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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 000-22857
SCHEID VINEYARDS INC.
(Exact name of small business issuer as specified in its charter)
Delaware 77-046183
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
13470 Washington Blvd.
Marina del Rey, California 90292
(Address of principal executive offices) (Zip Code)
(310) 301-1555
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
There were 6,567,000 shares outstanding of registrant's Common Stock, par
value $.001 per share, as of August 13, 1998, consisting of 3,192,000 shares
of Class A Common Stock and 3,375,000 shares of Class B Common Stock.
Transitional Small Business Disclosure Format (check one): Yes No X
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Page 1 of 16
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SCHEID VINEYARDS INC.
FORM 10-QSB INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
a. Balance Sheets at June 30, 1998
and December 31, 1997 3
b. Statements of Operations for the
three and six months ended
June 30, 1998 and 1997 4
c. Statements of Cash Flows for the
six months ended
June 30, 1998 and 1997 5
d. Notes to Financial Statements 6
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of
Proceeds 13
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of
Security Holders 14
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
Page 2 of 16
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCHEID VINEYARDS INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . $ 6,852 $ 14,483
Accounts receivable, trade . . . . . . . . . . 187 349
Accounts receivable, other . . . . . . . . . . -- 412
Inventories . . . . . . . . . . . . . . . . . . 3,977 1,102
Supplies, prepaid expenses and other current
assets . . . . . . . . . . . . . . . . . . . 470 813
----------- ------------
Total current assets. . . . . . . . . . . . 11,486 17,159
PROPERTY, PLANT AND EQUIPMENT, NET . . . . . . . . 32,405 27,795
LONG-TERM RECEIVABLE . . . . . . . . . . . . . . . 4,776 4,679
OTHER ASSETS, NET. . . . . . . . . . . . . . . . . 345 236
----------- ------------
$ 49,012 $ 49,869
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt . . . . . . . $ 660 $ 660
Accounts payable and accrued liabilities . . . 615 519
Accrued interest payable . . . . . . . . . . . 281 315
----------- ------------
Total current liabilities . . . . . . . . . 1,556 1,494
LONG-TERM DEBT, NET OF CURRENT PORTION . . . . . . 17,776 17,851
DEFERRED COMPENSATION. . . . . . . . . . . . . . . 706 662
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . 888 741
----------- ------------
Total liabilities . . . . . . . . . . . . . . 20,926 20,748
----------- ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; 2,000,000
shares authorized; no shares issued and
outstanding . . . . . . . . . . . . . . . . . . . -- --
Common stock,
Class A, $.001 par value; 20,000,000 shares
authorized; 3,325,000 and 2,300,000 shares
issued in 1998 and 1997, respectively
Class B, $.001 par value; 10,000,000 shares
authorized; 3,375,000 and 4,400,000 shares
issued in 1998 and 1997, respectively . . . . . 7 7
Additional paid-in capital . . . . . . . . . . . . 21,872 21,797
Retained earnings. . . . . . . . . . . . . . . . . 6,551 7,317
Less treasury stock; 50,000 Class A shares at
cost in 1998, none in 1997 . . . . . . . . . . . (344) --
----------- ------------
Total stockholders' equity . . . . . . . . . . 28,086 29,121
----------- ------------
$ 49,012 $ 49,869
----------- ------------
----------- ------------
</TABLE>
See accompanying Notes to Financial Statements
Page 3 of 16
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SCHEID VINEYARDS INC. AND SUBSIDIARY
STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------------ -------------------
1998 1997 1998 1997
------- ------ ------- -------
<S> <C> <C> <C> <C>
REVENUES:
Sales . . . . . . . . . . . . . . . . $ 438 $ 16 $ 745 $ 16
Vineyard management, services and
other fees . . . . . . . . . . . . . 224 216 437 563
------- ------ ------- -------
Total revenues . . . . . . . . . . 662 232 1,182 579
COST OF SALES . . . . . . . . . . . . . 212 24 343 24
------- ------ ------- -------
GROSS PROFIT . . . . . . . . . . . . . 450 208 839 555
General and administrative expenses . 944 830 2,147 1,458
Interest expense (income), net . . . (17) 137 (32) 322
------- ------ ------- -------
LOSS BEFORE INCOME TAX BENEFIT . . . . (477) (759) (1,276) (1,225)
INCOME TAX BENEFIT . . . . . . . . . . 191 -- 510 --
------- ------ ------- -------
NET LOSS . . . . . . . . . . . . . . . $ (286) $ (759) $ (766) $(1,225)
------- ------ ------- -------
------- ------ ------- -------
BASIC AND DILUTED LOSS PER SHARE . . . $(0.04) $(0.17) $ (0.11) $(0.28)
------- ------ ------- -------
------- ------ ------- -------
PRO FORMA AMOUNTS:
LOSS BEFORE INCOME TAXES AS REPORTED. . $ (759) $(1,225)
PRO FORMA INCOME TAX BENEFIT . . . . . 304 490
------ --------
PRO FORMA NET LOSS. . . . . . . . . . . $ (455) $ (735)
------ --------
------ --------
PRO FORMA BASIC AND DILUTED NET LOSS
PER SHARE. . . . . . . . . . . . . . . $(0.10) $ (0.17)
------ --------
------ --------
WEIGHTED AVERAGE SHARES OUTSTANDING . . 6,699 4,400 6,700 4,400
------- ------ ------- -------
------- ------ ------- -------
</TABLE>
See accompanying Notes to Financial Statements
Page 4 of 16
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SCHEID VINEYARDS INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . $ (766) $(1,225)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation, amortization and abandonments . . . . . . 813 526
Deferred compensation . . . . . . . . . . . . . . . . . 44 38
Noncash compensation . . . . . . . . . . . . . . . . . . 75 --
Deferred income taxes . . . . . . . . . . . . . . . . . 147 --
Changes in operating assets and liabilities:
Accounts receivable, trade . . . . . . . . . . . . . . 162 271
Accounts receivable, stockholder . . . . . . . . . . . -- (3,030)
Accounts receivable, other . . . . . . . . . . . . . . 412 (9)
Inventories. . . . . . . . . . . . . . . . . . . . . . (2,875) (3,966)
Supplies, prepaid expenses and other current assets. . 343 (611)
Accounts payable and accrued liabilities . . . . . . . 62 1,346
--------- ---------
Net cash used in operating activities. . . . . . . . (1,583) (6,660)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Long-term receivable . . . . . . . . . . . . . . . . . . . (97) (1,533)
Additions to property, plant and equipment . . . . . . . . (5,423) (8,525)
Other assets . . . . . . . . . . . . . . . . . . . . . . . (109) 62
--------- ---------
Net cash used in investing activities. . . . . . . . (5,629) (9,996)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt . . . . . . . . . . . . . . . . 1,094 3,963
Repayment of long-term debt. . . . . . . . . . . . . . . . (1,169) --
Borrowings on notes payable, short-term . . . . . . . . . -- 10,500
Repayments on notes payable, short-term . . . . . . . . . -- (1,807)
Repurchase of shares . . . . . . . . . . . . . . . . . . . (344) --
Partnership distributions . . . . . . . . . . . . . . . . -- (24)
--------- ---------
Net cash (used in) provided by financing activities. (419) 12,632
--------- ---------
Decrease in cash and cash equivalents. . . . . . . . (7,631) (4,024)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . . . 14,483 4,024
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . $ 6,852 $ 0
--------- ---------
--------- ---------
</TABLE>
See accompanying Notes to Financial Statements.
Page 5 of 16
<PAGE>
SCHEID VINEYARDS INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The financial statements included herein have been prepared by Scheid
Vineyards Inc. (the "Company" or "SVI") without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission (the "SEC").
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such SEC rules and regulations. In
the opinion of management of the Company, the foregoing statements contain
all adjustments necessary to present fairly the financial position of the
Company as of June 30, 1998, and its results of operations for the three and
six-month periods ended June 30, 1998 and 1997 and its cash flows for the
six-month periods ended June 30, 1998 and 1997. Due to the seasonality of
the wine grape business, the interim results reflected in the foregoing
financial statements are not considered indicative of the results expected
for the full fiscal year. The Company's balance sheet as of December 31,
1997 included herein has been derived from the Company's audited financial
statements as of that date included in the Company's Annual Report on Form
10-KSB. The accompanying financial statements should be read in conjunction
with the financial statements and the notes thereto filed as part of the
Company's Annual Report on Form 10-KSB.
The Company completed its initial public offering of 2,000,000 shares of
Class A Common Stock, par value $.001 per share, on July 30, 1997. On
September 3, 1997, the underwriters of the Company's public offering
exercised their over-allotment option to purchase 300,000 additional shares
of Class A Common Stock. In connection with such sales of Class A Common
Stock, the Company realized approximately $20 million in net proceeds.
The Company reported its operations through the date of the Exchange
Transaction described below on a combined basis. See "Exchange Transaction,
S Corporation Conversion and Pro Forma Amounts". Since the date of the
Exchange Transaction, the Company reports its operations on a consolidated
basis. All significant intercompany balances have been eliminated in the
combinations and consolidation.
RECENT DEVELOPMENTS
In July 1998, the Company entered into a long-term line of credit
agreement with its principal bank which expires in July 2008 and provides for
maximum borrowings totaling $3,600,000, which diminish annually through the
expiration date. Borrowings on the facility bear interest at the bank's
"reference" or "cost of funds" rate, and are collateralized by a first deed
of trust on the Company's 370-acre Riverview Vineyard. In addition, the
Company renewed its "crop" line of credit with its bank in June 1998. The
current crop loan has maximum credit available of $10,500,000 and expires in
June 2000. There are currently no amounts outstanding under either of the
above credit facilities.
Page 6 of 16
<PAGE>
In June 1998, the Company made a block purchase of 50,000 shares of its
Class A Common Stock in the open market at a total purchase price of
$344,000. In July 1998, the Company made another block purchase of 53,000
shares, at a total purchase price of $364,000. Futhermore, in July 1998, the
Company instituted a stock repurchase program under which the Company may
purchase in open market transactions and block purchases up to a maximum of
200,000 shares of its Class A Common Stock at such times, in such amounts or
blocks, and at such prices as deemed appropriate. The Company has made a
block purchase of 30,000 shares under this program at a total purchase price
of $203,000. The shares purchased by the Company are currently held by the
Company as treasury shares.
In June 1998, the Company entered into a long-term grape purchase
contract with United Distillers and Vintners Inc. (formerly Heublein, Inc.
and IDV) covering approximately 325 acres located on the Company's Hames
Valley Vineyard. The contract runs until 2014 with an "evergreen" renewal
provision requiring two years' prior written notice of termination. The
Company will begin delivering grapes under the contract on approximately
one-half of the acres in 1999 and the balance in 2000.
In addition, in May 1998, the Company entered into a long-term grape
purchase contract with Beringer Wine Estates covering approximately 88 acres
of vineyards. The contract, which begins in 1998, runs through 2004 and
contains an "evergreen" provision which provides for automatic extensions
beyond 2004 under certain conditions.
In May 1998, a principal stockholder of the Company sold 1,000,000
shares of Class A Common Stock in an underwritten public offering, which
shares were converted from an equal number of shares of Class B Common Stock
in connection with the sale. The Company received no proceeds from the sale
of these shares.
EXCHANGE TRANSACTION, S CORPORATION CONVERSION AND PRO FORMA AMOUNTS
EXCHANGE OF SHARES, PARTNERSHIP UNITS AND LIMITED LIABILITY COMPANY
INTERESTS FOR CLASS B COMMON STOCK -- Prior to the Company's initial public
offering, Scheid Vineyards California Inc., a California corporation and
wholly-owned subsidiary of the Company ("SVI-Cal"), was the general partner
of two California limited partnerships, Vineyard Investors 1972 ("VI-1972")
and Vineyard 405 ("V-405") and was a member of a California limited liability
company, Quadra Partners LLC ("Quadra Partners"). SVI-Cal and VI-1972 were
the only limited partners of V-405. In connection with the Company's public
offering, Scheid Vineyards Inc., a Delaware corporation ("SVI-Del") was
formed to act as a holding company for SVI-Cal. The capital stock of SVI-Cal
held by its sole stockholder, the membership interests held by all members
(other than SVI-Cal) of Quadra Partners, and the limited partnership units
held by all limited partners (other than SVI-Cal) in VI-1972 were contributed
to SVI-Del in exchange for (i) 4,400,000 shares of Class B Common Stock of
the Company (the "Exchange Transaction") and (ii) a commitment by SVI-Cal to
make certain distributions. SVI-Del, as part of the Exchange Transaction,
simultaneously contributed such limited partnership units in VI-1972 and such
membership interests in Quadra Partners to SVI-Cal. As a result, each of
VI-1972, V-405 and Quadra Partners was terminated and dissolved, and SVI-Cal
succeeded to their respective assets and liabilities.
Page 7 of 16
<PAGE>
S CORPORATION CONVERSION -- The Exchange Transaction resulted in
termination of SVI-Cal's S Corporation status. As a result, after July 30,
1997, SVI pays income taxes at the corporate level. The pro forma income tax
benefit in the statements of operations for the three and six-month periods
ended June 30, 1997 is based upon an assumed 40% combined federal and state
income tax rate.
EARNINGS PER SHARE AND CLASSES OF COMMON STOCK -- The weighted average
shares outstanding in the statement of operations for the three and six-month
periods ended June 30, 1997 are based upon the 4,400,000 shares of Class B
Common Stock outstanding after giving pro forma effect to the Exchange
Transaction. In connection with the stock offering, the Company sold
2,300,000 shares of Class A Common Stock. The weighted average shares
outstanding for the three and six-month periods ended June 30, 1998 are based
on the actual weighted average shares of Class A and Class B Common Stock
outstanding for the respective periods. The effect of outstanding stock
options on the weighted average shares was antidilutive for the periods
presented.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
SVI is a leading independent (I.E., not winery controlled) producer of
premium varietal wine grapes. The Company currently operates approximately
5,280 acres of wine grape vineyards. Of this total, approximately 3,600 acres
are operated for the Company's own account, and 1,680 acres are operated
under management contracts for others. All of the properties currently
operated by the Company are located in Monterey and San Benito Counties in
California, both of which are generally recognized as excellent regions for
growing high quality wine grape varieties.
The Company currently grows 20 varieties of premium wine grapes, with
over 64% of its acreage planted in the so-called "Big 3" varieties of
Chardonnay, Merlot and Cabernet Sauvignon. Substantially all of the
Company's current wine grape production is contracted at least through the
harvest of 2001, and the majority is contracted at least through the harvest
of 2006.
The wine grape business is extremely seasonal. The Company recognizes
substantially all of its crop sales revenue at the time of its annual harvest
in September and October, and costs incurred throughout the year to farm and
harvest the Company's wine grape crop are capitalized until the revenues
associated with such costs are recognized. Because success of the Company's
operations is dependent upon the results of the Company's annual harvest, the
first two fiscal quarters have historically resulted in a loss, and quarterly
results are not considered indicative of those to be expected for a full
year. Profits, if any, are recognized in the last two fiscal quarters of the
year when revenues from grape sales are recognized. From time to time, the
Company has in the past, and may in the future, convert grapes into bulk wine
for sales in years subsequent to the harvest year, which may impact quarterly
results.
Page 8 of 16
<PAGE>
The 1998 growing season has been one of unseasonably cool and cloudy
weather which continued from late May into mid-July. This weather condition
has caused mildew and other problems which has delayed vine growth and crop
development in most California coastal and some interior vineyards.
Controlling these problems in the Company's vineyards necessitated leaf
removal, thinning, spraying and other activities, resulting in higher than
expected farming expenses. Recent industry crop surveys for the coastal
regions estimate that the 1998 grape crop will be down 15% to 20% from 1997's
record high crop year. The Company's most recent internal crop projections
indicate a decrease in tonnage for the 1998 harvest generally in line with
these industry estimates. This anticipated reduction in revenue and increase
in expenses is expected to be partically offset by price increases averaging
about 11%.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1998 AND 1997
REVENUES. SVI derives its revenues from four sources: (i) sales of
wine grapes pursuant to long-term purchase contracts; (ii) sales of bulk
wine; (iii) vineyard management and services revenues consisting primarily of
management and harvest fees and equipment rentals for services provided to
owners of vineyards; and (iv) sales of wine and wine-related merchandise sold
primarily through the Company's tasting room which opened in late April 1997.
Sales (which include all revenues other than revenues from vineyard
management services and other fees) increased to $745,000 in the six months
ended June 30, 1998 from $16,000 in the 1997 period, an increase of $729,000.
Sales for the six months ended June 30, 1998 is comprised of $669,000 in bulk
wine sales and $76,000 from the sale of wine and wine-related merchandise at
the Company's tasting room. Sales for the six months ended June 30, 1997
consisted entirely of sales of wine and wine-related merchandise at the
Company's tasting room.
Revenue from vineyard management services and other fees decreased by
22.4% to $437,000 for the six months ended June 30, 1998 from $563,000 in the
1997 period, a decrease of $126,000. The decrease was primarily due to a
one-time development fee received under a new management agreement entered
into in the first quarter of 1997.
GROSS PROFIT. Gross profit for the six months ended June 30, 1998 was
$839,000 compared to $555,000 for the six months ended June 30, 1997, an
increase of $284,000 or 51.2%. This increase resulted primarily from the sale
of bulk wine in 1998, partially offset by the decrease in vineyard management
services and other fees discussed above. Costs associated with the provision
of management services are reimbursed by the Company's clients, therefore, no
cost of sales is deducted in determining gross profit on these services.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased by 47.3% to $2,147,000 for the six months ended June 30, 1998 from
$1,458,000 in the 1997 period, an increase of $689,000. The increase was due
primarily to costs associated with additional compensation and related
benefits and overall office expense due to the expansion of the Company's
business, costs associated with the operations of a public company, as well
as the operations of the Company's tasting room.
INTEREST EXPENSE (INCOME), NET. Net interest expense (income) was
($32,000) for the six months ended June 30, 1998 and $322,000 in the 1997
period, a decrease of $354,000. Interest expense decreased to $291,000 for
the six months ended June 30, 1998 from $337,000 in the 1997 period,
primarily as a result of lower interest rates in the 1998 period and
borrowings in 1997 under the Company's crop line of credit. There have been
no such borrowings in 1998. Interest income increased to $323,000 for the
six months ended June 30, 1998 from $15,000 in the 1997 period. The increase
in interest income was due to the increase in cash holdings of the Company
from 1997 to 1998, primarily as the result of funds received in the Company's
initial public offering in July 1997, and cash received from an above-average
harvest in 1997.
Page 9 of 16
<PAGE>
INCOME TAX BENEFIT. The income tax benefit increased to $510,000 for
the six months ended June 30, 1998 from $0 in the 1997 period. The Company
paid no income taxes prior to becoming a C Corporation in July 1997.
NET LOSS. Net loss for the six months ended June 30, 1998 was $766,000
as compared to $1,225,000 in the 1997 period, a decrease of $459,000 or
37.5%. On a pro forma basis, net loss for the six months ended June 30, 1997
was $735,000. Pro forma net loss is derived by providing an income tax
benefit as if the Company had been a C Corporation for the six months ended
June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
SVI's primary sources of cash have historically been funds provided by
internally generated cash flow and bank borrowings. The Company has made
substantial capital expenditures to redevelop its existing vineyard
properties and acquire and develop new acreage, and the Company intends to
continue these types of expenditures. Cash generated from operations has not
been sufficient to satisfy all of the Company's working capital and capital
expenditure needs. As a consequence, the Company has depended upon and
continues to rely upon, both short and long-term bank borrowings. Primarily
as the result of the net proceeds received from the Company's initial public
offering and operating cash flows from the 1997 harvest, working capital
increased to $9,930,000 at June 30, 1998 from $2,254,000 at June 30, 1997, an
increase of $7,676,000. At December 31, 1997, working capital was
$15,665,000. The reduction in working capital from December 31, 1997 to June
30, 1998 was primarily due to the expenditures of current working capital to
fund vineyard development.
Under the Company's historical working capital cycle, working capital is
required primarily to finance the costs of growing and harvesting its wine
grape crop. The Company normally delivers substantially all of its crop in
September and October, and receives the majority of its cash from grape sales
in November. In order to bridge the gap between incurrence of expenditures
and receipt of cash from grape sales, large working capital outlays are
required for approximately eleven months each year. Historically, SVI has
obtained these funds pursuant to credit lines with banks.
The Company currently has credit lines that provide both short-term and
long-term funds. The short-term "crop" line has maximum credit available of
$10,500,000 and is intended to finance the Company's anticipated working
capital needs. This crop line was renewed in June 1998 and expires June 5,
2000. There were no amounts outstanding under this line at June 30, 1998.
Although no assurances can be given, management believes that the Company's
existing working capital and short-term borrowing capabilities will be
adequate to meet the Company's currently anticipated liquidity needs during
the fiscal year ending December 31, 1998.
SVI also has long-term credit facilities which expire through July 2008
and provide for maximum borrowings totaling $10,885,000, which diminish
annually through the expiration dates to a maximum allowable commitment of
$5,412,000. At June 30, 1998, the outstanding amount owed by the Company
under these facilities was $6,686,000. The interest rate on each of these
lines is based on the bank's "reference" or "cost of funds" rate. At June
30, 1998, the weighted average per annum interest rate on these
Page 10 of 16
<PAGE>
lines was 7.73%.
The Company also has other long-term notes payable which, as of June 30,
1998, totaled approximately $6,974,000. Each of these notes is primarily
secured by deeds of trust, leasehold interests or equipment, and has an
interest rate based on the bank's "reference" or "cost of funds" rate. At
June 30, 1998, the weighted average per annum interest rate on these notes
payable was 7.82%.
The Company also has a $7,500,000 bank line of credit, the proceeds of
which are being used to develop a vineyard owned by a major client and
managed under a long-term contract by the Company. At June 30, 1998, the
outstanding balance on this line of credit was $4,776,000. This line bears
interest at the bank's reference rate (6.12% at June 30, 1998) and is
repayable in six annual installments beginning January 2000. The note is
secured by a letter of credit provided by the client and by the Company's
management contract. The management contract provides for the Company's
client to make payment of the annual principal installments under this line
as and when they become due.
The Company's principal credit facilities and notes payable bind the
Company to a number of affirmative and negative covenants, including
requirements to maintain certain financial ratios within certain parameters
and to satisfy certain other financial tests. At June 30, 1998, the Company
was in compliance with these covenants.
Management expects that capital requirements will expand significantly
to support expected future growth and that this will result in the
expenditure of the Company's available cash and additional borrowing under
credit lines and/or new arrangements for term debt. The Company's planned
new vineyard developments are expected to require approximately $7.3 million
in capital investment over the next three years, and continued improvements
of existing vineyards are expected to require approximately $8 million.
Management believes it should be able to obtain long-term funds from its
present principal lender, but there can be no assurance that the Company will
be able to obtain financing when required or that such financings will be
available on reasonable terms.
Cash used in operating activities was $1,583,000 for the six months
ended June 30, 1998, compared to $6,660,000 for the same period in 1997, a
decrease of $5,077,000. The decrease in the cash used for operations was
primarily due to (i) a decrease in the net loss from 1997 to 1998 in the
amount of $459,000, (ii) a increase in 1997 of a receivable due from a
Company stockholder for distributions in the amount of $3,030,000, and (iii)
a net decrease in the amount of $761,000 for expenditures for inventories,
supplies and other current assets, and accounts payable and accrued
liabilities as the result of timing differences in the incurrence of crop
costs.
Cash used in investing activities was $5,629,000 for the six months
ended June 30, 1998, compared to $9,996,000 for the same period in 1997, a
decrease of $4,367,000. The decrease was principally the result of
reductions in additions to property, plant and equipment, and net repayments
of a long-term receivable. The additions to property and equipment in 1998
were primarily due to the improvements of the Company's existing vineyards,
and ongoing development of approximately 329 acres of new vineyards. In
1997, the additions were due to the acquisition of the Company's Riverview
Vineyard in June 1997, and the
Page 11 of 16
<PAGE>
development of existing vineyards. The decrease in long-term receivables was
due to the repayment of a portion of the costs incurred for the development
of certain vineyards owned by a major client of the Company who has provided
a letter of credit to secure repayment.
Cash used in financing activities was $419,000 for the six months ended
June 30, 1998, compared to cash provided by financing activities of
$12,632,000 for the same period in 1997. During the six months ended June
30, 1998, the credit line and related receivable from a major client were
reduced by $997,000 as described above. There were no such repayments for
the same period in 1997. In addition, in 1997 the Company borrowed
approximately $10,500,000 against its crop line of credit to fund 1997 crop
costs. There were no such additional borrowings in 1998 as the Company has
had sufficient working capital to fund 1998 crop costs.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Management's Discussion and
Analysis of Financial Condition and Results of Operations are
"forward-looking statements". These forward-looking statements can
generally be identified as such because the context of the statement
will include such words as the Company "believes," "anticipates,"
"expects," or words of similar import. Similarly, statements that
describe the Company's future operating performance, financial results,
plans, objectives or goals are also forward-looking statements. Such
forward looking statements are subject to certain factors, risks and
uncertainties which could cause actual results to differ materially from
those currently anticipated. Such factors, risks and uncertainties
include, but are not limited to, (i) success in planting, cultivating
and harvesting of existing and new vineyards, including the effects of
weather conditions (ii) success in, and the timing of, future
acquisitions, if any, of additional properties for vineyard development
and related businesses as well as variability in acquisition and
development costs, (iii) consumer demand and preferences for the wine
grape varieties produced by the Company, (iv) general health and social
concerns regarding consumption of wine and spirits, (v) the size and
growth rate of the California wine industry, (vi) seasonality of the
wine grape producing business, (vii) increases or changes in government
regulations regarding environmental impact, water use, labor or
consumption of alcoholic beverages, (viii) competition from other
producers and wineries, (ix) proposed expansion of the Company's wine
business, (x) effects of variances in grape yields and prices from
harvest to harvest due to agricultural, market and other factors and
relatively fixed farming costs, (xi) the Company's dependence on a small
number of clients for the purchase of a substantial portion of the
Company's grape production, (xii) the availability of financing on terms
acceptable to the Company, and (xiii) the Company's labor relations.
These and other factors, risks and uncertainties are discussed in
greater detail under the caption "Business - Cautionary Information
Regarding Forward Looking Statements" in the Company's Annual Report on
Form 10-KSB filed with the Securities and Exchange Commission on
March 30, 1998 and under the caption "Risk Factors" in the Company's
Prospectus dated May 8, 1998 filed with the Securities and Exchange
Commission. Stockholders, potential investors and other readers are
urged to consider these factors carefully in evaluating the forward-
looking statements and are cautioned not to place undo reliance on such
forward-looking statements. The forward-looking statements made herein
are only made as of the date of this Form 10-QSB and the Company
undertakes no obligation to publicly update such forward-looking
statements to reflect subsequent events or circumstances.
Page 12 of 16
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
CHANGE IN SECURITIES - None
USE OF PROCEEDS FROM INITIAL PUBLIC OFFERING -
As part of the Company's initial public offering, the Company
issued 2,000,000 and 300,000 shares, respectively, of its Class A
Common Stock, $.001 par value (the "IPO Shares"), on July 30 and
September 8, 1997. The offering terminated upon the consummation
of the closing of the exercise of the underwriters' overallotment
option on September 8, 1997. The IPO Shares were issued in a
registered offering pursuant to a Registration Statement on Form
SB-2 (Commission File No. 333-27871; effective date July 24, 1997)
through a syndicate of underwriters, the representatives of which
were Cruttenden Roth Incorporated, Laidlaw Equities, Inc. and
Rodman & Renshaw, Inc. The IPO Shares were offered and sold by the
underwriters at an initial public offering price of $10.00 per
share, resulting in aggregate gross offering proceeds of
$23,000,000.
The Company incurred offering expenses in connection with this
offering as follows:
<TABLE>
<CAPTION>
<S> <C>
Underwriting discounts and commissions $1,725,000
Expenses paid to or for underwriters 575,000
Other expenses 732,000
----------
Total expenses $3,032,000
----------
----------
</TABLE>
None of the above expenses were paid either directly or indirectly
to directors, officers, general partners of the Company or its
associates, or to persons owning more than 10% of any class of
equity security of the Company or to affiliates of the Company.
Page 13 of 16
<PAGE>
Through June 30, 1998, the Company has applied all of the $19,968,000 in
net offering proceeds as follows:
<TABLE>
<CAPTION>
<S> <C>
Repayment of working capital indebtedness (1) $9,200,000
Development of vineyards in Hames Valley 2,800,000
Repayment of short-term note payable (1) 3,000,000
Working capital for existing vineyards and
general corporate purposes 2,500,000
Capital improvements for existing vineyards 2,468,000
----------
Total proceeds applied $19,968,000
----------
----------
</TABLE>
________________________________________________________________
(1) In order to reduce net interest expense, the Company temporarily used
a portion of the proceeds from the initial closing of the offering to
repay outstanding indebtedness related to its acquisition of Riverview
Vineyard in June 1997 with the intention of funding expenditures for
acquiring and developing additional vineyard properties out of future
borrowings under its lines of credit or other indebtedness. In this
regard, the Company has entered into long-term financing for the
Riverview Vineyard. See "Item 1- Notes to Financial Statements -
Recent Developments".
None of the above applications of the net offering proceeds were paid
either directly or indirectly to directors, officers, general partners of
the Company or its associates, to persons owning more than 10% of any
class of equity security of the Company or to affiliates of the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 1998 Annual Meeting of Stockholders on May 28,
1998. A total of 2,087,605 shares of Class A Common Stock and
4,374,000 shares of Class B Common Stock or 89.8% and 99.9%, of the
stockholders of record as of April 16, 1998 respectively, were present
or represented at the meeting.
Each class of Common Stock votes separately in the election of
directors, with the holders of Class A Common Stock currently being
entitled to elect two directors and the holders of
Class B Common Stock currently being entitled to elect three
directors. Each share of Class A Common Stock is entitled to one vote
and each share of Class B Common Stock is entitled to five votes on
all other matters submitted to vote of stockholders.
Page 14 of 16
<PAGE>
The following persons were elected to the Board of Directors of the
Company by the Class A stockholders, each of whom was an existing
director at that time: John L. Crary and Robert B. Hartzell. The
number of shares voting in favor of each nominee was 2,084,350 and the
number of shares withholding votes was 3,255.
The following persons were elected to the Board of Directors of the
Company by the Class B stockholders, each of whom was an existing
director at that time: Alfred G. Scheid, Scott D. Scheid and Heidi M.
Scheid. The number of shares voting in favor of each nominee was
21,870,000 and the number of shares withholding votes was 0.
No other persons were nominated for election to the Board of
Directors.
In addition, the stockholders voted to amend the Certificate of
Incorporation and the Company's Bylaws. A total of 23,642,249 votes
were cast for the amendments, 1,240 votes were cast against the
amendments, and 1,655 votes abstained.
ITEM 5. OTHER INFORMATION
FUTURE STOCKHOLDER PROPOSALS --
Any stockholder proposal intended to be presented at the 1999
Annual Meeting of Stockholders in accordance with the procedures
set forth in Rule 14a-8 of the Securities and Exchange Commission
must be submitted sufficiently far in advance so that it is
received by the Company not later than December 24, 1998. In the
event that any stockholder proposal is presented at the 1999 Annual
Meeting of Stockholders other than in accordance with the
procedures set forth in Rule 14a-8, proxies solicited by the
Company for such meeting will confer upon the proxy holders
discretionary authority to vote on any matter so presented of which
the Company does not have notice prior to March 11, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herewith:
10.1* Grape Purchase Agreement, dated April 15, 1998, by and
between Scheid Vineyards California Inc., a California
corporation, and International Distillers and Vintners
North America, Inc., a Connecticut corporation. (See
also Exhibit 99.1)
10.2 Third Amendment to Agricultural Credit Agreement, dated
June 5, 1998, by and between Sanwa Bank California and
Scheid Vineyards California Inc.
10.3 Line of Credit Agreement, dated June 15, 1998, by and
between Sanwa Bank California and Scheid Vineyards
California Inc.
27.1 Financial Data Schedule (electronically filed herewith)
99.1 Supplemental Agreement of Scheid Vineyards Inc.
______________________
* Portions of this Exhibit have been deleted pursuant to the
Company's request for confidential treatment pursuant to Rule
24b-2 promulgated under the Securities Exchange Act.
Page 15 of 16
<PAGE>
(b) The Company did not file any reports on Form 8-K during the
quarter for which this report is filed.
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 thereunto duly authorized.
Date: August 13, 1998 SCHEID VINEYARDS INC.
/s/ Heidi M. Scheid
------------------------
Heidi M. Scheid
Vice President Finance and Chief Financial
Officer
(Duly Authorized Officer and Principal Financial
Officer)
/s/ Ernest M. Brown
------------------------
Ernest M. Brown
Vice President and Secretary
(Duly Authorized Officer and Principal Accounting
Officer)
Page 16 of 16
<PAGE>
EXHIBIT 10.1
CERTAIN PORTIONS OF THIS DOCUMENT FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED HAVE BEEN REDACTED. REDACTIONS ARE INDICATED BY A DOUBLE PAIR OF
EMPTY BRACKETS ("[[ ]]").
<PAGE>
GRAPE PURCHASE AGREEMENT
BETWEEN
SCHEID VINEYARDS CALIFORNIA INC.
AND
INTERNATIONAL DISTILLERS AND VINTNERS
NORTH AMERICA, INC.
DATED APRIL 15, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
1. SALE AND PURCHASE. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. TERM OF AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4. PAYMENT TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5. FARMING PRACTICES AND DEVELOPMENT PLAN . . . . . . . . . . . . . . . . 5
6. ANNUAL PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7. ANNUAL REPORT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8. SCHEID TO CONSULT WITH IDV; RESPONSES TO EMERGENCIES . . . . . . . . . 9
9. FROST PROTECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
10. HARVEST, DELIVERY AND ACCEPTANCE OF GRAPES . . . . . . . . . . . . . . 11
11. BULK TANK AND GONDOLA STANDARDS. . . . . . . . . . . . . . . . . . . . 12
12. COVENANTS, REPRESENTATIONS, AND WARRANTIES OF SCHEID . . . . . . . . . 12
13. INSPECTION AND WEIGHING. . . . . . . . . . . . . . . . . . . . . . . . 13
14. GRAPE QUALITY TARGETS AND STANDARDS. . . . . . . . . . . . . . . . . . 14
15. QUALITY PROBLEMS RELATED TO SCHEID PERFORMANCE . . . . . . . . . . . . 16
16. MECHANICAL GRAPE HARVESTING. . . . . . . . . . . . . . . . . . . . . . 16
17. PESTICIDES, HERBICIDES, NEMATOCIDES, ETC.. . . . . . . . . . . . . . . 17
18. AGRICULTURAL EMPLOYER. . . . . . . . . . . . . . . . . . . . . . . . . 17
19. ENTRY TO SCHEID'S PROPERTY . . . . . . . . . . . . . . . . . . . . . . 18
20. NON-ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
21. MATTERS BEYOND SCHEID'S CONTROL. . . . . . . . . . . . . . . . . . . . 19
22. BINDING EFFECT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23. AUTHORITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
24. WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
25. CONFLICT OF PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . 20
26. ARTICLE HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
27. CUMULATIVE RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
28. RECORDING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
29. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
30. TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
31. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
32. MEDIATION OF DISPUTES; ARBITRATION . . . . . . . . . . . . . . . . . . 23
33. ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
34. CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
35. ATTORNEYS' FEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
36. DISCLAIMERS BY SCHEID. . . . . . . . . . . . . . . . . . . . . . . . . 25
37. CHANGES IN CRUSH REPORT. . . . . . . . . . . . . . . . . . . . . . . . 25
38. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
39. BREACH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
EXHIBITS
A Property Description - {Omitted-See Exhibit 99.1}
B Lease - {Omitted-See Exhibit 99.1}
C-1 Development Plan
-i-
<PAGE>
C-2 Vineyard Layout Map - {Omitted-See Exhibit 99.1}
D-1 Examples of Purchase Price Adjustments
D-2 Direct Labor Rate Calculation
E Operational Cost Categories
-ii-
<PAGE>
GRAPE PURCHASE AGREEMENT
This Agreement is made as of the 15th day of April, 1998, by and
between SCHEID VINEYARDS CALIFORNIA INC., a California corporation
(hereinafter "Scheid"), and INTERNATIONAL DISTILLERS AND VINTNERS NORTH
AMERICA, INC., a Connecticut corporation (hereinafter "IDV"), for the sale
and purchase of the varieties of grapes as listed in Section 1 below
(hereinafter "Grapes"), part of which were planted by Scheid in the Summer of
1997 and the balance of which are to be planted in the Spring of 1998 on the
real property commonly known as Terra Vita Vineyard in the Hames Valley area
near King City in Monterey County, California, State Pricing District No. 7,
legally described as set forth on EXHIBIT A attached hereto (hereinafter, the
"Property"):
For the purpose of this Agreement, even though a portion of the
Property was planted in the Summer of 1997, the vineyard planting and
development period ("Development Period") shall be defined as calendar years
1998, 1999 and 2000.
The nature of Scheid's interest in the Property and the basis of
Scheid's ownership and control of the Grapes to be delivered is a lease (the
"Lease") dated January 1, 1997, between Scheid and Sam Avila and Margaret J.
Avila, as trustees under declaration of trust dated August 16, 1989, and
Margaret J. Avila and Valarie Bassetti (also known as Valerie Bassetti),
successor co-trustees of the testamentary trust of Joseph Laberere, deceased,
and Sam Avila, also known as Samuel R. Avila, Jr., and Margaret J. Avila,
husband and wife (collectively, the "Lessor"), a copy of which Lease is
attached hereto as EXHIBIT B.
The parties are entering into this Agreement with the mutual
understanding and intention to provide a long-term source of supply of grapes
for IDV at stable prices per ton, subject to certain minimum and maximum
prices per acre, and to provide Scheid with a long-term customer for the
entire output of Grapes from the Property and thereby provide Scheid with an
opportunity to recoup and profit from the substantial investment required to
develop and operate the Property as a vineyard. Scheid's willingness to
agree to the maximum prices per acre set forth in this Agreement is premised,
in part, on the parties' mutual expectations with respect to the development
and operational plans for the Property and Scheid's assessment of the
anticipated costs of such development and operation. IDV's willingness to
enter into a long-term purchase agreement is premised on the fulfillment by
Scheid of certain performance standards in connection with the development
and operation of the Property and the farming, harvesting and delivery of
Grapes on and from the Property, and on Scheid's supplying grapes of quality
that can be used in IDV's premium wine
1
<PAGE>
program. The foregoing paragraph is subject to, and is not intended to
modify, the rights and obligations of the parties as set forth below in this
Agreement.
AGREEMENT
1. SALE AND PURCHASE. Subject to the terms and conditions of
this Agreement, Scheid agrees to sell and deliver to IDV and IDV agrees to
purchase from Scheid the total crop of Grapes grown on the following vineyard
acreage on the Property at the per-ton or per-acre purchase price (the
"Purchase Price") set forth in Section 3 hereof:
<TABLE>
<CAPTION>
BLOCK NET VINE YEAR
VARIETY NUMBERS* ACRES PLANTED
- ------- -------- ------- -------
<S> <C> <C> <C>
Cabernet Sauvignon D-3, D-4, D-5, E-1, E-2 116.87 1997
Cabernet Sauvignon B-1, B-2, B-3, B-4, C-3, 161.40 1998
C-4
Sauvignon Blanc D-1, D-2 46.86 1997
--------
TOTAL 325.13
--------
--------
</TABLE>
* As designated on EXHIBIT C-2.
The estimated tons that will be delivered by Scheid to IDV under
this Agreement for the Crop Years shown, as projected by the parties,
are as follows ("Estimated Yield"):
[[ ]]
So long as Scheid complies with the Farming Standards (as defined
herein) and so long as the same is not proximately caused by Scheid's
intentional misconduct or failure to comply with the other provisions of this
Agreement, (i) Scheid shall not be responsible for any failure to achieve the
production levels set forth above, and (ii) the failure, in and of itself, to
achieve any particular yield of Grapes shall not affect the respective rights
and obligations of the parties under this Agreement; provided, however, that
nothing contained in this Section 1 shall affect IDV's termination rights as
set forth in Section 30 herein.
2
<PAGE>
2. TERM OF AGREEMENT. Unless earlier terminated, this Agreement
shall become effective on the date first written above and shall continue for
a period ending on December 31, 2014 (the "Initial Term"). If during the
period from January 1, 2013, through March 31, 2013, neither party to this
Agreement has given the other written notice of its decision to terminate
this Agreement at the conclusion of the Initial Term, this Agreement shall be
extended automatically beyond the Initial Term as set forth below. For
purposes of this Agreement, a "Crop Year" shall mean a calendar year.
If this Agreement has not terminated before or at the end of the
Initial Term, this Agreement may be terminated thereafter by either of the
parties upon written notice to the other, such notice to be delivered only
during the period from January 1 through March 31 of any Crop Year. If such
notice is timely given by either party, this Agreement shall terminate
effective as of the December 31 next following delivery to IDV by Scheid of
the second harvest of Grapes after such notice is given. For example, if
notice of termination were to be given by one party to the other on January
15, 2017, this Agreement would terminate on December 31, 2018.
3. PURCHASE PRICE. The purchase price ("Purchase Price") for
Grapes delivered pursuant to the terms and conditions of this Agreement will
be as follows:
[[ ]]
With respect to Grapes delivered pursuant to the terms of this
Agreement in the Crop Year 2002 from vines planted in 1997, in the event the
yield per acre for such Grapes for the Crop Year 2002 equals or exceeds
[[ ]] tons, the price per acre shall instead be [[ ]] per acre. If,
in any Crop Year, the yield for a particular variety of Grapes grown and
delivered in accordance with the terms of this Agreement and not properly
rejected by IDV exceeds [[ ]] tons per acre, IDV shall pay Scheid a
bonus (the "Bonus") equal to [[ ]], such Bonus to be paid to Scheid
within 30 days of completion of harvest of the variety exceeding such goal.
In addition to the Purchase Price, IDV shall be obligated to pay to Scheid
the harvest and delivery costs for the Grapes subject to the provisions of
Section 10 below.
The Purchase Price per acre as set forth above shall be adjusted in
the manner set forth below based on the Operational Costs (as defined below)
in each odd-
3
<PAGE>
numbered Crop Year commencing with Crop Year 2003 (each, an "Adjustment Crop
Year"). The Purchase Price, as so adjusted, shall become effective with
respect to the immediately succeeding Crop Year (e.g., the Crop Year 2004 in
the case of the adjustment made based on the 2003 Adjustment Crop Year) and
shall remain in effect until the end of the next Adjustment Crop Year with
respect to which an adjustment is required to be made (e.g., the adjustment
based on the 2003 Adjustment Crop Year shall remain effective for the 2004
and 2005 Crop Years). [[ ]] The Annual Report described in Section
7 below shall contain a detailed analysis of Scheid's Operational Costs and
Direct Labor Rate (as defined below) for each Crop Year.
If a Purchase Price adjustment is required to be made pursuant to
the provisions of the immediately preceding paragraph, the percentage
increase in the Purchase Price based on the Adjustment Crop Year 2003 shall
equal [[ ]]. If a Purchase Price adjustment is required to be made
pursuant to the provisions of the immediately preceding paragraph, the
percentage increase based on each Adjustment Crop Year thereafter shall equal
[[ ]]. Notwithstanding anything to the contrary herein, the percentage
increase in the Purchase Price for any two year period following an
Adjustment Crop Year shall not exceed [[ ]]. As used herein, the term
"Scheid's Direct Labor Rate" shall mean the average hourly rate required to
be paid by Scheid for labor directly involved in developing, farming or
operating the Vineyard, taking into account both wages and benefits in the
case of employees and taking into account hourly contract rates paid by
Scheid for labor performed by third party contractors. In no event shall
compensation and benefits paid to persons included as a part of Scheid's
corporate overhead be included in calculating Scheid's Direct Labor Rate.
Examples of the manner in which the Purchase Price adjustments described in
this Section 3 are to be made are set forth in EXHIBIT D-1 attached hereto,
and a calculation of Scheid's Direct Labor Rate as of the date of this
Agreement is set forth in EXHIBIT D-2 attached hereto.
Scheid's Operational Costs and Direct Labor Rate shall be
calculated in accordance with generally accepted accounting principles
applied on a basis consistent with the manner in which the same are being
calculated as of the date of this Agreement, and the categories of the direct
costs to be included in Scheid's Operational Costs shall be only those
categories set forth on EXHIBIT E hereto.
IDV shall have the right at reasonable times and on reasonable
notice to Scheid to examine Scheid's books and records relating to the
calculation of Scheid's Operational Costs and Scheid's Direct Labor Rate
hereunder. Scheid agrees to cooperate with IDV and its agents and
representatives in connection with any such examination.
4
<PAGE>
For purposes of this Agreement, and in particular for purposes of
determining the Purchase Price hereunder, the term "acre" shall mean net vine
acres, as described in the Development Plan (as defined herein).
4. PAYMENT TERMS. The Purchase Price for each variety of Grapes
shall be payable as follows: on or before [[ ]] of each Crop Year,
IDV shall make a payment to Scheid equal to [[ ]] of the reasonably
estimated Purchase Price (excluding Bonus) (i) per ton (in the case of the
Crop Years 1998, 1999 and 2000), and (ii) per acre (in the case of the Crop
Year 2001 and thereafter) multiplied by the number of acres of each such
variety under cultivation during the applicable Crop Year; and the balance of
the Purchase Price for each variety of Grapes shall be payable on or before
the later of [[ ]]. Harvest and delivery costs owing by IDV to Scheid
pursuant to the terms of this Agreement shall be paid by IDV to Scheid 30
days after the final delivery to IDV of each such variety of Grapes in
accordance with the terms of this Agreement or on October 10 of the then
current Crop Year, whichever is later.
Scheid directs IDV to send such payments and make such checks
payable to Scheid as follows:
Scheid Vineyards California Inc.
13470 Washington Boulevard, Suite 300
Marina del Rey, CA 90292
Scheid may change such payment directions upon prior written notice to IDV
pursuant to Section 29 hereof.
5. FARMING PRACTICES AND DEVELOPMENT PLAN.
a. In developing, farming, operating and managing the vineyards
(the "Vineyards") now or hereafter located on the Property, Scheid shall
(and shall cause its agents, contractors and representatives (collectively,
"Representatives") to) follow and comply with (x) the farming and
development plan (the "Development Plan") attached hereto as EXHIBIT C-1,
(y) each of the Annual Plans (as defined here), and (z) such other
instructions, directions and guidance as IDV may give to Scheid from time
to time in good faith (including without limitation those generated from
IDV's Grower Feedback Loop program and IDV's Winegrowing Department.) To
the extent not specifically otherwise provided in the Development Plan, an
applicable Annual Plan or the instructions, direction and guidance
described in clause (z) above, Scheid shall (and shall cause its
Representatives to) perform such planting, preparation,
5
<PAGE>
tilling, cultivating, fertilizing, irrigating, pruning, spraying, weed
and pest control, thinning of fruit and other farming and viticultural
practices and acts in a manner considered at such time as customary in
the district where the Grapes are grown for the production of high
quality Grapes to be used in the production of wine of a quality being
produced as of the date of this Agreement under IDV's varietal wine
brands and for the attainment of the yields projected by the parties as
set forth in Section 1 of this Agreement. Without limiting the
foregoing and to the extent not specifically otherwise provided in the
Development Plan, an applicable Annual Plan or the instructions,
directions and guidance described in clause (z) above, Scheid's duties
and responsibilities in developing, farming, operating and managing the
Vineyards shall include the following:
(1) caring for and maintaining wells, pumps, pipelines,
irrigation systems and other improvements on the Vineyard;
(2) ongoing general vineyard maintenance and repairs at
the Vineyard;
(3) operating in a timely manner all frost protection and
cooling systems now or hereafter located on the Vineyard;
(4) farming and harvesting the Grapes in a manner designed
to meet all the provisions of Sections 14 and 15, hereof;
(5) harvesting the Grapes by hand or machine (as designated
by IDV) and delivering them to such point of delivery as IDV shall
designate;
(6) implementing and using viticultural practices,
equipment and technology that are not customary on the date of this
Agreement but which become customary in the future, subject, in the
case of those items involving Specified Capital Costs (as defined
below), to Section 5(c); and
(7) otherwise farming and managing the Vineyard with at
least the same degree of care as is used by Scheid at other premium
wine grape vineyards which are owned, leased or otherwise controlled
by Scheid (excluding those managed by Scheid for the account of an
unaffiliated third party) in the same district.
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All of the foregoing requirements and responsibilities of Scheid and its
Representatives set forth in this Section 5.a. and in Section 5.b. are
referred to herein as the "Farming Standards."
b. Scheid hereby agrees to develop the Property pursuant to
the block-by-block vineyard layout map, including roads and vine row
patterns, attached hereto as EXHIBIT C-2. To the extent not otherwise
specified on EXHIBIT C-1 or EXHIBIT C-2 hereto, Scheid and IDV shall
mutually agree on the type of rootstock to be planted on the Property. At
no time shall Scheid change the variety of Grapes grown on the Property or
deviate in any significant respect from the plan, practices or guidelines
attached hereto as EXHIBIT C-1 or EXHIBIT C-2 without the prior written
consent of IDV.
c. Except for harvesting and delivery costs and expenses and
Specified Capital Costs as set forth below, Scheid shall be responsible for
and pay when due any and all costs and expenses for the development,
farming, maintenance, repair, care, operations and improvement of the
Property during the term of this Agreement, including without
limitation all costs and expenses incurred pursuant to or in connection
with (i) implementing the Development Plan and each Annual Plan, (ii)
equipment purchases, upgrades, replacements, maintenance and repair, and
(iii) normal vineyard maintenance, repair and farming which a reasonably
prudent vineyard owner and operator in the same district would make in the
normal course. To the extent that new viticultural practices, equipment,
or technology are introduced during the term of this Agreement which, if
implemented, would in IDV's reasonable judgment improve the quality or
quantity of Grapes being delivered by Scheid hereunder, or are instituted
at other vineyards in which Scheid or its affiliates have an interest and
which are comparable in terms of vineyard layout and design, Scheid, upon
IDV's written request, shall reasonably implement such new practices,
equipment, or technology at Scheid's sole cost, unless the same constitute
Specified Capital Costs, in which event IDV shall pay or reimburse Scheid
for all such Specified Capital Costs promptly after receiving detailed
invoices therefor, unless another payment or recoupment method shall be
agreed upon in writing.
As used herein, the term "Specified Capital Costs" shall mean all
capital costs and expenses directly attributable to capital improvements
hereafter made to the Vineyard by Scheid at the written request of IDV or
at the suggestion of Scheid if, but only if, agreed to in writing by IDV,
which (i) are not included in or contemplated by the Development Plan, (ii)
will not be offset by decreases in Scheid's overall costs and expenses
during the remaining
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portion of the Initial Term (or any two-year period thereafter) of this
Agreement which are attributable to such capital improvements, or (iii)
are not customarily considered to be a part of normal vineyard
maintenance, repair, farming, equipment replacements and purchases which
a reasonably prudent vineyard owner and operator in the same district
would make in the normal course. In the event of a dispute between the
parties as to whether a particular cost or expense is a Specified
Capital Cost, the matter shall be referred to dispute resolution as
provided in Section 32 herein.
6. ANNUAL PLAN. Before December 31 of each Crop Year commencing with
the Crop Year 1999, Scheid shall submit to IDV a proposed written plan
regarding the farming and viticultural practices to be used on the Property
during the next succeeding Crop Year (the "Proposed Annual Plan"). The
Proposed Annual Plan shall include the projected crop tonnage and harvest
brix levels by variety, and, at a minimum, shall also set forth in detail the
following information:
a. The approximate amount and timing of irrigation which Scheid
expects to undertake under normal conditions;
b. The approximate amount and types of nitrogen-containing
fertilizers and other nutrients which Scheid expects to apply, and the
expected times of application;
c. Any significant change from pruning and vine training
techniques followed by Scheid in the Vineyard during the previous Crop
Year, and any specific plans for thinning and leaf pulling;
d. Any significant changes in farming or viticultural practices
from the prior Crop Year intended to be adopted for the Crop Year covered
by the Annual Plan, including such changes to be adopted that would involve
Specified Capital Costs, it being understood that notwithstanding anything
in this Agreement to the contrary, IDV need not pay or reimburse Scheid for
any Specified Capital Costs unless IDV has first requested or approved the
same in writing; and
e. Such other information as IDV reasonably may request
concerning viticultural practices which may be followed by Scheid.
Scheid and IDV will meet to review and discuss the Proposed Annual Plan
within 15 days following its submission to IDV at a mutually agreeable place
and time. In connection with such review and discussion, Scheid will provide
to IDV such
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additional information in its possession as may be reasonably requested by
IDV. IDV may in good faith suggest revisions to the Proposed Annual Plan,
which Scheid shall incorporate unless such proposed revision will materially
deviate from the Development Plan, raise the Farming Standards in any
material respect, or cause Scheid to incur Specified Capital Costs, unless,
in the latter case, a mutually acceptable amendment to this Agreement is
entered into by the parties which provides for the manner in which IDV is to
bear and pay for such Specified Capital Costs. The Proposed Annual Plan
shall be subject to the prior written approval of IDV, which shall not be
unreasonably withheld or delayed. In the event that IDV does not approve a
Proposed Annual Plan, it shall provide specific written notice to Scheid of
those provisions of the Proposed Annual Plan to which it objects. Scheid
shall thereupon implement the provisions of the Proposed Annual Plan not
affected by IDV's objections, and in lieu of the provisions to which IDV has
objected and until such time as the matter may be resolved by the parties in
the manner provided in Section 32 or otherwise, such comparable provisions
included in the Annual Plan in effect for the immediately prior Crop Year,
with such changes as may be necessary or appropriate in light of the
development of the Property. The Proposed Annual Plan or portions thereof as
approved by IDV, together with such portions of the prior Crop Year's Annual
Plan contemplated by the preceding sentence, is herein referred to as the
"Annual Plan." Upon written approval by IDV, Scheid will implement the
Annual Plan and not deviate from it in any significant respect without IDV's
prior written consent.
7. ANNUAL REPORT. Scheid shall supply to IDV on or before the
31st day of December a written Annual Report covering the Crop Year being
completed, detailing the performance against the Annual Plan for such Crop
Year, including crop tonnage and brix levels by variety, the viticultural
practices used and the general quality of the Grapes delivered to IDV from
the Property.
8. SCHEID TO CONSULT WITH IDV; RESPONSES TO EMERGENCIES.
a. Scheid agrees to keep IDV or IDV's designated agents or
representatives promptly and fully advised on at least a monthly basis,
and in any event at such time as the circumstances reasonably require,
of the progress of the Vineyard and of all significant actions taken or
to be taken, by Scheid during each Crop Year that are not specifically
contemplated by the Development Plan or the Annual Plan for such Crop
Year. Scheid specifically agrees to advise IDV or IDV's designated
agents or representatives of all events which materially adversely
affect the growth and development of the Vineyard and/or the quality of
the grapes produced and harvested therefrom. Scheid agrees to consult
with IDV or IDV's designated agents or representatives as to
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any major decisions which are not specifically included in the
applicable Annual Plan and which may arise with respect to the Vineyard,
and to obtain the written consent of IDV or IDV's designated agents or
representatives prior to making and implementing any such decision.
b. Notwithstanding any other provision of this Agreement that
otherwise requires Scheid to obtain the prior consent or approval of IDV or
its designated agents or representatives before taking certain actions or
omitting to take certain actions, in the event emergency circumstances
arise with respect to the Property that would require prompt action on the
part of a reasonably prudent vineyard farmer, and time does not reasonably
permit the obtaining of any required consent or approval or such consent or
approval is not reasonably obtainable, Scheid shall take all actions that
under the circumstances would be taken by a reasonably prudent vineyard
farmer to prevent or mitigate damage and/or to promote the quality and
quantity of Grape production and that otherwise are in accordance with the
Farming Standards and other provisions set forth in this Agreement. Scheid
will give prompt written notice to IDV of any such emergency conditions and
the response thereto undertaken by Scheid.
9. FROST PROTECTION. Scheid agrees to install a frost protection
system at the Property in accordance with the Development Plan set forth in
EXHIBIT C-1 hereto. Following such installation, in the event that all or
any significant part of the Grapes on the Property are lost due to frost
damage, IDV shall have the right to request an investigation of the situation
and Scheid shall provide IDV with complete access, upon reasonable notice, to
the Vineyard and all related records.
If frost damage to the Grapes is due to a failure on the part of
Scheid or its Representatives to comply with the Farming Standards or to the
negligence or intentional misconduct of Scheid or its Representatives in the
design or operation of the frost protection system, then IDV will, at its
option, either [[ ]]. IDV shall give prompt written notice to Scheid
of its election of an option under this paragraph and in any event not later
than June 1 of the applicable Crop Year. [[ ]]
If frost damage occurred due to conditions other than as described
in the immediately preceding paragraph, then IDV will accept delivery of the
Grapes from such portion of the Vineyard where frost damage occurred and pay
to Scheid the Purchase Price therefor.
If the parties are unable to agree, within 60 days of the date IDV
is notified by Scheid of the frost damage, as to the cause of such frost
damage under this
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Section 9, then the issue will be referred for resolution pursuant to Section
32 herein.
10. HARVEST, DELIVERY AND ACCEPTANCE OF GRAPES. Harvest and
delivery of Grapes grown in accordance with the terms and conditions of this
Agreement shall not commence until the sugar content and pH of the Grapes
have reached a point acceptable to IDV as described in Section 14.a. and
Scheid has so notified a duly authorized representative of IDV orally or in
writing. After such notice, IDV shall supply Scheid with daily schedules of
the quantity and variety of Grapes to be harvested and delivered and the
destination for such delivery, and Scheid shall comply therewith. All loads
of Grapes must be scheduled prior to delivery by IDV and be accompanied by a
signed original Grower Delivery Tag. If, after Grapes to be harvested have
exceeded the Brix Optimum Range Maximum level contemplated by Section 14.a.
of this Agreement (based upon samples taken by Scheid and reported to IDV
unless reasonably disapproved by IDV within 24 hours after such report is
provided to IDV), (i) Scheid notifies IDV or its duly authorized
representative orally or in writing of the same, and (ii) IDV unreasonably
delays the time for delivery of such Grapes, and (iii) such delay results in
a failure on the part of Scheid to meet one or more of the quality standards,
targets or requirements set forth in Section 14 or Section 15 herein, then
Scheid shall be relieved of the obligation to comply with (and the
consequences of a failure to comply with) those standards, targets or
requirements Scheid failed to so meet as a result of such unreasonable delay.
Grapes covered by this Agreement will be harvested and delivered at
IDV's expense to a California winery as designated by IDV; provided however,
the harvesting and delivery cost per ton and/or per acre must be approved in
writing in advance by IDV, which approval shall not be unreasonably withheld
or delayed (it being agreed that IDV's withholding of consent shall be deemed
reasonable in all cases if such harvest and delivery costs exceed the costs
thereof generally prevailing in the same district). If such approval is not
properly obtained or such costs are in excess of the IDV approved costs, such
additional costs shall be the sole responsibility of Scheid unless such
additional costs are incurred in responding to an emergency condition, such
as unanticipated changes in weather or other conditions beyond the reasonable
control of Scheid, pursuant to Section 8.b., in which case the reasonable
additional costs incurred in connection with the harvesting and delivery of
the Grapes shall be the responsibility of IDV to the extent the same do not
exceed costs thereof generally prevailing in the same district, taking into
account such emergency or other conditions and taking into account the
quality of the services provided. After proper approval by IDV, Scheid shall
arrange and manage the harvesting and trucking of the Grapes. All third
party trucking charges shall be audited and paid by Scheid and then submitted
to IDV for its review. IDV may, at its option, obtain bids for such elements
of labor, equipment or services of equivalent quality (having due regard for
the quality and the
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quantity of the Grapes harvested, the safety of personnel and the
minimization of damage to the vines and other improvements at the Vineyard)
as IDV may desire to satisfy itself of the appropriateness of the amounts of
the harvest and delivery costs. If IDV identifies elements of the harvest and
delivery costs lower than those proposed by Scheid, IDV shall consult with
Scheid regarding the use of such providers and Scheid shall, in its
reasonable business judgment, decide whether or not to use such providers or
whether to reduce its charge to an equivalent amount.
11. BULK TANK AND GONDOLA STANDARDS. Grapes will be delivered in
equipment suitable to protect the quality of the fruit and equipped for side
dumping into crushers or hoppers. All bulk tanks and gondolas used by Scheid
will not leak and such bulk tanks and gondolas made of iron must have
satisfactory food-grade interior surfaces to ensure that no bare iron will
come in contact with Grapes. Any bulk tanks or gondolas that do not meet
this requirement must receive an application of lead-free, food-grade paint
before they can be used for delivery of Grapes to IDV. Scheid will at all
times during the harvest of the Grapes maintain all harvesters and bulk
containers used for the harvesting and delivery of the Grapes in a clean and
sanitary condition. In the event that IDV directs Scheid to use a particular
provider of bulk tanks and gondolas, then Scheid shall not be required to
comply with the bulk tank and gondola standards contained in this Section 11
with respect to the bulk tanks and gondolas used by such provider, but Scheid
shall notify IDV in the event Scheid or its Representatives become aware that
such bulk tanks or gondolas do not meet such standards.
12. COVENANTS, REPRESENTATIONS, AND WARRANTIES OF SCHEID. Scheid
hereby expressly covenants, represents and warrants the following:
a. Scheid either owns or has full rights and authority to sell,
deliver and otherwise dispose of the Grapes to be conveyed hereunder.
b. At the time and place of delivery, all of the Grapes shall
be free and clear of all liens, encumbrances, options, contract rights and
other rights of third parties ("Liens").
c. Scheid is not presently a party nor shall it become a party
to any other contract or agreement providing for the sale or delivery of or
the granting of any Lien with respect to the Grapes which would in any way
limit the obligations of Scheid pursuant to this Agreement or limit IDV's
rights to the Grapes.
d. Scheid shall indemnify and hold IDV and its affiliates
harmless from and against any losses, damages, liabilities, costs and
expenses
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including without limitation reasonable attorney's fees and costs
of IDV as a result of or in connection with (i) any actual or alleged
contract or agreement for the sale or delivery of the Grapes or any Lien on
the Grapes at the time of delivery hereunder, or (ii) any breach of this
Agreement by Scheid or any of its Representatives.
e. Each load of Grapes shall at the time and place of delivery
be 100% of the variety declared on the Delivery Tag and Weight
Certificate.
f. The Grapes delivered hereunder to IDV on the date and place
of delivery shall not be adulterated or misbranded within the meaning of
the Federal Food, Drug and Cosmetic Act, as amended, and shall not be an
article that may not, under the provisions of Sections 301(d), 404 or 405
of that Act, be introduced into interstate commerce.
g. All Grapes delivered to IDV will, in all respects, conform
to the requirements of the Sherman Food, Drug, and Cosmetic Law of
California, and the regulations of the California State Department of
Public Health and all other state and federal laws pertaining to the Grapes
sold under this Agreement.
h. The Lease attached hereto as EXHIBIT B is a true and
complete copy of the lease covering the Property and such Lease has not
been amended and is in full force and effect as of the date of this
Agreement. Concurrently with the execution and delivery of this Agreement,
Scheid shall deliver to IDV a consent and non-disturbance agreement in
recordable form and in a form otherwise acceptable to IDV, executed by
Lessor, pursuant to which Lessor shall consent to this Agreement and shall
agree, among other things, to enter into a new lease with IDV on terms
comparable to those in the Lease if the Lease shall terminate for any
reason. Scheid shall concurrently give to IDV a copy of any notice given
by Scheid to Lessor under such agreement.
13. INSPECTION AND WEIGHING. All Grapes must be weighed on public
scales at IDV's receiving winery before unloading. Appropriate measurements
including Brix, acid, Defects, and M.O.G. will be determined by an inspector
of the Department of Food and Agriculture, Fruit and Vegetable Quality
Control, State of California ("State Inspector"), if the facility to which
Grapes are delivered has a State Inspector located at such facility. Sugar
will be determined by refractometer or other device by the State Inspector.
IDV and Scheid agree to accept and be bound by the findings of the State
Inspector. State Inspectors may of their own volition, or at the request of a
representative of either IDV or Scheid, make a second inspection if
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reasonably necessary based on the inspection results of previous deliveries.
14. GRAPE QUALITY TARGETS AND STANDARDS. Scheid will and will
cause its Representatives to implement the Farming Standards with the goal
that all Grapes delivered to IDV shall, on a load by load basis, meet each of
the following Grape Quality Targets and Standards:
a. Sugar (Brix) and pH Standards.
BRIX BRIX BRIX BRIX pH pH
DELIVERY DELIVERY OPTIMUM OPTIMUM DESIRED DESIRED
RANGE RANGE RANGE RANGE RANGE RANGE
VARIETY MINIMUM MAXIMUM MINIMUM MAXIMUM MINIMUM MAXIMUM
[[ ]]
For the purpose of scheduling the harvest and delivery of Grapes,
IDV will be guided by the Optimum brix and Desired pH ranges set forth
above. Scheid and IDV agree to work together to attempt to harvest Grapes
at Optimum brix and Desired pH levels. Without limiting the effect of the
fourth sentence of Section 10, to the extent that IDV requests Scheid to
harvest and deliver the Grapes at brix levels in excess of or less than the
Optimum range, Scheid shall comply with such request.
b. Grape Defects. Defects are defined in accordance with the
custom of the grape industry and the practice of the Grape Inspection
Service provided by the California Department of Food and Agriculture.
Defects shall be considered defective grapes if they evidence mold, rot, or
mildew resulting in decomposition ("Defects").
To the extent that material Defects are discovered by Scheid
in any portion of the Vineyard prior to harvest, Scheid shall immediately
inform IDV in writing and, if requested to do so by IDV, Scheid shall use
all reasonable efforts to drop defective Grapes on the ground and harvest
the non-defective fruit separately so as to minimize or eliminate the
delivery of defective Grapes to the delivery location.
c. Material Other Than Grapes (M.O.G.). M.O.G. is defined in
accordance with the custom of the California grape industry and the
practice of the Grape Inspection Service provided by the California
Department of Food and Agriculture and shall include, without limitation,
leaves, leaf stems, canes,
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and any other foreign materials. Scheid agrees to use all reasonable
efforts to minimize the amount of M.O.G. in each load of Grapes.
Any load of Grapes having [[ ]] M.O.G. or more by
weight may be rejected by IDV. In the event of such rejection, IDV shall
receive a credit or refund calculated in the manner provided in Section 15.
Any load of Grapes delivered by Scheid having at least [[ ]] M.O.G.
but less than [[ ]] M.O.G. by weight, or which has [[ ]] or
more M.O.G. by weight but is not rejected by IDV, shall be subject to a
penalty to be charged by IDV to Scheid equal to the full percentage of
M.O.G. in the load as determined by the State Inspector, multiplied by the
weight in tons of the load, multiplied by [[ ]]. The penalty will be
deducted by IDV from the Purchase Price of the Grapes. In the event that
IDV desires to reject such Grapes or to assess such penalty in accordance
with the foregoing provisions of this paragraph, Scheid will be given one
opportunity to remove such M.O.G. so long as the same will not adversely
affect wine quality, and the load shall be re-tested by the State
Inspector. If a re-test reflects M.O.G. of less than [[ ]] by
weight, IDV shall accept such Grapes, and if a re-test reflects M.O.G. of
less than [[ ]] M.O.G. by weight, Scheid shall not be subject to the
penalty provided for in this paragraph. In the event any M.O.G. is present
in the Grapes, it shall be rebuttably presumed that such M.O.G. originated
with Scheid and Scheid shall be responsible for all direct and
consequential damages caused by such M.O.G. unless such presumption is
rebutted by Scheid and Scheid proves that such M.O.G. did not originate
with Scheid or its Representatives.
d. Procedures Regarding Brix, pH and Defects. In the event
that Scheid shall deliver any load of Grapes which (a) does not fall within
the Brix Delivery Range Minimum and Maximum and/or the pH Desired Range
Minimum and Maximum, or (b) has more than [[ ]] Defects by weight,
then the following procedures shall govern:
(1) if the problem referred to in clause (a) and/or
clause (b), as applicable, is proximately caused by a failure on the
part of Scheid or its Representatives to comply with the Farming
Standards, then IDV, at its option, may either accept such load of
Grapes and pay a reduced Purchase Price therefor in an amount
negotiated by Scheid and IDV or reject such load of Grapes and receive
a credit from Scheid determined in the manner provided in Section 15,
which credit shall be deducted from the Purchase Price of such Grapes;
or
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(2) if such problem is caused other than as described in
Section 14d(1) above, then IDV shall accept such load of Grapes and
pay the Purchase Price therefor.
15. QUALITY PROBLEMS RELATED TO SCHEID PERFORMANCE. If any of the
problems or issues set forth in this Section 15 occur and to the extent provided
in Section 14(d) above, IDV may, at its option, reject the affected load of
Grapes and, except as provided in the next following sentence, receive
[[ ]]. The foregoing right of rejection shall be applicable to the
circumstances described in Section 14d(1) and to any of the following:
a. Any amount of black grapes in a load of white grapes.
b. Mixed variety loads.
c. Over night loads (loads picked earlier than 10:00 P.M. of
the day prior to delivery, without IDV's prior oral or written permission).
d. Loads delivered contrary to IDV's scheduling and delivery
rules known in advance by Scheid and not necessitated by unanticipated
changes in weather or other conditions beyond the reasonable control of
Scheid.
e. Wild fermentation, to the extent within the reasonable
control of Scheid.
f. Ethyl alcohol above 0.08 percent by volume, to the extent
within the reasonable control of Scheid.
g. Loads contaminated with caterpillars, tomato worms, or other
insects or rodents, motor fuel, hydraulic fluid, other oil-base products,
agricultural chemicals residue in excess of legal limits, or with an
agricultural chemical either not registered for use in vineyards or not
applied according to label instructions.
h. Loads delivered in tanks or gondolas which were cited after
not passing IDV inspection as provided for herein and which were not
properly resurfaced or repaired before being used again for delivery of
grapes to IDV.
16. MECHANICAL GRAPE HARVESTING. Grape quality problems in the
Vineyard, including but not limited to Defects, may result in Scheid, at the
direction of IDV, being required to either harvest the Grapes by hand or to
remove all defective
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Grapes prior to mechanical harvesting. IDV shall be responsible for the
costs of dropping any such Grapes unless a failure by Scheid or its
Representatives to comply with the Farming Standards is a proximate cause of
the Grape quality problem involved, in which case such costs shall be borne
solely by Scheid. The costs of hand picking any such Grapes shall be
considered part of the harvesting and delivery costs to be paid by IDV and
shall be subject to the provisions of Section 10.
Mechanical harvesting of grapes under this Agreement may not be
started prior to 10:00 P.M. on the day prior to delivery, unless approved in
advance by the IDV field representative.
17. PESTICIDES, HERBICIDES, NEMATOCIDES, ETC. Scheid shall become
knowledgeable of the requirements of California Proposition 65 (Safe Drinking
Water and Toxic Enforcement Act of 1986), including the continually updated
list of chemicals and substances which pose a significant risk of cancer or
reproductive toxicity via ground water, food, environment, occupational or
other contamination. The use of any such prohibited substance shall be an
immediate and material breach of this Agreement by Scheid and IDV may, in
addition to any other available remedies, collect direct and consequential
damages from Scheid resulting from such breach. SCHEID IS CAUTIONED TO SEEK
LEGAL ADVICE FROM ITS COUNSEL OR THE STATE HEALTH AGENCY REGARDING SUCH LAWS.
Each year Scheid will submit to IDV its County Agricultural Permit
Number. IDV will have access to the agricultural chemical use information of
Scheid through permit number and Scheid records.
18. AGRICULTURAL EMPLOYER. Scheid shall be solely responsible for
selecting and hiring its own employees and for their supervision, direction
and control. Moreover, Scheid shall be solely responsible for setting wages,
benefits, hours and working conditions for such employees, for furnishing,
during the entire period of this Agreement, workers' compensation insurance
coverage, for paying wages and social security, for paying unemployment
insurance and disability insurance contributions, and for withholding taxes
and any other taxes with respect to such employees.
Scheid acknowledges and agrees that Scheid is the sole agricultural
employer of persons or contractors engaged to perform agricultural services
pursuant to this Agreement. In performing its duties and obligations under
this Agreement, Scheid shall direct the operation of its labor and equipment
in all respects. It is specifically agreed that IDV shall not be responsible
for any of the Agricultural Employer responsibilities relative to Scheid's
employees hereunder, and Scheid shall indemnify and hold IDV and its
affiliates harmless with respect thereto.
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Scheid covenants that Kurt Gollnick has senior management
responsibility for the development and operation of the Vineyard as Vice
President Vineyard Operations for Scheid, his present position. In the event
that he is replaced, Scheid shall reasonably consult with IDV as to his
replacement, but the final decision as to his replacement shall be Scheid's.
19. ENTRY TO SCHEID'S PROPERTY. Throughout the term hereof, IDV's
representatives may enter upon the Property at any reasonable times, without
notice, and in a reasonable manner for the purpose of inspecting the Vineyard
and the vines and Grapes thereon, observing the viticultural practices being
followed, and observing grape quality and grape maturity. Such inspections
may include, without limitation, taking samples of Grapes in reasonable
quantities and taking pictures of and otherwise recording data with respect
to the Property and the Grapes and vines thereon. IDV will abide by any
Phylloxera and similar precautions that have been reasonably implemented by
Scheid for the purpose of maintaining the health and condition of the
Vineyard; however, such precautions will not limit IDV's access to the
Property.
The parties agree that IDV shall have no duty to inspect and
monitor Scheid's farming and viticultural practices on the Property, and that
IDV shall not incur any liability or relieve Scheid of any of its obligations
as a result of any inspection or monitoring related to farming or
viticultural practices on the Property.
20. NON-ASSIGNMENT.
a. Scheid shall not directly or indirectly, transfer or assign
any of its rights, interests or obligations under or relating to this
Agreement or the Lease without the prior written consent of IDV, which will
not be unreasonably withheld or delayed; provided, however, that no consent
of IDV shall be required for any assignment to any person or entity that is
an affiliate of Scheid that has an equivalent net worth and that assumes in
writing Scheid's obligations under this Agreement or the Lease, as the case
may be. Scheid will not agree to any modification of the Lease with
respect to the Property that would have a material adverse effect on
Scheid's ability to perform its obligations under this Agreement without
the prior written consent of IDV, which consent will not be unreasonably
withheld or delayed.
b. IDV shall not directly or indirectly, transfer or assign any
of its rights, interests or obligations under or relating to this Agreement
without the prior written consent of Scheid, which will not be unreasonably
withheld or delayed; provided, however, that no consent of Scheid shall be
required for any
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assignment to any entity that (i) is an affiliate of IDV that has an
equivalent net worth and that assumes in writing IDV's obligations under
this Agreement or (ii) has a net worth of at least $50,000,000,
determined in accordance with generally accepted accounting principles,
as demonstrated by evidence reasonably acceptable to Scheid, and that
assumes in writing IDV's obligations under this Agreement.
c. For purposes of this Section 20, any sale, reorganization or
other transaction which results directly or indirectly in a change in
control of Scheid or IDV shall be deemed to be an assignment and transfer
by Scheid or IDV, as applicable, of this Agreement which shall require the
prior written consent of the other party to the extent provided in
Sections 20.a. and 20.b. above. Notwithstanding the foregoing, any change
in control of Scheid, if any, that may result from the implementation of
the estate plan of any stockholder of Scheid Vineyards Inc. (of which
Scheid is a wholly owned subsidiary) shall not require any approval or
consent of IDV unless the implementation of such estate plan involves a
change in control resulting from the transfer of stock of Scheid Vineyards
Inc. directly or indirectly to one or more third parties unrelated to the
deceased stockholder.
21. MATTERS BEYOND SCHEID'S CONTROL. In the event Scheid is
compelled to modify, reduce or suspend operations or cease or modify performance
of its obligations hereunder because of the passage hereafter of any laws or
regulations, or because of any legal or administrative proceedings of any
government or governmental agency, court or administrative agency order,
strikes, boycotts, lockouts, other labor disturbances, fire, explosion,
earthquake, catastrophe, or crop failure or shortage as a result of
uncontrollable actions of the elements, then if the same is not caused by a
failure on the part of Scheid or its Representatives to comply with the Farming
Standards or by negligence or intentional misconduct on the part of Scheid or
its Representatives, Scheid may, at its option and while so affected, be
relieved to the extent thus prevented from performing its obligations hereunder,
provided, that Scheid shall use all reasonable efforts to remove the disability
and resume full performance hereunder at the earliest possible time.
22. BINDING EFFECT. This Agreement and the covenants herein
contained shall run with and bind Scheid's interest in the Property and shall
bind the parties hereto, their heirs, executors, administrators, grantees,
vendees, transferees, assignees, legatees, devisees and other successors in
interest, whether partial or entire. Each party agrees to cause any such
successor in interest to sign an agreement with the other party to assume and be
bound by this Agreement in form suitable for recording, to the other party's
reasonable satisfaction.
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23. AUTHORITY. Each corporate party and/or partnership and the
agents executing this Agreement on their behalf hereby warrant that each
entity is a corporation or partnership in good standing and is fully
authorized to execute this Agreement and the other documents called for
hereunder and that the agent is properly authorized to act for the
corporation or partnership.
24. WAIVERS. No failure or omission by IDV or Scheid to insist
upon or enforce any of the terms hereof shall be deemed a waiver of such
terms unless the same shall be in writing and signed by the waiving party.
Waiver of a term or default at any time shall not be deemed a waiver of any
other term or default or of the same term or default at another time.
25. CONFLICT OF PROVISIONS. In the event there is a conflict between
the terms of this Agreement and those in any Attachment or Exhibit (other than
EXHIBIT B), the terms in such Attachment or Exhibit shall prevail over this
Agreement.
26. ARTICLE HEADINGS. The titles contained in the article headings
of this Agreement are merely for convenience and are not intended to give
meaning to the matter in the articles following such titles. Said titles do not
constitute any part of this Agreement and are not to be considered in its
interpretation.
27. CUMULATIVE RIGHTS. Except as may otherwise be specifically
provided herein, all rights and remedies specified in this Agreement are
cumulative.
28. RECORDING. Scheid agrees and covenants that upon request of
IDV, Scheid will execute and otherwise assist IDV in recording with the
Recorder of the County in which the Property is located one or more Memoranda
of Contract or other appropriate documents, in form mutually acceptable to
both parties, suitable for providing a record of this Agreement in the real
property records of that county and shall obtain all necessary consents from
the Lessor to fulfill the obligations hereunder and obtain the necessary
consent and non-disturbance agreement required by Section 12.h.
29. NOTICES. Any notice, advice, demand or communication required
or to be given under the terms of this Agreement shall be given in writing by
certified, return receipt requested mail or by personal delivery, and if
mailed shall be deemed delivered five (5) days after mailing, directed as
follows, provided that either Scheid or IDV may change its address by so
serving written notice of such change on the other party hereto, directed as
follows:
20
<PAGE>
FOR IDV:
IDV Wines
President
21468 Eighth Street East
Sonoma, CA 95476
with a copy to:
General Counsel
IDV North America Vineyards Inc.
450 Columbus Blvd.
P. O. Box 778
Hartford, CT 06142-0778
FOR SCHEID:
Alfred G. Scheid or Heidi M. Scheid
Scheid Vineyards California Inc.
13470 Washington Boulevard, Suite 300
Marina del Rey, CA 90292
with a copy to:
Kurt Gollnick
Scheid Vineyards California Inc.
1972 Hobson Avenue
Greenfield, CA 93927
30. TERMINATION. This Agreement may be terminated at any time:
a. by the mutual consent of the parties;
b. by the non-breaching party, in the event of a breach by the
other of any representation, warranty, covenant or agreement contained
herein or in any amendment of this Agreement or any document executed
pursuant to or in connection with this Agreement, which is not cured or
cannot be cured in all material respects within twenty (20) business days
after written notice thereof has been given to the other party, or if any
such breach shall not reasonably be susceptible of cure within such twenty
(20) business day period, then the other party shall fail to take steps
reasonably designed to cure such breach and such breach is not cured as
expeditiously as reasonably possible and in any event no later than ninety
(90) calendar days after such notice is given;
21
<PAGE>
c. by a party in the event that (i) a petition shall be filed
by or against the other party under any chapter of the United States
Bankruptcy Code or under any similar laws or regulations of any
jurisdiction relating to the relief of debtors, or for the relief or
readjustment of any indebtedness of said other party, either through
reorganization, composition or otherwise, (ii) there is an appointment of a
receiver of any material portion of the assets of said other party, (iii)
said other party makes any general assignment for the benefit of creditors,
(iv) there is a foreclosure upon all or substantially all of the property
of said other party, or the condemnation, seizure, attachment or
appropriation thereof, or (v) said other party otherwise becomes insolvent,
provided that if any of the foregoing occurrences are not the voluntary act
of the affected party, the affected party will have ninety (90) days after
the commencement thereof to vacate such proceeding or appointments;
d. by IDV during January through March of any year after 2005
in the event that [[ ]] for such respective Crop Years as set
forth in Section 1, unless Scheid can demonstrate to the reasonable
satisfaction of IDV that the failure [[ ]] is the result of either (i)
compliance by Scheid with instructions given to it by IDV under this
Agreement (whether or not set forth in the Development Plan or any Annual
Plan) or (ii) weather conditions, disease or other causes beyond the
reasonable control of Scheid; and in each case is not proximately caused by
failure of Scheid or its Representatives to comply with the Farming
Standards;
e. by IDV in the event of a breach by Scheid under the Lease
which is not cured within any applicable cure periods provided for therein
or in the event that foreclosure proceedings are commenced by any financial
institution or other lender with respect to Scheid's rights and interests
in or to the Lease or the Vineyards;
f. by IDV, upon giving at least twelve (12) months' notice to
Scheid, in the event that as a result of the application of the Purchase
Price adjustment provisions set forth in Section 3, the maximum price per
acre to be paid pursuant to Section 3 (exclusive of any Bonus) would exceed
[[ ]]; provided, however, that such termination shall not be
effective in the event that Scheid shall agree, in a writing reasonably
satisfactory to IDV and delivered to IDV not later than thirty (30) days
after the giving by IDV of such termination notice, that said maximum price
shall remain at [[ ]] for the balance of the term of this Agreement
and that the other prices shown in the table in Section 3 shall not exceed
[[ ]] of such prices for the balance of
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<PAGE>
such term; or
g. by Scheid, upon giving at least twelve (12) months' notice
to IDV, in the event that during any four consecutive Crop Years
(commencing with Crop Year 2003 so that the first four-Crop-Year period
shall begin January 1, 2003 and end December 31, 2006), Scheid's
Operational Costs have increased cumulatively by more than [[ ]];
provided, however, that such termination shall not be effective in the
event that IDV shall agree, in a writing reasonably satisfactory to Scheid
and delivered to Scheid not later than thirty (30) days after the later of
(i) the date such termination notice was given by Scheid, or (ii) the date
IDV completes an examination of the books and records of Scheid with
respect to such Operational Costs (the date in clause (ii) shall in any
event be not later than sixty (60) days after the date in clause (i)), that
IDV will agree to a purchase price increase or other form of reimbursement
to Scheid in such amount as may be mutually agreed upon by the parties,
applicable for all Crop Years following such four-year period. If IDV
desires to negotiate such economic terms rather than suffer a termination
of this Agreement, both Scheid and IDV agree to negotiate in good faith
with respect thereto for such thirty (30)-day period.
In the event of a breach by Scheid of its obligations under Sections 5
or 6 of this Agreement that is not cured following written notice from IDV
within the time period contemplated by Section 30.b. above, IDV, in addition to
all of its other rights and remedies, may elect, by written notice to Scheid, to
purchase Grapes at the Alternative Purchase Price set forth below during each
Crop Year until such noticed breach or breaches have been cured. Such breach or
breaches shall be deemed to have been cured for a Crop Year only if they have
been cured prior to July 15 of such Crop Year. In the event of any such
election, IDV may continue to exercise its right of termination under
Section 30.b. above, unless the noticed breach or breaches have been previously
cured, during the month of December of any Crop Year. The term "Alternative
Purchase Price" shall mean whichever of the following shall result in the lowest
total cost per ton of each variety of Grapes: [[ ]].
31. GOVERNING LAW. THIS AGREEMENT IS TO BE GOVERNED BY AND CONSTRUED
ACCORDING TO THE LAWS OF THE STATE OF CALIFORNIA.
32. MEDIATION OF DISPUTES; ARBITRATION. In the event any
disagreement or dispute between the parties arising out of this Agreement cannot
be settled by negotiations between the parties hereto within thirty (30) days
from the inception of such disagreement or dispute, such disagreement or dispute
shall be
23
<PAGE>
submitted by either party to the San Francisco branch of Judicial Arbitration
and Mediation Services, Inc., a professional mediating service consisting of
retired Federal and State judges ("JAMS"), or another mutually acceptable
third party. No party shall commence any civil action for claims under this
Agreement until 30 days after the date the matter is submitted to mediation;
however, either party may seek injunctive relief prior to the submission or
during such mediation. The mediation shall be conducted in accordance with
the rules of JAMS (or such other mutually acceptable third party) and shall
be held in San Francisco, California. The parties shall share equally all
costs of mediation other than representation by counsel, which shall be at
each party's own expense.
Any disagreement or dispute which is not settled by mediation as
provided above within 30 days of its submission to such mediation shall be
determined by arbitration in San Francisco, California before a single
arbitrator and judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. The choice of arbitrator
and the arbitration shall be governed by the Commercial Arbitration Rules of
the American Arbitration Association except as modified in this paragraph.
IDV and Scheid agree as follows with respect to any arbitration initiated
hereunder:
a. There shall be no enforced or ordered discovery prior to the
arbitration proceeding except that each party may take not more than two
depositions and may serve the other party with a single set of not more
than 20 interrogatories without subparts.
b. Oral presentation to the arbitration shall be limited to a
total of three hours for IDV and three hours for Scheid.
c. Any opening and/or closing briefs or legal memoranda
submitted to the arbitrator shall not exceed twenty-five (25) pages in
length and shall be delivered to the opposing party at least 48 hours in
advance with permission to file a five (5) page rebuttal paper with the
arbitrator.
d. The arbitrator may not award punitive damages.
e. The arbitrator shall agree to enter his/her written decision
within seven (7) days of the completion of oral presentations.
f. The parties shall cooperate to expedite the arbitration
proceeding and complete it as soon as reasonably practicable.
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<PAGE>
g. The decision of the arbitrator will be conclusive and
binding on the parties.
h. Nothing in this Section 32 will prevent IDV from resorting
to judicial proceedings under Section 39 or if interim resort to a court
otherwise is necessary to prevent serious and irreparable harm or injury to
IDV.
33. ENTIRE AGREEMENT. The parties expressly agree that this
Agreement, including the Exhibits attached hereto, and the documents executed
by them pursuant to this Agreement, constitute the entire Agreement between
them pertaining to the subject matter hereof and supersedes all prior
agreements and understandings of the parties with respect to the subject
matter hereof.
34. CONFIDENTIALITY. Unless consented to in writing by both
parties and except to the extent required by applicable law, both parties
shall keep the terms of this Agreement strictly confidential and may not make
any disclosure of the economic terms of this Agreement to any person;
provided, however, that each party shall have the right to disclose the
existence of this Agreement (but not its economic terms) to any third party
and the right to provide a copy of and disclose the terms of this Agreement
to any regulatory authority having jurisdiction over such party.
35. ATTORNEYS' FEES. If any arbitration, litigation or other
proceeding between the parties (other than a mediation pursuant to Section
32) is commenced in connection with or related to this Agreement, the losing
party shall pay the court costs or arbitration costs, as applicable, the
reasonable attorneys' fees and costs and expenses and the reasonable costs
and expenses of investigation of the prevailing party incurred in connection
therewith.
36. DISCLAIMERS BY SCHEID. THE WARRANTIES BY SCHEID EXPRESSLY
MADE IN THIS AGREEMENT OR THE EXHIBITS HERETO OR IN ANY OF THE DOCUMENTS
EXECUTED BY SCHEID PURSUANT HERETO OR IN CONNECTION HEREWITH ARE IN LIEU OF
ALL OTHER WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY
IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
37. CHANGES IN CRUSH REPORT. As used in this Agreement, the term
"Final Crush Report" means the Final Grape Crush Report published by the
California Department of Food and Agriculture (the "Department") on or about
March 10 of each year, as it may be supplemented or corrected by the
Department through the succeeding first day of August. If the Final Crush
Report shall no longer be published, then an
25
<PAGE>
appropriate substitute for the Final Crush Report shall be mutually agreed
upon in good faith and used by the parties, and all computations provided for
herein based on the Final Crush Report shall be appropriately adjusted. If
the Department changes the format of the Final Crush Report from the format
of the Final Crush Report dated March 10, 1998, the source of data (from
within the applicable Final Crush Report) for determining any price for any
variety of Grapes shall be the table that reports the weighted average price
per ton, delivered basis, of all tonnage purchased from non-related sources
for wine, concentrate, juice, vinegar, and beverage brandy (currently, Table
10) for such Grapes from the smallest geographic district(s) or area(s) that
includes all of what is currently defined as California Reporting District 7.
If the reporting rules of the Department are changed to include related and
non-related party transactions on a combined basis in the Final Crush Report,
and the Final Crush Report does not separately reflect non-related party
transactions, the parties shall negotiate in good faith an alternative
pricing method. For purposes of this Agreement, a "non-related party
transaction" has the meaning specified in the Final Crush Report dated March
10, 1998.
38. SEVERABILITY. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any
provision of this Agreement held invalid or unenforceable only in part or
degree will remain in full force and effect to the extent not held invalid or
unenforceable.
39. BREACH. If Scheid breaches any of its obligations under
Sections 1, 10, or 28 of this Agreement, IDV, in addition to all of its other
rights and remedies, shall be entitled to equitable relief to protect its
interests, including but not limited to injunctive relief, as well as money
damages.
IN WITNESS WHEREOF, the parties here executed this Agreement to be
effective as of the date first above written.
SCHEID: IDV:
SCHEID VINEYARDS INTERNATIONAL DISTILLERS
CALIFORNIA INC., AND VINTNERS NORTH
a California corporation AMERICA, INC., a Connecticut
corporation
By: /S/ HEIDI M. SCHEID By: /S/ JAMES A. BECKMAN
-------------------------- ----------------------------
Its: Vice President Finance Its: Vice President Operations
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EXHIBIT C-1
DEVELOPMENT PLAN
[[ ]]
C-1-1
<PAGE>
EXHIBIT D-1
EXAMPLES OF PURCHASE PRICE ADJUSTMENTS
[[ ]]
D-1-1
<PAGE>
EXHIBIT D-2
DIRECT LABOR RATE CALCULATION
[[ ]]
D-2-1
<PAGE>
EXHIBIT E
OPERATIONAL COST CATEGORIES
[[ ]]
E-1
<PAGE>
EXHIBIT 10.2
THIRD AMENDMENT TO AGRICULTURAL CREDIT AGREEMENT
This Third Amendment to Agricultural Credit Agreement (the "Amendment")
is made and entered into as of this 5th day of June, 1998, by and between
SANWA BANK CALIFORNIA (the "Bank") and SCHEID VINEYARDS CALIFORNIA INC. (the
"Borrower") with respect to the following:
This Amendment shall be deemed to be a part of and subject to that
certain Agricultural Credit Agreement dated as of June 4, 1997, as it may be
amended from time to time, and any and all addenda and riders thereto
(collectively the "Agreement"). Unless otherwise defined herein, all terms
used in this Amendment shall have the same meanings as in the Agreement. To
the extent that any of the terms or provisions of this Amendment conflict
with those contained in the Agreement, the terms and provisions contained
herein shall control.
WHEREAS, the Borrower and the Bank mutually desire to extend and/or
modify the Agreement.
NOW THEREFORE, for value received and hereby acknowledged, the Borrower
and the Bank agree as follows:
1. MODIFICATION OF EXPIRATION DATE. All references in Section 2
of the Agreement to the date June 5, 1998 are changed to June 5, 2000.
2. CHANGE IN PURPOSE. Section 2.02 A. of the Agreement is
deleted in its entirety and the following is substituted in lieu thereof:
A. PURPOSE. Advances under this Crop Line of Credit shall be
used for general corporate and working capital purposes.
3. CHANGE IN FINANCIAL CONDITION. Section 6.15 A and D of the
Agreement are deleted in their entirety and the following is substituted in
lieu thereof:
A. NET WORTH. A minimum Effective Tangible Net Worth of not less
than $20,000,000.
D. DEBT TO NET WORTH. A ratio of Debt to Effective Tangible Net
Worth of not more than 1 to 1 at the end of each fiscal quarter.
4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby reaffirms
the representations and warranties contained in the Agreement and represents
that no event, which with notice or lapse of time, could become an Event of
Default, has occurred or is continuing.
5. CONFIRMATION OF OTHER TERMS AND CONDITIONS OF THE AGREEMENT.
Except as specifically provided in this Amendment, all other terms,
conditions and covenants of the Agreement unaffected by this Amendment shall
remain unchanged and shall continue in full force and effect and the Borrower
hereby covenants and agrees to perform and observe all terms, covenants and
agreements provided for in the Agreement, as hereby amended.
6. GOVERNING LAW. This Amendment shall be governed and construed
in accordance with the laws of the State of California to which jurisdiction
the parties hereto hereby consent and submit.
7. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Amendment has been executed by the parties
hereto as of the date first hereinabove written.
BANK: BORROWER:
SANWA BANK CALIFORNIA SCHEID VINEYARDS CALIFORNIA INC.
By: By:
----------------------------------- ----------------------------------
STEVEN R. EDMONSTON, V.P. ALFRED G. SCHEID, PRESIDENT
By:
----------------------------------
ERNEST M. BROWN, SECRETARY
1/1
<PAGE>
EXHIBIT 10.3
SANWA BANK
CALIFORNIA
LINE OF CREDIT AGREEMENT
(REDUCING COMMITMENT)
THIS LINE OF CREDIT AGREEMENT (the "Agreement") is made and
entered into as of this 19th day of June, 1998, by and between SANWA
BANK CALIFORNIA (the "Bank") and SCHEID VINEYARDS CALIFORNIA INC. (the
"Borrower").
SECTION I
AGREEMENT TO LEND
1.01 COMMITMENT TO LEND. Subject to the terms and conditions
of this Agreement and so long as no Event of Default occurs, the Bank agrees
to extend to the Borrower the credit accommodations that follow (the "Line of
Credit").
1.02 LINE OF CREDIT. The Bank agrees to make loans and
advances ("Advances") to the Borrower from time to time, upon the Borrower's
request therefore, from the date hereof to the Expiration Date, provided that
the outstanding Advances under this Agreement shall not exceed the following:
<TABLE>
<CAPTION>
Date: Amount:
<S> <S>
06/15/98 to 06/04/99 $3,600,000.00
06/05/99 to 06/04/00 $3,420,000.00
06/05/00 to 06/04/01 $3,240,000.00
06/05/01 to 06/04/02 $3,060,000.00
06/05/02 to 06/04/03 $2,880,000.00
06/05/03 to 06/04/04 $2,700,000.00
06/05/04 to 06/04/05 $2,520,000.00
06/05/05 to 06/04/06 $2,340,000.00
06/05/06 to 06/04/07 $2,160,000.00
06/05/07 to 06/04/08 $1,980,000.00
</TABLE>
(each such dollar amount being the relative "Commitment"). Within the
foregoing limits, the Borrower may borrow, partially or wholly, prepay, and
reborrow under this Section 1.02.
A. PURPOSE. Advances made under the Line of Credit
shall be used to finance the acquisition of real estate and for general
working capital purposes.
B. LINE ACCOUNT. The Bank shall maintain on its books
a record of account in which the Bank shall make entries for each Advance and
such other debits and credits as shall be appropriate in connection with the
Line of Credit (the "Line Account").
C. INTEREST. Interest shall accrue from the date of
each Advance under the Line of Credit at one of the following rates, as
quoted by the Bank and as elected by the Borrower pursuant to paragraph
1.02D. or paragraph 1.02E. below:
1. VARIABLE RATE ADVANCES: A variable rate
equivalent to an index for a variable interest rate which is quoted,
published or announced from time to time by the Bank as its reference rate
and as to which loans may be made by Bank at, below or above such reference
rate per annum (the "Variable Rate"). Interest shall be adjusted concurrently
with any change in the reference rate quoted by Bank. An Advance based upon
the Variable Rate is hereinafter referred to as a "Variable Rate Advance".
2. FIXED RATE ADVANCE: A fixed rate quoted by
Bank in its sole discretion for each Advance (the "Fixed Rate") and for such
period of time that the Bank may quote and offer, provided that any such
period of time shall be for at least 30 days and shall not extend beyond the
Expiration Date (the "Interest Period") for Advances in the minimum amount of
$100,000. Advances based upon the Fixed Rate are hereinafter referred to as
"Fixed Rate Advances".
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<PAGE>
Interest on any Advance shall be computed on the
basis of 360 days per year, but charged on the actual number of days elapsed.
Interest on Variable Rate and Fixed Rate Advances
shall be paid in quarterly installments on the 5th day of each quarter of
each year, commencing on September 5, 1998.
If interest is not paid as and when it is due, it
shall be added to the principal, become and be treated as a part thereof, and
shall thereafter bear like interest.
D. NOTICE OF BORROWING. Upon telephonic notice which
shall be received by the Bank at or before 2:00 p.m. (California time) on a
business day, Borrower may borrow under the Line of Credit by requesting:
1. A VARIABLE RATE ADVANCE: A Variable Rate
Advance may be made on the day notice is received by the Bank; provided,
however, that if the Bank shall not have received notice at or before 2:00
p.m. on the day such Advance is requested to be made, such Variable Rate
Advance may, at the Bank's option, be made on the next business day.
2. A FIXED RATE ADVANCE: Notice of any Fixed Rate
Advance shall be received by the Bank no later than two business days prior
to the day (which shall be a business day) on which Borrower requests such
Fixed Rate Advance to be made.
E. NOTICE OF ELECTION TO ADJUST INTEREST RATE: Upon
telephonic notice which shall be received by the Bank at or before 11:00 a.m.
(California time) on a business day, Borrower may elect:
1. That interest on a Variable Rate Advance shall
be adjusted to accrue at the Fixed Rate; provided, however, that such notice
shall be received by the Bank no later than two business days prior to the
day (which shall be a business day) on which Borrower requests that interest
be adjusted to accrue at the Fixed Rate.
2. That interest on a Fixed Rate Advance shall
continue to accrue at a newly quoted Fixed Rate or shall be adjusted to
commence to accrue at the Variable Rate; provided, however, that such notice
shall be received by the Bank no later than the last day of the Interest
Period pertaining to such Fixed Rate Advance. If the Bank shall not have
received notice (as prescribed herein) of Borrower's election that interest
on any Fixed Rate Advance shall continue to accrue at the Fixed Rate, the
Borrower shall be deemed to have elected that interest thereon shall be
adjusted to accrue at the Variable Rate upon the expiration of the Interest
Period pertaining to such Advance.
F. PREPAYMENT. The Borrower may prepay any Advance in
whole or in part, at any time and without penalty, provided, however, that:
(i) any partial prepayment shall first be applied at the Bank's option, to
accrued and unpaid interest and next to the outstanding principal balance;
and (ii) during any period of time in which interest is accruing on any
Advance on the basis of the Fixed Rate, no prepayment shall be made except on
a day which is the last day of the Interest Period pertaining thereto. If
the whole or any part of any Fixed Rate Advance is prepaid by reason of
acceleration or otherwise, the Borrower shall, upon the Bank's request,
promptly pay to and indemnify the Bank for all costs and any loss actually
incurred by the Bank (including loss of profit resulting from the re
employment of funds) sustained by the Bank as a consequence of such
prepayment.
G. INDEMNIFICATION FOR FIXED RATE COSTS. During any
period of time in which interest on any Advance is accruing on the basis of
the Fixed Rate, the Borrower shall, upon the Bank's request, promptly pay to
and reimburse the Bank for all costs incurred and payments made by the Bank
by reason of any future assessment, reserve, deposit or similar requirement
or any surcharge, tax or fee imposed upon the Bank or as a result of the
Bank's compliance with any directive or requirement of any regulatory
authority pertaining or relating to funds used by the Bank in quoting and
determining the Fixed Rate.
H. CONVERSION FROM FIXED RATE TO VARIABLE RATE. In the
event that the Bank shall at any time determine that the accrual of interest
on the basis of the Fixed Rate (i) has become infeasible because the Bank is
unable to determine the Fixed Rate due to the unavailability of U.S. Dollar
deposits, contracts or certificates of deposit in an amount approximately
equal to the amount of the relevant Advance and for a period of time
approximately equal to the relevant Interest period or (ii) is or has become
unlawful by reason of the Bank's compliance with any new law, rule,
regulation, guideline or order, or any new interpretation of any present law,
rule, regulation guideline or order, then the Bank shall promptly give
telephonic notice thereof (confirmed in writing) to the Borrower, in which
event any Fixed Rate
2
<PAGE>
Advance shall be deemed to be a Variable Rate Advance and interest shall
thereupon immediately accrue at the Variable Rate and shall continue at such
rate until the Bank determines that the Fixed Rate is no longer infeasible or
unlawful.
I. PRINCIPAL. Unless sooner due in accordance with the
terms of this Agreement:
(a) Commencing on June 5, 1999 and continuing on
such date annually thereafter, Borrower agrees to repay any outstanding
Advances that would exceed the relevant Commitment then in effect.
(b) On the Expiration Date, Borrower hereby
promises and agrees to pay to Bank in full the aggregate unpaid principal
amount of the Advances outstanding on such date plus accrued and unpaid
interest thereon.
J. EXPIRATION OF LINE OF CREDIT. Unless earlier
terminated in accordance with the terms of this Agreement, the Bank's
commitment to make Advances to the Borrower hereunder shall automatically
expire on June 5, 2008 (the "Expiration Date").
K. LATE PAYMENT: If any payment of principal or
interest, or any portion thereof, under this Agreement is not paid within ten
(10) calendar days after it is due, a late payment charge equal to five
percent (5%) of such past due payment may be assessed and shall be
immediately payable.
1.03 DISBURSEMENT OF PROCEEDS FROM ADVANCES. Any Advance made
hereunder shall be conclusively presumed to have been made to and for the
Borrower's benefit when the proceeds of such Advance are disbursed in
accordance with the Borrower's instructions or deposited into a checking
account of the Borrower maintained at the Bank.
SECTION II
REAL PROPERTY
2.01 THE DEED OF TRUST. The Borrower hereby agrees that all
Indebtedness referenced in the Agreement to be paid by the Borrower to the
Bank and the Borrower's performance of each and all of the terms, covenants
and agreements contained in the Agreement shall be secured by a deed of trust
in form and substance satisfactory to the Bank (the "Deed of Trust")
encumbering, as a lien of first encumbrance, the Real Property located in
the County of Monterey. State of California, subject only to current taxes
and assessments not yet due and payable and exceptions numbered 1-12 all as
listed on a certain Preliminary Title Report No. 97012929 (the "Permitted
Title Exceptions") dated May 26, 1887, and issued by Stewart Title.
SECTION III
CONDITIONS PRECEDENT
3.01 CONDITIONS PRECEDENT TO FIRST ADVANCE. Prior to the
first Advance hereunder, the Borrower shall deliver or cause to be delivered
to the Bank, in form and substance satisfactory to the Bank:
A. AUTHORITY TO BORROW. Evidence relating to the duly
given approval and authorization of the execution, delivery and performance
of this Agreement, all other documents, instruments and agreements required
under this Agreement and all other actions to be taken by the Borrower
hereunder or thereunder.
B. LOAN DOCUMENTS. The documents described in Section
II hereof, as applicable, and all other documents, instruments and agreements
required or necessary to consummate the transactions contemplated under this
Agreement (collectively the "Loan Documents"), all fully executed.
C. REAL PROPERTY. The following in connection with the
Real Property:
1. An appraisal of the Real Property.
2. A title insurance policy or binder in the amount
of $3,600,000 issued by a title insurance company satisfactory to the Bank
and in such form and substance and with such endorsements as are satisfactory
to the Bank. Such title insurance policy or binder shall indicate to the
Bank's satisfaction that the Deed of Trust shall constitute a lien of first
encumbrance on the Real Property subject only to the Permitted Title
Exceptions.
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3. Evidence that the Deed of Trust has been
recorded and constitutes a lien on the Real Property subject only to the
Permitted Title Exceptions.
4. Evidence of flood insurance if the Real Property
is located in a flood plain.
D. FEES. A fee of $9,000 and reimbursement to the Bank
in the amount of all escrow, recordation and appraisal fees, title guaranty
or insurance premiums, closing costs and all other out-of-pocket expenses
incurred by the Bank.
E. MISCELLANEOUS DOCUMENTS. Such other documents and
opinions as the Bank may require with respect to the transactions described
in this Agreement.
3.02 CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of
the Bank to make each Advance (including the first Advance) is subject to the
further conditions precedent that, as of the date of each Advance and after
the making of such Advance:
A. REPRESENTATIONS AND WARRANTIES. The representations
and warranties set forth in Section IV hereof and in any other document,
instrument, agreement or certificate delivered to the Bank hereunder are true
and correct.
B. EVENT OF DEFAULT. No event has occurred and is
continuing which constitutes, or, with the lapse of time or giving of notice
or both, would constitute an Event of Default as defined in Section VI hereof.
C. COLLATERAL. The security interest in the Collateral
has been duly authorized, created and perfected with first priority and is in
full force and effect.
For the purposes hereof, the Borrower's acceptance of the
proceeds of any Advance shall be deemed to constitute the Borrower's
representation and warranty that the statements set forth in sections 3.02 A.
and 3.02 B above are true and correct.
SECTION IV
REPRESENTATIONS AND WARRANTIES
The Borrower hereby makes the following representations and
warranties to the Bank, which representations and warranties are continuing:
4.01 STATUS. The Borrower is a corporation duly organized and
validly existing under the laws of the State of California, and is properly
licensed, qualified to do business and in good standing in, and, where
necessary to maintain the Borrower's rights and privileges, has complied with
the fictitious name statute of every jurisdiction in which the Borrower is
doing business.
4.02 AUTHORITY. The execution, delivery and performance by
the Borrower of this Agreement and the Loan Documents have been duly
authorized and do not and will not: (i) violate any provision of any law,
rule, regulation, writ, judgment or injunction presently in effect affecting
the Borrower; (ii) result in a breach of or constitute a default under any
material agreement to which the Borrower is a party or by which it or its
properties may be bound of affected; or (iii) require any consent or approval
of its stockholders or violate any provision of its articles of incorporation
or by-laws.
4.03 LEGAL EFFECT. This Agreement constitutes, and any
document, instrument or agreement required hereunder when delivered will
constitute, legal, valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their respective terms.
4.04 FICTITIOUS TRADE STYLES. There are no fictitious trade
styles used by the Borrower in connection with its business operations. The
Borrower shall notify the Bank not less than 30 days prior to effecting any
change in the matters described herein or prior to using any other fictitious
trade style at any future date, indicating the trade style and state(s) of
its use.
4.05 FINANCIAL STATEMENTS. All financial statements,
information and other data which may have been or which may hereafter be
submitted by the Borrower to the Bank are true, accurate and correct and have
been or will be prepared in accordance with generally accepted accounting
principles consistently applied and accurately represent the Borrower's
financial condition or, as applicable, the other information disclosed
therein. Since the most recent submission
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of any such financial statement, information or other data to the Bank, the
Borrower represents and warrants that no material adverse change in the
Borrower's financial condition or operations has occurred which has not been
fully disclosed to the Bank in writing.
4.06 LITIGATION. Except as have been disclosed to the Bank in
writing, there are no actions, suits or proceedings pending or, to the
knowledge of the Borrower, threatened against or affecting the Borrower or
the Borrower's properties before any court or administrative agency which, if
determined adversely to the Borrower, would have a material adverse effect on
the Borrower's financial condition or operations.
4.07 TITLE TO ASSETS; PERMITTED LIENS. The Borrower has good
and marketable title to all of its assets and the same are not subject to any
security interest, encumbrance, lien or claim of any third person other than:
(i) liens and security interests securing indebtedness owed by the Borrower
to the Bank; (ii) liens for taxes, assessments or similar charges either not
yet due or being duly contested in good faith; (iii) liens of mechanics,
materialmen, warehousemen or other like liens arising in the ordinary course
of business and securing obligations which are not yet delinquent; (iv) liens
and security interests which, as of the date of this Agreement, have been
disclosed to and approved by the Bank in writing; (v) purchase money liens or
purchase money security interests upon or in any property acquired or held by
the Borrower in the ordinary course of business to secure indebtedness
outstanding on the date hereof or permitted to be incurred hereunder; and
(vi) those liens and security interests which in the aggregate constitute an
immaterial and insignificant monetary amount with respect to the net value of
the Borrower's assets (collectively "Permitted Liens").
4.08 ERISA. If the Borrower has a pension, profit sharing or
retirement plan subject to the Employee Retirement Income Security Act of
1974, as amended from time to time, including any rules and regulations
promulgated thereunder ("ERISA"), such plan has been and will continue to be
funded in accordance with its terms and otherwise complies with and continues
to comply with the requirements of ERISA.
4.09 TAXES. The Borrower has filed all tax returns required
to be filed and paid all taxes shown thereon to be due, including interest
and penalties, other than taxes which are currently payable without penalty
or interest or those which are being duly contested in good faith.
4.10 MARGIN STOCK. The proceeds of any Advance under the Line
of Credit will not be used to purchase or carry margin stock as such term is
defined under Regulation U of the Board of Governors of the Federal Reserve
System.
4.11 ENVIRONMENTAL COMPLIANCE. Borrower has implemented and
complied in all material respects with all applicable federal, state and
local laws, ordinances, statutes and regulations with respect to hazardous or
toxic wastes, substances or related materials, industrial hygiene or
environmental conditions. There are no suits, proceedings, claims or disputes
pending or, to the knowledge of such Borrower, threatened against or
affecting such Borrower or its property claiming violations of any federal,
state or local law, ordinance, statute or regulation relating to hazardous or
toxic wastes, substances or related materials.
4.12 WATER. As of the date of this Agreement, sufficient
water is available and is projected to be available, from verifiable surface
and ground water sources, to conduct operations as described in the most
recent budget submitted by Borrower to the Bank or to conduct operations
materially similar to prior years' operations as evidenced by information
provided by any Borrower to the Bank. Borrower has filed with all
governmental agencies, all notices and other documents required under
Federal, state and local laws and regulations in connection with the supply
of water to and use of water upon the Real Property.
SECTION V
COVENANTS
The Borrower covenants and agrees that, during the term of
this Agreement, and so long thereafter as the Borrower is indebted to the
Bank under this Agreement, the Borrower shall, unless the Bank otherwise
consents in writing:
5.01 PRESERVATION OF EXISTENCE; COMPLIANCE WITH APPLICABLE
LAWS. Maintain and preserve its existence and all rights and privileges now
enjoyed; not liquidate or dissolve, merge or consolidate with or into, or
acquire any other business organization; and conduct its business in
accordance with all applicable laws, rules and regulations.
5.02 MAINTENANCE OF INSURANCE. Maintain insurance in such
amounts and covering such risks as is usually carried by companies engaged in
similar businesses and owning similar properties in the same general areas in
which the Borrower operates and maintain such other insurance and coverages
as may be required by the Bank. All such insurance
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shall be in form and amount and with companies satisfactory to the Bank.
With respect to insurance covering properties in which the Bank maintains a
security interest or lien, such insurance shall name the Bank as loss payee
pursuant to a loss payable endorsement satisfactory to the Bank and shall not
be altered or canceled except upon 10 days' prior written notice to the Bank.
Upon the Bank's request, the Borrower shall furnish the Bank with the
original policy or binder of all such insurance.
5.03 PAYMENT OF OBLIGATIONS AND TAXES. Make timely payment of
all assessments and taxes and all of its liabilities and obligations unless
the same are being contested in good faith.
5.04 INSPECTION RIGHTS. At any reasonable time and from time
to time permit the Bank or any representative thereof to examine and make
copies of the records and visit the properties of the Borrower and to discuss
the business and operations of the Borrower with any employee or
representative thereof. If the Borrower now or at any time hereafter
maintains any records (including, but not limited to, computer generated
records and computer programs for the generation of such records) in the
possession of a third party, the Borrower hereby agrees to notify such third
party to permit the Bank free access to such records at all reasonable times
and to provide the Bank with copies of any records it may request, all at the
Borrower's expense, the amount of which shall be payable immediately upon
demand.
5.05 REPORTING REQUIREMENTS. Deliver or cause to be delivered
to the Bank in form and detail satisfactory to the Bank:
A. ANNUAL STATEMENTS. Not later than 100 days after
the end of each of the Borrower's fiscal years, a copy of the annual audited
financial report of the Borrower for such year, which report shall be
prepared by a firm of certified public accountants acceptable to Bank.
B. OTHER INFORMATION. Promptly upon the Bank's
request, such other information pertaining to the Borrower as the Bank may
reasonably request.
5.06 REDEMPTION OR REPURCHASE OF STOCK. Not redeem or
repurchase any class of the Borrower's stock now or hereafter outstanding.
5.07 LIENS AND ENCUMBRANCES. Not create, assume or permit to
exist any security interest, encumbrance, mortgage, deed of trust or other
lien including, but not limited to, a lien of attachment, judgment or
execution) affecting any of the Borrower's properties, or execute or allow to
be filed any financing statement or continuation thereof affecting any such
properties, except for Permitted Liens and as otherwise provided in this
Agreement.
5.08 TRANSFER ASSETS. Not sell, contract for sale, transfer,
convey, assign, lease or sublet any of its assets except in the ordinary
course of business as presently conducted by the Borrower, and then, only for
full, fair and reasonable consideration.
5.09 CHANGE IN THE NATURE OF BUSINESS. Not make any material
change in its financial structure or in the nature of its business as
existing or conducted as of the date of this Agreement.
5.10 FINANCIAL CONDITION. Maintain at all times
(a) NET WORTH. A minimum effective tangible net worth of
not less than $20,000,000.
(b) DEBT TO NET WORTH RATIO. A debt to effective
tangible net worth ratio of not more than 1 to 1.
(c) CURRENT RATIO. A ratio of current assets to current
liabilities of not less than 2 to 1.
(d) DEBT SERVICE COVERAGE RATIO. A ratio of the sum of
net profit after tax, plus depreciation, amortization and interest expense
minus dividends to the current portion of long-term debt plus interest
expense of not less than 1.25 to 1.
For purposes of the foregoing, the term "effective tangible
net worth" shall mean the Borrower's stated net worth less all its intangible
assets (i.e., goodwill, trademarks, patents, copyrights, organization expense
and similar intangible items) but including leaseholds and leasehold
improvements and plus indebtedness subordinated (by its terms or by written
agreement) to indebtedness owed by the Borrower to the Bank and the term
"debt" shall mean all of the Borrower's liabilities excluding indebtedness
subordinated (by its terms or by written agreement) to indebtedness owed by
the Borrower to the Bank.
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5.11 NOTICES. Give prompt written notice to the Bank of any
and all Events of Default and litigation, arbitration or administrative
proceedings to which the Borrower is a party and in which the claim or
liability exceeds $50,000.00.
5.12 ENVIRONMENTAL COMPLIANCE. Borrower shall:
A. Implement and comply in all material respects with
all applicable federal, state and local laws, ordinances, statutes and
regulations with respect to hazardous or toxic wastes, substances or related
materials, industrial hygiene or to environmental conditions.
B. Not own, use, generate, manufacture, store, handle,
treat, release or dispose of any hazardous or toxic wastes, substances or
related materials.
C. Give prompt written notice of any discovery of or
suit, proceeding, claim, dispute, threat, inquiry or filing respecting
hazardous or toxic wastes, substances or related materials.
D. At all times indemnify and hold harmless Bank from
and against any and all liability arising out of the use, generation,
manufacture, storage, handling, treatment, disposal or presence of hazardous
or toxic wastes, substances or related materials.
5.13 MAINTENANCE OF COLLATERAL: Except for Permitted Liens,
keep and maintain the Collateral free and clear of all levies, liens,
encumbrances and security interests (including, but not limited to, any lien
of attachment, judgment or execution) and defend the Collateral against any
such levy, lien, encumbrance or security interest; comply with all laws,
statutes and regulations pertaining to the Collateral and its use and
operation; execute, file and record such statements, notices and agreements,
take such actions and obtain such certificates and other documents as
necessary to perfect, evidence and continue the Bank's security interest in
the Collateral and the priority thereof; maintain accurate and complete
records of the Collateral which show all sales, claims and allowances; and
properly care for, house, store and maintain the Collateral in good
condition, free of misuse, abuse and deterioration, other than normal wear
and tear. The Borrower shall also maintain and preserve all its properties
in good working order and condition in accordance with the general practice
of other businesses of similar character and size, ordinary wear and tear
excepted.
5.14 COMPENSATION: Compensate its employees for services
rendered at an hourly rate at least equal to the minimum hourly rate
prescribed by any applicable federal or state law or regulation.
5.15 LOCATION OF HARVESTED CROPS: Any Crops now or hereafter
harvested or removed from the Real Property shall not be stored with a
bailee, warehouseman or similar party without the Bank's prior written
consent and shall be kept only on the Real Property.
5.16 CARE AND PRESERVATION OF CROPS:
(a) Attend to and care for the Crops and do or cause to
be done any and all acts that may at any time be appropriate or necessary to
grow, farm, cultivate, irrigate, fertilize, fumigate, prune, harvest, pick,
clean, preserve and protect the Crops.
(b) Not commit or suffer to be committed any waste of or
damage to the Crops
(c) Permit the Bank and any of its agents, employees or
representatives to enter upon the Real Property at any reasonable time and
from time to time for the purpose of examining and inspecting the Crops and
the Real Property.
(d) Harvest and prepare the Crops for market and
promptly notify the Bank when any of the Crops are ready for market.
(e) Keep the Crops separate and always capable of
identification.
(f) Comply with any requirements or instructions of the
Bank with respect to hauling, shipping, storing, marketing and otherwise
preparing, handling and disposing of the Crops.
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5.17 EVIDENCE OF WATER AVAILABILITY. At such times as the
Bank may request, to deliver to the Bank a certificate stating that the
amount of water available and projected to be available is sufficient to
conduct operations as described in Borrower's Development Budget or
operations materially similar to prior years' operations, as evidenced by
information provided by the Borrower to the Bank. Such certificate shall be
signed, at the Bank's option, either by the Borrower or by an independent
third party, such as an officer of the Borrower's water district or other
supplier of water.
SECTION VI
EVENTS OF DEFAULT
Any one or more of the following described events shall
constitute an event of default (an "Event of Default") under this Agreement:
6.01 NON-PAYMENT: The Borrower shall fail to pay any
payment of principal or interest or any other sum referred to in this
Agreement within 10 days of when due.
6.02 PERFORMANCE UNDER THIS AGREEMENT: The Borrower
shall fail in any material respect to perform or observe any term, covenant
or agreement contained in this Agreement or in any document, instrument or
agreement relating to this Agreement and any such failure shall continue
unremedied for more than 30 days after the occurrence thereof.
6.03 OTHER AGREEMENTS: If there is a default under any
agreement to which Borrower is a party with a third party or parties
resulting in a right by such third party or parties, whether or not
exercised, to accelerate the maturity of any Indebtedness.
6.04 REPRESENTATIONS AND WARRANTIES; FINANCIAL
STATEMENTS: Any representation or warranty made by the Borrower under or in
connection with this Agreement or any financial statement given by the
Borrower or any Guarantor shall prove to have been incorrect in any material
respect when made or given or when deemed to have been made or given.
6.05 INSOLVENCY: The Borrower or any Guarantor shall:
(i) become insolvent or be unable to pay its debts as they mature; (ii) make
an assignment for the benefit of creditors or to an agent authorized to
liquidate any substantial amount of its properties or assets; (iii) file a
voluntary petition in bankruptcy or seeking reorganization or to effect a
plan or other arrangement with creditors; (iv) file an answer admitting the
material allegations of an involuntary petition relating to bankruptcy or
reorganization or join in any such petition; (v) become or be adjudicated a
bankrupt; (vi) apply for or consent to the appointment of, or consent that an
order be made, appointing any receiver, custodian or trustee for itself or
any of its properties, assets or businesses; or (vii) any receiver, custodian
or trustee shall have been appointed for all or a substantial part of its
properties, assets or businesses and shall not be discharged within 30 days
after the date of such appointment.
6.06 EXECUTION: Any writ of execution or attachment or
any judgment lien shall be issued against any property of the Borrower and
shall not be discharged or bonded against or released within 30 days after
the issuance or attachment of such writ or lien.
6.07 REVOCATION OR LIMITATION OF GUARANTY: Any Guaranty
shall be revoked or limited or its enforceability or validity shall be
contested by any Guarantor, by operation of law, legal proceeding or
otherwise or any Guarantor who is a natural person shall die.
6.08 SUSPENSION: The Borrower shall voluntarily suspend
the transaction of business or allow to be suspended, terminated, revoked or
expired any permit, license or approval of any governmental body necessary to
conduct the Borrower's business as now conducted.
6.09 CHANGE IN OWNERSHIP: There shall occur a sale,
transfer, disposition or encumbrance (whether voluntary or involuntary to),
or an agreement shall be entered into to do so with, any Person or group of
Persons (as such terms are defined pursuant to Federal securities laws) with
respect to more than 20% of the issued and outstanding capital stock of the
Borrower and, as a result thereof, such Person or group of Persons has the
ability to direct or cause the direction of the management and policies of
the Borrower.
6.10 IMPAIRMENT OF COLLATERAL: There shall occur any
injury or damage to all or any part of the Collateral or all or any part of
the Collateral shall be lost, stolen or destroyed.
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6.11 WATER QUALITY/AMOUNT: The Borrower's water is or is
projected to be insufficient in amount or unsuitable in quality, as
determined by the Bank in either case, to conduct operations as described in
Borrower's most recent budget or projections or by information provided by
Borrower to the Bank.
SECTION VII
REMEDIES ON DEFAULT
Upon the occurrence of any Event of Default, the Bank may, at
its sole election, without demand and upon only such notice as may be
required by law:
7.01 ACCELERATION: Declare any or all of the Borrower's
indebtedness owing to the Bank, whether under this Agreement or under any
other document, instrument or agreement, immediately due and payable, whether
or not otherwise due and payable.
7.02 CEASE EXTENDING CREDIT: Cease making Advances or
otherwise extending credit to or for the account of the Borrower under this
Agreement or under any other agreement now existing or hereafter entered into
between the Borrower and the Bank.
7.03 TERMINATION: Terminate this Agreement as to any
future obligation of the Bank without affecting the Borrower's obligations to
the Bank or the Bank's rights and remedies under this Agreement or under any
other document, instrument or agreement.
7.04 NOTIFICATION OF ACCOUNT DEBTORS:
(a) Notify any account debtor, any buyers or
transferee of the Collateral or any other persons of the Bank's interest in
the Collateral and the proceeds thereof.
(b) Sign the Borrower's name (which authority the
Borrower hereby irrevocably and unconditionally grants to the Bank) on any
invoice or bill of lading relating to accounts or other drafts against the
account debtors, buyers or transferees, notify post office authorities to
change the address for delivery of mail addressed to the Borrower to such
address as the Bank may designate and take possession of and open mail
addressed to the Borrower and remove therefrom, proceeds of and payments on
the Collateral, and demand, receive and endorse payment and give receipts,
releases and satisfactions for and sue for all money payable to the Borrower.
(c) Require the Borrower to indicate on the face of
all invoices (or such other documentation as may be specified by the Bank
relating to the sale, delivery or shipment of goods giving rise to the
account) that the account has been assigned to the Bank and that all payments
are to be made directly to the Bank at such address as the Bank may designate.
(d) Require the Borrower to direct all account
debtors, buyers or transferees to forward all remittances, payments and
proceeds of the Collateral directly to the Bank at such address as the Bank
may designate. In connection therewith, the Borrower hereby irrevocably
constitutes and appoints the Bank as its attorney-in-fact to endorse the
Borrower's name on any notes, acceptances, checks, drafts, money orders or
other evidence of payment that may come into the Bank's possession.
(e) Require the Borrower to deliver to the Bank, at
such times designated by the Bank, records and schedules which show the
status and condition of the Collateral, where it is located and such
contracts or other matters which affect the Collateral.
(f) Send verification requests to any account
debtor, buyer or transferee.
(g) Make inquiries of the Borrower's trade vendors.
7.05 CARE AND POSSESSION OF THE CROPS: Enter upon the
Real Property and, using any and all of the Borrower's equipment, machinery,
tools, farming implements and supplies, and improvements located on the Real
Property: (i) farm, cultivate, irrigate, fertilize, fumigate, prune and
perform any other act of acts appropriate or necessary to grow, care for,
maintain, preserve and protect the Crops (using any water located in, on or
adjacent to the Real Property); (ii) harvest, pick, clean and remove the
Crops from the Real Property; and (iii) appraise, store, prepare for public
or private sale, exhibit, market and sell the Crops and the products thereof;
provided that the Borrower hereby agrees that, if the Borrower is the owner
of the Real Property, the Bank shall not be responsible or liable for
returning the Real Property to its condition immediately
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preceding the use of the Real Property as provided herein or for doing such
acts as may be necessary to permit future crops to be grown on the Real
Property.
7.06 PROTECTION OF SECURITY INTERESTS: Make such
payments and do such acts as the Bank, in its sole judgment, considers
necessary and reasonable to protect its security interest or lien in the
Collateral. The Borrower hereby irrevocably authorizes the Bank to pay,
purchase, contest or compromise any encumbrance, lien or claim which the
Bank, in its sole judgment, deems to be prior or superior to its security
interest. Further, the Borrower hereby agrees to pay to the Bank, upon
demand therefor, all expenses and expenditures (including attorneys' fees)
incurred in connection with the foregoing.
7.07 FORECLOSURE: Enforce any security interest or lien
given or provided for under this Agreement or under any security agreement,
mortgage, deed of trust or other document, in such manner and such order, as
to all or any part of the properties subject to such security interest or
lien, as the Bank, in its sole judgment, deems to be necessary or appropriate
and the Borrower hereby waives any and all rights, obligations or defenses
now or hereafter established by law relating to the foregoing. In the
enforcement of its security interest or lien, the Bank is authorized to enter
upon the premises where any Collateral is located and take possession of the
Collateral or any part thereof, together with the Borrower's records
pertaining thereto, or the Bank may require the Borrower to assemble the
Collateral and records pertaining thereto and make such Collateral and
records available to the Bank at a place designated by the Bank. The Bank may
sell the Collateral or any portions thereof, together with all additions,
accessions and accessories thereto, giving only such notices and following
only such procedures as are required by law, at either a public or private
sale, or both, with or without having the Collateral present at the time of
the sale, which sale shall be on such terms and conditions and conducted in
such manner as the Bank determines in its sole judgment to be commercially
reasonable. Any deficiency which exists after the disposition or liquidation
of the Collateral shall be a continuing liability of the Borrower to the Bank
and shall be immediately paid by the Borrower to the Bank.
7.08 NON-EXCLUSIVITY OF REMEDIES: Exercise one or more
of the Bank's rights set forth herein or seek such other rights or pursue
such other remedies as may be provided by law, in equity or in any other
agreement now existing or hereafter entered into between the Borrower and the
Bank, or otherwise.
7.09 APPLICATION OF PROCEEDS: All amounts received by
the Bank as proceeds from the disposition or liquidation of the Collateral
shall be applied to the Borrower's indebtedness to the Bank as follows:
first, to the costs and expenses of collection, enforcement, protection and
preservation of the Bank's lien in the Collateral, including court costs and
reasonable attorneys' fees, whether or not suit is commenced by the Bank;
next, to those costs and expenses incurred by the Bank in protecting,
preserving, enforcing, collecting, liquidating, selling or disposing of the
Collateral; next, to the payment of accrued and unpaid interest on all of the
Obligations; next, to the payment of the outstanding principal balance of the
Obligations; and last, to the payment of any other indebtedness owed by the
Borrower to the Bank. Any excess Collateral or excess proceeds existing
after the disposition or liquidation of the Collateral will be returned or
paid by the Bank to the Borrower.
SECTION VIII
MISCELLANEOUS PROVISIONS
8.01 AMOUNTS PAYABLE ON DEMAND: If the Borrower fails to
pay on demand any amount so payable under this Agreement, the Bank may, at
its option and without any obligation to do so and without waiving any
default occasioned by the Borrower's failure to pay such amount, create an
Advance in an amount equal to the amount so payable, which Advance shall
thereafter bear interest as provided under the Line of Credit.
8.02 DEFAULT INTEREST RATE: If an Event of Default, or
an event which, with notice or passage of time could become an Event of
Default, has occurred or is continuing, the Borrower shall pay to the Bank
interest on any Indebtedness or amount payable under this Agreement at a rate
which is 3% in excess of the rate or rates then in effect under this
Agreement.
8.03 DISPOSAL OF INVOICES: All documents, schedules,
invoices or other papers received by the Bank from the Borrower may be
destroyed or disposed of six (6) months after receipt by the Bank, unless the
Borrower requests in writing the return thereof, which shall be done at the
Borrower's expense.
8.04 ASSIGNMENT OF BORROWER'S RIGHTS:
(a) If the Crops or any portion or portions thereof
become infected by disease or are destroyed by order of any local, state or
federal authority, and, by reason thereof, the Borrower is entitled to be
indemnified by such authority, the Borrower hereby assigns to the Bank any
and all such sums due from such authority, and the Bank is hereby authorized
to
10
<PAGE>
receive, collect and sue for the same, and the Borrower hereby orders and
directs that any such sums be paid directly to the Bank.
(b) In addition, the Borrower hereby assigns and
transfers to the Bank all of the Borrower's rights and interests in and to
any monies now or hereafter placed in any funds of any marketing association,
corporation, cooperative, partnership, firm or individual now, heretofore or
hereafter handling or having to do with any of the Crops now growing or
heretofore or hereafter grown on the Real Property or connected with the
growing, marketing, farming or other handling of such Crops and the Borrower
hereby assigns and transfers to the Bank all stock and all other interests,
benefits and rights of the Borrower in any such marketing association,
corporation, cooperative, partnership, firm or individual having anything to
do with such Crops and all monies due or becoming due to the Borrower from
any one or more of them.
8.05 ACCOUNTING AND OTHER TERMS: All references to
financial statements, assets, liabilities and similar accounting terms not
specifically defined in this Agreement shall mean such financial statements
prepared and such terms determined in accordance with generally accepted
accounting principles consistently applied. Except where otherwise specified
in this Agreement, all financial data submitted or to be submitted to the
Bank pursuant to this Agreement shall be prepared in accordance with
generally accepted accounting principles consistently applied. Terms not
otherwise defined in this Agreement shall have the meanings attributed to
such terms in the California Uniform Commercial Code.
8.06 RELIANCE: Each warranty, representation, covenant
and agreement contained in this Agreement shall be conclusively presumed to
have been relied upon by the Bank regardless of any investigation made or
information possessed by the Bank and shall be cumulative and in addition to
any other warranties, representations, covenants or agreements which the
Borrower shall now or hereafter give, or cause to be given, to the Bank.
8.07 ATTORNEY'S FEES: Borrower shall pay to the Bank all
costs and expenses, including but not limited to reasonable attorneys fees,
incurred by Bank in connection with the administration, enforcement,
including any bankruptcy, appeal or the enforcement of any judgment or any
refinancing or restructuring of this Agreement or any document, instrument or
agreement executed with respect to, evidencing or securing the indebtedness
hereunder.
8.08 NOTICES: All notices, payments, requests,
information and demands which either party hereto may desire, or may be
required to give or make to the other party shall be given or made to such
party by hand delivery or through deposit in the United States mail, postage
prepaid, or by Western Union telegram, addressed to the address set forth
below such party's signature to this Agreement or to such other address as
may be specified from time to time in writing by either party to the other.
8.09 WAIVER: Neither the failure nor delay by the Bank
in exercising any right hereunder or under any document, instrument or
agreement mentioned herein shall operate as a waiver thereof, nor shall any
single or partial exercise of any right hereunder or under any document,
instrument or agreement mentioned herein preclude other or further exercise
thereof or the exercise of any other right; nor shall any waiver of any right
or default hereunder or under any other document, instrument or agreement
mentioned herein constitute a waiver of any other right or default or
constitute a waiver of any other default of the same or any other term or
provision.
8.10 CONFLICTING PROVISIONS: To the extent that any of
the terms or provisions contained in this Agreement are inconsistent with
those contained in any other document, instrument or agreement executed
pursuant hereto, the terms and provisions contained herein shall control.
Otherwise, such provisions shall be considered cumulative.
8.11 BINDING EFFECT; ASSIGNMENT: This Agreement shall be
binding upon and inure to the benefit of the Borrower and the Bank and their
respective successors and assigns, except that the Borrower shall not have
the right to assign its rights hereunder or any interest herein without the
Bank's prior written consent. The Bank may sell, assign or grant
participations in all or any portion of its rights and benefits hereunder.
The Borrower agrees that, in connection with any such sale, grant or
assignment, the Bank may deliver to the prospective buyer, participant or
assignee financial statements and other relevant information relating to the
Borrower.
8.12 JURISDICTION: This Agreement, any notes issued
hereunder, and any documents, instruments or agreements mentioned or referred
to herein shall be governed by and construed according to the laws of the
State of California, to the jurisdiction of whose courts the parties hereby
submit.
8.13 DISPUTE RESOLUTION: It is understood and agreed that
upon the request of any party to this agreement any dispute, claim, or
controversy of any kind, whether in contract or in tort, statutory or common
law, legal or equitable now existing or hereinafter arising between the
parties in any way arising out of, pertaining to or in connection with: (1)
this
11
<PAGE>
Agreement, or any related agreements, documents, or instruments, (2) all
past and present loans, credits, accounts, deposit accounts (whether demand
deposits or time deposits), safe deposit boxes, safekeeping agreements,
guarantees, letters of credit, goods or services, or other transactions,
contracts or agreements of any kind, (3) any incidents, omissions, acts,
practices, or occurrences causing injury to either party whereby the other
party or its agents, employees or representatives may be liable, in whole or
in part, or (4) any aspect of the past or present relationships of the
parties, shall be resolved through a two step dispute resolution process
administered by Judicial Arbitration & Mediation Services, Inc. ("J-A-M-S")
as follows:
a) STEP I - MEDIATION: At the request of any party to
the dispute, claim or controversy of the matter shall be referred to the
nearest office of J-A-M-S for mediation, that is, an informal, non binding
conference or conferences between the parties in which a retired judge or
justice for the J-A-M-S panel will seek to guide the parties to a resolution
of the case.
b) STEP II - UNSECURED CONTRACTS - ARBITRATION: Should
any dispute, claim or controversy remain unresolved at the conclusion of the
Step I Mediation Phase then all such remaining matters shall be resolved by
final and binding arbitration before a different judicial panelist, unless
the parties shall agree to have the mediator panelist act as arbitrator. The
hearing shall be conducted at a location determined by the arbitrator in Los
Angeles County and shall be administered by and in accordance with the then
existing Rules of Practice and Procedure of Judicial Arbitration & Mediation
Services, Inc., and judgement upon any award rendered by the arbitrator may
be entered by any State or Federal Court having jurisdiction thereof. The
arbitrator shall determine which is the prevailing party and shall include in
the award that party's reasonable attorneys fees and costs. This
subparagraph (b) shall apply only if, at the time of the submission of the
matter to J-A-M-S, the dispute(s) or issue(s) do(es) not arise out of a
transaction(s) which is/are secured by real property collateral or, if so
secured, all parties consent to such submission.
As soon as practicable after selection of the arbitrator, the
arbitrator or his/her designated representative shall determine a reasonable
estimate of anticipated fees and costs of the Arbitrator, and render a
statement to each party setting forth that party's pro rata share of said
fees and costs. Thereafter each party shall, within 10 days of receipt of
said statement, deposit said sum with the Arbitrator. Failure of any party
to make such a deposit shall result in a forfeiture by the non depositing
party of the right to prosecute or defend the claim which is the subject of
the arbitration, but shall not otherwise serve to abate, stay or suspend the
arbitration proceedings.
c) PROVISIONAL REMEDIES, SELF HELP AND FORECLOSURE: No
provision of, or the exercise of any right(s) under subparagraph (b), nor any
other provision of this Dispute Resolution Provision, shall limit the right
of any party to exercise self help remedies such as set off, to foreclose
against any real or personal property collateral, or obtain provisional or
ancillary remedies such as injunctive relief or the appointment of a receiver
from any court having jurisdiction before, during or after the pendency of
any arbitration. At Bank's option, foreclosure under a deed of trust or
mortgage may be accomplished either by exercise of power of sale under the
deed of trust or mortgage, or by judicial foreclosure. The institution and
maintenance of an action for provisional remedies pursuit of provisional or
ancillary remedies or exercise of self help remedies shall not constitute a
waiver of the right of any party, including the plaintiff, to submit the
controversy or claim to arbitration.
8.14 WAIVER OF JURY TRIAL: THE BORROWER AND THE BANK
EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE
OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN
ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE
PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT
CLAIMS, TORT CLAIMS, OR OTHERWISE. THE BORROWER AND THE BANK EACH AGREE THAT
ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A
JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS
TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN
PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
8.15 HEADINGS: The headings set forth herein are solely
for the purpose of identification and have no legal significance.
12
<PAGE>
8.16 ENTIRE AGREEMENT: This Agreement and the Loan
Documents shall constitute the entire and complete understanding of the
parties with respect to the transactions contemplated hereunder. All
previous conversations, memoranda and writings between the parties or
pertaining to the transactions contemplated hereunder that are not
incorporate or referenced in this Agreement or the Loan Documents are
superseded hereby.
IN WITNESS WHEREOF, this Agreement has been executed by the
parties hereto as of the date first hereinabove written.
BANK: BORROWER:
SANWA BANK CALIFORNIA SCHEID VINEYARDS CALIFORNIA, INC.
By: By:
----------------------------------- ---------------------------------
Steven R. Edmonston, Vice President Alfred G. Scheid, President
By:
--------------------------------
Ernest M. Brown, Secretary
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AS OF JUNE 30, 1998 AND THE STATEMENT OF OPERATIONS OF SCHEID
VINEYARDS INC. FOR THE SIX MONTHS ENDED JUNE 30, 1998 INCLUDED ON FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,852
<SECURITIES> 0
<RECEIVABLES> 187
<ALLOWANCES> 0
<INVENTORY> 3,977
<CURRENT-ASSETS> 11,486
<PP&E> 32,405
<DEPRECIATION> 0
<TOTAL-ASSETS> 49,012
<CURRENT-LIABILITIES> 1,556
<BONDS> 17,776
0
0
<COMMON> 7
<OTHER-SE> (344)
<TOTAL-LIABILITY-AND-EQUITY> 49,012
<SALES> 745
<TOTAL-REVENUES> 1,182
<CGS> 343
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (32)
<INCOME-PRETAX> (1,276)
<INCOME-TAX> (510)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (766)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
<PAGE>
EXHIBIT 99.1
SUPPLEMENTAL AGREEMENT OF SCHEID VINEYARDS INC.
Scheid Vineyards Inc. ("SVI") hereby agrees to furnish supplementally to
the Securities and Exchange Commission a copy of any of Exhibits A, B and C-2
to Exhibit 10.1 to SVI's Quarterly Report on Form 10-QSB, which have been
omitted therefrom.
