UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
FORM 10-Q
☒
QUARTERLY REPORT   PURSUANT TO   SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended June 30, 2019
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to ______________
 
Commission File Number 0-26542
CRAFT BREW ALLIANCE, INC.
(Exact name of registrant as specified in its charter) 
Washington
 
91-1141254
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
929 North Russell Street
 
 
Portland, Oregon
 
97227-1733
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code:  (503) 331-7270
Securities Registered pursuant to Section 12(b) of the Act:
 
 
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, $0.005 par value
BREW
The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☒
Non-accelerated filer ☐ 
Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☒

The number of shares of the registrant’s common stock outstanding as of August 1, 2019 was 19,465,244 .
 


CRAFT BREW ALLIANCE, INC.
INDEX TO FORM 10-Q
 
PART I - FINANCIAL INFORMATION
Page
 
 
 
Item 1.
Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II ‑ OTHER INFORMATION
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
Item 6.
 
 
 

1
Index

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements
 
CRAFT BREW ALLIANCE, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except par value)
 
 
June 30,
2019
 
December 31,
2018
Assets
 
 
 
Current assets:
 
 
 
Cash, cash equivalents and restricted cash
$
970

 
$
1,200

Accounts receivable, net
30,223

 
29,998

Inventory, net
20,579

 
17,216

Other current assets
3,591

 
3,121

Total current assets
55,363

 
51,535

Property, equipment and leasehold improvements, net
111,634

 
113,189

Operating lease right-of-use assets
19,002

 
—

Goodwill
21,935

 
21,986

Trademarks
44,245

 
44,289

Intangible and other assets, net
5,710

 
5,048

Total assets
$
257,889

 
$
236,047

Liabilities and Shareholders' Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
19,489

 
$
17,552

Accrued salaries, wages and payroll taxes
4,920

 
5,635

Refundable deposits
3,685

 
4,123

Deferred revenue
4,364

 
6,015

Other accrued expenses
8,101

 
3,618

Current portion of long-term debt and finance lease obligations
1,483

 
919

Total current liabilities
42,042

 
37,862

Long-term debt and finance lease obligations, net of current portion
51,675

 
46,573

Fair value of derivative financial instruments
298

 
116

Deferred income tax liability, net
10,799

 
12,381

Long-term operating lease liabilities
19,382

 
—

Other liabilities
1,220

 
2,680

Total liabilities
125,416

 
99,612

Commitments and contingencies (Note 15)


 


Common shareholders' equity:
 

 
 

Common stock, $0.005 par value. Authorized 50,000,000 shares; issued and outstanding 19,465,244 and 19,382,641
97

 
97

Additional paid-in capital
144,941

 
144,013

Accumulated other comprehensive loss
(222
)
 
(86
)
Accumulated deficit
(12,343
)
 
(7,589
)
Total common shareholders' equity
132,473

 
136,435

Total liabilities and common shareholders' equity
$
257,889

 
$
236,047

 The accompanying notes are an integral part of these financial statements.

2
Index

CRAFT BREW ALLIANCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Sales
$
63,815

 
$
65,253

 
$
113,583

 
$
115,338

Less excise taxes
3,256

 
3,430

 
6,032

 
6,028

Net sales
60,559

 
61,823

 
107,551

 
109,310

Cost of sales
37,272

 
39,696

 
68,081

 
72,112

Gross profit
23,287

 
22,127

 
39,470

 
37,198

Selling, general and administrative expenses
19,381

 
15,857

 
44,946

 
30,605

Operating income (loss)
3,906

 
6,270

 
(5,476
)
 
6,593

Interest expense
(504
)
 
(107
)
 
(812
)
 
(241
)
Other income, net
33

 
21

 
33

 
55

Income (loss) before income taxes
3,435

 
6,184

 
(6,255
)
 
6,407

Income tax provision (benefit)
825

 
1,732

 
(1,501
)
 
1,794

Net income (loss)
$
2,610

 
$
4,452

 
$
(4,754
)
 
$
4,613

Basic and diluted net income (loss) per share
$
0.13

 
$
0.23

 
$
(0.24
)
 
$
0.24

Shares used in basic per share calculations
19,443

 
19,334

 
19,416

 
19,322

Shares used in diluted per share calculations
19,593

 
19,517

 
19,416

 
19,502

 
The accompanying notes are an integral part of these financial statements.


3
Index

CRAFT BREW ALLIANCE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Net income (loss)
$
2,610

 
$
4,452

 
$
(4,754
)
 
$
4,613

Unrealized gain (loss) on derivative hedge transactions, net of tax
(89
)
 
46

 
(136
)
 
129

Comprehensive income (loss)
$
2,521

 
$
4,498

 
$
(4,890
)
 
$
4,742

 
The accompanying notes are an integral part of these financial statements.


4
Index

CRAFT BREW ALLIANCE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)
 
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated
Other Comprehensive Loss
 
 
 
Total
Common Shareholders' Equity
 
 
Shares
 
Par Value
 
 
 
Accumulated Deficit
 
Balance at December 31, 2017
 
19,310

 
$
96

 
$
142,196

 
$
(164
)
 
$
(11,337
)
 
$
130,791

Adoption of accounting standard ASC 606
 
—

 
—

 
—

 
—

 
(394
)
 
(394
)
Stock-based compensation
 
—

 
—

 
485

 
—

 
—

 
485

Unrealized gain on derivative financial instruments, net of tax of $29
 
—

 
—

 
—

 
83

 
—

 
83

Net income
 
—

 
—

 
—

 
—

 
161

 
161

Balance at March 31, 2018
 
19,310

 
96

 
142,681

 
(81
)
 
(11,570
)
 
131,126

Issuance of shares under stock plans, net of shares withheld for tax payments
 
23

 
—

 
206

 
—

 
—

 
206

Stock-based compensation
 
29

 
1

 
201

 
 
 
 
 
202

Unrealized gain on derivative financial instruments, net of tax of $15
 
—

 
—

 
—

 
46

 
—

 
46

Tax payments related to stock-based awards
 
—

 
—

 
(84
)
 
—

 
—

 
(84
)
Net income
 
—

 
—

 
—

 
—

 
4,452

 
4,452

Balance at June 30, 2018
 
19,362

 
$
97

 
$
143,004

 
$
(35
)
 
$
(7,118
)
 
$
135,948


 
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated
Other Comprehensive Loss
 
 
 
Total
Common Shareholders' Equity
 
 
Shares
 
Par Value
 
 
 
Accumulated Deficit
 
Balance at December 31, 2018
 
19,383

 
$
97

 
$
144,013

 
$
(86
)
 
$
(7,589
)
 
$
136,435

Stock-based compensation, net of shares withheld for tax payments
 
29

 
—

 
418

 
—

 
—

 
418

Unrealized loss on derivative financial instruments, net of tax of $16
 
—

 
—

 
—

 
(47
)
 
—

 
(47
)
Tax payments related to stock-based awards
 
—

 
—

 
(157
)
 
—

 
—

 
(157
)
Net loss
 
—

 
—

 
—

 
—

 
(7,364
)
 
(7,364
)
Balance at March 31, 2019
 
19,412

 
97

 
144,274

 
(133
)
 
(14,953
)
 
129,285

Stock-based compensation, net of shares withheld for tax payments
 
53

 
—

 
835

 
—

 
—

 
835

Unrealized loss on derivative financial instruments, net of tax of $31
 
—

 
—

 
—

 
(89
)
 
—

 
(89
)
Tax payments related to stock-based awards
 
—

 
—

 
(168
)
 
—

 
—

 
(168
)
Net income
 
—

 
—

 
—

 
—

 
2,610

 
2,610

Balance at June 30, 2019
 
19,465

 
$
97

 
$
144,941

 
$
(222
)
 
$
(12,343
)
 
$
132,473


The accompanying notes are an integral part of these financial statements.


5
Index

CRAFT BREW ALLIANCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
Six Months Ended June 30,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(4,754
)
 
$
4,613

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 

 
 

Depreciation and amortization
5,386

 
5,387

(Gain) loss on sale or disposal of Property, equipment and leasehold improvements
22

 
(494
)
Deferred income taxes
(1,536
)
 
(629
)
Stock-based compensation
1,253

 
687

Lease expense
101

 
—

Other
152

 
188

Changes in operating assets and liabilities:
 

 
 

Accounts receivable, net
75

 
(9,215
)
Inventories
(3,349
)
 
(285
)
Other current assets
(687
)
 
1,761

Accounts payable, deferred revenue and other accrued expenses
8,068

 
7,889

Accrued salaries, wages and payroll taxes
(715
)
 
(1,204
)
Refundable deposits
104

 
(241
)
Net cash provided by operating activities
4,120

 
8,457

 
 
 
 
Cash flows from investing activities:
 

 
 

Expenditures for Property, equipment and leasehold improvements
(9,440
)
 
(4,284
)
Proceeds from sale of Property, equipment and leasehold improvements
22

 
22,936

Restricted cash from sale of Property, equipment and leasehold improvements
—

 
515

Business combinations and asset acquisitions
(274
)
 
—

Net cash provided by (used in) investing activities
(9,692
)
 
19,167

 
 
 
 
Cash flows from financing activities:
 

 
 

Proceeds from issuance of long-term debt
5,192

 
—

Principal payments on debt and finance lease obligations
(455
)
 
(348
)
Net borrowings (repayments) under revolving line of credit
930

 
(22,199
)
Proceeds from issuances of common stock
—

 
206

Tax payments related to stock-based awards
(325
)
 
(84
)
Net cash provided by (used in) financing activities
5,342

 
(22,425
)
Increase (decrease) in Cash, cash equivalents and restricted cash
(230
)
 
5,199

 
 
 
 
Cash, cash equivalents and restricted cash:
 

 
 

Beginning of period
1,200

 
579

End of period
$
970

 
$
5,778

Supplemental disclosure of cash flow information:
 

 
 

Cash paid for interest
$
761

 
$
285

Cash paid for income taxes, net
569

 
126

Cash paid for amounts included in measurement of lease liabilities
$
1,513

 
$
—

Supplemental disclosure of non-cash information:
 

 
 

Right-of-use assets obtained in exchange for operating lease obligations
$
19,726

 
$
—

Right-of-use assets obtained in exchange for finance lease obligations
2,538

 
—

Purchases of Property, equipment and leasehold improvements included in Accounts payable at end of period
199

 
429

The accompanying notes are an integral part of these financial statements.

6
Index

CRAFT BREW ALLIANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1. Basis of Presentation

The accompanying consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018 (“ 2018 Annual Report”). These consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements are unaudited but, in the opinion of management, reflect all material adjustments necessary to present fairly our consolidated financial position, results of operations and cash flows for the periods presented. All such adjustments were of a normal, recurring nature. The results of operations for such interim periods are not necessarily indicative of the results of operations for the full year.

Reclassifications
Certain reclassifications have been made to the prior year's data to conform to the current year's presentation. None of the changes affect our previously reported consolidated Net sales, Gross profit, Operating income (loss), Net income (loss) or Basic and diluted net income (loss) per share.

Note 2. Recent Accounting Pronouncements

ASU 2018-15
In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-15, "Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. We are still evaluating the effect of the adoption of ASU 2018-15.

ASU 2018-13
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement." ASU 2018-13 removes, modifies and adds certain disclosure requirements on fair value measurements. ASU 2018-13 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. We are still evaluating the effect of the adoption of ASU 2018-13.
 
ASU 2017-12
In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." ASU 2017-12 refines and expands hedge accounting for both financial and commodity risks. Its provisions create more transparency around how economic results are presented, both on the face of the financial statements and in the footnotes. It also makes certain targeted improvements to simplify the application of hedge accounting guidance. ASU 2017-12 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2018, on a prospective basis. We did not adopt ASU 2017-12 as it was not applicable to our financial position, results of operations or cash flows.

ASU 2017-04
In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment." ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. An entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, if applicable. The loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. The same impairment test also applies to any reporting unit with a zero or negative carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2019, on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. We do not expect the adoption of ASU 2017-04 to have a material effect on our financial position, results of operations or cash flows.


7

ASU 2016-13
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326)." ASU 2016-13 addresses accounting for credit losses for assets that are not measured at fair value through net income on a recurring basis. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods, with early adoption permitted for fiscal years beginning after December 15, 2018. We do not expect the adoption of ASU 2016-13 to have a material effect on our financial position, results of operations or cash flows.

ASU 2016-02, ASU 2018-10 and ASU 2018-11
In February 2016, the FASB issued ASU 2016-02, "Leases." ASU 2016-02 increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requires disclosing key information about leasing arrangements. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods.

In July 2018, the FASB issued ASU 2018-10, "Codification Improvements to Topic 842, Leases." ASU 2018-10 provides narrow amendments that clarify how to apply certain aspects of the guidance in ASU 2016-02. ASU 2018-10 is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods.

In July 2018, the FASB issued ASU 2018-11, "Leases (Topic 842): Targeted Improvements." ASU 2018-11 provides an optional transition method, that allows entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. ASU 2018-11 is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods.

The new leases guidance affects all companies and organizations that lease assets, and requires them to record on their balance sheet right-of-use ("ROU") assets and lease liabilities for the rights and obligations created by those leases. Under ASC 842, a lease is an arrangement that conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The new guidance retains a distinction between finance leases and operating leases, while requiring companies to recognize both types of leases on their balance sheet. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the criteria for distinguishing between capital leases and operating leases in legacy U.S. GAAP - ASC 840. Lessor accounting remains substantially the same as ASC 840, but with some targeted improvements to align lessor accounting with the lessee accounting model and with the revised revenue recognition guidance under ASC 606. The new standard and amendments require new qualitative and quantitative disclosures for both lessees and lessors.
 
On January 1, 2019, we adopted ASC 842 and elected the optional transition method under which we initially applied the standard on that date without adjusting amounts for prior periods, which we continue to present in accordance with ASC 840, including related disclosures. We evaluated the potential cumulative effect of applying the new leases guidance and determined that such an adjustment would be immaterial. In connection with our adoption, we:

•
elected the package of three practical expedients available under the transition provisions which allowed us to: (i) not reassess whether expired or existing contracts were or contained leases, (ii) not reassess the lease classification for expired or existing leases, and (iii) not reassess initial direct costs for existing leases.
•
determined the land easement practical expedient was not applicable.
•
as applicable, used hindsight for specified determinations and assessments in applying the new leases guidance.
•
did not separate lease and associated non-lease components for transitioned leases, but instead are accounting for them together as a single lease component.
•
elected to utilize the recognition exemption for short-term leases of one year or less at inception

Our adoption did not change the classification of lease-related expenses in the Consolidated Statements of Operations, and we do not expect significant changes to our pattern of expense recognition. As a result, we expect our adoption will not materially affect our cash flows.



8

The adjustments to our Consolidated Balance Sheets upon adoption of ASC 842, effective January 1, 2019 were as follows (in thousands):
 
 
Balance at
December 31, 2018
 
Adjustments due to
ASC 842
 
Balance at
January 1, 2019
Assets
 
 
 
 
 
 
Accounts receivable
 
$
29,998

 
$
300

 
$
30,298

Other current assets
 
3,121

 
(216
)
 
2,905

Property, equipment and leasehold improvements, net
 
113,189

 
(2,538
)
 
110,651

Operating lease right-of-use assets
 
—

 
19,726

 
19,726

Intangible and other assets, net
 
5,048

 
1,140

 
6,188

 
 
 
 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
 
 
 
Other accrued expenses
 
3,618

 
269

 
3,887

Long-term lease liabilities
 
—

 
18,143

 
18,143


Note 3. Cash, Cash Equivalents and Restricted Cash

We maintain cash balances with financial institutions that may exceed federally insured limits. We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. As of June 30, 2019 and December 31, 2018 , we did not have any cash equivalents.

As part of our cash management system, we use a controlled disbursement account to fund cash distribution checks presented for payment by the holder. Checks issued but not yet presented to banks may result in overdraft balances for accounting purposes. As of June 30, 2019 and December 31, 2018 , bank overdrafts of $1.0 million and $0.6 million , respectively, were included in Accounts payable on our Consolidated Balance Sheets. Changes in bank overdrafts from period to period are reported in the Consolidated Statements of Cash Flows as a component of operating activities within Accounts payable and Other accrued expenses.

Cash and cash equivalents that are restricted as to withdrawal or use under terms of certain contractual agreements are recorded in Cash, cash equivalents and restricted cash on our Consolidated Balance Sheets. Restricted cash of $0.5 million at June 30, 2019 and December 31, 2018 represents funds held in an escrow account from the sale of our Woodinville brewery related to a lien; the lien was resolved in our favor and the restriction will be removed in July 2019.

Note 4. Inventories

Inventories are stated at the lower of standard cost or net realizable value.

We regularly review our inventories for the presence of obsolete product attributed to age, seasonality and quality. If our review indicates a reduction in utility below the product’s carrying value, we reduce the product to a new cost basis. We record the cost of inventory for which we estimate we have more than a twelve-month supply as a component of Intangible and other assets, net on our Consolidated Balance Sheets.

Inventories consisted of the following (in thousands):
 
June 30,
2019
 
December 31,
2018
Raw materials
$
6,716

 
$
7,146

Work in process
4,051

 
3,219

Finished goods
7,004

 
4,319

Packaging materials
1,741

 
891

Promotional merchandise
656

 
1,139

Brewpub food, beverages and supplies
411

 
502

 
$
20,579

 
$
17,216


Work in process is beer held in fermentation tanks prior to the filtration and packaging process.

9

Note 5. Leases

We lease office space, restaurant and production facilities, warehouse and storage space, land and equipment under operating leases that expire at various dates through the year ending December 31, 2064. Certain leases contain renewal options for varying periods and escalation clauses for adjusting rent to reflect changes in price indices or scheduled adjustments. We exercise judgment in determining the reasonably certain lease term based on the provisions of the underlying agreement, the economic value of leasehold improvements and other relevant factors. Certain leases require us to pay for insurance, taxes and maintenance applicable to the leased property. Under the terms of the land lease for our New Hampshire Brewery, we hold a first right of refusal to purchase the property should the lessor decide to sell the property.

We lease equipment under finance leases that expire at various dates through the year ending December 31, 2024. Ownership of the leased equipment transfers to us at the end of each lease term.

Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.

If our leases do not provide an implicit rate, we develop an estimated incremental borrowing rate at the commencement date based on the estimated rate at which we would borrow, in the current economic environment, an amount equal to the lease payments over a similar term on a collateralized basis which is used to in determine the present value of lease payments. There were no new operating lease obligations recognized at adoption in comparison to our operating lease obligations disclosed as of December 31, 2018 . Our accounting for finance (formerly capital) leases is substantially unchanged.

As described further in Note 2, we adopted ASC 842 as of January 1, 2019. Prior period amounts have not been adjusted and continue to be reported in accordance with our historic accounting under ASC 840.

Lease-related liabilities consisted of the following (in thousands):

June 30,
2019
 
December 31,
2018
Operating lease liabilities:
 
 
 
Current lease liabilities included in Other accrued expenses
$
841

 
$
—

Long-term lease liabilities
19,382

 
—

Total operating lease liabilities
20,223

 
—

Financing lease liabilities:
 
 
 
Current portion included in Current portion of long-term debt and finance lease obligations
387

 
477

Long-term portion of lease liabilities in Long-term debt and finance lease obligations, net of current portion
954

 
1,101

Total financing lease liabilities
1,341

 
1,578

Total lease liabilities
$
21,564

 
$
1,578

Weighted-average remaining lease term:
 
 
 
Operating leases
27 years

 

Finance leases
4 years

 

Weighted-average discount rate:

 

Operating leases
4.91
%
 

Finance leases
3.56
%
 



10

As of June 30, 2019 , the maturities of our operating lease liabilities were as follows (in thousands):
 
Operating Leases
Remainder of 2019
$
957

2020
1,702

2021
1,713

2022
1,697

2023
1,480

Thereafter
29,077

Total minimum lease payments
36,626

Less: present value adjustment
(16,403
)
Operating lease liabilities
$
20,223


As of June 30, 2019 , the maturities of our finance lease liabilities were as follows (in thousands):
 
Finance Leases
Remainder of 2019
$
264

2020
333

2021
266

2022
199

2023
199

Thereafter
199

Total minimum lease payments
1,460

Less: present value adjustment
(119
)
Finance lease liabilities
$
1,341


We have additional operating lease liabilities of $4.8 million for lease contracts which have not yet commenced as of June 30, 2019 , and, as such, have not been recognized on our Consolidated Balance Sheets. This lease is expected to commence during the third quarter of 2019 for a term of 3 years with an extension at our option for two 5 -year periods.

Components of lease cost were as follows (in thousands):


Three Months Ended
June 30, 2019
 
Six Months Ended
June 30, 2019
Operating lease cost (1)
$
864

 
$
1,738

Finance lease cost:
 
 
 
Amortization of right-of-use asset
42

 
85

Interest on lease liabilities
12

 
25

Sublease income
(69
)
 
(69
)
Total lease cost
$
849

 
$
1,779


(1) Includes short-term, month-to-month lease and variable lease costs, which were immaterial.


11

Total future minimum lease payments as of December 31, 2018 consisted of (in thousands):
 
Operating Lease Obligations
 
Capital Lease Obligations
2019
$
11,208

 
$
529

2020
1,937

 
333

2021
1,863

 
266

2022
1,793

 
199

2023
1,465

 
199

Thereafter
25,446

 
199

 
$
43,712

 
1,725

Amount representing interest
 
 
(148
)
 
 
 
$
1,577


Note 6. Acquisitions

O n October 10, 2018, we purchased the intellectual property assets of Cisco Brewers ("Cisco") and we increased our ownership interest in Wynwood Brewing Co. ("Wynwood") from 24.5% to 100% . The purchase transaction of Cisco was accounted for as an asset acquisition. The increase in our ownership interest in Wynwood was accounted for under the acquisition method of accounting as a step acquisition. As required by this method, we remeasured our preexisting 24.5% equity interest to its acquisition-date fair value.

On November 29, 2018, we acquired substantially all the assets of Appalachian Mountain Brewery ("AMB"). The acquisition of AMB was accounted for under the acquisition method of accounting and all assets acquired and liabilities assumed were recorded at their respective acquisition-date fair values.

Given the close proximity of the closing dates of the acquisitions to the end of our fiscal year and the potential for working capital adjustments that may impact recognized amounts, the allocation of the purchase price to the underlying net assets was preliminary as of December 31, 2018 . During 2019 , we recorded immaterial adjustments to the allocation of the purchase price for the Cisco asset purchase and the AMB and Wynwood acquisitions.

The preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed are subject to revisions, which may result in adjustments to the preliminary values recorded as of December 31, 2018 . We expect to finalize these amounts no later than December 31, 2019 .


12

Note 7. Related Party Transactions

As of June 30, 2019 and December 31, 2018 , Anheuser-Busch, LLC ("A-B") owned approximately 31.2% and 31.3% , respectively, of our outstanding common stock.

Transactions with A-B, Ambev and Anheuser-Busch Worldwide Investments, LLC (“ABWI”)
In December 2015, we partnered with Ambev, the Brazilian subsidiary of Anheuser-Busch InBev SA, to distribute Kona beers into Brazil. In August 2016, we also entered into an International Distribution Agreement with ABWI, an affiliate of A-B, pursuant to which ABWI distributes our malt beverage products in jurisdictions outside the United States, subject to the terms and conditions of our prior agreement with our other international distributor, CraftCan Travel LLC, and certain other limitations.

Contract Brewing Arrangement with Anheuser-Busch Companies, LLC ("ABC")
On January 30, 2018, we entered into a Contract Brewing Agreement (the “Brewing Agreement”) with ABC, an affiliate of A-B, pursuant to which we brew, package, and palletize certain malt beverage products of A-B's craft breweries at our Portland, Oregon, and Portsmouth, New Hampshire, breweries as selected by ABC. Under the terms of the Brewing Agreement, ABC pays us a per barrel fee that varies based on the annual volume of the specified product brewed by us, plus (a) our actual incremental costs of brewing the product and (b) certain capital costs and costs of graphics and labeling that we incur in connection with the brewed products.

The Brewing Agreement, as extended, will expire on December 31, 2019, unless the arrangement is extended at the mutual agreement of the parties. The Brewing Agreement contains specified termination rights, including, among other things, the right of either party to terminate the Brewing Agreement if (i) the other party fails to perform any material obligation under the Brewing Agreement or any other agreement between the parties, subject to certain cure rights, or (ii) the Master Distributor Agreement is terminated.

Transactions with A-B, Ambev, ABWI and ABC consisted of the following (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Gross sales to A-B and Ambev
$
51,430

 
$
50,283

 
$
91,039

 
$
87,851

International distribution fee earned from ABWI
812

 
850

 
1,624

 
1,700

International distribution fee from ABWI, recorded in Deferred revenue
—

 
650

 
—

 
1,300

Contract brewing fee earned from ABC
104

 
395

 
642

 
858

Margin fee paid to A-B, classified as a reduction of Sales
724

 
687

 
1,265

 
1,205

Inventory management and other fees paid to A-B, classified in Cost of sales
107

 
100

 
197

 
190


Amounts due to or from A-B and ABWI were as follows (in thousands):
 
June 30,
2019
 
December 31,
2018
Amounts due from A-B related to beer sales pursuant to the A-B distributor agreement
$
21,885

 
$
17,946

Amounts due from ABWI and A-B related to international distribution fee and media reimbursement
—

 
6,000

Refundable deposits due to A-B
(3,709
)
 
(2,840
)
Amounts due to A-B for services rendered
(9,532
)
 
(5,140
)
Net amount due from A-B and ABWI
$
8,644

 
$
15,966



13

Transactions with Wynwood Brewing Co. ("Wynwood")
As of June 30, 2019 and December 31, 2018 , Wynwood was a wholly owned subsidiary. During the six -month period ended June 30, 2018 , we owned a 24.5% interest in Wynwood. The carrying value of our investment was $2.0 million as of June 30, 2018 .

Transactions with Wynwood prior to its becoming a wholly owned subsidiary consisted of the following (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Master distributor fee earned
$
—

 
$
12

 
$
—

 
$
19

Share of loss, classified as a component of Other income (expense), net
—

 
(1
)
 
—

 
22

Refund of investment, classified as a reduction in the carrying value of the equity method investment
—

 
—

 
—

 
23


Related Party Operating Leases
We lease our headquarters office space, banquet space and storage facilities located in Portland, land and certain equipment from two limited liability companies, both of whose members include our former Board Chair, who is also a significant shareholder, and his brother, who continues to be employed by us. This lease is included in the ROU asset and lease liabilities recorded on our Consolidated Balance Sheets. Lease payments to these lessors were as follows (in thousands):
Three Months Ended
June 30,
 
Six Months Ended
June 30,
2019
 
2018
 
2019
 
2018
$
41

 
$
41

 
$
82

 
$
82


We hold lease and sublease obligations for certain office space and the land underlying the brewery and pub location in Kona, Hawaii, with a company whose owners have a charitable foundation that owns more than 5% of our common stock. The sublease contracts expire on various dates through 2020 , with an extension at our option for two five -year periods. This lease is included in the ROU asset and lease liabilities recorded on our Consolidated Balance Sheets. Lease payments to this lessor were as follows (in thousands):
Three Months Ended
June 30,
 
Six Months Ended
June 30,
2019
 
2018
 
2019
 
2018
$
171

 
$
147

 
$
339

 
$
290



14

Note 8. Debt

Long-term debt consisted of the following (in thousands):
 
June 30, 2019
 
December 31, 2018
Term loan, due September 30, 2023
$
8,604

 
$
8,823

Line of credit, due September 30, 2023
38,021

 
37,092

Secured borrowing, due June 21, 2026
5,192

 
—

 
51,817

 
45,915

Less current portion, term loan and secured borrowing
(1,096
)
 
(442
)
 
$
50,721

 
$
45,473


Credit Agreement
On October 10, 2018, we executed a First Amendment (the " First Amendment") to our Amended and Restated Credit Agreement with Bank of America, N.A. ("BofA") dated November 30, 2015 (the "Credit Agreement"). The Credit Agreement as amended by the First Amendment provides for a revolving line of credit (“Line of Credit”), including provisions for cash borrowings and up to $2.5 million notional amount of letters of credit, and a $10.8 million term loan (“Term Loan”). The primary changes effected by the First Amendment were to increase the maximum amount available under the Line of Credit from $40.0 million to $45.0 million and to extend the maturity date of the Line of Credit from November 30, 2020 to September 30, 2023, which is also the maturity date of the Term Loan. The maximum amount of the Line of Credit is subject to loan commitment reductions in the amount of $750,000 each quarter beginning March 31, 2020. The Amendment also increased the limit on the total amount of investments that we may make in other craft brewers, other than the acquisition of all or substantially all of the assets or controlling ownership interests, from $5.0 million to $10.0 million . We may draw upon the Line of Credit for working capital and general corporate purposes.

As of June 30, 2019 , we had $7.0 million in funds available to be drawn upon from our Line of Credit and $38.0 million of borrowings outstanding. At June 30, 2019 , $8.6 million was outstanding under the Term Loan.

Under the Credit Agreement as in effect at June 30, 2019 , interest accrues at an annual rate based on the London Inter-Bank Offered Rate (“LIBOR”) Daily Floating Rate plus a marginal rate. The marginal rate varies from 0.75% to 2.00% for the Line of Credit and Term Loan based on our funded debt ratio. At June 30, 2019 , our marginal rate was 2.00% , resulting in an annual interest rate of 3.69% .

Accrued interest for the Term Loan is due and payable monthly. Principal payments on the Term Loan are due monthly in accordance with an agreed-upon schedule set forth in the Credit Agreement, with any unpaid principal balance and unpaid accrued interest due and payable on September 30, 2023.

The Credit Agreement authorizes acquisitions within the same line of business as long as we remain in compliance with the financial covenants of the Credit Agreement and there is at least $5.0 million of availability remaining on the Line of Credit following the acquisition.

The Credit Agreement as in effect at June 30, 2019 required us to satisfy the following financial covenants: (i) a Consolidated Leverage Ratio of up to 5.50 to 1.00 and (ii) a Fixed Charge Coverage Ratio of at least 1.20 to 1.00. Failure to maintain compliance with these covenants is an event of default and would give BofA the right to declare the entire outstanding loan balance immediately due and payable.

At June 30, 2019 , we were in compliance with all applicable contractual financial covenants of the Credit Agreement. EBITDA as defined in the Second Amendment is similar to Consolidated EBITDA but includes certain adjustments specified in the Second Amendment. Effective May 7, 2019, we executed a Second Amendment to the Credit Agreement with BofA (the “Second Amendment”) that increased the permitted Leverage Ratio to a maximum of 5.50 to 1.00 for the period from January 1, 2019 through June 30, 2019. Beginning July 1, 2019, and in each fiscal quarter thereafter, the maximum Leverage Ratio will be 3.50 to 1.00 as long as A-B has not made a Qualifying Offer as defined in the International Distributor Agreement with an affiliate of A-B. If A-B makes a Qualifying Offer on or before August 23, 2019, beginning July 1, 2019 through March 31, 2020, the maximum Leverage Ratio will be 4.75 to 1.00; and beginning April 1, 2020, and in each fiscal quarter thereafter, the maximum Leverage Ratio will be 3.50 to 1.00.

15

Secured Borrowing
On June 20, 2019, we executed an agreement with BofA, pursuant to our Master Lease Agreement, for $5.2 million in cash in exchange for a secured interest in our previously installed can line at our Portland brewing facility. The maturity date of the secured borrowing is June 21, 2026. We used the funds to pay down our Line of Credit.

Note 9. Derivative Financial Instruments

Interest Rate Swap Contracts
Our risk management objectives are to ensure that business and financial exposures to risk that have been identified and measured are minimized using the most effective and efficient methods to reduce, transfer and, when possible, eliminate such exposures. Operating decisions contemplate associated risks and management strives to structure proposed transactions to avoid or reduce risk whenever possible.

We have assessed our vulnerability to certain business and financial risks, including interest rate risk associated with our variable-rate long-term debt. To mitigate this risk, effective January 23, 2014, we entered into an interest rate swap contract with BofA for 75% of the term loan ("Term Loan") balance, to hedge the variability of interest payments associated with our variable-rate borrowings under our Term Loan with BofA. The Term Loan contract and the interest rate swap terminate on September 30, 2023 . The Term Loan contract had a total notional value of $6.5 million as of June 30, 2019 . Through this swap agreement, we pay interest at a fixed rate of 2.86% and receive interest at a floating-rate of the one-month LIBOR, which was 2.40% at June 30, 2019 .

Since the interest rate swap hedges the variability of interest payments on variable rate debt with similar terms, it qualifies for cash flow hedge accounting treatment.

As of June 30, 2019 , unrealized net loss of $0.3 million was recorded in Accumulated other comprehensive income (loss) as a result of these hedges. The effective portion of the gain or loss on the derivatives is reclassified into Interest expense in the same period during which we record Interest expense associated with the related debt. There was no hedge ineffectiveness during the first six months of 2019 or 2018 .

The fair value of our derivative instruments recorded as a component of Other liabilities on our Consolidated Balance Sheets was as follows (in thousands):
 
June 30,
2019
 
December 31,
2018
Fair value of interest rate swap liability
$
(297
)
 
$
(116
)
 
The effect of our interest rate swap contracts that were accounted for as a derivative instrument on our Consolidated Statements of Operations was as follows (in thousands):
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
June 30,
 
 
 
 
 
 
2019
 
$
(120
)
 
Interest expense
 
$
6

2018
 
$
61

 
Interest expense
 
$
17

 
 
 
 
 
 
 
Six Months Ended
June 30,
 
 
 
 
 
 
2019
 
$
(182
)
 
Interest expense
 
$
12

2018
 
$
173

 
Interest expense
 
$
39

See also Note 10.


16

Note 10. Fair Value Measurements

Factors used in determining the fair value of our financial assets and liabilities are summarized into three broad categories:

•
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.

The factors or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following table summarizes liabilities measured at fair value on a recurring basis (in thousands):
Fair Value at June 30, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
Interest rate swap
 
$
—

 
$
(297
)
 
$
—

 
$
(297
)
 
 
 
 
 
 
 
 
 
Fair Value at December 31, 2018
 
 

 
 

 
 

 
 

Interest rate swaps
 
$
—

 
$
(116
)
 
$
—

 
$
(116
)

We did not have any assets measured at fair value on a recurring basis at June 30, 2019 or December 31, 2018 .

The fair value of our interest rate swaps was based on quarterly statements from the issuing bank. There were no changes to our valuation techniques during the six months ended June 30, 2019 .

We believe the carrying amounts of Cash, cash equivalents and restricted cash, Accounts receivable, Other current assets, Accounts payable, Accrued salaries, wages and payroll taxes, and Other accrued expenses are a reasonable approximation of the fair value of those financial instruments because of the nature of the underlying transactions and the short-term maturities involved.

We had fixed-rate debt outstanding as follows (in thousands):
 
June 30,
2019
 
December 31,
2018
Fixed-rate debt on Consolidated Balance Sheets
$
6,533

 
$
1,577

Estimated fair value of fixed-rate debt
6,747

 
1,591


We calculate the estimated fair value of our fixed-rate debt using a discounted cash flow methodology. Using estimated current interest rates based on a similar risk profile and duration (Level 2), the fixed cash flows are discounted and summed to compute the fair value of the debt.


17

Note 11. Revenue Recognition

The following table disaggregates our Sales by major source (in thousands):
 
 
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
 
 
Beer Related 1
 
Brewpubs
 
Total
 
Beer Related 1
 
Brewpubs
 
Total
Product sold through distributor agreements 2
 
$
55,905

 
$
—

 
$
55,905

 
$
97,033

 
$
—

 
$
97,033

Alternating proprietorship and contract brewing fees 3
 
352

 
—

 
352

 
1,200

 
—

 
1,200

International distribution fees
 
812

 
—

 
812

 
1,624

 
—

 
1,624

Brewpubs 4
 
—

 
6,066

 
6,066

 
—

 
12,269

 
12,269

Other 5
 
680

 
—

 
680

 
1,457

 
—

 
1,457

 
 
$
57,749

 
$
6,066

 
$
63,815

 
$
101,314

 
$
12,269

 
$
113,583


 
 
Three Months Ended June 30, 2018
 
Six Months Ended June 30, 2018
 
 
Beer Related 1
 
Brewpubs
 
Total
 
Beer Related 1
 
Brewpubs
 
Total
Product sold through distributor agreements 2
 
$
54,148

 
$
—

 
$
54,148

 
$
93,815

 
$
—

 
$
93,815

Alternating proprietorship and contract brewing fees 3
 
3,175

 
—

 
3,175

 
5,886

 
—

 
5,886

International distribution fees
 
850

 
—

 
850

 
1,700

 
—

 
1,700

Brewpubs 4
 
—

 
6,101

 
6,101

 
—

 
12,112

 
12,112

Other 5
 
979

 
—

 
979

 
1,825

 
—

 
1,825

 
 
$
59,152

 
$
6,101

 
$
65,253

 
$
103,226

 
$
12,112

 
$
115,338


(1)
Beer Related sales include sales to A-B subsidiaries including Ambev, ABWI and ABC. Sales to wholesalers through the A-B distributor agreement in the three-month period ended June 30, 2019 and 2018 represented 80.9% and 77.9% of our Sales, respectively. Sales to wholesalers through the A-B distributor agreement in the six-month period ended June 30, 2019 and 2018 represented 81.0% and 77.3% of our Sales, respectively.
(2)
Product sold through distributor agreements included domestic and international sales of owned and non-owned brands pursuant to terms in our distributor agreements.
(3)
Alternating proprietorship fees ceased in the fourth quarter of 2018.
(4)
Brewpub sales include sales of promotional merchandise and sales of beer directly to customers.
(5)
Other sales include sales of beer related merchandise, hops and spent grain.
 
Revenue is recognized when obligations under the terms of a contract with our customers are satisfied; generally this occurs when the product arrives at distribution centers or when the wholesaler takes possession. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods. We consider customer purchase orders, which in some cases are governed by a master agreement, to be the contracts with a customer. For each contract related to the production of beer, we consider the promise to transfer products, each of which is distinct, to be the identified performance obligation. The transaction price for each performance obligation is specifically identified within the contract with our customer and represents the fair standalone selling price. Discounts are recognized as a reduction to Sales at the time we recognize the revenue. We generally do not grant return privileges, except in limited and specific circumstances.

As of June 30, 2019 , we had receivables related to contracts with customers of $30.2 million , net of the allowance for doubtful accounts of $25,000 . As of December 31, 2018 , we had receivables related to contracts with customers of $30.0 million , net of the allowance for doubtful accounts of $25,000 .

As of June 30, 2019 and December 31, 2018 , contract liabilities, which consisted of obligations associated with our gift card programs, were $0.2 million and $0.4 million , respectively, and were included in Other accrued expenses on the Consolidated Balance Sheets.

18

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of accounting pursuant to ASC 606. In contracts with multiple performance obligations, we identify each performance obligation and evaluate whether the performance obligation is distinct within the context of the contract at contract inception. Performance obligations that are not distinct at contract inception are combined.
 
We entered into an International Distribution Agreement ("IDA") with A-B for the rights to serve as our exclusive distributor in international territories defined by the IDA for a 10-year period. The IDA represents a single international license to all territories defined in the IDA. Revenue is recognized on a straight-line basis over the 10-year term of the agreement. In accordance with ASC 606, we evaluate the factors used in our estimates of variable consideration to be received under contracts on a quarterly basis. We estimate variable consideration as the most likely amount to which we expect to be entitled. We have evaluated, on a quarterly basis, the qualitative factors, including current market conditions and our relationship with A-B, and we consider receiving $34.0 million over the 10 -year term of the IDA the most likely outcome under the IDA. We believe that the possibility of a significant reversal of cumulative revenue recognized from this agreement under this conclusion is remote. Under the IDA, A-B has the right to issue purchase orders to distribute product in international territories defined by the IDA. Each purchase order placed under the IDA is a distinct performance obligation. The transaction price for each performance obligation is a sales-based royalty, which is recognized as revenue in accordance with the sales-based royalty exception. Accordingly, royalty revenue is recognized as the variability associated with the royalty is resolved, which is upon A-B's subsequent sale of our product.

In cases where all conditions to a sale are not met at the time of sale, revenue recognition is deferred until all conditions are met. As of December 31, 2018 , Deferred revenue on our Consolidated Balance Sheets included $6.0 million related to the IDA. For the six months ended June 30, 2019 , we recognized $1.6 million as Sales, resulting in Deferred revenue of $4.4 million at June 30, 2019 . In the absence of receiving a Qualifying Offer, we expect to earn the right to receive an additional $20.0 million in the remainder of 2019. In the absence of receiving a Qualifying Offer, we expect to recognize an additional $1.6 million of Deferred revenue as Sales in the remainder of 2019, $3.2 million in 2020, and $19.5 million thereafter.


19

Note 12. Segment Results and Concentrations

Our chief operating decision maker monitors Net sales and gross margins of our Beer Related operations and our Brewpubs operations. Beer Related operations include the brewing operations and related domestic and international beer and cider sales of our Kona, Widmer Brothers, Redhook, Omission, AMB, Cisco, and Wynwood beer brands and Square Mile cider brand. Brewpubs operations primarily include our brewpubs, some of which are located adjacent to our Beer Related operations. We do not track operating results beyond the gross margin level or our assets on a segment level.

Net sales, Gross profit and gross margin information by segment was as follows (dollars in thousands):
 
 
Three Months Ended June 30,
2019
 
Beer
Related
 
Brewpubs
 
Total
Net sales
 
$
54,493

 
$
6,066

 
$
60,559

Gross profit
 
$
22,676

 
$
611

 
$
23,287

Gross margin
 
41.6
%
 
10.1
%
 
38.5
%
 
 
 
 
 
 
 
2018
 
 

 
 

 
 

Net sales
 
$
55,722

 
$
6,101

 
$
61,823

Gross profit
 
$
21,942

 
$
185

 
$
22,127

Gross margin
 
39.4
%
 
3.0
%
 
35.8
%
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
2019
 
Beer
Related
 
Brewpubs
 
Total
Net sales
 
$
95,282

 
$
12,269

 
$
107,551

Gross profit
 
$
38,184

 
$
1,286

 
$
39,470

Gross margin
 
40.1
%
 
10.5
%
 
36.7
%
 
 
 
 
 
 
 
2018
 
 

 
 

 
 

Net sales
 
$
97,198

 
$
12,112

 
$
109,310

Gross profit
 
$
36,652

 
$
546

 
$
37,198

Gross margin
 
37.7
%
 
4.5
%
 
34.0
%
 
The segments use many of the same assets. For internal reporting purposes, we do not allocate assets by segment and, therefore, no asset by segment information is provided to our chief operating decision maker.

In preparing this financial information, certain expenses were allocated between the segments based on management estimates, while others were based on specific factors such as headcount. These factors can have a significant impact on the amount of Gross profit for each segment. While we believe we have applied a reasonable methodology, assignment of other reasonable cost allocations to each segment could result in materially different segment Gross profit.

Sales to wholesalers through the A-B distributor agreement represented the following percentage of our Sales:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
2019
 
2018
 
2019
 
2018
80.9
%
 
77.9
%
 
81.0
%
 
77.3
%
 
Receivables from A-B and ABWI represented the following percentage of our Accounts receivable balance:
 
June 30,
2019
 
December 31,
2018
72.4
%
 
79.8
%


20

Note 13. Significant Stock-Based Plan Activity and Stock-Based Compensation

Stock-Based Compensation
Stock-based compensation expense was recognized in our Consolidated Statements of Operations as follows (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Cost of sales
$
34

 
$
14

 
$
82

 
$
66

Selling, general and administrative expense
801

 
188

 
1,171

 
621

Total stock-based compensation expense
$
835

 
$
202

 
$
1,253

 
$
687


At June 30, 2019 , we had total unrecognized stock-based compensation expense of $2.6 million , which will be recognized over the weighted average remaining vesting period of 2.1 years .
 
Note 14. Earnings Per Share

The reconciliation between the number of shares used for the basic and diluted per share calculations, as well as other related information, is as follows (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Weighted average common shares used for basic EPS
19,443

 
19,334

 
19,416

 
19,322

Dilutive effect of stock-based awards
150

 
183

 
—

 
180

Shares used for diluted EPS
19,593

 
19,517

 
19,416

 
19,502

 
 
 
 
 


 


Stock-based awards not included in diluted per share calculations as they would be antidilutive
63

 
—

 
51

 
—


Note 15. Commitments and Contingencies

General
We are subject to various claims and pending or threatened lawsuits in the normal course of business. Although we do not anticipate that the resolution of legal proceedings arising in the normal course of business or the proceeding described below will have a material adverse effect on our financial position, results of operations or cash flows, we cannot predict this with certainty.

Legal
On February 28, 2017 and March 6, 2017, respectively, two lawsuits, Sara Cilloni and Simone Zimmer v. Craft Brew Alliance, Inc., and Theodore Broomfield v. Kona Brewing Co. LLC, Kona Brew Enterprises, LLP, Kona Brewery LLC, and Craft Brew Alliance, Inc., were filed in the United States District Court for the Northern Division of California. On April 7, 2017, the two lawsuits were consolidated into a single complaint under the Broomfield case. The lawsuit alleges that the defendants misled customers regarding the state in which Kona Brewing Company beers are manufactured. On April 28, 2017, we filed a motion to dismiss the complaint, which was granted in part and denied in part on September 1, 2017. On September 26, 2018, the Court granted Plaintiffs’ motion for class certification, forming a class of persons within the state of California who purchased certain Kona Brewing Company products within the relevant statute of limitations period. Our motion for reconsideration was denied on October 16, 2018. On May 30, 2019, we announced our entry into a definitive settlement agreement, which received preliminary approval from the Court on June 14, 2019. We recorded a charge of $4.7 million on a pre-tax basis in the quarter ended March 31, 2019, based on our estimate of the probable costs of settling the litigation. It is reasonably possible that the total cost of settling the litigation will exceed current estimates, especially if the number of class members who submit claims materially exceeds expectations.


21

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This quarterly report on Form 10-Q includes forward-looking statements. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will,” “may,” “plan” and similar expressions or their negatives identify forward-looking statements, which generally are not historical in nature. These statements are based upon assumptions and projections that we believe are reasonable, but are by their nature inherently uncertain. Many possible events or factors could affect our future financial results and performance, and could cause actual results or performance to differ materially from those expressed, including those risks and uncertainties described in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018 (“ 2018 Annual Report”), and those described from time to time in our future reports filed with the Securities and Exchange Commission (the “SEC”). Caution should be taken not to place undue reliance on these forward-looking statements, which speak only as of the date of this quarterly report.

The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes thereto included herein, as well as the audited Consolidated Financial Statements and Notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our 2018 Annual Report. The discussion and analysis includes period-to-period comparisons of our financial results. Although period-to-period comparisons may be helpful in understanding our financial results, we believe that they should not be relied upon as an accurate indicator of future performance.

22
Index

Overview

Craft Brew Alliance, Inc. ("CBA") is the seventh largest craft brewing company in the U.S. and a leader in brewing, branding, and bringing to market world-class American craft beers. Publicly traded on NASDAQ under the ticker symbol BREW, CBA is headquartered in Portland, Oregon and operates breweries and brewpubs across the U.S.

Our distinctive portfolio combines the power of Kona Brewing Co., one of the top craft beer brands in the world, with strong regional breweries and innovative lifestyle brands, including Appalachian Mountain Brewery, Cisco Brewers, Omission Brewing Co., Redhook Brewery, Square Mile Cider Co., Widmer Brothers Brewing, and Wynwood Brewing Co. We nurture the growth and development of our brands in today’s increasingly competitive beer market through our state-of-the-art brewing and distribution capability, integrated sales and marketing infrastructure, and strong focus on innovation, local community and sustainability.

CBA was formed in 2008 through the merger of Redhook Brewery and Widmer Brothers Brewing, the two largest craft brewing pioneers in the Northwest at the time. Following a successful strategic brewing and distribution partnership, Kona Brewing Co. joined CBA in 2010. As part of CBA, Kona has expanded its reach across all 50 U.S. states and approximately 30 countries, while remaining deeply rooted in its home of Hawaii.

As consumers increasingly seek more variety and more local offerings, Craft Brew Alliance has expanded its portfolio and home markets with strong regional craft beer brands in targeted markets. In 2015 and 2016, we formed strategic partnerships with Appalachian Mountain Brewery, based in Boone, North Carolina; Cisco Brewers, based in Nantucket, Massachusetts; and Wynwood Brewing Co., based in the heart of Miami’s vibrant multicultural arts district. Building on the success of these partnerships, we acquired all three brands in the fourth quarter of 2018, fundamentally transforming our footprint and paving the way to increase our investments in their growth and drive shareholder value. In 2019, CBA launched The pH Experiment as a separate business unit focused on anticipating drinkers’ needs and quickly rolling out new offerings to quench their thirst.

We proudly brew and package our craft beers in three company-owned production breweries located in Portland, Oregon; Portsmouth, New Hampshire; and Kailua-Kona, Hawaii. In 2018, we continued to leverage our contract brewing agreement with A-B Commercial Strategies, LLC (“ABCS”), an affiliate of Anheuser-Busch, LLC (“A-B”), through which we brew select CBA brands in A-B’s Fort Collins, Colorado brewery. Additionally, we own and operate five innovation breweries in Portland, Oregon; Seattle, Washington; Portsmouth, New Hampshire; Boone, North Carolina; and Miami, Florida; they are primarily used for small-batch production and limited-release beers offered primarily in our brewpubs and brands’ home markets.

We distribute our beers to retailers through wholesalers that are aligned with the A-B network. These sales are made pursuant to a Master Distributor Agreement (the “A-B Distributor Agreement”) with A-B, which extends through 2028. As a result of this distribution arrangement, we believe that, under alcohol beverage laws in a majority of states, these wholesalers would own the exclusive right to distribute our beers in their respective markets if the A-B Distributor Agreement expires or is terminated. As competition puts increasing pressure on craft brands outside of their home markets, we are continuing our efforts to stabilize and strengthen Widmer Brothers and Redhook in the Pacific Northwest, while expanding distribution of Appalachian Mountain Brewery, Cisco Brewers, and Wynwood Brewing Co. across their respective home markets of North Carolina, New England, and South Miami.

Separate from our A-B wholesalers, we maintain an internal independent sales and marketing organization with resources across the key functions of brand management, field marketing, field sales, and national retail sales.

We operate in two segments: Beer Related operations and Brewpubs operations. Beer Related operations include the brewing, and domestic and international sales, of craft beers and ciders from our breweries. Brewpubs operations primarily include our five brewpubs, four of which are located adjacent to our Beer Related operations, as well as other merchandise sales, and sales of our beers directly to customers.




23
Index

Following is a summary of our financial results:
Six Months Ended June 30,
 
Net sales
 
Net income (loss)
 
Number of
barrels sold
2019
 
$107.6 million
 
$(4.8) million
 
400,000
2018
 
$109.3 million
 
$4.6 million
 
391,600

Results of Operations

The following table sets forth, for the periods indicated, certain information from our Consolidated Statements of Operations expressed as a percentage of Net sales (1) :
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Sales
105.4
 %
 
105.5
 %
 
105.6
 %
 
105.5
 %
Less excise taxes
(5.4
)
 
(5.5
)
 
(5.6
)
 
(5.5
)
Net sales
100.0

 
100.0

 
100.0

 
100.0

Cost of sales
61.5

 
64.2

 
63.3

 
66.0

Gross profit
38.5

 
35.8

 
36.7

 
34.0

Selling, general and administrative expenses
32.0

 
25.6

 
41.8

 
28.0

Operating income (loss)
6.4

 
10.1

 
(5.1
)
 
6.0

Interest expense
(0.8
)
 
(0.2
)
 
(0.8
)
 
(0.2
)
Other income, net
0.1

 
—

 
—

 
0.1

Income (loss) before income taxes
5.7

 
10.0

 
(5.8
)
 
5.9

Income tax provision (benefit)
1.4

 
2.8

 
(1.4
)
 
1.6

Net income (loss)
4.3
 %
 
7.2
 %
 
(4.4
)%
 
4.2
 %

(1)
Percentages may not add due to rounding.

24
Index


Segment Information
Net sales, Gross profit and Gross margin information by segment was as follows (dollars in thousands):
 
 
Three Months Ended June 30,
2019
 
Beer
Related
 
Brewpubs
 
Total
Net sales
 
$
54,493

 
$
6,066

 
$
60,559

Gross profit
 
$
22,676

 
$
611

 
$
23,287

Gross margin
 
41.6
%
 
10.1
%
 
38.5
%
 
 
 
 
 
 
 
2018
 
 

 
 

 
 

Net sales
 
$
55,722

 
$
6,101

 
$
61,823

Gross profit
 
$
21,942

 
$
185

 
$
22,127

Gross margin
 
39.4
%
 
3.0
%
 
35.8
%
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
2019
 
Beer
Related
 
Brewpubs
 
Total
Net sales
 
$
95,282

 
$
12,269

 
$
107,551

Gross profit
 
$
38,184

 
$
1,286

 
$
39,470

Gross margin
 
40.1
%
 
10.5
%
 
36.7
%
 
 
 
 
 
 
 
2018
 
 

 
 

 
 

Net sales
 
$
97,198

 
$
12,112

 
$
109,310

Gross profit
 
$
36,652

 
$
546

 
$
37,198

Gross margin
 
37.7
%
 
4.5
%
 
34.0
%
 

25
Index

Sales by Category
Sales by category were as follows (dollars in thousands):
 
 
Three Months Ended June 30,
 
Dollar
 
 
Sales by Category
 
2019
 
2018
 
Change
 
% Change
A-B and A-B related (1)
 
$
51,622

 
$
50,841

 
$
781

 
1.5
 %
Contract brewing and beer related (2)
 
6,127

 
8,311

 
(2,184
)
 
(26.3
)%
Excise taxes
 
(3,256
)
 
(3,430
)
 
174

 
(5.1
)%
Net beer related sales
 
54,493

 
55,722

 
(1,229
)
 
(2.2
)%
Brewpubs (3)
 
6,066

 
6,101

 
(35
)
 
(0.6
)%
Net sales
 
$
60,559

 
$
61,823

 
$
(1,264
)
 
(2.0
)%
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
Dollar
 
 
Sales by Category
 
2019
 
2018
 
Change
 
% Change
A-B and A-B related (1)
 
$
92,040

 
$
89,204

 
$
2,836

 
3.2
 %
Contract brewing and beer related (2)
 
9,274

 
14,022

 
(4,748
)
 
(33.9
)%
Excise taxes
 
(6,032
)
 
(6,028
)
 
(4
)
 
0.1
 %
Net beer related sales
 
95,282

 
97,198

 
(1,916
)
 
(2.0
)%
Brewpubs (3)
 
12,269

 
12,112

 
157

 
1.3
 %
Net sales
 
$
107,551

 
$
109,310

 
$
(1,759
)
 
(1.6
)%

(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 in 2018, fees earned pursuant to the Brewing Agreement with ABC, and the international distribution fees earned from ABWI.
(2)
Beer related includes international sales of our beers, and brands, not sold through A-B or Ambev, as well as fees earned through alternating proprietorship agreements during 2018.
(3)
Brewpubs sales include sales of promotional merchandise and sales of beer directly to customers.

Shipments by Category
Shipments by category were as follows (in barrels):
Three Months Ended June 30,
 
2019 Shipments
 
2018 Shipments
 
Increase
(Decrease)
 
%
Change
 
Change in
Depletions (1)
A-B and A-B related (2)
 
201,500

 
198,300

 
3,200

 
1.6
 %
 
1
 %
Contract brewing and beer related (3)
 
27,000

 
24,300

 
2,700

 
11.1
 %
 
 

Brewpubs
 
2,000

 
2,000

 
—

 
—
 %
 
 

Total
 
230,500

 
224,600

 
5,900

 
2.6
 %
 
 

 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
2019 Shipments
 
2018 Shipments
 
Increase
(Decrease)
 
%
Change
 
Change in
Depletions (1)
A-B and A-B related (2)
 
356,100

 
344,800

 
11,300

 
3.3
 %
 
(1
)%
Contract brewing and beer related (3)
 
40,100

 
43,000

 
(2,900
)
 
(6.7
)%
 
 

Brewpubs
 
3,800

 
3,800

 
—

 
—
 %
 
 

Total
 
400,000

 
391,600

 
8,400

 
2.1
 %
 
 


(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 in 2018 and shipments pursuant to the Brewing Agreement with ABC.
(3)
Beer related includes international shipments of our beers, and sales of our newly acquired brands, in each case not distributed through A-B or Ambev.

26
Index


The increases in sales to A-B and A-B related in the three and six -month periods ended June 30, 2019 compared to the same periods of 2018 were primarily due to increases in shipment volume and average unit pricing, partially offset by promotional programming. International distribution fees earned were $0.8 million in the three-month period ended June 30, 2019 and $0.9 million in the same period of 2018 . International distribution fees earned were $1.6 million in the six-month period ended June 30, 2019 and $1.7 million in the same period of 2018 .

The decreases in Contract brewing and beer related sales in the three and six -month periods ended June 30, 2019 compared to the same periods of 2018 were primarily due to no longer receiving alternating proprietorship fees as a result of the acquisitions of Appalachian Mountain Brewing, Cisco Brewers and Wynwood Brewing, as well as decreases in contract brewing shipment volumes, partially offset by sales of our newly acquired brands distributed outside the A-B distribution network. International shipment volumes increased in the three-month period ended June 30, 2019 compared to the same period of 2018 . International shipment volumes decreased in the six-month period ended June 30, 2019 compared to the same period of 2018 .

Brewpubs sales were relatively flat in the three-month period ended June 30, 2019 compared to the same period of 2018 and Brewpubs sales increased in the six-month period ended June 30, 2019 compared to the same period of 2018 , primarily as a result of our newly acquired AMB and Wynwood brewpub operations, partially offset by ceasing operations at our Portsmouth brewpub and leasing it to the founders of Cisco, which occurred at the beginning of April 2019, as well as the closure of the Portland taproom, which occurred at the end of January 2019.

Shipments by Brand
The following table sets forth a comparison of shipments by brand (in barrels):
Three Months Ended June 30,
 
2019 Shipments
 
2018 Shipments
 
Increase
(Decrease)
 
%
Change
 
Change in
Depletions
Kona
 
156,700

 
141,000

 
15,700

 
11.1
 %
 
8
 %
Widmer Brothers
 
27,400

 
28,900

 
(1,500
)
 
(5.2
)%
 
(11
)%
Redhook
 
17,000

 
20,400

 
(3,400
)
 
(16.7
)%
 
(18
)%
Omission
 
11,100

 
12,800

 
(1,700
)
 
(13.3
)%
 
(10
)%
All other (1)
 
16,100

 
15,600

 
500

 
3.2
 %
 
(2
)%
Total (2)
 
228,300

 
218,700

 
9,600

 
4.4
 %
 
1
 %
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
2019 Shipments
 
2018 Shipments
 
Increase
(Decrease)
 
%
Change
 
Change in
Depletions
Kona
 
265,500

 
240,000

 
25,500

 
10.6
 %
 
5
 %
Widmer Brothers
 
49,000

 
52,200

 
(3,200
)
 
(6.1
)%
 
(14
)%
Redhook
 
31,800

 
39,000

 
(7,200
)
 
(18.5
)%
 
(20
)%
Omission
 
20,200

 
23,100

 
(2,900
)
 
(12.6
)%
 
(10
)%
All other (1)
 
26,200

 
25,000

 
1,200

 
4.8
 %
 
2
 %
Total (2)
 
392,700

 
379,300

 
13,400

 
3.5
 %
 
(1
)%

(1)
All other includes the shipments and depletions from our Square Mile brand family, as well as the previously non-owned AMB, Cisco Brewers, and Wynwood brand families, shipped by us pursuant to distribution agreements.
(2)
Total shipments by brand include international shipments and exclude shipments produced under our contract brewing arrangements.

The increases in our Kona brand shipments in the three and six -month periods ended June 30, 2019 compared to the same periods of 2018 were primarily led by continued demand for Big Wave Golden Ale.

The decreases in our Widmer Brothers brand shipments in the three and six -month periods ended June 30, 2019 compared to the same periods of 2018 were primarily due to decreases in Hefeweizen brand shipments.

Redhook brand shipments decreased in the three and six -month periods ended June 30, 2019 compared to the same periods of 2018 , primarily due to decreases in Longhammer IPA and ESB brand shipments, partially offset by increases in Big Ballard IPA shipments.


27
Index

Omission brand shipments decreased in the three and six -month periods ended June 30, 2019 compared to the same periods of 2018 , primarily due to decreases in shipments of Pale Ale, Lager and IPA brands, partially offset by increases in shipments of the Ultimate Light brand.

The increases in All other shipments in the three and six -month periods ended June 30, 2019 compared to the same periods of 2018 were primarily due to increases in shipments of our newly acquired Wynwood and AMB brands, partially offset by a decrease in shipments of Cisco Brewers brands.

Shipments by Package
The following table sets forth a comparison of our shipments by package, excluding shipments produced under our contract brewing arrangements (in barrels):
 
 
Three Months Ended June 30,
 
 
2019
 
2018
 
 
Shipments
 
% of Total
 
Shipments
 
% of Total
Draft
 
51,100

 
22.4
%
 
49,800

 
22.8
%
Packaged
 
177,200

 
77.6
%
 
168,900

 
77.2
%
Total
 
228,300

 
100.0
%
 
218,700

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
 
2019
 
2018
 
 
Shipments
 
% of Total
 
Shipments
 
% of Total
Draft
 
88,600

 
22.6
%
 
89,000

 
23.5
%
Packaged
 
304,100

 
77.4
%
 
290,300

 
76.5
%
Total
 
392,700

 
100.0
%
 
379,300

 
100.0
%

The package mix was relatively consistent in the three-month period ended June 30, 2019 compared to the same period of 2018 . The shift in package mix from draft to packaged in the six -month period ended June 30, 2019 compared to the same period of 2018 was primarily due to the continued competition for on-premise draft sales, as well as the continued success of our Kona brand family, which is more heavily weighted to packaged sales.

Cost of Sales
Cost of sales includes purchased raw and component materials, direct labor, overhead and shipping costs.

Information regarding Cost of sales was as follows (dollars in thousands):
 
Three Months Ended June 30,
 
Dollar
 
 
 
2019
 
2018
 
Change
 
% Change
Beer Related
$
31,817

 
$
33,780

 
$
(1,963
)
 
(5.8
)%
Brewpubs
5,455

 
5,916

 
(461
)
 
(7.8
)%
Total
$
37,272

 
$
39,696

 
$
(2,424
)
 
(6.1
)%
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
Dollar
 
 
 
2019
 
2018
 
Change
 
% Change
Beer Related
$
57,098

 
$
60,546

 
$
(3,448
)
 
(5.7
)%
Brewpubs
10,983

 
11,566

 
(583
)
 
(5.0
)%
Total
$
68,081

 
$
72,112

 
$
(4,031
)
 
(5.6
)%

The decreases in Beer Related Cost of sales in the three and six -month periods ended June 30, 2019 compared to the same periods of 2018 were primarily due to decreases in Beer Related Cost of sales on a per barrel basis. The decreases in our Beer Related Cost of sales on a per barrel basis were primarily due to cost savings related to no longer having alternating proprietorship material costs as a result of the acquisitions of the AMB, Cisco and Wynwood brands, as well as the lower cost of having a portion of our beer produced by A-B in its Fort Collins, Colorado brewery. These decreases were partially offset by increases in brewery costs due to higher fixed overhead related to our newly acquired breweries in Boone, North Carolina and Miami, Florida.
 

28
Index

The decreases in Brewpubs Cost of sales in the three and six -month periods ended June 30, 2019 compared to the same periods of 2018 were primarily due to the lease of our Portsmouth brewpub to the founders of Cisco and the closure of the Portland taproom, partially offset by costs related to our newly acquired AMB and Wynwood brewpub operations.

Capacity Utilization
Capacity utilization is calculated by dividing total shipments by approximate working capacity and was as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Capacity Utilization
65
%
 
67
%
 
56
%
 
59
%

Our capacity utilization declined in the three and six -month periods ended June 30, 2019 compared to the same periods of 2018 due to a larger percentage of our beer being brewed by ABCS as part of our contract brewing relationship and evolving brewery footprint.

Gross Profit
Information regarding Gross profit was as follows (dollars in thousands):
 
Three Months Ended June 30,
 
Dollar
 
 
 
2019
 
2018
 
Change
 
% Change
Beer Related
$
22,676

 
$
21,942

 
$
734

 
3.3
%
Brewpubs
611

 
185

 
426

 
230.3
%
Total
$
23,287

 
$
22,127

 
$
1,160

 
5.2
%
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
Dollar
 
 
 
2019
 
2018
 
Change
 
% Change
Beer Related
$
38,184

 
$
36,652

 
$
1,532

 
4.2
%
Brewpubs
1,286

 
546

 
740

 
135.5
%
Total
$
39,470

 
$
37,198

 
$
2,272

 
6.1
%

Gross profit as a percentage of Net sales, or gross margin, was as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Beer Related
41.6
%
 
39.4
%
 
40.1
%
 
37.7
%
Brewpubs
10.1
%
 
3.0
%
 
10.5
%
 
4.5
%
Overall
38.5
%
 
35.8
%
 
36.7
%
 
34.0
%
 
The increases in Beer Related Gross profit and gross margin in the three and six -month periods ended June 30, 2019 compared to the same periods of 2018 were primarily due to cost savings related to no longer having alternating proprietorship material costs, the lower costs related to having a portion of our beer produced by A-B in Fort Collins, as well as increases in shipment volume and unit pricing, partially offset by increases in brewery costs due to higher fixed overhead related to our newly acquired breweries in Boone, North Carolina and Miami, Florida.

The increases in Brewpubs Gross profit and gross margin in the three and six -month periods ended June 30, 2019 compared to the same periods of 2018 were primarily due to the net results of our newly acquired AMB and Wynwood brewpub operations, partially offset by declines in our Portsmouth brewpub, which is being leased to the founders of Cisco beginning in April 2019.


29
Index

Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A”) include compensation and related expenses for our sales and marketing activities, management, legal and other professional and administrative support functions.

Information regarding SG&A was as follows (dollars in thousands):
 
Three Months Ended
June 30,
 
Dollar
 
 
 
2019
 
2018
 
Change
 
% Change
Selling, general and administrative expenses
$
19,381

 
$
15,857

 
$
3,524

 
22.2
%
As a % of Net sales
32.0
%
 
25.6
%
 
 

 
 

 
 
 
 
 
 
 
 
 
Six Months Ended
June 30,
 
Dollar
 
 
 
2019
 
2018
 
Change
 
% Change
Selling, general and administrative expenses
$
44,946

 
$
30,605

 
$
14,341

 
46.9
%
As a % of Net sales
41.8
%
 
28.0
%
 
 
 
 

The increase in SG&A for the three-month period ended June 30, 2019 compared to the same period of 2018 was primarily due to increases in employee related costs, as well as creative and media spend related to our Kona marketing campaign, including our dear mainland commercials.

The increase in SG&A for the six-month period ended June 30, 2019 compared to the same period of 2018 was primarily due to an increase in creative and media spend related to our Kona marketing campaign, including our first national campaign during the NCAA's basketball tournament, March Madness, of $4.6 million, and a $4.7 million charge based on our current estimate of the probable costs of settling the litigation related to the Kona class action lawsuit, as well as increases in employee related costs. See Note 15 of Notes to Consolidated Financial Statements included in Part 1, Item 1 of this report.

Interest Expense
Information regarding Interest expense was as follows (dollars in thousands):
Three Months Ended
June 30,
 
Dollar
 
 
2019
 
2018
 
Change
 
% Change
$
504

 
$
107

 
$
397

 
371.0
%
 
 
 
 
 
 
 
Six Months Ended
June 30,
 
Dollar
 
 
2019
 
2018
 
Change
 
% Change
$
812

 
$
241

 
$
571

 
236.9
%

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Average debt outstanding
$50,595
 
$10,839
 
$47,439
 
$14,092
Average interest rate
3.94
%
 
3.37
%
 
3.37
%
 
2.86
%

The increases in Interest expense in the three and six -month periods ended June 30, 2019 compared to the same periods of 2018 were primarily due to increases in our average debt outstanding. The increases in our average debt outstanding were due to borrowing on our line of credit to facilitate the acquisitions that were completed in the three-month period ended December 31, 2018 and new secured borrowing pursuant to our Master Lease Agreement.

Income Tax Provision (Benefit)
Our effective income tax rate was 24.0% for the first six months of 2019 and 28.0% in the first six months of 2018 . The effective income tax rates reflect the impact of non-deductible expenses (primarily meals and entertainment expenses), state and local taxes and tax credits.

30
Index

Liquidity and Capital Resources

We have required capital primarily for the construction and development of our production breweries, to support our brewery footprint evolution, and to fund our working capital needs. Historically, we have financed our capital requirements through cash flows from operations, bank borrowings and the sale of common and preferred stock. We anticipate meeting our obligations for the twelve months beginning July 1, 2019 primarily from cash on hand, cash flows generated from operations and borrowing under our line of credit as the need arises. Capital resources available to us at June 30, 2019 included $0.5 million of Cash and cash equivalents and $7.0 million available under our revolving credit facility.

At June 30, 2019 and December 31, 2018 , we had $13.3 million and $13.7 million of working capital, respectively, and our debt as a percentage of total capitalization (total debt and common shareholders’ equity) was 28.6% and 25.8% , respectively.

A summary of our cash flow information was as follows (in thousands):
 
Six Months Ended
June 30,
 
2019
 
2018
Net cash provided by operating activities
$
4,120

 
$
8,457

Net cash provided by (used in) investing activities
(9,692
)
 
19,167

Net cash provided by (used in) financing activities
5,342

 
(22,425
)
Increase (decrease) in Cash, cash equivalents and restricted cash
$
(230
)
 
$
5,199


Cash provided by operating activities of $4.1 million in the first six months of 2019 resulted from our Net loss of $4.8 million , offset by net non-cash expenses of $5.4 million and changes in our operating assets and liabilities as discussed in more detail below.

Accounts receivable, net, increased $0.2 million to $30.2 million at June 30, 2019 compared to $30.0 million at December 31, 2018 . This increase was primarily due to a $2.3 million increase in our receivable from our non-AB customers, including our international distributor, partially offset by a net decrease of $2.1 million in our receivable from A-B and ABWI, which totaled $21.9 million at June 30, 2019 . Amounts due from ABWI related to the international distribution fee decreased by $6.0 million , partially offset by an increase of $3.9 million in our receivable from A-B. Historically, we have not had collection problems related to our accounts receivable.

Inventories increased $3.4 million to $20.6 million at June 30, 2019 compared to $17.2 million at December 31, 2018 . The increase was primarily due to an increase in finished goods of $2.7 million as a result of the timing of shipments in the fourth quarter of 2018 and second quarter of 2019, seasonality and the forecasted demand for our beer.

Accounts payable increased $1.9 million to $19.5 million at June 30, 2019 compared to $17.6 million at December 31, 2018 , primarily due to timing of payments of raw and component materials, marketing and capital expenditures.

Capital expenditures of $9.4 million in the first six months of 2019 were primarily directed to beer production capacity and efficiency improvements. As of June 30, 2019 , we had an additional $0.2 million of expenditures recorded in Accounts payable on our Consolidated Balance Sheets, compared to $3.1 million at December 31, 2018 . Beginning in 2015 through expected completion in early 2020, we are investing approximately $20 million in a new Kona brewery. We anticipate total capital expenditures of approximately $13.0 million to $17.0 million in 2019 primarily for our new Kona brewery and the addition of a new can line in our Portland brewery to address consumer demand.


31
Index

Credit Agreement
On October 10, 2018, we executed a First Amendment (the " First Amendment") to our Amended and Restated Credit Agreement with Bank of America, N.A. ("BofA") dated November 30, 2015 (as amended, the "Credit Agreement"). The Credit Agreement as amended by the First Amendment provides for a revolving line of credit (“Line of Credit”), including provisions for cash borrowings and up to $2.5 million notional amount of letters of credit, and a $10.8 million term loan (“Term Loan”). The primary changes effected by the First Amendment were to increase the maximum amount available under the Line of Credit from $40.0 million to $45.0 million and to extend the maturity date of the Line of Credit from November 30, 2020 to September 30, 2023, which is also the maturity date of the Term Loan. The maximum amount of the Line of Credit is subject to loan commitment reductions in the amount of $750,000 each quarter beginning March 31, 2020. The Amendment also increased the limit on the total amount of investments that we may make in other craft brewers, other than the acquisition of all or substantially all of the assets or controlling ownership interests, from $5.0 million to $10.0 million. We may draw upon the Line of Credit for working capital and general corporate purposes.

As of June 30, 2019 , we had $7.0 million in funds available to be drawn upon from our Line of Credit and $38.0 million of borrowings outstanding. At June 30, 2019 , $8.6 million was outstanding under the Term Loan.

Under the Credit Agreement as in effect at June 30, 2019 , interest accrues at an annual rate based on the London Inter-Bank Offered Rate (“LIBOR”) Daily Floating Rate plus a marginal rate. The marginal rate varies from 0.75% to 2.00% for the Line of Credit and Term Loan based on our funded debt ratio. At June 30, 2019 , our marginal rate was 2.00% , resulting in an annual interest rate of 3.69% .

Accrued interest for the Term Loan is due and payable monthly. Principal payments on the Term Loan are due monthly in accordance with an agreed-upon schedule set forth in the Credit Agreement, with any unpaid principal balance and unpaid accrued interest due and payable on September 30, 2023.

The Credit Agreement authorizes acquisitions within the same line of business as long as we remain in compliance with the financial covenants of the Credit Agreement and there is at least $5.0 million of availability remaining on the Line of Credit following the acquisition.

At June 30, 2019 , the Credit Agreement required us to satisfy the following financial covenants: (i) a Consolidated Leverage Ratio of up to 5.50 to 1.00 and (ii) a Fixed Charge Coverage Ratio of at least 1.20 to 1.00. Failure to maintain compliance with these covenants is an event of default and would give BofA the right to declare the entire outstanding loan balance immediately due and payable.

We were in compliance with all applicable contractual financial covenants of the Credit Agreement at June 30, 2019 . The financial covenants under the Credit Agreement are measured on a trailing four-quarter basis. EBITDA as defined in the Second Amendment is similar to Consolidated EBITDA but includes certain adjustments specified in the Second Amendment. We executed a Second Amendment to the Credit Agreement with BofA effective May 7, 2019 (the “Second Amendment”). The Second Amendment increased the permitted Leverage Ratio to a maximum of 5.50 to 1.00 for the period from January 1, 2019 through June 30, 2019. Beginning July 1, 2019, and each fiscal quarter thereafter, the maximum Consolidated Leverage Ratio will be 3.50 to 1.00 as long as A-B has not made a Qualifying Offer as defined in the International Distribution Agreement with an affiliate of A-B. If A-B makes a Qualifying Offer on or before August 23, 2019, beginning July 1, 2019 through March 31, 2020, the maximum Consolidated Leverage Ratio will be 4.75 to 1.00; and beginning April 1, 2020, and during each fiscal quarter thereafter, the maximum Leverage Ratio will be 3.50 to 1.00.

Secured Borrowing
On June 20, 2019 we executed an agreement with BofA, pursuant to our Master Lease Agreement, for $5.2 million in cash in exchange for a secured interest in our previously installed can line at our Portland brewing facility. The maturity date of the secured borrowing is June 21, 2026. We used the funds to pay down our Line of Credit.

See also Note 8 of Notes to Consolidated Financial Statements included in Part 1, Item 1 of this report.


32
Index

Critical Accounting Policies and Estimates

Our financial statements are based upon the selection and application of significant accounting policies that require management to make significant estimates and assumptions. Judgments and uncertainties affecting the application of these policies may result in materially different amounts being reported under different conditions or using different assumptions. Our estimates are based upon historical experience, market trends and financial forecasts and projections, and upon various other assumptions that management believes to be reasonable under the circumstances at various points in time. Actual results may differ, potentially significantly, from these estimates.

Our critical accounting policies, as described in our 2018 Annual Report on Form 10-K, relate to goodwill, indefinite-lived intangible assets, long-lived assets, refundable deposits on kegs, revenue recognition and deferred taxes. Other than as described in Notes 2 and 5 of Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q regarding accounting for leases, there have been no changes to our critical accounting policies since December 31, 2018 .

Seasonality

Our sales generally reflect a degree of seasonality, with the first and fourth quarters historically exhibiting low sales levels compared to the second and third quarters. Accordingly, our results for any particular quarter are not likely to be indicative of the results to be achieved for the full year.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

Recent Accounting Pronouncements

See Notes 2 and 5 of Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our reported market risks and risk management policies since the filing of our 2018 Annual Report on Form 10-K, which was filed with the SEC on March 6, 2019.

Item 4. Controls and Procedures

Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and our Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) under the Securities Exchange Act of 1934 (“Exchange Act”) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.While reasonable assurance is a high level of assurance, it does not mean absolute assurance. Disclosure controls and internal control over financial reporting cannot prevent or detect all errors, misstatements or fraud. In addition, the design of a control system must recognize that there are resource constraints, and the benefits associated with controls must be proportionate to their costs.

Changes in Internal Control Over Financial Reporting
During the second quarter of 2019 , there were no changes in our internal control over financial reporting identified in connection with the above evaluation required by Exchange Act Rule 13a-15 or 15d-15, except those disclosed below, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

33
Index


See Note 15 of Notes to Consolidated Financial Statements included in Part 1, Item 1 of this report.

Item 1A. Risk Factors

There have been no changes in our reported risk factors since the filing of our 2018 Annual Report on Form 10-K, which was filed with the SEC on March 6, 2019.


34
Index

Item 6. Exhibits

The following exhibits are filed herewith and this list is intended to constitute the exhibit index:
Employment Agreement between the Registrant and Edwin A. Smith, dated July 15, 2019.
Employment Agreement between the Registrant and Kenneth C. Kunze, dated July 16, 2019.
Employment Agreement between the Registrant and Derek Hahm, dated July 16, 2019.
Employee Noncompetition and Nonsolicitation Agreement between the Registrant and Derek Hahm, dated July 16, 2019.
Settlement Agreement dated May 23, 2019, between the Registrant and Theodore Broomfield and Simone Zimmer individually and on behalf of the Kona settlement class.
Form of Indemnification Agreement with each independent director of the Registrant.
Certification of Chief Executive Officer of Craft Brew Alliance, Inc. pursuant to Exchange Act Rule 13a-14(a)
Certification of Chief Financial Officer of Craft Brew Alliance, Inc. pursuant to Exchange Act Rule 13a-14(a)
Certification pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350
Press Release dated August 7, 2019
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document

* Furnished herewith




35
Index

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
CRAFT BREW ALLIANCE, INC.
 
 
 
 
 
August 7, 2019
By: 
/s/ Edwin A. Smith
 
 
 
Edwin A. Smith
 
 
 
Corporate Controller and
Principal Accounting Officer
 

36


EXHIBIT 10.1
CBALOGOA14.JPG
July 12, 2019

Ed Smith
Craft Brew Alliance, Inc.
929 North Russell Street
Portland, Oregon 97227
Re:     Employment Agreement
Dear Ed:
This letter amends and supersedes your employment letter dated June 29, 2016, and any prior formal or informal agreement regarding your employment by Craft Brew Alliance, Inc. (the "Company"), with the exception of any confidentiality, noncompetition, and/or nonsolicitation agreement(s) you have entered into with the Company.
This letter constitutes your Employment Agreement (this "Agreement") with the Company, effective July 1, 2019 (the "Effective Date"). You and the Company are collectively referred to in this Agreement as "the Parties" (or individually as a "Party"). This Agreement sets forth the terms and conditions of your continued employment with the Company as its Corporate Controller as of the Effective Date. Capitalized terms not otherwise defined in the body of this Agreement have the meanings set forth on Exhibit A.
1. Term
The term of this Agreement shall be three years, from the Effective Date through June 30, 2022 (the "Contract Term"), subject to Section 3 of this Agreement. In the event that the Company experiences a Change in Control Event, the Contract Term will extend to the later of (a) the first anniversary of the Change in Control Event or (b) the date set forth in the preceding sentence.
2.     Compensation and Benefits
2.1     Base Compensation
As of the Effective Date, your annual base salary rate is $164,864, subject to standard tax withholdings and other payroll deductions. Your base salary level will be reviewed periodically for adjustment in accordance with the Company’s policies and procedures.

-1-

    


2.2     Bonus Compensation
You will be eligible to participate in any bonus program or plans applicable to your job classification, as determined by the Compensation Committee of the Company’s Board of Directors or its delegee (the “Compensation Committee”).
2.3     Long-Term Incentive Compensation
You will also be eligible to participate in the Company's 2014 Stock Incentive Plan (or its successor), to the extent applicable to your job classification, as determined by the Compensation Committee.
2.4     Employee Benefits
You are eligible to participate in employee benefit programs made available to the Company's employees in your job classification.
3.     Termination & Severance
3.1     Termination During Contract Term
Except as provided in Section 3.2, in the event that (a) the Company terminates your employment effective on a date prior to or as of the end of the Contract Term for any reason other than Cause or (b) you terminate your employment prior to or as of the end of the Contract Term due to Good Reason, the Company will continue to pay you your then-current base salary for 6 months from your termination date (the "Severance Period"). The severance payments under this paragraph shall not exceed two times the lesser of (y) the sum of your annualized compensation based upon your annual salary in the year preceding the year in which your employment is terminated (adjusted for any increase during that year that was expected to continue indefinitely if your employment had not terminated) and (z) the applicable dollar limit under Section 401(a)(17) of the Internal Revenue Code of 1986, as amended (the "Code"), for the calendar year in which your employment is terminated.
In addition, if you become entitled to severance pay under the first paragraph of this Section 3.1, the Company will also make a lump sum payment to you within 45 days of your termination of employment in an amount equal to the amount necessary to pay your COBRA premiums for continuation of group health insurance coverage during the Severance Period based on such premiums in effect on the date of your termination.
3.2     Termination in Connection with a Change in Control Event.
In the event that (a) the Company experiences a Change in Control Event and (b) either (i) the Company terminates your employment effective on a date prior to the first anniversary of the Change in Control Event for any reason other than Cause or (ii) you terminate your employment prior to the first anniversary of the Change in Control Event due to Good Reason, and (c) in the case of a Change in Control Event described in Paragraph (c) of the definition of Change in Control Event, you represent and warrant that, as of the termination of your employment, you have not entered into any understanding or arrangement with the


-2-

    


acquiring individual or entity regarding future employment, the Company will (A) make a lump sum payment to you within 45 days of the termination of your employment equal to the sum of: (1) your then-current monthly base salary multiplied by 12; (2) an amount equal to the amount necessary to pay your COBRA premiums for continuation of group health insurance coverage for 12   months based on such premiums in effect on the date of your termination; and (3) your full target bonus amount (if any) for the year in which your termination of employment occurs and (B) effective immediately prior to your termination of employment: (x) fully vest all Restricted Stock Units; (y) fully vest all awards under any Company-wide incentive program (such as the Company’s Employee RSU Program); and (z) fully vest and cause to become immediately exercisable all outstanding stock options granted to you prior to the Change in Control Event. The payments and benefits under this Section 3.2 are in lieu of the benefits under Section 3.1, and in no event will you be paid benefits under both Sections 3.1 and 3.2.
Notwithstanding the foregoing, in the event that (A) the Company experiences a Change in Control Event described in Paragraph (c) of the definition of Change in Control Event and (B) prior to the date of payment under this Section 3.2 you accept a position with the acquirer of the Company's assets, which in any other Change in Control Event would not justify a termination for Good Reason under clause (b)(ii) of the preceding paragraph, all benefits under Sections 3.1 and 3.2 will be forfeited.
The Parties agree and acknowledge that their intent is that none of the benefits payable under this Section 3.2 shall constitute an "excess parachute payment" under Section 280G of the Code that would give rise to an excise tax under Section 4999 of the Code or a loss of deduction under Section 280G of the Code. To give effect to that intent, and notwithstanding any other provision of this Agreement to the contrary, the Parties specifically agree that the aggregate amount of the benefits payable to you or for your benefit that constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Code, under this Agreement or any other agreement or arrangement between you and the Company, shall not exceed 2.99 multiplied by your "base amount," as defined in Section 280G(b)(3) of the Code (the "Maximum Benefit Amount"). The Company shall make all calculations and determinations under this Section 3.2 (including application and interpretation of the Code and related regulatory, administrative and judicial authorities) in good faith, which calculations and determinations shall be binding on you absent manifest error. The Company shall provide you with a reasonable opportunity to review and comment on the Company's calculations. If at any time it is determined that the amount paid to you or for your benefit pursuant to this Agreement or any other agreement or arrangement between you and the Company exceeded the Maximum Benefit Amount, you shall immediately repay the excess to the Company, together with interest from the date of original payment to you at the discount rate applicable under Section 280G(d)(4) of the Code.
3.3     Termination at End of Contract Term
Following the Contract Term, if the Parties have not negotiated a replacement agreement or renewal of this Agreement, this Agreement shall terminate (except with respect to any obligations that expressly extend beyond termination) and employment may continue on an at-will basis with either Party free to end the employment relationship for any reason at any time, with or without Cause, Good Reason, or notice, and without severance obligations.




-3-

    


3.4     Release of Claims
The Company will require you to execute an appropriate general release of all claims that you may have relating to your employment with the Company and termination of your employment as a condition to your receipt of any severance payments or other benefits under this Agreement other than those required by law or provided to employees generally. If such general release of claims is not executed within 30 days following the date your employment with the Company is terminated, all severance payments and other benefits payable after such 30‑day period will be forfeited, and you agree to repay any severance payments, and the value of other benefits, paid to you during such period.
3.5     Competition During Severance Period
If, during the Severance Period, you become employed or associated with a brewing or other company that the Company determines, in its reasonable discretion, is a competitor of the Company or the portion of the Company's business relating to alcoholic beverages, your severance payments and benefits under Section 3.1 will terminate as of the effective date of such employment or association. The foregoing does not supersede or replace any provision of any noncompetition or nonsolicitation agreement between you and the Company, including without limitation the Employee Confidentiality and Nonsolicitation Agreement described in Section 4.
4.     Confidentiality and Nonsolicitation
You agree to execute and deliver the Employee Confidentiality and Nonsolicitation Agreement attached hereto as Exhibit B prior to the Effective Date.
5.     Code Section 409A
For purposes of this Agreement, a termination of your employment will be deemed to occur only when or if there has been a "separation from service" as such term is defined in Treasury Regulation Section 1.409A-1(h). The severance payments and other benefits under this Agreement are intended to be exempt from the requirements of Section 409A of the Code by reason of all payments under this Agreement being either "short-term deferrals" within the meaning of Treasury Regulation Section 1.409A-1(b)(4) or separation pay due to involuntary separation from service under Treasury Regulation Section 1.409A-1(b)(9)(iii). All provisions of this Agreement shall be interpreted in a manner consistent with preserving these exemptions.
6.     Severability
In the event that a court of competent jurisdiction determines that a provision of this Agreement is unenforceable or not fully enforceable, the Parties agree that this Agreement is severable and should be enforced to the full extent allowed by law to best effectuate the intentions of the Parties.







-4-

    


7.     Code of Conduct
By your signature below, you agree to comply with the Company's Code of Conduct and Ethics as in effect from time to time, and to be subject to the Company's policies and procedures in effect from time to time for employees of the Company.
We appreciate your continued efforts on behalf of the Company and look forward to having you as a member of our team for years to come.
Sincerely,
/s/Andrew J. Thomas
Andrew J. Thomas
Chief Executive Officer
Acknowledged and Agreed:
/s/ Edwin A Smith     Date: 7/15 , 2019
Ed Smith
Attachments:     Exhibit A (Definitions)
    Exhibit B (Employee Confidentiality and Nonsolicitation Agreement)
















-5-

    


EXHIBIT A
Definitions
1.    " Cause " shall mean that (a) you have engaged in conduct which has substantially and adversely impaired the interests of the Company, or would be likely to do so if you were to remain employed by the Company; (b) you have engaged in fraud, dishonesty or self-dealing relating to or arising out of your employment with the Company; (c) you have violated any criminal law relating to your employment or to the Company; (d) you have engaged in conduct which constitutes a material violation of a significant Company policy or the Company's Code of Conduct and Ethics as in effect from time to time, including, without limitation, violation of policies relating to discrimination, harassment, use of drugs and alcohol, and workplace violence; or (e) you have repeatedly refused to obey lawful directions of your supervisor.
2.    " Change in Control Event " shall mean the occurrence of any of the following events:
(a)    Any one person or entity, or more than one person or entity acting as a group (as defined in Treasury Regulation Section 1.409A-3), acquires ownership of stock of the Company that, together with stock previously held by the acquirer, constitutes more than 50 percent of the total fair market value or total voting power of the Company's stock. If any one person or entity, or more than one person or entity acting as a group, is considered to own more than 50 percent of the total fair market value or total voting power of the Company's stock, the acquisition of additional stock by the same person or entity or persons or entities acting as a group does not cause a Change in Control Event. An increase in the percentage of stock owned by any one person or entity, or persons or entities acting as a group, as a result of a transaction in which the Company acquires its stock in exchange for property, is treated as an acquisition of stock; or
(b)    A majority of the members of the Board is replaced during any 12‑month period by directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of appointment or election; or
(c)    Any one person or entity, or more than one person or entity acting as a group, acquires (or has acquired during the 12‑month period ending on the date of the most recent acquisition by that person or entity or persons or entities acting as a group) assets from the Company that have a total gross fair market value equal to at least 75 percent of the total gross fair market value of all the Company's assets immediately prior to the acquisition or acquisitions. Gross fair market value means the value of the Company's assets, or the value of the assets being disposed of, without regard to any liabilities associated with these assets.
In determining whether a Change in Control Event has occurred, the attribution rules under Section 318 of the Code will apply to determine stock ownership. The stock underlying a vested option is treated as owned by the individual who holds the vested option, and the stock underlying an unvested option is not treated as owned by the individual who holds the unvested option.







-1-




3.    " Good Reason " shall mean the occurrence of one or more of the following events without your consent: (a) a material reduction in your base compensation; (b) a material reduction in your authority, duties, or responsibilities as an employee of the Company; (c) a material reduction in the authority, duties, or responsibilities of the person or persons to whom you report; or (d) a relocation of your principal office to a location that is more than 100 miles from your current workplace; provided, however, that "good reason" shall only be deemed to have occurred if: (i) within 90 days after the initial existence of the circumstances constituting "Good Reason," you provide the Company with a written notice describing such circumstances; (ii) the Company fails to cure the circumstances within 30 days after the Company receives your notice; and (iii) you terminate your employment with the Company within 90 days of the date of your notice.





















-2-

    


EXHIBIT B

EMPLOYEE CONFIDENTIALITY AND NONSOLICITATION AGREEMENT

In consideration of and as a condition of the granting of employment with Craft Brew Alliance, Inc.("Company"), Employee agrees as follows:
1.
Covenant Not To Hire Or Solicit Other Employees . Subject to applicable state law requirements, Employee will not during Employee's employment and for a period of two (2) years after termination of Employee's employment employ in any business competitive with or otherwise similar to that of Company's any current employee of Company or any employee of Company whose employment with Company terminated within the previous thirty (30) days, nor will Employee otherwise solicit or induce or attempt to solicit or induce any current employee of Company to terminate his or her employment with Company for any reason.
2.
Confidentiality . Employee agrees, both during Employee's employment and after termination of Employee's employment, to protect and preserve as confidential and to not disclose to any person or entity or use any and all Confidential Information, as defined below, acquired during Employee's employment with Company. "Confidential Information" is defined as: financial information related to the operation of Company's business; all formulas, recipes, and procedures relating to the production of Company's products and all information related to such production; Company's unique marketing plans; and the preferences of Company's customers, but does not include information considered part of the public domain.
3.
No Violation of Other Obligations . I certify that my working for Company does not violate any contractual obligations I owe to any third party. I will not disclose to Company or use during my employment any trade secrets or other confidential information of any third party without that party's consent. I acknowledge that Company wishes me to abide strictly by the terms of valid and enforceable obligations I have to prior employers. I will inform my manager/supervisor whenever I believe a task I am to perform for Company could jeopardize my ability to abide by those obligations.
4.
Company Materials . All notes, files, data, disks, tapes, reference items, sketches, drawings, memoranda, records, and other materials in whatever form in any way relating to any of the information referred to in paragraph 2 above or otherwise to Company's business shall belong exclusively to Company. Employee agrees to immediately turn over to Company, without retaining any copies, all such materials in Employee's possession or under Employee's control at any time at the request of Company or, in any event, upon the termination of Employee's employment with Company for any reason.
5.
Work Made For Hire . All creative work, including but not limited to computer programs or models, templates, marketing plans, designs, graphics, techniques, processes, documentation, formulae, products, and technical information prepared or originated by Employee for Company at any time during Employee's employment with Company, constitutes work made for hire. All rights to this work, as well as enhancements and modifications to it, are owned by Company; and, in any event, Employee hereby assigns to Company all rights, title, and interest whether by way of copyright, trade secret, or otherwise, in all such work, whether or not subject to protection by copyright laws or other intellectual property laws. Employee shall take all actions reasonably requested by Company to vest ownership of such creative work in Company and to permit Company to obtain copyright, trademark, patent, or similar protection in its name.

-3-

    


6.
Accounting for Profits . If Employee violates any of the provisions of this Agreement, Company shall be entitled to an accounting and repayment of all profits, compensation, royalties, commissions, remunerations or benefits which Employee directly or indirectly shall have realized or may realize relating to, growing out of, or in connection with any such violation. Such remedy shall be in addition to and not in lieu of any injunctive relief or other rights or remedies to which Company is or may be entitled at law or in equity or otherwise under this Agreement.
7.
Injunctive Relief . Employee understands and agrees that Company shall suffer irreparable harm in the event that Employee breaches any the provisions of this Agreement and that monetary damages shall be inadequate to fully compensate Company for such breach. Accordingly, Employee agrees that, in the event of a breach or threatened breach by Employee of any of the provisions of this Agreement, Company, in addition to and not in lieu of any other rights, remedies or damages available to Company at law or in equity, shall be entitled to a temporary restraining order, preliminary injunction and permanent injunction in order to prevent or restrain any such breach or threatened breach by Employee, or by any or all of Employee's partners, co-venturers, employers, employees, servants, agents, representatives, and any and all persons directly or indirectly acting for, on behalf of or with Employee.
8.
Remedies in General . If Employee fails to abide by this Agreement or any provision of it, Company will be entitled to specific performance, including immediate issuance of a temporary restraining order or preliminary injunction enforcing this Agreement, and to judgment for damages caused by Employee's breach, and to any other remedies provided by applicable law. Subsequent employers shall have this covenant disclosed to them either by Employee or by Company at the discretion of Company. The provisions of this Agreement are in addition to and not in lieu of any rights or obligations of Company or Employee under any applicable statute, regulation, or common law.
9.
Attorney Fees . In the event this Agreement is placed in the hands of any attorney or in any action at law or in equity, administrative proceeding, or arbitration instituted to enforce or interpret the terms of this Agreement, including proceedings before any bankruptcy court of the United States, the prevailing party shall be entitled to recover from the other party reasonable attorneys fees, costs, and necessary disbursements at trial and on any appeal therefrom, in addition to any other relief to which such party may be entitled.
10.
Severability . If any provision, or portion thereof, in this Agreement is invalid or legally unenforceable, it shall be enforced to the extent possible, and all other provisions hereof shall remain in full force and effect.
11.
Waiver . The waiver by either the Company or Employee of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by either party and shall in no way affect the enforcement of all the other provisions of this Agreement.
12.
Survival . The terms of this Agreement survive the termination of Employee's employment.

        



-4-

    


EMPLOYEE CONFIDENTIALITY AND NONSOLICITATION AGREEMENT

In consideration of and as a condition of the granting of employment with Craft Brew Alliance, Inc. ("Company"), Employee agrees as follows:
1.
Covenant Not To Hire Or Solicit Other Employees . Subject to applicable state law requirements, Employee will not during Employee's employment and for a period of two (2) years after termination of Employee's employment employ in any business competitive with or otherwise similar to that of Company's any current employee of Company or any employee of Company whose employment with Company terminated within the previous thirty (30) days, nor will Employee otherwise solicit or induce or attempt to solicit or induce any current employee of Company to terminate his or her employment with Company for any reason.
2.
Confidentiality . Employee agrees, both during Employee's employment and after termination of Employee's employment, to protect and preserve as confidential and to not disclose to any person or entity or use any and all Confidential Information, as defined below, acquired during Employee's employment with Company. "Confidential Information" is defined as: financial information related to the operation of Company's business; all formulas, recipes, and procedures relating to the production of Company's products and all information related to such production; Company's unique marketing plans; and the preferences of Company's customers, but does not include information considered part of the public domain.
3.
No Violation of Other Obligations . I certify that my working for Company does not violate any contractual obligations I owe to any third party. I will not disclose to Company or use during my employment any trade secrets or other confidential information of any third party without that party's consent. I acknowledge that Company wishes me to abide strictly by the terms of valid and enforceable obligations I have to prior employers. I will inform my manager/supervisor whenever I believe a task I am to perform for Company could jeopardize my ability to abide by those obligations.
4.
Company Materials . All notes, files, data, disks, tapes, reference items, sketches, drawings, memoranda, records, and other materials in whatever form in any way relating to any of the information referred to in paragraph 2 above or otherwise to Company's business shall belong exclusively to Company. Employee agrees to immediately turn over to Company, without retaining any copies, all such materials in Employee's possession or under Employee's control at any time at the request of Company or, in any event, upon the termination of Employee's employment with Company for any reason.








Page 1 - EMPLOYEE CONFIDENTIALITY AND NONSOLICITATION AGREEMENT

    



5.
Work Made For Hire . All creative work, including but not limited to computer programs or models, templates, marketing plans, designs, graphics, techniques, processes, documentation, formulae, products, and technical information prepared or originated by Employee for Company at any time during Employee's employment with Company, constitutes work made for hire. All rights to this work, as well as enhancements and modifications to it, are owned by Company; and, in any event, Employee hereby assigns to Company all rights, title, and interest whether by way of copyright, trade secret, or otherwise, in all such work, whether or not subject to protection by copyright laws or other intellectual property laws. Employee shall take all actions reasonably requested by Company to vest ownership of such creative work in Company and to permit Company to obtain copyright, trademark, patent, or similar protection in its name.
6.
Accounting for Profits . If Employee violates any of the provisions of this Agreement, Company shall be entitled to an accounting and repayment of all profits, compensation, royalties, commissions, remunerations or benefits which Employee directly or indirectly shall have realized or may realize relating to, growing out of, or in connection with any such violation. Such remedy shall be in addition to and not in lieu of any injunctive relief or other rights or remedies to which Company is or may be entitled at law or in equity or otherwise under this Agreement.
7.
Injunctive Relief . Employee understands and agrees that Company shall suffer irreparable harm in the event that Employee breaches any the provisions of this Agreement and that monetary damages shall be inadequate to fully compensate Company for such breach. Accordingly, Employee agrees that, in the event of a breach or threatened breach by Employee of any of the provisions of this Agreement, Company, in addition to and not in lieu of any other rights, remedies or damages available to Company at law or in equity, shall be entitled to a temporary restraining order, preliminary injunction and permanent injunction in order to prevent or restrain any such breach or threatened breach by Employee, or by any or all of Employee's partners, co-venturers, employers, employees, servants, agents, representatives, and any and all persons directly or indirectly acting for, on behalf of or with Employee.
8.
Remedies in General . If Employee fails to abide by this Agreement or any provision of it, Company will be entitled to specific performance, including immediate issuance of a temporary restraining order or preliminary injunction enforcing this Agreement, and to judgment for damages caused by Employee's breach, and to any other remedies provided by applicable law. Subsequent employers shall have this covenant disclosed to them either by Employee or by Company at the discretion of Company. The provisions of this Agreement are in addition to and not in lieu of any rights or obligations of Company or Employee under any applicable statute, regulation, or common law.
9.
Attorney Fees . In the event this Agreement is placed in the hands of any attorney or in any action at law or in equity, administrative proceeding, or arbitration instituted to enforce or interpret the terms of this Agreement, including proceedings before any bankruptcy court of the United States, the prevailing party shall be entitled to recover from the other party reasonable attorneys fees, costs, and necessary disbursements at trial and on any appeal therefrom, in addition to any other relief to which such party may be entitled.




Page 2 - EMPLOYEE CONFIDENTIALITY AND NONSOLICITATION AGREEMENT

    


10.
Severability . If any provision, or portion thereof, in this Agreement is invalid or legally unenforceable, it shall be enforced to the extent possible, and all other provisions hereof shall remain in full force and effect.
11.
Waiver . The waiver by either the Company or Employee of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by either party and shall in no way affect the enforcement of all the other provisions of this Agreement.
12.
Survival . The terms of this Agreement survive the termination of Employee's employment.
13.
Acknowledgment . Employee acknowledges that Employee entered into this Agreement upon Employee's initial employment or a subsequent bona fide advancement with Company.


Dated:     7/15/19
EMPLOYEE: /s/ Edwin A. Smith












Page 3 - EMPLOYEE CONFIDENTIALITY AND NONSOLICITATION AGREEMENT

    


EXHIBIT 10.2
CBALOGOA15.JPG
July 12, 2019

Ken Kunze
Craft Brew Alliance, Inc.
929 North Russell Street
Portland, Oregon 97227
Re:     Employment Agreement
Dear Ken:
This letter amends and supersedes your employment letter dated July 1, 2016, and any prior formal or informal agreement regarding your employment by Craft Brew Alliance, Inc. (the "Company"), with the exception of any confidentiality, noncompetition, and/or nonsolicitation agreement(s) you have entered into with the Company.
This letter constitutes your Employment Agreement (this "Agreement") with the Company, effective July 1, 2019 (the "Effective Date"). You and the Company are collectively referred to in this Agreement as "the Parties" (or individually as a "Party"). This Agreement sets forth the terms and conditions of your continued employment with the Company as its Chief Marketing Officer as of the Effective Date. Capitalized terms not otherwise defined in the body of this Agreement have the meanings set forth on Exhibit A.
1. Term
The term of this Agreement shall be one year, from the Effective Date through June 30, 2020 (the "Contract Term"), subject to Section 3 of this Agreement. In the event that the Company experiences a Change in Control Event, the Contract Term will extend to the later of (a) the first anniversary of the Change in Control Event or (b) the date set forth in the preceding sentence.
2.     Compensation and Benefits
2.1     Base Compensation
As of the Effective Date, your annual base salary rate is $279,748, subject to standard tax withholdings and other payroll deductions. Your base salary level will be reviewed annually for adjustment by the Compensation Committee of the Company's Board of Directors (the "Board"), with salary adjustments, if any, generally made effective as of January 1st.

-1-





2.2     Short-Term Incentive Compensation
You will be eligible for short-term incentive ("STI") compensation under the Company's Annual Cash Incentive Plan. For 2019, your total STI target amount is $181,836. For subsequent years, the performance targets and STI target amounts will be determined annually by the Compensation Committee.
2.3     Long-Term Incentive Compensation
You will also be eligible to participate in the Company's 2014 Stock Incentive Plan (or its successor) as determined by the Compensation Committee.
2.4     Employee Benefits
You are eligible to participate in employee benefit programs made available to the Company's executive officers. You will receive paid time off consistent with the policies for executive officers of the Company.
3.     Termination & Severance
3.1     Termination During Contract Term
Except as provided in Section 3.2, in the event that (a) the Company terminates your employment effective on a date prior to or as of the end of the Contract Term for any reason other than Cause or (b) you terminate your employment prior to or as of the end of the Contract Term due to Good Reason, the Company will continue to pay you your then current base salary for 12 months from your termination date (the "Severance Period"). The severance payments under this paragraph shall not exceed two times the lesser of (y) the sum of your annualized compensation based upon your annual salary in the year preceding the year in which your employment is terminated (adjusted for any increase during that year that was expected to continue indefinitely if your employment had not terminated) and (z) the applicable dollar limit under Section 401(a)(17) of the Internal Revenue Code of 1986, as amended (the "Code"), for the calendar year in which your employment is terminated.
In addition, if you become entitled to severance pay under the first paragraph of this Section 3.1, the Company will also make a lump sum payment to you within 45 days of your termination of employment in an amount equal to the amount necessary to pay your COBRA premiums for continuation of group health insurance coverage during the Severance Period based on such premiums in effect on the date of your termination.
3.2     Termination in Connection with a Change in Control Event.
In the event that (a) the Company experiences a Change in Control Event and (b) either (i) the Company terminates your employment effective on a date prior to the first anniversary of the Change in Control Event for any reason other than Cause or (ii) you terminate your employment prior to the first anniversary of the Change in Control Event due to Good Reason, and (c) in the case of a Change in Control Event described in Paragraph (c) of the definition of Change in Control Event, you represent and warrant that, as of the termination of your employment, you have not entered into any understanding or arrangement with the




-2-

    



acquiring individual or entity regarding future employment, the Company will (A) make a lump sum payment to you within 45 days of the termination of your employment equal to the sum of: (1) your then current monthly base salary multiplied by 18; (2) an amount equal to the amount necessary to pay your COBRA premiums for continuation of group health insurance coverage for 18   months based on such premiums in effect on the date of your termination; and (3) your full target STI bonus amount for the year in which your termination of employment occurs and (B) effective immediately prior to your termination of employment: (x) fully vest all Restricted Stock Units; (y) fully vest and cause to become immediately exercisable all outstanding stock options granted to you prior to the Change in Control Event; and (z) pay out, within 45 days following your termination of employment, any applicable outstanding Performance Share Award based, as determined in the reasonable discretion of the Compensation Committee, on the pro rata portion of the performance period that has lapsed and the extent to which progress towards the applicable performance goals has been achieved; provided, however, that each outstanding Performance Share Award shall be treated as earned and vested at no less than 33% of the target amount. The payments and benefits under this Section 3.2 are in lieu of the benefits under Section 3.1, and in no event will you be paid benefits under both Sections 3.1 and 3.2.
Notwithstanding the foregoing, in the event that (A) the Company experiences a Change in Control Event described in Paragraph (c) of the definition of Change in Control Event and (B) prior to the date of payment under this Section 3.2 you accept a position with the acquirer of the Company's assets, which in any other Change in Control Event would not justify a termination for Good Reason under clause (b)(ii) of the preceding paragraph, all benefits under Sections 3.1 and 3.2 will be forfeited.
The Parties agree and acknowledge that their intent is that none of the benefits payable under this Section 3.2 shall constitute an "excess parachute payment" under Section 280G of the Code that would give rise to an excise tax under Section 4999 of the Code or a loss of deduction under Section 280G of the Code. To give effect to that intent, and notwithstanding any other provision of this Agreement to the contrary, the Parties specifically agree that the aggregate amount of the benefits payable to you or for your benefit that constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Code, under this Agreement or any other agreement or arrangement between you and the Company, shall not exceed 2.99 multiplied by your "base amount," as defined in Section 280G(b)(3) of the Code (the "Maximum Benefit Amount"). The Company shall make all calculations and determinations under this Section 3.2 (including application and interpretation of the Code and related regulatory, administrative and judicial authorities) in good faith, which calculations and determinations shall be binding on you absent manifest error. The Company shall provide you with a reasonable opportunity to review and comment on the Company's calculations. If at any time it is determined that the amount paid to you or for your benefit pursuant to this Agreement or any other agreement or arrangement between you and the Company exceeded the Maximum Benefit Amount, you shall immediately repay the excess to the Company, together with interest from the date of original payment to you at the discount rate applicable under Section 280G(d)(4) of the Code.
3.3     Termination at End of Contract Term
Following the Contract Term, if the Parties have not negotiated a replacement agreement or renewal of this Agreement, this Agreement shall terminate (except with respect to any obligations that expressly extend beyond termination) and employment may continue on an at-will basis with either Party free to end the employment relationship for any reason at any time, with or without Cause, Good Reason or notice, and without severance obligations.





-3-

    



3.4     Release of Claims
The Company will require you to execute an appropriate general release of all claims that you may have relating to your employment with the Company and termination of your employment as a condition to your receipt of any severance payments or other benefits under this Agreement other than those required by law or provided to employees generally. If such general release of claims is not executed within 30 days following the date your employment with the Company is terminated, all severance payments and other benefits payable after such 30‑day period will be forfeited, and you agree to repay any severance payments, and the value of other benefits, paid to you during such period.
3.5     Competition During Severance Period
If, during the Severance Period, you become employed or associated with a brewing or other company that the Company determines, in its reasonable discretion, is a competitor of the Company or the portion of the Company's business relating to alcoholic beverages, your severance payments and benefits under Section 3.1 will terminate as of the effective date of such employment or association. The foregoing does not supersede or replace any provision of any noncompetition agreement between you and the Company.
4.     Nonsolicitation and Confidentiality
You agree to execute and deliver the Employee Confidentiality and Nonsolicitation Agreement attached hereto as Exhibit B prior to the Effective Date.
5.     Code Section 409A
For purposes of this Agreement, a termination of your employment will be deemed to occur only when or if there has been a "separation from service" as such term is defined in Treasury Regulation Section 1.409A-1(h). The severance payments and other benefits under this Agreement are intended to be exempt from the requirements of Section 409A of the Code by reason of all payments under this Agreement being either "short-term deferrals" within the meaning of Treasury Regulation Section 1.409A-1(b)(4) or separation pay due to involuntary separation from service under Treasury Regulation Section 1.409A-1(b)(9)(iii). All provisions of this Agreement shall be interpreted in a manner consistent with preserving these exemptions.
6.     Severability
In the event that a court of competent jurisdiction determines that a provision of this Agreement is unenforceable or not fully enforceable, the Parties agree that this Agreement is severable and should be enforced to the full extent allowed by law to best effectuate the intentions of the Parties.












-4-

    



7.     Code of Conduct
By your signature below, you agree to comply with the Company's Code of Conduct and Ethics as in effect from time to time, and to be subject to the Company's policies and procedures in effect from time to time for senior executives of the Company.
We appreciate your continued efforts on behalf of the Company and look forward to having you as a member of our team for years to come.
Sincerely,
/s/ Andrew J. Thomas
Andrew J. Thomas
Chief Executive Officer
Acknowledged and Agreed:
/s/ Kenneth Kunze     Date: July 16 , 2019
Ken Kunze
Attachments:     Exhibit A (Definitions)
    Exhibit B (Employee Confidentiality and Nonsolicitation Agreement)














-5-

    



EXHIBIT A
Definitions
1.    " Cause " shall mean that (a) you have engaged in conduct which has substantially and adversely impaired the interests of the Company, or would be likely to do so if you were to remain employed by the Company; (b) you have engaged in fraud, dishonesty or self-dealing relating to or arising out of your employment with the Company; (c) you have violated any criminal law relating to your employment or to the Company; (d) you have engaged in conduct which constitutes a material violation of a significant Company policy or the Company's Code of Conduct and Ethics as in effect from time to time, including, without limitation, violation of policies relating to discrimination, harassment, use of drugs and alcohol and workplace violence; or (e) you have repeatedly refused to obey lawful directions of the Board.
2.    " Change in Control Event " shall mean the occurrence of any of the following events:
(a)    Any one person or entity, or more than one person or entity acting as a group (as defined in Treasury Regulation Section 1.409A-3), acquires ownership of stock of the Company that, together with stock previously held by the acquirer, constitutes more than 50 percent of the total fair market value or total voting power of the Company's stock. If any one person or entity, or more than one person or entity acting as a group, is considered to own more than 50 percent of the total fair market value or total voting power of the Company's stock, the acquisition of additional stock by the same person or entity or persons or entities acting as a group does not cause a Change in Control Event. An increase in the percentage of stock owned by any one person or entity, or persons or entities acting as a group, as a result of a transaction in which the Company acquires its stock in exchange for property, is treated as an acquisition of stock; or
(b)    A majority of the members of the Board is replaced during any 12‑month period by directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of appointment or election; or
(c)    Any one person or entity, or more than one person or entity acting as a group, acquires (or has acquired during the 12‑month period ending on the date of the most recent acquisition by that person or entity or persons or entities acting as a group) assets from the Company that have a total gross fair market value equal to at least 75 percent of the total gross fair market value of all the Company's assets immediately prior to the acquisition or acquisitions. Gross fair market value means the value of the Company's assets, or the value of the assets being disposed of, without regard to any liabilities associated with these assets.
In determining whether a Change in Control Event has occurred, the attribution rules under Section 318 of the Code will apply to determine stock ownership. The stock underlying a vested option is treated as owned by the individual who holds the vested option, and the stock underlying an unvested option is not treated as owned by the individual who holds the unvested option.






-1-






3.    " Good Reason " shall mean the occurrence of one or more of the following events without your consent: (a) a material reduction in your base compensation; (b) a material reduction in your authority, duties, or responsibilities as the Company's Chief Marketing Officer; (c) a material reduction in the authority, duties, or responsibilities of the person or persons to whom you report (including, if applicable, a requirement that you report to a Company officer or employee instead of reporting directly to the Board); or (d) a relocation of your principal office to a location that is more than 100 miles from Portland, Oregon; provided, however, that "good reason" shall only be deemed to have occurred if: (i) within 90 days after the initial existence of the circumstances constituting "Good Reason," you provide the Company with a written notice describing such circumstances; (ii) the Company fails to cure the circumstances within 30 days after the Company receives your notice; and (iii) you terminate your employment with the Company within 90 days of the date of your notice.




























-2-

    


EXHIBIT B

EMPLOYEE CONFIDENTIALITY AND NONSOLICITATION AGREEMENT

In consideration of and as a condition of the granting of employment with Craft Brew Alliance, Inc. ("Company"), Employee agrees as follows:

1.
Covenant Not To Hire Or Solicit Other Employees . Subject to applicable state law requirements, Employee will not during Employee's employment and for a period of two (2) years after termination of Employee's employment employ in any business competitive with or otherwise similar to that of Company's any current employee of Company or any employee of Company whose employment with Company terminated within the previous thirty (30) days, nor will Employee otherwise solicit or induce or attempt to solicit or induce any current employee of Company to terminate his or her employment with Company for any reason.
2.
Confidentiality . Employee agrees, both during Employee's employment and after termination of Employee's employment, to protect and preserve as confidential and to not disclose to any person or entity or use any and all Confidential Information, as defined below, acquired during Employee's employment with Company. "Confidential Information" is defined as: financial information related to the operation of Company's business; all formulas, recipes, and procedures relating to the production of Company's products and all information related to such production; Company's unique marketing plans; and the preferences of Company's customers, but does not include information considered part of the public domain.
3.
No Violation of Other Obligations . I certify that my working for Company does not violate any contractual obligations I owe to any third party. I will not disclose to Company or use during my employment any trade secrets or other confidential information of any third party without that party's consent. I acknowledge that Company wishes me to abide strictly by the terms of valid and enforceable obligations I have to prior employers. I will inform my manager/supervisor whenever I believe a task I am to perform for Company could jeopardize my ability to abide by those obligations.
4.
Company Materials . All notes, files, data, disks, tapes, reference items, sketches, drawings, memoranda, records, and other materials in whatever form in any way relating to any of the information referred to in paragraph 2 above or otherwise to Company's business shall belong exclusively to Company. Employee agrees to immediately turn over to Company, without retaining any copies, all such materials in Employee's possession or under Employee's control at any time at the request of Company or, in any event, upon the termination of Employee's employment with Company for any reason.
5.
Work Made For Hire . All creative work, including but not limited to computer programs or models, templates, marketing plans, designs, graphics, techniques, processes, documentation, formulae, products, and technical information prepared or originated by Employee for Company at any time during Employee's employment with Company, constitutes work made for hire. All rights to this work, as well as enhancements and modifications to it, are owned by Company; and, in any event, Employee hereby assigns to Company all rights, title, and interest whether by way of copyright, trade secret, or otherwise, in all such work, whether or not subject to protection by copyright laws or other intellectual property laws. Employee shall take all actions reasonably requested by Company to vest ownership of such creative work in Company and to permit Company to obtain copyright, trademark, patent, or similar protection in its name.


-3-





6.
Accounting for Profits . If Employee violates any of the provisions of this Agreement, Company shall be entitled to an accounting and repayment of all profits, compensation, royalties, commissions, remunerations or benefits which Employee directly or indirectly shall have realized or may realize relating to, growing out of, or in connection with any such violation. Such remedy shall be in addition to and not in lieu of any injunctive relief or other rights or remedies to which Company is or may be entitled at law or in equity or otherwise under this Agreement.

7.
Injunctive Relief . Employee understands and agrees that Company shall suffer irreparable harm in the event that Employee breaches any the provisions of this Agreement and that monetary damages shall be inadequate to fully compensate Company for such breach. Accordingly, Employee agrees that, in the event of a breach or threatened breach by Employee of any of the provisions of this Agreement, Company, in addition to and not in lieu of any other rights, remedies or damages available to Company at law or in equity, shall be entitled to a temporary restraining order, preliminary injunction and permanent injunction in order to prevent or restrain any such breach or threatened breach by Employee, or by any or all of Employee's partners, co-venturers, employers, employees, servants, agents, representatives, and any and all persons directly or indirectly acting for, on behalf of or with Employee.

8.
Remedies in General . If Employee fails to abide by this Agreement or any provision of it, Company will be entitled to specific performance, including immediate issuance of a temporary restraining order or preliminary injunction enforcing this Agreement, and to judgment for damages caused by Employee's breach, and to any other remedies provided by applicable law. Subsequent employers shall have this covenant disclosed to them either by Employee or by Company at the discretion of Company. The provisions of this Agreement are in addition to and not in lieu of any rights or obligations of Company or Employee under any applicable statute, regulation, or common law.
9.
Attorney Fees . In the event this Agreement is placed in the hands of any attorney or in any action at law or in equity, administrative proceeding, or arbitration instituted to enforce or interpret the terms of this Agreement, including proceedings before any bankruptcy court of the United States, the prevailing party shall be entitled to recover from the other party reasonable attorneys fees, costs, and necessary disbursements at trial and on any appeal therefrom, in addition to any other relief to which such party may be entitled.
10.
Severability . If any provision, or portion thereof, in this Agreement is invalid or legally unenforceable, it shall be enforced to the extent possible, and all other provisions hereof shall remain in full force and effect.
11.
Waiver . The waiver by either the Company or Employee of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by either party and shall in no way affect the enforcement of all the other provisions of this Agreement.
12.
Survival . The terms of this Agreement survive the termination of Employee's employment.








-4-

    


EMPLOYEE CONFIDENTIALITY AND NONSOLICITATION AGREEMENT
In consideration of and as a condition of the granting of employment with Craft Brew Alliance, Inc. ("Company"), Employee agrees as follows:
1.
Covenant Not To Hire Or Solicit Other Employees . Subject to applicable state law requirements, Employee will not during Employee's employment and for a period of two (2) years after termination of Employee's employment employ in any business competitive with or otherwise similar to that of Company's any current employee of Company or any employee of Company whose employment with Company terminated within the previous thirty (30) days, nor will Employee otherwise solicit or induce or attempt to solicit or induce any current employee of Company to terminate his or her employment with Company for any reason.

2.
Confidentiality . Employee agrees, both during Employee's employment and after termination of Employee's employment, to protect and preserve as confidential and to not disclose to any person or entity or use any and all Confidential Information, as defined below, acquired during Employee's employment with Company. "Confidential Information" is defined as: financial information related to the operation of Company's business; all formulas, recipes, and procedures relating to the production of Company's products and all information related to such production; Company's unique marketing plans; and the preferences of Company's customers but does not include information considered part of the public domain.

3.
No Violation of Other Obligations . I certify that my working for Company does not violate any contractual obligations I owe to any third party. I will not disclose to Company or use during my employment any trade secrets or other confidential information of any third party without that party's consent. I acknowledge that Company wishes me to abide strictly by the terms of valid and enforceable obligations I have to prior employers. I will inform my manager/supervisor whenever I believe a task I am to perform for Company could jeopardize my ability to abide by those obligations.

4.
Company Materials . All notes, files, data, disks, tapes, reference items, sketches, drawings, memoranda, records, and other materials in whatever form in any way relating to any of the information referred to in paragraph 2 above or otherwise to Company's business shall belong exclusively to Company. Employee agrees to immediately turn over to Company, without retaining any copies, all such materials in Employee's possession or under Employee's control at any time at the request of Company or, in any event, upon the termination of Employee's employment with Company for any reason.
















Page 1 - EMPLOYEE CONFIDENTIALITY AND NONSOLICITATION AGREEMENT

    


5.
Work Made For Hire . All creative work, including but not limited to computer programs or models, templates, marketing plans, designs, graphics, techniques, processes, documentation, formulae, products, and technical information prepared or originated by Employee for Company at any time during Employee's employment with Company, constitutes work made for hire. All rights to this work, as well as enhancements and modifications to it, are owned by Company; and, in any event, Employee hereby assigns to Company all rights, title, and interest whether by way of copyright, trade secret, or otherwise, in all such work, whether or not subject to protection by copyright laws or other intellectual property laws. Employee shall take all actions reasonably requested by Company to vest ownership of such creative work in Company and to permit Company to obtain copyright, trademark, patent, or similar protection in its name.

6.
Accounting for Profits . If Employee violates any of the provisions of this Agreement, Company shall be entitled to an accounting and repayment of all profits, compensation, royalties, commissions, remunerations or benefits which Employee directly or indirectly shall have realized or may realize relating to, growing out of, or in connection with any such violation. Such remedy shall be in addition to and not in lieu of any injunctive relief or other rights or remedies to which Company is or may be entitled at law or in equity or otherwise under this Agreement.

7.
Injunctive Relief . Employee understands and agrees that Company shall suffer irreparable harm in the event that Employee breaches any the provisions of this Agreement and that monetary damages shall be inadequate to fully compensate Company for such breach. Accordingly, Employee agrees that, in the event of a breach or threatened breach by Employee of any of the provisions of this Agreement, Company, in addition to and not in lieu of any other rights, remedies or damages available to Company at law or in equity, shall be entitled to a temporary restraining order, preliminary injunction and permanent injunction in order to prevent or restrain any such breach or threatened breach by Employee, or by any or all of Employee's partners, co-venturers, employers, employees, servants, agents, representatives, and any and all persons directly or indirectly acting for, on behalf of or with Employee.

8.
Remedies in General . If Employee fails to abide by this Agreement or any provision of it, Company will be entitled to specific performance, including immediate issuance of a temporary restraining order or preliminary injunction enforcing this Agreement, and to judgment for damages caused by Employee's breach, and to any other remedies provided by applicable law. Subsequent employers shall have this covenant disclosed to them either by Employee or by Company at the discretion of Company. The provisions of this Agreement are in addition to and not in lieu of any rights or obligations of Company or Employee under any applicable statute, regulation, or common law.

9.
Attorney Fees . In the event this Agreement is placed in the hands of any attorney or in any action at law or in equity, administrative proceeding, or arbitration instituted to enforce or interpret the terms of this Agreement, including proceedings before any bankruptcy court of the United States, the prevailing party shall be entitled to recover from the other party reasonable attorneys fees, costs, and necessary disbursements at trial and on any appeal therefrom, in addition to any other relief to which such party may be entitled.










Page 2 - EMPLOYEE CONFIDENTIALITY AND NONSOLICITATION AGREEMENT

    


10.
Severability . If any provision, or portion thereof, in this Agreement is invalid or legally unenforceable, it shall be enforced to the extent possible, and all other provisions hereof shall remain in full force and effect.

11.
Waiver . The waiver by either the Company or Employee of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by either party and shall in no way affect the enforcement of all the other provisions of this Agreement.

12.
Survival . The terms of this Agreement survive the termination of Employee's employment.

13.
Acknowledgment . Employee acknowledges that Employee entered into this Agreement upon Employee's initial employment or a subsequent bona fide advancement with Company.

Dated:     July 16,2019
EMPLOYEE: /s/ Kenneth Kunze


















Page 3 - EMPLOYEE CONFIDENTIALITY AND NONSOLICITATION AGREEMENT

    


EXHIBIT 10.3
CBALOGOA16.JPG
July 12, 2019

Derek Hahm
Craft Brew Alliance, Inc.
929 North Russell Street
Portland, Oregon 97227
Re:     Employment Agreement
Dear Derek:
This letter amends and supersedes your employment letter dated June 28, 2016, and any prior formal or informal agreement regarding your employment by Craft Brew Alliance, Inc. (the "Company"), with the exception of any confidentiality, noncompetition, and/or nonsolicitation agreement(s) you have entered into with the Company.
This letter constitutes your Employment Agreement (this "Agreement") with the Company, effective July 1, 2019 (the "Effective Date"). You and the Company are collectively referred to in this Agreement as "the Parties" (or individually as a "Party"). This Agreement sets forth the terms and conditions of your continued employment with the Company as its Chief Commercial Officer as of the Effective Date. Capitalized terms not otherwise defined in the body of this Agreement have the meanings set forth on Exhibit A.
1. Term
The term of this Agreement shall commence on the Effective Date and end on December 31, 2021 (the "Contract Term"), subject to Section 3 of this Agreement. In the event that the Company experiences a Change in Control Event, the Contract Term will extend to the later of (a) the first anniversary of the Change in Control Event or (b) the date set forth in the preceding sentence. In the event of a termination by either Party without Cause or Good Reason on or before the end of the Contract Term, the terminating Party shall provide the other Party with at least 60 days' written notice of termination.
2.     Compensation and Benefits
2.1     Base Compensation
As of the Effective Date, your annual base salary rate is $234,943, subject to standard tax withholdings and other payroll deductions. Your base salary level will be reviewed annually for adjustment by the Compensation Committee of the Company's Board of Directors (the "Board"), with salary adjustments, if any, generally made effective as of January 1st.

-1-





2.2     Short-Term Incentive Compensation
You will be eligible for short-term incentive ("STI") compensation under the Company's Annual Cash Incentive Plan. For 2019, your total STI target amount is $234,943. For subsequent years, the performance targets and STI target amounts will be determined annually by the Compensation Committee.
2.3     Long-Term Incentive Compensation
You will also be eligible to participate in the Company's 2014 Stock Incentive Plan (or its successor) as determined by the Compensation Committee.
2.4     Employee Benefits
You are eligible to participate in employee benefit programs made available to the Company's executive officers. You will receive paid time off consistent with the policies for executive officers of the Company.
3.     Termination & Severance
3.1     Termination During Contract Term
Except as provided in Section 3.2, in the event that (a) the Company terminates your employment effective on a date prior to or as of the end of the Contract Term for any reason other than Cause or (b) you terminate your employment prior to or as of the end of the Contract Term due to Good Reason, the Company will continue to pay you your then current base salary for 12 months from your termination date (the "Severance Period"). The severance payments under this paragraph shall not exceed two times the lesser of (y) the sum of your annualized compensation based upon your annual salary in the year preceding the year in which your employment is terminated (adjusted for any increase during that year that was expected to continue indefinitely if your employment had not terminated) and (z) the applicable dollar limit under Section 401(a)(17) of the Internal Revenue Code of 1986, as amended (the "Code"), for the calendar year in which your employment is terminated.
In addition, if you become entitled to severance pay under the first paragraph of this Section 3.1, the Company will also make a lump sum payment to you within 45 days of your termination of employment in an amount equal to the amount necessary to pay your COBRA premiums for continuation of group health insurance coverage during the Severance Period based on such premiums in effect on the date of your termination.
3.2     Termination in Connection with a Change in Control Event.
In the event that (a) the Company experiences a Change in Control Event and (b) either (i) the Company terminates your employment effective on a date prior to the first anniversary of the Change in Control Event for any reason other than Cause or (ii) you terminate your employment prior to the first anniversary of the Change in Control Event due to Good Reason, and (c) in the case of a Change in Control Event described in Paragraph (c) of the definition of Change in Control Event, you represent and warrant that, as of the termination of your employment, you have not entered into any understanding or arrangement with the



-2-





acquiring individual or entity regarding future employment, the Company will (A) make a lump sum payment to you within 45 days of the termination of your employment equal to the sum of: (1) your then current monthly base salary multiplied by 18; (2) an amount equal to the amount necessary to pay your COBRA premiums for continuation of group health insurance coverage for 18   months based on such premiums in effect on the date of your termination; and (3) your full target STI bonus amount for the year in which your termination of employment occurs and (B) effective immediately prior to your termination of employment: (x) fully vest all Restricted Stock Units; (y) fully vest and cause to become immediately exercisable all outstanding stock options granted to you prior to the Change in Control Event; and (z) pay out, within 45 days following your termination of employment, any applicable outstanding Performance Share Award based, as determined in the reasonable discretion of the Compensation Committee, on the pro rata portion of the performance period that has lapsed and the extent to which progress towards the applicable performance goals has been achieved; provided, however, that each outstanding Performance Share Award shall be treated as earned and vested at no less than 33% of the target amount. The payments and benefits under this Section 3.2 are in lieu of the benefits under Section 3.1, and in no event will you be paid benefits under both Sections 3.1 and 3.2.
Notwithstanding the foregoing, in the event that (A) the Company experiences a Change in Control Event described in Paragraph (c) of the definition of Change in Control Event and (B) prior to the date of payment under this Section 3.2 you accept a position with the acquirer of the Company's assets, which in any other Change in Control Event would not justify a termination for Good Reason under clause (b)(ii) of the preceding paragraph, all benefits under Sections 3.1 and 3.2 will be forfeited.
The Parties agree and acknowledge that their intent is that none of the benefits payable under this Section 3.2 shall constitute an "excess parachute payment" under Section 280G of the Code that would give rise to an excise tax under Section 4999 of the Code or a loss of deduction under Section 280G of the Code. To give effect to that intent, and notwithstanding any other provision of this Agreement to the contrary, the Parties specifically agree that the aggregate amount of the benefits payable to you or for your benefit that constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Code, under this Agreement or any other agreement or arrangement between you and the Company, shall not exceed 2.99 multiplied by your "base amount," as defined in Section 280G(b)(3) of the Code (the "Maximum Benefit Amount"). The Company shall make all calculations and determinations under this Section 3.2 (including application and interpretation of the Code and related regulatory, administrative and judicial authorities) in good faith, which calculations and determinations shall be binding on you absent manifest error. The Company shall provide you with a reasonable opportunity to review and comment on the Company's calculations. If at any time it is determined that the amount paid to you or for your benefit pursuant to this Agreement or any other agreement or arrangement between you and the Company exceeded the Maximum Benefit Amount, you shall immediately repay the excess to the Company, together with interest from the date of original payment to you at the discount rate applicable under Section 280G(d)(4) of the Code.







-3-





3.3     Termination at End of Contract Term
Following the Contract Term, if the Parties have not negotiated a replacement agreement or renewal of this Agreement, this Agreement shall terminate (except with respect to any obligations that expressly extend beyond termination) and employment may continue on an at-will basis with either Party free to end the employment relationship for any reason at any time, with or without Cause, Good Reason or notice, and without severance obligations.

3.4     Release of Claims
The Company will require you to execute an appropriate general release of all claims that you may have relating to your employment with the Company and termination of your employment as a condition to your receipt of any severance payments or other benefits under this Agreement other than those required by law or provided to employees generally. If such general release of claims is not executed within 30 days following the date your employment with the Company is terminated, all severance payments and other benefits payable after such 30‑day period will be forfeited, and you agree to repay any severance payments, and the value of other benefits, paid to you during such period.

3.5     Competition During Severance Period
If, during the Severance Period, you become employed or associated with a brewing or other company that the Company determines, in its reasonable discretion, is a competitor of the Company or the portion of the Company's business relating to alcoholic beverages, your severance payments and benefits under Section 3.1 will terminate as of the effective date of such employment or association. The foregoing does not supersede or replace any provision of any noncompetition agreement between you and the Company, including without limitation the Employee Noncompetition and Nonsolicitation Agreement described in Section 4.
4.     Noncompetition and Nonsolicitation
You agree to execute and deliver the Employee Noncompetition and Nonsolicitation Agreement attached hereto as Exhibit B prior to the Effective Date. If you fail to execute and deliver the Employee Noncompetition and Nonsolicitation Agreement prior to the Effective Date, this Agreement will be void ab initio .
5.     Nondisclosure
At all times during and after your employment with the Company, you agree that you will not use or disclose any Confidential Information for any purpose, except for the purpose of benefiting the Company consistent with the Company's instructions or intentions during the course of your employment. For purposes of this Agreement, "Confidential Information" shall be broadly construed to mean all of the Company's proprietary or non-public business information and all trade secrets. You agree to use the highest degree of care in safeguarding Confidential Information against loss, theft, inadvertent disclosure or unauthorized access or use. In the event that you receive notice at any time of any legal obligation to disclose any Confidential Information, you agree to notify the Company immediately in order to provide the Company with an opportunity to protect its interests. You further agree that you will deliver to the Company immediately upon termination of employment or at any time upon the Company's request, all Confidential Information, whether or not written, produced or compiled by you and that you will not maintain access to or possession of Confidential Information following termination of your employment at the Company. This nondisclosure obligation and this Agreement supplement, and do not supersede, any other confidentiality agreement you have entered into at any time with the Company.

-4-





6.     Signing and Retention Bonuses
On the Effective Date (or the first business day thereafter following your execution of the Employee Noncompetition and Nonsolicitation Agreement described in Section 4 above), you will receive a signing bonus of $28,193. If you remain employed with Company under this Agreement as of the respective dates listed, you will be entitled to retention bonuses as follows: (i) on March 31, 2020, a cash payment equal to 20% of the total STI award paid to Employee under the Company’s Annual Cash Incentive Plan for 2019; provided that such payment will not be more than 12% or less than 7.2% of the target STI award for 2019; (ii) on March 31, 2021, 30% of the total STI award paid to Employee for 2020; provided that such payment will not be more than 18% or less than 10.8% of the target STI award for 2020; and on March 31, 2022, 50% of the total STI award paid to Employee for 2021; provided that such payment will not be more than 30% or less than 18% of the target STI award for 2021. If you fail, for any reason, to remain employed with Company through the dates specified, you will not be entitled to the respective retention bonus(es).
7.     Code Section 409A
For purposes of this Agreement, a termination of your employment will be deemed to occur only when or if there has been a "separation from service" as such term is defined in Treasury Regulation Section 1.409A-1(h). The severance payments and other benefits under this Agreement are intended to be exempt from the requirements of Section 409A of the Code by reason of all payments under this Agreement being either "short-term deferrals" within the meaning of Treasury Regulation Section 1.409A-1(b)(4) or separation pay due to involuntary separation from service under Treasury Regulation Section 1.409A-1(b)(9)(iii). All provisions of this Agreement shall be interpreted in a manner consistent with preserving these exemptions.
8.     Severability
In the event that a court of competent jurisdiction determines that a provision of this Agreement is unenforceable or not fully enforceable, the Parties agree that this Agreement is severable and should be enforced to the full extent allowed by law to best effectuate the intentions of the Parties.
9.     Code of Conduct
By your signature below, you agree to comply with the Company's Code of Conduct and Ethics as in effect from time to time, and to be subject to the Company's policies and procedures in effect from time to time for senior executives of the Company.








-5-





We appreciate your continued efforts on behalf of the Company and look forward to having you as a member of our team for years to come.
Sincerely,


/s/Andrew J. Thomas
Andrew J. Thomas
Chief Executive Officer
Acknowledged and Agreed:


/s/ Derek Hahm     Date: July 16 , 2019
Derek Hahm

Attachments: Exhibit A (Definitions)
     Exhibit B (Employee Noncompetition and Nonsolicitation Agreement)



















-6-





EXHIBIT A
Definitions
1.    " Cause " shall mean that (a) you have engaged in conduct which has substantially and adversely impaired the interests of the Company, or would be likely to do so if you were to remain employed by the Company; (b) you have engaged in fraud, dishonesty or self-dealing relating to or arising out of your employment with the Company; (c) you have violated any criminal law relating to your employment or to the Company; (d) you have engaged in conduct which constitutes a material violation of a significant Company policy or the Company's Code of Conduct and Ethics as in effect from time to time, including, without limitation, violation of policies relating to discrimination, harassment, use of drugs and alcohol and workplace violence; or (e) you have repeatedly refused to obey lawful directions of the Board.
2.    " Change in Control Event " shall mean the occurrence of any of the following events:
(a)    Any one person or entity, or more than one person or entity acting as a group (as defined in Treasury Regulation Section 1.409A-3), acquires ownership of stock of the Company that, together with stock previously held by the acquirer, constitutes more than 50 percent of the total fair market value or total voting power of the Company's stock. If any one person or entity, or more than one person or entity acting as a group, is considered to own more than 50 percent of the total fair market value or total voting power of the Company's stock, the acquisition of additional stock by the same person or entity or persons or entities acting as a group does not cause a Change in Control Event. An increase in the percentage of stock owned by any one person or entity, or persons or entities acting as a group, as a result of a transaction in which the Company acquires its stock in exchange for property, is treated as an acquisition of stock; or
(b)    A majority of the members of the Board is replaced during any 12‑month period by directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of appointment or election; or
(c)    Any one person or entity, or more than one person or entity acting as a group, acquires (or has acquired during the 12‑month period ending on the date of the most recent acquisition by that person or entity or persons or entities acting as a group) assets from the Company that have a total gross fair market value equal to at least 75 percent of the total gross fair market value of all the Company's assets immediately prior to the acquisition or acquisitions. Gross fair market value means the value of the Company's assets, or the value of the assets being disposed of, without regard to any liabilities associated with these assets.
In determining whether a Change in Control Event has occurred, the attribution rules under Section 318 of the Code will apply to determine stock ownership. The stock underlying a vested option is treated as owned by the individual who holds the vested option, and the stock underlying an unvested option is not treated as owned by the individual who holds the unvested option.




-1-





3.    " Good Reason " shall mean the occurrence of one or more of the following events without your consent: (a) a material reduction in your base compensation; (b) a material reduction in your authority, duties, or responsibilities as the Company's Chief Commercial Officer; (c) a material reduction in the authority, duties, or responsibilities of the person or persons to whom you report (including, if applicable, a requirement that you report to a Company officer or employee instead of reporting directly to the Board); or (d) a relocation of your principal office to a location that is more than 100 miles from Portland, Oregon; provided, however, that "good reason" shall only be deemed to have occurred if: (i) within 90 days after the initial existence of the circumstances constituting "Good Reason," you provide the Company with a written notice describing such circumstances; (ii) the Company fails to cure the circumstances within 30 days after the Company receives your notice; and (iii) you terminate your employment with the Company within 90 days of the date of your notice.




















-2-

    


Exhibit B
Employee Noncompetition and Nonsolicitation Agreement
























-3-

    

EXHIBIT 10.4
EMPLOYEE NONCOMPETITION AND NONSOLICITATION AGREEMENT
This NONCOMPETITION AND NONSOLICITATION AGREEMENT (“ Agreement ”) is made as of the 1st day of July, 2019, by and among Craft Brew Alliance, Inc. (the “ Company ”) and Derek Hahm (the “ Employee ”).
WHEREAS, as Chief Commercial Officer of the Company, the Employee has and will have access to significant and increased knowledge and experience in the Company’s business and intimate knowledge of its customers, processes, trade secrets and/or other business information; and
WHEREAS, the Company needs to protect its commercial good will, intellectual property, and other assets; and
WHEREAS, the parties are entering this Agreement upon Employee’s bona fide advancement in his position, which is Employee’s promotion to Chief Commercial Officer, resulting in increased authority, duties, and responsibilities; and
WHEREAS, the Company and the Employee are entering into an Employment Agreement of even date herewith (the “Employment Agreement”) that has a term expiring on December 31, 2021, and provides for increased compensation, including enhanced base compensation, a signing bonus, a retention bonus, and additional compensation payable under specified circumstances following termination of employment, in each case as described therein; and
WHEREAS, the effectiveness the Employment Agreement is conditioned upon the execution of this Agreement by Employee;
NOW, THEREFORE, in consideration of the foregoing, the agreements set forth below, the parties’ desire to preserve the value inherent in the Company for their mutual benefit, and for other valuable consideration, including but not limited to the Employee’s continued employment by the Company and his bona fide advancement as described above, the Employee, intending to be legally bound hereby, agrees with the Company as follows:
1.     Definitions .
“ Competing Business ” shall mean any brewing or other company that the Company determines, in its reasonable discretion, is a competitor of the Company or the portion of the Company’s business relating to alcoholic beverages.
“ Person ” shall mean an individual, partnership, corporation, limited liability company, limited liability partnership, association, trust, joint venture, unincorporated organization and any government, governmental department or agency or political subdivision thereof.
“ Protected Territory ” shall mean the United States of America.

Page 1 of 4    


2.     At-Will Employment . Notwithstanding anything contained in this Agreement, the Employee’s employment by the Company is “at will,” meaning that either the Employee or the Company may terminate the employment relationship at any time, with or without notice, and for any reason or no reason.
3.     Noncompetition . During the period of the Employee’s employment by the Company through the end of Employee’s employment for any reason, and for a period of twelve (12) months following the termination of Employee’s employment by the Company, Employee agrees that Employee will not, singly, jointly, or as a partner, member, employee, agent, officer, director, stockholder (except as a holder of not more than five percent of any class of stock listed on a national securities exchange, or actively traded in a national over-the-counter market), consultant, independent contractor, or joint venturer of any other Person, or in any other capacity, directly or beneficially own, manage, operate, join, control, or participate in the ownership, management, operation or control of, or authorize the use of his name by, or work for, or provide consulting, financial or other assistance to, or provide any beneficial services of any kind to, or be connected in any manner with, a Competing Business within the Protected Territory.
4.     Nonsolicitation . During the period of the Employee’s employment by the Company through the end of Employee’s employment for any reason, and for a period of twelve (12) months following the termination of Employee’s employment by the Company, Employee agrees not to:
(a)    employ, retain or engage (as an employee, consultant, or independent contractor), or induce or attempt to induce to be employed, retained or engaged, any Person who is or was during the term of the Employee’s employment with the Company, and for a period of one year thereafter, an employee, consultant or independent contractor of the Company;
(b)    induce or attempt to induce any Person who is or was during the term of the Employee’s employment with the Company, and for a period of one year thereafter, an employee, consultant, or independent contractor of the Company, to terminate such Person’s employment or other relationship with the Company; or
(c)    induce or attempt to induce any Person who is or was during the term of the Employee’s employment with the Company, and for a period of one year thereafter, a customer or client of the Company, or who otherwise is a contracting party with the Company, to terminate such Person’s relationship with the Company or to do business with any Competing Business.
5.     Representations . Employee hereby represents that his at-will employment with the Company and his performance of all the terms of this Agreement will not result in a breach of any agreement with a third party, including the breach of any agreement to keep in confidence proprietary information acquired by the Employee prior to his employment by the Company or to refrain from competing with any third party. Employee represents that he has not entered into, and agrees he will not enter into, any oral or written agreement in conflict with this Agreement.
6.     Survival . The Employee’s obligations under this Agreement shall survive the termination of the Employee’s employment with the Company regardless of the manner of, or

Page 2 of 4     


circumstances surrounding, such termination, and shall be binding upon the Employee’s heirs, executors, administrators and legal representatives.
7.     Equitable Remedies . The Employee agrees that the restrictions imposed on Employee in this Agreement are reasonable given the highly competitive nature of the Company’s business and that a breach of any of the provisions of this Agreement by the Employee will cause irreparable harm to the Company, and that in the event of such breach the Company shall have, in addition to any and all remedies at law, the right to an injunction, specific performance or other equitable relief to prevent the violation of the Employee’s obligations hereunder, and that the Company need not post any bond as a condition of seeking any such injunction, specific performance, or any other equitable relief.
8.     Waivers and Amendments . The respective rights and obligations of the Company and the Employee under this Agreement may be waived (either generally or in a particular instance, either retroactively or prospectively, and either for a specified period of time or indefinitely) or amended only with the written consent of the Employee and a duly authorized representative of the Company.
9.     Successors and Assigns . The Company shall have the right to assign the benefits of this Agreement to any entity that acquires the Company’s business whether by merger, purchase of capital stock or purchase of all or substantially all of the assets of the Company.
10.     Notification of New Employer . In the event that the Employee’s employment is terminated (either by the Employee or the Company), the Employee hereby authorizes the Company to notify the Employee’s new employer regarding the Employee’s rights and obligations under this Agreement, and any other agreement by which the Employee is bound.
11.     Entire Agreement . This Agreement constitutes the full and entire understanding and agreement of the parties with regard to the subjects hereof and supersedes in their entirety all other or prior agreements, whether oral or written, with respect thereto. Notwithstanding the foregoing, this Agreement shall not be interpreted as superseding or replacing any provision of the Employee’s employment letter agreement with the Company, including without limitation any provision terminating severance benefits in the event of competition by the Employee.
12.     Partial Invalidity/Severability . The Company and the Employee agree that the covenants set forth in this Agreement shall be enforced to the fullest extent permitted by law. Accordingly if any court or arbitrator shall determine that such covenant is unenforceable for any reason, including, without limitation, because it covers too extensive a geographical area or survives too long a period of time, then the parties intend that such covenant shall be deemed to cover only such maximum geographical area and maximum period of time, if applicable, and/or shall otherwise be deemed to be limited in such manner, as will permit enforceability by such court or arbitrator. In the event that any one or more of such covenants shall, either by itself or together with other covenants, be adjudged to go beyond what is reasonable in all the circumstances for the protection of the interests of the Company and its shareholders, but would be adjudged reasonable if any particular covenant or covenants or parts thereof were deleted, restricted, or limited in a particular manner, then the said covenants shall apply with such deletions, restrictions, or limitations, as the

Page 3 of 4     


case may be. The Company and the Employee further agree that the covenants set forth in this Agreement are reasonable in all circumstances for the protection of the legitimate interests of the Company and its shareholders.
13.     Governing Law and Venue . This Agreement shall be governed by and interpreted under and in accordance with the laws of the State of Oregon. Venue for enforcement of any terms of this Agreement shall be in the state or federal courts for the State of Oregon.
The parties have duly executed this Noncompetition and Nonsolicitation Agreement as of the date first above written.




COMPANY:

Craft Brew Alliance, Inc.




/s/ Andrew J. Thomas
Name: Andrew J. Thomas  
Title: Chief Executive Officer
EMPLOYEE:






/s/ Derek Hahm
Name: Derek Hahm













    

Page 4 of 4     

FARUQI & FARUQI, LLP THE WAND LAW FIRM, P.C. Benjamin Heikali (SBN 307466) Aubry Wand (SBN 281207) Joshua Nassir (SBN 318344) 400 Corporate Pointe, Suite 300 Culver City, California 90230 10866 Wilshire Boulevard, Suite 1470 Telephone: (310) 590-4503 Los Angeles, CA 90024 Facsimile: (310) 590-4596 Telephone: (424) 256-2884 E-mail: awand@wandlawfirm.com Facsimile: (424) 256-2885 E-mail: bheikali@faruqilaw.com jnassir@faruqilaw.com FARUQI & FARUQI, LLP Timothy J. Peter (admitted pro hac vice) 1617 JFK Boulevard, Suite 1550 Philadelphia, PA 19103 Telephone: (215) 277-5770 Facsimile: (215) 277-5771 E-mail: tpeter@faruqilaw.com Attorneys for Plaintiffs and the Classes SHOOK, HARDY & BACON LLP SHOOK, HARDY & BACON LLP Tammy B. Webb (SBN 227593) Naoki S. Kaneko (SBN 252285) John K. Sherk III (SBN 295838) 5 Park Plaza, Suite 1600 One Montgomery, Suite 2700 Irvine, California 92614 San Francisco, California 94104 Telephone: (949) 475-1500 Telephone: (415) 544-1900 Facsimile: (949) 475-0016 Facsimile: (415) 391-0281 E-mail: nkaneko@shb.com E-mail: tbwebb@shb.com jsherk@shb.com Attorneys for Defendant UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION THEODORE BROOMFIELD, et al., CASE NO.: 5:17-cv-01027-BLF Plaintiffs, SETTLEMENT AGREEMENT v. CRAFT BREW ALLIANCE, INC., et al., Defendants. 1

 
SETTLEMENT AGREEMENT This Settlement Agreement is entered into by Plaintiffs Theodore Broomfield and Simone Zimmer (“Plaintiffs” or “Class Representatives”), individually and on behalf of the Settlement Class (defined herein), and by Defendant Craft Brew Alliance, Inc. (“CBA”) (collectively with the Plaintiffs, the “Parties”), in the above-captioned action. This Settlement Agreement is intended by the Parties to fully and finally resolve, discharge, and settle the Released Claims, as defined herein, subject to the terms and conditions set forth below and the final approval of the District Court. RECITALS 1. On February 28, 2017, Plaintiff Zimmer and former plaintiff Sara Cilloni commenced a proposed class action in the Northern District of California against CBA in Cilloni v. Craft Brew Alliance, Inc. No. 5-17-cv-01027-BLF in connection with CBA’s marketing and sale of Kona Brewing Company Beers (the “Cilloni Action”). 2. On March 6, 2017, Plaintiff Broomfield also commenced a proposed class action in the Northern District of California against CBA in Broomfield v. Kona Brewing Co., et al., No. 3:17-cv-01159-MEJ in connection with CBA’s marketing and sale of Kona Brewing Company Beers (the “Broomfield Action”). 3. On March 20, 2017, the Court entered a Stipulation and Order to Consolidate Related Cases, consolidating the Cilloni Action and Broomfield Action. The consolidated Action proceeded as Broomfield v. Craft Brew Alliance, Inc., No. 5-17-cv-01027-BLF. 4. On April 7, 2017, Plaintiffs filed a Consolidated Class Action Complaint against CBA. 5. On April 28, 2017, CBA filed a Motion to Dismiss the Consolidated Class Action Complaint. 6. On May 26, 2017, Plaintiffs opposed the Motion to Dismiss. 2

 
7. On September 1, 2017, the Court granted in part and denied in part the Motion to Dismiss. 8. On October 6, 2017, CBA filed an Answer to the Consolidated Class Action Complaint. 9. On November 6, 2017, Plaintiffs filed a Motion for Reconsideration of the Court’s dismissal of Plaintiffs’ request for injunctive relief. 10. On November 27, 2017, the Court granted the Motion for Reconsideration. 11. On December 7, 2017, Plaintiffs filed a stipulation of dismissal pursuant to Fed. R. Civ. P. 41(a)(1)(A)(ii), dismissing Sara Cilloni’s individual claims against CBA and removing Sara Cilloni as a plaintiff and class representative. 12. On December 15, 2017, Plaintiffs filed a First Amended Consolidated Class Action Complaint (“FAC”). In the FAC, Plaintiffs alleged, inter alia, that CBA’s representations that Kona Brewing Company Beers are brewed in Hawaii are false and deceptive, and based on this factual predicate, asserted the following causes of action: (1) violation of California’s Consumers Legal Remedies Act (“CLRA”), Cal. Civ. Code §§ 1750, et seq., (2) violation of California’s Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code §§ 17200, et seq., (3) violation of California’s False Advertising Law (“FAL”), Cal. Bus. & Prof. Code §§ 17500, et seq., (4) common law fraud, (5) intentional misrepresentation, (6) negligent misrepresentation, and (7) unjust enrichment. 13. On December 29, 2017, CBA filed an Answer to the FAC. 14. The Parties have engaged in substantial fact and expert discovery, including multiple rounds of interrogatories, document requests, and requests for admission, extensive document review, and depositions of key corporate employee witnesses, the plaintiffs, and the Parties’ respective experts. 3

 
15. On July 16, 2018, Plaintiffs filed a Motion for Class Certification, moving to certify two classes: Six-Pack Class All persons who purchased any six-pack bottles of the Kona Beers1 in California at any time beginning four (4) years prior to the filing of this action on February 28, 2017 until the present (“Class Period”). Twelve-Pack Class All persons who purchased any twelve-pack bottles of the Kona Beers in California at any time beginning four (4) years prior to the filing of this action on February 28, 2017 until the present (“Class Period”). 16. On August 10, 2018, CBA opposed the Motion for Class Certification. 17. On September 25, 2018, the Court granted Plaintiffs’ Motion for Class Certification in its entirety, certifying: (1) a damages Class of California purchasers of six- and twelve-packs of Kona Beers pursuant to Rule 23(b)(3), and (2) an injunctive relief Class of California purchasers of six- and twelve-packs of Kona Beers pursuant to Rule 23(b)(2). The law firms of Faruqi & Faruqi, LLP and the Wand Law Firm, P.C. were appointed as Class Counsel, and Theodore Broomfield and Simone Zimmer were appointed as Class Representatives. 18. On October 5, 2018, CBA filed a Motion for Leave to Seek Reconsideration of the Court’s Order Granting Class Certification. Plaintiffs opposed this Motion on October 5, 2018. 19. On October 16, 2018, the Court denied the Motion for Leave to Seek Reconsideration. 20. On October 22, 2018, CBA filed a Rule 23(f) petition for interlocutory appeal of the Court’s Order Granting Class Certification, which Plaintiffs timely opposed. 1 Kona Beers were defined for the purposes of Class Certification as Longboard Island Lager, Hanalei IPA, Castaway IPA, Big Wave Golden Ale, Lemongrass Luau, Wailua Wheat, Fire Rock Pale Ale, and Pipeline Porter. 4

 
21. On January 24, 2019, the Parties participated in a day-long mediation session with Bruce A. Edwards of JAMS in San Francisco, California. The Parties did not reach settlement during this mediation. 22. On February 1, 2019, the Ninth Circuit Court of Appeals denied CBA’s Rule 23(f) petition. 23. On February 15, 2019, CBA filed a Petition for Rehearing En Banc of the Ninth Circuit’s denial of CBA’s Rule 23(f) petition. 24. On March 6, 2019, the Parties participated in a second mediation session with Mr. Edwards. The session lasted approximately 12 hours and the Parties were able to reach a settlement in principle at the conclusion of the mediation. 25. In the subsequent weeks, the Parties continued to negotiate and finalize all terms of this Settlement Agreement. 26. On April 24, 2019, the Parties filed a request to stay all appellate proceedings pending the settlement approval process, including CBA’s Petition for Rehearing En Banc. Also on April 24, 2019, the Parties filed a Joint Status Report Re: Settlement, informing the Court that the Parties had reached a settlement in principle, the terms of which are set forth herein. 27. CBA, while continuing to deny all allegations of wrongdoing, and disclaiming all liability with respect to all claims, considers it desirable to resolve the Action on the terms stated herein to avoid further expense, inconvenience, and burden, and therefore determines that this Settlement Agreement is in CBA’s best interests. 28. The Parties have engaged in extensive litigation, including substantial completion of fact and expert discovery, and have had a full and fair opportunity to evaluate the strengths and weaknesses of their respective positions. This Settlement Agreement was reached after extensive review of the underlying facts, after extensive arm’s length negotiations between 5

 
Class Counsel and CBA’s Counsel, and after two mediation sessions with Bruce A. Edwards. 29. Weighing risks and uncertainties of continued litigation and all factors bearing on the merits of settlement, Plaintiffs and Class Counsel are satisfied that the terms and conditions of this settlement are fair, reasonable, adequate, and in the best interests of the Plaintiffs and the Class. 30. NOW, THEREFORE, without any admission or concession of liability or wrongdoing or the lack of merit of any defense whatsoever by CBA, or any admission or concession of the lack of merit of this Action whatsoever by Plaintiffs, it is hereby stipulated and agreed by the undersigned, on behalf of Plaintiffs, the Settlement Class, and CBA, that the Action and all claims of the Settlement Class be settled, compromised, and dismissed on the merits and with prejudice, subject to Court approval as required by Federal Rules of Civil Procedure 23, on the terms and conditions set forth herein and upon the Effective Date (as defined below). 31. Each Party affirms that the Recitals above are true and accurate and are hereby made a part of this Settlement Agreement. I. DEFINITIONS As used in this Settlement Agreement and the Exhibits hereto, in addition to any definitions set forth elsewhere in this Settlement Agreement, the following terms shall have the meanings set forth below. Unless otherwise indicated, defined terms include the plural as well as the singular. 32. “Action” means the consolidated class action initiated by Plaintiffs Theodore Broomfield and Simone Zimmer, captioned Broomfield v. Craft Brew Alliance, Inc., No. 5-17-cv- 01027-BLF, in the United States District Court for the Northern District of California. 6

 
33. “Agreement” or “Settlement Agreement” means this Settlement Agreement, and its Exhibits attached hereto and incorporated herein. 34. “CAFA Notice” means the notice which CBA shall serve upon the appropriate State and Federal officials, providing notice of the proposed settlement. CBA’s Counsel shall provide a declaration attesting to compliance with 28 U.S.C. § 1715(b), which will be filed with Plaintiffs’ motion for preliminary and/or final approval. 35. “Claim Deadline” means the date to be set by the Court as the deadline for Settlement Class Members to submit Claim Forms, and which shall be ninety (90) calendar days after the Notice Date, subject to Court approval. 36. “Claim Form” means the document, substantially in the form attached as Exhibit 1, which Settlement Class Members must submit to the Settlement Administrator in order to obtain the Settlement Benefit. 37. “Claims Period” means the period of time from the Notice Date until the Claim Deadline. 38. “Claimant” means a Settlement Class Member that submits a Claim Form. 39. “Class Counsel” or “Plaintiffs’ Counsel” means the law firms of Faruqi & Faruqi, LLP and the Wand Law Firm, P.C. 40. “Class Period” or “Settlement Class Period” means the period of time from February 28, 2013 through the date Preliminary Approval is granted. 41. “Class Representatives” or “Plaintiffs” means Plaintiffs Theodore Broomfield and Simone Zimmer. 42. “Class Representative Service Award” means the monetary award, sought by application and approved by the Court, which is payable to the Class Representatives for their efforts and diligence in prosecuting this Action on behalf of the Class and Settlement Class. 7

 
43. “Court” means the United States District Court for the Northern District of California, the Honorable Beth Labson Freeman presiding. 44. “Defendant” or “CBA” means Craft Brew Alliance, Inc. 45. “Defendant’s Counsel,” “Defense Counsel,” or “CBA’s Counsel” means the law firm of Shook, Hardy & Bacon LLP. 46. “Effective Date” means the date on which the Court enters an Order and Final Judgment, if no appeal is taken. If an appeal is taken, the Effective Date shall mean the first date all appellate rights (including proceedings in the Supreme Court) with respect to said Order and Final Judgment have expired or been exhausted in such a manner as to affirm the Order and Final Judgment. 47. “Final Approval Hearing” means the hearing that is to take place after the entry of a Preliminary Approval Order and after the Notice Date and Claim Deadline for purposes of (a) determining whether the Settlement Agreement should be approved as fair, reasonable, adequate and in the best interests of the Class Members; (b) entering the Order and Final Judgment and dismissing the Action with prejudice; and (c) ruling upon an application by Class Counsel for an award of attorneys’ fees, costs and expenses, and Class Representative Service Awards. 48. “Fee Application” means a motion for a Fee Award and Class Representative Service Awards, which Plaintiffs will file not later than thirty-five (35) calendar days before the Objection/Exclusion Deadline and the Claim Deadline. 49. “Fee Award” means an award of reasonable fees, costs and expenses in an amount up to $2,900,000.00 (Two Million Nine Hundred Thousand Dollars and Zero Cents), sought by application and approved by the Court, which is payable to Class Counsel. 8

 
50. “Final Approval” means the Court’s entry of an Order following the Final Approval Hearing, substantially in the form of Exhibit 5 hereto, approving the Settlement pursuant to the terms and conditions of this Agreement without material change, confirming the certification of the Settlement Class for purposes of this Agreement only, and releasing all claims of Plaintiffs and the Settlement Class Members. 51. “Final Judgment” means the Court’s entry of an Order and Final Judgment following the Final Approval Hearing, substantially in the form of Exhibit 6 hereto, dismissing the Action with prejudice. 52. “Fraudulent Claims” means any Claim Forms the Settlement Administrator determines in good faith contain indicia of fraud, deceit or other invalidity, including but not limited to any attempts to bypass the terms and limitations set out in this Agreement regarding Claim Forms, Claimants, Settlement Class Members and Settlement Benefits. 53. “Kona Beers” means all 4-pack, 6-pack, 12-pack, or 24-packs of Longboard Island Lager, Hanalei IPA, Castaway IPA, Big Wave Golden Ale, Lemongrass Luau, Wailua Wheat, Fire Rock Pale Ale, Pipeline Porter, Lavaman Red Ale, Koko Brown Ale, Kua Bay IPA, Gold Cliff IPA, Kanaha Blonde Ale, Liquid Aloha Variety Pack, Island Hopper Variety Pack, Happy Mahalo Variety Pack, Wave Rider Tandem Pack. Excluded from this definition are all Kona Beers that are sold without packaging (i.e., loose bottles, loose cans, and draft beer). 54. “Long Form Notice” means notice of the proposed settlement to be provided to Settlement Class Members substantially in the forms attached as Exhibit 3, but which may be modified as necessary to comply with the provisions of any order of Preliminary Approval entered by the Court. The Long Form Notice shall be published on the Settlement Website. 9

 
55. “Motion for Final Approval” means the motion that the Plaintiffs shall file seeking Final Approval of this Settlement. 56. “Notice” means notice of this Settlement Agreement as defined in Section IV. 57. “Notice Date” means the date that Internet banner notice ads are first published in accord with the Notice Plan set forth in Section IV below. 58. “Notice Plan” means the plan for dissemination of notice of this Settlement Agreement by the Settlement Administrator in accord with the terms and provisions set forth in Section IV below. 59. “Notice of Missing or Inaccurate Information” means the notice sent by the Settlement Administrator to a Claimant who has submitted a Claim Form with inaccurate, disqualifying, incomplete or missing information that is required for the Claimant to be considered eligible for the Settlement Benefit provided by this Settlement. 60. “Objection/Exclusion Deadline” means the date to be set by the Court as the deadline for Settlement Class Members to submit Objections or Requests for Exclusion, and which shall be ninety (90) calendar days after the Notice Date, subject to Court approval. 61. “Objection” means the written communication that a Settlement Class Member must submit to the Court by the Objection/Exclusion Deadline in order to object to the Settlement, as provided for in Section VI below. 62. “Person” means any natural person. 63. “Parties” means Plaintiffs and CBA, collectively, and “Party” means either Plaintiffs or CBA, individually. 10

 
64. “Preliminary Approval” or “Preliminary Approval Order” shall mean the issuance of an order by the Court, substantially in the form of Exhibit 4 hereto, preliminarily approving, inter alia, the terms of this Settlement and authorizing Notice to the Class. 65. “Proof of Purchase” means a receipt, a copy of the purchase on a credit/debit card statement, a copy of the UPC from the package(s) of Kona Beers, retailer reward or membership programs evidencing a purchase of Kona Beers, or other similar type of documentation evidencing the purchase of Kona Beers by the Settlement Class Member. 66. “Released Claims” means any claim, cross-claim, liability, right, demand, suit, matter, obligation, damage, restitution, disgorgement, loss or cost, attorneys’ fee, cost or expense, action or cause of action, of every kind and description that the Releasing Party had or has, including assigned claims, whether in arbitration, administrative, or judicial proceedings, whether as individual claims or as claims asserted on a class basis or on behalf of the general public, whether known or unknown, asserted or unasserted, suspected or unsuspected, latent or patent, that is, has been, could reasonably have been, or in the future might reasonably be asserted by the Releasing Party in the Action against any of the Released Parties arising out of the allegations in the complaints filed in the Action. Excluded from the Released Claims is any claim for alleged bodily injuries arising after the Effective Date of this Settlement Agreement. 67. “Released Parties” means CBA, and all of its past, present and/or future parents, predecessors, successors, assigns, subsidiaries, divisions, departments, and affiliates, and any and all of their past, present and/or future officers, directors, employees, stockholders, partners, agents, servants, successors, attorneys, representatives, advisors, consultants, 11

 
brokers, distributors, wholesalers, subrogees and assigns of any of the foregoing, and representatives of any of the foregoing. 68. “Releasing Parties” means the Plaintiffs, each Settlement Class Member that does not submit a timely and valid Request for Exclusion, and any Person claiming by or through such Settlement Class Member as his/her spouse, parent, child, heir, guardian, associate, co-owner, attorney, agent, administrator, devisee, predecessor, successor, assignee, representative of any kind, shareholder, partner, director, employee, or affiliate. 69. “Request for Exclusion” means the written communication that a Settlement Class Member must submit to the Settlement Administrator by the Objection/Exclusion Deadline in order to be excluded from the Settlement as provided for in Section VI below. 70. “Settlement” means the settlement embodied in this Agreement. 71. “Settlement Administrator” means CPT Group, Inc., which will be responsible for providing notice to the Class and administering the Settlement as provided for in Sections IV and V below. The Parties each represent they do not have any financial interest in the Settlement Administrator or otherwise have a relationship with the Settlement Administrator that could create a conflict of interest. Should a conflict of interest or other issue lead to the disqualification of the selected Settlement Administrator, the Parties will meet and confer as to a suitable replacement. 72. “Settlement Notice and Administration Costs” means the costs for providing Notice and administration of the Settlement. CBA shall pay the Settlement Notice and Administration Costs, which are currently estimated to be $395,000. 12

 
73. “Settlement Benefit” means the monetary payment described in Section II, available to Settlement Class Members who meet eligibility requirements and submit a timely and valid Claim Form. 74. “Settlement Class Members,” “Class Members,” “Class,” or “Settlement Class” means: All Persons who purchased any four-pack, six-pack, twelve-pack or twenty-four pack of Kona Beers in the United States, it territories, or at any Untied States military facility, during the Class Period. For the purposes of this definition, individuals living in the same household shall be deemed to be a single Class Member. Excluded from the Settlement Class are: (a) CBA’s and any of its parents’, affiliates’, or subsidiaries’ employees, officers and directors, (b) distributors, retailers or re-sellers of Kona Beers, (c) governmental entities, (d) Persons who timely and properly exclude themselves from the Settlement Class as provided herein, (e) the Court, the Court’s immediate family, and Court staff, and (f) counsel of record for the Parties, and their respective law firms. 75. “Settlement Website” means the website to be established by the Settlement Administrator for purpose of providing notice, Claim Forms and other information regarding this Agreement. The Settlement Website will include, inter alia, (a) an FAQ section, (b) links to all pertinent documents including relevant pleadings as agreed by the Parties or as ordered by the Court, (c) the Fee Application and Motions for Preliminary Approval and Final Approval (and orders granting these motions if and when they are issued), (d) a toll-free number, (e) and other pertinent information about the Settlement. The Settlement Website will be updated regularly with relevant documents as they become available. 13

 
76. “Summary Notice” means notice of the proposed Settlement to be provided to Settlement Class Members substantially in the forms attached as Exhibit 2, but which may be modified as necessary to comply with the provisions of any order of Preliminary Approval entered by the Court. The Summary Notice will be emailed directly to Class Members for whom CBA has contact information, published on the Settlement Website, and published in print in the National Geographic Magazine and San Jose Mercury News Newspaper. II. SETTLEMENT CONSIDERATION Settlement consideration shall consist of two primary components: (1) a monetary component consisting of payments to Claimants; and (2) an injunctive relief component whereby CBA agrees to make certain changes to its business practices with respect to Kona Beers. Monetary Relief 77. To each Claimant who submits a timely and valid Claim Form, CBA will pay a monetary Settlement Benefit. Settlement Class Members residing in the same household (i.e., the same mailing address) who each submit a Claim Form shall only be entitled to a collective maximum payment of $10 or $20 per household, depending on whether Proof of Purchase is submitted, as follows: a. Per Unit Values: Claimants may seek the following payment per unit of each Kona Beer purchased during the Settlement Class Period. i. 4-pack Kona Beers: $1.25 per unit. ii. 6-pack Kona Beers: $1.25 per unit. iii. 12-pack Kona Beers: $2.00 per unit. iv. 24-pack Kona Beers: $2.75 per unit. 14

 
b. With Proof of Purchase. Claimants who submit sufficient Proof of Purchase and age verification may claim the above payments per unit, up to a maximum recovery of $20 per Settlement Class Member. c. Without Proof of Purchase. Claimants who do not submit sufficient Proof of Purchase, or no Proof of Purchase at all, but who submit attestation of his or her purchase of Kona Beers under penalty of perjury, along with age verification, may claim the above payments per unit, up to a maximum recovery of up to $10 per Settlement Class Member. d. Option to Terminate. Subject to the above terms, should the Settlement Class Members submit more than one million (1,000,000) Claims in this Settlement (regardless of the dollar amount of such claims), CBA shall have the unconditional right, but not the obligation, to terminate this Settlement Agreement. If CBA elects to terminate this Settlement Agreement under this paragraph, CBA must provide written notice to the other Parties’ counsel, by hand delivery, mail, or e-mail within ten (10) calendar days of the occurrence of the condition permitting termination. CBA shall be responsible for any Settlement Notice costs incurred if it chooses to exercise this option. Injunctive Relief 78. Not later than March 2020 or thirty calendar days after the Effective Date, whichever is later, CBA shall make the following changes to its business practices: a. To the extent permitted by law and/or regulation, CBA shall include a conspicuous statement on all consumer-facing Kona Beer packaging on a panel other than the bottom of the package that lists each location where the Kona Beers are brewed or 15

 
lists the location or locations at which a particular Kona Beer is brewed, for a minimum of four years after the Effective Date. An initial mock-up of the new packaging for one of the Kona Beer products is attached hereto as Exhibit 7. b. For a minimum of four years after the Effective Date, CBA’s General Counsel or his or her designee shall conduct annual meetings with CBA’s marketing department to review and comply with the injunctive terms of this Settlement. 79. To the extent not already done, and to the extent necessary, CBA agrees to provide Plaintiffs and Class Counsel with sufficient confidential sales information and forecasts that will allow the Parties to estimate the monetary value of the foregoing injunctive relief to the Settlement Class. CBA shall not oppose the use of this information in connection with any filings or proceedings related to the Settlement, provided that Plaintiffs shall provide CBA the opportunity to review any such filings in advance, and the Parties will meet and confer and reach mutual agreement as to the appropriate form of disclosing such information to the Court, which may involve filing under seal. The Parties acknowledge and recognize that, in accordance with the interest of public transparency, the filing of any such information under seal will not be requested unless the Parties believe it is necessary to do so. III. CLAIMS PROCESS AND PAYMENT Submission of Claims 80. To be eligible to receive the Settlement Benefit under the Settlement Agreement, Settlement Class Members must submit a claim to the Settlement Administrator by either: (a) completing, certifying, and mailing the Claim Form to the Settlement Administrator; (b) completing, certifying, and submitting the Claim Form electronically on the Settlement 16

 
Website; or (c) completing, certifying and submitting all information contained in the Claim Form electronically on the Settlement Website. 81. In order to be timely, the Claim Form must be postmarked or electronically submitted by no later than the Claim Deadline. Claim Forms postmarked or electronically submitted after the Claim Deadline may be denied by the Settlement Administrator, and CBA will not be obligated to make any payment on such claims, unless the Parties agree otherwise. 82. In order to be valid, the Claim Form must: (a) be signed in hard copy or electronically by the Settlement Class Member under penalty of perjury; and (b) bear an attestation by the Settlement Class Member that he/she purchased the Kona Beers during the Class Period, and that he/she was over 21 years old at the time of purchase(s) of the claimed Kona Beers. Claim Forms that do not meet these requirements may be denied by the Settlement Administrator, and CBA will not be obligated to make any payment on such claims, unless the Parties agree otherwise. Review of Claims 83. The Settlement Administrator shall review all submitted Claim Forms within a reasonable time to determine the validity and timeliness of the Claim, each Settlement Class Member’s eligibility for the Settlement Benefit, and the amount of such relief, if any. Copies of submitted Claim Forms shall be provided to CBA’s Counsel and to Class Counsel upon request. Settlement Class Members who submit valid and timely Claim Forms shall be entitled to the Settlement Benefit. Settlement Class Members who submit Claims Forms that do not meet the eligibility requirements described herein may not be entitled to such relief. 17

 
Invalid/Fraudulent Claims 84. The Settlement Administrator shall use good faith and appropriate procedures to prevent, detect, and reject the payment of Fraudulent Claims and ensure payment of only legitimate claims. The Settlement Administrator shall notify the Claimant via mail or email of the rejection. If any Claimant whose Claim Form has been rejected, in whole or in part, desires to contest such rejection, the Claimant must, within ten (10) calendar days from receipt of the rejection, mail or email the Settlement Administrator a notice and statement of reasons indicating the grounds for contesting the rejection along with any supporting documentation, requesting further review by the Settlement Administrator, of denial of the Claim. If any Claimant whose Claim Form has been rejected fails to respond to the Settlement Administrator with within ten (10) calendar days from receipt of the rejection, the rejection shall be deemed final and valid. The Settlement Administrator, in consultation with CBA’s Counsel and Class Counsel, shall notify the Claimant of its decision within ten (10) business days from receipt of the Claimant’s reply contesting the rejection. Incomplete or Inaccurate Claim Forms 85. After receipt of any Claim Forms containing incomplete or inaccurate information, and/or submitted Claims Forms omitting required information, the Settlement Administrator shall send a Notice of Missing or Inaccurate Information explaining what information is missing or inaccurate. 86. Claimants shall have until the end of the Claims Period, or thirty (30) calendar days from when the Notice of Missing or Inaccurate Information was mailed, whichever is later, to reply to the Notice of Missing or Inaccurate Information, and provide the required information. 18

 
87. If a Claimant fails to respond by the end of the Claims Period or within thirty (30) calendar days from when the Notice of Missing or Inaccurate Information was mailed, whichever is later, or the Settlement Administrator is unable to provide a Notice of Missing or Inaccurate Information as a result of the omitted information, the Settlement Administrator will reject such Claimant’s claim, and CBA will not be obligated to make any payment on such claim. Provision of Settlement Benefits 88. CBA shall transmit to the Settlement Administrator the aggregate dollar value of all Settlement Benefits by no later than fifteen (15) calendar days after the Effective Date. 89. The Settlement Administrator shall pay all Settlement Benefits to Settlement Class Members who are eligible and who submit a valid and timely Claim Form within fifteen (15) calendar days of receiving the funds from CBA or thirty (30) calendar days of the Effective Date, whichever date is earlier. 90. Within twenty-one (21) calendar days after the distribution of the Settlement Benefits, the Parties shall file a Post-Distribution Accounting with the Court. 91. All cash awards to Settlement Class Members will be in the form of a check or via electronic payment, whichever option the Settlement Class Member so chooses. IV. NOTICE 92. Notice of the Settlement shall conform to all applicable requirements of the Federal Rules of Civil Procedure, the United States Constitution (including the Due Process Clauses), the Class Action Fairness Act of 2005, 28 U.S.C. § 1715, the United States District Court for the Northern District of California’s Procedural Guidance for Class Action Settlements, and any other applicable law, and shall otherwise be in the manner and form approved by 19

 
the Court. To the extent any changes to the notice plan set forth herein need to be modified in any way, the Parties agree to work cooperatively to make any such changes. Forms of Notice 93. Upon Preliminary Approval, Notice of the Settlement shall be according to the following Notice Plan: a. Settlement Website Notice: No later than five (5) calendar days before Internet Publication Notice (see Paragraph 93(e)), the Settlement Administrator shall create a Settlement Website, which will include, inter alia, links to the Long Form Notice, the Summary Notice, this Settlement Agreement and Exhibits, the Claim Form, relevant filings and orders, and information relating to filing a claim, objecting to the Settlement, opting out of the Settlement, other deadlines relating to the Settlement, and instructions on how to access the case docket via PACER or in person at any of the Court’s locations. b. Toll-Free Telephone Support: No later than five (5) calendar days before Internet Publication Notice (see Paragraph 93(e)), the Settlement Administrator shall establish a toll-free telephone support system to provide Settlement Class Members with (a) general information about the Action and Settlement; (b) frequently asked questions and answers; and (c) information relating to filing a claim, objecting to the Settlement, opting out of the Settlement, and other deadlines relating to the Settlement. c. Direct Notice: At or before the filing of the Motion for Preliminary Approval, CBA shall provide the Settlement Administrator with a list of all potential Class Members for whom it has e-mail or mailing addresses. No later than twenty-five 20

 
(25) calendar days after Preliminary Approval, the Settlement Administrator shall cause the Summary Notice to be sent to all Class Members for whom email addresses or mailing addresses have been provided. d. Print Publication Notice: On the first available publication date after Preliminary Approval, the Settlement Administrator will publish the Summary Notice in print in National Geographic Magazine for a period of one month. On the first available publication date after Preliminary Approval, the Settlement Administrator will also publish the Summary Notice in print in the San Jose Mercury News Newspapers one day per week for a period of four consecutive weeks in compliance with the CLRA. e. Internet Publication Notice: No later than twenty-five (25) calendar days after Preliminary Approval, the Settlement Administrator will issue an informational press release to PR Newswire of the Settlement. The press release will include the Settlement Website address so that Settlement Class Members can easily access information about the Action and Settlement. The Settlement Administrator will also purchase Internet banner notice ads that will allow access to the Settlement Website through an embedded hyperlink contained within the banner notice ad. These Internet banner ads will be first published no later than twenty-five (25) calendar days after Preliminary Approval, and will continue for a period of ten (10) weeks. V. ADMINISTRATION OF SETTLEMENT 94. All Settlement Notice and Administration Costs shall be paid by CBA. 21

 
95. The Settlement Administrator shall be responsible for administrative tasks, including, without limitation: a. Arranging, as set forth in this Section and in the Preliminary Approval Order, for distribution of Notice of the Settlement (in a form substantially similar to that approved by the Court) and Claims Forms (in a form substantially similar to that approved by the Court) to Settlement Class Members; b. Answering inquiries from Settlement Class Members and/or forwarding such written inquiries to Class Counsel or their designee; c. Receiving and maintaining correspondence regarding Objections and Requests for Exclusion from the Settlement Agreement; d. Posting notices, Claim Forms, and other related documents on the Settlement Website and otherwise maintaining the Settlement Website; e. Receiving and processing Claim Forms, including sending Notices of Missing or Inaccurate Information where applicable; f. Providing weekly updates to CBA’s Counsel and Class Counsel regarding the number of Claims, Requests for Exclusion, and Objections. The updates shall be made on Friday of every week; g. Providing declaration(s) in support of preliminary and final approval as necessary and appropriate; h. Distributing all payments under the Settlement, including payments to Settlement Class Members and the Class Representative Service Awards; i. Providing a post-distribution accounting declaration; and 22

 
j. Otherwise assisting with implementation and administration of the Settlement Agreement terms as the Parties mutually agree or the Court orders the Settlement Administrator to perform. VI. OBJECTIONS AND OPT-OUTS Objections 96. Settlement Class Members shall have the right to appear and present Objections as to any reason why the terms of this Agreement should not be given Final Approval. Any Objection must be in writing and submitted to the Court no later than the Objection/Exclusion Deadline. Settlement Class Members shall submit written objection to the Court, either by (1) mailing them to the Class Action Clerk, United States District Court for the Northern District of California, 280 South 1st Street, Courtroom 3, San Jose, CA 95113, or (2) filing them in person at any location of the United States District Court for the Northern District of California or via the ECF electronic filing system. 97. Any Objection must contain a caption or title that identifies it as “Objection to Class Settlement in Broomfield, et al. v. Craft Brew Alliance, Inc., No. 5-17-cv-01027-BLF” and shall also contain: a. Information sufficient to identify and contact the objecting Settlement Class Member, including name, address, telephone number, and, if available, email address, and if represented by counsel, the foregoing information for his/her counsel; b. Whether the Settlement Class Member, or his or her counsel, intends to appear at the Final Approval Hearing; 23

 
c. Whether the Objection applies only to the Settlement Class Member, to a specific subset of the Settlement Class, or to the entire Settlement Class; d. A clear and concise statement of the Settlement Class Member’s Objection, including all bases and legal grounds for the Objection; e. Documents sufficient to establish the person’s standing as a Settlement Class Member, i.e., verification under penalty of perjury as to the person’s purchase of Kona Beers during the Class Period, or a Proof of Purchase; f. A list of any other objections submitted by the Settlement Class Member, or his/her counsel, to any proposed class action settlements submitted in any court, whether state or federal, in the United States for the previous five (5) years. If the Settlement Class Member or his/her counsel has not objected to any other class action settlement in any other court in the previous five (5) years, he or she shall affirmatively state so; and 98. No Settlement Class Member shall be entitled to be heard at the Final Approval Hearing (whether individually or through counsel) or to object to the Agreement, and no written Objections or briefs submitted by any Settlement Class Member shall be received or considered by the Court at the Final Approval Hearing, unless written notice of the Settlement Class Member’s intention to appear at the Final Approval Hearing, and copies of any written Objections or briefs, have been filed with the Court on or before the Objection/Exclusion Deadline. 99. Class Counsel and CBA shall have the right to respond to any Objection no later than thirty- five (35) calendar days prior to the Final Approval Hearing. 24

 
100. Settlement Class Members who fail to submit written Objections in the manner specified above shall be deemed to have waived any objections and shall be foreclosed from making any objection (whether by appeal or otherwise) to the Settlement Agreement and shall be bound, to the extent allowed by law, by the terms of the Settlement Agreement. Requests for Exclusion/Opt Out 101. Any Settlement Class Member who does not wish to participate in this Settlement must submit a Request for Exclusion to the Settlement Administrator by the Objection/Exclusion Deadline, stating a clear intention to be “excluded” from this Settlement. The written request for exclusion must contain the Settlement Class Member’s name, current address, and telephone number. The Request for Exclusion must be personally signed by the Settlement Class Member, dated and sent to the Settlement Administrator via the Settlement Website or by hard copy sent via U.S. Mail. 102. The date of the postmark on the envelope, or the electronic date of submission in the case of a submission via the Settlement Website, shall be the exclusive means used to determine whether a Request for Exclusion has been timely submitted by the Objection/Exclusion Deadline. Any Settlement Class Member whose request to be excluded from the Settlement Class is approved by the Court will not be bound by this Settlement Agreement nor will he or she have any right to object, appeal, or comment thereon. 103. Settlement Class Members who fail to submit a valid and timely Request for Exclusion on or before the Objection/Exclusion Deadline shall be bound, to the extent allowed by law, by all terms of the Settlement Agreement and any Judgment entered in the Action if the Settlement Agreement is approved by the Court, regardless of whether they have requested exclusion from the Class. 25

 
104. Settlement Class Members who submit a valid and timely Request for Exclusion cannot object to the Settlement. No Solicitation of Objections or Exclusions 105. The Parties and their counsel agree to use their best efforts to carry out this Agreement. At no time shall any of the Parties or their counsel seek to solicit or otherwise encourage any Party or Settlement Class Member to submit Objections or Requests for Exclusion, or to appeal from the Court’s Judgment. VII. ATTORNEYS’ FEES & COSTS, AND CLASS REPRESENTATIVE SERVICE AWARDS Attorneys’ Fees and Costs 106. Class Counsel shall submit a Fee Application for an award of attorneys’ fees and costs, including expert fees and costs, in an amount not to exceed $2,900,000.00 (Two Million Nine Hundred Thousand Dollars and Zero Cents). CBA and its counsel will not oppose or undermine that request or solicit others to do so. 107. The Fee Award shall be the total obligation of CBA to pay for attorneys’ fees, costs, and/or expenses of any kind (including, but not limited to, travel, filing fees, court reporter and videographer expenses, expert fees and costs, notice of pendency costs and expenses, and document review and production costs) related to this Action. 108. CBA shall pay the Fee Award by wire transfer to Class Counsel not later than ten (10) calendar days following Final Approval. 109. This Settlement is not contingent upon the Court awarding any particular amount in attorneys’ fees and costs, however, Plaintiffs retain the right to appeal any decision by the Court regarding the Fee Award. 110. Class Counsel, in their sole discretion, shall allocate and distribute the Fee Award. 26

 
111. CBA shall pay its own attorneys’ fees and costs incurred in this Action. Class Representative Service Awards 112. In recognition of the time and effort the Class Representatives expended in pursuing this Action and fulfilling their obligations and responsibilities as Class Representatives, Class Counsel shall also petition the Court for, and CBA shall not oppose, a service award in an amount of $5,000.00 (Five Thousand Dollars and Zero Cents) to each of the two Class Representatives. 113. The Court’s award of any Class Representative Service Awards shall be separate from its determination of whether to approve the Settlement as set forth in this Agreement. 114. In the event the Court approves the Settlement, but declines to award a Class Representative Service Award in the amount requested by Class Counsel, the Settlement will nevertheless be binding on the Parties. However, if the Court declines to approve the Settlement, no Class Representative Service Awards shall be paid. 115. CBA shall pay the Class Representative Service Awards by wire transfer to the Settlement Administrator not later than fifteen (15) calendar days after the Effective Date. The Settlement Administrator shall pay the Class Representative Service Awards to Plaintiffs within fifteen (15) calendar days of receiving the funds from CBA or thirty (30) calendar days of the Effective Date, whichever date is earlier. The Settlement Administrator shall issue an IRS Form 1099-MISC to Plaintiffs solely for the amount awarded by the Court for each Plaintiffs’ Class Representative Service Award. Plaintiffs shall be solely and legally responsible to pay and all applicable taxes on their Class Representative Service Awards, and shall hold harmless CBA and Class Counsel from any claim or liability for 27

 
taxes, penalties, or interest arising as a result of the Class Representative Service Awards. 116. Payment by CBA of the Class Representative Service Awards is separate from, and in addition to, the other relief afforded to the Settlement Class Members in this Agreement. VIII. PRELIMINARY APPROVAL Motion for Preliminary Approval 117. As soon as reasonably practicable after the signing of this Settlement Agreement, Plaintiffs shall file an unopposed Motion for Preliminary Approval of Class Settlement that seeks entry of the Preliminary Approval Order, which, in accordance with the terms of this Agreement, for settlement purposes only would: a. Preliminarily approve this Settlement Agreement; b. Certify a Settlement Class under Federal Rule of Civil Procedure 23 composed of the Settlement Class Members; c. Approve the Settlement Administrator; d. Approve and authorize the contents of the Notice Plan and distribution of the Notice; e. Approve and authorize the procedures for submitting Objections and Requests for Exclusion and the binding nature thereof; f. Set deadlines for submitting papers in support of the Motion for Final Approval, the Motion for Attorneys’ Fees, Costs, and Expenses and Class Representative Service Awards, and any responses to timely and valid Objections; g. Schedule the Final Approval Hearing to determine whether Final Approval of the Settlement Agreement is warranted; and 28

 
h. Stay all activity in the Action except to the extent necessary to effectuate this Agreement unless and until this Agreement is terminated pursuant to its terms and conditions. Certification of Settlement Class for Settlement Purposes Only 118. The Parties agree, for settlement purposes only, that the Settlement Class shall be certified and proceed as a class action under Federal Rule of Civil Procedure 23(b)(3), with a class consisting of all Settlement Class Members, and with Plaintiffs Theodore Broomfield and Simone Zimmer as Class Representatives, and with Class Counsel as counsel for the Settlement Class Members. 119. In the event that the Court does not preliminarily or finally approve the Settlement Agreement, nothing herein shall be construed to alter the Court’s September 25, 2018 Certification Order, or CBA’s ability to contest that decision. IX. FINAL APPROVAL Motion for Final Approval 120. Prior to the Final Approval Hearing, Class Counsel shall petition the Court for Final Approval and Order and Final Judgment that would: a. Confirm the certification of the Settlement Class as defined above; b. Dismiss this Action, with prejudice, upon the Effective Date; c. Decree that neither the Final Approval nor this Agreement constitutes an admission of liability, fault or wrongdoing; d. Release the Released Parties from the Released Claims of the Releasing Parties; e. Find that this Agreement is entered into in good faith, is reasonable, fair and adequate, and is in the best interest of the Settlement Class Members; and 29

 
f. Make such orders as are necessary and appropriate to effectuate the terms and conditions of this Settlement Agreement. 121. Prior to the Final Approval Hearing, Class Counsel and CBA shall have the right to respond to any Objections submitted by Settlement Class Members. Final Approval Hearing 122. The Court shall conduct a Final Approval Hearing so that the Court may review any objections to this Agreement, consider the fairness, reasonableness and adequacy of this Agreement and consider the Parties’ petition for Final Approval and Class Counsel’s Application for a Fee Award and for the Class Representatives’ Service Awards. The date of the Final Approval Hearing shall be posted on the Settlement Website in advance of the hearing. If the date of the Final Approval Hearing is subsequently modified by the Court, no further notice is required to be published to Settlement Class Members, except that, the Parties will notify any Settlement Class Member who has filed a timely Objection in writing of any change to the date of the Final Approval Hearing. Dismissal of this Action 123. The Final Approval shall provide that this Action shall be dismissed, with prejudice, upon the Effective Date. X. RELEASES General Release from Liability 124. Upon Effective Date, each of the Plaintiffs and each Settlement Class Member who has not validly and timely submitted a Request for Exclusion shall be deemed to release and forever discharge any and all Released Parties of and from liability of any kind or type whatsoever for any and all Released Claims, and shall be permanently barred and enjoined 30

 
from initiating, asserting and/or prosecuting any Released Claim(s) against any Released Party in any court or forum. This Agreement shall be the sole and exclusive remedy available to the Releasing Parties for any and all Released Claims against the Released Parties. No Released Party shall be subject to liability or expense of any kind to any Releasing Party with respect to any Released Claim. 125. The Parties agree that they may hereafter discover facts in addition to or different from those they believe to be true with respect to the subject matter of this Agreement. The Parties agree that, notwithstanding the discovery of the existence of any such additional or different facts that, if known, would materially affect its decision to enter into this Agreement, the releases herein given shall be and remain in effect as a full, final and complete general release of the Released Claims and the Parties shall not be entitled to modify or set aside this Agreement, either in whole or in part, by reason thereof. The Parties hereby waive and relinquish, to the fullest extent permitted by law, the rights and benefits of any statute which might otherwise render unenforceable a release contained in this Agreement. 126. With respect to all Released Claims, Plaintiffs and each of the other Settlement Class Members who have not validly opted out of this Settlement agree that they are expressly waiving and relinquishing to the fullest extent permitted by law (a) the provisions, rights and benefits conferred by Section 1542 of the California Civil Code, which provides: “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER 31

 
SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY” and (b) any law of any state or territory of the United States, federal law or principle of common law, or of international or foreign law, that is similar, comparable or equivalent to Section 1542 of the California Civil Code. XI. Termination and Effect of Termination 127. Each Party shall have the right to terminate this Settlement Agreement if: (a) the Court denies preliminary approval of this Settlement Agreement (or grants preliminary approval through an order that is not substantially similar in form and substance to Exhibit 4 hereto); (b) the Court denies final approval of this Settlement Agreement (or grants final approval through an order that materially differs in substance from Exhibit 5 hereto); or (c) the Final Approval Order and Judgment do not become Final by reason of a higher court reversing final approval by the Court, and the Court thereafter declines to enter a further order or orders approving the Settlement on the terms set forth herein. If a Party elects to terminate this Settlement Agreement under this paragraph, that Party must provide written notice to the other Parties’ counsel, by hand delivery, mail, or e-mail within ten (10) calendar days of the occurrence of the condition permitting termination. 128. If the Settlement is not approved, the Parties shall meet and confer in good faith, in an effort to effectuate the material terms of the Settlement and/or negotiate a different settlement, consistent with the Parties’ desire to resolve this Action. As part of this meet and confer process, the Parties shall contact the mediator (Bruce A. Edwards), or another mediator as mutually agreed by the Parties. 129. Nothing shall prevent Plaintiffs and/or CBA from appealing or seeking other appropriate relief from an appellate court with respect to any denial by the Court of Final Approval of 32

 
the Settlement. In the event such appellate proceedings result, by order of the appellate court or by an order after remand or a combination thereof, in the entry of an order(s) whereby the Settlement is approved in a manner substantially consistent with the substantive terms and intent of this Settlement Agreement, and dismissing all claims in the Action with prejudice, and otherwise meeting the substantive criteria of this Agreement for approval of the Settlement, such order shall be treated as a Final Approval Order. 130. If this Settlement Agreement is terminated or disapproved, or if the Effective Date should not occur for any reason, then: (a) this Settlement Agreement and all orders entered in connection therewith shall be rendered null and void; and (b) all Parties shall be deemed to have reverted to their respective status in the Action as of the date and time immediately preceding the execution of this Settlement Agreement and, except as otherwise expressly provided, the Parties shall stand in the same position and shall proceed in all respects as if this Settlement Agreement and any related orders had never been executed, entered into, or filed, except that the Parties shall not seek to recover from one another any attorneys’ fees, costs, and expenses incurred in connection with this Settlement, including any Settlement Notice and Administration costs already incurred by the Settlement Administrator. XII. Non-Admission of Fault or Liability 131. This Agreement, whether or not consummated, and any communications exchanged or actions taken pursuant to or during the negotiation of this Agreement are for settlement purposes only. Neither the fact of nor the contents of this Agreement or its exhibits, nor any communications exchanged, nor actions taken, pursuant to or during the negotiation of this Agreement, shall constitute, be construed as, or be admissible in evidence as an 33

 
admission of the validity of any claim asserted or fact alleged in this Action or of any wrongdoing, fault, violation of law or liability of any kind on the part of CBA. XIII. Miscellaneous Non-Admissibility 132. This Agreement and all negotiations, correspondence and communications leading up to its execution shall be deemed to be within the protection of Federal Rule of Evidence 408 and any analogous state or federal rules or principles. Neither this Agreement, nor any terms, conditions, contents or provisions hereof or exhibits hereto, nor any negotiations, correspondence or communications leading up to the execution of this Agreement, shall constitute a precedent or be admissible for any purpose in any proceeding; provided, however, that this Agreement shall be admissible in any proceeding related to the approval of this Agreement, to enforce any of its terms and conditions, to support or defend this Agreement in an appeal from an order granting or denying Final Approval, or to enforce or assert a claim or defense of res judicata, collateral estoppel, claim preclusion, issue preclusion, settlement, release, merger and bar, or any similar claim or defense against the Plaintiffs, any Settlement Class Member, or any third party. Reservation of Rights 133. This Settlement Agreement is made without prejudice to the right of CBA to take any position in its defense of the Action, should this Agreement not be approved or implemented. Dispute Resolution 134. If Plaintiffs or Class Counsel, on behalf of Plaintiffs or any Settlement Class Member, or CBA’s Counsel, on behalf of CBA, at any time believe that the other Party has breached 34

 
or acted contrary to the Agreement, that Party shall notify the other Party in writing of the alleged violation. The Parties shall meet and confer in good faith to resolve the dispute. If the Parties are unable to resolve their differences within twenty (20) calendar days, either Party shall first contact the mediator (Bruce A. Edwards) to try to resolve the dispute. If that proves unsuccessful, the Party may file an appropriate motion for enforcement with the Court. Non-Disparagement 135. Class Counsel and Class Representatives agree not to disparage or otherwise take any action which could reasonably be expected to adversely affect the reputation of CBA regarding this matter. CBA and its attorneys agree not to disparage or otherwise take any action which could reasonably be expected to adversely affect the personal or professional reputation of Class Counsel and Class Representatives regarding this matter. Authority to Execute 136. The Parties warrant and represent that the persons executing this Agreement are duly authorized to do so. Assignment of Claims 137. The Parties warrant and represent that no claim or any portion of any claim referenced or released in this Agreement has been sold, assigned, conveyed, or otherwise transferred to any other entity or Person. Reading and Understanding 138. The Parties warrant and represent that they have carefully read this Agreement, have consulted their attorneys regarding this Agreement, and fully understand and voluntarily accept the terms and conditions of this Agreement. 35

 
Reliance on Own Judgment 139. The Parties warrant and represent that they have relied upon their own judgment and that of their legal counsel regarding the sufficient and agreed upon consideration for this Agreement and that no statement or representation by any of the other Parties or their agents, employees, officers, directors or legal representatives influenced or induced them to execute this Agreement. 140. This Agreement shall be construed under and governed by the laws of the State of California, applied without regard to laws applicable to choice of law. Jurisdiction of the Court 141. The Court shall retain jurisdiction with respect to the interpretation, implementation and enforcement of the terms of this Agreement and all orders and judgments entered in connection therewith, and the parties and their counsel hereto submit to the jurisdiction of the Court for purposes of interpreting, implementing and enforcing the resolution embodied in this Agreement and all orders and judgments entered in connection therewith. Entire Agreement 142. This Agreement, including all exhibits hereto, shall constitute the entire Agreement among the Parties with regard to the subject of this Agreement and shall supersede any previous agreements, representations, communications and understandings among the Parties with respect to the subject matter of this Agreement. Joint Preparation 143. This Agreement shall be construed as if the Parties jointly prepared it, and any uncertainty or ambiguity shall not be interpreted against any of the Parties. 36

 
Recitals 144. The Recitals are a material part of this Agreement and are incorporated herein in their entirety. Captions 145. The captions used in this Agreement are for convenience and identification purposes only, and are not part of this Agreement. Amendment or Modification 146. This Agreement may not be changed, modified, or amended except in writing signed by all Parties (or their successors-in-interest) and approved by the Court. Notwithstanding the foregoing, however, the claims process set forth above may be modified by mutual agreement of the Parties without Court approval and the Parties may agree to reasonable extensions of time in which to accomplish the tasks required by the terms and conditions of this Agreement. Cooperation 147. The Parties and their counsel agree to cooperate fully with one another and to use their best efforts to effectuate the Settlement, including without limitation in seeking preliminary and final Court approval of the Settlement embodied herein, carrying out the terms of this Settlement, and promptly agreeing upon and executing all such other documentation as may be reasonably required to obtain Final Approval by the Court of the Settlement. 37

 
No Waiver 148. The waiver of any term or condition or breach of this Agreement shall not be deemed to be a waiver of any other term or condition or breach of this Agreement and shall not be deemed to be a continuing waiver. Parties’ Waiver of Right to be Excluded and Object. 149. The Parties agree that by signing this Agreement they are bound to these terms. The Parties agree to not object to or appeal from this Agreement or the exhibits attached hereto. Plaintiffs further agree not to request to be excluded from the Class. [SIGNATURES ON FOLLOWING PAGES] 38

 

 

 

 

 

 
Exhibit 1

 
Broomfield, et al. v. Craft Brew Alliance, Inc. CLAIM FORM If you purchased one or more Kona Beers* at any time from February 28, 2013 through _________, you can complete this Claim Form to be eligible to receive payment under the Settlement. *Kona Beers include: Longboard Island Lager, Hanalei IPA, Castaway IPA, Big Wave Golden Ale, Lemongrass Luau, Wailua Wheat, Fire Rock Pale Ale, Pipeline Porter, Lavaman Red Ale, Koko Brown Ale, Kua Bay IPA, Gold Cliff IPA, Kanaha Blonde Ale, Liquid Aloha Variety Pack, Island Hopper Variety Pack, Happy Mahalo Variety Pack, and Wave Rider Tandem Pack. Claim Forms must be completed and submitted by no later than ________. Claim Forms can be submitted electronically at www. _________ or by mail to: Broomfield v. Craft Brew Alliance, Inc. c/o CPT Group, Inc. 50 Corporate Park Irvine, CA 92606 PLEASE COMPLETE THE FOLLOWING INFORMATION: Name (First and Last): _____________________________________________________________________ Street Address: ___________________________________________________________________________ City: State: Zip: __ __ __ __ __ - __ __ __ __ Phone Number: ( _ _) _- __________ Email Address: _________________________________________ You have two options for filing your claim: if you do not have Proof Purchase, choose Option A below. If you have Proof Purchase, choose Option B below. For either Option A or Option B, you will be eligible to receive payments for each qualifying purchase of Kona Beers as follows:  4-pack Kona Beers: $1.25 per unit.  6-pack Kona Beers: $1.25 per unit.  12-pack Kona Beers: $2.00 per unit.  24-pack Kona Beers: $2.75 per unit. Under Option A, you can receive up to $10 per household depending on the number of Kona Beers you purchased. Under Option B, you can receive up to $20 per household depending on the number of Kona Beers you purchased. Option A: Submit your Claim without Proof of Purchase. State the number of Kona Beers you purchased between February 28, 2013 through _________. Unit Type Number of Units Purchased (e.g., 1, 2, 3, etc.) 4-pack Kona Beers [space blank; but drop down for online form] 6-pack Kona Beers [space blank; but drop down for online form] 12-pack Kona Beers [space blank; but drop down for online form] 24-pack Kona Beers [space blank; but drop down for online form] TOTAL ($) [space blank; but default to Max for online form] Questions? Visit www.-------- or call --------

 
Option B: Submit your Claim with valid Proof of Purchase: State the number of Kona Beers you purchased between February 28, 2013 through _________. Unit Type Number of Units Purchased (e.g., 1, 2, 3, etc.) 4-pack Kona Beers [space blank; but drop down for online form] 6-pack Kona Beers [space blank; but drop down for online form] 12-pack Kona Beers [space blank; but drop down for online form] 24-pack Kona Beers [space blank; but drop down for online form] TOTAL ($) [space blank; but default to Max for online form] Valid Proof of Purchase includes the following:  receipt(s)  a copy of the UPC from the package(s) of Kona Beers  a copy of the purchase on your credit statement  other document that you believe evidences your purchase of Kona Beers Please attach proof of purchase for the items selected in the chart above for valid claim consideration. Mark the box stating your preferred method of payment [ ] Payment via a Settlement Check - If selecting this option, please double-check the address information at the top of this form is correct and current. [ ] Electronic Payment via eCheck - If selecting this option, please double-check the email address provided at the top of this form is correct and current. [ ] Direct Deposit - If selecting this option, please double-check the email address provided at the top of this form is correct and current. Sign and Date the Affirmation below: I hereby affirm, under penalty of perjury under the laws of the United States of America, each of the following:  I personally purchased the Kona Beers listed above.  I was 21 years or older at the time that I purchased the Kona Beers listed above.  I understand that by not opting out of the Settlement, I have given a complete Release of all Released Claims.  The information provided in this Claim Form is true and correct to the best of my knowledge. Signature Date ACCURATE CLAIMS PROCESSING TAKES TIME. THANK YOU FOR YOUR PATIENCE. Reminder Checklist: 1. Please sign the above Claim Form and complete all of the information requested above. 2. Enclose a copy of your Proof(s) of Purchase, if you have them, along with the Claim Form. 3. Keep a copy of your Claim Form and supporting documentation for your records. Questions? Visit www.-------- or call --------

 
Exhibit 2

 
If you purchased Kona Beer you could get up to $20 from a proposed class action settlement Th Court has tentatively approved a proposed settlement in Broomfield v. Craft Brew Alliance, Inc., No. 5:17-cv-01027-BLF, a class action alleging Craft Brew Alliance, Inc. (“CBA”)’s packaging and marketing of its Kona Beer products portrayed the beer as being brewed in Hawaii, when Plaintiffs claimed they were not. If you purchased Kona Beer between February 28, 2013 through _________, you may be entitled to a cash payment as part of the settlement up to $20 with proof of purchase or up to $10 without proof of purchase. To receive a monetary payment, you must submit a Claim Form by [Claims Deadline]. Claim Forms can be found at www.---------- or can be requested by calling _____________. If you do not want to be bound by the Settlement, you must submit a written Request for Exclusion. If you exclude yourself, you cannot get a payment, but you preserve the right to sue CBA for the claims alleged in the lawsuit. Any Request for Exclusion must be submitted by [___________], either online at www.- -----.com or mailed and postmarked to _________. You can also object to the Settlement. An objection is a written statement explaining why do not think the Settlement is fair. Any objection must be submitted to the Court by [_____________]. You cannot object if you exclude yourself from the Settlement. There will be a final approval hearing for this settlement to determine whether the Court will approve of the settlement, scheduled for [MONTH DAY, YEAR] at [TIME] in the Robert F. Peckham Federal Building, Courtroom 3, located at 280 South 1st Street, Courtroom 3 San Jose, CA 95113. This Notice summarizes the Settlement. For the precise terms and conditions of the Settlement, please see the Settlement Agreement available at www.____________.com, by contacting Class Counsel whose contact information can be found at www.____________.com, by contacting the Settlement Administrator at 1-800-XXX-XXXX, by accessing the Court docket in this case, for a fee, through the Court’s Public Access to Court Electronic Records (PACER) system at https://ecf.cand.uscourts.gov, or by visiting the office of the Clerk of the Court for the United States District Court for the Northern District of California, 280 South 1st Street, Courtroom 3 San Jose, CA 95113, between 9:00 a.m. and 4:00 p.m., Monday through Friday, excluding Court holidays. PLEASE DO NOT TELEPHONE THE COURT OR THE COURT CLERK’S OFFICE TO INQUIRE ABOUT THIS SETTLEMENT OR THE CLAIM PROCESS

 
Exhibit 3

 
United States District Court for the Northern District of California Broomfield v. Craft Brew Alliance, Inc., Case No. 5:17-cv-01027-BLF If You Purchased Kona Beer, You May Be Eligible to Receive Payment from a Class Action Settlement A federal court authorized this notice. This is not a solicitation from a lawyer.  A Settlement has been reached in a class action lawsuit. Purchasers of Kona Brewing Company Beer (“Kona Beer”) sued Craft Brew Alliance, Inc. (“CBA”), alleging statutory consumer protection and common law claims based on representations that the Kona Beers are brewed in Hawaii when Plaintiffs claim they are not. CBA denies the allegations in the lawsuit. The Court has not decided that CBA did anything wrong. The Parties agreed to the Settlement to resolve the lawsuit. For instruction on how to obtain the Settlement Agreement, please see question 16.  This Notice explains the lawsuit, the Settlement, your legal rights, what benefits are available, who is eligible for them, and how to get them. Judge Beth Labson Freeman of the United States District Court for the Northern District of California is overseeing the Settlement.  You are eligible to participate in this Settlement if you purchased any 4-pack, 6-pack, 12- pack, or 24-pack variety of Kona Beer from February 28, 2013 through __________. To receive payment under the Settlement, you must submit a Claim Form. Settlement Class Members who do not exclude themselves from the Settlement will be bound by the Settlement even if they do not submit Claim Forms.  For Settlement Class Members who submit valid Claim Forms without Proof of Purchase, CBA will pay up to $10, depending on the number of Kona Beers purchased from February 28, 2013 through __________.  For Settlement Class Members who submit valid Claim Forms with Proof of Purchase, CBA will pay up to $20, depending on the number of Kona Beers purchased from February 28, 2013 through __________.  The Parties have further agreed that CBA will pay the costs to administer this Settlement, plus reasonable attorneys’ fees and costs, and a payment to the two Plaintiffs. Please read this Notice carefully and in its entirety. Your rights may be affected by the proposed Settlement of this lawsuit, and you have a choice to make now about how to act: Questions? Visit www.__________. or contact the Settlement Administrator at [_________________] - 1 -

 
YOUR LEGAL RIGHTS AND OPTIONS This is the only way to receive a monetary payment from the Settlement. By remaining in the Settlement, whether or not you submit a Claim Form, you will give up any rights to sue CBA SUBMIT A CLAIM FORM separately about the same legal claims in this lawsuit. BY [DATE] Claim Forms are available at www.---------------.com or by calling ------------. For more detail about the claim process, please see questions 5, 6 and 7 below. If you request to be excluded from the Settlement, you will not be eligible to receive the monetary payment, but you will keep your EXCLUDE YOURSELF right to sue CBA about the same legal claims in this lawsuit. FROM THE CLASS BY Requests for Exclusion must be submitted by [date] on www.----- [DATE] ----- or mailed to [address]. For more detail about excluding yourself from the Settlement, please see questions 8 and 10 below. You may write to the Court about why you do, or do not, like the Settlement. You must remain in the Settlement (i.e., not exclude OBJECT BY [DATE] yourself) to object to the Settlement. Objections must be submitted to the Court by [date]. For more detail about objecting to the Settlement, please see questions 9 and 10 below. You may ask to speak in Court about the fairness of the Settlement. Written notice of your intent to appear at the final APPEAR IN THE LAWSUIT approval hearing in the Lawsuit must be filed with your OR ATTEND THE FINAL Objection and submitted to the Court by [date]. You may enter APPROVAL HEARING ON your appearance in Court through an attorney at your own [DATE] expense if you so desire. For more detail about appearing in this lawsuit or attending the final approval hearing, please see questions 9, 13, 14 and 15 below. By doing nothing, you will not receive any monetary payment DO NOTHING but you will also give up any rights to sue CBA separately about the same legal claims in this lawsuit.  Your rights and options – and the deadlines to exercise them – are further explained in this Notice.  The Court in charge of this case still has to decide whether to approve the Settlement. The Settlement Benefit (i.e., the monetary payments described herein) will be made available if the Court approves the Settlement, and after any appeals are resolved, if they are resolved in favor of settlement approval. Questions? Visit www.__________. or contact the Settlement Administrator at [_________________] - 2 -

 
 If you have any questions, please read on and/or visit www.-------------.com or contact Class Counsel or the Settlement Administrator listed in questions 16 below. BASIC INFORMATION 1. Why did I get this notice? If you purchased any 4-pack, 6-pack, 12-pack, or 24-pack variety of Kona Beer from February 28, 2013 through __________, you may be a Class Member and have a right to know about the Settlement and your options. If you have received word of this Notice by e-mail, you have been identified from available records as a possible purchaser of the Kona Beer at issue in the lawsuit. You also may have received this Notice because you requested more information after reading the Settlement Website. If the Court approves the Settlement, and if objections and all appeals are resolved in favor of settlement approval, a settlement administrator approved by the Court will oversee the distribution of the Settlement Benefits that the proposed Settlement allows. You can follow the progress of the Settlement on the settlement website, www.--------- --. 2. What is this class action lawsuit about? The persons who sued are called the Plaintiffs, and the company they sued, Craft Brew Alliance, Inc., is called the Defendant or “CBA.” Plaintiffs and CBA are collectively referred to as “the Parties.” Plaintiffs brought this lawsuit on behalf of all other consumers who similarly purchased Kona Beers during the time period of February 28, 2013 through __________ (“Class Members”). This lawsuit alleges that Kona Beers were deceptively advertised as being brewed in Hawaii when they are actually brewed in the continental United States. CBA denies the allegations and has included on all Kona labels the mainland locations where Kona Beers are brewed throughout the time period. The Court has not determined which side is right. Rather, the Parties have agreed to settle the lawsuit to avoid the uncertainties, expenses and expenditure of resources associated with ongoing litigation. 3. Am I part of the Class? If you purchased any 4-pack, 6-pack, 12-pack, or 24-pack variety of Kona Beer from February 28, 2013 through __________, you may be a Class Member. Eligible varieties of Kona Beers include Longboard Island Lager, Hanalei IPA, Castaway IPA, Big Wave Golden Ale, Lemongrass Luau, Wailua Wheat, Fire Rock Pale Ale, Pipeline Porter, Lavaman Red Ale, Koko Brown Ale, Kua Bay IPA, Gold Cliff IPA, Kanaha Blonde Ale, Liquid Aloha Variety Pack, Island Hopper Variety Pack, Happy Mahalo Variety Pack, and Wave Rider Tandem Pack. Kona Beers that are sold without packaging (i.e., loose bottles, loose cans, and draft beer) are not included. You are not a member of the Class if: (a) you have timely and properly excluded yourself from the Settlement, explained in Question 8 below, (b) you are a retailer or distributor of Kona Beer or purchased Kona Beer for the purpose of re-selling the beer, (c) you are an employee of CBA or the law firms of the law firms representing the Parties, or (d) you are governmental entity or part of the Court’s immediate family or the Court’s staff. Questions? Visit www.__________. or contact the Settlement Administrator at [_________________] - 3 -

 
THE SETTLEMENT BENEFITS 4. What does the Settlement provide? The Settlement provides the following benefits: (1) monetary compensation to Class Members who submit valid and timely Claim Forms; and (2) injunctive relief whereby CBA will make certain changes to its business practices with respect to Kona Beers. Each is summarized below. Monetary Relief. The Settlement allows Class Members who submit timely and valid Claim Forms, without proof of purchase, to recover up to $10 per household, depending on the number of eligible Kona Beers purchased. Class Members who submit timely and valid Claim Forms, with proof of purchase, can recover up to $20 per household, depending on the number of eligible Kona Beers purchased. The following payments can be claimed for each eligible Kona Beer: i. 4-pack Kona Beers: $1.25 per unit. ii. 6-pack Kona Beers: $1.25 per unit. iii. 12-pack Kona Beers: $2.00 per unit. iv. 24-pack Kona Beers: $2.75 per unit Injunctive Relief. Under the Settlement, CBA has implemented as a result of this lawsuit, or will implement, the following practices with respect to the Kona Beers: i. CBA will include a statement on all Kona Beer packaging that lists each location where Kona Beers are brewed or lists the location or locations at which a particular Kona Beer is brewed, for a minimum of four years after the Effective Date of the Settlement. In addition, for a minimum of four years after the Effective Date of the Settlement, CBA shall revise the “invitation” statement on the top packaging, when used, to read: “Since 1994, Kona Brewing Co. has been committed to making craft ales and lagers of uncompromised quality. Come visit us at our Hawaii Brewery & Pub in Kailua-Kona, or at our pub on Oahu! Mahalo!” ii. CBA’s General Counsel or his designee will conduct yearly meetings with CBA’s marketing to review the injunctive terms of this Settlement, for a minimum of four years after the Effective Date of the Settlement. CBA will pay the costs to administer this Settlement, reasonable attorneys’ fees, costs and expenses, and a payment to the Plaintiffs (see question 12 below). A more detailed description of the foregoing can also be found in the Settlement Agreement here [insert hyperlink] or on the website --------------. 5. When will I get my monetary payment? The hearing to consider the fairness of the Settlement is scheduled for [Final Approval Hearing Date]. If the Court approves the Settlement, and you submit a Claim Form that is approved by the Settlement Administrator, you will receive payment within approximately 30 Questions? Visit www.__________. or contact the Settlement Administrator at [_________________] - 4 -

 
days after the Settlement has been finally approved and/or after any appeals process is complete approving the Settlement. The payment will be made in the form of a check or via electronic payment, whichever you prefer. HOW TO GET THE SETTLEMENT BENEFITS 6. How do I get my monetary payment? If you are a Class Member and want to receive a payment under the Settlement, you must complete and submit a Claim Form. Claims Forms can be found and submitted through the Settlement Website: ________ by no later than [Claims Deadline] or they can be mailed and postmarked to __________ by no later than [Claims Deadline]. To submit a Claim Form on-line or to request a paper copy, go to www._____________.com or call toll free, 1-800-XXX-XXXX. YOUR RIGHTS AND OPTIONS 7. What happens if I do nothing at all? If you do nothing, then you will remain in the Class and will not receive any payment from this Settlement. If the Court approves the Settlement, you will be bound by its terms, you will no longer have the ability to sue with respect to the claims being resolved by the Settlement, and your claims will be released and dismissed. The Settlement Agreement describes the released claims in more detail, so please read it carefully. If you have any questions, you can contact the lawyers listed in question 16 for free to discuss, or you can talk to another lawyer of your own choosing if you have questions about what this means. 8. How do I exclude myself from the Settlement? If you exclude yourself from the Settlement – which is sometimes called “opting-out” – you will not get any money from the Settlement. However, you may then be able to separately sue or continue to sue CBA for the legal claims that are the subject of the lawsuit. To exclude yourself from the Settlement, you must submit a valid and timely Request for Exclusion to the Settlement Administrator. In order to be valid, your Request for Exclusion must state that you “want to be excluded from the Settlement in Broomfield v. Craft Brew Alliance, Inc., Case No. 5:17-cv-01027-BLF” or words to similar effect that make clear your intention to be excluded from the Settlement. Your written Request for Exclusion must also include your name, current address, and telephone number. The request must also be signed and dated by you. In order to be timely, your request for exclusion must be submitted by [Objection/Exclusion Deadline] at www.---------- or by U.S. Mail, postmarked on or before that date. 9. How do I object to the Settlement? If you are a Class Member, you can object to the Settlement if you do not think it is fair. The Court will consider your views. However, you cannot ask the Court to order a different Questions? Visit www.__________. or contact the Settlement Administrator at [_________________] - 5 -

 
settlement; the Court can only approve or reject the Settlement. If the Court denies approval, no settlement payments will be sent out and the lawsuit will continue. If this is what you want to happen, you must object. To object, you must submit to the Court a written objection entitled “Objection to Class Settlement in Broomfield v. Craft Brew Alliance, Inc., No. 5:17-cv-01027-BLF” that identifies all the reasons for your objections and any legal and factual support for those reasons. Your written objection must also include (1) your name, address, telephone number, email address if available, and if represented by counsel, the foregoing information for your counsel; (2) whether you or your counsel intend on appearing at the Final Approval Hearing; (3) whether the objection applies only to you, to a specific subset of the Class, or the entire Class; (4) information/documents showing that you are a Class Member (i.e. Proof of Purchase or a verification under penalty of perjury as to purchase of Kona Beer during the Class Period). If you or an attorney assisting you with your objection have objected to any class action settlement in the previous 5 years, then you must include a list of those objections identifying each case by its caption or title. If you or your attorney have not objected to any class action settlements in the previous 5 years, then your objection will state that. You must submit your written objection to the Court, either by (1) mailing them to the Class Action Clerk, United States District Court for the Northern District of California, 280 South 1st Street, Courtroom 3, San Jose, CA 95113, or (2) filing them in person at any location of the United States District Court for the Northern District of California or via the ECF electronic filing system. The objection must be submitted by [Objection/Exclusion Deadline]. 10. What is the difference between objecting and excluding myself from the Settlement? Objecting means telling the Court that you do not like something about the Settlement. You can object only if you stay in the Class. Excluding yourself from the Settlement means that you do not want to be part of the Class. If you exclude yourself, then you have no basis to object to the Settlement. THE LAWYERS REPRESENTING YOU 11. Do I have a lawyer in this case? The Court appointed the law firms of Faruqi & Faruqi, LLP and the Wand Law Firm, P.C. to represent Class Members as “Class Counsel.” Class Counsel believe, after conducting an extensive investigation, that the Settlement is fair, reasonable, and in the best interests of the Class Members. You will not be charged for these lawyers. If you want to be represented by a different lawyer in this case, you may hire one at your own expense. If you have any questions about the Settlement, you can contact Class Counsel at the contact information listed in Question 16. Questions? Visit www.__________. or contact the Settlement Administrator at [_________________] - 6 -

 
12. How will the lawyers be paid? In addition to the monetary benefit to be paid to the Class Members, CBA has agreed to pay Class Counsel’s fees and costs in an amount to be determined by the Court not to exceed $2,900,000. The Court may award less than this amount. Any fees, costs, and expenses that are awarded to Class Counsel will be paid by CBA separately and in addition to the monetary benefits to Class Members. Also, subject to approval by the Court, CBA has agreed to pay $5,000 to each of the two Plaintiffs (“Service Awards”), in recognition of their efforts on behalf of the Class. THE COURT’S FINAL APPROVAL HEARING FOR THE SETTLEMENT 13. Where and when will the Court decide whether to approve the Settlement? The Court will hold the Final Approval at [time] on [date] in Courtroom 3 at the Robert F. Peckham Federal Building, located at 280 South 1st Street, Courtroom 3 San Jose, CA 95113. The purpose of the hearing will be for the Court to determine whether to approve the Settlement as fair, reasonable, adequate, and in the best interests of the Class; to consider Class Counsel’s request for attorneys’ fees and costs; and to consider the request for the Services Awards to the Plaintiffs. At that hearing, the Court will be available to hear any Objections and arguments concerning the fairness of the Settlement. The hearing may be postponed to a different date or time without notice, so please check www._______________.com or call 1-800-XXX-XXXX from time to time. If, however, you timely objected to the Settlement and advised the Court that you intend to appear and speak at the Final Approval Hearing, you will receive notice of any change in the time and date of such hearing. 14. Do I have to come to the Final Approval Hearing? No. You do not need to attend the Final Approval Hearing in order to receive payment under the Settlement. Class Counsel will answer any questions the Court may have on behalf of the Class Members. But, you are welcome to attend the Final Approval Hearing at your own expense. If you submit an Objection, you do not have to come to Court to talk about it. If you submitted your Objection on time, the Court will consider it. You may also pay to have another lawyer attend on your behalf, but that is not required. 15. May I speak at the Final Approval Hearing? Yes. You, or any lawyer you retain, may ask the Court for permission to speak at the Final Approval Hearing. To do so, you must include in your Objection to the Settlement a statement saying that it is your intent to appear at the Final Approval Hearing. Your Objection and notice of intent to appear must be submitted to the Court and postmarked no later than [Objection/Exclusion Deadline]. Questions? Visit www.__________. or contact the Settlement Administrator at [_________________] - 7 -

 
GETTING MORE INFORMATION 16. Are more details available? Yes. This Notice summarizes the Settlement. For the precise terms and conditions of the Settlement, please see the Settlement Agreement available at www.____________.com, by contacting Class Counsel at the information listed below, or by accessing the Court docket in this case, for a fee, through the Court’s Public Access to Court Electronic Records (PACER) system at https://ecf.cand.uscourts.gov, or by visiting the office of the Clerk of the Court for the United States District Court for the Northern District of California, 280 South 1st Street, Courtroom 3 San Jose, CA 95113, between 9:00 a.m. and 4:00 p.m., Monday through Friday, excluding Court holidays. You can also call the Settlement Administrator at 1-800-XXX- XXXX. Class Counsel Contact Information FARUQI & FARUQI, LLP Joshua Nassir 10866 Wilshire Boulevard, Suite 1470 Los Angeles, CA 90024 Telephone: (424) 256-2884 THE WAND LAW FIRM, P.C. Aubry Wand 400 Corporate Pointe, Suite 300 Culver City, California 90230 Telephone: (310) 590-4503 Email: konabeersettlement@gmail.com PLEASE DO NOT TELEPHONE THE COURT OR THE COURT CLERK’S OFFICE TO INQUIRE ABOUT THIS SETTLEMENT OR THE CLAIM PROCESS Questions? Visit www.__________. or contact the Settlement Administrator at [_________________] - 8 -

 
Exhibit 4

 
1 2 3 4 5 6 7 8 9 10 11 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA 12 SAN JOSE DIVISION 13 14 THEODORE BROOMFIELD, et al., CASE NO.: 5:17-cv-01027-BLF 15 Plaintiffs, [PROPOSED] ORDER GRANTING PRELIMINARY APPROVAL OF CLASS 16 v. ACTION SETTLEMENT 17 CRAFT BREW ALLIANCE, INC., et al., 18 Defendants. 19 20 21 22 23 24 25 26 27 28 CcSTIPUC [PROPOSED] ORDER GRANTING PRELIMINARY APPROVAL OF CLASS ACTION SETTLEMENT CASE NO. 5:17-CV-01027-BLF

 
1 [PROPOSED] ORDER GRANTING PRELIMINARY APPROVAL OF CLASS ACTION SETTLEMENT 2 3 Plaintiffs Theodore Broomfield and Simone Zimmer (“Plaintiffs”) and Defendant Craft 4 Brew Alliance, Inc. ( “Defendant” or “CBA”) have entered into a Settlement Agreement, which, 5 together with the exhibits attached thereto, sets forth the terms and conditions for a proposed 6 settlement and dismissal of the Action with prejudice as to CBA upon the terms and conditions set 7 forth therein (the “Settlement Agreement”). 8 The Court has before it Plaintiffs’ Unopposed Motion for Preliminary Approval of Class 9 Action Settlement (“Motion”) (ECF No. __). After reviewing the Motion, the Settlement 10 Agreement and exhibits thereto, the arguments and authorities presented by the Parties and their 11 counsel at the Preliminary Approval Hearing held on June 13, 2019 and the record in the Action, 12 and good cause appearing, 13 IT IS HEREBY ORDERED, ADJUDGED AND DECREED AS FOLLOWS: 14 1. Terms and phrases in this Order shall have the same meaning as ascribed to them in 15 the Settlement Agreement, unless otherwise defined herein. 16 2. The Parties have moved the Court for an order approving the Settlement of the 17 Action in accordance with the Settlement Agreement, which, together with the documents 18 incorporated therein, sets forth the terms and conditions for a proposed settlement and dismissal of 19 the Action with prejudice, and the Court having read and considered the Settlement Agreement 20 and having heard the Parties, hereby preliminarily approves the Settlement Agreement in its 21 entirety subject to the Final Approval Hearing referred to in Paragraph 20 of this Order. 22 3. This Court finds that it has jurisdiction over the subject matter of this Action and 23 over all Parties to the Action. 24 4. The Court finds that, subject to the Final Approval Hearing, the Settlement 25 Agreement is fair, reasonable, and adequate, within the range of possible approval, and in the best 26 interests of the Settlement Class defined below. The Court further finds that the Settlement 27 Agreement substantially fulfills the purposes and objectives of the class action, and provides 28 substantial relief to the Settlement Class without the risks, burdens, costs, or delay associated with -2- [PROPOSED] ORDER GRANTING PRELIMINARY APPROVAL OF CLASS ACTION SETTLEMENT CASE NO. 5:17-CV-01027-BLF

 
1 continued litigation, trial, and/or appeal. The Court also finds that the Settlement Agreement: (a) is 2 the result of arm’s-length negotiations between experienced class action attorneys; (b) is sufficient 3 to warrant notice of the Settlement and the Final Approval Hearing to be disseminated to the 4 Settlement Class; (c) meets all applicable requirements of law, including Federal Rule of Civil 5 Procedure 23 and the Class Action Fairness Act (“CAFA”), 28 U.S.C. § 1715, the U.S. 6 Constitution, and the Northern District of California’s Procedural Guidance for Class Action 7 Settlements; and (d) is not a finding or admission of liability by CBA or any other person(s), nor a 8 finding of the validity of any claims asserted in the Action or of any wrongdoing or any violation 9 of law. 10 Certification of the Settlement Class 11 5. For purposes of settlement only: (a) Faruqi & Faruqi, LLP and the Wand Law 12 Firm, P.C. are appointed Class Counsel for the Settlement Class; and (b) Plaintiffs Theodore 13 Broomfield and Simone Zimmer are appointed Class Representatives for the Settlement Class. 14 The Court finds that these attorneys are competent and capable of exercising the responsibilities of 15 Settlement Class Counsel and that Plaintiffs will adequately protect the interests of the Settlement 16 Class defined below. 17 6. For purposes of settlement only, the Court conditionally certifies the following 18 Settlement Class as defined in the Settlement Agreement: 19 All Persons who purchased any four-pack, six-pack, twelve-pack or twenty-four pack of Kona Beers in the United States, it territories, or at any Untied States military facility, 20 during the Class Period. 21 For the purposes of this definition, individuals living in the same household shall be 22 deemed to be a single Class Member. 23 Kona Beers are defined as all 4-pack, 6-pack, 12-pack, or 24-pack of Longboard Island 24 Lager, Hanalei IPA, Castaway IPA, Big Wave Golden Ale, Lemongrass Luau, Wailua Wheat, Fire 25 Rock Pale Ale, Pipeline Porter, Lavaman Red Ale, Koko Brown Ale, Kua Bay IPA, Gold Cliff 26 IPA, Kanaha Blonde Ale, Liquid Aloha Variety Pack, Island Hopper Variety Pack, Happy Mahalo 27 28 -3- [PROPOSED] ORDER GRANTING PRELIMINARY APPROVAL OF CLASS ACTION SETTLEMENT CASE NO. 5:17-CV-01027-BLF

 
1 Variety Pack, and Wave Rider Tandem Pack. Excluded from this definition are all Kona Beers 2 that are sold without packaging (i.e., loose bottles, loose cans, and draft beer). 3 Excluded from the Settlement Class are: (a) CBA’s employees, officers and directors, (b) 4 distributors, retailers or re-sellers of Kona Beers, (c) governmental entities, (d) persons who timely 5 and properly exclude themselves from the Settlement Class as provided herein, (e) the Court, the 6 Court’s immediate family, and Court staff, and (f) counsel of record for the Parties and their 7 respective law firms. 8 7. The Court finds, subject to the Final Approval Hearing referred to in Paragraph 20 9 below, that, solely within the context of and for the purposes of settlement only, the Settlement 10 Class satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure, specifically, 11 that: (a) the Settlement Class is so numerous that joinder of all members is impracticable; (b) there 12 are questions of fact and law common to the Settlement Class; (c) the claims of the Class 13 Representatives are typical of the claims of the members of the Settlement Class; (d) the Class 14 Representatives and Class Counsel will fairly and adequately protect the interests of the members 15 of the Settlement Class; (d) common questions of law or fact predominate over questions affecting 16 individual members; and (e) a class action is a superior method for fairly and efficiently 17 adjudicating the Action. 18 8. If the Settlement Agreement does not receive the Court’s final approval, if final 19 approval is reversed on appeal, or if the Settlement Agreement is terminated or otherwise fails to 20 become effective, the Court’s grant of conditional class certification of the Settlement Class shall 21 be vacated, the Parties shall revert to their positions in the Action as they existed prior to the 22 Settlement Agreement, and the Class Representatives and the Class Members will once again bear 23 the burden to prove their claims at trial. 24 Notice and Administration 25 9. The Court approves, as to form, content, and distribution, the Notice Plan set forth 26 in the Settlement Agreement, including the Claim Form attached to the Settlement Agreement as 27 Exhibit 1, all forms of Notice to the Settlement Class as set forth in the Settlement Agreement and 28 Exhibits 2 and 3 thereto, and finds that such Notice is the best notice practicable under the -4- [PROPOSED] ORDER GRANTING PRELIMINARY APPROVAL OF CLASS ACTION SETTLEMENT CASE NO. 5:17-CV-01027-BLF

 
1 circumstances, and that the Notice complies fully with the requirements of the Federal Rules of 2 Civil Procedure. The Court further finds that the Notice is reasonably calculated to, under all 3 circumstances, reasonably apprise members of the Settlement Class of the pendency of this 4 Action, the terms of the Settlement Agreement, and the right to object to the Settlement and to 5 exclude themselves from the Settlement Class. The Court also finds that the Notice constitutes 6 valid, due and sufficient notice to all persons entitled thereto, and meets the requirements of Due 7 Process. The Court further finds that the Notice Plan fully complies with the Northern District of 8 California’s Procedural Guidance for Class Action Settlements. 9 10. The Parties have jointly selected a reputable settlement administration company, 10 CPT Group, Inc. (“CPT”), to serve as the Settlement Administrator. The Court hereby appoints 11 and authorizes CPT to be the Settlement Administrator, and thereby to perform and execute the 12 notice responsibilities set forth in the Settlement Agreement. 13 11. The Parties, without further approval from the Court, are hereby permitted to revise 14 the Claim Form and forms of Notice to the Settlement Class (Exhibits 1 through 3 of the 15 Settlement Agreement) in ways that are appropriate to update those documents for purposes of 16 accuracy or formatting, so long as they are consistent in all material respects with the Settlement 17 Agreement and this Order. 18 12. The Court finds that CBA has fully complied with the notice provisions of the 19 Class Action Fairness Act of 2005, 28 U.S.C, § 1715, as described in the Declaration of Tammy 20 B. Webb. 21 Submission of Claims and Requests for Exclusion from Class 22 13. Class Members who wish to receive benefits under the Settlement Agreement must 23 complete and submit a timely and valid Claim Form in accordance with the instructions contained 24 therein. All Claim Forms must be postmarked or electronically submitted by _____________ 25 (“Claims Deadline”) 26 14. Any person falling within the definition of the Settlement Class may, upon valid 27 and timely request, exclude him or herself or “opt out” from the Settlement Class. Any such 28 person may do so if, on or before _______________ (“Objection/Exclusion Deadline”), they -5- [PROPOSED] ORDER GRANTING PRELIMINARY APPROVAL OF CLASS ACTION SETTLEMENT CASE NO. 5:17-CV-01027-BLF

 
1 comply with the exclusion procedures set forth in the Settlement Agreement. Any members of the 2 Class so excluded shall neither be bound by the terms of the Settlement Agreement nor entitled to 3 any of its benefits. 4 15. Class Members who fail to submit a valid and timely request for exclusion shall be 5 bound by all terms of the Settlement Agreement and the Final Judgment (if issued), regardless of 6 whether they have requested exclusion from the Settlement Agreement, regardless of whether they 7 have submitted a Claim Form, and regardless of whether that Claim Form has been deemed valid. 8 Objections and Appearances 9 16. Any Class Member who has not timely filed a Request for Exclusion may object to 10 the fairness, reasonableness, or adequacy of the Settlement Agreement, to a Final Judgment being 11 entered dismissing the Action with prejudice, to the attorneys’ fees and costs sought by Class 12 Counsel, or to the service awards sought for the Class Representatives in the amounts as set forth 13 in the Notice and Settlement Agreement. 14 17. Any Class Member who wishes to object must do so by on or before the 15 Objection/Exclusion Deadline of ___________. Settlement Class Members shall submit written 16 objection to the Court, either by (1) mailing them to the Class Action Clerk, United States District 17 Court for the Northern District of California, 280 South 1st Street, Courtroom 3, San Jose, CA 18 95113, or (2) filing them in person at any location of the United States District Court for the 19 Northern District of California or via the ECF electronic filing system. 20 18. To validly object, the objection must comply with the objection procedures set 21 forth in the Settlement Agreement, and include the following: (1) a caption or title that identifies it 22 as “Objection to Class Settlement in Broomfield v. Craft Brew Alliance, Inc., No. 5-17-cv-01027- 23 BLF” (2) the Settlement Class Member’s name, address, telephone number, and if available, email 24 address, and if represented by counsel, the foregoing information for his/her counsel; (3) whether 25 the Settlement Class Member, or his or her counsel, intends to appear at the Final Approval 26 Hearing; (4) whether the objection applies only to the Settlement Class Member, to a specific 27 subset of the Settlement Class, or to the entire Settlement Class; (5) a clear and concise statement 28 of the Settlement Class Member’s Objection, including all bases and legal grounds for the -6- [PROPOSED] ORDER GRANTING PRELIMINARY APPROVAL OF CLASS ACTION SETTLEMENT CASE NO. 5:17-CV-01027-BLF

 
1 Objection; (5) documents sufficient to establish the person’s standing as a Settlement Class 2 Member, i.e., verification under penalty of perjury as to the person’s purchase of Kona Beers or a 3 Proof of Purchase; and (6) a list of any other objections submitted by the Settlement Class 4 Member, or his/her counsel, to any proposed class action settlements submitted in any court, 5 whether state or federal, in the United States for the previous five (5) years. If the Settlement Class 6 Member or his/her counsel has not objected to any other class action settlement in any other court 7 in the previous five (5) years, he or she shall affirmatively state so. 8 19. Class Members who fail to file and serve timely written objections in compliance 9 with the requirements of the foregoing paragraph and the Settlement Agreement shall be deemed 10 to have waived any objections and shall be foreclosed from making any objections (whether by 11 appeal or otherwise) to the Settlement Agreement and to any of the following: (a) whether the 12 proposed settlement of the Action on the terms and conditions provided for in the Settlement 13 Agreement is fair, reasonable, and adequate and should be given final approval by the Court; (b) 14 whether a judgment and order of dismissal with prejudice should be entered; (c) whether to 15 approve the Fee Award to Class Counsel; and (d) whether to approve the payment of an Class 16 Representative Incentive Awards to the Class Representatives. 17 Final Approval Hearing 18 20. The Final Approval Hearing shall be held before this Court on ________________, 19 at _________ in Courtroom 3 at the Robert F. Peckham Federal Building, located at 280 South 1st 20 Street, Courtroom 3 San Jose, CA 95113, to determine: (a) whether the proposed Settlement 21 Agreement is fair, reasonable, and adequate and should be given final approval by the Court; (b) 22 whether a final judgment and order of dismissal with prejudice should be entered; (c) whether to 23 approve the payment of the Fee Award to Class Counsel; and (d) whether to approve the payment 24 of the Class Representative Service Awards to the Class Representatives. 25 21. Plaintiffs and Class Counsel shall file their Motion for Final Approval by no later 26 than ___________. 27 22. Plaintiffs and Class Counsel shall file their Fee Application by no later thirty-five 28 (35) calendar days before the Objection/Exclusion Deadline and the Claim Deadline. -7- [PROPOSED] ORDER GRANTING PRELIMINARY APPROVAL OF CLASS ACTION SETTLEMENT CASE NO. 5:17-CV-01027-BLF

 
1 Related Orders 2 23. All further proceedings in the Action are ordered stayed until Final Judgment or 3 termination of the Settlement Agreement, whichever occurs earlier, except for those matters 4 necessary to obtain and/or effectuate final approval of the Settlement Agreement. 5 24. Class Members shall be bound by all determinations and judgments in the Action 6 concerning the Action and/or Settlement Agreement, whether favorable or unfavorable. 7 25. The Court retains jurisdiction to consider all further applications arising out of or 8 connected with the proposed Settlement Agreement. The Court may approve the Settlement, with 9 such modifications as may be agreed to by the Parties, if appropriate, without further notice to the 10 Class. 11 26. Any Settlement Class Member who does not submit a timely and valid Claim 12 Form: (a) shall be forever barred from receiving any monetary payment under the Settlement; (b) 13 shall be bound by the provisions of the Settlement Agreement and all proceedings, determinations, 14 orders and judgments in the Action relating thereto, including, without limitation, the Final 15 Judgment, if applicable, and the Releases provided for therein, whether favorable or unfavorable 16 to the Settlement Class Member. 17 27. If the Settlement receives Final Approval, all Settlement Class Members shall 18 forever be barred and enjoined from directly or indirectly filing, commencing, instituting, 19 prosecuting, maintaining, or intervening in any action, suit, cause of action, arbitration, claim, 20 demand, or other proceeding in any jurisdiction, whether in the United States or elsewhere, on 21 their own behalf or in a representative capacity, that is based upon or arises out of any or all of the 22 Released Claims against CBA and the other Released Parties, as more fully described in the 23 Settlement Agreement. 24 28. If the Settlement Agreement is not approved by the Court in complete accordance 25 with its terms, each party will have the option of having the Action revert to its status as if the 26 Settlement Agreement had not been negotiated, made, or filed with the Court. In such event, the 27 Parties will retain all rights as if the Settlement Agreement was never agreed upon. 28 -8- [PROPOSED] ORDER GRANTING PRELIMINARY APPROVAL OF CLASS ACTION SETTLEMENT CASE NO. 5:17-CV-01027-BLF

 
1 29. In the event that the Settlement Agreement is terminated pursuant to the provisions 2 of the Settlement Agreement or for any reason whatsoever the approval of it does not become 3 Final then: (a) the Settlement Agreement shall be null and void, including any provision related to 4 the award of attorneys’ fees, costs and expenses, and shall have no further force and effect with 5 respect to any party in this Action, and shall not be used in this Action or in any other proceeding 6 for any purpose; (b) all negotiations, proceedings, documents prepared, and statements made in 7 connection therewith shall be without prejudice to any person or party hereto, shall not be deemed 8 or construed to be an admission by any party of any act, matter, or proposition, and shall not be 9 used in any manner or for any purpose in any subsequent proceeding in this Action or in any other 10 action in any court or other proceeding, provided, however, that the termination of the Settlement 11 Agreement shall not shield from subsequent discovery any factual information provided in 12 connection with the negotiation of this Settlement Agreement that would ordinarily be 13 discoverable but for the attempted settlement; (c) other than as expressly preserved by the 14 Settlement Agreement in the event of its termination, the Settlement Agreement shall have no 15 further force and effect with respect to any party and shall not be used in the Action or any other 16 proceeding for any purpose; and (d) any party may elect to move the Court pursuant to the 17 provisions of this paragraph, and none of the non-moving parties (or their counsel) shall oppose 18 any such motion. 19 20 IT IS SO ORDERED. 21 DATED: ______________________ ______________________________ 22 Honorable Beth Labson Freeman United States District Judge 23 24 25 26 27 28 -9- [PROPOSED] ORDER GRANTING PRELIMINARY APPROVAL OF CLASS ACTION SETTLEMENT CASE NO. 5:17-CV-01027-BLF

 
Exhibit 5

 
1 2 3 4 5 6 7 8 9 10 11 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA 12 SAN JOSE DIVISION 13 14 THEODORE BROOMFIELD, et al., CASE NO.: 5:17-cv-01027-BLF 15 Plaintiffs, [PROPOSED] ORDER GRANTING FINAL APPROVAL OF CLASS ACTION 16 v. SETTLEMENT 17 CRAFT BREW ALLIANCE, INC., et al., 18 Defendants. 19 20 21 22 23 24 25 26 27 28 CcSTIPUC [PROPOSED] ORDER GRANTING FINAL APPROVAL OF CLASS ACTION SETTLEMENT CASE NO. 5:17-CV-01027-BLF

 
1 [PROPOSED] ORDER GRANTING FINAL APPROVAL OF CLASS ACTION SETTLEMENT 2 3 Plaintiffs Theodore Broomfield and Simone Zimmer (“Plaintiffs”) and Defendant Craft 4 Brew Alliance, Inc. ( “Defendant” or “CBA”) have entered into a Settlement Agreement, which, 5 together with the exhibits attached thereto, sets forth the terms and conditions for a proposed 6 settlement and dismissal of the Action with prejudice as to CBA upon the terms and conditions set 7 forth therein (the “Settlement Agreement”). 8 On _______________, the Court granted Plaintiffs’ Motion for Preliminary Approval of 9 Class Action Settlement (“Preliminary Approval Order”), conditionally certifying the following 10 Settlement Class pursuant to Fed. R. Civ. P. 23(b)(3): 11 All Persons who purchased any four-pack, six-pack, twelve-pack or twenty-four pack of 12 Kona Beers in the United States, it territories, or at any Untied States military facility, during the Class Period. 13 Kona Beers are defined as all 4-pack, 6-pack, 12-pack, or 24-pack of Longboard Island 14 Lager, Hanalei IPA, Castaway IPA, Big Wave Golden Ale, Lemongrass Luau, Wailua Wheat, Fire 15 Rock Pale Ale, Pipeline Porter, Lavaman Red Ale, Koko Brown Ale, Kua Bay IPA, Gold Cliff 16 IPA, Kanaha Blonde Ale, Liquid Aloha Variety Pack, Island Hopper Variety Pack, Happy Mahalo 17 Variety Pack, and Wave Rider Tandem Pack. Excluded from this definition are all Kona Beers 18 that are sold without packaging (i.e., loose bottles, loose cans, and draft beer). 19 For the purposes of this definition, individuals living in the same household shall be 20 deemed to be a single Class Member. 21 Excluded from the Settlement Class are: (a) CBA’s employees, officers and directors, (b) 22 distributors, retailers or re-sellers of Kona Beers, (c) governmental entities, (d) persons who timely 23 and properly exclude themselves from the Settlement Class as provided herein, (e) the Court, the 24 Court’s immediate family, and Court staff, and (f) counsel of record for the Parties and their 25 respective law firms. 26 Pursuant to the notice requirements set forth in the Settlement Agreement and in the 27 Preliminary Approval Order, the Settlement Class was notified of the terms of the proposed 28 -2- [PROPOSED] ORDER GRANTING FINAL APPROVAL OF CLASS ACTION SETTLEMENT CASE NO. 5:17-CV-01027-BLF

 
1 Settlement, of the right of members of the Settlement Class to opt-out, and of the right of members 2 of the Settlement Class to be heard at a Final Approval Hearing to determine, inter alia: (a) 3 whether the terms and conditions of the Settlement Agreement are fair, reasonable, and adequate 4 for the release of the claims contemplated by the Settlement Agreement; and (b) whether judgment 5 should be entered dismissing this Action with prejudice. 6 The Court has before it Plaintiffs’ Motion for Final Approval of Class Action Settlement 7 (ECF No. __), Plaintiffs’ Motion for Attorneys’ Fees and Costs and Class Representative Service 8 Awards (ECF No. __), together with the Settlement Agreement and exhibits thereto, the 9 arguments and authorities presented by the Parties and their counsel at the Final Approval Hearing 10 held on [____________], and the record in the Action, and good cause appearing, 11 IT IS HEREBY ORDERED, ADJUDGED AND DECREED AS FOLLOWS: 12 1. Terms and phrases in this Order shall have the same meaning as ascribed to them in 13 the Settlement Agreement, unless otherwise defined herein. 14 2. This Court has jurisdiction over the subject matter of the Action and over all Parties 15 to the Action, including all Settlement Class Members. 16 3. The notice provided to the Settlement Class pursuant to the Settlement Agreement 17 and Preliminary Approval Order – including (i) direct notice to the Settlement Class via email, (ii) 18 the creation of the Settlement Website, and (iii) the dissemination of Notice via publication and 19 media notice – fully complied with the requirements of Fed. R. Civ. P. 23 and due process, was 20 reasonably calculated under the circumstances to apprise the Settlement Class of the pendency of 21 the Action, their right to object to or to exclude themselves from the Settlement Agreement, and 22 their right to appear at the Final Approval Hearing. 23 4. The Court finds that Defendant properly and timely notified the appropriate 24 government officials of the Settlement Agreement, pursuant to the Class Action Fairness Act of 25 2005 (“CAFA”), 28 U.S.C. § 1715. The Court has reviewed the substance of the CAFA notice 26 provided by CBA, and finds that it complied with all applicable requirements of CAFA. Further, 27 more than ninety (90) days have elapsed since CBA served notice pursuant to CAFA, rendering 28 this Order on Final Approval appropriate under 28 U.S.C. § 1715(d). -3- [PROPOSED] ORDER GRANTING FINAL APPROVAL OF CLASS ACTION SETTLEMENT CASE NO. 5:17-CV-01027-BLF

 
1 5. This Court now gives final approval to the Settlement Agreement, and finds that 2 the Settlement Agreement is fair, reasonable, adequate, and in the best interests of the Settlement 3 Class. The settlement consideration provided under the Settlement Agreement constitutes fair 4 value given in exchange for the release of the Released Claims against the Released Parties. The 5 Court finds that the consideration to be paid to members of the Settlement Class is reasonable, and 6 in the best interests of the Settlement Class Members, considering the total value of their claims 7 compared to (i) the disputed factual and legal circumstances of the Action, (ii) affirmative 8 defenses asserted in the Action, and (iii) the potential risks and likelihood of success of pursuing 9 litigation on the merits. The complex legal and factual posture of this case, the amount of 10 discovery completed, and the fact that the Settlement is the result of arm’s-length negotiations 11 between the Parties all support this finding. The Court finds that these facts, in addition to the 12 Court’s observations throughout the litigation, demonstrate that there was no collusion present in 13 the reaching of the Settlement Agreement, implicit or otherwise. 14 6. The Court has considered the factors relevant to class action settlement approval, 15 including: (1) the strength of the plaintiffs’ case; (2) the risk, expense, complexity, and likely 16 duration of further litigation; (3) the risk of maintaining class action status throughout the trial; (4) 17 the amount offered in settlement; (5) the extent of discovery completed and the stage of the 18 proceedings; (6) the experience and views of counsel; (7) the presence of a governmental 19 participant; and (8) the reaction of the class members to the proposed settlement. In re Online 20 DVD-Rental Antitrust Litig., 779 F.3d 934, 944 (9th Cir. 2015). 21 7. The Court has also considered the requirements of Rule 23(e) of the Federal Rules 22 of Civil Procedure, including: 23 (A) the class representatives and class counsel have adequately represented the class; (B) the proposal was negotiated at arm’s length; 24 (C) the relief provided for the class is adequate, taking into account: (i) the costs, risks, and delay of trial and appeal; 25 (ii) the effectiveness of any proposed method of distributing relief to the class, 26 including the method of processing class-member claims; (iii) the terms of any proposed award of attorney’s fees, including timing of 27 payment; and (iv) any agreement required to be identified under Rule 23(e)(3); and 28 (D) the proposal treats class members equitably relative to each other. -4- [PROPOSED] ORDER GRANTING FINAL APPROVAL OF CLASS ACTION SETTLEMENT CASE NO. 5:17-CV-01027-BLF

 
1 The Court finds that all of the factors enumerated in Rule 23(e)(2) weigh in favor of 2 granting final approval of the settlement. 3 8. The Court finds that the Class Representatives and Class Counsel adequately 4 represented the Settlement Class for the purposes of litigating this matter and entering into and 5 implementing the Settlement Agreement. 6 9. Accordingly, the Settlement is hereby finally approved in all respects, and the 7 Court certifies the following Settlement Class: 8 All Persons who purchased any four-pack, six-pack, twelve-pack or twenty-four pack of Kona Beers in the United States, it territories, or at any Untied States military facility, 9 during the Class Period. 10 Kona Beers are defined as all 4-pack, 6-pack, 12-pack, or 24-pack of Longboard Island 11 Lager, Hanalei IPA, Castaway IPA, Big Wave Golden Ale, Lemongrass Luau, Wailua Wheat, Fire 12 Rock Pale Ale, Pipeline Porter, Lavaman Red Ale, Koko Brown Ale, Kua Bay IPA, Gold Cliff 13 IPA, Kanaha Blonde Ale, Liquid Aloha Variety Pack, Island Hopper Variety Pack, Happy Mahalo 14 Variety Pack, and Wave Rider Tandem Pack. Excluded from this definition are all Kona Beers 15 that are sold without packaging (i.e., loose bottles, loose cans, and draft beer). 16 For the purposes of this definition, individuals living in the same household shall be 17 deemed to be a single Class Member. 18 Excluded from the Settlement Class are: (a) CBA’s employees, officers and directors, (b) 19 distributors, retailers or re-sellers of Kona Beers, (c) governmental entities, (d) persons who timely 20 and properly exclude themselves from the Settlement Class as provided herein, (e) the Court, the 21 Court’s immediate family, and Court staff, and (f) counsel of record for the Parties and their 22 respective law firms. 23 10. The Court finds that the requirements of Rule 23(b)(3) of the Federal Rules of Civil 24 Procedure have been satisfied for certification of the Settlement Class because: Settlement Class 25 Members are so numerous that joinder of all members is impracticable; there are questions of law 26 and fact common to the Settlement Class; the claims and defenses of the Class Representatives are 27 typical of the claims and defenses of the Settlement Class they represent; the Class 28 Representatives have fairly and adequately protected the interests of the Settlement Class with -5- [PROPOSED] ORDER GRANTING FINAL APPROVAL OF CLASS ACTION SETTLEMENT CASE NO. 5:17-CV-01027-BLF

 
1 regard to the claims of the Settlement Class they represent; common questions of law and fact 2 predominate over questions affecting only individual Settlement Class Members, rendering the 3 Settlement Class sufficiently cohesive to warrant a class settlement; and the certification of the 4 Settlement Class is superior to individual litigation and/or settlement as a method for the fair and 5 efficient resolution of this matter. The Court additionally finds, for the reasons set forth in 6 Plaintiffs’ motions for preliminary and final approval, that despite any differences among the laws 7 of the various states, common issues of law and fact predominate, making certification of a 8 nationwide class appropriate. In particular, the various states require similar elements of proof 9 with respect to Plaintiffs’ claim for unjust enrichment, and because the identical challenged 10 packaging was provided to all Class Members nationwide, any minor variations in the elements of 11 unjust enrichment under the laws of the various states are not material, do not create a conflict, 12 and do not outweigh a finding of predominance regarding the core factual and legal question 13 presented in this action: whether the packaging of Kona Beers employed uniformly by CBA 14 nationwide would likely deceive a reasonable consumer. 15 11. The Parties are hereby directed to further implement the Settlement Agreement 16 according to its terms and provisions. The Settlement Agreement is hereby incorporated into this 17 Final Order in full and shall have the full force of an Order of this Court. 18 12. Upon the Effective Date of this Final Order, and the Final Judgment to be entered 19 hereon, this Action shall be dismissed on the merits and with prejudice. 20 13. Upon the Effective Date of this Final Order, and the Final Judgment to be entered 21 hereon, Plaintiffs and each and every Settlement Class Member who has not submitted a timely 22 and valid Request for Exclusion (listed in the Declaration of ____________), and any Person 23 claiming by or through such Settlement Class Member as his/her spouse, parent, child, heir, 24 guardian, associate, co-owner, attorney, agent, administrator, devisee, predecessor, successor, 25 assignee, representative of any kind, shareholder, partner, director, employee, or affiliate 26 (“Releasing Parties”) shall be deemed to have released CBA and all of its past, present and/or 27 future parents, predecessors, successors, assigns, subsidiaries, divisions, departments, and 28 affiliates, and any and all of their past, present and/or future officers, directors, employees, -6- [PROPOSED] ORDER GRANTING FINAL APPROVAL OF CLASS ACTION SETTLEMENT CASE NO. 5:17-CV-01027-BLF

 
1 stockholders, partners, agents, servants, successors, attorneys, representatives, advisors, 2 consultants, brokers, distributors, wholesalers, subrogees and assigns of any of the foregoing, and 3 representatives of any of the foregoing (“Released Parties”), from any claim, cross-claim, liability, 4 right, demand, suit, matter, obligation, damage, restitution, disgorgement, loss or cost, attorneys’ 5 fee, cost or expense, action or cause of action, of every kind and description that the Releasing 6 Party had or has, including assigned claims, whether in arbitration, administrative, or judicial 7 proceedings, whether as individual claims or as claims asserted on a class basis or on behalf of the 8 general public, whether known or unknown, asserted or unasserted, suspected or unsuspected, 9 latent or patent, that is, has been, could reasonably have been or in the future might reasonably be 10 asserted by the Releasing Party in the Action against any of the Released Parties arising out of the 11 allegations in the complaints filed in the Action (“Released Claims”). Excluded from these 12 Released Claims is any claim for alleged bodily injuries arising after the Effective Date of this 13 Settlement Agreement. 14 With respect to all Released Claims, Plaintiffs and each of the other Settlement Class 15 Members who have not validly opted out of this Settlement agree that they are expressly waiving 16 and relinquishing to the fullest extent permitted by law (a) the provisions, rights and benefits 17 conferred by Section 1542 of the California Civil Code, which provides: 18 A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR 19 HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR 20 HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY 21 and (b) any law of any state or territory of the United States, federal law, or principle of 22 common law, or of international or foreign law, that is similar, comparable or equivalent to 23 Section 1542 of the California Civil Code. 24 14. Upon the Effective Date of this Final Order, and the Final Judgment to be entered 25 hereon, the above release of claims and the Settlement Agreement will be binding on, and will 26 have res judicata and preclusive effect on, all pending and future lawsuits or other proceedings 27 maintained by or on behalf of Plaintiffs and all other Settlement Class Members and Releasing 28 -7- [PROPOSED] ORDER GRANTING FINAL APPROVAL OF CLASS ACTION SETTLEMENT CASE NO. 5:17-CV-01027-BLF

 
1 Parties. All Settlement Class Members are hereby permanently barred and enjoined from filing, 2 commencing, prosecuting, intervening in, or participating (as class members or otherwise) in any 3 lawsuit or other action in any jurisdiction based on or arising out of any of the Released Claims. 4 15. This Final Approval Order, the Final Judgment to be entered hereon, the Settlement 5 Agreement, the Settlement which it reflects and all acts, statements, documents or proceedings 6 relating to the Settlement are not, and shall not be construed as, used as, or deemed to be evidence 7 of, an admission by or against CBA of any fault, wrongdoing, or liability on the part of CBA or of 8 the validity for litigation of any claims that have been, or could have been, asserted in the Action. 9 This Order, the Settlement or any such communications shall not be offered or received in 10 evidence in any action of proceeding, or be used in any way as an admission or concession or 11 evidence of any liability or wrongdoing of any nature or that Plaintiffs, any Settlement Class 12 Member, or any other person has suffered any damage; provided, however, that the Settlement, 13 this Order and the Final Judgment to be entered hereon may be filed in any action by CBA or 14 Settlement Class Member seeking to enforce the Settlement or the Final Judgment by injunctive or 15 other relief, or to assert defenses including, but not limited to, res judicata, collateral estoppel, 16 release, good faith settlement, or any theory of claim preclusion or issue preclusion or similar 17 defense or counterclaim. The Settlement’s terms shall be forever binding on, and shall have res 18 judicata and preclusive effect in, all pending and future lawsuits or other proceedings as to 19 Released Claims and other prohibitions set forth in this Order that are maintained by, or on behalf 20 of, the Settlement Class Members or any other person subject to the provisions of this Order. 21 16. As stated in more detail in the Court’s Order Granting Plaintiffs’ Motion for 22 Attorneys’ Fees and Costs and Class Representative Service Awards (ECF No. ___), the Court 23 herby Orders that the payment of attorneys’ fees, costs, and expenses in the amount of 24 $2,900,000.00 is fair, reasonable, and justified in light of Class Counsel’s efforts in this Action. 25 This award includes Class Counsel’s unreimbursed litigation expenses of _________. Such 26 payment shall be made pursuant to and in the manner provided by the terms of the Settlement 27 Agreement. The Court further Orders that the payment of Class Representative Service Awards in 28 the amount of $5,000.00 to each of the two Plaintiffs to compensate them for their efforts and -8- [PROPOSED] ORDER GRANTING FINAL APPROVAL OF CLASS ACTION SETTLEMENT CASE NO. 5:17-CV-01027-BLF

 
1 commitment on behalf of the Settlement Class, is fair, reasonable, and justified under the 2 circumstances of this case. Such payment shall be made pursuant to and in the manner provided by 3 the terms of the Settlement Agreement. 4 17. The Settlement Administrator is authorized and directed to issue Settlement 5 Benefits to Settlement Class Members who submitted timely and valid Claim Forms in accordance 6 with the terms of the Settlement Agreement. 7 18. No later than 21 calendar days after the Settlement Benefits are distributed to the 8 Settlement Class Members who submitted timely and valid Claim Forms, Plaintiffs shall file a 9 Post Distribution Accounting, which includes all information required under Northern District of 10 California Procedural Guidance for Class Action Settlements, and post the same on the Settlement 11 Website. This Order, and the Final Judgment to be entered hereon, shall also be posted on the 12 Settlement Website. 13 19. Without affecting the finality of this Final Approval Order, the Final Judgment to 14 be entered hereon, for purposes of appeal, until the Effective Date the Court shall retain 15 jurisdiction over all matters relating to administration, consummation, enforcement, and 16 interpretation of the Settlement Agreement. 17 18 IT IS SO ORDERED. 19 DATED: ______________________ ______________________________ 20 Honorable Beth Labson Freeman United States District Judge 21 22 23 24 25 26 27 28 -9- [PROPOSED] ORDER GRANTING FINAL APPROVAL OF CLASS ACTION SETTLEMENT CASE NO. 5:17-CV-01027-BLF

 
Exhibit 6

 
1 2 3 4 5 6 7 8 9 10 11 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA 12 SAN JOSE DIVISION 13 14 THEODORE BROOMFIELD, et al., CASE NO.: 5:17-cv-01027-BLF 15 Plaintiffs, [PROPOSED] FINAL JUDGMENT 16 v. 17 CRAFT BREW ALLIANCE, INC., et al., 18 Defendants. 19 20 21 22 23 24 25 26 27 28 CcSTIPUC [PROPOSED] FINAL JUDGMENT CASE NO. 5:17-CV-01027-BLF

 
1 [PROPOSED] FINAL JUDGMENT 2 The Court has entered Final Approval of the Parties’ settlement. Accordingly, the claims of 3 Plaintiffs and the Settlement Class against Defendant Craft Brew Alliance, Inc. are DISMISSED 4 WITH PREJUDICE, and this Final Judgment shall issue consistent with Federal Rule of Civil 5 Procedure 58. 6 7 IT IS SO ORDERED. 8 9 DATED: ______________________ ______________________________ Honorable Beth Labson Freeman 10 United States District Judge 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -2- [PROPOSED] FINAL JUDGMENT CASE NO. 5:17-CV-01027-BLF

 
Exhibit 7

 

 

EXHIBIT 10.6
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "Agreement"), dated as of ___________________, is between Craft Brew Alliance, Inc., a Washington corporation (the "Company"), and __________________________ ("Indemnitee").
Background
Indemnitee is, or the Company anticipates that Indemnitee will become, a director of the Company. To induce Indemnitee to continue to serve as, or to become, a director of the Company, the Company has agreed to enter into this Agreement to provide for the indemnification of, and the advancement of expenses to, Indemnitee in connection with litigation or claims arising from Indemnitee's role as a director of the Company.
Agreement
In consideration of the recitals above and the covenants below, the parties agree as follows:
1. Indemnification . The Company will, to the fullest extent permitted by law and the Company's Articles of Incorporation (as amended, the "Articles"), but subject to Section 2 below, indemnify Indemnitee for and hold Indemnitee harmless against all liabilities, losses, costs, or expenses incurred by Indemnitee arising from or relating to Indemnitee's role as a director of the Company.
2.      Limitations on Indemnification . The Company will not pay any liability, loss, cost, or expense incurred by Indemnitee arising from or relating to any of the following:
(a)      Any amount that has been directly paid to Indemnitee under a policy of Directors and Officers Liability Insurance (or comparable insurance) ("D&O Policy");
(b)      Any action, suit, or proceeding brought by or on behalf of the Company in which judgment is rendered holding Indemnitee liable to the Company;
(c)      Any action, suit, or proceeding initiated by Indemnitee unless it has been specifically authorized by the Company's Board of Directors;
(d)      Any act by or omission of Indemnitee that has been finally adjudged to be intentional misconduct or a knowing violation of the law, including without limitation Section 23B.08.310 of the Washington Business Corporation Act (as amended, the "Act");
(e)      Any transaction in which it is finally adjudged that Indemnitee personally received a benefit in money, property, or services to which Indemnitee was not legally entitled;

-1-



(f)      Any action, suit, or proceeding in which a final, nonappealable judgment is rendered against Indemnitee for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company in violation of any provision of Section 16(b) of the Securities Exchange Act of 1934; or
(g)      Any decision by a court having jurisdiction that indemnification would be unlawful.
3.      Notice of Claim . Within 30 days after Indemnitee receives notice of any action, suit, proceeding, or claim that may be indemnifiable under this Agreement (each, a "Proceeding"), Indemnitee must promptly notify the Company of the commencement of the Proceeding, including a brief description of the Proceeding and the facts underlying it (a "Notice"). The failure of Indemnitee to timely give the Company a Notice will not limit the Company's obligations under this Agreement unless such failure materially prejudiced the Company's ability to defend the Proceeding.
4.      Defense of Claim . With respect to any Proceeding of which the Company has received a timely Notice, the Company may participate in the Proceeding at its own expense and assume the defense of the Proceeding with counsel reasonably satisfactory to Indemnitee. The election by the Company to assume the defense of a Proceeding will not preclude Indemnitee from employing separate counsel, but in such event the Company will not be liable to Indemnitee under this Agreement for any legal or related costs or expenses subsequently incurred by Indemnitee in connection with the defense of such Proceeding unless (a) the Company specifically authorizes the employment of counsel by Indemnitee, (b) Indemnitee reasonably concludes that there might be a conflict of interest between the Company and Indemnitee in the defense of the Proceeding, or (c) the Company does not timely engage counsel to defend the Proceeding, in which case Indemnitee's legal costs or expenses will be at the Company's expense so long as Indemnitee's counsel is reasonably satisfactory to the Company and meets the requirements of any applicable D&O Policy. If Indemnitee has made the conclusion set forth in Section 4(b), the Company may not assume the defense of the Proceeding, but Indemnitee's counsel must be reasonably satisfactory to the Company and meet the requirements of any applicable D&O Policy.
5.      Settlement . With respect to any Proceeding as to which the Company has the right to assume the defense, (a) the Company may settle the Proceeding without Indemnitee's consent unless the settlement would impose a penalty or limitation on Indemnitee, and (b) the Company will not be liable to Indemnitee under this Agreement if Indemnitee settles the Proceeding without the Company's written consent. Neither the Company nor Indemnitee may unreasonably withhold any consent with respect to a settlement.
6.      Advancement of Expenses . If Indemnitee incurs legal costs or expenses to be reimbursed by the Company under Section 4 then, consistent with applicable law and the Articles but subject to Section 7, the Company will advance to Indemnitee all reasonable costs or

-2-



expenses incurred in investigating or defending any Proceeding within 15 days after receiving copies of invoices presented to Indemnitee for such costs or expenses; provided that such advancement of expenses is conditioned upon Indemnitee’s compliance with the requirements of the Act, including Section 23B.08.530 or any replacement or successor provision. Any such advancement will occur regardless of whether there has been a final disposition of the Proceeding.
7.      Exclusions to Advancement of Expenses . The Company will not advance to Indemnitee any costs or expenses arising from or relating to (a) any action, suit, or proceeding initiated by Indemnitee, unless the Company's Board of Directors has specifically approved the advance, or (b) any action, suit, or proceeding brought by the Company and approved by its Board of Directors that alleges in good faith (1) the willful misappropriation of corporate assets by Indemnitee, (2) the disclosure of fiduciary or confidential information in violation of Indemnitee's fiduciary or contractual obligations to the Company, or (3) any other willful or deliberate breach of Indemnitee's duties, as prescribed by the Act, to the Company or its shareholders or affiliates.
8.      Reimbursement of Expenses . Indemnitee will reimburse the Company for all costs or expenses advanced or paid under Section 6 if and to the extent that a final nonappealable judicial decision determines that Indemnitee is not entitled to be indemnified for such costs or expenses.
9.      Application for Indemnification . To obtain indemnification under this Agreement, Indemnitee must submit a written request to the Company containing such documentation and information as is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification following the disposition of the Proceeding. In all events, indemnification will be made to the extent that Indemnitee is entitled to indemnification under Section 1.
10.      Partial Indemnification . If Indemnitee is entitled under this Agreement to only a portion of any costs or expenses in connection with a Proceeding, then the Company will indemnify Indemnitee for only that portion.
11.      Subrogation . With respect to any payment under this Agreement by or on behalf of the Company, the Company will be subrogated, to the extent of such payment, to all of Indemnitee's rights of recovery. Indemnitee will execute such documents and take such actions as the Company reasonably requests in order to secure and enforce such rights of recovery.
12.      Nonexclusivity . The rights provided to Indemnitee under this Agreement are not exclusive of any right to which Indemnitee may be entitled under the Articles, the Act, other agreement, or the vote of the Company's shareholders or disinterested directors.

-3-



13.      Governing Law . This Agreement will be governed by and construed in accordance with the laws of the state of Washington without regard to conflict-of-law principles. Each party hereby submits to the jurisdiction and venue of state and federal courts sitting in the state of Washington and waives the right to object that such jurisdiction or venue is improper.
14.      Severability . If any provision of this Agreement is held by a court having jurisdiction to be invalid or unenforceable, such holding will not affect the other provisions of this Agreement, which will be interpreted to give maximum effect to the other provisions.
15.      Successors and Assigns . This Agreement is binding and will inure to the benefit of the parties and their respective successors, assigns, heirs, or personal representatives.
16.      Amendment and Termination . This Agreement may be amended or terminated only in a writing signed by both parties. No amendment of the Articles will affect the rights of Indemnitee under this Agreement for any Proceeding arising before such amendment.
17.      Survival . The indemnification provided under this Agreement will be in full effect notwithstanding the fact that Indemnitee may no longer be a director of the Company.
18.      Counterparts . This Agreement may be executed in counterparts, each of which will be effective as an original but together will constitute the same instrument. Electronically transmitted copies are effective as originals.
19.      Entire Agreement . This Agreement constitutes the entire agreement between the parties with respect to its subject matter and supersedes any prior agreement, whether oral or written, with respect to such subject matter.
[Signature page follows]

-4-




The parties have executed this Agreement as of the date first set forth above.

CRAFT BREW ALLIANCE, INC.

By: _________________________________
Name: _________________________________
Title: _________________________________

INDEMNITEE:

_______________________________________
[Director Name]

-5-




 
EXHIBIT 31.1 
CERTIFICATION
 
I, Andrew J. Thomas, certify that:

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:
August 7, 2019
 
 
 
 
By:
/s/ Andrew J. Thomas
 
 
Andrew J. Thomas
 
 
Chief Executive Officer
 

 




 
EXHIBIT 31.2
 
CERTIFICATION

I, Christine N. Perich, certify that:

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:
August 7, 2019
 
 
 
 
By:
/s/ Christine N. Perich
 
 
Christine N. Perich
 
 
Chief Financial and Strategy Officer
 
 
 





EXHIBIT 32.1
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES−OXLEY ACT OF 2002
 
In connection with the Quarterly Report of Craft Brew Alliance, Inc. (the “Registrant”) on Form 10-Q for the quarter ended June 30, 2019 , as filed with the Securities and Exchange Commission on August 7, 2019 (the “Report”), Andrew J. Thomas, the Chief Executive Officer of the Registrant, and Christine N. Perich, the Chief Financial and Strategy Officer of the Registrant, each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to his and her knowledge:

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:
August 7, 2019
 
 
 
 
BY:
/s/ Andrew J. Thomas
 
 
Andrew J. Thomas
 
 
Chief Executive Officer
 
 
(Principal Executive Officer)
 
 
 
 
BY:
/s/ Christine N. Perich
 
 
Christine N. Perich
 
 
Chief Financial and Strategy Officer
 
 
 
 




EXHIBIT 99.1


PRIMAGEA06.JPG



FOR IMMEDIATE RELEASE

CRAFT BREW ALLIANCE REPORTS STRONG SECOND QUARTER RESULTS LED BY
ROBUST ACCELERATION FOR KONA AND RECORD BEER GROSS MARGIN

National media investment fuels 8% depletions growth for Kona, driving overall depletions growth for CBA portfolio

Portland, Ore. (August 7, 2019) - Craft Brew Alliance, Inc. (“CBA”) (Nasdaq: BREW), a leading craft brewing company, today reported financial results for the second quarter and year to date ended June 30, 2019. Financial and operational highlights for the second quarter include:

•
Kona depletions grew 8%, driving a total CBA depletions increase of more than 1% over the second quarter in 2018.
•
An 11% increase in Kona shipments contributed to an overall 4.4% increase in owned beer shipments.
•
Core beer sales increased 2.7% over the second quarter in 2018.
•
Beer gross margin expanded 220 basis points to a record 41.6% in the second quarter.
•
Brewpub gross margin expanded 710 basis points over the second quarter last year.
•
Net income was $2.6 million, or $0.13 per share.

CBA Chief Executive Officer Andy Thomas said, “CBA’s second quarter results reflect a tangible return on the strategic investments we’ve made to fuel Kona’s momentum, realize the full value of our newly acquired brands, and unlock our future potential. In a down market, we accelerated Kona to 8% depletions growth, returned our total portfolio to net positive, and delivered record gross margin - all while doubling down on our future growth prospects to drive shareholder value.”

Christine Perich, CBA Chief Financial and Strategy Officer, added, “While we are pleased with our first half performance, which continues to underscore the strength of CBA’s portfolio and overall foundation, we are also cognizant of the sweeping changes taking place across the beverage category and the fact that our upcoming anniversary with AB is a significant one on multiple levels. Regardless of these external challenges and unknowns, I am confident that the strategic work we are actively doing -- not just in beer but in beverage overall -- will drive shareholder value.”

Performance highlights for the second quarter and year-to-date

Fueling Kona’s momentum in an unprecedented market
Kona’s momentum accelerated in the second quarter, with 8% depletions growth far outpacing the beer category and the craft segment, which were both down compared to second quarter a year ago. Fueled by the national marketing investment that kicked off in the first quarter and continued into the second quarter, Kona’s year-to-date depletions were 6% higher than the same period in 2018, with especially strong performance in the on-premise channel. Kona flagship Big Wave Golden Ale, which featured prominently in the media campaign, delivered a 25% increase in domestic depletions in the quarter and a 22% increase year to date. During the quarter, we continued to work closely with our international distribution partners, driving a 21% increase in international Kona shipments over the second quarter last year. We also continued to make progress ramping up local production of Kona in Brazil, working closely with Ambev.

Achieving record gross margin
Second quarter gross margin expanded 270 basis points to 38.5%, which reflects a 220-basis point improvement in beer gross margin to 41.6% and pub gross margin expansion of 710 basis points to 10.1%. Our beer gross margin improvement reflects the positive impact of transitioning Appalachian Mountain Brewery, Cisco Brewers, and Wynwood Brewing from an alternating proprietorship to owned brands, as well as the continued benefit of our rationalized footprint, which includes leveraging our brewing partnership with Anheuser-Busch. Our pub gross margin expansion is attributed to our reshaped brewpub footprint, which includes the addition of our newly acquired brewpubs in Boone, North Carolina and Miami, Florida. Our record margin







expansion was achieved while taking on greater complexity and innovating to address today’s dynamic and rapidly changing consumer trends.

Broadening our portfolio for the future
CBA’s investments in future growth - including comprehensive research initiatives with the Yale Center for Consumer Insights and Prophet, as well as the launch of The pH Experiment business unit - are already driving portfolio expansion, both within and outside of traditional beer. Rooted in our learnings and strong understanding of the ever-shifting consumer landscape, we’re broadening our portfolio to capitalize on emerging trends. During the second quarter, we accelerated work on our approach to the seltzer market and began work to expand distribution of Wynwood’s La Rubia Blonde Ale. Additionally, The pH Experiment continued its focus on incubating and accelerating future growth with the launch of PRE Aperitivo Spritz, an Italian-inspired, cider-based botanical cocktail, and Pacer Low Proof Seltzer, a line of 2% ABV, 50-calorie, zero-sugar seltzers, in the second quarter. Building on a series of successful tests with Amazon Go stores, The pH Experiment will be expanding distribution of multiple products through Amazon Fresh and Amazon Prime.

Summary of financial results for the second quarter and year-to-date 2019
•
Core beer sales increased 2.7% in the second quarter and 2.9% year to date.
◦
Total net sales were $60.6 million for the quarter, a decrease of 2.0% from the second quarter in 2018, and $107.6 million year to date, a decrease of 1.6% from the same period a year ago. Our net sales decrease compared to 2018 is attributed to the change in ownership structure of Appalachian Mountain Brewery, Cisco, and Wynwood. Excluding the impact of the alternating proprietorship fees, our second quarter and year-to-date total net sales would have been up 1.7% and 2.2%, respectively.

•
Kona shipments increased 11% in the second quarter and 10% year to date, contributing to a 2.6% increase in total CBA shipments for the second quarter and a 2.1% increase in total CBA shipments year to date, compared to the same periods last year.
 
•
Kona depletions increased by 8% in the second quarter and 5% year-to-date, driven by strong consumer response to the national media campaign. Kona’s strong performance contributed to a 1.1% increase in total CBA depletions for the quarter, which improved CBA’s year-to-date depletion trend to a decrease of 1.4% from the same period a year ago.
◦
Post-campaign analysis indicates that demand actually outpaced in-store inventory leading to significant retail out-of-stock issues across key media markets. Estimates suggest that these issues may have suppressed Kona’s depletion growth by approximately 200 basis points in the second quarter.

•
Total company gross margin expanded by 270 basis points to 38.5%, compared to 35.8% in the second quarter of 2018, and year-to-date gross margin expanded 270 basis points to 36.7% compared to the same period last year.
◦
Beer gross margin expanded by 220 basis points to 41.6% in the second quarter, and year-to-date beer gross margin expanded 240 basis points to 40.1%. Our beer gross margin expansion reflects the impact of transitioning our partner brands to owned brands, as well as continued leverage of our evolving brewery footprint, strong revenue management, and a reduction in beer loss.
◦
Brewpub gross margin expanded 710 basis points to 10.1% in the second quarter, primarily reflecting improvements with our reshaped and expanded pub footprint. Our year-to-date brewpub gross margin expanded 600 basis points over the same period last year, to 10.5%.

•
Selling, general and administrative expense (“SG&A”) increased by $3.5 million to $19.4 million over the second quarter last year, which reflects additional investments to amplify our national Kona marketing campaign, as well as employee-related costs.
◦
Year-to-date SG&A increased by $14.3 million, to $44.9 million. The increases in year-to-date SG&A over the same period in 2018 primarily reflect our national marketing investment to fuel Kona’s growth and a $4.7 million pre-tax expense related to the Kona class action lawsuit settlement, which was accrued as a one-time expense in the first quarter. Based on initial claims being in line with our expectations, we anticipate our accrual will cover our total costs for the settlement.

•
Net income was $2.6 million in the second quarter.
◦
Year to date, we recorded a net loss of $4.8 million primarily due to the Kona class action accrual. On an adjusted non-GAAP basis excluding the $3.6 million after-tax impact of the accrual, our year-to-date net loss was $1.2 million.
 







•
Earnings per share were $0.13 in the second quarter, a decrease of $0.10 from the second quarter of 2018, which reflects the planned increase in SG&A to amplify the Kona marketing investment.
◦
Year to date, we recorded a net loss per share of $0.24. On an adjusted non-GAAP basis excluding the $3.6 million after-tax expense accrual, our net loss per share was $0.06.

2019 Outlook

Acknowledging our year-to-date results and given the broad implications related to the August 23, 2019 milestone with Anheuser-Busch, we are deferring an update of our full-year outlook until early September. Details will be communicated shortly.

Forward-Looking Statements
Statements made in this press release that state the Company’s or management’s intentions, hopes, beliefs, expectations or predictions of the future, including depletions and shipments, gross margin rate improvement, the level and effect of SG&A expense and business development, the effect of the class action settlement, effective tax rate, and the benefits or improvements to be realized from marketing campaigns, portfolio expansion and other strategic initiatives, and capital projects, are forward-looking statements. It is important to note that the Company’s actual results may differ materially from those projected in such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the Company’s SEC filings, including, but not limited to, the Company’s report on Form 10-K for the year ended December 31, 2018. Copies of these documents may be found on the Company’s website, www.craftbrew.com, or obtained by contacting the Company or the SEC.

About Craft Brew Alliance
Craft Brew Alliance (CBA) is a leading craft brewing company that brews, brands, and brings to market world-class American craft beers.

Our distinctive portfolio combines the power of Kona Brewing Company, a dynamic, fast-growing national craft beer brand, with strong regional breweries and innovative lifestyle brands: Appalachian Mountain Brewery, Cisco Brewers, Omission Brewing Co., Redhook Brewery, Square Mile Cider Co., Widmer Brothers Brewing, and Wynwood Brewing Co. CBA nurtures the growth and development of its brands in today’s increasingly competitive beer market through our state-of-the-art brewing and distribution capability, integrated sales and marketing infrastructure, and strong focus on partnerships, local community and sustainability.

Formed in 2008, CBA is headquartered in Portland, Oregon and operates breweries and brewpubs across the U.S. CBA beers are available in all 50 U.S. states and 30 different countries around the world. For more information about CBA and our brands, please visit www.craftbrew.com.


CONTACT: Jenny McLean, Director of Communications, (503) 331-7248, Investor.Relations@craftbrew.com




Craft Brew Alliance, Inc.
Condensed Consolidated Statements of Operations
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Sales
$
63,815

 
$
65,253

 
$
113,583

 
$
115,338

Less excise taxes
3,256

 
3,430

 
6,032

 
6,028

Net sales
60,559

 
61,823

 
107,551

 
109,310

Cost of sales
37,272

 
39,696

 
68,081

 
72,112

Gross profit
23,287

 
22,127

 
39,470

 
37,198

As percentage of net sales
38.5
%
 
35.8
 %
 
36.7
 %
 
34.0
 %
Selling, general and administrative expenses
19,381

 
15,857

 
44,946

 
30,605

Operating income (loss)
3,906

 
6,270

 
(5,476
)
 
6,593

Interest expense
(504
)
 
(107
)
 
(812
)
 
(241
)
Other income, net
33

 
21

 
33

 
55

Income (loss) before income taxes
3,435

 
6,184

 
(6,255
)
 
6,407

Income tax provision (benefit)
825

 
1,732

 
(1,501
)
 
1,794

Net income (loss)
$
2,610

 
$
4,452

 
$
(4,754
)
 
$
4,613

 
 

 
 

 
 
 
 
Basic and diluted net income (loss) per share
$
0.13

 
$
0.23

 
$
(0.24
)
 
$
0.24

Weighted average shares outstanding:
 

 
 

 
 
 
 
Basic
19,443

 
19,334

 
19,416

 
19,322

Diluted
19,593

 
19,517

 
19,416

 
19,502

Total shipments (in barrels):
 

 
 

 
 
 
 
Core Brands
228,300

 
218,700

 
392,700

 
379,300

Contract Brewing
2,200

 
5,900

 
7,300

 
12,300

Total shipments
230,500

 
224,600

 
400,000

 
391,600

Change in depletions (1)
1
%
 
(2
)%
 
(1
)%
 
(3
)%

(1)
Change in depletions reflects the period-over-period change in barrel volume sales of beer by wholesalers to retailers.



Craft Brew Alliance, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)

 
June 30,
 
2019
 
2018
Current assets:
 
 
 
Cash, cash equivalents and restricted cash
$
970

 
$
5,778

Accounts receivable, net
30,223

 
36,999

Inventory, net
20,579

 
14,522

Other current assets
3,591

 
1,874

Total current assets
55,363

 
59,173

Property, equipment and leasehold improvements, net
111,634

 
104,982

Operating lease right-of-use assets
19,002

 
—

Goodwill
21,935

 
12,917

Trademarks
44,245

 
14,415

Intangible and other assets, net
5,710

 
6,054

Total assets
$
257,889

 
$
197,541

Current liabilities:
 

 
 

Accounts payable
$
19,489

 
$
20,042

Accrued salaries, wages and payroll taxes
4,920

 
4,673

Refundable deposits
3,685

 
4,282

Deferred revenue
4,364

 
4,685

Other accrued expenses
8,101

 
3,163

Current portion of long-term debt and finance lease obligations
1,483

 
807

Total current liabilities
42,042

 
37,652

Long-term debt and finance lease obligations, net of current portion
51,675

 
9,946

Other long-term liabilities
31,699

 
13,995

Total common shareholders' equity
132,473

 
135,948

Total liabilities and common shareholders' equity
$
257,889

 
$
197,541




Craft Brew Alliance, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

 
Six Months Ended June 30,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(4,754
)
 
$
4,613

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 

 
 

Depreciation and amortization
5,386

 
5,387

(Gain) loss on sale or disposal of Property, equipment and leasehold improvements
22

 
(494
)
Deferred income taxes
(1,536
)
 
(629
)
Other, including stock-based compensation
1,506

 
875

Changes in operating assets and liabilities:
 

 
 

Accounts receivable, net
75

 
(9,215
)
Inventories
(3,349
)
 
(285
)
Other current assets
(687
)
 
1,761

Accounts payable, deferred revenue and other accrued expenses
8,068

 
7,889

Accrued salaries, wages and payroll taxes
(715
)
 
(1,204
)
Refundable deposits
104

 
(241
)
Net cash provided by operating activities
4,120

 
8,457

Cash flows from investing activities:
 

 
 

Expenditures for Property, equipment and leasehold improvements
(9,440
)
 
(4,284
)
Proceeds from sale of Property, equipment and leasehold improvements
22

 
22,936

Restricted cash from sale of Property, equipment and leasehold improvements
—

 
515

Business combinations and asset acquisitions
(274
)
 
—

Net cash provided by (used in) investing activities
(9,692
)
 
19,167

Cash flows from financing activities:
 

 
 

Proceeds from issuance of long-term debt
5,192

 
—

Principal payments on debt and finance lease obligations
(455
)
 
(348
)
Net borrowings (repayments) under revolving line of credit
930

 
(22,199
)
Proceeds from issuances of common stock
—

 
206

Tax payments related to stock-based awards
(325
)
 
(84
)
Net cash provided by (used in) financing activities
5,342

 
(22,425
)
Increase (decrease) in Cash, cash equivalents and restricted cash
(230
)
 
5,199

Cash, cash equivalents and restricted cash, beginning of period
1,200

 
579

Cash, cash equivalents and restricted cash, end of period
$
970

 
$
5,778



Craft Brew Alliance, Inc.
Select Financial Information on a Trailing Twelve-Month Basis
(Dollars in thousands, except per share amounts)
(Unaudited)

 
Twelve Months Ended
 
 
 
 
 
June 30,
 
 
 
2019
 
2018
 
Change
 
% Change
Net sales
$
204,427

 
$
211,914

 
$
(7,487
)
 
(3.5
)%
Gross profit
$
70,595

 
$
71,458

 
$
(863
)
 
(1.2
)%
As percentage of net sales
34.5
 %
 
33.7
 %
 
80

bps 


Selling, general and administrative expenses
76,913

 
60,039

 
16,874

 
28.1
 %
Operating income (loss)
$
(6,318
)
 
$
11,419

 
$
(17,737
)
 
(155.3
)%
 
 
 
 
 
 
 
 
Net income (loss)
$
(5,225
)
 
$
14,199

 
$
(19,424
)
 
(136.8
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income per share:
 
 
 
 


 


Basic
$
(0.27
)
 
$
0.74

 
$
(1.01
)
 
(136.5
)%
Diluted
$
(0.27
)
 
$
0.73

 
$
(1.00
)
 
(137.0
)%
 
 
 
 
 
 
 
 
Total shipments (in barrels):
 

 
 

 
 

 
 

Core Brands
732,800

 
742,500

 
(9,700
)
 
(1.3
)%
Contract Brewing
23,200

 
19,000

 
4,200

 
22.1
 %
Total shipments
756,000

 
761,500

 
(5,500
)
 
(0.7
)%
Change in depletions (1)
(1
)%
 
(2
)%
 
 

 
 


(1)
Change in depletions reflects the period-over-period change in barrel volume sales of beer by wholesalers to retailers.


Supplemental Disclosures Regarding Non-GAAP Financial Information

Craft Brew Alliance, Inc.
Reconciliation of Adjusted EBITDA to Net income (loss)
(In thousands)
(Unaudited)

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Net income (loss)
$
2,610

 
$
4,452

 
$
(4,754
)
 
$
4,613

Interest expense
504

 
107

 
812

 
241

Income tax provision (benefit)
825

 
1,732

 
(1,501
)
 
1,794

Depreciation expense
2,540

 
2,608

 
5,141

 
5,301

Amortization expense
120

 
43

 
245

 
86

Stock-based compensation
835

 
202

 
1,253

 
687

(Gain) loss on disposal of assets
14

 
22

 
22

 
(494
)
Kona class action expense
62

 
—

 
4,902

 
—

Adjusted EBITDA
$
7,510

 
$
9,166

 
$
6,120

 
$
12,228


CBA has presented Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) in these tables to provide investors with additional information to evaluate our operating performance on an ongoing basis using criteria that are used by management. We define Adjusted EBITDA as net income (loss) before interest, income taxes, depreciation and amortization, stock-based compensation and other non-cash charges, including loss on impairment of assets and net gain or loss on disposal of property, equipment and leasehold improvements. We use Adjusted EBITDA, among other measures, to evaluate operating performance, to plan and forecast future periods’ operating performance, and as an incentive compensation target for certain management personnel.
As Adjusted EBITDA is not a measure of operating performance or liquidity calculated in accordance with generally accepted accounting principles in the United States of America (“GAAP”), this measure should not be considered in isolation of, or as a substitute for, net income (loss) as an indicator of operating performance, or net cash provided by (used in) operating activities as an indicator of liquidity. The use of Adjusted EBITDA instead of net income (loss) has limitations as an analytical tool, including the inability to determine profitability; the exclusion of interest expense and associated cash requirements, given the level of our indebtedness; and the exclusion of depreciation and amortization which represent significant and unavoidable operating costs, given the capital expenditures needed to maintain our operations. We compensate for these limitations by relying on GAAP results. Our computation of Adjusted EBITDA may differ from similarly titled measures used by other companies. As Adjusted EBITDA excludes certain financial information compared with net income (loss) and net cash provided by (used in) operating activities, the most directly comparable GAAP financial measures, users of this financial information should consider the types of events and transactions which are excluded. The table above shows a reconciliation of Adjusted EBITDA to net income (loss).