Document:

Exhibit 10.2

 

EARTHLINK, INC.

 

2011 SHORT-TERM INCENTIVE BONUS PLAN

 

THIS 2011 SHORT-TERM INCENTIVE BONUS PLAN (this “Plan”) of EarthLink, Inc., a Delaware corporation (the “Company”), for the benefit of the eligible employees described herein, is adopted as of the 7th day of February 2011.  This Plan replaces and supersedes the terms of the Company’s Amended and Restated 2010 Short-Term Incentive Plan as in effect prior to the adoption of this Plan.

 

WITNESSETH:

 

WHEREAS, the Board of Directors of the Company has approved the Plan as set forth herein.

 

NOW, THEREFORE, the Company hereby establishes the Plan as set forth below.

 

1.             STATEMENT OF PURPOSE

 

1.1           Statement of Purpose.  The purpose of the Plan is to encourage the creation of shareholder value by establishing a direct link between Adjusted EBITDA (as defined below), Revenue (as defined below) and other Corporate Performance Objectives achieved and the incentive compensation of Participants in the Plan.

 

Participants contribute to the success of the Company through the application of their skills and experience in fulfilling the responsibilities associated with their positions.  The Company desires to benefit from the contributions of the Participants and to provide an incentive bonus plan that encourages the sustained creation of shareholder value.

 

2.             DEFINITIONS

 

2.1           Definitions.  Capitalized terms used in the Plan shall have the following meanings:

 

“Adjusted EBITDA” means EBITDA excluding stock-based compensation expense under SFAS No. 123(R), net losses of equity affiliates, gain (loss) on investments, net, impairment of goodwill and intangible assets and restructuring and acquisition costs.  Additionally, to the extent any Bonus Award to be paid to any Participant pursuant to the Plan is paid in shares of Common Stock, the calculation of Adjusted EBITDA shall exclude any compensation expense attributable to Bonus Awards paid in shares of Common Stock.

 

“Bonus Award” means the Participant’s Performance Bonus or such lesser amount as the Committee in its sole discretion may determine as of a result of the failure by the individual Participant to achieve desired individual performance levels for the Bonus Period.

 

“Bonus Period(s)” means both the period beginning January 1 and ending June 30 of each calendar year and the period beginning July 1 and ending December 31 of each calendar year, in

 

 

respect of which the Corporate Performance Objectives are measured and the Participants’ Bonus Awards, if any, are to be determined.

 

“Cause” has the same definition as under any employment or service agreement between the Employer and the Participant or, if no such employment or service agreement exists or if such employment or service agreement does not contain any such definition, Cause means (i) the Participant’s willful and repeated failure to comply with the lawful directives of the Board of Directors of any Employer or any supervisory personnel of the Participant; (ii) any criminal act or act of dishonesty or willful misconduct by the Participant that has a material adverse effect on the property, operations, business or reputation of any Employer; (iii) the material breach by the Participant of the terms of any confidentiality, non-competition, non-solicitation or other such agreement that the Participant has with any Employer or (iv) acts by the Participant of willful malfeasance or gross negligence in a matter of material importance to any Employer.

 

“Change in Control” means the occurrence of any of the following events:

 

(a)           the accumulation in any number of related or unrelated transactions by any person of beneficial ownership (as such term is used in Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended) of more than fifty percent (50%) of the combined voting power of the Company’s voting stock; provided that, for purposes of this subsection (a), a Change in Control will not be deemed to have occurred if the accumulation of more than fifty percent (50%) of the voting power of the Company’s voting stock results from any acquisition of voting stock (i) directly from the Company that is approved by the Incumbent Board, (ii) by the Company, (ii) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Employer, or (iv) by any person pursuant to a merger, consolidation, or reorganization (a “Business Combination”) that would not cause a Change in Control under clauses (i) and (ii) of subsection (b) below; or

 

(b)           consummation of a Business Combination, unless, immediately following that Business Combination, (i) all or substantially all of the persons who are the beneficial owners of voting stock of the Company immediately prior to that Business Combination beneficially own, directly or indirectly, at least fifty percent (50%) of the then outstanding shares of common stock and at least fifty percent (50%) of the combined voting power of the then outstanding voting stock entitled to vote generally in the election of directors of the entity resulting from that Business Combination (including, without limitation, an entity that as a result of that transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries), in substantially the same proportions relative to each other as their ownership, immediately prior to that Business Combination, of the voting stock of the Company, and (ii) at least sixty percent (60%) of the members of the Board of Directors of the entity resulting from that Business Combination holding at least sixty percent (60%) of the voting power of such Board of Directors were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board of Directors providing for that Business Combination and, as a result of or in connection with such Business Combination, no person has the right to dilute either such percentages by appointing additional members to the Board of Directors or otherwise without election or action by the shareholders; or

 

2

 

(c)           a sale or other disposition of all or substantially all the assets of the Company, except pursuant to a Business Combination that would not cause a Change in Control under clauses (i) and (ii) of subsection (b) above, or

 

(d)           approval by the shareholders of the Company of a complete liquidation or dissolution of the Company, except pursuant to a Business Combination that would not cause a Change in Control under clauses (i) and (ii) of subsection (b) above; or

 

(e)           the acquisition by any person, directly or indirectly, of the power to direct or cause the direction of the management and policies of the Company (i) through the ownership of securities which provide the holder with such power, excluding voting rights attendant with such securities, or (ii) by contract; provided the Change in Control will not be deemed to have occurred if such power was acquired (x) directly from the Company in a transaction approved by the Incumbent Board, (y) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Employer or (z) by any person pursuant to a Business Combination that would not cause a Change in Control under clauses (i) and (ii) of subsection (b) above.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Committee” means the Leadership and Compensation Committee of the Board of Directors of the Company which will administer the Plan.

 

“Compensation” means the Participant’s actual wages earned during the Bonus Period, excluding incentive payments, salary continuation, bonuses, income from equity awards, stock options, restricted stock, restricted stock units, deferred compensation, commissions, and any other forms of compensation over and above the Participant’s actual wages earned during the Bonus Period.

 

“Common Stock” means the common stock, $.01 par value per share, of the Company.

 

“Corporate Performance Objectives” means Adjusted EBITDA and Revenue, in such amounts as the Committee shall determine in its sole discretion for each Bonus Period that must be achieved for the Participant’s Performance Bonus Multiplier for the Bonus Period to be greater than zero (0). Notwithstanding the foregoing, the Committee may establish Corporate Performance Objectives based upon any of the business criteria with respect to which Awards (as defined therein) that are intended to constitute qualified performance-based compensation under the Company’s 2006 Equity and Cash Incentive Plan may be based.  The Committee shall adjust the Corporate Performance Objectives as the Committee in its sole discretion may determine is appropriate in the event of unanticipated circumstances, unbudgeted acquisitions or divestitures, or other unexpected changes to fairly and equitably determine the Bonus Awards and to prevent any inappropriate enlargement or dilution of the Bonus Awards.  In that respect, the Corporate Performance Objectives may be adjusted to reflect, by way of example and not of limitation, (i) the impairment of any tangible or intangible assets, (ii) litigation or claim judgments or settlements, (iii) changes in tax law, accounting principles or other such laws or provisions affecting reported results, (iv) mergers, acquisitions, business combinations, reorganizations and/or restructuring programs, (v) reductions in force and early retirement incentives, (vi) a Change in Control and (vii) any other extraordinary, unusual, infrequent or non-reoccurring items separately identified in the

 

3

 

financial statements and/or notes thereto in accordance with generally accepted accounting principles.  To the extent any such adjustments affect any Bonus Award, the intent is that the adjustments shall be in a form that allows the Bonus Award to continue to meet the requirements of Section 162(m) of the Code for deductibility to the extent intended.

 

“Corporate Priorities” means the established goals of the Company to (i) conduct the Company’s business in a way that is consistent with the Company’s mission and values; (ii) meet or exceed the financial commitments the Company makes to its shareholders; (iii) build and communicate the Company’s strategy to evolve the Company into a leading IP infrastructure and managed services company; (iv) successfully integrate recent acquisitions against goals to meet financial synergy targets and optimize the assets and skill sets acquired; (v) build a strong succession planning process that serves as the foundation for developing and deploying people at every level of the Company to support the Company’s short and long-term strategic intent; and (vi) develop a capital structure strategy that provides the flexibility to support the Company’s strategic direction and optimizes shareholder value.

 

“Disability” means where the Participant is “disabled” or has incurred a “disability” in accordance with the policies of the Employer that employs the Employee in effect at the applicable time.

 

“Distribution” means the payment of the Bonus Award under the Plan.

 

“Distribution Date” means the date on which the Distribution occurs.

 

“EBITDA” means income (loss) from continuing operations before interest income (expense) and other, net, income, taxes, depreciation and amortization.

 

“Effective Date” means January 1, 2011.

 

“Employee” means a common law employee of an Employer.  A common law employee of an Employer only includes an individual who renders personal services to the Employer and who, in accordance with the established payroll, accounting and personnel policies of the Employer, is characterized by the Employer as a common law employee.  An Employee does not include any person whom the Employer has identified on its payroll, personnel or tax records as an independent contractor or a person who has acknowledged in writing to the Employer that such person is an independent contractor, whether or not a court, the Internal Revenue Service or any other authority ultimately determines such classification to be correct or incorrect as a matter of law.

 

“Employer” means EarthLink, Inc. (also referred to as the “Company”) and any other entity that is part of a controlled group of corporations or is under common control with the Company within the meaning of Sections 1563(a), 414(b) or 414(c) of the Code, except that, in making any such determination, fifty percent (50%) shall be substituted for eighty percent (80%) each place therein.

 

“Incumbent Board” means a Board of Directors of the Company at least a majority of whom consist of individuals who either are (a) members of the Company’s Board of Directors as of the Effective Date of the adoption of this Plan or (b) members who become members of the

 

4

 

Company’s Board of Directors subsequent to the date of the adoption of this Plan whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least sixty percent (60%) of the directors then comprising the Incumbent Board (either by specific vote or by approval of a proxy statement of the Company in which that person is named as a nominee for director, without objection to that nomination), but excluding, for that purpose, any individual whose initial assumption of office occurs as a result of an actual or threatened election contest  (within the meaning of Rule 14a-11 of the Securities Exchange act of 1934, as amended) with respect to the election or removal of directors or other action or threatened solicitation of proxies or consents by or on behalf of a person other than the  Board of Directors of the Company.

 

“Management” means the executive officers of EarthLink, Inc., individually or as a group, as designated by the Board of Directors of the Company.

 

“Maximum Bonus Award” means the maximum bonus award, denoted as a dollar amount, that can be earned and paid to the Participant for the Bonus Period as established by the Committee.

 

“Participant” means an Employee of an Employer who is selected to participate in the Plan.

 

“Performance Bonus” means the dollar amount which results from multiplying the Participant’s Compensation for the Bonus Period by the product of the Participant’s Target Bonus Percent and the Participant’s Performance Bonus Multiplier.

 

“Performance Bonus Multiplier” means either (i) zero (0) or (ii) the percentage from fifty percent (50%) to two hundred percent (200%), that applies to determine the Participant’s Performance Bonus for the Bonus Period.  The Committee shall establish the Performance Bonus Multipliers that relate to the levels of Corporation Performance Objectives that must be achieved during the Bonus Period to calculate the Participant’s Performance Bonus.

 

“Plan” means this EarthLink, Inc. 2011 Short-Term Incentive Bonus Plan, in its current form and as it may be hereafter amended.

 

“Revenue” means gross revenue from operations.

 

“Target Aggregate Bonus” means the Bonus Award that would be earned if the Participant’s Performance Bonus Multiplier were one hundred percent (100%).

 

“Target Bonus Percent” means the percent of the Participant’s Compensation that will be earned as a Performance Bonus where the Corporate Performance Objectives that are achieved for the Bonus Period result in a Performance Bonus Multiplier of one hundred percent (100%).  The Target Bonus Percent for each Participant shall be established consistent with the Participant’s position in the Company’s compensation structure except that the Target Bonus Percent for each Management Participant shall be established by the Committee.

 

5

 

3.             ADMINISTRATION OF THE PLAN

 

3.1           Administration of the Plan.  The Committee shall be the sole administrator of the Plan and shall have full authority to formulate adjustments and make interpretations under the Plan as it deems appropriate. The Committee shall also be empowered to make any and all of the determinations not herein specifically authorized which may be necessary or desirable for the effective administration of the Plan. Any decision or interpretation of any provision of this Plan adopted by the Committee shall be final and conclusive. Benefits under this Plan shall be paid only if the Committee determines, in its sole discretion, that the Participant or Beneficiary is entitled to them. None of the members of the Committee shall be liable for any act done or not done in good faith with respect to this Plan. The Company shall bear all expenses of administering this Plan.

 

4.             ELIGIBILITY

 

4.1           Establishing Participation.  Each Employee whose position in the Company’s compensation structure entitles him or her to participate in the Plan shall participate in the Plan for the applicable Bonus Period except that the Committee must approve the members of Management, if any, who shall be entitled to participate in the Plan for each Bonus Period.  The Committee shall retain the discretion to name as a Participant any member of Management hired or promoted after the commencement of the Bonus Period.

 

5.             AMOUNT OF BONUS AWARDS

 

5.1           Establishment of Bonuses.

 

(a)           Initial Determinations.  For each Bonus Period, the Committee shall establish generally for each Participant the Target Bonus Percent and the Performance Bonus Multiplier that will apply with respect to the designated levels of achievement of the Corporate Performance Objectives.  The Performance Bonus Multiplier for each Participant will be based on the achievement of such Corporate Performance Objectives as the Committee shall designate, which may include the achievement of one or more Corporate Performance Objectives or any combination of Corporate Performance Objectives as the Committee may select.

 

(b)           Performance Objectives.  For each Bonus Period, the Committee shall establish the Corporate Performance Objectives that must be achieved to determine each Participant’s Performance Bonus Multiplier for the Bonus Period. To the extent the Corporate Performance Objectives are not achieved, the Performance Bonus Multiplier shall be zero (0).  The Corporate Performance Objectives to be achieved must take into account and be calculated with respect to the full accrual and payment of the Bonus Awards under the Plan.

 

The Corporate Performance Objectives must be established in writing no later than the earlier of (i) ninety (90) days after the beginning the period of service to which they relate and (ii) before the lapse of twenty-five percent (25%) of the period of service to which they relate; they must be uncertain of achievement at the time they are established; and the achievement of the Corporate Performance Objectives must be determinable by a third party with knowledge of the relevant facts.  The Corporate Performance Objectives may be stated with respect to the Company’s, an Affiliate’s, a product’s, and/or a business unit’s Adjusted EBITDA, Revenue or

 

6

 

other Corporate Performance Objectives and/or any combination of the foregoing as the Committee may designate.  The Corporate Performance Conditions may, but need not, be based upon an increase or positive result under the aforementioned business criteria and could include, for example and not by way of limitation, maintaining the status quo or limiting the economic losses (measured, in each case, by reference to the specific business criteria).

 

5.2           Calculation of Bonus Awards.

 

(a)           Timing of the Calculation.  The calculations necessary to determine the Bonus Awards for the Bonus Period most recently ended shall be made no later than the fifteenth day of the third month following the end of the Bonus Period for which the Bonus Awards are to be calculated. Such calculation shall be carried out in accordance with this Section 5.2.

 

(b)           Calculation.  Following the end of each Bonus Period, each Participant’s Performance Bonus shall be calculated, and the Participant’s Bonus Award for that Bonus Period shall be either the Participant’s Performance Bonus or such lesser amount as the Committee in its sole discretion may determine as set forth in Section 5.2(d).  Notwithstanding any other provision of the Plan, the Participant’s Bonus Award may not exceed the Maximum Bonus Award.

 

(c)           Written Determination.  For the Performance Bonus, which is based on the achievement of Corporate Performance Objectives, the Committee shall certify in writing whether such Corporate Performance Objectives have been achieved.  The Bonus Awards payable under this Plan are intended to constitute Awards (as defined therein) under the Company’s 2006 Equity and Cash Incentive Plan to the maximum extent possible.  Accordingly, the Bonus Awards hereunder also will be subject to the terms of the Company’s 2006 Equity and Cash Incentive Plan to the extent applicable.  Any Bonus Awards or portions thereof that do not constitute Awards (as defined therein) under the Company’s 2006 Equity and Cash Incentive Plan shall be deemed separate Bonus Awards that are granted under this Plan but outside of the Company’s 2006 Equity and Cash Incentive Plan.

 

(d)           Negative Discretion.  Notwithstanding any other provision of the Plan, the Participant’s Performance Bonus may be reduced, but not below zero (0), if the Participant’s individual performance for the Bonus Period falls below that expected of such Participant.  Additionally, the Performance Bonus of any Management Participant may be reduced, up to twenty-five percent (25%), if the Management Participant’s individual performance with respect to Corporate Priorities for the Bonus Period falls below that expected of such Management Participant.  Management “subject to the approval of the Committee” may determine if any Participant’s Performance Bonus should be reduced to determine the Participant’s Bonus Award as a result of the Participant’s failure to achieve required individual performance levels during the Bonus Period. The Committee shall determine in its discretion whether any Performance Bonuses for Management Participants should be reduced to determine the Participant’s Bonus Award for failure to achieve the desired individual performance levels, whether or not with respect to Corporate Priorities, during the Bonus Period. Any reduction of a Participant’s Performance Bonus shall be at the sole and absolute discretion of the Committee.

 

7

 

6.             PAYMENT OF AWARDS

 

6.1           Eligibility for Payment.  Except as otherwise set forth in Sections 7.1 and 8.1 of this Plan, Bonus Awards shall not be paid to any Participant who is not employed by an Employer on the date the Distribution is to be made, and a Participant who terminates employment with all Employers shall not be eligible to receive any Distribution for (i) the Bonus Period that includes such termination of employment, (ii) any prior Bonus Period to the extent not paid before such termination of employment nor (iii) any future Bonus Periods.

 

6.2           Timing of Payment.  Any Distribution to be paid for a Bonus Period shall be paid no later than the 15th day of the third month following the end of the calendar year which includes the applicable the Bonus Period.

 

6.3           Payment of Award.  The amount of the Bonus Award to be paid pursuant to this Section 6 to a Participant who is employed by the Company shall be paid in one lump sum cash payment by the Company, except that the Company, in its sole discretion, may elect to pay part or all of the amount of any Bonus Award payable to such Participant for the Bonus Period that exceeds the Participant’s Target Aggregate Bonus for such Bonus Period in shares of Common Stock in lieu of cash.  The amount of the Bonus Award to be paid pursuant to this Section 6 to a Participant who is employed by an Affiliate shall be paid in one lump sum cash payment by the Affiliate that employs the Participant, except that the Affiliate, in its sole discretion, may elect to pay part or all of the amount of the Participant’s Bonus Award payable to such Participant in shares of Common Stock in lieu of cash.  In the event part or all of any Bonus Award is to be paid in shares of Common Stock, the number of shares to be delivered shall be equal to the dollar amount of the Bonus Award otherwise payable divided by the closing price of a share of Common Stock on the day the Committee approves the amount of the Participant’s Bonus Award if such day is a trading day or, if such day is not a trading day, the closing price of a share of Common Stock on the last trading day immediately before the day the Committee approves the amount of the Participant’s Bonus Award.  Shares of Common Stock to be delivered under this Plan may be paid under the Company’s 2006 Equity and Cash Incentive Plan or under any other plan under which shares of Common Stock are otherwise available for payment of Bonus Awards.

 

6.4           Taxes; Withholding.  To the extent required by law, the Employer shall withhold from all Distributions made hereunder any amount required to be withheld by Federal and state or local government or other applicable laws. Each Participant shall be responsible for satisfying in cash or cash equivalent acceptable to the Company any income and employment tax withholdings applicable to any Distribution to the Participant under the Plan. The Company, to the extent applicable law permits, may permit the Participant to pay applicable tax withholdings by withholding shares of Common Stock that the Participant otherwise would receive upon the Distribution but only to satisfy the Participant’s minimum required tax withholdings.  Any shares of Common Stock withheld to pay applicable tax withholdings shall be equal to the dollar amount of the withholding divided by the closing price of a share of Common Stock on the last trading date immediately before the date of the Distribution.

 

8

 

7.             CHANGE IN CONTROL

 

7.1           Payment After a Change in Control.  If at any time after a Change in Control occurs the Participant’s employment with all Employers is terminated by an Employer for any reason other than Cause, death or Disability, then, the Participant shall be entitled to receive for the Bonus Period that includes the date of the Participant’s termination of employment the Bonus Award that would result based on the Employer’s estimate of the Bonus Award that is reasonably likely to be payable for the entire Bonus Period taking into account the Corporate Performance Objectives achieved during the Bonus Period through the time of the Participant’s termination of employment (annualized or otherwise forecasted for the entire Bonus Period considering progress towards goals and the portion of the Bonus Period preceding the Participant’s termination of employment compared to the entire Bonus Period), calculated on the same basis as other similarly-situated Participants, except that the Bonus Award for that Bonus Period shall be based solely upon the Participant’s Compensation for that Bonus Period through the time of termination of employment, provided however that Participant shall only be entitled to receive such Bonus Award for the Bonus Period that includes the date of the Participant’s termination of employment if the Participant’s termination of employment occurs after the first calendar quarter and on or before December 31 of the calendar year.  Each Participant described above also shall be entitled to receive any Bonus Award payable for any Bonus Period that ended before the termination of the Participant’s employment.  Such Bonus Awards shall be paid no later than the time they would have been paid under the Plan if the Participant had remained employed.

 

8.             POSITION ELIMINATION

 

8.1           Payment after a Position Elimination.  If before a Change in Control occurs the Participant’s employment with all Employers is terminated by an Employer as a result of a position elimination, such that the Participant is entitled to receive benefits under any position elimination and severance plan maintained by the Company or any Affiliate, then, (a) if the Participant’s position elimination occurs after the first calendar quarter and prior to July 1 of the calendar year and the Participant is not a Management Participant, the Participant shall be entitled to receive for the Bonus Period that includes the date of the Participant’s termination of employment as a result of a position elimination the Bonus Award that would result based on the Employer’s estimate of the Bonus Award that is reasonably likely to be payable for the entire Bonus Period taking into account the Corporate Performance Objectives achieved during the Bonus Period through the time of the Participant’s termination of employment (annualized or otherwise forecasted for the entire Bonus Period considering progress toward goals and the portion of the Bonus Period preceding the Participant’s termination of employment compared to the entire Bonus Period), calculated on the same basis as other similarly-situated Participants, except that the Bonus Award for that Bonus Period shall be based solely upon the Participant’s Compensation for that Bonus Period through the time of the position elimination, and (b) if the Participant’s position elimination occurs on or after July 1 and on or before December 31 of the calendar year and the Participant is not a Management Participant, or the Participant is a Management Participant whose position elimination occurs after the first calendar quarter and on or before December 31 of the calendar year, the Participant shall be entitled to receive for the Bonus Period that includes the date of the Participant’s termination of employment as a result of the position elimination, the Bonus Award that would result for the entire Bonus Period taking into account the Corporate

 

9

 

Performance Objectives achieved during the Bonus Period, calculated on the same basis as other similarly-situated Participants, except that the Bonus Award for that Bonus Period shall be based solely upon the Participant’s compensation for that Bonus Period through the time of the position elimination.  Each Participant described above also shall be entitled to receive any Bonus Award payable for any Bonus Period that ended before the termination of the Participant’s employment.  If the Participant’s position elimination occurs after the first calendar quarter and prior to July 1 of the calendar year and the Participant is not a Management Participant, such Bonus Award shall be paid as soon as administratively practicable (and within thirty (30) days) following the termination of the Participant’s employment as a result of the position elimination and, if the Participant’s position elimination occurs on or after July 1 and on or before December 31 of the calendar year and the Participant is not a Management Participant, or the Participant is a Management Participant whose position elimination occurs after the first calendar quarter and on or before December 31 of the calendar year, such Bonus Awards shall be paid as described above in the normal course.  Notwithstanding the foregoing, however, such Bonus Awards shall be paid under the Plan no later than the time they would have been paid had the Participant remained employed.

 

9.             MISCELLANEOUS

 

9.1           Unsecured General Creditor.  Participants and their beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interests, or other claim in any property or assets of the Employer. Any and all assets shall remain general, unpledged, unrestricted assets of the Employer. The Employer’s obligation under the Plan shall be that of an unfunded and unsecured promise to pay cash or shares of Common Stock in the future, and there shall be no obligation to establish any fund, any security or any other restricted asset in order to provide for the payment of amounts under the Plan.

 

9.2           Obligations to the Employer.  If a Participant becomes entitled to a Distribution under the Plan, and, if, at the time of the Distribution, such Participant has outstanding any debt, obligation or other liability representing an amount owed to any Employer, then the Employer may offset such amounts owing to it or any other Employer against the amount of any Distribution. Such determination shall be made by the Committee. Any election by the Committee not to reduce any Distribution payable to a Participant shall not constitute a waiver of any claim for any outstanding debt, obligation, or other liability representing an amount owed to the Employer.

 

9.3           Nonassignability.  Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and nontransferable. No part of a Distribution, prior to actual Distribution, shall be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor shall it be transferable by operation of law in the event of the Participant’s or any other persons bankruptcy or insolvency, except as set forth in Section 9.2 above.

 

9.4           Employment or Future Pay or Compensation Not Guaranteed.  Nothing contained in this Plan nor any action taken hereunder shall be construed as a contract of employment or as

 

10

 

giving any Participant or any former Participant any right to be retained in the employ of an Employer or receive or continue to receive any rate of pay or other compensation, nor shall it interfere in any way with the right of an Employer to terminate the Participant’s employment at any time without assigning a reason therefore.

 

9.5           Gender, Singular and Plural.  All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, or neuter, as the identity of the person or persons may require. As the context may require, the singular may be read as the plural and the plural as the singular.

 

9.6           Captions.  The captions to the articles, sections, and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions.

 

9.7           Applicable Law.  This Plan shall be governed and construed in accordance with the laws of the State of Georgia.

 

9.8           Validity.  In the event any provision of the Plan is held invalid, void, or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of the Plan.

 

9.9           Notice.  Any notice or filing required or permitted to be given to the Committee shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, to the principal office of the Company, directed to the attention of the President and CEO of the Company. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.

 

9.10         Compliance.  No Distribution shall be made hereunder except in compliance with all applicable laws and regulations (including, without limitation, withholding tax requirements), any listing agreement with any stock exchange to which the Company is a party, and the rules of all domestic stock exchanges on which the Company’s shares of capital stock may be listed. The Company shall have the right to rely on an opinion of its counsel as to such compliance. No Distribution shall be made hereunder unless the Employer has obtained such consent or approval as the Employer may deem advisable from regulatory bodies having jurisdiction over such matters.

 

9.11         No Duplicate Payments.  The Distributions payable under the Plan are the maximum to which the Participant is entitled in connection with the Plan. To the extent the Participant and the Employer are parties to any other agreements or arrangements relating to the Participant’s employment that provide for payments of any bonuses under this Plan on termination of employment, this Plan shall be construed and interpreted so that the Bonus Awards and Distributions payable under the Plan are only paid once; it being the intent of this Plan not to provide the Participant any duplicative payments of Bonus Awards. To the extent a Participant is entitled to a bonus payment calculated under this Plan under any other agreement or arrangement that would constitute a duplicative payment of the Bonus Award or Distribution; to the extent of that duplication, no Bonus Award or Distribution will be payable hereunder.

 

11

 

9.12         Confidentiality.  The terms and conditions of this Plan and the Participant’s participation hereunder shall remain strictly confidential. The Participant may not discuss or disclose any terms of this Plan or its benefits with anyone except for Participant’s attorneys, accountants and immediate family members who shall be instructed to maintain the confidentiality agreed to under this Plan, except as may be required by law.

 

9.13         Temporary Leaves of Absence.  The Committee in its sole discretion may decide to what extent leaves of absence for government or military service, illness, temporary disability or other reasons shall, or shall not be, deemed an interruption or termination of employment.

 

9.14         Clawback Provision.  Notwithstanding any other provision of the Plan, the Participant shall reimburse or return to the Employer (i) the gross aggregate amount of any cash Distribution that the Participant previously received under the Plan, (ii) any shares of Common Stock that the Participant previously received under the Plan, (iii) an amount equal to any dividends the Participant previously received with respect to any shares of Common Stock that must be returned to the Employer and (iv) any and all other amounts the Participant received or earned that are attributable to a Distribution under the Plan, to the extent required under applicable law or any clawback or compensation recoupment policy that the Employer may adopt as long as such requirement to reimburse or return is triggered by action of the Committee or the Board that is taken prior to a Change in Control.

 

10.          AMENDMENT AND TERMINATION OF THE PLAN

 

10.1         Amendment.  Except as set forth in Section 10.3 below, the Committee in its sole discretion may at any time amend the Plan in whole or in part.

 

10.2         Termination of the Plan.

 

(a)           Employer’s Right to Terminate.  Except as set forth in Section 10.3 below, the Committee may at any time terminate the Plan, if it determines in good faith that the continuation of the Plan is not in the best interest of the Company and its shareholders.  No such termination of the Plan shall reduce any Distributions already made.

 

(b)           Payments Upon Termination of the Plan.  Upon the termination of the Plan under this Section, Awards for future Bonus Periods shall not be made.  With respect to the Bonus Period in which such termination takes place, the Employer will pay to each Participant the Participant’s Bonus Award, if any, for such Bonus Period, less any applicable withholdings, only to the extent the Committee provides for any such payments on termination of the Plan (in which case all such payments will be made no later than the 15th day of the third month following the end of the Bonus Period that includes the effective date of termination of the Plan).

 

10.3         Amendment or Termination After a Change in Control.  Notwithstanding any other provision of the Plan, the Committee may not amend or terminate the Plan in whole or in part, or change eligibility for participation in the Plan, on or after a Change in Control to the extent any such amendment or termination, or change in eligibility for participation in the Plan, would adversely affect the Participants’ rights hereunder or result in Bonus Awards not being paid

 

12

 

consistent with the terms of the Plan in effect prior to such amendment or termination for the Bonus Period in which the termination takes place and any prior Bonus Period.

 

11.          COMPLIANCE WITH SECTION 409A

 

11.1         Tax Compliance.  This Plan is intended to be exempt from the applicable requirements of Section 409A of the Code and shall be construed and interpreted in accordance therewith. The Company may at any time amend, suspend or terminate this Plan, or any payments to be made hereunder, as necessary to be exempt from Section 409A of the Code. Notwithstanding the preceding, neither the Company nor any Employer shall be liable to any Employee or any other person if the Internal Revenue Service or any court or other authority having jurisdiction over such matter determines for any reason that any Bonus Award or Distribution to be made under this Plan is subject to taxes, penalties or interest as a result of failing to comply with Section 409A of the Code. The Distributions under the Plan are intended to satisfy the exemption from Section 409A of the Code for “short-term deferrals.”

 

12.          CLAIMS PROCEDURES

 

12.1         Filing of Claim.  If a Participant becomes entitled to a Bonus Award or a Distribution has otherwise become payable, and the Participant has not received the benefits to which the Participant believes he is entitled under such Bonus Award or Distribution, then the Participant must submit a written claim for such benefits to the Committee within ninety (90) days of the date the Bonus Award would have become payable (assuming the Participant is entitled to the Bonus Award) or the claim will be forever barred.

 

12.2         Appeal of Claim.  If a claim of a Participant is wholly or partially denied, the Participant or his duly authorized representative may appeal the denial of the claim to the Committee. Such appeal must be made at any time within thirty (30) days after the Participant receives written notice from the Committee of the denial of the claim. In connection therewith, the Participant or his duly authorized representative may request a review of the denied claim, may review pertinent documents and may submit issues and comments in writing. Upon receipt of an appeal, the Committee shall make a decision with respect to the appeal and, not later than sixty (60) days after receipt of such request for review, shall furnish the Participant with a decision on review in writing, including the specific reasons for the decision, as well as specific references to the pertinent provisions of the Plan upon which the decision is based.  Notwithstanding the foregoing, if the Committee has not rendered a decision on appeal within sixty (60) days after receipt of such request for review, the Participant’s appeal shall be deemed to have been denied upon the expiration of the sixty (60)-day review period.

 

12.3         Final Authority.  The Committee has discretionary and final authority under the Plan to determine the validity of any claim. Accordingly, any decision the Committee makes on the Participant’s appeal shall be final and binding on all parties. If a Participant disagrees with the Committee’s final decision, the Participant may bring suit, but only after the claim on appeal has been denied or deemed denied. Any such lawsuit must be filed within ninety (90) days of the Committee’s denial (or deemed denial) of the Participant’s claim or the claim will be forever barred.

 

13ex10_1.htm

Exhibit 10.1

AMENDED AND RESTATED

EXCHANGE AND RECAPITALIZATION AGREEMENT

THIS AMENDED AND RESTATED  EXCHANGE AND RECAPITALIZATION AGREEMENT ("Agreement"), dated as of  May 1, 2011  between CRAFT BREWERS ALLIANCE, INC., a Washington corporation having an office at 929 North Russell Street, Portland, Oregon 97227-1733 (“CBA"), and ANHEUSER-BUSCH, INCORPORATED, a Missouri corporation having an office at One Busch Place, St. Louis, Missouri 63118 ("ABI").

W I T N E S S E T H:

WHEREAS, ABI and CBA are parties to an Exchange and Recapitalization Agreement dated as of June 30, 2004 (“Original Agreement”) which governs certain rights and obligations of ABI and CBA.

WHEREAS, in connection with CBA’s sale of its interest in Fulton Street Brewery, LLC, the parties have agreed to amend and restate the Original Agreement.

NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained and intending to be legally bound hereby, it is agreed as follows:

I.           DEFINITIONS

"ABI Competitor" shall mean any Person that, together with its Affiliates, has revenues of $500,000,000 or more from the sale of alcohol beverage products in the calendar year immediately preceding the date on which the provision of this Agreement using this term is to be applied.

"Affiliate" shall mean, with respect to any Person, (i) each Person that, directly or indirectly, owns or controls, whether beneficially, or as a trustee, guardian or other fiduciary, 5% or more of the Stock having ordinary voting power in the election of directors of such Person, or (ii) each Person that controls, is controlled by or is under common control with such Person or any Affiliate of such Person. For the purpose of this definition, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise. The term "Affiliated" shall have meanings correlative to the foregoing.

"Business Day" shall mean a day of the year on which banks are not required or authorized to close in the States of Missouri, New York and Oregon.

"CBA Distribution Agreement” shall mean the Amended and Restated Master Distributor Agreement between CBA and ABI dated May 1, 2011, as such agreement may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof.

"Common Stock" shall initially mean the common stock, par value $0.005 per share, of CBA and shall thereafter mean any shares of any class or classes of capital stock resulting from any reclassification or reclassifications thereof or otherwise issued and which have no preference in respect of dividends or of amounts payable in the event of voluntary or involuntary liquidation, dissolution or winding up of CBA and which are not subject to redemption by CBA.

  

- 1 -

  

 

"Confidential Information" shall have the meaning set forth in Section 3.10.

“Environmental Law”  shall mean all federal, state and local laws, statutes, ordinances and regulations, now or hereafter in effect, and in each case as amended or supplemented from time to time, and any judicial or administrative interpretation thereof, including any applicable judicial or administrative order, consent decree or judgment, relative to the applicable property, relating to the regulation and protection of human health, safety, the environment and natural resources (including, without limitation, ambient air, surface water, groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws include but are not limited to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. § 9601 ET SEQ.); the Hazardous Material Transportation Act, as amended (49 U.S.C. §§ 1801 ET SEQ.); the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. §§ 136 ET SEQ.); the Resource Conservation and Recovery Act, as amended (42 U.S.C. §§ 6901 ET SEQ.); the Toxic Substance Control Act, as amended (15 U.S.C. §§ 2601 ET SEQ.); the Clean Air Act, as amended (42 U.S.C. §§ 740 ET SEQ.); the Federal Water Pollution Control Act, as amended (33 U.S.C. §§ 1251 ET SEQ.); the Occupational Safety and Health Act, as amended (29 U.S.C. §§ 651 ET SEQ.); and the Safe Drinking Water Act, as amended (42 U.S.C. §§ 300f ET SEQ.), and all analogous state and local counterparts or equivalents and any transfer of ownership notification or approval statutes.

"Fiscal Year" shall mean the calendar year. Subsequent changes of the fiscal year of CBA shall not change the meaning of the term "Fiscal Year," unless ABI shall consent in writing to such changes.

"GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time.

"Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof, and any agency, department or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

"Independent Directors" shall mean those members of the Board of Directors of CBA that are deemed to be independent of CBA under the rules promulgated by NASDAQ Stock Market, Inc.

"Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof).

"Registration Rights Agreement" shall mean the Registration Rights Agreement by and between CBA and ABI, dated as of July 1, 2004, as such agreement may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof.

"Representatives" shall have the meaning set forth in Section 3.10

"Securities Act" shall mean the Securities Act of 1933, as amended.

  

- 2 -

  

 

"Securities Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.

"Stock" shall mean all shares, options, warrants, general or limited partnership interests, rights, participations or other equivalents (regardless of how designated) of or in a corporation, partnership or equivalent entity whether voting or nonvoting, including, without limitation, common stock, preferred stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act).

"Subsidiary"  shall mean, with respect to any Person,  (a) any corporation of which an aggregate of more than 50% of the outstanding Stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person and/or one or more Subsidiaries of such Person, and (b) any partnership or other entity in which such Person and/or one or more Subsidiaries of such Person shall have an interest (whether in the form of voting or participation in profits or capital contribution) of more than 50%.

"Termination Date" means the date on which the CBA Distribution Agreement is duly terminated or expires pursuant to its terms.

II.           COVENANTS

2.1           CBA covenants and agrees that, unless duly waived by ABI, from and after the date hereof:

(a)           PERMITTED ACQUISITIONS OR INVESTMENTS. CBA shall not, and shall not permit any of its Subsidiaries to, without ABI's written permission, directly or indirectly in any transaction or related series of transactions, acquire or invest in, whether for cash, debt, Stock, or other property or assets or by guaranty of any obligation, (i) any assets or business related to the production or distribution of malt beverage products the aggregate purchase price of which in any such transaction or related series of transactions exceeds $30,000,000, or (ii) any assets or business not related to the production or distribution of malt beverage products the aggregate purchase price of which in any such transaction exceeds $2,000,000.

(b)           SALES OF ASSETS.

(i)  CBA shall not, and shall not permit any Subsidiary of CBA to, sell, lease, transfer, convey or otherwise dispose of assets in any transaction or related series of transactions, which assets have an aggregate book value exceeding $30,000,000; provided, however, that the foregoing shall not prohibit any bona fide sale-leaseback transaction in which the leases entered into by CBA or any Subsidiary of CBA in connection with such transaction are capital leases as determined in accordance with GAAP.

(ii)  CBA and its Subsidiaries shall not sell, transfer, convey, license, pledge or otherwise dispose of any trademark or trade name acquired or owned by any of them after the date hereof if 5% or more of the revenues of CBA and its consolidated Subsidiaries for the preceding Fiscal Year were attributable to sales of products using such trademark or trade name.

  

- 3 -

  

 

(c)           BOOKS AND RECORDS. CBA shall, and shall cause its Subsidiaries to, keep adequate records and books of account with respect to their business activities, in which proper entries, reflecting all of their financial transactions, are made in accordance with GAAP consistently applied.

(d)           FINANCIAL AND BUSINESS INFORMATION.

(i)  PROJECTIONS.  CBA will deliver to ABI, together with appropriate supporting details, within 30 days prior to the beginning of each Fiscal Year (and CBA, at its option, may deliver such information to its other security holders contemporaneously therewith) its projected net income and volume (in case equivalents and specifically identifying the projected volume for the Eastern Territory (as such term is defined in the CBA Distribution Agreement).

(ii)  OTHER INFORMATION. CBA will deliver to ABI such other information with respect to CBA's business, financial condition or prospects as ABI may, from time to time, reasonably request; provided that ABI shall be entitled to no information concerning the specific brewing processes and formulae used by CBA to brew its malt beverage products.

(e)           COMMUNICATION WITH ACCOUNTANTS. CBA authorizes ABI to communicate directly with its independent certified public accountants and tax advisors, authorizes those accountants to disclose to ABI any and all financial statements and other supporting financial documents and schedules including copies of any management letter with respect to the business, financial condition and other affairs of CBA and any of its Subsidiaries and those advisors to disclose to ABI any information requested by ABI concerning the tax filings or reports made by CBA and any of its Subsidiaries. CBA shall not interfere or attempt to restrain any such communications or disclosures and at the request of ABI from time to time shall issue written instructions or authorizations to its accountants or advisors to facilitate such communications or disclosures.

(f)            CAPITAL STRUCTURE.

(i)  Notwithstanding any other provision of this Section 2.1(f), CBA shall not issue, sell or transfer or agree to issue, sell or transfer any of its authorized but not outstanding shares of Stock, except (A) issuances of Common Stock pursuant to any stock split, reverse stock split or stock dividend or pursuant to the exercise of any option or warrant or the conversion of any convertible security either now outstanding or otherwise permitted by this Section, (B) prior to January 1, 2014 issuances of Common Stock not exceeding 10% of the Common Stock outstanding on January 1, 2011) and for each successive three year period thereafter issuances of Common Stock not exceeding 10% of the  Common Stock outstanding on the first day of such period, and (C) issuances of Stock by CBA to employees, consultants or directors for compensatory purposes, pursuant to any employee or director stock option or other stock incentive plan approved in accordance with the requirements set forth in Section 2.1(g).

  

- 4 -

  

 

(ii)  CBA shall not amend its certificate of incorporation or bylaws (other than an amendment the sole effect of which is to increase its authorized capital stock) without the written approval of ABI.

(iii)  CBA shall not issue any Stock to any Person with more than one vote per share or with a class vote on any matter.

(iv)  CBA shall not issue or sell or agree to issue or sell any Stock to any Person engaged in the business of brewing, producing or distributing malt or any alcoholic beverages in North America or South America or to any Person known by CBA to be an Affiliate of any such Person other than to (A) to any Person who is a wholesaler of the products of ABI or (B) to ABI.

(v)  Without providing ABI with at least 10 days' advance written notice thereof, CBA shall not issue or sell shares of Stock, the effect of which would be to decrease the aggregate percentage ownership of the Common Stock registered in the name of ABI and its designees to under 20% of the outstanding Common Stock.

(vi)  CBA shall not, pursuant to any agreement or the terms of any Stock issued by CBA, give to any Person or Persons the right to name or designate more than one member of the board of directors of CBA.

(vii)  CBA shall not cause or permit any Subsidiary of CBA to issue any Stock to any Person other than to CBA or to any other Subsidiary of CBA.

(g)           TRANSACTIONS WITH AFFILIATES.

(i)  CBA shall not and shall not permit any Subsidiary of CBA to enter into or be a party to any transaction with any Affiliate of CBA or such Subsidiary unless such transaction is (i) upon fair and reasonable terms that are fully disclosed to ABI and are no less favorable to CBA or such Subsidiary than would be obtained in a comparable arm's-length transaction with a Person not an Affiliate of CBA or such Subsidiary, and (ii) has been approved by a majority of the Independent Directors of the Board of Directors of CBA or a committee of the Board of Directors composed entirely of Independent Directors.

(ii)  CBA shall not enter into, amend, modify or waive any provision of any agreement with an executive officer or director of CBA (or any Affiliate thereof) without the approval by a majority of the Independent Directors of the Board of Directors or a committee of the Board of Directors of CBA composed entirely of Independent Directors. CBA shall establish and maintain a committee of the board of directors, composed entirely of Independent Directors, and such committee shall determine the compensation (including salary, bonus and stock incentives) for each executive officer of CBA. CBA shall not amend the terms of any stock option or other stock incentive or create any stock incentive plan except as approved by such committee.

(h)           MAINTENANCE OF EXISTENCE AND CONDUCT OF BUSINESS. CBA shall and shall cause each of its Subsidiaries to: (i) continue to conduct its business in the brewing of malt beverages substantially as now conducted or as otherwise permitted hereunder and shall not engage in any material respect in any business other than the producing and distributing of malt beverages, and, consistent with past practice, operation of the restaurants located at its breweries; (ii) comply in all material respects with all applicable laws, rules, regulations and orders of any Governmental Authority; and (iii) assure that none of its products are adulterated or misbranded within the meaning of the federal Food, Drug and Cosmetic Act, as amended, and cause all of its products to comply with the applicable provisions of the Code of Federal Regulations.

  

- 5 -

  

 

(i)           DISTRIBUTION OF CBA PRODUCTS.  Except as explicitly authorized by the CBA Distribution Agreement,  CBA shall not distribute products in the Territory (as defined in the CBA Distribution Agreement) other than through ABI or other  ABI wholesalers.  If CBA desires to investigate the production, sale, distribution or licensing the production of any malt beverage product in any country outside the Territory, CBA shall notify ABI and shall provide ABI with all information reasonably requested by ABI in connection with such arrangement.  CBA shall give ABI a period of at least 90 days to make a proposal to CBA pursuant to which ABI would serve as a master distributor or brew the products in such country, and CBA shall not conduct negotiations or discussions with any other party during such 90-day period.  Upon the end of such 90-day period, CBA shall be permitted to select any entity to brew or distribute the products of CBA in any such country, except that CBA shall not be permitted to select an ABI Competitor or any Affiliate thereof for such purpose.  If ABI has made a proposal to brew or distribute the product of CBA in any country, CBA shall not select any other entity without the approval of the Board of Directors.

(j)           FINANCIAL AND OTHER INFORMATION.

(i)  MONTHLY STATEMENTS. CBA shall deliver to ABI as soon as practicable after the end of each month, but in any event within 30 days thereafter: (A) an unaudited consolidated balance sheet of CBA and its Subsidiaries as at the end of such month, (B) unaudited consolidated statements of income, retained earnings and changes in financial position of CBA and its Subsidiaries for such month and for the portion of such year ending with such month, and (C) a sales report for such month, which report will show sales by product, by distributor and whether by bottle or draft in each state in which CBA sells its products, in each case for such month and for the portion of the Fiscal Year ending with such month and showing a comparison of such year to date sales results with those of the previous year, including growth figures for each product on a state by state basis but which need not show sales to CBA.

(ii)  QUARTERLY INFORMATION. CBA shall deliver to ABI as soon as practicable after the end of each of the first three quarterly fiscal periods in each Fiscal Year of CBA, but in any event within 45 days thereafter, (A) an unaudited consolidated balance sheet of CBA and its Subsidiaries as at the end of such quarter, and (B) unaudited consolidated statements of income, retained earnings and changes in financial position of CBA and its Subsidiaries for such quarter and (in the case of the second and third quarters) for the portion of the Fiscal Year ending with such quarter.  Such statements shall be (1) prepared in accordance with GAAP consistently applied, (2) in reasonable detail and (3) certified by the principal financial or accounting officer of CBA as presenting fairly the financial condition, results of operation, and cash flows of CBA and its consolidated Subsidiaries in accordance with GAAP consistently applied (subject to normal year-end audit adjustments not material in amount).

  

- 6 -

  

 

(iii)  ANNUAL INFORMATION. CBA will deliver to ABI as soon as practicable after the end of each fiscal year of CBA, but in any event within 90 days thereafter, (A) an audited consolidated balance sheet of CBA and its Subsidiaries as at the end of such year, and (B) audited consolidated statements of income, retained earnings and changes in financial position of CBA and its Subsidiaries for such year, setting forth in each case in comparative form the figures for the previous year. Such statements shall be (1) prepared in accordance with GAAP consistently applied, (2) in reasonable detail, and (3) certified as presenting fairly the financial condition, results of operation and cash flows of CBA and its consolidated Subsidiaries in accordance with GAAP consistently applied by Moss Adams, L.L.P. or such other firm of independent certified public accountants selected by CBA that is acceptable in the reasonable judgment of ABI.

(iv)  FILINGS. CBA will deliver to ABI, promptly upon their becoming available, one copy of each report, notice or proxy statement sent by CBA to its stockholders generally, and of each regular or periodic report (pursuant to the Securities Exchange Act) and any registration statement, prospectus or other writing (including, without limitation, by electronic means) pursuant to the Securities Act filed by CBA with (i) the Securities and Exchange Commission, or (ii) any securities exchange or the NASDAQ Stock Market on which shares of Common Stock of CBA are listed or quoted. Prior to filing or making publicly available any such report, notice, proxy statement, registration statement, prospectus or other writing which references or makes any disclosure concerning ABI or its business, CBA shall provide ABI a reasonable opportunity to review such report, notice, proxy statement, registration statement, prospectus or other writing and shall not make any such reference or disclosure concerning ABI or its business to which ABI reasonably objects. CBA shall timely file all material required to be filed by it pursuant to Section 13, 14 or 15 (d) of the Securities Exchange Act. All reports filed by CBA shall conform in all material respects to the requirements of the Securities Exchange Act, and none of such documents shall contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

(v)  OWNERSHIP PERCENTAGE. From time to time, ABI shall be permitted to request that CBA determine the percentage ownership of the outstanding Common Stock held by ABI or any other Person specified by ABI, and CBA shall promptly (but in any event no later than five Business Days after such request is made) and accurately provide ABI with a written determination of the percentage ownership of the outstanding Common Stock of ABI or such other Person, as of the date such request is made with such verification and detail as reasonably requested by ABI.

(vi)  NASDAQ LISTING. CBA shall not voluntarily delist or terminate the listing or quotation of the Common Stock on the NASDAQ Stock Market.

(k)           ACCESS TO BOOKS AND RECORDS.  CBA shall permit representatives of ABI to visit and inspect, at no charge to ABI, any of the properties of CBA and its Subsidiaries, to examine the corporate books and make copies or extracts therefrom and to discuss the affairs, finances and accounts of CBA and its Subsidiaries with the principal officers or employees of CBA, all at such reasonable times, upon reasonable notice and as often as ABI may reasonably request; provided that ABI shall be entitled to no information concerning the specific brewing processes or formulae used by CBA to brew its malt beverage products.

  

- 7 -

  

 

(l)           EXCHANGE OF STOCK CERTIFICATES. CBA will, at its expense, promptly upon surrender by ABI of any certificates representing shares of Common Stock at the corporate offices of CBA, execute and deliver to ABI a new certificate or certificates in any denominations specified by ABI for an aggregate number of shares of Common Stock equal to the number of shares of such stock represented by the certificates surrendered.

(m)           LOST, STOLEN, DESTROYED OR MUTILATED STOCK CERTIFICATES.  Upon receipt of evidence reasonably satisfactory to CBA of the loss, theft, destruction or mutilation of any certificate for shares of Common Stock and, in the case of loss, theft or destruction, upon delivery of an indemnity reasonably satisfactory to CBA (which, at the option of ABI, may be an undertaking by ABI to so indemnify CBA), or, in the case of mutilation, upon surrender and cancellation thereof, CBA will issue to ABI a new certificate of like tenor for a number of shares of Common Stock equal to the number of shares of such stock represented by the certificate lost, stolen, destroyed or mutilated.

(n)           AUDITORS.  CBA shall not change its independent certified public accounting firm except to an independent certified public accounting firm acceptable in the reasonable judgment of ABI.

(o)           COLLECTIVE BARGAINING AGREEMENTS. CBA acknowledges that CBA shall have complete responsibility and authority concerning recognition of collective bargaining units within its employees or those of its Subsidiaries,  the determination as to whether to enter into collective bargaining agreements or labor agreements with its employees or those of its Subsidiaries, and the terms of any such agreement.

(p)           REPRESENTATION OF ABI ON THE BOARD OF DIRECTORS. ABI shall be entitled to designate two individuals as directors of CBA, and except as provided in this section, CBA shall cause the number of members on the Board of Directors not to exceed eight. The Board of Directors shall recommend to the shareholders of CBA the election of such individuals. If the shareholders do not elect such individuals, within 30 days after the meeting of the shareholders the Board of Directors of CBA shall amend the Bylaws of CBA to increase the number of members on the Board of Directors to ten and appoint such individuals to the Board of Directors to fill these vacancies. ABI shall be entitled to designate an individual to be a member of each committee of the Board of Directors, except (i) with respect to a committee on which the individual is not permitted to be a member under applicable law or the requirements of any exchange or market on which the securities of CBA are listed or quoted or (ii) with respect to a committee formed to review or determine transactions or proposed transactions between ABI and CBA.

(q)           ABI STOCK OWNERSHIP. CBA shall take no action that would cause the shares of Common Stock registered in the name of ABI and its designees on the Effective Date to equal or exceed 50% of the outstanding Common Stock, as calculated pursuant to Section 5051(a) (2) (B) of the Internal Revenue Code of 1986 and the "controlled group" rules of Section 156 of the Internal Revenue Code of 1986.

  

- 8 -

  

 

2.2           TERMINATION OF CERTAIN COVENANTS. The rights and obligations of CBA and ABI set forth in Section 2.1(a),- (h), (j),  (k),  (n),   (p) and (q) and Section 2.3 shall terminate on the date on which ABI and its Affiliates do not hold, in aggregate, 5% or more of the outstanding Common Stock.  The rights and obligations of CBA and ABI set forth in Section 2.1(i) shall terminate on the Termination Date.

2.3           TRANSFERS OF SECURITIES.

(a)           Prior to any sale, transfer or conveyance by ABI of any shares of Common Stock, ABI shall provide CBA with written notice of its determination to sell, transfer or convey such shares, and CBA shall, within five Business Days of receipt of such notice, give ABI written notice informing ABI as to whether it desires to negotiate the purchase of such shares of Common Stock. Promptly upon ABI's receipt of a written notice delivered by CBA indicating a desire to negotiate the purchase and sale of such shares of Common Stock, CBA and ABI shall negotiate in good faith the terms governing the purchase and sale of such shares of Common Stock. In the event that ABI and CBA do not, within 30 days of ABI's receipt of the written notice from CBA, agree upon the terms governing the purchase and sale of such shares of Common Stock or in the event that CBA does not deliver to ABI written notice indicating a desire to negotiate the purchase of such shares of Common Stock within such five-day period, ABI may attempt to sell, transfer or convey such shares of Common Stock to any other Person, but shall not sell, transfer or convey such shares to any other party for cash, without giving CBA a 15-day right of first refusal concerning the same. In the event that ABI does not sell, transfer or convey such shares or enter into an agreement to sell, transfer or convey such shares within 90 days, ABI may not sell, transfer or convey such shares without compliance with the notice and negotiation provisions of this Section 2.3(a).

(b)           The provisions of Section 2.3(a) shall not apply to any sale, transfer or conveyance of shares by ABI (i) in a registered public offering pursuant to the terms of the Registration Rights Agreement, (ii) in connection with a tender or exchange offer made by any Person or Group other than ABI or its Affiliates, (iii) as a result of any merger, consolidation or share exchange of CBA with or into any other Person or (iv) to any Affiliate of ABI.

2.4           EFFECT ON OTHER AGREEMENTS. The parties agree that upon the execution and delivery hereof, the Original Agreement shall be of no further force and effect, but any rights and obligations accrued prior to such execution and delivery shall survive.  Nothing herein shall impair the rights and obligations of the parties under the Registration Rights Agreement, which remains in full force and effect in accordance with its terms, or any other agreement or instrument between the parties.

III.           INDEMNIFICATION

(a)           CBA agrees to indemnify and hold harmless ABI, its corporate Affiliates and its and their officers, directors and employees from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys’ fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against them, such officers, directors and employees in any manner relating to or arising out of (i) any untrue representation, breach of warranty or failure to perform any covenants by CBA contained herein or in any agreement to which CBA is a party or in any certificate or document delivered pursuant hereto or thereto, (ii) any Environmental Law applicable to CBA, (iii) any liability of CBA or its Subsidiaries that is not explicitly assumed by the indemnified party hereunder or in any other agreement between the parties, (iv) any liability to or claim of any former, present or future shareholder of CBA or other third party made on behalf of CBA or on their own behalf, arising out of the consummation or disclosure of the transactions described in any other agreement between the parties, and (v) the status of any employee or designee of ABI as a director of CBA.

  

- 9 -

  

 

(b)           ABI agrees to indemnify and hold harmless CBA and its officers, directors and employees from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys’ fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against CBA and such officers, directors and employees in any matter relating to or arising out of any untrue representation, breach of warranty or failure to perform any covenants by ABI contained herein or in any other agreement between the parties or in any certificate or document delivered pursuant hereto or thereto.

(c)           The foregoing indemnification provisions are in addition to, and not in derogation of, any statutory, equitable or common law remedy ABI, CBA and their respective officers, directors and employees may have for breach or representation, warranty or covenant.

(d)           Notwithstanding the foregoing provisions, the rights of indemnity of CBA, ABI, the corporate Affiliates of ABI and their respective officers, directors, employees and designees arising out of the CBA Distribution Agreement or the Registration Rights Agreement or any certificate or document delivered pursuant thereto shall be governed by the terms of the CBA Distribution Agreement or the Registration Rights Agreement, respectively.

III.           MISCELLANEOUS

3.1           NOTICES. Whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by another, or whenever any of the parties desires to give or serve upon another any such communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and either shall be delivered in person with receipt acknowledged or by registered or certified mail, return receipt requested, postage prepaid, or by telecopy and confirmed by telecopy answer back addressed as follows:

If to CBA at:

Craft Brewers Alliance, Inc.

929 North Russell Street

Portland, Oregon  97227

Attention:  Chief Executive Officer

Telecopy Number:  (503) 281-1496

with a copy to:

Miller Nash LLP

111 S.W. Fifth Avenue, Suite 3400

Portland, Oregon  97204

Attention:  Mike Ryan

Telecopy Number:  (503) 224-0155

  

- 10 -

  

 

If to ABI at:

Anheuser-Busch, Incorporated

One Busch Place

St. Louis, Missouri  63118

Attention:  Vice President- Business and

Wholesaler System Development

Telecopy Number:  (314) 765-9167

with a copy to:

Anheuser-Busch Companies, Inc.

One Busch Place

St. Louis, Missouri  63118

Attention:  Vice President and General Counsel

Telecopy Number:  (314) 577-0776

 

The parties agree to send such notices to such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, telecopied and confirmed by telecopy answerback, or three Business Days after the same shall have been deposited with the United States mail.

3.2           BINDING EFFECT; BENEFITS. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of the parties to this Agreement and their respective successors and permitted assigns. Nothing in this Agreement, express or implied, is intended or shall be construed to give any person other than the parties to this Agreement or their respective successors or assigns any legal or equitable right, remedy or claim under or in respect of any agreement or any provision contained herein.

3.3           AMENDMENT. Any amendment or waiver of any provision of this Agreement or any other agreement between the parties or any consent to any departure therefrom shall not be effective unless the same shall be in writing and signed by CBA and ABI and shall specifically refer to this Agreement or such other agreement.  Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained herein. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach, and no failure by either party to exercise any right or privilege hereunder shall be deemed a waiver of such party's rights or privileges hereunder or shall be deemed a waiver of such party's rights to exercise the same at any subsequent time or times hereunder.

3.4           SUCCESSORS AND ASSIGNS: ASSIGNABILITY. Except as provided in the next sentence, neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by either party hereto without the prior written consent of the other party hereto. Any right or remedy, arising hereunder or by reason hereof, shall be assignable by ABI to any direct or indirect subsidiary of Anheuser-Busch InBev nv/sa   without the prior written consent of CBA, so long as such Person assumes ABI's obligations hereunder and ABI remains liable for ABI's obligations hereunder. All covenants contained herein shall bind and inure to the benefit of the parties hereto and their respective successors and assigns.

  

- 11 -

  

 

3.5           REMEDIES. ABI and CBA, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of their rights under this Agreement. CBA and ABI agree that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by them of the provisions of Article II of this Agreement and hereby agree to waive the defense in any action for specific performance that a remedy at law would be adequate. Each party hereto shall be paid by the other party hereto for any reasonable costs and expenses incurred by it (including reasonable fees and expenses of counsel and whether incurred as a result of negotiations, legal proceedings or otherwise) in connection with the enforcement of its rights against such other party under any agreement between the parties.

3.6           APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the law of the State of Washington, without regard to the principles thereof regarding conflict of laws.

3.7           SECTION AND OTHER HEADINGS. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

3.8           SEVERABILITY. In the event that any one or more of the provisions contained in this Agreement shall be determined to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision or provisions in every other respect and the remaining provisions of this Agreement shall not be in any way impaired.

3.9           COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument.

3.10           NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Without the prior written consent of CBA, any information relating to CBA provided to ABI in connection with, or as a result of, its acquisition of the Common Stock (including  any such received  under Article II hereof) which is either confidential, proprietary, or otherwise not generally available to the public (but excluding (a) information ABI has obtained  independently  or from third-party sources without ABI's knowledge that the source has violated any fiduciary or other duty not to disclose such information, (b) information that otherwise becomes generally available to the public, or (c) information known to ABI other than as a result of its ownership of the securities of CBA or its designation of directors for CBA (the "Confidential Information")) will be kept confidential by ABI, using the same standard of care in safeguarding the Confidential Information as ABI employs in protecting its own proprietary information which ABI desires not to disseminate or publish and ABI will instruct its directors, officers, employees, and representatives (collectively, "Representatives") to so keep such Confidential Information confidential. ABI further represents that it will not, and it will instruct its Representatives not to, trade in Common Stock while in possession of material Confidential Information. It is understood (i) that such Representatives shall be informed by ABI of the confidential nature of the Confidential Information and (ii) that such Representatives shall be bound by the provisions of this Section 3.10 as a condition of receiving the Confidential Information. ABI shall not use any such confidential information to produce a malt beverage the formula of which duplicates any formula for a malt beverage produced by CBA.

  

- 12 -

  

 

3.11           PUBLICITY. Neither ABI nor CBA shall issue any press release or make any public disclosure regarding the transactions effected or contemplated hereby or their consummation without consulting the other party hereto.

3.12           ENTIRE AGREEMENT. This Agreement and the other agreements between the parties constitute the entire agreement among the parties hereto and supersede any prior understandings, agreements or representations by or among the parties hereto, written or oral, to the extent they are related in any way to the subject matter hereof.

3.13           FEES AND EXPENSES. Each of the parties hereto shall bear its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby.

3.14           CONSTRUCTION. Any reference to any federal, state, local or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. If either party has breached any  covenant contained herein in any respect, the existence of another covenant related to the same subject matter (regardless of the relative levels of specificity) that the party has not breached shall not detract from or mitigate the breach of the former representation, warranty or covenant.

References to this Agreement shall mean this Amended and Restated Exchange and Recapitalization Agreement, including all amendments, modifications and supplements and any exhibits or schedules to any of the foregoing, and shall refer to the Agreement as the same may be in effect at the time such reference becomes operative.

Any accounting term used in this Agreement shall have, unless otherwise specifically provided herein, the meaning customarily given such term in accordance with GAAP, and all financial computations hereunder shall be computed, unless otherwise specifically provided herein, in accordance with GAAP consistently applied. That certain terms or computations are explicitly modified by the phrase "in accordance with GAAP" shall in no way be construed to limit the foregoing. The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole, including the exhibits and schedules hereto, as the same may from time to time be amended, modified or supplemented, and not to any particular section, subsection or clause contained in this Agreement. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter.

  

- 13 -

  

 

IN WITNESS WHEREOF, CBA and ABI have executed this Agreement as of the day and year first above written.

	  	
CRAFT BREWERS ALLIANCE, INC.

	  	  	 	  
	  	
By:

	/s/ Terry E. Michaelson	 
	 	Title: 	President and Chief Executive Officer	 
	  	  	 	  
	  	  	 	  
	  	  	 	  
	  	
ANHEUSER-BUSCH, INCORPORATED

	  	  	 	  
	  	  	 	  
	  	
By:

	/s/ Michael R. Taylor	  
	  	
Title:

	Vice President, Corporate Real Estate	  
	  	  	 	  
	  	  	 	  
	  	
By:

	/s/ Thomas Larson	  
	  	
Title:

	Assistant Secretary	  

 

14

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00188-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00188-of-00352.parquet"}]]