UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Introductory Note
As previously disclosed, on November 16, 2023, The Duckhorn Portfolio, Inc., a Delaware corporation (the “Company”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, Auguste Merger Sub, Inc., a California corporation and a wholly-owned subsidiary of the Company (“Merger Sub”), Brown-Forman Corporation, a Delaware Corporation (“Brown-Forman”) and Sonoma-Cutrer Vineyards, Inc., a California corporation and a wholly-owned subsidiary of Brown-Forman (“Sonoma-Cutrer”), pursuant to which on April 30, 2024 (the “Closing Date”), Merger Sub merged with and into Sonoma-Cutrer (the “Merger”) with Sonoma-Cutrer continuing as the surviving entity and wholly owned subsidiary of the Company.
Item 2.01 | Completion of Acquisition or Disposition of Assets. |
The information set forth in the Introductory Note and under Item 5.01 is incorporated by reference into this Item 2.01.
At the effective time of the Merger (the “Effective Time”), the Company issued and paid, as applicable, 31,531,532 shares of the Company’s common stock (the “Share Consideration”) and $49,614,448, equal to $50,000,000 as adjusted by certain adjustments set forth in the Merger Agreement, including for cash, working capital, indebtedness and transaction expenses (together with the Share Consideration, the “Merger Consideration”).
The foregoing description of the Merger Agreement and the transactions contemplated thereby, does not purport to be complete and is subject to, and qualified in its entirety by reference to, the full text of the Merger Agreement. A copy of the Merger Agreement is filed as Exhibit 2.1 to this Current Report on Form 8-K and is incorporated by reference into this Item 2.01.
Item 2.02 | Results of Operations and Financial Condition. |
On May 1, 2024, the Company issued a press release announcing, among other things, (i) the appointment of Deirdre Mahlan as President and Chief Executive Officer of the Company and (ii) certain preliminary financial results for the third quarter ended April 30, 2024. A copy of the press release is furnished as Exhibit 99.5 to this Current Report on Form 8-K. The preliminary financial information presented in the press release is based on the Company’s current expectations and may be adjusted as a result of, among other things, completion of customary quarter close procedures and financial review.
As provided in General Instruction B.2 of Form 8-K, the information in this Item 2.02, including Exhibit 99.5, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall such information or Exhibit 99.5 be deemed to be incorporated by reference in any filing under the Securities Act or the Exchange Act, regardless of any general incorporation language in such filing.
Item 3.02 | Unregistered Sales of Equity Securities. |
The information set forth in the Introductory Note and under Item 2.01 is incorporated herein by reference.
The shares of the Company’s common stock to be issued in connection with the Merger Agreement have not and will not be registered under the Securities Act of 1933, as amended (the “Securities Act”), and have been issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act.
Item 5.02 | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. |
President and Chief Executive Officer
On April 29, 2024, the Board of Directors (the “Board”) of the Company appointed Deirdre Mahlan, currently serving as interim President, Chief Executive Officer and chairperson of the Board of the Company, as the non-interim President and Chief Executive Officer of the Company, effective April 30, 2024. Ms. Mahlan will also continue in her role as chairperson of the Board.
In connection with Ms. Mahlan’s appointment as non-interim President and Chief Executive Officer of the Company, the Company, Duckhorn Wine Company, a wholly-owned indirect subsidiary of the Company, and Ms. Mahlan entered into an employment agreement (the “Employment Agreement”), dated April 30, 2024, pursuant to which Ms. Mahlan will be entitled to receive an annual base salary of $700,000 and eligible to receive an annual bonus with a target equal to 100% of her annual base salary. In addition, in connection with Ms. Mahlan’s appointment as non-interim President and Chief Executive Officer of the Company, Ms. Mahlan was granted a number of restricted stock units calculated by dividing $4,500,000 by the closing price of the Company’s common stock on the grant date, with $1,000,000 of such restricted stock units vesting on each of the one-, two- and three-year anniversaries of the grant date, and $1,500,000 of such restricted stock units vesting upon the attainment of the Company’s common stock trading at or above $13.00 for twenty consecutive trading days during the three-year period from the grant date, in each case, pursuant to the Company’s 2021 Equity Incentive Plan and subject to acceleration as provided for under the applicable grant agreement.
Under the Employment Agreement, if Ms. Mahlan’s employment is terminated by the Company without Cause or by Ms. Mahlan for Good Reason (as each term is defined in the Employment Agreement), she will be entitled to receive base salary continuation for twelve months, reimbursement of COBRA premiums for up to twelve months (based on the portion of monthly health premiums paid by the Company immediately prior to her termination), and any annual bonus for the fiscal year prior to the fiscal year in which such termination occurs, to the extent not yet paid, in each case, subject to her execution of a separation agreement containing a general release of claims. The period of base salary continuation and COBRA premium reimbursement will be reduced to six months in the case of certain “good reason” terminations.
The foregoing description of the Employment Agreement does not purport to be complete and is qualified in its entirety by reference to the Employment Agreement, which is filed as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated herein by reference.
Board of Directors
In connection with the completion of the Merger and effective as of April 30, 2024, the Board of the Company appointed Marshall B. Farrer and Timothy Nall to the Board. Melanie Cox notified the Board of her resignation from the Company’s Board, effective at the time of the completion of the Merger. Ms. Cox’s resignation was not as a result of any disagreement with the Company.
Marshall Farrer is the executive vice president, chief strategic growth officer for Brown-Forman. Marshall began his career at Brown-Forman in 1998, as a marketing manager in the Wine Division in California, where he held several sales and marketing management positions. In 2004, he was named vice president, chief of staff to the president of Brown-Forman’s Spirits Americas. In 2006, he was appointed as director of Latin America and the Caribbean. In 2010, he relocated to Sydney, Australia, and was named the managing director, Australia, New Zealand, and South Pacific. In 2014, he shifted to marketing as the managing director of Jack Daniel’s Tennessee Honey, leading its global expansion. Shortly after in 2015, he was promoted to senior vice president, managing director of global travel retail, and in 2018 added the responsibility of Developed Asia Pacific, including North Asia, Australia, and New Zealand. In 2020, Marshall was named president of Europe and joined the Executive Leadership Team. In addition, he became Brown-Forman’s first chief strategic growth officer in 2023 and transitioned to the role full-time in early 2024. Mr. Farrer has served on Brown-Forman’s board of directors since 2016 and is a fifth-generation Brown family shareholder. He graduated from Rollins College with a Bachelor of Arts and holds a Master of Business Administration degree from Tulane University.
Tim Nall is the executive vice president, chief global supply chain and technology officer for Brown-Forman. Since 2000, he has held positions of increasing responsibility within Brown-Forman’s Global Production group, including director of campus production operations, vice president and general manager of Brown-Forman Wines, vice president, director of technical services, and most recently, senior vice president, chief information and advanced analytics officer. Prior to Brown-Forman, he was employed by Alcoa, American Air Filters, and S.S.T.I. (Ford Motor Company/Johnson Controls joint venture). He earned a Bachelor of Science in Electrical Engineering from the University of Louisville JB Speed School of Engineering. He later earned a Master of Business Administration at University of Louisville with a concentration in operations management.
The Company entered into Indemnification Agreements with Messrs. Farrer and Nall on April 30, 2024, the form of which is filed as Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the year ended July 31, 2023, filed with the SEC on September 27, 2023.
Item 5.03 | Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year. |
The information set forth in the Introductory Note and under Item 2.01 is incorporated by reference into this Item 5.03.
At the Effective Time, the Amended and Restated Certificate of Incorporation of the Company, as in effect immediately prior to the Effective Time, was amended and restated to be the Second Amended and Restated Certificate of Incorporation attached hereto as Exhibit 3.1, which is incorporated by reference into this Item 5.03.
At the Effective Time, the amended and restated bylaws of the Company, as in effect immediately prior to the Effective Time, was amended and restated to be the Second Amended and Restated Bylaws attached hereto as Exhibit 3.2, which is incorporated by reference into this Item 5.03.
Item 7.01 | Regulation FD Disclosure. |
On May 1, 2024, the Company issued a press release announcing, among other things, the closing of the Merger. The press release is furnished as Exhibit 99.1 to this report.
As provided in General Instruction B.2 of Form 8-K, the information in this Item 7.01, including Exhibit 99.1, shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall such information or Exhibit 99.1 be deemed to be incorporated by reference in any filing under the Securities Act or the Exchange Act, regardless of any general incorporation language in such filing.
Item 9.01 | Financial Statements and Exhibits. |
(a) Financial Statements of Business Acquired
The audited consolidated financial statements of Sonoma-Cutrer as of and for the year ended April 30, 2023 and the unaudited financial statements of Sonoma-Cutrer as of and for the nine months ended January 31, 2024 are attached hereto as Exhibits 99.2 and 99.3, respectively, and are incorporated by reference herein.
(b) Pro Forma Financial Information
The unaudited pro forma condensed combined financial information of the Company and Sonoma-Cutrer, as of and for the six months ended January 31, 2024 and the year ended July 31, 2023 is attached hereto as Exhibit 99.4. and incorporated herein by reference.
(d) Exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
The Duckhorn Portfolio, Inc. | ||||||
Date: May 1, 2024 | By: | /s/ Sean Sullivan | ||||
Sean Sullivan | ||||||
Executive Vice President, Chief Strategy and Legal Officer |
Exhibit 3.1
Execution Version
THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
THE DUCKHORN PORTFOLIO, INC.
The Duckhorn Portfolio, Inc., a Delaware corporation (the Corporation), hereby certifies that this Third Amended and Restated Certificate of Incorporation has been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware (the DGCL), and that:
A. The name of the Corporation is: The Duckhorn Portfolio, Inc.
B. The original Certificate of Incorporation of the Corporation was filed with the Secretary of the State of Delaware on September 15, 2016, under the name Mallard Intermediate, Inc. (the Original Certificate of Incorporation).
C. The Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on March 22, 2021, which amended and restated the Original Certificate of Incorporation (as further amended by the Certificate of Amendment of the Amended and Restated Certificate of Incorporation, filed with the Secretary of State of the State of Delaware on January 23, 2023, the A&R Certificate of Incorporation).
D. This Third Amended and Restated Certificate of Incorporation amends and restates the A&R Certificate of Incorporation in its entirety.
E. Upon the filing of this Third Amended and Restated Certificate of Incorporation, the Certificate of Incorporation shall read in full as follows:
ARTICLE I NAME
The name of the corporation is The Duckhorn Portfolio, Inc. (the Corporation).
ARTICLE II REGISTERED OFFICE AND AGENT
The address of the Corporations registered office in the State of Delaware is 251 Little Falls Drive, Wilmington, New Castle County, Delaware 19808. The name of the Corporations registered agent at such address is Corporation Service Company.
ARTICLE III PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the DGCL).
ARTICLE IV CAPITALIZATION
(a) Authorized Shares. The total number of shares of all classes of stock that the Corporation is authorized to issue is 600,000,000 shares of stock, consisting of (i) 100,000,000 shares of Preferred Stock, par value $0.01 per share (Preferred Stock) and (ii) 500,000,000 shares of Common Stock, par value $0.01 per share (Common Stock).
[Signature Page to Third A&R Certificate of Incorporation of The Duckhorn Portfolio, Inc.]
(b) Common Stock. Subject to the powers, preferences and rights of any Preferred Stock, including any series thereof, having any preference or priority over, or rights superior to, the Common Stock and except as otherwise provided by law and this Article IV, the holders of the Common Stock shall have and possess all powers and voting and other rights pertaining to the stock of the Corporation.
(i) Voting.
a) Each holder of shares of Common Stock, as such, shall be entitled to one vote for each share of Common Stock held of record by such holder on all matters on which stockholders generally are entitled to vote; provided, however, that to the fullest extent permitted by law, holders of shares of Common Stock, as such, shall have no voting power with respect to, and shall not be entitled to vote on, any amendment to this Third Amended and Restated Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if only the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to this Third Amended and Restated Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) or pursuant to the DGCL.
b) Except as otherwise required in this Third Amended and Restated Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) or by applicable law, the holders of Common Stock shall vote together as a single class on all matters (or, if any holders of Preferred Stock are entitled to vote together with the holders of Common Stock, as a single class with such holders of Preferred Stock). There shall be no cumulative voting.
(ii) Dividends. Dividends of cash or property may be declared and paid on the Common Stock from funds lawfully available therefor as and when determined by the Board of Directors and subject to any preferential dividend rights of any then outstanding Preferred Stock. Except as otherwise provided by the DGCL or this Third Amended and Restated Certificate of Incorporation, the holders of record of shares of Common Stock shall share ratably in all dividends payable in cash, stock or otherwise and other distributions, whether in respect of liquidation or dissolution (voluntary or involuntary) or otherwise.
(iii) Liquidation Rights. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation and of the preferential and other amounts, if any, to which the holders of Preferred Stock shall be entitled, the holders of all outstanding shares of Common Stock shall be entitled to receive the remaining assets of the Corporation available for distribution ratably in proportion to the number of shares held by each such stockholder.
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(iv) No Conversion Rights. The Common Stock shall not be convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same class of the Corporations capital stock.
(c) Preferred Stock. Shares of Preferred Stock may be issued in one or more series, from time to time, with each such series to consist of such number of shares and to have such voting powers relative to other classes or series of Preferred Stock, if any, or Common Stock, full or limited or no voting powers, and such designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, as shall be stated in the resolution or resolutions providing for the issuance of such series adopted by the Board of Directors, and the Board of Directors is hereby expressly vested with the authority, to the full extent now or hereafter provided by applicable law, to adopt any such resolution or resolutions. Except as otherwise provided in this Third Amended and Restated Certificate of Incorporation, no vote of the holders of the Preferred Stock or Common Stock shall be a prerequisite to the designation or issuance of any shares of any series of the Preferred Stock authorized by and complying with the conditions of this Third Amended and Restated Certificate of Incorporation, the right to have such vote being expressly waived by all present and future holders of the capital stock of the Corporation. Any shares of Preferred Stock that are redeemed, purchased or acquired by the Corporation may be reissued except as otherwise provided by law or this Third Amended and Restated Certificate of Incorporation. Different series of Preferred Stock shall not be construed to constitute different classes of shares for the purposes of voting by classes unless expressly provided in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors.
(d) No Class Vote on Changes in Authorized Number of Shares of Stock. Subject to the rights of the holders of any series of Preferred Stock pursuant to the terms of this Third Amended and Restated Certificate of Incorporation, any certificate of designations or any resolution or resolutions providing for the issuance of such series of stock adopted by the Board of Directors, the number of authorized shares of a class of stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, irrespective of the provisions of Section 242(b)(2) of the DGCL.
ARTICLE V BOARD OF DIRECTORS
(a) Number of Directors; Vacancies and Newly Created Directorships. The number of directors constituting the Board of Directors shall be not fewer than three (3) and not more than fifteen (15), each of whom shall be a natural person. Subject to the rights of the holders of any series of Preferred Stock to elect directors, the precise number of directors shall be fixed exclusively pursuant to a resolution adopted by the Board of Directors. Subject to the terms of the Amended and Restated Stockholders Agreement, dated as of November 16, 2023, by and among the Corporation and the other signatories thereto (so long as such agreement remains in effect), vacancies and newly-created directorships shall be filled exclusively by vote of a majority of the directors then in office, even if less than a quorum, or by a sole remaining director, except that any vacancy created by the removal of a director by the stockholders for cause shall only be filled, in addition to any other vote otherwise required by law, by vote of a majority of the outstanding
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shares of Common Stock. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. A director elected to fill a vacancy shall be elected for the unexpired term of his or her predecessor in office, and a director chosen to fill a position resulting from an increase in the number of directors shall hold office until the next election of the class for which such director shall have been chosen, subject to the election and qualification of his or her successor and to his or her earlier death, resignation or removal.
(b) Classified Board of Directors. Subject to the rights of the holders of any series of Preferred Stock to elect directors, the Board of Directors (other than those directors elected by the holders of any series of Preferred Stock) shall be classified into three classes: Class I; Class II; and Class III. Each class shall consist, as nearly equal in number as possible, of one-third of the total number of directors constituting the entire Board of Directors and the allocation of directors among the three classes shall be determined by the Board of Directors. The initial Class I Directors shall serve for a term expiring at the first annual meeting of stockholders of the Corporation following the filing of the Amended and Restated Certificate of Incorporation; the initial Class II Directors shall serve for a term expiring at the second annual meeting of stockholders following the filing of the Amended and Restated Certificate of Incorporation; and the initial Class III Directors shall serve for a term expiring at the third annual meeting of stockholders following the filing of the Amended and Restated Certificate of Incorporation. Each director in each class shall hold office until his or her successor is duly elected and qualified or until his or her earlier death, resignation or removal. At each annual meeting of stockholders, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders to be held in the third year following the year of their election, with each director in each such class to hold office until his or her successor is duly elected and qualified or until his or her earlier death, resignation or removal. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible and such apportionment shall be determined by the Board of Directors.
(c) Removal. Subject to the rights of the holders of any series of Preferred Stock to elect directors, the directors of the Corporation may be removed only for cause by the affirmative vote of the holders of at least seventy-five percent (75%) of the voting power of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, at a meeting of the stockholders called for that purpose.
ARTICLE VI LIMITATION OF DIRECTOR AND OFFICER LIABILITY
To the fullest extent that the DGCL or any other law of the State of Delaware (as they exist on the date hereof or as they may hereafter be amended) permits the limitation or elimination of the liability of directors or officers, no director or officer of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director or officer. No amendment to, or modification or repeal of, this Article VI shall adversely affect any right or protection of a director or officer of the Corporation existing hereunder with respect to any state of facts existing or act or omission occurring, or any cause of action, suit or claim that, but for this Article VI, would accrue or arise, prior to such amendment, modification or repeal. If, after this Third Amended and Restated Certificate of Incorporation is filed with the Secretary of State of the State of Delaware, the DGCL or such other law is amended to authorize corporate action
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further eliminating or limiting the personal liability of directors or officers, then the liability of a director or officer of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL or such other law, as so amended.
ARTICLE VII MEETINGS OF STOCKHOLDERS
(a) No Action by Written Consent. Any action required or permitted to be taken by the stockholders of the Corporation may be effected only at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders.
(b) Special Meetings of Stockholders. Subject to any rights of the holders of any series of Preferred Stock, and to the requirements of applicable law, special meetings of stockholders of the Corporation may be called only (i) by or at the direction of the chairperson of the Board of Directors, (ii) by or at the direction of the chief executive officer of the Corporation or (iii) by or at the direction of the Board of Directors pursuant to a written resolution adopted by a majority of the total number of directors which the Corporation would have if there were no vacancies. Any business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of meeting.
(c) Election of Directors by Written Ballot. Election of directors need not be by written ballot.
ARTICLE VIII AMENDMENTS TO THE
CERTIFICATE OF INCORPORATION AND BYLAWS
(a) Bylaws. In furtherance and not in limitation of the powers conferred by law, the Board of Directors is expressly authorized to make, alter, amend or repeal the bylaws of the Corporation subject to the power of the stockholders of the Corporation entitled to vote with respect thereto to make, alter, amend or repeal the bylaws; provided, that with respect to the powers of stockholders entitled to vote with respect thereto to make, alter, amend or repeal the bylaws, in addition to any other vote otherwise required by law, the affirmative vote of holders of at least seventy-five percent (75%) of the voting power of the outstanding shares of capital stock of the Corporation entitled to vote with respect thereto, voting together as a single class, shall be required to make, alter, amend or repeal the bylaws of the Corporation.
(b) Amendments to the Certificate of Incorporation. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Third Amended and Restated Certificate of Incorporation in the manner now or hereafter prescribed by the DGCL, and all rights conferred upon stockholders herein are granted subject to this reservation. Notwithstanding anything to the contrary contained in this Third Amended and Restated Certificate of Incorporation, and notwithstanding that a lesser percentage may be permitted from time to time by applicable law, no provision of Article IV, Article V, Article VI, paragraphs (a) and (b) of Article VII, Article VIII, Article IX and Article X may be altered, amended or repealed in any respect, nor may any provision or bylaw inconsistent therewith be adopted, unless, in addition to any other vote required by this Third Amended and Restated Certificate of Incorporation or otherwise required by law, such alteration, amendment, repeal or adoption is approved by the affirmative vote of the
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holders of at least seventy-five percent (75%) of the voting power of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, at a meeting of the stockholders called for that purpose.
ARTICLE IX BUSINESS COMBINATIONS
(a) Limitations on Business Combinations. The Corporation shall not engage in any business combination (as defined below), at any point in time at which any class of the Corporations Common Stock is registered under Section 12(b) or Section 12(g) of the Exchange Act, with any interested stockholder (as defined below) for a period of three (3) years following the time that such stockholder became an interested stockholder, unless:
(i) prior to such time, the Board of Directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;
(ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least eighty-five percent (85%) of the voting stock (as defined below) of the Corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned by (i) persons who are directors of the Corporation and also officers of the Corporation or (ii) employee stock plans of the Corporation in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
(iii) at or subsequent to such time, the business combination is approved by the Board of Directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding voting stock of the Corporation which is not owned by the interested stockholder.
(b) Definitions. For purposes of this Article IX, references to:
(i) affiliate means a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, another person.
(ii) associate, when used to indicate a relationship with any person, means: (i) any corporation, partnership, unincorporated association or other entity of which such person is a director, officer or partner or is, directly or indirectly, the owner of twenty percent (20%) or more of any class of voting stock; (ii) any trust or other estate in which such person has at least a twenty percent (20%) beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity; and (iii) any relative or spouse of such person, or any relative of such spouse, who has the same residence as such person.
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(iii) business combination, when used in reference to the Corporation and any interested stockholder of the Corporation, means:
(1) any merger or consolidation of the Corporation or any direct or indirect majority-owned subsidiary of the Corporation (a) with the interested stockholder, or (b) with any other corporation, partnership, unincorporated association or other entity if the merger or consolidation is caused by the interested stockholder and as a result of such merger or consolidation paragraph (b) of this Article IX is not applicable to the surviving entity;
(2) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), except proportionately as a stockholder of the Corporation, to or with the interested stockholder, whether as part of a dissolution or otherwise, of assets of the Corporation or of any direct or indirect majority-owned subsidiary of the Corporation which assets have an aggregate market value equal to ten percent (10%) or more of either the aggregate market value of all the assets of the Corporation determined on a consolidated basis or the aggregate market value of all the outstanding stock of the Corporation;
(3) any transaction which results in the issuance or transfer by the Corporation or by any direct or indirect majority-owned subsidiary of the Corporation of any stock of the Corporation or of such subsidiary to the interested stockholder, except: (a) pursuant to the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into stock of the Corporation or any such subsidiary which securities were outstanding prior to the time that the interested stockholder became such; (b) pursuant to a merger under Section 251(g) or Section 253 of the DGCL; (c) pursuant to a dividend or distribution paid or made, or the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into stock of the Corporation or any such subsidiary which security is distributed, pro rata to all holders of a class or series of stock of the Corporation subsequent to the time the interested stockholder became such; (d) pursuant to an exchange offer by the Corporation to purchase stock made on the same terms to all holders of such stock; or (e) any issuance or transfer of stock by the Corporation; provided, however, that in no case under clauses (c) through (e) of this subsection (3) shall there be an increase in the interested stockholders proportionate share of the stock of any class or series of the Corporation or of the voting stock of the Corporation (except as a result of immaterial changes due to fractional share adjustments);
(4) any transaction involving the Corporation or any direct or indirect majority-owned subsidiary of the Corporation which has the effect, directly or indirectly, of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the Corporation or of any such subsidiary which is owned by the interested stockholder, except as a result of immaterial changes due to fractional share adjustments or as a result of any purchase or redemption of any shares of stock not caused, directly or indirectly, by the interested stockholder; or
(5) any receipt by the interested stockholder of the benefit, directly or indirectly (except proportionately as a stockholder of the Corporation), of any
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loans, advances, guarantees, pledges, or other financial benefits (other than those expressly permitted in subsections (1) through (4) above) provided by or through the Corporation or any direct or indirect majority-owned subsidiary.
(iv) control, including the terms controlling, controlled by and under common control with, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting stock, by contract, or otherwise. A person who is the owner of twenty percent (20%) or more of the outstanding voting stock of the Corporation, partnership, unincorporated association or other entity shall be presumed to have control of such entity, in the absence of proof by a preponderance of the evidence to the contrary. Notwithstanding the foregoing, a presumption of control shall not apply where such person holds voting stock, in good faith and not for the purpose of circumventing this Article IX, as an agent, bank, broker, nominee, custodian or trustee for one or more owners who do not individually or as a group have control of such entity.
(v) interested stockholder means any person (other than the Corporation or any direct or indirect majority-owned subsidiary of the Corporation) that (i) is the owner of fifteen percent (15%) or more of the outstanding voting stock of the Corporation, or (ii) is an affiliate or associate of the Corporation and was the owner of fifteen percent (15%) or more of the outstanding voting stock of the Corporation at any time within the three (3) year period immediately prior to the date on which it is sought to be determined whether such person is an interested stockholder, and the affiliates and associates of such person; provided, however, that the term interested stockholder shall not include (a) the TSG Entities, (b) the BF Entities, (c) a stockholder that becomes an interested stockholder inadvertently and (i) as soon as practicable divests itself of ownership of sufficient shares so that such stockholder ceases to be an interested stockholder and (ii) would not, at any time within the three-year period immediately prior to a business combination between the Corporation and such stockholder, have been an interested stockholder but for the inadvertent acquisition of ownership or (d) any person whose ownership of shares in excess of the fifteen percent (15%) limitation set forth herein is the result of any action taken solely by the Corporation; provided that such person specified in this clause (d) shall be an interested stockholder if thereafter such person acquires additional shares of voting stock of the Corporation, except as a result of further corporate action not caused, directly or indirectly, by such person. For the purpose of determining whether a person is an interested stockholder, the voting stock of the Corporation deemed to be outstanding shall include stock deemed to be owned by the person through application of the definition of owner below but shall not include any other unissued stock of the Corporation which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.
(vi) owner, including the terms own and owned, when used with respect to any stock, means a person that individually or with or through any of its affiliates or associates:
(1) beneficially owns such stock, directly or indirectly; or
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(2) has (a) the right to acquire such stock (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise; provided, however, that a person shall not be deemed the owner of stock tendered pursuant to a tender or exchange offer made by such person or any of such persons affiliates or associates until such tendered stock is accepted for purchase or exchange; or (b) the right to vote such stock pursuant to any agreement, arrangement or understanding; provided, however, that a person shall not be deemed the owner of any stock because of such persons right to vote such stock if the agreement, arrangement or understanding to vote such stock arises solely from a revocable proxy or consent given in response to a proxy or consent solicitation made to ten (10) or more persons; or
(3) has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except voting pursuant to a revocable proxy or consent as described in item (b) of subsection (2) above), or disposing of such stock with any other person that beneficially owns, or whose affiliates or associates beneficially own, directly or indirectly, such stock.
(vii) person means any individual, corporation, partnership, unincorporated association or other entity.
(viii) stock means, with respect to any corporation, capital stock and, with respect to any other entity, any equity interest.
(ix) voting stock means stock of any class or series entitled to vote generally in the election of directors.
(c) Other Definitions. For purposes of this Third Amended and Restated Certificate of Incorporation, references to:
(i) Affiliate means, with respect to any Person, any other Person that controls, is controlled by, or is under common control with such Person; the term control, as used in this definition, means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and controlled and controlling have meanings correlative to the foregoing.
(ii) BF Entities means the Brown-Forman Corporation and its successors, Transferees and controlled Affiliates.
(iii) Person means an individual, any general partnership, limited partnership, limited liability company, corporation, trust, business trust, joint stock company, joint venture, unincorporated association, cooperative or association or any other legal entity or organization of whatever nature, and shall include any successor (by merger or otherwise) of such entity.
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(iv) Transferee means any Person who (i) becomes a beneficial owner of Common Stock upon having purchased such shares of Common Stock from a TSG Entity or a BF Entity, as applicable, and (ii) is designated in writing by the transferor as a Transferee and a copy of such writing is provided to the Corporation at or prior to the time of such purchase; provided, however, that a purchaser of Common Stock in a registered offering or in a transaction effected pursuant to Rule 144 under the Securities Act of 1933, as amended, (or any similar or successor provision thereto) shall not be a Transferee. For the purpose of this Third Amended and Restated Certificate of Incorporation beneficial ownership shall be determined in accordance with Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act).
(v) TSG Entities means investment funds affiliated with TSG Consumer Partners LLC and their respective successors, Transferees and Affiliates.
ARTICLE X RENOUNCEMENT OF CORPORATE OPPORTUNITY
(a) Scope. The provisions of this Article X are set forth to define, to the extent permitted by applicable law, the duties of Exempted Persons (as defined below) to the Corporation with respect to certain classes or categories of business opportunities. Exempted Persons means each of the TSG Entities (other than the Corporation and its subsidiaries), the BF Entities (other than the Corporation and its subsidiaries) and all of their respective partners, principals, directors, officers, members, managers, managing directors and/or employees, including any of the foregoing who serve as employees, officers or directors of the Corporation.
(b) Competition and Allocation of Corporate Opportunities. The Exempted Persons shall not have any fiduciary duty or other duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as the Corporation or any of its subsidiaries. To the fullest extent permitted by applicable law, the Corporation, on behalf of itself and its subsidiaries, renounces any interest or expectancy of the Corporation and its subsidiaries in, or in being offered an opportunity to participate in, business opportunities that are from time to time available or presented to the Exempted Persons, even if the opportunity is in the line of business of the Corporation or its subsidiaries or is otherwise one that the Corporation or its subsidiaries might reasonably be deemed to have pursued or had the ability or desire to pursue if granted the opportunity to do so, and each such Exempted Person shall have no duty to communicate or offer such business opportunity to the Corporation (and there shall be no restriction on the Exempted Persons using the general knowledge and understanding of the Corporation and the industry in which it operates which it has gained as an Exempted Person in considering and pursuing such opportunities or in making investment, voting, monitoring, governance or other decisions relating to other entities or securities) and, to the fullest extent permitted by applicable law, shall not be liable to the Corporation or any of its subsidiaries or, to the extent applicable, any of its or their stockholders for breach of any fiduciary or other duty, as a director or officer or otherwise, by reason of the fact that such Exempted Person pursues or acquires such business opportunity, directs such business opportunity to another person or fails to present such business opportunity, or information regarding such business opportunity, to the Corporation or its subsidiaries, or uses such knowledge and understanding in the manner described herein.
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(c) Certain Matters Deemed Not Corporate Opportunities. In addition to and notwithstanding the foregoing provisions of this Article X, a corporate opportunity shall not be deemed to belong to the Corporation if it is a business opportunity that the Corporation is not financially able or contractually permitted or legally able to undertake, or that is, from its nature, not in the line of the Corporations business or is of no practical advantage to it or that is one in which the Corporation has no interest or reasonable expectancy.
(d) Amendment of this Article. No amendment or repeal of this Article X in accordance with the provisions of paragraph (b) of Article VIII shall apply to or have any effect on the liability or alleged liability of any Exempted Person for or with respect to any activities or opportunities of which such Exempted Person becomes aware prior to such amendment or repeal. This Article X shall not limit any protections or defenses available to, or indemnification or advancement rights of, any director or officer of the Corporation under this Third Amended and Restated Certificate of Incorporation, the Corporations bylaws or applicable law.
ARTICLE XI EXCLUSIVE JURISDICTION FOR CERTAIN ACTIONS
(a) Exclusive Forum. Unless the Board of Directors or one of its committees otherwise approves, in accordance with Section 141 of the DGCL, this Third Amended and Restated Certificate of Incorporation and the bylaws of the Corporation, to the selection of an alternate forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery of the State of Delaware does not have jurisdiction, the Superior Court of the State of Delaware, or, if the Superior Court of the State of Delaware also does not have jurisdiction, the United States District Court for the District of Delaware) shall, to the fullest extent permitted by applicable law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporations stockholders, (iii) any action asserting a claim against the Corporation arising pursuant to any provision of the DGCL or this Third Amended and Restated Certificate of Incorporation or bylaws of the Corporation, (iv) any action to interpret, apply, enforce or determine the validity of this Third Amended and Restated Certificate of Incorporation or the bylaws of the Corporation or (v) any action asserting a claim against the Corporation governed by the internal affairs doctrine (each, a Covered Proceeding); provided that, the provisions of this Article XI(a) will not apply to suits brought to enforce any liability or duty created by the Securities Exchange Act of 1934, as amended, or any other claim for which the federal courts have exclusive jurisdiction; and provided further that, if and only if the Court of Chancery of the State of Delaware dismisses any such action for lack of subject matter jurisdiction, such action may be brought in another state or federal court sitting in the State of Delaware.
(b) Personal Jurisdiction. If any action the subject matter of which is a Covered Proceeding is filed in a court other than the Court of Chancery of the State of Delaware, or, where permitted in accordance with paragraph (a) above, the Superior Court of the State of Delaware or the United States District Court for the District of Delaware, (each, a Foreign Action) in the name of any person or entity (a Claiming Party) without the prior approval of the Board of Directors or one of its committees in the manner described in paragraph (a) above, such Claiming Party shall be deemed to have consented to (i) the personal jurisdiction of the Court of Chancery of the State of Delaware, or, where applicable, the Superior Court of the State of Delaware and the
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United States District Court for the District of Delaware, in connection with any action brought in any such courts to enforce paragraph (a) above (an Enforcement Action) and (ii) having service of process made upon such Claiming Party in any such Enforcement Action by service upon such Claiming Partys counsel in the Foreign Action as agent for such Claiming Party.
(c) Federal Forum. Unless the Corporation consents in writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended.
(d) Notice and Consent. Any person or entity purchasing or otherwise acquiring any interest in any security of the Corporation shall be deemed to have notice of and consented to the provisions of this Article XI and waived any defense of personal jurisdiction and argument relating to the inconvenience of the forums referenced above in connection with any Covered Proceeding.
ARTICLE XII SEVERABILITY
If any provision or provisions of this Third Amended and Restated Certificate of Incorporation shall be held to be invalid, illegal or unenforceable as applied to any circumstance for any reason whatsoever: (i) the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Third Amended and Restated Certificate of Incorporation (including, without limitation, each portion of any paragraph of this Third Amended and Restated Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and (ii) to the fullest extent possible, the provisions of this Third Amended and Restated Certificate of Incorporation (including, without limitation, each such portion of any paragraph of this Third Amended and Restated Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to permit the Corporation to protect its directors, officers, employees and agents from personal liability in respect of their good faith service to or for the benefit of the Corporation to the fullest extent permitted by law.
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IN WITNESS WHEREOF, the undersigned has caused this Third Amended and Restated Certificate of Incorporation to be executed by the officer below this 30th day of April, 2024.
THE DUCKHORN PORTFOLIO, INC. | ||
By: | /s/ Deirdre Mahlan | |
Name: Deirdre Mahlan Title: President, Chief Executive Officer and Chairperson |
[Signature Page to Third A&R Certificate of Incorporation of The Duckhorn Portfolio, Inc.]
Exhibit 3.2
SECOND AMENDED AND RESTATED BYLAWS
OF
THE DUCKHORN PORTFOLIO, INC.
SECTION 1 - STOCKHOLDERS
Section 1.1. Annual Meeting.
An annual meeting of the stockholders of The Duckhorn Portfolio, Inc., a Delaware corporation (the Corporation), for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting shall be held at the place, if any, within or without the State of Delaware, on the date and at the time that the Board of Directors of the Corporation (the Board of Directors) shall each year fix. Unless stated otherwise in the notice of the annual meeting of the stockholders of the Corporation, such annual meeting shall be at the principal office of the Corporation. The Board of Directors may, in its sole discretion, determine that any meeting of the stockholders shall not be held at any place, but may instead be held solely by means of remote communication in the manner authorized by Section 211 of the General Corporation Law of the State of Delaware (the DGCL).
Section 1.2. Advance Notice of Nominations and Proposals of Business.
(a) Nominations of persons for election to the Board of Directors and proposals for other business to be transacted by the stockholders at an annual meeting of stockholders may be made (i) pursuant to the Corporations notice with respect to such meeting (or any supplement thereto), (ii) by or at the direction of the Board of Directors or any committee thereof or (iii) by any stockholder of record of the Corporation who (A) was a stockholder of record at the time of the giving of the notice contemplated in Section 1.2(b), (B) is entitled to vote at such meeting and (C) has complied with the notice procedures set forth in this Section 1.2. Subject to Section 1.2(i) and except as otherwise required by law, clause (iii) of this Section 1.2(a) shall be the exclusive means for a stockholder to make nominations or propose other business (other than nominations and proposals properly brought pursuant to applicable provisions of federal law, including the Securities Exchange Act of 1934 (as amended from time to time, the Act) and the rules and regulations of the Securities and Exchange Commission thereunder) before an annual meeting of stockholders.
(b) Except as otherwise required by law, for nominations or proposals to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of Section 1.2(a), (i) the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation with the information contemplated by Section 1.2(c) including, where applicable, delivery to the Corporation of timely and completed questionnaires as contemplated by Section 1.2(c), and (ii) the business must be a proper matter for stockholder action under the DGCL. The notice requirements of this Section 1.2 shall be deemed satisfied by a stockholder with respect to business other than a nomination if the stockholder has notified the Corporation of his, her or its intention to present a proposal at an annual meeting in compliance with applicable rules and regulations promulgated under the Act and such stockholders proposal has been included in a proxy statement prepared by the Corporation to solicit proxies for such annual meeting.
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(c) To be timely for purposes of Section 1.2(b), a stockholders notice must be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation on a date (i) not later than the close of business on the 90th day nor earlier than the close of business on the 120th day prior to the anniversary date of the prior years annual meeting or (ii) if there was no annual meeting in the prior year or if the date of the current years annual meeting is more than 30 days before or after the anniversary date of the prior years annual meeting, on or before 10 days after the day on which the date of the current years annual meeting is first disclosed in a public announcement. In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period for the delivery of such notice. Such notice from a stockholder must state (i) as to each nominee that the stockholder proposes for election or reelection as a director, (A) all information relating to such nominee that would be required to be disclosed in solicitations of proxies for the election of such nominee as a director pursuant to Regulation 14A under the Act and such nominees written consent to serve as a director if elected, and (B) a description of all direct and indirect compensation and other material monetary arrangements, agreements or understandings during the past three years, and any other material relationship, if any, between or concerning such stockholder, any Stockholder Associated Person (as defined below) or any of their respective affiliates or associates, on the one hand, and the proposed nominee or any of his or her affiliates or associates, on the other hand; (ii) as to each proposal that the stockholder seeks to bring before the meeting, a brief description of such proposal, the reasons for making the proposal at the meeting, the text of the proposal (including the text of any resolutions proposed for consideration and in the event that it includes a proposal to amend the bylaws of the Corporation, the language of the proposed amendment) and any material interest that the stockholder has in the proposal; and (iii) (A) the name and address of the stockholder giving the notice and the Stockholder Associated Persons, if any, on whose behalf the nomination or proposal is made, (B) the class (and, if applicable, series) and number of shares of stock of the Corporation that are, directly or indirectly, owned beneficially or of record by the stockholder or any Stockholder Associated Person, (C) any option, warrant, convertible security, stock appreciation right or similar instrument, right, agreement, arrangement or understanding with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class (or, if applicable, series) of shares of stock of the Corporation or with a value derived in whole or in part from the value of any class (or, if applicable, series) of shares of stock of the Corporation, whether or not such instrument, right, agreement, arrangement or understanding shall be subject to settlement in the underlying class or series of capital stock of the Corporation or otherwise, and any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of stock of the Corporation of the stockholder or any Stockholder Associated Person (each, a Derivative Instrument) directly or indirectly owned beneficially or of record by such stockholder or any Stockholder Associated Person, (D) any proxy, contract, arrangement, understanding or relationship pursuant to which such stockholder or any Stockholder Associated Person has a right to vote any securities of the Corporation, (E) any proportionate interest in shares of the Corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such stockholder or any Stockholder Associated Person is a general partner or beneficially owns, directly or indirectly, an interest in a general partner, (F) any performance-related fees (other than an asset-based fee) that such stockholder or any Stockholder Associated Person is entitled to based on any increase or decrease
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in the value of the shares of stock of the Corporation or Derivative Instruments, (G) any other information relating to such stockholder or any Stockholder Associated Person, if any, required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in an election contest pursuant to and in accordance with Section 14(a) of the Act and the rules and regulations of the Securities and Exchange Commission thereunder, (H) a representation that the stockholder is a holder of record of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination and has complied with the provisions of this Section 1.2(c), (I) a certification as to whether or not the stockholder and all Stockholder Associated Persons, have complied with all applicable federal, state and other legal requirements in connection with the stockholders and each Stockholder Associated Persons acquisition of shares of capital stock or other securities of the Corporation and the stockholders and each Stockholder Associated Persons acts or omissions as a stockholder (or beneficial owner of securities) of the Corporation, and (J) whether the stockholder intends to deliver a proxy statement and form of proxy to holders of, in the case of a proposal, at least the percentage of the Corporations voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the Corporations voting shares reasonably believed by such stockholder to be sufficient to elect such nominee or nominees or otherwise to solicit proxies or votes from stockholders in support of such proposal or nomination. For purposes of these bylaws, a Stockholder Associated Person of any stockholder means (i) any affiliate or associate (as those terms are defined in Rule 12b-2 under the Act) of such stockholder, (ii) any beneficial owner of any capital stock or other securities of the Corporation owned of record or beneficially by such stockholder, (iii) any person directly or indirectly controlling, controlled by or under common control with any such Stockholder Associated Person referred to in clause (i) or (ii) above, and (iv) any person acting in concert in respect of any matter involving the Corporation or its securities with either such stockholder or any beneficial owner of any capital stock or other securities of the Corporation owned of record or beneficially by such stockholder. In addition, in order for a nomination to be properly brought before an annual or special meeting by a stockholder pursuant to clause (iii) of Section 1.2(a), any nominee proposed by a stockholder shall complete a questionnaire, in a form provided by the Corporation, and deliver a signed copy of such completed questionnaire to the Corporation within 10 days of the date that the Corporation makes available to the stockholder seeking to make such nomination or such nominee the form of such questionnaire. The Corporation may require any proposed nominee to furnish such other information as may be reasonably requested by the Corporation to determine the eligibility of the proposed nominee to serve as an independent director of the Corporation or that could be material to a reasonable stockholders understanding of the independence, or lack thereof, of the nominee. The information required to be included in a notice pursuant to this Section 1.2(c) shall be provided as of the date of such notice and shall be supplemented by the stockholder not later than 10 days after the record date for the determination of stockholders entitled to notice of the meeting to disclose any changes to such information as of the record date. The information required to be included in a notice pursuant to this Section 1.2(c) shall not include any ordinary course business activities of any broker, dealer, commercial bank, trust company or other nominee who is directed to prepare and submit the notice required by this Section 1.2(c) on behalf of a beneficial owner of the shares held of record by such broker, dealer, commercial bank, trust company or other nominee and who is not otherwise affiliated or associated with such beneficial owner.
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(d) Subject to the certificate of incorporation of the Corporation (as amended and restated from time to time, the Certificate of Incorporation), Section 1.2(i) and applicable law, only persons nominated in accordance with procedures stated in this Section 1.2 shall be eligible for election as and to serve as members of the Board of Directors and the only business that shall be conducted at an annual meeting of stockholders is the business that has been brought before the meeting in accordance with the procedures set forth in this Section 1.2. The chairperson of the meeting shall have the power and the duty to determine whether a nomination or any proposal has been made according to the procedures stated in this Section 1.2 and, if any nomination or proposal does not comply with this Section 1.2, unless otherwise required by law, the nomination or proposal shall be disregarded.
(e) For purposes of this Section 1.2, public announcement means disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable news service or in a document publicly filed or furnished by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Act.
(f) Notwithstanding the foregoing provisions of this Section 1.2, a stockholder shall also comply with all applicable requirements of the Act and the rules and regulations thereunder with respect to matters set forth in this Section 1.2. Nothing in this Section 1.2 shall affect any rights, if any, of stockholders to request inclusion of nominations or proposals in the Corporations proxy statement pursuant to applicable provisions of federal law, including the Act.
(g) Notwithstanding the foregoing provisions of this Section 1.2, unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to present a nomination or proposed business or does not provide the information required by Section 1.2(c), including any required supplement thereto, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 1.2, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders.
(h) Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporations notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporations notice of meeting (1) by or at the direction of the Board of Directors or any committee thereof or (2) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time the notice provided for in this Section 1.2 is delivered to the Secretary of the Corporation, who is entitled to vote at the meeting upon such election and who complies with the notice procedures set forth in this Section 1.2. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder entitled to vote in such election of directors may nominate a person or persons (as the case may be) for election to such
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position(s) as specified in the Corporations notice of meeting, if the stockholders notice required by paragraph (b) of this Section 1.2 shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not earlier than the close of business on the 120th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment or postponement of a special meeting commence a new time period (or extend any time period) for the giving of a stockholders notice as described above.
(i) All provisions of this Section 1.2 are subject to, and nothing in this Section 1.2 shall in any way limit the exercise, or the method or timing of the exercise of, the rights of any person granted by the Corporation to nominate directors, including such rights granted by the terms of the Stockholders Agreement (as amended and restated from time to time, the Stockholders Agreement), dated as of March 17, 2021, by and among the Corporation and the other signatories thereto (so long as such agreement remains in effect), which rights may be exercised without compliance with the provisions of this Section 1.2.
Section 1.3. Special Meetings; Notice.
Special meetings of the stockholders of the Corporation may be called only to the extent and in the manner set forth in the Certificate of Incorporation. Notice of every special meeting of the stockholders of the Corporation shall state the purpose or purposes of such meeting. Except as otherwise required by law, the business conducted at a special meeting of stockholders of the Corporation shall be limited exclusively to the business set forth in the Corporations notice of meeting, and the individual or group calling such meeting shall have exclusive authority to determine the business included in such notice.
Section 1.4. Notice of Meetings.
Notice of the place, if any, date and time of all meetings of stockholders of the Corporation, the record date for determining the stockholders entitled to vote at the meeting (if such date is different from the record date for stockholders entitled to notice of the meeting) and the means of remote communications, if any, by which stockholders and proxy holders may be deemed present and vote at such meeting, and, in the case of all special meetings of stockholders, the purpose or purposes of the meeting, shall be given, not less than 10 nor more than 60 days before the date on which such meeting is to be held (unless a different time is specified by law), to each stockholder entitled to notice of the meeting.
The Corporation may postpone or cancel any previously called annual or special meeting of stockholders of the Corporation by making a public announcement (as defined in Section 1.2(e)) of such postponement or cancellation prior to the meeting. When a previously called annual or special meeting is postponed to another time, date or place, if any, notice of the place (if any), date and time of the postponed meeting, the record date for determining the stockholders entitled to vote at the meeting (if such date is different from the record date for stockholders entitled to notice of the meeting) and the means of remote communications, if any, by which stockholders and proxy holders may be deemed present and vote at such postponed meeting, shall be given in conformity with this Section 1.4 unless such meeting is postponed to a date that is not more than 60 days after the date that the initial notice of the meeting was provided in conformity with this Section 1.4.
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When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place, if any, thereof and the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken; provided, however, that if the adjournment is for more than 30 days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting, or if after the adjournment a new record date for stockholders entitled to vote is fixed for the adjourned meeting the Board of Directors shall fix a new record date for notice of such adjourned meeting in conformity herewith and such notice shall be given to each stockholder of record entitled to vote at such adjourned meeting as of the record date for notice of such adjourned meeting. At any adjourned meeting, any business may be transacted that may have been transacted at the original meeting.
Section 1.5. Quorum.
At any meeting of the stockholders, the holders of shares of stock of the Corporation entitled to cast a majority of the total votes entitled to be cast by the holders of all outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (Voting Stock), present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number is required by applicable law or the Certificate of Incorporation. If a separate vote by one or more classes or series is required, the holders of shares entitled to cast a majority of the total votes entitled to be cast by the holders of the shares of the class or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter. A quorum, once established, shall not be broken by the subsequent withdrawal of enough votes to leave less than a quorum.
If a quorum shall fail to attend any meeting, the chairperson of the meeting may adjourn the meeting to another place, if any, date and time. At any such adjourned meeting at which there is a quorum, any business may be transacted that might have been transacted at the meeting originally called.
Section 1.6. Organization.
The chairperson of the Board of Directors or, in his or her absence, the person whom the Board of Directors designates or, in the absence of that person or the failure of the Board of Directors to designate a person, the President of the Corporation or, in his or her absence, the person chosen by the holders of a majority of the shares of capital stock entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders of the Corporation and act as chairperson of the meeting. In the absence of the Secretary or any Assistant Secretary of the Corporation, the secretary of the meeting shall be the person the chairperson appoints.
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Section 1.7. Conduct of Business.
The chairperson of any meeting of stockholders of the Corporation shall determine the order of business and the rules of procedure for the conduct of such meeting, including the manner of voting and the conduct of discussion as he or she determines to be in order. The chairperson shall have the power to adjourn the meeting to another place, if any, date and time. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairperson of the meeting shall have the right and authority to convene and (for any or no reason) to adjourn the meeting, to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairperson, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairperson of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders entitled to vote at the meeting, their duly authorized and constituted proxies or such other persons as the chairperson of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. The chairperson of the meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall, if the facts warrant, determine and declare to the meeting that a nomination or matter of business was not properly brought before the meeting and if such chairperson should so determine, such chairperson shall so declare to the meeting and any such matter or business not properly brought before the meeting shall not be transacted or considered. Unless and to the extent determined by the Board of Directors or the chairperson of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.
Section 1.8. Proxies; Inspectors.
(a) At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing or by a transmission permitted by applicable law, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by delivering to the Secretary of the Corporation a revocation of the proxy or a new proxy bearing a later date.
(b) Prior to a meeting of the stockholders of the Corporation, the Corporation shall appoint one or more inspectors, who may be employees of the Corporation, to act at a meeting of stockholders of the Corporation and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting may, and to the extent required by applicable law, shall, appoint one or more inspectors to act at the meeting. Each inspector, before beginning the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of inspectors. The inspectors shall
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have the duties prescribed by applicable law. Unless otherwise provided by the Board of Directors, the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxies, votes or any revocation thereof or change thereto shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery of the State of Delaware upon application by a stockholder shall determine otherwise. In determining the validity and counting of proxies and ballots cast at any meeting of stockholders, the inspectors may consider such information as is permitted by applicable law. No person who is a candidate for office at an election may serve as an inspector at such election.
Section 1.9. Voting.
Except as otherwise required by the rules or regulations of any stock exchange applicable to the Corporation or pursuant to any law or regulation applicable to the Corporation or its securities or by the Certificate of Incorporation or these bylaws, all matters other than the election of directors shall be determined by a majority of the votes cast on the matter affirmatively or negatively. All elections of directors shall be determined by a plurality of the votes cast.
Section 1.10. Stock List.
A complete list of stockholders of the Corporation entitled to vote at any meeting of stockholders of the Corporation, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in the name of such stockholder, shall be open to the examination of any such stockholder, for any purpose germane to a meeting of the stockholders of the Corporation, for a period of at least ten (10) days before the meeting (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting or (ii) during ordinary business hours at the principal place of business of the Corporation; provided, however, if the record date for determining the stockholders entitled to vote is less than ten (10) days before the meeting date, the list shall reflect the stockholders entitled to vote as of the tenth (10th) day before such meeting date. If the meeting is to be held at a place, then a list of stockholders entitled to vote at the meeting shall be produced and kept at the time and place of the meeting during the whole time thereof and may be examined by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.
Except as otherwise provided by law, the stock ledger shall be the sole evidence of the identity of the stockholders entitled to vote at a meeting and the number of shares held by each stockholder.
SECTION 2 - BOARD OF DIRECTORS
Section 2.1. General Powers and Qualifications of Directors.
The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authorities these bylaws expressly confer upon them, the Board of Directors may exercise all such powers of the Corporation and do all such
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lawful acts and things as are not by the DGCL or by the Certificate of Incorporation or by these bylaws required to be exercised or done by the stockholders. Directors need not be stockholders of the Corporation to be qualified for election or service as a director of the Corporation.
Section 2.2. Removal; Resignation.
The directors of the Corporation may be removed in accordance with the Certificate of Incorporation and the DGCL. Any director may resign at any time upon notice given in writing, including by electronic transmission, to the Corporation.
Section 2.3. Regular Meetings.
Regular meetings of the Board of Directors shall be held at the place (if any), on the date and at the time as shall have been established by the Board of Directors and publicized among all directors. A notice of a regular meeting, the date of which has been so publicized, shall not be required.
Section 2.4. Special Meetings.
Special meetings of the Board of Directors may be called by (i) the chairperson of the Board of Directors, (ii) the Chief Executive Officer of the Corporation, (iii) two or more directors then in office, (iv) by any director nominated or designated for nomination by Brown-Forman Corporation and its successors and Affiliates (collectively, the BF Entities), if the Board of Directors then includes a director nominated or designated for nomination by any BF Entity and (v) by any director nominated or designated for nomination by investment funds affiliated with TSG Consumer Partners LLC and their respective successors and Affiliates (collectively, the TSG Entities), if the Board of Directors then includes a director nominated or designated for nomination by any TSG Entity and such special meeting shall be held at the place, if any, on the date and at the time as he, she or they shall fix. Notice of the place, if any, date and time of each special meeting shall be given to each director either (a) by mailing written notice thereof not less than five days before the meeting, or (b) by telephone, facsimile or other means of electronic transmission providing notice thereof not less than twenty-four hours before the meeting. Any and all business may be transacted at a special meeting of the Board of Directors. Affiliate means, with respect to any Person, any other Person that controls, is controlled by, or is under common control with such Person; the term control, as used in this definition, means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and controlled and controlling have meanings correlative to the foregoing. Person means an individual, any general partnership, limited partnership, limited liability company, corporation, trust, business trust, joint stock company, joint venture, unincorporated association, cooperative or association or any other legal entity or organization of whatever nature, and shall include any successor (by merger or otherwise) of such entity. For the purpose of these bylaws, beneficial ownership shall be determined in accordance with Rule 13d-3 promulgated under the Act.
Section 2.5. Quorum.
At any meeting of the Board of Directors, a majority of the total number of directors then in office shall constitute a quorum for all purposes; provided that (a) for so long as the BF Entities
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have a contractual right under the Stockholders Agreement to designate for nomination at least two (2) directors of the Corporation, unless such right shall have been waived by the BF Entities, a quorum of the Board of Directors shall require at least one (1) director designated by the BF Entities be present (other than attendance for the sole purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened), and (b) for so long as the TSG Entities have a contractual right under the Stockholders Agreement to designate for nomination at least two (2) directors of the Corporation, unless such right shall have been waived by the TSG Entities, a quorum of the Board of Directors shall require at least one (1) director designated by the TSG Entities be present (other than attendance for the sole purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened), and (c) for an action of the Board of Directors taken at a meeting to be valid, directors that constitute a quorum must be present (as described in Section 2.6 below) at the time that the vote on such action is taken. For the avoidance of doubt, if directors that constitute a quorum are not present (as described in Section 2.6 below) at the time that the vote on any action is taken, a quorum shall not be constituted with respect to such action, and any vote taken with respect to such action shall not be a valid action of the Board of Directors, notwithstanding that a quorum of the Board of Directors may have been present at the commencement of such meeting; provided further, however, that if a meeting of the Board of Directors called in accordance with these bylaws fails to achieve a quorum solely due to the absence of any director designated by the BF Entities or any director designated by the TSG Entities, then any director or officer of the Corporation may send a new notice of meeting of the Board of Directors, notwithstanding the timing requirements provided for in the second sentence of Section 2.4, not less than three (3) business days before the first successive meeting at which only the topics noticed in the adjourned meeting will be covered in accordance with these bylaws, and at such succeeding meeting of the Board of Directors if a quorum is failed to be achieved again solely due to the absence of any director designated by the BF Entities or any director designated by the TSG Entities, as the case may be, as at the first successive meeting, then any director or officer of the Corporation may send a new notice of meeting of the Board of Directors, notwithstanding the timing requirements provided for in the second sentence of Section 2.4, not less than three (3) business days before the second successive meeting at which only the topics noticed in the adjourned meeting will be covered in accordance with these bylaws and a quorum at such second successive meeting shall be a majority of the total number of directors then in office and shall not specifically require the presence of a director designated by the BF Entities or a director designated by the TSG Entities, as the case may be. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, if any, date or time, without further notice or waiver thereof.
Section 2.6. Participation in Meetings by Conference Telephone or Other Communications Equipment.
Members of the Board of Directors, or of any committee thereof, may participate in a meeting of the Board of Directors or committee thereof by means of conference telephone or other communications equipment by means of which all directors participating in the meeting can hear each other director, and such participation shall constitute presence in person at the meeting.
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Section 2.7. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted in the order and manner that the Board of Directors may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, provided a quorum is present at the time such matter is acted upon, except as otherwise provided in the Certificate of Incorporation or these bylaws or required by applicable law. The Board of Directors or any committee thereof may take action without a meeting if all members thereof consent thereto in writing or by electronic transmission, and the writing or writings, or electronic transmission or electronic transmissions, are filed with the minutes of proceedings of the Board of Directors or any committee thereof. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
Section 2.8. Compensation of Directors.
The Board of Directors shall be authorized to fix the compensation of directors. The directors of the Corporation shall be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be reimbursed a fixed sum for attendance at each meeting of the Board of Directors, paid an annual retainer or paid other compensation, including equity compensation, as the Board of Directors determines. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of committees shall have their expenses, if any, of attendance of each meeting of such committee reimbursed and may be paid compensation for attending committee meetings or being a member of a committee.
SECTION 3 - COMMITTEES
The Board of Directors may designate committees of the Board of Directors, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board of Directors and shall, for those committees, appoint a director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of such committee. In the absence or disqualification of any member of any committee and any alternate member in his or her place, the member or members of the committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. All provisions of this Section 3.1 are subject to, and nothing in this Section 3.1 shall in any way limit the exercise, or method or timing of the exercise of, the rights of any person granted by the Corporation with respect to the existence, duties, composition or conduct of any committee of the Board of Directors, including those rights granted pursuant to the Stockholders Agreement.
SECTION 4 - OFFICERS
Section 4.1. Generally.
The officers of the Corporation shall consist of a Chief Executive Officer, President, one or more Vice Presidents, a Secretary, one or more Assistant Secretaries, a Treasurer, one or more Assistant Treasurers, a Chief Financial Officer and other officers as may from time to time be appointed by the Board of Directors. Each officer shall hold office until his or her successor is
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elected and qualified or until his or her earlier resignation or removal. Any number of offices may be held by the same person. The compensation of officers appointed by the Board of Directors shall be determined from time to time by the Board of Directors or a committee thereof or by the officers as may be designated by resolution of the Board of Directors.
Section 4.2. President.
Unless otherwise determined by the Board of Directors, the President shall be the Chief Executive Officer of the Corporation. Subject to the provisions of these bylaws and to the direction of the Board of Directors, he or she shall have the responsibility for the general management and control of the business and affairs of the Corporation and shall perform all duties and have all powers that are commonly incident to the office of chief executive or which are delegated to him or her by the Board of Directors. He or she shall have the power to sign all stock certificates, contracts and other instruments of the Corporation that are authorized and shall have general supervision and direction of all of the other officers, employees and agents of the Corporation.
Section 4.3. Vice President.
Each Vice President shall have the powers and duties delegated to him or her by the Board of Directors or the President. One Vice President may be designated by the Board of Directors to perform the duties and exercise the powers of the President in the event of the Presidents absence or disability.
Section 4.4. Secretary and Assistant Secretaries.
The Secretary shall issue all authorized notices for, and shall keep minutes of, all meetings of the stockholders and the Board of Directors. He or she shall have charge of the corporate books and shall perform other duties as the Board of Directors may from time to time prescribe.
Any Assistant Secretary shall perform such duties and possess such powers as the Board of Directors, the Chief Executive Officer or the Secretary may from time to time prescribe. In the event of the absence, inability or refusal to act of the Secretary, the Assistant Secretary, (or if there shall be more than one, the Assistant Secretaries in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Secretary.
Section 4.5. Chief Financial Officer, Treasurer and Assistant Treasurers.
The Chief Financial Officer shall keep or cause to be kept the books of account of the Corporation in a thorough and proper manner and shall render statements of the financial affairs of the Corporation in such form and as often as required by the Board of Directors or the President. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the Corporation. The Chief Financial Officer shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct the Treasurer or any Assistant Treasurer to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
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Section 4.6. Delegation of Authority.
The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof.
Section 4.7. Removal.
The Board of Directors may remove any officer of the Corporation at any time, with or without cause.
Section 4.8. Action with Respect to Securities of Other Companies.
Unless otherwise directed by the Board of Directors, the President, or any officer of the Corporation authorized by the President, shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders or equityholders of, or with respect to any action of, stockholders or equityholders of any other entity in which the Corporation may hold securities and otherwise to exercise any and all rights and powers which the Corporation may possess by reason of its ownership of securities in such other entity.
SECTION 5 - STOCK
Section 5.1. Certificates of Stock.
Shares of the capital stock of the Corporation may be certificated or uncertificated, as provided in the DGCL. Stock certificates shall be signed by, or in the name of the Corporation by, (i) the chairperson of the Board (if any), the President or a Vice President, and (ii) the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, or the Chief Financial Officer, certifying the number of shares owned by such stockholder. Any signatures on a certificate may be by facsimile. Although any officer, transfer agent or registrar whose manual or facsimile signature is affixed to such a certificate ceases to be such officer, transfer agent or registrar before such certificate has been issued, it may nevertheless be issued by the Corporation with the same effect as if such officer, transfer agent or registrar were still such at the date of its issue.
Section 5.2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation (within or without the State of Delaware) or by transfer agents designated to transfer shares of the stock of the Corporation.
Section 5.3. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of stock, another may be issued in its place pursuant to regulations as the Board of Directors may establish concerning proof of the loss, theft or destruction and concerning the giving of a satisfactory bond or indemnity, if deemed appropriate.
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Section 5.4. Regulations.
The issue, transfer, conversion and registration of certificates of stock of the Corporation shall be governed by other regulations as the Board of Directors may establish.
Section 5.5. Record Date.
(a) In order that the Corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall, unless otherwise required by law, not be more than 60 nor less than 10 days before the date of such meeting. If the Board of Directors so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board of Directors determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day preceding the day on which notice is given, or, if notice is waived, at the close of business on the day preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any postponement or adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for determination of stockholders entitled to vote at the postponed or adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to notice of such postponed or adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance herewith at the postponed or adjourned meeting.
(b) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which shall not be more than 60 days prior to such other action. If no such record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
SECTION 6 - INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
Section 6.1. Indemnification.
The Corporation shall indemnify, defend and hold harmless, to the fullest extent permitted by the DGCL as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), any person who was or is made, or is threatened to be made, a party or is otherwise involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a Proceeding), by reason of the fact that he or she, or
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a person for whom he or she is the legal representative, is or was a director of the Corporation or an officer of the Corporation elected by the Board of Directors in a duly adopted resolution of the Board of Directors (each, an Officer) or, while a director of the Corporation or an Officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee, member, trustee or agent of another corporation or of a partnership, joint venture, trust, nonprofit entity or other enterprise (including service with respect to employee benefit plans) (any such entity, an Other Entity) (each such person, an Indemnitee), against all expense, liability and loss suffered (including, but not limited to, expenses (including attorneys fees and expenses), judgments, fines, ERISA excise tax and penalties and amounts paid in settlement actually and reasonably incurred by such Indemnitee in connection with such Proceeding) by such Indemnitee in connection therewith. Notwithstanding the preceding sentence, the Corporation shall be required to indemnify an Indemnitee in connection with a Proceeding (or part thereof) commenced by such Indemnitee only if the commencement of such Proceeding (or part thereof) by the Indemnitee was authorized by the Board of Directors or the Proceeding (or part thereof) relates to the enforcement of the Corporations obligations under this Section 6.1.
Section 6.2. Advancement of Expenses.
The Corporation shall to the fullest extent not prohibited by applicable law pay, on an as-incurred basis, all expenses (including attorneys fees and expenses) actually and reasonably incurred by an Indemnitee in defending any proceeding, which may be indemnifiable pursuant to this Section 6, in advance of its final disposition. Such advancement shall be unconditional, unsecured and interest free and shall be made without regard to Indemnitees ability to repay any expenses advanced; provided, however, that, to the extent required by the DGCL, such payment of expenses in advance of the final disposition of the Proceeding shall be made only upon receipt of an unsecured undertaking by the Indemnitee to repay all amounts advanced if it should be ultimately determined that the Indemnitee is not entitled to be indemnified under this Section 6 or otherwise.
Section 6.3. Claims.
If a claim for indemnification (following the final disposition of such proceeding) or advancement of expenses under this Section 6 is not paid in full within sixty (60) days after a written claim therefor by the Indemnitee has been received by the Corporation, the Indemnitee may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim to the fullest extent permitted by law. In any such action the Corporation shall have the burden of proving that the Indemnitee is not entitled to the requested indemnification or advancement of expenses under applicable law.
Section 6.4. Insurance.
The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, trustee, employee, member or agent of the Corporation, or was serving at the request of the Corporation as a director, officer, trustee, employee, member or agent of an Other Entity, against any liability asserted against the person and incurred by the person in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power or the obligation to indemnify such person against such liability under the provisions of this Section 6 or the DGCL.
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Section 6.5. Non-Exclusivity of Rights; Other Indemnification.
The rights conferred on any Indemnitee by this Section 6 are not exclusive of other rights arising under any bylaw, agreement, vote of directors or stockholders or otherwise, and shall inure to the benefit of the heirs and legal representatives of such Indemnitee. This Section 6 shall not limit the right of the Corporation, to the extent and in the manner permitted by law, to indemnify and to advance expenses to Indemnitees or persons other than Indemnitees when and as authorized by appropriate corporate action, including by separate agreement with the Corporation.
Section 6.6. Amounts Received from an Other Entity.
Subject to any written agreement between the Indemnitee and the Corporation to the contrary, the Corporations obligation, if any, to indemnify or to advance expenses to any Indemnitee who was or is serving at the Corporations request as a director, officer, employee, member, trustee or agent of an Other Entity shall be reduced by any amount such Indemnitee may collect as indemnification or advancement of expenses from such Other Entity.
Section 6.7. Amendment or Repeal.
The provisions of this Section 6 shall constitute a contract between the Corporation, on the one hand, and, on the other hand, each individual who serves or has served as an Indemnitee (whether before or after the adoption of these bylaws), in consideration of such persons performance of such services, and pursuant to this Section 6, the Corporation intends to be legally bound to each such current or former Indemnitee. With respect to current and former Indemnitees, the rights conferred under this Section 6 are present contractual rights and such rights are fully vested, and shall be deemed to have vested fully, immediately upon adoption of these bylaws. With respect to any Indemnitee who commences service following adoption of these bylaws, the rights conferred under this Section 6 shall be present contractual rights, and such rights shall fully vest, and be deemed to have vested fully, immediately upon such Indemnitees service in the capacity which is subject to the benefits of this Section 6. Any right to indemnification or to advancement of expenses of any Indemnitee arising hereunder shall not be eliminated or impaired by an amendment to or repeal of this Section 6 after the occurrence of the act or omission that is the subject of the civil, criminal, administrative or investigative action, suit, proceeding or other matter for which indemnification or advancement of expenses is sought.
Section 6.8. Reliance.
Indemnitees who after the date of the adoption of this Section 6 become or remain an Indemnitee described in Section 6.1 will be conclusively presumed to have relied on the rights to indemnity, advancement of expenses and other rights contained in this Section 6 in entering into or continuing the service. The rights to indemnification and to the advancement of expenses conferred in this Section 6 will apply to claims made against any Indemnitee described in Section 6.1 arising out of acts or omissions that occurred or occur either before or after the adoption of this Section 6 in respect of service as a director or officer of the corporation or other service described in Section 6.1.
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Section 6.9. Successful Defense.
In the event that any proceeding to which an Indemnitee is a party is resolved in any manner other than by adverse judgment against the Indemnitee (including settlement of such proceeding with or without payment of money or other consideration) it shall be presumed that the Indemnitee has been successful on the merits or otherwise in such proceeding for purposes of Section 145(c) of the DGCL. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.
Section 6.10. Merger or Consolidation.
For purposes of this Section 6, references to the Corporation shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this Section 6 with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued.
Section 6.11. Continuation of Indemnification.
The rights to indemnification and to advancement of expenses provided by, or granted pursuant to, this Section 6 shall continue notwithstanding that the person has ceased to be an Indemnitee and shall inure to the benefit of his or her estate, heirs, executors, administrators, legatees and distributees; provided, however, that the Corporation shall indemnify any such person seeking indemnity in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation.
Section 6.12. Indemnification Contracts.
The Board of Directors is authorized to cause the Corporation to enter into indemnification contracts with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing indemnification rights to such person. Such rights may be greater than those provided in this Section 6.
Section 6.13. Savings Clause.
If this Section 6 or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify and advance expenses to each person entitled to indemnification under Section 6.1 to the fullest extent permitted by any applicable portion of this Section 6 that shall not have been invalidated and to the fullest extent permitted by applicable law.
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SECTION 7 - NOTICES
Section 7.1. Notices.
Except as otherwise provided herein or permitted by applicable law, notices to directors and stockholders shall be in writing and delivered personally or mailed to the directors or stockholders at their addresses appearing on the books of the Corporation. If mailed, notice to a stockholder of the Corporation shall be deemed given when deposited in the mail, postage prepaid, directed to a stockholder at such stockholders address as it appears on the records of the Corporation. Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders of the Corporation may be given by electronic transmission in the manner provided in Section 232 of the DGCL.
Section 7.2. Waivers.
A written waiver of any notice, signed by a stockholder or director, or a waiver by electronic transmission by such person or entity, whether given before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such person or entity. Neither the business nor the purpose of any meeting need be specified in the waiver. Attendance at any meeting shall constitute waiver of notice except attendance for the sole purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
SECTION 8 - MISCELLANEOUS
Section 8.1. Corporate Seal.
The Board of Directors may provide a suitable seal, containing the name of the Corporation, which seal shall be in the charge of the Secretary of the Corporation. If and when so directed by the Board of Directors, duplicates of the seal may be kept and used by the Treasurer or by an Assistant Secretary, Assistant Treasurer or the Chief Financial Officer.
Section 8.2. Reliance upon Books, Reports, and Records.
Each director and each member of any committee designated by the Board of Directors of the Corporation shall, in the performance of his or her duties, be fully protected in relying in good faith upon the books and records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers, agents or employees, or committees of the Board of Directors so designated, or by any other person or entity as to matters which such director or committee member reasonably believes are within such other persons or entitys professional or expert competence and that has been selected with reasonable care by or on behalf of the Corporation.
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Section 8.3. Fiscal Year.
The fiscal year of the Corporation shall be as fixed by the Board of Directors.
Section 8.4. Time Periods.
In applying any provision of these bylaws that requires that an act be done or not be done a specified number of days before an event or that an act be done during a specified number of days before an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included.
SECTION 9 - AMENDMENTS
These bylaws may be altered, amended or repealed in accordance with the Certificate of Incorporation and the DGCL.
SECTION 10 - SEVERABILITY
If any provision or provisions of these bylaws shall be held to be invalid, illegal or unenforceable as applied to any circumstance for any reason whatsoever: (i) the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of these bylaws (including, without limitation, each portion of any paragraph of these bylaws containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and (ii) to the fullest extent possible, the provisions of these bylaws (including, without limitation, each such portion of any paragraph of these bylaws containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to permit the Corporation to protect its directors, officers, employees and agents from personal liability in respect of their good faith service to or for the benefit of the Corporation to the fullest extent permitted by law.
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Exhibit 10.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this Agreement) is made and entered into as of April 30, 2024, by and among Duckhorn Wine Company (the Company), The Duckhorn Portfolio, Inc. (Parent, and together with the Company, the Companies) and Deirdre Mahlan (the Executive), and is effective as of April 30, 2024 (the Effective Date).
1. Position and Duties.
(a) Effective as of the Effective Date, the Executive will be employed as President, Chief Executive Officer and Chairperson of each of the Companies, on a full-time basis, reporting to the Board of Directors of Parent (the Board). In addition, the Executive may be asked from time to time to serve as a director or officer of one or more of Affiliates of the Companies, without further compensation.
(b) The Executive agrees to perform the duties of the Executives position and such other duties consistent with the Executives position as may reasonably be assigned to the Executive from time to time. The Executive also agrees that, while employed by the Companies, the Executive will devote the Executives full business time and the Executives best efforts, business judgment, skill and knowledge exclusively to the advancement of the business interests of the Companies and their Affiliates and to the discharge of the Executives duties and responsibilities for them. The Executives primary place of work will be in southwestern Florida, subject to reasonable business travel in accordance with the business needs of the Companies and their Affiliates.
(c) The Executive agrees that, while employed by the Companies, the Executive will comply with all of their policies, practices and procedures and all codes of ethics or business conduct applicable to the Executives position, as in effect from time to time, in each case that have been made available to the Executive or are otherwise known or reasonably should be known by the Executive.
2. Compensation and Benefits. During the Executives employment hereunder, as compensation for all services performed by the Executive for the Companies and their Affiliates, the Companies will provide the Executive the following compensation and benefits:
(a) Base Salary. The Companies will pay the Executive a base salary at the rate of $700,000 per year, beginning with the first payroll period following the Effective Date, payable in accordance with the regular payroll practices of the Companies and subject to increase from time to time by the Board or the Compensation Committee of the Board (the Compensation Committee) in its respective discretion (as increased, from time to time, the Base Salary).
(b) Bonus Compensation. For each fiscal year completed during the Executives employment under this Agreement, the Executive will be eligible to earn an annual bonus (each, an Annual Bonus). The Executives target bonus will be 100% of the Base Salary (the Target Bonus), with the actual amount of any Annual Bonus to be determined by the Board or the Compensation Committee based on the achievement of performance goals established by
the Board or the Compensation Committee and pursuant to the terms and conditions of the bonus plan then in effect for executives of the Companies; provided, that in the event of overperformance of such performance goals, the Executives Annual Bonus may increase to a maximum of 200% of the Base Salary, as determined by the Board or the Compensation Committee. Except as expressly provided in Section 5(b) of this Agreement, in order to receive any Annual Bonus hereunder, the Executive must be employed through the date that such Annual Bonus is paid.
(c) Participation in Employee Benefit Plans. The Executive will be entitled to participate in all employee benefit plans from time to time in effect for employees of the Companies generally, except to the extent such plans are duplicative of benefits otherwise provided to the Executive under this Agreement (e.g., a severance pay plan). The Executives participation will be subject to the terms of the applicable plan documents and generally applicable policies, as the same may be in effect from time to time, and any other restrictions or limitations imposed by law.
(d) Paid Time Off. In addition to holidays observed by the Companies, the Executive will be entitled to use paid time off in accordance with the Companies flexible paid time off policy applicable to certain executives of the Companies, as described in this Section 2(d) (the ELT PTO Policy). Paid time off will not be earned or accrued, but may be taken at such times and intervals as the Executive shall reasonably determine, subject to the business needs of the Companies; provided, further, that (i) the Executive may not take more than two (2) consecutive weeks of paid time off without the prior consent of the Board and (ii) paid time may not be used for any type of absence covered under any of the leave of absence policies maintained by the Companies. Because paid time off is not earned or accrued, it is not considered accrued paid leave or accrued leave time for purposes of federal or state leave laws. The Executive will not be compensated for any unused paid time off at the end of the calendar year or upon any termination of the Executives employment with the Companies. The Executive agrees that the Companies retain the right to terminate, amend, or modify the ELT PTO Policy at any time.
(e) Business Expenses. The Companies will pay or reimburse the Executive for all reasonable business expenses incurred or paid by the Executive in the performance of the Executives duties and responsibilities for the Companies, subject to any maximum annual limit and other restrictions on such expenses set by the Companies and to such reasonable substantiation and documentation as may be specified by the Companies from time to time. The Executives right to any payment or reimbursement from the Companies shall be subject to the following additional rules: (i) the amount of expenses eligible for payment or reimbursement during any calendar year shall not affect the expenses eligible for payment or reimbursement in any other calendar year, (ii) payment or reimbursement shall be made not later than December 31 of the calendar year following the calendar year in which the expense or payment was incurred and (iii) the right to payment or reimbursement shall not be subject to liquidation or exchange for any other benefit.
(f) Tax Matters. For each year during the Executives employment with the Companies, the Companies will reimburse the Executive for costs incurred in connection with tax preparation support relating to advice with respect to California state taxes, up to an aggregate reimbursement of $25,000 per year. In addition, in the event that the Executive becomes subject
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to a tax audit by any California state taxing authority during or within three years following termination of her employment related to compensation received by the Executive from the Companies, the Companies will cover the reasonable legal costs incurred by the Executive in such audit(s), up to an aggregate reimbursement of $100,000 per year. Any reimbursement made pursuant to this Section 2(f) will be subject to such reasonable substantiation and documentation as may be specified by the Companies from time to time and the terms of Section 2(e).
3. Confidential Information and Restricted Activities.
(a) Confidential Information. During the course of the Executives employment and other associations with the Companies, the Executive has learned and will continue to learn of Confidential Information, and has developed and will continue to develop Confidential Information on behalf of the Companies and their Affiliates. The Executive agrees that the Executive will not use or disclose to any Person (except as required by applicable law or for the proper performance of the Executives regular duties and responsibilities for the Companies) any Confidential Information obtained by the Executive incident to the Executives employment or any other association with the Companies or any of their Affiliates. The Executive agrees that this restriction will continue to apply after the Executives employment terminates, regardless of the reason for such termination. For the avoidance of doubt, (i) nothing contained in this Agreement limits, restricts or in any other way affects the Executives communicating with any governmental agency or entity, or communicating with any official or staff person of a governmental agency or entity, concerning matters relevant to such governmental agency or entity (or requires the Executive to furnish notice to the Companies of the same) and (ii) the Executive will not be held criminally or civilly liable under any federal or state trade secret law for disclosing a trade secret (y) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law, or (z) in a complaint or other document filed under seal in a lawsuit or other proceeding; provided, however, that notwithstanding this immunity from liability, the Executive may be held liable if the Executive unlawfully accesses trade secrets by unauthorized means. In addition, nothing in this Agreement prevents the Executive from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that the Executive has reason to believe is unlawful.
(b) Protection of Documents. All documents, records and files, in any media of whatever kind and description, relating to the business, present or otherwise, of the Company, Parent or any of their Affiliates, and any copies, in whole or in part, thereof (the Documents), whether or not prepared by the Executive, shall be the sole and exclusive property of the Companies. The Executive agrees to safeguard all Documents and to surrender to the Companies, at the time the Executives employment terminates or at such earlier time or times as the Board or its designee may specify, all Documents then in the Executives possession or control. The Executive also agrees to disclose to the Companies, at the time the Executives employment terminates or at such earlier time or times as the Board or its designee may specify, all passwords necessary or desirable to obtain access to, or that would assist in obtaining access to, any information which the Executive has password-protected on any computer equipment, network or system of the Company, Parent or any of their Affiliates.
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(c) Assignment of Rights to Intellectual Property. The Executive shall promptly and fully disclose all Intellectual Property to the Companies. The Executive hereby assigns and agrees to assign to the Companies (or as otherwise directed by the Companies) the Executives full right, title and interest in and to all Intellectual Property. The Executive agrees to execute any and all applications for domestic and foreign patents, copyrights or other proprietary rights and to do such other acts (including without limitation the execution and delivery of instruments of further assurance or confirmation) requested by the Companies to assign the Intellectual Property to the Companies (or as otherwise directed by the Companies) and to permit the Companies to enforce any patents, copyrights or other proprietary rights to the Intellectual Property. The Executive will not charge the Companies or any of their Affiliates for time spent in complying with these obligations. All copyrightable works that the Executive creates during the Executives employment shall be considered work made for hire and shall, upon creation, be owned exclusively by the Companies.
(d) Restricted Activities. The Executive agrees that the following restrictions on the Executives activities during and after the Executives employment are necessary to protect the goodwill, Confidential Information, trade secrets and other legitimate interests of the Company, Parent and their Affiliates:
(i) While the Executive is employed by the Companies, the Executive will not, directly or indirectly, whether as owner, partner, investor, consultant, agent, employee, co-venturer or otherwise, engage in or compete with, or undertake any planning to engage in or compete with, any business conducted or in active planning to be conducted by the Company, Parent or any of their Affiliates in any geographic area where the Company, Parent or any of their Affiliates conducts or is actively planning to conduct business.
(ii) While the Executive is employed by the Companies, the Executive will not, directly or indirectly, (a) solicit or encourage any customer, vendor, supplier or other business partner of the Company, Parent or any of their Affiliates to terminate or diminish his, her or its relationship with any of them or (b) seek to persuade any such customer, vendor, supplier or other business partner, or any prospective customer, vendor, supplier, or other business partner of the Company, Parent or any of their Affiliates, to conduct with anyone else any business or activity which such business partner or prospective business partner conducts or could conduct with the Company, Parent or any of their Affiliates; provided, however, that these restrictions shall apply only if the Executive has performed work for such Person during the Executives employment with the Company, Parent or any of their Affiliates or been introduced to, or otherwise had contact with, such Person as a result of the Executives employment or other associations with the Company, Parent or any of their Affiliates or has had access to Confidential Information which would assist in the Executives solicitation of such Person.
(iii) While the Executive is employed by the Companies, the Executive will not, directly or indirectly, hire or engage any employee of the Company, Parent or any of their Affiliates.
(iv) While the Executive is employed by the Companies and during the twelve (12)-month period immediately following termination of the Executives employment,
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regardless of the reason therefor (in the aggregate, the Restricted Period), the Executive will not, directly or indirectly, (a) solicit for hiring or engagement any employee of the Company, Parent or any of their Affiliates or seek to persuade any such employee to discontinue employment or (b) solicit or encourage any independent contractor providing services to the Company, Parent or any of their Affiliates to terminate or diminish his, her or its relationship with any of them. For the purposes of this Section 3(d)(iv), an employee or an independent contractor of the Company, Parent or any of their Affiliates is any Person who was such at any time during the six (6)-month period immediately preceding the activity restricted by this Section 3(d)(iv). Notwithstanding the foregoing, a general solicitation on the part of the Executive by form letter, blanket mailing or published advertisement that is not directed at any of the Persons described in this Section 3(d)(iv) will not, solely by reason thereof, constitute a violation of this Section 3(d)(iv).
(e) In signing this Agreement, the Executive gives the Companies assurance that the Executive has carefully read and considered all the terms and conditions of this Agreement, including the restraints imposed on the Executive under this Section 3. The Executive agrees without reservation that these restraints are necessary for the reasonable and proper protection of the Company, Parent and their Affiliates, and that each and every one of the restraints is reasonable in respect to subject matter, length of time and geographic area. The Executive further agrees that, were the Executive to breach any of the covenants contained in this Section 3, the damage to the Company, Parent and their Affiliates would be irreparable. The Executive therefore agrees that the Companies, in addition and not in the alternative to any other remedies available to them, shall be entitled to preliminary and permanent injunctive relief against any breach or threatened breach by the Executive of any such covenants, without having to post bond, together with an award of its reasonable attorneys fees incurred in enforcing their rights hereunder. The Executive further agrees that the Restricted Period shall be tolled, and shall not run, during the period of any breach by the Executive of any of the covenants contained in Section 3(d)(iv) above. The Executive and the Companies further agree that, in the event that any provision of this Section 3 is determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, that provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by law. It is also agreed that each of the Companies Affiliates shall have the right to enforce all of the Executives obligations to that Affiliate under this Agreement, including without limitation pursuant to this Section 3. No claimed breach of this Agreement or other violation of law attributed to the Company, Parent or any of their Affiliates, or change in the nature or scope of the Executives employment or other relationship with the Company, Parent or any of their Affiliates, shall operate to excuse the Executive from the performance of the Executives obligations under this Section 3.
4. Termination of Employment. The Executives employment under this Agreement shall continue until terminated pursuant to this Section 4.
(a) By the Companies For Cause. The Companies, or either of them, may terminate the Executives employment for Cause upon notice to the Executive setting forth in reasonable detail the nature of the Cause. For purposes of this Agreement, Cause shall mean the occurrence of any of the following, as determined by the Board in its reasonable judgment: (i) the Executives material failure to perform (other than by reason of disability), or substantial
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negligence in the performance of, the Executives duties and responsibilities to the Company, Parent or any of their Affiliates, which material failure or substantial negligence, if curable, is not cured by the Executive within twenty (20) days after the Boards notice to the Executive of such breach; (ii) the Executives material breach of this Agreement or any other agreement between the Executive and the Company, Parent or any of their Affiliates, which material breach, if curable, is not cured by the Executive within twenty (20) days after the Boards notice to the Executive of such breach; (iii) the Executives commission of, or plea of nolo contendere to, a felony or other crime involving moral turpitude; or (iv) the Executives fraud, theft, embezzlement or material dishonesty, in each case with respect to the Company, Parent or any of their Affiliates; provided, however, that the Board will not be required to provide more than one notice and opportunity to cure under subsection (i) or (ii) with respect to any repeated or substantially similar events or circumstances.
(b) By the Company Without Cause. The Companies, or either of them, may terminate the Executives employment at any time other than for Cause upon notice to the Executive.
(c) By the Executive for Good Reason. The Executive may terminate the Executives employment for Good Reason, provided that (i) the Executive provides written notice to the Companies, setting forth in reasonable detail the nature of the condition giving rise to Good Reason, within thirty (30) days of the initial existence of such condition, (ii) the condition remains uncured by the Company or Parent, as applicable, for a period of thirty (30) days following such notice and (iii) the Executive terminates the Executives employment, if at all, not later than thirty (30) days after the expiration of such cure period. For purposes of this Agreement, Good Reason shall mean the occurrence of any of the following without the Executives consent: (A) the Companys or Parents relocation of the Executives primary place of work (disregarding any temporary remote work or work-from-home arrangements) by more than twenty-five (25) miles; (B) the Companys or Parents material breach of this Agreement; or (C) a material diminution in the Executives duties and responsibilities; provided that, if the Executive is no longer the Chief Executive Officer of a publicly-traded company following a Change in Control, she will be deemed to have experienced a material diminution in her duties and responsibilities.
(d) By the Executive Without Good Reason. The Executive may terminate the Executives employment without Good Reason at any time upon thirty (30) days notice to the Companies. The Board may elect to waive such notice period or any portion thereof.
(e) Death and Disability. The Executives employment hereunder shall automatically terminate in the event of the Executives death during employment. The Companies, or either of them, may terminate the Executives employment, upon notice to the Executive, in the event that the Executive becomes disabled during the Executives employment hereunder through any illness, injury, accident or condition of either a physical or psychological nature and, as a result, is unable to perform substantially all of the Executives duties and responsibilities hereunder (notwithstanding the provision of any reasonable accommodation) for a period of ninety (90) days during any period of three hundred sixty-five (365) consecutive days. If any question shall arise as to whether the Executive is disabled to the extent that the Executive is unable to perform substantially all of the Executives duties and responsibilities for the Company, Parent and their
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Affiliates, the Executive shall, at the Companies request, submit to a medical examination by a physician selected by the Companies to whom the Executive or the Executives guardian, if any, has no reasonable objection to determine whether the Executive is so disabled, and such determination shall for purposes of this Agreement be conclusive of the issue. If such a question arises and the Executive fails to submit to the requested medical examination, the Companies good faith, reasonable determination of the issue shall be binding on the Executive.
5. Other Matters Related to Termination.
(a) Final Compensation. In the event of termination of the Executives employment with the Companies, howsoever occurring, the Companies shall pay the Executive (i) the Base Salary for the final payroll period of the Executives employment, through the date the Executives employment terminates; and (ii) reimbursement, in accordance with Section 2(e) hereof, for business expenses incurred by the Executive but not yet paid to the Executive as of the date the Executives employment terminates, provided that the Executive submits all expenses and supporting documentation required within sixty (60) days of the date the Executives employment terminates, and provided further that such expenses are reimbursable under policies of the Companies then in effect (all of the foregoing, Final Compensation). Except as otherwise provided in Section 5(a)(ii), Final Compensation will be paid to the Executive within the time period required by law.
(b) Severance Benefits.
(i) In the event of any termination of the Executives employment pursuant to Section 4(b) or Section 4(c) above, the Companies will pay the Executive, in addition to Final Compensation, (i) the Base Salary for a period (such period, the Severance Period) of (1) six months following the date of termination if such termination occurs pursuant to the proviso set forth in Section 4(c)(C) or (2) twelve (12) months following the date of termination if such termination occurs pursuant to Section 4(b) or Section 4(c)(A), (B) or (C) (other than the proviso set forth in Section 4(c)(C)) (the Severance Payments), (ii) provided that the Executive timely elects to continue the Executives coverage and, if applicable, that of the Executives eligible dependents in the Companies group health plans under the federal law known as COBRA or similar state law, a monthly amount equal to the monthly health premiums for such coverage paid by the Companies on behalf of the Executive and the Executives eligible dependents, if any, based on the portion of such monthly health premiums paid by the Companies immediately prior to the date that the Executives employment terminates until the earlier of (y) the end of the Severance Period and (z) the date that the Executive and the Executives eligible dependents cease to be eligible for such COBRA coverage under applicable law or plan terms (the Health Continuation Benefits) and (iii) any bonus determined by the Board or the Compensation Committee pursuant to Section 2(b) above for the fiscal year prior to the fiscal year in which the Executives employment terminates, to the extent such bonus has not yet been paid as of the date of such termination (the Prior Year Bonus and, together with the Severance Payments and the Health Continuation Benefits, the Severance Benefits).
(c) Conditions To And Timing Of Severance Benefits. Any obligation of the Companies to provide the Executive the Severance Benefits is conditioned on the Executives
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signing and returning, without revoking, to the Companies a timely and effective separation agreement containing a general release of claims and other customary terms in the form provided to the Executive by the Companies at the time that the Executives employment terminates (the Separation Agreement). The Separation Agreement must become effective, if at all, by the sixtieth (60th) calendar day following the date the Executives employment terminates. Any Severance Payments to which the Executive is entitled will be payable in the form of salary continuation in accordance with the normal payroll practices of the Companies. Any Health Continuation Benefits to which the Executive is entitled will be payable in substantially equal monthly installments. Any Prior Year Bonus to which the Executive is entitled will be payable at the time that annual bonuses for such year are paid to employees of the Companies generally (which in no event will be later than December 31 of the year following the fiscal year for which such Prior Year Bonus was earned). The first installments of the Severance Payments and the Health Continuation Benefits will be made on the Companies next regular payday following the expiration of sixty (60) calendar days from the date that the Executives employment terminates, but will be retroactive to the day following such date of termination. Notwithstanding the foregoing, in the event that the Companies payment of the Health Continuation Benefits would subject the Executive or the Companies to any tax or penalty under the Patient Protection and Affordable Care Act (as amended from time to time, the ACA) or Section 105(h) of the Internal Revenue Code of 1986, as amended (Section 105(h)), or applicable regulations or guidance issued under the ACA or Section 105(h), the Executive and the Companies agree to work together in good faith, consistent with the requirements for compliance with or exemption from Section 409A (as defined below), to restructure such benefit.
(d) Benefits Termination. Except for any right the Executive may have under COBRA or other applicable law to continue participation in the Companies group health and dental plans at the Executives cost, the Executives participation in all employee benefit plans shall terminate in accordance with the terms of the applicable benefit plans based on the date of termination of the Executives employment, without regard to any continuation of the Base Salary or other payment to the Executive following termination of the Executives employment.
(e) Survival. Provisions of this Agreement shall survive any termination of employment if so provided in this Agreement or if necessary or desirable to accomplish the purposes of other surviving provisions, including without limitation certain of the Executives obligations under Section 3 of this Agreement. The obligation of the Companies to make payments to the Executive under Section 5(b), and the Executives right to retain the same, are expressly conditioned upon the Executives continued full performance of the Executives obligations under Section 3 of this Agreement and of any obligations by the Executive under any other agreement with Parent or the Company that contains post-employment restrictive covenants. Upon termination by either the Executive or the Companies, all rights, duties and obligations of the Executive and the Companies to each other shall cease, except as otherwise expressly provided in this Agreement.
(f) Section 280G. If any payment or benefit that the Executive may receive following a change of control of either of the Companies or any of their Affiliates, the Executives termination of employment, or otherwise, whether or not payable or provided under this
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Agreement (Payment) would (i) constitute a parachute payment within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the Code), and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the Excise Tax), then such Payment shall be reduced to the Reduced Amount. The Reduced Amount shall be either (A) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax or (B) the largest portion, up to and including the total amount, of the Payment, whichever of the amounts determined under (A) and (B), after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in the Executives receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or benefits constituting parachute payments is necessary so that the Payment equals the Reduced Amount, reduction shall occur in the following order: reduction of cash payments; cancellation of accelerated vesting of outstanding equity awards; and reduction of employee benefits. In the event that acceleration of vesting of outstanding equity awards is to be reduced, such acceleration of vesting shall be undertaken in the reverse order of the date of grant of the Executives outstanding equity awards. All calculations and determinations made pursuant this Section 5(f) will be made by an independent accounting or consulting firm or independent tax counsel appointed by the Companies (the Tax Counsel) whose determinations shall be conclusive and binding on the Companies and the Executive for all purposes. For purposes of making the calculations and determinations required by this Section 5(f), the Tax Counsel may rely on reasonable, good faith assumptions and approximations concerning the application of Section 280G of the Code and Section 4999 of the Code.
6. Timing of Payments and Section 409A.
(a) Notwithstanding anything to the contrary in this Agreement, if at the time the Executives employment terminates, the Executive is a specified employee, as defined below, any and all amounts payable under this Agreement on account of such separation from service that would (but for this provision) be payable within six (6) months following the date of termination, shall instead be paid on the next business day following the expiration of such six (6)-month period or, if earlier, upon the Executives death; except (A) to the extent of amounts that do not constitute a deferral of compensation within the meaning of Treasury regulation Section 1.409A-1(b) (including without limitation by reason of the safe harbor set forth in Section 1.409A-1(b)(9)(iii), as determined by the Companies in their reasonable good faith discretion); (B) benefits which qualify as excepted welfare benefits pursuant to Treasury regulation Section 1.409A-1(a)(5); or (C) other amounts or benefits that are not subject to the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (Section 409A).
(b) For purposes of this Agreement, all references to termination of employment and correlative phrases shall be construed to require a separation from service (as defined in Section 1.409A-1(h) of the Treasury regulations after giving effect to the presumptions contained therein), and the term specified employee means an individual determined by the Companies to be a specified employee under Treasury regulation Section 1.409A-1(i).
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(c) Each payment made under this Agreement shall be treated as a separate payment and the right to a series of installment payments under this Agreement is to be treated as a right to a series of separate payments.
(d) In no event shall the Company, Parent or any of their Affiliates have any liability relating to the failure or alleged failure of any payment or benefit under this Agreement to comply with, or be exempt from, the requirements of Section 409A.
7. Definitions. For purposes of this Agreement, the following definitions apply:
Affiliates means all persons and entities directly or indirectly controlling, controlled by or under common control with the Company or Parent, as applicable, where control may be by management authority, equity interest or otherwise.
Change in Control has the meaning ascribed to it in the Restricted Stock Unit Agreements between the Executive and The Duckhorn Portfolio, Inc. dated on or about the date hereof.
Confidential Information means any and all information of the Company, Parent and their Affiliates that is not generally available to the public. Confidential Information also includes any information received by the Company, Parent or any of their Affiliates from any Person with any understanding, express or implied, that it will not be disclosed. Confidential Information does not include information that enters the public domain, other than through the Executives breach of the Executives obligations under this Agreement or any other agreement between the Executive and the Company, Parent or any of their Affiliates.
Intellectual Property means inventions, discoveries, developments, methods, processes, compositions, works, concepts and ideas (whether or not patentable or copyrightable or constituting trade secrets) (collectively, Inventions) conceived, made, created, developed or reduced to practice by the Executive (whether alone or with others, whether or not during normal business hours or on or off the premises of the Company, Parent or any of their Affiliates) during the Executives employment or other service relationship (including prior to the Effective Date) that relate either to the business of the Company, Parent or any of their Affiliates or to any prospective activity of the Company, Parent or any of their Affiliates or that result from any work performed by the Executive for the Company, Parent or any of their Affiliates or that make use of Confidential Information or any of the equipment or facilities of the Company, Parent or any of their Affiliates. Notwithstanding the foregoing, Intellectual Property shall not include any Invention that the Executive develops entirely on her own time, without using the equipment, supplies, facilities or trade secret information of the Company, Parent or any of its Affiliates, unless such Invention (a) relates to the business of the Company, Parent or any of its Affiliates for which the Executive is performing services or to the actual or demonstrably anticipated research or development of the Company, Parent or any of its Affiliates for which the Executive is performing services or (b) results from any work performed by he Executive for the Company, Parent or any of their Affiliates.
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Person means an individual, a corporation, a limited liability company, an association, a partnership, an estate, a trust or any other entity or organization, other than the Company, Parent or any of their Affiliates.
8. Conflicting Agreements. The Executive hereby represents and warrants that the Executives signing of this Agreement and the performance of the Executives obligations under it will not breach or be in conflict with any other agreement to which the Executive is a party or is bound, and that the Executive is not now subject to any covenants against competition or similar covenants or any court order that could affect the performance of the Executives obligations under this Agreement. The Executive agrees that the Executive will not disclose to or use on behalf of the Companies any confidential or proprietary information of a third party without that partys consent.
9. Withholding. All payments made by the Companies under this Agreement shall be reduced by any tax or other amounts required to be withheld by the Companies to the extent required by applicable law.
10. Indemnification. The Executive will be eligible for indemnification in respect of the Executives position as an officer of the Companies to the maximum extent permitted by the by-laws and charter of the Company or Parent, as applicable, in each case, as in effect from time to time, and/or pursuant to any indemnification agreement between Executive and the Company or Parent. The Executive shall be entitled to coverage under the directors and officers indemnification insurance policy maintained by the Company or Parent, as applicable, as in effect from time to time, in accordance with the terms of such insurance policy.
11. Assignment. Neither the Executive nor the Company nor Parent may make any assignment of this Agreement or any interest in it, by operation of law or otherwise, without the prior written consent of the other; provided, however, the Companies may assign their rights and obligations under this Agreement without the Executives consent to one of their Affiliates or to any Person with whom the Companies shall hereafter effect a reorganization, consolidate or merge, or to whom the Companies shall hereafter transfer all or substantially all of its properties or assets. This Agreement shall inure to the benefit of and be binding upon the Executive, the Company and Parent, and each of their respective successors, executors, administrators, heirs and permitted assigns.
12. Severability. If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.
13. Miscellaneous. This Agreement sets forth the entire agreement between the Executive and the Companies, and replaces all prior and contemporaneous communications, agreements and understandings, written or oral, with respect to the terms and conditions of the Executives employment. For the avoidance of doubt, this Agreement supersedes and replaces in its entirety that certain consulting agreement between the Companies and the Executive, dated as
- 11 -
of September 27, 2023. This Agreement may not be modified or amended, and no breach shall be deemed to be waived, unless agreed to in writing by the Executive and an expressly authorized representative of the Board. The headings and captions in this Agreement are for convenience only and in no way define or describe the scope or content of any provision of this Agreement. Any obligation of the Companies to make a payment or provide a benefit under Section 2 or 5 of this Agreement may be satisfied by either Parent or the Company. This Agreement may be executed in two or more counterparts, each of which may be executed and transmitted by DocuSign, facsimile, electronic mail, or other means of electronic transmission, each of which shall be an original and all of which together shall constitute one and the same instrument. This is a Florida contract and shall be governed and construed in accordance with the laws of the State of Florida, without regard to any conflict of laws principles that would result in the application of the laws of any other jurisdiction. For the avoidance of doubt, nothing contained herein will supersede the Executives obligations under any agreement or plan to which the Executive is a party or in which the Executive participates, in each case, as in effect immediately prior to the Effective Date. This Agreement is contingent upon the Companys verification of the Executives eligibility for employment within three business days of the Effective Date pursuant to the Immigration Reform and Control Act.
14. Notices. Any notices provided for in this Agreement shall be in writing and shall be effective when delivered in person or deposited in the United States mail, postage prepaid, and addressed to the Executive at the Executives last known address on the books of the Companies or, in the case of the Company or Parent, to it at its principal place of business, attention of the Board, or to such other address as either party may specify by notice to the other actually received.
[Signature page immediately follows.]
- 12 -
IN WITNESS WHEREOF, this Agreement has been executed by the Company, by its duly authorized representative, by Parent, by its duly authorized representative, and by the Executive, as of the date first above written.
THE COMPANY: | ||
By: |
/s/ Sean Sullivan | |
Name: Sean Sullivan Title: Executive Vice President, Chief Strategy and Legal Officer |
PARENT: | ||
By: |
/s/ Sean Sullivan | |
Name: Sean Sullivan Title: Executive Vice President, Chief Strategy and Legal Officer |
THE EXECUTIVE: |
/s/ Deirdre Mahlan |
Deirdre Mahlan |
- 13 -
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in Registration Statement No. 333-254520 on Form S-8 of The Duckhorn Portfolio, Inc. of our report dated March 14, 2024, relating to the combined financial statements of Sonoma-Cutrer Vineyards as of and for the year ended April 30, 2023 appearing in this Current Report on Form 8-K of The Duckhorn Portfolio, Inc.
/s/ Ernst & Young LLP |
Louisville, Kentucky |
April 30, 2024 |
Exhibit 99.1
The Duckhorn Portfolio Closes Acquisition of Sonoma-Cutrer Vineyards.
Adds Two New Members to the Board of Directors
ST. HELENA, Calif., May 1, 2024(BUSINESS WIRE) The Duckhorn Portfolio, Inc. (NYSE: NAPA) (the Company) announced the completion, effective April 30, 2024, of its acquisition of Sonoma-Cutrer Vineyards (Sonoma-Cutrer), one of the largest and fastest-growing luxury Chardonnay brands in the U.S., from spirits and wine company, Brown-Forman Corporation (NYSE: BF.B) (Brown-Forman). The Duckhorn Portfolio has named two Brown-Forman executives to its Board of Directors, Marshall Farrer, Chief Strategic Growth Officer, and Tim Nall, Chief Global Supply Chain and Technology Officer.
The Company finalized the acquisition for the previously announced consideration of approximately $50 million of cash and the issuance of 31,531,532 shares of Company common stock to Brown-Forman.
We are thrilled to add the acclaimed Sonoma-Cutrer winery brand to our portfolio of luxury winery brands and welcome their talented team, said Deirdre Mahlan, President, Chief Executive Officer and Chairperson of The Duckhorn Portfolio. The addition of these iconic and carefully curated wines to our offering broadens our reach in the luxury Chardonnay category and further cements our place as the premier pure-play producer of luxury wine in the US. We believe this acquisition will enhance our ability to deliver a full portfolio of luxury wines to the consumer, and further advance our ambition to drive consistent, profitable growth and create meaningful value for all of our stakeholders.
Since its founding in 1973, Sonoma-Cutrer has become one of Californias best-known and fastest-growing luxury Chardonnay winery brands. This acquisition bolsters The Duckhorn Portfolio by significantly elevating the Companys position within the Chardonnay category, the number one domestic white varietal. The brand strength and scale of this acquisition is expected to extend the Companys reach to a broader base of consumers and trade partners, further enabling The Duckhorn Portfolio to outpace industry growth.
Key Benefits
| The acquisition is expected to be accretive in the first full fiscal year based on expected run-rate synergies, which are now expected to exceed the Companys initial estimate of $5 million. |
| The Company anticipates additional opportunities to accelerate net sales growth as a result of Sonoma-Cutrers complementary placement within the existing brand and varietal architecture and relatively limited account overlap. |
| The Company expects further optimization of the grape supply and production model with the addition of 1,121 acres of estate vineyards in the Russian River Valley and Sonoma Coast appellations. |
| The Company welcomes Brown-Forman, a leader in beverage alcohol with over 150 years of industry experience, as a well-respected shareholder and looks forward to the contributions of Marshall Farrer and Tim Nall as members of The Duckhorn Portfolio Board of Directors. |
| The acquisition terms allow the Company to maintain its current debt leverage ratio, affording the financial flexibility to drive future growth. |
About Marshall Farrer
Marshall Farrer is the executive vice president, chief strategic growth officer for Brown-Forman. Marshall began his career at Brown-Forman in 1998, as a marketing manager in the Wine Division in California, where he held several sales and marketing management positions. In 2004, he was named vice president, chief of staff to the president of Brown-Formans Spirits Americas. In 2006, he was appointed as director of Latin America and the Caribbean. In 2010, he relocated to Sydney, Australia, and was named the managing director, Australia, New Zealand, and South Pacific. In 2014, he shifted to marketing as the managing director of Jack Daniels Tennessee Honey, leading its global expansion. Shortly after in 2015, he was promoted to senior vice president, managing director of global travel retail, and in 2018 added the responsibility of Developed Asia Pacific, including North Asia, Australia, and New Zealand. In 2020, Marshall was named president of Europe and joined the Executive Leadership Team. In addition, he became Brown-Formans first chief strategic growth officer in 2023 and transitioned to the role full-time in early 2024. Mr. Farrer has served on Brown-Formans board of directors since 2016 and is a fifth-generation Brown family shareholder. He graduated from Rollins College with a Bachelor of Arts and holds a Master of Business Administration degree from Tulane University.
About Tim Nall
Tim Nall is the executive vice president, chief global supply chain and technology officer for Brown-Forman. Since 2000, he has held positions of increasing responsibility within Brown-Formans Global Production group, including director of campus production operations, vice president and general manager of Brown-Forman Wines, vice president, director of technical services, and most recently, senior vice president, chief information and advanced analytics officer. Prior to Brown-Forman, he was employed by Alcoa, American Air Filters, and S.S.T.I. (Ford Motor Company/Johnson Controls joint venture). He earned a Bachelor of Science in Electrical Engineering from the University of Louisville JB Speed School of Engineering. He later earned a Master of Business Administration at University of Louisville with a concentration in operations management.
About The Duckhorn Portfolio
The Duckhorn Portfolio is North Americas premier luxury wine company, with eleven wineries, ten state-of-the-art winemaking facilities, eight tasting rooms and over 2,200 coveted acres of vineyards spanning 38 Estate properties. Established in 1976, when vintners Dan and Margaret Duckhorn founded Napa Valleys Duckhorn Vineyards, today, our portfolio features some of North Americas most revered wineries, including Duckhorn Vineyards, Decoy, Sonoma-Cutrer, Kosta Browne, Goldeneye, Paraduxx, Calera, Migration, Postmark, Canvasback and Greenwing. Sourcing grapes from our own Estate vineyards and fine growers in Napa Valley, Sonoma County, Anderson Valley, Californias North and Central coasts, Oregon and Washington State, we offer a curated and comprehensive portfolio of acclaimed luxury wines with price points ranging from $20 to $230 across more than 15 varietals and 39 appellations. Our wines are available throughout the United States, on five continents, and in more than 50 countries around the world.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In some situations, you can identify forward-looking statements by words such as approximately, anticipate, assume, believe, contemplate, continue, could, estimate, expect, future, intend, may, plan, potential, predict, project, seek, should, target, will and similar terms and phrases to identify forward-looking statements. These forward-looking statements include, among others, statements about the potential market opportunity resulting from the acquisition of the Sonoma-Cutrer and associated business strategy, the Companys ability to better address certain markets, expand its capabilities and position in the industry and extend its product offerings to better serve our customers, as well as the potential synergies and other financial benefits derived by and financial impact to the Company from the acquisition. All of our forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we are expecting, including: risks associated with transactions generally; the failure to consummate or delay in consummating the transaction for other reasons; the risk that a condition to closing of the transaction may not be satisfied; the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement; the outcome of any legal proceedings that may be instituted following announcement of the transaction; failure to retain key management and employees of Sonoma-Cutrer; issues or delays in the successful integration of Sonoma-Cutrers operations with those of the Company, including incurring or experiencing unanticipated costs and/or delays or difficulties; unfavorable reaction to the transaction by customers, competitors, suppliers and employees; unpredictability and severity of catastrophic events, including but not limited to acts of terrorism, war or hostilities, as well as managements response to any of the aforementioned factors; and additional factors discussed in the Companys filings with the SEC.
The forward-looking statements contained in this press release are based on managements current plans, estimates and expectations in light of information currently available to the Company and are subject to uncertainty and changes in circumstances. There can be no assurance that future developments affecting the Company will be those that the Company has anticipated. Actual results may differ materially from these expectations due to changes in global, regional or local political, economic, business, competitive, market, regulatory and other factors, many of which are beyond our control, as well as the other factors described in Item 1A, Risk Factors in the Companys 2023 10-K filed with the SEC on September 27, 2023, and the Companys 10-Q for the quarter ended January 31, 2024, filed with the SEC on March 7, 2024, and other documents the Company may file with the SEC from time to time. Should one or more of these risks or uncertainties materialize or should any of our assumptions prove to be incorrect, our actual results may vary in material respects from what we may have expressed or implied by these forward-looking statements. Any forward-looking statement made by the Company speaks only as of the date on which it is made. All future written and oral forward-looking statements attributable to the Company or persons acting on the Companys behalf are expressly qualified in their entirety by the previous statements. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by applicable securities laws.
Contacts
Investor Contact
Ben Avenia-Tapper
IR@duckhorn.com
(707) 339-9232
Media Contact
Jessica Liddell, ICR
DuckhornPR@icrinc.com
(203) 682-8200
Exhibit 99.2
Report of Independent Auditors
To the Audit Committee of Brown-Forman Corporation
Opinion
We have audited the combined financial statements of Sonoma-Cutrer Vineyards (the Company), which comprise the combined balance sheet as of April 30, 2023, and the related combined statements of operations, net parent investment and cash flows for the year then ended, and the related notes (collectively referred to as the financial statements).
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company at April 30, 2023, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Companys ability to continue as a going concern for one year after the date that the financial statements are available to be issued.
Auditors Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free of material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with GAAS, we:
| Exercise professional judgment and maintain professional skepticism throughout the audit. |
| Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. |
| Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control. Accordingly, no such opinion is expressed. |
| Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. |
| Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Companys ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
/s/ Ernst & Young LLP
Louisville, Kentucky
March 14, 2024
1
Sonoma-Cutrer Vineyards (a Business of Brown-Forman Corporation)
Combined Statement of Operations
(Dollars in thousands)
Year Ended April 30, |
2023 | |||
Net sales |
$ | 90,910 | ||
Cost of sales |
48,403 | |||
|
|
|||
Gross profit |
42,507 | |||
Advertising expenses |
3,150 | |||
Selling, general, and administrative expenses |
11,814 | |||
Other expense (income), net |
555 | |||
|
|
|||
Operating income |
26,988 | |||
Non-operating postretirement expense |
487 | |||
|
|
|||
Income before income taxes |
26,501 | |||
Income taxes |
6,482 | |||
|
|
|||
Net income |
$ | 20,019 | ||
|
|
The accompanying notes are an integral part of these Combined Financial Statements.
2
Sonoma-Cutrer Vineyards (a Business of Brown-Forman Corporation)
Combined Balance Sheet
(Dollars in thousands)
April 30, |
2023 | |||
Assets |
||||
Cash |
$ | 16 | ||
Accounts receivable, net |
9,745 | |||
Inventories: |
||||
Finished goods |
9,876 | |||
Work in process |
26,408 | |||
Raw materials and supplies |
4,208 | |||
|
|
|||
Total inventories |
40,492 | |||
Other current assets |
343 | |||
|
|
|||
Total current assets |
50,596 | |||
Property, plant, and equipment, net |
87,718 | |||
Goodwill |
36,929 | |||
Operating lease right-of use assets |
724 | |||
Other assets |
214 | |||
|
|
|||
Total assets |
$ | 176,181 | ||
|
|
|||
Liabilities |
||||
Accounts payable and accrued expenses |
$ | 5,745 | ||
Current portion of operating lease liabilities |
256 | |||
|
|
|||
Total current liabilities |
6,001 | |||
Deferred tax liabilities |
13,386 | |||
Non-current portion of operating lease liabilities |
466 | |||
Other liabilities |
155 | |||
|
|
|||
Total liabilities |
20,008 | |||
Commitments and contingencies |
||||
Equity |
||||
Net Parent Investment |
156,173 | |||
|
|
|||
Total liabilities and equity |
$ | 176,181 | ||
|
|
The accompanying notes are an integral part of these Combined Financial Statements.
3
Sonoma-Cutrer Vineyards (a Business of Brown-Forman Corporation)
Combined Statement of Cash Flows
(Dollars in thousands)
Year Ended April 30, |
2023 | |||
Cash flows from operating activities: |
||||
Net income |
$ | 20,019 | ||
Adjustments to reconcile net income to net cash provided by operations: |
||||
Depreciation and amortization |
5,327 | |||
Stock-based compensation expense |
73 | |||
Deferred income tax benefit |
(641 | ) | ||
Other, net |
(133 | ) | ||
Changes in assets and liabilities: |
||||
Accounts receivable |
(241 | ) | ||
Inventories |
4,167 | |||
Other current assets |
(5 | ) | ||
Accounts payable and accrued expenses |
(237 | ) | ||
Other operating assets and liabilities |
22 | |||
|
|
|||
Cash provided by operating activities |
28,351 | |||
Cash flows from investing activities: |
||||
Additions to property, plant, and equipment |
(3,960 | ) | ||
Other, net |
135 | |||
|
|
|||
Cash used for investing activities |
(3,825 | ) | ||
Cash flows from financing activities: |
||||
Net transfer to Parent |
(24,502 | ) | ||
Other, net |
(24 | ) | ||
|
|
|||
Cash used for financing activities |
(24,526 | ) | ||
Net increase (decrease) in cash |
| |||
Cash, beginning of period |
16 | |||
|
|
|||
Cash, end of period |
$ | 16 | ||
|
|
|||
Supplemental information: |
||||
Cash paid for income taxes |
$ | 547 | ||
Non-cash additions to property, plant, and equipment |
$ | 406 |
The accompanying notes are an integral part of these Combined Financial Statements.
4
Sonoma-Cutrer Vineyards (a Business of Brown-Forman Corporation)
Combined Statement of Net Parent Investment
(Dollars in thousands)
Year Ended April 30, |
2023 | |||
Net Parent Investment, beginning of period |
$ | 160,583 | ||
Net income |
20,019 | |||
Stock-based compensation |
73 | |||
Net transfer to Parent |
(24,502 | ) | ||
|
|
|||
Net Parent Investment, end of period |
$ | 156,173 | ||
|
|
The accompanying notes are an integral part of these combined financial statements.
5
Sonoma-Cutrer Vineyards (a Business of Brown-Forman Corporation)
Notes to Combined Financial Statements
(Dollars in thousands)
1. Description of Business
Sonoma-Cutrer Vineyards, headquartered in Windsor, California, produces and markets luxury wine brands. The wine brands consist largely of Chardonnay wines sourced from vineyards in the Russian River Valley and Sonoma Coast regions. Brown-Forman Corporation (Brown-Forman or Parent) operates the Sonoma-Cutrer Vineyards business through certain of its wholly-owned subsidiaries, including Sonoma-Cutrer Vineyards, Inc.
In these notes, we, us, our, Sonoma-Cutrer, and the Company refer to the Sonoma-Cuter Vineyards business.
2. Basis of Presentation
The Combined Financial Statements of the Company have been derived from the consolidated financial statements and accounting records of Brown-Forman and have been prepared in conformity with accounting principles generally accepted in the United States (GAAP). The Combined Financial Statements may not be indicative of the Companys future performance and do not necessarily reflect what the financial position, results of operations, and cash flows would have been had it operated as an independent company.
Intracompany transactions have been eliminated. Transactions between the Company and Brown-Forman have been included in these Combined Financial Statements. The aggregate net effect of transactions between the Company and Brown-Forman that have been historically settled other than in cash are reflected in the Combined Balance Sheet as Net Parent Investment and in the Combined Statement of Cash Flows as Net transfer to Parent. See Note 9 for additional information.
The Combined Balance Sheet includes certain of Brown-Formans assets and liabilities that are specifically identifiable or otherwise attributable to the Company. Brown-Formans third-party long-term debt and the related interest expense have not been allocated to the Company, which was not the legal obligor of such debt.
Brown-Forman utilizes a centralized approach to cash management and financing its operations. Cash held by Brown-Forman at the corporate level is not specifically identifiable to the Company and, therefore, has not been reflected in the Companys Combined Balance Sheet. Cash transfers between Brown-Forman and the Company are accounted for through Net Parent Investment. Cash on the Combined Balance Sheet represents cash held by the Company at period-end prior to any potential transfer to the centralized cash management pool of Brown-Forman.
In addition, for purposes of preparing these Combined Financial Statements on a carve-out basis, a portion of Brown-Formans corporate expenses have been allocated to the Company. Costs were allocated to the Company based on direct usage when identifiable or, when not directly identifiable, on the basis of proportional gross profit. These expense allocations include the cost of corporate functions and resources that are provided by or administered by Brown-Forman including, but not limited to, executive management and other corporate and governance functions, such as corporate finance, internal audit, tax and treasury. The related employee payroll and benefit costs associated with such functions are included in the expense allocations.
Management considers the basis on which the expenses have been allocated to reasonably reflect the utilization of services provided to, or the benefit received by, the Company. However, the allocations may not reflect the expenses the Company would have incurred if the Company had been a standalone company. Actual costs that may have been incurred if the Company had been a standalone company would depend on a number of factors, including the organizational structure, whether functions were outsourced or performed by employees, and strategic or capital decisions.
During the period presented in these Combined Financial Statements, the Companys income tax expense and deferred tax balances have been included in Brown-Formans income tax returns. Income tax expense and deferred tax balances contained in the Combined Financial Statements are presented on a separate return basis, as if the Company had filed its own income tax returns. Income taxes currently payable are deemed to have been remitted to the Parent, in cash, in the period in which the liability arose, and income taxes currently receivable are deemed to have been received from the Parent in the period in which the receivable arose. These amounts accrued under the separate return method have been reflected in Net Parent Investment.
Actual tax transactions included in the consolidated financial statements of Brown-Forman may not be included in the Combined Financial Statements of the Company. Similarly, the tax treatment of certain items reflected in the Combined Financial Statements of the Company may not be reflected in the consolidated financial statements and income tax returns of Brown-Forman. Accordingly, the taxes recorded in the Combined Statement of Operations are not necessarily representative of the taxes that may arise in the future if the Company files its income tax returns independent from Brown-Formans returns.
6
3. Significant Accounting Policies
We applied the following significant accounting policies in preparing the Combined Financial Statements:
Accounts receivable. Accounts receivable are recorded net of an allowance for expected credit losses (allowance for doubtful accounts). We determine the allowance using information such as customer credit history and financial condition, historical loss experience, and macroeconomic factors. We write off account balances against the allowance when we have exhausted our collection efforts. The allowance for doubtful accounts was $71 at April 30, 2023.
As of April 30, 2023, our two largest customers accounted for 37% and 21% of total accounts receivable. We have not experienced credit issues with these customers.
Inventories. Inventories are valued at the lower of cost (using the first-in, first-out method) or net realizable value. Inventory costs include costs incurred in the production of wine, including vineyard and related farming costs. Inventory costs also include warehousing, insurance, and ad valorem taxes applicable to inventories. We classify bulk wine as work in process.
Because we age most of our wines in barrels for periods in excess of one year, we bottle and sell only a portion of our inventory each year. However, consistent with industry practice, we classify all inventory as a current asset.
Property, plant, and equipment. We state property, plant, and equipment at cost less accumulated depreciation. We calculate depreciation on a straight-line basis using our estimates of useful life, which are: 720 years for land improvements; 1040 years for buildings and improvements; 37 years for barrels; 1030 years for vines; and 320 years for machinery and equipment.
The Companys classification of barrels as a component of property, plant, and equipment differs from the Parents classification of barrels as a component of inventory. We believe this classification by the Company is preferable, as we believe it is the prevalent practice in the wine industry within which the Companys entire business operates. This change in classification had no material effect on the Companys reported results of operations or cash flows.
We assess our property, plant, and equipment for impairment whenever events or changes in circumstances indicate that the carrying value of those assets may not be recoverable. When we do not expect to recover the carrying value of an asset (or asset group) through undiscounted future cash flows, we write it down to its estimated fair value. We determine fair value using discounted estimated future cash flows, considering market values for similar assets when available.
When we retire or dispose of property, plant, and equipment, we remove its cost and accumulated depreciation from our balance sheet and reflect any gain or loss in operating income. We expense the costs of repairing and maintaining our property, plant, and equipment as we incur them.
Goodwill. When we acquire a business, we first allocate the purchase price to identifiable assets and liabilities, based on estimated fair value. We then record any remaining purchase price as goodwill. We do not amortize goodwill.
We assess our goodwill for impairment at least annually, or more frequently if circumstances indicate the carrying amount may be impaired. Goodwill is impaired when its carrying amount exceeds its estimated fair value. We estimate the fair value using discounted estimated future cash flows or market information. Considerable management judgment is necessary to estimate fair value, including the selection of assumptions about future cash flows and discount rates. The Companys goodwill reflects the historical acquisition-specific goodwill related to Brown-Formans acquisition of a majority interest in Sonoma-Cutrer Vineyards, Inc., in 1999 and remaining interests in 2000 and 2001. None of our goodwill has been previously impaired or determined to be impaired as of April 30, 2023.
Net Parent Investment. Net Parent Investment represents Brown-Formans historical investment in the Company, the Companys accumulated net income, and the net effect of transactions with and allocations from Brown-Forman.
Revenue recognition. Our net sales predominantly reflect sales of bottled wine products. We sell these products under contracts with different types of customers, depending on the market. The customer is most often a distributor, wholesaler, or retailer.
Each contract typically includes a single performance obligation to transfer control of the products to the customer. Depending on the contract, control is transferred when the products are either shipped or delivered to the customer, at which point we recognize the transaction price for those products as net sales. The transaction price recognized at that point reflects our estimate of the consideration to be received in exchange for the products. The actual amount may ultimately differ due to the effect of various customer incentives and trade promotion activities. In making our estimates, we consider our historical experience and current expectations, as applicable. Subsequent adjustments recognized for changes in estimated transaction prices are typically not material.
7
Net sales exclude taxes we collect from customers that are imposed by various governments on our sales, and are reduced by payments to customers unless made in exchange for distinct goods or services with fair values approximating the payments. Net sales include any amounts we bill customers for shipping and handling activities related to the products. We recognize the cost of those activities in cost of sales during the same period in which we recognize the related net sales. Sales returns, which are permitted only in limited situations, are not material. Customer payment terms generally range from 30 to 90 days. There are no significant amounts of contract assets or liabilities.
Cost of sales. Cost of sales includes the costs of producing, bottling, packaging, warehousing, insuring, and shipping goods sold during the period.
Advertising costs. We expense the production costs of advertising when the advertisements first take place. We expense all other advertising costs during the year in which the costs are incurred.
Selling, general, and administrative expenses. Selling, general, and administrative expenses are charged to income as incurred, or as allocated based on methodologies discussed in Note 2. Such expenses include the costs associated with our sales force, administrative staff and facilities, and other expenses related to our non-manufacturing functions.
Other expense (income),net. Other expense (income), net, includes certain expenses associated with the Sonoma-Cutrer visitors center, losses (gains) on sale of fixed assets, and miscellaneous other items.
Stock-based compensation. Certain Company employees participate in the stock-based compensation plans sponsored by Brown-Forman. The grant-date fair value of Brown-Forman stock-based awards granted to employees under the plan is recognized as compensation expense on a straight-line basis over the requisite service period, which typically corresponds to the vesting period for the award.
Awards granted to Company employees are reflected in Net Parent Investment within the Combined Statement of Net Parent Investment at the time they are expensed. The Combined Statement of Operations also includes an allocation of Brown-Formans corporate and shared employee stock-based compensation expenses. Stock-based compensation expense is classified within selling, general, and administrative expenses.
Income taxes. We base our annual provision for income taxes on the pre-tax income reflected in our Combined Statement of Operations. We establish deferred tax liabilities or assets for temporary differences between GAAP and tax reporting bases and later adjust them to reflect changes in tax rates expected to be in effect when the temporary differences reverse. We record a valuation allowance as necessary to reduce a deferred tax asset to the amount that we believe is more likely than not to be realized.
We assess our uncertain income tax positions in two steps. First, we evaluate whether the tax position will more likely than not, based on its technical merits, be sustained upon examination, including resolution of any related appeals or litigation. For a tax position that does not meet this first criterion, we recognize no tax benefit. For a tax position that does meet the first criterion, we recognize a tax benefit in an amount equal to the largest amount of benefit that we believe has more than a 50% likelihood of being realized upon ultimate resolution. We record interest and penalties on uncertain tax positions as income tax expense.
Foreign currency transactions. The U.S. dollar is our functional and reporting currency. We record all gains and losses from foreign currency transactions (those denominated in a currency other than U.S. dollar) in current income.
Estimates. To prepare financial statements that conform with GAAP, our management must make informed estimates that affect how we report revenues, expenses, assets, and liabilities, including contingent assets and liabilities. Actual results could differ from these estimates.
8
4. Balance Sheet Information
Supplemental information on our Combined Balance Sheet is as follows:
April 30, |
2023 | |||
Property, plant, and equipment: |
||||
Land and improvements |
$ | 62,908 | ||
Buildings and improvements |
41,735 | |||
Machinery and equipment |
31,230 | |||
Barrels |
14,014 | |||
Vines |
11,821 | |||
Other |
3,144 | |||
|
|
|||
164,852 | ||||
Less accumulated depreciation |
77,134 | |||
|
|
|||
$ | 87,718 | |||
|
|
|||
Accounts payable and accrued expenses: |
||||
Accounts payable, trade |
$ | 1,245 | ||
Accrued expenses: |
||||
Advertising, promotion, and discounts |
1,976 | |||
Bulk wine purchases |
465 | |||
Compensation and commissions |
985 | |||
Excise and other non-income taxes |
20 | |||
Self-insurance losses |
781 | |||
Other |
273 | |||
|
|
|||
4,500 | ||||
|
|
|||
$ | 5,745 | |||
|
|
5. Contingencies
We operate in a litigious environment, and we are sued in the normal course of business. Sometimes plaintiffs seek substantial damages. Significant judgment is required in predicting the outcome of these suits and claims, many of which take years to adjudicate. We accrue estimated costs for a contingency when we believe that a loss is probable and we can make a reasonable estimate of the loss, and then adjust the accrual as appropriate to reflect changes in facts and circumstances. We do not believe it is reasonably possible that these existing loss contingencies, individually or in the aggregate, would have a material adverse effect on our financial position, results of operations, or liquidity. No material accrued loss contingencies are recorded as of April 30, 2023.
6. Net Sales
The following table shows our net sales by geography (based on customer location):
Year Ended April 30, |
2023 | |||
United States |
$ | 89,892 | ||
Canada |
743 | |||
Latin America |
240 | |||
Other |
35 | |||
|
|
|||
$ | 90,910 | |||
|
|
9
The following table shows our net sales by product category:
Year Ended April 30, |
2023 | |||
Bottled wine |
$ | 86,442 | ||
Bulk wine |
4,468 | |||
|
|
|||
$ | 90,910 | |||
|
|
Our two largest customers accounted for 32% and 30% of net sales in 2023.
7. Income Taxes
The components of our total income tax expense was as follows:
Year Ended April 30, |
2023 | |||
Current: |
||||
U.S. federal |
$ | 5,870 | ||
State and local |
1,253 | |||
|
|
|||
7,123 | ||||
|
|
|||
Deferred: |
||||
U.S. federal |
(526 | ) | ||
State and local |
(115 | ) | ||
|
|
|||
(641 | ) | |||
|
|
|||
$ | 6,482 | |||
|
|
The following table reconciles our effective tax rate to the U.S. federal statutory tax rate:
2023 | ||||
U.S. federal statutory rate |
21.0 | % | ||
State taxes, net of U.S. federal tax benefit |
3.4 | % | ||
Other, net |
0.1 | % | ||
|
|
|||
Effective rate |
24.5 | % | ||
|
|
Deferred tax assets and liabilities were as follows:
April 30, |
2023 | |||
Deferred tax assets: |
||||
Postretirement and other benefits |
$ | 169 | ||
Accrued liabilities and other |
397 | |||
Inventories |
703 | |||
Intangible assets |
466 | |||
|
|
|||
Total deferred tax assets |
1,735 | |||
|
|
|||
Deferred tax liabilities: |
||||
Property, plant, and equipment |
(15,117 | ) | ||
Other |
(4 | ) | ||
|
|
|||
Total deferred tax liabilities |
(15,121 | ) | ||
|
|
|||
Net deferred tax liability |
$ | (13,386 | ) | |
|
|
At April 30, 2023, we had $136 of gross unrecognized tax benefits, $107 of which would reduce our effective income tax rate if recognized. A reconciliation of the beginning and ending unrecognized tax benefits follows:
Year Ended April 30, |
2023 | |||
Unrecognized tax benefits at beginning of year |
$ | 83 | ||
Additions for tax positions provided in current period |
53 | |||
|
|
|||
Unrecognized tax benefits at end of year |
$ | 136 | ||
|
|
10
The Company files as part of the consolidated U.S. federal and combined state returns of the Parent. The fiscal years that are open for examination for the Parents returns are 2019-2023.
We believe there will be no material change in our gross unrecognized tax benefits in the next 12 months.
8. Leases
We enter into operating and finance lease arrangements, which we use primarily for warehouse space, vehicles, and equipment.
We record lease liabilities and right-of-use (ROU) assets on our balance sheet for leases with terms exceeding 12 months. We do not record lease liabilities or ROU assets for short-term leases. The amounts recorded for lease liabilities and ROU assets are based on the estimated present value, as of the lease commencement date, of the future payments to be made over the lease term. We calculate the present value using our incremental borrowing rate that corresponds to the term of the lease. We include the effect of an option to renew or terminate a lease in the lease term when it is reasonably certain that we will exercise the option.
Some of our operating leases have variable rental payments, which are excluded from the calculations of the right-of-use assets and are recognized in the financial statements in the period in which the obligation is incurred and payment variability removed. Some of our leases contain non-lease components (e.g., maintenance or other services) in addition to lease components. We have elected the practical expedient not to separate the non-lease components from the lease components.
The following table shows the lease ROU and liability balances:
Balance Sheet Classification |
April 30, 2023 |
|||||
Operating leases: |
||||||
Right-of-use assets |
Operating lease right-of-use assets | $ | 724 | |||
Lease liabilities: |
||||||
Current |
Current portion of operating lease liabilities | $ | 256 | |||
Non-current |
Non-current portion of operating lease liabilities | 466 | ||||
|
|
|||||
Total |
$ | 722 | ||||
|
|
|||||
Finance leases: |
||||||
Right-of-use assets |
Other assets | $ | 128 | |||
Lease liabilities: |
||||||
Current |
Accounts payable and accrued expenses | $ | 35 | |||
Non-current |
Other liabilities | 93 | ||||
|
|
|||||
Total |
$ | 128 | ||||
|
|
11
The following table shows the components of total lease cost:
Year Ended April 30, |
2023 | |||
Operating lease cost |
$ | 297 | ||
Finance lease cost |
26 | |||
Short-term lease cost |
108 | |||
Variable lease cost |
370 | |||
Sublease income |
(26 | ) | ||
|
|
|||
Total lease cost |
$ | 775 | ||
|
|
The following table includes a maturity analysis of future (undiscounted) lease payments and a reconciliation of those payments to the lease liabilities recorded on our balance sheet:
Operating Leases |
Finance Leases |
|||||||
2024 |
$ | 280 | $ | 39 | ||||
2025 |
256 | 38 | ||||||
2026 |
228 | 32 | ||||||
2027 |
| 13 | ||||||
2028 |
| 11 | ||||||
Thereafter |
| 5 | ||||||
|
|
|
|
|||||
Total lease payments |
764 | 138 | ||||||
Less: Present value discount |
(42 | ) | (10 | ) | ||||
|
|
|
|
|||||
Lease liabilities |
$ | 722 | $ | 128 | ||||
|
|
|
|
|||||
Weighted-average discount rate |
4.2 | % | 3.6 | % | ||||
Weighted-average remaining term (years) |
2.8 | 4.1 |
The following table shows additional information about our leases:
Year Ended April 30, |
2023 | |||
Cash paid for amounts included in the measurement of lease liabilities: |
||||
Operating cash flows from operating leases |
$ | 297 | ||
Financing cash flows from finance leases |
$ | 24 | ||
Right-of-use assets obtained in exchange for new lease liabilities: |
||||
Operating leases |
$ | 667 | ||
Finance leases |
$ | 122 |
9. Related Party Transactions
The Combined Financial Statements have been prepared on a standalone basis and are derived from the consolidated financial statements and accounting records of Brown-Forman. The following discussion summarizes activity between the Company and Brown-Forman.
Allocation of corporate expenses. For purposes of preparing these Combined Financial Statements on a carve-out basis, we have allocated a portion of Brown-Formans total corporate expenses to the Company. See Note 2 for a discussion of the allocation methodologies.
Centralized cash management. The Company participated in Brown-Formans centralized cash management and daily cash sweeps. Disbursements are made through centralized accounts payable systems which were operated by Brown-Forman. Cash receipts are transferred to centralized accounts, which were also maintained by Brown-Forman. As cash is received and disbursed by Brown-Forman, it is accounted for by the Company through Net Parent Investment.
Dividend to Parent. We declared a cash dividend to our Parent in April 2023, as shown in the table below.
12
Receivables and payables. Balances between the Company and Brown-Forman or its affiliates derived from transactions that have been historically settled other than in cash are included in Net Parent Investment.
Assumed income tax payments. Income tax expense and deferred tax balances contained in the Combined Financial Statements are presented on a separate return basis, as if the Company had filed its own income tax returns. Income taxes currently payable are deemed to have been remitted to the Parent, in cash, in the period in which the liability arose, and income taxes currently receivable are deemed to have been received from the Parent in the period in which the receivable arose. These amounts accrued under the separate return method have been reflected in Net Parent Investment.
Net transfer to Parent. The following table presents the components of Net transfer to Parent in the Combined Statement of Net Parent Investment:
2023 | ||||
Dividend to Parent |
$ | (23,928 | ) | |
Settlement of receivables and payables |
1,680 | |||
Corporate expense allocations |
9,182 | |||
Assumed income tax payments |
(547 | ) | ||
Other contributions to Parent |
(10,889 | ) | ||
|
|
|||
Net transfer to Parent |
$ | (24,502 | ) | |
|
|
10. Subsequent Events
We have evaluated subsequent events through March 14, 2024, which is the date the Combined Financial Statements were available to be issued.
13
Exhibit 99.3
Sonoma-Cutrer Vineyards (a Business of Brown-Forman Corporation)
Condensed Combined Statements of Operations
(Unaudited)
(Dollars in thousands)
Nine Months Ended January 31, |
||||||||
2023 | 2024 | |||||||
Net sales |
$ | 63,970 | $ | 69,670 | ||||
Cost of sales |
34,195 | 33,276 | ||||||
|
|
|
|
|||||
Gross profit |
29,775 | 36,394 | ||||||
Advertising expenses |
2,621 | 2,291 | ||||||
Selling, general, and administrative expenses |
8,278 | 9,919 | ||||||
Other expense (income), net |
437 | 456 | ||||||
|
|
|
|
|||||
Operating income |
18,439 | 23,728 | ||||||
Non-operating postretirement expense |
425 | 40 | ||||||
|
|
|
|
|||||
Income before income taxes |
18,014 | 23,688 | ||||||
Income taxes |
4,413 | 5,795 | ||||||
|
|
|
|
|||||
Net income |
$ | 13,601 | $ | 17,893 | ||||
|
|
|
|
See the accompanying notes to these Condensed Combined Financial Statements.
Sonoma-Cutrer Vineyards (a Business of Brown-Forman Corporation)
Condensed Combined Balance Sheets
(Unaudited)
(Dollars in thousands)
April 30, 2023 |
January 31, 2024 |
|||||||
Assets |
||||||||
Cash and cash equivalents |
$ | 16 | $ | 7 | ||||
Accounts receivable, less allowance for doubtful accounts of $71 at April 30 and $96 at January 31 |
9,745 | 7,298 | ||||||
Inventories: |
||||||||
Finished goods |
9,876 | 8,683 | ||||||
Work in process |
26,408 | 43,267 | ||||||
Raw materials and supplies |
4,208 | 2,824 | ||||||
|
|
|
|
|||||
Total inventories |
40,492 | 54,774 | ||||||
Other current assets |
343 | | ||||||
|
|
|
|
|||||
Total current assets |
50,596 | 62,079 | ||||||
Property, plant and equipment, net |
87,718 | 88,148 | ||||||
Goodwill |
36,929 | 36,929 | ||||||
Operating lease right-of use assets |
724 | 530 | ||||||
Other assets |
214 | 301 | ||||||
|
|
|
|
|||||
Total assets |
$ | 176,181 | $ | 187,987 | ||||
|
|
|
|
|||||
Liabilities |
||||||||
Accounts payable and accrued expenses |
$ | 5,745 | $ | 6,601 | ||||
Current portion of operating lease liabilities |
256 | 244 | ||||||
|
|
|
|
|||||
Total current liabilities |
6,001 | 6,845 | ||||||
Deferred tax liabilities |
13,386 | 12,686 | ||||||
Non-current portion of operating lease liabilities |
466 | 285 | ||||||
Other liabilities |
155 | 174 | ||||||
|
|
|
|
|||||
Total liabilities |
20,008 | 19,990 | ||||||
Commitments and contingencies |
||||||||
Equity |
||||||||
Net Parent Investment |
156,173 | 167,997 | ||||||
|
|
|
|
|||||
Total liabilities and equity |
$ | 176,181 | $ | 187,987 | ||||
|
|
|
|
See the accompanying notes to these Condensed Combined Financial Statements.
Sonoma-Cutrer Vineyards (a Business of Brown-Forman Corporation)
Condensed Combined Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Nine Months Ended January 31, |
||||||||
2023 | 2024 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 13,601 | $ | 17,893 | ||||
Adjustments to reconcile net income to net cash provided by operations: |
||||||||
Depreciation and amortization |
3,962 | 3,722 | ||||||
Stock-based compensation expense |
55 | 33 | ||||||
Deferred income tax benefit |
(917 | ) | (700 | ) | ||||
Other, net |
(122 | ) | | |||||
Changes in assets and liabilities: |
||||||||
Accounts receivable |
2,512 | 2,447 | ||||||
Inventories |
(2,784 | ) | (14,282 | ) | ||||
Other current assets |
162 | 343 | ||||||
Accounts payable and accrued expenses |
(444 | ) | 1,225 | |||||
Other operating assets and liabilities |
4 | (45 | ) | |||||
|
|
|
|
|||||
Cash provided by operating activities |
16,029 | 10,636 | ||||||
Cash flows from investing activities: |
||||||||
Additions to property, plant, and equipment |
(2,998 | ) | (4,513 | ) | ||||
Other, net |
126 | 3 | ||||||
|
|
|
|
|||||
Cash used for investing activities |
(2,872 | ) | (4,510 | ) | ||||
Cash flows from financing activities: |
||||||||
Net transfer to Parent |
(13,150 | ) | (6,102 | ) | ||||
Other, net |
(14 | ) | (33 | ) | ||||
|
|
|
|
|||||
Cash used for financing activities |
(13,164 | ) | (6,135 | ) | ||||
Net decrease in cash and cash equivalents |
(7 | ) | (9 | ) | ||||
Cash, beginning of period |
16 | 16 | ||||||
|
|
|
|
|||||
Cash, end of period |
$ | 9 | $ | 7 | ||||
|
|
|
|
|||||
Supplemental information: |
||||||||
Non-cash additions to property, plant, and equipment |
$ | 8 | $ | 16 | ||||
Right-of-use assets obtained in exchange for new finance lease liabilities |
$ | 59 | $ | 118 | ||||
Cash paid for amounts included in the measurement of lease liabilities: |
||||||||
Operating cash flows from operating leases |
$ | 223 | $ | 212 | ||||
Financing cash flows from finance leases |
$ | 15 | $ | 33 |
See the accompanying notes to these Condensed Combined Financial Statements.
Sonoma-Cutrer Vineyards (a Business of Brown-Forman Corporation)
Condensed Combined Statements of Net Parent Investment
(Unaudited)
(Dollars in thousands)
Nine Months Ended | ||||||||
January 31, | ||||||||
2023 | 2024 | |||||||
Net Parent Investment, beginning of period |
$ | 160,583 | $ | 156,173 | ||||
Net income |
13,601 | 17,893 | ||||||
Stock-based compensation |
55 | 33 | ||||||
Net transfer to Parent |
(13,150 | ) | (6,102 | ) | ||||
|
|
|
|
|||||
Net Parent Investment, end of period |
$ | 161,089 | $ | 167,997 | ||||
|
|
|
|
See the accompanying notes to these Condensed Combined Financial Statements.
Sonoma-Cutrer Vineyards (a Business of Brown-Forman Corporation)
Notes to Condensed Combined Financial Statements
(Unaudited).
1. | Description of Business |
Sonoma-Cutrer Vineyards, headquartered in Windsor, California, produces and markets luxury wine brands. The wine brands consist largely of Chardonnay wines sourced from vineyards in the Russian River Valley and Sonoma Coast regions. Brown- Forman Corporation (Brown-Forman or Parent) operates the Sonoma-Cutrer Vineyards business through certain of its wholly-owned subsidiaries, including Sonoma-Cutrer Vineyards, Inc.
In these notes, we, us, our, Sonoma-Cutrer, and the Company refer to the Sonoma-Cuter Vineyards business.
2. | Basis of Presentation |
The Condensed Combined Financial Statements of the Company have been derived from the consolidated financial statements and accounting records of Brown-Forman and have been prepared in conformity with accounting principles generally accepted in the United States (GAAP). The Condensed Combined Financial Statements may not be indicative of the Companys future performance and do not necessarily reflect what the financial position, results of operations, and cash flows would have been had it operated as an independent company.
Intracompany transactions have been eliminated. Transactions between the Company and Brown-Forman have been included in these Condensed Combined financial statements. The aggregate net effect of transactions between the Company and Brown- Forman that have been historically settled other than in cash are reflected in the Condensed Combined Balance Sheets as Net Parent Investment and in the Condensed Combined Statements of Cash Flows as Net transfer to Parent. See Note 5 for additional information.
The Condensed Combined Balance Sheets include certain of Brown-Formans assets and liabilities that are specifically identifiable or otherwise attributable to the Company. Brown-Formans third-party long-term debt and the related interest expense have not been allocated to the Company, which was not the legal obligor of such debt.
Brown-Forman utilizes a centralized approach to cash management and financing its operations. Cash held by Brown-Forman at the corporate level is not specifically identifiable to the Company and, therefore, has not been reflected in the Companys Condensed Combined Balance Sheets. Cash transfers between Brown-Forman and the Company are accounted for through Net Parent Investment. Cash on the Condensed Combined Balance Sheets represents cash held by the Company at period-end prior to any potential transfer to the centralized cash management pool of Brown-Forman.
In addition, for purposes of preparing these Condensed Combined Financial Statements on a carve-out basis, a portion of Brown-Formans corporate expenses have been allocated to the Company. Costs were allocated to the Company based on direct usage when identifiable or, when not directly identifiable, on the basis of proportional gross profit. These expense allocations include the cost of corporate functions and resources that are provided by or administered by Brown-Forman including, but not limited to, executive management and other corporate and governance functions, such as corporate finance, internal audit, tax and treasury. The related employee payroll and benefit costs associated with such functions are included in the expense allocations.
Management considers the basis on which the expenses have been allocated to reasonably reflect the utilization of services provided to, or the benefit received by, the Company. However, the allocations may not reflect the expenses the Company would have incurred if the Company had been a standalone company. Actual costs that may have been incurred if the Company had been a standalone company would depend on a number of factors, including the organizational structure, whether functions were outsourced or performed by employees, and strategic or capital decisions.
During the periods presented in these Condensed Combined Financial Statements, the Companys income tax expense and deferred tax balances have been included in Brown-Formans income tax returns. Income tax expense and deferred tax balances contained in the Condensed Combined Financial Statements are presented on a separate return basis, as if the Company had filed its own income tax returns. Income taxes currently payable are deemed to have been remitted to the Parent, in cash, in the period in which the liability arose, and income taxes currently receivable are deemed to have been received from the Parent in the period in which the receivable arose. These amounts accrued under the separate return method have been reflected in Net Parent Investment.
Actual tax transactions included in the consolidated financial statements of Brown-Forman may not be included in the Condensed Combined Financial Statements of the Company. Similarly, the tax treatment of certain items reflected in the Condensed Combined Financial Statements of the Company may not be reflected in the consolidated financial statements and income tax returns of Brown-Forman. Accordingly, the taxes recorded in the Condensed Combined Statements of Operations are not necessarily representative of the taxes that may arise in the future if the Company files its income tax returns independent from Brown-Formans returns.
We prepared the Condensed Combined Financial Statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission for interim financial information. In accordance with those rules and regulations, we condensed or omitted certain information and disclosures normally included in annual financial statements prepared in accordance with GAAP. In our opinion, the Condensed Combined Financial Statements include all adjustments, consisting only of normal recurring adjustments (unless otherwise indicated), necessary for a fair statement of the Companys financial results for the periods presented. The results for interim periods are not necessarily indicative of future or annual results.
We suggest that you read these Condensed Combined Financial Statements together with the Companys combined financial statements for the fiscal year ended April 30, 2023, and notes thereto (the 2023 financial statements). We prepared these Condensed Combined Financial Statements on a basis that is substantially consistent with the accounting principles applied in the 2023 financial statements.
3. | Contingencies |
We operate in a litigious environment, and we are sued in the normal course of business. Sometimes plaintiffs seek substantial damages. Significant judgment is required in predicting the outcome of these suits and claims, many of which take years to adjudicate. We accrue estimated costs for a contingency when we believe that a loss is probable and we can make a reasonable estimate of the loss, and then adjust the accrual as appropriate to reflect changes in facts and circumstances. We do not believe it is reasonably possible that these existing loss contingencies, individually or in the aggregate, would have a material adverse effect on our financial position, results of operations, or liquidity. No material accrued loss contingencies were recorded as of January 31, 2024.
4. | Net Sales |
The following table shows our net sales by geography (based on customer location):
Nine Months Ended January 31, |
||||||||
(Dollars in thousands) | 2023 | 2024 | ||||||
United States |
$ | 63,136 | $ | 68,770 | ||||
Canada |
616 | 694 | ||||||
Latin America |
184 | 178 | ||||||
Other |
34 | 28 | ||||||
|
|
|
|
|||||
Total |
$ | 63,970 | $ | 69,670 | ||||
|
|
|
|
The following table shows our net sales by product category:
Nine Months Ended January 31, |
||||||||
(Dollars in thousands) | 2023 | 2024 | ||||||
Bottled wine |
63,034 | 69,231 | ||||||
Bulk wine |
936 | 439 | ||||||
|
|
|
|
|||||
Total |
$ | 63,970 | $ | 69,670 | ||||
|
|
|
|
5. | Related Party Transactions |
The Condensed Combined Financial Statements have been prepared on a standalone basis and are derived from the consolidated financial statements and accounting records of Brown-Forman. The following discussion summarizes activity between the Company and Brown-Forman.
Allocation of corporate expenses. For purposes of preparing these Condensed Combined Financial Statements on a carve-out basis, we have allocated a portion of Brown-Formans total corporate expenses to the Company. See Note 2 for a discussion of the allocation methodologies.
Centralized cash management. The Company participated in Brown-Formans centralized cash management and daily cash sweeps. Disbursements are made through centralized accounts payable systems which were operated by Brown-Forman. Cash receipts are transferred to centralized accounts, which were also maintained by Brown-Forman. As cash is received and disbursed by Brown-Forman, it is accounted for by the Company through Net Parent Investment.
Receivables and payables. Balances between the Company and Brown-Forman or its affiliates derived from transactions that have been historically settled other than in cash are included in Net Parent Investment.
Assumed income tax payments. Income tax expense and deferred tax balances contained in the Condensed Combined Financial Statements are presented on a separate return basis, as if the Company had filed its own income tax returns. Income taxes currently payable are deemed to have been remitted to the Parent, in cash, in the period in which the liability arose, and income taxes currently receivable are deemed to have been received from the Parent in the period in which the receivable arose. These amounts accrued under the separate return method have been reflected in Net Parent Investment.
Net transfer to Parent. The following table presents the components of Net transfer to Parent in the Condensed Combined Statements of Net Parent Investment:
Nine Months Ended January 31, |
||||||||
(Dollars in thousands) | 2023 | 2024 | ||||||
Settlement of receivables and payables |
$ | (9,565 | ) | $ | (8,669 | ) | ||
Corporate expense allocations |
6,743 | 7,910 | ||||||
Assumed income tax payments |
(717 | ) | (3 | ) | ||||
Other contributions to Parent |
(9,611 | ) | (5,340 | ) | ||||
|
|
|
|
|||||
Net transfer to Parent |
$ | (13,150 | ) | $ | (6,102 | ) | ||
|
|
|
|
6. | Subsequent Events |
We have evaluated subsequent events through March 14, 2024, which is the date the Condensed Combined Financial Statements were available to be issued.
Exhibit 99.4
Unaudited Pro Forma Condensed Combined Financial Information
On November 16, 2023, The Duckhorn Portfolio, Inc., a Delaware corporation (the Company or Duckhorn), Auguste Merger Sub, Inc., a California corporation and an indirect wholly-owned subsidiary of the Company (Merger Sub), Brown-Forman Corporation, a Delaware corporation (Brown-Forman), and Sonoma-Cutrer Vineyards, Inc., a California corporation and a wholly-owned subsidiary of Brown-Forman (Sonoma-Cutrer), entered into an Agreement and Plan of Merger, dated November 16, 2023 (the Merger Agreement), pursuant to which Merger Sub will merge with and into Sonoma-Cutrer (the Merger) with Sonoma-Cutrer continuing as the surviving entity to be merged with the Company after the Merger.
The following unaudited pro forma condensed combined financial information presents the combination of the financial information of Duckhorn and Sonoma-Cutrer, adjusted to give effect to the Merger as contemplated by the Merger Agreement, and the related financing to fund the cash portion of the Merger Consideration.
Prior to the Merger, Duckhorn and Sonoma-Cutrer had different fiscal years. Duckhorns fiscal year ended on July 31, whereas Sonoma-Cutrers fiscal year ended on April 30. Upon completion of the Merger, the combined company fiscal year will end on July 31.
The unaudited pro forma condensed combined statement of financial position as of January 31, 2024 combines the historical unaudited condensed consolidated statement of financial position of Duckhorn as of January 31, 2024 and the historical unaudited condensed combined statement of financial position of Sonoma-Cutrer as of January 31, 2024 on a pro forma basis as if the Merger had been consummated on January 31, 2024.
The unaudited pro forma condensed combined statement of operations for the fiscal year ended July 31, 2023, combines the historical audited statement of operations of Duckhorn for the fiscal year ended July 31, 2023 and the historical audited statement of operations of Sonoma-Cutrer for the fiscal year ended April 30, 2023 on a pro forma basis as if the Merger had been consummated on August 1, 2022, the beginning of the Companys prior fiscal year. The unaudited pro forma condensed combined statement of operations for the six months ended January 31, 2024, combines the historical unaudited statement of operations of Duckhorn for the six months ended January 31, 2024, with the derived historical unaudited statement of operations of Sonoma-Cutrer for the six months ended January 31, 2024, on a pro forma basis as if the Merger had been consummated on August 1, 2022. The historical unaudited condensed combined statement of operations of Sonoma-Cutrer for the six months ended January 31, 2024, has been derived by subtracting the unaudited financial information for the three months ended July 31, 2023, from the historical unaudited statement of operations of Sonoma-Cutrer for the nine months ended January 31, 2024.
The unaudited pro forma condensed combined statement of financial position as of January 31, 2024, the unaudited pro forma condensed combined statements of operations for the fiscal year ended July 31, 2023, and the six months ended January 31, 2024, have been prepared in accordance with Article 11 of Regulation S-X.
The unaudited pro forma condensed combined financial information has been presented for illustrative purposes only and is not necessarily indicative of the operating results and financial position that would have been achieved had the Merger occurred on the dates indicated. Further, the unaudited pro forma condensed combined financial information does not purport to project the future operating results or financial position of Duckhorn following the completion of the Merger. The unaudited pro forma adjustments represent managements estimates based on information available as of the date of this unaudited pro forma condensed combined financial information and are subject to change as additional information becomes available and analyses are performed. The unaudited pro forma condensed combined financial information does not include adjustments to reflect any potential revenue, synergies or dis-synergies, or cost savings that may be achievable in connection with the Merger, or the associated costs that may be necessary to achieve such revenues, synergies, or cost savings. No assurance can be given that any such revenues, synergies, or cost savings will be realized at all.
The transaction accounting adjustments are preliminary, based upon available information as of the date of the filing to which this unaudited pro forma condensed combined financial information is included, and have been prepared solely for the purpose of this unaudited pro forma condensed combined financial information. These adjustments are based on preliminary estimates and will be different from the adjustments that may be determined based on final acquisition accounting, and these differences could be material. Such estimates include, but are not limited to, the share price of Duckhorns common stock, the net working capital adjustment, and the preliminary purchase price allocation to Sonoma-Cutrers assets acquired and liabilities assumed based on fair value.
Page 1 of 11
The unaudited pro forma condensed combined financial information has been developed from and should be read in conjunction with:
| The accompanying notes to the unaudited pro forma condensed combined financial information; |
| The audited consolidated financial statements of Duckhorn as of and for the fiscal year ended July 31, 2023, and the related notes, included in Duckhorns Annual Report on Form 10-K for the fiscal year ended July 31, 2023; |
| The unaudited condensed consolidated financial statements of Duckhorn as of and for the six months ended January 31, 2024, and the related notes, included in Duckhorns Quarterly Report on Form 10-Q for the period ended January 31, 2024; |
| The audited combined financial statements of Sonoma-Cutrer as of and for the fiscal year ended April 30, 2023, and the related notes; and |
| The unaudited combined financial statements of Sonoma-Cutrer as of and for the nine months ended January 31, 2024, and the related notes. |
Page 2 of 11
Unaudited Pro Forma Condensed Combined Statement of Financial Position
As of January 31, 2024
(in thousands, except par value)
Historical | Pro Forma Adjustments | |||||||||||||||||||||||
Duckhorn | Sonoma-Cutrer | Reclassification Adjustments (Note 4) |
Transaction Accounting Adjustments (Note 5) |
Pro Forma Combined |
||||||||||||||||||||
ASSETS |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash |
$ | 13,139 | $ | 7 | $ | | $ | (8,247 | ) | 5a | $ | 4,899 | ||||||||||||
Accounts receivable trade, net |
51,822 | 7,298 | | | 59,120 | |||||||||||||||||||
Inventories |
392,634 | | 54,774 | 32,050 | 5b | 479,458 | ||||||||||||||||||
Finished Goods |
| 8,683 | (8,683 | ) | | | ||||||||||||||||||
Work in Process |
| 43,267 | (43,267 | ) | | | ||||||||||||||||||
Raw Materials |
| 2,824 | (2,824 | ) | | | ||||||||||||||||||
Prepaid expenses and other current assets |
12,254 | | | | 12,254 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total current assets |
469,849 | 62,079 | | 23,803 | 555,731 | |||||||||||||||||||
Property and equipment, net |
324,461 | 88,148 | | 158,692 | 5b | 571,301 | ||||||||||||||||||
Operating lease right-of-use assets |
17,937 | 530 | | | 18,467 | |||||||||||||||||||
Intangible assets, net |
180,447 | | 86 | 15,914 | 5b | 196,447 | ||||||||||||||||||
Goodwill |
425,209 | 36,929 | | 38,236 | 5c | 500,374 | ||||||||||||||||||
Other assets |
6,047 | 301 | (86 | ) | | 6,262 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total assets |
$ | 1,423,950 | $ | 187,987 | $ | | $ | 236,645 | $ | 1,848,582 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Accounts payable |
$ | 14,252 | $ | | $ | 846 | $ | | $ | 15,098 | ||||||||||||||
Accrued expenses |
25,060 | | 4,795 | 4,541 | 5d | 34,396 | ||||||||||||||||||
Accounts payable and accrued expenses |
| 6,601 | (6,601 | ) | | | ||||||||||||||||||
Accrued compensation |
9,382 | | 905 | | 10,287 | |||||||||||||||||||
Deferred revenue |
5,211 | | | | 5,211 | |||||||||||||||||||
Current operating lease liabilities |
| 244 | (244 | ) | | | ||||||||||||||||||
Current maturities of long-term debt |
9,721 | | | | 9,721 | |||||||||||||||||||
Other current liabilities |
4,965 | | 299 | | 5,264 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total current liabilities |
68,591 | 6,845 | | 4,541 | 79,977 | |||||||||||||||||||
Revolving line of credit |
68,000 | | | 50,000 | 5e | 118,000 | ||||||||||||||||||
Long-term debt, net of current maturities and debt issuance costs |
205,677 | | | | 205,677 | |||||||||||||||||||
Operating lease liabilities |
14,145 | 285 | | | 14,430 | |||||||||||||||||||
Deferred income taxes |
90,216 | 12,686 | | 52,885 | 5b | 155,787 | ||||||||||||||||||
Other liabilities |
517 | 174 | | | 691 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total liabilities |
447,146 | 19,990 | | 107,426 | 574,562 | |||||||||||||||||||
Stockholders equity: |
||||||||||||||||||||||||
Common stock |
1,154 | | | 315 | 5f | 1,469 | ||||||||||||||||||
Additional paid-in capital |
740,548 | | | 301,442 | 5f | 1,041,990 | ||||||||||||||||||
Retained earnings |
234,516 | | | (4,541 | ) | 5f | 229,975 | |||||||||||||||||
Net Parent Investment |
| 167,997 | | (167,997 | ) | 5f | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total The Duckhorn Portfolio, Inc. stockholders equity |
976,218 | 167,997 | | 129,219 | 1,273,434 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Non-controlling interest |
586 | | | | 586 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total stockholders equity |
976,804 | 167,997 | | 129,219 | 1,274,020 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total liabilities and stockholders equity |
$ | 1,423,950 | $ | 187,987 | $ | | $ | 236,645 | $ | 1,848,582 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited pro forma condensed combined financial information.
Page 3 of 11
Unaudited Pro Forma Condensed Combined Statements of Operations
For the fiscal year ended July 31, 2023
(in thousands, except share and per share data)
Historical | Pro Forma Adjustments | |||||||||||||||||||||||||||
Duckhorn (For the fiscal year ended July 31, 2023) |
Sonoma- Cutrer (For the fiscal year ended April 30, 2023) |
Reclassification Adjustments (Note 4) |
Transaction Accounting Adjustments (Note 6) |
Pro Forma Combined |
||||||||||||||||||||||||
Net sales |
$ | 402,996 | $ | 90,910 | $ | 129 | $ | | $ | 494,035 | ||||||||||||||||||
Cost of sales |
187,307 | 48,403 | | 17,032 | 6a | 252,742 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Gross profit |
215,689 | 42,507 | 129 | (17,032 | ) | 241,293 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Advertising expenses |
| 3,150 | (3,150 | ) | | | ||||||||||||||||||||||
Selling, general and administrative expenses |
109,711 | 11,814 | 4,312 | 4,775 | 6b | 130,612 | ||||||||||||||||||||||
Other expense, net |
| 555 | (555 | ) | | | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Income from operations |
105,978 | 26,988 | (478 | ) | (21,807 | ) | 110,681 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Interest expense |
11,721 | | | 3,210 | 6c | 14,931 | ||||||||||||||||||||||
Other income, net |
(212 | ) | | 9 | | (203 | ) | |||||||||||||||||||||
Non-operating postretirement expense |
| 487 | (487 | ) | | | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total other expenses, net |
11,509 | 487 | (478 | ) | 3,210 | 14,728 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Income before income taxes |
94,469 | 26,501 | | (25,017 | ) | 95,953 | ||||||||||||||||||||||
Income tax expense (benefit) |
25,183 | 6,482 | | (6,399 | ) | 6d | 25,266 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net income |
69,286 | 20,019 | | (18,618 | ) | 70,687 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net loss attributable to non-controlling interest |
12 | | | | 12 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net income attributable to The Duckhorn Portfolio, Inc. |
$ | 69,298 | $ | 20,019 | $ | | $ | (18,618 | ) | $ | 70,699 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Earnings per share of common stock: |
||||||||||||||||||||||||||||
Basic |
$ | 0.60 | $ | 0.48 | 6e | |||||||||||||||||||||||
Diluted |
$ | 0.60 | $ | 0.48 | 6e | |||||||||||||||||||||||
Weighted average shares of common stock outstanding: |
||||||||||||||||||||||||||||
Basic |
115,233,324 | 146,764,856 | 6e | |||||||||||||||||||||||||
Diluted |
115,407,624 | 146,939,156 | 6e |
See accompanying notes to the unaudited pro forma condensed combined financial information.
Page 4 of 11
Unaudited Pro Forma Condensed Combined Statements of Operations
For the six months ended January 31, 2024
(in thousands, except share and per share data)
Historical | Pro Forma Adjustments | |||||||||||||||||||||||
Duckhorn (For the six months ended January 31, 2024) |
Sonoma-Cutrer (For the six months ended January 31, 2024) |
Reclassification Adjustments (Note 4) |
Transaction Accounting Adjustments (Note 6) |
Pro Forma Combined |
||||||||||||||||||||
Net sales |
$ | 205,554 | $ | 49,936 | $ | 124 | $ | | $ | 255,614 | ||||||||||||||
Cost of sales |
93,383 | 24,078 | | 14,701 | 6a | 132,162 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Gross profit |
112,171 | 25,858 | 124 | (14,701 | ) | 123,452 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Advertising expenses |
| 1,523 | (1,523 | ) | | | ||||||||||||||||||
Selling, general and administrative expenses |
59,730 | 6,514 | 1,992 | 13 | 6b | 68,249 | ||||||||||||||||||
Other expense, net |
| 327 | (327 | ) | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Income from operations |
52,441 | 17,494 | (18 | ) | (14,714 | ) | 55,203 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Interest expense |
8,504 | | 4 | 1,605 | 6c | 10,113 | ||||||||||||||||||
Other expense, net |
883 | | 5 | | 888 | |||||||||||||||||||
Non-operating postretirement expense |
| 27 | (27 | ) | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total other expenses, net |
9,387 | 27 | (18 | ) | 1,605 | 11,001 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Income before income taxes |
43,054 | 17,467 | | (16,319 | ) | 44,202 | ||||||||||||||||||
Income tax expense (benefit) |
11,650 | 4,271 | | (4,174 | ) | 6d | 11,747 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net income |
31,404 | 13,196 | | (12,145 | ) | 32,455 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net (income) attributable to non-controlling interest |
(10 | ) | | | | (10 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net income attributable to The Duckhorn Portfolio, Inc. |
$ | 31,394 | $ | 13,196 | $ | | $ | (12,145 | ) | $ | 32,445 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Earnings per share of common stock: |
||||||||||||||||||||||||
Basic |
$ | 0.27 | $ | 0.22 | 6e | |||||||||||||||||||
Diluted |
$ | 0.27 | $ | 0.22 | 6e | |||||||||||||||||||
Weighted average shares of common stock outstanding: |
||||||||||||||||||||||||
Basic |
115,358,242 | 146,889,774 | 6e | |||||||||||||||||||||
Diluted |
115,593,594 | 147,125,126 | 6e |
See accompanying notes to the unaudited pro forma condensed combined financial information.
Page 5 of 11
The Duckhorn Portfolio, Inc.
Notes to Unaudited Pro Forma Condensed Combined Financial Information
Note 1 Description of the Merger
On November 16, 2023, the Company entered into a Merger agreement to acquire 100% of the equity of Sonoma-Cutrer. The Merger Consideration consists of 31,531,532 shares of the Companys common stock (the Equity Consideration) and $50.0 million payable in cash (Cash Consideration), subject to adjustments, set forth in the Merger Agreement, including for cash, net working capital adjustment, indebtedness, and transaction expenses. The Cash Consideration is expected to be funded through cash on hand and borrowings under the Companys existing revolving credit facility (the Revolver).
Note 2 Basis of Presentation
The unaudited pro forma condensed combined statement of financial position as of January 31, 2024, the unaudited pro forma condensed combined statements of operations for the fiscal year ended July 31, 2023, and the six months ended January 31, 2024 have been prepared in accordance with Article 11 of Regulation S-X.
Duckhorn and Sonoma-Cutrer had different fiscal years. Duckhorns fiscal year ended on July 31, whereas Sonoma-Cutrers fiscal year ended on April 30. Upon completion of the Merger, the combined companys fiscal year will end on July 31.
The unaudited pro forma condensed combined statement of financial position as of January 31, 2024 combines the historical unaudited condensed consolidated statement of financial position of Duckhorn as of January 31, 2024 and the historical unaudited condensed combined statement of financial position of Sonoma-Cutrer as of January 31, 2024 on a pro forma basis as if the Merger had been consummated on January 31, 2024.
The unaudited pro forma condensed combined statement of operations for the fiscal year ended July 31, 2023, combines the historical audited statement of operations of Duckhorn for the fiscal year ended July 31, 2023 and the historical statement of operations of Sonoma-Cutrer for the fiscal year ended April 30, 2023 on a pro forma basis as if the Merger had been consummated on August 1, 2022, the beginning of the Companys prior fiscal year. The unaudited pro forma condensed combined statement of operations for the six months ended January 31, 2024, combines the historical unaudited statement of operations of Duckhorn for the six months ended January 31, 2024, with the derived historical unaudited statement of operations of Sonoma-Cutrer for the six months ended January 31, 2024, on a pro forma basis as if the Merger had been consummated on August 1, 2022. The historical unaudited condensed combined statement of operations of Sonoma-Cutrer for the six months ended January 31, 2024, has been derived by subtracting the unaudited financial information for the three months ended July 31, 2023, from the historical unaudited statement of operations of Sonoma-Cutrer for the nine months ended January 31, 2024.
The unaudited pro forma condensed combined financial information has been presented for illustrative purposes only and is not necessarily indicative of the operating results and financial position that would have been achieved had the Merger occurred on the dates indicated. Further, the unaudited pro forma condensed combined financial information does not purport to project the future operating results or financial position of Duckhorn following the completion of the Merger. The unaudited pro forma adjustments represent managements estimates based on information available as of the date of these unaudited pro forma condensed combined financial information and are subject to change as additional information becomes available and analyses are performed. The unaudited pro forma condensed combined financial information does not include adjustments to reflect any potential revenue, synergies or dis-synergies, or cost savings that may be achievable in connection with the Merger, or the associated costs that may be necessary to achieve such revenues, synergies, or cost savings. No assurance can be given that any such revenues, synergies, or cost savings will be realized at all.
The transaction accounting adjustments are preliminary, based upon available information as of the date of filing to which this unaudited pro forma condensed combined financial information is included, and prepared solely for the purpose of this unaudited pro forma condensed combined financial information. These adjustments are based on preliminary estimates and will be different from the adjustments that may be determined based on final acquisition accounting, and these differences could be material.
Page 6 of 11
The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations, with Duckhorn as the accounting acquirer, using the fair value concepts defined in ASC Topic 820, Fair Value Measurement, and based on the historical condensed consolidated financial statements of Duckhorn and the historical condensed combined financial statements of Sonoma-Cutrer. Under ASC Topic 805, all assets acquired and liabilities assumed in a business combination are recognized and measured at their assumed acquisition date fair value, while transaction costs associated with the business combination are expensed as incurred. The excess of purchase consideration over the fair value of assets acquired and liabilities assumed is allocated to goodwill.
The unaudited pro forma condensed combined statement of financial position has been adjusted to reflect the preliminary allocation of the estimated purchase consideration to the acquired assets and liabilities assumed.
As a standalone entity, Duckhorn expects to incur incremental recurring costs that could be materially different from the allocations included within Sonoma-Cutrers historical audited combined financial statements and unaudited condensed combined financial statements. Subsequent to the Merger, Brown-Forman may continue to provide ongoing support to Sonoma-Cutrer under a Transaction Service Agreement (TSA) The Company has not reflected a transaction accounting adjustment within the unaudited pro forma condensed combined financial information for this agreement as it is under negotiation.
Note 3 Calculation of Estimated Purchase Consideration and Preliminary Purchase Price Allocation
Estimated Purchase Consideration
Estimated purchase consideration was determined by reference to the fair value of Duckhorns common stock on March 1, 2024. The calculation of estimated purchase consideration is as follows:
in thousands, except shares and per share amount | Shares | Stock price per share |
Total | |||||||||
Estimated Cash Consideration |
$ | 58,247 | ||||||||||
Estimated Equity Consideration |
31,531,532 | $ | 9.57 | 301,757 | ||||||||
|
|
|||||||||||
Total estimated purchase consideration |
$ | 360,004 |
The final purchase consideration could significantly differ from the amounts presented in the unaudited pro forma condensed combined financial information due to movements in the Duckhorn common stock price up to the Closing Date of the Merger.
A sensitivity analysis related to the fluctuation in the Duckhorn common stock price was performed to assess the impact a hypothetical change of 10% on the closing price of Duckhorn common stock on March 1, 2024, would have on the estimated purchase consideration and goodwill as of the Closing Date.
The following table shows the change in stock price, estimated purchase consideration and goodwill:
in thousands, except per share amount | Stock price per share |
Estimated purchase consideration |
Goodwill | |||||||||
Increase of 10% |
$ | 10.53 | $ | 390,179 | $ | 105,340 | ||||||
Decrease of 10% |
$ | 8.61 | $ | 329,828 | $ | 44,989 |
Preliminary Purchase Price Allocation
Under the acquisition method of accounting, the identifiable assets acquired and liabilities assumed of Sonoma-Cutrer are recognized and measured as of the acquisition date at fair value. The determination of fair value used in the pro forma adjustments presented herein are preliminary and based on management estimates of the fair value and useful lives of the assets acquired and liabilities assumed and have been prepared to illustrate the estimated effect of the Merger. The final determination of the purchase price allocation, upon the completion of the Merger, will be
Page 7 of 11
based on Sonoma-Cutrers net assets acquired as of that date and will depend on a number of factors that cannot be predicted with certainty at this time. Therefore, the actual allocations will differ from the pro forma adjustments computed and presented herein. The allocation is dependent upon certain valuation and other studies that have not yet been completed. Accordingly, the pro forma preliminary purchase price allocation is subject to further adjustment as additional information becomes available and as additional analyses and final valuations are completed. There can be no assurances that these additional analyses and final valuations will not result in significant changes to the estimates of fair value set forth below.
The following table sets forth a preliminary allocation of the estimated purchase consideration to the identifiable tangible and intangible assets acquired and liabilities assumed of Sonoma-Cutrer based on Sonoma-Cutrers unaudited condensed combined statement of financial position as of January 31, 2024 with the excess recorded to goodwill (in thousands):
Total estimated purchase consideration |
$ | 360,004 | ||
Fair value of assets acquired |
||||
Cash |
$ | 7 | ||
Accounts receivable, net |
7,298 | |||
Inventories (a) |
86,824 | |||
Property and equipment (b) |
246,840 | |||
Intangible asset (c) |
16,000 | |||
Other noncurrent assets |
745 | |||
Fair value of liabilities assumed |
||||
Current liabilities |
6,845 | |||
Noncurrent liabilities |
459 | |||
Deferred tax liabilities (Note 6 (d)) |
65,571 | |||
|
|
|||
Goodwill (d) |
$ | 75,165 | ||
|
|
(a) | Inventories consist of raw materials, work in process (WIP), and finished goods. Raw materials inventory was valued at replacement cost. WIP and finished goods inventory were valued using net realizable value including reductions for (1) costs of disposal and (2) a reasonable profit allowance for the selling effort. WIP inventory is further reduced for the costs to complete the production process and a reasonable profit allowance for that effort. |
(b) | Preliminary fair value of property and equipment is $246.8 million. Duckhorn does not have complete information at this time as to the age, condition, or location of these assets. All of these elements could result in differences between the preliminary fair value estimate and the fair value determined at the acquisition date. |
(c) | Preliminary identifiable intangible asset in the unaudited pro forma condensed combined financial information consists of trade names of $16.0 million with an indefinite useful life. The fair value of the identifiable intangible asset is preliminary and based on managements estimates. The trade name was determined to have an indefinite useful life. The estimated fair value of the trade name is calculated based on an income approach using the relief from royalty method. |
(d) | Goodwill represents the excess of the Merger Consideration over the fair value of the underlying net assets acquired. In accordance with ASC Topic 350, Goodwill and Other Intangible Assets, goodwill is not amortized, but instead is reviewed for impairment at least annually, absent any indicators of impairment. Goodwill is attributable to planned growth in new markets and synergies expected to be achieved from the combined operations of Duckhorn and Sonoma-Cutrer. Goodwill recorded in the Merger is expected to be deductible for tax purposes over a 15-year life. |
Note 4 Accounting Policy and Reclassifications
The accounting policies used in the preparation of this unaudited pro forma condensed combined financial information are those set out in Duckhorns financial statements as of and for the fiscal year ended July 31, 2023, and for the six months ended January 31, 2024. With the information currently available, Duckhorn has determined that no material adjustments are necessary to conform Sonoma-Cutrers financial statements to the accounting policies used by Duckhorn in the preparation of the unaudited pro forma condensed combined financial information.
Page 8 of 11
Upon completion of the Merger, Duckhorn will perform a comprehensive review of Sonoma-Cutrers accounting policies. As a result of the review, Duckhorn may identify additional differences between the accounting policies of the two companies, which when conformed, could have a material impact on the unaudited pro forma condensed combined financial information.
Certain reclassification adjustments have been made to the unaudited pro forma condensed combined financial information to conform the presentation of Sonoma-Cutrers historical condensed combined statement of financial position and condensed combined statements of operations to Duckhorns historical financial statement presentation.
The unaudited pro forma condensed combined financial information may not reflect all reclassifications necessary to conform Sonoma-Cutrers financial statement presentation to that of Duckhorns due to limitations on the availability of information as of the date of this filing. Additional reclassification adjustments may be identified as more information becomes available.
Note 5 Transaction Accounting Adjustments to Unaudited Pro Forma Condensed Combined Statement of Financial Position
a. | Reflects the drawdown on the Revolver and payment of estimated Cash Consideration at the closing of the Merger, (in thousands): |
Borrowings from the Revolver |
$ | 50,000 | ||
Cash Consideration paid |
(58,247 | ) | ||
|
|
|||
Net adjustment to Cash and cash equivalents |
$ | (8,247 | ) | |
|
|
b. | Reflects the estimated fair value of the assets acquired and liabilities assumed as included in Note 2, including the estimated deferred tax liability based on estimated statutory rate of 25.6%, as outlined in Note 6 (d), (in thousands): |
Inventories |
$ | 32,050 | ||
Property and equipment, net |
158,692 | |||
Intangible assets, net |
15,914 | |||
Deferred income taxes |
(52,885 | ) | ||
|
|
|||
Net adjustment to acquired assets and assumed liabilities |
$ | 153,771 | ||
|
|
c. | Reflects the elimination of Sonoma-Cutrers historical goodwill and the recognition of preliminary goodwill in connection with the Merger. |
d. | Reflects the adjustment of Duckhorns accrued estimated transaction costs related to the Merger. |
e. | Reflects the incremental borrowing of $50.0 million from the Revolver under Duckhorns existing Revolver. |
f. | Reflects the elimination of Sonoma-Cutrers historical equity balances in accordance with the acquisition method of accounting and the issuance of Duckhorn common stock as part of the Merger consideration (in thousands): |
To reflect par value of Equity Consideration transferred in the Merger, net adjustment to common stock |
$ | 315 | ||
To reflect Equity Consideration transferred in the Merger, net adjustment to additional paid-in capital (APIC) |
301,442 | |||
To record Duckhorns estimated transaction expense at the closing of the Merger, net adjustment to retained earnings |
(4,541 | ) | ||
To eliminate Sonoma-Cutrers historical Net Parent investment, net adjustment to Net Parent investment |
(167,997 | ) | ||
|
|
|||
Net adjustment to stockholders equity |
$ | 129,219 | ||
|
|
Page 9 of 11
Note 6 Transaction Accounting Adjustments to Unaudited Pro Forma Condensed Combined Statements of Operations
a. | Reflects the adjustment to cost of sales associated with the estimated fair value step-up in value of inventories and property and equipment, and elimination of historical depreciation expenses related to cost of sales, (in thousands): |
Fiscal year ended July 31, 2023 |
Six months ended January 31, 2024 |
|||||||
To reflect incremental cost of sales from inventory step-up |
$ | 10,690 | $ | 13,491 | ||||
To eliminate historical depreciation expense |
(5,145 | ) | (2,573 | ) | ||||
To reflect estimated depreciation expense upon step up in fair values |
11,487 | 3,783 | ||||||
|
|
|
|
|||||
Net adjustment to cost of sales |
$ | 17,032 | $ | 14,701 | ||||
|
|
|
|
b. | Reflects the adjustment to selling, general and administrative expenses for incremental depreciation expense associated with the estimated fair value step-up in value of property and equipment calculated by using the straight-line method, and estimated transaction costs related to the Merger, (in thousands): |
Fiscal year ended July 31, 2023 |
Six months ended January 31, 2024 |
|||||||
Eliminate historical depreciation expense |
$ | (150 | ) | $ | (75 | ) | ||
To reflect estimated depreciation expense upon step up in fair values |
384 | 88 | ||||||
To record Duckhorns estimated transaction expenses at the closing of the Merger |
4,541 | | ||||||
|
|
|
|
|||||
Net adjustment to selling, general and administrative expense |
$ | 4,775 | $ | 13 | ||||
|
|
|
|
c. | Reflects incremental interest expense of $3.2 million and $1.6 million for the fiscal year ended July 31, 2023 and six months ended January 31, 2024, respectively, associated with additional drawdown on the existing Revolver. |
The interest expense adjustment is computed using an interest rate of 6.4% (interest rate in effect as of the assumed Closing Date) per annum, excluding amortization of debt issuance costs.
A sensitivity analysis has been performed on the interest rate to assess the effect of a hypothetical change in 12.5 basis points for the fiscal year ended July 31, 2024, and six months ended January 31, 2024. The following table shows the change in the interest expense, (in thousands):
Fiscal year ended July 31, 2023 |
Six months ended January 31, 2024 |
|||||||
Interest expense assuming: |
||||||||
Increase of 0.125% |
$ | 3,273 | $ | 1,636 | ||||
Decrease of 0.125% |
$ | 3,148 | $ | 1,574 |
d. | Deferred tax liabilities include incremental deferred tax liability on step up in fair values of assets acquired. The Company used a blended statutory income tax rate of approximately 25.6%, calculated on a pro forma basis, assuming the U.S. federal rate currently in effect of 21% and the state income tax rate. The applicable blended statutory tax rate used for the unaudited pro forma condensed combined financial information is an estimate and may differ from the actual effective tax rates in future periods subsequent to the Merger. |
e. | Reflects the pro forma earnings per share computation: |
The pro forma earnings per share of the combined company have been computed using the historical weighted average shares outstanding, and the issuance of additional shares in connection with the Merger, assuming the shares were outstanding since August 1, 2022 for the fiscal year ended July 31, 2023 and for the six months ended January 31, 2024.
Page 10 of 11
in thousands, except shares and per share amount | Fiscal year ended July 31, 2023 |
Six months ended January 31, 2024 |
||||||
Numerator: |
||||||||
Pro forma net income attributable to common stockholders |
$ | 70,699 | $ | 32,445 | ||||
Denominator |
||||||||
Weighted average number of shares outstanding for Duckhorn basic per share calculation |
115,233,324 | 115,358,242 | ||||||
Shares issued to Brown-Forman Corporation |
31,531,532 | 31,531,532 | ||||||
Effect of dilutive potential shares: |
||||||||
Stock options |
1,687 | 2,877 | ||||||
Restricted stock units |
172,613 | 232,475 | ||||||
|
|
|
|
|||||
Adjusted weighted average shares outstanding for diluted per share calculation |
146,939,156 | 147,125,126 | ||||||
|
|
|
|
|||||
Pro forma earnings per share |
||||||||
Basic |
$ | 0.48 | $ | 0.22 | ||||
Diluted |
$ | 0.48 | $ | 0.22 |
Page 11 of 11
Exhibit 99.5
The Duckhorn Portfolio Appoints Interim CEO and Industry Veteran Deirdre Mahlan as President and Chief Executive Officer
Welcomes Sonoma-Cutrer Vineyards to The Duckhorn Portfolio
Advances Route-to-Consumer Strategy
Announces Preliminary Third Quarter 2024 Net Sales
ST. HELENA, Calif., May 1, 2024 (BUSINESS WIRE) The Duckhorn Portfolio, Inc. (NYSE: NAPA) (the Company) today announced that Deirdre Mahlan has been appointed President, Chief Executive Officer and Chairperson, effective immediately. Mahlan has been a member of The Duckhorn Portfolio, Inc. Board of Directors since March 2021. For the past six months, she has served as interim President, Chief Executive Officer and Chairperson, during which time the Board conducted an internal and external leadership search and determined that Mahlan is best positioned to lead the Company forward.
We are thrilled Deirdre will serve as our permanent President, CEO and Chairperson, and look forward to continuing to partner with her to deliver on the vision she has for The Duckhorn Portfolio, said Michelle Gloekler, The Duckhorn Portfolios lead independent director and chair of the CEO search committee. Her industry track record and performance both on our Board and as interim CEO make it clear that Deidre is the ideal leader to spearhead the Companys next phase of growth.
Mahlan brings over 30 years of alcohol and beverage industry experience and an extensive track record of operational and financial leadership. Previously, she spent 20 years at Diageo, most recently serving as President of Diageo North America. Prior to that, Mahlan held positions of increasing responsibility in finance, including five years as CFO of Diageo plc. Earlier in her career, Mahlan spent three years at Joseph E. Seagram & Sons and eight years at PricewaterhouseCoopers Limited. Mahlan also serves on the boards of Kimberly-Clark Corporation, a consumer goods company, and Haleon plc, a healthcare goods company.
Despite the external headwinds facing our industry, I have strong conviction that the Company is well-positioned to leverage our industry leadership, talented teams and extensive partnerships to remain at the forefront of the luxury wine category, said Mahlan. My years of experience with the Company, both as interim CEO and as a member of the Board since 2021, give me valuable perspective on the incredible opportunity in front of us. Im honored the Board has entrusted me to lead The Duckhorn Portfolio at this important time.
Mahlan added, My key priorities in the immediate term will be ensuring the successful integration of Sonoma-Cutrer and advancing our route-to-consumer action plan, among other priorities. As I work with The Duckhorn Portfolio team to lead the Companys next chapter, we will be focused on driving consistent, profitable growth and creating meaningful value for all of our stakeholders.
Closing of the Sonoma-Cutrer Vineyards Acquisition
Today, the Company announced the closing of its acquisition of Sonoma-Cutrer Vineyards, one of Californias best-known and fastest-growing luxury Chardonnay winery brands, from Brown-Forman Corporation (NYSE: BF.B). This acquisition meaningfully enhances the Companys position within the Chardonnay category, the number one domestic white varietal, expands its brand architecture and solidifies its standing as a leading luxury wine company. The Company expects the acquisition will be accretive in fiscal 2025, and the Company is confident run-rate synergies will exceed the previous estimate of $5 million annually, with further potential to drive incremental net sales growth. The Company expects the addition of Sonoma-Cutrer to extend the Companys reach to a broader base of consumers and trade partners, further enabling The Duckhorn Portfolio to outpace industry growth.
Route-to-Consumer Strategic Realignment
As previously communicated, the Company is conducting a comprehensive evaluation of its distribution network, with the goal of driving a significant increase in focus and investment from our distributor partners. The Company expects to implement a strategy to place its brands in the distribution network that it believes will best position the Company for sustained profitable growth.
Third Quarter Preliminary Net Sales Results
The Company also announced that net sales for the third quarter of fiscal 2024 on a preliminary and unreviewed basis are expected to be in the range of $91 million to $93 million. These results reflect continuing softness in the wine market and a lower-than-expected response rate to the Companys Kosta Browne appellation series offering. While consumer demand softness continues, the Company remains focused on delivering profitable growth that outpaces the industry. The Company anticipates that third quarter Adjusted EBITDA margins will be broadly in line with its fiscal year-to-date trend as it continues to exercise strict cost controls. The Company expects to provide an updated financial outlook for full year fiscal 2024 on its third quarter earnings call to be held Thursday, June 6, 2024.
The foregoing preliminary net sales information reflects managements current views with respect to the Companys financial results. Such preliminary financial information is subject to finalization and should not be viewed as a substitute for full quarterly financial statements prepared in accordance with applicable accounting standards. In the course of preparing and finalizing the Companys financial statements for the third quarter ended April 30, 2024, this preliminary estimate is subject to change, and the Company may identify items that will require it to make adjustments to such estimate. For these or other reasons, the preliminary net sales estimates may not ultimately be indicative of the Companys results for the third quarter ended April 30, 2024, and actual results may differ materially from those described above. No independent registered public accounting firm has reviewed, examined, or performed any procedures with respect to, nor have they expressed any form of assurance on, the preliminary net sales information.
Third Quarter Fiscal 2024 Conference Call Information
The Company will report financial results for the third quarter ended April 30, 2024 on Thursday, June 6, 2024, after market close.
The Company will host a conference call to discuss these results at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time.) Investors interested in participating in the live call can dial 833-470-1428 from the U.S. and 404-975-4839 internationally, and enter confirmation code 799215. A telephone replay will be available approximately two hours after the call concludes through Thursday, June 20, 2024, by dialing 866-813-9403 or 929-458-6194, and entering confirmation code 213170. There will also be a simultaneous, live webcast available on the Companys investor relations website at http://ir.duckhorn.com/events-and-presentations. The webcast will be archived for 30 days.
About The Duckhorn Portfolio, Inc.
The Duckhorn Portfolio is North Americas premier luxury wine company, with eleven wineries, ten state-of-the-art winemaking facilities, eight tasting rooms and over 2,200 coveted acres of vineyards spanning 38 Estate properties. Established in 1976, when vintners Dan and Margaret Duckhorn founded Napa Valleys Duckhorn Vineyards, today, our portfolio features some of North Americas most revered wineries, including Duckhorn Vineyards, Decoy, Sonoma-Cutrer, Kosta Browne, Goldeneye, Paraduxx, Calera, Migration, Postmark, Canvasback and Greenwing. Sourcing grapes from our own Estate vineyards and fine growers in Napa Valley, Sonoma County, Anderson Valley, Californias North and Central coasts, Oregon and Washington State, we offer a curated and comprehensive portfolio of acclaimed luxury wines with price points ranging from $20 to $230 across more than 15 varietals and 39 appellations. Our wines are available throughout the United States, on five continents, and in more than 50 countries around the world.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In some situations, you can identify forward-looking statements by words such as approximately, anticipate, assume, believe, contemplate, continue, could, estimate, expect, future, intend, may, plan, potential, predict, project, seek, should, target, will and similar terms and phrases to identify forward-looking statements. These forward-looking statements include, among others, statements about the potential market opportunity resulting from the acquisition of the Sonoma-Cutrer and associated business strategy, the Companys ability to better address certain markets, expand its capabilities and position in the industry and extend its product offerings to better serve our customers, the potential impact of the Companys distribution network realignment, as well as the potential synergies and other financial benefits derived by and financial impact to the Company from the acquisition. All of our forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we
are expecting, including: risks associated with transactions generally; the failure to consummate or delay in consummating the transaction for other reasons; the risk that a condition to closing of the transaction may not be satisfied; the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement; the outcome of any legal proceedings that may be instituted following announcement of the transaction; failure to retain key management and employees of Sonoma-Cutrer; issues or delays in the successful integration of Sonoma-Cutrers operations with those of the Company, including incurring or experiencing unanticipated costs and/or delays or difficulties; unfavorable reaction to the transaction by customers, competitors, suppliers and employees; unpredictability and severity of catastrophic events, including but not limited to acts of terrorism, war or hostilities, as well as managements response to any of the aforementioned factors; and additional factors discussed in the Companys filings with the SEC.
The forward-looking statements contained in this press release are based on managements current plans, estimates and expectations in light of information currently available to the Company and are subject to uncertainty and changes in circumstances. There can be no assurance that future developments affecting the Company will be those that the Company has anticipated. Actual results may differ materially from these expectations due to changes in global, regional or local political, economic, business, competitive, market, regulatory and other factors, many of which are beyond our control, as well as the other factors described in Item 1A, Risk Factors in the Companys 2023 10-K filed with the SEC on September 27, 2023, and the Companys 10-Q for the quarter ended January 31, 2024, filed with the SEC on March 7, 2024, and other documents the Company may file with the SEC from time to time. Should one or more of these risks or uncertainties materialize or should any of our assumptions prove to be incorrect, our actual results may vary in material respects from what we may have expressed or implied by these forward-looking statements. Any forward-looking statement made by the Company speaks only as of the date on which it is made. All future written and oral forward-looking statements attributable to the Company or persons acting on the Companys behalf are expressly qualified in their entirety by the previous statements. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by applicable securities laws.
Contacts
Investor Contact
Ben Avenia-Tapper
IR@duckhorn.com
(707) 339-9232
Media Contact
Jessica Liddell, ICR
DuckhornPR@icrinc.com
(203) 682-8200
Document and Entity Information |
Apr. 30, 2024 |
---|---|
Cover [Abstract] | |
Entity Registrant Name | Duckhorn Portfolio, Inc. |
Amendment Flag | false |
Entity Central Index Key | 0001835256 |
Current Fiscal Year End Date | --07-31 |
Document Type | 8-K |
Document Period End Date | Apr. 30, 2024 |
Entity Incorporation State Country Code | DE |
Entity File Number | 001-40240 |
Entity Tax Identification Number | 81-3866305 |
Entity Address, Address Line One | 1201 Dowdell Lane |
Entity Address, City or Town | Saint Helena |
Entity Address, State or Province | CA |
Entity Address, Postal Zip Code | 94574 |
City Area Code | (707) |
Local Phone Number | 302-2658 |
Written Communications | false |
Soliciting Material | false |
Pre Commencement Tender Offer | false |
Pre Commencement Issuer Tender Offer | false |
Security 12b Title | Common Stock, par value $0.01 per share |
Trading Symbol | NAPA |
Security Exchange Name | NYSE |
Entity Emerging Growth Company | false |
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