock and class B common stock vote together as a single class,
except where a separate class vote is required under Delaware law.
Dividends
If we pay a cash dividend on class B common stock, each share of class A
common stock will receive an amount at least 10% greater than the amount of the
cash dividend per share paid on class B common stock. In addition, our board of
directors may declare and pay a dividend on class A common stock without paying
any dividend on class B common stock. The indentures for our outstanding senior
notes and our outstanding senior subordinated notes, and our existing senior
credit facility, restrict the payment of dividends. In addition, any
supplemental indentures for the debt securities may restrict or prohibit the
payment of dividends.
Conversion
Each share of class B common stock is convertible into one fully paid and
non-assessable share of class A common stock at the option of the holder at any
time. The shares of class A common stock are not convertible into or
exchangeable for shares of class B common stock or any of our other securities.
Other Provisions
Holders of class A common stock and class B common stock are entitled to
share pro rata in the distribution of our assets available for such purpose in
the event of our liquidation, dissolution or winding up, after payment of, or
provision for, creditors and distribution of, or provision for, preferential
amounts and unpaid accumulated dividends to holders of preferred stock, if any.
Holders of class A common stock and class B common stock have no preemptive
rights to subscribe for any additional securities of any class which we may
issue, and there are no redemption provisions or sinking fund provisions
applicable to any such classes, nor is the class A common stock and class B
common stock subject to calls or assessments.
Certain Statutory Provisions
We are subject to Section 203 of the Delaware General Corporation Law.
Section 203 prohibits a publicly held Delaware corporation from engaging in any
"business combination" with any "interested stockholder" for a period of three
years following the time that such person became an interested stockholder,
unless
. prior to the time of the business combination, the transaction is
approved by the board of directors of the corporation;
. upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owns at
least 85% of the outstanding voting stock; or
. at or subsequent to such time the business combination is approved by
the board of directors and authorized at a meeting of the corporation's
stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder.
For purposes of Section 203, a "business combination" includes a merger, assets
sale or other transaction resulting in a financial benefit to the interested
stockholder, and an "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
the corporation's voting stock.
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PLAN OF DISTRIBUTION
We may sell securities on a negotiated or competitive bid basis to or
through one or more underwriters or dealers. We may also sell securities
directly to institutional investors or other purchasers or through agents. Any
underwriter, dealer or agent involved in the offer and sale of securities, and
any applicable commissions, discounts and other items constituting compensation
to such underwriters, dealers or agents, will be set forth in the prospectus
supplement.
We may effect distribution of securities from time to time in one or more
transactions at a fixed price or prices (which may be changed) or at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices.
Unless otherwise indicated in a prospectus supplement, the obligations of
any underwriters to purchase securities will be subject to certain conditions
and the underwriters will be obligated to purchase all of the applicable
securities if any are purchased. If a dealer is used in a sale, we may sell the
securities to the dealer as principal. The dealer may then resell the
securities to the public at varying prices to be determined by the dealer at
the time of resale.
We or our agents may solicit offers to purchase securities from time to
time. Unless otherwise indicated in a prospectus supplement, any agent will be
acting on a best efforts basis for the period of its appointment.
In connection with the sale of securities, underwriters or agents may
receive compensation (in the form of discounts, concessions or commissions)
from us or from purchasers of securities for whom they may act as agents.
Underwriters may sell securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters or commissions from the purchasers for whom they may act as
agents. Underwriters, dealers and agents that participate in the distribution
of securities may be deemed to be underwriters as that term is defined in the
Securities Act, and any discounts or commissions received by them from us and
any profits on the resale of the securities by them may be deemed to be
underwriting discounts and commissions under the Securities Act. Any such
underwriter or agent will be identified, and any such compensation received
from us will be described, in the related prospectus supplement.
Underwriters, dealers and agents may be entitled, under agreements with us,
to indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act.
If so indicated in the prospectus supplement, we will authorize agents and
underwriters to solicit offers by certain specified institutions to purchase
securities at the public offering price set forth in the prospectus supplement
pursuant to delayed delivery contracts providing for payment and delivery on a
specified date in the future. Institutions with whom such contracts may be made
include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions and other
institutions but shall in all cases be subject to our approval. Such contracts
will be subject only to those conditions set forth in the prospectus supplement
and the prospectus supplement will set forth the commission payable for
solicitation of such contracts. The obligations of any purchaser under any such
contract will be subject to the condition that the purchase of the securities
shall not be prohibited at the time of delivery under the laws of the
jurisdiction to which the purchaser is subject. The underwriters and other
agents will not have any responsibility in respect of the validity or
performance of such contracts.
The underwriters or agents and their associates may engage in transactions
with and perform services for us or our affiliates in the ordinary course of
their respective businesses.
The securities may or may not be listed on a national securities exchange or
traded in the over-the-counter market. No assurance can be given as to the
liquidity of the trading market for any such securities.
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If underwriters or dealers are used in the sale, until the distribution of
the securities is completed, SEC rules may limit the ability of any such
underwriters and selling group members to bid for and purchase the securities.
As an exception to these rules, representatives of any underwriters are
permitted to engage in certain transactions that stabilize the price of the
securities. Such transactions may consist of bids or purchases for the purpose
of pegging, fixing or maintaining the price of the securities. If the
underwriters create a short position in the securities in connection with the
offerings (i.e., if they sell more securities than are set forth on the cover
page of the prospectus supplement) the representatives of the underwriters may
reduce that short position by purchasing securities in the open market. The
representatives of the underwriters may also elect to reduce any short position
by exercising all or part of any over-allotment option described in the
prospectus supplement. The representatives of the underwriters may also impose
a penalty bid on certain underwriters and selling group members. This means
that if the representatives purchase securities in the open market to reduce
the underwriters' short position or to stabilize the price of the securities,
they may reclaim the amount of the selling concession from the underwriters and
selling group members who sold those shares as part of the offering. In
general, purchases of a security for the purpose of stabilization or to reduce
a short position could cause the price of the security to be higher than it
might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of the securities to the extent that it
discourages resales of the securities. We make no representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the securities. In addition, the representatives
of any underwriters may determine not to engage in such transactions or that
such transactions, once commenced, may be discontinued without notice.
LEGAL OPINIONS
The validity of the securities offered by this prospectus will be passed
upon by McDermott, Will & Emery.
EXPERTS
The audited consolidated financial statements of Constellation Brands, Inc.
included and incorporated by reference in this prospectus and elsewhere in the
registration statement to the extent and for the periods indicated in their
reports have been audited by Arthur Andersen LLP, independent public
accountants, and are included and incorporated by reference herein in reliance
upon the authority of said firm as experts in giving said reports.
The audited financial statements of Ravenswood Winery, Inc. as of June 30,
2000 and 1999 and for the three years in the period ended June 30, 2000
incorporated by reference in this prospectus and elsewhere in the Pre-Effective
Amendment No. 1 to Form S-3 File No. 333-63480 and included in the Form 8-K
filed on August 24, 2001 have been audited by Odenberg, Ullakko, Muranishi &
Co. LLP, independent public accountants, and are incorporated by reference
herein upon the authority of said firm as experts in giving said report.
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