EXHIBIT 2.1
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THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in
any doubt about the action you should take, you are recommended immediately to
seek your own personal financial advice from your stockbroker, bank manager,
solicitor, accountant or other independent financial adviser duly authorised
under the Financial Services Act 1986.
This document should be read in conjunction with the accompanying Form of
Acceptance.
If you have sold or otherwise transferred all your Matthew Clark Shares, please
send this document, the accompanying Form of Acceptance and reply-paid envelope
as soon as possible to the purchaser or transferee or to the stockbroker, bank
or other agent through whom the sale or transfer was effected, for transmission
to the purchaser or transferee. However, such documents should not be forwarded
or transmitted in or into the United States, Canada, Australia or Japan.
The Offer referred to in this document is not being made, directly or
indirectly, in or into the United States, Canada, Australia or Japan and this
document and the Form of Acceptance are not being, and must not be, mailed,
forwarded, transmitted or otherwise distributed or sent in or into the United
States, Canada, Australia or Japan.
- --------------------------------------------------------------------------------
Recommended cash offer
by
Schroders
on behalf of
Canandaigua Limited
a wholly-owned subsidiary of Canandaigua Brands, Inc.
to acquire
Matthew Clark plc
- --------------------------------------------------------------------------------
A LETTER OF RECOMMENDATION TO ACCEPT THE OFFER FROM THE CHAIRMAN OF Matthew
Clark IS SET OUT ON PAGES 3 AND 4 OF THIS DOCUMENT.
TO ACCEPT THE OFFER, THE FORM OF ACCEPTANCE MUST BE COMPLETED AND RETURNED,
WHETHER OR NOT YOUR Matthew Clark SHARES ARE IN CREST, AS SOON AS POSSIBLE, AND
IN ANY EVENT SO AS TO BE RECEIVED BY HAND OR BY POST BY IRG PLC, NEW ISSUES
DEPARTMENT, P.O. BOX NO. 166, BOURNE HOUSE, 34 BECKENHAM ROAD, BECKENHAM, KENT
BR3 4TH OR BY HAND ONLY DURING NORMAL BUSINESS HOURS TO IRG PLC, 23 IRONMONGER
LANE, LONDON EC2 NO LATER THAN 3.00 P.M. ON 24 NOVEMBER 1998.
THE PROCEDURE FOR ACCEPTANCE OF THE OFFER IS SET OUT ON PAGES 8 TO 11 OF THIS
DOCUMENT AND IN THE ACCOMPANYING FORM OF ACCEPTANCE.
Schroders, which is regulated in the United Kingdom by The Securities and
Futures Authority Limited, is acting for Canandaigua Brands, Inc. and
Canandaigua Limited and no-one else in connection with the Offer and will not be
responsible to anyone other than Canandaigua Brands, Inc. and Canandaigua
Limited for providing the protections afforded to customers of Schroders or for
providing advice in relation to the Offer.
Warburg Dillon Read, which is regulated in the United Kingdom by The Securities
and Futures Authority Limited, is acting for Matthew Clark plc and no-one else
in connection with the Offer and will not be responsible to anyone other than
Matthew Clark plc for providing the protections afforded to customers of Warburg
Dillon Read or for providing advice in relation to the Offer.
Page
Letter of recommendation from the Chairman of Matthew Clark ................ 3
Letter from Schroders ...................................................... 5
1. Introduction ....................................................... 5
2. Irrevocable undertakings and holdings .............................. 5
3. The Offer .......................................................... 5
4. Further terms of the Offer ......................................... 6
5. Information relating to Canandaigua ................................ 6
6. Information relating to Canandaigua Limited ........................ 6
7. Information relating to Matthew Clark .............................. 6
8. Background to and reasons for the Offer ............................ 7
9. Financial effects of acceptance .................................... 7
10. Management and employees ........................................... 8
11. Matthew Clark Share Option Schemes ................................. 8
12. Procedure for acceptance of the Offer .............................. 8
13. Settlement ......................................................... 11
14. United Kingdom taxation ............................................ 12
15. Further information ................................................ 12
16. Action to be taken ................................................. 13
Appendices
I Conditions and further terms of the Offer and
Form of Acceptance ................................................. 14
II Further information on Canandaigua ................................. 32
III Further information on Matthew Clark ............................... 55
IV Additional information ............................................. 69
V Definitions ........................................................ 78
2
________________
Matthew Clark pc
________________
Whitchurch Lane, Bristol BS14 0JZ
Tel: 01275 830345 Telex: 445565 Fax: 01275 890697
Directors:
Graham Wilson (Chairman)*
Peter Aikens (Chief Executive)
Martin Boase*
Hugh Etheridge (Finance Director)
Michael Garner*
Robert MacNevin
Richard Peters
Kevin Philp
*Non-executive
3 November 1998
To Matthew Clark Shareholders and, for information only, to participants in the
Matthew Clark Share Option Schemes
Dear Matthew Clark Shareholder,
Recommended cash offer by Canandaigua Limited
It was announced today that agreement had been reached between the boards of
Matthew Clark and Canandaigua on the terms of a recommended cash offer to be
made by Schroders on behalf of Canandaigua Limited, a wholly-owned subsidiary of
Canandaigua, for the entire issued and to be issued ordinary share capital of
Matthew Clark. This letter sets out the background to the Offer and the reasons
why the board of Matthew Clark is recommending all Matthew Clark Shareholders to
accept it. The formal offer is set out in this document.
The Offer
The Offer values each Matthew Clark Share at 243 pence, valuing the whole of the
existing issued ordinary share capital of Matthew Clark at approximately 215.1
million pounds sterling. Further terms of the Offer and the conditions to which
it is subject are set out in Appendix I.
Background to and reasons for recommending the Offer
The Matthew Clark Group, which grew rapidly by acquisition during the 1990s, is
now a major producer of cider, wine, water and other drinks, and a leading
drinks wholesaler. In recent years a number of significant challenges have had
to be faced: the rapid rise of what are commonly known as "alcopops", the
aggressive pricing policy of Matthew Clark's principal cider competitor and the
influx of cheap imported beers, lagers and wines, as well as the extremely
active management by supermarket stores and cash and carry outlets of their
buying margins.
As we indicated in the 1997 annual report, the board has adopted a strategy of
rebuilding the value of Matthew Clark's brands over the medium term and of
rationalising and then expanding its wholesale operations. As a result, the
decision was taken to make a substantial investment in brand development and
support, particularly in cider brands, as well as centralising production
facilities and achieving economies of scale in the wholesale business. The full
benefits of these investments would, it was recognised, take time to work
through and the board of Matthew Clark would not expect to see these reflected
in Matthew Clark's market valuation in the immediate future.
Following the adoption of this strategy, and in light of the ratings that were
being attributed to Matthew Clark's historic and future earnings relative to its
industry sector peers, in February 1998 the board of
Registered Office: Whitchurch Lane, Bristol BS14 0JZ. Registered in England
163952
3
Matthew Clark conducted a review of the options available to it to enhance
shareholder value. The board then reaffirmed that the adopted strategy was the
one most likely to deliver increased earnings, although it was anticipated that
the rating improvement would not be realised for some time. Since then, Matthew
Clark has received tentative approaches from parties interested in taking
advantage of Matthew Clark's recent share price, none of which your board felt
reflected full value for shareholders.
In September of this year, Canandaigua made an approach to the Matthew Clark
board with respect to a potential offer for the company at a level which the
directors of Matthew Clark felt offered the value to its shareholders today that
its own strategy was planned to deliver in two to three years time. Because of
the prevailing market uncertainty over Matthew Clark's share price and the
recent series of adverse comments from the alcoholic beverages industry, your
board has concluded that Matthew Clark's businesses can more effectively be
developed within a larger and more broadly based drinks group, with a strong
balance sheet able to support the future development of the business. In these
circumstances, the board has decided to recommend Canandaigua Limited's offer as
set out in this document.
Management and employees
Canandaigua has indicated that it attaches great importance to the skills and
experience of the existing management and employees of Matthew Clark and
believes that they will have greater opportunities as a result of the proposed
acquisition. It is intended that the Matthew Clark executive management team
will continue to operate the business following the Offer becoming unconditional
in all respects. Canandaigua has given assurances to the board of Matthew Clark
that the existing employment rights, including pension rights, of all Matthew
Clark employees will be fully safeguarded.
Matthew Clark Share Option Schemes
The Offer extends to any Matthew Clark Shares which are unconditionally allotted
or issued by reason of the exercise of options under the Matthew Clark Share
Option Schemes whilst the Offer remains open for acceptance. Appropriate
proposals will be made, in due course, to participants in the Matthew Clark
Share Option Schemes if the Offer becomes unconditional in all respects.
Action to be taken to accept the Offer
The procedures for acceptance of the Offer are set out on pages 8 to 11 of this
document and in the accompanying Form of Acceptance.
In deciding whether to accept the Offer, you should have regard to your personal
circumstances, including your taxation position. If you are in any doubt as to
the action you should take, you should consult your professional adviser.
If you intend to accept the Offer, you should ensure that you complete and
return your Form of Acceptance as soon as possible and, in any event, so as to
arrive by no later than 3.00 pm on 24 November 1998.
Recommendation to accept the Offer
The directors of Matthew Clark, who have been so advised by Warburg Dillon Read,
consider the terms of the Offer to be fair and reasonable. The directors of
Matthew Clark unanimously recommend Matthew Clark Shareholders to accept the
Offer, as they and certain members of their immediate families have undertaken
to do in respect of their own holdings, which amount to 147,889 Matthew Clark
Shares, representing approximately 0.2 per cent. of Matthew Clark's issued share
capital. In providing advice to the directors of Matthew Clark, Warburg Dillon
Read has taken into account the Matthew Clark directors' commercial assessments.
Yours sincerely,
/s/Graham Wilson
Graham Wilson
Chairman
4
Schroders
Investment Banking
3 November 1998
To Matthew Clark Shareholders and, for information only, to participants in the
Matthew Clark Share Option Schemes
Dear Shareholder
Recommended cash offer by Canandaigua Limited for Matthew Clark plc
1. Introduction
The boards of Canandaigua and Matthew Clark announced today that they have
agreed the terms of a recommended cash offer, to be made by Schroders on behalf
of Canandaigua Limited, a wholly-owned subsidiary of Canandaigua, for the whole
of the issued and to be issued ordinary share capital of Matthew Clark.
This document contains the formal offer. Your attention is drawn to the letter
from the Chairman of Matthew Clark set out on pages 3 and 4 of this document,
which outlines the background to the Offer and states that the directors of
Matthew Clark consider the terms of the Offer to be fair and reasonable.
Accordingly, the directors of Matthew Clark have unanimously recommended Matthew
Clark Shareholders to accept the Offer, as they and certain members of their
immediate families have undertaken to do in respect of their personal holdings
of 147,889 Matthew Clark Shares, representing approximately 0.2 per cent. of
Matthew Clark's issued ordinary share capital.
2. Irrevocable undertakings and holdings
Canandaigua Limited has received irrevocable undertakings to accept the Offer
(including those from the directors of Matthew Clark and certain members of
their immediate families) in respect of a total of 24,514,352 Matthew Clark
Shares representing 27.7 per cent. of Matthew Clark's existing issued ordinary
share capital. The terms of the irrevocable undertakings require acceptance of
the Offer even if a competing or higher offer is made by a third party except
that irrevocable undertakings from shareholders (other than directors and
certain members of their immediate families) cease to be binding if a competing
or higher offer is made by a third party at, or in excess of, 267 pence per
Matthew Clark Share.
3. The Offer
On behalf of Canandaigua Limited, we hereby offer to purchase, upon the terms
and subject to the conditions set out in this Offer Document and in the Form of
Acceptance, all outstanding Matthew Clark Shares on the following basis:
for each Matthew Clark Share 243 pence in cash
The Offer values the entire issued ordinary share capital of Matthew Clark at
approximately 215.1 million pounds sterling. The Offer represents a premium of
over 81 per cent. to the closing middle-market price of 134 pence per Matthew
Clark Share, as derived from the Official List on 21 October 1998 (the day prior
to the announcement by Matthew Clark that it was in discussions which may or may
not lead to an offer for the whole of the issued share capital of Matthew
Clark).
________________________________________________________________________________
Telephone 0171-658 6000 Regulated by SFA J. Henry Schroder & Co. Limited
Facsimile 0171-658 6459 120 Cheapside, London EC2V 6DS
DX 42615 Registered office at above address
Registered number 532081 England
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To accept the Offer you should return the Form of Acceptance as soon as
possible, and in any event, so as to be received by IRG plc no later than 3.00pm
on 24 November 1998.
4. Further terms of the Offer
Matthew Clark Shares will be acquired pursuant to the Offer fully paid and free
from all liens, charges, encumbrances, rights of pre-emption and any other third
party rights of any nature whatsoever and together with all rights now or
hereafter attaching thereto, including the right to receive in full all
dividends and other distributions, if any, declared, made or paid on or after
the date of this document.
The Offer will extend to all existing issued Matthew Clark Shares and to any
Matthew Clark Shares which are unconditionally allotted or issued prior to the
date on which the Offer closes (or such earlier date as the Offeror may, subject
to the City Code, decide) including Matthew Clark Shares issued pursuant to the
exercise of options under the Matthew Clark Share Option Schemes or otherwise.
5. Information relating to Canandaigua
Canandaigua is the largest single-source supplier of imported beers, wines and
distilled spirits in the United States, with over 130 brands distributed by more
than 850 wholesalers throughout the United States and in selected international
markets.
Canandaigua's brands are marketed in three general categories:
Imported Beer: Canandaigua is the second largest marketer of imported beer in
the United States. Canandaigua's portfolio includes five of the top twenty-five
imported beers in the United States: Corona Extra (the leading imported beer in
the United States), Modelo Especial, Corona Light, St. Pauli Girl and Pacifico;
Wine: Canandaigua is the second largest producer and marketer of wines in the
United States, with over 70 brands including internationally-known brands such
as Inglenook, Almaden, Paul Masson and Manischewitz; and
Distilled Spirits: Canandaigua ranks fourth in the US distilled spirits market.
Canandaigua produces, bottles, imports and markets a diverse line of quality
distilled spirits. Canandaigua exports distilled spirits to approximately 20
countries outside the United States. Key distilled spirits brands include
Fleischmann's, Barton, Paul Masson Grande Amber, Mr. Boston, Montezuma and
Canadian LTD.
In the year ended 28 February 1998, Canandaigua's total sales were $1.6 billion
and profit before tax was $84.9 million. Net assets as at 28 February 1998 were
$415.2 million.
Canandaigua's shares are listed on the NASDAQ National Stock Market under the
symbols CBRNA and CBRNB. Canandaigua's market capitalisation as at 30 October
1998 (the latest practicable date prior to the printing of this document) was
approximately $897.6 million.
6. Information relating to Canandaigua Limited
Canandaigua Limited, the Offeror, is a wholly-owned subsidiary of Canandaigua
specifically formed for the purpose of the Offer.
7. Information relating to Matthew Clark
Matthew Clark is a major UK drinks group which produces, distributes and
wholesales a variety of alcoholic and bottled water beverages in the United
Kingdom.
Matthew Clark operates through two divisions:
Matthew Clark Brands is the branded drinks division which comprises cider
products, wine and bottled water products. Cider products include cider sold
predominantly under the Blackthorn brand and premium packaged cider sold under
the Diamond White and K brands. Wine and bottled water products include
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Stowell's of Chelsea wine box, QC fortified British wine, light British
wine/perry and Strathmore bottled water. New products include Stone's Cream
Liqueur, Jinzu and Espri; and
Matthew Clark Wholesale is the United Kingdom's leading independent drinks
wholesaler. Matthew Clark provides a full range of wines, spirits, ciders, beers
and soft drinks to over 17,000 on-licensed outlets. Matthew Clark also
distributes the Grants of St James's wine list.
In the year ended 30 April 1998, Matthew Clark's total sales were 553.1 million
pounds sterling and profit before tax was 35.8 million pounds sterling. Net
assets as at 30 April 1998 were 95.4 million pounds sterling.
8. Background to and reasons for the Offer
A major facet of Canandaigua's growth strategy is to acquire businesses that
enable the Canandaigua Group to expand its geographic presence and provide a
base of business that has the potential to grow through brand development,
marketing and strategic initiatives. Matthew Clark provides a strong base of
business with the first position in the UK branded wine market, which excludes
private label, and the second position in the UK cider market. In addition, the
board of Canandaigua believes that Matthew Clark's position as the United
Kingdom's largest independent drinks wholesaler creates a unique opportunity to
develop further a growing and largely under-exploited sector and that Matthew
Clark's highly experienced management infrastructure creates the opportunity for
further strategic and synergistic acquisitions in Europe. The board of
Canandaigua also believes that both Matthew Clark's and Canandaigua's businesses
would benefit from being part of an international drinks group which would be
created as a result of the successful completion of the Offer through the
potential for development of Canandaigua's products in the United Kingdom and
Matthew Clark's products in the United States.
9. Financial effects of acceptance
The following tables set out, for illustrative purposes only and on the bases
and assumptions stated below, the financial effects of acceptance on capital
value and gross income for a holder of one Matthew Clark Share accepting the
Offer if the Offer becomes or is declared unconditional in all respects:
Notes Pence
A. Increase in capital value
Cash consideration 243.0
Market value of one Matthew Clark Share (i) 134.0
-----
Increase in capital value 109.0
=====
This represents an increase of 81.3%
B. Decrease in gross income
Gross income from cash consideration (ii) 12.4
Gross dividend income from one Matthew Clark Share (iii) 16.3
----
Decrease in gross income (3.8)
=====
This represents a decrease of (23.4)
Notes:
(i) Based on the closing middle-market quotation of 134.0p per Matthew Clark
Share, as derived from the Official List at the close of business on
21 October 1998, the day prior to the announcement by Matthew Clark that it
was in discussions which may or may not lead to an offer for the whole of
the issued ordinary share capital of Matthew Clark.
(ii) The gross income on the cash consideration has been calculated on the
assumption that the cash is re-invested to yield approximately 5.12 per
cent. per annum, being the gross yield shown by the FTSE Actuaries average
gross redemption yield for medium coupon British Government securities of
up to five year maturities on 30 October 1998, as published in the
Financial Times on 31 October 1998, the latest practicable date prior to
the printing of this document.
(iii)The gross dividend income from one Matthew Clark Share is based on
aggregate dividends of 13.0p (net) per Matthew Clark Share being the total
of the 5.0p (net) interim dividend for the financial year ended 30 April
1998 and the 8.0p (net) final dividend for the financial year ended 30
April 1998, together in both cases with an associated tax credit of
20/80ths of the amount paid.
(iv) Save as disclosed in note (iii) above, no account has been taken of any
liability to taxation.
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10. Management and employees
Canandaigua attaches great importance to the skills and experience of the
existing management and employees of Matthew Clark and believes that they will
have greater opportunities as a result of the proposed acquisition. It is
intended that the Matthew Clark executive management team will continue to
operate the business following the Offer becoming unconditional in all respects.
Canandaigua has given assurances to the board of Matthew Clark that the existing
employment rights, including pension rights, of all Matthew Clark employees will
be fully safeguarded.
11. Matthew Clark Share Option Schemes
Canandaigua Limited will make appropriate proposals to holders of options under
the Matthew Clark Share Option Schemes, to the extent that options are not
exercised, once the Offer becomes or is declared unconditional in all respects.
12. Procedure for acceptance of the Offer
This section should be read together with the notes on the Form of Acceptance.
(a) Completion of Form of Acceptance
You should note that if you hold Matthew Clark Shares in both certificated
and uncertificated form (that is, in CREST) you should complete a separate
Form of Acceptance for each holding. In addition, you should complete
separate Forms of Acceptance for Matthew Clark Shares held in
uncertificated form, but under different member account IDs, and separate
Forms of Acceptance for Matthew Clark Shares held in certificated form but
under different designations. Additional Forms of Acceptance are available
from IRG plc, New Issues Department, P.O. Box No. 166, Bourne House, 34
Beckenham Road, Beckenham, Kent BR3 4TH and during normal business hours
from IRG plc, 23 Ironmonger Lane, London EC2.
(i) To accept the Offer
To accept the Offer in respect of all your Matthew Clark Shares, you
must complete Boxes 1, 2 and 3 and, if your Matthew Clark Shares are
in CREST, Box 4. In all cases you must sign Box 2 of the enclosed Form
of Acceptance in accordance with the instructions printed on that
form. All holders of Matthew Clark Shares who are individuals should
sign the Form of Acceptance in the presence of a witness, who should
also sign in accordance with the instructions printed on that form.
(ii) To accept the Offer in respect of less than all your Matthew Clark
Shares
To accept the Offer in respect of less than all your Matthew Clark
Shares, you must insert in Box 1 on the enclosed Form of Acceptance
the lesser number of Matthew Clark Shares in respect of which you wish
to accept the Offer in accordance with the instructions printed on the
form. You should then follow the procedure set out in (i) above in
respect of that lesser number of Matthew Clark Shares. If you do not
insert a number in Box 1, your acceptance will be deemed to be in
respect of all of the Matthew Clark Shares held by you.
If you have any questions as to how to complete the Form of Acceptance,
please telephone IRG plc on 0181 639 2188.
(b) Return of Form of Acceptance
To accept the Offer, the completed Form of Acceptance should be returned
whether or not your Matthew Clark Shares are in CREST. The completed Form
of Acceptance should be returned by post or by hand to IRG plc, New Issues
Department, P.O. Box No. 166, Bourne House, 34 Beckenham Road, Beckenham,
Kent BR3 4TH or by hand only during normal business hours to IRG plc, 23
Ironmonger Lane, London EC2 together (subject to paragraph (d) below) with
the relevant share certificate(s) and/or other document(s) of title as soon
as possible, but in any event so as to arrive no later than 3.00 p.m. on 24
November 1998. A reply-paid envelope for use in the UK only is enclosed
8
for your convenience. No acknowledgement of receipt of documents will be
given by or on behalf of Canandaigua Limited. The instructions printed on
the Form of Acceptance are deemed to form part of the terms of the Offer.
(c) Documents of title
If your Matthew Clark Shares are in certificated form, a completed and
signed Form of Acceptance should be accompanied by the relevant share
certificate(s) and/or other document(s) of title. If for any reason the
relevant share certificates(s) and/or other document(s) of title is/are
lost or not readily available, you should nevertheless complete, sign and
lodge the Form of Acceptance as stated above so as to be lodged with IRG
plc, New Issues Department, P.O. Box No. 166, Bourne House, 34 Beckenham
Road, Beckenham, Kent BR3 4TH or by hand only during normal business hours
to IRG plc, 23 Ironmonger Lane, London EC2, by no later than 3.00 p.m. on
24 November 1998. You should send with the Form of Acceptance any share
certificate(s) and/or other document(s) of title which you may have
available and a letter stating that the remaining documents will follow as
soon as possible or that you have lost one or more share certificate(s)
and/or other document(s) of title. No acknowledgement of receipt of
documents will be given. If you have lost your share certificate(s) and/or
other document(s) of title, you should contact Matthew Clark's registrars,
IRG plc, Bourne House, 34 Beckenham Road, Beckenham, Kent BR3 4TU, for a
letter of indemnity for (a) lost share certificate(s) which, when completed
in accordance with the instructions given, should be returned to IRG plc,
New Issues Department, P.O. Box No. 166, Bourne House, 34 Beckenham Road,
Beckenham, Kent BR3 4TH.
(d) Additional procedures for Matthew Clark Shares in uncertificated form (that
is, in CREST)
If your Matthew Clark Shares are in uncertificated form, you should insert
in Box 4 of the enclosed Form of Acceptance the participant ID and member
account ID under which such Matthew Clark Shares are held by you in CREST
and otherwise complete and return the Form of Acceptance as described
above. In addition, you should take (or procure to be taken) the action set
out in this paragraph (d) to transfer the Matthew Clark Shares in respect
of which you wish to accept the Offer to an escrow balance (that is, a TTE
instruction) specifying IRG plc (in its capacity as a CREST participant
under the Escrow Agent participant ID referred to below) as the Escrow
Agent, as soon as possible and in any event so that the transfer to escrow
settles no later than 3.00 p.m. on 24 November 1998.
If you are a CREST sponsored member, you should refer to your CREST sponsor
before taking any action. Your CREST sponsor will be able to confirm
details of your participant ID and the member account ID under which your
Matthew Clark Shares are held. In addition, only your CREST sponsor will be
able to send the TTE instruction to CRESTCo in relation to your Matthew
Clark Shares.
You should send (or, if you are a CREST sponsored member, procure that your
CREST sponsor sends) a TTE instruction to CRESTCo which must be properly
authenticated in accordance with CRESTCo's specifications and which must
contain, in addition to the other information that is required for a TTE
instruction to settle in CREST, the following details:
--- the number of Matthew Clark Shares to be transferred to an escrow
balance;
--- your member account ID. This must be the same member account ID as
that inserted in Box 4 of the Form of Acceptance;
--- your participant ID. This must be the same participant ID as that
inserted in Box 4 of the Form of Acceptance;
--- the participant ID of the Escrow Agent, IRG plc, in its capacity as a
CREST receiving agent. This is RA10;
9
--- the member account ID of the Escrow Agent. This is MATTHEWC for the
Matthew Clark Shares;
--- the Form of Acceptance reference number. This is the reference number
that appears next to Box 4 on page 3 of the Form of Acceptance. This
reference number should be inserted in the first eight characters of
the shared note field on the TTE instruction. Such insertion will
enable IRG plc to match the transfer to escrow to your Form of
Acceptance. You should keep a separate record of this reference number
for future reference;
--- the intended settlement date. This should be as soon as possible and
in any event not later than 3.00 p.m. on 24 November 1998;
--- the Corporate Action ISIN, which is GB0002013083;
--- the Corporate Action Number for the Offer. This is allocated by
CRESTCo and can be found by viewing the relevant Corporate Action
Details in CREST; and
--- the standard TTE delivery instruction with priority of 80.
After settlement of the TTE instruction, you will not be able to access the
Matthew Clark Shares concerned in CREST for any transaction or charging
purposes. If the Offer becomes or is declared unconditional in all
respects, the escrow agent will transfer the Matthew Clark Shares concerned
to itself in accordance with paragraph (d) of Part C of Appendix I to this
document.
You are recommended to refer to the CREST manual published by CRESTCo for
further information on the CREST procedures outlined above. For ease of
processing, you are requested, wherever possible, to ensure that a Form of
Acceptance relates to only one transfer to escrow.
If no Form of Acceptance reference number, or an incorrect Form of
Acceptance reference number, is included on the TTE instruction,
Canandaigua Limited may treat any amount of Matthew Clark Shares
transferred to an escrow balance in favour of the escrow agent specified
above from the participant ID and member account ID identified in the TTE
instruction as relating to any Form(s) of Acceptance which relate(s) to the
same member account ID and participant ID (up to the amount of Matthew
Clark Shares inserted or deemed to be inserted on the Form(s) of Acceptance
concerned).
You should note that CRESTCo does not make available special procedures, in
CREST, for any particular corporate action. Normal system timings and
limitations will therefore apply in connection with a TTE instruction and
its settlement. You should therefore ensure that all necessary action is
taken by you (or by your CREST sponsor) to enable a TTE instruction
relating to your Matthew Clark Shares to settle prior to 3.00 p.m. on 24
November 1998. In this regard, you are referred in particular to those
sections of the CREST manual concerning practical limitations of the CREST
system and timings.
Canandaigua Limited will make an appropriate announcement if any of the
details contained in this paragraph (d) alter for any reason.
(e) Deposits of Matthew Clark Shares into, and withdrawals of Matthew Clark
Shares from, CREST
Normal CREST procedures (including timings) apply in relation to any
Matthew Clark Shares that are, or are to be, converted from uncertificated
to certificated form, or from certificated to uncertificated form, during
the course of the Offer (whether any such conversion arises as a result of
a transfer of Matthew Clark Shares or otherwise). Matthew Clark
Shareholders who are proposing so to convert any such Matthew Clark Shares
are recommended to ensure that the conversion procedures are implemented in
sufficient time to enable the person holding or acquiring the Matthew Clark
Shares as a result of the conversion to take all necessary steps in
connection with an acceptance of the Offer (in particular, as regards
delivery of share certificate(s) and/or other document(s) of title or
transfer(s) to an escrow balance as described above) prior to 3.00 p.m. on
24 November 1998.
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(f) Validity of acceptances
Subject to the provisions of the City Code and without prejudice to Parts B
and C of Appendix I of this document, Canandaigua Limited reserves the
right to treat as valid in whole or in part any acceptance of the Offer
which is not entirely in order or which is not accompanied by the relevant
TTE instruction or (as applicable) the relevant share certificate(s) and/or
other documents of title. In that event, no payment of cash under the Offer
will be made to Matthew Clark Shareholders until after the relevant TTE
instruction has settled or (as applicable) the relevant share
certificate(s) and/or other document(s) of title or indemnities
satisfactory to Canandaigua Limited have been received.
(g) Overseas shareholders
The attention of Matthew Clark Shareholders who are citizens or residents
of jurisdictions outside the UK is drawn to paragraph 7 of Part B and
paragraph (b) of Part C of Appendix I of this document, and to the relevant
provisions of the Form of Acceptance.
The availability of the Offer to persons not resident in the United Kingdom
may be affected by the laws of the relevant jurisdictions. Persons who are
not resident in the United Kingdom should inform themselves about and
observe any applicable requirements.
The Offer is not being made, directly or indirectly, in or into the United
States, Canada, Australia or Japan or to any North American person or
resident of Australia or Japan or by use of the mails of, or by any means
or instrumentality (including, without limitation, telephonically or
electronically) of interstate or foreign commerce of, or any facilities of
a national, state or other securities exchange of, the United States,
Canada, Australia or Japan.
Copies of this document, the Form of Acceptance and any related offering
documents are not being sent and must not be mailed or otherwise
distributed or sent in, into or from the United States, Canada, Australia
or Japan or to any person whom the Offeror or its agents believes is a
North American person or a person in, or resident of Australia or Japan.
Any accepting Matthew Clark Shareholder who is unable to give the
warranties set out in paragraph (b) of Part C of Appendix I of this
document will be deemed not to have accepted the Offer.
If you are in any doubt as to the procedure for acceptance, please
telephone IRG plc on 0181 639 2188. You are reminded that, if you are a
CREST sponsored member, you should contact your CREST sponsor before taking
any action.
13. Settlement
Subject to the Offer becoming or being declared unconditional in all respects
(except as provided in paragraph 7 of Part B of Appendix I in the case of
certain overseas Matthew Clark Shareholders), settlement of the consideration to
which any Matthew Clark Shareholder is entitled under the Offer will be effected
(i) in the case of acceptances received, complete in all respects, by the date
on which the Offer becomes or is declared unconditional in all respects, within
14 days of such date, or (ii) in the case of acceptances of the Offer received,
complete in all respects, after the date on which the Offer becomes or is
declared unconditional in all respects but while it remains open for acceptance,
within 14 days of such receipt, in the following manner:
(a) Matthew Clark Shares in uncertificated form (that is, in CREST)
Where an acceptance relates to Matthew Clark Shares in uncertificated form,
settlement of any cash consideration to which the accepting Matthew Clark
Shareholder is entitled will be effected by means of CREST by Canandaigua
Limited procuring the creation of an assured payment obligation in favour
of the accepting Matthew Clark Shareholder's payment bank in respect of the
cash consideration due, in accordance with the CREST assured payment
arrangements.
Canandaigua Limited reserves the right to settle all or any part of the
consideration referred to in this paragraph (a), for all or any accepting
Matthew Clark Shareholder(s), in the manner referred to in paragraph (b)
below, if, for any reason, it wishes to do so.
11
(b) Matthew Clark Shares in certificated form
Where an acceptance relates to Matthew Clark Shares in certificated form,
settlement of any cash due will be despatched (but not in or into the
United States, Canada, Australia or Japan) by first class post (or by such
other method as the Panel may approve). All such cash payments will be made
in pounds sterling by cheque drawn on a branch of a UK clearing bank.
(c) General
If the Offer does not become or is not declared unconditional in all
respects (i) share certificate(s) and/or other document(s) of title will be
returned by post (or such other method as may be approved by the Panel),
within 14 days of the Offer lapsing, to the person or agent whose name and
address (outside the United States, Canada, Australia and Japan) is set out
in Box 6 of the Form of Acceptance or, if none is set out, to the first
named holder at his or her registered address (outside the United States,
Canada, Australia and Japan) and (ii) the escrow agent will, immediately
after the lapsing of the Offer (or within such longer period, not exceeding
14 days after the Offer lapsing, as the Panel may approve), give TFE
instructions to CRESTCo to transfer all Matthew Clark Shares held in escrow
balances to the original available balances of the Matthew Clark
Shareholders concerned.
All communications, notices, certificates, documents of title and
remittances to be delivered by or sent to or from Matthew Clark
Shareholders (or their appointed agent(s)) will be delivered by or sent to
or from them (or their appointed agent(s)) at their own risk.
14. United Kingdom taxation
The following paragraphs, which are intended as a general guide only, are based
on current legislation and Inland Revenue practice. They summarise certain
limited aspects of the UK taxation treatment of the acceptance of the Offer, and
they relate only to the position of Matthew Clark Shareholders who hold their
Matthew Clark Shares beneficially as an investment and who are resident in the
UK for taxation purposes. If you are in any doubt as to your taxation position
or if you may be subject to taxation in any jurisdiction other than the UK, you
should consult an appropriate professional adviser immediately.
(a) UK taxation on chargeable gains
Liability to UK taxation on chargeable gains will depend on the individual
circumstances of Matthew Clark Shareholders.
To the extent that a Matthew Clark Shareholder receives cash under the
Offer, this will constitute a disposal, or part disposal, of his Matthew
Clark Shares for the purposes of UK taxation on chargeable gains which may,
depending on the shareholder's individual circumstances (including the
availability of exemptions and allowable losses), give rise to a liability
to UK taxation on chargeable gains.
(b) Stamp duty and stamp duty reserve tax ("SDRT")
No stamp duty or SDRT will be payable by Matthew Clark Shareholders as a
result of accepting the Offer.
(c) Other direct tax matters
Special tax provisions may apply to Matthew Clark Shareholders who have
acquired or acquire their Matthew Clark Shares by exercising options under
the Matthew Clark Share Option Schemes, including provisions imposing a
charge to income tax when such options are exercised.
15. Further information
Your attention is drawn to the further information contained in the Appendices
to this document.
12
16. Action to be taken
To accept the Offer, the Form of Acceptance must be completed and returned
whether or not your Matthew Clark Shares are in CREST. Forms of Acceptance
should be returned as soon as possible and, in any event, so as to be received
by post or by hand by IRG plc, New Issues Department, P.O. Box No. 166, Bourne
House, 34 Beckenham Road, Beckenham, Kent BR3 4TH or by hand only during normal
business hours to IRG plc, 23 Ironmonger Lane, London EC2 no later than 3.00
p.m. on 24 November 1998.
Yours sincerely,
for J. Henry Schroder Co. Limited
Rory Maw
Director
13
PART A -- CONDITIONS OF THE OFFER
The Offer, made by Schroders on behalf of the Offeror, complies with the
applicable rules and regulations of the London Stock Exchange and the City Code
and is governed by English law. The Offer is subject to the jurisdiction of the
courts of England and to the terms and conditions set out in this Offer Document
and the related Form of Acceptance.
1. Conditions of the Offer
The Offer is subject to the following conditions:
(a) valid acceptances being received (and not, where permitted, withdrawn) by
not later than 3.00 p.m. on 24 November 1998, (or such later time(s) and/or
date(s) as the Offeror may, subject to the rules of the City Code, decide)
in respect of not less than 90 per cent. (or such lesser percentage as the
Offeror may decide) in nominal value of the Matthew Clark Shares to which
the Offer relates, provided that this condition will not be satisfied
unless the Offeror (together with its wholly-owned subsidiaries) shall have
acquired or agreed to acquire (pursuant to the Offer or otherwise) Matthew
Clark Shares carrying in aggregate more than 50 per cent. of the voting
rights then exercisable at general meetings of holders of Matthew Clark
Shares. For the purposes of this condition Matthew Clark Shares which have
been unconditionally allotted shall be deemed to carry the voting rights
they will carry upon being entered in the register of members of Matthew
Clark;
(b) the Office of Fair Trading indicating, in terms satisfactory to the
Offeror, that it is not the intention of the Secretary of State for Trade
and Industry to refer the proposed acquisition of Matthew Clark by the
Offeror, or any matters arising therefrom, to the Monopolies and Mergers
Commission;
(c) all necessary filings having been made, all applicable waiting and other
time periods having expired, lapsed or been terminated and all statutory
and regulatory obligations in any jurisdiction having been complied with,
in each case in connection with the Offer and all Authorisations necessary
or appropriate in any jurisdiction for or in respect of the Offer and the
acquisition or the proposed acquisition of any shares or other securities
in or control of Matthew Clark by any member of the Canandaigua Group
having been obtained in terms and in a form reasonably satisfactory to the
Offeror from all appropriate Third Parties and all such Authorisations
necessary to carry on the business of any member of the Wider Matthew Clark
Group in any jurisdiction having been obtained and all such Authorisations
remaining in full force and effect at the time at which the Offer becomes
otherwise unconditional and there being no notice or intimation of an
intention to revoke, suspend, restrict, modify or not to renew such
Authorisations;
(d) no Third Party having decided to take, institute or threaten any action,
proceeding, suit, investigation, enquiry or reference or having required
any action to be taken or otherwise having done anything or having enacted,
made or proposed any statute, regulation, decision or order and there not
continuing to be outstanding any statute, regulation, decision or order
which would or might:
(i) make the Offer, its implementation or the acquisition by any
member of the Canandaigua Group of any or all Matthew Clark Shares
or control of Matthew Clark void, unenforceable or illegal or
restrict, prohibit, delay or otherwise to a material extent
interfere with the implementation of, or impose additional adverse
conditions or obligations with respect to, or otherwise challenge
or require amendment of the Offer or the acquisition by any member
of the Canandaigua Group of any or all Matthew Clark Shares or
control of Matthew Clark;
(ii) require, prevent or delay the divestiture or alter the terms
envisaged for such divestiture by any member of the Wider
Canandaigua Group or by any member of the Wider Matthew Clark
Group of all or any material part of their respective businesses,
assets or properties or impose any material limitation on their
ability to conduct their respective businesses or to own any of
their respective assets or properties;
(iii) impose any material limitation on, or result in a material delay
in, the ability of any member of the Canandaigua Group to acquire
or to hold or to exercise effectively, directly or indirectly, all
or any rights of ownership of shares or other securities (or the
equivalent) in Matthew Clark or on the ability of any member of
the Matthew Clark Group or any member of the Canandaigua Group to
hold or exercise effectively any rights of ownership of shares or
other securities in or to exercise management control over any
member of the Wider Matthew Clark Group;
14
(iv) require any member of the Wider Canandaigua Group or the Wider
Matthew Clark Group to acquire or offer to acquire any shares or
other securities (or the equivalent) in any member of the Wider
Matthew Clark Group or of the Wider Canandaigua Group owned by any
third party or to sell or offer to sell any shares or other
securities (or the equivalent) in or any asset of any member of
the Wider Matthew Clark Group or of the Wider Canandaigua Group
(in each case, other than in the implementation of the Offer);
(v) require, prevent or delay a divestiture or alter the terms
envisaged for any proposed divestiture, by any member of the Wider
Canandaigua Group of any shares or other securities (or the
equivalent) in Matthew Clark;
(vi) result in any member of the Wider Matthew Clark Group or of the
Wider Canandaigua Group ceasing to be able to carry on business
under any name which it presently does so to an extent which is
material in the context of the wider group concerned taken as a
whole;
(vii) impose any material limitation on, or result in a material delay
in, the ability of any member of the Wider Canandaigua Group or
any member of the Wider Matthew Clark Group to integrate or
co-ordinate all or any part of its business with all or any part
of the business of any other member of the Wider Canandaigua Group
and/or the Wider Matthew Clark Group; or
(viii) otherwise affect the business, assets, profits or prospects of any
member of the Wider Canandaigua Group or any member of the Wider
Matthew Clark Group in a manner which is adverse to and material
in the context of the wider group concerned taken as a whole,
and all applicable waiting and other time periods during which any such
Third Party could decide to take, institute or threaten any such action,
proceeding, suit, investigation, enquiry or reference or otherwise
intervene having expired, lapsed or been terminated;
(e) (save as disclosed in writing to Canandaigua and/or the Offeror prior to 3
November 1998) there being no provision of any arrangement, agreement,
licence, permit, lease or other instrument to which any member of the Wider
Matthew Clark Group is a party or by or to which any such member or any of
their respective assets is or may be bound or be subject or any
circumstance which could, as a consequence of the Offer or the acquisition
or the proposed acquisition by any member of the Wider Canandaigua Group of
any shares or other securities (or the equivalent) in Matthew Clark or
because of a change in the control or management of any member of the Wider
Matthew Clark Group or otherwise, could or might reasonably be expected to
result in, to an extent which is material in the context of the Wider
Matthew Clark Group taken as a whole:
(i) any monies borrowed by, or any other indebtedness or liabilities,
actual or contingent, of any member of the Wider Matthew Clark Group
being or becoming repayable, or capable of being declared repayable,
immediately or prior to its or their stated maturity, or the ability
of any such member or associate to borrow monies or incur any
indebtedness being withdrawn or inhibited;
(ii) the rights, liabilities, obligations, interests or business of any
member of the Wider Matthew Clark Group under any such arrangement,
agreement, licence, permit, lease or instrument or the interests or
business of any member of the Wider Matthew Clark Group or any member
of the Wider Canandaigua Group in or with any other firm or company or
body or person (or any agreement or arrangements relating to any such
business or interests) being, or becoming capable of being, terminated
or adversely modified or affected or any onerous obligation or
liability arising or any adverse action being taken thereunder;
(iii)any member of the Wider Matthew Clark Group ceasing to be able to
carry on business under any name under which it presently does so;
(iv) any assets or interests of, or any asset the use of which is enjoyed
by any member of the Wider Matthew Clark Group being or falling to be
disposed of or charged or any right arising under which any such asset
or interest could be required to be disposed of or charged or could
cease to be available to any member of the Wider Matthew Clark Group
or associate otherwise than in the ordinary course of business;
15
(v) the creation or enforcement of any mortgage, charge or other security
interest over the whole or any part of the business, property or
assets of any member of the Wider Matthew Clark Group or any such
security interest becoming enforceable or being enforced;
(vi) the value or the financial or trading position or prospects, of any
member of the Wider Matthew Clark Group being prejudiced or adversely
affected;
(vii)the creation of any liability (actual or contingent) by any member of
the Wider Matthew Clark Group; or
(viii) any interest or business of any member of the Wider Matthew Clark
Group or of the Wider Canandaigua Group in or with any other person,
firm or body (or any arrangement relating to any such interest or
business) being, or becoming capable of being, terminated, modified or
otherwise affected;
(f) no member of the Wider Matthew Clark Group having since 30 April 1998 (save
as disclosed in the 1998 Report and Accounts of Matthew Clark or as
publicly announced by Matthew Clark through the Company Announcements
Office of the London Stock Exchange prior to 3 November 1998 or as
disclosed in writing to Canandaigua and/or the Offeror prior to 3 November
1998):
(i) issued or agreed to issue or authorised or proposed the issue of
additional shares or securities of any class, or securities
convertible into, or exchangeable for, or rights, warrants or options
to subscribe for or acquire, any such shares, securities or
convertible securities (save as between Matthew Clark and wholly-owned
subsidiaries of Matthew Clark and save for the issue of Matthew Clark
Shares on the exercise of options granted before 1 February 1998);
(ii) recommended, declared, paid or made or proposed to recommend, declare,
pay or make any bonus, dividend or other distribution other than to
Matthew Clark or one of its wholly-owned subsidiaries;
(iii)save for transactions between Matthew Clark and its wholly-owned
subsidiaries, merged with or demerged or acquired any body corporate,
partnership or business or acquired or disposed of, or, other than in
the ordinary course of business, transferred, mortgaged or charged or
created any security interest over, any assets or any right, title or
interest in any asset (including shares and trade investments) or
authorised, proposed or announced any intention to do so;
(iv) save as between Matthew Clark and its wholly-owned subsidiaries, made,
authorised, proposed or announced an intention to propose any change
in its share or loan capital;
(v) issued, authorised or proposed the issue or authorisation of any
debentures or (save as between Matthew Clark and its wholly-owned
subsidiaries) incurred or increased any indebtedness or contingent
liability to an extent which is material in the context of the Matthew
Clark Group taken as a whole;
(vi) entered into or varied or announced its intention to enter into or
vary any contract, transaction, arrangement or commitment (whether in
respect of capital expenditure or otherwise) which is of a long term,
unusual or onerous nature, or which involves or could involve an
obligation of a nature or magnitude which is, in any such case,
material in the context of the Matthew Clark Group or which is or is
likely to be restrictive on the business of any member of the Wider
Matthew Clark Group or the Wider Canandaigua Group;
(vii)entered into or varied or made any offer (which remains open for
acceptance) to enter into or vary the terms of any service agreement,
contract or arrangement with any director of any member of the Wider
Matthew Clark Group;
(viii) implemented, effected or authorised, or proposed or announced its
intention to implement, effect, authorise or propose any
reconstruction, amalgamation, commitment, scheme or other transaction
or arrangement otherwise than in the ordinary course of business;
(ix) purchased, redeemed or repaid or proposed the purchase, redemption or
repayment of any of its own shares or other securities or reduced or
made any other change to any part of its share capital to an extent
which (other than in the case of Matthew Clark) is material in the
context of the Matthew Clark Group;
16
(x) waived or compromised any claim which is material in the context of
the Matthew Clark Group;
(xi) made any material alteration to its memorandum or articles of
association or other incorporation or constitutional documents;
(xii)taken or proposed any corporate action or had any legal proceedings
instituted or threatened against it for its winding-up (voluntary or
otherwise), dissolution, reorganisation or for the appointment of any
administrator, administrative receiver, trustee or similar officer of
all or any of its assets or revenues or any analogous proceedings in
any jurisdiction or appointed any analogous person in any
jurisdiction;
(xiii) been unable, or admitted in writing that it is unable, to pay its
debts or having stopped or suspended (or threatened to stop or
suspend) payment of its debts generally or ceased or threatened to
cease carrying on all or a substantial part of its business; or
(xiv)entered into any contract, commitment, agreement or arrangement or
passed any resolution with respect to or announced an intention to
effect or propose any of the transactions, matters or events referred
to in this paragraph 1(f);
(g) since 30 April 1998 (save as disclosed in the 1998 Report and Accounts of
Matthew Clark or as publicly announced by Matthew Clark through the Company
Announcements Office of the London Stock Exchange prior to 3 November 1998
or as disclosed in writing to Canandaigua and/or the Offeror prior to 3
November 1998):
(i) there having been no adverse change in the business, assets, financial
or trading position or profits or prospects of any member of the Wider
Matthew Clark Group to an extent which is material in the context of
the Wider Matthew Clark Group taken as a whole;
(ii) no litigation, arbitration proceedings, prosecution or other legal
proceedings having been threatened, announced or instituted by or
against or remaining outstanding against any member of the Wider
Matthew Clark Group or to which any member of the Wider Matthew Clark
Group is or may become a party (whether as plaintiff or defendant or
otherwise) and no enquiry or investigation by or complaint or
reference to any Third Party against or in respect of any member of
the Wider Matthew Clark Group having been threatened, announced or
instituted or remaining outstanding, against or in respect of any
member of the Wider Matthew Clark Group which, in any such case, might
be likely adversely to affect any member of the Wider Matthew Clark
Group to an extent which is material in the context of the Wider
Matthew Clark Group taken as a whole; and
(iii)no contingent or other liability having arisen or become apparent to
the Offeror which might be likely adversely to affect the business,
assets, financial or trading position or profits or prospects of any
member of the Wider Matthew Clark Group to an extent which is material
in the context of the Matthew Clark Group taken as a whole;
(h) (save as publicly announced by Matthew Clark through the Company
Announcements Office of the London Stock Exchange prior to 3 November 1998
and save as disclosed in writing to Canandaigua and/or the Offeror prior to
3 November 1998) the Offeror not having discovered:
(i) that any financial, business or other information concerning Matthew
Clark or the Wider Matthew Clark Group publicly disclosed or disclosed
at any time by or on behalf of any member of the Wider Matthew Clark
Group which is material in the context of the acquisition of Matthew
Clark by any member of the Canandaigua Group is misleading,
incomplete, contains a misrepresentation of fact or omits to state a
fact necessary to make the information contained therein not
misleading;
(ii) that any member of the Wider Matthew Clark Group or any partnership,
company or other entity in which any member of the Wider Matthew Clark
Group has a significant economic interest and which is not a
subsidiary undertaking of Matthew Clark is subject to any liability,
contingent or otherwise, which is not disclosed in the 1998 Report and
Accounts of Matthew Clark or in an announcement made by Matthew Clark
through the Company Announcements Office of the London Stock Exchange
prior to 3 November 1998 and which is material in the context of the
Matthew Clark Group taken as a whole;
(iii)that there is or is likely to be any liability (whether actual or
contingent) or requirement to make good, repair, re-instate or
clean-up any property now or previously owned, occupied or made use of
by any
17
past or present member of the Wider Matthew Clark Group which is
material in the context of the Wider Matthew Clark Group;
(iv) that circumstances exist whereby a person or class of persons would be
likely to have any claim or claims in respect of any product or
process of manufacture or materials used therein now or previously
manufactured, sold or carried out by any past or present member of the
Wider Matthew Clark Group which claim or claims would be likely
materially and adversely to affect any member of the Wider Matthew
Clark Group; or
(v) any information which renders misleading in the context of the Offer
any information publicly disclosed at any time by or on behalf of any
member of the Wider Matthew Clark Group to an extent that is material
in the context of the Wider Matthew Clark Group; and
(i) in relation to any release, emission, discharge, disposal or other fact or
circumstance which has caused or might impair the environment or harm human
health, (save as disclosed in writing to Canandaigua and/or the Offeror
prior to 3 November 1998) no past or present member of the Wider Matthew
Clark Group having in a manner or to an extent which is material in the
context of the Matthew Clark Group, (a) committed any violation of or not
complied with any laws, statutes, regulations, notices or other
requirements of any Third Party and/or (b) incurred any liability (whether
actual or contingent) to any Third Party.
The Offeror reserves the right to waive all or any of conditions (b) to (i)
inclusive, in whole or in part. Conditions (b) to (i) inclusive must be
satisfied as at, or waived (where possible) on or before, the 21st day after the
later of 24 November 1998 and the date on which condition (a) is fulfilled (or,
in each case, such later date as the Panel may agree). The Offeror shall be
under no obligation to waive, to determine to be or treat as fulfilled any of
conditions (b) to (i) inclusive by a date earlier than the latest date specified
above for the fulfilment thereof notwithstanding that the other conditions of
the Offer may at such earlier date have been waived or fulfilled and that there
are, at such earlier date, no circumstances indicating that any of such
conditions may not be capable of fulfilment.
If the Offeror is required by the Panel to make an offer for any Matthew Clark
Shares under the provisions of Rule 9 of the City Code, the Offeror may make
such alterations to the conditions set out in this Appendix I as are necessary
to comply with the provisions of that Rule.
The Offer will lapse if the proposed acquisition of Matthew Clark or any matter
relating to it is referred to the Monopolies and Mergers Commission before the
later of 3.00 p.m. on 24 November 1998 and the date on which the Offer becomes
or is declared unconditional as to acceptances. If the Offer so lapses, the
Offer will cease to be capable of further acceptance and persons accepting the
Offer and the Offeror will cease to be bound by Forms of Acceptance submitted on
or before the time when the Offer lapses.
18
PART B -- FURTHER TERMS OF THE OFFER
The conditions in Part A of this Appendix I and the following further terms
apply, where relevant, to the Offer.
Unless the context otherwise requires, any reference in this document and in the
Form of Acceptance to acceptances of the Offer shall include deemed acceptances
of the Offer.
Unless the context otherwise requires, any reference in Parts B and C of this
Appendix I and in the Form of Acceptance:
(i) to the "Offer" shall include any revision, variation, renewal or extension
thereof and shall also (where the context requires) include any election or
alternative available in connection with the Offer or any revision,
variation, renewal or extension thereof;
(ii) to the Offer becoming "unconditional" includes the Offer being or becoming
or being declared unconditional;
(iii)to the Offer being or becoming "unconditional" is to be construed as the
Offer becoming or being declared unconditional as to acceptances whether or
not any other condition of the Offer remains to be fulfilled;
(iv) to the "acceptance condition" is to the condition as to acceptances in
paragraph 1(a) of Part A of this Appendix I and any reference to the Offer
becoming unconditional as to acceptances is to be construed accordingly;
(v) to the "Offer Document" is to this document and any other document
containing the Offer; and
(vi) to an extension of the Offer shall include an extension of the date by
which the acceptance condition was to be satisfied.
1. Acceptance period
(a) The Offer is initially open for acceptance until 3.00 p.m. on 24 November
1998.
(b) Although no revision is envisaged, if the Offer is revised it will remain
open for acceptance for a period of at least 14 days (or such other period
as may be permitted by the Panel) after the date on which the revised Offer
Document is posted to Matthew Clark Shareholders. Except with the consent
of the Panel, no revision of the Offer may be made and no revised Offer
Document may be posted after 19 December 1998 or, if later, the date which
is 14 days before the last date on which the Offer can become
unconditional.
(c) The Offer, whether revised or not, is not (except with the consent of the
Panel) capable of becoming unconditional after midnight on 2 January 1999
(or any other time or date beyond which the Offeror has stated that the
Offer will not be extended and has not withdrawn that statement) nor of
being kept open for acceptance after that time or date unless it has
previously become unconditional. The Offeror reserves the right, with the
permission of the Panel, to extend the time for the Offer to become
unconditional to a later time(s) or date(s).
(d) If the Offer becomes unconditional, the Offer will remain open for
acceptance for not less than 14 days from the date on which it would
otherwise have expired. If the Offer becomes unconditional and the Offeror
states it will remain open until further notice, the Offeror will give not
less than 14 days' notice in writing to Matthew Clark Shareholders who have
not accepted the Offer before closing it.
(e) If a competitive situation arises after the Offeror makes a "no increase"
and/or "no extension" statement in relation to the Offer, the Offeror may,
if it has specifically reserved the right to do so at the time the
statement was made or otherwise with the consent of the Panel, withdraw the
statement provided it complies with the requirements of the City Code and
in particular that:
(i) it announces the withdrawal as soon as possible and in any event
within four business days after the date of the announcement of the
competing offer or other competitive situation;
(ii) it notifies Matthew Clark Shareholders in writing of the withdrawal
(or in the case of Matthew Clark Shareholders with registered
addresses outside the United Kingdom by announcement in the United
Kingdom) at the earliest opportunity; and
(iii)any Matthew Clark Shareholders who accept the Offer after the "no
increase" and/or "no extension" statement are given a right of
withdrawal as described in paragraph 4 of Part B of this Appendix I.
19
The Offeror may, if it specifically reserves the right to do so at the time
the statement is made, choose not to be bound by the terms of a "no
increase" or "no extension" statement and may post an increased or improved
offer if it is recommended for acceptance by the board of directors of
Matthew Clark, or in other circumstances permitted by the Panel.
2. Acceptance condition
(a) Except with the consent of the Panel, for the purpose of determining
whether the acceptance condition is satisfied, the Offeror may only take
into account acceptances received or purchases of shares made in respect of
which all relevant documents are received by IRG plc, New Issues
Department, P.O. Box No. 166, Bourne House, 34 Beckenham Road, Beckenham,
Kent BR3 4TH or IRG plc, 23 Ironmonger Lane, London EC2:
(i) by 1.00 p.m. on 2 January 1999 (or any other date beyond which the
Offeror has stated that the Offer will not be extended and has not
withdrawn that statement); or
(ii) if the Offer is extended with the consent of the Panel, such later
time(s) or date(s) as the Panel may agree.
If the latest time at which the Offer may become unconditional is extended
beyond midnight on 2 January 1999, acceptances received and purchases made
in respect of which the relevant documents are received by IRG plc, New
Issues Department, P.O. Box No. 166, Bourne House, 34 Beckenham Road,
Beckenham, Kent BR3 4TH or IRG plc, 23 Ironmonger Lane, London EC2 after
1.00 p.m. on that date may only be taken into account with the agreement of
the Panel except where the City Code permits otherwise.
(b) Except as otherwise agreed by the Panel:
(i) an acceptance of the Offer will only be treated as valid for the
purposes of the acceptance condition if the requirements of Note 4
and, if applicable, Note 6 on Rule 10 of the City Code are satisfied
in respect of it;
(ii) a purchase of Matthew Clark Shares by the Offeror or its nominee or
(if the Offeror is required by the Panel to make an offer for Matthew
Clark Shares under Rule 9 of the City Code) by a person acting in
concert with Canandaigua Limited or its nominee, will only be treated
as valid for the purposes of the acceptance condition if the
requirements of Note 5 and, if applicable, Note 6 on Rule 10 of the
City Code are satisfied in respect of it; and
(iii)before the Offer may become or be declared unconditional IRG plc must
issue a certificate to the Offeror or Schroders (or their respective
agents) which states the number of Matthew Clark Shares in respect of
which acceptances have been received and the number of Matthew Clark
Shares otherwise acquired, whether before or during the Offer period,
which comply with the provisions of this paragraph 2(b).
(c) For the purpose of determining whether the acceptance condition is
satisfied the Offeror is not bound (unless required by the Panel) to take
into account any Matthew Clark Shares which have been unconditionally
allotted or issued or which arise as a result of the exercise of conversion
rights before the determination takes place unless Matthew Clark or its
agent has given written notice to IRG plc, containing relevant details of
the allotment, issue or conversion. Notification by telex or facsimile
transmission or copies does not constitute written notice.
3. Announcements
(a) By 8.30 a.m. on the business day (the "relevant day") after the day on
which the Offer expires, becomes unconditional, is revised or is extended
(or such later time or date as the Panel may agree), the Offeror will make
an appropriate announcement and simultaneously inform the London Stock
Exchange. In the announcement the Offeror will state (unless otherwise
permitted by the Panel) the total number of Matthew Clark Shares and rights
over Matthew Clark Shares (as nearly as practicable):
(i) for which acceptances of the Offer have been received;
(ii) held by or on behalf of the Offeror or any person deemed to be acting
in concert with the Offeror before the Offer period;
(iii)acquired or agreed to be acquired by or on behalf of the Offeror or
any person deemed to be acting in concert with the Offeror for the
purposes of the Offer during the Offer period;
20
(iv) for which acceptances of the Offer have been received from any person
deemed to be acting in concert with the Offeror for the purposes of
the Offer, and the announcement will specify the percentages of the
relevant class of issued share capital of Matthew Clark represented by
each of these figures.
(b) Any decision to extend the time or date by which the acceptance condition
has to be fulfilled may be made at any time up to, and will be announced by
8.30 a.m. on the relevant day or such later time or date as the Panel may
agree. The announcement will state the next expiry time and date unless the
Offer is then unconditional.
(c) In calculating the number of Matthew Clark Shares represented by
acceptances and purchases, the Offeror may only include acceptances and
purchases if they could be counted towards fulfilling the acceptance
condition under Notes 4 and 5 on Rule 10 of the City Code unless the Panel
agrees otherwise. Subject to this, the Offeror may include or exclude, for
announcement purposes, acceptances and purchases not in all respects in
order or which are subject to verification.
(d) In this Appendix I, a reference to the making of an announcement or the
giving of notice by the Offeror includes the release of an announcement by
the Offeror's public relations consultants or Schroders, in each case on
behalf of Canandaigua Limited, to the press and the delivery or telephone,
telex or facsimile or other electronic transmission of an announcement to
the London Stock Exchange. An announcement made otherwise than to the
London Stock Exchange will be notified simultaneously to the London Stock
Exchange.
4. Rights of withdrawal
(a) Except as provided by this paragraph 4, acceptances and elections are
irrevocable.
(b) If the Offeror announces the Offer to be unconditional and then fails to
comply by 3.30 p.m. on the relevant day (or such later time and/or date as
the Panel may agree) with any of the other requirements specified in
paragraph 3(a) of Part B of this Appendix I, a person may withdraw his
acceptance by written notice given by post or by hand to IRG plc, New
Issues Department, P.O. Box No. 166, Bourne House, 34 Beckenham Road,
Beckenham, Kent BR3 4TH or by hand only during normal business hours to IRG
plc, 23 Ironmonger Lane, London EC2. Subject to paragraph 1(e) of Part B of
this Appendix I, this right of withdrawal may be terminated not less than
eight days after the relevant day by the Offeror confirming, if such is the
case, that the Offer is still unconditional as to acceptances, and
complying with the other requirements specified in paragraph 3(a) of Part B
of this Appendix I. If that confirmation is given, the first period of 14
days referred to in paragraph 1(d) of Part B of this Appendix I will start
on the date of that confirmation.
(c) If by 3.00 p.m. on 15 December 1998 (or such later time and/or date as the
Panel may agree) the Offer has not become unconditional, a person may
withdraw his acceptance by written notice given by post or by hand to
IRGplc, New Issues Department, P.O. Box No. 166, Bourne House, 34 Beckenham
Road, Beckenham, Kent BR3 4TH or by hand only during normal business hours
to IRG plc, 23 Ironmonger Lane, London EC2 at any time before the earlier
of (i) the time that the Offer becomes unconditional; and (ii) the final
time for the lodging of acceptances which can be taken into account in
accordance with paragraph 2(a) of Part B of this Appendix I.
(d) If a "no increase" and/or "no extension" statement is withdrawn in
accordance with paragraph 1(e) of Part B of this Appendix I, a person who
accepts the Offer after the date of the statement may withdraw his
acceptance by written notice given by post or by hand to IRG plc, New
Issues Department, P.O. Box No. 166, Bourne House, 34 Beckenham Road,
Beckenham, Kent BR3 4TH or by hand only during normal business hours to IRG
plc, 23 Ironmonger Lane, London EC2 for a period of eight days after the
date the Offeror posts the notice of the withdrawal of that statement to
Matthew Clark Shareholders.
(e) In this paragraph 4, "written notice" (including any letter of appointment,
direction or authority) means notice in writing signed by the relevant
person(s) accepting the Offer (or his/their agent(s) duly appointed in
writing and evidence of whose appointment satisfactory to the Offeror is
produced with the notice). Telex or facsimile transmission or copies will
not be sufficient. A notice which is postmarked in, or otherwise appears to
the Offeror or its agents to have been sent from, the United States,
Canada, Australia or Japan (or by a North American person) will not be
valid.
5. Revised or new offer
(a) Although no revision or new offer is envisaged, if the Offer is revised or
if a new offer is made for the purpose of section 429(3) of the Act, the
benefit of the revised or new offer will be made available to a Matthew
Clark Shareholder who has accepted the Offer (in its original or any
revised form(s)) (a "Previous Acceptor") if the revised or new offer
represents, on the date on which it is announced (on such basis as
Schroders may consider
21
appropriate), an improvement or no diminution in the value of the
consideration offered compared with the consideration previously offered.
The acceptance by a Previous Acceptor of the Offer (in its original or any
revised form(s)) will, subject as provided in paragraphs 5(b), (c) and 6 of
Part B of this Appendix I, be deemed an acceptance of the revised or new
offer and will constitute the appointment of any director of the Offeror
and/or Schroders as his attorney and/or agent with authority:
(i) to accept the revised or new offer on his behalf;
(ii) if the revised or new offer includes alternative forms of
consideration, to make elections or accept the alternative forms of
consideration on his behalf in the proportions the attorney and/or
agent in his absolute discretion thinks fit; and
(iii)to execute on his behalf in his name any further documents required
to give effect to those elections or acceptances.
In making any election or acceptance, the attorney and/or agent will take
into account the nature of any previous acceptance or election made by the
Previous Acceptor and other facts or matters he may reasonably consider
relevant.
(b) The deemed acceptance referred to in paragraph 5(a) of Part B of this
Appendix I will not apply and the power of attorney and authorities
conferred by that paragraph will not be exercised if the Previous Acceptor
would (on such basis as Schroders may consider appropriate) receive less in
aggregate in consideration under the revised or new offer than he would
have received in aggregate in consideration as a result of his acceptance
of the Offer in the form originally accepted by him or on his behalf.
(c) The deemed acceptance referred to in paragraph 5(a) of Part B of this
Appendix I will not apply and the power of attorney and the authorities
conferred by that paragraph will be ineffective in the case of a Previous
Acceptor who lodges, within 14 days of the posting of the document
containing the revised or new offer, a Form of Acceptance (or any other
form issued on behalf of Canandaigua Limited) in which he validly elects to
receive consideration under the revised or new offer in some other manner.
(d) The authorities and powers of attorney conferred by this paragraph 5 and
any acceptance of a revised or new offer and any election in relation to it
will be irrevocable unless and until the Previous Acceptor withdraws his
acceptance having become entitled to do so under paragraph 4 of Part B of
this Appendix I.
(e) The Offeror and Schroders reserve the right to treat an executed Form of
Acceptance relating to the Offer which is received after the announcement
of any revised or new offer as a valid acceptance of the revised or new
offer (and where applicable a valid election for the alternative forms of
consideration). That acceptance will constitute an authority in the terms
of paragraph 5(a) of Part B of this Appendix I on behalf of the relevant
Matthew Clark Shareholder.
6. General
(a) Except with the consent of the Panel, the Offer will lapse unless all the
conditions relating to the Offer have been fulfilled or, where appropriate,
have been determined by the Offeror in its reasonable opinion to be and
continue to be satisfied or have been waived by midnight on 19 December
1998 or within 21 days after the date on which the Offer becomes
unconditional, or such later date as the Offeror, with the consent of the
Panel, may decide, whichever is the later. If the Offer lapses for any
reason:
(i) it will not be capable of further acceptance;
(ii) accepting Matthew Clark Shareholders and the Offeror will not be bound
by Forms of Acceptance submitted before the time the Offer lapses;
(iii)Forms of Acceptance and documents of title will be returned by post
(or by such other method as the Panel may approve) within 14 days of
the Offer lapsing to the person or agent whose name is set out in the
relevant box on the Form of Acceptance or otherwise to the first-named
holder at his registered address; and
(iv) IRG plc will, immediately after the Offer lapses (or within such
longer period as the Panel may permit, not exceeding 14 days of the
Offer lapsing) instruct CRESTCo to transfer all Matthew Clark Shares
held
22
in escrow balances and in relation to which it is the escrow agent for
the purposes of the Offer to the original available balances of the
relevant Matthew Clark Shareholders.
(b) The expression "Offer period" when used in this document means the period
beginning on 22 October 1998 and ending on the latest of:
(i) 3.00 p.m. on 24 November 1998; and
(ii) the earlier of the time the Offer becomes unconditional and the time
the Offer lapses.
(c) Except with the consent of the Panel:
(i) settlement of the consideration to which any Matthew Clark Shareholder
is entitled under the Offer will be fully implemented in accordance
with the terms of the Offer without regard to any lien, right of
set-off, counterclaim or other analogous right to which the Offeror or
Schroders may otherwise be, or claim to be, entitled against that
Matthew Clark Shareholder; and
(ii) settlement of the consideration will be effected in the manner
prescribed in paragraph 13 of Schroders letter contained in this
document not later than 14 days after the date on which the Offer
becomes or is declared unconditional in all respects or within 14 days
after receipt of a valid and complete acceptance, whichever is the
later.
No consideration will be posted to an address in the United States, Canada,
Australia or Japan.
(d) The terms, provisions, instructions and authorities contained in the Form
of Acceptance also constitute part of the terms of the Offer. A word or
expression defined in this document has the same meaning when used in the
Form of Acceptance unless the context requires otherwise. The provisions of
this Appendix I shall be deemed to be incorporated in and form part of the
Form of Acceptance.
(e) If the expiry date of the Offer is extended, a reference in this document
and in the Form of Acceptance to 24 November 1998 will (except in paragraph
6(b) of Part B of this Appendix I and except where the context requires
otherwise) be deemed to refer to the expiry date of the Offer as so
extended.
(f) Any accidental omission to despatch this document, the Form of Acceptance
or any notice required to be despatched under the terms of the Offer to, or
any failure to receive the same by, any person to whom the Offer is, or
should be, made will not invalidate the Offer. Subject to the provisions of
paragraph 7 of Part B of this Appendix I, the Offer is made to any Matthew
Clark Shareholder to whom this document and the Form of Acceptance or any
related document may not have been despatched, and these persons may
collect the relevant documents from IRG plc and/or Schroders at their
respective addresses set out in sub-paragraph (l) below.
(g) The Offeror and Schroders reserve the right to treat acceptances of the
Offer as valid if received by IRG plc or otherwise on behalf of the Offeror
at any place or in any manner determined by them otherwise than as set out
in this document or in the Form of Acceptance.
(h) If sufficient acceptances are received, the Offeror intends to apply the
provisions of sections 428-430F of the Act to acquire compulsorily any
outstanding Matthew Clark Shares to which the Offer relates and to apply
for cancellation of Matthew Clark's listing on the London Stock Exchange.
(i) All powers of attorney, appointments of agents and authorities on the terms
conferred by or referred to in this Appendix I or in the Form of Acceptance
are given by way of security for the performance of the obligations of the
Matthew Clark Shareholder and are irrevocable in accordance with section 4
of the Powers of Attorney Act 1971 except in the circumstances where the
donor of the power of attorney or authority validly withdraws his
acceptance in accordance with paragraph 4 of Part B of this Appendix I.
(j) No acknowledgement of receipt of any Form of Acceptance, transfer by means
of CREST, share certificate or document of title will be given. All
communications, notices, certificates, documents of title and remittances
to be delivered by, or sent to or from, Matthew Clark Shareholders (or
their designated agents) will be delivered or sent at their own risk.
(k) The Offeror and Schroders reserve the right to notify any matter, including
the making of the Offer, to a Matthew Clark Shareholder:
(i) with a registered address outside the United Kingdom; or
23
(ii) whom the Offeror knows to be a custodian, trustee or nominee holding
Matthew Clark Shares for persons who are citizens, residents or
nationals of jurisdictions outside the United Kingdom,
by announcement or by paid advertisement in a newspaper published and
circulated in the United Kingdom. The notice will be deemed to have been
sufficiently given, despite any failure by a Matthew Clark Shareholder to
receive or see that notice. A reference in this document to a notice or the
provision of information in writing by or on behalf of Canandaigua Limited
is to be construed accordingly.
(l) The Offer is made on 3 November 1998 and is capable of acceptance from and
after that time. The Form of Acceptance and copies of this document may be
collected from IRG plc, New Issues Department, P.O. Box No. 166, Bourne
House, 34 Beckenham Road, Beckenham, Kent BR3 4TH or Schroders, 120
Cheapside, London EC2V 6DS or during normal business hours from IRG plc, 23
Ironmonger Lane, London EC2. The Offer is made by means of this document.
(m) The Offer, all acceptances of the Offer and all elections in respect of it
are governed by and will be construed in accordance with English law.
Execution by or on behalf of an Matthew Clark Shareholder of a Form of
Acceptance constitutes his irrevocable submission to the jurisdiction of
the courts of England in relation to all matters arising in connection with
the Offer.
(n) Matthew Clark Shares will be acquired by the Offeror fully paid and free
from all liens, equities, charges, encumbrances and other interests and
together with all rights now or hereafter attaching thereto, including the
right to receive and retain all dividends and other distributions declared,
made or paid on or after 3 November 1998.
(o) All references in this Appendix I to any statute or statutory provision
shall include a statute or statutory provision which amends, consolidates
or replaces the same (whether before or after the date hereof).
7. Overseas Shareholders
(a) The making of the Offer in, or to certain persons resident in, or nationals
or citizens of, jurisdictions outside the United Kingdom ("overseas
shareholders") or to nominees of or trustees for overseas shareholders may
be affected by the laws of the relevant jurisdiction. Overseas shareholders
should inform themselves about and observe any applicable legal
requirements. It is the responsibility of overseas shareholders wishing to
accept the Offer to satisfy themselves as to the full observance of the
laws of the relevant jurisdiction in connection with the Offer. This
includes the obtaining of any governmental, exchange control or other
consents which may be required, compliance with other necessary formalities
needing to be observed and the payment of any issue, transfer or other
taxes due in that jurisdiction. The Offeror and Schroders (and any person
acting on behalf of them) will be fully indemnified by overseas
shareholders for any such issue, transfer or other taxes which the Offeror
or Schroders (or any person acting on behalf of them) may be required to
pay. If you are an overseas shareholder and you are in doubt about your
position you should consult your professional adviser in the relevant
jurisdiction.
(b) The Offer is not being made, directly or indirectly, in or into the United
States, Canada, Australia or Japan or to any North American person or
resident of Australia or Japan by use of the mails of, or by any means or
instrumentality of interstate or foreign commerce of, or of any facility of
a national, state or other securities exchange of, the United States,
Canada, Australia or Japan. This includes, but is not limited to, facsimile
transmission, telex and telephone.
Accordingly, copies of this document, the Form of Acceptance, and any
related offer documents are not being, and must not be, mailed or otherwise
distributed or sent in, into or from the United States, Canada, Australia
or Japan including to Matthew Clark Shareholders or participants in the
Matthew Clark Share Option Schemes with registered addresses in the United
States, Canada, Australia or Japan or to persons whom the Offeror knows to
be custodians, trustees or nominees holding Matthew Clark Shares for
persons with addresses in the United States, Canada, Australia or Japan.
Persons receiving those documents (including, without limitation,
custodians, nominees and trustees) must not distribute, mail or send them
in, into or from the United States, Canada, Australia or Japan or to any
North American Person or resident of Australia or Japan, or use the United
States, Canadian, Australian or Japanese mails or any such means,
instrumentality or facility in connection with the Offer, and so doing will
invalidate any related purported acceptance of the Offer. Persons wishing
to accept the Offer must not use the United States, Canadian, Australian or
Japanese mails or any such means, instrumentality or facility for any
purpose directly or indirectly relating to acceptance of the Offer.
Envelopes
24
containing a Form of Acceptance in respect of the Offer must not be
postmarked in the United States, Canada, Australia or Japan or otherwise
despatched from those jurisdictions and all acceptors must provide
addresses outside the United States, Canada, Australia or Japan for the
receipt of the consideration to which they are entitled under the Offer or
for the return of the Form of Acceptance or documents of title.
(c) Subject as provided below, a Matthew Clark Shareholder will be deemed not
to have accepted the Offer if:
(i) he cannot give the representations and warranties set out in paragraph
(b) of Part C of this Appendix I;
(ii) he completes Box 3 of the Form of Acceptance with an address in the
United States, Canada, Australia or Japan or has a registered address
in the United States, Canada, Australia or Japan and in either case he
does not insert in Box 6 of the Form of Acceptance the name and
address of a person or agent outside the United States, Canada,
Australia or Japan to whom he wishes the consideration to which he is
entitled under the Offer to be sent;
(iii)he inserts in Box 6 of the Form of Acceptance the name and address of
a person or agent in the United States, Canada, Australia or Japan to
whom he wishes the consideration to which he is entitled under the
Offer to be sent; or
(iv) the Form of Acceptance received from him is in an envelope postmarked
in, or which otherwise appears to the Offeror or its agents to have
been sent from, the United States, Canada, Australia or Japan.
The Offeror reserves the right, in its sole discretion, to investigate, in
relation to any acceptance, whether the representations and warranties set
out in paragraph (b) of Part C of this Appendix I have been truthfully
given by the relevant Matthew Clark Shareholders and, if such investigation
is made and, as a result, the Offeror cannot satisfy itself that such
representations and warranties are true and correct, such acceptance shall
not be valid.
(d) If any person, despite the restrictions referred to in paragraph 7(b) of
Part B of this Appendix I and whether pursuant to a contractual or legal
obligation or otherwise, forwards this document, the Form of Acceptance or
any related offering document in, into or from the United States, Canada,
Australia or Japan or uses the mails or any means or instrumentality
(including, without limitation, facsimile transmission, telex and
telephones) of interstate or foreign commerce of, or any facilities of a
national securities exchange of, the United States, Canada, Australia or
Japan in connection with that forwarding, that person should:
(i) inform the recipient of that fact;
(ii) explain to the recipient that that action may invalidate any purported
acceptance by the recipient; and
(iii)draw the attention of the recipient to this paragraph 7.
Notwithstanding the above, the Offeror may in its sole and absolute
discretion provide cash consideration to a North American Person or a
person in or resident of Australia or Japan if requested to do so by or on
behalf of that person if the Offeror is satisfied, in that particular case,
that to do so would not constitute a breach of any securities or other
relevant legislation of the United States, Canada, Australia or Japan, as
appropriate.
(e) If any written notice from a Matthew Clark Shareholder withdrawing his
acceptance in accordance with paragraph 4 of Part B of this Appendix I is
received in an envelope postmarked in, or which otherwise appears to the
Offeror or its agents to have been sent from, the United States, Canada,
Australia or Japan, the Offeror reserves the right, in its absolute
discretion, to treat that notice as invalid.
(f) The provisions of this paragraph 7 and any other terms of the Offer
relating to overseas shareholders may be waived, varied or modified as
regards specific Matthew Clark Shareholders or on a general basis by the
Offeror in its sole discretion. Subject to this discretion, the provisions
of this paragraph 7 supersede any terms of the Offer inconsistent with
them. A reference in this paragraph 7 to a Matthew Clark Shareholder
includes the person or persons executing a Form of Acceptance and, in the
event of more than one person executing the Form of Acceptance, the
provisions of this paragraph 7 apply to them jointly and severally.
25
(g) As used in this document and in the Form of Acceptance, the "United States"
means the United States of America, its territories and possessions, any
state of the United States of America, the District of Columbia and all
other areas subject to the jurisdiction of the United States of America;
"Australia" means the Commonwealth of Australia, its states, territories
and possessions; "Canada" means Canada, its provinces and territories; and
"restricted overseas person" means either a person (including an
individual, partnership, unincorporated syndicate, unincorporated
organisation, trust, trustee, executor, administrator, or other legal
representatives) in, or resident in Australia, Japan, Canada or the United
States, or a North American Person.
(h) "US person" means:
(i) any natural person resident in the United States;
(ii) any partnership or corporation organised or incorporated under the
laws of the United States or any state thereof;
(iii) any estate of which any executor or administrator is a US person;
(iv) any trust of which any trustee is a US person;
(v) any agency or branch of a non-United States entity located in the
United States;
(vi) any non-discretionary account or similar account (other than an
estate or trust) held by a dealer or other fiduciary for the
benefit or account of a US dealer;
(vii) any discretionary account or similar (other than an estate or
trust) held by a dealer or other fiduciary organised, incorporated
or (if an individual) resident in the United States; and
(viii) any partnership or corporation, if:
(1) organised or incorporated under the laws of any non-United
States jurisdiction;
(2) formed by a US person principally for the purpose of
investing in securities not registered under the US Act,
unless it is organised or incorporated and owned by
accredited investors (as defined in Rule 501(a) under the
US Act) who are not natural persons, estates or trusts.
"North American person" means a person whose last address as shown on the
register of members of Matthew Clark is in Canada and/or a US person.
(i) Notwithstanding paragraph 7(h) of this Part B, any discretionary account or
similar account (other than an estate or trust) held for the benefit of a
non-US person by a dealer or other professional fiduciary organised,
incorporated, or (if an individual) resident in the United States shall not
be deemed a US Person.
(j) Notwithstanding paragraph 7(h) of this Part B, any estate of which any
professional fiduciary acting as executor or administrator is a US person
shall not be deemed a US person if:
(i) an executor or administrator of the estate who is not a person has
whole or shared investment discretion with respect to the assets of
the estate; and
(ii) the estate is governed by non-United States law.
(k) Notwithstanding paragraph 7(h) of this Part B, any trust of which any
professional fiduciary acting as trustee is a US person shall not be deemed
a US person if a trustee who is not a US person has sole or shared
investment discretion with respect to the trust assets, and no beneficiary
of the trust (and no settler if the trust is revocable) is a US person.
(l) Notwithstanding paragraph 7(h) of this Part B, an employee benefit plan
established and administered in accordance with the law of a country other
than the United States and customary practices and documentation of any
such country shall not be deemed a US person.
(m) Notwithstanding paragraph 7(h) of this Part B, any agency or branch of a US
person located outside the United States shall not be deemed a US person
if:
(i) the agency or branch operates for valid business reasons; and
26
(ii) the agency or branch is engaged in the business of insuring or banking
and is subject to substantive insurance or banking regulation,
respectively, in the jurisdiction where located.
(n) The International Monetary Fund, the International Bank for Reconstruction
and Development, the Inter-American Development Bank, the Asian Development
Bank, the African Development Bank, the United Nations, and their agencies,
affiliates and pension plans, and any other similar international
organisations, their agencies, affiliates and pension plans shall not be
deemed US persons.
27
PART C -- FORM OF ACCEPTANCE
Without prejudice to the terms of the Form of Acceptance, and the provisions of
Parts A and B of this Appendix I, each Matthew Clark Shareholder by whom, or on
whose behalf, a Form of Acceptance is executed irrevocably undertakes,
represents, warrants and agrees to and with the Offeror and Schroders (so as to
bind him, his personal representatives, heirs, successors and assigns):
(a) that the execution of a Form of Acceptance shall constitute:
(i) an acceptance of the Offer in respect of such number of Matthew Clark
Ordinary Shares as is inserted or deemed to be inserted in Box 1 of
the Form of Acceptance; and
(ii) an undertaking to execute any further documents and give any further
assurances which may be required to enable Canandaigua Limited to
obtain the full benefit of this Part C and/or to perfect any of the
authorities expressed to be given hereunder, in each case on and
subject to the terms and conditions set out or referred to in this
document and the Form of Acceptance and that, subject only to the
rights of withdrawal set out in paragraph 4 of Part B of this Appendix
I, each such acceptance shall be irrevocable;
(b) that unless such Matthew Clark Shareholder has written "No" in Box 5 of the
Form of Acceptance that:
(i) he has not received or sent copies or originals of this document, the
Form of Acceptance or any related offering document in, into or from
the United States, Canada, Australia or Japan;
(ii) he has not used in connection with the Offer or the execution or
delivery of the Form of Acceptance, directly or indirectly, the mails
of, or any means or instrumentality (including, without limitation,
facsimile transmission, telex and/or telephone) of interstate or
foreign commerce of, or of any facility of a national, state or other
securities exchange of, the United States, Canada, Australia or Japan;
(iii)he is not a restricted overseas person (as described in paragraph 7(h)
of Part B of this Appendix I);
(iv) the Form of Acceptance has not been mailed or otherwise sent in, into
or from the United States, Canada, Australia or Japan and he is
accepting the Offer from outside the United States, Canada, Australia
and Japan;
(v) if he is, or is acting on behalf of, a US person, he or that US
person, as the case may be, is outside the United States within the
meaning of Regulation S of the US Act; and
(vi) he is not delivering the Form of Acceptance from, or as agent of or on
behalf of, any person in the United States, Canada, Australia or Japan
(unless such person has given all instructions with respect to the
Offer from outside the United States, Canada, Australia and Japan) or
a North American person or a resident of Australia or Japan;
(c) that the execution of the Form of Acceptance constitutes the appointment of
any director of, or any person authorised by, the Offeror or Schroders as
his agent and/or attorney (subject to the Offer becoming unconditional in
all respects and him not having validly withdrawn his acceptance) with an
irrevocable instruction and authorisation to:
(i) complete and execute any form of transfer, renunciation or other
document in relation to the Matthew Clark Shares comprised or deemed
to be comprised in such acceptance in favour of the Offeror or as it
may direct;
(ii) deliver any form of transfer, renunciation or other document with any
certificate or other document of title for registration within six
months of the Offer becoming unconditional in all respects; and
(iii)take any other action as the agent and/or attorney may think necessary
or expedient in connection with his acceptance of the Offer and to
vest in the Offeror (or as it may direct) the Matthew Clark Shares
comprised or deemed to be comprised in such acceptance;
(d) that the execution of the relevant Form of Acceptance constitutes the
appointment of IRG plc as his agent and/or attorney with an irrevocable
instruction and authorisation to:
28
(i) subject to the Offer becoming unconditional in all respects in
accordance with its terms and him not having validly withdrawn his
acceptance, transfer to itself (or to such other person or persons as
the Offeror or its agent may direct) by means of CREST all or any of
the Relevant Matthew Clark Shares (but not exceeding the number of
Matthew Clark Shares in respect of which the Offer is accepted or
deemed to be accepted); and
(ii) if the Offer does not become unconditional in all respects, to give
instructions to CRESTCo immediately after the Offer lapses (or within
such longer period as the Panel may permit, not exceeding 14 days of
the Offer lapsing) to transfer all Relevant Matthew Clark Shares to
the original available balance of the accepting Matthew Clark
shareholder.
In this paragraph, "Relevant Matthew Clark Shares" means Matthew Clark
Shares in uncertificated form in respect of which a transfer or transfers
to escrow has or have been effected in accordance with the procedures
described in paragraph 12(d) of the Schroders' letter contained in this
document and where the transfer or transfers to escrow was or were made in
respect of Matthew Clark Shares held under the same member account ID and
participant ID as the member account ID and participant ID relating to the
relevant Form of Acceptance (but irrespective of whether or not any Form of
Acceptance Reference Number, or a Form of Acceptance Reference Number
corresponding to that appearing on the relevant Form of Acceptance, was
included in the relevant TTE Instruction);
(e) that such Matthew Clark Shareholder authorises and requests (subject to the
Offer becoming unconditional in all respects in accordance with its terms
and him not having validly withdrawn his acceptance):
(i) Matthew Clark or its agents to procure the registration of the
transfer of the Matthew Clark Shares comprised or deemed to be
comprised in such acceptance that are in certificated form and the
delivery of the share certificate(s) and other document(s) of title in
respect of the Matthew Clark Shares to the Offeror or as it may
direct;
(ii) if the Matthew Clark Shares comprised or deemed to be comprised in
such acceptance are in certificated form or paragraph (f)(i) of Part C
of this Appendix I applies, the Offeror or its agents to procure the
despatch by post (or by such other method as may be approved by the
Panel) of the consideration to which he is entitled under the Offer at
his risk to the person or agent whose name and address is set out in
Box 6 of the Form of Acceptance or, if no person or agent's name and
address is set out, to the first-named holder at his registered
address;
(iii)if the Matthew Clark Shares comprised or deemed to be comprised in
such acceptance are in uncertificated form, the Offeror, Schroders or
their respective agents to ensure that an assured payment obligation
is created in favour of the Matthew Clark Shareholder's payment bank
in accordance with the CREST assured payment arrangements in respect
of any cash consideration to which such shareholder is entitled
provided that the Offeror may (if, for any reason, it wishes to do so)
determine that all or any part of such cash consideration shall be
paid by cheque despatched by post (or by such other method as may be
approved by the Panel); and
(iv) the Offeror, Matthew Clark or their respective agents, to record and
act on any instructions with regard to payments or notices which have
been entered in the records of Matthew Clark in respect of his holding
of Matthew Clark Shares;
(f) that the execution of the Form of Acceptance constitutes agreement that:
(i) the Offeror may decide to despatch all or part of the consideration
payable to a shareholder whose Matthew Clark Shares are in
uncertificated form in accordance with paragraph (e)(ii) of Part C of
this Appendix I; and
(ii) the consideration payable to a shareholder whose Matthew Clark Shares
are in uncertificated form will be despatched in accordance with
paragraph (e)(ii) of Part C of this Appendix I if the shareholder is a
CREST member whose registered address is in the United States, Canada,
Australia or Japan;
(g) that the execution of the Form of Acceptance constitutes a giving of
authority to any director of, or person authorised by, Canandaigua Limited
or Schroders within the terms of paragraph 5 of Part B of this Appendix I
in respect of those Matthew Clark Shares in respect of which the Offer has
been accepted or has been deemed to have been accepted and such acceptance
not validly withdrawn;
29
(h) that such Matthew Clark Shareholder, subject to the Offer becoming
unconditional in all respects and him not having validly withdrawn his
acceptance (or if the Offer will become unconditional in all respects or
lapse on the outcome of the resolution in question or if the Panel gives
its consent):
(i) authorises the Offeror or its agent to direct the exercise of any
votes and any other rights and privileges (including the right to
requisition the convening of a general or separate class meeting of
Matthew Clark) attaching to the Matthew Clark Shares comprised or
deemed to be comprised in such acceptance;
(ii) authorises Matthew Clark to send any notice, circular, warrant or
other document or communication which may be required to be sent to
him as a member of Matthew Clark (including without limitation any
share certificate(s) or other document(s) of title issued as a result
of a conversion of such Matthew Clark Shares into certificated form)
to the Offeror at its registered office;
(iii)authorises any director of, or person authorised by, the Offeror or
Schroders to sign any document and do such things as may in the
opinion of that agent and/or attorney seem necessary or desirable in
connection with the exercise of any votes or other rights or
privileges attaching to the Matthew Clark Shares held by him
(including, without limitation, signing any consent to short notice of
a general or separate class meeting as his agent and/or attorney and
on his behalf and executing a form of proxy appointing any person
nominated by the Offeror to attend general and separate class meetings
of Matthew Clark and attending any such meeting and exercising the
votes attaching to the Matthew Clark Shares comprised or deemed to be
comprised in such acceptance on his behalf, where relevant, such votes
to be cast so far as possible to satisfy any outstanding condition of
the Offer); and
(iv) agrees not to exercise any such rights without the consent of the
Offeror and irrevocably undertakes not to appoint a proxy for or to
attend such general or separate class meetings of Matthew Clark.
This authority will cease to be valid if the acceptance is withdrawn in
accordance with paragraph 4 of Part B of this Appendix I;
(i) that he will deliver to IRG plc or procure the delivery to IRG plc of, his
certificate or other document(s) of title in respect of those Matthew Clark
Shares comprised or deemed to be comprised in such acceptance that are in
certificated form, or an indemnity acceptable to Matthew Clark, as soon as
possible and in any event within six months of the Offer becoming
unconditional in all respects;
(j) that he will take (or ensure to be taken) the action set out in paragraph
12(d) of the Schroders' letter contained in this document to transfer all
those Matthew Clark Shares comprised or deemed to be comprised in such
acceptance and not validly withdrawn by him that are in uncertificated form
to an escrow balance as soon as possible and in any event so that the
transfer to escrow settles within six months of the Offer becoming
unconditional in all respects;
(k) that if for any reason any Matthew Clark Shares in respect of which a
transfer to an escrow balance has been effected in accordance with
paragraph 12(d) of Schroders' letter contained in this document are
converted to certificated form, he will (without prejudice to paragraph
h(ii) of Part C of this Appendix) immediately deliver or ensure the
immediate delivery of the share certificate(s) or other documents of title
in respect of all those Matthew Clark Shares that are converted to IRG plc
or to the Offeror at its registered office or as the Offeror or its agents
may direct;
(l) that the creation of an assured payment obligation in favour of his payment
bank in accordance with the CREST assured payment arrangements as referred
to in paragraph (e)(iii) of Part C of this Appendix I will, to the extent
of the obligation so created, discharge fully any obligation of the Offeror
or Schroders to pay to him the cash consideration to which he is entitled
under the Offer;
(m) that he will do everything necessary or expedient to vest in the Offeror or
its nominees the Matthew Clark Shares comprised or deemed to be comprised
in such acceptance and to enable IRG plc to perform its functions as escrow
agent for the purposes of the Offer;
(n) that he agrees to ratify everything which may be done or effected by any
director of, or person authorised by, the Offeror, Schroders or IRG plc in
exercise of any of the powers and/or authorities under Part C of this
Appendix I;
(o) that, if any provision of Part C of this Appendix I will be unenforceable
or invalid or will not operate so as to afford the Offeror, Schroders or
IRG plc or any of their respective directors or persons authorised by them,
the
30
benefit of the authority expressed to be given in Part C of this Appendix
I, he will, with all practicable speed, do everything that may be required
or desirable to enable the Offeror, Schroders and IRG plc and any of their
respective directors or persons authorised by them to secure the full
benefit of Part C of this Appendix I;
(p) that he is irrevocably and unconditionally entitled to transfer the Matthew
Clark Shares comprised or deemed to be comprised in such acceptance and
that such shares are sold free from all liens, equities, charges,
encumbrances and other interests and together with all rights attaching to
them on or after 3 November 1998 including, without limitation, the right
to receive and retain all dividends and other distributions declared, paid
or made on or after that date;
(q) that the terms and conditions of the Offer are deemed to be incorporated
in, and form part of, the Form of Acceptance;
(r) that on execution the Form of Acceptance takes effect as a deed; and
(s) that the execution of the Form of Acceptance constitutes his submission to
the jurisdiction of the courts of England in relation to all matters
arising in connection with the Offer and the Form of Acceptance.
A reference in Part C of this Appendix I to a holder of Matthew Clark Shares
includes a reference to the person or persons executing the Form of Acceptance
and in the event of more than one person executing a Form of Acceptance the
provisions of Part C of this Appendix I will apply to them jointly and to each
of them.
31
PART A: AUDITED FINANCIAL INFORMATION
1. Financial information
The financial information set out in Part A of this Appendix II summarises the
consolidated financial statements of Canandaigua for the years ended 28 February
1998 and 28 February 1997, the six months ended 29 February 1996 and 28 February
1995 and the year ended 31 August 1995. All financial data in Part A of this
Appendix II is extracted from the published audited accounts for those periods,
except for the six months ended 28 February 1995, which is unaudited.
Canandaigua's auditors for these periods were Arthur Andersen LLP.
2. Consolidated statements of income
The following table sets out the consolidated statements of income of
Canandaigua for the years ended 28 February 1998 and 28 February 1997, the six
months ended 29 February 1996 and 28 February 1995 and the year ended 31 August
1995 as derived from the published audited accounts for those periods, except
for the six months ended 28 February 1995 which is unaudited:
For the Years Ended For the Six Months Ended For the Year Ended
-------------------- ------------------------- ------------------
Consolidated Statements of Income 28 Feb 28 Feb 29 Feb 28 Feb 31 Aug
(in US$ thousands, except share data) 1998 1997 1996 1995 1995
- ------------------------------------------------------------------------------------------------------------------------------
(unaudited)
Gross sales $ 1,632,357 $ 1,534,452 $ 738,415 $ 592,305 $ 1,185,074
Less -- Excise taxes (419,569) (399,439) (203,391) (137,820) (278,530)
----------- ----------- --------- --------- -----------
Net sales 1,212,788 1,135,013 535,024 454,485 906,544
Cost of product sold (864,053) (844,181) (396,208) (327,694) (653,811)
----------- ----------- --------- --------- -----------
Gross profit 348,735 290,832 138,816 126,791 252,733
Selling, general and
administrative expenses (231,680) (208,991) (112,411) (79,925) (159,196)
Nonrecurring restructuring expenses -- -- (2,404) (685) (2,238)
----------- ----------- --------- --------- -----------
Operating income 117,055 81,841 24,001 46,181 91,299
Interest expense, net (32,189) (34,050) (17,298) (13,141) (24,601)
----------- ----------- --------- --------- -----------
Income before provision for
Federal and state income taxes 84,866 47,791 6,703 33,040 66,698
Provision for Federal and
state income taxes (34,795) (20,116) (3,381) (12,720) (25,678)
----------- ----------- --------- --------- -----------
Net income $ 50,071 $ 27,675 $ 3,322 $ 20,320 $ 41,020
=========== =========== ========= ========= ===========
Earnings per common share:
Basic $ 2.68 $ 1.43 $ 0.17 $ 1.13 $ 2.18
=========== =========== ========= ========= ===========
Diluted $ 2.62 $ 1.42 $ 0.17 $ 1.12 $ 2.16
=========== =========== ========= ========= ===========
Weighted average common shares outstanding:
Basic 18,672 19,333 19,611 17,989 18,776
Diluted 19,105 19,521 19,807 18,179 19,005
See notes to the consolidated financial statements in section 5 of Part A
of this Appendix II.
32
3. Consolidated balance sheets
The following table sets out the consolidated balance sheets of Canandaigua as
at 28 February 1998 and 28 February 1997, as derived from the published audited
accounts for those years.
28 Feb
Consolidated Balance Sheets ------------------------
(in US$ thousands, except share data) 1998 1997
- --------------------------------------------------------------------------------
ASSETS:
Current assets:
Cash and cash investments $ 1,232 $ 10,010
Accounts receivable, net 142,615 142,592
Inventories, net 394,028 326,626
Prepaid expenses and other current assets 26,463 21,787
--------- --------
Total current assets 564,338 501,015
Property, plant and equipment, net 244,035 249,552
Other assets 264,786 270,334
--------- --------
Total assets $ 1,073,159 $ 1,020,901
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Notes payable $ 91,900 $ 57,000
Current maturities of long-term debt 24,118 40,467
Accounts payable 52,055 55,892
Accrued Federal and state excise taxes 17,498 17,058
Other accrued expenses and liabilities 97,763 76,156
--------- --------
Total current liabilities 283,334 246,573
Long-term debt, less current maturities 309,218 338,884
Deferred income taxes 59,237 61,395
Other liabilities 6,206 9,316
--------- --------
Total liabilities 657,995 656,168
--------- --------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $0.01 par value -- Authorised,
1,000,000 shares; Issued, none at 28 February 1998,
and 28 February 1997 --- ---
Class A Common Stock, $0.01 par value -- Authorised,
60,000,000 shares; Issued, 17,604,784 shares
at 28 February 1998, and 17,462,332 shares at 28
February 1997 176 174
Class B Convertible Common Stock, $0.01 par
value -- Authorised, 20,000,000 shares;
Issued, 3,956,183 shares at 28 February 1998,
and 28 February 1997 40 40
Additional paid-in capital 231,687 222,336
Retained earnings 220,346 170,275
--------- --------
452,249 392,825
--------- --------
Less: Treasury stock --
Class A Common Stock, 2,199,320 shares at
28 February 1998, and 1,915,468 shares
at 28 February 1997, at cost (34,878) (25,885)
Class B Convertible Common Stock, 625,725
shares at 28 February 1998, and
28 February 1997, at cost (2,207) (2,207)
---------- --------
(37,085) (28,092)
---------- --------
Total stockholders' equity 415,164 364,733
---------- --------
Total liabilities and stockholders' equity $ 1,073,159 $ 1,020,901
============ ===========
See notes to the consolidated financial statements in section 5 of Part A of
this Appendix II.
33
4. Consolidated statements of cash flows
The following table sets out the consolidated statements of cash flows of
Canandaigua for the years ended 28 February 1998 and 28 February 1997, as
derived from the published audited accounts for those years:
For the Years Ended
28 Feb
Consolidated Statements of Cash Flows ------------------------
(in US$ thousands) 1998 1997
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 50,071 $ 27,675
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation of property, plant and equipment 23,847 22,359
Amortisation of intangible assets 9,314 9,480
Deferred tax provision 6,319 5,769
Stock-based compensation expense 1,747 275
Amortisation of discount on long-term debt 352 112
Gain on sale of property, plant and equipment (3,001) (3,371)
Change in operating assets and liabilities:
Accounts receivable, net 749 3,523
Inventories, net (65,644) 16,232
Prepaid expenses and other current assets (4,354) 3,271
Accounts payable (3,288) (431)
Accrued Federal and state excise taxes 440 (2,641)
Other accrued expenses and liabilities 14,655 24,617
Other assets and liabilities, net (2,452) 898
--------- --------
Total adjustments (21,316) 80,093
--------- --------
Net cash provided by operating activities 28,755 107,768
--------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment,
net of minor disposals (31,203) (31,649)
Proceeds from sale of property, plant
and equipment 12,552 9,174
Payment of accrued earn-out amounts --- (13,848)
--------- --------
Net cash used in investing activities (18,651) (36,323)
--------- --------
Cash flows from financing activities:
Principal payments of long-term debt (186,367) (50,842)
Purchases of treasury stock (9,233) (20,765)
Payment of issuance costs of long-term debt (1,214) (1,550)
Proceeds from issuance of long-term debt,
net of discount 140,000 61,668
Net proceeds from (repayment of) notes payable 34,900 (54,300)
Exercise of employee stock options 1,776 17
Proceeds from employee stock purchases 1,256 998
--------- --------
Net cash used in financing activities (18,882) (64,774)
---------- --------
Net (decrease) increase in cash and cash investments (8,778) 6,671
Cash and cash investments, beginning of period 10,010 3,339
--------- --------
Cash and cash investments, end of period $ 1,232 $ 10,010
=========== ==========
See notes to the consolidated financial statements in section 5 of Part A of
this Appendix II.
34
5. Notes to the consolidated financial statements
The notes to the consolidated financial statements of Canandaigua which include
a summary of significant accounting policies, set out below, are extracted from
its audited consolidated accounts for the year ended 28 February 1998.
References to "the Company" are to Canandaigua.
Note 1. Summary of Significant Accounting Policies
Year-end Change: The Company changed its fiscal year end from 31 August to the
last day of February. The period from 1 September 1995, through 29 February
1996, is hereinafter referred to as the "Transition Period."
Principles of Consolidation: The consolidated financial statements of the
Company include the accounts of the Canandaigua Group. All intercompany accounts
and transactions have been eliminated.
Unaudited Financial Statements: The consolidated statements of income and cash
flows for the six month period ended 28 February 1995, have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission applicable to interim reporting and reflect, in the
opinion of the Company, all adjustments necessary to present fairly the
financial information for the Canandaigua Group. All such adjustments are of a
normal recurring nature.
Management's Use of Estimates and Judgement: The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash Investments: Cash investments consist of highly liquid investments with an
original maturity when purchased of three months or less and are stated at cost,
which approximates market value. The amounts at 28 February 1998 and 1997, are
not significant.
Fair Value of Financial Instruments: To meet the reporting requirements of
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," the Company calculates the fair value of
financial instruments using quoted market prices whenever available. When quoted
market prices are not available, the Company uses standard pricing models for
various types of financial instruments (such as forwards, options, swaps, etc.)
which take into account the present value of estimated future cash flows. The
methods and assumptions used to estimate the fair value of financial instruments
are summarised as follows:
Accounts receivable: The carrying amount approximates fair value due to the
short maturity of these instruments, the creditworthiness of the customers
and the large number of customers constituting the accounts receivable
balance.
Notes payable: These instruments are variable interest rate bearing notes
for which the carrying value approximates the fair value.
Long-term debt: The carrying value of the debt facilities with short-term
variable interest rates approximates the fair value. The fair value of the
fixed rate debt was estimated by discounting cash flows using interest
rates currently available for debt with similar terms and maturities.
Foreign exchange hedging agreements: The fair value of currency forward
contracts is estimated based on quoted market prices.
Interest rate hedging agreements: The fair value of interest rate hedging
instruments is the estimated amount that the Company would receive or be
required to pay to terminate the derivative agreements at year end. The
fair value includes consideration of current interest rates and the
creditworthiness of the counterparties to the agreements.
Letters of credit: At 28 February 1998 and 1997, the Company had letters of
credit outstanding totalling approximately $3,865,000 and $8,622,000,
respectively, which guarantee payment for certain obligations. The Company
recognises expense on these obligations as incurred and no material losses
are anticipated.
35
The carrying amount and estimated fair value of the Company's financial
instruments are summarised as follows:
28 Feb 1998 28 Feb 1997
------------------------------ ---------------------
(in US$ thousands) Carrying Carrying
Amount Fair Value Amount Fair Value
- ---------------------------------------------------------------------------------------------------------------
Liabilities:
Notes payable $ 91,900 $ 91,900 $ 57,000 $ 57,000
Long-term debt, including current portion $ 333,336 $ 340,934 $ 379,351 $ 374,628
Derivative instruments:
Foreign exchange hedging agreements:
Currency forward contracts $ --- $ --- $ 374 $ 407
Interest rate hedging agreements:
Interest rate cap agreement $ --- $ --- $ --- $ ---
Interest rate collar agreement $ --- $ --- $ --- $ ---
Interest Rate Futures and Currency Forward Contracts: From time to time, the
Company enters into interest rate futures and a variety of currency forward
contracts in the management of interest rate risk and foreign currency
transaction exposure. Unrealised gains and losses on interest rate futures are
deferred and recognised as a component of interest expense over the borrowing
period. Unrealised gains and losses on currency forward contracts are deferred
and recognised as a component of the related transactions in the accompanying
financial statements. Discounts or premiums on currency forward contracts are
recognised over the life of the contract.
Inventories: Inventories are valued at the lower of cost (computed in accordance
with the last-in, first-out (LIFO) or first-in, first-out (FIFO) methods) or
market. The percentage of inventories valued using the LIFO method is 92% and
94% at 28 February 1998 and 1997, respectively. Replacement cost of the
inventories determined on a FIFO basis is approximately $411,424,000 at 28
February 1998, and $349,006,000 at 28 February 1997.
A substantial portion of barreled whiskey and brandy will not be sold within one
year because of the duration of the aging process. All barreled whiskey and
brandy are classified as in-process inventories and are included in current
assets, in accordance with industry practice. Bulk wine inventories are also
included as work in process within current assets, in accordance with the
general practices of the wine industry, although a portion of such inventories
may be aged for periods greater than one year. Warehousing, insurance, ad
valorem taxes and other carrying charges applicable to barreled whiskey and
brandy held for aging are included in inventory costs.
Elements of cost include materials, labour and overhead and consist of the
following:
(in US$ thousands) 28 Feb 1998 28 Feb 1997
- --------------------------------------------------------------------------------
Raw materials and supplies $ 14,439 $ 14,191
Wine and distilled spirits in process 304,037 262,289
Finished case goods 92,948 72,526
-------- --------
411,424 349,006
Less -- LIFO reserve (17,396) (22,380)
-------- --------
$ 394,028 $ 326,626
======== ========
If the FIFO method of inventory valuation had been used, reported net income
would have been approximately $2,941,000, or $0.15 per share on a diluted basis,
lower for the year ended 28 February 1998, and reported net income would have
been approximately $18,163,000, or $0.93 per share on a diluted basis, higher
for the year ended 28 February 1997.
Property, Plant and Equipment: Property, plant and equipment is stated at cost.
Major additions and betterments are charged to property accounts, while
maintenance and repairs are charged to operations as incurred. The cost of
properties sold or otherwise disposed of and the related accumulated
depreciation are eliminated from the accounts at the time of disposal and
resulting gains and losses are included as a component of operating income.
36
Depreciation: Depreciation is computed primarily using the straight-line method
over the following estimated useful lives:
Depreciable Life in Years
- --------------------------------------------------------------------------------
Buildings and improvements 10 to 33 1/3
Machinery and equipment 3 to 15
Motor vehicles 3 to 7
Amortisation of assets capitalised under capital leases is included with
depreciation expense. Amortisation is calculated using the straight-line method
over the shorter of the estimated useful life of the asset or the lease term.
Other Assets: Other assets, which consist of goodwill, distribution rights,
trademarks, agency license agreements, deferred financing costs, cash surrender
value of officers' life insurance and other amounts, are stated at cost, net of
accumulated amortisation. Amortisation is calculated on a straight-line or
effective interest basis over the following estimated useful lives:
Useful Life in Years
- --------------------------------------------------------------------------------
Goodwill 40
Distribution rights 40
Trademarks 40
Agency license agreements 6 to 40
Deferred financing costs 5 to 10
At 28 February 1998, the weighted average remaining useful life of these assets
is approximately 36 years. The face value of the officers' life insurance
policies totalled $2,852,000 at both 28 February 1998 and 1997.
Long-lived Assets and Intangibles: In accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," the Company reviews its
long-lived assets and certain identifiable intangibles for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable on an undiscounted cash flow basis. The statement also
requires that long-lived assets and certain identifiable intangibles to be
disposed of be reported at the lower of carrying amount or fair value less cost
to sell. The Company did not record any asset impairment in fiscal 1998.
Advertising and Promotion Costs: The Company generally expenses advertising and
promotion costs as incurred, shown or distributed. Prepaid advertising costs at
28 February 1998 and 1997, are not material. Advertising and promotion expense
for the years ended 28 February 1998 and 1997, the Transition Period, the six
months ended 28 February 1995 (unaudited), and the year ended 31 August 1995,
were approximately $111,685,000, $101,319,000, $60,187,000, $41,658,000
(unaudited) and $84,246,000, respectively.
Income Taxes: The Company uses the liability method of accounting for income
taxes. The liability method accounts for deferred income taxes by applying
statutory rates in effect at the balance sheet date to the difference between
the financial reporting and tax basis of assets and liabilities.
Environmental: Environmental expenditures that relate to current operations are
expensed as appropriate. Expenditures that relate to an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable, and the cost can be reasonably
estimated. Generally, the timing of these accruals coincides with the completion
of a feasibility study or the Company's commitment to a formal plan of action.
Liabilities for environmental costs were not material at 28 February 1998 and
1997.
Earnings Per Common Share: The Company adopted the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings Per Share," (SFAS No. 128)
effective 28 February 1998. Basic earnings per common share excludes the effect
of common stock equivalents and is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
during the period for Class A Common Stock and Class B Convertible Common Stock.
Diluted earnings per common share reflects the potential dilution that could
result if securities or other contracts to issue common stock were exercised or
converted into common stock. Diluted earnings per common share assumes the
exercise of stock options using the treasury stock method and assumes the
conversion of convertible securities, if any, using the "if converted" method.
Historical earnings per common share have been restated to conform with the
provisions of SFAS No. 128.
37
Other: Certain fiscal 1997, Transition Period and fiscal 1995 balances have been
reclassified to conform with current year presentation.
Note 2. Acquisitions
UDG Acquisition: On 1 September 1995, the Company through its wholly-owned
subsidiary, Barton Incorporated (Barton), acquired certain of the assets of
United Distillers Glenmore, Inc., and certain of its North American affiliates
(collectively, UDG) (the UDG Acquisition). The acquisition was made pursuant to
an Asset Purchase Agreement dated 29 August 1995 (the Purchase Agreement),
entered into between Barton and UDG. The acquisition included all of UDG's
rights to the Fleischmann's, Skol, Mr. Boston, Canadian LTD, Old Thompson,
Kentucky Tavern, Chi-Chi's, Glenmore and di Amore distilled spirits brands; the
U.S. rights to Inver House, Schenley and El Toro distilled spirits brands; and
related inventories and other assets. The acquisition also included two of UDG's
production facilities; one located in Owensboro, Kentucky, and the other located
in Albany, Georgia. In addition, pursuant to the Purchase Agreement, the parties
entered into multiyear agreements under which Barton (i) purchases various bulk
distilled spirits brands from UDG and (ii) provides packaging services for
certain of UDG's distilled spirits brands as well as warehousing services.
The aggregate consideration for the acquired brands and other assets consisted
of $141,780,000 in cash and assumption of certain current liabilities. The
source of the cash payment made at closing, together with payment of other costs
and expenses required by the UDG Acquisition, was financing provided by the
Company pursuant to a term loan under the Company's then existing bank credit
agreement.
The UDG Acquisition was accounted for using the purchase method; accordingly,
the UDG assets were recorded at fair market value at the date of acquisition.
The excess of the purchase price over the estimated fair market value of the net
assets acquired (goodwill), $86,348,000, is being amortised on a straight-line
basis over 40 years. The results of operations of the UDG Acquisition have been
included in the Consolidated Statements of Income since the date of acquisition.
Note 3. Property, Plant and Equipment
The major components of property, plant and equipment are as follows:
(in US$ thousands) 28 Feb 1998 28 Feb 1997
- --------------------------------------------------------------------------------
Land $ 15,103 $ 16,961
Buildings and improvements 74,706 76,379
Machinery and equipment 244,204 243,274
Motor vehicles 5,316 5,355
Construction in progress 17,485 13,999
------- -------
356,814 355,968
Less -- Accumulated depreciation (112,779) (106,416)
------- -------
$ 244,035 $ 249,552
=========== ===========
Note 4. Other Assets
The major components of other assets are as follows:
(in US$ thousands) 28 Feb 1998 28 Feb 1997
- --------------------------------------------------------------------------------
Goodwill $ 150,595 $ 150,595
Distribution rights, agency license
agreements and trademarks 119,346 119,316
Other 23,686 22,936
------- -------
293,627 292,847
Less -- Accumulated amortisation (28,841) (22,513)
------- -------
$ 264,786 $ 270,334
=========== ===========
38
Note 5. Other Accrued Expenses and Liabilities
The major components of other accrued expenses and liabilities are as follows:
(in US$ thousands) 28 Feb 1998 28 Feb 1997
- --------------------------------------------------------------------------------
Accrued salaries and commissions $ 23,704 $ 12,109
Other 74,059 64,047
------- -------
$ 97,763 $ 76,156
=========== ===========
Note 6. Borrowings
Borrowings consist of the following:
28 Feb 1998 28 Feb 1997
------------------------------------ ------------
(in US$ thousands) Current Long-term Total Total
- -------------------------------------------------------------------------------------------------
Notes payable:
Senior Credit Facility:
Revolving Credit Loans $ 91,900 $ --- $ 91,900 $ 57,000
========= ======== ========= =========
Long-term debt:
Senior Credit Facility:
Term loan, variable rate, aggregate proceeds
of $140,000, due in instalments through
June 2003 $ 24,000 $ 116,000 $ 140,000 $ 185,900
Senior Subordinated Notes:
8.75% redeemable after 15 December 1998,
due 2003 --- 130,000 130,000 130,000
8.75% Series C redeemable after 15 December
1998, due 2003 (less unamortised discount
of $2,868 -- effective rate 9.76%) --- 62,132 62,132 61,780
Capitalised Lease Agreements:
Capitalised facility lease bearing
interest at 9%, due in monthly
instalments through fiscal 1998 --- --- --- 348
Industrial Development Agencies:
7.50% 1980 issue, original proceeds $2,370,
due in annual instalments of $119
through fiscal 2000 118 119 237 356
Other Long-term Debt:
Loans payable bearing interest at 5%,
secured by cash surrender value of officers'
life insurance policies --- 967 967 967
--------- -------- -------- --------
$ 24,118 $ 309,218 $ 333,336 $ 379,351
========= ========= ========= =========
Senior Credit Facility: On 19 December 1997, the Company and a syndicate of
banks (the Syndicate Banks) entered into a new $325,000,000 senior Credit
Agreement (the Credit Agreement). The proceeds of the Credit Agreement were used
to repay all outstanding principal and accrued interest on all loans under the
Company's Third Amended and Restated Credit Agreement, as amended. As compared
to the previous bank credit agreement, the Credit Agreement includes, among
other things, lower interest rates, lower quarterly loan amortisation and
greater flexibility with respect to effecting acquisitions, incurring
indebtedness and repurchasing the Company's capital stock.
The Credit Agreement provides for a $140,000,000 term loan facility due in June
2003 and a $185,000,000 revolving loan facility, including letters of credit up
to a maximum of $20,000,000, which expires in June 2003. The rate of interest
payable, at the Company's option, is a function of the London interbank offered
rate (LIBOR) plus a margin, federal funds rate plus a margin, or the prime rate.
The margin is adjustable based upon the Company's Debt Ratio (as defined in the
Credit Agreement). The Credit Agreement also provides for certain mandatory term
loan prepayments.
The term loan facility requires quarterly repayments of $6,000,000 beginning
March 1998 through December 2002, and payments of $10,000,000 in March 2003 and
June 2003. At 28 February 1998, the margin on the term loan facility borrowings
was 0.75% and may be decreased by up to 0.35% and increased by up to 0.5%
depending on the Company's Debt Ratio.
The revolving loan facility is utilised to finance working capital requirements.
The Credit Agreement requires that the Company reduce the outstanding balance of
the revolving loan facility to less than $60,000,000 for thirty consecutive days
during the six months ending each 31 August. The margin on the revolving loan
facility was 0.5% at 28 February 1998, and may be decreased by up to 0.25% and
increased by up to 0.4% depending on the Company's Debt Ratio. In addition, the
Company pays a facility fee on the total revolving loan facility. At 28 February
1998, the facility fee was 0.25% and may be reduced or increased by 0.1% subject
to the Company's Debt Ratio.
39
Each of the Company's principal operating subsidiaries has guaranteed, jointly
and severally, the Company's obligations under the Credit Agreement. The
Syndicate Banks have been given security interests in substantially all of the
assets of the Company including mortgage liens on certain real property. The
Company is subject to customary secured lending covenants including those
restricting additional liens, the incurrence of additional indebtedness, the
sale of assets, the payment of dividends, transactions with affiliates and the
making of certain investments. The primary financial covenants require the
maintenance of a Debt Ratio, a senior debt coverage ratio, a fixed charge ratio
and an interest coverage ratio. Among the most restrictive covenants contained
in the Credit Agreement is the requirement to maintain a fixed charge ratio of
not less than 1.0 at the last day of each fiscal quarter for the most recent
four quarters.
The Company had average outstanding Revolving Credit Loans of approximately
$59,892,000 and $88,825,000 for the years ended 28 February 1998 and 1997,
respectively. Amounts available to be drawn down under the Revolving Credit
Loans were $89,235,000 and $119,378,000 at 28 February 1998 and 1997,
respectively. The average interest rate on the Revolving Credit Loans was 6.57%,
6.58%, 6.76% and 7.16%, for fiscal 1998 and 1997, the Transition Period and for
fiscal 1995, respectively. Facility fees on the new Credit Agreement are due
based upon the total revolving loan facility, whereas commitment fees under the
prior agreement were based upon the unused portion of the revolving loan
facility. These fees are based upon the Company's Debt Ratio and can range from
0.15% to 0.35%. At 28 February 1998, the facility fee percentage was 0.25%. The
commitment fee percentage at 28 February 1997 was 0.325%.
Senior Subordinated Notes: On 27 December 1993, the Company issued $130,000,000
aggregate principal amount of 8.75% Senior Subordinated Notes due in December
2003 (the Notes). Interest on the Notes is payable semiannually on 15 June and
15 December of each year. The Notes are unsecured and subordinated to the prior
payment in full of all senior indebtedness of the Company, which includes the
Credit Agreement. The Notes are guaranteed, on a senior subordinated basis, by
all of the Company's significant operating subsidiaries.
The Trust Indenture relating to the Notes contains certain covenants, including,
but not limited to, (i) limitation on indebtedness; (ii) limitation on
restricted payments; (iii) limitation on transactions with affiliates; (iv)
limitation on senior subordinated indebtedness; (v) limitation on liens; (vi)
limitation on sale of assets; (vii) limitation on issuance of guarantees of and
pledges for indebtedness; (viii) restriction on transfer of assets; (ix)
limitation on subsidiary capital stock; (x) limitation on the creation of any
restriction on the ability of the Company's subsidiaries to make distributions
and other payments; and (xi) restrictions on mergers, consolidations and the
transfer of all or substantially all of the assets of the Company to another
person. The limitation on indebtedness covenant is governed by a rolling four
quarter fixed charge ratio requiring a specified minimum.
On 29 October 1996, the Company issued $65,000,000 aggregate principal amount of
8.75% Series B Senior Subordinated Notes due in December 2003 (the Series B
Notes). The Company used the net proceeds of approximately $61,700,000 to repay
$50,000,000 of Revolving Credit Loans and to prepay and permanently reduce
$9,600,000 of the Term Loan. The remaining proceeds were used to pay various
fees and expenses associated with the offering. The terms of the Series B Notes
were substantially identical to those of the Notes. In February 1997, the
Company exchanged $65,000,000 aggregate principal amount of 8.75% Series C
Senior Subordinated Notes due in December 2003 (the Series C Notes) for the
Series B Notes. The terms of the Series C Notes are identical in all material
respects to the Series B Notes.
Loans Payable: Loans payable, secured by officers' life insurance policies,
carry an interest rate of 5%. The notes carry no due dates and it is
management's intention not to repay the notes during the next fiscal year.
Capitalised Lease Agreements -- Industrial Development Agencies: Certain
capitalised lease agreements require the Company to make lease payments equal to
the principal and interest on certain bonds issued by Industrial Development
Agencies. The bonds are secured by the leases and the related facilities. These
transactions have been treated as capital leases with the related assets
included in property, plant and equipment and the lease commitments included in
long-term debt. Among the provisions under the debenture and lease agreements
are covenants that define minimum levels of working capital and tangible net
worth and the maintenance of certain financial ratios as defined in the
agreements.
40
Debt Payments: Principal payments required under long-term debt obligations
during the next five fiscal years are as follows:
(in thousands)
- --------------------------------------------------------------------------------
1999 $ 24,118
2000 24,119
2001 24,000
2002 24,000
2003 24,000
Thereafter 215,967
-------
$ 336,204
=========
Note 7. Income Taxes
The provision for Federal and state income taxes consists of the following:
For the Six
For the Months For the
For the Year Ended 28 Feb 1998 Year Ended Ended Year Ended
---------------------------------- ---------- ----------- ----------
State and 28 Feb 29 Feb 31 August
(in US$ thousands) Federal Local Total 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
Current income tax provision $ 21,032 $ 7,444 $ 28,476 $ 14,347 $ 1,390 $ 6,446
Deferred income tax provision 5,935 384 6,319 5,769 1,991 19,232
--------- ---------- ---------- ---------- ----------- ----------
$ 26,967 $ 7,828 $ 34,795 $ 20,116 $ 3,381 $ 25,678
========= ========== ========== ========== =========== ==========
A reconciliation of the total tax provision to the amount computed by applying
the expected U.S. Federal income tax rate to income before provision for Federal
and state income taxes is as follows:
For the Year For the Year For the Six For the Year
Ended 28 Feb Ended 28 Feb Months Ended 29 Ended 31 August
1998 1997 Feb 1996 1995
--------------- ----------------- ------------------ ----------------
% of % of % of % of
Pretax Pretax Pretax Pretax
(in US$ thousands) Amount Income Amount Income Amount Income Amount Income
- -------------------------------------------------------------------------------------------------------------------------
Computed "expected" tax provision $ 29,703 35.0 $ 16,727 35.0 $ 2,346 35.0 $ 23,344 35.0
State and local income taxes,
net of Federal income tax benefit 5,089 6.0 3,304 6.9 827 12.3 2,395 3.6
Nondeductible meals and
entertainment expenses 294 0.3 310 0.6 205 3.1 290 0.4
Miscellaneous items, net (291) (0.3) (225) (0.4) 3 --- (351) (0.5)
---- ---- ---- ---- ---- ---- ---- ----
$ 34,795 41.0 $ 20,116 42.1 $ 3,381 50.4 $ 25,678 38.5
======= ==== ======= ==== ====== ==== ======= ====
Deferred tax liabilities (assets) are comprised of the following:
(in US$ thousands) 28 Feb 1998 28 Feb 1997
- --------------------------------------------------------------------------------
Depreciation and amortisation $ 70,303 $ 68,155
LIFO reserve 13,601 2,019
Inventory reserves 6,974 9,418
Other accruals (18,193) (13,191)
------- -------
$ 72,685 $ 66,991
========== ==========
At 28 February 1998, the Company has state and U.S. Federal net operating loss
(NOL) carryforwards of $16,213,000 and $3,654,000, respectively, to offset
future taxable income that, if not otherwise utilised, will expire as follows:
state NOLs of $6,945,000, $6,828,000 and $2,440,000 at 28 February 2001, 2002
and 2003, respectively, and Federal NOL of $3,654,000 at 28 February 2011.
Note 8. Profit Sharing Retirement Plans and Retirement Savings Plan
The Company's profit sharing retirement plans, which cover substantially all
employees, provide for contributions by the Company in such amounts as the Board
of Directors may annually determine and for voluntary contributions by
employees. The plans are qualified as tax-exempt under the Internal Revenue Code
and conform with the Employee
41
Retirement Income Security Act of 1974. The Company's provisions for the plans,
including the Barton plan described below, were $5,571,000 and $4,999,000 for
the years ended 28 February 1998 and 1997, respectively, $2,579,000 in the
Transition Period and $3,830,000 for fiscal 1995.
The Company's retirement savings plan, established pursuant to Section 401(k) of
the Internal Revenue Code, permits substantially all full-time employees of the
Company (excluding Barton employees, who are covered by a separate plan
described below) to defer a portion of their compensation on a pretax basis.
Participants may defer, subject to a maximum contribution limitation, up to 10%
of their compensation for the year. The Company makes a matching contribution of
25% of the first 4% of compensation an employee defers. Company contributions to
this plan were $367,000 and $700,000 for the years ended 28 February 1998 and
1997, respectively, $325,000 in the Transition Period and $281,000 in fiscal
1995.
The Barton profit sharing and 401(k) plan covers all salaried employees of
Barton. The amount of Barton's contribution under the profit sharing portion of
the plan is at the discretion of its Board of Directors, subject to limitations
of the plan. Contribution expense was $2,799,000 and $2,504,000 for the years
ended 28 February 1998 and 1997, respectively, $1,095,000 in the Transition
Period and $1,430,000 in fiscal 1995. Pursuant to the 401(k) portion of the
plan, participants may defer up to 8% of their compensation for the year,
subject to limitations of the plan, and receive no matching contribution from
Barton.
Note 9. Stockholders' Equity
Common Stock: The Company has two classes of common stock: Class A Common Stock
and Class B Convertible Common Stock. Class B Convertible Common Stock shares
are convertible into shares of Class A Common Stock on a one-to-one basis at any
time at the option of the holder. Holders of Class B Convertible Common Stock
are entitled to ten votes per share. Holders of Class A Common Stock are
entitled to only one vote per share but are entitled to a cash dividend premium.
If the Company pays a cash dividend on Class B Convertible Common Stock, each
share of Class A Common Stock will receive an amount at least ten percent
greater than the amount of the cash dividend per share paid on Class B
Convertible Common Stock. In addition, the Board of Directors may declare and
pay a dividend on Class A Common Stock without paying any dividend on Class B
Convertible Common Stock.
At 28 February 1998, there were 15,405,464 shares of Class A Common Stock and
3,330,458 shares of Class B Convertible Common Stock outstanding, net of
treasury stock.
Stock Repurchase Authorisation: On 11 January 1996, the Company's Board of
Directors authorised the repurchase of up to $30,000,000 of its Class A and
Class B Common stock. The Company was permitted to finance such purchases, which
became treasury shares, through cash generated from operations or through the
Credit Agreement. The Company completed its repurchase program during fiscal
1998, repurchasing 362,100 shares of Class A Common Stock for $9,233,000.
Throughout the year ended 28 February 1997, the Company repurchased 787,450
shares of Class A Common Stock totalling $20,765,000.
Long-Term Stock Incentive Plan: In July 1997, the stockholders approved the
amendment and restatement of the Company's Stock Option and Stock Appreciation
Right Plan (the Original Stock Plan) as the Long-Term Stock Incentive Plan (the
Long-Term Stock Plan). Options granted under the Original Stock Plan remain
outstanding and in full force in accordance with their terms.
Under the Long-Term Stock Plan, nonqualified stock options, stock appreciation
rights, restricted stock and other stock-based awards may be granted to
employees, officers and directors of the Company. Grants, in the aggregate, may
not exceed 4,000,000 shares of the Company's Class A Common Stock. The exercise
price, vesting period and term of nonqualified stock options granted are
established by the committee administering the plan (the Committee). Grants of
stock appreciation rights, restricted stock and other stock-based awards may
contain such vesting, terms, conditions and other requirements as the Committee
may establish. During fiscal 1998, no stock appreciation rights and 25,000
shares of restricted Class A Common Stock were granted. At 28 February 1998,
there were 1,840,258 shares available for future grant.
42
A summary of nonqualified stock option activity is as follows:
Shares Weighted Weighted
Under Avg. Exercise Options Avg. Exercise
Option Price Exercisable Price
- ----------------------------------------------------------------------------------------------------
Balance, 31 August 1994 563,500 $ 15.65
Options granted 289,000 $ 40.29
Options exercised (114,075) $ 7.02
Options forfeited/cancelled (4,500) $ 19.22
--------
Balance, 31 August 1995 733,925 $ 26.68 39,675 $ 4.44
Options granted 571,050 $ 36.01
Options exercised (18,000) $ 13.23
Options forfeited/cancelled (193,250) $ 44.06
--------
Balance, 29 February 1996 1,093,725 $ 28.70 28,675 $ 4.44
Options granted 1,647,700 $ 22.77
Options exercised (3,750) $ 4.44
Options forfeited/cancelled (1,304,700) $ 32.09
--------
Balance, 28 February 1997 1,432,975 $ 18.85 51,425 $ 10.67
Options granted 569,400 $ 38.72
Options exercised (117,452) $ 15.33
Options forfeited/cancelled (38,108) $ 17.66
--------
Balance, 28 February 1998 1,846,815 $ 25.23 360,630 $ 25.46
==========
The following table summarises information about stock options outstanding at 28
February 1998:
Options Outstanding Options Exercisable
------------------------------------------------- -----------------------------
Weighted Avg. Weighted Weighted
Number Remaining Avg. Exercise Number Avg. Exercise
Range of Exercise Prices Outstanding Contractual Life Price Exercisable Price
- --------------------------------------------------------------------------------------------------------------------
$ 4.44 -- $11.50 38,675 3.5 years $ 9.15 38,675 $ 9.15
$17.00 -- $25.63 998,540 7.3 years $ 17.37 134,280 $ 17.00
$26.75 -- $31.25 351,800 8.5 years $ 28.46 80,200 $ 27.30
$35.38 -- $56.75 457,800 9.6 years $ 41.25 107,475 $ 40.53
------- --------
1,846,815 8.0 years $ 25.23 360,630 $ 25.46
========= =========
The weighted average fair value of options granted during fiscal 1998, fiscal
1997 and the Transition Period was $20.81, $10.27 and $15.90, respectively. The
fair value of options is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions: risk-free
interest rate of 6.4% for fiscal 1998, 6.6% for fiscal 1997 and 5.5% for the
Transition Period; volatility of 41.3% for fiscal 1998, 42.7% for fiscal 1997
and 39.6% for the Transition Period; expected option life of 6.9 years for
fiscal 1998, 4.7 years for fiscal 1997 and 5.4 years for the Transition Period.
The dividend yield was 0% for fiscal 1998, fiscal 1997 and the Transition
Period. Forfeitures are recognised as they occur.
Incentive Stock Option Plan: The ability to grant incentive stock options under
the Original Stock Plan was eliminated when it was amended and restated as the
Long-Term Stock Plan. In July 1997, stockholders approved the adoption of the
Company's Incentive Stock Option Plan. Under the Incentive Stock Option Plan,
incentive stock options may be granted to employees, including officers, of the
Company. Grants, in the aggregate, may not exceed 1,000,000 shares of the
Company's Class A Common Stock. The exercise price of any incentive stock option
may not be less than the fair market value of the Company's Class A Common Stock
on the date of grant. The vesting period and term of incentive stock options
granted are established by the Committee. The maximum term of incentive stock
options is ten years. During fiscal 1998, no incentive stock options were
granted.
Employee Stock Purchase Plan: In fiscal 1989, the Company approved a stock
purchase plan under which 1,125,000 shares of Class A Common Stock can be
issued. Under the terms of the plan, eligible employees may purchase shares of
the Company's Class A Common Stock through payroll deductions. The purchase
price is the lower of 85% of the fair market value of the stock on the first or
last day of the purchase period. During fiscal 1998 and fiscal 1997, the
Transition Period and fiscal 1995, employees purchased 78,248, 37,768, 20,869
and 28,641 shares, respectively.
The weighted average fair value of purchase rights granted during fiscal 1998
and fiscal 1997 was $11.90 and $8.41, respectively. The fair value of purchase
rights is estimated on the date of grant using the Black-Scholes option-pricing
43
model with the following weighted average assumptions: risk-free interest rate
of 5.3% for fiscal 1998 and 5.6% for fiscal 1997; volatility of 35.1% for fiscal
1998 and 65.4% for fiscal 1997; expected purchase right life of 0.5 years for
fiscal 1998 and 0.8 years for fiscal 1997. The dividend yield was 0% for both
fiscal 1998 and fiscal 1997. No purchase rights were granted in the Transition
Period.
Pro Forma Disclosure: The Company applies Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations
in accounting for its plans. In fiscal 1997, the Company elected to adopt the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," (SFAS No. 123). Accordingly, no
compensation expense has been recognised for its stock-based compensation plans.
Had the Company recognised the compensation cost based upon the fair value at
the date of grant for awards under its plans consistent with the methodology
prescribed by SFAS No. 123, net income and earnings per common share would have
been reduced to the pro forma amounts as follows:
For the Year Ended For the Year Ended For the Six Months Ended
28 Feb 1998 28 Feb 1997 29 Feb 1996
---------------------- --------------------- ----------------------------
(in US$ thousands, As As As
except share data) Reported Pro Forma Reported Pro Forma Reprted Pro Forma
- ---------------------------------------------------------------------------------------------------------------
Net income $ 50,071 $ 46,171 $ 27,675 $ 25,038 $ 3,322 $ 3,178
Earnings per
common share:
Basic $ 2.68 $ 2.47 $ 1.43 $ 1.30 $ 0.17 $ 0.16
Diluted $ 2.62 $ 2.42 $ 1.42 $ 1.28 $ 0.17 $ 0.16
The provisions of SFAS No. 123 have not been applied to options or purchase
rights granted prior to 1 September 1995. Therefore, the resulting pro forma
effect on net income may not be representative of that to be expected in future
years.
Stock Offering: During November 1994, the Company completed a public offering
and sold 3,000,000 shares of its Class A Common Stock, resulting in net proceeds
to the Company of approximately $95,515,000 after underwriters' discounts and
commissions and expenses. In connection with the offering, 432,067 of the
Vintners option shares were exercised and the Company received proceeds of
$7,885,000. Under the terms of the then existing bank credit agreement,
approximately $82,000,000 was used to repay a portion of the Term Loan under the
bank credit agreement. The balance of net proceeds was used to repay Revolving
Credit Loans under the bank credit agreement.
Note 10. Earnings Per Common Share
The following table presents historical earnings per common share restated to
conform with the provisions of SFAS No.128.
For the
For the Years Ended For the Six Months Ended Year Ended
------------------------ ----------------------------- ------------
28 Feb 28 Feb 29 Feb 28 Feb 31 Aug
(in thousands, except per share data) 1998 1997 1996 1995 1995
- ---------------------------------------------------------------------------------------------------------------------------
(unaudited)
Basic earnings per common share:
Income applicable to common shares $ 50,071 $ 27,675 $ 3,322 $ 20,320 $ 41,020
---------- ---------- ---------- ----------- ----------
Weighted average common shares outstanding 18,672 19,333 19,611 17,989 18,776
Basic earnings per common share $ 2.68 $ 1.43 $ 0.17 $ 1.13 $ 2.18
========== ========== ========== =========== ==========
Diluted earnings per common share:
Income applicable to common shares $ 50,071 $ 27,675 $ 3,322 $ 20,320 $ 41,020
---------- ---------- ---------- ----------- ----------
Weighted average common shares outstanding 18,672 19,333 19,611 17,989 18,776
Incentive stock options 423 179 129 152 155
Options/employee stock purchases 10 9 67 38 74
------ ------ ------ ------ ------
Adjusted weighted average common
shares outstanding 19,105 19,521 19,807 18,179 19,005
------ ------ ------ ------ ------
Diluted earnings per common share $ 2.62 $ 1.42 $ 0.17 $ 1.12 $ 2.16
========= ========= ========= ========== ========
44
Note 11. Commitments and Contingencies
Operating Leases: Future payments under noncancelable operating leases having
initial or remaining terms of one year or more are as follows:
(in thousands)
- --------------------------------------------------------------------------------
1999 $ 3,506
2000 2,627
2001 1,947
2002 1,513
2003 1,291
Thereafter 8,590
------
$ 19,474
=======
Rental expense was approximately $5,554,000 and $4,716,000 for fiscal 1998 and
fiscal 1997, respectively, $2,382,000 in the Transition Period and $4,193,000
for fiscal 1995.
Purchase Commitments and Contingencies: The Company has agreements with three
suppliers to purchase blended Scotch whisky through December 2001. The purchase
prices under the agreements are denominated in British pounds sterling. Based
upon exchange rates at 28 February 1998, the Company's aggregate future
obligation ranges from approximately $10,758,000 to $22,835,000 for the
contracts expiring through December 2001.
The Company has an agreement to purchase Canadian blended whisky through 1
September 1999, with a maximum obligation of approximately $4,453,000. The
Company also has two agreements to purchase Canadian new distillation whisky
(including dumping charges) through December 2005 at purchase prices of
approximately $12,521,000 to $13,536,000. In addition, the Company has an
agreement to purchase corn whiskey through April 1999 at a purchase price of
approximately $90,000.
All of the Company's imported beer products are marketed and sold pursuant to
exclusive distribution agreements from the suppliers of these products. The
Company's agreement to distribute Corona and its other Mexican beer brands
exclusively throughout 25 states was renewed effective 22 November 1996, and
expires December 2006, with automatic five year renewals thereafter, subject to
compliance with certain performance criteria and other terms under the
agreement. The remaining agreements expire through June 2003. Prior to their
expiration, these agreements may be terminated if the Company fails to meet
certain performance criteria. At 28 February 1998, the Company believes it is in
compliance with all of its material distribution agreements and, given the
Company's long-term relationships with its suppliers, the Company does not
believe that these agreements will be terminated.
In connection with the Vintners Acquisition and the Almaden/Inglenook
Acquisition, the Company assumed purchase contracts with certain growers and
suppliers. In addition, the Company has entered into other purchase contracts
with various growers and suppliers in the normal course of business. Under the
grape purchase contracts, the Company is committed to purchase all grape
production yielded from a specified number of acres for a period of time ranging
up to 20 years. The actual tonnage and price of grapes that must be purchased by
the Company will vary each year depending on certain factors, including weather,
time of harvest, overall market conditions and the agricultural practices and
location of the growers and suppliers under contract.
The Company purchased $154,909,000 of grapes under these contracts during fiscal
1998. Based on current production yields and published grape prices, the Company
estimates that the aggregate purchases under these contracts over the remaining
term of the contracts will be approximately $915,651,000. During fiscal 1994, in
connection with the Vintners Acquisition and the Almaden/Inglenook Acquisition,
the Company established a reserve for the estimated loss on these firm purchase
commitments of approximately $62,664,000, which was subsequently reduced during
fiscal 1995 to reflect the effects of the termination payments to cancel
contracts with certain growers. The remaining reserve for the estimated loss on
the remaining contracts is approximately $771,000 at 28 February 1998.
The Company's aggregate obligations under bulk wine purchase contracts will be
approximately $32,502,000 over the remaining term of the contracts which expire
through fiscal 2001.
Employment Contracts: The Company has employment contracts with certain of its
executive officers and certain other management personnel with remaining terms
ranging up to three years. These agreements provide for minimum salaries, as
adjusted for annual increases, and may include incentive bonuses based upon
attainment of specified management goals. In addition, these agreements provide
for severance payments in the event of specified termination of employment. The
aggregate commitment for future compensation and severance, excluding incentive
bonuses, was
45
approximately $7,903,000 as of 28 February 1998, of which approximately
$1,436,000 is accrued in other liabilities as of 28 February 1998.
Employees Covered by Collective Bargaining Agreements: Approximately 42% of the
Company's full-time employees are covered by collective bargaining agreements at
28 February 1998. Agreements expiring within one year cover approximately 7% of
the Company's full-time employees.
Legal Matters: The Company is subject to litigation from time to time in the
ordinary course of business. Although the amount of any liability with respect
to such litigation cannot be determined, in the opinion of management, such
liability will not have a material adverse effect on the Company's financial
condition or results of operations.
Note 12. Significant Customers and Concentration of Credit Risk
The Company sells its products principally to wholesalers for resale to retail
outlets including grocery stores, package liquor stores, club and discount
stores and restaurants. Gross sales to the five largest wholesalers of the
Company represented 26.4%, 22.9%, 16.9% and 21.6% of the Company's gross sales
for the fiscal years ending 28 February 1998 and 1997, the Transition Period and
for the fiscal year ended 31 August 1995, respectively. Gross sales to the
Company's largest wholesaler, Southern Wine and Spirits, represented 12.1%,
10.5% and 10.6% of the Company's gross sales for the fiscal years ended 28
February 1998 and 1997, and for the fiscal year ended 31 August 1995,
respectively. Accounts receivable from the Company's largest wholesaler
represented 14.1% and 11.3% of the Company's total accounts receivable as of 28
February 1998 and 1997, respectively. No single wholesaler was responsible for
greater than 10% of gross sales during the Transition Period. Gross sales to the
Company's five largest wholesalers are expected to continue to represent a
significant portion of the Company's revenues. The Company's arrangements with
certain of its wholesalers may, generally, be terminated by either party with
prior notice. The Company performs ongoing credit evaluations of its customers'
financial position, and management of the Company is of the opinion that any
risk of significant loss is reduced due to the diversity of customers and
geographic sales area.
Note 13. Restructuring Plan
The Company provided for costs to restructure the operations of its California
wineries (the Restructuring Plan) in the fourth quarter of fiscal 1994. Under
the Restructuring Plan, all bottling operations at the Central Cellars winery in
Lodi, California, and the branded wine bottling operations at the Monterey
Cellars winery in Gonzales, California, were moved to the Mission Bell winery
located in Madera, California. The Monterey Cellars winery will continue to be
used as a crushing, winemaking and contract bottling facility. The Central
Cellars winery was closed in the fourth quarter of fiscal 1995 and was sold for
its approximate net book value during fiscal 1997. In fiscal 1994, the
Restructuring Plan reduced income before taxes and net income by approximately
$24,005,000 and $14,883,000, respectively, or $0.92 per share on a diluted
basis. Of the total pretax charge in fiscal 1994, approximately $16,481,000 was
to recognise estimated losses associated with the revaluation of land, buildings
and equipment related to facilities described above to their estimated net
realisable value; and approximately $7,524,000 related to severance and other
benefits associated with the elimination of 260 jobs. In fiscal 1995, the
Restructuring Plan reduced income before income taxes and net income by
approximately $2,238,000 and $1,376,000, respectively, or $0.07 per share on a
diluted basis. Of the total pretax charge in fiscal 1995, $4,288,000 relates to
equipment relocation and employee hiring and relocation costs, offset by a
decrease of $2,050,000 in the valuation reserve as compared to fiscal 1994,
primarily related to the land, buildings and equipment at the Central Cellars
winery. The Company also expended approximately $19,071,000 in fiscal 1995 for
capital expenditures to expand storage capacity and install certain relocated
equipment. In the Transition Period, the expense incurred in connection with the
Restructuring Plan reduced income before taxes and net income by approximately
$2,404,000 and $1,192,000, respectively, or $0.06 per share on a diluted basis.
These charges represented incremental, nonrecurring expenses of $3,982,000
primarily incurred for overtime and freight expenses resulting from
inefficiencies related to the Restructuring Plan, offset by a reduction in the
accrual for restructuring expenses of $1,578,000, primarily for severance and
facility holding and closure costs. The Company completed the Restructuring Plan
at 29 February 1996, with a total employment reduction of 177 jobs. The Company
expended approximately $2,125,000 in fiscal 1997 and $6,644,000 during the
Transition Period for capital expenditures to expand storage capacity. As of 28
February 1997, the Company had accrued liabilities of approximately $402,000
relating to the Restructuring Plan. As of 28 February 1998, the Company had no
accrued liabilities relating to the Restructuring Plan.
Note 14. Summarised Financial Information -- Subsidiary Guarantors
The subsidiary guarantors are wholly owned and the guarantees are full,
unconditional, joint and several obligations of each of the subsidiary
guarantors. Summarised financial information for the subsidiary guarantors is
set forth below. Separate financial statements for the subsidiary guarantors of
the Company are not presented because the Company has
46
determined that such financial statements would not be material to investors.
The subsidiary guarantors comprise all of the direct and indirect subsidiaries
of the Company, other than the nonguarantor subsidiaries which individually, and
in the aggregate, are inconsequential. There are no restrictions on the ability
of the subsidiary guarantors to transfer funds to the Company in the form of
cash dividends or loan repayments; however, except for limited amounts, the
subsidiary guarantors may not loan funds to the Company.
The following table presents summarised financial information for subsidiary
guarantors in connection with all of the Company's 8.75% Senior Subordinated
Notes:
(in US$ thousands) 28 Feb 1998 28 Feb 1997
- --------------------------------------------------------------------------------
Balance Sheet Data:
Current assets $ 460,618 $ 401,870
Noncurrent assets $ 395,225 $ 403,068
Current liabilities $ 102,207 $ 100,009
Noncurrent liabilities $ 61,784 $ 65,300
For the
For the Years Ended For the Six Months Ended Year Ended
-------------------------- ------------------------- -----------
(in US$ thousands) 28 Feb 1998 28 Feb 1997 29 Feb 1996 28 Feb 1995 31 Aug 1995
- ----------------------------------------------------------------------------------------------
Income Statement Data:
Net sales $ 985,757 $ 907,387 $ 416,839 $ 334,885 $ 716,969
Gross profit $ 196,642 $ 164,471 $ 73,843 $ 62,883 $ 131,489
Income before
provision for
Federal and
state income taxes $ 64,270 $ 47,303 $ 17,083 $ 22,690 $ 52,756
Net income $ 38,094 $ 27,392 $ 8,466 $ 13,954 $ 32,445
Note 15. Accounting Pronouncements
In June 1997, Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," (SFAS No. 130) and Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information," (SFAS No. 131) were issued. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of financial statements. The Company is required to adopt SFAS No. 130 for
interim periods and fiscal years beginning 1 March 1998. Reclassification of
financial statements for earlier periods provided for comparative purposes is
required. The Company believes the effect of adoption will not be significant.
SFAS No. 131 establishes standards for reporting information about operating
segments in annual financial statements and requires reporting of selected
information in interim financial statements. The Company is required to adopt
SFAS No. 131 for fiscal years beginning 1 March 1998, and for interim periods
beginning 1 March 1999. Restatement of comparative information for earlier years
is required in the initial year of adoption and comparative information for
interim periods in the initial year of adoption is to be reported for interim
periods in the second year of application. The Company has not yet determined
the impact of SFAS No. 131 on its financial statements.
47
Note 16. Selected Quarterly Financial Information (Unaudited)
A summary of selected quarterly financial information is as follows:
Quarter Ended
---------------------------------------------------
31 May 31 Aug 30 Nov 28 Feb
(in US$ thousands, except share data) 1997 1997 1997 1998 Fiscal 1998
- ---------------------------------------------------------------------------------------------------------------
Net sales $ 306,011 $ 301,524 $ 322,703 $ 282,550 $ 1,212,788
Gross profit $ 80,732 $ 84,759 $ 98,000 $ 85,244 $ 348,735
Net income $ 10,046 $ 12,365 $ 17,611 $ 10,049 $ 50,071
Earnings per common share:
Basic $ 0.54 $ 0.67 $ 0.94 $ 0.54 $ 2.68
Diluted $ 0.53 $ 0.65 $ 0.92 $ 0.53 $ 2.62
Market price per share:
Class A High $ 32.25 $ 42.75 $ 53.50 $ 58.50
Class A Low $ 21 7/8 $ 29 3/8 $ 39.50 $ 43.75
Class B High $ 37 $ 43 $ 54 5/8 $ 57.75
Class B Low $ 27 $ 35.50 $ 40.75 $ 45
Quarter Ended
---------------------------------------------------
31 May 31 Aug 30 Nov 28 Feb
(in US$ thousands, except share data) 1996 1996 1996 1997 Fiscal 1997
- ---------------------------------------------------------------------------------------------------------------
Net sales $ 276,493 $ 279,218 $ 317,733 $ 261,569 $ 1,135,013
Gross profit $ 72,907 $ 69,835 $ 81,683 $ 66,407 $ 290,832
Net income $ 8,501 $ 4,941 $ 8,311 $ 5,922 $ 27,675
Earnings per common share:
Basic $ 0.43 $ 0.25 $ 0.43 $ 0.31 $ 1.43
Diluted $ 0.43 $ 0.25 $ 0.43 $ 0.31 $ 1.42
Market price per share:
Class A High $ 39.50 $ 32.25 $ 27.50 $ 31.75
Class A Low $ 27 $ 22 7/8 $ 15.75 $ 25.50
Class B High $ 39.50 $ 32.50 $ 29.75 $ 34
Class B Low $ 27.75 $ 25 3/8 $ 19 $ 28.75
Note 17. Dividends
The Company's policy is to retain all of its earnings to finance the development
and expansion of its business, and the Company has not paid any cash dividends
since its initial public offering in 1973.
48
PART B: UNAUDITED FINANCIAL INFORMATION
1. Financial information
The financial information relating to Canandaigua for the six and three months
ended 31 August 1998 and 31 August 1997 has been extracted from the Form 10-Q
which was filed with the United States Securities and Exchange Commission on
29 September 1998. All information presented in Part B of this Appendix II is
unaudited.
2. Consolidated statements of income
For the Six Months For the Three Months
Ended 31 August Ended 31 August
Consolidated Statements of Income --------------------- ---------------------
(in US$ thousands, except share data) 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------
Gross sales $ 880,150 $ 820,326 $ 457,281 $ 409,288
Less -- Excise taxes (217,836) (212,791) (107,895) (107,764)
-------- -------- -------- --------
Net sales 662,314 607,535 349,386 301,524
Cost of product sold (467,767) (442,044) (247,775) (216,765)
-------- -------- -------- --------
Gross profit 194,547 165,491 101,611 84,759
Selling, general and
administrative expenses (128,786) (111,483) (67,454) (56,258)
-------- -------- ------- -------
Operating income 65,761 54,008 34,157 28,501
Interest expense, net (15,952) (16,024) (7,425) (7,545)
------- ------- ------ ------
Income before provision for Federal
and state income taxes 49,809 37,984 26,732 20,956
Provision for Federal and state
income taxes (20,422) (15,573) (10,960) (8,591)
------- ------- ------- ------
Net income $ 29,387 $ 22,411 $ 15,772 $ 12,365
========= ========= ========= =========
Earnings per common share:
Basic $ 1.57 $ 1.20 $ 0.85 $ 0.67
========= ========= ========= =========
Diluted $ 1.53 $ 1.18 $ 0.83 $ 0.65
========= ========= ========= =========
Weighted average common shares
outstanding:
Basic 18,669 18,665 18,589 18,559
Diluted 19,168 19,002 19,051 18,962
See notes to the consolidated financial statements in section 5 of Part B of
this Appendix II.
49
3. Consolidated balance sheets
Consolidated Balance Sheets 31 August 28 February
(in US$ thousands, except share data) 1998 1998
- -----------------------------------------------------------------------------------------------------
ASSETS:
Current assets:
Cash and cash investments $ 1,473 $ 1,232
Accounts receivable, net 154,550 142,615
Inventories, net 345,972 394,028
Prepaid expenses and other current assets 37,550 26,463
--------- -----------
Total current assets 539,545 564,338
Property, plant and equipment, net 246,157 244,035
Other assets 262,004 264,786
--------- -----------
Total assets 1,047,706 $ 1,073,159
========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Notes payable $ 63,000 $ 91,900
Current maturities of long-term debt 24,118 24,118
Accounts payable 65,624 52,055
Accrued Federal and state excise taxes 21,561 17,498
Other accrued expenses and liabilities 101,569 97,763
--------- -----------
Total current liabilities 275,872 283,334
Long-term debt, less current maturities 297,407 309,218
Deferred income taxes 59,237 59,237
Other liabilities 5,445 6,206
--------- -----------
Total liabilities 637,961 657,995
--------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $0.01 par value -- Authorised, 1,000,000 shares;
Issued, none at 31 August 1998, and 28 February 1998 --- ---
Class A Common Stock, $0.01 par value -- Authorised, 120,000,000
shares; Issued, 17,802,475 shares at 31 August 1998, and
17,604,784 shares at 28 February 1998 178 176
Class B Convertible Common Stock, $0.01 par value -- Authorised,
20,000,000 shares; Issued, 3,873,912 shares at 31 August 1998,
and 3,956,183 shares at 28 February 1998 39 40
Additional paid-in capital 234,992 231,687
Retained earnings 249,733 220,346
--------- -----------
484,942 452,249
--------- -----------
Less: Treasury stock --
Class A Common Stock, 3,029,505 shares at 31 August 1998,
and 2,199,320 shares at 28 February 1998, at cost (72,990) (34,878)
Class B Convertible Common Stock, 625,725 shares at
31 August 1998, and 28 February 1998, at cost (2,207) (2,207)
--------- -----------
(75,197) (37,085)
--------- -----------
Total stockholders' equity 409,745 415,164
------- -------
Total liabilities and stockholders' equity $ 1,047,706 $ 1,073,159
========= ===========
See notes to the consolidated financial statements in section 5 of Part B of
this Appendix II.
50
4. Consolidated statements of cash flows
For the Six Months Ended
Consolidated Statements of Cash Flows 31 August
-------------------------
(in US$ thousands) 1998 1997
- --------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 29,387 $ 22,411
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation of property, plant and equipment 11,952 12,625
Amortisation of intangible assets 5,015 4,699
Deferred tax provision 900 4,900
Amortisation of discount on long-term debt 189 172
Stock-based compensation expense 51 350
Gain on sale of property, plant and equipment (3) (883)
Change in operating assets and liabilities:
Accounts receivable, net (11,935) (17,518)
Inventories, net 48,056 (8,131)
Prepaid expenses and other current assets (10,867) 1,285
Accounts payable 11,339 57,408
Accrued Federal and state excise taxes 4,063 2,669
Other accrued expenses and liabilities 2,906 1,584
Other assets and liabilities, net (2,549) (717)
------ ----
Total adjustments 59,117 58,443
------ ------
Net cash provided by operating activities 88,504 80,854
------ ------
Cash flows from investing activities:
Purchases of property, plant and equipment (14,098) (18,213)
Purchase of joint venture minority interest (716) --
Proceeds from sale of property, plant and equipment 27 8,512
----- ------
Net cash used in investing activities (14,787) (9,701)
------- ------
Cash flows from financing activities:
Purchases of treasury stock (36,014) (9,233)
Net repayments of notes payable (28,900) (27,800)
Principal payments of long-term debt (12,000) (40,409)
Exercise of employee stock options 2,154 741
Proceeds from employee stock purchases 1,284 204
Payment of issuance costs of long-term debt -- (388)
------- ------
Net cash used in financing activities (73,476) (76,885)
------- -------
Net increase (decrease) in cash and cash investments 241 (5,732)
Cash and cash investments, beginning of period 1,232 10,010
------- ------
Cash and cash investments, end of period $ 1,473 $ 4,278
======== ========
See notes to the consolidated financial statements in section 5 of Part B of
this Appendix II.
51
5. Notes to the consolidated financial statements
Note 1. Management's Representations
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission applicable to quarterly reporting on Form
10-Q and reflect, in the opinion of the Company, all adjustments necessary to
present fairly the financial information for the Canandaigua Group. All such
adjustments are of a normal recurring nature. Certain information and footnote
disclosures normally included in financial statements, prepared in accordance
with generally accepted accounting principles, have been condensed or omitted as
permitted by such rules and regulations. These consolidated financial statements
and related notes should be read in conjunction with the consolidated financial
statements and related notes included in the Company's Annual Report on Form
10-K for the fiscal year ended 28 February 1998.
Note 2. Inventories
Inventories are valued at the lower of cost (computed in accordance with the
last-in, first-out (LIFO) or first-in, first-out (FIFO) methods) or market.
Substantially all of the inventories are valued using the LIFO method. Elements
of cost include materials, labour and overhead and consist of the following:
31 August 28 February
(in US$ thousands) 1998 1998
- --------------------------------------------------------------
Raw materials and supplies $ 14,395 $ 14,439
Wine and distilled spirits in process 231,442 304,037
Finished case goods 118,280 92,948
------- ------
364,117 411,424
Less -- LIFO reserve (18,145) (17,396)
------- -------
$ 345,972 $ 394,028
========= =========
Information related to the FIFO method of inventory valuation may be useful in
comparing operating results to those companies not using the LIFO method of
inventory valuation. If the FIFO method had been used, reported net income would
have been $0.4 million, or $0.02 per share on a diluted basis, higher for the
six months ended 31 August 1998, and reported net income would have been $1.7
million, or $0.09 per share on a diluted basis, higher for the six months ended
31 August 1997.
Note 3. Borrowings
Bank credit agreement: In June 1998, the bank credit agreement was amended to,
among other things, eliminate the requirement that the Company reduce the
outstanding balance of the revolving loan facility to less than $60,000,000 for
thirty consecutive days during the six months ending each 31 August. In July
1998, the revolving loan facility under the bank credit agreement was increased
by $100.0 million to $285.0 million.
Note 4. Retirement Savings and Profit Sharing Retirement Plan
Effective 1 March 1998, the Company's existing retirement savings and profit
sharing retirement plans and the Barton profit sharing and 401(k) plan were
merged into the Canandaigua 401(k) and Profit Sharing Plan (the Plan). The Plan
covers substantially all employees, excluding those employees covered by
collective bargaining agreements. The 401(k) portion of the Plan permits
eligible employees to defer a portion of their compensation (as defined in the
Plan) on a pretax basis. Participants may defer up to 10% of their compensation
for the year, subject to limitations of the Plan. The Company makes a matching
contribution of 50% of the first 6% of compensation a participant defers. The
amount of the Company's contribution under the profit sharing portion of the
Plan is in such discretionary amount as the Board of Directors may annually
determine, subject to limitations of the Plan.
Note 5. Stockholders' Equity
Stock repurchase authorisation: In June 1998, the Company's Board of Directors
authorised the repurchase of up to $100,000,000 of its Class A Common Stock and
Class B Convertible Common Stock. The Company may finance such purchases, which
will become treasury shares, through cash generated from operations or through
the bank credit agreement.
Increase in number of authorised shares of Class A Common Stock: In July 1998,
the stockholders of the Company approved an increase in the number of authorised
shares of Class A Common Stock from 60,000,000 shares to 120,000,000 shares,
thereby increasing the aggregate number of authorised shares of the Company to
141,000,000 shares.
52
Note 6. Earnings Per Common Share
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," (SFAS No. 128) effective 28 February
1998. Basic earnings per common share excludes the effect of common stock
equivalents and is computed by dividing income available to common stockholders
by the weighted average number of common shares outstanding during the period
for Class A Common Stock and Class B Convertible Common Stock. Diluted earnings
per common share reflects the potential dilution that could result if securities
or other contracts to issue common stock were exercised or converted into common
stock. Diluted earnings per common share assumes the exercise of stock options
using the treasury stock method and assumes the conversion of convertible
securities, if any, using the "if converted" method. Historical earnings per
common share have been restated to conform with the provisions of SFAS No. 128.
The computation of basic and diluted earnings per common share is as follows:
For the Six Months For the Three Months
Ended 31 August Ended 31 August
------------------- --------------------
(in thousands, except per share data) 1998 1997 1998 1997
- --------------------------------------------------------------------------------
Income applicable to common shares $29,387 $22,411 $15,772 $12,365
======= ======= ======= =======
Weighted average common shares
outstanding -- basic 18,669 18,665 18,589 18,559
Stock options 499 337 462 403
------ ------ ------ ------
Weighted average common shares
outstanding -- diluted 19,168 19,002 19,051 18,962
====== ====== ====== ======
Earnings per common share -- Basic $ 1.57 $ 1.20 $ 0.85 $ 0.67
======= ======= ======= =======
Earnings per common share -- Diluted $ 1.53 $ 1.18 $ 0.83 $ 0.65
======= ======= ======= =======
Note 7. Summarised Financial Information -- Subsidiary Guarantors
The subsidiary guarantors are wholly owned and the guarantees are full,
unconditional, joint and several obligations of each of the subsidiary
guarantors. Summarised financial information for the subsidiary guarantors is
set forth below. Separate financial statements for the subsidiary guarantors of
the Company are not presented because the Company has determined that such
financial statements would not be material to investors. The subsidiary
guarantors comprise all of the direct and indirect subsidiaries of the Company,
other than the nonguarantor subsidiaries which individually, and in the
aggregate, are inconsequential. There are no restrictions on the ability of the
subsidiary guarantors to transfer funds to the Company in the form of cash
dividends or loan repayments; however, except for limited amounts, the
subsidiary guarantors may not loan funds to the Company.
The following table presents summarised financial information for subsidiary
guarantors in connection with all of the Company's 8.75% Senior Subordinated
Notes:
31 August 28 February
(in US$ thousands) 1998 1998
- --------------------------------------------------------------------------------
Balance Sheet Data:
Current assets $ 440,223 $ 460,618
Noncurrent assets $ 394,917 $ 395,225
Current liabilities $ 121,729 $ 102,207
Noncurrent liabilities $ 62,010 $ 61,784
For the Six Months For the Three Months
Ended 31 August Ended 31 August
---------------------- ---------------------
(in US$ thousands) 1998 1997 1998 1997
- --------------------------------------------------------------------------------
Income Statement Data:
Net sales $552,352 $514,338 $289,774 $253,064
Gross profit $122,885 $106,425 $ 64,673 $ 53,093
Income before provision for
Federal and state income taxes $ 50,451 $ 41,448 $ 27,406 $ 20,233
Net income $ 29,766 $ 24,768 $ 16,221 $ 12,103
Note 8. Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
53
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 requires that every
derivative be recorded as either an asset or liability in the balance sheet
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognised currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting. The Company is required to adopt SFAS No. 133 on a prospective basis
for interim periods and fiscal years beginning 1 March 2000. The Company
believes the effect of adoption on its financial statements will not be
material.
54
APENDIX III FURTHER INFORMATION ON MATTHEW CLARK
- --------------------------------------------------------------------------------
1. Financial information
The financial information contained in this Appendix III relating to Matthew
Clark does not constitute statutory accounts within the meaning of section 240
of the Act but has been summarised and extracted from the audited financial
statements of Matthew Clark for the three financial years ended 30 April 1998.
Matthew Clark's auditors for this period were KPMG for the year ended 30 April
1996 and KPMG Audit Plc thereafter. The auditors have issued unqualified audit
reports on the financial statements for each of these three years in accordance
with section 235 of the Act. Copies of each of the statutory accounts have been
delivered to the Registrar of Companies.
2. Consolidated profit and loss account
The following table sets out the consolidated profit and loss accounts of
Matthew Clark for the financial years ended 30 April 1996, 1997 and 1998, as
derived from the published, audited accounts for those years:
Consolidated Profit and Loss Account For the Years Ended 30 April
(in millions pounds sterling, -------------------------------
except per share amounts) Note 1998 1997 1996 1
- -------------------------------------------------------------------------------
Turnover 2 553.1 570.7 450.9
Operating costs 3 (516.0) (525.6) (429.4)
------ ------ ------
Operating profit 4 37.1 45.1 21.5
Profit/(loss) on fixed asset sales 7 3.7 0.4 (2.0)
------ ------ ------
Profit before interest and tax 2 40.8 45.5 19.5
Interest receivable 0.1 0.2 0.4
Interest payable and similar charges 8 (5.1) (5.1) (2.7)
------ ------ ------
Profit on ordinary activities before tax 2 35.8 40.6 17.2
Tax on profit on ordinary activities 9 (10.5) (12.4) (5.0)
------ ------ ------
Profit on ordinary activities after tax 25.3 28.2 12.2
Equity minority interests -- -- (0.1)
Dividends 10 (11.5) (21.2) (21.2)
------ ------ ------
Retained profit/(loss) for the year 21 13.8 7.0 (9.1)
====== ======= ======
Earnings per share 11 28.6p 31.9p 18.4p
====== ======= ======
1 Includes exceptional items from reorganisation as a result of integration
of acquisitions (Note 4). Pre-exceptional items, profit attributable to
ordinary shareholders was 29.3m pounds sterling and earnings per share was
44.4p.
There are no recognised gains or losses in any year other than the profit/(loss)
for the year.
See notes to the consolidated financial statements in Section 5 of this Appendix
III.
55
3. Consolidated balance sheets
The following table sets out the consolidated group balance sheets of
Matthew Clark as at 30 April 1998 and 1997 as derived from the published audited
consolidated accounts at those dates:
30 April
--------------------
Consolidated Balance Sheets
(in millions sterling pound) Note 1998 1997 1
- --------------------------------------------------------------------------------
Fixed assets
Intangible assets 12 9.7 9.7
Tangible assets 13 97.1 98.6
----- -----
106.8 108.3
===== =====
Current assets
Stocks 14 44.6 49.3
Debtors 15 115.7 123.7
Cash at bank and in hand 17.3 5.8
----- -----
177.6 178.8
===== =====
Creditors: amounts falling due within one year
Trade and other creditors 16 105.2 116.3
Proposed dividend 10 7.1 13.3
Bank loans and overdrafts -- 56.4
----- -----
112.3 186.0
===== =====
Net current assets/(liabilities)
Amounts due within one year 44.4 (29.6)
Debtors due after more than one year 15 20.9 22.4
----- -----
65.3 (7.2)
===== =====
Total assets less current liabilities 172.1 101.1
Creditors: amounts falling due after
more than one year 17 61.2 1.9
Provisions for liabilities and charges 18 15.5 17.6
----- -----
Net assets 2 95.4 81.6
===== =====
Capital and reserves
Called up share capital 19 22.1 22.1
Share premium account 21 105.5 105.5
Capital redemption reserve 21 0.1 0.1
Profit and loss account 21 (32.3) (46.1)
----- -----
Equity shareholders' funds 22 95.4 81.6
===== =====
1 As restated Note 1 (Goodwill)
See notes to the consolidated financial statements in Section 5 of this Appendix
III.
56
4. Consolidated cash flow statements
The following table sets out the consolidated cash flow statements of Matthew
Clark for the financial years ended 30 April 1998 and 1997, extracted from the
published audited consolidated accounts for those years:
For the Years Ended
30 April
Consolidated Statements of Cash Flow ----------------------
(in millions pounds sterling) Note 1998 1997
- --------------------------------------------------------------------------------
Cash inflow from operating activities 25 49.8 52.3
----- -----
Returns on investments and servicing of finance
Interest received 0.1 0.2
Interest paid (6.1) (5.0)
Interest element of finance lease rental payments (0.1) (0.1)
---- ----
(6.1) (4.9)
---- ----
Taxation paid (7.5) (7.0)
---- ----
Capital expenditure
Purchase of tangible fixed assets (31.6) (21.3)
Receipts from sale of fixed assets 22.2 2.6
---- ---
(9.4) (18.7)
---- -----
Acquisitions (0.8) 0.3
---- ---
Dividends paid (17.7) (21.2)
----- -----
Cash inflow before financing 8.3 0.8
---- ----
Financing
Drawdown of committed loan 25.0 10.0
Issue of ordinary share capital -- 0.6
Capital element of finance lease payment (0.4) (0.2)
----- -----
24.6 10.4
----- -----
Increase in cash in the period 32.9 11.2
===== =====
Reconciliation of net cashflow to
movement in net debt
Increase in cash in period 32.9 11.2
Cash inflow from increase in debt and
leasing financing (25.6) (9.8)
----- -----
Movement in net debt in the period 7.3 1.4
Net debt at the start of the period (51.2) (52.6)
----- -----
Net debt at the end of the period (43.9) (51.2)
===== =====
Analysis of net debt
Cash at bank and in hand 17.3 5.8
Bank loans and overdrafts (60.0) (56.4)
Finance lease obligations (1.2) (0.6
----- -----
(43.9) (51.2)
===== =====
See notes to the consolidated financial statements in section 5 of this Appendix
III.
57
5. Notes to the Consolidated Financial Statements
Note 1. Accounting Policies
The accounts have been prepared under the historical cost convention, using the
following accounting policies, which have been applied consistently except as
noted below under 'Goodwill' and in compliance with applicable accounting
standards including Financial Reporting Standard 10.
Basis of consolidation: The Group accounts consist of a consolidation of the
accounts of the Company with those of its subsidiary undertakings. All accounts
are drawn up to 30 April. The acquisition method of accounting has been adopted.
Under this method, the results of acquired subsidiaries and other businesses are
included in the consolidated profit and loss account from the date when control
passes.
Goodwill: During the year Financial Reporting Standard 10 'Goodwill and
intangible assets' was issued and is mandatory for periods ending on or after 23
December 1998. The Group has chosen to adopt the requirements of this standard
early. The Group's policy for acquisitions which occurred prior to the issue of
the standard is that purchased goodwill, being the excess of the fair value of
consideration paid or payable over the fair value of the identifiable net assets
acquired, has been taken directly to reserves. On subsequent disposal, goodwill
previously taken direct to reserves is included in determining the profit or
loss on disposal. Previously, such goodwill was presented separately within
reserves as a 'goodwill write off reserve'. This is not permitted by the
Standard and, accordingly, goodwill has been taken to merger reserve to the
extent available (309.5m pounds sterling) and the balance (52.8m pounds
sterling) taken to the profit and loss account reserve. The comparatives have
been restated accordingly.
Turnover: Turnover consists of the value of goods and services supplied to
customers outside the Group, including duty and excluding VAT.
Depreciation: Depreciation of fixed assets is provided on the original cost of
the Group or its acquired businesses at rates calculated to write down the
assets to their estimated residual values on a straight line basis over the
total expected economic lives of the assets. The principal periods used are:
Freehold buildings 50 years
Leasehold buildings Length of lease
Plant and machinery 8 to 25 years
Computer equipment 3 to 5 years
Motor vehicles 4 to 7 years
Assets in the course of the construction are not depreciated. They are
transferred to the relevant fixed asset category when they become operational.
Freehold land is not depreciated.
Stocks: Stocks have been valued at the lower of cost (including Customs and
Excise Duty where incurred), determined on a first in first out basis, and net
realisable value. In the case of beverages produced by the Group, cost includes
direct materials and labour together with appropriate overheads incurred in
bringing the product to its present location and condition.
Deferred tax: Deferred tax is provided using the liability method in respect of
the tax effect of all timing differences to the extent that it is probable that
liabilities or assets will crystallise in the future.
Foreign currency: Receipts and payments of foreign currency are recorded at
actual rates obtained. Foreign currency balances at the year end are translated
at the rate ruling at that date. All exchange differences are dealt with through
the profit and loss account.
Brand valuation: The cost of acquired brands is capitalised as an intangible
asset at the time of acquisition. No annual amortisation is provided on these
assets but the directors assess the value of the brands each year and any
permanent diminution in value is written off to the profit and loss account.
Leases: Where the Group enters into a lease which entails taking substantially
all the risks and rewards of ownership of an asset, the lease is treated as a
'finance lease'. The asset is recorded in the balance sheet as a tangible fixed
asset and is depreciated over its estimated useful economic life or the term of
the lease, whichever is shorter. Future instalments under such leases, net of
finance charges, are included within creditors. Rentals payable are apportioned
between the finance element, which is charged to the profit and loss account,
and the capital element which reduces the outstanding obligation for future
instalments. All other rentals relating to assets held under operating leases
are charged to the profit and loss account on a straight line basis over the
period of the lease.
58
Pension costs: Pension costs for the Group's defined benefit pension schemes are
charged against profits so as to spread the cost of pensions over the employees'
expected working lives within the Group.
Note 2. Segmental Information
All turnover and profit originates in the UK. There are no material sales to
customers outside the UK.
Branded drinks Wholesale Group
---------------------- -------------------- -------------------
Turnover 1998 1997 1998 1997 1998 1997
(in millions pounds sterling)
- -------------------------------------------------------------------------------------------------------------
Total 343.5 367.0 225.2 215.1 568.7 582.1
Less intersegmental sales (15.6) (11.4) -- -- (15.6) (11.4)
----- ----- ----- ----- ----- -----
Sales to third parties 327.9 355.6 225.2 215.1 553.1 570.7
===== ===== ===== ===== ===== =====
Operating profit 28.7 38.1 8.4 7.0 37.1 45.1
Profit on fixed asset disposals 3.7 -- -- 0.4 3.7 0.4
---- ---- ---- ---- ---- ----
Profit before interest and tax 32.4 38.1 8.4 7.4 40.8 45.5
Net interest payable (5.0) (4.9)
---- ----
Profit before tax 35.8 40.6
==== ====
Net assets
Segment net assets 120.3 116.7 20.6 27.0 140.9 143.7
Unallocated net liabilities (45.5) (62.1)
----- -----
Total net assets 95.4 81.6
==== ====
Unallocated assets and liabilities consist of: 1998 1997
Cash at bank and in hand 17.3 5.8
Pension prepayment 19.0 19.1
Dividends payable (7.1) (13.3)
Finance lease liabilities and deferred consideration (2.8) (2.9)
Loans and overdrafts (60.0) (56.4)
Provisions (11.9) (14.4)
----- -----
(45.5) (62.1)
===== =====
Note 3. Operating Costs
(in millions pounds sterling) Note 1998 1997
- ----------------------------------------- ---------------------------------------
Change in stocks of finished goods and
work in progress 7.5 11.7
Raw materials, consumables and other
external charges (incl. duty) 466.2 474.6
Staff costs 6 32.8 30.9
Depreciation and amounts written off
fixed asset investments 13 9.8 8.7
Royalties from overseas (0.3) (0.3)
---- ----
516.0 525.6
===== =====
59
Note 4. Operating Profit
(in millions pounds sterling) 1998 1997
- --------------------------------------------------------------------------------
Operating profit is stated after charging/(crediting):
Operating lease charges:
Plant and machinery 0.4 0.4
Other 1.7 1.4
Auditors' remuneration for audit services 0.2 0.3
Loss on disposal of fixed assets 3.6 2.9
Release of amounts charged as exceptional
costs in prior years no longer required (1.2) ---
Exceptional write down of wine dispense
equipment with customers 1.0 ---
Amounts payable to the auditors and their associates for non audit services were
0.1m pounds sterling (1997 -- 0.1m pounds sterling).
Exceptional items in the year ended 30 April 1996 were as follows:
Branded
Drinks Wholesale
(in millions pounds sterling Division Division Total 1996
- -------------------------------------------------------------------------------------------------
a) Reorganisation
Employee severance and relocation costs 3.7 3.6 7.3
Stock write downs 1.5 0.7 2.2
Property, plant relocation and other costs 7.5 5.4 12.9
---- --- ----
12.7 9.7 22.4
Provision for loss on disposal of fixed assets 2.5 0.2 2.7
---- --- ----
15.2 9.9 25.1
==== === ====
The reorganisation costs arose as a result of integration programmes within the
divisions following acquisition of businesses. The costs charged in 1996 were
net of a release of provisions of 2,249,000 pounds sterling established in 1995
and which were no longer required.
The tax effect of exceptional items was a credit of 7.9m pounds sterling.
Note 5. Directors' Interests
Directors'emoluments:
Total Emoluments
Cash Value of (excluding pension
Basic Salary Benefits in Kind contributions)
----------------------- ------------------------- ---------------------
(in thousands pounds sterling) 1997/98 1996/97 1997/98 1996/97 1997/98 1996/97
- ------------------------------------------------------------------------------------------------------------
Peter Aikens 230 230 14 14 244 244
Hugh Etheridge 130 130 13 13 143 143
Peter Huntley 119 130 10 11 129 141
Robert MacNevin 128 -- 18 -- 146 --
Kevin Philp 100 -- 6 -- 106 --
Martin Boase 21 21 -- -- 21 21
Michael Garner 21 40 -- -- 21 40
Graham Wilson 60 -- -- -- 60 --
Andrew Nash -- 130 -- 12 -- 142
Former directors -- 67 -- 6 -- 73
--- --- -- -- --- ---
809 748 61 56 870 804
==== ==== ==== ==== ==== ====
On 19 March 1998 the sum of 110,000 pounds sterling was paid to Peter Huntley by
way of compensation for the termination of his employment with the Company. On
12 May 1997 the sum of 177,630 pounds sterling was paid to Andrew Nash (a former
director) by way of compensation for the termination of his employment with the
Company.
60
Directors' pension contributions: Directors who were members of the Matthew
Clark Executive Pension Plan had benefits as follows:
Increase in Transfer Contributions Increase Accumulated
Accrued Pension Value of by Individual Attributable Accrued Pension
During the Year the Increase Director to Company at Year End
pounds sterling p.a. pounds sterling pounds sterling pounds sterling pounds sterling p.a.
- ------------------------------------------------------------------------------------------------------------------------------
Hugh Etheridge 3,036 35,000 4,200 30,800 20,672
Robert MacNevin 2,920 24,056 4,200 19,856 2,920
Kevin Philp 1,585 13,618 4,908 8,710 32,463
Contributions to Personal Pension schemes:
Contributions to Personal
Pension Plans
(in thousands pounds sterling) 1997/98 1996/97
- --------------------------------------------------------------------------
Peter Aikens 83 83
Peter Huntley 35 37
Andrew Nash -- 39
Hugh Etheridge 13 14
Robert MacNevin 10 --
Contributions in respect of Peter Aikens and Peter Huntley were to their
respective personal pension plans up to the maximum permitted under Inland
Revenue rules. The element of contributions in excess of Inland Revenue rules is
paid into a Funded Unapproved Retirement Benefit Scheme for the benefit of each
individual.
Directors' beneficial interest in shares:
30 April 1998 1 May 1997
- --------------------------------------------------------------------------------
Peter Aikens *79,467 71,267
Hugh Etheridge *31,591 28,891
Peter Huntley -- 29,391
Robert MacNevin -- --
Kevin Philp 5,000 5,000
Martin Boase 10,000 10,000
Michael Garner 10,000 10,000
Graham Wilson 10,000 10,000
*Note: A number of these shares were purchased from bonus paid under the Capital
Incentive Scheme which imposes a minimum period before such shares may be sold.
Details are provided below:
Shares to be Shares to be
Held Until Held Until
1998 1999
- --------------------------------------------------------------------------------
Peter Aikens 8,227 9,715
Hugh Etheridge 4,775 5,675
There were no changes between 30 April 1998 and 6 July 1998.
61
Directors' share options:
Date from which
1 May 1997 30 April 1998 Exercise Price Exercisable Expiry Date
- -----------------------------------------------------------------------------------------------------
Peter Aikens 52,652 52,652 331p 1996 2003
24,723 24,723 566p 1997 2004
56,811 56,811 561p 1997 2004
59,000 59,000 662p 1998 2005
------ ------
193,186 193,186
======= =======
Hugh Etheridge 24,723 24,723 566p 1997 2004
18,937 18,937 561p 1997 2004
33,000 33,000 662p 1998 2005
------ ------
76,660 76,660
======= =======
Robert MacNevin --- 40,000 247.5p 2000 2007
======= =======
Kevin Philp 21,041 21,041 566p 1997 2004
10,521 10,521 523p 1997 2004
10,000 10,000 555p 1998 2005
2,000 2,000 662p 1998 2005
2,000 2,000 680p 1999 2006
--- 60,000 247.5p 2000 2007
------ ------
45,562 105,562
======= =======
At 30 April 1998, the Company's share price was 201.5p. The highest and lowest
share prices during the year were 277.5p and 162.5p respectively. Exercise of
the above options was not conditional upon any performance criteria.
All options were granted for nil consideration.
Note 6. Staff Numbers and Costs
The average number of people employed by the Group, including directors, within
each category of activity was:
(number of people) 1998 1997
- -------------------------------------------------------------------------------
Production staff 471 516
Sales, marketing and distribution staff 883 792
Administration staff 268 270
--- ---
1,622 1,578
===== =====
The aggregate payroll costs of these persons were as follows:
(in millions pounds sterling) 1998 1997
- -------------------------------------------------------------------------------
Wages and salaries 30.2 28.6
Social security costs 2.4 2.4
Other pension costs 0.2 (0.1)
---- ----
32.8 30.9
====== ======
Note 7. Profit/(loss) on Fixed Asset Sales
The profit on fixed asset sales comprises:
(in millions pounds sterling) 1998 1997
- -------------------------------------------------------------------------------
Profit on property sales 4.2 0.4
Provision for loss on plant and machinery sales (0.5) ---
---- ----
3.7 0.4
====== ======
The tax charge for the year includes 1.2m pounds sterling in respect of property
sales.
62
Note 8. Interest Payable and Similar Charges
(in millions pounds sterling) 1998 1997
- -------------------------------------------------------------------------------
Bank interest and interest on loans repayable
within 5 years 5.0 4.9
Finance charges on finance leases 0.1 0.1
Other --- 0.1
---- ----
5.1 5.1
==== ====
In addition interest capitalised into tangible fixed assets during the year was
0.6m pounds sterling (1997 Nil pounds sterling).
Note 9. Tax on Profit on Ordinary Activities
(in millions pounds sterling) 1998 1997
- -------------------------------------------------------------------------------
The charge in the profit and loss account consists of:
Corporation tax at 31% (1997 -- 33%) 14.9 7.6
Deferred tax -- effect of change in rate from 33% to 30% (0.9) ---
Deferred tax -- other (3.5) 4.8
---- ----
10.5 12.4
==== ====
The deferred tax provision/(asset) represents:
Excess of capital allowances over depreciation (1.4) 6.6
Unutilised losses --- (1.3)
Pensions timing differences 5.7 6.3
Other timing differences (0.7) (3.6)
Offset of ACT recoverable --- (4.8)
---- ----
3.6 3.2
==== ====
Full provision has been made for deferred tax except for a deferred tax asset of
0.1m pounds sterling (1997 -- 0.2m pounds sterling) on the excess of capital
allowances over depreciation.
(in millions pounds sterling) 1998 1997
- -------------------------------------------------------------------------------
Deferred tax
At the beginning of the year 3.2 (0.4)
ACT and losses transferred to/(from) corporation tax 4.8 (2.9)
Adjustment to fair value --- 1.7
Deferred tax (credit)/charge to profit and loss account (4.4) 4.8
---- ---
At the end of the year 3.6 3.2
==== ====
Note 10. Dividends
1998 1997 1998 1997
Pence Pence m pounds m pounds
Dividends paid or proposed: per share per share sterling sterling
- --------------------------------------------------------------------------------
Ordinary shares
Interim dividend paid of 5.0 9.0 4.4 7.9
Proposed final dividend of 8.0 15.0 7.1 13.3
---- ---- ---- ----
Total 13.0 24.0 11.5 21.2
===== ===== ===== =====
Gross equivalent per share 16.25 30.0
===== =====
Note 11 Earnings Per Share
The calculation of earnings per share is based on a profit of 25.3m pounds
sterling and 88,520,498 shares, being the weighted average number in issue (1997
- -- profit 28.2m pounds sterling and 88,469,740 shares in issued). A fully
diluted earnings per share figure based on share options outstanding is not
provided as the effect on earnings per share is not material.
63
Note 12. Intangible Assets
Group m pounds sterling
- --------------------------------------------------------------------------------
Cost and net book value of Strathmore brand
As at 30 April 1998 and 30 April 1997 9.7
====
Note 13. Tangible Assets
Land and Buildings Plant Fixtures,
------------------------------- Assets Machinery Fittings,
Group Long Short Under and Tools and
(in millions pounds sterling) Freehold Leasehold Leasehold Construction Vehicles Equipment Total
- ----------------------------------------------------------------------------------------------------------------
Cost
At 30 April 1997 29.1 2.0 0.9 4.7 110.3 11.7 158.7
Additions 1.2 0.7 0.3 14.2 12.2 2.5 31.1
Reclassifications 16.1 (0.1) --- (18.3) 1.7 0.6 ---
Disposals (22.2) (1.3) --- --- (8.9) (2.8) (35.2)
----- ----- ----- ----- ----- ----- -----
At 30 April 1998 24.2 1.3 1.2 0.6 115.3 12.0 154.6
----- ----- ----- ----- ----- ----- -----
Depreciation
At 30 April 1997 7.6 0.7 0.2 --- 43.8 7.8 60.1
Charged in the year 0.4 --- --- --- 8.2 1.2 9.8
Disposals (5.2) (0.4) --- --- (4.2) (2.6) (12.4)
----- ----- ----- ----- ----- ----- -----
At 30 April 1998 2.8 0.3 0.2 --- 47.8 6.4 57.5
----- ----- ----- ----- ----- ----- -----
Net book amounts:
At 30 April 1997 21.5 1.3 0.7 4.7 66.5 3.9 98.6
At 30 April 1998 21.4 1.0 1.0 0.6 67.5 5.6 97.1
===== ===== ===== ===== ===== ===== =====
Included within the depreciation charge for the year for plant machinery and
vehicles of 8.2m pounds sterling is an exceptional write-down of 1.0m pounds
sterling of wine dispensing equipment with customers.
The net book value of assets held under finance leases within plant machinery
and vehicles as at 30 April 1998 was 1.1m pounds sterling (1997 -- 0.9m pounds
sterling). Depreciation on assets held under finance leases during the year
ended 30 April 1998 was 0.2m pounds sterling (1997 -- 0.4m pounds sterling).
Freehold land and buildings includes 4.6m pounds sterling (1997 -- 4.6m pounds
sterling) in respect of land.
Note 14. Stocks
(in millions pounds sterling) 1998 1997
- -------------------------------------------------------------------------------
Raw materials and consumables 8.7 5.9
Work in progress 7.3 9.7
Finished goods for resale 28.6 33.7
---- ----
44.6 49.3
==== ====
Note 15. Debtors
(in millions pounds sterling) 1998 1997
- -------------------------------------------------------------------------------
Amounts failing due within one year:
Trade debtors 83.3 91.2
ACT recoverable --- 1.7
Other debtors 6.4 4.9
Prepayments and accrued income 5.1 3.5
---- ----
94.8 101.3
==== =====
Amounts falling due after more than one year:
ACT recoverable 1.9 3.3
Pension prepayment 19.0 19.1
20.9 22.4
---- ----
115.7 123.7
===== =====
64
Note 16. Creditors: Amounts Falling Due Within One Year
(in millions pounds sterling) 1998 1997
- -------------------------------------------------------------------------------
Trade and other creditors
Trade creditors 52.0 52.8
Corporation tax 4.7 2.9
Other tax, including social security and ACT payable 10.4 12.3
Finance lease obligations less than one year (note 17) 0.4 0.4
Other creditors, including deferred duty 11.0 12.5
Accruals and deferred income 26.7 35.4
---- ----
105.2 116.3
===== =====
Note 17. Creditors: Amounts Falling Due After More Than One Year
(in millions pounds sterling) 1998 1997
- -------------------------------------------------------------------------------
Bank loans and overdrafts (unsecured) 60.0 ---
Obligations under finance leases 0.8 0.2
Deferred purchase consideration 0.4 1.7
---- ----
61.2 1.9
==== ===
The deferred purchase consideration of 0.4m poounds sterling in the current year
is in addition to 1.2m pounds sterling (1997 - 0.6m pounds sterling) included
within other creditors due in less than one year and relates to the acquisitions
of Dunn & Moore and Liddingtons and is related to future profits. The amount
provided represents both the current best estimate of the amount payable in due
course, and the maximum amount payable.
The maturity of net obligations under finance leases and hire purchase contracts
is as follows:
(in millions pounds sterling) 1998 1997
- -------------------------------------------------------------------------------
Within one year 0.4 0.4
In the second to fifth years 0.4 0.2
Over five years 0.4 ---
---- ----
1.2 0.6
=== ===
Note 18. Provisions for Liabilities and Charges
(in millions pounds sterling) 1998 1997
- -------------------------------------------------------------------------------
Deferred tax (see note 9) 3.6 3.2
Provisions 11.9 14.4
---- ----
15.5 17.6
==== ====
Provisions
At the beginning of the year 14.4 17.5
Transfer to creditors --- (0.4)
Release to profit and loss account within
exceptional item (1.0) ---
Used during the year (1.5) (2.3)
Released to goodwill --- (0.4)
---- ----
At the end of the year 11.9 14.4
==== ====
Provisions primarily relate to surplus property costs.
The Group has a number of freehold and leasehold properties which are surplus to
operational requirements. Provision has been made for future fixed costs
associated with these properties for the period up to their expected disposal.
To the extent that these properties are disposed of earlier than anticipated a
benefit will arise; conversely if the properties are not disposed of within the
anticipated period a contingent liability exists for the ongoing fixed costs.
65
Note 19. Share Capital
4.9 per cent Cumulative
Redeemable Preference
Shares of 1 pound sterling Ordinary Shares of 25p
each each Total
----------------------------- --------------------------- ----------------
Authorised: Number m pounds sterling Number m pounds sterling m pounds sterling
- -----------------------------------------------------------------------------------------------------------------------------
As at 30 April 1997 and 30 April 1998 260,000 0.3 117,920,000 29.5 29.8
Allotted, called up and fully paid
In issue as at 30 April 1997
and 30 April 1998 --- --- 88,520,498 22.1 22.1
During the year no ordinary shares were issued under the share option schemes
(1997 -- 217,240 shares were issued for a total consideration of 0.6m pounds
sterling)
Note 20. Share Options
Savings related share option scheme: Employees and directors in the UK with a
minimum of two years' service were entitled to apply for options to acquire
ordinary shares at 100% (1997 -- 100%) of the average of the middle market price
on the three dealing days immediately preceding the date of the invitation.
At 30 April 1998 options granted and outstanding under employee share schemes
amounted to 458,102 ordinary shares. These options are exercisable at varying
dates up to 2002 at prices ranging from 2.92 pounds sterling to 5.26 pounds
sterling per share. During the year the Company issued no ordinary shares under
the employee share schemes.
Executive share option scheme: Under the Company's executive scheme the board
may offer options to executives, whose performance contributes significantly to
the Company's results, at the middle market price on the dealing day immediately
preceding the date of the grant of the option.
At 30 April 1998 options exercisable were as follows: Price per Number of
Options exercisable between: Share Shares
- --------------------------------------------------------------------------------
15 March 1992 and 14 March 1999 338p 1,300
22 June 1996 and 21 June 2003 331p 65,652
20 January 1997 and 19 January 2004 566p 123,089
11 July 1997 and 10 July 2004 523p 50,497
17 October 1997 and 16 October 2004 561p 93,633
16 January 1998 and 15 January 2005 555p 61,000
20 July 1998 and 19 July 2005 628p 13,000
10 November 1998 and 9 November 2005 662p 106,000
16 January 1999 and 15 January 2006 680p 43,000
28 January 2000 and 27 January 2007 296.5p 203,000
25 July 2000 and 24 July 2007 247.5p 580,000
8 January 2001 and 7 January 2008 163p 225,000
During the year the Company issued no ordinary shares under the executive share
option schemes.
Note 21. Reserves
Capital Goodwill Profit and
Share Redemption Merger Write-off Loss
(in millions pounds sterling) Premium Reserve Reserve Reserve Account
- -------------------------------------------------------------------------------------------------------
As at 30 April 1997 and 30 April 1998 105.5 0.1 309.5 (362.3) 6.7
Prior year adjustment (note 1 ('Goodwill')) --- --- (309.5) 362.3 (52.8)
----- ---- ------ ----- ----
At 30 April 1997 as restated 105.5 0.1 --- --- (46.1)
Retained profit for the year --- --- --- --- 13.8
----- ---- ------ ----- ----
At 30 April 1998 105.5 0.1 --- --- (32.3)
===== ==== ===== ====== =====
The Cumulative amount of goodwill written off to reserves is 362.3m pounds
sterling (1997 -- 362.3m pounds sterling).
66
Note 22. Reconciliations of Movements in Shareholders' Funds
(in millions pounds sterling) 1998 1997
- -------------------------------------------------------------------------------
Opening shareholders' funds 81.6 71.9
---- ----
Profit for the year 25.3 28.2
Dividends paid and proposed (11.5) (21.2)
----- -----
Retained profit for the year 13.8 7.0
New share capital subscribed --- 0.6
Goodwill adjustment --- 2.1
---- ----
Net addition to the shareholders' funds 13.8 9.7
---- ---
Closing shareholders' funds 95.4 81.6
==== ====
Note 23. Financial and Capital Commitments
(in millions pounds sterling) 1998 1997
- -------------------------------------------------------------------------------
Contracted commitments for capital expenditure 2.2 11.8
==== ====
1998 1997
---------------------- ----------------------
(in millions pounds sterling) Land and Land and
Buildings Other Buildings Other
- --------------------------------------------------------------------------------
Annual commitments under
operating leases which expire
Within one year --- --- 0.1 0.1
In the second to fifth years inclusive 0.1 0.6 --- 0.1
Over five years 2.9 --- 2.3 0.3
---- ---- ---- ----
3.0 0.6 2.4 0.5
==== ==== ==== ====
The Group had 9.8m pounds sterling (1997 -- 5.0m pounds sterling) of commitments
under forward currency contracts 30 April 1998.
Note 24. Pensions
The Company and its subsidiaries currently operate two Pension Plans, the
Matthew Clark Group Pension Plan and the Matthew Clark Executive Pension Plan.
These Plans are of the defined benefit type with assets held in Trustee
administered funds separate from the Company's finances. In addition, a further
Plan was acquired with the acquisition of Taunton Cider. This Scheme was merged
with the Matthew Clark Group Pension Plan on 1 April 1997.
Actuarial valuations of the Matthew Clark Group Pension Plan have been carried
out by independent actuaries as at 1 January 1996. The funding level of the
combined Plans on the assumptions stated below as at 1 January 1996 was 141%.
The combined market value of the assets at 1 January 1996 was approximately 92m
pounds sterling. The pension cost is assessed in accordance with a qualified
actuary's advice. The Actuary has considered the long-term effects of the
removal of ACT relief for pension funds on the level of funding of the Plans.
The increase in the pension expense is not significant.
The assumptions adopted for the purposes of SSAP 24 were as follows:
Long-term investment return 9.00%
Salary escalation 6.00%
Pension increases were allowed for in accordance with the Rules of the Plan and
the past practice of granting discretionary increases. Assets were taken into
account at 94.6% of their market value.
On a discontinuance of either of the Plans, the market value of the assets
exceeded the cost of securing the liabilities at the appropriate valuation date,
assuming that cash equivalent transfer values were paid in respect of active or
deferred members.
67
Note 25. Reconciliation of Operating Profit to Operating Cashflows
(in millions pounds sterling) 1998 1997
- -------------------------------------------------------------------------------
Operating profit 37.1 45.1
Depreciation charges 9.8 8.7
Loss on disposal and write-off of tangible fixed assets 3.6 2.9
Cashflow relating to previous year's
restructuring provisions (4.5) (11.2)
Decrease in stocks 4.7 11.7
Decrease in debtors 5.4 13.6
Decrease in creditors and provisions (6.3) (18.5)
----- -----
Net cash inflow from operating activities 49.8 52.3
===== =====
68
APPENDIX IV ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
1. Directors' responsibilities
The directors of Canandaigua and Canandaigua Limited, whose names are set out in
paragraph 2(a) below, accept responsibility for the information contained in
this document other than that relating to the Matthew Clark Group, the directors
of Matthew Clark, members of their immediate families, related trusts and
persons connected with them. To the best of the knowledge and belief of the
directors of Canandaigua and Canandaigua Limited (who have taken all reasonable
care to ensure that such is the case) the information contained in this document
for which they are responsible is in accordance with the facts and does not omit
anything likely to affect the import of such information.
The directors of Matthew Clark, whose names are set out in paragraph 2(b) below,
accept responsibility for the information contained in this document relating to
the Matthew Clark Group, the directors of Matthew Clark, members of their
immediate families, related trusts and persons connected with them. To the best
of the knowledge and belief of the directors of Matthew Clark (who have taken
all reasonable care to ensure that such is the case) the information contained
in this document for which they are responsible is in accordance with the facts
and does not omit anything likely to affect the import of such information.
2. Directors of Canandaigua, Canandaigua Limited and Matthew Clark
(a) (i) The directors of Canandaigua and their functions are as follows:
Marvin Sands (Chairman)
Richard Sands (President and Chief Executive Officer)
Robert Sands (Executive Vice President, General Counsel and Secretary)
Bertram Silk (Executive Director)
George Bresler (Non-Executive Director)
James Locke (Non-Executive Director)
Thomas McDermott (Non-Executive Director)
Paul Smith (Non-Executive Director)
The principal office of Canandaigua is at 300 WillowBrook Office Park,
Fairport, NY 14450, United States.
(ii) The directors of Canandaigua Limited are as follows:
Richard Sands
Robert Sands
Thomas Summer
The registered office of Canandaigua Limited, whose registered number is
3649497, is at 200 Aldersgate Street, London EC1A 4JJ. Canandaigua Limited
is a limited liability company incorporated on 14 October 1998 under the
Act. Its authorised share capital is 100 pounds sterling comprising 100
ordinary shares of 1 pound sterling each. Its issued share capital is 1
pound sterling comprising 1 ordinary share of 1 pound sterling held by
Canandaigua. The Offeror has been specifically formed for the purpose of
making the Offer. Other than in connection with making the Offer the
Offeror has not traded or otherwise carried on any activity since its
incorporation and no accounts of the Offeror have been prepared.
(b) The directors of Matthew Clark and their functions are:
Graham Wilson (Chairman)
Peter Aikens (Chief Executive)
Martin Boase (Non-Executive Director)
Hugh Etheridge (Finance Director)
Michael Garner (Non-Executive Director)
Robert MacNevin (Marketing Director)
Richard Peters (Production and Distribution Director)
Kevin Philp (Managing Director, On-Trade Sales)
The registered office of Matthew Clark, whose registered number is 163952,
is at Whitchurch Lane, Bristol BS14 0JZ.
69
3. Shareholdings and dealings
(a) Definitions and references
References in this Appendix IV to:
(i) an "associate" are to:
(1) subsidiaries and associated companies of Canandaigua Limited or,
as the case may be, Matthew Clark and companies of which any such
subsidiaries or associated companies are associated companies;
(2) banks, financial and other professional advisers (including
stockbrokers) to Canandaigua Limited or, as the case may be,
Matthew Clark or a company covered in (1) above, including
persons controlling, controlled by or under the same control as
such banks, financial or other professional advisers;
(3) the directors of Canandaigua Limited or, as the case may be,
Matthew Clark or any company covered in (1) above (together in
each case with their close relatives and related trusts);
(4) the pension funds of Canandaigua Limited or, as the case may be,
Matthew Clark or a company covered in (1) above; and
(5) an investment company, unit trust or other person whose
investments an associate (as otherwise defined in this
sub-paragraph (i)) manages on a discretionary basis, in respect
of the relevant investment accounts;
(ii) a "bank" does not apply to a bank whose sole relationship with
Canandaigua Limited or Matthew Clark or a company covered in
sub-paragraph (i)(1) above is in respect of the provision of normal
commercial banking services or such activities in connection with the
Offer as confirming that cash is available, handling acceptances and
other registration work;
(iii)ownership or control of 20 per cent. or more of the equity share
capital of a company is regarded as the test of associated company
status and "control" means a holding, or aggregate holdings, of shares
carrying 30 per cent. or more of the voting rights attributable to the
share capital of a company which are currently exercisable at a
general meeting, irrespective of whether the holding or holdings
give(s) de facto control;
(iv) an "arrangement" includes any indemnity or option arrangement and any
agreement or understanding, formal or informal, of whatever nature
relating to relevant securities which may be an inducement to deal or
refrain from dealing;
(v) "relevant securities" means Matthew Clark Shares and securities
convertible into, rights to subscribe for, options (including traded
options) in respect of and derivatives referenced to Matthew Clark
Shares;
(vi) "disclosure period" means the period commencing on 22 October 1997
(being the date 12 months prior to the commencement of the Offer
period) and ended on 30 October 1998 (the latest practicable date
prior to the printing of this document); and
(vii)"Offer period" means the period commencing on 22 October 1998 (the
date of the announcement by Matthew Clark that it was in discussions
which may or may not lead to an offer for the whole of the issued
share capital of Matthew Clark) and ending on 24 November 1998 or, if
later, the date when the Offer becomes or is declared unconditional as
to acceptances or lapses (whichever is the later).
(b) Canandaigua Limited
(i) As at 30 October 1998 (the latest practicable date prior to the
printing of this document) and save as disclosed in this paragraph 3,
neither of Canandaigua nor Canandaigua Limited owns, controls or is
interested, directly or indirectly, in or has any arrangement in
relation to any relevant securities or has dealt for value therein
during the disclosure period.
(ii) As at 30 October 1998 (the latest practicable date prior to the
printing of this document) and save as disclosed in this paragraph 3,
no member of the Canandaigua Group, nor any person acting in concert
with Canandaigua Limited for the purposes of the Offer, nor any of the
directors of Canandaigua or Canandaigua Limited, nor any member of
their immediate families or related trusts owns, controls or is
interested, directly or indirectly, in or (other than in the case of
the directors of Canandaigua Limited and members of their immediate
families and related trusts) has any arrangement in relation to any
relevant securities or has dealt for value therein during the
disclosure period.
70
(iii)As at 30 October 1998 (the latest practicable date prior to the
printing of this document) and save as disclosed in this paragraph 3,
neither Schroders, financial adviser and broker to Canandaigua
Limited, nor persons controlling, controlled by or under the same
control as Schroders, owns, controls or is interested, directly or
indirectly, in any relevant securities or has dealt for value therein
during the disclosure period.
(iv) Irrevocable undertakings to accept or to procure acceptance of the
Offer have been received from the following persons in respect of the
following holdings of Matthew Clark Shares and, where relevant,
Matthew Clark Shares held under option:
Name Number of issued Number of Matthew Clark
Matthew Clark Shares Shares under option
---------------------------------------------------------------------------------------------
Graham Wilson 10,000 ---
Peter Aikens 8,200 193,186
Mrs D B Aikens 71,267 ---
Martin Boase 10,000 ---
Hugh Etheridge 4,200 76,660
Mrs J Etheridge 27,391 ---
Michael Garner 10,000 ---
Robert MacNevin --- 40,000
Richard Peters 1,831 65,521
Kevin Philp 5,000 105,562
Phillips & Drew Fund Management Limited 18,215,680 ---
Schroder Investment Management (UK) Limited 2,741,661 ---
Edinburgh Fund Managers plc 2,382,730 ---
AMP Asset Management plc 1,026,392 ---
In all cases the undertakings given are in respect of such persons'
entire holding of issued Matthew Clark Shares and entire entitlement
to Matthew Clark Shares held under option with the exception of
Phillips & Drew Fund Management Limited where the undertaking is in
respect of 18,215,680 Matthew Clark Shares of the total 19,154,024
Matthew Clark Shares in which Phillips & Drew Fund Management Limited
is interested. The terms of the irrevocable undertakings require
acceptance of the Offer even if a competing or higher offer is made by
a third party except that irrevocable undertakings from shareholders
(other than directors and certain members of their immediate families)
cease to be binding if a competing or higher offer is made by a third
party at, or in excess of, 267 pence per Matthew Clark Share.
(v) The following dealings for value in Matthew Clark Shares by persons
who have given irrevocable undertakings have taken place during the
disclosure period:
(1) The following dealings for value in Matthew Clark Shares have
been carried out by Phillips & Drew Fund Management Limited
during the disclosure period (individual transactions have been
aggregated by month):
Number of Price Range per
Date/Period Transaction Matthew Clark Shares Matthew Clark Share (p)
- --------------------------------------------------------------------------------------------------
23 October 1997 Purchase 1,767,100 257.5
23 October 1997 Sale 1,767,100 257.5
9-17 December 1997 Purchase 306,760 181-185.5
9-16 December 1997 Sale 289,369 181-185.5
6-26 January 1998 Purchase 101,021 162.5-164
6-26 January 1998 Sale 101,021 162.5-164
9-27 February 1998 Purchase 32,400 180-194
9-27 February 1998 Sale 32,400 180-194
2 March 1998 Purchase 10,900 194
2 March 1998 Sale 10,900 194
21 April 1998 Purchase 39,300 199
21-24 April 1998 Sale 177,230 199-200.5
5 May 1998 Purchase 12,000 201.5
5-22 May 1998 Sale 27,000 201.5-212.5
2-23 June 1998 Purchase 87,042 194-199
2-23 June 1998 Sale 65,019 194-199
1-31 July 1998 Purchase 74,922 183-187.5
1-31 July 1998 Sale 416,130 183-187.5
25 August 1998 Sale 23,519 167.5
71
(2) The following dealings for value in Matthew Clark Shares have
been carried out by Schroder Investment Management (UK) Limited
during the disclosure period (individual transactions have been
aggregated by month):
Number of Price Range per
Date/Period Transaction Matthew Clark Shares Matthew Clark Share (p)
- --------------------------------------------------------------------------------------------------
12 January 1998 Internal transfer 3,750 163.5
27 January 1998 Sale 3,750 160.8
13-25 February 1998 Purchase 243,000 190.6-191.5
13-23 March 1998 Sale 195,075 204.4-205.4
20 March 1998 Internal transfer 238 207.5
25 March 1998 Purchase 15,000 210.7
24 April 1998 Purchase 25,100 202.6
12 May 1998 Sale 1,100 201.6
7-23 July 1998 Purchase 440,592 196.6-201.6
17 July 1998 Internal transfer 24,000 197.5
29 July 1998 Sale 24,000 184.4
20 August 1998 Purchase 16,000 180.1
(3) The following dealings for value in Matthew Clark Shares have
been carried out by Edinburgh Fund Managers plc during the
disclosure period:
Number of Price Range per
Date/Period Transaction Matthew Clark Shares Matthew Clark Share (p)
- --------------------------------------------------------------------------------------------------
18 December 1997 Sale 8,189 278.9
(4) The following dealings for value in Matthew Clark Shares have
been carried out by AMP Asset Management plc during the
disclosure period (individual transactions have been aggregated
by month):
Number of Price Range per
Date/Period Transaction Matthew Clark Shares Matthew Clark Share (p)
- --------------------------------------------------------------------------------------------------
1 October 1997 Purchase 2,586 252
5 November 1997 Sale 13,720 243
17 November 1997 Purchase 7,824 228
13 March 1998 Purchase 4,772 211
18-25 March 1998 Sale 956 207
3 April 1998 Purchase 9,280 213
17 April 1998 Sale 27,646 200
2 July 1998 Purchase 5,688 185
4-6 August 1998 Sale 191,847 177-179
22 September 1998 Sale 500,000 120
(vi) Save as disclosed in this paragraph 3, no dealings for value in
Matthew Clark Shares have taken place during the disclosure period by
those persons who have given irrevocable undertakings to accept the
Offer.
(c) Matthew Clark
(i) At the close of business on 30 October 1998 (the latest practicable
date prior to the printing of this document) the interests in the
share capital of Matthew Clark of the directors of Matthew Clark,
their immediate families and related trusts which have been notified
to Matthew Clark pursuant to Sections 324 or 328 of the Act or which
are required pursuant to Section 325 of the Act to have been entered
in the register referred to therein and the interests in the share
capital of Matthew Clark of those persons connected with any of the
directors of Matthew Clark (within the meaning of Section 346 of the
Act) which would, if such connected persons were directors of Matthew
Clark, be required to be disclosed or notified under the above
sections of the Act, and the existence of which is known to or could
with reasonable diligence be ascertained by the directors of Matthew
Clark are set out below:
72
Matthew Clark
Director Shares
---------------------------------------------------------------
Graham Wilson 10,000
Peter Aikens 79,467
Martin Boase 10,000
Hugh Etheridge 31,591
Michael Garner 10,000
Richard Peters 1,831
Kevin Philp 5,000
(ii) As at 30 October 1998 (the latest practicable date prior to the
printing of this document), the following options over Matthew Clark
Shares had been granted to the directors of Matthew Clark pursuant to
the Matthew Clark Share Option Schemes:
Number of
Matthew Clark
Shares under Date from which
Director Option Exercise Price Exercisable Expiry Date
--------------------------------------------------------------------------------
Peter Aikens 52,652 331p 22 June 1996 21 June 2003
24,723 566p 20 Jan 1997 19 Jan 2004
56,811 561p 17 Oct 1997 16 Oct 2004
59,000 662p 10 Nov 1998 9 Nov 2005
-------
193,186
=======
Hugh Etheridge 24,723 566p 20 Jan 1997 19 Jan 2004
18,937 561p 17 Oct 1997 16 Oct 2004
33,000 662p 10 Nov 1998 9 Nov 2005
-------
76,660
=======
Robert MacNevin 40,000 247.5p 25 July 2000 24 July 2007
=======
Kevin Philp 21,041 566p 20 Jan 1997 19 Jan 2004
10,521 523p 11 July 1997 10 July 2004
10,000 555p 16 Jan 1998 15 Jan 2005
2,000 662p 10 Nov 1998 9 Nov 2005
2,000 680p 16 Jan 1999 15 Jan 2006
60,000 247.5p 25 July 2000 24 July 2007
-------
105,562
=======
Richard Peters 10,521 561p 17 Oct 1997 16 Oct 2004
10,000 555p 16 Jan 1998 15 Jan 2005
10,000 662p 10 Nov 1998 9 Nov 2005
5,000 680p 16 Jan 1999 15 Jan 2006
30,000 247.5p 25 July 2000 24 July 2007
-------
65,521
=======
Exercise of the above options was not conditional upon any performance
criteria. All options were granted for nil consideration.
(iii)As at 30 October 1998 (the latest practicable date prior to the
printing of this document) P&D UK Equity Exempt Fund held 1,619,594
Matthew Clark Shares within the Managed Exempt Fund on behalf of the
Matthew Clark Group Executive Pension Scheme.
(iv) There have been no dealings for value in Matthew Clark Shares
(including upon the exercise of options pursuant to the Matthew Clark
Share Option Schemes) by directors of Matthew Clark and members of
their immediate families and related trusts or in respect of Matthew
Clark Shares in which the directors of Matthew Clark are interested,
during the disclosure period.
(v) As at 30 October 1998 (the latest practicable date prior to the
printing of this document) and save as disclosed in this paragraph 3,
neither Matthew Clark nor any director of Matthew Clark nor their
immediate families or related trusts owns or controls or is, directly
or indirectly, interested in any relevant securities or in any shares
of Canandaigua or Canandaigua Limited or any securities convertible
into, rights to subscribe for, options in respect of or derivatives
referenced to, such shares or has dealt for value therein or in
relevant securities during the disclosure period.
73
(vi) As at 30 October 1998 (the latest practicable date prior to the
printing of this document) and save as disclosed in this paragraph 3,
no bank, stockbroker, financial or other professional adviser to
Matthew Clark or to any subsidiary of Matthew Clark or to any
associated company of Matthew Clark or to companies of which such
companies are associated companies (other than an exempt
market-maker), nor any person controlling, controlled by, or under the
same control as such bank, stockbroker, financial or other
professional adviser, nor any subsidiary of Matthew Clark, nor any
pension fund of Matthew Clark or of any of its subsidiaries, nor any
person whose investments are managed on a discretionary basis by any
fund manager (other than an exempt fund manager) connected with
Matthew Clark, owns, controls or is interested, directly or
indirectly, in any relevant securities (nor has any such person dealt
for value therein during the period commencing on 22 October 1998 (the
date of the announcement by Matthew Clark that it was in discussions
which may or may not lead to an offer for the whole of the issued
share capital of Matthew Clark) and ended on 30 October 1998 (the
latest practicable date prior to the printing of this document)).
(vii)As at 30 October 1998 (the latest practicable date prior to the
printing of this document) and save in respect of the irrevocable
undertakings referred to in sub-paragraph (b)(iv) above, neither
Matthew Clark nor any associate of Matthew Clark falling within
paragraphs (1) to (4) of the definition of "associate" set out in
paragraph 3(a)(i) above has any arrangement with any other person in
relation to relevant securities.
4. Market quotations
(a) The following table shows the closing middle-market quotations for a
Matthew Clark Share as derived from the Official List in each case on
the first business day in each month from May 1998 to November 1998
inclusive, on 21 October 1998 (the day prior to the announcement by
Matthew Clark that it was in discussions which may or may not lead to
an offer for the whole of the issued share capital of Matthew Clark)
and on 2 November 1998 (the latest practicable date prior to the
printing of this document):
Matthew Clark
Share price in
Date pence
----------------------------------------------------------------------
1 May 1998 201 1/2
1 June 1998 199
1 July 1998 186
3 August 1998 177 1/2
1 September 1998 140
1 October 1998 120
21 October 1998 134
2 November 1998 191 1/2
5. Material contracts of Canandaigua and Matthew Clark
Save as disclosed below, there have been no contracts entered into by any member
of the Canandaigua Group or the Matthew Clark Group during the period commencing
on 22 October 1996 (the date two years before the announcement by Matthew Clark
that it was in discussions which may or may not lead to an offer for the whole
of the issued share capital of Matthew Clark) and ended on 2 November 1998 (the
latest practicable date prior to the printing of this document) which are
outside the ordinary course of business and which are or may be considered to be
material:
(a) A Purchase Agreement dated 24 October 1996 between Canandaigua and Chase
Securities Inc. ("Chase") and CS First Boston Corporation ("CSFB") (Chase
and CSFB together, the "Initial Purchasers") relating to the sale to the
Initial Purchasers of an issue of 8.75% Series B Senior Subordinated Notes
due 2003 having a principal value of US$65,000,000 (the "Series B Notes").
(b) An Indenture dated 29 October 1996 (as amended on 19 December 1997 and 2
October 1998) between Canandaigua as issuer, various of its subsidiaries as
guarantors (the "Guarantors") and Harris Trust and Savings Bank as trustee
relating to the issue of the Series B Notes and the Series C Senior
Subordinated Notes (the "Series C Notes") each due 2003 and having an
aggregate value of US$65,000,000.
(c) An Exchange and Registration Rights Agreement dated 29 October 1996 between
Canandaigua, Chase and CSFB concerning the obligation of Canandaigua and
the Guarantors to file a registration statement with the US Securities and
Exchange Commission for the exchange of registered Series C Notes for all
unregistered Series B Notes, so as to permit the trading of the Series C
Notes generally without restriction under US Federal and state securities
laws.
74
(d) A Credit Agreement dated 19 December 1997 (as amended on 19 June 1998)
between Canandaigua, various of its subsidiaries acting as guarantors (the
"Subsidiary Guarantors"), various lenders (the "Banks") and The Chase
Manhattan Bank ("TCMB") as administrative agent relating to a credit
facility currently in the amount of US$407,000,000 and capable of increase
in certain circumstances to US$507,000,000, used to refinance certain
existing indebtedness and to finance ongoing working capital requirements
and other general corporate purposes of the Canandaigua Group (the "Credit
Agreement").
(e) A Security Agreement dated 19 December 1997 between Canandaigua, the
Subsidiary Guarantors and TCMB under which advances made by the Banks under
the Credit Agreement are secured.
(f) A Tranche II Revolving Agreement (Series A) dated 15 July 1998 between
Canandaigua, various revolving lenders named therein and TCMB as
administrative agent pursuant to which such lenders agree to provide
Canandaigua with up to US$100,000,000 in revolving credit commitments,
swingline loans and letters of credit as contemplated by the Credit
Agreement.
(g) A new Credit Agreement dated 2 November 1998 between Canandaigua, various
of its subsidiaries acting as guarantors, various lenders and TCMB as
administrative agent relating to a US$1,000,000,000 credit facility to be
used for the refinancing of certain existing indebtedness, to finance the
Offer and to finance ongoing working capital requirements and other general
corporate purposes (including certain acquisitions) of the Canandaigua
Group.
6. Service contracts and other arrangements with directors or proposed
directors of Matthew Clark
Save as disclosed below, none of the directors or proposed directors of Matthew
Clark has a service contract with any member of the Matthew Clark Group where
such contract has more than twelve months to run. Except as set out below, none
of the contracts referred to below have been entered into or amended during the
six months prior to the date of this document:
Director Notice Salary
-----------------------------------------------------------------------------------------------------
Peter Aikens 24 months by Matthew Clark, 6 months by the director 230,000 pounds sterling
Hugh Etheridge 24 months by Matthew Clark, 6 months by the director 130,000 pounds sterling
7. Other information
(a) Schroders is satisfied that sufficient financial resources are available to
Canandaigua Limited to satisfy full acceptance of the Offer. Full
acceptance of the Offer would involve a maximum cash payment of
approximately 215.7 million pounds sterling.
Financing will be made available to the Canandaigua Group pursuant to a
credit agreement dated 2 November 1998 between Canandaigua as borrower, the
Offeror and various other subsidiaries of Canandaigua as guarantors and The
Chase Manhattan Bank together with a syndicate of other banks (the "Banks")
under which the Banks agree to provide Canandaigua with a loan up to a
principal amount of US$1,000,000,000 (the "New Credit Agreement").
In addition to being used to refinance certain existing indebtedness of the
Canandaigua Group and to finance ongoing working capital requirements and
other general corporate purposes (including certain acquisitions) of the
Canandaigua Group, the funds under the New Credit Agreement will be made
available to Canandaigua to finance, through the Offeror, the acquisition
of the entire issued and to be issued share capital of Matthew Clark and
certain associated costs and expenses of the Offer. The availability of
funds under the New Credit Agreement is subject, inter alia, to the Offer
having become or being declared wholly unconditional; repayment of
principal and interest on all other amounts owing by the Canandaigua Group
having been made (or being made simultaneously with drawdown under the New
Credit Agreement) under an existing credit agreement with the Banks dated
19 December 1997; various security documentation being entered into and
there having been at drawdown no breach of certain representations and
warranties given by Canandaigua in the New Credit Agreement.
(b) As Mathew Clark will form a significant part of the Canandaigua Group,
Canandaigua Limited intends that the payment of interest on, repayment of,
or security for any liability (contingent or otherwise) relating to the
financing arrangements referred to in paragraph 7(a) above will depend on
the business of Matthew Clark.
(c) Save as disclosed in this Appendix IV, no agreement, arrangement or
understanding (including any compensation arrangement) exists between
Canandaigua Limited or any person acting in concert with
75
Canandaigua Limited and any of the directors, recent directors,
shareholders or recent shareholders of Matthew Clark having any connection
with, or dependence on, or which is conditional on, the outcome of the
Offer and there is no proposal existing in connection with the Offer
whereby any payment or other benefit will be made or given to any director
of Matthew Clark as compensation for loss of office or as consideration for
or in connection with his retirement from office or otherwise in connection
with the Offer.
(d) There is no agreement, arrangement or understanding whereby the legal or
beneficial ownership of any of the Matthew Clark Shares to be acquired by
Canandaigua Limited pursuant to the Offer will be transferred to any other
person, save that Canandaigua Limited reserves the right to transfer any
such shares to any member of the Canandaigua Group.
(e) Settlement of the consideration to which any Matthew Clark Shareholder is
entitled under the Offer will be implemented in full in accordance with the
terms of the Offer without regard to any lien, right of set off,
counterclaim or other analogous right to which Canandaigua Limited may
otherwise be, or claim to be, entitled against such shareholder.
(f) Save as disclosed in Appendix II of this document, the directors of
Canandaigua are not aware of any material change in the financial or
trading position of Canandaigua since 28 February 1998 (the date to which
the latest published audited consolidated accounts of Canandaigua were
prepared).
(g) The expenses of and incidental to the preparation and implementation of the
Offer will be paid by Canandaigua Limited.
(h) Schroders, which is a member of the London Stock Exchange and is regulated
in the UK by The Securities and Futures Authority Limited, has given and
not withdrawn its consent to the issue of this document with the inclusion
of its name in the form and context in which it is included.
(i) Warburg Dillon Read, which is a member of the London Stock Exchange and is
regulated in the UK by The Security and Futures Authority Limited, has
given and not withdrawn its consent to the issue of this document with the
inclusion of its name in the form and context in which it is included.
(j) There has been no material change in the financial or trading position of
Matthew Clark since 30 April 1998 (the date to which the latest published
audited consolidated accounts of the Matthew Clark Group were prepared).
(k) The fully diluted share capital of Matthew Clark is based upon 88,520,498
Matthew Clark Shares in issue on 30 October 1998 (the latest practicable
date prior to the printing of this document), together with 1,904,822
Matthew Clark Shares falling to be issued upon the exercise of options
granted and outstanding on such date under the Matthew Clark Share Option
Schemes. It should be noted that only 225,000 options over Matthew Clark
Shares are capable of being exercised at a price below 243 pence per
Matthew Clark Share.
(l) The price of Matthew Clark Shares at the close of business on a particular
date is derived from the Official List.
(m) Unless otherwise stated:
(i) financial information relating to Canandaigua has been extracted from
the Canandaigua Annual Report for the year ended 28 February 1998; and
(ii) financial information relating to Matthew Clark has been extracted
from the annual report and published audited consolidated accounts of
Matthew Clark for the two years ended 30 April 1998 and 30 April 1997,
respectively.
(n) The market capitalisation of Canandaigua is based on the closing
middle-market quotation for Canandaigua shares of $50 1/8 per A Share and
$50 3/4 per B Share on 30 October 1998 (the latest practicable date prior
to the printing of this document), as derived from Bloomberg Financial
Markets.
8. Documents available for inspection
Copies of the following documents are available for inspection during usual
business hours on any weekday (public holidays excepted) at the offices of
Clifford Chance, 200 Aldersgate Street, London EC1A 4JJ while the Offer remains
open for acceptance:
(a) the Memorandum and Articles of Association of Canandaigua Limited;
76
(b) the Memorandum and Articles of Association of Matthew Clark;
(c) the published audited consolidated accounts of Canandaigua for the two
financial years ended 28 February 1998;
(d) the published audited consolidated accounts of Matthew Clark for the two
financial years ended 30 April 1998;
(e) the service contracts referred to in paragraph 6 above;
(f) the irrevocable undertakings to accept the Offer referred to in paragraph
3(b)(iv) of this Appendix;
(g) the material contracts referred to in paragraph 5 above;
(h) the written consents referred to in paragraph 7 above;
(i) the documents in respect of the financing arrangements referred to in
paragraph 7(a) above; and
(j) this document and the Form of Acceptance.
3 November 1998
77
APPENDIX V DEFINITIONS
- --------------------------------------------------------------------------------
The following definitions apply throughout this document unless the context
otherwise requires:
"Act" the Companies Act 1985
"Authorisations" authorisations, orders, grants,
recognitions, confirmations, consents,
clearances, certificates, licences,
permissions or approvals
"Canandaigua" Canandaigua Brands, Inc.
"Canandaigua Group" Canandaigua and its subsidiary
undertakings and, where the context
permits, each of them
"Canandaigua Limited" the Offeror
"certificated"
or "certificated form" in relation to a share or other
security, a share or other security
title to which is recorded in the
relevant register of the share or other
security as being held in certificated
form (that is, not in CREST)
"City Code" the City Code on Takeovers and Mergers
"CREST" the relevant system (as defined in the
Regulations)operated by CRESTCo
"CRESTCo" CRESTCo Limited
"CREST member" a person who is, in relation to CREST, a
system-member (as defined in the
Regulations)
"CREST participant" a person who is, in relation to CREST,
a system-participant (as defined in the
Regulations)
"CREST sponsor" a person who is, in relation to CREST, a
sponsoring system-participant, (as
defined in the Regulations)
"CREST sponsored member" a CREST member admitted to CREST as a
sponsored member under the sponsorship
of a CREST sponsor
"Form of Acceptance" the form of acceptance, authority and
election relating to the Offer and
accompanying this document and "Forms of
Acceptance" shall be construed
accordingly
"London Stock Exchange" London Stock Exchange Limited
"Matthew Clark" Matthew Clark plc
"Matthew Clark Group" Matthew Clark and its subsidiary
undertakings and, where the context
permits, each of them
"Matthew Clark Shareholders" holders of Matthew Clark Shares and
"Matthew Clark Shareholder" shall be
construed accordingly
"Matthew Clark Shares" ordinary shares of 25 pence each in the
capital of Matthew Clark, and "Matthew
Clark Share" shall be construed
accordingly
"Matthew Clark Shares (a) Matthew Clark Shares unconditionally
to which the Offer relates" allotted or issued on or before the date
the Offer is made; and (b) Matthew Clark
Ordinary Shares unconditionally allotted
or issued after that date but before the
date the Offer closes, or such earlier
date or dates as the Offeror may decide
(not being earlier than the date on
which the Offer becomes or is declared
unconditional as to acceptances or, if
later, the first closing date of the
Offer), but excluding any Matthew Clark
Shares which, on the date the Offer is
made, are held or contracted to be
acquired (otherwise than under such a
contract as is described in section
428(5) of the Act) by the Offeror and/or
its associates (within the meaning of
section 430E of the Act)
"Matthew Clark Share Option Schemes" the Matthew Clark Group Executive Share
Option Scheme, the Matthew Clark Group
1995 Savings Related Share Option Scheme
and the Matthew Clark Group Unapproved
Executive Share Option Scheme
"member account ID" the identification code or number
attached to any member account in CREST
"Offeror" Canandaigua Limited, a wholly-owned
subsidiary of Canandaigua
78
"Offer" the recommended cash offer made
hereunder by Schroders on behalf of the
Offeror to acquire the Matthew Clark
Shares to which the Offer relates on the
terms and subject to the conditions set
out in this document and in the Form of
Acceptance including, where the context
requires, any subsequent revision,
variation, extension or renewal of such
offer
"Offer period" as defined in paragraph 6(b) of Part B
to Appendix I hereto
"Official List" the Daily Official List of the London
Stock Exchange
"Panel" the Panel on Takeovers and Mergers
"participant ID" the identification code or membership
number used in CREST to identify a CREST
member or other CREST participant
"Regulations" the Uncertificated Securities
Regulations 1995
"Schroders" J. Henry Schroder Co. Limited
"Securities Act" the United States Securities Act of
1933, as amended
"subsidiary", "subsidiary shall be construed in accordance with
undertaking","associated the Act (but for this purpose ignoring
"undertaking" and "undertaking" paragraph 20(1)(b) of Schedule 4A to the
Act)
"TTE instruction" a transfer to escrow instruction (as
defined in the CREST Manual issued by
CRESTCo)
"TFE instruction" a transfer from escrow instruction (as
defined in the CREST Manual issued by
CRESTCo)
"Third Party" government or governmental,
quasi-governmental, supranational,
statutory, regulatory or investigative
body, trade agency, court, professional
association or any other body or person
whatsoever in any jurisdiction
"uncertificated" or "uncertificated in relation to a share or other
form" security, a share or other security
title to which is recorded in the
relevant register of the share or
security as being held in uncertificated
form (that is, in CREST), and title to
which, by virtue of the Regulations, may
be transferred by means of CREST
"United Kingdom" or "UK" the United Kingdom of Great Britain and
Northern Ireland
"United States" or "US"
the United States of America, its
territories and possessions, any state
of the United States of America, the
District of Columbia and all other areas
subject to the jurisdiction of the
United States
"US$" or "$" denotes the lawful currency of the US
"US Act" the United States Securities Act of
1933, as amended
"US person" and as defined in paragraph 7(h) of Part B
"North American person" to Appendix I hereto
"Warburg Dillon Read" UBS AG, acting through its investment
banking division Warburg Dillon Read
"Wider Canandaigua Group" the Canandaigua Group and associated
undertakings and any other body
corporate, partnership, joint venture or
person in which the Canandaigua Group
and such undertakings (aggregating their
interests) have a direct or indirect
interest of 20 per cent. or more of the
voting or equity capital or the
equivalent
"Wider Matthew Clark Group" the Matthew Clark Group and associated
undertakings and any other body
corporate, partnership, joint venture or
person in which the Matthew Clark Group
and such undertakings (aggregating their
interests) have a direct or indirect
interest of 20 per cent. or more of the
voting or equity capital or the
equivalent
"1998 Report and Accounts of the annual report and audited accounts
Matthew Clark" of Matthew Clark for the year ended
30 April 1998
The Registrant has omitted from this filing the Form of Acceptance distributed
with the foregoing Recommended Cash Offer. The Registrant will furnish
supplementally to the Commission, upon request, a copy of such Form of
Acceptance.