Delaware
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2080
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46-1561499
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(State or Other Jurisdiction of
Incorporation or Organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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Anna T. Pinedo, Esq.
James R. Tanenbaum, Esq.
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, New York 10104
Tel: (212) 468-8000
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Michael A. Hedge, Esq.
Gary J. Kocher, Esq.
K&L Gates LLP
925 Fourth Avenue, Suite 2900
Seattle, Washington 98104
Tel: (206) 623-7580
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company x |
Title of Each Class of
Securities to be Registered
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Amount to be
Registered (1) |
Proposed Maximum
Aggregate
Offering Price
(2)
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Amount of
Registration Fee
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Class A Common Stock, par value $0.001 per share
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2,902,557
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$43,538,355.00
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$5,939.00 |
(1) |
This Registration Statement also covers the re-offer and sale of Class A common stock on an ongoing basis after their initial sale in market-making transactions by WR
Hambrecht
+ Co, LLC, an affiliate of the Registrant. All such market-making transactions with respect to these shares of Class A common stock are being made pursuant to this Registration Statement.
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(2)
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Estimated solely for the purposes of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
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Investing in our Class A common stock involves a high degree of risk. See “Risk Factors” beginning on page 12. |
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense. |
Sidoti & Company, LLC | CSCA |
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Steady growth in the U.S. wine market:
The U.S. wine market has grown at an average annual rate of 5% over the past decade and is now the largest in the world (although per capita consumption remains relatively low).
In the recent past, growth in wine sales has been focused in domestic brands; from 2007 to 2011, wine imports have only grown by 1.6% per year.
According to the 2011 Gomberg-Fredrikson & Associates Annual Wine Industry Review for the twelve months ended December 2011, two of the three fastest growing price points are the $7-$14 (“Super-premium”) and over-$14 (“Ultra-premium”) segments. We have focused on the higher end of the Super-premium segment and also have a significant presence in the Ultra-premium segment, which together accounted for 66% of industry-wide revenue in 2011.
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Market ripe for disruption:
Food retailers account for roughly 65% of wine sales, with a high concentration of market share among only a handful of major wine producers and distributors. The top four wine producers in California control approximately 65% of unit shipments of California wine. In order to compete with powerful producers and suppliers for this growing profit pool, food and grocery retailers have turned to private label programs as a way of gaining margin, customer loyalty, category growth and differentiation.
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Retailer focus on innovation:
Increased market competition has heightened for retailers the emphasis on increasing consumer traffic to grow same store sales year over year. In order to create excitement in their stores, major global retail chains and top wine retailers in the United States have made wine and packaging innovations, including “earth-friendly” elements, a key strategic initiative for 2013 and beyond. Our core values are aligned with our retail partners’ initiatives and consumer consciousness as we strive to make our products in a way that minimizes waste and fossil fuel usage and increases recyclability.
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Private label model remains in its infancy:
Nielsen estimates that, in the United States, only 3.7% of wines, by dollar value, were sold through private labels in the year to date, as of August 2010, which was a 20% increase compared to the prior year. Other mature wine markets have experienced considerably higher penetration; for example, private label wine sales make up 19% and 16% of total wine sales in the U.K. and Australia, respectively. The U.S. market appears poised for growth in this segment.
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Declining brand loyalty:
Along with robust growth, the U.S. wine market has also witnessed a proliferation of new brands. In 2010 alone, the United States approved 120,000 new wine labels. Consumers have shown an increasing appetite to sample new labels and varietals, which can be promoted cost-effectively on an in-store basis. For example, relatively new brands like Cupcake, Ménage à Trois and E.&J. Gallo Winery’s Apothic grew by 55%, 18% and 258%, respectively, in 2011. Food retailers are well-positioned to manage this promotion as they control the shelf space and brand positioning in their stores. In an ever more crowded market, this advantage has become increasingly valuable.
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Rapid growth of internet retailing:
Small but rapidly growing, we expect the internet segment to continue to outpace brick and mortar retailer sales, and we believe it is poised to surpass winery direct sales.
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“Premiumization” of the market
: Following years of explosive growth in the late 1980s and early 1990s, the U.S. market experienced a supply glut which resulted in severe pricing pressure from so-called “value brands.” Due to significant consumption growth of California wines and the reduction of imported wines, as well as changes in exchange rates and taste preferences, this trend has reversed in the current cycle, with the Super-premium and Ultra-premium segments among those experiencing the highest growth.
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Significant direct to consumer sales growth
:
Tasting room and wine club sales are typically the highest gross margin sales for a winery. Our direct to consumer net sales increased 54% for the fiscal year ended June 30, 2012 as compared to the prior fiscal year and 56% for the six months ended December 31, 2012 as compared to the prior-year period, with gross margins
averaging approximately 61%, which we believe is generally consistent with industry averages.
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Model scalability will drive growth
: We combine the best of deep experience in the wine industry and the speed and agility of a start-up to work with both retailers and distributors to develop and market new brands. Because we are smaller, more agile and less prone to layers of decision making and because we have a world-class brand development/creative team in house, we are able to launch innovative new brands faster and more cost-effectively. This allows us and our partners to respond rapidly to market opportunities.
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Highly collaborative channel partnerships:
Our management believes that it is critical to support multiple players in the distribution system in order for a young company to defend a sustainable market position. This includes a strong collaboration with well-known and reputable retailers who are looking for innovative, higher-margin brands to market. Our reputation has been enhanced by our success with these channel partners, leading to new opportunities in brand development, including selling some of our brands via traditional three-tier distribution at a reduced cost.
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Collaborative and rapid brand development:
Our development process with our partners is highly collaborative and our products are developed based on our partners’ market data and understanding of what their customers want. Instead of developing a brand and bringing it to market based on consultants’ input and wine maker reputation, we exploit our retail partners’ quantitative data about brands, price points, packaging and varietals that its customers are buying. When we initiate a partnership, we approach a retailer with numerous concepts; an agreement to move forward typically includes multiple brands, varietals and price points that are launched in tandem. This allows the retailer to test various concepts, with the expectation that about half of the brands will be successful and further developed, while the other half will be scaled back or discontinued. Typically, it takes six months from the initial conversations with a retailer until the product is on their shelves.
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Quality focused on the robust premium sector:
The private label business has historically focused on the generic, Sub-premium category (below $7 per bottle retail price), with wine quality consistent with the price points. However, recognizing the opportunity for growth, we have positioned ourselves in the Super-premium and Ultra-premium segments. In order to support our premium strategy, we have identified and contracted premium grape sources from Paso Robles, Sonoma and Mendocino Counties. Our founders’ diverse and extensive experience in the industry allows us to leverage longstanding relationships with California growers, an increasingly important asset as grape supplies tighten globally. We are also able to source grapes on a priority basis from our founders and members of our management team, who collectively control 500 acres of vineyards in Sonoma and Mendocino Counties. In addition, we have hired a top-quality winemaking staff and invested in state of the art systems and equipment.
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Innovative packaging and label design:
Given the proliferation of brands and the need to “rise above the noise” in wine displays, innovative labeling and packaging is increasingly important to success in launching new wine brands. Our founders
and Kevin Shaw, an independent contractor who serves as our creative director,
have world-class experience in this area and are establishing a reputation as market leaders with novel packaging, such as evocative paper-wrapping, unique bottle shapes and the world’s first paper-based bottles.
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o
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Evocative wine wraps:
We have developed, produced and sold one of the world’s first “wine wrap” packaging concepts to Safeway, one of the country’s largest wine retailers. We have applied for trademarks on the wine wrap brands and a patent on the unique packaging.
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o
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The world’s first paper bottle:
I
n 2013, we entered into
a seven-year exclusive agreement with the producer of what we believe to be the first ever paper wine bottle.
We intend to begin selling wine in the paper bottle in the second half of
2013 and are in discussions with several of the top U.S. retailers and distributors, including Safeway, The Kroger Company, Young’s Market Company and Southern Wines and Spirits, to sell the product.
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Proprietary square bottle:
We have designed a unique square-shaped glass bottle and created a brand that will “own” this concept. We have applied for a trademark on the brand and a patent on the design. Five of the top U.S. wine retailers are vying for the product, and we anticipate establishing a partnership for launch in spring 2013.
We have partnered with one of the country’s fastest growing and most important wine retail chains, Total Wine & More, to produce and sell 40,000 cases (generating approximately $3.5 million in sales) in the first 12-month period beginning spring 2013.
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Management team and key personnel
: The founding team of Phil Hurst and Paul Dolan represents decades of experience in the wine industry and success at building businesses to scale, typically only seen in much larger, global players in the wine and spirits industry.
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Phillip L. Hurst, Co-Founder, President and Chief Executive Officer: co-founded and helped build Winery Exchange Inc. into a global private label beer, spirits and wine company with more than $100 million in sales.
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Paul E. Dolan, III, Co-Founder: worked at Fetzer Vineyards for 27 years, initially as wine maker and later as President, and scaled the business from 30,000 cases to over 4 million cases sold per year.
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Virginia Marie Lambrix, Director of Winemaking: experience making wine for such leading producers as De Loach Vineyards, La Follette and Hendry Ranch.
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Heath E. Dolan, Co-Founder, Director of Vineyard Operations: has 16 years of experience in the wine business, including managing cellar operations for Fetzer Vineyards.
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Kevin Shaw, Independent Contractor/Creative Director: has nearly 20 years of experience as a designer. As proprietor and founder of Stranger and Stranger design agency, he received the 2012 Harpers Wine & Spirits Magazine Design Award for “Best Design Agency.” Kevin designs over 100 beverage brands every year in markets all around the world, including Jack Daniels, Avion Tequila, Lillet and The Kraken Spiced Rum. Collectively, his brands sell over a billion bottles a year.
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James D. Bielenberg, Chief Financial Officer: has more than 30 years of public and private accounting experience. After gaining public accounting experience with Arthur Young (now Ernst & Young), he has spent the last 25 years working in wine-making operations with such well known firms as Kendall-Jackson Wine Estates, Francis Ford Coppola Winery, Ascentia Wine Estates, LLC and Rodney Strong Vineyards.
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Daniel A. Carroll, Director: retired partner of TPG Capital, where he was a founder of the firm's Asian operations (formerly Newbridge Capital). Prior to 1995, he spent nine years with Hambrecht & Quist Group.
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William R. Hambrecht, Director: after selling Hambrecht & Quist Group in 1998, Bill founded WR Hambrecht + Co, LLC (“WR Hambrecht + Co”) where he is now Chairman and Co-CEO. He has been actively involved in the wine business for 40 years as an owner and operator of vineyards and wineries.
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The investors in this offering will collectively own 2,902,557 shares of our Class A common stock and Truett-Hurst, Inc. will hold 2,902,557 LLC Units;
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Our existing owners will hold 3,450,087 LLC Units;
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The investors in this offering will collectively have approximately 43.9% of the voting power in Truett-Hurst, Inc.;
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Our existing owners, through their holdings of our Class B common stock, will have 52.2% of the voting power in Truett-Hurst, Inc.; and
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Truett-Hurst, Inc. will own approximately 45.7% of the economic interest in the LLC and
will exercise exclusive control over the LLC, as its sole managing member
.
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A reduction in the supply of grapes and bulk wine available to us from the independent grape growers and bulk wine suppliers could reduce our annual production of wine.
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We face significant competition which could adversely affect our profitability.
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Because a significant amount of our business is made through our direct to retailer partnerships, any change in our relationships with them could harm our business.
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The loss of Mr. Hurst, Mr. Bielenberg, Ms. Lambrix, Mr. Dolan or other key employees would damage our reputation and business.
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A reduction in our access to, or an increase in the cost of, the third-party services we use to produce our wine could harm our business.
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Because our existing owners will retain significant control over Truett-Hurst after this offering, new investors will not have as much influence on corporate decisions as they would if control were less concentrated.
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Many of our transactions are with related parties, including our founders, executive officers, principal stockholders and other related parties, and present conflicts of interest.
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Several of our executive officers and key team members have outside business interests which may create conflicts of interest.
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We depend upon our trademarks and proprietary rights, and any failure to protect our intellectual property rights or any claims that we are infringing upon the rights of others may adversely affect our competitive position and brand equity.
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We are controlled by our existing owners, whose interests may differ from those of our public stockholders.
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We are a “controlled company” within the meaning of the corporate governance standards of Nasdaq and, as a result, expect to qualify for, and rely on, exemptions from certain corporate governance requirements.
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the last day of the fiscal year during which we have total annual gross revenues of $1 billion or more;
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the last day of the fiscal year following the fifth anniversary of the completion of this offering;
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the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt; and
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the date on which we are deemed to be a “large accelerated filer” under the Exchange Act (we will qualify as a large accelerated filer as of the first day of the first fiscal year after we have (i) more than $700 million in outstanding common equity held by our non-affiliates and (ii) been public for at least 12 months; the value of our outstanding common equity will be measured each year on the last day of our second fiscal quarter).
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Class A common stock offered
by us
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2,250,000 shares.
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Class A common stock
offered by the selling stockholders
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652,557 shares.
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Class A common stock to be
outstanding after the offering
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2,902,557 shares
(or 6,352,644 shares if all outstanding LLC Units held by our existing owners were exchanged for newly-issued shares of Class A common stock on a one-for-one basis).
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Class B common stock
outstanding after the offering
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Nine shares, or one share for every holder of LLC Units.
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Price per share
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$
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Use of proceeds
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We intend to use the net proceeds from this offering
to purchase LLC Units from the LLC, and we will cause the LLC to use these proceeds
to pay down amounts owed on our credit facility and for working capital, capital expenditures, hiring additional personnel and other general corporate purposes.
We will not receive any proceeds from the sale of shares by the selling stockholders.
See “Use of Proceeds.”
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Voting rights
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Each share of our Class A common stock,
including any share of restricted Class A common stock granted pursuant to the 2012 Stock Incentive Plan (the “2012 Plan”),
entitles its holder to one vote on all matters to be voted on by stockholders generally.
After the offering, each existing owner of the LLC will hold one share of Class B common stock. The shares of Class B common stock have no economic rights but entitle the holder, without regard to the number of shares of Class B common stock held, to a number of votes on matters presented to stockholders of Truett-Hurst, Inc. that is equal to the aggregate number of LLC Units held by such holder. See "Description of Capital Stock—Common Stock—Voting Rights."
Holders of our Class A common stock and Class B common stock vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law.
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Exchange rights of holders of
LLC Units
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Prior to the closing of this offering,
we will enter into an exchange agreement with our existing owners so that they may (subject to the terms of the exchange agreement) exchange their LLC Units for shares of Class A common stock of Truett-Hurst, Inc. on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications, or for cash, at our election.
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Underwriters
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WR Hambrecht + Co
Sidoti & Company, LLC
CSCA Capital Advisors, LLC
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Risk Factors
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Investing in our Class A common stock involves a high degree of risk. Before buying any shares, you should read the discussion of material risks of investing in our Class A common stock in “Risk factors” beginning on page 12.
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Conflicts of Interest
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William R. Hambrecht and Barrie Graham each serve as an officer, and Mr. Hambrecht serves as a director, of WR Hambrecht + Co, an underwriter in this offering. Both Mr. Hambrecht and Mr. Graham serve on our board of directors and have the power to influence or cause the direction of our management and policies. Additionally, Hambrecht Wine Group, L.P., which is approximately 83.7% beneficially owned by a trust for the benefit of Mr. Hambrecht and his family members and as to which Mr. Hambrecht is a trustee, owns 12.94% of the combined voting power of our Class A and Class B common stock prior to this offering and will own 8.53% of the combined voting power of our Class A and Class B common stock after this offering. Mr. Hambrecht is deemed to beneficially own all of the equity interest held by Hambrecht Wine Group, L.P. Because of the foregoing, WR Hambrecht + Co is deemed to have a “conflict of interest” under Rule 5121 of the Financial Industry Regulatory Authority, Inc. (“FINRA”). Accordingly, this offering will be made in compliance with the applicable provisions of Rule 5121. Rule 5121 requires that a “qualified independent underwriter” meeting certain standards participate in the preparation of the registration statement and prospectus and exercise the usual standards of due diligence with respect thereto. CSCA Capital Advisors, LLC has agreed to act as a “qualified independent underwriter” within the meaning of Rule 5121 in connection with this offering. WR Hambrecht + Co will not confirm sales of the shares to any account over which it exercises discretionary authority without the prior written approval of the customer.
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Nasdaq Symbol
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THST
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3,450,087 shares of Class A common stock issuable upon exchange of 3,450,087 LLC Units;
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42,000 shares of restricted Class A common stock granted to James D. Bielenberg, our Chief Financial Officer, and 210,000 shares of restricted Class A common stock granted to Kevin Shaw, an independent contractor who acts as our creative director, in each case pursuant to the 2012 Plan; these shares of restricted Class A common stock were granted in December 2012 and February 2013, respectively, and vest over a three-year period;
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shares available for future grant under the 2012 Plan; and
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shares available for grant under the automatic increase provisions of the 2012 Plan (see “Executive Compensation—
Employee Benefit and Stock Plans
—2012 Stock Incentive Plan”).
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Fiscal Year Ended
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Six Months Ended
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June 30,
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December 31,
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(unaudited) | ||||||||||||||||
2011
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2012
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2011
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2012
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Net sales
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$ | 5,402,045 | $ | 12,693,395 | $ |
8,378,109
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$ |
8,570,316
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||||||||
Cost of sales
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3,900,942 | 9,618,065 |
6,573,563
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5,850,463
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Gross profit
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1,501,103 | 3,075,330 |
1,804,546
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2,719,853
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Operating expenses:
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Sales and marketing
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595,226 | 1,387,321 |
782,142
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1,146,316
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Gain on sale of assets
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(111,150 | ) | (6,945 | ) | - | - | ||||||||||
General and administrative
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1,435,908 | 1,194,353 |
428,318
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1,581,239
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Total operating expenses
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1,919,984 | 2,574,729 |
1,210,460
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2,727,555
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Income (loss) from operations
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(418,881 | ) | 500,601 |
594,086
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(7,702
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) | ||||||||||
Other income (expense):
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Interest expense
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(401,134 | ) | (463,339 | ) |
(198,618
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) |
(179,762
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) | ||||||||
Warrant re-valuation
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- | (10,000 | ) | - |
(4,000
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Unrealized loss on interest rate swap
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- | - | - | (70,830 | ) | |||||||||||
Total other expense
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(401,134 | ) | (473,339 | ) |
(198,618
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) |
(254,592
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Income (loss) before provision for
income taxes |
(820,015 | ) | 27,262 |
395,468
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(262,294
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) | ||||||||||
Provision for income taxes
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800 | 800 |
800
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1,600
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Net income (loss) before
noncontrolling interest |
(820,815 | ) | 26,462 |
394,668
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(263,894
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Loss attributable to noncontrolling
interest |
- | - | - |
(47,877
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) | |||||||||||
Net income (loss) attributable to
H.D.D. LLC members |
$ | (820,815 | ) | $ | 26,462 | $ |
394,668
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$ |
(216,017
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) |
Consolidated Balance
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At June 30,
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At December 31, 2012
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Sheet Data:
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2011
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2012
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(unaudited)
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Cash and cash equivalents
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$ | 274,422 | $ | 167,309 | $ |
116,472
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Total assets
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10,099,873 | 14,082,617 |
18,008,377
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Total liabilities
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7,394,347 | 8,823,364 |
12,652,532
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Total members’ equity (deficit)
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(3,540,625 | ) | (626,898 | ) |
5,355,845
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Hambrecht Vineyards, which is owned by the Hambrecht 1980 Revocable Trust (the “Hambrecht Trust”), of which William R. Hambrecht, a director of the LLC and Truett-Hurst, Inc., serves as trustee. The manager of Hambrecht Vineyards is Forrester R. Hambrecht, a member of the LLC and the grandson of William R. Hambrecht.
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Ghianda Rose Vineyard, which is owned by Diana Fetzer, wife of Paul E. Dolan
, III a member of our board of directors.
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Gobbi Street Vineyards, which is partly owned by Diana Fetzer, and Paul E. Dolan, III’s daughter, Nya Kusakabe.
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Mendo Farming Company, which is managed by Heath E. Dolan and owned by the following members: (i) Phillip L. Hurst and Sylvia M. Hurst as trustees of The Hurst Family Revocable Trust Dated August 1, 2004 (the “Hurst Trust”) (33.333% interest); (ii) Paul E. Dolan III, as trustee of The Dolan 2003 Family Trust Dated June 5, 2003 (the “Dolan 2003 Trust”) (30.334% interest); (iii) Peter E. Dolan (17.333% interest); (iv) Heath E. Dolan and Robin A. Dolan, as trustees of The Dolan 2005 Family Trust Dated August 24, 2005 (the “Dolan 2005 Trust”) (9.500% interest); and (v) Zachary Y. Schat and Melissa Schat, as trustees of The Zachary Schat Trust U/D/T Dated September 1, 2004 (the “Schat Trust”) (9.500% interest). Peter E. Dolan is the brother of Paul E. Dolan, III.
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limitation on incurring senior indebtedness;
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limitation on making loans and advances;
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limitation on investments, acquisitions and capital expenditures;
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limitation on liens, mergers and sales of assets; and
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limitations on activities of Truett-Hurst.
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Excise taxes;
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Licensing requirements;
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Trade and pricing practices;
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Permitted distribution channels;
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Permitted and required labeling;
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Advertising;
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Relationships with distributors and retailers; and
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Air quality, storm water and irrigation use.
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exemption from the auditor attestation requirements under Section 404 of the Sarbanes-Oxley Act of 2002;
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reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements;
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exemption from the requirements of holding non-binding stockholder votes on executive compensation arrangements; and
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exemption from any rules requiring mandatory audit firm rotation and auditor discussion and analysis and, unless the Securities and Exchange Commission (the “SEC”) otherwise determines, any future audit rules that may be adopted by the Public Company Accounting Oversight Board.
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more than 15 business days have elapsed since the bidder submitted its bid in the offering;
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there is a material change in the prospectus that requires that WR Hambrecht + Co and we convey the material change to bidders in the offering and file an amended registration statement;
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there has been a decrease in the price range below the previously disclosed price range or an increase in the price range of more than 20% above the previously disclosed price range; or
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if it is determined, after the auction is closed, that the initial public offering price will be below the stated price range or that there will be an increase in the price of more than 20% above the stated price range.
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provide notice on the WR Hambrecht + Co website of the revised price range or the reduced number of shares to be sold in this offering, as the case may be;
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if appropriate, issue a press release announcing the revised price range or the reduced number of shares to be sold in this offering, as the case may be; and
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send an electronic notice (or communicate in an alternative manner as requested by a bidder) to everyone who has submitted a bid notifying them of the revised price range or the reduced number of shares to be sold in this offering, as the case may be.
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WR Hambrecht + Co will provide notice on the WR Hambrecht + Co OpenIPO website that the auction has re-opened with a revised price range or a reduced offering size, as the case may be;
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WR Hambrecht + Co and participating dealers will issue a press release announcing the new auction terms;
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WR Hambrecht + Co and participating dealers will send an electronic notice (or communicate in an alternative manner as requested by a bidder) to everyone who has submitted a bid notifying them that the auction has re-opened with a revised price range or a reduced offering size, as the case may be;
|
|
·
|
WR Hambrecht + Co and participating dealers will reconfirm all bids in the auction; and
|
|
·
|
we will file a post-effective amendment to the registration statement containing the new auction terms and have the post-effective amendment declared effective prior to the acceptance of any offers by WR Hambrecht + Co or participating dealers.
|
Bid Information
Initial Public Offering of Company X
|
Auction Results
|
||||||||||||||||||||||||
Shares
Requested
|
Cumulative
Shares
Requested
|
Bid
Price
|
Shares
Allocated
|
Approximate
Allocated
Requested
Shares
|
Clearing
Price
|
Amount
Raised
|
|||||||||||||||||||
1,000
|
1,000
|
$
|
10.00
|
700
|
75.0
|
%
|
$
|
8.00
|
$
|
5,600
|
|||||||||||||||
100
|
1,100
|
$
|
9.00
|
100
|
75.0
|
%
|
$
|
8.00
|
$
|
800
|
|||||||||||||||
Clearing Price
|
900
|
2,000
|
$
|
8.00
|
700
|
75.0
|
%
|
$
|
8.00
|
$
|
5,600
|
||||||||||||||
400
|
2,400
|
$
|
7.00
|
0
|
0
|
%
|
—
|
—
|
|||||||||||||||||
800
|
3,200
|
$
|
6.00
|
0
|
0
|
%
|
—
|
—
|
|||||||||||||||||
Total
|
1,500
|
$
|
12,000
|
|
·
|
Any bid with a price below the public offering price is allocated no shares.
|
|
·
|
The pro rata percentage is determined by dividing the number of shares offered by the total number of shares bid at or above the public offering price. In our example, if there are 2,000 shares bid for at or above the public offering price, and 1,500 shares offered in the offering, then the pro rata percentage is 75%.
|
|
·
|
All of the successful bids are then multiplied by the pro rata percentage to determine the allocations before rounding. For example, the three winning bids for 1,000 shares (Bid 1), 100 shares (Bid 2) and 900 shares (Bid 3) would initially be allocated 750 shares, 75 shares and 675 shares, respectively, based on the pro rata percentage.
|
|
·
|
The bids are then rounded down to the nearest 100 share round lot, so the bids would be rounded to 700, 0 and 600 shares respectively. This creates a stub of 200 unallocated shares.
|
|
·
|
The 200 stub shares are then allocated to the bids. Continuing the example above, because Bid 2 for 100 shares was rounded down to 0 shares, 100 of the stub shares would be allocated to Bid 2. If there were not sufficient stub shares to allocate at least 100 shares to Bid 2, Bid 2 would not receive any shares in the offering. After allocation of these shares, 100 unallocated stub shares would remain.
|
|
·
|
Because Bid 3 for 900 shares was reduced, as a result of rounding, by more total shares than Bid 1 for 1,000 shares, Bid 3 would then be allocated the remaining 100 stub shares up to the nearest 100 round lot (from 600 shares to 700 shares).
|
Initial
Bid
|
Pro-Rata
Allocation (75%
of Initial Bid)
|
Initial
Rounding
|
Allocation
of
Stub
Shares
|
Final
Allocation
|
||||||||||||||||
Bid 1
|
1,000
|
750
|
700
|
0
|
700
|
|||||||||||||||
Bid 2
|
100
|
75
|
0
|
100
|
100
|
|||||||||||||||
Bid 3
|
900
|
675
|
600
|
100
|
700
|
|||||||||||||||
Total
|
2,000
|
1,500
|
1,300
|
200
|
1,500
|
As of December 31, 2012
|
||||||||
Actual
|
As Adjusted
(2)
|
|||||||
(unaudited)
|
||||||||
(in thousands, except share data)
|
||||||||
Cash and cash equivalents
|
$
|
117
|
$
|
26,593 | ||||
Capital leases, including current portion
|
-
|
- | ||||||
Total debt, including current portion
|
12,652
|
17,076 | ||||||
Total members’ equity (deficit)
|
||||||||
Class A common stock, par value $0.001 per share, 7,000,000 shares authorized on an as adjusted basis; 2,902,557 shares issued and outstanding on an as adjusted basis
|
-
|
3 | ||||||
Class B common stock, par value $0.001 per share, 1,000 shares authorized on an as adjusted basis; 9 shares issued and outstanding on an as adjusted basis
|
-
|
- | ||||||
Additional paid-in capital
(1)
|
8,166
|
17,754 | ||||||
Accumulated deficit
|
(3,087
|
) | (3,087 | ) | ||||
Total members’/stockholders’ equity attributable to the Company
|
5,079
|
14,670 | ||||||
Non-controlling interest
|
277
|
17,412 | ||||||
Total Equity
|
5,356
|
32,082 | ||||||
Total capitalization
|
$
|
18,008
|
$
|
49,158 |
(1)
|
Includes redeemable contributed capital, which will be treated as equity for all financial statements effective as of December 31, 2012.
|
(2)
|
A $1.00 increase or decrease in the assumed initial public offering price of $13.00 per share, the midpoint of the price range set forth on the cover of this prospectus would increase or decrease, as applicable, cash and cash equivalents, additional paid-in capital, t
otal members’/stockholders’ equity attributable to us,
total equity and total capitalization by $2.1 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting
estimated placement agents’ fees
and the estimated offering expenses payable by us. An increase or decrease of 100,000 shares in the number of shares sold in this offering by us would increase or decrease, as applicable, cash and cash equivalents, additional paid-in capital, t
otal members’/stockholders’ equity attributable to us,
total equity and total capitalization by $1.2 million, assuming an initial public offering price of $13.00 per share, the midpoint of the price range set forth on the cover of this prospectus, and after deducting
estimated placement agents’ fees
and the estimated offering expenses payable by us.
|
Assumed initial public offering price per share of Class A common stock
|
$ | 13.00 | ||||||
Pro forma net tangible book value per share as of December 31, 2012,
before giving effect to this offering |
$ | 1.09 | ||||||
Increase in pro forma net tangible book value per share attributable to
investors purchasing shares in this offering |
$ | 3.82 | ||||||
Pro forma net tangible book value per share after giving effect to this offering
|
$ | 4.91 | ||||||
Dilution in pro forma net tangible book value per share to investors
purchasing shares in this offering |
$ | 8.09 |
Shares Purchased
|
Total Consideration
|
Average Price
|
||||||||||||||||||
Number
|
Percent
|
Amount
|
Percent
|
Per Share | ||||||||||||||||
Existing stockholders
|
3,450,087 | 54.3 | % | $ | 3,763,956 | 9.0 | % | $ | 1.09 | |||||||||||
New investors
|
2,902,557 | 45.7 | 37,733,241 | 91.0 | $ | 13.00 | ||||||||||||||
Total
|
6,352,644 | 100.0 | % | $ | 41,497,197 | 100.0 | % | $ | 6.53 |
|
·
|
42,000 shares of restricted Class A common stock granted to James D. Bielenberg, our Chief Financial Officer, and 210,000 shares of restricted Class A common stock granted to Kevin Shaw, an independent contractor who acts as our creative director, in each case pursuant to the 2012 Plan; these shares of restricted Class A common stock were granted in December 2012 and February 2013, respectively, and vest over a three-year period;
|
|
·
|
shares available for future grant under the 2012 Plan; and
|
|
·
|
shares available for grant under the automatic increase provisions of the 2012 Plan (see “Executive Compensation—Employee Benefit and Stock Plans—2012 Stock Incentive Plan”).
|
·
|
the purchase by Truett-Hurst, Inc. of LLC Units with the proceeds of this offering calculated at the midpoint of the range listed on the cover of this prospectus and the related effects of the tax receivable agreement. See "Certain Relationships and Related Party Transactions—Tax Receivable Agreement”; and
|
·
|
in the case of the unaudited pro forma consolidated statements of operations, a provision for corporate income taxes on the income attributable to Truett-Hurst, Inc. at a statutory rate of 39.8%, which includes a provision for U.S. federal income taxes and assumes the highest statutory California rate.
|
H.D.D. LLC
Actual
|
Pro Forma
Adjustments
|
Truett-Hurst, Inc.
Pro Forma
|
||||||||||
Sales
|
$ | 13,148,953 | $ | — | $ | 13,148,953 | ||||||
Less excise taxes
|
(455,558 | ) | — | (455,558 | ) | |||||||
Net Sales
|
12,693,395 | — | 12,693,395 | |||||||||
Cost of Sales
|
9,618,065 | — | 9,618,065 | |||||||||
Gross Profit
|
3,075,330 | — | 3,075,330 | |||||||||
Operating Expenses:
|
||||||||||||
Sales and marketing
|
1,387,321 | — | 1,387,321 | |||||||||
General and administrative
|
1,194,353 | — | 1,194,353 | |||||||||
Gain on sale of assets
|
(6,945 | ) | — | (6,945 | ) | |||||||
Total operating expenses
|
2,574,729 | — | 2,574,729 | |||||||||
Income (loss) from operations
|
500,601 | — | 500,601 | |||||||||
Other expenses:
|
||||||||||||
Interest expense
|
(463,339 | ) | — | (463,339 | ) | |||||||
Warrant re-valuation
|
(10,000 | ) | — | (10,000 | ) | |||||||
Total other expense
|
(473,339 | ) | — | (473,339 | ) | |||||||
Income (loss) before income taxes
|
27,262 | — | 27,262 | |||||||||
Income tax expense
|
800 | 4,959 | (1) | 5,759 | ||||||||
Net income (loss) before noncontrolling interest
|
26,462 | (4,959 | ) | 21,503 | ||||||||
Net income (loss) attributable to noncontrolling interest
|
— | 14,803 | (2) | 14,803 | ||||||||
Net income (loss) attributable to Truett-Hurst, Inc.
|
$ | 26,462 | (19,762 | ) | 6,700 | |||||||
Weighted average shares of Class A common stock
outstanding (3)(4) |
||||||||||||
Basic
|
— | 2,902,557 | ||||||||||
Diluted
|
— | 2,902,557 | ||||||||||
Net income available to Class A common stock per share
(3)(4)
|
||||||||||||
Basic
|
— | $ | .00 | |||||||||
Diluted
|
— | $ | .00 | |||||||||
Pro forma net income available to Class A common stock per share
|
||||||||||||
Basic
|
$ | .00 | ||||||||||
Diluted
|
$ | .00 |
(1)
|
Following the Recapitalization and the Offering Transactions, we will be subject to U.S. federal income taxes, in addition to state taxes, with respect to our allocable share of any net taxable income of the LLC, which will result in higher income taxes. As a result, the pro forma statements of operations reflect an adjustment to our provision for corporate income taxes to reflect a statutory rate of 39.8%, which includes provision for U.S. federal income taxes and California statutory rates.
|
(2)
|
As described in "History and Formation Transactions," Truett-Hurst, Inc. will become the sole managing member of the LLC. Truett-Hurst, Inc. will initially own less than 100% of the economic interest in the LLC, but will have 100% of the voting power and control the management of the LLC. Immediately following this offering, the non-controlling interest will be 54.3%. Net income attributable to the non-controlling interest represents approximately 54.3% ($14,803) of income before income taxes ($27,262).
|
(3)
|
The shares of Class B common stock do not share in our earnings and are therefore not included in the weighted average shares outstanding or net income (loss) available per share.
|
(4)
|
The assumed exchange of 3,450,087 LLC Units for Class A common stock is expected to have an anti-dilutive effect as a result of the allocation of income associated with the exchange of LLC Units for Class A common stock, and, accordingly, the effect of such exchange has been excluded from pro forma net income available to Class A common stock per share. Giving effect to the exchange of all LLC Units for shares of Class A common stock, adjusted pro forma net income available to Class A common stock per share would be computed as follows:
|
Pro forma income before income taxes
|
$
|
27,262
|
||
Adjusted pro forma income taxes
|
10,850
|
(a)
|
||
Adjusted pro forma net income
|
$
|
16,412
|
(b)
|
|
Weighted average shares of Class A common stock outstanding
(assuming the exchange of all LLC Units for shares of Class A common stock) |
6,352,644
|
|||
Adjusted pro forma net income available to Class A common stock per share
|
$
|
0.00
|
H.D.D. LLC
Actual
|
Pro Forma
Adjustments
|
Truett-Hurst, Inc.
Pro Forma
|
||||||||||
Sales
|
$ | 8,820,255 | $ | — | $ | 8,820,255 | ||||||
Less excise taxes
|
(249,939 | ) | — | (249,939 | ) | |||||||
Net Sales
|
8,570,316 | — | 8,570,316 | |||||||||
Cost of Sales
|
5,850,463 | — | 5,850,463 | |||||||||
Gross Profit
|
2,719,853 | — | 2,719,853 | |||||||||
Operating Expenses:
|
||||||||||||
Sales and marketing
|
1,146,316 | — | 1,146,316 | |||||||||
General and administrative
|
1,581,239 | — | 1,581,239 | |||||||||
Gain on sale of assets
|
— | — | — | |||||||||
Total operating expenses
|
2,727,555 | — | 2,727,555 | |||||||||
Income (loss) from operations
|
(7,702 | ) | — | (7,702 | ) | |||||||
Other expenses:
|
||||||||||||
Interest expense
|
(179,762 | ) | — | (179,762 | ) | |||||||
Warrant re-valuation
|
(4,000 | ) | — | (4,000 | ) | |||||||
Unrealized loss on interest rate swap
|
(70,830 | ) | — | (70,830 | ) | |||||||
Total other expense
|
(254,592 | ) | — | (254,592 | ) | |||||||
Loss before income taxes
|
(262,294 | ) | — | (262,294 | ) | |||||||
Income tax expense
|
1,600 | (38,999 | ) (1) | (37,399 | ) | |||||||
Net loss before noncontrolling interest
|
(263,894 | ) | 38,999 | (224,895 | ) | |||||||
Net loss attributable to noncontrolling interest
|
(47,877 | ) | (116,428 | ) (2) | (164,305 | ) | ||||||
Net loss attributable to Truett-Hurst, Inc.
|
$ | (216,017 | ) | 155,427 | (60,590 | ) | ||||||
Weighted average shares of Class A common stock
outstanding (3)(4) |
||||||||||||
Basic
|
— | 2,902,557 | ||||||||||
Diluted
|
— | 2,902,557 | ||||||||||
Net loss available to Class A common stock per share
(3)(4)
|
||||||||||||
Basic
|
— | $ | (0.02 | ) | ||||||||
Diluted
|
— | $ | (0.02 | ) | ||||||||
Pro forma net income available to Class A common stock per share
|
||||||||||||
Basic
|
$ | (0.02 | ) | |||||||||
Diluted
|
$ | (0.02 | ) |
(1)
|
Following the Recapitalization and the Offering Transactions, we will be subject to U.S. federal income taxes, in addition to state taxes, with respect to our allocable share of any net taxable income of the LLC, which will result in higher income taxes. As a result, the pro forma statements of income reflect an adjustment to our provision for corporate income taxes to reflect a statutory rate of 39.8 %, which includes provision for U.S. federal income taxes and California statutory income tax rates.
|
(2)
|
As described in "History and Formation Transactions—Organizational Structure," Truett-Hurst, Inc. will become the sole managing member of the LLC. Truett-Hurst, Inc. will initially own less than 100% of the economic interest in the LLC, but will have 100% of the voting power and control the management of the LLC. Immediately following this offering, the non-controlling interest will be 54.3%. Net loss attributable to the non-controlling interest represents approximately 54.3% ($116,428) of loss before income taxes ($262,294), less beginning non-controlling interest ($47,877).
|
(3)
|
The shares of Class B common stock do not share in our earnings and are therefore not included in the weighted average shares outstanding or net income (loss) available per share.
|
(4)
|
The assumed exchange of 3,450,087 LLC Units for Class A common stock is expected to have an anti-dilutive effect as a result of the allocation of income or loss associated with the exchange of LLC Units for Class A common stock, and, accordingly, the effect of such exchange has been excluded from pro forma net income (loss) available to Class A common stock per share. Giving effect to the exchange of all LLC Units for shares of Class A common stock, adjusted pro forma net income (loss) available to Class A common stock per share would be computed as follows:
|
Pro forma income before income taxes, less beginning noncontrolling interest
|
$
|
(214,417)
|
||
Adjusted pro forma income tax benefit
|
85,338
|
(a)
|
||
Adjusted pro forma net income
|
$
|
(129,079)
|
(b)
|
|
Weighted average shares of Class A common stock outstanding (assuming the exchange of all LLC Units for shares of Class A common stock)
|
6,394,644
|
(c)
|
||
Adjusted pro forma net income (loss) available to Class A common stock per share
|
$
|
(0.02)
|
(1)
|
Reflects the net effect on cash and cash equivalents of the receipt of offering proceeds of $26.5 million described in "History and Formation Transactions," and the uses of proceeds described in "Use of Proceeds"
at an assumed initial public offering price of $13.00 per share, which is the midpoint of the range listed on the cover of this prospectus, after deducting estimated placement agents’ fees and estimated offering expenses payable by us. If the initial public offering price is $11.00 per share which is the low end of the range the offering proceeds will be $22,250,530.
|
(2)
|
Reflects adjustments to give effect to the tax receivable agreement (as described in "Certain Relationships and Related Party Transactions—Tax Receivable Agreement") based on the following assumptions:
|
•
|
we will record an increase of $4,915,159 in deferred tax assets for estimated income tax effects of the increase in the tax basis of the purchased interests, based on a statutory income tax rate of 39.8% (which includes a provision for U.S. federal and state income taxes);
|
•
|
we will record $4,423,643, representing 90% of the estimated realizable tax benefit resulting from (i) the increase in the tax basis of the purchased interests as noted above and (ii) certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement as an increase to the liability due to existing owners under the tax receivable agreement;
|
•
|
we will record an increase to additional paid-in capital of $491,516, which is an amount equal to the difference between the increase in deferred tax assets and the increase in liability due to existing owners under the tax receivable agreement;
|
•
|
we will record deferred taxes relating the newly-issued LLC Units for their share of the existing deferred tax items of the LLC. We will record a reduction to deferred tax assets of $201,443 and a reduction to additional paid-in capital of $201,443; and
|
•
|
there are no material changes in the relevant tax law and that we earn sufficient taxable income in each year to realize the full tax benefit of the amortization of our assets.
|
(3)
|
As described in "History and Formation Transactions," Truett-Hurst, Inc. will become the sole managing member of the LLC. Truett-Hurst, Inc. will initially have a less than 100% economic interest in the LLC, but will have 100% of the voting power and control the management of the LLC. As a result, we will consolidate the financial results of the LLC and will record non-controlling interest on our balance sheet. Immediately following the Offering Transactions, the non-controlling interest, based on the assumptions to the pro forma financial information, will be $17,134,432. Pro forma non-controlling interest represents approximately 54.3% of the pro forma equity of the LLC of $31,555,124, which differs from the pro forma equity of Truett-Hurst, Inc. as the former is not affected by the adjustments relating to the tax receivable agreement described above in note (2).
|
(4)
|
Represents the investment of the existing holders of LLC Units. See the unaudited condensed consolidated balance sheet of the LLC as of December 31, 2012 included elsewhere in this prospectus.
|
5)
|
Represents an adjustment to stockholders' equity reflecting (i) par value for Class A common stock and Class B common stock to be outstanding following this offering, (ii) an increase of $26,476,361 of additional paid-in capital as a result of estimated net proceeds from this offering (iii) a decrease of $17,134,432 to allocate a portion of Truett-Hurst, Inc.'s equity to the non-controlling interest and (iv) the elimination of members' capital of $8,165,550 upon consolidation.
|
(6)
|
Represents the following adjustments to additional paid-in capital:
|
•
|
an increase of $17,753,818, which consists of an increase of $26,476,361 from the estimated net proceeds from the Offering Transactions, less the par value of the shares Class A common stock sold in the Offering Transactions of $2,903, less the portion of the equity of Truett-Hurst, Inc. allocated to the non-controlling interest of $17,134,432, and the elimination of members' capital of $8,165,550 upon consolidation, each as described under footnote 5 above;
|
•
|
an increase of $491,516 due to the tax receivable agreement, as described under footnote 2 above; and
|
•
|
a decrease of $201,443 due to the establishment of deferred tax liabilities relating to newly issued LLC Units as described under footnote 2 above.
|
•
|
a decrease of $40,831 in the current asset IPO costs and fees.
|
Fiscal Year Ended | Six Months Ended | |||||||||||||||
June 30, | December 31, | |||||||||||||||
(unaudited) | ||||||||||||||||
2011
|
2012
|
2011
|
2012
|
|||||||||||||
Net sales
|
$ | 5,402,045 | $ | 12,693,395 | $ |
8,378,109
|
$ |
8,570,316
|
||||||||
Cost of sales
|
3,900,942 | 9,618,065 |
6,573,563
|
5,850,463
|
||||||||||||
Gross profit
|
1,501,103 | 3,075,330 |
1,804,546
|
2,719,853
|
||||||||||||
Operating expenses:
|
||||||||||||||||
Sales and marketing
|
595,226 | 1,387,321 |
782,142
|
1,146,316
|
||||||||||||
Gain on sale of assets
|
(111,150 | ) | (6,945 | ) |
-
|
-
|
||||||||||
General and administrative
|
1,435,908 | 1,194,353 |
428,318
|
1,581,239
|
||||||||||||
Total operating expenses
|
1,919,984 | 2,574,729 |
1,210,460
|
2,727,555
|
||||||||||||
Income (loss) from operations
|
(418,881 | ) | 500,601 |
594,086
|
(7,702
|
) | ||||||||||
Other income (expense):
|
||||||||||||||||
Interest expense
|
(401,134 | ) | (463,339 | ) |
(198,618
|
) |
(179,762
|
) | ||||||||
Warrant re-valuation
|
- | (10,000 | ) |
-
|
(4,000
|
) | ||||||||||
Unrealized loss on interest rate swap
|
- | - | - | (70,830 | ) | |||||||||||
Total other expense
|
(401,134 | ) | (473,339 | ) |
(198,618
|
) |
(254,592
|
) | ||||||||
Income (loss) before provision for income taxes
|
(820,015 | ) | 27,262 |
395,468
|
(262,294
|
) | ||||||||||
Provision for income taxes
|
800 | 800 |
800
|
1,600
|
||||||||||||
Net income (loss) before noncontrolling interest
|
(820,815 | ) | 26,462 |
394,668
|
(263,894
|
) | ||||||||||
Loss attributable to noncontrolling interest
|
- | - |
-
|
(47,877
|
) | |||||||||||
Net income (loss) attributable to H.D.D. LLC members
|
$ | (820,815 | ) | $ | 26,462 | $ |
394,668
|
$ |
(216,017
|
) |
|
At June 30,
|
At December 31, 2012
|
||||||||||
|
2011
|
2012
|
(unaudited)
|
|||||||||
Cash and cash equivalents
|
$ | 274,422 | $ | 167,309 | $ |
116,472
|
||||||
Total assets
|
10,099,873 | 14,082,617 |
18,008,377
|
|||||||||
Total liabilities
|
7,394,347 | 8,823,364 |
12,652,532
|
|||||||||
Total members’ equity (deficit)
|
(3,540,625 | ) | (626,898 | ) |
5,355,845
|
|
·
|
the one-time sale of wines totaling $397,000 (4,623 cases) contributed by a member as their capital contribution;
|
|
·
|
the discontinuance of certain of our brands by Trader Joe’s (The County Fair and TJ Grand Reserve) and Total Wine & More (Simply Pure) totaling $2,262,000 (27,292 cases);
|
|
·
|
the phased reduction or repositioning of our Stonegate brand totaling $826,000 (12,714 cases); and
|
|
·
|
offset by an increase in existing brand sales in the three-tier channel of $668,000 and the introduction of new wine brands launched in our first quarter fiscal year 2013 to:
|
|
·
|
Safeway (Bewitched, Curious Beasts, Fuchsia, Schuck’s and Candell’s) of $1,446,000 (17,762 cases);
|
|
·
|
Total Wine & More (Eden Ridge and The Fugitive) of $272,000 (3,090 cases); and
|
|
·
|
the Cliffside brand, which we produce but is owned by a third party, of $97,000 (2,307 cases).
|
·
|
the one-time sale of C. Donatiello brand wines totaling $397,000 (4,623 cases) contributed by a member as their capital contribution;
|
·
|
year-over-year existing brand sales growth of $4,586,000, or 137% (74,000 cases or 121%);
|
·
|
the introduction of three new brands: Dearly Beloved ($1,456,000 or 27,757 cases), TJ Grand Reserve ($1,051,000 or 9,569 cases) and The Fugitive ($42,000 or 350 cases);
|
|
·
|
sales of Cliffside brand wines totaling $37,632 (896 cases); and
|
·
|
offset by the discontinuance of the two brands: Canard ($439,000 or 5,445 cases) and Varietals ($226,000 or 2,830 cases).
|
At June 30,
|
At December 31, 2012
|
|||||||||||
2011
|
2012
|
(unaudited)
|
||||||||||
Cash and cash equivalents
|
$ | 274,422 | $ | 167,309 | $ | 116,472 | ||||||
Revolving loan availability
|
$ | 1,046 | $ | 236,046 | $ | 2,020,848 |
At June 30,
|
At December 31, 2012
|
|||||||||||
2011
|
2012
|
(unaudited)
|
||||||||||
Cash flow summary
|
||||||||||||
Used in operating activities
|
$ | (1,740,521 | ) | $ | (2,310,848 | ) | $ | (2,673,812 | ) | |||
Used in investing activities
|
(278,956 | ) | (300,901 | ) | (892,003 | ) | ||||||
Provided by financing activities
|
2,243,024 | 2,504,636 | 3,514,978 | |||||||||
Increase (decrease) in cash and cash equivalents
|
$ | 223,547 | $ | (107,113 | ) | $ | (50,837 | ) |
·
|
$9,000,000 Line of Credit Note
: We received a line of credit
from Bank of the West in the principal amount of up to $9,000,000 due on or before May 31, 2014. The aggregate principal balance outstanding bears interest at 1.75% above LIBOR
.
|
·
|
$3,381,000 Term Note
: We received a term note from Bank of the
West
in the principal amount of $3,381,000 due on or before May 31, 2022. The aggregate principal balance outstanding bears interest at 2.25% above the One-Month LIBOR Rate or 2.25% above LIBOR. Effective October 31, 2012, we entered into a swap arrangement with Bank of the West fixing the interest rate at 4.00% for the term of the note.
|
·
|
$357,000 Equipment Purchase Line of Credit Note
: We received an equipment purchase line of credit note in the principal amount of $300,000 from Bank of the West due on or before May 31, 2013. The aggregate principal balance outstanding bears interest at 2.25% above the One-Month LIBOR Rate. The equipment purchase line of credit was increased to $357,000 pursuant to a modification agreement we entered into as of October 3, 2012 with Bank of the West and funded on January 28, 2013. The aggregate principal outstanding bears 3.75% fixed interest and will be repaid in 60 monthly payments. The first monthly payment was made on February 15, 2013.
|
·
|
$143,684 Master Equipment Financing Agreement
: We entered into an agreement with Bank of the West to finance the purchase of certain equipment on October 2, 2012 in the amount of $143,684. The aggregate principal outstanding bears 3.75% fixed interest and will be repaid in 36 monthly payments. The first monthly payment was made on November 1, 2012.
|
·
|
$100,000 Foreign Exchange Note
: We received a foreign exchange note in the principal amount of $100,000 from Bank of the West due on or before May 31, 2014 that carries a 10% credit percentage and permits us to enter into any spot or forward transaction to purchase from or sell to Bank of the West a foreign currency of an agreed amount.
|
|
·
|
limitation on incurring senior indebtedness;
|
|
·
|
limitation on making loans and advances;
|
|
·
|
limitation on investments, acquisitions, and capital expenditures;
|
|
·
|
limitation on liens, mergers and sales of assets; and
|
|
·
|
limitations on activities of Truett-Hurst.
|
|
·
|
The Carroll-Obremskey Family Revocable Trust D
ated April 15, 1996 (the “Carroll-Obremskey Trust”)
exercised a warrant to purchase a 3% interest in the LLC for $500,000. See “History and Formation Transactions;”
|
|
·
|
$650,000 in payments due on grape supply contracts to farms controlled by certain of our affiliates was subordinated to Bank of the West;
|
|
·
|
we executed convertible subordinated notes payable to Daniel A. Carroll and Stasia Obremskey, as trustees of the Carroll-Obremskey Trust, Phillip L. Hurst and Sylvia M. Hurst, as trustees of the Hurst Trust, Heath E. Dolan and Robin A. Dolan, as trustees of the Dolan 2005 Trust, and Paul E. Dolan, III, as trustee of the Dolan 2003 Trust, in exchange for their contributions of $150,000, $150,000, $25,000 and $25,000, respectively, bearing interest at 10% per annum with interest and principal due on the earlier of March 1, 2014 or the completion of this offering; should the offering not be completed by March 1, 2014, the debt will be converted into Class A Membership Interests computed by dividing each note balance by $16,666,667; and
|
|
·
|
the LLC agreed to raise $2 million of equity by May 1, 2013, if this offering is not successful, in order to be in compliance with applicable covenants at March 31, 2013 (measured at May 15, 2013).
|
Payments Due by Period
|
||||||||||||||||||||
Total
|
Less than
1 year
|
1-3 Years
|
3-5 Years
|
More than
5 years
|
||||||||||||||||
Long-term debt obligations
|
$ | 3,690,313 | $ | 304,557 | $ | 466,826 | $ | 270,480 | $ | 2,648,450 | ||||||||||
Interest payments on long-term debt obligations(
1
)
|
2,123,878 | 141,270 | 251,837 | 223,146 | 1,507,625 | |||||||||||||||
Supply agreements
|
16,491,984 | 6,844,653 | 9,284,259 | 363,072 | - | |||||||||||||||
Operating lease obligations
|
888,196 | 271,518 | 567,718 | 48,960 | - | |||||||||||||||
Deferred compensation
|
103,000 | 34,333 | 68,667 | - | - | |||||||||||||||
Total
|
$ | 23,297,371 | $ | 7,596,331 | $ | 10,639,307 | $ | 905,658 | $ | 4,156,075 |
Net Sales
for the Years
Ended June 30
|
Accounts
Receivable
as of June 30,
|
Net Sales
for the Six Months
Ended December 31,
|
Accounts Receivable as of December 31,
|
||||||||||
2011
|
2012
|
2011
|
2012
|
2011
|
2012
|
2012
|
|||||||
(Unaudited)
|
(Unaudited)
|
||||||||||||
Customer A
|
23%
|
33%
|
28%
|
-
|
39%
|
21%
|
4%
|
||||||
Customer B
|
20%
|
18%
|
-
|
48%
|
19%
|
10%
|
-
|
||||||
Customer C
|
14%
|
10%
|
22%
|
11%
|
10%
|
8%
|
12%
|
||||||
Customer D
|
10%
|
6%
|
10%
|
6%
|
4%
|
9%
|
21%
|
||||||
Customer E
|
-
|
1%
|
-
|
4%
|
5%
|
12%
|
9%
|
||||||
Customer F
|
5%
|
6%
|
6%
|
-
|
4%
|
7%
|
3%
|
||||||
Customer G
|
-
|
-
|
-
|
-
|
-
|
2%
|
15%
|
|
·
|
Steady growth in the U.S. wine market:
The U.S. wine market has grown at an average annual rate of 5% over the past decade and is now the largest in the world (although per capita consumption remains relatively low).
In the recent past, growth in wine sales has been focused in domestic brands; from 2007 to 2011, wine imports have only grown by 1.6% per year.
According to the 2011 Gomberg-Fredrikson & Associates Annual Wine Industry Review for the twelve months ended December 2011, two of the three fastest growing price points are the Super-premium and Ultra-premium segments. We have focused on the higher end of the Super-premium segment and also have a significant presence in the Ultra-premium segment, which together accounted for 66% of industry-wide revenue in 2011.
|
|
·
|
Market ripe for disruption:
Food retailers account for roughly 65% of wine sales, with a high concentration of market share among only a handful of major wine producers and distributors. The top four wine producers in California control approximately 65% of unit shipments of California wine. In order to compete with powerful producers and suppliers for this growing profit pool, food and grocery retailers have turned to private label programs as a way of gaining margin, customer loyalty, category growth and differentiation.
|
|
·
|
Retailer focus on innovation:
Increased market competition has heightened for retailers the emphasis on increasing consumer traffic to grow same store sales year over year. In order to create excitement in their stores, major global retail chains and top wine retailers in the United States have made wine and packaging innovations, including “earth-friendly” elements, a key strategic initiative for 2013 and beyond. Our core values are aligned with our retail partners’ initiatives and consumer consciousness as we strive to make our products in a way that minimizes waste and fossil fuel usage and increases recyclability.
|
|
·
|
Private label model remains in its infancy:
Nielsen estimates that, in the United States, only 3.7% of wines, by dollar value, were sold through private labels in the year to date, as of August 2010, which was a 20% increase compared to the prior year. Other mature wine markets have experienced considerably higher penetration; for example, private label wine sales make up 19% and 16% of total wine sales in the U.K. and Australia, respectively. The U.S. market appears poised for growth in this segment.
|
|
·
|
Declining brand loyalty
: Along with robust growth, the U.S. wine market has also witnessed a proliferation of new brands. In 2010 alone, the United States approved 120,000 new wine labels.
Consumers have shown an increasing appetite to sample new labels and varietals, which can be promoted cost-effectively on an in-store basis. For example, relatively new brands like Cupcake, Ménage à Trois and E.&J. Gallo Winery’s Apothic grew by 55%, 18% and 258%, respectively, in 2011. Food retailers are well-positioned to manage this promotion as they control the shelf space and brand positioning in their stores. In an ever more crowded market, this advantage has become increasingly valuable.
|
|
·
|
Rapid growth of internet retailing:
Small but rapidly growing, we expect the internet segment to continue to outpace brick and mortar retailer sales, and we believe it is poised to surpass winery direct sales.
|
·
|
“Premiumization” of the market
: Following years of explosive growth in the late 1980s and early 1990s, the U.S. market experienced a supply glut which resulted in severe pricing pressure from so-called “value brands.” Due to significant consumption growth of California wines and the reduction of imported wines, as well as changes in exchange rates and taste preferences, this trend has reversed in the current cycle, with the Super-premium and Ultra-premium segments among those experiencing the highest growth.
|
|
·
|
Significant direct to consumer sales growth
:
Tasting room and wine club sales are typically the highest gross margin sales for a winery. Our direct to consumer net sales increased 54% for the fiscal year ended June 30, 2012 as compared to the prior fiscal year and 56% for the six months ended December 31, 2012 as compared to the prior-year period, with gross margins
averaging approximately 61%, which we believe is generally consistent with industry averages.
|
|
·
|
Model scalability will drive growth
: We combine the best of deep experience in the wine industry and the speed and agility of a start-up to work with both retailers and distributors to develop and market new brands. Because we are smaller, more agile and less prone to layers of decision making and because we have a world-class brand development/creative team in house, we are able to launch innovative new brands faster and more cost-effectively. This allows us and our partners to respond rapidly to market opportunities.
|
|
·
|
Highly collaborative channel partnerships:
Our management believes that it is critical to support multiple players in the distribution system in order for a young company to defend a sustainable market position. This includes a strong collaboration with well-known and reputable retailers who are looking for innovative, higher-margin brands to market. Our reputation has been enhanced by our success with these channel partners, leading to new opportunities in brand development, including selling some of our brands via traditional three-tier distribution at a reduced cost.
Currently, we have a small share of this sizeable market. For example, for the first six months of fiscal year 2013, our sales to Safeway were less than $2 million, which is less than 1% of Safeway’s 2012 annual wine sales. Our goal is to expand our sales with existing retailer partnerships, including large businesses such as Trader Joe’s, Safeway and Total Wine & More, as well as increase the number of new major retailers that we partner with, including The Kroger Company, Publix and Wal-Mart.
|
|
·
|
Collaborative and rapid brand development.
Our development process with our partners is highly collaborative and our products are developed based on our partners’ market data and understanding of what their customers want. Instead of developing a brand and bringing it to market based on consultants’ input and wine maker reputation, we exploit our retail partners’ quantitative data about brands, price points, packaging and varietals that their customers are buying. When we initiate a partnership, we approach a retailer with numerous concepts; an agreement to move forward typically includes multiple brands, varietals and price points that are launched in tandem. This allows the retailer to test various concepts, with the expectation that about half of the brands will be successful and further developed, while the other half will be scaled back or discontinued. Typically, it takes six months from the initial conversations with a retailer until the product is on the retailer’s shelves.
|
|
·
|
Quality focused on the robust premium sector:
The private label business has historically focused on the generic, Sub-premium category (below $7 per bottle retail price), with wine quality consistent with the price points. Recognizing growth in this sector, we have positioned ourselves in the Super-premium and Ultra-premium segments. In order to support our premium strategy, we have identified and contracted premium grape sources from Paso Robles, Sonoma and Mendocino Counties. Our founders’ diverse and extensive experience in the industry allows us to leverage longstanding relationships with California growers, an increasingly important asset as grape supplies tighten globally. We are also able to source grapes on a priority basis from our founders and members of our management team, who collectively control 500 acres of vineyards in Sonoma and Mendocino Counties. In addition, we have hired a top-quality winemaking staff and invested in state of the art systems and equipment.
While we have focused primarily on the higher end of the Super-premium segment, we also have a significant presence in the Ultra-premium segment of the industry.
|
|
·
|
Innovative, world-class packaging and label design:
Given the proliferation of brands and the need to “rise above the noise” in wine displays, innovative labeling and packaging is increasingly important to success in launching new wine brands. Our founders
and Kevin Shaw, an independent contractor who serves as our creative director,
have world-class experience in this area and are establishing a reputation as market leaders with novel packaging, such as evocative paper-wrapping, unique bottle shapes and the world’s first paper-based bottles.
|
|
o
|
Evocative wine wraps:
We have developed, produced and sold one of the world’s first “wine wrap” packaging concepts to Safeway, one of the country’s largest wine retailers. We have applied for trademarks on the wine wrap brands and a patent on the unique packaging.
|
o
|
The world’s first paper bottle
: In February 2013, we entered into a seven-year exclusive agreement with the producer of what we believe to be the first ever paper wine bottle. We intend to begin selling wine in the paper bottle in the second half of 2013 and are in discussions with several of the top U.S. retailers and distributors, including Safeway, The Kroger Company, Young’s Market Company and Southern Wines and Spirits, to sell the product.
|
|
o
|
Proprietary square bottle:
We have designed a unique square-shaped glass bottle and created a brand that will “own” this concept. We have applied for a trademark on the brand and a patent on the design. We have partnered with one of the country’s fastest growing and most important wine retail chains, Total Wine & More, to produce and sell 40,000 cases (generating approximately $3.5 million in sales) in the first 12-month period beginning spring 2013.
|
|
·
|
Management team
: The founding team of Phil Hurst and Paul Dolan represents decades of experience in the wine industry and success at building businesses to scale, typically only seen in much larger, global players in the wine and spirits industry.
|
|
o
|
Phillip L. Hurst, Co-Founder, President and Chief Executive Officer: co-founded and helped build Winery Exchange Inc. into a global private label beer, spirits and wine company with more than $100 million in sales.
|
|
o
|
Paul E. Dolan, III, Co-Founder: worked at Fetzer Vineyards for 27 years, initially as wine maker and later as President, and scaled the business from 30,000 cases to over 4 million cases sold per year.
|
|
o
|
Virginia Marie Lambrix, Director of Winemaking: experience making wine for such leading producers as De Loach Vineyards, La Follette and Hendry Ranch.
|
|
o
|
Heath E. Dolan, Co-Founder, Director of Vineyard Operations: has 16 years of experience in the wine business, including managing cellar operations for Fetzer Vineyards.
|
|
o
|
Kevin Shaw, Independent Contractor/Creative Director: has nearly 20 years of experience as a designer. As proprietor and founder of Stranger and Stranger design agency, he received the 2012 Harpers Wine & Spirits Magazine Design Award for “Best Design Agency.” Kevin designs over 100 beverage brands every year in markets all around the world, including Jack Daniels, Avion Tequila, Lillet and The Kraken Spiced Rum. Collectively, his brands sell over a billion bottles a year.
|
|
o
|
James D. Bielenberg, Chief Financial Officer: has more than 30 years of public and private accounting experience. After gaining public accounting experience with Arthur Young (now Ernst & Young), he has spent the last 25 years working in wine-making operations with such well known firms as Kendall-Jackson Wine Estates, Francis Ford Coppola Winery, Ascentia Wine Estates, LLC and Rodney Strong Vineyards.
|
|
o
|
Daniel A. Carroll, Director: retired partner of TPG Capital, where he was a founder of the firm's Asian operations (formerly Newbridge Capital). Prior to 1995, he spent nine years with Hambrecht & Quist Group.
|
|
o
|
William R. Hambrecht, Director: after selling Hambrecht & Quist Group in 1998, Bill founded WR Hambrecht + Co where he is now Chairman and Co-CEO. He has been actively involved in the wine business for 40 years as an owner and operator of vineyards and wineries.
|
|
·
|
Presence in internet channel:
We recently acquired a 50% controlling stake in The Wine Spies. The Wine Spies offers daily sales of premium wines that are sourced directly from wine producer/wineries. This relationship allows us to participate in the emerging internet channel.
|
|
·
|
International Expansion:
We have partnered with Trialto, Canada’s premium wine agency specializing in wines of People, Place and Time, and Vittoria Coffee, Australia’s most popular coffee blend and suppliers of food products to over 5,000 individual customers. In addition, we are launching the Bradford Mountain brand in China where there are currently only two major California Zinfandel brands in existence, Seghesio and Ridge Vineyards.
|
|
·
|
Continuing to develop innovative products that meet the needs of wine retailers.
We have developed a reputation for developing innovative new brands and working closely with our retail partners to develop brands that cater to customer demands and that permit our retail partners to increase their consumer traffic and grow their same store sales. We intend to continue to develop brands with our retail partners by relying on our branding expertise. We also intend to continue our innovations, such as our evocative “wine wraps,” the paper bottle, and the square bottle, and exploit these in order to build our brands and market share with wine retailers.
|
|
·
|
Growing our retailer base to include the top ten U.S. and global retail chains.
We intend to pursue relationships with the largest retail chains in the United States and around the world. This will allow us to become less dependent on our existing retail relationships and reduce the risk associated with losing any particular retailer relationship.
|
|
·
|
Expanding our direct to consumer business.
We intend to build our wine clubs via targeted public relations and advertising, expand our tasting rooms and create exciting new events at our wineries. The direct to consumer distribution channel allows us to respond rapidly to consumers and anticipate and establish new market trends. The direct to consumer business generates attractive margins, so we intend to expand this distribution channel in order to achieve our growth objectives.
|
|
·
|
Building our internet customer base.
We intend to build our internet presence. We recently acquired a controlling interest in The Wine Spies, and we intend to develop The Wine Spies distribution channel. With strong margins and a solid business platform, we believe our internet e-tailer is poised for strong growth.
|
|
·
|
Expanding into key international markets.
With our recent launch of our wrapped bottle project, we are beginning to experience demand in Canada, Europe and Australia. In late 2012, our distributor in Canada, Trialto, met with all of the large regional Liquor Control Boards and obtained listings for our brand Dearly Beloved, some of our wrapped wines, including Curious Beasts, and commitments for both the paper bottle and square bottle projects to be launched in spring 2013. Several retailers in the United Kingdom are requesting information and gathering samples. In Australia, the nation’s largest coffee company and “total café solution,” Vittoria Coffee, has decided to enter the wine distribution market after spotting our Dearly Beloved on a research trip the United States. Samples have been sent, pricing has been agreed and we anticipate our first orders in the late 2013. In addition, Vittoria is also interested in launching our wrapped wines in mid-2013.
|
|
·
|
Continuing to develop new ways to engage customers and to distribute our products.
By aggressively tackling the market in nontraditional ways — direct to the trade and consumer, rather than through layers of sales entities and employees — we can respond quickly to the needs of consumers, retailers and restaurateurs. We also are able to anticipate and even establish new trends. We are constantly challenging the status quo and always on the lookout for new innovations and approaches to the market. Simply said, we are discovery-oriented in our approach. This is somewhat counterintuitive especially when you consider that wine has been with us for about 7,000 years. We believe that tradition, to some degree, has stymied creativity.
|
|
·
|
Building our national brands.
We have built strong “traditional three-tier” brands, including Truett-Hurst, Healdsburg Ranches and Bradford Mountain. We plan to continue to market and promote these products with our partners.
|
Product
|
Price Range
|
Key Varietals
|
Distribution Chanel
|
Gross Margin Benefit
|
Truett Hurst
|
$20-$50
|
Zinfandel
|
Direct to Consumer/Three-Tier
|
High
|
VML
|
$20-$50
|
Pinot
Noir/Chardonnay |
Direct to Consumer/Three-Tier
|
High
|
Bradford Mountain
|
$20-$40
|
Zinfandel/Syrah
|
Direct to Consumer/Three-Tier
|
Medium/High
|
Healdsburg Ranches
|
$10-$20
|
Chardonnay/Pinot
Noir/Zinfandel |
Three-Tier
|
Medium
|
Evocative Wraps
|
$12-$50
|
Various
|
Private Label
|
Medium
|
The Fugitive
|
$25
|
Red Blend
|
Private Label
|
Medium
|
Dearly Beloved
|
$8
|
Red Blend
|
Private Label
|
Low
|
Sauvignon Republic
|
$8
|
Sauvignon Blanc
|
Private Label
|
Low
|
Harbor Front
|
$10-$15
|
Chardonnay/
Cabernet Sauvignon/Merlot/ Pinot Noir |
Private Label
|
Low
|
Kiarna
|
$10-$20
|
Chardonnay/
Cabernet Sauvignon/Merlot/ |
Private Label
|
Low
|
Hobson Estate
|
$10-$20
|
Chardonnay/
Cabernet
Sauvignon/Merlot/
|
Private Label
|
Low
|
Bewitched
|
$20-$40
|
Chardonnay/Pinot Noir
|
Private Label
|
High
|
Curious Beasts
|
$15
|
Red Blend
|
Private Label
|
Medium
|
Fuchsia
|
$13
|
Rose/White Blend
|
Private Label
|
Medium
|
Schuck’s
|
$14
|
Sauvignon Blanc/Chardonnay/Pinot Noir
|
Private Label
|
Medium
|
Candell’s
|
$50-$60
|
Sparkling
|
Private Label
|
High
|
Eden Ridge
|
$11
|
Chardonnay
|
Private Label
|
Low
|
Chateau Crisp
|
$12-$15
|
Sauvignon Blanc
|
Private Label
|
Medium
|
The Supper Club
|
$13-$14
|
Chardonnay/Cabernet Sauvignon
|
Private Label
|
Medium
|
The Wine with No Name
|
$15
|
Red Blend
|
Private Label
|
Medium
|
The Criminal
|
$20
|
Red Blend
|
Private Label
|
Medium
|
|
·
|
Sauvignon Republic
|
|
·
|
Dearly Beloved
|
|
·
|
The Fugitive
|
|
·
|
Harbor Front
|
|
·
|
Eden Ridge
|
|
·
|
Bewitched
|
|
·
|
Fuchsia
|
|
·
|
Chateau Crisp
|
|
·
|
The Supper Club
|
|
·
|
The Wine with No Name
|
|
·
|
Curious Beasts
|
|
·
|
Candell’s
|
|
·
|
Schuck’s
|
|
·
|
The Criminal
|
|
·
|
Hobson Estate
|
|
·
|
Kiarna
|
|
·
|
Ghianda Rose Vineyards, owned by the Dolan family, approximately 40 acres of Mendocino County Chardonnay, organic and biodynamic certified.
|
|
·
|
Gobbi Vineyards, owned by the Dolan family, approximately 40 acres of Mendocino Country Chardonnay, organic certified.
|
|
·
|
Lovers Lane Vineyard, owned by Phil Hurst and the Dolan family, approximately 140 acres of Zinfandel, Cabernet Sauvignon and Petite Syrah.
|
|
·
|
Floodgate Vineyard, owned by the Hambrecht family, approximately 100 acres of Russian River Valley Pinot Noir and Chardonnay.
|
|
·
|
Grist Vineyards, owned by the Hambrecht family, approximately 100 acres of organically farmed Dry Creek Valley Zinfandel, Petite Syrah and Syrah on the historic Bradford Mountain.
|
|
·
|
Dark Horse Vineyard, owned by the Dolan family, approximately 120 acres of biodynamically farmed Zinfandel, Cabernet Sauvignon, Syrah and Petite Syrah located in Mendocino County.
|
|
·
|
Direct to consumer:
in the direct to consumer channel, we rely on our tasting room sales and wine clubs. We view our tasting rooms as excellent venues in which to build a strong brand and generate customer loyalty. While the tasting rooms at Truett-Hurst and VML initially have represented mostly brand and customer loyalty building tools, and as fun ways for us and our friends and fans to enjoy some excellent wines, they are now significant revenue and profit centers representing our highest gross margin business and provide important credibility with our private label customers further differentiating us from our competitors. We have also discovered that there is no stronger way to build relationships with a consumer than the experience of visiting the winery. Our fast growing wine clubs further build and maintain this bond, along with the many winery hosted events, bringing the customer back, time and time again.
In this channel, we ship via UPS directly to our customers around the country that live in states that permit direct shipping. We have negotiated favorable shipping rates based on the volume of wines selling from our two tasting rooms and our partnership with internet retailer The Wine Spies.
Our tasting rooms and wine clubs produced revenues of $1,503,449 in the first six months of fiscal year 2013 and $966,899 in the first six months of fiscal year 2012, showing a significant increase of 55%.
|
|
·
|
Traditional three-tiered distribution:
we sell our brands through traditional distributor channels. Currently, we produce and sell wine under four fully owned labels: Truett-Hurst, VML, Healdsburg Ranches and Bradford Mountain. We plan to develop or purchase other labels over time to add to this channel. We sell our wine directly to California distributors that operate state-wide or regionally. In this channel we sell wine to the distributor at a wholesale price, and the distributor marks it up and sells it on to various wine stores and restaurants that ultimately sell to retail customers.
|
|
o
|
Young’s Market Company – California, Washington, Oregon
|
|
o
|
Republic National Distributing Company – Texas, Midwest region
|
|
o
|
Wirtz – Illinois
|
|
o
|
Winebow – Eastern region
|
|
·
|
Private label/direct to retailer:
W
e create and sell brands to the nation’s largest wine retailers, such as Trader Joe’s, Total Wine & More and Safeway that work with us directly to promote and advertise our wines. While many other wine makers sell into this channel, we have sought to bring our novel approach to the direct to retail channel. Whereas most wine makers assign the trademarks to the retailers when they either create private label wines or develop brands for them, we will custom-develop brands for a retailer and retain ownership of the brand. This gives us the ability to move our private label brands into broad market distribution after the exclusivity period or if a brand becomes very successful, further building brand equity.
We acknowledge that the retailer has a unique relationship with its customer. We also recognize that the retailer has developed a particular position or standing in the minds and heart of its consumers. We want to honor that relationship by developing and providing products that support and reinforce that dynamic. We also recognize that it is ever-changing and developing, and we are prepared to adapt to their needs. Therefore, we work hand in hand with the retail buyers to create and design products and packaging that meets retailer needs.
Many retailers have established distributor relationships across the country that allow them to leverage their regular branded business and their private label business. In most of these cases they have negotiated below market rates in order to achieve higher margins and provide better value to their customers. In cases where retailers have not established such distribution relationships, we employ our regular three-tier distributors.
Retailers to whom we sell through this channel include:
|
|
o
|
Trader Joe’s
|
|
o
|
Total Wine & More
|
|
o
|
BevMo!
|
|
o
|
Safeway
|
|
o
|
Costco
|
Registered
|
Published
|
Pending
|
Bewitched
|
Candells
|
California Square
|
Bradford Mountain
|
Cense
|
Curious Beasts
|
By Locals. For Locals
|
Center Street
|
Fuchsia
|
Dearly Beloved
|
Chateau Crisp
|
Juice Brothers
|
Dearly Beloved Forever Red
|
Eden Ridge
|
Paso Ranches
|
Fugitive
|
Inconspicuous
|
Sweet Evil
|
Harbor Front
|
Mad Duck
|
The Criminal
|
Healdsburg Ranches
|
Nature’s Gate
|
Unique Style, Unique Flavor, Anything But Square
|
One Man Band
|
Paper Boy
|
West Coast Original
|
Sauvignon Republic
|
Pinot Republic
|
|
Simply Pure
|
Shuck’s
|
|
Stonegate
|
Sonoma Ranches
|
|
The County Fair
|
Sustainable Farm
|
|
Truett Hurst
|
Svengali
|
|
Va·ri’e·tals
|
Wonderland
|
|
VML
|
||
|
·
|
the investors in this offering will collectively own 2,902,557 shares of our Class A common stock and Truett-Hurst, Inc. will hold 2,902,557 LLC Units;
|
|
·
|
our existing owners will hold 3,450,087 LLC Units;
|
|
·
|
the investors in this offering will collectively have 43.9% of the voting power in Truett-Hurst, Inc.; and
|
|
·
|
our existing owners, through their holdings of our Class B common stock, will have 52.2% of the voting power in Truett-Hurst, Inc.
|
Name
|
Age
|
Principal Position
|
||
Phillip L. Hurst
|
49
|
President, Chief Executive Officer and Director
|
||
Virginia Marie Lambrix
|
39
|
Director of Winemaking
|
||
Heath E. Dolan
|
39
|
Director of Vineyard Operations and Director
|
||
James D. Bielenberg
|
54
|
Chief Financial Officer
|
||
Paul E. Dolan, III
|
62
|
Director
|
||
Barrie Graham
|
65
|
Director
|
||
William R. Hambrecht
|
77
|
Director
|
||
Daniel A. Carroll
|
52
|
Director
|
||
John D. Fruth
|
69 |
Director
|
||
James F. Verhey
|
66 |
Director
|
|
·
|
The Class I directors will be William R. Hambrecht, Barrie Graham and Heath E. Dolan, and their terms will expire at the annual general meeting of stockholders to be held in 2013;
|
|
·
|
The Class II directors will be Phillip L. Hurst, Paul E. Dolan, III and Daniel A. Carroll, and their terms will expire at the annual general meeting of stockholders to be held in 2014; and
|
|
·
|
The Class III directors will be John D. Fruth and James F. Verhey, and their terms will expire at the annual general meeting of stockholders to be held in 2015.
|
Name and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock Awards
($)(1) |
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compen-
sation ($)
|
All Other
Compen-
sation
($)
|
Total ($)
|
|||||||||
Phillip L. Hurst, Co-Founder,
Chief Executive Officer |
2012
|
137,111
|
13,598
|
— |
—
|
—
|
900 (2)
|
150,709
|
|||||||||
Virginia Marie Lambrix,
Director of Winemaking |
2012
|
111,462
|
10,171
|
— |
—
|
—
|
—
|
121,633
|
|||||||||
Heath E. Dolan, Co-Founder,
Director of Vineyard Operations |
2012
|
19,000
|
—
|
— |
—
|
—
|
—
|
19,000
|
|
(1)
|
This column reflects the grant date fair value of share based awards as determined in accordance with FASB ASC Topic 718.
|
|
(2)
|
Mr. Hurst began receiving a $900.00 per month automobile allowance on June 1, 2012.
|
(3)
|
Expected fiscal year 2013 compensation.
|
|
·
|
the amounts involved exceeded or will exceed $120,000 or 1% of our total assets averaged for the last two fiscal years; and
|
|
·
|
any of our directors, executive officers, holders of more than 5% of our capital stock (which we refer to as 5% stockholders) or any member of their immediate family had or will have a direct or indirect material interest, other than compensation arrangements with directors and executive officers, which are described where required under the section titled “Executive Compensation.”
|
|
·
|
the timing of exchanges—for instance, the increase in any tax deductions will vary depending on the fair value, which may fluctuate over time, of the depreciable or amortizable assets of the LLC at the time of each exchange;
|
|
·
|
the price of shares of our Class A common stock at the time of the exchange—the increase in any tax deductions, as well as the tax basis increase in other assets, of the LLC is directly proportional to the price of shares of our Class A common stock at the time of the exchange;
|
|
·
|
the extent to which such exchanges are taxable—if an exchange is not taxable for any reason, increased deductions will not be available; and
|
|
·
|
the amount and timing of our income—the corporate taxpayer will be required to pay 90% of the deemed benefits as and when deemed realized. If the corporate taxpayer does not have taxable income, the corporate taxpayer generally will not be required (absent a change of control or other circumstances requiring an early termination payment) to make payments under the tax receivable agreement for that taxable year because no benefit will have been actually realized. However, any tax benefits that do not result in realized benefits in a given tax year will likely generate tax attributes that may be utilized to generate benefits in previous or future tax years. The utilization of such tax attributes will result in payments under the tax receivable agreement.
|
|
·
|
we will record an increase of $4.714 million in deferred tax assets for the estimated income tax effects of the increase in the tax basis of the assets owned by Truett-Hurst, Inc. based on enacted federal and state tax rates at the date of the transaction. To the extent we estimate that we will not realize the full benefit represented by the deferred tax asset, based on an analysis of expected future earnings, we will reduce the deferred tax asset with a valuation allowance;
|
|
·
|
we will record 100% of the estimated realizable tax benefit resulting from (i) the increase in the tax basis of the purchased interests as noted above and (ii) certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement as an increase of $4.424 million payable to related parties pursuant to tax receivable agreement; and
|
|
·
|
we will record an increase to additional paid-in capital in an amount equal to the difference between the increase in deferred tax assets and the increase in liability due to existing owners under the tax receivable agreement.
|
(1)
|
Following this offering, our existing owners will also hold one share of our Class B common stock. Each holder of Class B common stock shall be entitled, without regard to the number of shares of Class B common stock held by such holder, to one vote for each LLC Unit held by such holder.
|
(2)
|
Mr. Shaw was granted 210,000 shares of restricted stock under the 2012 Plan, which vest over three years and are subject to our right of repurchase or forfeiture. Holders of our restricted stock are entitled to one vote for each share of restricted stock held by such holder.
|
(3)
|
The voting power, shares of Class A common stock and LLC Units presented in the foregoing tables as beneficially owned by Mr. Hurst are held by a trust for the benefit of Mr. Hurst and his family members as to which Mr. Hurst is a co-trustee.
|
(4)
|
The voting power, shares of Class A common stock and LLC Units presented in the foregoing tables as beneficially owned by Mr. Hambrecht include those by Hambrecht Wine Group, L.P., of which 83.6955% is beneficially owned by a trust for the benefit of Mr. Hambrecht and his family members as to which Mr. Hambrecht is the trustee.
|
(5)
|
The voting power, shares of Class A common stock and LLC Units presented in the foregoing tables as beneficially owned by Mr. Heath Dolan are held by a trust for the benefit of Mr. Heath Dolan and his family members as to which Mr. Heath Dolan is a co-trustee.
|
(6)
|
The voting power, shares of Class A common stock and LLC Units presented in the foregoing tables as beneficially owned by Mr. Paul Dolan are held by a trust for the benefit of Mr. Paul Dolan and his family members as to which Mr. Paul Dolan is the trustee.
|
(7)
|
The voting power, shares of Class A common stock and LLC Units presented in the foregoing tables as beneficially owned by Mr. Carroll are held by a trust for the benefit of Mr. Carroll and his family members as
to
which Mr. Carroll is a co-trustee.
|
(8)
|
Mr. Bielenberg was granted 42,000 shares of restricted stock under the 2012 Plan, which vest over three years and are subject to our right of repurchase or forfeiture. Holders of our restricted stock are entitled to one vote for each share of restricted stock held by such holder. |
(9) | Mr. Forrester Hambrecht is the grandson of William R. Hambrecht, a director of the LLC and Truett-Hurst, Inc. He is also the manager of Hambrecht Vineyards, which supplies us with grapes. |
(10) | Mr. De Meulenaere is not an officer or director of the Company, nor does he have a material relationship with the Company, other than as a member of the LLC. |
(11) | Ms. Schweizer is the chief financial officer to William R. Hambrecht, a director of the LLC and Truett-Hurst, Inc. |
(12) | Truett-Hurst, Inc. will operate and control all of the business and affairs of the LLC. Holders of LLC Units will not have voting power under the amended and restated operating agreement of the LLC. |
(13) | The percentage of LLC Units beneficially owned prior to the offering is based on 4,102,644 LLC Units outstanding after the Recapitalization. See “History and Formation Transactions—Organizational Structure—Recapitalization.” |
(14) | The percentage of LLC Units beneficially owned after to the offering is based on 6,352,644 LLC Units outstanding after the offering. After the offering, Truett-Hurst, Inc. will hold 2,902,557 LLC Units, or 45.7% of the LLC Units outstanding after the offering. See “History and Formation Transactions—Organizational Structure—Offering Transactions.” |
|
·
|
7,000,000 shares are designated as Class A common stock;
|
|
·
|
1,000 shares are designated as Class B common stock; and
|
|
·
|
5,000,000 shares are designated as preferred stock.
|
|
·
|
diluting the voting power of the holders of common stock;
|
|
·
|
reducing the likelihood that holders of common stock will receive dividend payments;
|
|
·
|
reducing the likelihood that holders of common stock will receive payments in the event of our liquidation, dissolution, or winding up; and
|
|
·
|
delaying, deterring or preventing a change-in-control or other corporate takeover.
|
|
·
|
indemnify officers and directors against certain liabilities that may arise because of their status as officers and directors;
|
|
·
|
advance expenses, as incurred, to officers and directors in connection with a legal proceeding subject to limited exceptions; and
|
|
·
|
cover officers and directors under any general or directors’ and officers’ liability insurance policy maintained by us.
|
|
·
|
one percent of the number of shares of Class A common stock then outstanding, which will equal approximately 290,000 shares immediately after the completion of this offering; or
|
|
·
|
the average weekly trading volume of our Class A common stock on Nasdaq during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.
|
|
·
|
offer, pledge, sell, contract to sell, grant any option to purchase, make any short sale or otherwise dispose of any shares of Class A common stock, options or warrants to purchase shares of our Class A common stock or any securities convertible into or exercisable or exchangeable for shares of our Class A common stock; or
|
|
·
|
in our case, file any registration statement with the SEC relating to the offering of any shares of Class A common stock or any securities convertible into or exercisable or exchangeable for Class A common stock; or
|
|
·
|
in the case of our directors, officers and other holders of our securities, make any demand for exercise of any rights with respect to the registration of any securities.
|
|
·
|
banks, insurance companies or other financial institutions;
|
|
·
|
partnerships or other pass-through entities;
|
|
·
|
tax-exempt organizations;
|
|
·
|
tax-qualified retirement plans;
|
|
·
|
dealers in securities or currencies;
|
|
·
|
traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;
|
|
·
|
U.S. expatriates and certain former citizens or long-term residents of the United States;
|
|
·
|
controlled foreign corporations;
|
|
·
|
passive foreign investment companies;
|
|
·
|
persons that own, or have owned, actually or constructively, more than 5% of our Class A common stock; and
|
|
·
|
persons that will hold Class A common stock as a position in a hedging transaction, “straddle” or “conversion transaction” for tax purposes.
|
|
·
|
an individual citizen or resident of the United States;
|
|
·
|
a corporation created or organized in or under the laws of the United States, any state thereof or the District of Columbia (or entity treated as such for U.S. federal income tax purposes);
|
|
·
|
an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or
|
|
·
|
a trust if (a) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) it has a valid election in effect under applicable United States Department of the Treasury regulations to be treated as a U.S. person.
|
|
·
|
the gain is effectively connected with a trade or business carried on by the non-U.S. holder in the United States and, if required by an applicable income tax treaty, the gain is attributable to a permanent establishment of the non-U.S. holder maintained in the United States;
|
|
·
|
the non-U.S. holder is an individual present in the United States for 183 days or more in the taxable year of disposition and certain other requirements are met; or
|
|
·
|
we are or have been a U.S. real property holding corporation, or a USRPHC, for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding the disposition and the non-U.S. holder’s holding period for our Class A common stock, and our Class A common stock has ceased to be traded on an established securities market prior to the beginning of the calendar year in which the sale or other disposition occurs. The determination of whether we are a USRPHC depends on the fair market value of our U.S. real property interests relative to the fair market value of our other trade or business assets and our foreign real property interests.
|
Underwriters
|
Number of Shares
|
WR Hambrecht + Co
|
|
Sidoti & Company, LLC
|
|
CSCA Capital Advisors, LLC
|
|
|
|
Total
|
|
Paid by Us
|
Paid by Selling Stockholders
|
|||||||
Per Share
|
$ | $ | ||||||
Total
|
$ | $ |
Truett-Hurst, Inc.
|
|
F-1
|
|
F-2
|
|
F-3
|
H.D.D. LLC | |
F-4
|
|
F-5
|
|
F-6
|
|
F-7
|
|
F-8
|
|
F-9 - F-30
|
Assets | $ | - | ||
Stockholders
’
Equity
|
||||
Preferred Stock, par value $0.001 per share;
|
||||
5,000,000 shares authorized; none issued and outstanding
|
$ | - | ||
Class A Common Stock, par value $0.001 per share;
|
||||
500,000 shares authorized; none issued and outstanding
|
- | |||
Class B Common Stock, par value $0.001 per share;
|
||||
1,000 shares authorized; none issued and outstanding
|
- | |||
Total Stockholders
’
Equity
|
$ | - |
1.
|
ORGANIZATION
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
3.
|
STOCKHOLDER'S EQUITY
|
4.
|
SUBSEQUENT EVENTS
|
C
ONSOLIDATED
B
ALANCE
S
HEETS
|
||||||||||||
____________
|
||||||||||||
|
||||||||||||
June 30,
|
December 31,
|
|||||||||||
2011
|
2012
|
2012
|
||||||||||
(Unaudited)
|
||||||||||||
A
SSETS
|
||||||||||||
Current assets:
|
||||||||||||
Cash and cash equivalents
|
$ | 274,422 | $ | 167,309 | $ | 116,472 | ||||||
Accounts receivable
|
939,086 | 1,257,697 | 1,041,354 | |||||||||
Inventories
|
3,567,140 | 6,852,391 | 10,275,867 | |||||||||
Bulk wine deposit
|
- | 332,623 | - | |||||||||
Other current assets
|
5,350 | 11,884 | 59,096 | |||||||||
Total current assets
|
4,785,998 | 8,621,904 | 11,492,789 | |||||||||
Property and equipment, net
|
5,055,783 | 5,083,109 | 5,509,504 | |||||||||
Goodwill
|
- | - | 134,327 | |||||||||
Intangible assets, net
|
212,000 | 235,313 | 745,639 | |||||||||
Other assets, net
|
46,092 | 142,291 | 126,118 | |||||||||
Total assets
|
$ | 10,099,873 | $ | 14,082,617 | $ | 18,008,377 | ||||||
L
IABILITIES,
R
EDEEMABLE
C
ONTRIBUTED
C
APITAL
|
||||||||||||
AND
M
EMBERS’
E
QUITY
(D
EFICIT
)
|
||||||||||||
Current liabilities:
|
||||||||||||
Line of credit
|
$ | 1,998,954 | $ | 1,763,954 | $ | 5,713,205 | ||||||
Accounts payable
|
904,568 | 1,512,308 | 1,456,269 | |||||||||
Accrued expenses
|
96,964 | 302,667 | 297,211 | |||||||||
Grapes payable
|
- | - | 253,362 | |||||||||
Amount due factor
|
- | 869,400 | - | |||||||||
Due to related parties
|
253,298 | 77,194 | 905,646 | |||||||||
Current maturities of related party notes
|
500,107 | 467,392 | 68,656 | |||||||||
Current maturities of long-term debt
|
804,052 | 792,248 | 235,901 | |||||||||
Warrant obligation
|
- | 206,000 | 210,000 | |||||||||
Interest rate swap
|
- | - | 70,830 | |||||||||
Total current liabilities
|
4,557,943 | 5,991,163 | 9,211,080 | |||||||||
Deferred rent liability
|
37,236 | 57,572 | 55,696 | |||||||||
Related party notes, net of current maturities
|
50,261 | 137,409 | 102,696 | |||||||||
Long-term debt, net of current maturities
|
2,748,907 | 2,637,220 | 3,283,060 | |||||||||
Total liabilities
|
7,394,347 | 8,823,364 | 12,652,532 | |||||||||
Commitments and contingencies (Note 9)
|
||||||||||||
Redeemable contributed capital
|
6,246,151 | 5,886,151 | - | |||||||||
Members’ equity (deficit):
|
||||||||||||
Contributed capital
|
- | 2,279,399 | 8,165,550 | |||||||||
Due from member
|
(643,393 | ) | (35,527 | ) | - | |||||||
Accumulated deficit
|
(2,897,232 | ) | (2,870,770 | ) | (3,086,787 | ) | ||||||
H.D.D. LLC members’ equity (deficit)
|
(3,540,625 | ) | (626,898 | ) | 5,078,763 | |||||||
Noncontrolling interest in The Wine Spies, LLC
|
- | - | 277,082 | |||||||||
Total members’ equity (deficit)
|
(3,540,625 | ) | (626,898 | ) | 5,355,845 | |||||||
Total liabilities, redeemable contributed capital
|
||||||||||||
and members’ equity
|
$ | 10,099,873 | $ | 14,082,617 | $ | 18,008,377 |
C
ONSOLIDATED
S
TATEMENTS OF
O
PERATIONS
|
||||||||||||||||
___________
|
||||||||||||||||
|
||||||||||||||||
Six Months
|
||||||||||||||||
Years Ended June 30,
|
Ended December 31,
|
|||||||||||||||
2011
|
2012
|
2011
|
2012
|
|||||||||||||
(Unaudited) | ||||||||||||||||
Sales
|
$ | 5,475,643 | $ | 13,148,953 | $ | 8,699,229 | $ | 8,820,255 | ||||||||
Less excise taxes
|
(73,598 | ) | (455,558 | ) | (321,120 | ) | (249,939 | ) | ||||||||
Net sales
|
5,402,045 | 12,693,395 | 8,378,109 | 8,570,316 | ||||||||||||
Cost of sales
|
3,900,942 | 9,618,065 | 6,573,563 | 5,850,463 | ||||||||||||
Gross profit
|
1,501,103 | 3,075,330 | 1,804,546 | 2,719,853 | ||||||||||||
Operating expenses:
|
||||||||||||||||
Sales and marketing
|
595,226 | 1,387,321 | 782,142 | 1,146,316 | ||||||||||||
General and administrative
|
1,435,908 | 1,194,353 | 428,318 | 1,581,239 | ||||||||||||
Gain on sale of assets
|
(111,150 | ) | (6,945 | ) | - | - | ||||||||||
Total operating expenses
|
1,919,984 | 2,574,729 | 1,210,460 | 2,727,555 | ||||||||||||
Income (loss) from operations
|
(418,881 | ) | 500,601 | 594,086 | (7,702 | ) | ||||||||||
Other expense:
|
||||||||||||||||
Interest expense
|
(401,134 | ) | (463,339 | ) | (198,618 | ) | (179,762 | ) | ||||||||
Warrant re-valuation
|
- | (10,000 | ) | - | (4,000 | ) | ||||||||||
Unrealized loss on interest rate swap
|
- | - | - | (70,830 | ) | |||||||||||
Total other expense
|
(401,134 | ) | (473,339 | ) | (198,618 | ) | (254,592 | ) | ||||||||
Income (loss) before income taxes
|
(820,015 | ) | 27,262 | 395,468 | (262,294 | ) | ||||||||||
Income tax expense
|
800 | 800 | 800 | 1,600 | ||||||||||||
Net income (loss) before noncontrolling
|
||||||||||||||||
interest
|
(820,815 | ) | 26,462 | 394,668 | (263,894 | ) | ||||||||||
Loss attributable to noncontrolling interest
|
- | - | - | (47,877 | ) | |||||||||||
Net income (loss) attributable to H.D.D. LLC
|
||||||||||||||||
members
|
$ | (820,815 | ) | $ | 26,462 | $ | 394,668 | $ | (216,017 | ) |
Consolidated Statements of Changes in Redeemable Contributed Capital and Members’ Equity (Deficit)
|
||||||||||||||||||||||||||||
____________
|
Total
|
||||||||||||||||||||||||||||
Redeemable
|
H.D.D. LLC
|
Members’
|
||||||||||||||||||||||||||
Contributed
|
Contributed
|
Due from
|
Accumulated
|
Members’
|
Noncontrolling
|
Equity
|
||||||||||||||||||||||
Capital
|
Capital
|
Member
|
Deficit
|
Equity (Deficit)
|
Interest
|
(Deficit)
|
||||||||||||||||||||||
Balances at July 1, 2010
|
$
|
750,000
|
$
|
-
|
$
|
-
|
$
|
(2,076,417
|
)
|
$
|
(2,076,417
|
)
|
$
|
-
|
$
|
(2,076,417
|
)
|
|||||||||||
Transfer of member loans to capital
|
2,696,151
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||
Capital contributions
|
700,000
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||
Capital contributions in exchange for due from
|
||||||||||||||||||||||||||||
member
|
773,085
|
-
|
(773,085
|
)
|
-
|
(773,085
|
)
|
-
|
(773,085
|
)
|
||||||||||||||||||
Capital contributions in exchange of inventory
|
1,114,915
|
-
|
87,192
|
-
|
87,192
|
-
|
87,192
|
|||||||||||||||||||||
Capital contributions in exchange of trademark
|
212,000
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||
Capital contributions in exchange for rent owed
|
-
|
-
|
42,500
|
-
|
42,500
|
-
|
42,500
|
|||||||||||||||||||||
Net loss
|
-
|
-
|
-
|
(820,815
|
)
|
(820,815
|
)
|
-
|
(820,815
|
)
|
||||||||||||||||||
Balances at June 30, 2011
|
6,246,151
|
-
|
(643,393
|
)
|
(2,897,232
|
)
|
(3,540,625
|
)
|
-
|
(3,540,625
|
)
|
|||||||||||||||||
Capital contributions
|
-
|
2,279,399
|
-
|
-
|
2,279,399
|
-
|
2,279,399
|
|||||||||||||||||||||
Member exercise of put right for cash
|
(150,000
|
)
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||
Member exercise of put right for note to
|
||||||||||||||||||||||||||||
related party
|
(210,000
|
)
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||
Capital contributions in exchange for accounts
|
||||||||||||||||||||||||||||
receivable
|
-
|
-
|
8,100
|
-
|
8,100
|
-
|
8,100
|
|||||||||||||||||||||
Capital contributions in exchange of inventory
|
-
|
-
|
357,266
|
-
|
357,266
|
-
|
357,266
|
|||||||||||||||||||||
Capital contributions in exchange for rent owed
|
-
|
-
|
242,500
|
-
|
242,500
|
-
|
242,500
|
|||||||||||||||||||||
Net income
|
-
|
-
|
-
|
26,462
|
26,462
|
-
|
26,462
|
|||||||||||||||||||||
Balances at June 30, 2012
|
5,886,151
|
2,279,399
|
(35,527
|
)
|
(2,870,770
|
)
|
(626,898
|
)
|
-
|
(626,898
|
)
|
|||||||||||||||||
Capital contributions in exchange for rent
|
||||||||||||||||||||||||||||
owed (unaudited)
|
-
|
-
|
35,527
|
-
|
35,527
|
-
|
35,527
|
|||||||||||||||||||||
Noncontrolling interest in The Wine Spies, LLC
|
||||||||||||||||||||||||||||
(unaudited)
|
-
|
-
|
-
|
-
|
-
|
324,959
|
324,959
|
|||||||||||||||||||||
Recharacterization of contributed capital resulting
|
||||||||||||||||||||||||||||
from termination of Buy-Sell Agreement
|
||||||||||||||||||||||||||||
(unaudited)
|
(5,886,151
|
)
|
5,886,151
|
-
|
-
|
5,886,151
|
-
|
5,886,151
|
||||||||||||||||||||
Net loss (unaudited)
|
-
|
-
|
-
|
(216,017
|
)
|
(216,017
|
)
|
(47,877
|
)
|
(263,894
|
)
|
|||||||||||||||||
Balances at December 31, 2012 (unaudited)
|
$
|
-
|
$
|
8,165,550
|
$
|
-
|
$
|
(3,086,787
|
)
|
$
|
5,078,763
|
$
|
277,082
|
$
|
5,355,845
|
C
ONSOLIDATED
S
TATEMENTS OF
C
ASH
F
LOWS
|
||||||||||||||||
____________
|
||||||||||||||||
|
||||||||||||||||
Six Months
|
||||||||||||||||
Years Ended June 30,
|
Ended December 31,
|
|||||||||||||||
2011
|
2012
|
2011
|
2012
|
|||||||||||||
(Unaudited) | ||||||||||||||||
Operating activities:
|
||||||||||||||||
Net income (loss)
|
$ | (820,815 | ) | $ | 26,462 | $ | 394,668 | $ | (263,894 | ) | ||||||
Adjustments to reconcile net income (loss) to net cash (used in)
|
||||||||||||||||
provided by operating activities:
|
||||||||||||||||
Depreciation and amortization
|
86,092 | 108,492 | 56,653 | 76,259 | ||||||||||||
Note payable to member for reimbursement of right to market expense
|
300,000 | - | - | - | ||||||||||||
Gain on sale of assets
|
(111,150 | ) | (6,945 | ) | - | - | ||||||||||
Deferred rent
|
37,236 | 20,336 | - | (1,876 | ) | |||||||||||
Warrant re-valuation
|
- | 10,000 | - | 4,000 | ||||||||||||
Unrealized loss on interest rate swap
|
- | - | - | 70,830 | ||||||||||||
Contributed rent
|
42,500 | 242,500 | 130,000 | 35,527 | ||||||||||||
Changes in operating assets and liabilities:
|
||||||||||||||||
Accounts receivable
|
(829,206 | ) | (310,511 | ) | (886,771 | ) | 216,343 | |||||||||
Inventories
|
(1,216,967 | ) | (2,779,269 | ) | (612,507 | ) | (3,308,142 | ) | ||||||||
Bulk wine deposit
|
- | (332,623 | ) | - | 332,623 | |||||||||||
Other assets
|
(30,455 | ) | (102,733 | ) | (7,891 | ) | (27,349 | ) | ||||||||
Accounts payable
|
765,877 | 607,740 | 1,010,014 | 197,323 | ||||||||||||
Accrued expenses
|
36,367 | 205,703 | 219,644 | (5,456 | ) | |||||||||||
Net cash (used in) provided by operating activities
|
(1,740,521 | ) | (2,310,848 | ) | 303,810 | (2,673,812 | ) | |||||||||
Investing activities:
|
||||||||||||||||
Acquisition of property and equipment
|
(390,106 | ) | (265,780 | ) | (364,433 | ) | (582,511 | ) | ||||||||
Acquisition of intangible assets
|
- | (42,066 | ) | (122,146 | ) | (34,492 | ) | |||||||||
Acquisition of The Wine Spies, LLC
|
- | - | - | (275,000 | ) | |||||||||||
Proceeds from sale of assets
|
111,150 | 6,945 | - | - | ||||||||||||
Net cash used in investing activities
|
(278,956 | ) | (300,901 | ) | (486,579 | ) | (892,003 | ) | ||||||||
Financing activities:
|
||||||||||||||||
Net proceeds from (repayments on) line of credit
|
1,034,000 | (235,000 | ) | - | 3,949,251 | |||||||||||
Advances from related parties
|
115,622 | - | - | 828,452 | ||||||||||||
Payments to related parties
|
- | (176,104 | ) | (221,647 | ) | - | ||||||||||
Proceeds from related party notes
|
1,786,563 | 150,000 | - | - | ||||||||||||
Payments on related party notes
|
(99,632 | ) | (305,567 | ) | (66,873 | ) | (433,449 | ) | ||||||||
Proceeds from long-term debt
|
- | 100,000 | - | 3,526,015 | ||||||||||||
Payments on long-term debt
|
(1,293,529 | ) | (223,492 | ) | (20,561 | ) | (3,485,891 | ) | ||||||||
Proceeds from amount due factor
|
- | 2,579,400 | 861,737 | - | ||||||||||||
Payments on amount due factor
|
- | (1,710,000 | ) | - | (869,400 | ) | ||||||||||
Member exercise of put right
|
- | (150,000 | ) | - | - | |||||||||||
Member contributions for members' equity and warrant
|
700,000 | 2,475,399 | - | - | ||||||||||||
Net cash provided by financing activities
|
2,243,024 | 2,504,636 | 552,656 | 3,514,978 | ||||||||||||
Net increase (decrease) in cash and cash equivalents
|
223,547 | (107,113 | ) | 369,887 | (50,837 | ) | ||||||||||
Cash and cash equivalents at beginning of period
|
50,875 | 274,422 | 274,422 | 167,309 | ||||||||||||
Cash and cash equivalents at end of period
|
$ | 274,422 | $ | 167,309 | $ | 644,309 | $ | 116,472 | ||||||||
Supplemental disclosures of cash flow information:
|
||||||||||||||||
Interest paid
|
$ | 382,182 | $ | 546,139 | $ | 196,781 | $ | 195,016 | ||||||||
Income taxes paid
|
$ | 800 | $ | 800 | $ | 800 | $ | 1,600 | ||||||||
Noncash investing and financing activities:
|
||||||||||||||||
Contributed inventory for membership interest
|
$ | 1,202,107 | $ | 357,266 | $ | 357,266 | $ | - | ||||||||
Contributed trademarks for membership interest
|
$ | 212,000 | $ | - | $ | - | $ | - | ||||||||
Contributed rent for membership interest
|
$ | 42,500 | $ | 242,500 | $ | 130,000 | $ | 35,527 | ||||||||
Contributed net operating receivables for membership interest
|
$ | - | $ | 8,100 | $ | 8,100 | $ | - | ||||||||
Note issued to member for exercise of put right
|
$ | - | $ | 210,000 | $ | - | $ | - | ||||||||
Due from member for membership interest
|
$ | 773,085 | $ | - | $ | 625,059 | $ | - | ||||||||
Transfer of member loans into equity interest
|
$ | 2,696,151 | $ | - | $ | - | $ | - | ||||||||
Fair value of warrant
|
$ | - | $ | 196,000 | $ | - | $ | - | ||||||||
Recharacterization of contributed capital
|
- | - | - | 5,886,151 |
2.
|
Summary of Significant Accounting Policies
|
2.
|
Summary of Significant Accounting Policies
, continued
|
2.
|
Summary of Significant Accounting Policies
, continued
|
2.
|
Summary of Significant Accounting Policies
, continued
|
2.
|
Summary of Significant Accounting Policies
, continued
|
Accounts
|
||||||||||||||||||||||||||||
Receivable
|
||||||||||||||||||||||||||||
Net Sales for the Years
|
Accounts Receivable
|
Net Sales for the Six Months |
as of
|
|||||||||||||||||||||||||
Ended June 30,
|
as of June 30,
|
Ended December 31, |
December 31,
|
|||||||||||||||||||||||||
2011
|
2012
|
2011
|
2012
|
2011
|
2012
|
2012
|
||||||||||||||||||||||
(Unaudited) |
(Unaudited)
|
|||||||||||||||||||||||||||
Customer A
|
23% | 33% | 28% | - | 39% | 21% | 4% | |||||||||||||||||||||
Customer B
|
20% | 18% | - | 48% | 19% | 10% | - | |||||||||||||||||||||
Customer C
|
14% | 10% | 22% | 11% | 10% | 8% | 12% | |||||||||||||||||||||
Customer D
|
10% | 6% | 10% | 6% | 4% | 9% | 21% | |||||||||||||||||||||
Customer E
|
- | 1% | - | 4% | 5% | 12% | 9% | |||||||||||||||||||||
Customer F
|
5% | 6% | 6% | - | 4% | 7% | 3% | |||||||||||||||||||||
Customer G
|
- | - | - | - | - | 2% | 15% |
2.
|
Summary of Significant Accounting Policies
, continued
|
3.
|
Liquidity and Capital Resources
|
4.
|
Accounts Receivable Pledged Under Factoring Agreement
|
5.
|
Inventories
|
June 30,
|
December 31,
|
|||||||||||
2011
|
2012
|
2012
|
||||||||||
(Unaudited)
|
||||||||||||
Bulk wine
|
$ | 1,816,528 | $ | 3,180,865 | $ | 4,437,741 | ||||||
Bottled wine
|
1,585,371 | 3,342,650 | 5,715,399 | |||||||||
Merchandise and other
|
165,241 | 244,189 | 103,248 | |||||||||
Capitalized cultural costs
|
- | 84,687 | 19,479 | |||||||||
$ | 3,567,140 | $ | 6,852,391 | $ | 10,275,867 |
6.
|
Property and Equipment, net
|
June 30,
|
December 31,
|
|||||||||||
2011
|
2012
|
2012
|
||||||||||
(Unaudited)
|
||||||||||||
Land and land improvements
|
$ | 2,742,482 | $ | 2,804,198 | $ | 2,804,198 | ||||||
Building and improvements
|
1,675,713 | 1,635,601 | 1,691,265 | |||||||||
Machinery and equipment
|
320,377 | 474,832 | 960,602 | |||||||||
Vineyard development
|
337,798 | 352,794 | 353,374 | |||||||||
Vineyard equipment
|
329,525 | 329,525 | 329,525 | |||||||||
Furniture and fixtures
|
116,125 | 131,054 | 149,674 | |||||||||
Leasehold improvements
|
4,129 | 65,208 | 67,085 | |||||||||
Vehicles
|
49,450 | 49,450 | 69,450 | |||||||||
5,575,599 | 5,842,662 | 6,425,173 | ||||||||||
Less accumulated depreciation
|
||||||||||||
and amortization
|
(519,816 | ) | (759,553 | ) | (915,669 | ) | ||||||
$ | 5,055,783 | $ | 5,083,109 | $ | 5,509,504 |
7.
|
Goodwill and Intangible Assets, net
|
June 30, |
December 31,
|
|||||||||||
2011
|
2012
|
2012
|
||||||||||
(Unaudited)
|
||||||||||||
Finite lives:
|
||||||||||||
Customer lists
|
$ | - | $ | - | $ | 213,000 | ||||||
Trademarks
|
169,000 | |||||||||||
Proprietary technology
|
- | - | 95,000 | |||||||||
Non-compete agreement
|
- | - | 38,000 | |||||||||
Patent
|
- | - | 19,195 | |||||||||
- | - | 534,195 | ||||||||||
Less accumulated amortization
|
- | - | (39,167 | ) | ||||||||
- | - | 495,028 | ||||||||||
Indefinite lives:
|
||||||||||||
Trademarks
|
212,000 | 235,313 | 250,611 | |||||||||
$ | 212,000 | $ | 235,313 | $ | 745,639 |
Years ending June 30:
|
||||
2013
|
$ | 31,206 | ||
2014
|
16,040 | |||
2015
|
16,040 | |||
2016
|
14,762 | |||
2017
|
5,344 | |||
Thereafter
|
48,727 | |||
$ | 132,119 |
8.
|
Other Assets, net
|
June 30, |
December 31,
|
|||||||||||
2011
|
2012
|
2012
|
||||||||||
(Unaudited)
|
||||||||||||
Label design costs
|
$ | 2,911 | $ | 80,908 | $ | 67,375 | ||||||
Loan fees
|
28,000 | 28,000 | 17,807 | |||||||||
Lease costs - related party
|
22,750 | 22,750 | 22,750 | |||||||||
Website design costs
|
- | 30,000 | 30,000 | |||||||||
Other
|
4,500 | 10,172 | 14,035 | |||||||||
58,161 | 171,830 | 151,967 | ||||||||||
Less accumulated amortization
|
(12,069 | ) | (29,539 | ) | (25,849 | ) | ||||||
$ | 46,092 | $ | 142,291 | $ | 126,118 |
9.
|
Commitments and Contingencies
|
9.
|
Commitments and Contingencies
, continued
|
June 30,
|
December 31,
|
|||||||||||
2011
|
2012
|
2012
|
||||||||||
(Unaudited)
|
||||||||||||
Note payable to a bank; collateralized by a deed of trust on
|
||||||||||||
property, payable monthly in principal and interest payments
|
||||||||||||
of $19,765 through December 31, 2012 at a 7% fixed rate of
|
||||||||||||
interest; variable interest rate thereafter at prime plus 3.25%;
|
||||||||||||
maturing December 2017 (see Note 16).
|
$ | 2,735,074 | $ | 2,687,856 | $ | - | ||||||
Note payable to a bank; collateralized by a deed of trust on
|
||||||||||||
property; payable monthly in principal and interest payments of
|
||||||||||||
$5,000; matures June 2012; variable interest rate of prime plus
|
||||||||||||
1% with a floor of 6.5%; 6.5% at June 30, 2011 and 2012; bank
|
||||||||||||
extended maturity date until financing secured with new bank
|
||||||||||||
(see Note 16).
|
695,000 | 600,000 | - | |||||||||
Auto loan; collateralized by vehicle; payable monthly in principal
|
||||||||||||
payments of $741; matures May 2013; interest free (0% at
|
||||||||||||
June 30, 2011 and 2012 and December 31, 2012).
|
17,039 | 8,149 | 4,445 | |||||||||
Note payable to a bank; collateralized by a deed of trust on
|
||||||||||||
property and equipment; payable monthly in principal payments
|
||||||||||||
of $1,944 plus interest; matures December 2013; variable interest
|
||||||||||||
rate of prime plus 1% with a floor of 6.5%; 6.5% at June 30,
|
||||||||||||
2011 and 2012 (see Note 16).
|
60,505 | 40,576 | - | |||||||||
Note payable to a bank; collateralized by a deed of trust on
|
||||||||||||
property and equipment; payable monthly in principal payments
|
||||||||||||
of $1,662 plus interest; matures February 2013; variable interest
|
||||||||||||
rate of prime plus 1% with a floor of 6.5%; 6.5% at June 30,
|
||||||||||||
2011 and 2012 (see Note 16).
|
30,816 | 12,326 | - | |||||||||
Note payable to a bank; collateralized by a deed of trust on
|
||||||||||||
property and equipment; payable monthly in principal of $2,430
|
||||||||||||
plus interest, and one final principal payment of $2,375 plus
|
||||||||||||
interest in December 2011; variable interest rate of prime plus
|
||||||||||||
.875% with a floor of 6.5%; 6.5% at June 30, 2011.
|
14,525 | - | - | |||||||||
Note payable to a bank; collateralized by a deed of trust on
|
||||||||||||
property; payable in four principal and interest payments of
|
||||||||||||
$2,777 and one final principal and interest payment of $89,390;
|
||||||||||||
matures June 2012; variable interest rate of prime plus 1% with
|
||||||||||||
a floor of 6.5%; 6.5% at June 30, 2012; bank extended maturity
|
||||||||||||
date until financing secured with new bank (see Note 16).
|
- | 80,561 | - |
9.
|
Commitments and Contingencies
, continued
|
9.
|
Commitments and Contingencies
, continued
|
Third
|
Related
|
|||||||||||
Parties
|
Parties
|
Total
|
||||||||||
Years ending June 30:
|
||||||||||||
2013
|
$ | 4,399,815 | $ | 1,347,365 | $ | 5,747,180 | ||||||
2014
|
4,845,707 | 1,086,015 | 5,931,722 | |||||||||
2015
|
4,571,522 | 1,086,015 | 5,657,537 | |||||||||
2016
|
2,726,322 | 230,400 | 2,956,722 | |||||||||
2017
|
357,072 | 6,000 | 363,072 | |||||||||
$ | 16,900,438 | $ | 3,755,795 | $ | 20,656,233 |
9.
|
Commitments and Contingencies
, continued
|
10.
|
Warrant Obligation
|
11.
|
First Right of Refusal, Co-Sale and Buy-Sell
|
12.
|
Members’ Equity (Deficit)
|
13.
|
Fair Value of Financial Instruments
|
Fair Value
|
||||
Balance as of July 1, 2011
|
$ | - | ||
Fair value of warrant obligation at acquisition date
|
196,000 | |||
Adjustment to fair value
|
10,000 | |||
Balance as of June 30, 2012
|
$ | 206,000 |
13.
|
Fair Value of Financial Instruments
, continued
|
Fair Value
|
||||
Balance as of June 30, 2012
|
$ | 206,000 | ||
Adjustment to fair value
|
4,000 | |||
Balance as of December 31, 2012
|
$ | 210,000 |
Weighted average
variables used in
|
||||||||||||
-10% change in
|
valuation as of
|
+10% change in
|
||||||||||
Common Stock Warrant
|
stock price
|
December 31, 2012
|
stock price
|
|||||||||
Effect of a 10% change in stock price
|
|
|||||||||||
Condition changed
|
|
|||||||||||
Stock price
|
$ | 0.206 | $ | 0.229 | $ | 0.252 | ||||||
Assumptions and conditions held constant
|
||||||||||||
Exercise price
|
$ | 0.20 | $ | 0.20 | $ | 0.20 | ||||||
Exercise life in years
|
2.34 | 2.34 | 2.34 | |||||||||
Expected dividend yield
|
0% | 0% | 0% | |||||||||
Risk free rate
|
0.31% | 0.31% | 0.31% | |||||||||
Expected stock volatility
|
60.00% | 60.00% | 60.00% | |||||||||
Estimated fair value of warrant obligation
|
$ | 172,000 | $ | 210,000 | $ | 249,000 |
13.
|
Fair Value of Financial Instruments
, continued
|
Weighted average
variables used in
|
||||||||||||
-10% change in
|
valuation as of
|
+10% change in
|
||||||||||
Common Stock Warrant
|
volatility
|
December 31, 2012
|
volatility
|
|||||||||
Effect of a 10% change in volatility
|
|
|||||||||||
Condition changed
|
50% | 60% | 70% | |||||||||
Expected stock volatility
|
||||||||||||
Assumptions and conditions held constant
|
||||||||||||
Stock Price
|
$ | 0.23 | $ | 0.23 | $ | 0.23 | ||||||
Exercise price
|
$ | 0.20 | $ | 0.20 | $ | 0.20 | ||||||
Exercise life in years
|
2.34 | 2.34 | 2.34 | |||||||||
Expected dividend yield
|
0% | 0% | 0% | |||||||||
Risk free rate
|
0.31% | 0.31% | 0.31% | |||||||||
Estimated fair value of warrant obligation
|
$ | 183,000 | $ | 210,000 | $ | 236,000 |
14.
|
Taxes
|
15.
|
Segment and Other Information
|
Year ended June 30, | ||||||||||||
2011
|
||||||||||||
Wholesale
|
Direct
|
|||||||||||
Sales
|
Sales
|
Total
|
||||||||||
Net sales
|
$ | 4,050,246 | $ | 1,351,799 | $ | 5,402,045 | ||||||
Cost of sales
|
3,355,829 | 545,113 | 3,900,942 | |||||||||
Gross profit
|
$ | 694,417 | $ | 806,686 | $ | 1,501,103 |
Year ended June 30, | ||||||||||||
2012
|
||||||||||||
Wholesale
|
Direct
|
|||||||||||
Sales
|
Sales
|
Total
|
||||||||||
Net sales
|
$ | 10,613,505 | $ | 2,079,890 | $ | 12,693,395 | ||||||
Cost of sales
|
8,810,129 | 807,936 | 9,618,065 | |||||||||
Gross profit
|
$ | 1,803,376 | $ | 1,271,954 | $ | 3,075,330 |
15.
|
Segment and Other Information
, continued
|
16.
|
Subsequent Events
|
16.
|
Subsequent Events
, continued
|
16.
|
Subsequent Events
, continued
|
SEC registration fee
|
$ | 5,939 | ||
FINRA filing fee
|
6,531 | |||
Nasdaq listing fees
|
50,000 | |||
Printer fees and expenses
|
55,000 | |||
Legal fees and expenses
|
450,000 | |||
Accounting fees and expenses
|
140,000 | |||
Transfer agent and registrar fees
|
9,500 | |||
Miscellaneous fees and expenses
|
50,000 | |||
Total
|
$ | 766,970 |
1.1
|
Form of Placement Agency Agreement
|
3.1
|
Restated Certificate of Incorporation of Truett-Hurst, Inc.*
|
3.2
|
Bylaws of Truett-Hurst, Inc.
|
3.3
|
Articles of Organization of H.D.D. LLC+
|
3.4
|
Third Amended and Restated Operating Agreement of H.D.D. LLC
|
4.1
|
Form of Class A common stock certificate*
|
5.1
|
Opinion of Morrison & Foerster LLP*
|
10.1
|
Wine Supply Agreement by and between H.D.D. LLC and Robert Hall Winery, dated March 10, 2012+
|
10.2
|
Member Interest Purchase Agreement by and between Brandon Stauber and H.D.D. LLC, dated August 1, 2012
|
10.3
|
Loan and Security Agreement by and between H.D.D. LLC and Bank of the West, dated July 16, 2012+
|
10.4
|
Security Agreement (Trademark) by and between H.D.D. LLC and Bank of the West, dated July 16, 2012+
|
10.5
|
Deed of Trust, Security Agreement, Assignment of Leases, Rents, and Profits, and Fixture Filing by and between H.D.D. LLC and First Santa Clara Corporation for the use and benefit of Bank of the West, dated July 16, 2012
|
10.6
|
Line of Credit Note, in the principal amount of $9,000,000, dated July 16, 2012+
|
10.7
|
Term Note, in the principal amount of $3,381,000, dated July 16, 2012+
|
10.8
|
Equipment Purchase Line of Credit Note, in the principal amount of $300,000, dated July 16, 2012+
|
10.9
|
Modification Agreement, by and between H.D.D. LLC and Bank of the West, dated October 3, 2012+
|
10.10
|
Foreign Exchange Note, in the principal amount of $100,000, dated July 16, 2012+
|
10.11
|
Master Equipment Financing Agreement by and between H.D.D. LLC and Bank of the West, dated October 2, 2012
|
10.12
|
Agreement by and between H.D.D. LLC and West Coast Paper Company, dated August 24, 2012
|
10.13
|
Lease by and between H.D.D. LLC and Hambrecht Wine Group L.P., dated February 8, 2011
|
10.14
|
2012 Stock Incentive Plan+
|
10.15
|
Form of Exchange Agreement
|
10.16
|
Form of Tax Receivable Agreement
|
10.17
|
Form of Registration Rights Agreement*
|
10.18
|
Supply of Goods Agreement by and between H.D.D. LLC and GreenBottle Limited, dated February 26, 2013+
|
10.19
|
Convertible Promissory Note, payable to the Carroll-Obremskey Trust, in the principal amount of $150,000, dated March 1, 2013+
|
10.20
|
Convertible Promissory Note, payable to the Hurst Trust, in the principal amount of $150,000, dated March 1, 2013+
|
10.21
|
Convertible Promissory Note, payable to the Dolan 2003 Trust, in the principal amount of $25,000, dated March 1, 2013+
|
10.22
|
Convertible Promissory Note, payable to the Dolan 2005 Trust, in the principal amount of $25,000, dated March 1, 2013+
|
10.23 |
Agreement, by and between Truett-Hurst, Inc. and the Carroll-Obremskey Trust, dated March 26, 2013
|
14
|
Code of Ethics*
|
21
|
Subsidiaries of the Registrant
|
23.1
|
Consent of Burr Pilger Mayer, Inc., Independent Registered Public Accounting Firm for Truett-Hurst, Inc.
|
23.2 |
Consent of Burr Pilger Mayer, Inc., Independent Registered Public Accounting Firm for H.D.D. LLC
|
23.3
|
Consent of Morrison & Foerster LLP**
|
24 |
Power of Attorney (included on signature page)+
|
TRUETT-HURST, INC. | |||
|
|
/s/ Phillip L. Hurst
|
|
Phillip L. Hurst
Chief Executive Officer
|
|||
Signature
|
Title
|
Date
|
||
/s/ Phillip L. Hurst
|
Chief Executive Officer and Chairman
|
March 27, 2013
|
||
Phillip L. Hurst | (Principal Executive Officer) | |||
/s/ James D. Bielenberg
|
Chief Financial Officer |
March 27, 2013
|
||
James D. Bielenberg | (Principal Financial Officer and | |||
|
Principal Accounting Officer)
|
|||
*
|
Director
|
March 27, 2013
|
||
Paul E. Dolan, III | ||||
*
|
Director
|
March 27, 2013
|
||
Barrie Graham | ||||
*
|
Director
|
March 27, 2013
|
||
William R. Hambrecht | ||||
*
|
Director
|
March 27, 2013
|
||
Daniel A. Carroll | ||||
*
|
Director
|
March 27, 2013
|
||
Heath E. Dolan | ||||
*
|
Director
|
March 27, 2013
|
||
John D. Fruth
|
||||
*
|
Director
|
March 27, 2013
|
||
James F. Verhey
|
*By: |
/s/ Phillip L. Hurst
|
|
||
Phillip L. Hurst | ||||
Attorney-in-Fact |
By:
|
||
Name:
|
||
Title:
|
By:
|
||
Phillip L. Hurst, Co-Trustee
|
By:
|
||
Sylvia M. Hurst, Co-Trustee
|
By:
|
||
Heath E. Dolan, Trustee
|
By:
|
||
Paul E. Dolan, III, Trustee
|
Virginia Marie Lambrix
|
|
Forrester Hambrecht
|
|
Mark De Meulenaere
|
|
Anna Schweizer
|
By:
|
||
Name:
|
||
Title:
|
SELLING STOCKHOLDER
|
SHARES TO BE SOLD IN THE OFFERING
|
Philip L. Hurst
|
|
Heath E. Dolan
|
|
Paul E. Dolan, III
|
|
Virginia Marie Lambrix
|
|
Forrester Hambrecht
|
|
Mark De Meulenaere
|
|
Anna Schweizer
|
Philip L. Hurst
|
Heath E. Dolan
|
Paul E. Dolan, III
|
Virginia Marie Lambrix
|
Forrester Hambrecht
|
Mark De Meulenaere
|
Anna Schweizer
|
William R. Hambrecht
|
Daniel A. Carroll
|
Barrie Graham
|
John D. Fruth
|
James F. Verhey
|
James D. Bielenberg
|
Printed Name of Holder
|
||
By:
|
||
Signature
|
||
Printed Name of Person Signing
|
||
(and indicate capacity of person
signing if signing as custodian,
trustee, or on behalf of an entity)
|
Page | ||
OFFICES
|
1
|
|
Section 1.1
|
Registered Office
|
1
|
Section 1.2
|
Other Offices
|
1
|
ARTICLE 2
|
STOCKHOLDERS’ MEETINGS
|
1
|
Section 2.1
|
Place of Meetings
|
1
|
Section 2.2
|
Annual Meetings
|
2
|
Section 2.3
|
Special Meetings
|
2
|
Section 2.4
|
Notice of Meetings
|
2
|
Section 2.5
|
Quorum and Voting
|
4
|
Section 2.6
|
Voting Rights
|
4
|
Section 2.7
|
Voting Procedures and Inspectors of Elections
|
5
|
Section 2.8
|
List of Stockholders
|
6
|
Section 2.9
|
Stockholder Proposals at Annual Meetings
|
7
|
Section 2.10
|
Nominations of Persons for Election to the Board of Directors
|
9
|
Section 2.11
|
Action Without Meeting
|
10
|
ARTICLE 3
|
DIRECTORS
|
11
|
Section 3.1
|
Number and Term of Office
|
11
|
Section 3.2
|
Powers
|
13
|
Section 3.3
|
Vacancies
|
13
|
Section 3.4
|
Resignations and Removals
|
13
|
Section 3.5
|
Meetings
|
13
|
Section 3.6
|
Quorum and Voting
|
14
|
Section 3.7
|
Action Without Meeting
|
15
|
Section 3.8
|
Fees and Compensation
|
15
|
Section 3.9
|
Committees
|
15
|
ARTICLE 4
|
OFFICERS
|
16
|
Section 4.1
|
Officers Designated
|
16
|
Section 4.2
|
Tenure and Duties of Officers
|
16
|
ARTICLE 5
|
EXECUTION OF CORPORATE INSTRUMENTS, AND VOTING OF SECURITIES OWNED BY THE CORPORATION
|
18
|
Section 5.1
|
Execution of Corporate Instruments
|
18
|
Page
|
||
Section 5.2
|
Voting of Securities Owned by Corporation
|
18
|
ARTICLE 6
|
SHARES OF STOCK
|
18
|
Section 6.1
|
Form and Execution of Certificates
|
18
|
Section 6.2
|
Lost Certificates
|
19
|
Section 6.3
|
Transfers
|
19
|
Section 6.4
|
Fixing Record Dates
|
20
|
Section 6.5
|
Registered Stockholders
|
21
|
ARTICLE 7
|
OTHER SECURITIES OF THE CORPORATION
|
21
|
ARTICLE 8
|
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
|
21
|
Section 8.1
|
Right to Indemnification
|
21
|
Section 8.2
|
Authority to Advance Expenses
|
22
|
Section 8.3
|
Right of Claimant to Bring Suit
|
22
|
Section 8.4
|
Provisions Nonexclusive
|
23
|
Section 8.5
|
Authority to Insure
|
23
|
Section 8.6
|
Enforcement of Rights
|
23
|
Section 8.7
|
Survival of Rights
|
23
|
Section 8.8
|
Settlement of Claims
|
23
|
Section 8.9
|
Effect of Amendment
|
24
|
Section 8.10
|
Primacy of Indemnification
|
24
|
Section 8.11
|
Subrogation
|
24
|
Section 8.12
|
No Duplication of Payments
|
24
|
Section 8.13
|
Saving Clause
|
24
|
ARTICLE 9
|
NOTICES
|
25
|
ARTICLE 10
|
AMENDMENTS
|
26
|
ARTICLE 11
|
ANNUAL AND OTHER REPORTS
|
26
|
Section 12.1
|
Reports to Stockholders
|
26
|
Section 12.2
|
Reports to the Secretary of State
|
27
|
Section 12.3
|
Effectiveness of Article 11
|
27
|
|
|
||
Paul E. Dolan, III, Secretary
|
|||
Page
|
|||
ARTICLE I DEFINITIONS |
1
|
||
Section 1.1
|
Definitions
|
1
|
|
Section 1.2
|
Terms Generally
|
9
|
|
ARTICLE II GENERAL PROVISIONS |
10
|
||
Section 2.1
|
Formation
|
10
|
|
Section 2.2
|
Name
|
11
|
|
Section 2.3
|
Term
|
11
|
|
Section 2.4
|
Purpose; Powers
|
11
|
|
Section 2.5
|
Existence and Good Standing; Foreign Qualification
|
11
|
|
Section 2.6
|
Registered Office; Registered Agent; Principal Office; Other Offices
|
12
|
|
Section 2.7
|
No State Law Partnership
|
12
|
|
Section 2.8
|
Admission
|
12
|
|
ARTICLE III CAPITALIZATION |
13
|
||
Section 3.1
|
Units; Initial Capitalization; Schedules
|
13
|
|
Section 3.2
|
Authorization and Issuance of Additional Units
|
13
|
|
Section 3.3
|
Capital Accounts
|
14
|
|
Section 3.4
|
No Withdrawal
|
17
|
|
Section 3.5
|
Loans From Members
|
17
|
|
Section 3.6
|
No Right of Partition
|
17
|
|
Section 3.7
|
Non-Certification of Units; Legend; Units are Securities
|
17
|
|
ARTICLE IV DISTRIBUTIONS |
19
|
||
Section 4.1
|
Distributions
|
19
|
|
Section 4.2
|
Successors
|
19
|
|
Section 4.3
|
Tax Distributions
|
20
|
|
Section 4.4
|
Withholding
|
20
|
|
Section 4.5
|
Security Interest and Right of Set Off; Indemnification
|
20
|
|
Section 4.6
|
Certain Distributions
|
21
|
|
Section 4.7
|
Limitation
|
21
|
|
ARTICLE V ALLOCATIONS |
21
|
||
Section 5.1
|
Allocations for Capital Account Purposes
|
21
|
|
Section 5.2
|
Allocations for Tax Purposes
|
24
|
Page
|
|||
Section 5.3
|
Members’ Tax Reporting
|
26
|
|
Section 5.4
|
Certain Costs and Expenses
|
26
|
|
ARTICLE VI MANAGEMENT |
26
|
||
Section 6.1
|
Managing Member; Delegation of Authority and Duties
|
26
|
|
Section 6.2
|
Officers
|
27
|
|
Section 6.3
|
Liability of Members
|
28
|
|
Section 6.4
|
Indemnification by the Company
|
29
|
|
Section 6.5
|
Investment Representations of Members
|
30
|
|
ARTICLE VII WITHDRAWAL; DISSOLUTION; TRANSFER OF MEMBERSHIP INTERESTS; ADMISSION OF NEW MEMBERS |
30
|
||
Section 7.1
|
Member Withdrawal
|
30
|
|
Section 7.2
|
Dissolution
|
30
|
|
Section 7.3
|
Transfer by Members
|
31
|
|
Section 7.4
|
Admission or Substitution of New Members
|
32
|
|
Section 7.5
|
Additional Requirements
|
33
|
|
Section 7.6
|
Mandatory Exchange
|
34
|
|
Section 7.7
|
Bankruptcy
|
34
|
|
ARTICLE VIII BOOKS AND RECORDS; FINANCIAL STATEMENTS AND OTHER INFORMATION; TAX MATTERS |
34
|
||
Section 8.1
|
Books and Records
|
34
|
|
Section 8.2
|
Information
|
34
|
|
Section 8.3
|
Fiscal Year
|
34
|
|
Section 8.4
|
Certain Tax Matters
|
35
|
|
ARTICLE IX MISCELLANEOUS |
36
|
||
Section 9.1
|
Separate Agreements; Schedules
|
36
|
|
Section 9.2
|
Governing Law
|
36
|
|
Section 9.3
|
Successors and Assigns
|
37
|
|
Section 9.4
|
Amendments and Waivers
|
37
|
|
Section 9.5
|
Notices
|
38
|
|
Section 9.6
|
Counterparts
|
38
|
|
Section 9.7
|
Power of Attorney
|
38
|
|
Section 9.8
|
Entire Agreement
|
39
|
Page
|
|||
Section 9.9
|
Remedies
|
39
|
|
Section 9.10
|
Severability
|
39
|
|
Section 9.11
|
Creditors
|
39
|
|
Section 9.12
|
Waiver
|
39
|
|
Section 9.13
|
Further Action
|
39
|
|
Section 9.14
|
Delivery by Facsimile or Email
|
40
|
MANAGING MEMBER:
|
|||
TRUETT-HURST, INC. | |||
|
By:
|
||
Name: | |||
Title: | |||
OTHER MEMBERS:
|
|||
THE HURST FAMILY REVOCABLE TRUST dated August 1, 2004
|
|||
|
By:
|
||
Phillip L. Hurst, Co-Trustee
|
|||
By: | |||
Sylvia M. Hurst, Co-Trustee |
HAMBRECHT WINE GROUP, L.P.,
a California limited partnership
|
|||
|
|||
By: HAMBRECHT WINE MANAGEMENT INC., a California corporation
Its: General Partner
|
|||
|
By:
|
||
William R. Hambrecht, Chairman
|
THE DOLAN 2005 FAMILY TRUST U/T/D dated August 24, 2005
|
|||
|
|||
|
By:
|
||
Heath E. Dolan, Trustee
|
THE DOLAN 2003 FAMILY TRUST U/T/A dated June 5, 2003
|
|||
|
|||
|
By:
|
||
Paul E. Dolan, III, Trustee
|
|||
THE CARROLL-OBREMSKEY FAMILY REVOCABLE TRUST DATED APRIL 5, 1996 | |||
By: | |||
Daniel A. Carroll, Trustee
|
|||
By: | |||
Stasia A. Obremskey, Trustee |
Mark De Meulenaere
|
Forrester R. Hambrecht
|
Barrie Graham
|
Anna Schweizer
|
|
A.
|
Seller owns fifty percent (50%) of the outstanding membership interests in Wine Spies, LLC, a California limited liability company (the "
Company
").
|
|
B.
|
Buyer desires to purchase from Seller, and the Seller desires to sell to Buyer, all of the membership interests in the Company held by Seller (the "
Purchased Interest
"), on the terms and conditions set forth herein.
|
2.1.
|
Purchase Price
. The aggregate purchase price to be paid by Buyer to Seller for the Purchased Interest shall be Three Hundred Twenty-Five Thousand Dollars ($325,000) (the "
Purchase Price
").
|
2.2.
|
Payment of the Purchase Price
. At the Closing, Buyer shall deliver to Seller (i) Two Hundred Seventy-Five Thousand Dollars ($275,000) by check or wire transfer, and (ii) a non-interest bearing promissory note payable to Seller in the principal amount of Fifty Thousand Dollars ($50,000) in the form attached hereto as
Exhibit A
(the "
Note
"). The Note shall be due and payable on or before March 1, 2013.
|
2.3.
|
Purchase Price Adjustment
.
|
8.
|
Survival and Indemnification
.
|
|
8.2.
|
Indemnification
.
|
|
If to Seller:
|
|
Brandon Stauber
|
|
150 Front Street #24
|
|
Exeter, NH 03833
|
|
With a copy, which shall not constitute notice, to:
|
|
Ronald J. Stauber, Inc.
|
|
1880 Century Park East Suite 315
|
|
Los Angeles, CA 90067
|
|
Attn: Ronald J. Stauber
|
|
If to Buyer
|
|
H.D.D. LLC
|
|
P.O. Box 1532
|
|
Healdsburg, CA 95448
|
|
Attn: Managers
|
|
With a copy, which shall not constitute notice, to:
|
|
Spaulding McCullough & Tansil LLP
|
|
90 South E Street, Suite 200
|
|
Santa Rosa, CA 95404
|
|
Attn: Kevin J. McCullough
|
11.
|
Miscellaneous Provisions
.
|
SELLER:
|
||
/s/ Brandon Stauber | ||
Brandon Stauber
|
||
BUYER:
|
||
H.D.D. LLC.
|
||
a California limited liability company
|
||
By:
|
/s/
Phillip L. Hurst, Manager
|
|
Phillip L. Hurst, Manager
|
$50,000
|
Santa Rosa, California
|
July ______, 2012
|
MAKER
|
|||
H.D.D. LLC,
a California limited liability company
|
|||
|
By:
|
||
Phillip L. Hurst, Manager
|
|||
9:46 AM
3/26/12
Accrual Basis
|
The Wine Spies, LLC
Balance Sheet
As of December 31, 2011
|
Dec 31, 11
|
||||
ASSETS
|
||||
Current Assets
|
||||
Checking/Savings
|
||||
MoneyBookers
|
4.09 | |||
UBOC Checking
|
123,779.80 | |||
UBOC Savings
|
10.02 | |||
Total Checking/Savings
|
123,793.91 | |||
Accounts Receivable
|
||||
Accounts Receivable
|
793.50 | |||
Total Accounts Receivable
|
793.50 | |||
Total Current Assets
|
124,587.41 | |||
Other Assets
|
||||
Security Deposits
|
550.00 | |||
Total Other Assets
|
550.00 | |||
TOTAL ASSETS
|
125,137.41 | |||
LIABILITIES & EQUITY
|
||||
Liabilities
|
||||
Current Liabilities
|
||||
Accounts Payable
|
||||
Accounts Payable
|
117,018.12 | |||
Total Accounts Payable
|
117,018.12 | |||
Credit Cards
|
||||
Visa Credit Card
|
945.56 | |||
Total Credit Cards
|
945.56 | |||
Other Current Liabilities
|
||||
Sales Tax Payable
|
3,602.07 | |||
Total Other Current Liabilities
|
3,602.07 | |||
Total Current Liabilities
|
121,565.75 | |||
Total Liabilities
|
121,565.75 | |||
Equity
|
||||
Retained Earnings
|
2,625.58 | |||
Net Income
|
946.08 | |||
Total Equity
|
3,571.66 | |||
TOTAL LIABILITIES & EQUITY
|
125,137.41 |
9:47 AM
03/26/12
|
The Wine Spies, LLC
Statement of Cash Flows
January through December 2011
|
9:45 AM
03/26/12
Accrual Basis
|
The Wine Spies, LLC
Profit & Loss
January through December 2011
|
Jan - Mar 11
|
Apr - Jun 11
|
Jul - Sep 11
|
Oct - Dec 11
|
TOTAL
|
||||||||||||||||
Ordinary Income/Expense
|
||||||||||||||||||||
Income
|
||||||||||||||||||||
Sales
|
||||||||||||||||||||
CQD Incentive
|
0.00 | 0.00 | 0.00 | 1,981.13 | 1,981.13 | |||||||||||||||
Internet Wine Sales
|
341,520.37 | 431,384.60 | 369,167.56 | 449,526.19 | 1,591,598.72 | |||||||||||||||
Marketing Service Fees
|
0.00 | 0.00 | 9.79 | 0.00 | 9.79 | |||||||||||||||
Retail Sales
|
2,344.44 | 1,789.91 | 1,922.61 | 2,720.70 | 8,777.66 | |||||||||||||||
Shipping and Handling
|
9,812.14 | 11,959.62 | 10,594.06 | 12,074.35 | 44,440.17 | |||||||||||||||
Total Sales
|
353,676.95 | 445,134.13 | 381,694.02 | 466,302.37 | 1,646,807.47 | |||||||||||||||
Total Income
|
353,676.95 | 445,134.13 | 381,694.02 | 466,302.37 | 1,646,807.47 | |||||||||||||||
Cost of Goods Sold
|
||||||||||||||||||||
Cost of Wine Sold
|
207,112.24 | 275,550.93 | 225,741.54 | 280,200.43 | 988,605.14 | |||||||||||||||
Merchant Processing Fees
|
11,471.98 | 15,633.01 | 15,962.64 | 17,885.14 | 60,952.77 | |||||||||||||||
Packaging Expense
|
9,012.83 | 10,339.21 | 8,190.41 | 10,456.67 | 37,999.12 | |||||||||||||||
Sales Promotions and Discounts
|
2,129.78 | 3,244.94 | 4,137.50 | 3,941.04 | 13,453.26 | |||||||||||||||
Shipping Expense | 38,222.97 | 35,326.95 | 38,045.30 | 48,553.03 | 160,148.25 | |||||||||||||||
Total COGS
|
267,949.80 | 340,095.04 | 292,077.39 | 361,036.31 | 1,261,158.54 |
Gross Profit
|
85,727.15 | 105,039.09 | 89,616.63 | 105,266.06 | 385,648.93 | |||||||||||||||
Expense
|
||||||||||||||||||||
Automobile Expense
|
||||||||||||||||||||
Employee Automobile Expense
|
3,060.00 | 3,000.00 | 3,060.00 | 3,060.00 | 12,180.00 | |||||||||||||||
Fuel Expense
|
806.03 | 910.12 | 960.00 | 911.02 | 3,587.17 | |||||||||||||||
License Fees
|
211.00 | 0.00 | 0.00 | 0.00 | 211.00 | |||||||||||||||
Repairs & Maintenance
|
112.00 | 898.65 | 1,023.75 | 24.92 | 2,059.32 | |||||||||||||||
Automobile Expense - Other
|
0.00 | 1.25 | 0.00 | 0.00 | 1.25 | |||||||||||||||
Total Automobile Expense
|
4,189.03 | 4,810.02 | 5,043.75 | 3,995.94 | 18,038.74 | |||||||||||||||
Bank Service Charges
|
||||||||||||||||||||
Payroll Processing Expense
|
89.97 | 89.97 | 89.97 | 89.97 | 359.88 | |||||||||||||||
Bank Service Charges - Other
|
0.00 | 100.00 | -38.53 | 0.01 | 61.48 | |||||||||||||||
Total Bank Service Charges
|
89.97 | 189.97 | 51.44 | 89.98 | 421.36 | |||||||||||||||
Depreciation Expense
|
658.33 | 658.33 | 658.33 | 219.48 | 2,194.47 | |||||||||||||||
Dues and Subscriptions
|
0.00 | 98.95 | 49.95 | 99.90 | 248.80 | |||||||||||||||
Insurance
|
||||||||||||||||||||
Automobile Insurance
|
402.90 | 0.00 | 420.90 | 0.00 | 823.80 | |||||||||||||||
Liability Insurance
|
173.39 | 173.37 | 256.74 | 373.00 | 976.50 | |||||||||||||||
Workers Compensation
|
210.83 | 210.82 | 312.18 | 490.04 | 1,223.87 | |||||||||||||||
Insurance - Other
|
0.00 | 0.00 | 0.00 | 47.00 | 47.00 | |||||||||||||||
Total Insurance
|
787.12 | 384.19 | 989.82 | 910.04 | 3,071.17 |
Jan - Mar 11
|
Apr - Jun 11
|
Jul - Sep 11
|
Oct - Dec 11
|
TOTAL
|
||||||||||||||||
Internet Hosting
|
1,497.90 | 1,154.70 | 1,154.70 | 1,579.70 | 5,387.00 | |||||||||||||||
Licenses and Permits
|
549.51 | 564.00 | 0.00 | 0.00 | 1,113.51 | |||||||||||||||
Marketing & Advertising
|
||||||||||||||||||||
Affiliate Programs
|
600.00 | 800.00 | 700.00 | 700.00 | 2,800.00 | |||||||||||||||
Email Marketing
|
0.00 | 0.00 | 405.00 | 405.00 | 810.00 | |||||||||||||||
Public Relations
|
0.00 | 246.66 | 0.00 | 0.00 | 246.66 | |||||||||||||||
Search Engine Marketing
|
300.00 | 194.82 | 300.00 | 300.00 | 1,094.82 | |||||||||||||||
Marketing & Advertising - Other
|
35.00 | 35.00 | 24.11 | 0.00 | 94.11 | |||||||||||||||
Total Marketing & Advertising
|
935.00 | 1,276.48 | 1,429.11 | 1,405.00 | 5,045.59 | |||||||||||||||
Merchant Fees
|
308.42 | 303.57 | 310.27 | 329.17 | 1,251.43 | |||||||||||||||
Office Expenses
|
||||||||||||||||||||
Office Equipment
|
0.00 | 0.00 | 48.48 | 0.00 | 48.48 | |||||||||||||||
Office Supplies
|
1,003.25 | 343.69 | 591.15 | 992.91 | 2,931.00 | |||||||||||||||
Postage and Delivery
|
28.79 | 0.00 | 0.00 | 211.92 | 240.71 | |||||||||||||||
Office Expenses - Other
|
0.00 | 4,000.00 | 0.00 | 9,200.00 | 13,200.00 | |||||||||||||||
Total Office Expenses
|
1,032.04 | 4,343.69 | 639.63 | 10,404.83 | 16,420.19 | |||||||||||||||
Payroll Expenses
|
||||||||||||||||||||
Bonus & Holiday Pay
|
0.00 | 0.00 | 0.00 | 350.00 | 350.00 | |||||||||||||||
Guaranteed Salary
|
3,000.00 | 16,000.00 | 12,300.00 | 9,000.00 | 40,300.00 | |||||||||||||||
Hourly Payroll
|
4,160.70 | 4,672.25 | 5,266.52 | 5,767.08 | 19,866.55 | |||||||||||||||
Outside Contractors
|
1,026.66 | 539.22 | 812.00 | 829.00 | 3,206.88 | |||||||||||||||
Salaries
|
53,500.00 | 59,500.00 | 55,000.00 | 61,500.00 | 229,500.00 | |||||||||||||||
Total Payroll Expenses
|
61,687.36 | 80,711.47 | 73,378.52 | 77,446.08 | 293,223.43 | |||||||||||||||
Professional Fees
|
||||||||||||||||||||
Accounting
|
49.95 | 0.00 | 0.00 | 0.00 | 49.95 | |||||||||||||||
Logistics
|
170.00 | 0.00 | 250.00 | 145.00 | 565.00 | |||||||||||||||
Total Professional Fees
|
219.95 | 0.00 | 250.00 | 145.00 | 614.95 | |||||||||||||||
Rent
|
1,650.00 | 1,650.00 | 1,650.00 | 1,650.00 | 6,600.00 | |||||||||||||||
Software Development
|
0.00 | 0.00 | 0.00 | 326.25 | 326.25 | |||||||||||||||
Taxes
|
||||||||||||||||||||
Employer FICA
|
3,574.97 | 3,978.67 | 3,736.53 | 3,206.45 | 14,496.62 | |||||||||||||||
Employer FUTA
|
145.29 | 37.37 | 26.62 | 13.69 | 222.97 | |||||||||||||||
Employer Medicare
|
836.09 | 930.49 | 873.86 | 980.46 | 3,620.90 | |||||||||||||||
EMPLOYER UNEM. CALC
|
369.47 | 158.85 | 150.84 | 77.51 | 756.67 | |||||||||||||||
State Taxes
|
5,414.24 | 800.00 | 0.00 | 0.00 | 6,214.24 | |||||||||||||||
TRAINING TAX
|
0.73 | 0.00 | 0.00 | 0.00 | 0.73 | |||||||||||||||
UNEMP TAX ADJUSTMENT
|
-0.73 | 0.00 | 0.00 | 0.00 | -0.73 | |||||||||||||||
Total Taxes
|
10,340.06 | 5,905.38 | 4,787.85 | 4,278.11 | 25,311.40 |
9:45 AM
03/26/12
Accrual Basis
|
The Wine Spies, LLC
Profit & Loss
January through December 2011
|
Jan - Mar 11
|
Apr - Jun 11
|
Jul - Sep 11
|
Oct - Dec 11
|
TOTAL
|
||||||||||||||||
Telephone
|
||||||||||||||||||||
Employee Telephone Expense
|
1,650.00 | 1,650.00 | 1,650.00 | 1,650.00 | 6,600.00 | |||||||||||||||
Telephone - Other
|
0.00 | 70.00 | 0.00 | 60.00 | 130.00 | |||||||||||||||
Total Telephone
|
1,650.00 | 1,720.00 | 1,650.00 | 1,710.00 | 6,730.00 | |||||||||||||||
Travel & Ent Meals
|
32.25 | 29.10 | 92.35 | 113.75 | 267.45 | |||||||||||||||
Total Travel & Ent
|
32.25 | 29.10 | 92.35 | 113.75 | 267.45 | |||||||||||||||
Total Expense
|
85,626.94 | 103,799.85 | 92,135.72 | 104,703.23 | 386,265.74 | |||||||||||||||
Net Ordinary Income
|
100.21 | 1,239.24 | -2,519.09 | 562.83 | -616.81 | |||||||||||||||
Other Income/Expense
|
||||||||||||||||||||
Other Income
|
||||||||||||||||||||
Other Income
|
||||||||||||||||||||
Tax Discounts
|
237.22 | 25.98 | 1,183.50 | 16.19 | 1,462.89 | |||||||||||||||
Other Income - Other
|
0.00 | 0.00 | 0.00 | 100.00 | 100.00 | |||||||||||||||
Total Other Income
|
237.22 | 25.98 | 1,183.50 | 116.19 | 1,562.89 | |||||||||||||||
Total Other Income
|
237.22 | 25.98 | 1,183.50 | 116.19 | 1,562.89 | |||||||||||||||
Net Other Income
|
237.22 | 25.98 | 1,183.50 | 116.19 | 1,562.89 | |||||||||||||||
Net Income
|
337.43 | 1,265.22 | -1,335.59 | 679.02 | 946.08 |
9:54 AM
07/30/12
Accrual Basis
|
The Wine Spies, LLC
Balance Sheet
As of June 30, 2012
|
Jun 30, 12
|
||||
ASSETS
|
||||
Current Assets
|
||||
Checking/Savings
|
||||
MoneyBookers
|
4.09 | |||
UBOC Checking
|
131,523.57 | |||
UBOC Savings
|
10.02 | |||
Total Checking/Savings
|
131,537.68 | |||
Accounts Receivable
|
||||
Accounts Receivable
|
793.50 | |||
Total Accounts Receivable
|
793.50 | |||
Total Current Assets
|
132,331.18 | |||
Other Assets
|
||||
Security Deposits
|
550.00 | |||
Total Other Assets
|
550.00 | |||
TOTAL ASSETS
|
132,881.18 | |||
LIABILITIES & EQUITY
|
||||
Liabilities
|
||||
Current Liabilities
|
||||
Accounts Payable
|
||||
Accounts Payable
|
130,334.36 | |||
Total Accounts Payable
|
130,334.36 | |||
Credit Cards
|
||||
Visa Credit Card
|
448.96 | |||
Total Credit Cards
|
448.96 | |||
Other Current Liabilities
|
||||
Sales Tax Payable
|
937.24 | |||
Total Other Current Liabilities
|
937.24 | |||
Total Current Liabilities
|
131,720.56 | |||
Total Liabilities
|
131,720.56 | |||
Equity
|
||||
Retained Earnings
|
3,571.66 | |||
Net Income
|
-2,411.04 | |||
Total Equity
|
1,160.62 | |||
TOTAL LIABILITIES & EQUITY
|
132,881.18 |
9:54 AM
07/30/12
|
The Wine Spies, LLC
Statement of Cash Flows
January through June 2012
|
9:53 AM
07/30/12
Accrual Basis
|
The Wine Spies, LLC
Profit & Loss
January through June 2012
|
Jan - Jun 12
|
||||
Ordinary Income/Expense
|
||||
Income
|
||||
Sales
|
||||
CQD Incentive
|
0.00 | |||
Discounts Given
|
-66.48 | |||
Internet Wine Sales
|
657,496.74 | |||
Retail Sales
|
1,560.81 | |||
Shipping and Handling
|
18,712.42 | |||
Total Sales
|
677,703.49 | |||
Total Income
|
677,703.49 | |||
Cost of Goods Sold
|
||||
Cost of Wine Sold
|
398,164.43 | |||
Merchant Processing Fees
|
27,371.89 | |||
Packaging Expense
|
15,041.90 | |||
Sales Promotions and Discounts
|
6,008.08 | |||
Shipping Expense
|
78,997.66 | |||
Total COGS
|
525,583.96 | |||
Gross Profit
|
152,119.53 | |||
Expense
|
||||
Automobile Expense
|
||||
Employee Automobile Expense
|
6,140.00 | |||
Fuel Expense
|
1,615.01 | |||
License Fees
|
190.00 | |||
Repairs & Maintenance
|
56.66 | |||
Automobile Expense - Other
|
1.25 | |||
Total Automobile Expense
|
8,002.92 | |||
Bank Service Charges
|
||||
Payroll Processing Expense
|
179.94 | |||
Total Bank Service Charges
|
179.94 | |||
Dues and Subscriptions
|
484.00 | |||
Insurance
|
||||
Automobile Insurance
|
420.90 | |||
Liability Insurance
|
361.50 | |||
Workers Compensation
|
422.54 | |||
Total Insurance
|
1,204.94 | |||
Internet Hosting
|
2,802.60 | |||
Licenses and Permits
|
1,103.91 | |||
Marketing & Advertising
|
||||
Affiliate Programs
|
1,200.00 | |||
Public Relations
|
37.92 | |||
Search Engine Marketing
|
600.00 | |||
Marketing & Advertising - Other
|
11.00 | |||
Total Marketing & Advertising
|
1,848.92 | |||
Merchant Fees
|
605.54 | |||
Miscellaneous
|
82.25 | |||
Office Expenses
|
||||
Office Equipment
|
21.64 | |||
Office Supplies
|
1,478.12 | |||
Office Expenses - Other
|
63.88 | |||
Total Office Expenses
|
1,563.64 | |||
Payroll Expenses
|
||||
Guaranteed Salary
|
2,000.00 | |||
Hourly Payroll
|
12,046.07 | |||
Outside Contractors
|
1,623.00 | |||
Salaries
|
96,500.00 | |||
Total Payroll Expenses
|
112,169.07 |
9:53 AM
07/30/12
Accrual Basis
|
The Wine Spies, LLC
Profit & Loss
January through June 2012
|
Jan - Jun 12
|
||||
Professional Fees
|
||||
Accounting
|
94.90 | |||
Logistics
|
395.00 | |||
Total Professional Fees
|
489.90 | |||
Rent
|
3,300.00 | |||
Software Development
|
79.00 | |||
Taxes
|
||||
Employer FICA
|
6,729.86 | |||
Employer FUTA
|
223.92 | |||
Employer Medicare
|
1,573.92 | |||
Employer Taxes
|
369.14 | |||
EMPLOYER UNEM. CALC
|
1,053.46 | |||
State Taxes
|
7,040.40 | |||
TRAINING TAX
|
32.98 | |||
Total Taxes
|
17,023.68 | |||
Telephone
|
||||
Employee Telephone Expense
|
3,300.00 | |||
Total Telephone
|
3,300.00 | |||
Travel & Ent
|
||||
Meals
|
177.10 | |||
Travel
|
1.25 | |||
Total Travel & Ent
|
178.35 | |||
Total Expense
|
154,418.66 | |||
Net Ordinary Income
|
-2,299.13 | |||
Other Income/Expense
|
||||
Other Income
|
||||
Other Income
|
||||
Tax Discounts
|
-45.43 | |||
Other Income - Other
|
-66.48 | |||
Total Other Income
|
-111.91 | |||
Total Other Income
|
-111.91 | |||
Net Other Income
|
-111.91 | |||
Net Income
|
-2,411.04 |
|
A.
|
Pursuant to that certain Membership Interest Purchase Agreement (the “
Purchase Agreement
”), dated as of July __, 2012, by and between HDD and Seller, HDD acquired fifty percent (50%) of the total membership interests of the Company
(the “
Purchased Interest
”).
|
|
B.
|
Seller owned fifty percent (50%) of the outstanding membership interests of the
Company prior to the consummation of the transactions contemplated by the
Purchase Agreement.
|
|
C.
|
HDD would not be willing to consummate the transactions contemplated by the
Purchase Agreement unless Seller agreed to be bound by the terms of this
Agreement to protect the goodwill of the Company.
|
|
D.
|
In order to induce HDD to consummate the transactions contemplated by the
Purchase Agreement, Seller has agreed to execute and deliver to the Company
this Agreement.
|
HDD:
|
|||
H.D.D. LLC,
a California limited liability company
|
|||
|
By:
|
||
Phillip L. Hurst, Manager | |||
COMPANY: | |||
THE WINE SPIES, LLC,
a California limited liability company
|
|||
By: | |||
Jason Seeber, Manager | |||
SELLER: | |||
Brandon Stauber |
|
A.
|
Consultant has executed that certain Membership Interest Purchase Agreement of
even date herewith (the “
Purchase Agreement
”), pursuant to which H.D.D. LLC,
a California limited liability company, purchased from Consultant all of his
membership interests of the Company.
|
|
B.
|
The Company desires to retain Consultant as an independent contractor to provide
certain services, and Consultant desires to be retained by the Company to provide
such services, on the terms and conditions set forth in this Agreement.
|
COMPANY:
|
|||
THE WINE SPIES, LLC,
a California limited liability company
|
|||
|
By:
|
||
Jason Seeber, Manager | |||
CONSULTANT: | |||
Brandon Stauber |
|
By:
|
||
Brandon Stauber | |||
Date
|
(Signature)
|
|
(Printed Name)
|
Date
|
(Member’s Signature)
|
|
(Member’s Printed Name)
|
(a)
|
This Deed of Trust has been duly executed and delivered by the Trustor and is the legal, valid and binding obligation of the Trustor enforceable in accordance with its terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors' rights generally;
|
(b)
|
The Trustor is the sole legal owner of the Property, holding good and marketable fee simple title to the Property, subject to no liens, encumbrances, leases, security interests or rights of others, other than as set forth in detail in Exhibit B hereto (the "Permitted Encumbrances");
|
(c)
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The Trustor is the sole legal owner of the entire lessor's interest in Leases, if any, with full power of attorney to encumber the Property in the manner set forth herein, and the Trustor has not executed any other assignment of Leases or any of the rights or rents arising thereunder;
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(d)
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As of the date hereof, there are no Hazardous Substances (as hereinafter defined) in, on or under the Property, except as disclosed in writing to and acknowledged by the Beneficiary; and
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(e)
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Each Obligation is a commercial obligation and does not represent a loan used for personal, family or household purposes and is not a consumer transaction.
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(a)
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Sell, convey, assign, transfer, mortgage, pledge, hypothecate, lease or dispose of all or any part of any legal or beneficial interest in the Trustor or the Property or any part thereof or permit any of the foregoing, except as expressly permitted by the terms of this Deed of Trust;
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(b)
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Permit the use, generation, treatment, storage, release or disposition of any oil or other material or substance constituting hazardous waste or hazardous materials or substances under any applicable Federal or state law, regulation or rule ("Hazardous Substances"); or
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(c)
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Permit to be created or suffer to exist any mortgage, lien, security interest, attachment or other encumbrance or charge on the Property or any part thereof or interest therein (except for the Permitted Encumbrances), including, without limitation, (i) any lien arising under any Federal, state or local statute, rule, regulation or law pertaining to the release or cleanup of Hazardous Substances and (ii) any mechanics' or materialmen's lien. The Trustor further agrees to give the Beneficiary prompt written notice of the imposition, or notice, of any lien referred to in this Section and to take any action necessary to secure the prompt discharge or release of the same. The Trustor agrees to defend its title to the Property and the Beneficiary’s interest therein against the claims of all persons and, unless the Beneficiary requests otherwise, to appear in and diligently contest, at the Trustor's sole cost and expense, any action or proceeding that purports to affect the Trustor's title to the Property or the priority or validity of this Deed of Trust or the Beneficiary's interest hereunder.
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(a)
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The Trustor will not permit the Property to be used for any unlawful or improper purpose, will at all times comply with all Federal, state and local laws, ordinances and regulations, and the provisions of any Lease, easement or other agreement affecting all or any part of the Property, and will obtain and maintain all governmental or other approvals relating to the Trustor, the Property or the use thereof, including without limitation, any applicable zoning or building codes or regulations and any laws or regulations relating to the handling, storage, release or cleanup of Hazardous Substances, and will give prompt written notice to the Beneficiary of (i) any violation of any such law, ordinance or regulation by the Trustor or relating to the Property, (ii) receipt of notice from any Federal, state or local authority alleging any such violation and (iii) the presence or release on the Property of any Hazardous Substances;
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(c)
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Trustor will not enter into or modify the Leases in any material respect without the prior written consent of the Beneficiary, execute any assignment of the Leases except in favor of the Beneficiary, or accept any rentals under any Lease for more than one month in advance and will at all times perform and fulfill every term and condition of the Leases;
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(d)
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Trustor will at all times (i) maintain complete and accurate records and books regarding the Property in accordance with generally accepted accounting principles and (ii) permit the Beneficiary and the Beneficiary's agents, employees and representatives, at such reasonable times as the Beneficiary may request, to enter and inspect the Property and such books and records; and
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(e)
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Trustor will at all times keep the Property in good and first-rate repair and condition (damage from casualty not excepted) and will not commit or permit any strip, waste, impairment, deterioration or alteration of the Property or any part thereof.
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(a)
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Declare the Obligations due and payable, and the Obligations shall thereupon become immediately due and payable, without presentment, protest, demand or notice of any kind, all of which are hereby expressly waived by the Trustor except for Obligations due and payable on demand, which shall be due and payable on demand whether or not an event of default has occurred hereunder;
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(b)
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Direct the Trustee to, or enter, take possession of, manage and operate the Property (including all personal property and all records and documents pertaining thereto) and any part thereof and exclude the Trustor therefrom, take all actions it deems necessary or proper to preserve the Property and operate the Property as a mortgagee in possession with all the powers as could be exercised by a receiver or as otherwise provided herein or by applicable law; provided, however, the entry by the Beneficiary upon the Property for any reason shall not cause the Trustee or the Beneficiary to be a mortgagee in possession, except upon the express written declaration of the Beneficiary;
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(c)
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With or without taking possession, by itself or through a receiver, receive and collect all rents, income, issues and profits ("Rents") from the Property (including all real estate and personal property and whether past due or thereafter accruing), including as may arise under the Leases, and the Trustor appoints the Beneficiary as its true and lawful attorney with the power for the Beneficiary in its own name and capacity to demand and collect Rents and take any action that the Trustor is authorized to take under the Leases. The Beneficiary shall (after payment of all costs and expenses incurred) apply any Rents received by it to the Obligations in such order as the Beneficiary determines, or in accordance with any applicable statute, and the Trustor agrees that exercise of such rights and disposition of such funds shall not be deemed to cure any default or constitute a waiver of any foreclosure once commenced nor preclude the later commencement of foreclosure for breach thereof. The Beneficiary shall be liable to account only for such Rents actually received by the Beneficiary. Lessees under the Leases are hereby authorized and directed, following notice from the Beneficiary, to pay all amounts due the Trustor under the Leases to the Beneficiary, whereupon such lessees shall be relieved of any and all duty and obligation to the Trustor with respect to such payments so made
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(d)
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In addition to any other remedies, to sell the Property or any part thereof or interest therein pursuant to exercise of its power of sale or otherwise at public auction on terms and conditions as the Beneficiary may determine, or otherwise foreclose this Deed of Trust in any manner permitted by law, and upon such sale the Trustor shall execute and deliver such instruments as the Beneficiary may request in order to convey and transfer all of the Trustor's interest in the Property, and the same shall operate to divest all rights, title and interest of the Trustor in and to the Property. In the event this Deed of Trust shall include more than one parcel of property or subdivision (each hereinafter called a "portion"), the Beneficiary shall, in its sole and exclusive discretion and to the extent permitted by applicable law, be empowered to foreclose upon any such portion without impairing its right to foreclose subsequently upon any other portion or the entirety of the Property from time to time thereafter. In addition, the Beneficiary may in its sole and exclusive discretion subordinate this Deed of Trust to one or more Leases for the sole purpose of preserving any such Lease in the event of a foreclosure;
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(e)
|
Choose to dispose of some or all of the Property in any combination consisting of both real and personal property, together in one sale, public or private, to held in accordance with law and procedures applicable to real property, as permitted by Section 9604 of the Uniform Commercial Code. Trustor agrees that such a sale of personal property together with real property constitutes a commercially reasonable sale of the personal property. Before any sale, Beneficiary or Trustee shall give such notice of default and election to sell as may then be required by law. When all time periods then legally mandated have expired, and after such notice of sate as may then be legally required has been given, Trustee may sell the property being sold at a public auction to be held at the time and place specified in the notice of sale. Neither Trustee nor Beneficiary shall have any obligation to make demand on Trustor before any sale, From time to time in accordance with then applicable law, Trustee may, and in any event at Beneficiary's request shall, postpone any sale by public announcement at the time and place noticed for that sale. Notwithstanding the foregoing, Beneficiary shall be under no obligation to consummate a sale if, in its judgment, none of the offers received by it equals the fair value of the property offered for sale. At any sale, any person including Beneficiary may bid for and acquire the property or any part thereof to the extent permitted by then applicable law. Instead of paying cash for such property, Beneficiary may settle for the purchase price by crediting the sales price of the property against the expenses of sale, costs of any action and any other sums for which Trustor is obligated to pay or reimburse Beneficiary or Trustee under this Deed of Trust and all other Obligations in any order and proportion as Beneficiary in its sole discretion may choose. The foregoing procedures do not constitute the only procedures that may be commercially reasonable and, Beneficiary and Trustee may choose, for example, if the Property consists of more than one parcel, to sell and dispose of such parcels in separate or combined sales in such order as Beneficia
ry
may elect. The proceeds of any such disposition of Property shall not cure any Event of Default or reinstate any Obligations for purposes of Section 2924c of the California Civil Code. For purposes of this power of sale, either a sale of real prope
rt
y alone, or a sale of both real and personal prope
rt
y together in accordance with Uniform Commercial Code Section 9604, will sometimes be referred to as a "Trustee's Sale";
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(f)
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In accordance with Section 736 of the California Code of Civil Procedure, Beneficiary may bring an action for breach of contract against Trustor for breach of any "environmental provision" (as such term is defined in such Section) made by Trustor herein or in any other Loan Document for the recovery of damages and/or the enforcement of the environmental provision. In accordance with the California Code of Civil Procedure, Section 726.5, Beneficiary may waive the security under this Deed of Trust with respect to any parcel of the Property that is "environmentally impaired" or is an "affected property" (as such terms are defined in such Section), and as to any personal property which is attached to such parcel, and thereafter exercise against Trustor, to the extent permitted by such Section, the rights and remedies of an unsecured creditor, including reduction of Beneficiary's claim against Trustor to judgment, and any other rights and remedies permitted by law. In the event Beneficiary elects, in accordance with the California Code of Civil Procedure, Section 726.5, to waive all or part of the security under this Deed of Trust and proceed against Trustor on an unsecured basis, the valuation of the real property, the determination of the environmentally impaired status of such security and any cause of action for money judgment shall, at the request of Beneficiary, be referred to a referee in accordance with the California Code of Civil Procedure, Section 638 et seq. Such referee shall be an M.A.I. appraiser selected by Beneficiary and approved by Trustor, which approval shall not be unreasonably withheld or delayed. The decision of such referee shall be binding upon both Beneficiary and Trustor and judgment upon the award rendered by such referee shall be entered in the court in which such proceeding was commenced in accordance with the California Code of Civil Procedure, Sections 644 and 645. Trustor shall pay all costs and expenses incurred by Beneficiary in connection with any proceeding under the California Code of Civil Procedure, Section 726.5;
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(g)
|
Cause one or more environmental assessments to be taken, arrange for the cleanup of any Hazardous Substances or otherwise cure the Truste's failure to comply with any statute, regulation or ordinance relating to the presence or cleanup of Hazardous Substances, and the Trustor shall provide the Beneficiary or its agents with access to the Property for such purposes; provided that the exercise of any of such remedies shall not be deemed to have relieved the Trustor from any responsibility therefor or given the Beneficiary "control" over the Property or cause the Beneficiary to be considered to be a mortgagee in possession, "owner" or "operator" of the Property for purposes of any applicable law, rule or regulation pertaining to Hazardous Substances; and
|
(h)
|
Take such other actions or proceedings as the Beneficiary deems necessary or advisable to protect its interest in the Property and ensure payment and performance of the Obligations, including, without limitation, appointment of a receiver (and the Trustor hereby waives any right to object to such appointment) and exercise of any of the Beneficiary's remedies provided herein or in any other document evidencing, securing or relating to any of the Obligations or available to a secured party under the Uniform Commercial Code or under other applicable law.
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Trustor:
H.D.D. LLC
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||
By:
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/s/ Phillip L. Hurst | |
Phillip L. Hurst, Manager
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||
By:
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/s/ William R. Hambrecht | |
William R. Hambrecht, Manager
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||
By:
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/s/ Paul E. Dolan, III | |
Paul E. Dolan, III, Manager
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||
By:
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/s/ Heath E. Dolan | |
Heath E. Dolan, Manager
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||
By:
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/s/ J. Barrie Graham | |
J. Barrie Graham, Manager
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||
By:
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/s/ Daniel A. Carroll | |
Daniel A. Carroll, Manager
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||
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WITNESS my hand and official seal.
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[Notary Seal] |
Signature /s/ Morgan Merritt (Seal) |
WITNESS my hand and official seal.
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[Notary Seal] |
Signature /s/ Rachael Manning (Seal) |
WITNESS my hand and official seal.
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[Notary Seal] |
Signature /s/ Rachael Manning (Seal) |
WITNESS my hand and official seal.
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|
Signature _______________________ (Seal) |
WITNESS my hand and official seal.
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|
Signature _______________________ (Seal) |
WITNESS my hand and official seal.
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[Notary Seal] |
Signature /s/ Allison Corado (Seal) |
WITNESS my hand and official seal.
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[Notary Seal] |
Signature /s/ Rachael Manning (Seal) |
WITNESS my hand and official seal.
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[Notary Seal] |
Signature /s/ Rachael Manning (Seal) |
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1.
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Master Equipment Financing Agreement
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2.
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Schedule No. 100-0022757-001
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3.
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Schedule A - Equipment Description
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4.
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Insurance Authorization
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5.
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Automatic Transfer and Authorization Control Agreement – please complete this form if you would like to establish an automatic debit for the loan payments.
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6.
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Closing Invoice
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Please overnight the executed documents and your check to:
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Bank of the West / DEF 951
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Direct Equipment Finance - Attn: Lynn Mifune
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2527 Camino Ramon, NC-B07-3F-V
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San Ramon, CA 94583
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1.
|
EQUIPMENT; SECURITY INTEREST.
Under this agreement Creditor will provide Debtor financing as to each item of machinery, equipment and other property (individually with all accessions, additions and replacements an "Item" and collectively the "Equipment") described in a schedule referencing this Agreement and incorporated herein executed by Creditor and Debtor (individually a "Schedule"). Debtor shall acquire and maintain title or, in the case of software, alternatively a license, to each Item subject only to Creditor's lien described below and the lien of current property taxes not in default. Debtor hereby grants Creditor a security interest in and to all Debtor's right, title and interest in and to the Equipment under the Uniform Commercial Code, such grant with respect to an Item to be as of the later of Debtor's execution of a related proposal or Schedule or Debtor acquiring an interest in the Item. Such security interest is granted to secure performance by Debtor of Debtor's obligations hereunder and under any other agreements under which Debtor now or hereafter has obligations to Creditor.
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2.
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DEBTOR'S OBLIGATIONS.
Debtor's obligations respecting an Item, except the related installment payment obligation which is governed by paragraph 3 below, commence upon the grant to Creditor of a security interest in the Item. Debtor's obligations with respect to an Item and Creditor's security interest will continue until full performance of all related obligations hereunder; provided, however, that if this Agreement is then in default, said obligations and security interest will continue during the continuance of said default. Upon termination of Creditor's security interest in an Item, Creditor will provide such release of interest with respect thereto as Debtor reasonably requests.
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3.
|
INSTALLMENT AND OTHER PAYMENTS.
Debtor will repay Creditor's advance as to an Item in installments of principal and interest in the amounts and at the times set forth in the applicable Schedule at the office of Creditor set forth at the foot hereof or as Creditor may from time to time otherwise designate on notice to Debtor. Other amounts required to be paid by Debtor hereunder are due upon Debtor's receipt of an invoice therefor and will be payable as directed in the invoice. Payments under this Agreement may be applied to Debtor's then accrued obligations to Creditor in such order as Creditor may choose.
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4.
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DEPOSIT.
Debtor will have deposited or will deposit with Creditor any "Deposit" amount set forth in a Schedule. Creditor may, at its option, apply a Deposit amount toward any of Debtor's past due obligations to Creditor in which event Debtor will promptly restore the Deposit amount to the full amount originally deposited. Upon termination of Creditor's security interest as to all Items covered by a Schedule, Creditor will return to Debtor the remaining balance of any related Deposit amount without interest.
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5.
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NO OFFSET; SURVIVAL.
Debtor will not be entitled to any abatement of installment or other payments due hereunder or any reduction thereof under any circumstances. Debtor waives any and all existing and future claims, as offsets, against any payments due hereunder and agrees to pay all amounts when due regardless of any claim which may be asserted by Debtor. Debtor has not waived any rights Debtor may have to prosecute any claim against Creditor in an action unrelated to this Agreement. This Agreement is not terminable by Debtor for any reason and will otherwise terminate only as provided herein. In no event will Creditor, if liable to Debtor with respect to this Agreement, be liable for punitive, consequential or similar damages. The obligations and liabilities of Debtor hereunder will survive the termination of Creditor's security interest in the Equipment and Debtor's covenants under any credit agreement with Creditor or an affiliate shall survive payment of all amounts due thereunder until payment of all amounts due hereunder
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6.
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FINANCING AGREEMENT.
THIS AGREEMENT IS SOLELY A FINANCING AGREEMENT. DEBTOR ACKNOWLEDGES THAT THE EQUIPMENT HAS OR WILL HAVE BEEN SELECTED AND ACQUIRED SOLELY BY DEBTOR FOR DEBTOR'S PURPOSES, THAT CREDITOR IS NOT AND WILL NOT BE THE VENDOR OF ANY EQUIPMENT AND THAT CREDITOR HAS NOT MADE AND WILL NOT MAKE ANY
AGREEMENT, REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE MERCHANTABILITY, CONDITION, QUALITY OR FITNESS FOR A PARTICULAR PURPOSE OR VALUE OF THE EQUIPMENT OR ANY OTHER MATTER WITH RESPECT THERETO IN ANY RESPECT WHATSOEVER.
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7.
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NO AGENCY.
NO AGENT OF THE MANUFACTURER OR OTHER SUPPLIER OF ANY ITEM OR OF ANY FINANCIAL INTERMEDIARY IS AN AGENT OF CREDITOR. CREDITOR IS NOT BOUND BY A REPRESENTATION OF ANY SUCH PARTY, AND, AS CONTEMPLATED IN PARAGRAPH 28 BELOW, THE PARTIES' ENTIRE AGREEMENT AS TO THE EQUIPMENT IS CONTAINED IN THIS AGREEMENT.
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8.
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ACCEPTANCE.
Upon receipt from Creditor of a Schedule covering the Equipment or any Items, Debtor will either (a) execute and deliver the Schedule or (b) give Creditor notice specifying any objection to the Equipment covered thereby. Debtor's execution of a Schedule will conclusively establish as between Creditor and Debtor that the Equipment covered thereby is acceptable to, and has been accepted by, Debtor for all purposes of this Agreement.
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9.
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LOCATION; INSPECTION; USE.
Except as otherwise consented to in writing by Creditor, Debtor will keep, or permanently garage and not remove from the United States, as appropriate, each Item in Debtor's possession and control at the Equipment Location designated in the applicable Schedule, or at such other location to which such Item may have been moved or at which such Item is permanently garaged with the prior written consent of Creditor. Upon request by Creditor, Debtor will advise Creditor as to the exact location of an Item. Creditor may inspect an Item and observe its use during normal business hours, and Debtor will ensure Creditor's ability to enter into and upon the premises where the Item may be located for such purpose. The Equipment will at all times be used solely for commercial or business purposes and operated in a careful and proper manner and in compliance with all applicable laws, ordinances, rules and regulations, all requirements of the required insurance and all manufacturer's instructions and warranty requirements. Any modifications or additions to an Item required by any such governmental edict or insurance policy, will be promptly made by Debtor at its own expense.
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10.
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ALTERATIONS.
Without the prior written consent of Creditor, Debtor will not make any alterations, additions or improvements to an Item which detract from its economic value or functional utility, except as may be required under paragraph 9 above. All additions and improvements made to an Item which cannot be removed without detracting from its economic value or functional utility will be deemed accessions thereto and thus subject to the security interest of Creditor.
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11.
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MAINTENANCE.
Debtor will maintain the Equipment in good repair, condition and working order, will furnish all parts, mechanisms, devices and labor required to keep the Equipment in such condition and will pay all costs of the Equipment's operation. Debtor will cause each Item for which a service contract is generally available to be covered by such a contract which provides coverages typical as to property of the type involved and is issued by a competent servicing entity or alternatively maintain such Equipment to the same standards.
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12.
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LOSS AND DAMAGE; CASUALTY VALUE.
Upon the occurrence of the loss of, theft of, requisition of, damage to or destruction of an Item from any cause ("Casualty Occurrence") Debtor will give Creditor notice thereof within 24 hours and will thereafter place the affected Item in good repair, condition and working order; provided, however, that if the Item is determined by Creditor to be lost, stolen, destroyed or damaged beyond repair or is requisitioned or suffers a constructive total loss as defined in any insurance policy carried hereunder, Debtor, at Creditor's option, will (a) replace the Item with like, new equipment in good repair, condition and working order and obtain clear title to such replacement equipment whereupon such replacement equipment will be deemed such Item for all purposes hereof, including Creditor's security interest therein, or (b) pay Creditor the "Stipulated Loss Value" of such Item which will equal the total of (A) all installment payments and other amounts, if any, due from Debtor to Creditor hereunder at the time of such payment, plus (B) the remaining balance of the advance made as to the Item calculated by applying payments received as to the Item as of receipt first to accrued interest at the rate implicit in this agreement assuming timely payments and a year of twelve (12) months of thirty (30) days each and then to reduce the outstanding advance as to the Item. For these purposes each installment will be allocated to an individual Item based on the relationship that the advance as to the Item has to the total advance for the Equipment. Upon such replacement or payment, as appropriate, this Agreement will terminate with, and only with, respect to the Item so replaced or paid for, and Debtor will become entitled thereto
"AS-IS, WHERE-IS."
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13.
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TITLING; REGISTRATION.
Each Item subject to title registration laws will at all times be titled and/or registered by Debtor at its own expense in such manner and in such jurisdiction or jurisdictions as Creditor directs. Debtor will promptly notify Creditor of any necessary or advisable retitling and/or re-registration of an Item. Whenever a title document is issuable to Creditor, Debtor will use reasonable efforts to cause any and all documents of title to be issued by the applicable state authority to Creditor within 60 days of the date of filing the titling application.
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14.
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TAXES.
Debtor will make all filings as to and pay when due all personal property and other ad valorem taxes and all other taxes, fees, charges and assessments based on the ownership or use of the Equipment and will pay as directed by Creditor or reimburse Creditor for all other taxes, including, but not limited to, gross receipts taxes (exclusive of federal and state taxes based on Creditor's net income, unless such taxes are in substitution for or relieve Debtor from any taxes which Debtor would otherwise be obligated to pay under the terms of this paragraph 14), fees, charges and assessments whatsoever, however designated, whether based on the installment payments or other amounts due hereunder, levied, assessed or imposed upon the Equipment or otherwise related hereto or to the Equipment, now or hereafter levied, assessed or imposed under the authority of a federal, state or local taxing jurisdiction, regardless of when and by whom payable. Filings with respect to such other assessments will, at Creditor's option, be made by Creditor or by Debtor as directed by Creditor.
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15.
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INSURANCE.
Debtor will continuously maintain and pay for all risk insurance against loss of or damage to the Equipment from any cause whatsoever for not less than the full replacement value thereof naming Creditor as Loss Payee. If requested by Creditor, Debtor will similarly carry related combined public liability and property damage insurance with a single limit of not less than $1,000,000 per occurrence, or such greater or lesser amount as Creditor may from time to time require on notice to Debtor, naming Creditor as an Additional Insured. All such insurance must be in a form and with companies approved by Creditor, must designate Debtor as a Named Insured, must provide at least 30 days advance written notice to Debtor of cancellation, change or modification in any term, condition or amount of protection provided therein, must provide breach of warranty protection to Creditor, if applicable, and must provide that the coverage does not require contribution from Creditor's or any other applicable coverage. Debtor will keep Creditor provided with a current policy or certificate evidencing such insurance. Debtor will promptly notify any appropriate insurer and Creditor of any occurrence which may become the basis of a claim or cause of action against the insureds and provide Creditor with all data pertinent to such occurrence. The proceeds of such insurance, at the option of Creditor, will be applied toward (a) the repair or replacement of the appropriate Item or Items, (b) payment of the Stipulated Loss Value thereof or (c) payment of, or as a provision for, satisfaction of any other accrued obligations of Debtor hereunder. Any excess of such proceeds remaining will belong to Debtor. Debtor appoints Creditor as Debtor's attorney-in-fact to do all things, including, but not limited to, making claims, receiving payments and endorsing documents, checks or drafts, necessary or advisable to secure payments due on account of a Casualty Occurrence under any such policy.
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16.
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CREDITOR'S PAYMENT.
If Debtor fails to pay an amount hereunder or to perform any of its other obligations, Creditor may, at its option, pay such amount or perform such obligation, and Debtor will reimburse Creditor the payment amount or cost of performance.
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17.
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INDEMNITY.
Debtor will indemnify, defend, protect and keep harmless Creditor from any and all liabilities, losses, damages, penalties, claims, actions, suits, costs, expenses and disbursements, including court costs and legal expenses, of whatsoever nature and whenever arising or asserted, imposed on, incurred by or asserted against Creditor (whether or not also indemnified against by any other person) in any way relating to or arising out of this Agreement or the Equipment, including Creditor's lawful acts in the administration and enforcement hereof, including, without limitation, any claim alleging latent and other defects, whether or not discoverable by Creditor or Debtor, any other claim arising out of strict or vicarious liability in tort and any claim for environmental remediation or patent, trademark or copyright infringement. Each party shall give the other notice of any claim or liability hereby indemnified against promptly following learning thereof.
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18.
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DEFAULT.
Any of the following will constitute an event of default hereunder: (a) Debtor's failure to pay when due any installment payment or other amount due hereunder, which failure continues for 10 days; (b) Debtor's default in performing any other obligation, term or condition of this Agreement or any other agreement between Creditor and Debtor or default under any other agreement providing security for the performance by Debtor of its obligations hereunder, provided such default will have continued for more than 20 days after notice of default, except as provided in (c) and (d) below, or default under any lease or any mortgage or other instrument contemplating the provision of financial accommodation applicable to the real estate where an Item is located; (c) a writ or order of attachment or execution or other legal process being levied on or charged against any Item and not released or satisfied within 10 days; (d) Debtor's failure to comply with its obligations under paragraph 15 above or any attempted assignment of Debtor's interest in an Item in violation of paragraph 22 below; (e) a final judgment for the payment of money in excess of $250,000 is rendered by a court against Debtor which Debtor does not discharge or make provision for discharge in accordance with the terms thereof within 90 days from the date of entry thereof; (f) death or incompetency of Debtor, if an individual; (g) the filing by Debtor of a petition under the Bankruptcy Act or under any other insolvency law or law providing for the relief of debtors, including, without limitation, a petition for reorganization, arrangement or extension, or commission by Debtor of an act of bankruptcy;(h) the filing against Debtor of any such petition not dismissed or permanently stayed within 30 days of the filing thereof; (i) the voluntary or involuntary making of an assignment of a substantial portion of its assets by Debtor for the benefit of creditors, appointment of a receiver or trustee for Debtor or for any of Debtor's assets, institution by or against Debtor of any other type of insolvency proceeding (under the Bankruptcy Act or otherwise) or of any formal or informal proceeding for dissolution, liquidation, settlement of claims against or winding up of the affairs of Debtor, Debtor's cessation of business activities, Debtor's failure to pay its debts generally as due or the making by Debtor of a transfer of all or a material portion of Debtor's assets or inventory not in the ordinary course of business; (j) the occurrence of any event described in parts (e), (f), (g), (h) or (i) hereinabove with respect to a guarantor or other party liable respecting this Agreement; or (k) any certificate, statement, representation, warranty or audit heretofore or hereafter furnished with respect thereto by or on behalf of Debtor or any guarantor or other party liable respecting this Agreement proving to have been false in any material respect at the time as of which the facts therein set forth were stated or certified or having omitted any substantial contingent or unliquidated liability or claim against Debtor or any such guarantor or other party, (l) a change in control of Debtor not consented to by Creditor; (m) an event of default occurs under any other agreement providing leasing services or financial accommodation to Debtor where the maximum commitment amount or aggregate rentals exceed $250,000, without regard to any waiver thereof or decision not to pursue remedies on account thereof by the lessor or creditor, or (n) Debtor's lending relationship with Creditor unrelated to this Agreement ceases.
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19.
|
REMEDIES.
Upon the occurrence of an event of default, Creditor will have the rights, options, duties and remedies of a secured party, and Debtor will have the rights and duties of a debtor, under the Uniform Commercial Code (regardless of whether such Code or a law similar thereto has been enacted in a jurisdiction wherein the rights or remedies are asserted) and, without limiting the foregoing, Creditor may exercise any one or more of the following remedies: (a) declare the Stipulated Loss Value or such lesser amount as may be set by law immediately due and payable with respect to any or all Items without notice or demand to Debtor; (b) sue from time to time for and recover all installment payments and other amounts then accrued and which accrue during the pendency of such action with respect to any or all Items; (c) take possession of and, if deemed appropriate, render unusable any or all Items, without demand or notice, wherever same may be located, without any court order or other process of law and without liability for any damages occasioned by such taking of possession and remove, keep and store the same or use and operate or lease the same until sold; (d) require Debtor to assemble any or all Items at the Equipment Location therefor, such location to which such Equipment may have been moved with the written consent of Creditor or such other location in reasonable proximity to either of the foregoing as Creditor designates; (e) upon 10 days notice to Debtor or such other notice as may be required by law, sell or otherwise dispose of any Item, whether or not in Creditor's possession, in a commercially reasonable manner at public or private sale at any place deemed appropriate and apply the net proceeds of such sale, after deducting all costs of such sale, including, but not limited to, costs of transportation, repossession, storage, refurbishing, advertising and broker's fees, to the obligations of Debtor to Creditor hereunder or otherwise, with Debtor remaining liable for any deficiency and with any excess being returned to Debtor; or (f) utilize any other remedy available to Creditor under the Uniform Commercial Code or similar provision of law or otherwise at law or in equity. Amounts past due under this paragraph 19 will bear interest at 18% per annum or at such lesser maximum rate as may be set by law until paid. No right or remedy conferred herein is exclusive of any other right or remedy conferred herein or by law; but all such remedies are cumulative of every other right or remedy conferred hereunder or at law or in equity, by statute or otherwise, and may be exercised concurrently or separately from time to time. Any sale contemplated by subparagraph (e) of this paragraph 19 may be adjourned from time to time by announcement at the time and place appointed for such sale, or for any such adjourned sale, without further published notice, and Creditor may bid and become the purchaser at any such sale. Any sale of an Item, whether under said subparagraph or by virtue of judicial proceedings, will operate to divest all right, title, interest, claim and demand whatsoever, either at law or in equity, of Debtor in and to said Item and will be a perpetual bar to any claim against such Item, both at law and in equity, against Debtor and all persons claiming by, through or under Debtor.
|
20.
|
DISCONTINUANCE OF REMEDIES.
If Creditor proceeds to enforce any right under this Agreement and such proceedings are discontinued or abandoned for any reason or are determined adversely, then and in every such case Debtor and Creditor will be restored to their former positions and rights thereunder.
|
21.
|
CREDITOR'S EXPENSES.
Debtor will pay Creditor all costs and expenses, including repossession, Equipment disposition and court costs and attorney's fees (including a reasonable fee for services of salaried counsel employed by Creditor), not offset against sales proceeds under paragraph 19 above, incurred by Creditor in exercising any remedies hereunder. This obligation includes the payment or reimbursement of all such amounts, including those incurred on appeal or in a bankruptcy proceeding, whether an action is ultimately filed or concluded.
|
22.
|
ASSIGNMENT.
Without the prior written consent of Creditor, Debtor will not sell, lease, pledge or hypothecate, except as provided in this Agreement, an Item or any interest therein or assign, transfer, pledge or hypothecate this Agreement or any interest in this Agreement or permit the Equipment to be subject to any lien, charge or encumbrance of any nature except the security interest of Creditor contemplated hereby and property tax liens contemplated in paragraph 1. Debtor's interest herein is not assignable and will not be assigned or transferred by operation of law. Consent to any of the foregoing prohibited acts applies only in the given instance and is not a consent to any subsequent like act by Debtor or any other person. Debtor further acknowledges the Creditor's consent to any lease will be on the basis, among other considerations, that the lessee's rights are subordinate to the rights of Creditor under this Agreement. All rights of Creditor hereunder may be assigned, pledged, mortgaged, transferred or otherwise disposed of, either in whole or in part, without notice to Debtor but always, however, subject to the rights of Debtor under this Agreement. If Debtor is given notice of any such assignment, Debtor will acknowledge receipt thereof in writing and will thereafter pay any amounts due hereunder specified in said notice as directed therein. If Creditor assigns this Agreement or the installment payments due or to become due hereunder or any other interest herein, no breach or default by Creditor hereunder or pursuant to any other agreement between Creditor and Debtor will excuse performance by Debtor of any provision hereof, it being understood that in the event of default or breach by Creditor that Debtor will pursue any rights on account thereof solely against Creditor No such assignee, unless such assignee agrees in writing, will be obligated to perform any duty, covenant or condition required to be performed by Creditor in connection with this Agreement.
|
23.
|
MARKINGS; PERSONAL PROPERTY.
If Creditor supplies Debtor with labels, plates, decals or other markings stating that the Equipment is subject to Creditor's lien, Debtor will affix and keep the same prominently displayed on the Equipment or will otherwise mark the Equipment, any Equipment Location or any other location where an Item may be located with the prior written consent of Creditor, at Creditor's request, to indicate Creditor's security interest in the applicable Equipment. As between the parties, the Equipment is, and at all times will remain, personal property notwithstanding that the Equipment or any Item may now be, or hereafter become, affixed to realty. If requested by Creditor, Debtor will obtain and deliver to Creditor waivers of interest or liens in recordable form satisfactory to Creditor from all persons claiming any interest in the real property on which an Item is or is to be installed or located.
|
24.
|
LATE CHARGE.
If Debtor fails to pay any installment or any other payment to be paid by Debtor hereunder within 10 days after the due date thereof, Debtor will pay Creditor (a) a late charge of 5% of the amount, (b) Creditor's collection costs paid third parties relevant to the collection thereof and (c) Creditor's standard returned check charge, if relevant.
|
25.
|
NON-WAIVER.
No covenant or condition of this Agreement can be waived except by the written consent of Creditor. Forbearance or indulgence by Creditor in regarding to any breach will not constitute a waiver of the related covenant or condition.
|
26.
|
ADDITIONAL DOCUMENTS.
Debtor will procure and/or execute, have executed, acknowledge, have acknowledged, deliver to Creditor, record and file such requested documents and showings as Creditor may deem necessary or desirable to protect its interest in this Agreement and the Equipment. Debtor will pay as directed by Creditor or reimburse Creditor for all search, filing, attorney's services and other charges incurred by Creditor in connection with such documents and showings, any similar documents and showings Creditor may procure and any real property waivers provided under paragraph 23 above. Debtor acknowledges that Creditor will file financing statements with respect to the Equipment under the Uniform Commercial Code, authorizes Creditor to make such filings and ratifies Creditor's authority to make any such filings previously made. Debtor will furnish Creditor (a) an audited fiscal year end financial statement including balance sheet and profit and loss statement within 120 days of the close of each fiscal year prepared in accordance with Generally Accepted Accounting Principles ("GAAP") or if not audited, in a form acceptable to Creditor, (b) quarterly Debtor-prepared financial statements complying with GAAP, (c) any other information normally provided by Debtor to the public, (d) upon request of Creditor, a compliance certificate respecting Debtor's covenants to Creditor in form and substance satisfactory to Creditor and (e) such other data or financial information relative to this Agreement and the Equipment as Creditor may reasonably request. Subject to the foregoing, this Agreement inures to the benefit of, and is binding upon, the heirs, legatees, personal representatives, successors and assigns of the parties hereto.
|
27.
|
DEBTOR'S WARRANTIES.
Debtor warrants that the financial data and other information Debtor has submitted, or will submit, to Creditor in connection with this Agreement is, or will be, as appropriate, a true and complete statement of the matters therein contained. Debtor further warrants that (a) this Agreement has been duly authorized, executed and delivered by Debtor and constitutes the legal, valid and binding obligation, contract and agreement of Debtor enforceable against Debtor in accordance with its terms except as enforcement may be affected by bankruptcy and similar laws affecting creditors' rights generally and (b) this Agreement and each and every showing provided by or on behalf of Debtor in connection herewith may be relied upon by Creditor in accordance with the terms thereof. The person executing this Agreement on behalf of Debtor warrants that he or she has been fully authorized to do so.
|
28.
|
ENTIRE AGREEMENT; FACSIMILE SIGNATURES.
This Agreement constitutes the entire agreement between Creditor and Debtor relative to the Equipment and may be amended only by a writing signed by the party to be charged. If any provision hereof is declared invalid, such provision will be deemed severable from the remaining provisions of this Agreement which will remain in full force and effect. If a signed copy of this Agreement or a Schedule is delivered to Creditor by facsimile transmission, a copy of the transmitted copy shall, notwithstanding any rule of evidence to the contrary, be deemed an original signed document.
|
29.
|
NOTICES.
Notices under this Agreement must be in writing and must be sent via courier or sent certified or registered mail with return receipt requested, duly addressed, with postage prepaid, or delivered to the party involved at its respective address set forth at the foot hereof or at such other address as such party may provide on notice to the other from time to time. Notices will be effective upon the earlier of three (3) business days after deposited or delivery. Each party will promptly notify the other of any change in the first party's address. Notices may also be emailed provided that each party will follow up with a written notice as outlined above.
|
30.
|
GENDER; NUMBER; JOINT AND SEVERAL LIABILITY.
Where the context of this Agreement requires, the neuter gender includes the masculine or feminine and the singular number includes the plural; and whenever the word "Creditor" is used herein, it will include all assignees of Creditor. If there is more than one Debtor named in this Agreement, the liability of each will be joint and several.
|
31.
|
TITLES.
The Agreement paragraph titles are for convenience only and are not an aid in the interpretation of the Agreement.
|
32.
|
GOVERNING LAW; VENUE.
This Agreement will be governed by the law of the State of California. Venue for any action related to this Agreement will be in an appropriate court in Los Angeles County, California selected by Creditor, to which Debtor consents, or in another court selected by Creditor which has jurisdiction over the matter. If a provision hereof is declared invalid, such provision will be deemed severable from the remaining provisions of this Agreement which will remain in full force and effect.
|
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above appearing.
|
Bank of the West
Creditor
Creditor
|
H.D.D. LLC
Debtor
|
|||
By:
|
By:
|
/s/ Philip L. Hurst | ||
Name:
|
Name
|
Philip L. Hurst
|
||
Title:
|
Title:
|
Manager
|
||
Address:
|
By:
|
/s/ William R. Hambrecht | ||
Bank of the West / DEF 951
|
Name:
|
William R. Hambrecht
|
||
2527 Camino Ramon, NC-B07-3F-V
|
Title:
|
Manager
|
||
San Ramon, CA 94583 | ||||
By:
|
/s/ Paul E. Dolan, III | |||
Name:
|
Paul E. Dolan, III
|
|||
Title:
|
Manager
|
|||
By:
|
/s/ Heath E. Dolan | |||
Name:
|
Heath E. Dolan
|
|||
Title:
|
Manager
|
|||
By:
|
/s/ J. Barrie Graham | |||
Name:
|
J. Barrie Graham
|
|||
Title:
|
Manager
|
|||
By:
|
/s/ Daniel A. Carroll | |||
Name:
|
Daniel A. Carroll
|
|||
Title:
|
Manager
|
|||
Address:
|
||||
5610 Dry Creek Road
|
||||
Healdsburg, CA 95448
|
1.
|
Equipment Description
: See Schedule A attached hereto and made a part hereof
|
|
Together with all replacements, parts, repairs, additions, accessions and accessories incorporated therein or affixed or attached thereto and any and all proceeds of the foregoing, including, without limitation, insurance recoveries.
|
2.
|
Equipment Advance
: $ 143,684.40
|
3.
|
Installment Payments:
Creditor's advance shall be repayable as follows: 36 payments in the amount of $4,226.18 each, with the first payment due November 1, 2012 and subsequent payments payable on the 1st day of each succeeding month, together with an interim interest payment of $14.97 per day from the funding date to the commencement of the initial payment period. These payments may be adjusted based on any difference between the "Index" as of the date of this Schedule and the Index as of the date Creditor makes the Equipment Advance. For these purposes the Index is Creditor's internally prepared "Daily Fixed Price Indication Rate" for the Agreement term and structure applicable to this Schedule.
|
4.
|
Deposit: |
Not Applicable
|
5.
|
Equipment Location: |
5610 Dry Creek Road
Healdsburg, CA 95448
|
6.
|
Intentionally left blank.
|
7.
|
Equipment Advance: |
Debtor acknowledges that Creditor will advance the Equipment Advance as follows:
|
$143,434.40
|
H.D.D. LLC
|
|
$250.00
|
Bank of the West – Documentation Fee
|
|
$143,684.40
|
TOTAL DISBURSEMENT
|
8.
|
Other Provisions:
Intentionally left blank.
|
9.
|
Documentation Fee:
$250.00
|
Bank of the West
Creditor
|
H.D.D. LLC dba Truett-Hurst Winery
Debtor
|
|||
By:
|
By:
|
/s/ Philip L. Hurst | ||
Name:
|
Name
|
Philip L. Hurst
|
||
Title:
|
Title:
|
Manager
|
||
By:
|
/s/ William R. Hambrecht | |||
Name:
|
William R. Hambrecht
|
|||
Title:
|
Manager
|
|||
By:
|
/s/ Paul E. Dolan, III | |||
Name:
|
Paul E. Dolan, III
|
|||
Title:
|
Manager
|
|||
By:
|
/s/ Heath E. Dolan | |||
Name:
|
Heath E. Dolan
|
|||
Title:
|
Manager
|
|||
By:
|
/s/ J. Barrie Graham | |||
Name:
|
J. Barrie Graham
|
|||
Title:
|
Manager
|
|||
By:
|
/s/ Daniel A. Carroll | |||
Name:
|
Daniel A. Carroll
|
|||
Title:
|
Manager
|
Vendor
|
Description
|
Santa Rosa Stainless Steel
|
(4) Stainless Steel Fermenting Tanks, 2405 Gallons each, 8’-0” x 6’-6”, Open Top and Sloping Bottom
|
Francois Freres USA, Inc.
|
(1) BG Tight Grain – 3 Year
(1) BG Very Special Grain – 3 Year
|
Billet Transportation
|
Shipping
|
Gamba USA
|
Delivery/Transportation
|
Northwest Cooperage
|
(18) 228 Liter Burgundy COF M+TH
(6) 228 Liter Burgundy A/J M+TH
(4) 228 Liter Burgundy COF Cru
(4) 228 Liter Burgundy A/J Cru
(20) 225 Liter Bordeaux COF M+TH
|
Generazioni
|
Delivery
|
Acrolon Technologies, Inc.
|
(4) TankNet PL-1 Thermostat, 120VAC, w/TP-1 Probe
|
C-Line Express
|
Shipping
|
Tonnellerie de Jarnac
|
(8) 228L Bourgogne Transport MT+S
(2) 228L Bougogne Transport MT+N
|
Saury France
|
(2) Burgundy Export Barrel - 228 Liters
|
Tonnellerie Sirugue
|
(7) Burgundy Export Barrel - 228 Liters, Split Oak French
|
Saury France
|
(10) Bourdeaux Export Barrel US Oak - 228 Liters
|
Les Tonnelleries de Bourgogne
|
(1) 228L Burgundy Export Damy Allier Oak Medium+Toast
(1) 228L Burgundy Export Damy Vosges Oak Medium+Toast
(6) 228L Burgundy Export Billon Troncais Oak Heavy Toast
|
Gamba USA
|
(5) 228 Liter Burgundy Export Allier/Jupilles Slow M+ w/Head Toasted
(3) 228 Liter Burgundy Export Jupilles Slow M+ w/Head Toasted
|
Generazioni
|
(4) Burgundy Export 228L Center of France Slow M+ w/Head Toasted
|
Debtor Initials
(Philip L. Hurst):
|
|
Debtor Initials
(William R. Hambrecht):
|
|
Debtor Initials
(Paul E. Dolan, III):
|
|
Debtor Initials
(Heath E. Dolan):
|
|
Debtor Initials
(J. Barrie Graham):
|
|
Debtor Initials
(Daniel A. Carroll):
|
a.
|
All risk extended coverage, malicious mischief and vandalism, for not less than $143,684.40 (greater of full replacement value or Stipulated Loss Value), with a maximum deductible of $5,000.00.
|
b.
|
For vehicles, comprehensive and collision coverage with deductibles not exceeding $5,000.00.
|
c.
|
Endorsement naming Creditor as the
loss payee
with respect to this equipment.
|
a.
|
Endorsement giving Creditor thirty (30) days prior written notice of the effective date of any material alteration or cancellation of such coverage.
|
b.
|
Endorsement confirming that the interest of Creditor shall not be invalidated by any actions, inactions, breach of warranty or conditions or negligence of the undersigned party or any person other than Creditor
|
H.D.D. LLC
Debtor
|
H.D.D. LLC Debtor | |||
By: |
|
By: |
|
|
Name: |
Philip L. Hurst
|
Name: |
Heath E. Dolan
|
|
Title: |
Manager
|
Title: |
Manager
|
|
By: |
|
By: |
|
|
Name: |
William R. Hambrecht
|
Name: |
J. Barrie Graham
|
|
Title: |
Manager
|
Title: |
Manager
|
|
By: |
|
By: |
|
|
Name: |
Paul E. Dolan, III
|
Name: |
Daniel A. Carroll
|
|
Title: |
Manager
|
Title: |
Manager
|
To WCP:
|
6703 S. 234
th
Street
|
Kent, Washington 98032
|
|
Attention: Teresa Russell, President
|
|
2330 SW 1
st
Street
|
|
Redmond, Oregon 97756
|
|
Attention: Thomas E. Groves, CEO
|
|
To HDD:
|
4035 Westside Road
|
Healdsburg, California 95448
|
|
Attention: Phil Hurst, CEO/Managing Partner
|
West Coast Paper Company
dba WCP Solutions
|
H.D.D. LLC
|
|||
By:
|
/s/ Thomas E. Groves
|
By:
|
/s/ Phil Hurst
|
|
Its:
|
CEO
|
Its:
|
CEO
|
|
Date:
|
9/12/2012
|
Date:
|
9/12/12
|
Quote # 201209071348
|
Description HDD Wine Wrap - Print 4 CP
|
TERESA MENGALI
HDD, LLC
4035 WESTSIDE RD. BLDG 3
HEALDSBURG, CA 95448
(707) 431-4400
|
MIKE GROVES
WCP Solutions
4041 EASTSIDE ROAD
REDDING, CA 96001
(530) 591-3221
|
Item#
|
Description
|
Price
|
Prc
UOM
|
Min Qty
|
HDD Wine Wraps
|
||||
Pricing reflects using 23x29 custom sheet and timeframe associated
|
||||
Pricing includes all shipping & handling to Windsor, CA
|
||||
Print 4 CP – Qty: 250,00 – $0.253/ea
|
||||
Print 4 CP – Qty: 500,000 – $0.243/ea
|
||||
Print 4 CP – Qty: 750,000 – $0.232/ea
|
||||
Print 4 CP – Oty: 1,000,000 – $0.223/ea
|
||||
Print 4 CP – Qty: 1,500,000 – $0.207/ea
|
Quote # 201209071352
|
Description HDD Wine Wrap - Print 4 CP + 1
|
TERESA MENGALI
HDD, LLC
4035 WESTSIDE RD. BLDG 3
HEALDSBURG, CA 95448
(707) 431-4400
|
MIKE GROVES
WCP Solutions
4041 EASTSIDE ROAD
REDDING, CA 96001
(530) 226-1455
|
Item#
|
Description
|
Price
|
Prc
UOM
|
Min Qty
|
HDD Wine Wraps
|
||||
Pricing reflects using 23x29 custom sheet and timeframe associated
|
||||
Pricing includes all shipping & handling to Windsor, CA
|
||||
Print 4 CP + 1 PMS – Qty: 250,000 – $0.255/ea
|
||||
Print 4 CP + 1 PMS– Qty: 500,000 – $0.245/ea
|
||||
Print 4 CP + 1 PMS – Qty: 750,000 – $0.234/ea
|
||||
Print 4 CP + 1 PMS – Oty: 1,000,000 – $0.225/ea
|
||||
Print 4 CP + 1 PMS – Qty: 1,500,000 – $0.209/ea
|
Quote # 201209071424
|
Description HDD Wine Wrap - Print 4 CP + 2
|
TERESA MENGALI
HDD, LLC
4035 WESTSIDE RD. BLDG 3
HEALDSBURG, CA 95448
(707) 431-4400
|
MIKE GROVES
WCP Solutions
4041 EASTSIDE ROAD
REDDING, CA 96001
(530) 226-1455
|
Item#
|
Description
|
Price
|
Prc
UOM
|
Min Qty
|
HDD Wine Wraps
|
||||
Pricing reflects using 23x29 custom sheet and timeframe associated
|
||||
Pricing includes all shipping & handling to Windsor, CA
|
||||
Print 4 CP + 2 PMS – Qty: 250,00 – $0.257/ea
|
||||
Print 4 CP + 2 PMS– Qty: 500,000 – $0.246/ea
|
||||
Print 4 CP + 2 PMS – Qty: 750,000 – $0.236/ea
|
||||
Print 4 CP + 2 PMS – Oty: 1,000,000 – $0.227/ea
|
||||
Print 4 CP + 2 PMS – Qty: 1,500,000 – $0.211/ea
|
|
A.
|
Landlord is the owner of that certain real property located at 4035 Westside Road, Healdsburg, California (the "
Property
").
|
|
B.
|
Tenant desires to lease the Property from Landlord and Landlord desires to lease the Property to Tenant on the terms and conditions set forth in this Agreement.
|
LANDLORD:
HAMBRECHT WINE GROUP, L.P.,
a California limited partnership
|
||
By: |
HAMBRECHT WINE MANAGEMENT INC.,
|
|
a California corporation
|
||
Its: |
General Partner
|
|
By:
|
/s/ William R. Hambrecht | ||
William R. Hambrecht, Chairman |
TENANT:
H.D.D. LLC,
a California limited liability company
|
||
By: | /s/ Phillip L. Hurst | |
Phillip L. Hurst, Manager
|
||
By: | /s/ Mark De Meulenaere | |
Mark De Meulenaere, Manager
|
||
|
A.
|
Manager leases from Permittee certain winery and tasting room facilities (the “
Premises
”) located at 4035 Westside Road, Healdsburg, California, pursuant to a lease of even date herewith (the “
Lease
”).
|
|
B.
|
Permittee holds a basic winery permit issued by United States Alcohol and Tobacco Tax and Trade Bureau (“
TTB
”) and a Type 02 winegrower license issued by California Department of Alcoholic Beverage Control (“
ABC
”) (collectively, the “
Permittee Permits
”). Manager intends to apply for a basic winery permit issued by the TTB and a Type 02 winegrower license issued by ABC for operation of the winery on the Premises (collectively, the “
Manager Permits
”).
|
|
C.
|
From the Commencement Date until the Termination Date (as hereinafter defined), Permittee and Manager desire that Permittee maintain Permittee Permits, and that Manager operate the Premises, on the terms and conditions contained herein.
|
MANAGER:
|
|||
H.D.D. LLC,
a California limited liability company
|
|||
|
By:
|
||
Mark De Meulenaere, Manager | |||
Address for Notice:
H.D.D. LLC
P.O. Box 1532
Healdsburg, CA 95448
|
PERMITTEE:
|
|||
HAMBRECHT WINE GROUP, L.P.,
a California limited partnership
|
|||
By: |
HAMBRECHT WINE MANAGEMENT INC.,
a California corporation
Its: General Partner
|
||
|
By:
|
||
William R. Hambrecht, Chairman | |||
Address for Notice:
Hambrecht Wine Group, L.P.
c/o Hambrecht Wine Management, Inc.
4035 Westside Road
Healdsburg, CA 95448
|
TRUETT-HURST, INC. | |||
|
By:
|
||
Name: | |||
Title: | |||
LLC UNITHOLDERS
|
|||
THE HURST FAMILY REVOCABLE TRUST dated August 1, 2004
|
|||
|
By:
|
||
Phillip L. Hurst, Co-Trustee
|
|||
By: | |||
Sylvia M. Hurst, Co-Trustee |
HAMBRECHT WINE GROUP, L.P.,
a California limited partnership
|
|||
|
|||
By: HAMBRECHT WINE MANAGEMENT INC., a
California corporation
Its: General Partner
|
|||
|
By:
|
||
William R. Hambrecht, Chairman
|
THE DOLAN 2005 FAMILY TRUST U/T/D dated August 24, 2005
|
|||
|
|||
|
By:
|
||
Heath E. Dolan, Trustee
|
THE DOLAN 2003 FAMILY TRUST U/T/A dated June 5, 2003
|
|||
|
|||
|
By:
|
||
Paul E. Dolan, III, Trustee
|
|||
THE CARROLL-OBREMSKEY FAMILY REVOCABLE TRUST DATED APRIL 5, 1996 | |||
By: | |||
Daniel A. Carroll, Trustee
|
|||
By: | |||
Stasia A. Obremskey, Trustee |
Mark De Meulenaere |
Forrester R. Hambrecht |
Barrie Graham |
Anna Schweizer |
Legal Name of LLC Unitholder:
|
|
Address:
|
|
Number of LLC Units to be
Exchanged:
|
Name:
|
||
Dated:
|
Legal Name of LLC Unitholder:
|
|
Number of LLC Units to be Exchanged:
|
|
Market Value per LLC Unit:
|
$
|
Aggregate Market Value:
|
$
|
TRUETT-HURST, INC.
|
||||
By: | ||||
Name:
|
||||
Title:
|
||||
Dated:
|
Name:
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Dated:
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Address for Notices:
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With copies to:
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Attention:
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TRUETT-HURST, INC. | |||
By: | |||
Name: | |||
Title:
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H.D.D. LLC | |||
By its Managing Member, Truett-Hurst, Inc. | |||
By: | |||
Name:
Title:
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MEMBERS | |||
Each Member set forth on Annex A hereto | |||
By: | |||
Name:
Title: Attorney-in-fact
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By:
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Name:
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Title:
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1.
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Carroll hereby (i) waives any and all rights or benefits granted to Carroll under the Letter Agreement; and (ii) releases HDD from any and all obligations or liabilities created under the Letter Agreement.
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2.
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Carroll shall hereby be entitled to elect one (1) director to the board of directors of Truett (the “Election Right”), provided, however, that the Election Right, and any and all obligations or liabilities created thereunder, shall expire on the earlier of (i) the date on which Truett ceases to be a “controlled company” as defined by the corporate governance standards of the Nasdaq Capital Market, and (ii) the date on which Carroll ceases to own at least 50% of the LLC Units received by Carroll as a result of the Recapitalization.
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H.D.D. LLC
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By:
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/s/ Phillip L. Hurst | |
Name: | Phillip L. Hurst | ||
Title: |
Chief Executive Officer and Managing
Member
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TRUETT-HURST, INC.
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By:
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/s/ Phillip L. Hurst | |
Name: | Phillip L. Hurst | ||
Title: |
President and Chief Executive Officer
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THE CARROLL-OBREMSKEY
REVOCABLE FAMILY TRUST
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By:
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/s/ Daniel A. Carroll | |
Daniel A. Carroll, Trustee
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By:
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/s/ Stasia A. Obremskey
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Stasia A. Obremskey, Trustee
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Name
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Jurisdiction of Organization
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H.D.D. LLC
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California
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