|
☒
|
QUARTERLY REPORT
PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
☐
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Washington
|
|
91-1141254
|
(State or other jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer Identification No.)
|
Large Accelerated Filer ☐
|
|
Accelerated Filer ☒
|
Non-accelerated Filer ☐ (Do not check if a smaller reporting company)
|
|
Smaller Reporting Company ☐
|
|
PART I - FINANCIAL INFORMATION
|
Page
|
|
|
|
|
Item 1.
|
Financial Statements
|
|
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
Item 2.
|
||
|
|
|
Item 3.
|
||
|
|
|
Item 4.
|
||
|
|
|
PART II ‑ OTHER INFORMATION
|
|
|
|
|
|
Item 1A.
|
||
|
|
|
Item 6.
|
||
|
|
|
|
March 31,
2016 |
|
December 31,
2015 |
||||
Assets
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
1,110
|
|
|
$
|
911
|
|
Accounts receivable, net
|
17,263
|
|
|
18,926
|
|
||
Inventory, net
|
20,033
|
|
|
18,300
|
|
||
Deferred income tax asset, net
|
3,872
|
|
|
1,905
|
|
||
Other current assets
|
2,618
|
|
|
2,439
|
|
||
Total current assets
|
44,896
|
|
|
42,481
|
|
||
Property, equipment and leasehold improvements, net
|
120,689
|
|
|
116,867
|
|
||
Goodwill
|
12,917
|
|
|
12,917
|
|
||
Intangible and other assets, net
|
18,008
|
|
|
18,069
|
|
||
Total assets
|
$
|
196,510
|
|
|
$
|
190,334
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
||
Current liabilities:
|
|
|
|
|
|
||
Accounts payable
|
$
|
19,452
|
|
|
$
|
17,100
|
|
Accrued salaries, wages and payroll taxes
|
5,247
|
|
|
5,468
|
|
||
Refundable deposits
|
6,340
|
|
|
6,559
|
|
||
Other accrued expenses
|
1,550
|
|
|
2,009
|
|
||
Current portion of long-term debt and capital lease obligations
|
602
|
|
|
507
|
|
||
Total current liabilities
|
33,191
|
|
|
31,643
|
|
||
Long-term debt and capital lease obligations, net of current portion
|
26,913
|
|
|
18,991
|
|
||
Fair value of derivative financial instruments
|
902
|
|
|
569
|
|
||
Deferred income tax liability, net
|
19,355
|
|
|
19,669
|
|
||
Other liabilities
|
806
|
|
|
724
|
|
||
Total liabilities
|
81,167
|
|
|
71,596
|
|
||
Commitments and contingencies
|
|
|
|
|
|
||
Common shareholders' equity:
|
|
|
|
|
|
||
Common stock, $0.005 par value. Authorized 50,000,000 shares; issued and outstanding 19,179,006 and 19,179,006
|
96
|
|
|
96
|
|
||
Additional paid-in capital
|
139,554
|
|
|
139,534
|
|
||
Accumulated other comprehensive loss
|
(558
|
)
|
|
(352
|
)
|
||
Accumulated deficit
|
(23,749
|
)
|
|
(20,540
|
)
|
||
Total common shareholders' equity
|
115,343
|
|
|
118,738
|
|
||
Total liabilities and common shareholders' equity
|
$
|
196,510
|
|
|
$
|
190,334
|
|
|
Three Months Ended
March 31, |
||||||
|
2016
|
|
2015
|
||||
Sales
|
$
|
41,793
|
|
|
$
|
44,619
|
|
Less excise taxes
|
2,571
|
|
|
2,910
|
|
||
Net sales
|
39,222
|
|
|
41,709
|
|
||
Cost of sales
|
30,505
|
|
|
30,547
|
|
||
Gross profit
|
8,717
|
|
|
11,162
|
|
||
Selling, general and administrative expenses
|
13,924
|
|
|
12,953
|
|
||
Operating loss
|
(5,207
|
)
|
|
(1,791
|
)
|
||
Interest expense
|
(147
|
)
|
|
(121
|
)
|
||
Other income, net
|
6
|
|
|
6
|
|
||
Loss before income taxes
|
(5,348
|
)
|
|
(1,906
|
)
|
||
Income tax benefit
|
(2,139
|
)
|
|
(743
|
)
|
||
Net loss
|
$
|
(3,209
|
)
|
|
$
|
(1,163
|
)
|
Basic and diluted net loss per share
|
$
|
(0.17
|
)
|
|
$
|
(0.06
|
)
|
Shares used in basic and diluted per share calculations
|
19,179
|
|
|
19,115
|
|
|
Three Months Ended
March 31, |
||||||
|
2016
|
|
2015
|
||||
Net loss
|
$
|
(3,209
|
)
|
|
$
|
(1,163
|
)
|
Unrealized loss on derivative hedge transactions, net of tax
|
(206
|
)
|
|
(79
|
)
|
||
Comprehensive loss
|
$
|
(3,415
|
)
|
|
$
|
(1,242
|
)
|
|
Three Months Ended March 31,
|
||||||
|
2016
|
|
2015
|
||||
Cash flows from operating activities:
|
|
|
|
||||
Net loss
|
$
|
(3,209
|
)
|
|
$
|
(1,163
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
||
Depreciation and amortization
|
2,615
|
|
|
2,288
|
|
||
Loss on sale or disposal of Property, equipment and leasehold improvements
|
2
|
|
|
215
|
|
||
Deferred income taxes
|
(2,155
|
)
|
|
(757
|
)
|
||
Stock-based compensation
|
20
|
|
|
280
|
|
||
Other
|
552
|
|
|
(140
|
)
|
||
Changes in operating assets and liabilities:
|
|
|
|
|
|
||
Accounts receivable, net
|
1,663
|
|
|
(2,449
|
)
|
||
Inventories
|
(2,188
|
)
|
|
(4,491
|
)
|
||
Other current assets
|
(178
|
)
|
|
9
|
|
||
Accounts payable and other accrued expenses
|
1,732
|
|
|
4,409
|
|
||
Accrued salaries, wages and payroll taxes
|
(221
|
)
|
|
88
|
|
||
Refundable deposits
|
(328
|
)
|
|
(149
|
)
|
||
Net cash used in operating activities
|
(1,695
|
)
|
|
(1,860
|
)
|
||
|
|
|
|
||||
Cash flows from investing activities:
|
|
|
|
|
|
||
Expenditures for Property, equipment and leasehold improvements
|
(5,651
|
)
|
|
(3,228
|
)
|
||
Proceeds from sale of Property, equipment and leasehold improvements
|
—
|
|
|
385
|
|
||
Net cash used in investing activities
|
(5,651
|
)
|
|
(2,843
|
)
|
||
|
|
|
|
||||
Cash flows from financing activities:
|
|
|
|
|
|
||
Principal payments on debt and capital lease obligations
|
(225
|
)
|
|
(122
|
)
|
||
Net borrowings under revolving line of credit
|
7,770
|
|
|
4,900
|
|
||
Net cash provided by financing activities
|
7,545
|
|
|
4,778
|
|
||
Increase in Cash and cash equivalents
|
199
|
|
|
75
|
|
||
|
|
|
|
||||
Cash and cash equivalents:
|
|
|
|
|
|
||
Beginning of period
|
911
|
|
|
981
|
|
||
End of period
|
$
|
1,110
|
|
|
$
|
1,056
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
||
Cash paid for interest
|
$
|
132
|
|
|
$
|
148
|
|
Cash paid for income taxes, net
|
62
|
|
|
40
|
|
||
Supplemental disclosure of non-cash information:
|
|
|
|
|
|
||
Purchase of Property, equipment and leasehold improvements with capital lease
|
$
|
473
|
|
|
$
|
—
|
|
Purchases of Property, equipment and leasehold improvements included in Accounts payable at end of period
|
1,495
|
|
|
819
|
|
|
March 31,
2016 |
|
December 31,
2015 |
||||
Raw materials
|
$
|
5,768
|
|
|
$
|
5,468
|
|
Work in process
|
3,673
|
|
|
3,822
|
|
||
Finished goods
|
7,399
|
|
|
6,109
|
|
||
Packaging materials
|
1,086
|
|
|
727
|
|
||
Promotional merchandise
|
1,431
|
|
|
1,477
|
|
||
Pub food, beverages and supplies
|
676
|
|
|
697
|
|
||
|
$
|
20,033
|
|
|
$
|
18,300
|
|
|
Three Months Ended
March 31, |
||||||
|
2016
|
|
2015
|
||||
Gross sales to A-B and Ambev
|
$
|
32,256
|
|
|
$
|
35,666
|
|
Margin fee paid to A-B, classified as a reduction of Sales
|
358
|
|
|
538
|
|
||
Inventory management and other fees paid to A-B, classified in Cost of sales
|
87
|
|
|
90
|
|
|
March 31,
2016 |
|
December 31,
2015 |
||||
Amounts due from A-B related to beer sales pursuant to the A-B distributor agreement
|
$
|
11,084
|
|
|
$
|
12,576
|
|
Refundable deposits due to A-B
|
(2,286
|
)
|
|
(2,291
|
)
|
||
Amounts due to A-B for services rendered
|
(1,635
|
)
|
|
(1,645
|
)
|
||
Net amount due from A-B
|
$
|
7,163
|
|
|
$
|
8,640
|
|
Three Months Ended
March 31, |
||||||
2016
|
|
2015
|
||||
$
|
30
|
|
|
$
|
30
|
|
Three Months Ended
March 31, |
||||||
2016
|
|
2015
|
||||
$
|
129
|
|
|
$
|
132
|
|
Derivatives in Cash Flow Hedging Relationships
|
|
Amount of Gain (Loss)
Recognized in Accumulated OCI (Effective Portion)
|
|
Location of Loss Reclassified
from Accumulated OCI into
Income (Effective Portion)
|
|
Amount of Loss Reclassified from Accumulated OCI into
Income (Effective Portion)
|
||||
Three Months Ended
March 31, |
|
|
|
|
|
|
||||
2016
|
|
$
|
(333
|
)
|
|
Interest expense
|
|
$
|
63
|
|
2015
|
|
$
|
(128
|
)
|
|
Interest expense
|
|
$
|
52
|
|
•
|
Level 1 – quoted prices in active markets for identical securities as of the reporting date;
|
•
|
Level 2 – other significant directly or indirectly observable inputs, including quoted prices for similar securities, interest rates, prepayment speeds and credit risk; and
|
•
|
Level 3 – significant inputs that are generally less observable than objective sources, including our own assumptions in determining fair value.
|
Fair Value at March 31, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||
Interest rate swaps
|
|
$
|
—
|
|
|
$
|
(902
|
)
|
|
$
|
—
|
|
|
$
|
(902
|
)
|
|
|
|
|
|
|
|
|
|
||||||||
Fair Value at December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swaps
|
|
$
|
—
|
|
|
$
|
(569
|
)
|
|
$
|
—
|
|
|
$
|
(569
|
)
|
|
March 31,
2016 |
|
December 31,
2015 |
||||
Fixed-rate debt on balance sheet
|
$
|
1,021
|
|
|
$
|
676
|
|
Estimated fair value of fixed-rate debt
|
$
|
1,055
|
|
|
$
|
706
|
|
Three Months Ended March 31,
|
||||
2016
|
|
2015
|
||
76.3
|
%
|
|
78.7
|
%
|
March 31,
2016 |
|
December 31,
2015 |
||
64.2
|
%
|
|
66.4
|
%
|
|
Three Months Ended
March 31, |
||||||
|
2016
|
|
2015
|
||||
Cost of sales
|
14
|
|
|
29
|
|
||
Selling, general and administrative expense
|
6
|
|
|
251
|
|
||
Total stock-based compensation expense
|
$
|
20
|
|
|
$
|
280
|
|
|
Three Months Ended
March 31, |
||||
|
2016
|
|
2015
|
||
Stock-based awards not included in diluted per share calculations as they would be antidilutive (in thousands)
|
253
|
|
|
165
|
|
Three Months Ended March 31,
|
|
Net sales
|
|
Net loss
|
|
Number of
Barrels Sold |
2016
|
|
$39.2 million
|
|
$(3.2) million
|
|
149,600
|
2015
|
|
$41.7 million
|
|
$(1.2) million
|
|
167,700
|
|
Three Months Ended
March 31, |
||||
|
2016
|
|
2015
|
||
Sales
|
106.6
|
%
|
|
107.0
|
%
|
Less excise taxes
|
(6.6
|
)
|
|
(7.0
|
)
|
Net sales
|
100.0
|
|
|
100.0
|
|
Cost of sales
|
77.8
|
|
|
73.2
|
|
Gross profit
|
22.2
|
|
|
26.8
|
|
Selling, general and administrative expenses
|
35.5
|
|
|
31.1
|
|
Operating loss
|
(13.3
|
)
|
|
(4.3
|
)
|
Interest expense
|
(0.4
|
)
|
|
(0.3
|
)
|
Other income, net
|
—
|
|
|
—
|
|
Loss before income taxes
|
(13.6
|
)
|
|
(4.6
|
)
|
Income tax benefit
|
(5.5
|
)
|
|
(1.8
|
)
|
Net loss
|
(8.2
|
)%
|
|
(2.8
|
)%
|
(1)
|
Percentages may not add due to rounding.
|
|
Three Months Ended March 31,
|
||||||||||
2016
|
Beer
Related |
|
Pubs
|
|
Total
|
||||||
Net sales
|
$
|
32,479
|
|
|
$
|
6,743
|
|
|
$
|
39,222
|
|
Gross profit
|
$
|
7,854
|
|
|
$
|
863
|
|
|
$
|
8,717
|
|
Gross margin
|
24.2
|
%
|
|
12.8
|
%
|
|
22.2
|
%
|
|||
|
|
|
|
|
|
||||||
2015
|
|
|
|
|
|
|
|
|
|||
Net sales
|
$
|
35,558
|
|
|
$
|
6,151
|
|
|
$
|
41,709
|
|
Gross profit
|
$
|
10,566
|
|
|
$
|
596
|
|
|
$
|
11,162
|
|
Gross margin
|
29.7
|
%
|
|
9.7
|
%
|
|
26.8
|
%
|
|
|
Three Months Ended March 31,
|
|
Dollar
|
|
|
|||||||||
Sales by Category
|
|
2016
|
|
2015
|
|
Change
|
|
% Change
|
|||||||
A-B and A-B related
(1)
|
|
$
|
31,898
|
|
|
$
|
35,128
|
|
|
$
|
(3,230
|
)
|
|
(9.2
|
)%
|
Contract brewing and beer related
(2)
|
|
3,152
|
|
|
3,340
|
|
|
(188
|
)
|
|
(5.6
|
)%
|
|||
Excise taxes
|
|
(2,571
|
)
|
|
(2,910
|
)
|
|
339
|
|
|
(11.6
|
)%
|
|||
Net beer related sales
|
|
32,479
|
|
|
35,558
|
|
|
(3,079
|
)
|
|
(8.7
|
)%
|
|||
Pubs
(3)
|
|
6,743
|
|
|
6,151
|
|
|
592
|
|
|
9.6
|
%
|
|||
Net sales
|
|
$
|
39,222
|
|
|
$
|
41,709
|
|
|
$
|
(2,487
|
)
|
|
(6.0
|
)%
|
(1)
|
A-B and A-B related includes domestic and international sales of our owned brands sold through A-B and Ambev, as well as non-owned brands sold pursuant to master distribution agreements.
|
(2)
|
Beer related includes international beer sales not sold through A-B or Ambev, as well as fees earned through an alternating proprietorship agreement.
|
(3)
|
Pubs sales include sales of promotional merchandise and sales of beer directly to customers.
|
Three Months Ended March 31,
|
|
2016 Shipments
|
|
2015 Shipments
|
|
Decrease |
|
%
Change |
|
Change in
Depletions (1) |
|||||
A-B and A-B related
(2)
|
|
135,100
|
|
|
151,400
|
|
|
(16,300
|
)
|
|
(10.8
|
)%
|
|
(3
|
)%
|
Contract brewing and beer related
(3)
|
|
12,400
|
|
|
14,200
|
|
|
(1,800
|
)
|
|
(12.7
|
)%
|
|
|
|
Pubs
|
|
2,100
|
|
|
2,100
|
|
|
—
|
|
|
—
|
%
|
|
|
|
Total
|
|
149,600
|
|
|
167,700
|
|
|
(18,100
|
)
|
|
(10.8
|
)%
|
|
|
|
(1)
|
Change in depletions reflects the year-over-year change in barrel volume sales of beer by wholesalers to retailers.
|
(2)
|
A-B and A-B related includes domestic and international shipments of our owned brands distributed through A-B and Ambev, as well as non-owned brands distributed pursuant to master distribution agreements.
|
(3)
|
Beer related includes international shipments of our beers not distributed through A-B or Ambev.
|
Three Months Ended March 31,
|
|
2016 Shipments
|
|
2015 Shipments
|
|
Increase
(Decrease) |
|
%
Change |
|
Change in
Depletions |
|||||
Kona
|
|
70,600
|
|
|
63,200
|
|
|
7,400
|
|
|
11.7
|
%
|
|
19
|
%
|
Widmer Brothers
|
|
33,400
|
|
|
40,400
|
|
|
(7,000
|
)
|
|
(17.3
|
)%
|
|
(14
|
)%
|
Redhook
|
|
26,200
|
|
|
39,700
|
|
|
(13,500
|
)
|
|
(34.0
|
)%
|
|
(22
|
)%
|
Omission
|
|
8,700
|
|
|
10,800
|
|
|
(2,100
|
)
|
|
(19.4
|
)%
|
|
(10
|
)%
|
All other
(1)
|
|
3,500
|
|
|
4,400
|
|
|
(900
|
)
|
|
(20.5
|
)%
|
|
(22
|
)%
|
Total
(2)
|
|
142,400
|
|
|
158,500
|
|
|
(16,100
|
)
|
|
(10.2
|
)%
|
|
(3
|
)%
|
(1)
|
All other includes the shipments and depletions from our Square Mile and Resignation brand families, as well as the non-owned Appalachian Mountain Brewing brand family, shipped by us pursuant to a distribution agreement.
|
(2)
|
Total shipments by brand include international shipments and exclude shipments produced under our contract brewing arrangements.
|
Three Months Ended
|
|
2016
|
|
2015
|
||||||||
March 31,
|
|
Shipments
|
|
% of Total
|
|
Shipments
|
|
% of Total
|
||||
Draft
|
|
37,500
|
|
|
26.3
|
%
|
|
39,500
|
|
|
24.9
|
%
|
Packaged
|
|
104,900
|
|
|
73.7
|
%
|
|
119,000
|
|
|
75.1
|
%
|
Total
|
|
142,400
|
|
|
100.0
|
%
|
|
158,500
|
|
|
100.0
|
%
|
|
Three Months Ended March 31,
|
|
Dollar
|
|
|
|||||||||
|
2016
|
|
2015
|
|
Change
|
|
% Change
|
|||||||
Beer Related
|
$
|
24,625
|
|
|
$
|
24,992
|
|
|
$
|
(367
|
)
|
|
(1.5
|
)%
|
Pubs
|
5,880
|
|
|
5,555
|
|
|
325
|
|
|
5.9
|
%
|
|||
Total
|
$
|
30,505
|
|
|
$
|
30,547
|
|
|
$
|
(42
|
)
|
|
(0.1
|
)%
|
|
Three Months Ended
March 31, |
||||
|
2016
|
|
2015
|
||
Capacity utilization
|
52
|
%
|
|
58
|
%
|
|
Three Months Ended March 31,
|
|
Dollar
|
|
|
|||||||||
|
2016
|
|
2015
|
|
Change
|
|
% Change
|
|||||||
Beer Related
|
$
|
7,854
|
|
|
$
|
10,566
|
|
|
$
|
(2,712
|
)
|
|
(25.7
|
)%
|
Pubs
|
863
|
|
|
596
|
|
|
267
|
|
|
44.8
|
%
|
|||
Total
|
$
|
8,717
|
|
|
$
|
11,162
|
|
|
$
|
(2,445
|
)
|
|
(21.9
|
)%
|
Three Months Ended
March 31, |
|
Dollar
|
|
|
|||||||||
2016
|
|
2015
|
|
Change
|
|
% Change
|
|||||||
$
|
147
|
|
|
$
|
121
|
|
|
$
|
26
|
|
|
21.5
|
%
|
|
Three Months Ended
March 31, |
||||||
|
2016
|
|
2015
|
||||
Average debt outstanding
|
$
|
22,931
|
|
|
$
|
18,152
|
|
Average interest rate
|
1.46
|
%
|
|
1.53
|
%
|
|
Three Months Ended
March 31, |
||||||
|
2016
|
|
2015
|
||||
Net cash used in operating activities
|
$
|
(1,695
|
)
|
|
$
|
(1,860
|
)
|
Net cash used in investing activities
|
(5,651
|
)
|
|
(2,843
|
)
|
||
Net cash provided by financing activities
|
7,545
|
|
|
4,778
|
|
||
Increase in Cash and cash equivalents
|
$
|
199
|
|
|
$
|
75
|
|
•
|
federal NOLs of $5.5 million, or $1.9 million tax effected;
|
•
|
state NOLs of $245,000, tax-effected;
|
•
|
federal alternative minimum tax (“AMT”) credit carry forwards of $343,000; and
|
•
|
federal insurance contributions act ("FICA") credit carry forwards of $44,000, tax-effected.
|
|
CRAFT BREW ALLIANCE, INC.
|
|
|
|
|
|
|
May 4, 2016
|
By:
|
/s/ Joseph K. Vanderstelt
|
|
|
|
Joseph K. Vanderstelt
|
|
|
|
Chief Financial Officer
|
|
EMPLOYEE
/s/ Kurt D. Widmer
Kurt D. Widmer Date: February 26, 2016 |
CRAFT BREW ALLIANCE, INC.
By:
/s/ Andrew J. Thomas
Name: Andrew J. Thomas
Title: President and Chief Executive Officer Date: February 26, 2016 |
EMPLOYEE
/s/ Kurt D. Widmer
Kurt D. Widmer Date: February 26, 2016 |
CRAFT BREW ALLIANCE, INC.
By:
/s/ Andrew J. Thomas
Name: Andrew J. Thomas
Title: President and Chief Executive Officer Date: February 26, 2016 |
1.
|
Option
|
1.1
|
Grant
. In consideration of and in connection with the parties' entry into and performance under an Alternating Proprietorship Agreement and Services Agreement, each between Owner and PBC and dated the same date as this Agreement, and any related agreements between Owner and PBC (such agreements, the "
Brewing Agreements
"), Owner grants to PBC the sole and exclusive option to purchase the Brewery (the "
Option
") in the manner and for the price stated in this Agreement.
|
1.2
|
Option Term
. The term of the Option (the "
Term
") begins immediately upon the Effective Date and the Option must be exercised, if at all, prior to 5:00 p.m. Pacific time on December 31, 2018 (the "
Expiration Date
"), unless earlier terminated as provided in this Agreement.
|
1.3
|
Exercise of Option
. The Option may be exercised, if at all, by written notice (the "
Exercise Notice
") delivered by PBC to Owner, stating that PBC has elected to exercise the Option. The Exercise Notice may be delivered and the Option
|
1.4
|
Failure to Exercise Option; Payment to Owner
. If PBC fails for any reason to exercise the Option during the Term or this Agreement is earlier terminated, PBC will have no further claim against or interest in the Brewery and will provide Owner with any instruments that Owner reasonably requests to remove from the public record any cloud on title to the Property or the Associated Assets that is attributable to the Option. In addition, if the Option expires unexercised, or this Agreement earlier terminates under circumstances in which an Option Termination Fee (as hereinafter defined) is required to be paid under
Section 9.2
below, PBC will pay to Owner, on or before January 31
st
of the year following such expiration or earlier termination, a termination fee calculated as follows (the "
Option Termination Fee
"):
|
1.4.1
|
If the average annual volume produced, sold, and shipped under the Brewing Agreements is less than *** bbls per year, the Option Termination Fee will be $***.
|
1.4.2
|
If the average annual volume produced, sold, and shipped under the Brewing Agreements is **** bbls per year or greater but less than *** bbls per year, the Option Termination Fee will be $***.
|
1.4.3
|
If the average annual volume that is produced, sold, and shipped under the Brewing Agreements is *** bbls per year or greater, the Option Termination Fee will be $***.
|
2.
|
Option Exercise Price
|
2.1
|
Purchase Price
. The purchase price for the Brewery (the "
Purchase Price
") will be calculated as follows:
|
2.1.1
|
If the Option is exercised prior to the first anniversary of the Effective Date, the Purchase Price shall be $25,000,000;
|
2.1.2
|
If the Option is exercised after the first anniversary of the Effective Date but prior to the second anniversary thereof, the Purchase Price shall be $26,000,000; and
|
2.1.3
|
If the Option is exercised after the second anniversary of the Effective Date but prior to the Expiration Date, the Purchase Price shall be $28,000,000.
|
2.2
|
Payment of Purchase Price
. The Purchase Price for the Brewery will be payable in cash at the Closing (as defined in
Section 3.1
), provided that PBC will be entitled to a credit at Closing in the amount paid for the Optionee Policy.
|
3.
|
Closing
|
3.1
|
Closing Date, Time and Place
. Closing of the sale and purchase of the Brewery (the "
Closing
") will occur on a mutually agreeable date (the "
Closing Date
") which must be not less than 120 days from the date of exercise (unless waived by Owner) and not more than 150 days from the date of exercise (unless waived by PBC) at the offices of the Brewery, unless otherwise agreed. Closing will be effective as of the close of business on the Closing Date, unless otherwise agreed. In all events the Closing must occur prior to May 15, 2019. An escrow (the "
Escrow
") for the Closing will be established at the office of Chicago Title Insurance Company (the "
Title Company
"), at 701 5
th
Avenue, Suite 2300, Seattle, Washington.
|
3.2
|
Closing Obligations
. Not less than two (2) business days prior to the Closing Date, Owner and PBC will deposit the following documents and funds into the Escrow established with the Title Company, and the Title Company will close Escrow in accordance with the terms of this Agreement and the instructions of Owner and PBC not inconsistent with the terms hereof.
|
3.2.1
|
Owner
.
Owner will deposit the following:
|
3.2.1.1
|
The Deed (as defined in
Section 3.6
), duly executed and acknowledged;
|
3.2.1.2
|
A Bill of Sale and Assignment in a commercially reasonable form to be agreed consistent with the terms of this Agreement (the "
Bill of Sale
"), executed on behalf of Owner, to effect transfer of the Associated Assets to PBC;
|
3.2.1.3
|
An Assignment and Assumption of Contracts in a commercially reasonable form to be agreed consistent with the terms of this Agreement (the "
Assignment and Assumption of Contracts
"), executed on behalf of Owner;
|
3.2.1.4
|
A duly executed and completed Real Estate Excise Tax Affidavit;
|
3.2.1.5
|
A duly executed affidavit certifying that Owner is not a foreign person, trust, partnership, or corporation in compliance with the requirements of IRC § 1445(b);
|
3.2.1.6
|
A certificate executed on behalf of Owner in a form reasonably acceptable to PBC affirming as of the Closing Date that all of Owner's representations and warranties under this Agreement are true and correct in all material respects;
|
3.2.1.7
|
Such documents as PBC or the Title Company may reasonably require to evidence the authority of Owner to consummate the transactions contemplated by this Agreement; and
|
3.2.1.8
|
Such other documents, including without limitation escrow instructions that are reasonably required of Owner to close the sale and purchase in accordance with this Agreement.
|
3.2.5
|
PBC
.
PBC will deposit the following:
|
3.2.2.1
|
The cash payment of the Purchase Price calculated in accordance with
Section 2
, plus PBC's share of closing costs;
|
3.2.2.2
|
The Assignment and Assumption of Contracts, executed on behalf of PBC;
|
3.2.2.3
|
A duly executed and completed Real Estate Excise Tax Affidavit;
|
3.2.2.4
|
A certificate executed on behalf of PBC in a form reasonably acceptable to Owner affirming as of the Closing Date that all of PBC's representations and warranties under this Agreement are true and correct in all material respects;
|
3.2.2.5
|
Such documents as Owner or the Title Company may reasonably require to evidence the authority of PBC to consummate the transactions contemplated by this Agreement; and
|
3.2.2.6
|
Any other documents and funds, including without limitation escrow instructions that are reasonably required of PBC to close the sale and purchase in accordance with this Agreement.
|
3.3
|
Closing Costs
. PBC and Owner each will pay one-half of the escrow fee of the Title Company with respect to the Closing. Owner will pay the premium for the Title Policy (hereinafter defined) that Owner is obligated to provide to PBC and the cost of any title curative endorsements and all conveyance or excise taxes attributable to the granting of the Option and the purchase and sale of the Property. PBC will pay all sales and use taxes attributable to the purchase and sale of the Associated Assets and all fees for recording the Deed, and any additional premium attributable to any extended coverage owner's policy of title insurance and any non-title curative endorsements requested by PBC in accordance with the terms of this Agreement.
|
3.4
|
Expenses; Prorations
.
|
3.4.1
|
Payment of Expenses
.
All items of expense incurred by Owner with respect to the operations of the Brewery through the Closing Date will be paid by Owner at or as due after Closing, without proration. PBC will furnish to Owner for payment, promptly following receipt, any bills to be paid by Owner. Items of expense incurred after the Closing Date with respect to the Brewery will be paid by PBC.
|
3.4.2
|
Prorations
.
All real and personal property taxes and assessments payable with respect to the tax year in which Closing occurs and all gas, electric and other utility charges for which separate billings cannot be arranged will be prorated between Owner and PBC as of the close of business on the Closing Date based on the number of days in the billing period before and after the Closing Date. Any items to be prorated that are not ascertainable on the Closing Date shall be reconciled by the parties outside of Escrow within 120 days after the Closing Date.
|
3.5
|
Title Insurance Policy
. The parties will cause the Title Company, at PBC's expense, to issue its standard form optionee's ALTA Title Insurance Policy dated as of the Effective Date, in an amount specified by PBC (but not more than $4,000,000), insuring PBS's rights to acquire the Property under this Agreement, subject only to the Permitted Exceptions and standard printed exceptions (together with endorsements thereto, the "
Optionee Policy
"). Owner will cause the Title Company to issue its standard form Owner's ALTA Title Insurance Policy, dated as of the Closing Date, in the amount of the Purchase Price, insuring fee simple title to the Property is vested in PBC, subject only to the Permitted Exceptions (as defined in
Section 7.1.4
) and standard printed exceptions (together with endorsements thereto, the "
Owner's Policy
"). PBC may request that the Title Company issue an extended coverage policy of title insurance and may request endorsements to such policy, but the receipt of extended coverage and endorsements will be at PBC's sole cost and will not be a condition to or
|
3.6
|
Conveyance
. At the Closing, Owner will execute, acknowledge, and deliver to PBC a Bargain and Sale Deed conveying the Property to PBC, subject only to the Permitted Exceptions (such instrument, the "
Deed
").
|
4.
|
Warranties and Representations of Owner
|
4.1
|
Organization; Authority
. Owner is a corporation validly existing and in good standing under the laws of Washington. Owner has full power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. Owner has duly approved this Agreement and has duly authorized the execution and delivery of this Agreement and the performance of its obligations hereunder. This Agreement, when executed, will constitute a valid and binding obligation of Owner, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditor's rights generally, and general principles of equity.
|
4.2
|
No Conflicts; Consents
. The execution, delivery, and performance by Owner of this Agreement, and the consummation of the transactions contemplated hereby, do not and will not: (a) conflict with or result in a violation or breach of, or default under, any provision of the organizational documents of Owner; (b) conflict with or result in a violation or breach of any provision of any law, rule or regulation applicable to Owner or the operation of the Brewery; or (c) require the consent, notice, or other action by any person under any contract or agreement to which Owner is a party or that is binding on the Brewery that is material to the grant of the Option or the operation of the Brewery following the Closing (a "
Brewery Contract
"), other than consents in connection with Brewery Contracts listed in the Disclosure Schedule and consents required under contracts or agreements entered into after the Effective Date in the ordinary course of business of the Brewery (the "
Ordinary Course
"); provided that, the parties agree that during the Term Owner shall obtain PBC's prior written consent (not to be unreasonably withheld, conditioned or delayed) to Owner's entry into (or modification of) any contract that would qualify as a Brewery Contract that is not terminable on 30 or fewer days' notice, with more than a
de minimis
termination
|
4.3
|
Assets
. Owner owns or leases all of the Associated Assets and has good and marketable title to, or a valid leasehold to, all such Associated Assets, free and clear of any Liens (other than Permitted Liens and Liens of record as of the Effective Date or incurred in the Ordinary Course thereafter for trade debt or refinancing of existing indebtedness secured by the Brewery that will be removed or satisfied prior to the Closing). Upon completion of the transactions contemplated by this Agreement, PBC will acquire good title to all of the Associated Assets, free and clear of any Liens (other than Permitted Liens). For purposes of this Agreement:
|
4.3.1
|
"
Liens
" mean any mortgage, pledge, lien (statutory or otherwise), charge, adverse claim of ownership, restriction on transfer (such as a right of first refusal or similar right), defect of title, security interest, or other encumbrance; and
|
4.3.2
|
"
Permitted Liens
" means easements, rights-of-way, reservations of rights, conditions or covenants, zoning, building or similar restrictions or other restrictions or encumbrances that are not violated by the current use or occupancy of the Brewery or do not, individually or in the aggregate materially interfere with the operation of the Brewery.
|
4.4
|
Litigation; Compliance With Laws
. There is no litigation, arbitration, or administrative hearing pending before any Governmental Entity that concerns or affects the Property or any material portion of it, or the operations of the Brewery, and, to the knowledge of Owner, no such proceeding is threatened. To the knowledge of Owner, the Property and the operations of the Brewery are in compliance in all material respects with all laws, ordinances, and governmental approvals and decisions that relate to the Property and/or the Brewery.
|
4.5
|
Environmental
. Without limiting the generality of
Section 4.4
above, (a) prior to the Effective Date, Owner has made available to PBC all written environmental studies, analysis, or reports regarding the Property and the operations at the Brewery in Owner's possession or control as of the Effective Date documenting the nature and extent of Hazardous Substances (as defined below) at, on or in the Property and/or generated at the Brewery, and will make available any similar or additional documents received by Owner during the Term (collectively, the "
Environmental Reports
"); and (b) except as disclosed in the Environmental Reports, to the knowledge of Owner, there are no currently existing conditions
|
4.5.1
|
"
Environmental Laws
" means the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. §§ 9601 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901, et seq.; the Federal Water Pollution Control Act, 33 U.S.C. §§ 1251 et seq.; the Clean Air Act, 42 U.S.C. §§ 7401, et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. §§ 1471 et seq.; the Toxic Substances Control Act, 15 U.S.C. §§ 2601 through 2629; the Safe Drinking Water Act, 42 U.S.C. §§ 300f through 300j; the Oil Pollution Act, 33 U.S.C. §§ 2701 et seq.; and the Endangered Species Act, 16 U.S.C. §§ 1531 et seq.; and Washington State laws, including without limitation the Model Toxics Control Act, RCW 70.105D.010 et seq., water pollution control under RCW 90.48.010 et seq., and air pollution control under RCW 70.94.011 et seq; each, as amended from time to time, or any successor laws thereto, together with the rules, regulations and order promulgated thereunder; and
|
4.5.2
|
"
Hazardous Substances
" shall have the meaning attributed to it in RCW 70.105D.020(13) and shall also include petroleum hydrocarbons, asbestos, lead based paint and PCBs.
|
4.6
|
No Condemnation or Assessment Proceedings
. There is no pending, or to the knowledge of Owner, threatened, condemnation or similar proceeding or assessment affecting the Property or any part of it, and, to the knowledge of Owner, no such proceeding is being proposed by any Governmental Entity.
|
4.7
|
Site
. To the knowledge of Owner, there are no (i) pending changes in land use designation (comprehensive plan or zoning ordinance) that apply to the Property, or (ii) material encroachments onto the Property.
|
4.8
|
Status of Owner
. Owner is not a foreign person, foreign partnership, foreign corporation, or foreign trust, as those terms are defined in IRC § 1445.
|
4.9
|
Authority
. No consents, documents, or approvals that have not been obtained are necessary to the effectiveness of the grant of the Option by Owner.
|
4.10
|
Brokers
. No broker, finder, investment banker or other third party is entitled to any brokerage, finder's, or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Owner. Owner agrees to indemnify, defend and hold PBC harmless from and against any and all Claims (as defined in Section 6.2) arising from a breach of the foregoing representation and warranty.
|
4.11
|
No Further Representations; As-Is
. Except for the express warranties set forth in this Agreement or any conveyance document or other document executed by Owner in connection with this Agreement, the Brewery, including the Property and the Associated Assets, will be sold "As-Is" and without representation or warranty of any kind, whether express or implied, including without limitation, without any implied warranties of any nature, such as implied warranties of merchantability, non-infringement, or fitness for a particular purpose. PBC is not relying on any warranty, representation or covenant, express or implied, with respect to the Brewery, except as expressly set forth in this Agreement, any conveyance document or any other document executed by Owner in connection with this Agreement.
|
5.
|
Warranties and Representations of PBC
|
5.1
|
Organization; Authority
. PBC is a limited liability company validly existing and in good standing under the laws of its jurisdiction of formation. PBC has full power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. PBC has duly approved this Agreement and has duly authorized the execution and delivery of this Agreement and the performance of its obligations hereunder. This Agreement, when executed, will constitute a valid and binding obligation of PBC, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditor's rights generally, and general principles of equity.
|
5.2
|
No Conflicts; Consents
. The execution, delivery, and performance by PBC of this Agreement, and the consummation of the transactions contemplated hereby, do not and will not: (a) conflict with or result in a violation or breach of, or default under, any provision of the organizational documents of PBC; (b) conflict with or result in a violation or breach of any provision of any law, rule or regulation applicable to PBC; or (c) require the consent, notice, or other action by any person under any contract or agreement to which PBC is a party. No consent, approval, declaration, or filing with, or notice to, any Governmental Entity is required by or with respect to PBC in connection with the execution and delivery of this Agreement and the completion of the transactions contemplated hereby.
|
5.3
|
Brokers
. No broker, finder, investment banker or other third party is entitled to any brokerage, finder's, or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of PBC. PBC hereby agrees to indemnify, defend and hold Owner harmless from and against any and all Claims arising from a breach of the foregoing representation and warranty.
|
6.
|
Covenants of Owner
|
6.1
|
Information
. Owner will deliver to PBC, as PBC may reasonably request, copies of all documents related to the use or ownership of the Property or operations of the Brewery that Owner possesses or may obtain by reasonable inquiry and are reasonably related to the Brewery, the Associated Assets or the use or operation of the Brewery after the Closing, including without limitation leases relating to the Property (which current leases are listed in
Section 6.1
of the Disclosure Schedule), all easements, covenants, or restrictions affecting title, any studies, surveys, or reports relating to the Property, all contracts pertaining and material to the Brewery or the Associated Assets, and other documents of a like nature, subject at all times to any confidentiality obligations to third parties or regulations of any Governmental Entity.
|
6.2
|
Access
. Without limiting any of PBC's rights under the Brewing Agreements, Owner grants to PBC and its agents the right to enter on the Property at any reasonable times prior to the Closing Date or earlier termination of this Agreement upon reasonable advance notice to Owner for the purpose of conducting investigations, studies, or tests that PBC may reasonably deem necessary or appropriate in connection with its acquisition of the Brewery and as are permitted by the terms of this Agreement. Owner will reasonably cooperate with PBC in its performance of such investigations, studies, or tests, provided that all costs and expenses of all such investigations, studies, or tests will be paid by PBC. PBC will protect, defend, and hold Owner harmless from any actions, causes of action, claims, costs, damages, demands, expenses (including, without limitation, reasonable attorneys' fees and court costs), fines, liabilities, liens, losses, penalties, obligations and suits (collectively, "
Claims
") arising out of or related to PBC's activities on the Property, except as may arise out of the mere discovery of any adverse conditions (including without limitation, environmental conditions) at the Property. If PBC fails to exercise the Option, PBC will fully compensate Owner for any physical damage to the Property or any lien, encumbrance, or charge on it attributable to PBC's activities under this paragraph, in addition to paying other amounts due under this Agreement. If PBC fails to exercise the Option, PBC will deliver to Owner copies of any and all non-proprietary reports, studies, and drawings owned by PBC that relate to the Brewery.
|
6.3
|
Maintenance
. Prior to the Closing Date or earlier termination of this Agreement, Owner will maintain the Brewery in such state of repair as is reasonably necessary for the normal operation of the Brewery, performance under the Brewing Agreements, and to maintain the Brewery substantially in its current operating condition as of the Effective Date, taken as whole, including, as needed, replacement or repair in accordance with reasonably prudent business practices of any inoperable, worn out or obsolete assets included as part of the Brewery Equipment and Parts.
|
6.4
|
Ownership
.
|
6.4.1
|
Property
. Prior to the Closing Date or earlier termination of this Agreement, Owner will not (a) sell, contract to sell, assign, or otherwise transfer the Property or any material part thereof or interest therein, (b) grant an option to any third party to acquire all or any portion of the Property or interest therein, or (c) encumber the Property or grant any encumbrances that would result in additional title exceptions against the Property.
|
6.4.2
|
Associated Assets
. Prior to the Closing Date or earlier termination of this Agreement, unless PBC otherwise consents in writing (including by e-mail), Owner will not sell, assign, or otherwise transfer all or any material portion of the Associated Assets or any interest therein other than dispositions in the Ordinary Course.
|
6.5
|
Identification of Assets and Contracts; Assignment
. Not later than ten (10) days and not more than 30 days prior to the Closing Date, Owner shall prepare and deliver to PBC, a schedule setting forth in reasonable detail the Associated Assets to be acquired and the Transferred Brewery Contracts to be assigned to and assumed by PBC under this Agreement. Such lists will be updated as of the Closing Date and included as exhibits to the Bill of Sale and the Assignment and Assumption of Contracts, respectively, to be delivered at the Closing. Owner shall exclude from contracts included in the lists of Transferred Brewery Contracts any contract that PBC elects, by delivery of written notice to Owner at least fifteen (15) days prior to the Closing Date, to exclude; provided that, notwithstanding the foregoing right of exclusion, PBC shall assume all contracts listed in Section 6.1 of the Disclosure Schedule continuing in effect as of the Closing Date and all contracts it has approved under Section 4.2. To the extent that Owner's rights under any Transferred Brewery Contract being assigned by Owner may not be assigned to PBC without the consent of another person that has not been obtained, this Agreement shall not constitute an agreement to assign the same if an attempted assignment would constitute a breach thereof, and Owner shall use commercially reasonable efforts to obtain any such required consent(s) as promptly as possible. If any such consent is not obtained or if any attempted assignment would be ineffective or would impair any rights under a contract in question, Owner shall use reasonably efforts following the Closing to obtain for PBC the benefits thereunder. Owner agrees to reasonably cooperate with PBC
|
6.6
|
Approvals
. PBC may apply for and obtain any approvals or licenses of any Governmental Entity to use the Brewery consistent with its current use following the Closing, provided all such applications and related materials are first given to Owner for its approval, not to be unreasonably withheld, conditioned or delayed. Owner will reasonably cooperate with PBC in obtaining any such approvals. Such cooperation includes signing all applications and other documents requested by PBC that may be reasonably related to such matters, as long as Owner approves the form and substance (such approval not to be unreasonably withheld, conditioned or delayed). All costs and expenses incurred with respect to such approvals (other than fines or penalties that may exist or relate to the period prior to the Effective Date) will be paid for by PBC.
|
7.
|
Additional Matters
|
7.1
|
Title
.
|
7.1.1
|
Preliminary Review
.
Owner has delivered to PBC a preliminary title report covering the Property (the "
Preliminary Title Report
"), accompanied by a list and supporting documentation for all exceptions to title referenced in the Title Report (the "
Initial Exceptions
"). PBC will identify in a written notice to Owner (the "
Initial Notice
") within 45 days of the Effective Date, those of the Initial Exceptions that PBC will request that Owner remove of record at or before Closing (the "
Unacceptable Exceptions
"). Each of the Initial Exceptions not identified by PBC in the list of Unacceptable Exceptions will be deemed to have been accepted by PBC. If PBC fails timely to provide Owner the Initial Notice, then PBC will be deemed to have approved the Preliminary Title Report in full. Owner has ten (10) days following receipt of the Initial Notice to give written notice ("
Reply Notice
") to PBC of any Unacceptable Exceptions that Owner concludes, in good faith, that Owner cannot or will not remove at or before the Closing. Owner agrees to remove at Closing all Unacceptable Exceptions not referenced in a duly given Reply Notice. If one or more of the Unacceptable Exceptions cannot or will not be removed at or before Closing and Owner so states in a duly given Reply Notice (or if Owner fails to timely respond with a Reply Notice) (such exceptions, the "
Identified Exceptions
"), then PBC may by giving written notice to Owner within ten (10) days of receipt of a Reply Notice terminate this Agreement (in which case the Brewing Agreements will also terminate), and PBC will not be required to pay the Option Termination Fee in connection with any such termination. If PBC does not exercise its right to terminate, all Identified Exceptions will be permanently removed from the list of Unacceptable Exceptions for purposes of the Closing and PBC will be deemed to have actual knowledge of all of the Initial
|
7.1.2
|
Updated Title Report
. Within 30 days following the receipt of an Exercise Notice, Owner will in preparation for Closing deliver to PBC, at Owner's expense, a preliminary title report covering the Property (the "
Closing Title Report
"), accompanied by legible copies of all exceptions to title referenced in the Closing Title Report that were not included in the Initial Exceptions (the "
Closing Exceptions
"). Within 15 days of receiving the Closing Title Report, PBC will give written notice (the "
Closing Notice
") to Owner of any Closing Exceptions that PBC desires to add to the Unacceptable Exceptions and have removed prior to Closing that are not Permitted Exceptions under
Section 7.1.4(b)
. If PBC fails timely to give Owner the Closing Notice and to the extent that a Closing Exception is not identified by PBC in the Closing Notice, PBC will be deemed to have approved the Closing Title Report, subject only to any Unacceptable Exceptions, if any, that remain. If PBC gives a timely Closing Notice, Owner will have 15 days following receipt of the Closing Notice to provide written notice of objection (a "
Closing Reply Notice
"); otherwise exceptions therein will be deemed to have been added to the Unacceptable Exceptions. If one or more of the Unacceptable Exceptions cannot or will not be removed at or before Closing and Owner so states in a duly given Closing Reply Notice, then
Section 9.1.2
below will apply.
|
7.1.3
|
Removal of Certain Title Exceptions
. Notwithstanding anything to the contrary contained in this Agreement, Owner shall be obligated to remove, at or before Closing, (i) any exceptions to title that are security for the payment of a sum of money to repay amounts borrowed or expenses incurred by Owner (including mortgages, deeds of trust, tax liens, or contractor's liens, if any), (ii) taxes and assessments due and payable for any period prior to the Closing Date, and (iii) any exceptions to title that arise after the date of the Preliminary Title Report that Owner agrees to remove in accordance with
Section 7.1.2
.
|
7.1.4
|
Permitted Exceptions
. "
Permitted Exceptions
" include (a) all exceptions to which PBC agrees or is deemed to have agreed in accordance with this
Section 7.1
, (b) all exceptions not included in the Initial Exceptions that arise after the date of the Preliminary Title Report and are not material to the ownership or use of the Brewery following the Closing or are otherwise not identified in the Closing Notice as Unacceptable Exceptions by PBC, and (c) all exceptions that PBC otherwise agrees in writing to waive.
|
7.2
|
Environmental Diligence
.
|
7.2.1
|
Initial Review
.
For a period of 60 days after the Effective Date (subject to extension for an additional 30 days if PBC's environmental consultant recommends the conduct of a Phase II investigation), PBC shall have the right to conduct and have completed an environmental review (the "
Environmental Review
") of the Property and the operations of the Brewery. The Environmental Review may include a historical review of the use of the Property, review of all regulatory agency permits and compliance and enforcement files and records, and such other studies as PBC may deem appropriate and consistent with an ASTM Phase I environmental site assessment of the Property and evaluation for ACM, lead-based paint and mold (including sampling related thereto). PBC shall not conduct soil tests or take core samples or water table samples by drilling conducted on the Property, unless recommended in writing by the environmental consultant engaged by PBC based on findings of an ASTM Phase I environmental site assessment, and then all tests and studies will be conducted by agents selected by PBC and performed as PBC directs, subject to the approval of Owner, which shall not be unreasonably withheld. PBC will pay the cost of all reviews, tests, and studies undertaken. If PBC is not satisfied with such environmental Review, PBC may by giving written notice to Owner within ten (10) days of the end of the period for the Environmental Review (including any extension thereof) terminate this Agreement (in which case the Brewing Agreements will also terminate), and PBC will not be required to pay the Option Termination Fee in connection with any such termination. If PBC does not exercise its right to terminate, all conditions described in reports provided to PBC in connection with its Environmental Review (a copy of which will be provided to Owner) will be deemed to have been accepted by PBC, and PBC will be deemed to have actual knowledge of all such matters for purposes of the representations and warranties in Section 4 of this Agreement.
|
7.2.2
|
Updated Review
. For a period of 60 days after the delivery of the Exercise Notice, PBC shall have the right to conduct and have completed an additional Environmental Review (the "
Updated Environmental Review
") of the Property and the operations of the Brewery consistent with the initial Environmental Review. PBC will pay the cost of all reviews, tests, and studies undertaken. If PBC reasonably determines in good faith following its Updated Environmental Review that one or more conditions affect the Property that had not been previously identified in connection with the Environmental Review and have arisen after the date thereof (the "
Identified Environmental Conditions
") and the presence of such Identified Environmental Conditions would cause Owner to be in breach of its representations under
Section 4.5
, then PBC may, by giving written notice to Owner within ten (10) days of the close of the Updated
|
8.
|
Conditions Precedent to Closing
|
8.1
|
Title Insurance
.
On the Closing Date, the Title Company (as defined in
Section 3.1
) will be ready, willing, and able to issue, and will issue to PBC on or promptly following recordation of the Deed, the Owner's Policy required by
Section 3.5
.
|
8.2
|
Representations and Warranties; Performance
. All of Owner's representations and warranties contained in this Agreement shall be true and correct in all material respects and all material covenants of Owner under this Agreement shall have been duly performed in all material respects as of the Closing. A failure of a representation and warranty by Owner to be true and correct and a failure to perform a covenant will be deemed to be material if such failure is reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on the value or operation of the Brewery following the Closing.
|
9.
|
Remedies
|
9.1
|
PBC
.
|
9.1.1
|
Breach
. If Owner is in breach of any of the representations, warranties or covenants in this Agreement in any material respect, and regardless of whether the breach occurs before or after PBC notifies Owner of the exercise of the Option, and such breach is (i) not cured within 30 days of notice thereof (unless a longer period is reasonably needed for such cure in which event Owner shall have such longer period (but not in excess of 90 days (or 120 days, in the event of an environmental remediation (and Owner shall be required to take all reasonably required actions to remediate any Identified Environmental Condition caused by Owner)) so long as Owner is diligently pursuing such cure to completion) or (ii) is not susceptible to cure, then PBC, may, subject to its rights under
|
9.1.2
|
Title
. If one or more of the Unacceptable Exceptions will not be removed at or before Closing such that the condition to Closing set forth in
Section 8.1
will not be satisfied, then PBC may exercise any of the following rights: (a) PBC may accept title to the Property subject to the Unacceptable Exceptions and receive a credit against the Purchase Price in the amount of any Unacceptable Exceptions which may be cured, discharged or removed with the payment of money; or (b) PBC may attempt to cure the Unacceptable Exceptions or any of them at no cost to Owner (with Owner being obligated to cooperate with the cure efforts and to join in the execution of any curative instruments that will operate to remove the Unacceptable Exceptions); or (c) PBC may, if (i) one or more of the Unacceptable Exceptions has arisen after the date of the Preliminary Title Report and PBC determines in good faith such exception or exceptions are reasonably likely to have a Material Adverse Effect on the value or operation of the Brewery following the Closing or (ii) such Unacceptable Exceptions are among the exceptions that Owner has agreed or been deemed to have agreed to remove prior to Closing, upon written notice to Owner specifying in reasonable detail the grounds for termination, terminate this Agreement (including any exercise of the Option), in which case the Option Termination Fee will not be payable, PBC shall be entitled to the PBC Expense Reimbursement, and neither party will have any further liability to the other under this Agreement.
|
9.1.3
|
Failure of a Condition Precedent
. If the condition to PBC's obligations under this Agreement in
Section 8.2
is not satisfied as of a proposed Closing Date and PBC does not waive such condition or conditions and PBC determines in good faith that such non-satisfaction is reasonably likely to have a Material Adverse Effect on the value or operation of the Brewery following the Closing, then PBC shall give written notice to Owner and Owner shall have 30 days to remedy such unsatisfied condition to PBC's reasonable satisfaction (unless a longer period is reasonably needed for such satisfaction in which event Owner shall have such longer period (but not in excess of 90 days) so long as Owner is diligently pursuing completion), provided that if such failure of a condition to be satisfied arises out of a Title or Environmental condition, the provisions of
Sections 7.1
and
9.1.2
or
Section 7.2
, respectively, shall apply. In the event of owner's failure to so remedy such condition, PBC, as its exclusive remedy and in lieu of any other relief, may upon written notice to Owner, terminate this Agreement (including any exercise of the Option) without payment of the Option Termination Fee and, in the event such breach is intentional or arises out of facts or circumstances within Owner's reasonable control, receive the PBC Expense Reimbursement. Except for any specific remedies reserved elsewhere in this Agreement, PBC expressly waives the right to pursue any other remedy in law or equity against Owner in connection with a failure of a condition set forth in this Agreement.
|
9.2
|
Owner
.
|
9.2.1
|
Breach
. If PBC breaches any term or provision of this Agreement in any material respect, and regardless of whether the breach occurs before or after PBC notifies Owner of the exercise of the Option, and such breach is not cured within 15 days of notice thereof (unless a longer period is reasonably needed for such cure in which event PBC shall have such longer period (but not in excess of 45 days) so long as PBC commences such cure within such 15 days and such cure is diligently prosecuted to completion thereafter), then Owner, as its exclusive remedy and in lieu of any other relief, will be entitled to terminate this Agreement by giving PBC written notice of termination, and in such event Owner will be entitled to receive the Option Termination Fee, and neither party will have any further liability to the other under this Agreement. Notwithstanding anything to the contrary contained in this Agreement, Owner's sole remedy for any breach of this Agreement by PBC shall be payment of the Option Termination Fee as and to the extent expressly provided for in this Agreement, provided, that in any case where Owner is entitled to the Option Termination Fee, the payment of such Option Termination Fee and retention thereof by Owner shall be Owner's exclusive remedy and shall apply in lieu of any other relief or remedy. Accordingly, the parties agree in all such events the Option Termination Fee shall constitute liquidated damages, it being
|
9.2.2
|
Termination of the APA and the Services Agreement
. In the event the Brewing Agreements terminate as a result of a breach by PBC that continues beyond any applicable notice and cure period, Owner may upon 60 days prior written notice to PBC terminate this Agreement by delivering to PBC and the Title Company written notice of termination, and in the event that PBC does not exercise the Option during the 60‑day notice period, Owner shall be entitled to be paid the Option Termination Fee. In all other events, the termination of the Brewing Agreements shall not terminate this Agreement and the right of PBC to exercise the Option in accordance herewith shall remain in full force and effect.
|
9.3
|
Other Remedies; Limitations
. The limitations on remedies set forth in this section do not apply to any Claim accruing after Closing or preclude either party from seeking injunctive relief or from seeking recovery against the other for causing physical damage or injury to persons or property or failing to satisfy a payment or indemnity obligation of such party under the terms of this Agreement. Neither party shall have any liability for the breach of a representation or warranty hereunder of which the other party hereto had actual knowledge as of the date such representation or warranty is given, and no party will have liability to the other for a Claim accruing after Closing arising out of a breach of a representation or warranty in, or covenant contained in Section 6 of, this Agreement absent a willful breach of this Agreement by such party.
|
9.4
|
Adequacy
. The parties each acknowledge (a) the adequacy of the remedies set forth in this Agreement and (b) that the foregoing limitation of remedies is an essential part of this Agreement.
|
9.5
|
Control of Claims
. In connection with any third-party claim for which a party (such party, an "
Indemnified Party
") is entitled to indemnification under this Agreement, the Indemnified Party shall provide prompt written notice of such claim promptly following receipt thereof and tender defense to the party to provide such indemnification (such party, the "
Indemnifying Party
"), and the Indemnifying Party may elect to assume the defense of the Indemnified Party with counsel reasonably satisfactory to the Indemnified Party, provided that the Indemnifying Party shall not compromise or settle the claim without the prior written consent of the Indemnified Party, which consent shall not be unreasonably withheld, conditioned or delayed. If the Indemnifying Party fails to assume and commit to undertake such defense of the Indemnified Party within 15 days after
|
10.
|
Risk of Loss; Possession
|
10.1
|
Risk of Loss
. Owner bears the risk of all loss or damage to the Brewery from all causes, through the Closing Date. If, before the Closing Date, and regardless of whether the Exercise Notice has yet been given or is subsequently given, all or any material part of the Brewery is rendered inoperable by fire or by any other cause of any nature or if all or any material portion of the Brewery is taken by condemnation, or if any such condemnation proceeding is filed, Owner must give PBC written notice of such event. If such casualty or condemnation (a) affects 20% or more of the area, or (b) reduces the value of the Brewery by $3,500,000 or more, PBC may terminate this Agreement by giving written notice to Owner within 45 days after receipt by PBC of written notice from Owner of such qualifying casualty or condemnation. If PBC does not elect to terminate this Agreement, then this Agreement will continue in force and, if PBC exercises the Option and the Brewery is conveyed to PBC, then all interest of Owner in and to any insurance proceeds or condemnation awards that may remain payable to Owner on account of the casualty or condemnation will be assigned to PBC at Closing and PBC shall be entitled to a reduction in the Purchase Price in the amount of any deductible or uninsured loss.
|
10.2
|
Owner's Right to Restore
. Notwithstanding anything to the contrary contained in this Agreement, if PBC timely and properly exercises an option to terminate this Agreement under this
Section 10
, Owner has the option to restore the Brewery to substantially its condition immediately prior to the casualty, which option may be exercised by giving written notice to Buyer within ten (10) days after PBC's exercise of its option to terminate. If Owner exercises its option to restore, then PBC's exercise of the termination option shall be nullified. If such damage has not been substantially restored prior to a scheduled Closing Date but Owner is diligently proceeding to restore, then Owner will diligently complete the repair after the Closing,
provided
,
however
,
that PBC has the right to delay the Closing until restoration is substantially completed (but in no event in excess of 120 days after the damage).
|
10.3
|
Possession
. PBC will be entitled to exclusive possession of the Property on and after the Closing Date, provided that Owner shall be given a reasonable opportunity to remove all assets included on the Property that are not included within the Associated Assets.
|
11.
|
Recording
|
12.
|
Brewery Employees; Allocation of Responsibilities
|
13.
|
Survival
|
14.
|
Waiver
|
15.
|
Successors and Assigns
|
16.
|
Allocation of Purchase Price; Tax Treatment
|
17.
|
Notices
|
|
To Owner:
|
Craft Brew Alliance, Inc.
|
|
|
|
929 N. Russell Street
|
|
|
|
Portland, Oregon 97227
|
|
|
|
Attn: General Counsel
|
|
|
|
|
|
|
With a copy to:
|
Miller Nash Graham & Dunn LLP
111 S.W. Fifth Avenue
Suite 3400
Portland, Oregon 97204
Attention: David Post
|
|
|
|
|
|
|
To PBC:
|
Pabst Northwest Brewing Company, LLC
|
|
|
|
10635 Santa Monica Boulevard,
Suite 305 |
|
|
|
Los Angeles, California 90025
Attention: Robert Urband |
|
|
|
|
|
|
With a copy to:
|
Liner LLP
1100 Glendon Avenue, Fourteenth Floor Los Angeles, California 90024 Attn: Mitchell C. Regenstreif |
|
|
|
|
|
18.
|
Attorney Fees
|
19.
|
Integration, Modification, or Amendments
|
20.
|
Governing Law; Interpretation
|
21.
|
Statutory Disclosures
|
22.
|
Waiver of Jury Trial
|
23.
|
Submission to Jurisdiction
|
24.
|
Confidentiality
|
25.
|
Counterparts
|
OWNER:
|
|
||
|
|
||
|
CRAFT BREW ALLIANCE, INC.,
|
||
|
a Washington corporation
|
||
|
|
|
|
|
By:
|
/s/ Andrew J. Thomas
|
|
|
|
|
|
|
Name:
|
Andrew J. Thomas
|
|
|
|
|
|
|
Title:
|
CEO
|
|
|
|
|
|
|
|
|
|
|
|
||
PBC:
|
|
|
|
|
PABST NORTHWEST
BREWING COMPANY, LLC,
|
||
|
a Delaware limited liability company
|
||
|
|
|
|
|
By:
|
/s/ Eugene Kashper
|
|
|
|
|
|
|
Name:
|
Eugene Kashper
|
|
|
|
|
|
|
Title:
|
CEP
|
1.
|
Associated Assets; Identification
.
The
"
Associated Assets
" include Owner's rights, title and interest in, to and under certain specifically identified assets and rights of Owner, in each case to the extent existing as of the Closing Date, as follows:
|
1.1
|
Inventory
. All finished inventories and supplies that are held at, or are in transit to, the Property, which are used or held for use by Owner in the operations of the Brewery, other than raw materials identified under
paragraph 2.8
of this Exhibit below ("
Inventory
");
|
1.2
|
Tangible Personal Property
. All equipment, furniture, fixtures, machines, spare parts and change parts, and other tangible personal property owned by Owner and located at the Brewery and used or held for use by Owner in the operations of the Brewery, including without limitation all such assets relating to the brewpub operated at the Brewery (such as furniture, fixtures, supplies utilized for banquets and catering, kitchen equipment and other personal property (the "
Brewery Equipment and Parts
"));
|
1.3
|
Contracts
. All leases and other contracts specifically relating to the operations of the Brewery or use and ownership of the Brewery Equipment and Parts to which Owner is a party or otherwise bound, to the extent such contracts are assignable and not identified as being excluded by PBC in accordance with this Agreement, including without limitation all rights of Owner under or pursuant to all warranties, representations and guarantees made by tenants, suppliers, manufacturers and contractors in connection with the operations of the Brewery or relating to the Brewery Equipment and Parts and any deposits related thereto (the "
Transferred Brewery Contracts
");
|
1.4
|
Files and Records
. All files and other records of Owner which relate to the Brewery Equipment and Parts and are located on the Property (the "
Brewery Equipment Files
");
|
1.5
|
Licenses and Permits
. To the extent transferable, all licenses, permits, franchises, certificates, and other authorizations issued by any government, agency, department, commission, court, arbitration panel or instrumentality of the United States or any state or other political subdivision thereof (a "
Governmental Entity
") issued to or held by Owner relating and limited to the operations of the Brewery or ownership of the Brewery Equipment and Parts, including all applications and all renewals, extensions, or modifications (collectively, the "
Brewery Licenses
"); and
|
1.6
|
Plans
. All existing site plans, surveys, studies, architectural drawings, floor or landscape plans, appraisals, feasibility studies, environmental studies and other plans and studies of any kind if existing and relating to the Property and in the
|
2.
|
Limitation; Excluded Assets
.
The Associated Assets include only those assets specifically identified above and no other assets, and expressly do not include any Excluded Assets. "
Excluded Assets
" include all tangible and intangible properties of Owner not expressly included in the Associated Assets, including, without limitation, all of Owner's rights in, to and under the following:
|
2.1
|
Proprietary Rights
. All intellectual property rights of Owner. Owner's intellectual property rights include all rights of any kind, in and to (a) all patents, patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice); (b) all trademarks, service marks, trade dress, logos, trade names, slogans, Internet domain names and corporate names, and all associated goodwill; (c) all copyrights and works of authorship (whether or not copyrightable, including look and feel), mask works and moral rights; (d) all trade secrets and confidential information (including ideas, formulae, compositions, know-how, processes, techniques, methods, research and development information, specifications, plans, proposals, technical data, financial, business and marketing plans, and customer and supplier lists and related information); (e) computer software and software systems (including data, databases and related documentation), other than such software or systems as are directly related to the operation of the Brewery or the ownership and operation of the Brewery Equipment and Parts; and (f) all other intellectual property of any kind;
|
2.2
|
Accounts Receivable
. All trade receivables, accounts receivable, accrued receivable and notes receivable and other monies receivable (whether yet accounted for as such or not);
|
2.3
|
Prepaid Items
. Deposits, prepaid items and other similar assets other than such deposits, prepays or similar assets as are related to and included with the Transferred Brewery Contracts;
|
2.4
|
Corporate Books and Records
. All corporate books and records of Owner, including, without limitation, all accounting and similar records of Owner, all minutes of meetings of the board of directors or stockholders of Owner, stock books, stock transfer ledgers, and related records, all personnel and human resources records of any nature, and other corporate records relating to the operation of the business of the Owner generally;
|
2.5
|
Transaction Documents
. All rights of Owner under this Agreement or any other agreement entered into in connection herewith;
|
2.6
|
Personal Property
. All office equipment, office materials and supplies, and other tangible personal property of every kind and description not specifically included in the Brewery Equipment and Parts;
|
2.7
|
Branded Properties
.
All branded personal property or inventory of any kind, including without limitation all equipment or supplies branded with one or more trademarks of Owner such as pub glassware, signs, or other similar items and all Items listed on
Schedule 2.7
to this Exhibit as well as similar items acquired in replacement or supplementation of the listed items.
|
2.8
|
Raw Materials
. All raw materials and all packaging materials of any kind.
|
2.9
|
Contracts
. Any and all contracts and agreements to which the Owner is a party not specifically included in the Transferred Brewery Contracts above;
|
2.10
|
Files and Records
. All files and other records of Owner located on the Property and not specifically included in the Brewery Equipment Files above;
|
2.11
|
Licenses
. To the extent not transferable without any unreasonable effort or expense, all licenses, permits, franchises, certificates, and other authorizations issued by any Governmental Entity;
|
2.12
|
Claims
. All Claims, deposits, warranties, guaranties, refunds, causes of action, rights of recovery, rights of set-off and rights of recoupment of every kind and nature, other than warranty or similar Claims related to the Brewery Equipment and Parts and specifically included as part of the Transferred Brewery Contracts; and
|
2.13
|
Goodwill
. All of Owner's goodwill in, and going concern value of, its business.
|
After recording return to:
|
[929 N. Russell Avenue
|
Portland, Oregon 97227
|
Attn: General Counsel]
|
Document Title(s):
|
Memorandum of Option and Agreement of Purchase and Sale
|
Reference Number(s) of Documents released:
|
N/A
|
Grantor(s):
|
Craft Brew Alliance, Inc.
|
Grantee(s):
|
Pabst Northwest Brewing Company, LLC
|
Abbreviated Legal Description):
|
[
Insert
]
Full: See Exhibit A
|
Assessor's Tax Parcel Numbers:
|
[
Insert
]
|
OWNER:
|
|
||
|
CRAFT BREW ALLIANCE, INC.,
|
||
|
a Washington corporation
|
||
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
Name:
|
|
|
|
|
|
|
|
Title:
|
|
|
|
|
||
PBC:
|
|
|
|
|
PABST NORTHWEST
BREWING COMPANY, LLC,
|
||
|
a Delaware limited liability company
|
||
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
Name:
|
|
|
|
|
|
|
|
Title:
|
|
|
|
|
Notary Public for Oregon
|
A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
|
4.
|
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a−15(e) and 15d−15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a−15(f) and 15d−15(f)) for the Registrant and we have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
|
5.
|
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
|
Date:
|
May 4, 2016
|
|
|
|
|
By:
|
/s/ Andrew J. Thomas
|
|
|
Andrew J. Thomas
|
|
|
Chief Executive Officer
|
|
|
|
1.
|
I have reviewed this quarterly report on Form 10−Q of Craft Brew Alliance, Inc. (the “Registrant”);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
|
4.
|
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a−15(e) and 15d−15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a−15(f) and 15d−15(f)) for the Registrant and we have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
|
5.
|
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
|
Date:
|
May 4, 2016
|
|
|
|
|
By:
|
/s/ Joseph K. Vanderstelt
|
|
|
Joseph K. Vanderstelt
|
|
|
Chief Financial Officer
|
|
|
|
1.
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
|
Date:
|
May 4, 2016
|
|
|
|
|
BY:
|
/s/ Andrew J. Thomas
|
|
|
Andrew J. Thomas
|
|
|
Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
|
|
|
|
BY:
|
/s/ Joseph K. Vanderstelt
|
|
|
Joseph K. Vanderstelt
|
|
|
Chief Financial Officer
|
|
|
(Principal Financial Officer)
|
|
|
•
|
Depletions for Kona Brewing increased by 19% reflecting steady domestic and international growth despite continued market competition. CB
A
’s overall depletion volume declined 3% from the first quarter of 2015.
|
•
|
In line with our expectations due to the temporary Portland brewery closure, shipments decreased by 18,100 barrels, or 10.8%, to 149,600 barrels, compared to the same period of 2015. The first quarter shipments decline, which conforms to our previously projected decline of 15,000 to 20,000 barrels, reflects a provisional increase to wholesaler inventories in the fourth quarter of 2015 as we prepared for the Portland brewery closure in early 2016.
|
•
|
The anticipated decline in shipment volume resulted in a net sales decline of 6.0% in the first quarter, which was partially offset by strong revenue per barrel and improved Pubs sales. The estimated negative impact of the brewery shutdown on our net sales was an approximate decline of 890 basis points.
|
•
|
Also in line with the projected impact of the Portland brewery closure, first quarter gross margin rate decreased 460 basis points to 22.2%, compared to 26.8% for the first quarter last year.
|
◦
|
Our Beer gross margin rate decreased 550 basis points to 24.2% in the first quarter, compared to 29.7% in the first quarter last year, due to the planned lower capacity utilization in our owned breweries as we completed the capital projects.
|
◦
|
Our Brewpub gross margin rate increased by 310 basis points to 12.8%, compared to 9.7% in the first quarter of 2015. The increase reflects the normalization of our Pub margins, which were impacted by a multi-week closure of our Koko pub in the first quarter of 2015 for a full remodel.
|
◦
|
The estimated impact of the brewery shutdown and related volume decline on our gross margin in the first quarter of 2016 was approximately 490 basis points.
|
•
|
Selling, general and administrative (SG&A) expense for the first quarter was $13.9 million, a 7.5% increase over the first quarter of 2015, primarily due to emerging business and international support, brand marketing, and employee-related costs.
|
•
|
Corresponding to the decrease in gross margin due to the Portland brewery closure, along with the increase in SG&A, our diluted loss per share for the first quarter of 2016 was $0.17, compared to $0.06 for the same period last year. Brewery shutdown-related volumes and the corresponding negative impact on gross margins represents $0.09 per share.
|
•
|
To address the wide variances in quarterly results and provide a more representative view into our financial performance, we are sharing trailing 12-month comparisons for the periods ended March 31, 2016 and March 31, 2015.
|
◦
|
For those periods, our Beer shipments decreased 1.1%, depletions decreased 1%, and net sales increased 1.9%.
|
◦
|
Our Beer gross margin expanded by 40 basis points to 32.3% and Brewpubs gross margin expanded by 90 basis points to 13.5% for the same 12-month periods, for a combined gross margin expansion of 30 basis points to 29.6%, compared to 29.3%.
|
•
|
April through December 2016 shipment growth of 4% to 5%, reflecting increased volume growth during the peak selling season and continued acceleration of Appalachian Mountain Brewery, Cisco Brewers, and contract partnerships.
|
•
|
Gross margin of 33.0% to 34.5% by leveraging the increased efficiencies related to the successful completion of operational enhancements in the first quarter, as well as improved overall volume and cost leverage, and other ongoing strategic margin improvement projects.
|
•
|
Full-year shipment growth between 1% and 2%, which reflects the planned first-quarter decrease due to the Portland brewery closure, offset by volume growth during peak selling seasons and ramp up of partner volumes, including Appalachian Mountain Brewery, Cisco Brewers and Pabst Brewing.
|
•
|
Average price increases of 1% to 2%.
|
•
|
Gross margin of 31.0% to 32.5%.
|
•
|
SG&A ranging from $58 million to $59 million as a result of tighter cost controls and our commitment to improved leverage. Increases compared to 2015 are primarily focused against our sales team, our growing international business, and strategic marketing investments.
|
•
|
Capital expenditures between $19 million and $23 million as we continue to make investments in strategic gross margin initiatives, quality, safety, sustainability, and our Brewpubs. The increase in 2016 expenditures compared to last year’s guidance reflects the carry over impact of lower spend on active projects in 2015.
|
Media Contact:
Jenny McLean
Craft Brew Alliance, Inc.
(503) 331-7248
jenny.mclean@craftbrew.com
|
Investor Contact:
Edwin Smith
Craft Brew Alliance, Inc.
(503) 972-7884
ed.smith@craftbrew.com
|
|
Three Months Ended
March 31, |
||||||
|
2016
|
|
2015
|
||||
Sales
|
$
|
41,793
|
|
|
$
|
44,619
|
|
Less excise taxes
|
2,571
|
|
|
2,910
|
|
||
Net sales
|
39,222
|
|
|
41,709
|
|
||
Cost of sales
|
30,505
|
|
|
30,547
|
|
||
Gross profit
|
8,717
|
|
|
11,162
|
|
||
As percentage of net sales
|
22.2
|
%
|
|
26.8
|
%
|
||
Selling, general and administrative expenses
|
13,924
|
|
|
12,953
|
|
||
Operating loss
|
(5,207
|
)
|
|
(1,791
|
)
|
||
Interest expense
|
(147
|
)
|
|
(121
|
)
|
||
Other income, net
|
6
|
|
|
6
|
|
||
Loss before income taxes
|
(5,348
|
)
|
|
(1,906
|
)
|
||
Income tax benefit
|
(2,139
|
)
|
|
(743
|
)
|
||
Net loss
|
$
|
(3,209
|
)
|
|
$
|
(1,163
|
)
|
Loss per share:
|
|
|
|
|
|
||
Basic and diluted net loss per share
|
$
|
(0.17
|
)
|
|
$
|
(0.06
|
)
|
Weighted average shares outstanding:
|
|
|
|
|
|
||
Basic and diluted
|
19,179
|
|
|
19,115
|
|
||
Total shipments (in barrels):
|
|
|
|
|
|
||
Core Brands
|
142,400
|
|
|
158,500
|
|
||
Contract Brewing
|
7,200
|
|
|
9,200
|
|
||
Total shipments
|
149,600
|
|
|
167,700
|
|
||
Change in depletions
(1)
|
(3
|
)%
|
|
1
|
%
|
(1)
|
Change in depletions reflects the period-over-period change in barrel volume sales of beer by wholesalers to retailers.
|
|
March 31,
|
||||||
|
2016
|
|
2015
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
1,110
|
|
|
$
|
1,056
|
|
Accounts receivable, net
|
17,263
|
|
|
14,190
|
|
||
Inventory, net
|
20,033
|
|
|
23,833
|
|
||
Deferred income tax asset, net
|
3,872
|
|
|
2,443
|
|
||
Other current assets
|
2,618
|
|
|
4,404
|
|
||
Total current assets
|
44,896
|
|
|
45,926
|
|
||
Property, equipment and leasehold improvements, net
|
120,689
|
|
|
110,690
|
|
||
Goodwill
|
12,917
|
|
|
12,917
|
|
||
Intangible and other assets, net
|
18,008
|
|
|
17,270
|
|
||
Total assets
|
$
|
196,510
|
|
|
$
|
186,803
|
|
Current liabilities:
|
|
|
|
|
|
||
Accounts payable
|
$
|
19,452
|
|
|
$
|
18,026
|
|
Accrued salaries, wages and payroll taxes
|
5,247
|
|
|
5,202
|
|
||
Refundable deposits
|
6,340
|
|
|
7,759
|
|
||
Other accrued expenses
|
1,550
|
|
|
1,870
|
|
||
Current portion of long-term debt and capital lease obligations
|
602
|
|
|
1,130
|
|
||
Total current liabilities
|
33,191
|
|
|
33,987
|
|
||
Long-term debt and capital lease obligations, net of current portion
|
26,913
|
|
|
18,493
|
|
||
Other long-term liabilities
|
21,063
|
|
|
19,868
|
|
||
Total common shareholders' equity
|
115,343
|
|
|
114,455
|
|
||
Total liabilities and common shareholders' equity
|
$
|
196,510
|
|
|
$
|
186,803
|
|
|
Three Months Ended March 31,
|
||||||
|
2016
|
|
2015
|
||||
Cash flows from operating activities:
|
|
|
|
||||
Net loss
|
$
|
(3,209
|
)
|
|
$
|
(1,163
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
||
Depreciation and amortization
|
2,615
|
|
|
2,288
|
|
||
Loss on sale or disposal of Property, equipment and leasehold improvements
|
2
|
|
|
215
|
|
||
Deferred income taxes
|
(2,155
|
)
|
|
(757
|
)
|
||
Other, including stock-based compensation and excess tax benefit from employee stock plans
|
572
|
|
|
140
|
|
||
Changes in operating assets and liabilities:
|
|
|
|
|
|
||
Accounts receivable, net
|
1,663
|
|
|
(2,449
|
)
|
||
Inventories
|
(2,188
|
)
|
|
(4,491
|
)
|
||
Other current assets
|
(178
|
)
|
|
9
|
|
||
Accounts payable and other accrued expenses
|
1,732
|
|
|
4,409
|
|
||
Accrued salaries, wages and payroll taxes
|
(221
|
)
|
|
88
|
|
||
Refundable deposits
|
(328
|
)
|
|
(149
|
)
|
||
Net cash used in operating activities
|
(1,695
|
)
|
|
(1,860
|
)
|
||
Cash flows from investing activities:
|
|
|
|
|
|
||
Expenditures for Property, equipment and leasehold improvements
|
(5,651
|
)
|
|
(3,228
|
)
|
||
Proceeds from sale of Property, equipment and leasehold improvements
|
—
|
|
|
385
|
|
||
Net cash used in investing activities
|
(5,651
|
)
|
|
(2,843
|
)
|
||
Cash Flows from Financing Activities:
|
|
|
|
|
|
||
Principal payments on debt and capital lease obligations
|
(225
|
)
|
|
(122
|
)
|
||
Net borrowings under revolving line of credit
|
7,770
|
|
|
4,900
|
|
||
Net cash provided by financing activities
|
7,545
|
|
|
4,778
|
|
||
Increase in Cash and cash equivalents
|
199
|
|
|
75
|
|
||
Cash and cash equivalents, beginning of period
|
911
|
|
|
981
|
|
||
Cash and cash equivalents, end of period
|
$
|
1,110
|
|
|
$
|
1,056
|
|
|
Twelve Months Ended
|
|
|
|
|
|||||||||
|
March 31,
|
|
|
|||||||||||
|
2016
|
|
2015
|
|
Change
|
|
% Change
|
|||||||
Net sales
|
$
|
201,681
|
|
|
$
|
197,905
|
|
|
$
|
3,776
|
|
|
1.9
|
%
|
Gross profit
|
$
|
59,751
|
|
|
$
|
58,032
|
|
|
$
|
1,719
|
|
|
3.0
|
%
|
As percentage of net sales
|
29.6
|
%
|
|
29.3
|
%
|
|
30
|
|
bps
|
|
|
|||
Selling, general and administrative expenses
|
58,903
|
|
|
53,891
|
|
|
5,012
|
|
|
9.3
|
%
|
|||
Operating income
|
$
|
848
|
|
|
$
|
4,141
|
|
|
$
|
(3,293
|
)
|
|
(79.5
|
)%
|
|
|
|
|
|
|
|
|
|||||||
Net income
|
$
|
172
|
|
|
$
|
2,155
|
|
|
$
|
(1,983
|
)
|
|
(92.0
|
)%
|
|
|
|
|
|
|
|
|
|||||||
Basic and diluted net income per share
|
$
|
0.01
|
|
|
$
|
0.11
|
|
|
$
|
(0.10
|
)
|
|
(90.9
|
)%
|
Total shipments (in barrels):
|
|
|
|
|
|
|
|
|
|
|
|
|||
Core Brands
|
771,500
|
|
|
776,800
|
|
|
(5,300
|
)
|
|
(0.7
|
)%
|
|||
Contract Brewing
|
34,800
|
|
|
38,300
|
|
|
(3,500
|
)
|
|
(9.1
|
)%
|
|||
Total shipments
|
806,300
|
|
|
815,100
|
|
|
(8,800
|
)
|
|
(1.1
|
)%
|
|||
Change in depletions
(1)
|
(1
|
)%
|
|
5
|
%
|
|
|
|
|
|
|
(1)
|
Change in depletions reflects the period-over-period change in barrel volume sales of beer by wholesalers to retailers.
|
|
Three Months Ended
March 31, |
||||||
|
2016
|
|
2015
|
||||
Net loss
|
$
|
(3,209
|
)
|
|
$
|
(1,163
|
)
|
Interest expense
|
147
|
|
|
121
|
|
||
Income tax benefit
|
(2,139
|
)
|
|
(743
|
)
|
||
Depreciation expense
|
2,571
|
|
|
2,227
|
|
||
Amortization expense
|
44
|
|
|
61
|
|
||
Stock-based compensation
|
20
|
|
|
321
|
|
||
Loss on disposal of assets
|
2
|
|
|
215
|
|
||
Adjusted EBITDA
|
$
|
(2,564
|
)
|
|
$
|
1,039
|
|