<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 000-22857
SCHEID VINEYARDS INC.
(Name of small business issuer in its charter)
DELAWARE 77-0461833
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
13470 WASHINGTON BLVD., SUITE 300
MARINA DEL REY, CALIFORNIA 90292
(Address of principal executive offices) (Zip Code)
(310) 301-1555
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Class A Common
Stock, $.001 Par Value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $19,870,000
Aggregate market value of the voting stock held by non-affiliates computed by
reference to the closing price at which the Class A Common Stock was sold on
the Nasdaq Stock Market National Market System on March 20, 1998:
$24,725,000. The voting stock held by non-affiliates on that date consisted
of 2,300,000 shares of Class A Common Stock.
Number of shares outstanding of each of the issuer's classes of common stock
at March 20, 1998:
Class A 2,300,000 Class B 4,400,000
Portions of the registrant's Proxy Statement for its May 28, 1998 Annual
Stockholders Meeting, which has not been filed as of the date of this filing,
are incorporated by reference into Part III of this Report.
Transitional Small Business Disclosure Format (check one) Yes No X
--- ---
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1
<PAGE>
FORM 10-KSB INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Note Concerning Forward-Looking Statements 3
PART I
Item 1. Business. 3
Item 2. Description of Property. 19
Item 3. Legal Proceedings. 20
Item 4. Submission of Matters to a Vote of Security Holders. 20
PART II
Item 5. Market for Common Equity and Related Stockholder Matters. 20
Item 6. Management's Discussion and Analysis or Plan of Operation. 22
Item 7. Financial Statements. 27
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosures. 27
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act. 27
Item 10. Executive Compensation. 28
Item 11. Security Ownership of Certain Beneficial Ownership and Management. 28
Item 12. Certain Relationships and Related Transactions. 28
Item 13. Exhibits and Reports on Form 8-K. 28
Signatures 33
</TABLE>
2
<PAGE>
NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This Report contains certain forward-looking statements, including the
plans and objectives of management for the business, operations, and economic
performance of the Company. These forward-looking statements generally can
be identified by the context of the statement or the use of words such as the
Company or its management "believes," "anticipates," "intends," "expects,"
"plans" or words of similar meaning. Similarly, statements that describe the
Company's future operating performance, financial results, plans, objectives,
strategies, or goals are forward-looking statements. Although management
believes that the assumptions underlying the forward-looking statements are
reasonable, these assumptions and the forward-looking statements are subject
to various factors, risks and uncertainties, many of which are beyond the
control of the Company. Accordingly, actual results could differ materially
from those contemplated by the forward-looking statements. In addition to
the other cautionary statements relating to certain forward-looking
statements throughout this Report, attention is directed to "Business -
Cautionary Information Regarding Forward-Looking Statements" below for
discussion of some of the factors, risks and uncertainties that could affect
the outcome of future results contemplated by forward-looking statements.
PART 1
ITEM 1. BUSINESS
OVERVIEW
Scheid Vineyards Inc., a Delaware corporation ("SVI" or the "Company"),
is a leading independent (I.E., not winery controlled) producer of premium
varietal wine grapes. The Company currently operates approximately 5,150
acres of wine grape vineyards. Of this total, approximately 3,470 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 produces 14 varieties of premium wine grapes,
primarily Chardonnay, Merlot, Cabernet Sauvignon, Chenin Blanc,
Gewurztraminer and Sauvignon Blanc. The Company believes that its customers
contract with SVI to assure a consistent, reliable source of high-quality
premium grapes for their wines. The Company's two largest winery customers
are Canandaigua Brands, Inc. ("Canandaigua") and International Distillers and
Vintners North America, a subsidiary of Diageo plc, the surviving company
from the merger of Grand Metropolitan plc and Guinness plc ("IDV"), the
second and seventh largest U.S. wineries in terms of 1997 case shipments,
respectively. These customers' labels include GLEN ELLEN, BEAULIEU VINEYARD,
BLOSSOM HILL, CHRISTIAN BROS., INGLENOOK, PAUL MASSON, ALMADEN, DEER VALLEY,
DUNNEWOOD, and TAYLOR CALIFORNIA CELLARS. Grape purchase contracts with IDV
cover 64% of the Company's acreage and accounted for approximately 81% and
84% of the Company's 1997 and 1996 total revenues, respectively.
The Company also has long-term grape purchase agreements with other
well-known producers of ultra premium wines, including The Chalone Wine
Group, Ltd., The Hess Collection Winery, Joseph Phelps Vineyards and
Gundlach-Bundschu Winery. The terms of the Company's long-term grape purchase
contracts extend to between 2001 and 2013, and have "evergreen" provisions
requiring two or three years' prior written notice of termination. These
contracts generally require the customers to purchase substantially all of
the Company's production from specified vineyards at a formula price
3
<PAGE>
based upon the previous harvest year's sales prices in California's leading
coastal regions, including Napa, Sonoma, Mendocino and Monterey Counties.
The Company believes that selling its production through long-term
contracts allows it to attain reliable sources of revenues and profits not
available through sales on the yearly spot market or short-term contracts
with wineries. This, in turn, has allowed the Company to implement long-term
programs for upgrading vineyard productivity, increasing product quality and
mechanizing its field operations. Because increased yields per acre do not
significantly increase the Company's costs of operating vineyards,
productivity improvements contribute substantially to gross profits. The
Company has increased its yields of higher value and better quality wine
grapes in recent years through a continuing redevelopment and improvement
program begun in 1993, and anticipates continued increases in average yields
until its redeveloped vineyards reach full maturity. Similar productivity
improvements generally are anticipated in connection with vineyards that may
be acquired in the future.
The Company's executive offices are located at 13470 Washington Blvd.,
Suite 300, Marina del Rey, California 90292, telephone number (310) 301-1555,
and its vineyard headquarters compound is located at 1972 Hobson Avenue,
Greenfield, California 93927.
The Company's business is conducted through a wholly owned subsidiary,
Scheid Vineyards California Inc., a California corporation ("SVI-Cal").
References in this Report to "SVI-Del" refer only to Scheid Vineyards Inc.,
the parent holding company. Unless otherwise required by the context,
references in this Report to "SVI" and the "Company" include SVI-Del and
SVI-Cal on a consolidated basis.
RECENT DEVELOPMENTS
During the third quarter of 1997, the Company completed its initial
public offering of 2,300,000 shares of its Class A Common Stock, from which
the Company realized approximately $20 million in net proceeds.
The 1997 harvest set new records for the Company for both tonnage and
revenues. The 1997 grape production from vineyards owned by the Company was
approximately 15,600 tons, generating revenues of approximately $18.6
million. In addition, the Company realized approximately $1.2 million of
revenue from its vineyard and management services and other fees.
In June 1997, the Company acquired the 370-acre Riverview Vineyard in
Monterey County. This vineyard is planted with several grape varieties,
including approximately 120 acres of Chardonnay and approximately 100 acres
of Pinot Noir. The purchase price for this vineyard was approximately $5.5
million. The Company in 1998 intends to replant approximately 54 acres and
to begin an improvement program of interplanting and trellis conversion. See
"-New Vineyards and Redevelopment of Existing Vineyards".
In 1997, the Company acquired a lease option for, and began development
of, a 655 acre property in Hames Valley in Monterey County. The Company
planted 207 acres of this property in 1997, and in March 1998 the Company
exercised its option for an additional 200 acres under the Hames Valley lease
which it has begun developing. In 1997, the Company also began to develop an
additional 445 acres in Hames Valley for Canandaigua under a vineyard
management contract. See "-New Vineyards and Redevelopment of Existing
Vineyards".
4
<PAGE>
The Company sold grapes to 10 new customers in 1997, including Beringer
Wine Estates, David Bruce Winery and Gundlach-Bundschu Winery and entered
into new long-term grape purchase contracts for 175 acres. The terms of
these new contracts extend to between 2007 and 2013 and have "evergreen"
renewal provisions requiring two years prior written notice of termination.
COMPANY STRATEGY
The Company's strategic objective is to become the leading independent
producer of premium varietal wine grapes in California. The Company believes
that its success to date has resulted from execution of a coherent strategy
that includes the following elements:
PRODUCE HIGH VALUE PREMIUM WINE GRAPES. The Company has consistently
emphasized production of high value wine grapes that its customers can use
to produce premium varietal wine. These varieties principally include
Chardonnay, Cabernet Sauvignon and Merlot, in addition to other varieties
that command premium prices. Throughout its history, SVI has consistently
provided its customers with wine grapes that meet demanding specifications
for quality, as measured by sugar content and other objective
characteristics. The Company maintains an ongoing program of grafting,
replanting and new vineyard development to conform its product mix to take
advantage of trends in the wine industry. The Company believes it has
developed an excellent reputation in the grape producing industry due to
its emphasis on quality and performance. See "--The Company's Grape
Production Operations--Grape Production."
CONTINUE LONG-TERM RELATIONSHIPS WITH LEADING WINE PRODUCERS. The
Company has had grape purchase contracts with IDV and its predecessors
since 1972 and with Canandaigua and its predecessors since 1979. More
recently, SVI has begun contracting for grape sales to smaller wineries
with reputations for producing excellent wines such as The Chalone Wine
Group, Ltd., Joseph Phelps Vineyards and The Hess Collection Winery.
Substantially all of the Company's production is contracted at least
through the harvest of 2001, and the majority is contracted at least
through the harvest of 2006 with pricing arrangements the Company
considers favorable. See "--The Company's Grape Production Operations--
Grape Sales." The Company believes that its utilization of long-term
contracts allows it to build long-term and mutually beneficial
relationships with its customers and attain reliable sources of revenues
not readily available to producers relying on the yearly spot market or
short-term contracts with wineries.
MAXIMIZE REVENUES AND PROFITABILITY PER ACRE. The Company invests in new
equipment and the development of new and improved viticultural practices
in order to increase the productivity and efficiency of its vineyards.
These practices include methods of interplanting grape vines to increase
vine density, new trellising systems designed to support more grape
production while maintaining quality, and other state-of-the-art vineyard
practices that facilitate increased production and mechanization. Because
increased yields per acre do not significantly increase fixed or variable
costs of operating vineyards, productivity improvements contribute
substantially to gross profits. Due to its continuing redevelopment and
improvement program begun in 1993 on approximately 1,900 acres, the
Company believes that much of its acreage now produces significantly more
higher value and better quality grapes. See "--The Company's Grape
Production Operations--Viticultural Practices".
5
<PAGE>
ACQUIRE HIGH QUALITY VINEYARD PROPERTIES. The Company has developed a
disciplined property acquisition strategy in order to increase its
productive capacity and leverage its available management and equipment
resources. Due to the significant capital required to own, improve and
operate vineyards and the demographic structure in the California wine
grape industry, SVI believes that there may be significant opportunities
for acquisitions of existing vineyards. The Company plans to capitalize on
the experience and reputation of its senior management to purchase
existing vineyards and purchase or lease, for terms of up to 50 years,
land that is suitable for vineyards in Monterey County and other regions
in California. See "--New Vineyards and Redevelopment of Existing
Vineyards".
CALIFORNIA WINE AND GRAPE INDUSTRY
The market for California premium varietal table wines has grown
significantly over the last 18 years. Since 1980, unit sales of these
California wines have increased at an average 15% compound annual rate from
approximately 6.6 million nine-liter cases to approximately 69.5 million
nine-liter cases in 1997, according to Gomberg, Fredrikson & Associates.
During the same time period, premium wine revenues grew at an average 18%
compound annual rate to approximately $3.8 billion, or approximately 78% of
total California table wine sales of approximately $4.8 billion, in 1997.
The growth in California premium wine revenue reflects, among other things,
an increase in U.S. per capita consumption of premium California table wines
from 0.2 gallons in 1986 to 0.6 gallons in 1997.
Notwithstanding the growth in table wine sales and per capita
consumption, industry reports indicate that approximately 88% of all table
wine sold in the U.S. is consumed by only 16% of the adult population between
the ages of 21 and 59. Accordingly, the Company perceives significant room
for growth in sales of California table wines, including premium wines.
THE COMPANY'S GRAPE PRODUCTION OPERATIONS
VINEYARD OPERATIONS
SVI currently owns or manages approximately 5,150 acres of wine grape
vineyards in Monterey and San Benito Counties. These properties consist of
approximately 3,470 acres in Monterey County operated for the Company's own
account and approximately 1,680 acres operated under management contracts for
others. As shown in the table below, the Company leases the underlying land
for certain of its vineyards. Of the Company's approximately 3,227 net vine
acres of wine grapes, approximately 2,050 net vine acres, or 64%, have been
contracted for sale to IDV under long-term grape purchase contracts,
approximately 400 net vine acres have been contracted for sale to other
winery clients, approximately 468 net vine acres represent newly developed
acreage planted by the Company in 1996, 1997 and 1998 which is not subject to
grape purchase contracts, and approximately 309 net vine acres represent
acreage recently acquired by the Company which is not subject to grape
purchase contracts. In addition, the Company has an option to lease an
additional 248 acres in Hames Valley, which it intends to begin developing
with premium varietal wine grapes in 1999. See "--New Vineyards and
Redevelopment of Existing Vineyards".
GRAPE PRODUCTION
SVI's tons per acre and overall yields of higher value varieties (E.G.,
Chardonnay, Cabernet Sauvignon and Merlot) have increased in recent years due
to, among other factors, changes in product mix through grafting, replanting,
increased vine density and improvements in wine grape production
6
<PAGE>
technology and know-how. See "--Viticultural Practices." In 1993, the
Company began a major improvement and refurbishment program and took many
acres out of production temporarily in order to graft or replant new
rootstock. This planned decline in grape production, along with poor weather,
caused grape sales revenues for 1993 and 1994 to be lower than they otherwise
would have been and resulted in a significant decline in tonnage produced
through 1996. In 1996, as replanted acreage started to mature, production of
high value premium varieties increased. The Company believes that its
production of high value wine grapes in these vineyards will continue to
increase for the next few years as replanted and interplanted vines continue
to mature. However, actual grape production varies according to the variety
of grape produced, vine density, the quality and type of soil, water
conditions, weather and other factors, and no assurances can be given that
such production increases will occur with any predictability or at all. The
following table shows SVI's net vine acres by variety from 1993 to 1998 and
wine grape tonnage produced by SVI for 1997.
NET VINE ACRES OWNED BY SVI AND TONS PRODUCED (1)
<TABLE>
<CAPTION>
NET VINE ACRES TONS
-------------- ----
VARIETY 1993 1994 1995 1996 1997 1998 1997
- ------- ------ ------ ----- ------ ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Chardonnay............... 552 574 656 756 901 880 5,886
Merlot................... 66 150 307 454 506 556 3,470
Cabernet Sauvignon....... 286 286 286 274 296 296 1,719
Sauvignon Blanc.......... 171 133 133 133 133 121 1,190
Gewurztraminer........... 103 103 103 103 103 82 884
Pinot Noir............... -- -- -- -- 102 102 665
White Riesling........... 183 124 103 83 87 87 505
Chenin Blanc............. 350 302 228 187 84 84 487
Zinfandel................ 138 107 107 83 83 83 257
Napa Gamay............... 39 39 39 39 39 20 240
Grenache(2).............. 49 49 28 28 28 28 134
Semillon................. -- -- -- -- 26 5 135
Souzao................... -- -- -- -- 10 10 38
Syrah.................... -- -- -- -- -- 26 -
Early Burgundy........... 34 13 13 -- -- - --
French Colombard......... 20 -- -- -- -- - --
Replants/Grafts(3)....... 325 436 313 164 255 327 --
New Acreage(4)........... -- -- -- 54 374 520 --
------ ------ ----- ------ ----- ------
Total Net Vine Acres... 2,316 2,316 2,316 2,358 3,027 3,227
------ ------ ----- ------ ----- ------
------ ------ ----- ------ ----- ------ ------
Total Tons Produced.... 12,734 11,177 8,390 11,241 -- 15,610
------ ------ ----- ------ ------
------ ------ ----- ------ ------
</TABLE>
___________
(1) Includes the 370-acre Riverview Vineyard acquired by the Company
in June 1997. In 1997, Riverview Vineyard production was
approximately 626 tons of Chardonnay, 665 tons of Pinot Noir, 245
tons of White Riesling, 134 tons of Semillon and 38 tons of
Souzao.
(2) Includes 28 acres leased to Joseph Phelps Vineyards and operated
by the Company for the account of Joseph Phelps Vineyards.
(3) Replants/grafts are acres which are temporarily taken out of
production due to grafting or replanting to change varieties.
Acres are deemed to be back in production in the third crop year.
(4) New acreage represents newly acquired bare ground which is in
the development stage. The development stage is the first three
years of the vineyard's life, when the Company expects little or
no production.
7
<PAGE>
GRAPE SALES
PRIMARY CUSTOMERS. The wine grape tonnage harvested from the
Company's approximately 2,380 net vine acres in production (I.E., excluding
vineyards under development or redevelopment) is largely subject to grape
purchase contracts with a small number of well-known wine producing
companies. The largest set of these contracts, representing approximately 87%
of the Company's 1997 grape sales revenues and 81% of the Company's 1997
total revenues, is with IDV. IDV is a unit of Diageo plc, one of the world's
largest wine and spirits sales companies, which is headquartered in the
United Kingdom. In 1997, IDV was California's seventh largest wine producing
company with sales of approximately 6.1 million cases of wine. The Company's
contractual relationship with IDV's predecessor began in 1972 and has been
continuous since that time. The Company believes that it is currently the
largest supplier of wine grapes to IDV. The Company has sales contracts for
substantially all of the balance of its wine grape production with
Canandaigua, the second largest marketer of wine in the United States, and
other wine producers, including The Chalone Wine Group, Ltd., Joseph Phelps
Vineyards and The Hess Collection Winery. The Company also manages, as a
contract vineyard operator, an aggregate of approximately 1,533 acres of wine
grapes for IDV and Canandaigua, representing 91% of the total acres managed
by the Company. See "--Vineyard Management Contracts."
The terms of the Company's grape purchase contracts generally require
the customers to purchase substantially all of the Company's production from
specified vineyards at a formula price based upon the previous harvest year's
sales prices for specified districts as reported in the Final Grape Crush
Report published by the California Department of Food and Agriculture
("CDFA"). See "--Pricing." The contracts generally require the Company to
deliver grapes meeting specified sugar levels and other quality measurements.
Substantially all of the contracts call for payment in full within 30 days of
delivery of the crop to the customer.
The terms of the Company's long-term grape purchase contracts extend to
between 2001 and 2013. Contracts covering most of SVI's acreage extend to
2006 and have "evergreen" renewal provisions whereby the contracts continue
until either party gives a two or three years' prior written notice of
termination. The Company believes that these evergreen provisions allow it
time either to renegotiate the contract with its contracting customer or to
find a new customer for the grape production before the contract terminates.
See "-Cautionary Information Regarding Forward-Looking Statements -
Dependence on Major Customers; Renewal of Grape Purchase Agreements."
The Company has enjoyed excellent relationships with its customers that
have been built over many years of satisfying customer needs for quality,
timely delivery and service. Long-term supply arrangements benefit customers
by providing a significant, reliable supply of high-quality grapes at
predictable prices, and the Company believes that in many respects IDV and
Canandaigua prefer their supply arrangements with the Company to the purchase
of comparable amounts of grapes on the open market from multiple producers.
These contracts also benefit the Company by providing reliable sources of
revenues. SVI believes that these contracts are one of the major reasons for
its past success, and it plans to rely upon these and similar contracts in
the future. While contract terms are typically a function of market factors
and it is not possible to know what the terms of the Company's future grape
purchase arrangements will be, it is probable that any renewal or replacement
of the Company's IDV and Canandaigua contracts, the majority of which will
expire in 2006, and any purchase agreements covering new vineyards will have
different terms. Among other potential contract terms, the Company intends
to consider entering into long-term grape purchase contracts with generally
fixed maximum and minimum prices per acre instead of prices per ton that are
subject to annual variation. It is anticipated
8
<PAGE>
that such acreage contracts would provide for the customer to bear more of
the crop risk than is typically borne by the Company under a tonnage contract.
PRICING. Each year the CDFA publishes the Grape Crush Report on a
preliminary basis on February 10, with a final report published on March 10.
The Grape Crush Report discloses the prices, tons and certain quality
standards of all grapes crushed for wine from each of California's 17 wine
grape producing districts in the grape harvest of the previous autumn. The
report is relied upon heavily by wineries and wine grape producers to
negotiate contracts and establish grape prices, as well as by financial and
other institutions who serve the wine industry.
SVI's contract grape prices are established each year by formulas which
are different for each of its customers. However, substantially all of its
contracts utilize a formula which is used to calculate a price for each wine
grape variety based on the previous year's prices in several specified CDFA
reporting districts. For example, grapes from the Company's 1998 harvest,
subject to these contracts, will be sold at prices based on the actual prices
for the 1997 harvest reported in the Final Grape Crush Report published March
10, 1998. This enables both the Company and its customers to know final grape
prices (on a per ton basis by variety) approximately eight months in advance
of each year's harvest. These multiple district formula prices, as opposed to
sales on the short-term spot market, tend to moderate year-to-year swings in
prices. The Company's grape purchase contracts typically utilize pricing
based in part upon prices for Napa, Sonoma and Mendocino County grapes, which
tend to be higher than prices for the same varieties produced in Monterey
County. Some recent agreements use pricing formulas that are based more
heavily on Monterey County data, which may also be the case for the renewal
or replacement of the IDV and Canandaigua agreements and additional
agreements covering new or replanted vineyards. The chart below shows the
weighted average prices SVI has received, or expects to receive, per ton of
grapes for the primary varieties it has produced since 1994 based on the
pricing formulas of its various contracts.
WEIGHTED AVERAGE PRICES PER TON RECEIVED BY SVI (1)
<TABLE>
<CAPTION>
Variety 1994 1995 1996 1997 1998(2)
- ------- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Chardonnay............. $1,092 $1,060 $1,188 $1,444 $1,572
Merlot................. 1,098 1,098 1,184 1,432 1,538
Cabernet Sauvignon..... 1,117 1,097 1,193 1,425 1,577
Zinfandel.............. 582 623 790 971 1,113
Sauvignon Blanc........ 649 682 742 902 1,031
Gewurztraminer......... 590 589 663 825 913
White Riesling......... 512 514 624 803 828
Napa Gamay............. -- -- -- 717 878
Chenin Blanc........... 417 420 482 666 766
___________
</TABLE>
(1) Prices for premium varieties have increased in recent years
largely as a result of supply and demand conditions. Supply and
demand factors will change over time and there can be no
assurance that the prices received by the Company in the future
will continue to increase or will match or exceed historical
prices.
(2) Based upon existing contracts, Company production estimates, and
the 1997 Final Grape Crush Report released March 10, 1998.
9
<PAGE>
VITICULTURAL PRACTICES
The Company continually investigates and experiments to develop enhanced
viticultural practices in order to improve the yields of its vineyards and
the quality of grapes it produces. Innovations developed or employed by SVI
over the past ten years have included new grafting methods, interplanting,
new trellis designs and improved machine harvesting technology and practices.
In addition, the Company has experimented with increased vine densities in
order to improve productivity.
VINEYARD PRODUCTION CYCLE
The vineyard production cycle begins each year in December, after
completion of harvest. From December through March vines are pruned and tied
to trellises, and damaged stakes, trellises, irrigation systems and other
vineyard components are repaired or refurbished. After winter rains end,
irrigation and cultivation of the vineyards begin and continue through the
harvest season. Herbicides are applied as needed through the summer.
Necessary applications of pesticides and fertilizer begin in the spring and
continue until harvest. Grafting and planting also take place in the first
four or five months of the year. As growth of the vines accelerates beginning
in late spring, they are trained and tied, and excess leaves are sometimes
pulled to promote more efficient growth of vines and fruit. Depending on the
rate at which fruit ripens, harvest typically begins in late-August to
mid-September and is completed by the end of October or early November.
Direct farming costs currently range from $1,500 to $2,500 per acre over the
course of the year for vineyards in full production, and revenues are
realized at the time of harvest. Approximately one-half of annual production
costs are incurred by June 30.
CAPITAL INVESTMENT REQUIREMENTS FOR ACQUISITION, DEVELOPMENT AND IMPROVEMENT
OF VINEYARDS
Because of the increasing demand for premium wine, the Company's
customers as well as other wineries have been seeking additional long-term
sources of premium wine grapes. Accordingly, the Company's strategy is to
expand its operations and grape production through the acquisition of
existing vineyards and other properties that can be developed into new
vineyards and the redevelopment of the Company's older vineyards. As
discussed below, the Company has implemented this strategy through the 1997
acquisition of the 370-acre Riverview Vineyard, the lease in 1997 of up to
655 acres of undeveloped land in Hames Valley for vineyard development and
the redevelopment of the Company's vineyards begun in 1993. The Company
plans to expand its operations further, subject to the availability of
capital and additional suitable properties on terms acceptable to the Company.
Generally, significant amounts of fruit are not produced for three years
from newly planted vines and for two years from vines which are grafted to a
new variety. During this time, the Company incurs significant development
and production costs that are not offset by revenues from these vineyards and
must be financed from other sources. Newly planted vines that are four to
five years of age and grafted vines that are three to four years of age
generally begin to produce grapes in sufficient quantities to cover
production costs and contribute to gross profit, subject to some variation
due to the effects of factors such as geographic location, variety of grape
grown, vine density, quality and type of soil, water quality and weather
conditions.
It has been the Company's experience that it currently costs
approximately $15,000 to $18,000 per acre over a three-year period to develop
open land into a producing premium wine grape vineyard, before taking into
account the cost of land. Accordingly, the Company estimates that the
current
10
<PAGE>
replacement value of its existing 3,470 acres is approximately $49 to $59
million, before cost of land and ignoring the amount of time necessary to
produce grapes economically. The costs of redeveloping existing vineyards
vary depending upon the condition of the vineyard and the scope of the
redevelopment plan.
Due to the acquisition and development of new vineyards and the
redevelopment of existing vineyards, much of the Company's vineyard acreage
has not yet reached full productive capacity. While there can be no
assurance that the Company's properties will achieve their full productive
capacity at the rate indicated, if at all, the Company believes that its
existing acreage under development or redevelopment represents significant
potential for revenue growth. The following table shows recent and
anticipated maturity of the Company's vineyards. The table does not include
248 acres of undeveloped land located in Hames Valley that the Company has an
option to lease and intends to begin developing in 1999.
MATURITY LEVELS OF SVI'S NET VINE ACRES (1)
<TABLE>
<CAPTION>
CROP YEAR
---------------------------------------------------------
1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Acres five or more years old (at or near full
production)..................................... 1,999 2,093 2,210 2,374 2,875 3,227
Acres three and four years old (partial
production)..................................... 363 281 665 853 352 --
Acres one and two years old (not in
production)..................................... 665 853 352 -- -- --
----- ----- ----- ----- ----- -----
Total Acres..................................... 3,027 3,227 3,227 3,227 3,227 3,227
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
</TABLE>
___________
(1) The net vine acreage shown above is SVI's planted acreage only. It does
not include acreage devoted to roads, storage areas, equipment yards or
uses other than vineyards.
If the Company's vineyards under development mature consistently with
historical experience and no significant problems are encountered, they
should be at or near their full productive capacity in or about 2002.
Therefore, acquisitions of producing vineyards will be required prior to 2002
to achieve production increases in excess of those anticipated from the
Company's existing vineyards. In addition, acquisitions of producing
vineyards or open land suitable for vineyard development will be required to
sustain productivity increases after 2002 and moderate any productivity
losses from the Company's existing vineyards due to grafting to new
varieties, replanting with phylloxera-resistant rootstock, and various other
factors that take vineyards out of production from time to time. See
"--Uncertainty of Revenue Growth," "--Capital Requirements," and "--Risks
Associated with Business Expansion and Acquisition Strategy" under
"--Cautionary Information Regarding Forward-Looking Statements" below.
NEW VINEYARDS AND REDEVELOPMENT OF EXISTING VINEYARDS
HAMES VALLEY. In 1997, the Company acquired an option to lease, for a
term of up to 50 years, approximately 655 acres of undeveloped land suitable
for wine grape vineyards in Hames Valley, which is located approximately 45
miles south of the Company's vineyard headquarters. The Company exercised
its option and began development on 207 acres in 1997 and, in the first
quarter of 1998,
11
<PAGE>
exercised its option and began development on an additional 200 acres.
Subject to unforseeable circumstances, the Company intends to exercise its
option on the remaining acreage of 248 acres in 1999. This acquisition is
expected to allow the Company to leverage its existing resources, and it
establishes SVI in a region where it believes additional property suitable
for premium wine grape production is available. The Company intends to secure
long-term grape purchase contracts for the grape production from these new
vineyards. There can be no assurance, however, that the Company will be
successful in finding a winery or wineries which will agree to such long-term
wine grape purchase contracts.
After negotiating its own Hames Valley lease, SVI arranged for
Canandaigua to lease an additional approximately 445 acres in Hames Valley.
Pursuant to a long-term contract with Canandaigua, in 1997 SVI began to
develop this acreage into vineyards that it will manage for Canandaigua.
Under the contract, SVI receives monthly fees, equipment rental income and,
when the vineyard begins to produce wine grapes, harvest fees. The Company
has no investment in the vineyard because development money and working
capital are provided by Canandaigua.
RIVERVIEW VINEYARD. On June 26, 1997, the Company acquired a 370-acre
vineyard known as Riverview Vineyard located approximately 12 miles north of
SVI's vineyard headquarters. The purchase price was approximately $5.5
million. The vineyard is planted with several varieties, including
approximately 120 acres of Chardonnay and 100 acres of Pinot Noir. The
Company intends to secure long-term grape purchase contracts for the grape
production from this new vineyard. There can be no assurance, however, that
the Company will be successful in finding a winery or wineries which will
agree to such long-term wine grape purchase contracts.
REDEVELOPMENT OF EXISTING VINEYARDS. In 1993, SVI began a major
improvement and refurbishment program at its vineyards in order to increase
production and to upgrade its variety mix to those grapes that were expected
to be in greater demand and sell at higher prices. From 1993 through 1997,
the Company made capital expenditures at its vineyards of over $11.0 million,
and the improvement and refurbishment program is continuing. From 1993
through 1997, the Company replanted or regrafted approximately 995 acres to
higher value varieties and interplanted an additional 870 acres. In 1998,
the Company is replanting approximately 152 acres and is interplanting
approximately 322 acres. See "-Net Vine Acres Owned by SVI and Tons
Produced."
WATER SUPPLY
The Company's vineyards are located in the Salinas Valley through which
flows the Salinas River. The watershed of the Salinas Valley is from the
Ventana Wilderness in the Los Padres National Forest and Santa Lucia range of
coastal mountains. The Salinas River supplies a very large aquifer which is
tapped by agricultural users. In addition, the Salinas River is fed by two
large reservoirs, Lake Nacimiento and Lake San Antonio, which were built
primarily for agricultural water supply purposes to serve the Salinas Valley.
These reservoirs are maintained by the Monterey County Water Resource Agency.
The Company drip irrigates all of its vineyards from wells located on or near
its vineyards. The quality of the water obtained from the wells is good, and
the wells have proven to be a plentiful and reliable source of water for the
Company's operations, even during the drought years of the late 1980s. See
"--Cautionary Information Regarding Forward-Looking Statements--Water."
12
<PAGE>
VINEYARD MANAGEMENT CONTRACTS
The Company manages, as a contract vineyard operator, approximately
1,680 acres in Monterey and San Benito Counties for four vineyard owners,
including approximately 1,533 acres managed for IDV and Canandaigua. Pursuant
to its management and harvest contracts, budgeted costs of labor and
equipment are advanced to the Company on a monthly basis and the Company
receives management fees based on the acreage managed and harvested. The
Company's vineyard management contracts generally expire no earlier than the
completion of harvest in years ranging from 2004 to 2012, and otherwise may
be terminated by either party with one or two years' advance notice. In
certain cases the Company has also received fees for financing vineyard
improvements, securing property and designing vineyards. The Company may
enter into similar arrangements for other vineyard properties in the future.
WINE PRODUCTION AND SALES
SVI began limited production of its own ultra premium varietal wines
under the SCHEID VINEYARDS and SAN LUCAS VINEYARD labels in 1991. The Company
has contracted for its wine production with Storrs Winery, a small producer
of award winning wines located in Santa Cruz, California, approximately 50
miles from the Company's vineyard headquarters' compound. The Company
currently subleases space in a 1,600 square foot building from Storrs Winery,
including certain space dedicated for the Company's exclusive use in
connection with its winemaking activities. In 1996, the Company obtained a
winery license, and a tasting room was opened in April 1997 at the Company's
vineyard headquarters' compound located on U.S. Highway 101 (a major
north-south thoroughfare between San Francisco and Los Angeles) just south of
Greenfield and north of King City in Monterey County.
Production and sales have been limited to date. In 1996 and 1997, SVI
produced approximately 2,000 and 4,000 cases, respectively, of ultra premium
varietal wines, including Chardonnay, Cabernet Sauvignon, Merlot and White
Riesling, using Company-grown grapes. While its actual wine production will
depend on various factors, the Company currently plans to increase its annual
production to approximately 5,000 cases by late 1998. As it increases wine
production, the Company intends to distribute directly through its tasting
room, restaurants, clubs and a few selected retailers. In 1997, the Company
also offered a "wine dividend" to holders of at least 100 shares of its Class
A Common Stock, whereby such shareholders were entitled to a $0.50 per share
credit for use in making purchases of the Company's wine at up to a 50%
discount from the retail price. The Company intends to offer another "wine
dividend" in 1998. SVI has not yet earned a profit on its wine business and
cannot predict when, or if, these operations will become profitable. Further,
SVI does not expect its wine business to have a material impact on sales or
earnings in the foreseeable future. No assurances can be given that wine
production and sales ever will be a major source of profit for the Company.
COMPETITION
Wine grape growing and wine production are extremely competitive. There
are an estimated 800 commercial wineries which produce and market California
table wine, approximately half of which produce fewer than 5,000 cases per
year. Seven wineries account for approximately 71% of sales based on total
California wine shipments in 1997. In addition, there are many sources of
supply of wine grapes in California and in countries outside the United
States. At the end of 1996, approximately 380,000 acres were planted to wine
grapes in California according to the California Agricultural Statistics
Service, and the number of planted acres is growing. Most wine grape
producers have small,
13
<PAGE>
privately owned operations and sell their production to wineries, often at
spot market prices from year to year. Quality of production and yields can
vary widely from vineyard to vineyard in the same geographic area. To
supplement the grapes they buy from independent producers, many wineries also
own or lease vineyards to supply some of their grape needs. Certain major
wineries, such as Robert Mondavi, are large wine grape producers and produce
a significant proportion of the grapes they need to make wine. Substantial
vineyard acreage is also owned by other wineries and more is being developed.
There are no published data regarding the size of the wine grape production
industry in California, and holdings of properties are not publicly reported.
However, the Company believes it is one of the largest independent producers
of premium wine grapes in California, and that there are approximately four
or five independent producers of comparable size in terms of acreage.
In addition, there are numerous wine producers in Europe, South America,
South Africa, Australia and New Zealand. All of these regions export wine
into the United States. California grape and wine supply shortages,
especially in red wines, have prompted some domestic national brand marketers
to purchase wine from foreign sources. Most imports are bottled wines;
however, some wineries have imported bulk wine in large tanks for bottling
and sale in the United States. Imports to California for these purposes
increased from approximately 279,000 gallons in 1995 to approximately 6
million gallons in 1996. Over 90% of the bulk wine imported for this purpose
came from Chile and France.
ENVIRONMENTAL ISSUES
SVI currently maintains 14 above-ground fuel storage tanks on its own
vineyard properties to provide fuel to its various vehicles and machinery.
These tanks have capacities ranging from approximately 500 to 10,000 gallons
and are installed on concrete slabs with catch basins to protect the ground
surface from any inadvertent release. No underground storage tanks are
located on the Company's properties.
The Company's current operations require the periodic usage of various
chemical herbicides, fungicides and pesticides, some of which contain
hazardous or toxic substances. The usage and storage of these chemicals are,
to varying degrees, subject to federal and state regulation. To the extent
that the Company stores such chemicals, they are contained in a secured
storage facility at the Company's vineyard headquarters' compound. The most
toxic pesticide used by the Company, Furadan-TM-, is not stored on-site, but
is delivered as needed by an unaffiliated company and applied to the vineyard
under the supervision of a state-licensed applicator. The Company also
maintains a comprehensive safety program supervised by the Company's human
resources safety director and a licensed pest control advisor.
TRADEMARKS AND LABELS
The Company is seeking to register a trademark relating to a specific
slogan which the Company uses on souvenirs and paraphernalia sold at the
Company's wine-tasting room. The Company also has wine labels approved by the
Bureau of Alcohol, Tobacco and Firearms ("BATF"), including the SCHEID
VINEYARDS and SAN LUCAS VINEYARD brand names.
EMPLOYEES AND LABOR RELATIONS
The Company has approximately 63 full-time employees and employs
seasonal and contract labor for vineyard development, pruning, harvesting and
other related tasks during peak seasons. Field
14
<PAGE>
labor needs are seasonal, normally peaking at approximately 400 field workers
at harvest, and dropping to a low of approximately 50 immediately after
harvest. The Company also uses contracted labor for specialized work, such as
grafting, and otherwise when necessary. The Company's union contract with the
United Farm Workers, AFL-CIO ("UFW") expired on February 28, 1998, after
being extended twice by mutual agreement since December 31, 1997, and
negotiations for a new contract are continuing as of the date of this Report.
See "-Cautionary Information Regarding Forward-Looking Statements - Labor
Regulations and Union Contract."
CAUTIONARY INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
AGRICULTURAL RISKS
Wine grape production is subject to many risks common to agriculture
that can materially and adversely affect the quality and quantity of grapes
produced. These hazards include, among other things, adverse weather such as
drought, frost, excessive rain, excessive heat or prolonged periods of cold
weather. These weather conditions can materially and adversely affect the
quality and quantity of grapes produced by the Company and its profitability.
To the extent a grape producer's properties are geographically concentrated,
the effects of local weather can be material. The vineyards owned by SVI are
spread over a distance of approximately 70 miles, north to south, close to
Highway 101 in Monterey County. Accordingly, adverse weather in the future
could affect a substantial portion of the Company's vineyards in any year and
have a material adverse effect on the Company's business, financial condition
and results of operations.
Vineyards are also susceptible to certain diseases, insects and pests,
which can increase operating expenses, reduce yields or kill vines. In recent
years phylloxera, a louse that feeds on the roots of grape vines, has
infested many vineyards in the wine grape producing regions of California and
caused grape yields to decrease. Within a few years of the initial
infestation, phylloxera can leave a vine entirely unproductive. Phylloxera
infestation has been widespread in California, particularly in Napa, Sonoma,
Mendocino and Monterey Counties, and most of the other wine grape producing
areas of the state are affected to some degree. Phylloxera infestation can be
reduced through use of the chemical pesticides Furadan-TM- and Enzone-TM-.
While Furadan-TM- is still approved for use in Monterey County, its use is no
longer legal in certain other viticultural regions of California, including
Napa, Sonoma and Mendocino Counties. Furadan-TM- is currently under
investigation by the Environmental Protection Agency which may result in the
prohibition of its use. There can be no assurance that Furadan-TM- will
continue to be available as a method of controlling phylloxera for the
Company and, if its use is prohibited in Monterey County, the Company will
rely more on the use of Enzone-TM-. If the use of Enzone-TM- is prohibited
in Monterey County, however, there can be no assurance that the Company will
be able to find a safe, cost-effective alternative.
As a result of this widespread problem, thousands of vineyard acres
throughout California have been replanted with phylloxera-resistant rootstock
or, in some cases, taken out of production completely. It takes approximately
four to five years for a replanted vineyard to bear grapes in quantities
sufficient for profitable operations. The Company estimates that it currently
costs approximately $15,000 per acre to replant vineyards. Of the Company's
approximately 3,227 net vine acres (I.E., excluding acreage devoted to roads,
storage areas, equipment yards or uses other than vineyards) of wine grapes,
approximately 2,464 net vine acres, or 76%, are planted or interplanted with
phylloxera-resistant rootstock. The remaining approximately 763 acres are
planted on non-resistant rootstock and are, therefore, potentially
susceptible to phylloxera infestation. The Company is managing the
non-resistant acres through application of Furadan-TM- and a program of
selective replantings.
15
<PAGE>
Other pests that may infest vineyards include leafhoppers, thrips,
nematodes, mites, insects, orange tortrix, twigbore, microflora and various
grapevine diseases. Pesticides and the selection of resistant rootstocks
reduce losses from these pests, but do not eliminate the risk of such loss.
Gophers, rabbits, deer, wild hogs and birds can also pose a problem for
vineyards, and wine grape vines are also susceptible to certain virus
infections which may cause reduction of yields. None of these currently poses
a major threat to the Company's vineyards, although they could do so in the
future and, at that time, will have the potential to subject the vineyards to
severe damage.
WATER
The Company is dependent upon wells located on or near its vineyards for
water to irrigate the vineyards, which wells are supplied by aquifers fed by
the Salinas River and reservoirs operated by Monterey County. Although
historically the quality of water from these wells has been good and the
wells have consistently supplied a plentiful and reliable source of water,
even during the drought years of the late 1980s, and the Company believes its
sources of water will be available for the foreseeable future, it is possible
that the Company's water supplies could be impaired in the future due to
drought, contamination or other circumstances. An impairment in the
Company's water supplies could adversely affect the business, financial
condition and results of operations of the Company.
DEPENDENCE ON MAJOR CUSTOMERS; RENEWAL OF GRAPE PURCHASE AGREEMENTS
The majority of SVI's current grape production is contracted for sale to
two winery customers, IDV, which accounted for approximately 81% of the
Company's total revenues in 1997 and Canandaigua, which accounted for
approximately 9% of its total revenues in 1997. The terms of the long-term
grape purchase contracts with these customers extend to between 2001 and
2013. The majority of the contracts extend to 2006 and have an "evergreen"
renewal provision whereby the contract continues unless either party gives a
three-year advance written notice of termination. Although these contracts
do not specifically provide for termination prior to expiration of their
stated terms, it is possible that they could be terminated under various
circumstances, including material breach. If these contracts are terminated,
there can be no assurance that the Company will be able to replace IDV or
Canandaigua as significant purchasers of its grape production or that the
Company will be able to enter into agreements with other purchasers on
similar terms. Termination of these contracts with IDV or Canandaigua could
have a material adverse effect on the Company's business, financial condition
and results of operations.
UNCERTAINTY OF REVENUE GROWTH
Approximately 65% of the Company's net vine acres are at or near full
production, and a certain portion of the Company's vineyards will always be
out of production or below maximum production due to initial development,
replanting, regrafting and various other factors. While some productivity
increases may be expected from further development of vineyard acreage not
yet in full production or from enhancements of fully productive vineyards,
the growth potential of the Company's existing properties is limited and the
Company's ability to increase revenue depends ultimately upon its ability to
acquire, develop and operate more vineyard properties. There can be no
assurance that suitable properties will be available to the Company at prices
that would make the Company's growth plans viable.
16
<PAGE>
FIXED COSTS AND REVENUE FLUCTUATIONS; UNCERTAINTY OF PROFITABILITY
The Company incurs annual farming costs currently averaging
approximately $1,500 to $2,500 per acre in production. These costs are
incurred throughout the year preceding harvest and are relatively fixed.
Revenues from grape sales are not realized until harvest and vary depending
upon yields and prices. Vineyard productivity varies from year to year
depending upon a number of factors, and significant variations in annual
yields should be expected from time to time. Furthermore, grape prices have
fluctuated significantly in the past and should be expected to continue to
fluctuate from year to year and to decrease at times in the future. Because
production costs are not significantly adjustable in light of productivity or
revenue levels, weak harvests or lower grape prices cannot be mitigated by
cost reductions and should be expected to have significant adverse effects
upon profitability.
CAPITAL REQUIREMENTS
The farming of vineyards in production requires substantial amounts of
working capital. Historically, the Company has relied heavily on short-term
credit to finance its working capital requirements. Working capital
requirements are expected to increase to support the expansion anticipated by
the Company. There can be no assurance that the Company will be able to
obtain financing when required or that such financing will be available on
reasonable terms, and lack of access to adequate lines of credit or other
capital sources could impair the Company's ability to grow and adversely
affect the Company's business, financial condition and results of operations.
Substantial capital expenditures are required to develop and acquire new
vineyards and improve existing vineyards. The Company has made and intends
to continue to make such expenditures to finance its expansion, and has
incurred and plans to continue to incur indebtedness. As a consequence, (i)
the Company has and will continue to have significant interest and principal
repayment obligations, (ii) the Company's earnings and cash flows will be
adversely affected by increases in interest rates, and (iii) the presence of
this debt will limit the Company's ability to pay dividends on its common
stock.
RISKS ASSOCIATED WITH BUSINESS EXPANSION AND ACQUISITION STRATEGY
SVI intends to expand its business through (i) new development of
undeveloped properties suitable for premium varietal vineyards and (ii)
acquisitions of developed vineyard properties. There can be no assurance
that the Company will be able to locate suitable properties to buy or lease
at viable prices, and any undeveloped properties acquired by the Company will
require significant capital investment and several years of development
before becoming productive. The Company does not expect to receive the full
benefit from any newly planted vineyards for at least four to five years
after planting due to the time required for the vines to mature and produce
economic yields. In addition, the Company's ability to increase profits
through acquisition depends to a significant degree upon the prices at which
properties can be purchased or leased. Furthermore, increased acreage under
management will create additional demands on Company management and may
require the Company to hire and integrate more employees.
WINE GRAPE SUPPLY AND DEMAND; PRICING
Prices for premium California wine grapes are at historically high
levels due to (i) a shortage of grapes due to a variety of factors and (ii)
an increase in demand. Recent plantings of new vineyards, yield enhancements
through technological advances, foreign competition and other factors are
expected to increase supply. Furthermore, there can be no assurance that
demand will not decline. Increases in
17
<PAGE>
supply or reductions in demand may cause California premium wine grape prices
to decline significantly, and there can be no assurance that the prices
received by the Company will continue to increase. Some declines in prices
received by the Company should be expected, and these declines may be
significant.
COMPETITION; INDUSTRY FRAGMENTATION
The wine grape industry is extremely competitive. Many of the Company's
current and prospective competitors have substantially greater financial,
production, personnel and other resources than the Company. The Company
competes with many other producers of premium wine grapes in California,
including a few thousand small independent (I.E., not winery controlled) wine
grape producers who sell their production to wineries. Moreover, to a
significant extent, wine grapes of a particular variety are fungible, and the
ability of foreign producers to compete with the Company on the basis of
price due to their lower production costs may have a negative impact upon the
Company's profitability. In addition, the Company's principal winery
customers compete with each other and with other wineries located in the
United States and abroad.
POSSIBLE TERMINATION OF VINEYARD MANAGEMENT AGREEMENTS
Substantially all of the Company's vineyard management agreements with
IDV, Canandaigua and Joseph Phelps Vineyards may be terminated in the event
that Alfred G. Scheid and certain members of his family, cease to
beneficially own, directly or indirectly, at least 51% of the capital stock
of the Company. Sales to the public by members of the Scheid family or
further public offerings by the Company may result in a change of control of
the Company, which could result in termination of these agreements.
LABOR REGULATIONS AND UNION CONTRACT
California has many laws and regulations concerning labor in general and
farm labor in particular. The Agricultural Labor Relations Board has
promulgated many regulations concerning farm labor and a body of court
decisions has developed. SVI is subject to many of these regulations, laws
and precedents.
The UFW is the major union representing farm labor and has represented
SVI's farm workers since 1993. The Company's prior contract with the UFW
expired on February 28, 1998 and, as of the date of this Report, the Company
is in negotiations on a new contract with the UFW. The principal open issues
in the current contract negotiations relate to non-economic issues, as the
Company and the UFW have tentatively agreed upon economic terms that
effectively continue the terms of the prior contract, which the Company
believes was fair to both parties. Although the Company historically has had
satisfactory labor relations, it has been picketed from time to time during
the initial organization of its employees and during contract negotiations.
No assurances can be given that a new contract with the UFW can be negotiated
on the tentatively agreed upon economic terms and on other terms deemed
acceptable to the Company. In addition, no assurance can be given that the
UFW will not engage in, or that a new contract can be negotiated without,
picketing, walk-outs, sit-downs, slow-downs or strikes or the threat of these
actions by the UFW. The failure of the Company to maintain adequate labor
relations on terms acceptable to the Company could have a material adverse
effect upon the Company's business, financial condition and results of
operations.
18
<PAGE>
DEPENDENCE ON CONSUMER DEMAND
Trends in consumer spending and changes in consumer tastes have a
substantial impact on the wine industry and the Company's business. To the
extent that wine purchases are negatively impacted by economic and other
factors, or wine consumers reduce consumption of wine in favor of other
beverages, demand for wine grapes could decrease.
GOVERNMENT REGULATION; TAXES
SVI is subject to a broad range of federal and state regulatory
requirements regarding its operations and practices. The Company's current
operations and future expansion are subject to regulations governing the
storage and use of fertilizers, fungicides, herbicides, pesticides, fuels,
solvents and other chemicals. These regulations are subject to change and
conceivably could have a significant impact on operating practices, chemical
usage, and other aspects of the Company's business.
Wine production and sales are subject to extensive regulation by the
Federal Bureau of Alcohol, Tobacco and Firearms, the California Department of
Alcohol Beverage Control and other state and federal governmental authorities
that regulate licensing, trade and pricing practices, labeling, advertising
and other activities. In recent years, federal and state authorities have
required warning labels on beverages containing alcohol. Restrictions imposed
by government authorities on the sale of wine could increase the retail price
of wine, which could have an adverse effect on demand for wine in general.
Increases in excise taxes on wine, if enacted, could reduce demand for wine
and wine grapes, which could materially and adversely effect the Company's
business, financial condition and results of operations.
RELIANCE ON KEY PERSONNEL
The Company believes its continued success depends to a significant
extent on the active involvement of certain members of the Scheid family and
the retention of its senior non-family executives. There can be no assurance
that the key persons will remain in their management positions with the
Company, and the loss of the services of any of the key persons could have a
material adverse effect on the Company's business, financial condition and
results of operations.
ENVIRONMENTAL RISKS
Ownership of real property creates a potential for environmental
liability on the part of the Company. If hazardous substances are discovered
on or emanating from any of the Company's vineyards and the release of
hazardous substances (including fuels and chemicals kept by the Company on
its properties for use in its business) presents a threat of harm to public
health or the environment, the Company may be held strictly liable for the
cost of remediation of these hazardous substances. See "--Enviromental
Issues."
ITEM 2. DESCRIPTION OF PROPERTIES.
CORPORATE HEADQUARTERS. The Company's executive corporate office
occupies approximately 5,685 square feet in Marina del Rey, California under
a five-year lease with Tesh Partners, L.P., a limited partnership of which
SVI is the general partner and four members of the Scheid family are limited
partners. Each of these members of the Scheid family is a principal
stockholder of the
19
<PAGE>
Company. See the information incorporated by reference under "Item 12
- --Certain Relationships and Related Transactions." The lease expires in 1999.
The Company believes that its existing facilities will be adequate to meet
the Company's needs for the foreseeable future. Should the Company need
additional space, management believes it will be able to secure additional
space at commercially reasonable rates.
VINEYARDS. The Company currently owns approximately 1,837 acres of land
and leases approximately 1,633 acres of land underlying its vineyards, all of
which are located in Monterey County, California. The four leases to which
the Company is a party were entered into in 1973, 1979, 1996 and 1997,
respectively, and each of the land leases has an initial term of
approximately 30 years and options to extend for up to an additional 20
years. In addition, if the owner of any leased property decides to sell, the
Company has rights of first purchase or first refusal. Substantially all of
the Company's property, plant and equipment serves as collateral for
long-term debt.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
Company's fourth quarter ended December 31, 1997.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET FOR CLASS A COMMON STOCK; RELATED INFORMATION
The Company's Class A Common Stock is traded on the Nasdaq National
Market System under the symbol "SVIN". The following table sets forth, for
the fiscal quarter indicated, the high and low per share sales prices for the
Class A Common Stock, as reported by Nasdaq:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1997
Third quarter (commencing July 25, 1997)..... $11.875 $10.00
Fourth quarter .............................. $11.50 $8.125
</TABLE>
On March 20, 1998, there were 20 holders of record of the Company's
Class A Common Stock and 14 holders of record of the Company's Class B Common
Stock. For information concerning
20
<PAGE>
historical dividends and the Company's dividend policy, see "Item 6 -
Management's Discussion and Analysis or Plan of Operation - Dividends and
Distributions."
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 (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>
<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.
Through December 31, 1997, the company has applied approximately
$16,062,000 of the $19,968,000 in net offering proceeds as follows:
<TABLE>
<S> <C>
Repayment of working capital indebtedness (1) $ 9,200,000
Development of vineyards in Hames Valley 1,362,000
Repayment of short-term note payable (1) 3,000,000
Working capital for existing vineyards and
general corporate purposes 2,500,000
-----------
Total proceeds applied $16,062,000
-----------
-----------
</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 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 is evaluating long-term financing alternatives
for Riverview Vineyard.
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.
21
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S FINANCIAL STATEMENTS, INCLUDING THE RELATED NOTES THERETO, AND
OTHER FINANCIAL INFORMATION INCLUDED HEREIN. THE INFORMATION IN THIS REPORT
INCLUDES FORWARD-LOOKING STATEMENTS. IN ADDITION, PAST OPERATING RESULTS ARE
NOT NECESSARILY INDICATIVE OF THE RESULTS TO BE EXPECTED FOR FUTURE PERIODS.
SEE "NOTE CONCERNING FORWARD-LOOKING STATEMENTS" AND "ITEM 1 - BUSINESS -
CAUTIONARY INFORMATION REGARDING FORWARD-LOOKING STATEMENTS".
OVERVIEW
Scheid Vineyards Inc. is a leading independent (I.E., not winery
controlled) producer of premium varietal wine grapes. The Company currently
operates approximately 5,150 acres of wine grape vineyards. Of this total,
approximately 3,470 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.
Fiscal 1997 was an outstanding year for SVI. The Company achieved
record sales and earnings, fueled by a record harvest of over 15,600 tons
from Company-owned vineyards. In early 1997, the Company acquired an option
to lease, for a term of up to 50 years, approximately 655 acres of
undeveloped land suitable for wine grape vineyards in Hames Valley, which is
located approximately 45 miles south of the Company's vineyard headquarters.
Following partial exercises of the option, the Company began development on
207 acres in 1997 and an additional 200 acres in early 1998. Subject to
unforeseeable circumstances, the Company currently intends to exercise its
option on the remaining 248 acres in 1999. In June 1997, the Company acquired
a 370-acre vineyard planted primarily with Chardonnay and Pinot Noir. In
addition, during 1997, the Company signed several long-term purchase
contracts with new winery clients, including The Hess Collection Winery,
Gundlach-Bundschu Winery, Morgan Winery and The Chalone Wine Group, Ltd.,
covering approximately 175 acres, or 5% of the Company's net vine acreage,
and entered into a new vineyard management contract covering approximately
445 acres. In the long term, the Company will continue its efforts to
broaden its customer base and will seek additional long-term grape purchase
contracts with new winery clients.
The Company currently produces 14 varieties of premium wine grapes,
primarily Chardonnay, Merlot, Cabernet Sauvignon, Chenin Blanc,
Gewurztraminer and Sauvignon Blanc. 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 Company's two largest winery customers are International Distillers and
Vintners North America ("IDV"), a subsidiary of Diageo plc and the seventh
largest U.S. winery in terms of 1997 case shipments, and Canandaigua Brands,
Inc. ("Canandaigua"), the second largest U.S. winery. Grape purchase
contracts with IDV covered 64% of the Company's acreage as of December 31,
1997 and accounted for approximately 81% and 84% of the Company's 1997 and
1996 total revenues, respectively. Grape purchase contracts with Canandaigua
accounted for approximately 9% and 7% of the Company's 1997 and 1996 total
revenues, respectively. Thus, the Company is substantially dependent on IDV
and Canandaigua and termination of these contracts could have a material
adverse effect on the Company's business, financial condition
22
<PAGE>
and results of operations. The Company has had grape purchase contracts with
IDV and its predecessors since 1972 and with Canandaigua and its predecessors
since 1979.
SEASONALITY
The wine grape business is extremely seasonal. Similar to most
nondiversified agricultural crop producers, the Company recognizes
substantially all of its crop sales revenues at the time of its annual
harvest in September and October. Because success of the Company's
operations is dependent upon the results of the Company's annual harvest, the
first two 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 sale in years subsequent to the harvest year, which may impact quarterly
results.
RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 1997 AND 1996
The following table sets forth certain statement of operations data for
the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Sales ............................................. $18,683 $10,769
Vineyard management, services and other fees ...... 1,187 922
------- -------
19,870 11,691
Cost of sales ....................................... 6,222 4,544
------- -------
Gross profit ........................................ 13,648 7,147
General and administrative expenses ................. 4,215 2,604
------- -------
Operating income .................................... 9,433 4,543
Interest income/(expense) ........................... (700) (654)
------- -------
Income before provision for income taxes ............ 8,733 3,889
Provision for income taxes .......................... 3,887 44
------- -------
Income before deferred tax adjustment ............... 4,846 3,845
Deferred income taxes from reorganization
to C Corporation .................................. 1,390 0
------- -------
Net income .......................................... $ 3,456 $ 3,845
------- -------
------- -------
Pro Forma Amounts:
Income before income taxes as reported ........... $ 8,733 $ 3,889
Pro forma income tax provision ................... 3,493 1,556
------- -------
Pro forma net income ............................. $ 5,240 $ 2,333
------- -------
------- -------
</TABLE>
REVENUES. SVI derives its revenues from three sources: (i) sales of
wine grapes pursuant to long-term purchase contracts; (ii) vineyard
management and services revenues consisting primarily of management and
harvest fees and equipment rentals for services provided to owners of
vineyards; and (iii) sales of wine and wine-related merchandise sold
primarily through the Company's tasting room which opened in late April 1997.
Sales (which include revenues from grape sales and from the sale of wine and
wine-related merchandise) increased by 73.5% to $18,683,000 for the year
ended December 31, 1997 from $10,769,000 in 1996, an increase of $7,914,000.
23
<PAGE>
Grape sales increased by 72.6% to $18,585,000 for the year ended
December 31, 1997 from $10,769,000 in 1996, an increase of $7,816,000. The
increase was due primarily to (i) a 32% increase in the average price per ton
received on grape sales from 1996 to 1997 (contributing approximately
$3,428,000 of the increase), (ii) a 31% increase in the yields produced by
the Company's vineyards in operation during both years on acres harvested
(contributing approximately $3,364,000 of the increase), and (iii) the
acquisition of a 370-acre vineyard in June 1997 (contributing approximately
$1,024,000 of the increase).
Revenue from the sale of wine and wine-related merchandise at the
Company's tasting room totaled $98,000 for the year ended December 31, 1997.
The tasting room was opened in April 1997.
Revenue from vineyard management, services and other fees increased by
28.7% to $1,187,000 for the year ended December 31, 1997 from $922,000 in
1996, an increase of $265,000. This increase was primarily due to the
addition of a 445-acre long-term management contract in early 1997.
GROSS PROFIT. As a result of the factors discussed above, gross profit
increased by 91.0% to $13,648,000 for the year ended December 31, 1997 from
$7,147,000 in 1996, an increase of $6,501,000. Gross profit on grape sales
as a percentage of revenues increased to 67.0% in 1997 from 57.8% in 1996.
The increase in gross profit is primarily the result of higher revenues
related to increased yields and higher grape prices per ton in relation to
relatively stable farming costs.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased by 61.9% to $4,215,000 for the year ended December 31, 1997 from
$2,604,000 in 1996, an increase of $1,611,000. 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 and its initial public offering, as well as promotional activities
surrounding the opening and initial operations of the Company's tasting room.
INTEREST EXPENSE, NET. Net interest expense increased 7.0% to $700,000
for the year ended December 31, 1997 from $654,000 in 1996, an increase of
$46,000. The increase in interest expense was primarily due to increased
levels of borrowing by the Company to finance crop growing costs and the
completion of certain vineyard development and improvement projects for which
interest is capitalized instead of expensed during the development or
improvement period. These increases were partially offset by an increase in
interest income on cash holdings of the Company from 1996 to 1997 as the
result of funds received in the Company's initial public offering and from
the increase in revenues from 1996 to 1997.
PROVISION FOR INCOME TAXES. The provision for income taxes increased to
$3,887,000 for the year ended December 31, 1997 from $44,000 in 1996. The
Company was an S Corporation for income tax purposes prior to the initial
public offering in July 1997. The S Corporation election was terminated in
connection with the public offering, upon which the Company became taxable as
a C Corporation. As a result of the Company's prior S Corporation status,
the Company's losses for the first seven months of 1997 were allocated to the
Company's sole stockholder and were not available to offset the Company's
income for the last five months of the year. This resulted in an effective
tax rate for 1997 of 44.5%. The Company anticipates a 40% effective tax rate
for future years.
24
<PAGE>
NET INCOME BEFORE DEFERRED TAX ADJUSTMENT. Due to the above factors,
the Company had net income before deferred tax adjustment for the year ended
December 31, 1997 of $4,846,000 as compared to $3,845,000 in 1996, an
increase of $1,001,000 or 26.0%.
DEFERRED TAXES FROM REORGANIZATION OF S CORPORATION. The Company
incurred a one-time noncash charge to earnings in the amount of $1,390,000 to
record the deferred tax liability arising from the reorganization of the
Company's business from an S Corporation and partnerships to a taxable C
Corporation in connection with the Company's initial public offering in July
1997.
NET INCOME. Net income for the year ended December 31, 1997 was
$3,456,000 as compared to $3,845,000 in 1996, a decrease of $389,000 or
10.1%. On a pro forma basis, net income for the years ended December 31, 1997
and 1996 was $5,240,000 and $2,333,000, respectively, an increase of
$2,907,000 or 124.6%. Pro forma net income is derived by providing a
provision for income taxes as if the Company had been a C Corporation for all
periods presented.
LIQUIDITY AND CAPITAL RESOURCES
SVI's primary sources of cash historically have 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 a result of the application of the net proceeds from the Company's initial
public offering, working capital increased to $15,665,000 at December 31,
1997 from $2,254,000 at December 31, 1996, an increase of $13,411,000. Such
increase is expected to reduce dependence on borrowings in the near-term to
meet working capital and capital expenditure requirements.
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 working capital needs.
There were no amounts outstanding under this line at December 31, 1997 as it
was repaid following the Company's initial public offering. This crop line
expires on June 5, 1998, and the Company expects to replace the line prior to
maturity. 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 expiring through July 2007 that
provide for maximum borrowings totaling $7,285,000, which diminish annually
through the expiration dates to a maximum allowable commitment of $3,432,000.
At December 31, 1997, the outstanding amount owed by the Company under these
facilities was $6,857,000. The annual interest rates on these lines are
based on the bank's "reference rate" and ranged from 8.59% to 8.79% at
December 31, 1997.
25
<PAGE>
The Company also has other long-term notes payable which, as of December
31, 1997, totaled approximately $6,975,000. These notes are primarily
secured by deeds of trust, leasehold interests or equipment and have interest
rates based on the bank's reference rate plus 1/4% to 11/4%. At December 31,
1997, the weighted average interest rate on these notes payable was 8.78%.
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 December 31, 1997, the
outstanding balance on this line of credit was $4,679,000. This line bears
interest at the bank's reference rate (6.31% at December 31, 1997) 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 December 31, 1997, 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 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 provided by operating activities was $4,685,000 for the year ended
December 31, 1997, compared to $4,461,000 in 1996, an increase of $224,000.
The increase was primarily due to non-cash deferred income taxes recorded in
1997 due to the conversion of the Company's income tax status from an S
Corporation to a C Corporation and an increase in depreciation, amortization
and abandonments from 1996 to 1997. These increases were partially offset by
cash used for increases in inventories due to an increase in deferred crop
production costs.
Cash used in investing activities was $15,400,000 for the year ended
December 31, 1997, compared to $5,962,000 in 1996, an increase of $9,438,000.
The increase principally was the result of additions to property, plant and
equipment and an increase in a long-term receivable. The additions to
property and equipment were primarily due to the Company's acquisition of the
370-acre Riverview Vineyard in June 1997 for $5,500,000, improvements at the
Company's existing vineyards, and ongoing development of approximately 374
acres of new vineyards. The increase in long-term receivables was for the
costs incurred for the development of certain vineyards owned by a major
client of the Company and managed by the Company pursuant to a long-term
contract, as described above.
Cash provided by financing activities was $21,174,000 for the year ended
December 31, 1997, compared to $1,966,000 in 1996, an increase of
$19,208,000. The increase primarily was due to the net proceeds received in
the Company's initial public offering of $19,968,000 and net increases to
long-term and other debt of approximately $4,788,000, which were offset by
distributions to partners and shareholders of $3,582,000.
26
<PAGE>
YEAR 2000 ISSUE
The Company has determined that the costs to address the Year 2000 issue
(I.E., computer applications that use only two digits to identify a year and
could produce erroneous results after 1999) are not material to the Company's
business, operations or financial condition and that the consequences of an
incomplete or untimely resolution of the Year 2000 issue for the Company's
computer systems do not represent a known material event or uncertainty that
management expects to affect future financial results. The impact of the
Year 2000 on the Company's vendors and customers is not expected to be
significant.
DIVIDENDS AND DISTRIBUTIONS
The Company intends to retain its future earnings, if any, to fund the
development and growth of its business and does not anticipate paying cash
dividends on either class of its Common Stock in the foreseeable future. In
addition, the Company's principal bank credit facilities prohibit the payment
of cash dividends without the consent of the lender.
In connection with the Company's initial public offering, the Company
was reorganized from an S Corporation and partnerships to a C Corporation.
During the fiscal years ended December 31, 1997 (prior to the reorganization)
and December 31, 1996, the Company and these partnerships made cash
stockholder and partner distributions totaling $3,582,000 and $468,000,
respectively. The 1997 distributions were made at the time of the
reorganization in respect of cumulative S Corporation earnings and income tax
liabilities on partnership income.
ITEM 7. FINANCIAL STATEMENTS
The audited financial statements of the Company are set forth in this
Report beginning on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information required by this Item is set forth under the captions
"Proposal No. 1 - Election of Directors - Information Concerning the
Nominees" and " - Directors and Executive Officers" in the Company's
definitive Proxy Statement to be filed with the Securities and Exchange
Commission and is incorporated herein by this reference as if set forth in
full.
27
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item is set forth under the caption
"Executive Compensation" in the Company's definitive Proxy Statement to be
filed with the Securities and Exchange Commission and is incorporated herein
by this reference as if set forth in full.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission and is incorporated herein by this reference as if set
forth in full.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is set forth under the caption
"Certain Transactions" in the Company's definitive Proxy Statement to be
filed with the Securities and Exchange Commission and is incorporated herein
by this reference as if set forth in full.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<S> <C>
2.1* Exchange and Contribution Agreement, dated as of July 29, 1997, among
Registrant and certain affiliated entities and stockholders of
Registrant.
3.1 Certificate of Incorporation (incorporated by reference to Exhibit
number 3.1 to Amendment No. 2 to Registrant's Registration Statement
on Form SB-2 filed July 21, 1997).
3.2 Bylaws (incorporated by reference to Exhibit number 3.2 to Amendment
No. 2 to Registrant's Registration Statement on Form SB-2 filed July
21, 1997).
4.1* Warrant Agreement, dated as of July 30, 1997, by and among the
Company, Cruttenden Roth Incorporated, Laidlaw Equities, Inc. and
Rodman & Renshaw, Inc.
4.2* Form of Certificate Evidencing Ownership of Class A Common Stock of
Scheid Vineyards Inc.
4.3 Form of Certificate Evidencing Ownership of Class B Common Stock of
Scheid Vineyards Inc. (incorporated by reference to Exhibit number
4.3 to Amendment No. 1 to Registrant's Registration Statement on Form
SB-2 filed July 3, 1997).
4.4 Form of Lock-Up Agreement between Cruttenden Roth Incorporated and
the Scheid Vineyards Inc. Class B Common Stockholders (incorporated
by reference to Exhibit number 10.2 to Amendment No. 2 to
Registrant's Registration Statement on Form SB-2 filed July 21,
1997).
10.1* Form of 1997 Stock Option/Stock Issuance Plan, as amended and
restated through March 10, 1998.(2)
28
<PAGE>
10.2 Lease, dated as of January 1, 1997, by and among Sam Avila and
Margaret J. Avila, as trustees under declaration of trust dated
August 16, 1989, and Margaret J. Avila and Valarie Bassetti successor
co-trustees of the testamentary trust of Joseph Laberere, and Sam
Avila, and Margaret J. Avila, and Scheid Vineyards and Management Co.
(incorporated by reference to Exhibit number 10.3 to Registrant's
Registration Statement on Form SB-2 filed May 28, 1997).(1)
10.3 Lease, dated as of January 1, 1996, by and between Echenique Ranch
and Scheid Vineyards and Management Co., as amended by a Letter
Agreement dated March 27, 1996 (incorporated by reference to Exhibit
number 10.4 to Registrant's Registration Statement on Form SB-2 filed
May 28, 1997).(1)
10.4 Land Lease by and between William McHenry Bland and Monterey Farming
Corporation and Addendum to Land Lease, dated September 26, 1973, by
and between William McHenry Bland and Monterey Farming Corporation
(incorporated by reference to Exhibit number 10.5 to Registrant's
Registration Statement on Form SB-2 filed May 28, 1997).(1)
10.5 Lease, dated September 27, 1979, by and among Luis Echenique, Francis
D. Echenique, Ricardo Echenique and Monterey Farming Corporation, as
amended by (i) a Memorandum of Lease, dated September 27, 1979, (ii)
an Amendment to Memorandum of Lease, dated September 4, 1987, (iii) a
First Amendment to Lease, dated September 4, 1987, and (iv) a Second
Amendment of Lease, dated September 4, 1987 (incorporated by
reference to Exhibit number 10.6 to Registrant's Registration
Statement on Form SB-2 filed May 28, 1997).(1)
10.6 + Vineyard Management Agreement, dated as of January 1, 1997, by and
among Scheid Vineyards and Management Co., Canandaigua West, Inc. and
Canandaigua Wine Company, Inc. (incorporated by reference to Exhibit
number 10.7 to Registrant's Registration Statement on Form SB-2 filed
May 28, 1997).(1)
10.7 + Vineyard Management Agreement, dated as of January 1, 1996, by and
among Scheid Vineyards and Management Co., Canandaigua West, Inc. and
Canandaigua Wine Company, Inc. (incorporated by reference to Exhibit
number 10.8 to Registrant's Registration Statement on Form SB-2 filed
May 28, 1997).(1)
10.8 + Grenache Vineyard Management Agreement, dated as of April 1, 1995, by
and between Scheid Vineyards and Management Co. and Joseph Phelps
Vineyards (incorporated by reference to Exhibit number 10.9 to
Registrant's Registration Statement on Form SB-2 filed May 28,
1997).(1)
10.9+ Vineyard Management Agreement, dated as of April 1, 1995, by and
between Scheid Vineyards and Management Co. and Joseph Phelps
Vineyards (incorporated by reference to Exhibit number 10.10 to
Registrant's Registration Statement on Form SB-2 filed May 28,
1997).(1)
10.10+ Vineyard Management Agreement, dated as of February 1, 1992, by and
between Scheid Vineyards and Management Co. and John Hill and Richard
Hill as co-trustees of the Hill Living Trust (incorporated by
reference to Exhibit number 10.11 to Registrant's Registration
Statement on Form SB-2 filed May 28, 1997).(1)
10.11a+ Vineyard Development and Management Agreement, dated as of
December 1, 1995, by and between Heublein, Inc. and Scheid Vineyards
and Management Co. (incorporated by reference to Exhibit number 10.12
to Registrant's Registration Statement on Form SB-2 filed May 28,
1997).(1)
10.11b* Amendment No. 1 to Vineyard Development and Management Agreement,
dated as of March 28, 1997, by and between Heublein, Inc. and Scheid
Vineyards and Management Co.(1)
10.12 Agricultural Credit Agreement (General Term Loan), dated October 6,
1994, between Vineyard Investors 1972 and Sanwa Bank California
(incorporated by reference to Exhibit number 10.15 to Registrant's
Registration Statement on Form SB-2 filed May 28, 1997).(1)
29
<PAGE>
10.13 Business Loan Agreement, dated as of March 28, 1997, between Scheid
Vineyards and Management Co. and Bank of America National Trust and
Savings Association (incorporated by reference to Exhibit number
10.20 to Registrant's Registration Statement on Form SB-2 filed May
28, 1997).(1)
10.14+ Long Term Grape Purchase Contract, dated February 12, 1973, between
Monterey Farming Corporation and Almaden Vineyards, Inc., as amended
by (i) a Memorandum of Understanding, dated August 6, 1987, (ii) a
Letter Agreement, dated May 14, 1990, and (iii) an Amendment to Long
Term Grape Purchase Contract, dated as of March 12, 1993, between
Scheid Vineyards and Management Co. and Heublein, Inc. (incorporated
by reference to Exhibit number 10.21 to Registrant's Registration
Statement on Form SB-2 filed May 28, 1997).(1)
10.15+ Long Term Grape Purchase Contract, dated December 21, 1972, between
Vineyard Investors 1972 and Almaden Vineyards, Inc., as amended by
(i) a Memorandum of Understanding, dated August 6, 1987, (ii) an
Amendment to Long Term Grape Purchase Contract, dated April 19, 1988,
between Vineyard Investors 1972 and Heublein, Inc., (iii) a Second
Amendment to Long Term Grape Purchase Contract, dated June 2, 1988,
(iv) a Third Amendment to Long Term Grape Purchase Contract, dated as
of March 12, 1993 and (v) a letter agreement, dated April 6, 1990
(incorporated by reference to Exhibit number 10.22 to Registrant's
Registration Statement on Form SB-2 filed May 28, 1997).(1)
10.16+ Long Term Grape Purchase Contract, dated February 12, 1973, between
Monterey Farming Corporation, as General Partner on behalf of
Vineyard 405, and Almaden Vineyards, Inc., as amended by (i) a
certain Memorandum of Understanding, dated August 6, 1987, and (ii)
an Amendment to Long Term Grape Purchase Contract, dated as of
March 12, 1993, between Vineyard 405 and Heublein, Inc. (incorporated
by reference to Exhibit number 10.23 to Registrant's Registration
Statement on Form SB-2 filed May 28, 1997).(1)
10.17+ Long Term Wine Grape Purchase Agreement, dated as of March 12, 1993,
by and between Scheid Vineyards and Management Co. and Heublein, Inc.
(incorporated by reference to Exhibit number 10.24 to Registrant's
Registration Statement on Form SB-2 filed May 28, 1997).(1)
10.18+ Grape Purchase Agreement, dated as of April 1, 1996, by and between
Scheid Vineyards and Management Co. and The Hess Collection Winery
(incorporated by reference to Exhibit number 10.25 to Registrant's
Registration Statement on Form SB-2 filed May 28, 1997).(1)
10.19+ Grape Purchase Agreement, dated July 1, 1996, by and among Scheid
Vineyards and Management Co., Stephen Dooley Wine Co., Inc. and The
Chalone Wine Group, Ltd. (incorporated by reference to Exhibit number
10.26 to Registrant's Registration Statement on Form SB-2 filed May
28, 1997).(1)
10.20 Alternating Winery Agreement, dated November 30, 1995, by and between
Scheid Vineyards and Management Co. and Storrs Winery (incorporated
by reference to Exhibit number 10.27 to Registrant's Registration
Statement on Form SB-2 filed May 28, 1997).(1)
10.21 Winery Services Agreement, dated January 1, 1996, by and between
Scheid Vineyards and Management Co. and Storrs Winery (incorporated
by reference to Exhibit number 10.28 to Registrant's Registration
Statement on Form SB-2 filed May 28, 1997).(1)
10.22 Standard Office Lease, dated July 1, 1994, by and between Scheid
Vineyards and Management Co. and Tesh Partners, L.P. (incorporated by
reference to Exhibit number 10.29 to Registrant's Registration
Statement on Form SB-2 filed May 28, 1997).(1)
10.23 Collective Bargaining Agreement, dated January 1, 1996, by and
between Scheid Vineyards and Management Co. and United Farm Workers
of America, AFL-CIO (incorporated by reference to Exhibit number
10.30 to Registrant's Registration Statement on Form SB-2 filed May
28, 1997).(1)
30
<PAGE>
10.24* Amended and Restated Buy-Sell Agreement, dated as of December 31,
1997, by and among Scheid Vineyards Inc. and holders of Class B
Common Stock.
10.25 Promissory Note, dated December 30, 1994, by Kurt Gollnick for the
benefit of Scheid Vineyards and Management Co. (incorporated by
reference to Exhibit number 10.32 to Registrant's Registration
Statement on Form SB-2 filed May 28, 1997).(1)
10.26 Individual Retirement Agreement, dated as of May 1, 1997, by and
between Scheid Vineyards and Management Co. and Ernest M. Brown
(incorporated by reference to Exhibit number 10.34 to Amendment No. 2
to Registrant's Registration Statement on Form SB-2 filed July 21,
1997).(1)(2)
10.27 Joint Agreement, dated as of March 27, 1997, by and among Samuel R.
Avila and Margaret J. Avila, individually and as trustees under
declaration of trust dated August 16, 1989, and Margaret J. Avila and
Valarie Bassetti, as successor co-trustees of the testamentary trust
of Joseph Labarere, Metropolitan Life Insurance Company, Scheid
Vineyards and Management Co., Canandaigua West, Inc. and Canandaigua
Wine Company, Inc. (incorporated by reference to Exhibit number 10.35
to Registrant's Registration Statement on Form SB-2 filed May 28,
1997).(1)
10.28 Water Supply Agreement, dated as of January 1, 1997, by Scheid
Vineyards and Management Co. and Canandaigua West, Inc. (incorporated
by reference to Exhibit number 10.36 to Registrant's Registration
Statement on Form SB-2 filed May 28, 1997).(1)
10.29 Agreement Regarding Water, dated as of January 1, 1996, by Luis
Echenique, Ricardo Echenique and Margaret Echenique, Executrix of the
Estate of Francis D. Echenique, in favor of each of Scheid Vineyards
and Management Co. and Canandaigua West, Inc. (incorporated by
reference to Exhibit number 10.37 to Registrant's Registration
Statement on Form SB-2 filed May 28, 1997).(1)
10.30 Easement Agreement, dated January 1, 1997, by Sam Avila and Margaret
J. Avila, as trustees under declaration of trust dated August 16,
1989, and Margaret J. Avila and Valarie Bassetti successor
co-trustees of the testamentary trust of Joseph Labarere and Sam
Avila and Margaret J. Avila and Scheid Vineyards and Management Co.,
in favor of Canandaigua West, Inc. (incorporated by reference to
Exhibit number 10.38 to Registrant's Registration Statement on Form
SB-2 filed May 28, 1997).(1)
10.31* Agricultural Credit Agreement, dated June 4, 1997, between Scheid
Vineyards Inc. and Sanwa Bank.(1)
10.32 Vineyard Lease Agreement, dated as of April 1, 1995, by and between
Vineyard Investors 1972 and Joseph Phelps Vineyards (incorporated by
reference to Exhibit number 10.41 to Registrant's Registration
Statement on Form SB-2 filed May 28, 1997).(1)
10.33+ Grape Purchase Agreement, dated as of May 9, 1997, by and between
Scheid Vineyards Inc. and The Hess Collection Winery (incorporated by
reference to Exhibit number 10.42 to Registrant's Registration
Statement on Form SB-2 filed May 28, 1997).(1)
10.34+ Grape Purchase Agreement, dated as of April 1, 1997, by and between
Vineyard Investors 1972 and Stephen Dooley Wine Co., Inc.
(incorporated by reference to Exhibit number 10.43 to Registrant's
Registration Statement on Form SB-2 filed May 28, 1997).(1)
10.35 Employment Agreement, dated as of July 19, 1997, by and between
Scheid Vineyards Inc. and Alfred G. Scheid (incorporated by reference
to Exhibit number 10.44 to Amendment No. 2 to Registrant's
Registration Statement on Form SB-2 filed July 21, 1997).(2)
10.36 Employment Agreement, dated as of July 19, 1997, by and between
Scheid Vineyards Inc. and Scott D. Scheid (incorporated by reference
to Exhibit number 10.45 to Amendment No. 2 to Registrant's
Registration Statement on Form SB-2 filed July 21, 1997).(2)
31
<PAGE>
10.37 Employment Agreement, dated as of July 19, 1997, by and between
Scheid Vineyards Inc. and Heidi M. Scheid (incorporated by reference
to Exhibit number 10.46 to Amendment No. 2 to Registrant's
Registration Statement on Form SB-2 filed July 21, 1997).(2)
10.38 Employment Agreement, dated as of July 19, 1997, by and between
Scheid Vineyards Inc. and Kurt J. Gollnick (incorporated by reference
to Exhibit number 10.47 to Amendment No. 2 to Registrant's
Registration Statement on Form SB-2 filed July 21, 1997).(2)
10.39 Form of Indemnification Agreement (incorporated by reference to
Exhibit number 10.48 to Amendment No. 1 to Registrant's Registration
Statement on Form SB-2 filed July 3, 1997).(2)
21.1 List of Subsidiaries (incorporated by reference to Exhibit number
21.1 to Amendment No. 1 to Registrant's Registration Statement on
Form SB-2 filed July 3, 1997).
23.1* Independent Auditors' Consent.
27.1* Financial Data Schedule.
</TABLE>
------------
* Electronically filed herewith.
+ Portions of this Exhibit have been deleted pursuant to the
Registrant's request for confidential treatment pursuant to
Rule 406 promulgated under the Securities Act.
(1) The contracting party is a predecessor in interest to Scheid
Vineyards California Inc., Registrant's wholly owned subsidiary.
(2) Indicates a management contract or compensating plan or
arrangement required to be filed as an exhibit to this
Form 10-KSB.
(b) Current Reports on Form 8-K
None.
32
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Scheid Vineyards Inc.
By: /s/ ALFRED G. SCHEID
---------------------------
Alfred G. Scheid
CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ALFRED G. SCHEID Chairman of the Board and Chief March 27, 1998
- -------------------- Executive Officer (Principal
Alfred G. Scheid Executive Officer)
/s/ HEIDI M. SCHEID Vice President Finance, Chief March 27, 1998
- -------------------- Financial Officer, Treasurer and
Heidi M. Scheid Director (Principal Financial
Officer)
/s/ SCOTT D. SCHEID Vice President, Chief Operating March 27, 1998
- -------------------- Officer and Director
Scott D. Scheid
/s/ JOHN L. CRARY Director March 27, 1998
- --------------------
John L. Crary
/s/ ROBERT P. HARTZELL Director March 27, 1998
- --------------------
Robert P. Hartzell
/s/ ERNEST M. BROWN Vice President, Secretary March 27, 1998
- -------------------- (Principal Accounting Officer)
Ernest M. Brown
</TABLE>
33
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report .......................... F-2
Balance Sheets ........................................ F-3
Statements of Operations .............................. F-4
Statements of Cash Flows .............................. F-5
Statements of Equity .................................. F-6
Notes to Financial Statements ......................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Scheid Vineyards Inc.:
We have audited the accompanying balance sheets of Scheid Vineyards Inc.
and subsidiary (the "Company") as of December 31, 1997 and 1996, and the
related statements of operations, cash flows and equity for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly in all material
respects, the financial position of Scheid Vineyards Inc. and subsidiary as
of December 31, 1997 and 1996, and the results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ DELOITTE & TOUCHE LLP
-----------------------------
Deloitte & Touche LLP
Los Angeles, California
February 13, 1998
F-2
<PAGE>
SCHEID VINEYARDS INC. AND SUBSIDIARY
BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOTES 1997 1996
----- ---- ----
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .......................................... 2 $14,483 $ 4,024
Accounts receivable, trade ......................................... 349 274
Accounts receivable, other ......................................... 412 3
Inventories ........................................................ 3 1,102 100
Supplies, prepaid expenses and other current assets ................ 813 819
------- -------
Total current assets ............................................. 17,159 5,220
PROPERTY, PLANT AND EQUIPMENT, NET ................................... 4,7 27,795 16,342
LONG-TERM RECEIVABLE ................................................. 5 4,679 2,233
OTHER ASSETS, NET .................................................... 236 274
------- -------
$49,869 $24,069
------- -------
------- -------
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt .................................. 7 $ 660 $ 458
Notes payable to affiliates ........................................ 8 - 807
Note payable to stockholder ........................................ 9 - 1,000
Accounts payable and accrued liabilities ........................... 519 497
Accrued interest payable ........................................... 315 204
------- -------
Total current liabilities ........................................ 1,494 2,966
LONG-TERM DEBT, NET OF CURRENT PORTION ............................... 7 17,851 11,458
DEFERRED COMPENSATION ................................................ 11 662 584
DEFERRED INCOME TAXES ................................................ 10 741 -
------- -------
Total liabilities ................................................ 20,748 15,008
------- -------
COMMITMENTS AND CONTINGENCIES ........................................ 12
EQUITY: .............................................................. 13,14
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;
2,300,000 and no shares issued and outstanding in 1997 and
1996, respectively
Class B, $.001 par value; 10,000,000 shares authorized;
4,400,000 and 97,413 shares issued and outstanding in 1997 and
1996, respectively ............................................... 7 2
Additional paid-in capital ......................................... 21,797 124
Retained earnings .................................................. 7,317 5,621
Partners' capital .................................................. - 3,314
------- -------
29,121 9,061
------- -------
$49,869 $24,069
------- -------
------- -------
</TABLE>
See accompanying Notes to Financial Statements.
F-3
<PAGE>
SCHEID VINEYARDS INC. AND SUBSIDIARY
STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
NOTES 1997 1996
----- ---- ----
<S> <C> <C> <C>
REVENUES:
Sales ................................................. $ 18,683 $ 10,769
Vineyard management, services and other fees .......... 1,187 922
---------- ----------
Total revenues ...................................... 19,870 11,691
COST OF SALES ........................................... 6,222 4,544
---------- ----------
GROSS PROFIT ............................................ 13,648 7,147
General and administrative expenses ................... 4,215 2,604
Interest expense (net of interest income of $283,000
in 1997 and $86,000 in 1996) ........................ 700 654
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES ................ 8,733 3,889
PROVISION FOR INCOME TAXES .............................. 10 3,887 44
---------- ----------
INCOME BEFORE DEFERRED TAX ADJUSTMENT ................... 4,846 3,845
DEFERRED INCOME TAXES FROM
REORGANIZATION TO C CORPORATION ....................... 2 1,390 -
---------- ----------
NET INCOME .............................................. $ 3,456 $ 3,845
---------- ----------
---------- ----------
BASIC AND DILUTED EARNINGS PER SHARE .................... 2 $ 0.65 $ 0.87
---------- ----------
---------- ----------
PRO FORMA AMOUNTS: 2
INCOME BEFORE INCOME TAXES AS REPORTED .................. $ 8,733 $ 3,889
PRO FORMA INCOME TAX PROVISION .......................... 3,493 1,556
---------- ----------
PRO FORMA NET INCOME .................................... $ 5,240 $ 2,333
---------- ----------
---------- ----------
PRO FORMA NET INCOME PER SHARE .......................... $ 0.98 $ 0.53
---------- ----------
---------- ----------
WEIGHTED AVERAGE SHARES OUTSTANDING ..................... 2 5,344,000 4,400,000
---------- ----------
---------- ----------
</TABLE>
See accompanying Notes to Financial Statements.
F-4
<PAGE>
SCHEID VINEYARDS INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .............................................. $ 3,456 $ 3,845
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization and abandonments ......... 1,711 909
Deferred compensation ............................... 78 71
Deferred income taxes ............................... (649) -
Deferred taxes arising from reorganization .......... 1,390 -
Changes in operating assets and liabilities:
Accounts receivable, trade ............................ (75) (111)
Accounts receivable, other ............................ (409) 62
Inventories ........................................... (956) (46)
Supplies, prepaid expenses and other current assets ... 6 (249)
Accounts payable and accrued liabilities .............. 133 (20)
-------- --------
Net cash provided by operating activities ........... 4,685 4,461
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Long-term receivable .................................... (2,446) (2,233)
Additions to property, plant and equipment .............. (12,994) (3,742)
Other assets ............................................ 40 13
-------- --------
Net cash used in investing activities ............... (15,400) (5,962)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt .............................. 22,589 7,267
Repayment of long-term debt ............................. (15,994) (4,833)
Repayment of notes payable, affiliates .................. (807) -
Repayment of note payable, stockholder .................. (1,000) -
Proceeds from issuance of common stock .................. 20,700 -
Stock offering costs .................................... (732) -
Subchapter S distributions .............................. (3,102) (125)
Partnership distributions ............................... (480) (343)
-------- --------
Net cash provided by financing activities ........... 21,174 1,966
-------- --------
Increase in cash and cash equivalents ............... 10,459 465
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR .............. 4,024 3,559
-------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR .................... $ 14,483 $ 4,024
-------- --------
-------- --------
</TABLE>
See accompanying Notes to Financial Statements.
F-5
<PAGE>
SCHEID VINEYARDS INC. AND SUBSIDIARY
STATEMENTS OF EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Common Stock
---------------------------------------
Retained
NUMBER OF NUMBER OF Additional Earnings and
CLASS A CLASS B Paid-in Partners'
SHARES SHARES AMOUNT Capital Capital
--------- --------- ------ --------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996........................ - 97,413 $ 2 $ 124 $ 5,558
Subchapter S distribution.................... - - - - (125)
Partnership distributions.................... - - - - (343)
Net income................................... - - - - 3,845
--------- --------- ---- --------- ---------
BALANCE, DECEMBER 31, 1996...................... - 97,413 2 124 8,935
Recapitalization as Delaware corporation and
contribution of partnership interests....... - 4,302,587 3 1,707 (1,492)
Subchapter S distribution.................... - - - - (3,102)
Partnership distributions.................... - - - - (480)
Issuance of common stock, net of costs....... 2,300,000 - 2 19,966 -
Net income................................... - - - - 3,456
--------- --------- ---- --------- ---------
BALANCE, DECEMBER 31, 1997 2,300,000 4,400,000 $ 7 $ 21,797 $ 7,317
--------- --------- ---- --------- ---------
--------- --------- ---- --------- ---------
</TABLE>
See accompanying Notes to Financial Statements.
F-6
<PAGE>
SCHEID VINEYARDS INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION -- The principal business of the Company is the management
and farming of approximately 5,150 acres of premium wine grape vineyards in
Monterey and San Benito Counties, California.
The Company has long-term grape purchase agreements with several
wineries whereby the wineries agree to purchase substantially all of the
Company's current grape production. These contracts generally expire no
earlier than the completion of harvest in years ranging from 2001 to 2013 and
are extended if neither party cancels two or three years before the
expiration date. The largest set of these winery contracts with a single
customer covers approximately 64% of the Company's acreage and accounted for
approximately 81% and 84% of the Company's total revenues in 1997 and 1996,
respectively.
BASIS OF PRESENTATION -- In connection with the Company's initial public
stock offering as described below, the Company formed Scheid Vineyards Inc.,
a Delaware corporation ("SVI-Del"). SVI-Del conducts all of its business
through its wholly-owned subsidiary, Scheid Vineyards California Inc., a
California corporation ("SVI-Cal").
On July 30, 1997, SVI-Del completed its initial public offering of
2,000,000 shares of Class A Common Stock, par value $.001 per share. 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. The increase in net worth due to the public
offering totaled approximately $19,968,000, after deduction of
offering-related expenses.
The Company reported its operations through the date of the Exchange
Transaction described below on a combined basis. 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
combination and consolidation.
EXCHANGE OF PARTNERSHIP UNITS AND LIMITED LIABILITY COMPANY INTERESTS
FOR CLASS B COMMON STOCK -- Immediately prior to the date of the Company's
initial public stock offering, SVI-Cal was the general partner of two
California limited partnerships, Vineyard Investors 1972 ("VI-1972") and
Vineyard 405 ("V-405") and 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, 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 SVI-Del (the "Exchange Transaction") and
(ii) a commitment by SVI-Cal to make the distributions described below.
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.
F-7
<PAGE>
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
For periods prior to the Exchange Transaction, the term "Company" refers
collectively to SVI-Cal, VI-1972, V-405 and Quadra Partners on a combined
basis, and for periods following the Exchange Transaction, the term "Company"
refers collectively to SVI-Del and SVI-Cal on a consolidated basis.
Prior to the Exchange Transaction, the financial statements were based
upon the historical cost of assets and liabilities except that assets related
to limited partnership interests purchased from unrelated partners were
recorded at the cost of acquisition.
DISTRIBUTIONS -- Immediately prior to the offering, SVI-Cal's cumulative
S Corporation earnings in the amount of $3,102,000 were distributed to its
stockholder. In addition, a distribution of approximately $480,000 was made
to the limited partners of VI-1972 (immediately prior to the Exchange
Transaction) to pay income taxes on income from the partnership.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents. At December 31, 1997 and 1996, substantially all cash balances
were on deposit with the Company's major bank. Cash invested in short-term
commercial paper with one large corporation totaled $12,000,000 at December
31, 1997.
INVENTORIES -- Inventories are stated at the lower of FIFO (first-in,
first-out) cost or market. Cost includes the cost of grown grapes,
harvesting, production, aging and bottling, and tasting room merchandise.
Wine inventories are classified as current assets in accordance with
recognized trade practice although certain inventories will be aged for
periods longer than one year. Crop costs associated with farming vineyards
prior to the harvest are deferred and recognized in the year the grapes are
harvested. On a quarterly basis, the Company evaluates the cost of its
inventories and reduces such inventories to market if required.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are
stated at cost and are depreciated using straight-line and accelerated
methods over the estimated useful lives of the assets. Vineyards generally
have estimated depreciable lives of 25 to 30 years, buildings 30 years, and
furniture and equipment 5 to 7 years. Development costs incurred during the
development period of a vineyard including related interest are capitalized.
Depreciation commences in the initial year the vineyard becomes commercially
productive, generally in the fourth year.
REVENUE RECOGNITION -- The Company recognizes revenue from grape sales
when the grapes are delivered to the winery. The Company does not have any
allowance for returns because grapes are tested and accepted upon delivery.
Vineyard management and other services are recognized as provided.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The fair values of accounts
receivable and accounts payable approximate book value because of their short
duration. Long-term receivables and long-term debt approximate book value
because such financial instruments have variable, market driven, interest
rates.
F-8
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
OF -- Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of" requires that long-lived assets and certain identifiable
intangibles to be held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. This statement also requires that
long-lived assets and certain identifiable intangibles to be disposed of be
reported at the lower of carrying amount or fair value, less cost to sell.
There have been no such impairments or write-downs to date.
INCOME TAXES -- Prior to the date of the Exchange Transaction, SVI-Cal
elected to be treated as an S Corporation for federal income tax and
California franchise tax purposes. Pursuant to this election, net income or
loss of SVI-Cal was included in the income tax returns of the stockholder.
Consequently, no federal income tax provision has been recorded in the
accompanying financial statements through the date of the Exchange
Transaction. However, under California state law, a franchise tax equal to
1 1/2% of taxable income is imposed upon S Corporations and is provided for in
the accompanying financial statements through the date of the Exchange
Transaction. VI-1972, V-405 and Quadra Partners were treated as partnerships
for federal and state income tax purposes such that their income or loss was
included in the taxable income of the partners.
The Exchange Transaction resulted in the termination of SVI-Cal's S
Corporation status. As a result, the Company currently pays income taxes at
the corporate level. The pro forma income tax provision in the statements of
operations is based upon an assumed 40% federal and state income tax rate.
In connection with the conversion of SVI-Cal's S Corporation status to C
Corporation status, the Company was required by SFAS No. 109, "Accounting for
Income Taxes" to record deferred tax liabilities and deferred tax assets.
Such change resulted in a net charge to earnings of $1,390,000 upon the
conversion to C Corporation status. This one-time charge is a result of
differences in the accounting and tax treatment of certain of the Company's
assets and liabilities and is reflected through (i) an increase in deferred
income tax liabilities, partially offset by (ii) an increase in the Company's
deferred tax assets.
USE OF ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported revenues and expenses
during the reporting period. Actual results could differ from those estimates.
EARNINGS PER SHARE AND CLASSES OF COMMON STOCK - The weighted average
shares outstanding in the statements of operations for the year ended
December 31, 1996 and through the effective date of the Exchange Transaction
are based upon the 4,400,000 shares of Class B Common Stock outstanding after
giving pro forma effect to the Exchange Transaction. The weighted average
shares outstanding since the date of the Exchange Transaction are based on
the actual weighted average shares of Class A and Class B Common Stock
outstanding since the date of the Exchange Transaction. The Company adopted
the provisions of SFAS No.128, "Earnings per Share" in 1997. The adoption had
no effect on the presentation of prior period disclosures. The effect of
outstanding stock options and warrants on the weighted average shares was
immaterial for the periods presented.
F-9
<PAGE>
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Bulk and bottled wine ............. $ 612,000 $ 56,000
Deferred crop costs ............... 458,000 44,000
Tasting room merchandise .......... 32,000 -
---------- --------
Total $1,102,000 $100,000
---------- --------
---------- --------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land and buildings............................... $ 6,515,000 $ 3,616,000
Vineyard improvements............................ 16,972,000 10,274,000
Vineyard improvements under development.......... 8,396,000 6,111,000
Machinery and equipment.......................... 3,598,000 2,696,000
----------- -----------
Total 35,481,000 22,697,000
Less accumulated depreciation and amortization... 7,686,000 6,355,000
----------- -----------
Property, plant and equipment -- net............. $27,795,000 $16,342,000
----------- -----------
----------- -----------
</TABLE>
5. LONG-TERM RECEIVABLE
The Company has a contract to redevelop certain vineyards owned or
controlled by a major client. The current contract calls for the expenditure
of approximately $7,500,000 over a three-year period. The funds for this
project are being borrowed, as an accommodation to the client, by the Company
under a line of credit (see Note 7). The interest rate and payment terms of
this receivable are the same as the related note payable. The note payable to
the bank is secured by a letter of credit provided by the client and by the
management contract. The contract calls for the payment of this receivable by
the client's payment of the six annual principal installments under the line,
beginning January 5, 2000. Under the contract, the client is responsible on
an annual basis for determining the nature and amount of budgeted
expenditures for the year. The client is obligated to advance the budgeted
costs to the Company on a monthly basis, which are funded out of draws under
the line of credit.
6. LINES OF CREDIT
The Company had two Agricultural Credit Agreements with a bank which
provided for maximum aggregate borrowings of $3,900,000 through July 5, 1997.
No amounts were outstanding under these agreements at December 31, 1996.
On June 4, 1997, the Company replaced the two crop line of credit
agreements with a crop line of credit which provides for maximum borrowings
of $10,500,000 through June 5, 1998. Borrowings are secured by crops and
other assets with interest due quarterly at the bank's reference rate. No
amounts were outstanding under this agreement at December 31, 1997.
F-10
<PAGE>
6. LINES OF CREDIT (CONTINUED)
The crop line prohibits the payment of dividends without the consent of
the lender and contains various financial covenants, including minimum tangible
net worth amounts, and current and debt to net worth ratios. The Company was
in compliance with all financial provisions of the agreement.
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Revolving/Declining Line of Credit Agreement with a
bank which provides for a maximum borrowing of
$3,000,000 diminishing annually to a maximum
allowable commitment of $1,071,000, which is
due on July 5, 2005. The line of credit is
secured by a leasehold interest in 707 vineyard
acres. Interest is payable quarterly at the
lower of a bank-quoted fixed rate or 3/4% over
the bank's reference rate (8.79% at
December 31, 1997).................................. $ 2,572,000 $ 327,000
Revolving/Declining Line of Credit Agreement with a
bank which provides for a maximum borrowing of
$2,835,000 diminishing annually to a maximum
allowable commitment of $1,775,000, which is
due on July 5, 2007. The line of credit is
secured by a leasehold interest in 405 vineyard
acres. Interest is payable quarterly at the
lower of a bank-quoted fixed rate or 1/4% over
the bank's reference rate (8.59% at
December 31, 1997) ................................ 2,835,000 -
Revolving/Declining Line of Credit Agreement with a
bank which provides for a maximum borrowing of
$1,450,000 diminishing annually to a maximum
allowable commitment of $586,000, which is due
on July 5, 2007. The line of credit is secured
by a leasehold interest in 352 vineyard acres.
Interest is payable quarterly at the lower of
a bank-quoted fixed rate or 1/4% over the
bank's reference rate (8.59% at December 31,
1997) ............................................. 1,450,000 -
Note payable to bank, with interest at the lower of
a bank-quoted fixed rate or the bank's
reference rate plus 3/4% (8.79% at December
31, 1997), principal due in annual installments
through July 5, 2005, secured by trust deed on
707 vineyard acres ................................ 1,350,000 1,425,000
Note payable to bank, with interest at the bank's
reference rate plus 1/4%, principal due in
annual installments through December 31, 1998,
refinanced in June 1997 ........................... - 1,434,000
Note payable to bank, with interest at the lower of
a bank-quoted fixed rate or the bank's
reference rate plus 3/4% (8.79% at December
31, 1997), principal due in annual installments
through October 5, 2004, secured by first deed
of trust on 1,063 acres of real property .......... 5,050,000 5,200,000
Note secured by business residential real property,
due November 1, 2014, variable interest payable
monthly based on the Wall Street Journal Index
with maximum ceiling of 18% (8.5% at
December 31, 1997)................................ 435,000 435,000
F-11
<PAGE>
<CAPTION>
7. LONG-TERM DEBT (CONTINUED)
<S> <C> <C>
Various notes payable, with terms of interest at
3/4% to 1 1/4% over the bank's reference rate,
secured by deeds of trust, leasehold interest
or equipment ..................................... 140,000 862,000
Note payable to bank represents borrowings on a
$7,500,000 line of credit, which bears interest
at the bank's reference rate (6.31% at December
31, 1997). The note is secured by a letter of
credit provided by a major client, and is used
for costs incurred for the development of
certain vineyards owned by the client (see Note
5). Principal due in six annual installments
beginning January 5, 2000 ........................ 4,679,000 2,233,000
----------- -----------
Total .......................................... 18,511,000 11,916,000
Less current maturities............................. 660,000 458,000
----------- -----------
Long-term portion................................... $17,851,000 $11,458,000
----------- -----------
----------- -----------
</TABLE>
Principal payments required on long-term debt for each of the next five
years ending December 31 are as follows:
<TABLE>
<S> <C>
1998 ........................................ $ 660,000
1999 ........................................ 660,000
2000 ........................................ 1,182,000
2001 ........................................ 1,270,000
2002 ........................................ 1,410,000
Thereafter .................................. 13,329,000
-----------
Total ....................................... $18,511,000
-----------
-----------
</TABLE>
Substantially all of the Company's property, plant and equipment serves
as collateral for long-term debt.
8. NOTES PAYABLE TO AFFILIATES
The Company had notes payable to various affiliates in the amount of
$807,000 at December 31, 1996, with interest at the rate of 5.75%. These
notes were repaid in March 1997.
9. NOTE PAYABLE TO STOCKHOLDER
The Company had a note payable at December 31, 1996 to its stockholder
of $1,000,000 which bore interest at the bank's reference rate plus 1.4%.
The note was repaid in April 1997.
F-12
<PAGE>
10. INCOME TAXES
Significant components of the Company's net deferred tax liability at
December 31, 1997 are as follows.
<TABLE>
<CAPTION>
<S> <C>
Deferred income tax assets:
Deferred compensation ..................... $ 284,000
State income taxes ........................ 403,000
Miscellaneous reserves .................... 86,000
----------
773,000
Deferred income tax liabilities:
Depreciation .............................. (1,514,000)
----------
Net deferred income tax liability .......... $ (741,000)
----------
----------
</TABLE>
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current:
Federal ......................... $3,600,000 $ -
State ........................... 936,000 44,000
---------- -------
Total ............................. 4,536,000 44,000
---------- -------
Deferred:
Federal.......................... (576,000) -
State ........................... (73,000) -
---------- -------
Total ............................. (649,000) -
---------- -------
Total provision for income taxes .. $3,887,000 $44,000
---------- -------
---------- -------
</TABLE>
The Company's effective income tax rate differs from the federal
statutory income tax rate due to the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Federal statutory rate ................ 34.0 % 34.0 %
Losses (income) allocated to ..........
Subchapter S Corporation
shareholder ......................... 4.0 (34.0)
State taxes, net of federal benefit ... 6.5 1.1
---- -----
Total ................................. 44.5 % 1.1 %
---- -----
---- -----
</TABLE>
11. DEFERRED COMPENSATION
The Company has a non-qualified deferred compensation arrangement with
an employee. The arrangement provides for annual payments of $100,000
commencing upon the employee's retirement. The deferred compensation
liability included in the accompanying balance sheets represents the net
present value at 7% of the expected future payments. Compensation expense
related to the arrangement was $78,000 and $71,000 for the years ended
December 31, 1997 and 1996, respectively.
F-13
<PAGE>
12. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS -- The Company has various operating lease agreements
for office space and farm land. The lease for office space is with a related
partnership and runs until 1999. The rent is currently $102,000 annually.
Farm land leases cover approximately 1,433 acres with unexpired terms ranging
from 7 to 30 years.
Certain leases provide for options to renew, contain adjustment clauses
based upon the prevailing market rate or Consumer Price Index, and also
provide for payments of taxes, insurance and maintenance costs.
Aggregate minimum rental expense for each of the next five years ending
December 31 is as follows:
<TABLE>
<S> <C>
1998 ......................................... $ 517,000
1999 ......................................... 517,000
2000 ......................................... 414,000
2001 ......................................... 414,000
2002 ......................................... 414,000
Thereafter ................................... 3,896,000
</TABLE>
Rent charged to operations was $485,000 and $388,000 for the years ended
December 31, 1997 and 1996, respectively.
PENSION PLANS -- The Company has two 401(k) Profit Sharing Plans. The
first plan is for the benefit of the Company's employees who are covered by
the United Farm Workers of America Collective Bargaining Agreement. All union
employees of the Company are eligible to participate after having worked 500
hours within a one-year period. The Company contributes 15 cents for each
hour worked by eligible employees, subject to the limitations imposed by the
Internal Revenue Code. The Company's contribution to the union employees'
plan amounted to $35,000 for each of the years ended December 31, 1997 and
1996.
The second plan covers the Company's non-union employees. All non-union
employees of the Company are eligible to participate in the plan after one
year of employment. Employees may contribute between 1% and 15% of their
annual compensation. The Company matches 50 cents for every dollar of
employee contributions up to 6% of their annual salaries, subject to the
limitations imposed by the Internal Revenue Code. The Company's contribution
to this plan amounted to $22,000 and $27,000 for the years ended December 31,
1997 and 1996, respectively.
13. COMMON STOCK
In connection with the stock offering (see Note 1), the Company sold
2,300,000 shares of Class A Common Stock. 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 matters submitted to a vote of the stockholders. The
holders of the Class A Common Stock, voting as a separate class, elect 25% of
the total Board of Directors, rounded up to the nearest whole number, of the
Company and the holders of the Class B Common Stock, voting as a separate
class, elect the remaining directors. Each share of Class B Common Stock is
convertible into one share of Class A Common Stock at the option of the
holder or automatically upon transfer to a person other than certain
specified persons. Except for the differing voting rights, the shares of
Class A and Class B common stock have substantially identical rights,
preferences and privileges.
F-14
<PAGE>
13. COMMON STOCK (CONTINUED)
In addition, the Company granted warrants to purchase 200,000 shares of
common stock to the representative of the underwriters of the offering. The
warrants are exercisable at $14.00 per share any time between July 24, 1998
and July 24, 2002.
14. STOCK OPTION PLAN
In 1997, the Board of Directors of the Company adopted the 1997 Stock
Option/Stock Issuance Plan (the "Plan"), authorizing the issuance of
qualified or non-qualified stock options to directors, officers, employees,
consultants and others to purchase up to 200,000 shares of the Company's
Class A Common Stock at prices equal to the fair value of the Company's stock
at the date of grant. In July and November 1997, options to purchase a total
of 162,000 shares were granted at an exercise price of $10.00 per share.
Such options vest one-quarter each year, beginning one year after the grant
date or a specified vesting commencement date and expire ten years after the
earlier of the grant date and the vesting commencement date. No options have
vested at December 31, 1997.
The following summarizes stock option activity for the periods presented:
<TABLE>
<CAPTION>
WEIGHTED- AVERAGE
SHARES EXERCISE PRICE
------ ----------------
<S> <C> <C>
Outstanding, January 1, 1997 .................... - -
Granted ......................................... 162,000 $10.00
--------- ------
Outstanding, December 31, 1997 .................. 162,000 $10.00
--------- ------
--------- ------
Options exercisable at December 31, 1997 ........ None
Weighted average fair value of options granted .. $ 3.69
Weighted average remaining contractual life ..... 9.6 years
</TABLE>
The Company accounts for its stock-based awards using the intrinsic
value method in accordance with Accounting Principals Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and its related interpretations.
Accordingly, no compensation expense has been recognized in the financial
statements for employee stock arrangements.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
disclosure of pro forma net income and net income per share. Under SFAS No.
123, the fair value of stock-based awards to employees is calculated through
the use of options pricing models, even though such models were developed to
estimate the fair value of freely-tradable, fully transferable options
without vesting restrictions, which significantly differ from the Company's
stock option awards. These models also require subjective assumptions,
including future stock price volatility and expected time to exercise, which
greatly affect the calculated values. The Company's calculations were made
using the Black-Scholes option pricing model with the following weighted
average assumptions: expected life, 5 years following vesting; 29% stock
price volatility; risk free rate of return of between 6.0% and 6.2%; and no
dividends during the expected term. Forfeitures are recognized as they
occur. If the computed fair values of the Company's stock option awards had
been amortized to expense over the vesting period of the awards, pro forma
net income for the year ended December 31, 1997 would have been reduced to
the pro forma amounts indicated below. There were no grants prior to 1997.
F-15
<PAGE>
14. STOCK OPTION PLAN (CONTINUED)
<TABLE>
<S> <C>
Net income:
As reported $ 3,456,000
Pro forma $ 3,394,000
Net income per share:
As reported $ 0.65
Pro forma $ 0.64
</TABLE>
15. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures to the statements of cash flows are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Interest paid (net amount capitalized) $ 872,000 $ 654,000
Interest capitalized $ 294,000 $ 430,000
Income taxes paid $ 4,550,000 $ 0
</TABLE>
F-16
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- --------
<S> <C>
2.1* Exchange and Contribution Agreement, dated as of July 29, 1997, among
Registrant and certain affiliated entities and stockholders of
Registrant.
3.1 Certificate of Incorporation (incorporated by reference to Exhibit
number 3.1 to Amendment No. 2 to Registrant's Registration Statement
on Form SB-2 filed July 21, 1997).
3.2 Bylaws (incorporated by reference to Exhibit number 3.2 to Amendment
No. 2 to Registrant's Registration Statement on Form SB-2 filed July
21, 1997).
4.1* Warrant Agreement, dated as of July 30, 1997, by and among the
Company, Cruttenden Roth Incorporated, Laidlaw Equities, Inc. and
Rodman & Renshaw, Inc.
4.2* Form of Certificate Evidencing Ownership of Class A Common Stock of
Scheid Vineyards Inc.
4.3 Form of Certificate Evidencing Ownership of Class B Common Stock of
Scheid Vineyards Inc. (incorporated by reference to Exhibit Number
4.3 to Amendment No. 1 to Registrant's Registration Statement on Form
SB-2 filed July 3, 1997).
4.4 Form of Lock-Up Agreement between Cruttenden Roth Incorporated and
the Scheid Vineyards Inc. Class B Common Stockholders (incorporated
by reference to Exhibit Number 10.2 to Amendment No. 2 to
Registrant's Registration Statement on Form SB-2 filed July 21,
1997).
10.1* Form of 1997 Stock Option/Stock Issuance Plan, as amended and
restated through March 10, 1998.(2)
10.2 Lease, dated as of January 1, 1997, by and among Sam Avila and
Margaret J. Avila, as trustees under declaration of trust dated
August 16, 1989, and Margaret J. Avila and Valarie Bassetti successor
co-trustees of the testamentary trust of Joseph Laberere, and Sam
Avila, and Margaret J. Avila, and Scheid Vineyards and Management Co.
(incorporated by reference to Exhibit Number 10.3 to Registrant's
Registration Statement on Form SB-2 filed May 28, 1997).(1)
10.3 Lease, dated as of January 1, 1996, by and between Echenique Ranch
and Scheid Vineyards and Management Co., as amended by a Letter
Agreement dated March 27, 1996 (incorporated by reference to Exhibit
Number 10.4 to Registrant's Registration Statement on Form SB-2 filed
May 28, 1997).(1)
10.4 Land Lease by and between William McHenry Bland and Monterey Farming
Corporation and Addendum to Land Lease, dated September 26, 1973, by
and between William McHenry Bland and Monterey Farming Corporation
(incorporated by reference to Exhibit Number 10.5 to Registrant's
Registration Statement on Form SB-2 filed May 28, 1997).(1)
10.5 Lease, dated September 27, 1979, by and among Luis Echenique, Francis
D. Echenique, Ricardo Echenique and Monterey Farming Corporation, as
amended by (i) a Memorandum of Lease, dated September 27, 1979, (ii)
an Amendment to Memorandum of Lease, dated September 4, 1987, (iii) a
First Amendment to Lease, dated September 4, 1987, and (iv) a Second
Amendment of Lease, dated September 4, 1987 (incorporated by
reference to Exhibit Number 10.6 to Registrant's Registration
Statement on Form SB-2 filed May 28, 1997).(1)
10.6 + Vineyard Management Agreement, dated as of January 1, 1997, by and
among Scheid Vineyards and Management Co., Canandaigua West, Inc. and
Canandaigua Wine Company, Inc. (incorporated by reference to Exhibit
Number 10.7 to Registrant's Registration Statement on Form SB-2 filed
May 28, 1997).(1)
<PAGE>
10.7+ Vineyard Management Agreement, dated as of January 1, 1996, by and
among Scheid Vineyards and Management Co., Canandaigua West, Inc. and
Canandaigua Wine Company, Inc. (incorporated by reference to Exhibit
Number 10.8 to Registrant's Registration Statement on Form SB-2 filed
May 28, 1997).(1)
10.8+ Grenache Vineyard Management Agreement, dated as of April 1, 1995, by
and between Scheid Vineyards and Management Co. and Joseph Phelps
Vineyards (incorporated by reference to Exhibit Number 10.9 to
Registrant's Registration Statement on Form SB-2 filed May 28,
1997).(1)
10.9+ Vineyard Management Agreement, dated as of April 1, 1995, by and
between Scheid Vineyards and Management Co. and Joseph Phelps
Vineyards (incorporated by reference to Exhibit Number 10.10 to
Registrant's Registration Statement on Form SB-2 filed May 28,
1997).(1)
10.10+ Vineyard Management Agreement, dated as of February 1, 1992, by and
between Scheid Vineyards and Management Co. and John Hill and Richard
Hill as co-trustees of the Hill Living Trust (incorporated by
reference to Exhibit Number 10.11 to Registrant's Registration
Statement on Form SB-2 filed May 28, 1997).(1)
10.11a+ Vineyard Development and Management Agreement, dated as of
December 1, 1995, by and between Heublein, Inc. and Scheid Vineyards
and Management Co. (incorporated by reference to Exhibit Number 10.12
to Registrant's Registration Statement on Form SB-2 filed May 28,
1997).(1)
10.11b* Amendment No. 1 to Vineyard Development and Management Agreement,
dated as of March 28, 1997, by and between Heublein, Inc. and Scheid
Vineyards and Management Co.(1)
10.12 Agricultural Credit Agreement (General Term Loan), dated October 6,
1994, between Vineyard Investors 1972 and Sanwa Bank California
(incorporated by reference to Exhibit Number 10.15 to Registrant's
Registration Statement on Form SB-2 filed May 28, 1997).(1)
10.13 Business Loan Agreement, dated as of March 28, 1997, between Scheid
Vineyards and Management Co. and Bank of America National Trust and
Savings Association (incorporated by reference to Exhibit Number
10.20 to Registrant's Registration Statement on Form SB-2 filed May
28, 1997).(1)
10.14+ Long Term Grape Purchase Contract, dated February 12, 1973, between
Monterey Farming Corporation and Almaden Vineyards, Inc., as amended
by (i) a Memorandum of Understanding, dated August 6, 1987, (ii) a
Letter Agreement, dated May 14, 1990, and (iii) an Amendment to Long
Term Grape Purchase Contract, dated as of March 12, 1993, between
Scheid Vineyards and Management Co. and Heublein, Inc. (incorporated
by reference to Exhibit Number 10.21 to Registrant's Registration
Statement on Form SB-2 filed May 28, 1997).(1)
10.15+ Long Term Grape Purchase Contract, dated December 21, 1972, between
Vineyard Investors 1972 and Almaden Vineyards, Inc., as amended by
(i) a Memorandum of Understanding, dated August 6, 1987, (ii) an
Amendment to Long Term Grape Purchase Contract, dated April 19, 1988,
between Vineyard Investors 1972 and Heublein, Inc., (iii) a Second
Amendment to Long Term Grape Purchase Contract, dated June 2, 1988,
(iv) a Third Amendment to Long Term Grape Purchase Contract, dated as
of March 12, 1993 and (v) a Letter Agreement, dated April 6, 1990
(incorporated by reference to Exhibit Number 10.22 to Registrant's
Registration Statement on Form SB-2 filed May 28, 1997).(1)
<PAGE>
10.16+ Long Term Grape Purchase Contract, dated February 12, 1973, between
Monterey Farming Corporation, as General Partner on behalf of
Vineyard 405, and Almaden Vineyards, Inc., as amended by (i) a
Certain Memorandum of Understanding, dated August 6, 1987, and (ii)
an Amendment to Long Term Grape Purchase Contract, dated as of
March 12, 1993, between Vineyard 405 and Heublein, Inc. (incorporated
by reference to Exhibit Number 10.23 to Registrant's Registration
Statement on Form SB-2 filed May 28, 1997).(1)
10.17+ Long Term Wine Grape Purchase Agreement, dated as of March 12, 1993,
by and between Scheid Vineyards and Management Co. and Heublein, Inc.
(incorporated by reference to Exhibit Number 10.24 to Registrant's
Registration Statement on Form SB-2 filed May 28, 1997).(1)
10.18+ Grape Purchase Agreement, dated as of April 1, 1996, by and between
Scheid Vineyards and Management Co. and the Hess Collection Winery
(incorporated by reference to Exhibit Number 10.25 to Registrant's
Registration Statement on Form SB-2 filed May 28, 1997).(1)
10.19+ Grape Purchase Agreement, dated july 1, 1996, by and among Scheid
Vineyards and Management Co., Stephen Dooley Wine Co., Inc. and the
Chalone Wine Group, Ltd. (incorporated by reference to Exhibit Number
10.26 to Registrant's Registration Statement on Form SB-2 filed May
28, 1997).(1)
10.20 Alternating Winery Agreement, dated November 30, 1995, by and between
Scheid Vineyards and Management Co. and Storrs Winery (incorporated
by reference to Exhibit Number 10.27 to Registrant's Registration
Statement on Form SB-2 filed May 28, 1997).(1)
10.21 Winery Services Agreement, dated January 1, 1996, by and between
Scheid Vineyards and Management Co. and Storrs Winery (incorporated
by reference to Exhibit Number 10.28 to Registrant's Registration
Statement on Form SB-2 filed May 28, 1997).(1)
10.22 Standard Office Lease, dated July 1, 1994, by and between Scheid
Vineyards and Management Co. and Tesh Partners, L.P. (incorporated by
reference to Exhibit Number 10.29 to Registrant's Registration
Statement on Form SB-2 filed May 28, 1997).(1)
10.23 Collective Bargaining Agreement, dated January 1, 1996, by and
between Scheid Vineyards and Management Co. and United Farm Workers
of America, AFL-CIO (incorporated by reference to Exhibit Number
10.30 to Registrant's Registration Statement on Form SB-2 filed May
28, 1997).(1)
10.24* Amended and Restated Buy-Sell Agreement, dated as of December 31,
1997, by and among Scheid Vineyards Inc. and holders of Class B
Common Stock.
10.25 Promissory Note, dated December 30, 1994, by Kurt Gollnick for the
benefit of Scheid Vineyards and Management Co. (incorporated by
reference to Exhibit Number 10.32 to Registrant's Registration
Statement on Form SB-2 filed May 28, 1997).(1)
10.26 Individual Retirement Agreement, dated as of May 1, 1997, by and
between Scheid Vineyards and Management Co. and Ernest M. Brown
(incorporated by reference to Exhibit Number 10.34 to Amendment No. 2
to Registrant's Registration Statement on Form SB-2 filed July 21,
1997).(1)(2)
10.27 Joint Agreement, dated as of March 27, 1997, by and among Samuel R.
Avila and Margaret J. Avila, individually and as trustees under
declaration of trust dated August 16, 1989, and Margaret J. Avila and
Valarie Bassetti, as successor co-trustees of the testamentary trust
of Joseph Labarere, Metropolitan Life Insurance Company, Scheid
Vineyards and Management Co., Canandaigua West, Inc. and Canandaigua
Wine Company, Inc. (incorporated by reference to Exhibit Number 10.35
to Registrant's Registration Statement on Form SB-2 filed May 28,
1997).(1)
10.28 Water Supply Agreement, dated as of January 1, 1997, by Scheid
Vineyards and Management Co. and Canandaigua West, Inc. (incorporated
by reference to Exhibit Number 10.36 to Registrant's Registration
Statement on Form SB-2 filed May 28, 1997).(1)
<PAGE>
10.29 Agreement Regarding Water, dated as of January 1, 1996, by Luis
Echenique, Ricardo Echenique and Margaret Echenique, Executrix of the
Estate of Francis D. Echenique, in favor of each of Scheid Vineyards
and Management Co. and Canandaigua West, Inc. (incorporated by
reference to Exhibit Number 10.37 to Registrant's Registration
Statement on Form SB-2 filed May 28, 1997).(1)
10.30 Easement Agreement, dated January 1, 1997, by Sam Avila and Margaret
J. Avila, as trustees under declaration of trust dated August 16,
1989, and Margaret J. Avila and Valarie Bassetti successor
co-trustees of the testamentary trust of Joseph Labarere and Sam
Avila and Margaret J. Avila and Scheid Vineyards and Management Co.,
in favor of Canandaigua West, Inc. (incorporated by reference to
Exhibit Number 10.38 to Registrant's Registration Statement on Form
SB-2 filed May 28, 1997).(1)
10.31* Agricultural Credit Agreement, dated June 4, 1997, between Scheid
Vineyards inc. and Sanwa Bank.(1)
10.32 Vineyard Lease Agreement, dated as of April 1, 1995, by and between
Vineyard Investors 1972 and Joseph Phelps Vineyards (incorporated by
reference to Exhibit Number 10.41 to Registrant's Registration
Statement on Form SB-2 filed May 28, 1997).(1)
10.33+ Grape Purchase Agreement, dated as of May 9, 1997, by and between
Scheid Vineyards Inc. and the Hess Collection Winery (incorporated by
reference to Exhibit Number 10.42 to Registrant's Registration
Statement on Form SB-2 filed May 28, 1997).(1)
10.34+ Grape Purchase Agreement, dated as of April 1, 1997, by and between
Vineyard Investors 1972 and Stephen Dooley Wine Co., Inc.
(incorporated by reference to Exhibit Number 10.43 to Registrant's
Registration Statement on Form SB-2 filed May 28, 1997).(1)
10.35 Employment Agreement, dated as of July 19, 1997, by and between
Scheid Vineyards Inc. and Alfred G. Scheid (incorporated by reference
to Exhibit Number 10.44 to Amendment No. 2 to Registrant's
Registration Statement on Form SB-2 filed July 21, 1997).(2)
10.36 Employment Agreement, dated as of July 19, 1997, by and between
Scheid Vineyards Inc. and Scott D. Scheid (incorporated by reference
to Exhibit Number 10.45 to Amendment No. 2 to Registrant's
Registration Statement on Form SB-2 filed July 21, 1997).(2)
10.37 Employment Agreement, dated as of July 19, 1997, by and between
Scheid Vineyards Inc. and Heidi M. Scheid (incorporated by reference
to Exhibit Number 10.46 to Amendment No. 2 to Registrant's
Registration Statement on Form SB-2 filed July 21, 1997).(2)
10.38 Employment Agreement, dated as of July 19, 1997, by and between
Scheid Vineyards Inc. and Kurt J. Gollnick (incorporated by reference
to Exhibit Number 10.47 to Amendment No. 2 to Registrant's
Registration Statement on Form SB-2 filed July 21, 1997).(2)
10.39 Form of Indemnification Agreement (incorporated by reference to
Exhibit Number 10.48 to Amendment No. 1 to Registrant's Registration
Statement on Form SB-2 filed July 3, 1997).(2)
21.1 List of Subsidiaries (incorporated by reference to Exhibit Number
21.1 to Amendment No. 1 to Registrant's Registration Statement on
Form SB-2 filed July 3, 1997).
23.1* Independent Auditors' Consent.
27.1* Financial Data Schedule.
</TABLE>
___________
* Electronically filed herewith.
+ Portions of this exhibit have been deleted pursuant to the
Registrant's request for confidential treatment pursuant to
rule 406 promulgated under the securities act.
(1) the contracting party is a predecessor in interest to Scheid
Vineyards california inc., Registrant's wholly owned subsidiary.
(2) Indicates a management contract or compensating plan or
arrangement required to be filed as an exhibit to this
Form 10-KSB.
<PAGE>
EXCHANGE AND CONTRIBUTION AGREEMENT
THIS EXCHANGE AND CONTRIBUTION AGREEMENT (this "AGREEMENT"), dated
as of July 29, 1997, is made and entered into by and among SCHEID VINEYARDS
CALIFORNIA INC., a California corporation ("SVI-CAL"), SCHEID VINEYARDS INC.,
a Delaware corporation ("SVI-DEL," and together with SVI-Cal the
"CORPORATIONS"), VINEYARD INVESTORS 1972, a California limited partnership
("VI-1972"), VINEYARD 405, a California limited partnership ("V-405," and
together with VI-1972, the "PARTNERSHIPS"), QUADRA PARTNERS LLC, a California
limited liability company ("QUADRA"), ALFRED G. SCHEID, AS TRUSTEE OF THE
ALFRED G. SCHEID REVOCABLE TRUST, DATED OCTOBER 8, 1992 ("AGS"), SCOTT D.
SCHEID ("SDS"), HEIDI M. SCHEID ("HMS"), EMANTY LIMITED LIABILITY COMPANY, a
California limited liability company ("EMANTY"), BIG VINES LIMITED LIABILITY
COMPANY, a California limited liability company ("BIG VINES," and together
with Quadra, the "LIMITED LIABILITY COMPANIES"), and KURT J. GOLLNICK ("KJG").
RECITALS
A. SVI-Cal is a California Subchapter S corporation, all of the issued
and outstanding shares of stock of which (the "SVI-CAL SHARES") are held by
AGS.
B. SVI-Del is a Delaware corporation having no outstanding shares,
organized for the purpose of receiving and holding all of the assets to be
transferred to it hereunder, including without limitation, all of the issued
and outstanding common stock of SVI-Cal.
C. VI-1972 is a California limited partnership having SVI-Cal as its
general partner and SVI-Cal, AGS, Big Vines, Emanty and KJG as its limited
partners.
D. V-405 is a California limited partnership having SVI-Cal as its
general partner and SVI-Cal and VI-1972 as its limited partners.
E. Quadra is a California limited liability company having SVI-Cal,
AGS, SDS, HMS and KJG as its members.
F. Emanty is a California limited liability company having AGS, Tyler
P. Scheid and Emily K. Liberty as its members.
G. Big Vines is a California limited liability company having SDS and
HMS as its members.
H. The parties desire to capitalize SVI-Del through the exchange (the
"EXCHANGE") of the SVI-Cal Shares, the partnership interests of AGS, Emanty
and KJG in VI-1972 (the "VI-1972 PARTNERSHIP INTERESTS"), the membership
interests of AGS, SDS, HMS and KJG in Quadra (the "QUADRA MEMBERSHIP
INTERESTS") and the membership interests of SDS and HMS in Big
<PAGE>
Vines (the "BIG VINES MEMBERSHIP INTERESTS") for shares of Class B Common
Stock of SVI-Del, with the result, among others, that SVI-Cal will become the
wholly-owned subsidiary of SVI-Del.
I. Simultaneously with the Exchange, the parties desire that SVI-Del
contribute (the "CONTRIBUTION," and together with the Exchange, the
"TRANSACTION") the VI-1972 Partnership Interests, the Quadra Membership
Interests and the Big Vines Membership Interests to SVI-Cal and that VI-1972,
V-405, Quadra and Big Vines thereby be dissolved, with the result that the
assets and liabilities of VI-1972, V-405, Quadra and Big Vines become the
assets and liabilities of SVI-Cal.
J. The parties desire that the Transaction be accomplished immediately
prior to and contingent upon the completion of the contemplated initial
public offering by SVI-Del of 2,000,000 shares of its Class A Common Stock
(the "PUBLIC OFFERING").
K. The parties intend that the Exchange will qualify for tax-free
treatment under Section 351(a) of the Internal Revenue Code of 1986, as
amended (the "CODE"), and the Regulations promulgated thereunder.
NOW, THEREFORE, in consideration of the premises, and the mutual
agreements and covenants contained herein, the parties hereby agree as
follows:
1. TRANSACTION.
(a) THE EXCHANGE. One (1) day prior to and contingent upon
the closing of the Public Offering, the parties will execute such documents
and will take such other actions as may be necessary or desirable to cause
the Exchange to occur, including without limitation, the assignment by AGS to
SVI-Del of all of his right, title and interest in and to the SVI-Cal Shares,
the assignment by AGS, Emanty and KJG to SVI-Del of all of their respective
right, title and interest in and to the VI-1972 Partnership Interests, the
assignment by AGS, SDS and HMS of all of their respective right, title and
interest in and to the Quadra Membership Interests and the assignment by SDS
and HMS of all of their respective right, title and interest in and to the
Big Vines Membership Interests. Each of the interests assigned hereunder
shall be free and clear of all liens, liabilities, claims and encumbrances.
SVI-Del will accept such assignments, and concurrently will cause shares of
its Class B Common Stock to be issued in exchange therefor to the parties and
in the denominations set forth in SECTION 1(c) below.
(b) THE CONTRIBUTION. Simultaneously with the Exchange, the
parties will execute such documents and will take such other actions as may
be necessary or desirable to cause the Contribution to occur, including
without limitation the assignment as a capital contribution by SVI-Del to
SVI-Cal of the VI-1972 Partnership Interests and the Quadra Membership
Interests assigned to SVI-Del under SECTION 1(a) above, free and clear of all
liens, liabilities, claims and encumbrances. Following the Contribution, the
parties will execute such documents and will take such other actions as may
be necessary or desirable to cause VI-1972, V-405, Quadra and Big Vines to be
wound up and dissolved.
2
<PAGE>
(c) RESULTS OF THE TRANSACTION. As a result of the Transaction:
(i) THE CORPORATIONS. SVI-Cal, conducting business under
the name "Scheid Vineyards California Inc.," will become the wholly-owned
subsidiary of SVI-Del, conducting business under the name "Scheid Vineyards
Inc." and qualified to do business in California, the Subchapter S status
of SVI-Cal will terminate and the issued and outstanding capital stock of
SVI-Del will consist of 4,400,000 shares of Class B Common Stock held as
follows:
<TABLE>
<CAPTION>
NO. OF SHARES OF
NAME OF STOCKHOLDER CLASS B COMMON STOCK
------------------- --------------------
<S> <C>
Alfred G. Scheid, as Trustee of the
Alfred G. Scheid Revocable Trust,
dated October 8, 1992 2,955,851
Scott D. Scheid 290,093
Heidi M. Scheid 290,093
Emanty Limited Liability 573,870
Company
Kurt J. Gollnick 290,093
---------
Total 4,400,000
</TABLE>
(ii) THE PARTNERSHIPS. Each of the Partnerships will be
wound up and dissolved, and the assets and liabilities thereof will become
the assets and liabilities of SVI-Cal.
(iii) THE LIMITED LIABILITY COMPANIES. Each of the
Limited Liability Companies will be wound up and dissolved, and the assets
and liabilities thereof will become the assets and liabilities of SVI-Cal.
2. THE PUBLIC OFFERING. One (1) day following the Transaction,
the parties will use their reasonable best efforts to cause the Public
Offering to be effected, in accordance with the provisions of the
Registration Statement on Form SB-2 (the "REGISTRATION STATEMENT") filed by
SVI-Del with the Securities and Exchange Commission with respect thereto, the
Prospectus which is part of such Registration Statement (the "PROSPECTUS")
and the underwriting agreement among SVI-Del and Cruttenden Roth
Incorporated, Laidlaw Equities, Inc. and Rodman & Renshaw, Inc.
3. DISTRIBUTIONS. Prior to the date of the Transaction, SVI-Cal
will make a reasonable estimate of the minimum amount of the accumulated
adjustment account of SVI-Cal (the "ACCUMULATED ADJUSTMENT ACCOUNT") pursuant
to applicable Regulations promulgated under the Code through the date of the
Transaction and will distribute such amount, to be first offset by the
cancellation of existing advances, to AGS as the sole shareholder of SVI-Cal.
If such advances are not sufficient to offset the amount of the Accumulated
Adjustment Account as of the date of the Transaction in its entirety, the
balance will be evidenced by a promissory note payable by SVI-Cal to AGS
thirty (30) days following demand in the amount thereof, bearing interest at
the prime rate (the "PRIME RATE") published in THE WALL STREET JOURNAL on
3
<PAGE>
the date thereof. In addition, prior to the date of the Transaction, VI-1972
will distribute to each of AGS, Big Vines, Emanty and KJG a promissory note
payable to such party thirty (30) days following demand in an amount
sufficient to pay federal and state income taxes due on the income from
VI-1972 through the date of the Transaction, bearing interest at the Prime
Rate on the date thereof.
VI-1972 will distribute promissory notes to its partners providing
for the payment of amounts necessary to pay income taxes on the income from
the partnership through the date of the Transaction.
4. BUY-SELL AGREEMENT. Immediately following the Transaction,
the applicable parties shall execute the Buy-Sell Agreement in substantially
the form attached hereto as EXHIBIT A and by this reference incorporated
herein.
5. REPRESENTATIONS AND WARRANTIES.
(a) INVESTMENT. Each of AGS, SDS, HMS, Emanty, Big Vines and
KJG (as applicable, a "PURCHASER") severally represents and warrants to the
other parties that:
(i) Such Purchaser has had, prior to the Transaction, the
opportunity to ask questions of, and receive answers from, the Corporations
and their respective management concerning the Corporations and the terms
and conditions of this Agreement. Such Purchaser will rely in part upon
the information about the Corporations included in the Registration
Statement and the Prospectus and the representations and warranties of the
Corporations herein in making such Purchaser's investment decision.
(ii) Such Purchaser and (if applicable) each of such
Purchaser's members is an "accredited investor" as such term is defined in
Rule 501(a) of Regulation D under the Securities Act of 1933, as amended
(the "SECURITIES ACT").
(iii) Such Purchaser has been advised that the shares of
Class B Common Stock acquired by such Purchaser hereunder and the shares of
Class A Common Stock into which such Class B Common Stock may be converted
(collectively, the "ACQUIRED STOCK") have not been registered under the
Securities Act nor qualified under any state securities laws on the ground,
among others, that no distribution or public offering thereof is to be
effected, and that, in this connection, SVI-Del is relying in part on the
representations of such Purchaser set forth herein.
(iv) It is such Purchaser's intention to acquire the
Acquired Stock for such Purchaser's own account, and the Acquired Stock is
being and will be acquired for the purpose of investment and not with a
view to distribution or resale thereof.
(v) Such Purchaser (with respect to each of Emanty and Big
Vines, through its managing member or managing members) is able to bear the
economic
4
<PAGE>
risk of an investment in the Acquired Stock acquired by such Purchaser
pursuant to this Agreement and can afford to sustain a total loss on such
investment.
(vi) Such Purchaser (with respect to each of Emanty and
Big Vines, through its managing member or managing members) is an
experienced and sophisticated investor, is able to fend for himself,
herself or itself in the transactions contemplated by this Agreement,
and has such knowledge and experience in financial and business matters
that such Purchaser is capable of evaluating the risks and merits of
acquiring the Acquired Stock.
(vii) Notwithstanding any other provision contained in
this Agreement, such Purchaser understands that such Purchaser may never be
able to sell or dispose of the Acquired Stock and may thus have to bear the
risk of such investment for a substantial period of time, or forever. Such
Purchaser is aware that none of the Acquired Stock may be sold pursuant to
Rule 144 adopted under the Securities Act unless certain conditions have
been met and until such Purchaser has held the Acquired Stock for at least
one (1) year.
(viii) Such Purchaser either has a preexisting personal or
business relationship with the Corporations or one or more of their
respective officers, directors or controlling persons, or by reason of such
Purchaser's business or financial experience or the business or financial
experience of such Purchaser's professional advisors (who are unaffiliated
with and who are not compensated by the Company or any affiliate or selling
agent of the Company, directly or indirectly), has the capacity to protect
such Purchaser's own interests in connection with the acquisition of the
Acquired Stock.
(ix) Such Purchaser acknowledges that the certificates
representing the Acquired Stock shall contain the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR BY ANY
APPLICABLE STATE SECURITIES LAWS AND MUST BE HELD INDEFINITELY UNLESS
SUBSEQUENTLY REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR DISPOSED OF PURSUANT TO AN EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS.
(b) SVI-DEL. SVI-Del represents and warrants to each of AGS,
SDS, HMS, Emanty and KJG (as applicable, a "STOCKHOLDER") that all Acquired
Stock issued or issuable to such Stockholder has been or when issued will be
duly authorized, validly issued and fully paid and nonassessable, has been
issued or when issued will be issued in compliance with all applicable
federal and state securities laws, and was not or when issued will not be
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities.
(c) GENERAL. Each party severally represents and warrants to
each other party that:
5
<PAGE>
(i) If such party is not an individual, such party is duly
organized, validly existing and in good standing under the laws of the
jurisdiction under which it is organized.
(ii) Such party has full legal right, power and authority
to enter into this Agreement and to perform the transactions contemplated
hereby.
(iii) This Agreement has been duly authorized, executed
and delivered by such party and is a valid and binding agreement on the
part of such party, enforceable in accordance with its terms, except as
enforcement hereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(iv) The making and performance of this Agreement by such
party and the consummation of the transactions contemplated herein will not
result in a breach or violation of any of the terms and provisions of, or
constitute a default under (A) any bond, debenture, note or other evidence
of indebtedness, or under any lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument to
which such party is a party or by which such party's properties may be
bound, (B) if such party is other than an individual, the charter, bylaws,
operating agreement or other governing documents of such party, or (C) any
law, order, rule, regulation, writ, injunction, judgment or decree of any
court, administrative agency, regulatory body, government or governmental
agency or body, domestic or foreign, having jurisdiction over such party or
such party's properties.
(v) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over such party or such party's
properties is required for the execution and delivery of this Agreement and
the consummation by such party of the transactions herein contemplated.
6. MISCELLANEOUS.
(a) NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on
the part of any Party in exercising any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise
of any such right, power or remedy preclude any other or further exercise
thereof or the exercise of any other right, power or remedy.
(b) AMENDMENTS, WAIVERS AND CONSENTS. Changes in or
additions to this Agreement may be made, and compliance with any covenant or
provision herein set forth may be omitted or waived, if the party to be bound
shall consent thereto in writing. Any waiver or consent may be given subject
to satisfaction of conditions stated therein and any waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given.
6
<PAGE>
(c) ADDRESSES FOR NOTICES, ETC. All notices, requests,
demands and other communications hereunder shall be in writing (including
telegraphic communication) and mailed, by certified or registered mail, or
telegraphed or delivered to the applicable party at the address for notice as
set forth in the register maintained by SVI-Del for such purpose or at such
other address as shall be designated by such party in a written notice to the
other parties complying as to delivery with the terms of this SECTION 6.3.
All such notices, requests, demands and other communications shall, when
mailed or telegraphed, respectively, be effective when deposited in the mails
or delivered to the telegraph company, respectively, addressed as aforesaid.
(d) BINDING EFFECT; ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
heirs, legal representatives, successors and assigns.
(e) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made in this Agreement or any other instrument
or document delivered in connection herewith shall survive the execution and
delivery hereof or thereof until the third (3rd) anniversary of the date of
this Agreement.
(f) PRIOR AGREEMENTS. This Agreement constitutes the entire
agreement among the parties and supersedes any prior understandings or
agreements concerning the subject matter hereof.
(g) SEVERABILITY. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
(h) GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California (without
giving effect to its principles of conflicts of law).
(i) HEADINGS. Article, Section and Subsection headings in
this Agreement are included herein for convenience of reference only and
shall not constitute a part of this Agreement for any other purpose.
(j) COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and
the same instrument, and any of the parties hereto may execute this Agreement
by signing any such counterpart.
(k) FURTHER ASSURANCES. From and after the date of this
Agreement, upon the reasonable request of any party, the other parties shall
execute and deliver such instruments, documents and other writings as may be
reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement.
(l) GENERAL RELEASE. Each of the parties hereby expressly
waives any and all claims, demands and causes of action which he, she or it
has, claims to have or may have, whether known or unknown, against either one
or both of the Corporations and any of their past, present and future
corporate sponsors, parents, divisions, subsidiaries, affiliates,
7
<PAGE>
related entities, successors, assigns, officers, attorneys, employees, agents
or representatives. As used in this Agreement, "claims," "demands" and
"causes of action" include, but are not limited to, contract claims, whether
express or implied, tort claims, equitable claims, fraud claims, claims
arising out of federal, state or local laws, regulations or ordinances. Each
of the parties warrants that he, she or it has no pending claims of any kind
before any court, administrative agency or other tribunal, or in arbitration
against either one or both of the Corporations or any of their sponsors,
corporate parents, divisions, sponsors, subsidiaries, affiliates, related
entities, successors, assigns, officers, attorneys, employees, agents or
representatives.
(m) CALIFORNIA CIVIL CODE SECTION 1542. It is understood and
agreed that all rights under California Civil Code Section 1542 are hereby
expressly waived by each party. Said Section provides as follows:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor
at the time of executing the release which if known by
him must have materially affected his settlement with
the debtor.
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed by their respective officers thereunto duly
authorized, as applicable as of the date first above written.
SCHEID VINEYARDS CALIFORNIA INC., a
California corporation
By: /s/ ALFRED G. SCHEID
---------------------------------------------
Name: Alfred G. Scheid
Its: Chief Executive Officer
"SVI-CAL"
SCHEID VINEYARDS INC.,
a Delaware corporation
By: /s/ ALFRED G. SCHEID
---------------------------------------------
Name: Alfred G. Scheid
Its: Chief Executive Officer
"SVI-DEL"
8
<PAGE>
VINEYARD INVESTORS 1972, a
California limited partnership
By: Scheid Vineyards California Inc., a California
corporation formerly known as "Scheid Vineyards
Inc."
By: /s/ ALFRED G. SCHEID
-----------------------------------------
Name: Alfred G. Scheid
Its: Chief Executive Officer
Its: General Partner
"VI-1972"
VINEYARD 405, a California limited partnership
By: Scheid Vineyards California Inc., a California
corporation formerly known as "Scheid Vineyards
Inc."
By: /s/ ALFRED G. SCHEID
-----------------------------------------
Name: Alfred G. Scheid
Its: Chief Executive Officer
Its: General Partner
"V-405"
9
<PAGE>
QUADRA PARTNERS LLC, a California
limited liability company
By: /s/ ALFRED G. SCHEID
---------------------------------------------------
Name: Alfred G. Scheid, as Trustee of the
Alfred G. Scheid Revocable Trust, dated
October 8, 1992
Its: Managing Member
"QUADRA"
EMANTY LIMITED LIABILITY COMPANY,
a California limited liability company
By: /s/ ALFRED G. SCHEID
---------------------------------------------------
Name: Alfred G. Scheid, as Trustee of the
Alfred G. Scheid Revocable Trust, dated
October 8, 1992
Its: Managing Member
"EMANTY"
BIG VINES LIMITED LIABILITY COMPANY,
a California limited liability company
By: /s/ SCOTT D. SCHEID
---------------------------------------------------
Name: Scott D. Scheid
Its: Managing Member
By: /s/ HEIDI M. SCHEID
---------------------------------------------------
Name: Heidi M. Scheid
Its: Managing Member
"BIG VINES"
10
<PAGE>
/s/ ALFRED G. SCHEID
------------------------------------------------------
Alfred G. Scheid, as Trustee of the Alfred G. Scheid
Revocable Trust, dated October 8, 1992
"AGS"
/s/ SCOTT D. SCHEID
------------------------------------------------------
Scott D. Scheid
"SDS"
/s/ HEIDI M. SCHEID
------------------------------------------------------
Heidi M. Scheid
"HMS"
/s/ KURT J. GOLLNICK
------------------------------------------------------
Kurt J. Gollnick
"KJG"
11
<PAGE>
WARRANT AGREEMENT
This WARRANT AGREEMENT (this "AGREEMENT") is entered into as of July 30,
1997 by and among Scheid Vineyards Inc., a Delaware corporation (the
"COMPANY"), and Cruttenden Roth Incorporated ("CRUTTENDEN"), Laidlaw
Equities, Inc. ("LAIDLAW"), and Rodman & Renshaw, Inc. ("RODMAN" and together
with Cruttenden and Laidlaw, the "REPRESENTATIVES").
A. The Representatives have agreed to act as the Representatives of
the several underwriters in connection with the proposed public offering by
the Company pursuant to that certain Underwriting Agreement with the Company
dated July 24, 1997 (the "UNDERWRITING AGREEMENT") of up to 2,300,000 shares
in the aggregate of its Class A Common Stock, par value $0.001 per share (the
"COMMON STOCK"), including 300,000 of such shares covered by an
over-allotment option (the "PUBLIC OFFERING"); and
B. Pursuant to Section 4(p) of the Underwriting Agreement and as part
of the Representatives' compensation in connection with the Public Offering,
the Company has agreed to sell to the Representatives, at a price of $0.001
per warrant, warrants (the "WARRANTS") to purchase, at a price of $14.00 per
share, up to an aggregate of 200,000 shares of Common Stock (hereinafter, and
as the number thereof may be adjusted as set forth herein, the "WARRANT
SHARES").
In consideration of the foregoing premises and the mutual agreements
herein and in the Underwriting Agreement and for other good and valuable
consideration, the parties hereto agree as follows:
1. ISSUANCE OF WARRANTS: FORM OF WARRANT CERTIFICATE. The Company
shall issue to each of the Representatives, on the Closing Date referred to
in the Underwriting Agreement, that number of Warrants set forth opposite
such Representative's name on SCHEDULE 1. Certificates representing the
Warrants in substantially the form of Exhibit A (the "WARRANT CERTIFICATES")
shall be executed on behalf of the Company by the manual or facsimile
signature of the present or any future Chairman of the Board, Chief Executive
Officer or Vice President of the Company, attested by the manual or facsimile
signature of the Secretary or an Assistant Secretary of the Company, and
delivered to the Representatives on the Closing Date referred to in the
Underwriting Agreement, and thereafter to successive registered Holders (as
defined below). Warrant Certificates bearing the manual or facsimile
signatures of individuals who were at any time the proper officers of the
Company shall bind the Company, notwithstanding that such individuals or any
one of them shall have ceased to hold such offices prior to the delivery of
such Warrant Certificates or did not hold such offices on the date of this
Agreement. Warrant Certificates shall be dated as of the date of execution
thereof by the Company either upon initial issuance or upon division,
exchange, substitution or transfer.
2. TERM AND EXERCISE OF WARRANTS.
2.1 Each Warrant entitles the registered owner thereof to purchase
one share of Common Stock (subject to adjustment as set forth herein) at any
time from 10:00 a.m.,
<PAGE>
California time, on July 24, 1998 (the "INITIATION DATE") until 6:00 p.m.,
California time, on July 24, 2002 (the "EXPIRATION DATE") at a purchase price
of $14.00 (subject to adjustment as set forth herein) (the "WARRANT PRICE").
Subject to the provisions of this Agreement, each registered Holder (as
defined below) of Warrants shall have the right to exercise the Warrants and
purchase the underlying Warrant shares, either in their entirety or from time
to time, effective as of any date specified by the Holder from and after the
Initiation Date and on or before the Expiration Date in the manner set forth
in the Warrant Certificate. Payment of the aggregate Warrant Price for all
Warrant Shares for which Warrants are exercised shall be made, in the
discretion of the Holder, in cash or by certified or official bank check or
by net issuance, or a combination thereof. Exercise by net issuance shall be
effected without payment by the Holder of any cash or other consideration by
the Company's withholding from the Warrant Shares that would otherwise be
issued upon exercise if the exercise price were paid in cash, that number of
Warrant Shares which, when multiplied by the Closing Price for the day
immediately preceding the date of exercise, equals the aggregate Warrant
Price for the Warrants so exercised.
2.2 Notwithstanding the foregoing, if at 6:00 p.m., California
time on the Expiration Date, any Holder of Warrants has not exercised its
Warrants and has not notified the Company that it waives automatic issuance
pursuant to this SECTION 2.1, then all such unexercised Warrants shall be
automatically converted into a number of shares of Common Stock of the
Company equal to: (A) the number of shares of Common Stock then issuable
upon exercise of all such unexercised Warrants minus (B) a number of shares
of Common Stock equal to the quotient obtained by dividing the aggregate
Warrant Price for all such unexercised Warrants by the Closing Price (as
defined in SECTION 11.1(c) below) for the Common Stock on the Expiration Date.
2.3 Upon exercise of Warrants and payment of the applicable
Warrant Price, the Company shall issue and cause to be delivered with all
reasonable dispatch to or upon the written order of the registered Holder of
such Warrants and in such name or names as such registered Holder may
designate, a certificate or certificates for the number of full Warrant
Shares so purchased upon the exercise of such Warrants (net of any Warrant
Shares withheld in payment of the Warrant Price, if paid by net issuance),
together with cash, as provided in SECTION 12, in respect of any fraction of
a share otherwise issuable upon such exercise and, if the number of Warrants
represented by a Warrant Certificate shall not be exercised in full, a new
Warrant Certificate for the number of Warrants represented by the Warrant
Certificate surrendered but not exercised. Any person(s) designated by the
exercising Holder as the holder of the Warrant Shares issuable upon exercise
shall be deemed to have become a holder of record of such shares as of the
date of the surrender of such Warrants and payment of the Warrant Price, or
such later date as the exercising Holder may specify, notwithstanding that
the stock transfer books of the Company may then be closed or that
certificates representing the Warrant Shares have not been delivered.
3. REGISTRATION. The Warrant Certificates shall be numbered and shall
be registered on the books of the Company (the "WARRANT REGISTER") as they
are issued. The Company shall be entitled to treat the registered holder of
any Warrant Certificate (notwithstanding any notation of ownership or other
writing made on the Warrant Certificate made by anyone) on the Warrant
2
<PAGE>
Register (the "HOLDER") as the owner in fact thereof and of the Warrants
represented thereby for all purposes and shall not be bound to recognize any
equitable or other claim to or interest in such Warrant Certificate or the
Warrants represented thereby on the part of any other person, and shall not
be liable for any registration or transfer of Warrants registered in the name
of a fiduciary or the nominee of a fiduciary. The Warrant Certificates
shall be registered initially in the names of each of the Representatives and
in the denominations set forth for each Representative on SCHEDULE 1, or in
such other denominations as any Representative may request in writing to the
Company with respect to the Warrants to be issued to such Representative.
4. TRANSFERS.
4.1 Until July 24, 1998, the Warrants will not be sold,
transferred, assigned or hypothecated except to (a) bona fide officers or
partners of the Representatives; (b) a successor to the Holder in a merger or
consolidation; (c) a purchaser of all or substantially all of the Holder's
assets; (d) any person receiving the Warrants from a permitted transferee at
death pursuant to will, trust or the laws of intestate succession; (e) any
other underwriter or selling group member that participated in the Public
Offering and is a member of the NASD, or bona fide officers or partners
thereof; or (f) any person by operation of law, provided that any such
transfer shall be contingent upon the transferee's agreement in writing to be
bound by the terms hereof.
4.2 The Warrants shall be transferable only on the Warrant
Register upon delivery thereof duly endorsed by the Holder or by the Holder's
duly authorized attorney or representatives, or accompanied by proper
evidence of succession, assignment or authority to transfer. In all cases of
transfer by an attorney, the original power of attorney, duly approved, or an
official copy thereof, duly certified, shall be deposited with the Company.
In case of transfer by executors, administrators, guardians or other legal
representatives, duly authenticated evidence of their authority shall be
produced and may be required to be deposited with the Company in its
discretion. Upon any registration of transfer, the Company shall deliver a
new Warrant Certificate or Warrant Certificates to the person entitled
thereto.
4.3 The Company shall not be required to recognize any transfer of
the Warrants or the Warrant Shares unless (a) such transfer is made pursuant
to an effective registration statement under the Securities Act of 1933, as
amended (the "ACT"), including a post-effective amendment to the Registration
Statement, or (b) counsel reasonably satisfactory to the Company provides an
opinion that the transfer may be made without registration pursuant to Rule
144 under the Act or otherwise.
4.4 The Company may stop transfer of the Warrants and the Warrant
Shares to enforce the transfer restrictions set forth herein. The Warrant
Certificates shall bear the following legend:
TRANSFER OF THE SECURITIES REPRESENTED HEREBY IS RESTRICTED AS
DESCRIBED IN THE WARRANT AGREEMENT DESCRIBED HEREIN.
3
<PAGE>
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE CLASS A
COMMON STOCK ISSUABLE UPON EXERCISE OF SUCH WARRANTS MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO (i) A POST-EFFECTIVE AMENDMENT TO
THE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, PURSUANT TO WHICH SUCH SECURITIES WERE ORIGINALLY REGISTERED
IN CONNECTION WITH ORIGINAL ISSUANCE OF THE WARRANTS REPRESENTED
HEREBY, OR (ii) A SEPARATE REGISTRATION STATEMENT UNDER SUCH ACT, OR
(iii) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
The Warrant Shares or other securities issued upon exercise of the
Warrants shall bear the following legend, if applicable:
THE SHARES OR OTHER SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAW. SAID SECURITIES MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT.
5. COMPLIANCE WITH GOVERNMENT REGULATIONS. If any shares of Common
Stock required to be reserved for purposes of exercise or conversion of
Warrants require, under any federal or state law or applicable governing rule
or regulation of any national securities exchange or market system,
registration with or approval of any governmental authority, or listing on
any such national securities exchange or market system before such shares may
be issued upon exercise, the Company will in good faith and as expeditiously
as possible endeavor to cause such shares to be duly registered, approved or
listed. The Company shall keep current in filing all reports, statements and
other materials required to be filed with the Securities and Exchange
Commission to permit Holders to sell the Warrants and the Warrant Shares
under Rule 144.
6. PAYMENT OF TAXES. The Company shall pay any taxes due in
connection with the issuance or exercise of the Warrants other than transfer
taxes payable in connection with secondary transfers of any Warrants or
issuance of Warrant Shares to any person other than the registered Holder of
such Warrants.
7. EXCHANGE OF WARRANT CERTIFICATES. Holders of Warrant Certificates
may exchange them for another certificate or certificates representing the
right of the Holder thereof to purchase a like aggregate number of Warrant
Shares as the Warrant Certificate or Certificates surrendered by delivering
the Warrant Certificates to be exchanged to the Company, properly endorsed or
accompanied by a properly executed instrument of transfer, together with a
written request for transfer, whereupon the Company shall execute and deliver
to the person entitled thereto a new Warrant Certificate or Certificates, as
the case may be, as so requested.
8. MUTILATED OR MISSING WARRANT CERTIFICATES. In case any of the
Warrant Certificates shall be mutilated, lost, stolen or destroyed, the
Company shall issue and deliver in exchange and
4
<PAGE>
substitution for and upon cancellation of the mutilated Warrant Certificate,
or in lieu of and substitution for the Warrant Certificate lost, stolen or
destroyed, a new Warrant Certificate of like tenor and representing an
equivalent right or interest, subject to the provision to the Company by the
Holder thereof of evidence reasonably satisfactory to the Company of such
loss, theft or destruction of such Warrant Certificate and, if requested,
indemnity or bond also reasonably satisfactory to the Company, provided that
no such bond shall be required from any of the initial Holders of the
Warrants.
9. RESERVATION OF WARRANT SHARES; AUTHORIZATION AND VALID ISSUANCE.
The Company shall at all times reserve and keep available out of its
authorized and unissued shares of Common Stock a number of shares sufficient
to provide for the exercise of the rights of purchase represented by the
Warrants, and the transfer agent for the Common Stock or any other securities
issuable upon the exercise of any of the rights of purchase aforesaid
("TRANSFER AGENT") is hereby irrevocably authorized and directed at all times
until the Expiration Date to reserve such number of authorized and unissued
shares or other securities as shall be required for such purpose. The
Company will keep a copy of this Agreement on file with the Transfer Agent
and will supply such Transfer Agent with duly executed stock certificates for
such purposes and will itself provide or otherwise make available any cash
which may be issuable as provided in SECTION 12. The Company will furnish to
such Transfer Agent a copy of all notices of adjustments, and certificates
related thereto, transmitted to each Holder pursuant to SECTION 11.2. All
Warrant Certificates surrendered in the exercise of the rights thereby
evidenced shall be cancelled. The Company represents that the Warrant Shares
are duly authorized and covenants that, upon receipt by the Company of the
full payment therefor, the Warrant Shares will be validly issued, fully paid,
nonassessable, and not issued in violation of any preemptive rights.
10. OBTAINING STOCK EXCHANGE LISTINGS. The Company will from time to
time take all action which may be necessary so that the Warrant Shares,
immediately upon their issuance upon the exercise of Warrants, will be listed
and/or included for trading on the principal securities exchanges and markets
within the United States of America, if any, on which other shares of Common
Stock are then listed or included for trading.
11. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF WARRANT SHARES. For
purposes of this SECTION 11, "Common Stock" means shares now or hereafter
authorized of any class of Common Stock of the Company and any other stock of
the Company, however designated, that has the right (subject to any prior
rights of any class or series of preferred stock) to participate in any
distribution of the assets or earnings of the Company without limit as to per
share amount.
11.1 MECHANICAL ADJUSTMENTS. The number and kind of securities
purchasable upon the exercise of each Warrant and the Warrant Price shall be
subject to adjustment from time to time as follows:
(a) In case the Company shall (i) pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock, (ii) subdivide
its outstanding shares of Common Stock, (iii) combine its outstanding shares
of Common Stock or (iv) issue by reclassification of its shares of Common
Stock other securities of the Company (including any
5
<PAGE>
such reclassification in connection with a consolidation or merger in which
the Company is the surviving corporation), the number of Warrant Shares
purchasable upon exercise of each Warrant without giving effect thereto shall
be adjusted so that the Holder of each Warrant shall be entitled to receive
the kind and number of Warrant Shares or other securities of the Company
which such Holder would have owned or would have been entitled to receive
after the happening of any of the events described above, had such Warrants
been exercised immediately prior to the happening of such event or any record
date with respect thereto. An adjustment made pursuant to this paragraph (a)
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event. Such adjustment
shall be made successively whenever any event listed above shall occur.
(b) In case the Company shall distribute to all holders of its
shares of Common Stock (including any such distribution made in connection
with a consolidation or merger in which the Company is the surviving
corporation) evidences of its indebtedness or assets (excluding cash
dividends or distributions payable out of consolidated earnings or earned
surplus and in compliance with applicable law and dividends or distributions
referred to in paragraph (a) above or in the paragraph immediately following
this paragraph), or rights, options or warrants, or convertible or
exchangeable securities containing the right to subscribe for or purchase
shares of Common Stock, then in each case the number of Warrant Shares
thereafter purchasable upon the exercise of each Warrant shall be determined
by multiplying the number of Warrant Shares purchasable upon the exercise of
each Warrant without giving effect thereto by a fraction, the numerator of
which shall be the current market price per share of Common Stock (as defined
in paragraph (c) below) as of the record date for such distribution or, if
there is no record date with respect thereto then as of the date of such
distribution, and the denominator of which shall be the current market price
per share of Common Stock as of such date, less the fair value (as reasonably
determined by the Board of Directors of the Company) of the portion of the
assets or evidences of indebtedness so distributed or of such subscription
rights, options or warrants, or of such convertible or exchangeable
securities applicable to one share of Common Stock. Such adjustment shall be
made whenever any such distribution is made and shall become effective on the
date of distribution retroactive to the record date for the determination of
stockholders entitled to receive such distribution. Notwithstanding the
foregoing, however, no adjustment in the number of Warrant Shares purchasable
upon the exercise of each Warrant need be made under this paragraph if the
Company issues or distributes to each Holder of Warrants the rights, options,
warrants or convertible or exchangeable securities, or evidences of
indebtedness or assets referred to in those paragraphs which each Holder of
Warrants would have been entitled to receive had the Warrants been exercised
prior to the happening of such event or the record date with respect thereto.
No adjustment need be made for a change in the par value of the Warrant
Shares.
In the event of a distribution by the Company to all holders of its
shares of Common Stock or of the stock of a subsidiary of securities
convertible into or exercisable for such stock (other than as described in
subparagraph (a)(iv) above), then in lieu of an adjustment in the number of
Warrant Shares purchasable upon the exercise of each Warrant, the Holder of
each Warrant, upon the exercise thereof at any time after such distribution,
shall be entitled to receive from the Company, such subsidiary or both, as
the Company shall determine, the stock or
6
<PAGE>
other securities to which such Holder would have been entitled if such Holder
had exercised such Warrant immediately prior thereto, all subject to further
adjustment as provided in this SECTION 11.1; PROVIDED, HOWEVER, that no
adjustment in respect of dividends or interest on such stock or other
securities shall be made during the term of a Warrant or upon the exercise of
a Warrant.
(c) For the purpose of any computation under paragraph (b) of this
Section, the current market price per share of Common Stock as of any date
shall be the average of the daily Closing Prices for 20 consecutive trading
days on which such Common Stock actually was traded commencing 30 trading
days before the date of such computation. The "CLOSING PRICE" for any day
shall be the last such reported sales price regular way for a share of Common
Stock on that day on the principal national securities exchange or national
market system on which the shares of Common Stock are listed or admitted to
trading or, if not so listed or admitted to trading, the average of the
closing bid and asked prices of the Common Stock in the over-the counter
market or if not approved for such trading, the average of the closing bid
and asked prices as furnished by two members of the National Association of
Securities Dealers, Inc. selected from time to time by the Company for that
purpose.
(d) No adjustment in the number of Warrant Shares purchasable
hereunder shall be required unless such adjustment would require an increase
or decrease of at least one percent (1%) in the number of Warrant Shares
purchasable upon the exercise of each Warrant; provided, however, that any
adjustments which by reason of this paragraph (d) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations shall be made to the nearest one-thousandth of a share.
(e) Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant is adjusted, as herein provided, the Warrant Price
per share payable upon exercise of each Warrant shall be appropriately and
proportionately adjusted.
(f) If at any time, as a result of an adjustment made pursuant to
paragraph (a) above, the Holders shall become entitled to purchase any
securities of the Company other than shares of Common Stock, thereafter the
number of such other shares so purchasable upon exercise of each Warrant and
the Warrant Price of such shares shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Warrant Shares contained in this SECTION 11,
and the other provisions of this Agreement, with respect to the Warrant and
Warrant Shares, shall apply as nearly equivalent as practicable on like terms
to such other securities.
(g) Upon the expiration of any rights, options, warrants or
conversion or exchange privileges for which an adjustment was made hereunder,
if any thereof shall not have been exercised, the Warrant Price per share and
the number of shares of Common Stock purchasable upon the exercise of each
Warrant shall, upon such expiration, be readjusted and shall thereafter be
such as they would have been had they been originally adjusted (or had the
original adjustment not been required, as the case may be) as if (i) the only
shares of Common Stock so issued were the shares of Common Stock, if any,
actually issued or sold upon the
7
<PAGE>
exercise of such rights, options, warrants or conversion or exchange rights
and (ii) such shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise plus the
aggregate consideration, if any, actually received by the Company for the
issuance, sale or grant of all such rights, options, warrants or conversion
or exchange rights whether or not exercised; provided, however, that no such
readjustment shall have the effect of increasing the Warrant Price per share
or decreasing the number of shares of Common Stock purchasable upon the
exercise of each Warrant by an amount in excess of the amount of the
adjustment initially made in respect to the issuance, sale or grant of such
rights, options, warrants or conversion or exchange rights.
11.2 NOTICE OF ADJUSTMENT. Whenever the Company proposes any
action that would result in an adjustment of the number of Warrant Shares
purchasable upon the exercise of Warrants or the Warrant Price per share as
herein provided, the Company shall, at least 10 days prior to the date of
such action or, if earlier, the record date therefor, mail by first class,
postage prepaid, to each Holder notice of such adjustment or adjustments, the
proposed date and, if applicable, record date therefor, and a certificate of
a firm of independent public accountants selected by the board of directors
of the Company (who may be the regular accountants employed by the Company)
setting forth the number of Warrant Shares to be purchasable upon the
exercise of each Warrant and the Warrant Price per share after such
adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was
made.
11.3 NO ADJUSTMENT FOR DIVIDENDS. Except as provided in SECTION
11.1, no adjustments in respect of any dividends shall be made during the
term of a Warrant or upon the exercise of a Warrant.
11.4 PRESERVATION OF PURCHASE RIGHTS UPON MERGER, CONSOLIDATION
ETC. In case of any consolidation of the Company with or merger of the
Company into another corporation or in case of any sale, transfer or lease to
another corporation of all or substantially all the property of the Company,
the Company or such successor or purchasing corporation, as the case may be,
shall execute with each Holder an agreement (and shall not effect any such
transaction in the absence of such an agreement) that each Holder shall have
the right thereafter upon payment of the Warrant Price in effect immediately
prior to such action to purchase upon exercise of each Warrant the kind and
amount of shares and other securities, cash and property which such Holder
would have owned or would have been entitled to receive in connection with
the happening of such consolidation, merger, sale, transfer or lease and as a
result of subsequent transactions had such Warrant been exercised immediately
prior to such action and such consideration been held until such exercise;
provided, however, that no adjustment in respect of dividends, interest or
other income on or from such shares or other securities, cash and property
shall be made during the term of a Warrant or upon the exercise of a Warrant.
Such agreement shall provide for adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
SECTION 11. The provisions of this SECTION 11.4 shall similarly apply to
successive consolidations, mergers, sales transfer or leases.
8
<PAGE>
11.5 STATEMENTS ON WARRANTS. Irrespective of any adjustments in
the Warrant Price per share or the number or kind of shares purchasable upon
the exercise of the Warrants, Warrant Certificates theretofore or thereafter
issued may continue to express the same price and number and kind of shares
as are stated in the Warrants initially issuable pursuant to this Agreement.
12. FRACTIONAL INTERESTS. The Company shall not be required to issue
fractional Warrant Shares on the exercise of Warrants. If more than one
Warrant shall be exercised at the same time by the same holder, the number of
full Warrant Shares which shall be issuable upon the exercise thereof shall
be computed on the basis of the aggregate number of Warrant Shares
purchasable on exercise of the Warrants so exercised. If any fraction of a
Warrant Share would, except for the provisions of this SECTION 12, be
issuable on the exercise of any Warrant (or specified portion thereof), the
Company shall pay the exercising Holder in lieu thereof an amount in cash
equal to the Closing Price for one share of the Common Stock, on the day
immediately preceding the exercise date of the Warrant, multiplied by such
faction.
13. REGISTRATION RIGHTS.
13.1 DEMAND REGISTRATION RIGHTS. Within 60 days after receipt of a
written request from the Representatives or from Holders of at least 40% in
interest of the aggregate of Warrants and/or Warrant Shares that the
Representatives or such Holders of the Warrants and/or Warrant Shares desire
and intend to transfer more than 25% in interest of the aggregate number of
the Warrants and/or Warrant Shares under such circumstances that a public
offering, within the meaning of the Act, will be involved, the Company shall
(subject to the last sentence of this paragraph) notify all Holders of such
request and file a registration statement (and use its reasonable best
efforts to cause such registration statement to become effective under the
Act) with respect to the offering and sale or other disposition of the
Warrants and/or Warrant Shares requested to be included by the requesting
Holders and any other Holders who request inclusion of Warrants or Warrant
Shares within 20 days after the Company has given them notice of the
registration (the "OFFERED SECURITIES"); PROVIDED, HOWEVER, that the Company
shall not be obligated to comply with the foregoing provisions of this
SECTION 13.1 if in the opinion of counsel to the Company reasonably
acceptable to the Holder or Holders from whom such written requests have been
received, registration under the Act is not required for the transfer of the
Offered Securities in the manner proposed by such person or persons, or a
post-effective amendment to an existing registration statement would be
legally sufficient for such transfer (in which latter event the Company shall
promptly file such post-effective amendment (and use its best efforts to
cause such amendment to become effective under the Act)). Notwithstanding the
foregoing, however, the Company shall not be obligated to provide more than
one effective registration statement meeting the requirements hereof pursuant
to this SECTION 13.1.
The Company may defer the preparation and filing of a registration
statement for up to 90 days after the request for registration is made if the
Company's board of directors determines in good faith that (i) such
registration or post-effective amendment would materially adversely affect or
otherwise materially interfere with a proposed or pending material
transaction by the Company, including without limitation a financing or a
corporate reorganization, or (ii) the
9
<PAGE>
Company is in possession of material inside information concerning the
Company or its securities, disclosure of which would be illegal or have a
material adverse effect upon the Company.
The Company shall not be obligated to honor any request to register
Warrant Shares pursuant to this SECTION 13.1 received later than five (5)
years from the effective date of the Company's Registration Statement on Form
SB-2 (File No. 333-27871) (the "EFFECTIVE DATE"). The Company shall not be
required (i) to maintain the effectiveness of the registration statement
beyond the earlier to occur of 120 days after the effective date of the
registration statement or the date on which all of the Offered Securities
have been sold (the "TERMINATION DATE"); PROVIDED, HOWEVER, that if at the
Termination Date the Offered Securities are covered by a registration
statement which also covers other securities and which is required to remain
in effect beyond the Termination Date, the Company shall maintain in effect
such registration statement as it relates to Offered Securities for so long
as such registration statement (or any substitute registration statement)
remains or is required to remain in effect for any such other securities, or
(ii) to cause any registration statement with respect to the Warrant Shares
to become effective prior to the Initiation Date. All expenses of
registration pursuant to this SECTION 13.1 shall be borne by the Company
(excluding underwriting discounts and commissions on securities not sold by
the Company).
The Company shall be obligated pursuant to this SECTION 13.1 to include
in the registration statement Warrant Shares that have not yet been purchased
by a Holder of Warrants so long as such Holder of Warrants submits an
undertaking to the Company that such Holder intends to exercise Warrants
representing the number of Warrant Shares to be included in such registration
statement prior to the consummation of the public offering with respect to
such Warrant Shares. In addition, such Holder of Warrants is permitted to pay
the Company the Warrant Price for such Warrant Shares upon the consummation
of the public offering with respect to such Warrant Shares.
13.2 PIGGY-BACK REGISTRATION RIGHTS. In the event the Company
proposes to file (for its own offer and sale or offer and sale by selling
security holders) a registration statement under the Act at any time on or
before July 24, 2002 (the fifth anniversary of the Effective Date) with
respect to any class of security (other than in connection with an exchange
offer, a non-cash offer or a registration statement on Form S-4 or Form S-8
or any successor registration statement form) which becomes or which should
be expected to become effective at any time after the Initiation Date then
the Company shall in each case give written notice of such proposed filing to
the Holders of Warrants and Warrant Shares at least 30 days before the
proposed filing date and such notice shall offer to such Holders the
opportunity to include in such registration statement such number of Warrant
Shares as they may request, unless, in the opinion of counsel to the Company
reasonably acceptable to any such holder of Warrants or Warrant Shares who
wishes to have Warrant Shares included in such registration statement,
registration under the Act is not required for the transfer of such Warrants
and/or Warrant Shares in the manner proposed by such Holders. The Company
shall not be obligated to honor any request to register any such Warrant
Shares if the Company is not notified in writing of any such request pursuant
to this SECTION 13.2 within 20 days after the Company has given notice to the
10
<PAGE>
Holders of the filing. The Company shall permit, or shall cause the managing
underwriter of a proposed offering to permit, the Holders of Warrant Shares
requested to be included in the registration (the "PIGGY-BACK SHARES") to
include such Piggy-back Shares in the proposed offering on the same terms and
conditions as applicable to securities of the Company included therein or as
applicable to securities of any person other than the Company and the Holders
of Piggy-back Shares if the securities of any such person are included
therein. Notwithstanding the foregoing, if any such managing underwriter
shall advise the Company in writing that it believes that the distribution of
all or a portion of the Piggy-back Shares requested to be included in the
registration statement concurrently with the securities being registered by
the Company would materially adversely affect the distribution of such
securities by the Company for its own account, then the Holders of such
Piggy-back Shares shall delay their offering and sale of Piggyback Shares (or
the portion thereof so designated by such managing underwriter) for such
period, not to exceed 120 days, as the managing underwriter shall request
provided that no such delay shall be required as to Piggy-back Shares if any
securities of the Company are included in such registration statement for the
account of any person other than the Company and the Holders of Piggy-back
Shares. In the event of such delay, the Company shall file such supplements,
post-effective amendments or separate registration statement, and take any
such other steps as may be necessary to permit such Holders to make their
proposed offering and sale for a period of 90 days immediately following the
end of such period of delay ("PIGGY-BACK TERMINATION DATE"); PROVIDED,
HOWEVER, that if at the Piggy-back Termination Date the Piggy back Shares are
covered by a registration statement which is, or is required to remain, in
effect beyond the Piggy-back Termination Date, the Company shall maintain in
effect the registration statement as it relates to the Piggy-back Shares for
so long as such registration statement remains or is required to remain in
effect for any of such other securities.
The Company shall be obligated pursuant to this SECTION 13.2 to include
in the registration Warrant Shares that have not yet been purchased by a
holder of Warrants so long as such Holder of Warrants submits an undertaking
to the Company that such Holder intends to exercise Warrants representing the
number of Warrant Shares to be included in such registration prior to the
consummation of the offering made pursuant thereto. In addition, such Holder
of Warrants is permitted to pay the Company the Warrant Price for such
Warrant Shares upon the consummation of the public offering with respect to
such Warrant Shares.
If the Company decides not to proceed with a registration and offering
in which Piggy-back Shares are included, the Company has no obligation to
proceed with the offering of the Piggy-back Shares, unless the Holders of the
Warrants and/or Warrant Shares otherwise comply with the provisions of
SECTION 13.1 hereof (without regard to the 60 days' written request required
thereby).
13.3 In connection with the registration of securities in
accordance with SECTIONS 13.1 and 13.2 above, the Company shall:
(a) Use its reasonable best efforts to register or qualify the
securities for offer or sale under the state securities or Blue Sky laws of
such states which the Holders of such Warrant Shares shall designate;
provided, however, that in no event shall the Company be
11
<PAGE>
obligated to qualify to do business in any jurisdiction where it is not then
so qualified or to take any action which would subject it to general service
of process in any jurisdiction where it is not then so subject or to register
or get a license as a broker or dealer in securities in any jurisdiction
where it is not so registered or licensed.
(b) Pay all costs, other than fees and disbursements of counsel
for the Holders and underwriting discounts and commissions, if any, in
respect of securities held by the Holders.
(c) Furnish to each Holder such number of copies of the
registration statement and of each amendment and supplement thereto (in each
case, including all exhibits), such reasonable number of copies of each
prospectus contained in such registration statement and each supplement or
amendment thereto (including each preliminary prospectus), all of which shall
conform to the requirements of the Act and the rules and regulations
thereunder, and such other documents, as any Holder may reasonably request to
facilitate the disposition of the securities included in such registration.
(d) If an opinion of counsel for the Company is delivered to any
underwriter in connection with the registration, such opinion to each Holder
participating in the registration.
(e) Enter into a cross-indemnity agreement and a contribution
agreement, each in customary form, with each underwriter, if any, and, if
requested, enter into an underwriting agreement containing conventional
representations, warranties, allocation of expenses and customary closing
conditions, including, without limitation, opinions of counsel and
accountants' cold comfort letters, with any underwriter who acquires any
securities included by a Holder in the registration.
13.4 (a) The Company shall indemnify and hold harmless each Holder
participating in any registration hereunder against any losses, claims,
damages or liabilities, joint or several, to which such Holder may become
subject under the Act, the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT") or otherwise, specifically including, but not limited to,
losses, claims, damages, judgments, liabilities and expenses (including the
fees and expenses of counsel and other expenses in connection with
investigating, defending or settling any such action or claim) (or actions in
respect thereof), as they are incurred and regardless of whether the
indemnitee is a party to the litigation, if any, arising out of or based
upon (i) any breach of any representation, warranty, agreement or covenant of
the Company herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in any registration statement filed
by the Company or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or (iii)
any untrue statement or alleged untrue statement of any material fact
contained in any preliminary prospectus or final prospectus included in any
registration statement filed by the Company or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
and agrees to reimburse each such Holder for any legal or other expenses
reasonably incurred by it in connection with investigating or defending any
such loss, claim,
12
<PAGE>
damage, liability or action as such expenses are incurred; PROVIDED, HOWEVER,
that the Company shall not be liable in any such case to the extent that any
such loss, claim, damage, liability or action arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged
omission made in any such registration statement, preliminary prospectus or
final prospectus, or any such amendment or supplement thereto, in reliance
upon, and in conformity with, written information relating to any Holder
furnished to the Company by such Holder specifically for use in the
preparation thereof and, PROVIDED FURTHER, that the indemnity agreement
provided in this SECTION 13.4(a) with respect to any preliminary prospectus
shall not inure to the benefit of any Holder from whom the person asserting
any losses, claims, damages, liabilities or actions based upon any untrue
statement or alleged untrue statement of material fact or omission or alleged
omission to state therein a material fact purchased securities, if adequate
copies of the applicable final prospectus in which such untrue statement or
alleged untrue statement or omission or alleged omission was corrected were
provided by the Company to the Holder or its representatives and the Holder
or its representatives did not deliver such final prospectus to such person.
The indemnity agreement in this SECTION 13.4(a) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Holder within the meaning of the Act or the
Exchange Act and each of the agents, employees, officers and directors of
each Holder and person who so controls any Holder. This indemnity agreement
shall be in addition to any liabilities which the Company may otherwise have.
(b) Each Holder, severally and not jointly, agrees to indemnify
and hold harmless the Company against any losses, claims, damages or
liabilities, joint or several, to which the Company may become subject under
the Act or otherwise, specifically including, but not limited to, losses,
claims, damages, judgments liabilities and expenses (including the fees and
expenses of counsel and other expenses in connection with investigating,
defending or settling any such action or claim) (or actions in respect
thereof), as they are incurred and regardless of whether the indemnitee is a
party to the litigation, if any, arising out of or based upon (i) any breach
of any representation, warranty, agreement or covenant of such Holder herein
contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in any registration statement filed by the Company or
any amendment or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or (iii) any untrue statement or
alleged untrue statement of any material fact contained in any preliminary
prospectus or final prospectus or any amendment or supplement thereto, or the
omission or alleged omission to state therein a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading, in the case of subparagraphs (ii) and (iii)
of this SECTION 13.4(b) to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information
furnished to the Company by such Holder specifically for use in the
preparation thereof, and agrees to reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action
as such expenses are incurred.
13
<PAGE>
The indemnity agreement in this SECTION 13.4(b) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
officer of the Company who signed such registration statement and each
director of the Company, and each person, if any, who controls the Company
within the meaning of the Act or the Exchange Act. This indemnity agreement
shall be in addition to any liabilities which each Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this
SECTION 13.4 of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against any
indemnifying party under this SECTION 13.4, notify the indemnifying party in
writing of the commencement thereof, but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have
to any indemnified party otherwise than under this SECTION 13.4 except to the
extent that it has been prejudiced by such omission. In case any such action
is brought against any indemnified party, and it notified the indemnifying
party of the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it shall elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party; PROVIDED, HOWEVER,
that if the defendants in any such action include both the indemnified party
and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it which are
different from or additional to those available to the indemnifying party,
the indemnified party or parties shall have the right to select separate
counsel to assume such legal defenses and to otherwise participate in the
defense of such action on behalf of such indemnified party or parties. Upon
receipt of notice from the indemnifying party to such indemnified party of
the indemnifying party's election so to assume the defense of such action and
approval by the indemnified party of counsel, the indemnifying party will not
be liable to such indemnified party hereunder for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof unless (i) the indemnified party shall have employed separate
counsel in accordance with the proviso to the next preceding sentence (it
being understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel (together with appropriate
local counsel) approved by the indemnifying party representing all the
indemnified parties under SECTION 13.4(a) or 13.4(b) hereof who are parties
to such action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action or (iii)
the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party. In no event
shall any indemnifying party be liable in respect of any amounts paid in
settlement of any action unless the indemnifying party shall have approved
the terms of such settlement; PROVIDED that such consent shall not be
unreasonably withheld. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is
or could have been a party and indemnification could have been sought
hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on all
claims that are the subject matter of such proceeding.
14
<PAGE>
(d) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to SECTION
13.4(a) or 13.4(b) (subject to the limitations thereof) but it is found in a
final judicial determination, not subject to further appeal, that such
indemnification may not be enforced in such case, even though this Agreement
expressly provides for indemnification in such case, or (ii) any indemnified
or indemnifying party seeks contribution under the Act, the Exchange Act or
otherwise, then the Company (including for this purpose any contribution made
by or on behalf of any director of the Company, any officer of the Company
who signed any such registration statement, any controlling person of the
Company, and its or their respective counsel), as one entity, and the
affected Holders of the securities included in such registration in the
aggregate (including for this purpose any contribution by or on behalf of an
indemnified party), as a second entity, shall contribute to the losses,
liabilities, claims, damages and expenses whatsoever to which any of them may
be subject, on the basis of relevant equitable considerations such as the
relative fault of the Company and such Holders in connection with the facts
which resulted in such losses, liabilities, claims, damages and expenses.
The relative fault, in the case of an untrue statement, alleged untrue
statement, omission or alleged omission, shall be determined by, among other
things, whether such statement, alleged statement, omission or alleged
omission relates to information supplied by the Company or by such Holders,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement, alleged statement, omission
or alleged omission. The Company and the Holders agree that it would be
unjust and inequitable if the respective obligations of the Company and the
Holders for contribution were determined by pro rata or per capita allocation
of the aggregate losses, liabilities, claims, damages and expenses (even if
the Holder and the other indemnified parties were treated as one entity for
such purpose) or by any other method of allocation that does not reflect the
equitable considerations referred to in this SECTION 13.4(c). In no case
shall any Holder be responsible for a portion of the contribution obligation
imposed on all Holders in excess of its pro rata share based on the number of
shares of Common Stock (or other successor securities) owned (or which would
be owned upon exercise of all Warrants) by it and included in such
registration as compared to the number of shares of Common Stock (or other
successor securities) owned (or which would be owned upon exercise of all
Warrants) by all Holders and included in such registration. No person guilty
of a fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation. For purposes of this SECTION 13.4(c),
each person, if any, who controls any Holder within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act and each officer, director,
partner, employee, agent and counsel of each such Holder or control person
shall have the same rights to contribution as such Holder or control person
and each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, each officer of
the Company who shall have signed any such registration statement, each
director of the Company and its or their respective counsel shall have the
same rights to contribution as the Company, subject in each case to the
provisions of this SECTION 13.4(c). Anything in this SECTION 13.4(c) to the
contrary notwithstanding, no party shall be liable for contribution with
respect to the settlement of any claim or action effected without its written
consent. This SECTION 13.4(c) is intended to supersede any right to
contribution under the Act, the Exchange Act or otherwise.
15
<PAGE>
14. NO RIGHTS AS STOCKHOLDER; NOTICES TO HOLDERS. Nothing contained in
this Agreement or in any of the Warrant Certificates shall be construed as
conferring upon the Holders or their transferee(s) the right to vote or to
receive dividends or to consent to or receive notice as stockholders in respect
of any meeting of stockholders for the election of directors of the Company or
any other matter or any rights whatsoever as stockholders of the Company. If,
however, at any time prior to the expiration of the Warrants and prior to their
exercise, any of the following events shall occur:
(a) the Company shall declare any dividend payable in any securities
upon its shares of Common Stock or make any distribution (other than a
cash dividend) to the holders of its shares of Common Stock; or
(b) the Company shall offer to the holders of its shares of Common
Stock any additional shares of Common Stock or securities convertible into
or exchangeable for shares of Common Stock or any right to subscribe to or
purchase any thereof; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation, merger, sale, transfer or lease
of all or substantially all of its property, assets and business as an
entirety) shall be proposed,
then in any one or more of said events the Company shall (i) give notice in
writing of such event to the Holders, as provided in SECTION 16 hereof and
(ii) if there are more than 100 Holders, cause notice of such event to be
published once in The Wall Street Journal (national edition), such giving of
notice and publication to be completed at least 10 days prior to the date
fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to such dividend, distribution or
subscription rights, or for the determination of stockholders entitled to
vote on such proposed dissolution, liquidation or winding up. Such notice
shall specify such record date or the date of closing the transfer books, as
the case may be. Failure to publish, mail or receive such notice or any
defect therein or in the publication or mailing thereof shall not affect the
validity of any action taken in connection with such dividend, distribution
or subscription rights, or such proposed dissolution, liquidation or winding
up.
15. ATTORNEY'S FEES. In the event of any action, suit, counterclaim,
appeal, arbitration, mediation, or other proceeding (an "ACTION") between any
Holder and the Company arising out of or in connection with this Agreement or
the Warrants, in addition to any damages and costs to which the prevailing
party would otherwise be entitled, the losing party in any such Action shall
pay to the prevailing party the attorneys' fees and costs incurred by the
prevailing party in connection with such Action and/or enforcing any
judgment, order, ruling, or award (collectively, a "DECISION") granted
therein, all of which shall be paid whether or not such Action is prosecuted
to a Decision. Any Decision entered in an Action shall contain a specific
provision providing for the recovery of attorneys' fees and costs incurred in
enforcing such Decision. Attorneys' fees shall include, but not be limited
to, fees incurred in the following: (1) post judgment motions and collection
actions; (2) contempt proceedings; (3) garnishment, levy, and debtor and
third party examinations; (4) discovery, and (5) bankruptcy. "Prevailing
party" within the meaning of this section includes, without limitation, a
party who agrees to
16
<PAGE>
dismiss an Action on the other party's payment of the sum allegedly due or
performance of the covenants allegedly breached, or who obtains substantially
the relief sought. If there are multiple claims, the prevailing party shall
be determined with respect to each claim separately. The prevailing party
shall be the party who has obtained the greater relief in connection with any
particular claim, although with respect to any claim, it may be determined by
the court or arbitrator before which the Action is brought that there is no
prevailing party.
16. NOTICES. Any notice pursuant to this Agreement to be given or made
by the registered Holder of any Warrant to or on the Company shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed as follows:
Scheid Vineyards Inc.
13470 Washington Boulevard, Suite 300
Marina del Rey, CA 90292
Attn: Chief Executive Officer
Notices or demands authorized by this Agreement to be given or made by the
Company to the registered Holder of any Warrant shall be sufficiently given
or made (except as otherwise provided in this Agreement) if sent by
first-class mail, postage prepaid, addressed to such Holder at the address of
such Holder as shown on the Warrant Register.
17. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California without giving effect
to principles of conflicts of laws.
18. SUPPLEMENTS AND AMENDMENTS. The Company and the Representatives
owning at least a majority of the outstanding Warrants may from time to time
supplement or amend this Agreement in order to cure any ambiguity or to
correct or supplement any provision contained herein which may be defective
or inconsistent with any other provision herein, or to make any other
provisions in regard to matters or questions arising hereunder which the
Company and the Representatives may deem necessary or desirable and which
shall not be inconsistent with the provisions of the Warrant Certificates and
which shall not adversely affect the interests of the Holders. This
Agreement may also be supplemented or amended from time to time by a writing
executed by or on behalf of the Company and all of the Holders.
19. SUCCESSOR. All the covenants and provisions of this Agreement by
or for the benefit of the Company or the Holders shall bind and inure to the
benefit of their respective successors and assigns hereunder. Assignments by
the Holders of their rights hereunder shall be made in accordance with
SECTION 4.
20. MERGER OR CONSOLIDATION OF THE COMPANY. So long as Warrants remain
outstanding, the Company will not merge or consolidate with or into, or sell,
transfer or lease all or substantially all of its property to, any other
corporation unless the successor or purchasing corporation, as the case may
be (if not the Company), shall expressly assume, by supplemental agreement
executed and delivered to the Holders, the due and punctual performance and
17
<PAGE>
observance of each and every covenant and condition of this Agreement to be
performed and observed by the Company.
21. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Holders, any legal or equitable right, remedy or claim under this Agreement,
but this Agreement shall be for the sole and exclusive benefit of the Company
and the Holders of the Warrants and Warrant Shares.
22. CAPTIONS; REFERENCES. The captions of the sections and subsections
of this Agreement have been inserted for convenience only and shall have no
substantive effect. References herein to Sections, Schedules and Exhibits
are, unless otherwise specified, references to the referenced section,
schedule or exhibit hereof or hereto.
23. COUNTERPARTS. This Agreement may be executed in any number of
counterparts each of which when so executed shall be deemed to be an
original; but such counterparts together shall constitute but one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day, month and year first above written.
SCHEID VINEYARDS INC. CRUTTENDEN ROTH INCORPORATED
By: /s/ ALFRED G. SCHEID By: /s/ EDWARD J. HALL
---------------------------- ----------------------------
Name: Alfred G. Scheid Name: Edward J. Hall
-------------------------- --------------------------
Title: Chair & CEO Title: Chief Financial Officer
------------------------- -------------------------
LAIDLAW EQUITIES, INC. RODMAN & RENSHAW, INC.
By: /s/ JAMES P. JENKINS By: /s/ GILBERT R. OTT, JR.
---------------------------- ----------------------------
Name: James P. Jenkins Name: Gilbert R. Ott, Jr.
-------------------------- --------------------------
Title: Executive Vice President Title: Executive Vice President
------------------------- -------------------------
OA971370.007/6+
18
<PAGE>
Schedule 1 to
Warrant Agreement
<TABLE>
<CAPTION>
Representative Number of Warrants
- -------------- ------------------
<S> <C>
Cruttenden Roth Incorporated 80,000
Laidlaw Equities, Inc. 60,000
Rodman & Renshaw, Inc. 60,000*
*Broken down as follows:
Rodman & Renshaw, Inc. 31,000
Elizabeth Downey 6,000
Julia Heckman 7,000
John Borer 6,000
Karl Schmidt 6,000
Marc Schneider 3,000
Michael Sellinger 1,000
</TABLE>
19
<PAGE>
Exhibit A to
Warrant Agreement
[Form of Warrant Certificate]
TRANSFER OF THE SECURITIES REPRESENTED HEREBY IS RESTRICTED AS DESCRIBED
IN THE WARRANT AGREEMENT DESCRIBED HEREIN.
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE CLASS A COMMON
STOCK ISSUABLE UPON EXERCISE OF SUCH WARRANTS MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO (i) A POST-EFFECTIVE AMENDMENT TO THE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO WHICH
SUCH SECURITIES WERE ORIGINALLY REGISTERED IN CONNECTION WITH ORIGINAL
ISSUANCE OF THE WARRANTS REPRESENTED HEREBY, OR (ii) A SEPARATE REGISTRATION
STATEMENT UNDER SUCH ACT, OR (iii) AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT.
EXERCISABLE ON OR BEFORE JULY 24, 2002
No. _______ Warrants
Warrant Certificate
SCHEID VINEYARDS INC.
This Warrant Certificate certifies that [CRUTTENDEN ROTH INCORPORATED],
or registered assigns (the "HOLDER"), is the registered holder of __________
Warrants (the "WARRANTS") to purchase Class A Common Stock, $0.001 par value
per share (the "COMMON STOCK"), of Scheid Vineyards Inc., a Delaware
corporation (the "COMPANY"). Each Warrant entitles the registered Holder
thereof to purchase one share of Common Stock (subject to adjustment as set
forth in the Warrant Agreement (as defined below), at any time from 10:00
a.m., California time, on July 24, 1998 (the "INITIATION DATE") until 6:00
p.m., California time, on July 24, 2002 (the "EXPIRATION DATE") at a purchase
price of $14.00 (the "WARRANT PRICE").
Subject to the provisions of the Warrant Agreement, the Holder shall
have the right to exercise the Warrants and purchase the underlying Warrant
Shares, either in their entirety or from time to time, effective as of any
date specified by the Holder from and after the Initiation Date and on or
before the Expiration Date. Exercise shall be effected by surrendering this
Warrant Certificate, with the form of election to purchase set forth hereon
properly completed and executed, together with payment of the Warrant Price
or designation of net issuance at the office of the Company designated for
such purpose. If upon any exercise of Warrants evidenced hereby the number
of Warrants exercised shall be less than the total number of Warrants
evidenced hereby, there shall be issued to the Holder or such Holder's
assignee a new Warrant
20
<PAGE>
Certificate evidencing the number of Warrants not exercised. No adjustment
shall be made for any dividends on any Common Stock issuable upon exercise of
this Warrant.
Payment of the aggregate Warrant Price for all Warrant Shares for which
Warrants are exercised shall be made, in the discretion of the Holder, by
certified or official bank check or by net issuance, or a combination
thereof. Exercise by net issuance shall be effected without payment by the
Holder of any cash or other consideration by the Company's withholding from
the Warrant Shares that would otherwise be issued upon exercise if the
exercise price were paid in cash, that number of Warrant Shares which, when
multiplied by the Closing Price for the day immediately preceding the date of
exercise, equals the aggregate Warrant Price for the Warrants so exercised.
Notwithstanding the foregoing, if at 6:00 p.m., California time on the
Expiration Date, the Holder has not exercised its Warrants and has not
notified the Company that it waives automatic issuance, then all such
unexercised Warrants shall be automatically converted into a number of shares
of Common Stock of the Company equal to: (A) the number of shares of Common
Stock then issuable upon exercise of all such unexercised Warrants minus (B)
a number of shares of Common Stock equal to the quotient obtained by dividing
the aggregate Warrant Price for all such unexercised Warrants by the Closing
Price (as defined in SECTION 11.1(c) of the Warrant Agreement) for the Common
Stock on the Expiration Date.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to a Warrant Agreement, dated as
of July 30, 1997 (the "WARRANT AGREEMENT"), duly executed and delivered by
the Company, which Warrant Agreement is hereby incorporated by reference in
and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the holders of the Warrants. A copy
of the Warrant Agreement may be obtained by the Holder hereof upon written
request to the Company.
The Warrant Price and number of Warrant Shares issuable upon exercise of
the Warrants are subject to adjustment upon the occurrence of certain events
set forth in the Warrant Agreement. No fractions of a share of Common Stock
will be issued upon the exercise of any Warrants but the Company will pay the
cash value thereof determined as provided in the Warrant Agreement.
The Holder is entitled to certain registration rights with respect to
the Common Stock purchasable upon exercise thereof as set forth in the
Warrant Agreement.
Warrant Certificates may be exchanged, in the manner and subject to the
limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of
like tenor evidencing in the aggregate a like number of Warrants.
21
<PAGE>
The Company may deem and treat the registered Holder of this Warrant
Certificate (notwithstanding any notation of ownership or other writing
hereon made by anyone) as the owner in fact hereof and of the Warrants
represented hereby for all purposes, and the Company shall not be affected by
any notice to the contrary.
Neither the Warrants nor this Warrant Certificate entitles the Holder to
any rights of a stockholder of the Company.
This Warrant Certificate shall not be valid unless countersigned by the
Company.
IN WITNESS WHEREOF, Scheid Vineyards Inc. has caused this Warrant
Certificate to be signed by its Chief Executive Officer and by its Secretary.
Dated: July 30, 1997 SCHEID VINEYARDS INC.
By:
-------------------------
Alfred G. Scheid
Chief Executive Officer
Attest:
-------------------
Ernest M. Brown
Secretary
22
<PAGE>
[Form of Election to Purchase]
(To be Executed upon Exercise of Warrant)
The undersigned hereby irrevocably elects, effective as of ____________,
to exercise the right, represented by this Warrant Certificate, to receive
___________ shares of Class A Common Stock, par value $0.001 per share, of
Scheid Vineyards Inc. and elects to pay the Exercise Price as indicated below:
/ / Payment in cash in the amount of $_______ per share, for a total
aggregate Exercise Price payment of $________; check payable to
Scheid Vineyards Inc. in the amount of such aggregate Exercise Price.
/ / Payment on a cashless, net issuance basis by foregoing receipt of
that number of shares of Class A Common Stock otherwise issuable upon
this exercise as has an aggregate value, at the Closing Price, equal
to the aggregate Exercise Price.
The undersigned requests that a certificate for such shares be
registered in the name of _____________________________, whose address is
___________________________________________________ and that such shares be
delivered to ____________________________ whose address is
________________________________. If said number of shares is less than all
of the shares of Class A Common Stock purchasable hereunder, the undersigned
requests that a new Warrant certificate representing the remaining balance of
such shares be registered in the name of ________________________________,
whose address is _________________________, and that such Warrant certificate
be delivered to _______________________, whose address is
_______________________________________.
Signature:
Date:
Signature Guaranteed:
OA971370.007/16+
23
<PAGE>
CLASS A COMMON CLASS A COMMON
SCHEID
VINEYARDS
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF DELAWARE CUSIP 806403 10 1
THIS CERTIFIES THAT
SPECIMEN
IS THE RECORD HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE CLASS A COMMON STOCK $.001 PAR VALUE
OF SCHEID VINEYARDS INC.
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned and registered by the Transfer Agent and
Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signature of its
duly authorized officers.
Dated:
SPECIMEN [SEAL] SPECIMEN
TREASURER CHAIRMAN OF THE BOARD
- --------------------------------------------------------------------------------
The Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights. Such requests shall be made to the Corporation's Secretary at the
principal offices of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ..........Custodian...............
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors Act.....................
survivorship and not as tenants (State)
in common UNIF TRF MIN ACT - .........Custodian (until age.....)
(Cust)
.........under Uniform Transfers to Minors Act........
(Minor) (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
_________________________________________________________________________Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated____________________________ X___________________________________________
X___________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By____________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED MEDALLION SIGNATURE GUARANTEE PROGRAM). PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 10.1
SCHEID VINEYARDS INC.
1997 STOCK OPTION/STOCK ISSUANCE PLAN
(AS AMENDED AND RESTATED THROUGH MARCH 10, 1998)
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1997 Stock Option/Stock Issuance Plan is intended to promote the
interests of Scheid Vineyards Inc., a Delaware corporation, by providing
eligible persons with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation.
Capitalized terms herein shall have the meanings assigned to such terms
in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three (3) separate equity programs:
(i) the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Class A Common Stock,
(ii) the Stock Issuance Program under which eligible persons may,
at the discretion of the Plan Administrator, be issued shares of
Class A Common Stock directly, either through the immediate purchase
of such shares or as a bonus for services rendered to the Corporation
(or any Parent or Subsidiary), and
(iii) the Automatic Option Grant Program under which eligible
non-employee Board members shall automatically receive option grants at
periodic intervals to purchase shares of Class A Common Stock.
B. The provisions of Articles One and Five shall apply to all equity
programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. Administration of the Discretionary Option Grant and Stock
Issuance Programs with respect to Section 16 Insiders may, at the Board's
discretion, be vested in the Primary Committee, or the Board may retain the
power to administer those programs with respect to Section 16 Insiders.
<PAGE>
B. Administration of the Discretionary Option Grant and Stock
Issuance Programs with respect to all other persons eligible to participate
in those programs may, at the Board's discretion, be vested in the Primary
Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons.
C. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed
by the Board at any time. The Board may also at any time terminate the
functions of the Primary Committee or any Secondary Committee and reassume
all powers and authority previously delegated to such committee.
D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority
(subject to the provisions of the Plan) to establish such rules and
regulations as it may deem appropriate for proper administration of the
Discretionary Option Grant and Stock Issuance Programs and to make such
determinations under, and issue such interpretations of, the provisions of
such programs and any outstanding options or stock issuances thereunder as it
may deem necessary or advisable. Decisions of the Plan Administrator within
the scope of its administrative functions under the Plan shall be final and
binding on all parties who have an interest in the Discretionary Option Grant
and Stock Issuance Programs under its jurisdiction or any option or stock
issuance thereunder.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee
shall accordingly be entitled to full indemnification and reimbursement as
Board members for their service on such committee. No member of the Primary
Committee or the Secondary Committee shall be liable for any act or omission
made in good faith with respect to the Plan or any option grants or stock
issuances under the Plan.
F. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to any
option grants or stock issuances made under that program.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the non-employee members
of the board of directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
-2-
<PAGE>
B. The Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive option grants, the time or
times when such option grants are to be made, the number of shares to be
covered by each such grant, the status of the granted option as either an
Incentive Option or a Non-Statutory Option, the time or times when each
option is to become exercisable, the vesting schedule (if any) applicable to
the option shares and the maximum term for which the option is to remain
outstanding and (ii) with respect to stock issuances under the Stock Issuance
Program, which eligible persons are to receive such stock issuances, the time
or times when such issuances are to be made, the number of shares to be
issued to each Participant, the vesting schedule (if any) applicable to the
issued shares and the consideration to be paid for such shares.
C. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Discretionary Option Grant Program or
to effect stock issuances in accordance with the Stock Issuance Program.
D. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be those non-employee Board members
eligible to receive grants in accordance with Section I of Article Four.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Class A Common Stock, including shares repurchased
by the Corporation in the open market. The maximum number of shares of Class
A Common Stock which may be issued over the term of the Plan shall not exceed
200,000 shares, subject to adjustment from time to time in accordance with
the provisions of this Section V.
B. No one person participating in the Plan may receive option grants
or direct stock issuances for more than 100,000 shares of Class A Common
Stock in the aggregate per calendar year.
C. Shares of Class A Common Stock subject to outstanding options
shall be available for subsequent issuance under the Plan to the extent (i)
the options expire or terminate for any reason prior to exercise in full or
(ii) the options are cancelled in accordance with the cancellation-regrant
provisions of Article Two. Unvested shares issued under the Plan and
subsequently repurchased by the Corporation, at the option exercise or direct
issue price paid per share, pursuant to the Corporation's repurchase rights
under the Plan shall be added back to the number of shares of Class A Common
Stock reserved for issuance under the Plan and shall accordingly be available
for reissuance through one or more subsequent option grants or direct stock
issuances under the Plan. However, should the exercise price of an
outstanding option under the Plan be paid with shares of Class A Common
Stock, then the number of shares of Class A Common Stock available for
issuance under the Plan shall be
-3-
<PAGE>
reduced by the gross number of shares for which the option is exercised, and
not by the net number of shares of Class A Common Stock actually issued to
the holder of such option.
D. Should any change be made to the Class A Common Stock by reason
of any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Class A Common
Stock as a class without the Corporation's receipt of consideration,
appropriate adjustments shall be made to (i) the maximum number and/or class
of securities issuable under the Plan, (ii) the number and/or class of
securities for which any one person may receive option grants or direct stock
issuances under the Plan per calendar year, (iii) the number and/or class of
securities for which grants are subsequently to be made under the Automatic
Option Grant Program to new and continuing non-employee Board members, and
(iv) the number and/or class of securities and the exercise price per share
in effect under each outstanding option under the Plan. Such adjustments to
the outstanding options are to be effected in a manner which shall preclude
the enlargement or dilution of rights and benefits under those options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document
evidencing an Incentive Option shall, in addition, be subject to the
provisions of the Plan applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%)
of the Fair Market Value per share of Class A Common Stock on the
option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of
Section I of Article Five and the documents evidencing the option,
be payable in cash or check made payable to the Corporation. Should
the Class A Common Stock be registered under Section 12(g) of the
1934 Act at the time the option is exercised, then the exercise
price may also be paid as follows:
(i) in shares of Class A Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date, or
-4-
<PAGE>
(ii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable
instructions (A) to a Corporation-designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate exercise price payable
for the purchased shares plus all applicable Federal, state and
local income and employment taxes required to be withheld by the
Corporation by reason of such exercise and (B) to the Corporation to
deliver the certificates for the purchased shares directly to such
brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares
must be made on the Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable
at such time or times, during such period and for such number of shares as
shall be determined by the Plan Administrator and set forth in the documents
evidencing the option grant. However, no option shall have a term in excess
of ten (10) years measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or
death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for
such period of time thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing the option,
but no such option shall be exercisable after the expiration of the
option term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised by the
personal representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution.
(iii) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise period,
the option may not be exercised in the aggregate for more than the
number of vested shares for which the option is exercisable on the
date of the Optionee's cessation of Service. Upon the expiration of
the applicable exercise period or (if earlier) upon the expiration
of the option term, the option shall terminate and cease to be
outstanding for any vested
-5-
<PAGE>
shares for which the option has not been exercised. However, the
option shall, immediately upon the Optionee's cessation of Service,
terminate and cease to be outstanding to the extent the option is
not otherwise at that time exercisable for vested shares.
2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time
while the option remains outstanding, to:
(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service or
death from the limited exercise period otherwise in effect for that
option to such greater period of time as the Plan Administrator
shall deem appropriate, but in no event beyond the expiration of the
option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to
the number of vested shares of Class A Common Stock for which such
option is exercisable at the time of the Optionee's cessation of
Service but also with respect to one or more additional installments
in which the Optionee would have vested under the option had the
Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no stockholder
rights with respect to the shares subject to the option until such person
shall have exercised the option, paid the exercise price and become a holder
of record of the purchased shares.
E. UNVESTED SHARES. The Plan Administrator shall have the discretion to
grant options which are exercisable for unvested shares of Class A Common
Stock. Should the Optionee cease Service while holding such unvested shares,
the Corporation shall have the right to repurchase, at the exercise price
paid per share, any or all of those unvested shares. The terms upon which
such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and
shall not be assignable or transferable other than by will or by the laws of
descent and distribution following the Optionee's death. However, a
Non-Statutory Option may, in connection with the Optionee's estate plan, be
assigned in whole or in part during the Optionee's lifetime to one or more
members of the Optionee's immediate family or to a trust established
exclusively for one or more such family members. The assigned portion may
only be exercised by the person or persons who acquire a proprietary interest
in the option pursuant to the assignment. The terms applicable to the
assigned portion shall be the same as those in effect for the option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Plan Administrator may deem appropriate.
-6-
<PAGE>
G. WITHHOLDING. The Corporation's obligation to deliver shares of Class
A Common Stock upon the exercise of any options granted under the Plan shall
be subject to the satisfaction of all applicable Federal, state and local
income and employment tax withholding requirements.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions
of Articles One, Two and Five shall be applicable to Incentive Options.
Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares
of Class A Common Stock (determined as of the respective date or dates of
grant) for which one or more options granted to any Employee under the Plan
(or any other option plan of the Corporation or any Parent or Subsidiary) may
for the first time become exercisable as Incentive Options during any one
calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds two (2) or more such options
which become exercisable for the first time in the same calendar year, the
foregoing limitation on the exercisability of such options as Incentive
Options shall be applied on the basis of the order in which such options are
granted.
C. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share
of Class A Common Stock on the option grant date, and the option term shall
not exceed five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable with respect to the total number of shares of Class A
Common Stock at the time subject to such option and may be exercised for any
or all of those shares as fully-vested shares of Class A Common Stock.
However, an outstanding option shall not so accelerate if and to the extent:
(i) such option is, in connection with the Corporate Transaction, either to
be assumed by the successor corporation (or parent thereof) or to be replaced
with a comparable option to purchase shares of the capital stock of the
successor corporation (or parent thereof), (ii) such option is to be replaced
with a cash incentive program of the successor corporation which preserves
the spread existing on the unvested option shares at the time of the
Corporate Transaction and provides for subsequent payout in accordance with
the same vesting schedule applicable to those option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the
Plan
-7-
<PAGE>
Administrator at the time of the option grant. The determination of option
comparability under clause (i) above shall be made by the Plan Administrator,
and its determination shall be final, binding and conclusive.
B. All outstanding repurchase rights shall also terminate
automatically, and the unvested shares of Class A Common Stock subject to
those terminated rights shall immediately vest in full, in the event of any
Corporate Transaction, except to the extent: (i) those repurchase rights are
assigned to the successor corporation (or parent thereof) in connection with
such Corporate Transaction or (ii) such accelerated vesting is precluded by
other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction,
had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to (i) the number and
class of securities available for issuance under the Plan following the
consummation of such Corporate Transaction and (ii) the exercise price
payable per share under each outstanding option, provided the aggregate
exercise price payable for such securities shall remain the same.
E. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option
remains outstanding, to provide for the automatic acceleration (in whole or
in part) of one or more outstanding options (and the automatic termination of
one or more outstanding repurchase rights, with the immediate vesting of the
shares of Class A Common Stock subject to those terminated rights) upon the
occurrence of a Corporate Transaction, whether or not those options are to be
assumed or replaced in the Corporate Transaction.
F. The Plan Administrator shall have full power and authority to
grant options under the Discretionary Option Grant Program which will
automatically accelerate in the event the Optionee's Service terminates by
reason of an Involuntary Termination within a designated period (not to
exceed eighteen (18) months) following the effective date of any Corporate
Transaction in which those options are assumed or replaced and do not
otherwise accelerate. Any options so accelerated shall remain exercisable for
fully-vested shares until the earlier of (i) the expiration of the option
term or (ii) the expiration of the one (1)-year period measured from the
effective date of the Involuntary Termination. In addition, the Plan
Administrator may provide that one or more of the Corporation's outstanding
repurchase rights with respect to shares held by the Optionee at the time of
such Involuntary Termination shall immediately terminate, and the shares
subject to those terminated repurchase rights shall accordingly vest in full.
-8-
<PAGE>
G. The Plan Administrator shall have full power and authority to
grant options under the Discretionary Option Grant Program which will
automatically accelerate in the event the Optionee's Service subsequently
terminates by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Change in Control. Each option so accelerated shall remain exercisable for
fully-vested shares until the earlier of (i) the expiration of the option
term or (ii) the expiration of the one (1)-year period measured from the
effective date of the Involuntary Termination. In addition, the Plan
Administrator may provide that one or more of the Corporation's outstanding
repurchase rights with respect to shares held by the Optionee at the time of
such Involuntary Termination shall immediately terminate, and the shares
subject to those terminated repurchase rights shall accordingly vest in full.
H. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or a Change in Control shall remain exercisable
as an Incentive Option only to the extent the applicable One Hundred Thousand
Dollar ($100,000) limitation is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated portion of such option shall be
exercisable as a Non-Statutory Option under the Federal tax laws.
I. The grant of options under the Plan shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program and to grant in substitution therefor new options covering the
same or different number of shares of Class A Common Stock but with an
exercise price per share based on the Fair Market Value per share of Class A
Common Stock on the new option grant date.
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Class A Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below.
-9-
<PAGE>
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%)
of the Fair Market Value per share of Class A Common Stock on the
issue date.
2. Subject to the provisions of Section I of Article Five,
shares of Class A Common Stock may be issued under the Stock
Issuance Program for any of the following items of consideration
which the Plan Administrator may deem appropriate in each individual
instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent
or Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Class A Common Stock issued under the Stock
Issuance Program may, in the discretion of the Plan Administrator,
be fully and immediately vested upon issuance or may vest in one or
more installments over the Participant's period of Service or upon
attainment of specified performance objectives.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash
dividend) which the Participant may have the right to receive with
respect to the Participant's unvested shares of Class A Common Stock
by reason of any stock dividend, stock split, recapitalization,
combination of shares, exchange of shares or other change affecting
the outstanding Class A Common Stock as a class without the
Corporation's receipt of consideration shall be issued subject to
(i) the same vesting requirements applicable to the Participant's
unvested shares of Class A Common Stock and (ii) such escrow
arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with
respect to any shares of Class A Common Stock issued to the
Participant under the Stock Issuance Program, whether or not the
Participant's interest in those shares is vested. Accordingly, the
Participant shall have the right to vote such shares and to receive
any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Class A Common Stock issued
under the Stock Issuance Program or should the performance
objectives not be attained with respect to one or more such unvested
shares of Class A Common Stock, then those shares shall be
immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to
those shares. To the extent the surrendered shares were previously
issued to the Participant for consideration paid in
-10-
<PAGE>
cash or cash equivalent (including the Participant's purchase-money
indebtedness), the Corporation shall repay to the Participant the
cash consideration paid for the surrendered shares and shall cancel
the unpaid principal balance of any outstanding purchase-money note
of the Participant attributable to such surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Class A
Common Stock (or other assets attributable thereto) which would
otherwise occur upon the non-completion of the vesting schedule
applicable to such shares. Such waiver shall result in the
immediate vesting of the Participant's interest in the shares of
Class A Common Stock as to which the waiver applies. Such waiver
may be effected at any time, whether before or after the
Participant's cessation of Service or the attainment or
non-attainment of the applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. Upon the occurrence of a Corporate Transaction, all outstanding
repurchase rights under the Stock Issuance Program shall terminate
automatically, and the shares of Class A Common Stock subject to those
terminated rights shall immediately vest in full, except to the extent: (i)
those repurchase rights are assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such
accelerated vesting is precluded by other limitations imposed by the Plan
Administrator at the time the repurchase right is issued.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time
while the Corporation's repurchase rights with respect to those shares remain
outstanding, to provide that those rights shall automatically terminate on an
accelerated basis, and the shares of Class A Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant's
Service should subsequently terminate by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of any Corporate Transaction in which those repurchase rights
are assigned to the successor corporation (or parent thereof).
C. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time
while the Corporation's repurchase/cancellation rights remain outstanding
under the Stock Issuance Program, to provide that those rights shall
automatically terminate in whole or in part, and the shares of Class A Common
Stock subject to those terminated rights shall immediately vest, in the event
the Participant's Service should subsequently terminate by reason of an
Involuntary Termination within a designated period (not to exceed eighteen
(18) months) following the effective date of any Change in Control.
-11-
<PAGE>
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held in
escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends
on the certificates evidencing those unvested shares.
ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made under this Automatic
Option Grant Program on the dates specified below:
1. Each individual serving as a non-employee Board member on
the Underwriting Date shall automatically be granted on that date a
Non-Statutory Option to purchase 10,000 shares of Class A Common
Stock, provided that individual has not previously been in the
employ of the Corporation or any Parent or Subsidiary and has not
previously received an option grant from the Corporation in his or
her capacity as a non-employee Board member.
2. Each individual who is first elected or appointed as a
non-employee Board member at any time after the Underwriting Date
shall automatically be granted on the date of such initial election
or appointment a Non-Statutory Option to purchase 10,000 shares of
Class A Common Stock, provided that individual has not previously
been in the employ of the Corporation or any Parent or Subsidiary.
3. On the date of each Annual Stockholders Meeting held
after the Underwriting Date, each individual who is to continue to
serve as a non-employee Board member, whether or not that individual
is standing for re-election to the Board at that particular Annual
Meeting, shall automatically be granted a Non-Statutory Option to
purchase 2,500 shares of Class A Common Stock, provided such
individual has served as a non-employee Board member for at least
six (6) months. There shall be no limit on the number of such
2,500-share option grants any one non-employee Board member may
receive over his or her period of Board service, and non-employee
Board members who have previously been in the employ of the
Corporation (or any Parent or Subsidiary) or who have otherwise
received a stock option grant from the Corporation prior to the
Underwriting Date shall be eligible to receive one or more such
annual option grants over their period of continued Board service.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one
hundred percent (100%) of the Fair Market Value per share of Class A
Common Stock on the option grant date.
-12-
<PAGE>
2. The exercise price shall be payable in one or more of the
alternative forms authorized under Article Two, Section I.A.2.
Except to the extent the sale and remittance procedure specified
thereunder is utilized, payment of the exercise price for the
purchased shares must be made on the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each initial 10,000-share
grant shall become exercisable in a series of four (4) successive equal
annual installments upon the Optionee's completion of each year of Board
service over the four (4)-year period measured from the option grant date.
Each annual 2,500-share grant shall become exercisable upon the Optionee's
completion of one (1) year of Board service measured from the automatic grant
date.
E. EFFECT OF TERMINATION OF SERVICE. The following provisions
shall govern the exercise of any options granted to the Optionee pursuant to
this Automatic Option Grant Program and held at the time of his or her
cessation of Board service or death:
1. The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution)
shall have a twelve (12)-month period following the date of such
cessation of Board service in which to exercise each such option.
2. During the twelve (12)-month exercise period, the
option may not be exercised in the aggregate for more than the
number of vested shares of Class A Common Stock for which the option
is exercisable at the time of the Optionee's cessation of Board
service.
3. Should the Optionee cease to serve as a Board member
by reason of death or Permanent Disability, then all shares at the
time subject to the option shall immediately vest so that such
option may, during the twelve (12)-month exercise period following
such cessation of Board service, be exercised for all or any portion
of those shares as fully-vested shares of Class A Common Stock.
4. In no event shall the option remain exercisable
after the expiration of the option term. Upon the expiration of the
twelve (12)-month exercise period or (if earlier) upon the
expiration of the option term, the option shall terminate and cease
to be outstanding for any vested shares for which the option has not
been exercised. However, the option shall, immediately upon the
Optionee's cessation of Board service for any reason other than
death or Permanent Disability, terminate and cease to be outstanding
with respect to any option shares in which the Optionee is not
otherwise vested at that time.
-13-
<PAGE>
F. STOCKHOLDER RIGHTS. The holder of an option grant under this
Automatic Option Grant Program shall have no stockholder rights with respect
to the shares subject to the option until such person shall have exercised
the option, paid the exercise price and become a holder of record of the
purchased shares.
G. LIMITED TRANSFERABILITY OF OPTIONS. This option may, in
connection with the Optionee's estate plan, be assigned in whole or in part
during Optionee's lifetime to one or more members of the Optionee's immediate
family or to a trust established for the exclusive benefit of one or more
such family members. The assigned portion shall be exercisable only by the
person or persons who acquire a proprietary interest in the option pursuant
to such assignment. The terms applicable to the assigned portion shall be
the same as those in effect for this option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Corporation may deem appropriate. Should the Optionee die while holding
this option, then this option shall be transferred in accordance with
Optionee's will or the laws of descent and distribution.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option under this Automatic Option Grant Program shall automatically
accelerate so that each such option shall, immediately prior to the specified
effective date for the Corporate Transaction, become fully exercisable for
all of the shares of Class A Common Stock at the time subject to that option
and may be exercised for all or any portion of such shares as fully-vested
shares of Class A Common Stock. Immediately following the consummation of
the Corporate Transaction, all automatic option grants under this Article
Four shall terminate and cease to be outstanding, unless assumed by the
successor corporation or its parent company.
B. In connection with any Change in Control, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Change in Control, become
fully exercisable for all of the shares of Class A Common Stock at the time
subject to such option and may be exercised for all or any portion of those
shares as fully-vested shares of Class A Common Stock. Each such option
shall remain exercisable for such fully-vested option shares until the
expiration or sooner termination of the option term.
C. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in the consummation of such Corporate
Transaction, had the option been exercised immediately prior to such
Corporate Transaction. Appropriate adjustments shall also be made to the
exercise price payable per share under each outstanding option, provided the
aggregate exercise price payable for such securities shall remain the same.
D. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its
-14-
<PAGE>
capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
ARTICLE FIVE
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay the
option exercise price or the purchase price for shares issued to such person
under the Plan by delivering a full-recourse, interest-bearing promissory
note payable in one or more installments and secured by the purchased shares.
The terms of any such promissory note (including the interest rate and the
terms of repayment) shall be established by the Plan Administrator in its
sole discretion. In no event shall the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any
Federal, state and local income and employment tax liability incurred by the
Optionee or the Participant in connection with the option exercise or share
purchase.
II. EFFECTIVE DATE AND TERM OF PLAN
A. The Board adopted the Plan on July 16, 1997, and the
stockholders approved the Plan in July 1997. The Plan became effective on
the Underwriting Date. The Board amended and restated the Plan on March 10,
1998.
B. The Plan shall terminate upon the earliest of (i) June 30,
2007, (ii) the date on which all shares available for issuance under the Plan
shall have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. All options
and unvested stock issuances outstanding at that time under the Plan shall
continue to have full force and effect in accordance with the provisions of
the documents evidencing such options or issuances.
III. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no
such amendment or modification shall adversely affect the rights and
obligations with respect to options or unvested stock issuances at the time
outstanding under the Plan unless the Optionee or the Participant consents to
such amendment or modification. In addition, certain amendments may require
stockholder approval pursuant to applicable laws and regulations.
B. Options may be granted under the Discretionary Option Grant
Program and shares may be issued under the Stock Issuance Program which are
in each instance in excess of the number of shares of Class A Common Stock
then available for issuance under the Plan, provided any excess shares
actually issued under those programs shall be held in escrow until
-15-
<PAGE>
there is obtained stockholder approval of an amendment sufficiently
increasing the number of shares of Class A Common Stock available for
issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess issuances are made,
then (i) any unexercised options granted on the basis of such excess shares
shall terminate and cease to be outstanding and (ii) the Corporation shall
promptly refund to the Optionees and the Participants the exercise or
purchase price paid for any excess shares issued under the Plan and held in
escrow, together with interest (at the applicable Short Term Federal Rate)
for the period the shares were held in escrow, and such shares shall
thereupon be automatically cancelled and cease to be outstanding.
IV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares of
Class A Common Stock under the Plan shall be used for general corporate
purposes.
V. WITHHOLDING
The Corporation's obligation to deliver shares of Class A Common Stock
upon the exercise of any options or upon the vesting of any shares issued
under the Plan shall be subject to the satisfaction of all applicable
Federal, state and local income and employment tax withholding requirements.
VI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any options under the
Plan and the issuance of any shares of Class A Common Stock (i) upon the
exercise of any option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the
options granted under it and the shares of Class A Common Stock issued
pursuant to it.
VII. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by
each, to terminate such person's Service at any time for any reason, with or
without cause.
-16-
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program in effect under Article Four of the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean
(i) a change in ownership or control of the Corporation
effected through either of the following transactions:
(A) the acquisition, directly or indirectly by any
person or related group of persons (other than the Corporation, or a
person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation), of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined
voting power of the outstanding securities of the Corporation
pursuant to a tender or exchange offer made directly to the
Corporation's stockholders, or
(B) a change in the composition of the Board over a
period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (A) have been Board members continuously
since the beginning of such period or (B) have been elected or
nominated for election as Board members during such period by at
least a majority of the Board members described in clause (A) who
were still in office at the time the Board approved such election or
nomination, or
(ii) a change in ownership of the Named Subsidiary effected
through the acquisition by any person (or related group of persons),
whether by tender or exchange offer made directly to the
stockholders of the Named Subsidiary, private purchases from one or
more of the stockholders of the Named Subsidiary, one or more direct
issuances of securities from the Named Subsidiary or by any other
transaction, of beneficial ownership (within the meaning of Rule
13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the outstanding
securities of the Named Subsidiary.
D. CLASS A COMMON STOCK shall mean shares of the Corporation's
Class A Common Stock, which shall be registered under Section 12(g) of the 1934
Act and shall have the right to one (1) vote per share on all matters subject to
stockholder approval.
E. CODE shall mean the Internal Revenue Code of 1986, as amended.
A-1
<PAGE>
F. COMMITTEE shall mean a committee of two (2) or more Board members
appointed by the Board to exercise one or more administrative functions under
the Plan.
G. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which (i) the Corporation is a party while
the Parent of the Named Subsidiary or (ii) the Named Subsidiary is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of
the outstanding securities of the Corporation or the Named
Subsidiary (as the case may be) are transferred to a person or
persons different from the person or persons holding those
securities immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation or the Named
Subsidiary (as the case may be) in complete liquidation or
dissolution of the Corporation or the Named Subsidiary.
H. CORPORATION shall mean Scheid Vineyards Inc., a Delaware
corporation, and any successor corporation to all or substantially all of the
assets or voting stock of Scheid Vineyards Inc. which shall by appropriate
action adopt the Plan.
I. DISABILITY shall mean the inability of the Optionee or the
Participant to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment and shall be determined by
the Plan Administrator on the basis of such medical evidence as the Plan
Administrator deems warranted under the circumstances.
J. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary
option grant program in effect under Article Two of the Plan.
K. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
L. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
M. FAIR MARKET VALUE per share of Class A Common Stock on any
relevant date shall be determined in accordance with the following provisions:
(i) If the Class A Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the
closing selling price per share of Class A Common Stock on the date
in question, as such price is reported by the National Association
of Securities Dealers on the Nasdaq National Market. If there is no
closing selling price for the Class A Common Stock on the date in
question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
A-2
<PAGE>
(ii) If the Class A Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing
selling price per share of Class A Common Stock on the date in
question on the Stock Exchange determined by the Plan Administrator
to be the primary market for the Class A Common Stock, as such price
is officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Class A
Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for
which such quotation exists.
N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
O. INVOLUNTARY TERMINATION shall mean the termination of the Service
of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her duties and responsibilities or the level of
management to which he or she reports, (B) a reduction in his or her
level of compensation (including base salary, fringe benefits and
target bonuses under any corporate-performance based bonus or
incentive programs) by more than fifteen percent (15%) or (C) a
relocation of such individual's place of employment by more than
fifty (50) miles, provided and only if such change, reduction or
relocation is effected without the individual's consent.
P. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
R. NAMED SUBSIDIARY shall mean Scheid Vineyards California Inc.,
a California corporation and a Subsidiary of the Corporation, and any
successor corporation to all or substantially all of the assets or voting
stock of Scheid Vineyards California Inc.
S. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
A-3
<PAGE>
T. OPTIONEE shall mean any person to whom an option is granted
under the Plan.
U. PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided
each corporation in the unbroken chain (other than the Corporation) owns, at
the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
V. PARTICIPANT shall mean any person who is issued shares of
Class A Common Stock under the Stock Issuance Program.
W. PERMANENT DISABILITY or PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of
twelve (12) months or more. However, solely for purposes of the Automatic
Option Grant Program, Permanent Disability or Permanently Disabled shall mean
the inability of the non-employee Board member to perform his or her usual
duties as a Board member by reason of any medically determinable physical or
mental impairment expected to result in death or to be of continuous duration
of twelve (12) months or more.
X. PLAN shall mean the Corporation's 1997 Stock Option/Stock
Issuance Plan, as set forth in this document.
Y. PLAN ADMINISTRATOR shall mean the particular entity, whether
the Primary Committee, the Board or the Secondary Committee, which is
authorized to administer the Discretionary Option Grant and Stock Issuance
Programs with respect to one or more classes of eligible persons, to the
extent such entity is carrying out its administrative functions under those
programs with respect to the persons under its jurisdiction.
Z. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to
Section 16 Insiders.
AA. SECONDARY COMMITTEE shall mean a committee of one (1) or more
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.
AB. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit restrictions of Section 16 of
the 1934 Act.
AC. SERVICE shall mean the provision of services to the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in
the documents evidencing the option grant.
A-4
<PAGE>
AD. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.
AE. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into
by the Corporation and the Participant at the time of issuance of shares of
Class A Common Stock under the Stock Issuance Program.
AF. STOCK ISSUANCE PROGRAM shall mean the stock issuance program
in effect under Article Three of the Plan.
AG. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in
the unbroken chain owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
AH. 10% STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Corporation (or
any Parent or Subsidiary).
AI. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Class A Common Stock.
AJ. UNDERWRITING DATE shall mean the date on which the Underwriting
Agreement is executed and priced in connection with an initial public offering
of the Class A Common Stock.
A-5
<PAGE>
AMENDMENT NO. 1 TO
VINEYARD DEVELOPMENT AND MANAGEMENT AGREEMENT
THIS AMENDMENT NO. 1 TO VINEYARD DEVELOPMENT AND MANAGEMENT AGREEMENT
(this "Amendment") is entered into to be effective as of March 28,1997 by and
between HEUBLEIN, INC., a Connecticut corporation ("Heublein") and SCHEID
VINEYARDS AND MANAGEMENT CO., a California corporation ("Scheid").
RECITALS
A. Heublein and Scheid are parties to that certain Vineyard
Development and Management Agreement dated as of December 1, 1995 (the
"Original Agreement"), covering certain properties owned or leased by
Heublein and described therein as the "Development Property" and the "Managed
Properties," and collectively as the "Properties." (Defined terms used in
this Amendment and not otherwise defined herein shall have the respective
meanings assigned to them in the Original Agreement.)
B. Heublein is also the owner of that certain property consisting of
approximately 147.91 acres more specifically described on EXHIBIT 1 hereto
(which property is referred to herein as the "Additional Property").
Heublein desires to engage Scheid, and Scheid desires to be engaged, to
redevelop, manage and farm the Additional Property as a winegrape vineyard by
including the Additional Property as one of the "Properties," and as a part
of the "Development Property," under the Original Agreement.
C. The parties desire to repay the Development Loan described in the
Original Agreement and obtain a new loan from a new lender, which new loan
will increase the amount of the credit facility by an amount necessary to
develop the Additional Property. In connection therewith, the Letter of
Credit will be replaced with a new letter of credit as provided herein.
D. In connection with the matters described in Recitals B and C
above, the parties wish to amend the Original Agreement in the manner
provided herein.
AGREEMENT
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
-1-
<PAGE>
1. REDEVELOPMENT, MANAGEMENT AND FARMING OF ADDITIONAL PROPERTY.
1.1 ADDITIONAL PROPERTY TO BECOME A PART OF THE DEVELOPMENT
PROPERTY. Effective as of March 28, 1997 (the "Effective Date"), the
Additional Property shall become a part of the Development Property under
the Original Agreement and accordingly the Additional Property shall be
redeveloped, farmed and managed by Scheid as an independent contractor in the
same manner as the Development Property and in compliance with all of the
terms and provisions of the Original Agreement, except as otherwise expressly
provided in this Amendment. Without limiting the foregoing, Scheid expressly
acknowledges and agrees that all of the duties, responsibilities and
reporting requirements of Scheid set forth in the Original Agreement with
respect to the Development Property shall apply as of the Effective Date with
respect to the Additional Property, except as otherwise expressly provided in
this Amendment.
1.2 REVISED DEVELOPMENT PLAN. The redevelopment of the Additional
Property as a winegrape vineyard shall be conducted in accordance with, and
Scheid agrees to comply with the requirements and take the actions which are
set forth in, the "Three Year Development Plan" attached hereto as EXHIBIT 2.
As of the Effective Date, the term "Development Plan" as used in the
Original Agreement shall mean the Three Year Development Plan attached hereto
as EXHIBIT 2 together with the original Development Plan attached to the
Original Agreement as Exhibit B.
1.3 PLANS AND BUDGETS. The Plans and Budgets described in the
Original Agreement to be submitted by Scheid to Heublein shall include, as of
the Effective Date, the Additional Property, with information in such Plans
and Budgets to be separately stated for the Additional Property. Attached
hereto as EXHIBIT 3A is the Budget for the Managed Properties for the period
December 1, 1996 through November 30, 1997, which has been approved by
Heublein. The parties agree that this Budget is a maximum Budget for such
period with respect to the Managed Properties and shall not be exceeded by
Scheid unless approved in advance in writing by Heublein. Attached hereto as
EXHIBIT 3B is the Budget for the Development Property for the period
commencing December 1, 1996 and ending November 30, 1997, which has been
approved by Heublein and which shall likewise be a maximum Budget for such
period. All of the requirements and limitations set forth in the Original
Agreement with respect to Plans and Budgets for the Properties (including
without limitation requirements relating to information to be contained in
such Plans and Budgets, Heublein's approval rights, and the obligation of
Scheid to perform in accordance with such Plans and Budgets), shall also
apply as of the Effective Date with respect to that portion of each Plan and
Budget which covers the Additional Property.
-2-
<PAGE>
1.4 INFORMATION AND REPORTS. All notices, reports, statements,
demands, requests, claims and inquiries to be provided by Scheid to Heublein
under the Original Agreement (including without limitation the Reports
described in Section 4.10 thereof) shall apply to and be provided with
respect to the Additional Property as of the Effective Date.
1.5 INSURANCE. All insurance to be provided under Section 12 of
the Original Agreement shall also be provided with respect to the Additional
Property as of the later of the date of execution hereof and the Effective
Date, and Scheid shall provide to Heublein insurance certificates or policies
under Section 12.2C of the Original Agreement, evidencing compliance with
Section 12 of the Original Agreement and this Section 1.5.
2. DEVELOPMENT FINANCING.
2.1 NEW DEVELOPMENT LOAN. Concurrently with the execution and
delivery of this Amendment, the Development Loan described in the Original
Agreement is being repaid in full and replaced by a $7,500,000 credit
facility (the "New Development Loan") obtained by Scheid from Bank of
America, NT&SA (together with any successor or participant with such lender,
the "New Lender"), pursuant to which the New Lender has (i) advanced to
Scheid the sum of $2,845,342.98, which has been used to repay in full the
Development Loan described in the Original Agreement, and (ii) agreed to lend
Scheid up to an additional $4,654,657.02 for the redevelopment of the
Development Property (including up to $2,000,000 for the Additional
Property). In order to facilitate the making of, and to provide security
for, the New Development Loan, Heublein has provided to the New Lender a
standby letter of credit in the amount of $7,612,500 (together with any
modifications, renewals or replacements thereof, the "New Letter of Credit").
Accordingly, as of the Effective Date, (a) the terms "Development Loan,"
"Lender," and "Letter of Credit" as used in the Original Agreement shall
refer to the New Development Loan, the New Lender and the New Letter of
Credit, respectively, (b) the term "Development Loan Documents" shall refer
to all of the documents and instruments executed and delivered by Scheid
(and/or any of its Affiliates) in connection with the New Development Loan,
(c) the term "Development Loan Advance" shall refer to amounts under the New
Development Loan funded by the New Lender in installments as redevelopment
proceeds, and (d) the term "Development Loan Repayment Schedule" shall refer
to the schedule set forth in said Development Loan Documents for repaying the
New Development Loan. Pursuant to Section 3.7 of the Original Agreement,
Heublein hereby consents to the New Development Loan and the Development Loan
Documents in connection therewith.
2.2 AMENDMENT OF SECTION 3.3. Section 3.3 of the Original
Agreement shall be amended to read in full as follows as of the Effective
Date:
-3-
<PAGE>
"3.3 REPAYMENT OF DEVELOPMENT COSTS. In
consideration for Scheid's redeveloping the Development
Property in the manner provided in this Agreement, and subject
to the provisions of Section 3.4, Heublein shall pay to Scheid
an amount (the "Repayment Amount") equal to the aggregate
principal amount borrowed under the Development Loan (the
"Principal Amount") and all interest accrued thereon (but
excluding the loan fee in the amount of $37,500 payable to the
Lender upon execution of the Development Loan Documents and
interest amounts accrued and payable with respect to the
Principal Amount prior to January 5, 2000, which amounts are
payable from the proceeds of the Development Loan and are or
will be included in applicable Budgets); PROVIDED, HOWEVER, that
in no event will the Principal Amount exceed $6,300,000 plus
accrued interest unless Heublein otherwise expressly agrees
in writing. The Repayment Amount shall be paid to Scheid in
immediately available funds as follows: (a) in monthly
installments commencing January 4, 2000, and continuing on the
fourth day of each month thereafter, with each such installment
to be in an amount equal to the corresponding interest owing for
each such month by Scheid to the Lender under the Development
Loan Documents, and (b) in six yearly installments commencing
January 4, 2000, and continuing on January 4 of each year
thereafter, with each such installment to be in an amount equal
to the corresponding installment of principal owing for each
such year by Scheid to the Lender under the Development Loan
Documents. All Repayment Amount installments (and all other
payments and prepayments of the Repayment Amount) paid by
Heublein shall be applied by Scheid to amounts then owing under
the Development Loan and shall not be used for any other
purpose whatsoever. Scheid hereby irrevocably authorizes
Heublein to pay all Repayment Amount installments (and all
other payments and prepayments of the Repayment Amount) to such
account or accounts as the Lender may specify and Heublein may
approve, to be applied to the Development Loan."
2.3 PROVISIONS OF ORIGINAL AGREEMENT APPLICABLE TO NEW
DEVELOPMENT LOAN. As of the Effective Date, all of the terms and provisions
of the Original
-4-
<PAGE>
Agreement that apply with respect to the Development Loan and the advances
and repayments thereunder shall apply to the New Development Loan and the
advances and repayments thereunder, in the same manner and with the same
effect as set forth in the Original Agreement except as set forth in Section
2.2 above and except that:
(i) Development Loan Advances (other than amounts necessary
to repay the Development Loan described in the Original Agreement,
which loan is being repaid concurrently with the execution and
delivery of this amendment) shall be taken down substantially in
accordance with EXHIBIT 4 attached hereto and shall be used solely
to make the payments under the Development Loan shown thereon and
to pay the Development costs for the redevelopment of the
Development Property in the manner provided in the revised
Development Plan and in amounts consistent with the applicable
approved budgets; it is acknowledged and understood that the
redevelopment is subject to many variables (including weather)
which may cause timing differences from month to month from the
projections set forth in the Budgets; and
(ii) the aggregate of all Development Loan Advances with
respect to the Development Property over the term of the
redevelopment shall not exceed $7,500,000, unless Heublein
otherwise expressly agrees in writing.
2.4 OPTIONAL INTEREST RATES. Without the prior written consent
of Heublein, Scheid shall not select any of the optional interest rates
described in Section 1.5 and Section 2 of the Business Loan Agreement which
comprises a part of the Development Loan Documents. Heublein shall have the
right to select on behalf of Scheid any such optional interest rates and
Scheid will cooperate with Heublein in selecting and implementing the same.
Scheid shall have no responsibility for initiating the selection of any
optional interest rate. At the time Heublein selects any such optional
interest rates on behalf of Scheid, Heublein will provide notice to Scheid of
the interest rate selected.
2.5 ADDITIONAL PAYMENT. The parties acknowledge that the amount
available under the New Development Loan is approximately $128,500 less than
the total anticipated Development Loan drawdowns set forth on Exhibit 4.
Accordingly, if during the third development year the total Development Costs
are reasonably likely to exceed the available amount under the New
Development Loan, and if Scheid is not then in breach of the Development Loan
Documents or the Original Agreement as amended hereby, Heublein will pay to
Scheid on an as-needed basis the amount of the anticipated shortfall not to
exceed $128,500. Said payment shall be used by Scheid only for the
development of the Development Property in accordance with the terms of the
Original Agreement as amended hereby.
-5-
<PAGE>
3. TERM.
Section 10.1 of the Original Agreement is amended by replacing
each reference to the date "November 30, 2008" with the date "November 30,
2009" and by replacing the reference to the date "May 31, 2008" with the date
"May 31, 2009".
4. FEES.
The following provisions shall apply with respect to fees to be
paid to Scheid under Section 14 of the Original Agreement:
4.1 MANAGEMENT FEE. The Management Fee of $200 for each acre of
Farmed Acreage of the Properties shall commence as of December 1, 1996 with
respect to the Farmed Acreage of the Additional Property.
4.2 FINANCING FEE. The Financing Fee, at the rate and on the
payment schedule as is described in Section 14.2 of the Original Agreement,
shall be paid with respect to the New Development Loan.
4.3 CONSTRUCTION FEE. In addition to the Construction Fee
described in the Original Agreement (which Scheid acknowledges has been paid
in full), Scheid shall receive an additional Construction Fee in the amount
of $88,746. This additional Construction Fee shall not be paid by Heublein
but instead shall be drawn by Scheid under the Development Loan in equal
installments of $44,373 with the first installment to be drawn on or after
the date of execution and delivery of this Amendment, and the second
installment to be drawn on December 1, 1997. The amount of the additional
Construction Fee so drawn by Scheid shall be added to and become a part of
the Repayment Amount to be paid by Heublein in the manner provided in Section
3.3 of the Original Agreement. In the event that the Original Agreement
terminates prior to November 30, 1998, then Scheid shall only be entitled to
retain as an additional Construction Fee an amount equal to the LESSER of (x)
the additional Construction Fee drawn by Scheid prior to such termination or
(y) an amount equal to the product of:
(i) $88,746; and
(ii) a fraction the numerator of which is the number of
days from December 1, 1996 until the date of such termination and
the denominator of which is 730;
and Scheid, in addition to any refunds of the original Construction Fee to be
made pursuant to Section 14.3 of the Original Agreement, shall promptly
refund to Heublein
-6-
<PAGE>
the balance of any additional Construction Fee drawn by, but not entitled to
be retained by, Scheid.
4.4 TERMINATION FEE. Section 14.4 of the Original Agreement is
amended by (i) deleting the table of amounts for various termination dates
contained in that Section and replacing it with the following:
<TABLE>
<CAPTION>
Termination Date Amount
---------------- ------
<S> <C>
November 30, 1997 $674,964
November 30, 1998 $562,470
November 30, 1999 $449,976
November 30, 2000 $337,482
November 30, 2001 $337,482
November 30, 2002 $337,482
November 30, 2003 $224,988
November 30, 2004 $112,494
November 30, 2005 $29,582
November 30, 2006 or thereafter 0
</TABLE>
and (ii) changing the denominator described therein from "612" to "749."
4.5 LOAN FEE. The parties acknowledge that the New Lender is
charging a Loan Fee in the amount of $37,500 which is payable to the New
Lender upon execution of the New Lender's Development Loan Documents. Said
Loan Fee shall be payable from the proceeds of the New Development Loan and
is included in the Budget for the period December 1, 1996 through November
30, 1997.
5. RENT FOR RESIDENCES USED BY SCHEID.
The last sentence of Section 4.11 of the Original Agreement, as
amended by a letter agreement between the parties, shall be further amended
by increasing the monthly rent for Residence No. 1 to $475. (Rent for
Residence No. 2 shall remain at $150 per month.) Such rent increase shall be
effective as of April 1, 1997, and accordingly as of April 1, 1997, the
"$400" amount set forth in clause (ii) of Section 5.2 of the Original
Agreement shall be changed to "$625."
6. HAZARDOUS WASTE INDEMNIFICATION.
6.1 HEUBLEIN REIMBURSEMENT OBLIGATION. Reference is made to
Section 8 of that certain Business Loan Agreement of even date herewith
between Scheid and the New Lender which comprises a part of the Development
Loan Documents, which Section 8 provides that Scheid, on the terms set forth
therein, will indemnify the New
-7-
<PAGE>
Lender from certain losses or liabilities relating to "hazardous substances"
with respect to the Properties (the "Hazardous Waste Indemnification"). In
the event and to the extent that Scheid is required to indemnify and hold
harmless the New Lender under the Hazardous Waste Indemnification, then
Heublein will promptly reimburse Scheid for any costs or expenses incurred by
Scheid in so doing; PROVIDED, HOWEVER, that Heublein shall not be required to
provide reimbursement for, or otherwise have any liability or responsibility
on account of:
(i) any indemnification or other obligation of Scheid under
or relating to the Hazardous Waste Indemnification which arises
directly or indirectly from any use, generation, manufacture,
production, storage, release, threatened release, discharge or
disposal of a "hazardous substance" (as defined in the Hazardous
Waste Indemnification) by Scheid or by any of Scheid's agents,
employees, contractors, representatives, affiliates, successors or
assigns; or
(ii) any breach by Scheid of the provisions of Section 7 of
the Original Agreement.
6.2 NOTICE AND RIGHT TO DEFEND. In the event Scheid receives
notice of or otherwise becomes aware that the New Lender is seeking to make a
claim or otherwise exercise its rights under the Hazardous Waste
Indemnification (a "Claim"), Scheid shall immediately give notice thereof to
Heublein. Unless Scheid acknowledges and agrees in a writing reasonably
acceptable to Heublein that Heublein has no liability or obligation, under
Section 6.1 or otherwise, with respect to the matter giving rise to the
Claim, then Heublein shall have the right to assume and control the defense
of such Claim and otherwise deal with the New Lender with respect to all
aspects of the Claim, including without limitation the right to settle such
Claim on such terms as Heublein may determine in its sole judgment; provided,
however, that if such settlement does not include an unconditional release of
Scheid with respect to the matter giving rise to the Claim, such settlement
shall require the written consent of Scheid, which consent shall not be
unreasonably delayed or withheld. If Heublein elects to assume the defense
of such Claim, (i) notwithstanding anything to the contrary contained herein,
Heublein shall not be required to pay or otherwise indemnify Scheid against
any attorneys' fees or other expenses incurred on behalf of Scheid in
connection with such Claim following Heublein's election to assume the
defense of such Claim, (ii) Scheid shall fully cooperate as reasonably
requested by Heublein in the defense or settlement of such Claim, (iii)
Heublein shall keep Scheid informed of all material developments and events
relating to such Claim, and (iv) Scheid shall have the right to participate,
at its own expense, in the defense of such Claim. In no event will Heublein
be liable for any settlement or admission of liability with respect to such
Claim without its prior written consent.
-8-
<PAGE>
7. TAX WITHHOLDING; ADDITIONAL COSTS. Reference is made to Sections
4.6 and 4.7 of the Business Loan Agreement of even date herewith between
Scheid and the New Lender (the "Business Loan Agreement"). Heublein and
Scheid agree to reasonably cooperate so that (i) payments made the New Lender
are not subject to the foreign taxes, similar taxes or additional amounts
("collectively, "Taxes") referred to in said Section 4.6, and (ii) the Bank
does not charge to Scheid any of the costs or losses referred to in said
Section 4.7 (collectively, "Costs"). If, notwithstanding such cooperation,
such payments are actually subject to any such Taxes or such Costs are
actually incurred by Scheid, then (x) Heublein will promptly reimburse Scheid
for all Taxes and Costs so paid by Scheid, and (y) Heublein and Scheid will
confer in good faith to renegotiate the Development Loan Documents and/or the
provisions of the Original Agreement as amended hereby so that no further
Taxes or Costs are paid or incurred by Scheid or charged by the New Lender.
In no event will Scheid make any payments to the New Lender under the
Business Loan Agreement from outside the United States.
8. REIMBURSEMENT OF CERTAIN COSTS UNDER BUSINESS LOAN AGREEMENT.
Reference is made to Sections 3.2 and 3.3 of the Business Loan Agreement.
Heublein will promptly reimburse Scheid for all expenses charged by the New
Lender to, and actually paid by, Scheid pursuant to said Sections 3.2 and
3.3. Scheid will cooperate with Heublein in keeping such expenses as low as
reasonably possible and will provide to Heublein promptly after receipt
thereof all notices and information received by Scheid with respect to such
expenses.
9. INDEMNIFICATION REIMBURSEMENT.
9.1 HEUBLEIN REIMBURSEMENT OBLIGATION. Reference is made to
Section 10.9 of the Business Loan Agreement regarding indemnification of the
New Lender by Scheid (the "Indemnification"). In the event that any
indemnification is required from time to time to be made by Scheid
thereunder, Heublein shall reimburse Scheid upon demand for any payments made
by Scheid pursuant to such Section (the "Indemnification Amounts"); provided,
however, that Heublein shall not be obligated to reimburse Scheid for any
Indemnification Amounts to the extent that such Indemnification Amounts arise
or result from (i) the inaccuracy of any representation or warranty made by
Scheid in the Development Loan Documents or the Original Agreement, as
amended hereby, (ii) any breach or default by Scheid of the obligations under
the Development Loan Documents or the Original Agreement, as amended hereby,
or (iii) the gross negligence or willful misconduct of Scheid or its agents,
representatives or contractors.
9.2 NOTICE AND RIGHT TO DEFEND. In the event Scheid receives
notice of or otherwise becomes aware that the New Lender is seeking to make a
claim or otherwise exercise its rights under the Indemnification (an
"Indemnification Claim"),
-9-
<PAGE>
Scheid shall immediately give notice thereof to Heublein. Unless Scheid
acknowledges and agrees in a writing reasonably acceptable to Heublein that
Heublein has no liability or obligation, under Section 9.1 or otherwise, with
respect to the matter giving rise to the Indemnification Claim, then Heublein
shall have the right to assume and control the defense of such
Indemnification Claim and otherwise deal with the New Lender with respect
to all aspects of the Indemnification Claim, including without limitation the
right to settle such Indemnification Claim on such terms as Heublein may
determine in its sole judgment; provided, however, that if such settlement
does not include an unconditional release of Scheid with respect to the
matter giving rise to the Indemnification Claim, such settlement shall
require the written consent of Scheid, which consent shall not be
unreasonably delayed or withheld. If Heublein elects to assume the defense
of such Indemnification Claim, (i) notwithstanding anything to the contrary
contained herein, Heublein shall not be required to pay or otherwise
indemnify Scheid against any attorneys' fees or other expenses incurred on
behalf of Scheid in connection with such Indemnification Claim following
Heublein's election to assume the defense of such Indemnification Claim, (ii)
Scheid shall fully cooperate as reasonably requested by Heublein in the
defense or settlement of such Indemnification Claim, (iii) Heublein shall
keep Scheid informed of all material developments and events relating to such
Indemnification Claim, and (iv) Scheid shall have the right to participate,
at its own expense, in the defense of such Indemnification Claim. In no
event will Heublein be liable for any settlement or admission of liability
with respect to such Indemnification Claim without its prior written consent.
10. MISCELLANEOUS.
10.1 ORIGINAL AGREEMENT TO REMAIN IN FULL FORCE AND EFFECT.
Except as expressly modified in the manner provided in this Amendment, the
Original Agreement shall remain unchanged and shall remain in full force and
effect in accordance with its terms.
10.2 OTHER PROVISIONS. The miscellaneous provisions set forth
in Section 15 of the Original Agreement (including without limitation
provisions dealing with assignment, interpretation, delivery of statements
and notices, arbitration of disputes, severability, governing law and waiver)
shall remain in full force and effect and shall be deemed to apply to the
provisions of this Amendment. The Original Agreement and this Amendment
(together with the exhibits thereto and hereto) supersede all prior
agreements between the parties with respect to the subject matter thereof and
hereof and constitute a complete and exclusive statement of the terms of the
agreements between the parties with respect to the subject matter thereof and
hereof. The Original Agreement, as amended by this Amendment, may not be
amended or terminated (other than in accordance with its terms) except by a
written agreement executed by the parties hereto.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment to be
effective as of the date first above written.
HEUBLEIN, INC.
By /s/ M.A. Larson
-----------------------------------
M.A. Larson
-----------------------------------
[Printed Name and Title]
SCHEID VINEYARDS AND MANAGEMENT CO.
By /s/ Alfred G. Scheid
-----------------------------------
Alfred G. Scheid, Chairman and CEO
-----------------------------------
[Printed Name and Title]
<PAGE>
EXHIBIT 10.24
AMENDED AND RESTATED
BUY-SELL AGREEMENT
THIS AMENDED AND RESTATED BUY-SELL AGREEMENT (this "AGREEMENT") is made and
entered into as of December 31, 1997, by and among SCHEID VINEYARDS INC., a
Delaware corporation (the "CORPORATION"), ALFRED G. SCHEID, AS TRUSTEE OF THE
ALFRED G. SCHEID REVOCABLE TRUST, DATED OCTOBER 8, 1992 ("AGS"), SCOTT D. SCHEID
("SDS"), HEIDI M. SCHEID ("HMS"), KURT J. GOLLNICK ("KJG"), EMILY K. LIBERTY
("EKL"), TYLER P. SCHEID ("TPS"), the additional stockholders of the
Corporation, if any, identified on Exhibit A attached hereto and by this
reference incorporated herein (the "ADDITIONAL STOCKHOLDERS" and, together with
SDS, HMS, KJG, EKL and TPS the "MINORITY STOCKHOLDERS") and EMANTY LIMITED
LIABILITY COMPANY, a California limited liability company ("EMANTY"). The
Minority Stockholders and AGS are collectively referred to herein as the
"STOCKHOLDERS."
RECITALS
WHEREAS, the Stockholders are the holders of all of the outstanding shares
(the "SHARES") of Class B Common Stock of the Corporation;
WHEREAS, the Corporation and the Stockholders have determined that it is in
the best interests of the Corporation and the Stockholders that the
transferability of the Shares of the Minority Stockholders be restricted as
provided herein;
WHEREAS, the Corporation and the Stockholders (or the predecessors in
interest of certain of the Stockholders) entered into that certain Buy-Sell
Agreement, dated as of July 29, 1997 (the "ORIGINAL AGREEMENT");
WHEREAS, as a result of certain transfers of the Shares permitted by the
Original Agreement, the parties hereto (the "PARTIES") have determined that it
is necessary to make certain amendments to the Original Agreement and that in
connection therewith it is desirable to restate the Original Agreement as so
amended; and
WHEREAS, the Parties have each independently concluded that the method of
valuation of the Shares provided in this Agreement is fair and equitable.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
agreements and covenants contained herein, the Parties agree as follows:
1. RESTRICTIONS ON TRANSFER. Except as expressly permitted or required
by this Agreement, no Minority Stockholder shall, voluntarily or involuntarily
(including, without limitation, by operation of law) transfer, sell, exchange,
give away, pledge, hypothecate or
<PAGE>
otherwise dispose of ("TRANSFER") all or any portion of the Shares or any
rights therein. Any Transfer or attempted Transfer in violation of the
preceding sentence shall be null and void and of no effect whatever. Each
Party hereby acknowledges the reasonableness of the restrictions on Transfer
imposed by this Agreement in view of the relationship of the Parties.
Accordingly, the restrictions on Transfer contained herein shall be
specifically enforceable. Each Party hereby further agrees to hold each other
Party (and each other Party's successors and assigns) wholly and completely
harmless from any cost, liability or damage (including, without limitation,
liabilities for income taxes and costs of enforcing this indemnity) incurred
by any of such indemnified persons as a result of a Transfer or an attempted
Transfer in violation of this Agreement.
2. INSPECTION OF AGREEMENT. A copy of this Agreement duly executed by
each of the Parties shall be delivered to the Corporation, maintained by the
Corporation at its principal executive office, and made available for inspection
to any person requesting to see it.
3. PERMITTED TRANSFERS.
(a) GENERAL. Subject to the conditions and restrictions set forth in
this Section 3, each Minority Stockholder shall have the right to Transfer all
or any portion of such Minority Stockholder's Shares by means of a Permitted
Transfer.
(b) DEFINITION OF PERMITTED TRANSFER AND PERMITTED TRANSFEREES.
(i) A "PERMITTED TRANSFER" is any Transfer by any Minority
Stockholder of all or any portion of the Shares to a Permitted Transferee,
provided that such Transfer otherwise complies with the conditions and
restrictions of this Section 3.
(ii) A "PERMITTED TRANSFEREE" is any of the following persons: (1)
the Corporation, (2) any of AGS, SDS, HMS, KJG, EKL or TPS, (3) a current
spouse, former spouse or direct lineal descendant of any individual named
in clause (2) above, including, without limitation, adopted persons (if
adopted during minority) and persons born out of wedlock, and excluding
foster children and stepchildren, (4) a trust under which all of the
beneficiaries are persons described in clauses (2) or (3) above, or (5) a
corporation, partnership or limited liability company all of the equity
interests of which are owned by the persons or entities specified in
clauses (1), (2), (3) and (4) above or corporations, partnerships or
limited liability companies described in this clause (5).
(c) CONDITION TO PERMITTED TRANSFERS. Each Permitted Transfer must
be preceded by a written notice given by the transferring Minority Stockholder
to the Corporation, and to each of AGS, SDS and HMS to the extent he or she is
not the transferring Minority Stockholder, at least ten (10) business days prior
to such Permitted Transfer. Each person or entity (other than the Corporation
and AGS) to whom or which Shares (or any right, title or interest therein) are
Transferred by means of a Permitted Transfer must, as a condition precedent to
the validity of such Transfer, acknowledge in writing to the Corporation that
such person or entity is bound by the provisions of this Agreement and the
transferred Shares (or
-2-
<PAGE>
any right, title or interest therein) are subject to the covenants and
restrictions set forth in this Agreement to the same extent such Shares would be
so subject if retained by the transferring Minority Stockholder.
4. RIGHT OF FIRST REFUSAL. Each Minority Stockholder shall have the
right, from time to time, to Transfer or to convert into Class A Common Stock of
the Corporation in accordance with the Certificate of Incorporation of the
Corporation ("CONVERT"), all or any portion of such Minority Stockholder's
Shares, subject to the following rights of the other Parties (the "RIGHT OF
FIRST REFUSAL"), pursuant to the following steps:
(a) SALE OR CONVERSION NOTICE. Such Minority Stockholder (the
"SELLING OR CONVERTING STOCKHOLDER") shall give written notice (the "SALE OR
CONVERSION NOTICE") to the Corporation, AGS, SDS and HMS of his, her or its
intention to Transfer or Convert Shares. The Sale or Conversion Notice shall
(i) identify the proposed transferee, if applicable, (ii) specify the portion of
the Shares to be transferred or converted, (iii) if applicable, specify the
price and the terms of payment (the "SALE TERMS"), and (iv) if applicable,
specify the Purchase Price and Payment Terms described in Section 7 below.
(b) OPTION TO THE CORPORATION. The Corporation shall have the first
option to purchase all or any part of the Shares referred to in the Sale or
Conversion Notice at the lesser of (i) the Sale Terms, if applicable, and (ii)
the Purchase Price and upon the Payment Terms. Within five (5) business days
after delivery of the Sale or Conversion Notice to the Corporation, the
Corporation shall give written notice to AGS, SDS and HMS regarding the portion
or all of the Shares to be purchased by the Corporation.
(c) OPTION TO AGS. If the Corporation does not elect to purchase all
of the Shares referred to in the Sale or Conversion Notice, AGS shall have the
option to purchase all of the Shares referred to in the Sale or Conversion
Notice (other than the Shares to be purchased by the Corporation) at the lesser
of (i) the Sale Terms, if applicable, and (ii) the Purchase Price and upon the
Payment Terms. Within ten (10) business days after delivery of the Sale or
Conversion Notice to AGS, AGS shall give written notice to the Corporation, SDS
and HMS regarding the portion or all of the Shares to be purchased by AGS.
(d) OPTION TO SDS AND HMS. If the Corporation and/or AGS do not
elect to purchase all of the Shares referred to in the Sale or Conversion
Notice, (i) SDS and HMS (if neither SDS nor HMS is the Selling or Converting
Stockholder), jointly and (to the extent that each elects to exercise such
option) PRO RATA in proportion to the number of Shares held by each, (ii) SDS
(if HMS is the Selling or Converting Stockholder) or (iii) HMS (if SDS is the
Selling or Converting Stockholder), shall have the option to purchase all of the
Shares referred to in the Sale or Conversion Notice (other than the Shares to be
purchased by the Corporation and/or AGS) at the lesser of (A) the Sale Terms, if
applicable, and (B) the Purchase Price and upon the Payment Terms. Within
fifteen (15) business days after delivery of the Sale of Conversion Notice to
SDS and HMS, SDS and/or HMS, as applicable, shall give written notice the
Corporation, AGS and SDS or HMS, as applicable, regarding the portion or all of
the Shares to be purchased by SDS and/or HMS.
-3-
<PAGE>
(e) EXERCISE OF OPTION RIGHTS. If the Corporation, AGS, SDS and/or
HMS elect to purchase all of the Shares set forth in the Sale or Conversion
Notice, the Corporation, AGS, SDS and/or HMS, as applicable, shall purchase all
such Shares at the lesser of (i) the Sale Terms, if applicable, and (ii) the
Purchase Price and upon the Payment Terms.
(f) SALE TO PROPOSED TRANSFEREE. If the Corporation, AGS, SDS and/or
HMS do not elect to purchase all of the Shares set forth in the Sale or
Conversion Notice, such Shares, but not less than all of such Shares referred to
in the Sale or Conversion Notice, (i) in the case of a proposed Transfer may be
transferred at any time prior to the thirtieth (30th) business day after the
date of the Sale or Conversion Notice to the transferee identified in the Sale
Notice on the Sale Terms and (ii) in the case of a proposed conversion may be
converted into shares of Class A Common Stock of the Corporation in accordance
with the Certificate of Incorporation of the Corporation at any time prior to
the thirtieth (30th) business day after the date of the Sale or Conversion
Notice. No Transfer or conversion of the Shares shall be made after the end of
such thirty (30) business day period, nor shall any change in the terms and
conditions of Transfer or conversion be permitted, without the Selling or
Converting Stockholder first giving to the Corporation, AGS, SDS and HMS a new
Sale or Conversion Notice in compliance with the requirements of this Section.
(g) CONVERSION ON DIVORCE OR LEGAL SEPARATION. Notwithstanding the
foregoing provisions of this Section 4, if any Minority Stockholder who is an
individual should divorce or became legally separated (a "SEPARATING PARTY"),
the spouse of such Party (the "SPOUSE") shall, if such Spouse already is a
Party, or if such Spouse is not already a Party then, such Separating Party
shall cause the Spouse to, promptly give a Sale or Conversion Notice to the
Corporation, AGS, SDS and HMS indicating that all of the Shares owned by the
Spouse are proposed to be converted into Class A Common Stock of the Corporation
and thereby providing the Corporation, AGS, SDS and HMS with the options to
purchase such Shares in the manner specified herein. If the Corporation, AGS,
SDS and HMS do not elect to purchase all of the Shares set forth in the Spouse's
Sale or Conversion Notice, the Spouse shall, if such Spouse already is a Party,
or if such Spouse is not already a Party, then the Separating Party shall cause
the Spouse to, promptly convert all of the Shares owned by the Spouse into Class
A Common Stock of the Corporation in accordance with the Certificate of
Incorporation of the Corporation. The provisions of this Section 4(g) shall not
apply to any of Alfred G. Scheid, SDS, HMS, KJG, EKL and TPS to the extent that
any of them is at any time within the above definition of the term "Spouse."
5. LIMITED SALES TO THIRD PARTIES. Notwithstanding the provisions of
Section 4, a Minority Stockholder shall have the right to Transfer all or part
of such Minority Stockholder's Shares, without compliance with the Right of
First Refusal, as follows:
(a) SALES BY SDS, HMS, KJG, EKL AND TPS. Each of SDS, HMS, KJG, EKL
and TPS shall be entitled to Transfer to persons other than Permitted
Transferees: (i) on or prior to December 31, 1998, an aggregate of 50,000
Shares (the "INITIAL AMOUNT") and (ii) during 1999 and each calendar year
thereafter, 40,600 Shares (the "ANNUAL AMOUNT"); provided, however, in the event
that such Minority Stockholder Transfers less than the Initial
-4-
<PAGE>
Amount on or prior to December 31, 1998 and/or less than the Annual Amount in
1999 or any calendar year thereafter, then such Minority Stockholder shall be
entitled, in 1999 or any subsequent calendar year, to Transfer Shares in an
amount up to the Annual Amount for such calendar year PLUS any then unused
Initial Amount PLUS any then unused Annual Amounts from prior calendar years.
(b) EFFECT OF TRANSFERS. All transferees of Shares pursuant to this
Section 5 shall take such Shares free and clear of the covenants and
restrictions set forth in this Agreement. Any legend with respect to this
Agreement set forth on any certificate evidencing Shares transferred pursuant to
this Section 5 shall be removed upon the consummation of such Transfer.
6. OPTION TO PURCHASE UPON CERTAIN EVENTS.
(a) SALE EVENTS. Upon the occurrence of any of the following
events (each a "SALE EVENT"), the Corporation, AGS, SDS and/or HMS shall have
the option to purchase all of the Shares of a Minority Stockholder (the
"AFFECTED STOCKHOLDER"), at the Purchase Price and upon the Payment Terms,
pursuant to the provisions of this Section 6:
(i) the death of the Affected Stockholder;
(ii) the entry of a judgment awarding all or any part of the Shares
of the Affected Stockholder to any person who is not a Party;
(iii) the filing or recording of any levy or attachment against the
Shares of the Affected Stockholder;
(iv) the occurrence, with respect to the Affected Stockholder, of
any of the following: (A) filing a voluntary petition in bankruptcy or for
reorganization or for the adoption of an arrangement under the Federal
Bankruptcy Code (as now or in the future amended) or an admission seeking
the relief therein provided; (B) making a general assignment for the
benefit of creditors; (C) consenting to the appointment of a receiver for
all or a substantial part of the Affected Stockholder's property; (D) in
the case of the filing of an involuntary petition in bankruptcy, an entry
of an order for relief; (E) the entry of a court order appointing a
receiver or trustee for all or a substantial part of the Affected
Stockholder's property without his consent; or (F) the assumption of
custody or sequestration by a court of competent jurisdiction of all or
substantially all of the Affected Stockholder's property; or
(v) in the event that KJG is the Affected Stockholder, the
termination of employment of such Affected Stockholder with the
Corporation, voluntarily or involuntarily, with or without cause.
(b) OPTION TO THE CORPORATION. Upon the occurrence of a Sale
Event, the Corporation shall have the first option to purchase all of the Shares
of the Affected Stockholder. Within five (5) business days after the Sale
Event, the Corporation shall give
-5-
<PAGE>
written notice to AGS, SDS and HMS regarding the portion or all of the Shares to
be purchased by the Corporation.
(c) OPTION TO AGS. If the Corporation does not elect to purchase
all of the Shares of the Affected Stockholder, AGS shall have the option to
purchase all of such Shares (other than the portion of the Shares to be
purchased by the Corporation). Within ten (10) business days after the Sale
Event, AGS shall give written notice to the Corporation, SDS and HMS regarding
the portion or all of the Shares to be purchased by AGS.
(d) OPTION TO SDS AND HMS. If the Corporation and/or AGS do not
elect to purchase all of the Shares of the Affected Stockholder, (i) SDS and HMS
(if neither SDS nor HMS is the Affected Stockholder), jointly and (to the extent
that each elects to exercise such option) PRO RATA in proportion to the number
of Shares held by each, (ii) SDS (if HMS is the Affected Stockholder) or (iii)
HMS (if SDS is the Affected Stockholder), shall have the option to purchase all
of such Shares (other than the portion of the Shares to be purchased by the
Corporation and/or AGS). Within fifteen (15) business days after the Sale
Event, SDS and/or HMS, as applicable, shall give written notice to the
Corporation, AGS and SDS or HMS, as applicable, regarding the portion or all of
the Shares to be purchased by SDS and/or HMS.
(e) EXERCISE OF OPTION. If the Corporation, AGS, SDS and/or HMS
elect to purchase all of the Shares of the Affected Stockholder pursuant to this
Section 6, the Corporation, AGS, SDS and/or HMS, as applicable, shall purchase
all of such Shares at the Purchase Price and upon the Payment Terms.
(f) EFFECT OF FAILURE TO EXERCISE OPTION. If the Corporation, AGS,
SDS and/or HMS do not elect to purchase all of the Shares of the Affected
Stockholder following a Sale Event, no portion of the Shares shall be
transferred pursuant to this Section 6 on account of such Sale Event.
7. PURCHASE PRICE AND PAYMENT TERMS.
(a) PURCHASE PRICE. "PURCHASE PRICE" means:
(i) if the Selling or Converting Stockholder or the Affected
Stockholder is a Minority Stockholder other than KJG under the
circumstances described in clause (ii) below, a price per Share equal to
the weighted average trading price of a share of the Class A Common Stock
of the Corporation over the twenty (20) trading days on which such shares
were actually traded immediately preceding the date of the Sale Notice or
the Sale Event, as applicable (the "AVERAGE TRADING PRICE"); or
(ii) if KJG is the Affected Stockholder and the Sale Event is the
termination of KJG's employment with the Corporation, (A) if such
termination is a "Voluntary Termination" as such term is defined in
Section 7(a)(iv) of the Employment Agreement between the Corporation and
KJG (the "EMPLOYMENT AGREEMENT") which occurs prior to July 29, 2004, or is
for "Cause" as such term is defined in Section 7(a)(v) of the
-6-
<PAGE>
Employment Agreement regardless of when such termination for Cause occurs,
a price per Share equal to the price per Share paid by KJG for such Shares
and (B) if such termination occurs for a reason or under circumstances
other than as described in subparagraph (A) above, a price per share equal
to the Average Trading Price.
(b) PAYMENT TERMS. The payment of the Purchase Price shall be made
on the following terms (the "PAYMENT TERMS"): (i) if the Purchase Price for the
Shares is $100,000 or less, the Purchase Price shall be paid in one lump sum
within seven (7) business days after the Sale Event or the Sale or Conversion
Notice, as applicable; and (ii) if the Purchase Price for the Shares is more
than $100,000, the Purchase Price shall be paid, at the option of the
Corporation, AGS, SDS and/or HMS, as applicable (x) in one lump sum within three
(3) months after the Sale Event or the Sale or Conversion Notice, as applicable;
or (y) by payment of not less than fifty percent (50%) of the Purchase Price
(the "DOWN PAYMENT") within three (3) months after the Sale Event or the Sale or
Conversion Notice, as applicable, and delivery of a promissory note evidencing
the balance of the Purchase Price, such promissory note to bear interest at the
prime rate of Bank of America, NT & SA, in effect on the date of the Down
Payment, to be payable in full one (1) year after the date of the Down Payment
and to be secured by the Shares being purchased.
8. RESTRICTIVE LEGENDS. The stock certificates for the Shares shall be
endorsed with the following restrictive legends:
(1) "The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares may not
be sold or offered for sale in the absence of (a) an effective
registration statement for the shares under such Act, (b) a 'no
action' letter of the Securities and Exchange Commission with
respect to such sale or offer or (c) satisfactory assurances to
the Corporation that registration under such Act is not required
with respect to such sale or offer."
(2) "The shares represented by this certificate are subject to
certain rights to purchase and rights of first refusal granted to
the Corporation and certain stockholders of the Corporation and
accordingly may not be sold, assigned, transferred, encumbered,
or in any manner disposed of except in conformity with the terms
of a certain agreement between the Corporation, the registered
holder of the shares (or the predecessor in interest to the
shares) and certain other persons. A copy of such agreement is
maintained at the Corporation's principal corporate offices."
9. TERMINATION OF AGREEMENT. This Agreement shall terminate upon the
occurrence of any one of the following events:
(a) The written agreement of the Parties to that effect; or
-7-
<PAGE>
(b) The dissolution of the Corporation.
10. ALTERATIONS OR AMENDMENTS. This Agreement may be altered or amended
in whole or in part at any time, by filing with this Agreement a written
instrument setting forth the changes signed by each of the Parties.
11. NOTICES. Any and all notices or other communications required or
permitted by this Agreement or by law to be served on, given to, or delivered to
any Party by any other Party shall be in writing and shall be deemed duly
served, given, or delivered when personally delivered to the Party or to an
officer of the Party, or in lieu of such personal delivery, on the third day
after deposit in the United States Mail, registered or certified, return receipt
requested, addressed to a Party at the address set forth below such Party's name
on the signature pages hereof, or such other address as shall have been provided
to the Parties in accordance with the provisions of this Section.
12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the Parties and, except as restricted above with regard
to Transfers, each of their heirs, executors, administrators, successors and
assigns.
13. SEVERABILITY. Should any provisions or portion of this Agreement be
held unenforceable and invalid for any reason, the remaining provisions and
portions of this Agreement shall continue in full force and effect.
14. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH,
AND GOVERNED BY, THE LAWS OF THE STATE OF CALIFORNIA.
15. ENFORCEMENT. In the event of any breach of any covenant in, or any
other default under, this Agreement, any Party may proceed to protect and
enforce his, her or its rights by suit in equity or action at law, whether for
the specific performance of any term contained in this Agreement or for an
injunction against the breach of any such term or in aid of the exercise of any
power granted in this Agreement, or to enforce any other legal or equitable
right of such Party, or to take any one or more of such actions. In the event a
Party brings such an action against another Party, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs and
expenses of enforcing any right of such prevailing party under or with respect
to this Agreement, including without limitation such reasonable fees and
expenses of attorneys and accountants. None of the rights, powers or remedies
conferred upon any Party shall be mutually exclusive, and each such right, power
or remedy shall be cumulative and in addition to every other right, power or
remedy, whether conferred hereby or now or hereafter available at law, in
equity, by statute or otherwise. Except as expressly provided in this
Agreement, no course of dealing between or among the Parties and no delay in
exercising any such right, power or remedy conferred hereby or now or hereafter
existing at law, in equity, by statute or otherwise, shall operate as a waiver
of, or otherwise prejudice, any such right, power or remedy.
-8-
<PAGE>
16. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
the parties hereto respecting the transferability of the Shares and correctly
sets forth the rights, duties, and obligations of each to the other in relation
thereto as of its date. Any prior agreements, promises, negotiations, or
representations concerning its subject matter not expressly set forth or
referenced in this Agreement are of no force or effect.
17. DISSOLUTION OF EMANTY. Emanty, one of the Minority Stockholders under
the Original Agreement has dissolved and is in liquidation. As a liquidating
distribution, which is a Permitted Transfer under the Original Agreement, Emanty
has distributed the Shares owned by it to its members, Alfred G. Scheid, EKL and
TPS. Alfred G. Scheid has in turn contributed the Shares distributable to him
by Emanty to AGS. Each of EKL and TPS hereby acknowledges that she or he is
bound by the provisions of this Agreement and the Shares so transferred by
Emanty (or any right, title or interest therein) are subject to the covenants
and restrictions set forth in this Agreement to the same extent such Shares
would be so subject if retained by Emanty. Each of AGS, SDS and HMS hereby
waives the condition for advance written notice of the liquidating distributions
by Emanty provided for in Section 3(c) of the Original Agreement. Emanty is
hereby released by all Parties from any and all further liability, obligation or
responsibility under this Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day
and year first above set forth.
SCHEID VINEYARDS INC., A DELAWARE
CORPORATION
By /s/ Alfred G. Scheid
-------------------------------
Name: Alfred G. Scheid
Title: Chief Executive Officer
Address: 13470 Washington Boulevard
Suite 300
Marina del Rey, California 90292
/s/ Alfred G. Scheid
------------------------------------
ALFRED G. SCHEID, AS TRUSTEE
OF THE ALFRED G. SCHEID
REVOCABLE TRUST,
DATED OCTOBER 8, 1992
Address: 13470 Washington Boulevard
Suite 300
Marina del Rey, California 90292
-9-
<PAGE>
/s/ Scott D. Scheid
------------------------------------
SCOTT D. SCHEID
Address: 13470 Washington Boulevard
Suite 300
Marina del Rey, California 90292
/s/ Heidi M. Scheid
------------------------------------
HEIDI M. SCHEID
Address: 13470 Washington Boulevard
Suite 300
Marina del Rey, California 90292
EMANTY LIMITED LIABILITY COMPANY,
A CALIFORNIA LIMITED LIABILITY COMPANY
By: /s/ Alfred G. Scheid
-------------------------------
Name: Alfred G. Scheid
Title: Managing Member
Address: 13470 Washington Boulevard
Suite 300
Marina del Rey, California
90292
/s/ Kurt J. Gollnick
------------------------------------
KURT J. GOLLNICK
Address: 29 Paseo Hermosa
Salinas, California 93908
/s/ Emily K. Liberty
------------------------------------
EMILY K. LIBERTY
Address: 4652 Via Marina, #203
Marina del Rey, California 90292
-------------------------------------
-10-
<PAGE>
/s/ Tyler P. Scheid
------------------------------------
TYLER P. SCHEID
Address: 485 Shasta, #4
Morrow Bay, California 93442
AGREED AND ACKNOWLEDGED:
/s/ Shirley Gladden Scheid
- ------------------------------
SHIRLEY GLADDEN SCHEID,
AS TRUSTEE UNDER DECLARATION
OF TRUST, DATED MARCH 12, 1997
/s/ Joyce C. Scheid
- ------------------------------
JOYCE C. SCHEID
/s/ Arthur R. Liberty
- ------------------------------
ARTHUR R. LIBERTY
/s/ Peter J. Pugnale
- ------------------------------
PETER J. PUGNALE
/s/ Nancy B. Scheid
- ------------------------------
NANCY B. SCHEID
/s/ Heidi M. Scheid
- ------------------------------
HEIDI M. SCHEID, AS TRUSTEE
OF THE SIENA C. PUGNALE
TRUST, DATED APRIL 4, 1993
/s/ Scott D. Scheid
- ------------------------------
SCOTT D. SCHEID, AS TRUSTEE
OF THE SIENA C. PUGNALE
TRUST, DATED APRIL 4, 1993
-11-
<PAGE>
/s/ Heidi M. Scheid
- ------------------------------
HEIDI M. SCHEID, AS TRUSTEE
OF THE COOPER J. PUGNALE
TRUST, DATED MAY 16, 1995
/s/ Scott D. Scheid
- ------------------------------
SCOTT D. SCHEID, AS TRUSTEE
OF THE COOPER J. PUGNALE
TRUST, DATED MAY 16, 1995
/s/ Janet Rodgers
- ------------------------------
JANET RODGERS
-12-
<PAGE>
EXHIBIT A
ADDITIONAL STOCKHOLDERS
Shirley Gladden Scheid, as Trustee under Declaration of Trust, dated March 12,
1997.
Joyce C. Scheid
Arthur R. Liberty
Peter J. Pugnale
Nancy B. Scheid
Heidi M. Scheid and Scott D. Scheid, Trustees of the Siena C. Pugnale Trust,
dated April 4, 1993.
Heidi M. Scheid and Scott D. Scheid, Trustees of the Cooper J. Pugnale Trust,
dated May 16, 1995.
Janet Rodgers
-13-
<PAGE>
BUY-SELL AGREEMENT SPOUSAL CONSENT
I acknowledge that I have read and clearly understand the foregoing Amended
and Restated Buy-Sell Agreement (the "BUY-SELL AGREEMENT") by and among Scheid
Vineyards Inc., a Delaware corporation ("SVI-Del"), Alfred G. Scheid, as Trustee
of the Alfred G. Scheid Revocable Trust, dated October 8, 1992, Scott D. Scheid,
Heidi M. Scheid, Emanty Limited Liability Company, a California limited
liability company, Kurt J. Gollnick, Emily K. Liberty, Tyler P. Scheid and the
Additional Stockholders named therein, pursuant to which Buy-Sell Agreement,
among other things, certain restrictions on the transferability of shares of
Class B Common Stock of SVI-Del owned or held beneficially or of record by my
spouse (the "SHARES").
I hereby consent to the restrictions on transferability contemplated by the
Buy-Sell Agreement, approve the provisions of the Buy-Sell Agreement and agree
that my community property interest, if any, in the Shares is subject to the
provisions of the Buy-Sell Agreement and that I shall take no action to hinder
operation of the Buy-Sell Agreement on my community property interest, if any,
in the Shares. I further acknowledge, understand and agree to comply fully with
the provisions of the Buy-Sell Agreement, and further direct the executors of my
will or the administrator of my estate or my other representatives to take all
actions necessary or appropriate to give effect to the provisions of the
Buy-Sell Agreement. I hereby consent and agree to execute and deliver such
instruments and documents and to do such other acts as may be necessary or
appropriate to carry out the provisions of this Consent and the Buy-Sell
Agreement.
I have been given full access and disclosure of all facts surrounding the
Buy-Sell Agreement and SVI-Del, have had full and ample opportunity to receive
independent advice with respect to my entering into this Consent, am freely and
voluntarily entering into this Consent, and acknowledge that to the extent
required I have received notice under California Family Code Section 1100.
SPOUSE:
/s/ Alfred G. Scheid
----------------------------------
Name: ALFRED G. SCHEID
DATED: December 31, 1997
-14-
<PAGE>
BUY-SELL AGREEMENT SPOUSAL CONSENT
I acknowledge that I have read and clearly understand the foregoing Amended
and Restated Buy-Sell Agreement (the "BUY-SELL AGREEMENT") by and among Scheid
Vineyards Inc., a Delaware corporation ("SVI-Del"), Alfred G. Scheid, as Trustee
of the Alfred G. Scheid Revocable Trust, dated October 8, 1992, Scott D. Scheid,
Heidi M. Scheid, Emanty Limited Liability Company, a California limited
liability company, Kurt J. Gollnick, Emily K. Liberty, Tyler P. Scheid and the
Additional Stockholders named therein, pursuant to which Buy-Sell Agreement,
among other things, certain restrictions on the transferability of shares of
Class B Common Stock of SVI-Del owned or held beneficially or of record by my
spouse (the "SHARES").
I hereby consent to the restrictions on transferability contemplated by the
Buy-Sell Agreement, approve the provisions of the Buy-Sell Agreement and agree
that my community property interest, if any, in the Shares is subject to the
provisions of the Buy-Sell Agreement and that I shall take no action to hinder
operation of the Buy-Sell Agreement on my community property interest, if any,
in the Shares. I further acknowledge, understand and agree to comply fully with
the provisions of the Buy-Sell Agreement, and further direct the executors of my
will or the administrator of my estate or my other representatives to take all
actions necessary or appropriate to give effect to the provisions of the
Buy-Sell Agreement. I hereby consent and agree to execute and deliver such
instruments and documents and to do such other acts as may be necessary or
appropriate to carry out the provisions of this Consent and the Buy-Sell
Agreement.
I have been given full access and disclosure of all facts surrounding the
Buy-Sell Agreement and SVI-Del, have had full and ample opportunity to receive
independent advice with respect to my entering into this Consent, am freely and
voluntarily entering into this Consent, and acknowledge that to the extent
required I have received notice under California Family Code Section 1100.
SPOUSE:
/s/ Scott D. Scheid
-----------------------------------
Name: SCOTT D. SCHEID
DATED: December 31, 1997
-15-
<PAGE>
BUY-SELL AGREEMENT SPOUSAL CONSENT
I acknowledge that I have read and clearly understand the foregoing Amended
and Restated Buy-Sell Agreement (the "BUY-SELL AGREEMENT") by and among Scheid
Vineyards Inc., a Delaware corporation ("SVI-Del"), Alfred G. Scheid, as Trustee
of the Alfred G. Scheid Revocable Trust, dated October 8, 1992, Scott D. Scheid,
Heidi M. Scheid, Emanty Limited Liability Company, a California limited
liability company, Kurt J. Gollnick, Emily K. Liberty, Tyler P. Scheid and the
Additional Stockholders named therein, pursuant to which Buy-Sell Agreement,
among other things, certain restrictions on the transferability of shares of
Class B Common Stock of SVI-Del owned or held beneficially or of record by my
spouse (the "SHARES").
I hereby consent to the restrictions on transferability contemplated by the
Buy-Sell Agreement, approve the provisions of the Buy-Sell Agreement and agree
that my community property interest, if any, in the Shares is subject to the
provisions of the Buy-Sell Agreement and that I shall take no action to hinder
operation of the Buy-Sell Agreement on my community property interest, if any,
in the Shares. I further acknowledge, understand and agree to comply fully with
the provisions of the Buy-Sell Agreement, and further direct the executors of my
will or the administrator of my estate or my other representatives to take all
actions necessary or appropriate to give effect to the provisions of the
Buy-Sell Agreement. I hereby consent and agree to execute and deliver such
instruments and documents and to do such other acts as may be necessary or
appropriate to carry out the provisions of this Consent and the Buy-Sell
Agreement.
I have been given full access and disclosure of all facts surrounding the
Buy-Sell Agreement and SVI-Del, have had full and ample opportunity to receive
independent advice with respect to my entering into this Consent, am freely and
voluntarily entering into this Consent, and acknowledge that to the extent
required I have received notice under California Family Code Section 1100.
SPOUSE:
/s/ Nancy B. Scheid
-----------------------------------
Name: NANCY B. SCHEID
DATED: December 31, 1997
-16-
<PAGE>
BUY-SELL AGREEMENT SPOUSAL CONSENT
I acknowledge that I have read and clearly understand the foregoing Amended
and Restated Buy-Sell Agreement (the "BUY-SELL AGREEMENT") by and among Scheid
Vineyards Inc., a Delaware corporation ("SVI-Del"), Alfred G. Scheid, as Trustee
of the Alfred G. Scheid Revocable Trust, dated October 8, 1992, Scott D. Scheid,
Heidi M. Scheid, Emanty Limited Liability Company, a California limited
liability company, Kurt J. Gollnick, Emily K. Liberty, Tyler P. Scheid and the
Additional Stockholders named therein, pursuant to which Buy-Sell Agreement,
among other things, certain restrictions on the transferability of shares of
Class B Common Stock of SVI-Del owned or held beneficially or of record by my
spouse (the "SHARES").
I hereby consent to the restrictions on transferability contemplated by the
Buy-Sell Agreement, approve the provisions of the Buy-Sell Agreement and agree
that my community property interest, if any, in the Shares is subject to the
provisions of the Buy-Sell Agreement and that I shall take no action to hinder
operation of the Buy-Sell Agreement on my community property interest, if any,
in the Shares. I further acknowledge, understand and agree to comply fully with
the provisions of the Buy-Sell Agreement, and further direct the executors of my
will or the administrator of my estate or my other representatives to take all
actions necessary or appropriate to give effect to the provisions of the
Buy-Sell Agreement. I hereby consent and agree to execute and deliver such
instruments and documents and to do such other acts as may be necessary or
appropriate to carry out the provisions of this Consent and the Buy-Sell
Agreement.
I have been given full access and disclosure of all facts surrounding the
Buy-Sell Agreement and SVI-Del, have had full and ample opportunity to receive
independent advice with respect to my entering into this Consent, am freely and
voluntarily entering into this Consent, and acknowledge that to the extent
required I have received notice under California Family Code Section 1100.
SPOUSE:
/s/ Heidi M. Scheid
-----------------------------------
Name: HEIDI M. SCHEID
DATED: December 31, 1997
-17-
<PAGE>
BUY-SELL AGREEMENT SPOUSAL CONSENT
I acknowledge that I have read and clearly understand the foregoing Amended
and Restated Buy-Sell Agreement (the "BUY-SELL AGREEMENT") by and among Scheid
Vineyards Inc., a Delaware corporation ("SVI-Del"), Alfred G. Scheid, as Trustee
of the Alfred G. Scheid Revocable Trust, dated October 8, 1992, Scott D. Scheid,
Heidi M. Scheid, Emanty Limited Liability Company, a California limited
liability company, Kurt J. Gollnick, Emily K. Liberty, Tyler P. Scheid and the
Additional Stockholders named therein, pursuant to which Buy-Sell Agreement,
among other things, certain restrictions on the transferability of shares of
Class B Common Stock of SVI-Del owned or held beneficially or of record by my
spouse (the "SHARES").
I hereby consent to the restrictions on transferability contemplated by the
Buy-Sell Agreement, approve the provisions of the Buy-Sell Agreement and agree
that my community property interest, if any, in the Shares is subject to the
provisions of the Buy-Sell Agreement and that I shall take no action to hinder
operation of the Buy-Sell Agreement on my community property interest, if any,
in the Shares. I further acknowledge, understand and agree to comply fully with
the provisions of the Buy-Sell Agreement, and further direct the executors of my
will or the administrator of my estate or my other representatives to take all
actions necessary or appropriate to give effect to the provisions of the
Buy-Sell Agreement. I hereby consent and agree to execute and deliver such
instruments and documents and to do such other acts as may be necessary or
appropriate to carry out the provisions of this Consent and the Buy-Sell
Agreement.
I have been given full access and disclosure of all facts surrounding the
Buy-Sell Agreement and SVI-Del, have had full and ample opportunity to receive
independent advice with respect to my entering into this Consent, am freely and
voluntarily entering into this Consent, and acknowledge that to the extent
required I have received notice under California Family Code Section 1100.
SPOUSE:
/s/ Peter J. Pugnale
-----------------------------------
Name: PETER J. PUGNALE
DATED: December 31, 1997
-18-
<PAGE>
BUY-SELL AGREEMENT SPOUSAL CONSENT
I acknowledge that I have read and clearly understand the foregoing Amended
and Restated Buy-Sell Agreement (the "BUY-SELL AGREEMENT") by and among Scheid
Vineyards Inc., a Delaware corporation ("SVI-Del"), Alfred G. Scheid, as Trustee
of the Alfred G. Scheid Revocable Trust, dated October 8, 1992, Scott D. Scheid,
Heidi M. Scheid, Emanty Limited Liability Company, a California limited
liability company, Kurt J. Gollnick, Emily K. Liberty, Tyler P. Scheid and the
Additional Stockholders named therein, pursuant to which Buy-Sell Agreement,
among other things, certain restrictions on the transferability of shares of
Class B Common Stock of SVI-Del owned or held beneficially or of record by my
spouse (the "SHARES").
I hereby consent to the restrictions on transferability contemplated by the
Buy-Sell Agreement, approve the provisions of the Buy-Sell Agreement and agree
that my community property interest, if any, in the Shares is subject to the
provisions of the Buy-Sell Agreement and that I shall take no action to hinder
operation of the Buy-Sell Agreement on my community property interest, if any,
in the Shares. I further acknowledge, understand and agree to comply fully with
the provisions of the Buy-Sell Agreement, and further direct the executors of my
will or the administrator of my estate or my other representatives to take all
actions necessary or appropriate to give effect to the provisions of the
Buy-Sell Agreement. I hereby consent and agree to execute and deliver such
instruments and documents and to do such other acts as may be necessary or
appropriate to carry out the provisions of this Consent and the Buy-Sell
Agreement.
I have been given full access and disclosure of all facts surrounding the
Buy-Sell Agreement and SVI-Del, have had full and ample opportunity to receive
independent advice with respect to my entering into this Consent, am freely and
voluntarily entering into this Consent, and acknowledge that to the extent
required I have received notice under California Family Code Section 1100.
SPOUSE:
/s/ Kurt J. Gollnick
-----------------------------------
Name: KURT J. GOLLNICK
DATED: December 31, 1997
-19-
<PAGE>
BUY-SELL AGREEMENT SPOUSAL CONSENT
I acknowledge that I have read and clearly understand the foregoing Amended
and Restated Buy-Sell Agreement (the "BUY-SELL AGREEMENT") by and among Scheid
Vineyards Inc., a Delaware corporation ("SVI-Del"), Alfred G. Scheid, as Trustee
of the Alfred G. Scheid Revocable Trust, dated October 8, 1992, Scott D. Scheid,
Heidi M. Scheid, Emanty Limited Liability Company, a California limited
liability company, Kurt J. Gollnick, Emily K. Liberty, Tyler P. Scheid and the
Additional Stockholders named therein, pursuant to which Buy-Sell Agreement,
among other things, certain restrictions on the transferability of shares of
Class B Common Stock of SVI-Del owned or held beneficially or of record by my
spouse (the "SHARES").
I hereby consent to the restrictions on transferability contemplated by the
Buy-Sell Agreement, approve the provisions of the Buy-Sell Agreement and agree
that my community property interest, if any, in the Shares is subject to the
provisions of the Buy-Sell Agreement and that I shall take no action to hinder
operation of the Buy-Sell Agreement on my community property interest, if any,
in the Shares. I further acknowledge, understand and agree to comply fully with
the provisions of the Buy-Sell Agreement, and further direct the executors of my
will or the administrator of my estate or my other representatives to take all
actions necessary or appropriate to give effect to the provisions of the
Buy-Sell Agreement. I hereby consent and agree to execute and deliver such
instruments and documents and to do such other acts as may be necessary or
appropriate to carry out the provisions of this Consent and the Buy-Sell
Agreement.
I have been given full access and disclosure of all facts surrounding the
Buy-Sell Agreement and SVI-Del, have had full and ample opportunity to receive
independent advice with respect to my entering into this Consent, am freely and
voluntarily entering into this Consent, and acknowledge that to the extent
required I have received notice under California Family Code Section 1100.
SPOUSE:
/s/ Janet Rodgers
-----------------------------------
Name: JANET RODGERS
DATED: December 31, 1997
-20-
<PAGE>
BUY-SELL AGREEMENT SPOUSAL CONSENT
I acknowledge that I have read and clearly understand the foregoing Amended
and Restated Buy-Sell Agreement (the "BUY-SELL AGREEMENT") by and among Scheid
Vineyards Inc., a Delaware corporation ("SVI-Del"), Alfred G. Scheid, as Trustee
of the Alfred G. Scheid Revocable Trust, dated October 8, 1992, Scott D. Scheid,
Heidi M. Scheid, Emanty Limited Liability Company, a California limited
liability company, Kurt J. Gollnick, Emily K. Liberty, Tyler P. Scheid and the
Additional Stockholders named therein, pursuant to which Buy-Sell Agreement,
among other things, certain restrictions on the transferability of shares of
Class B Common Stock of SVI-Del owned or held beneficially or of record by my
spouse (the "SHARES").
I hereby consent to the restrictions on transferability contemplated by the
Buy-Sell Agreement, approve the provisions of the Buy-Sell Agreement and agree
that my community property interest, if any, in the Shares is subject to the
provisions of the Buy-Sell Agreement and that I shall take no action to hinder
operation of the Buy-Sell Agreement on my community property interest, if any,
in the Shares. I further acknowledge, understand and agree to comply fully with
the provisions of the Buy-Sell Agreement, and further direct the executors of my
will or the administrator of my estate or my other representatives to take all
actions necessary or appropriate to give effect to the provisions of the
Buy-Sell Agreement. I hereby consent and agree to execute and deliver such
instruments and documents and to do such other acts as may be necessary or
appropriate to carry out the provisions of this Consent and the Buy-Sell
Agreement.
I have been given full access and disclosure of all facts surrounding the
Buy-Sell Agreement and SVI-Del, have had full and ample opportunity to receive
independent advice with respect to my entering into this Consent, am freely and
voluntarily entering into this Consent, and acknowledge that to the extent
required I have received notice under California Family Code Section 1100.
SPOUSE:
/s/ Emily K. Liberty
-----------------------------------
Name: EMILY K. LIBERTY
DATED: December 31, 1997
-21-
<PAGE>
BUY-SELL AGREEMENT SPOUSAL CONSENT
I acknowledge that I have read and clearly understand the foregoing Amended
and Restated Buy-Sell Agreement (the "BUY-SELL AGREEMENT") by and among Scheid
Vineyards Inc., a Delaware corporation ("SVI-Del"), Alfred G. Scheid, as Trustee
of the Alfred G. Scheid Revocable Trust, dated October 8, 1992, Scott D. Scheid,
Heidi M. Scheid, Emanty Limited Liability Company, a California limited
liability company, Kurt J. Gollnick, Emily K. Liberty, Tyler P. Scheid and the
Additional Stockholders named therein, pursuant to which Buy-Sell Agreement,
among other things, certain restrictions on the transferability of shares of
Class B Common Stock of SVI-Del owned or held beneficially or of record by my
spouse (the "SHARES").
I hereby consent to the restrictions on transferability contemplated by the
Buy-Sell Agreement, approve the provisions of the Buy-Sell Agreement and agree
that my community property interest, if any, in the Shares is subject to the
provisions of the Buy-Sell Agreement and that I shall take no action to hinder
operation of the Buy-Sell Agreement on my community property interest, if any,
in the Shares. I further acknowledge, understand and agree to comply fully with
the provisions of the Buy-Sell Agreement, and further direct the executors of my
will or the administrator of my estate or my other representatives to take all
actions necessary or appropriate to give effect to the provisions of the
Buy-Sell Agreement. I hereby consent and agree to execute and deliver such
instruments and documents and to do such other acts as may be necessary or
appropriate to carry out the provisions of this Consent and the Buy-Sell
Agreement.
I have been given full access and disclosure of all facts surrounding the
Buy-Sell Agreement and SVI-Del, have had full and ample opportunity to receive
independent advice with respect to my entering into this Consent, am freely and
voluntarily entering into this Consent, and acknowledge that to the extent
required I have received notice under California Family Code Section 1100.
SPOUSE:
/s/ Arthur R. Liberty
-----------------------------------
Name: ARTHUR R. LIBERTY
DATED: December 31, 1997
-22-
<PAGE>
AGRICULTURAL CREDIT AGREEMENT
(Crops)
This Agricultural Credit Agreement ("Agreement") is made and entered into this
4th day of June, 1997 by and between SANWA BANK CALIFORNIA (the "Bank") and
SCHEID VINEYARDS INC. (the "Borrower").
SECTION I
DEFINITIONS
1.01. CERTAIN DEFINED TERMS. Unless elsewhere defined in this Agreement the
following terms shall have the following meanings (such meanings to be generally
applicable to the singular and plural forms of the terms defined):
A. "ADVANCE" shall mean an advance to the Borrower under any line of
credit facility or similar facility provided for in Section II of this
Agreement which provides for draws by the Borrower against an established
credit line.
B. "BUSINESS DAY" shall mean a day, other than a Saturday or Sunday, on
which commercial banks are open for business in California.
C. "COLLATERAL" shall mean the property in which the Bank is granted a
security interest pursuant to provisions of the section herein entitled
"Collateral", together with any other personal or real property in which
the Bank may be granted a lien or security interest to secure payment of
the Obligations.
D. "DEBT" shall mean all liabilities of the Borrower less Subordinated
Debt.
E. "EFFECTIVE TANGIBLE NET WORTH" shall mean the Borrower's stated net
worth plus Subordinated Debt but less all intangible assets of the Borrower
(i.e., goodwill, trademarks, patents, copyrights, organization expense and
similar intangible items).
F. "ENVIRONMENTAL CLAIMS" shall mean all claims, however asserted, by any
governmental authority or other person alleging potential liability or
responsibility for violation of any Environmental Law or for release or
injury to the environment or threat to public health, personal injury
(including sickness, disease or death), property damage, natural resources
damage, or otherwise alleging liability or responsibility for damages
(punitive or otherwise), cleanup, removal, remedial or response costs,
restitution, civil or criminal penalties, injunctive relief, or other type
of relief, resulting from or based upon (i) the presence, placement,
discharge, emission or release (including intentional and unintentional,
negligent and non-negligent, sudden or non-sudden, accidental or
non-accidental placement, spills, leaks, discharges, emissions or releases)
of any Hazardous Materials at, in, or from property owned, operated or
controlled by the Borrower, or (ii) any other circumstances forming the
basis of any violation, or alleged violation, of any Environmental Law.
G. "ENVIRONMENTAL LAWS" shall mean all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes,
together with all administrative orders, directed duties, requests,
licenses, authorizations and permits of, and agreements with, any
governmental authorities, in each case relating to environmental, health,
safety and land use matters; including the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), the Clean Air
Act, the Federal Water Pollution Control Act of 1972, the Solid Waste
Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic
Substances Control Act, the Emergency Planning and Community Right-to-Know
Act, the California Hazardous Waste Control Law, the California Solid Waste
Management, Resource, Recovery and Recycling Act, the California Water Code
and the California Health and Safety Code.
H. "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, including (unless the context otherwise
requires) any rules or regulations promulgated thereunder.
I. "EVENT OF DEFAULT" shall have the meaning set forth in the section
herein entitled "Events of Default".
J. "HAZARDOUS MATERIALS" shall mean all those substances which are
regulated by, or which may form the basis of liability under any
Environmental Law, including all substances identified under any
Environmental Law as a pollutant, contaminant, hazardous waste, hazardous
constituent, special waste, hazardous substance, hazardous material, or
toxic substance, or petroleum or petroleum derived substance or waste.
K. "INDEBTEDNESS" shall mean, with respect to the Borrower, (i) all
indebtedness for borrowed money or for the deferred purchase price of
property or services in respect of which the Borrower is liable,
contingently or otherwise, as obligor, guarantor or otherwise, or in
respect of which the Borrower otherwise assures a creditor against loss and
(ii) obligations under leases which shall have been or should be, in
accordance with generally accepted accounting principles, reported as
capital leases in respect of which the Borrower is liable, contingently or
otherwise, or in respect of which the Borrower otherwise assures a creditor
against loss.
L. "OBLIGATIONS" shall mean all amounts owing by the Borrower to the Bank
pursuant to this Agreement including, but not limited to, the unpaid
principal amount of Advances.
M. "PERMITTED LIENS" shall mean: (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 contested
in good faith, provided proper reserves are maintained therefor in
accordance with generally accepted accounting procedure; (iii) liens of
materialmen, mechanics, warehousemen, or carriers or other like liens
arising in the ordinary course of business and securing obligations which
are not yet delinquent; (iv) 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 pursuant to this Agreement;
(v) liens and security interests which, as of the date hereof, have been
disclosed to and
(1)
<PAGE>
approved by the Bank in writing; 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.
N. "REFERENCE RATE" shall mean 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 the Bank at, below or
above such reference rate.
O. "SUBORDINATED DEBT" shall mean such liabilities of the Borrower which
have been subordinated to those owed to the Bank in a manner acceptable to
the Bank.
1.02. ACCOUNTING TERMS. All references to financial statements, assets,
liabilities, and similar accounting items not specifically defined herein shall
mean such financial statements or such items prepared or determined in
accordance with generally accepted accounting principles consistently applied
and, except where otherwise specified, all financial data submitted pursuant to
this Agreement shall be prepared in accordance with such principles.
1.03. OTHER TERMS. Other terms not otherwise defined shall have the meanings
attributed to such terms in the California Uniform Commercial Code.
SECTION II
CREDIT FACILITIES
2.01. 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.
2.02. CROP LINE OF CREDIT. The Bank agrees to make loans and Advances to the
Borrower, upon the Borrower's request therefor made prior to the Expiration Date
(as defined below in this Section 2.02), up to a total principal amount from
time to time outstanding of not more than $10,500,000.00; provided that Advances
under this Crop Line of Credit shall be made in accordance with the crop budget
dated May 1, 1997 for the crop year commencing on December 1, 1996 and ending
on November 30, 1997, which budget is attached hereto as Exhibit "A" (the "Crop
Budget"). Within the foregoing limits, the Borrower may borrow, partially or
wholly prepay, and reborrow under this Crop Line of Credit.
A. PURPOSE. Advances made under this Crop Line of Credit shall be used to
pay off the principal balance of an existing loan with the Bank, pay off
the principal balance of an existing loan to Vineyard Investors 1972 with
the Bank; and provide funds for the Borrower's crop production as set forth
in the Crop Budget.
B. INTEREST RATE. Interest shall accrue on the outstanding principal
balance of Advances under this Crop Line of Credit at a variable rate equal
to the Bank's Reference Rate, per annum, as it may change from time to
time. (Such rate is referred to in this Section 2.02 as the "Variable
Rate".) The Variable Rate shall be adjusted concurrently with any change
in the Reference Rate. Interest shall be calculated on the basis of 360
days per year but charged on the actual number of days elapsed.
C. REPAYMENT. Unless sooner due in accordance with the terms of this
Agreement, the Borrower hereby promises and agrees to pay principal and
interest on the following terms:
The Borrower hereby promises and agrees to pay interest quarterly on the
5th day of each September, December, March, and June, commencing on
September 5, 1997.
On June 5, 1998 the Borrower hereby promises and agrees to pay to the Bank
in full the aggregate unpaid principal balance of all Advances then
outstanding, together with all accrued and unpaid interest thereon.
Any payment received by the Bank shall, at the Bank's option, first be
applied to pay any late fees or other fees then due and unpaid, and then to
interest then due and unpaid and the remainder thereof (if any) shall be
applied to reduce principal.
D. FIXED RATE ALTERNATIVE PRICING. In addition to Advances based upon the
Variable Rate ("Variable Rate Advances"), at the Borrower's election, the
Bank hereby agrees to make Advances to the Borrower under this Crop Line of
Credit at a fixed rate ("Fixed Rate") to be quoted and offered by the Bank
from time to time upon the request of the Borrower. The Bank shall only
quote and offer such Fixed Rate for Advances in the minimum amount of
$100,000.00 and for such period of time (each an "Interest Period") as the
Bank may quote and offer, provided that the Interest Period shall be for a
minimum of at least 30 days and provided further that any Interest Period
shall not extend beyond the Expiration Date (as defined below) of this
facility. Advances based upon the Fixed Rate are hereinafter referred to
as "Fixed Rate Advances".
Interest on any Fixed Rate Advance shall be computed on the basis of 360
days per year but charged on the actual number of days elapsed.
The Borrower hereby promises and agrees to pay the Bank interest on any
Fixed Rate Advance with an Interest Period of 90 days or less on the last
day of the relevant Interest Period. The Borrower further promises and
agrees to pay the Bank interest on any Fixed Rate Advance with an Interest
Period in excess of 90 days on a quarterly basis (i.e., on the last day of
each 90-day period occurring in such Interest Period) and on the last day
of the relevant Interest Period. If interest is not paid as and when it is
due, the amount of such unpaid interest shall bear interest, until paid in
full, at a rate of interest equal to the Variable Rate.
(i) REPAYMENT OF FIXED RATE ADVANCES. Unless sooner due in
accordance with other terms of this Agreement, or unless adjusted at
the end of the relevant Interest Period as described below, the
Borrower hereby promises and agrees to pay the Bank the principal
amount of each Fixed Rate Advance, together with accrued and unpaid
interest thereon, on the last day of the Interest Period pertaining to
such Fixed Rate Advance.
(ii) NOTICE OF ELECTION TO ADJUST INTEREST RATE. Upon telephonic
notice which shall be received by the Bank at or before 11:00 am
(California time) on a Business Day, the Borrower may elect:
(a) That interest on a Variable Rate Advance shall be adjusted
to accrue at a quoted and offered 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 the Borrower requests that interest be adjusted to accrue
at the Fixed Rate.
(b) 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 two
business days prior to the
(2)
<PAGE>
last day of the Interest Period pertaining to such Fixed Rate
Advance. If the Bank shall not have received notice as
prescribed herein of the 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.
(iii) PROHIBITION AGAINST PREPAYMENT OF FIXED RATE ADVANCES.
NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THE AGREEMENT, NO PREPAYMENT
SHALL BE MADE ON ANY FIXED RATE ADVANCE 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 (INCLUDING INTEREST) ACTUALLY INCURRED
BY THE BANK AND ANY LOSS (INCLUDING LOSS OF PROFIT RESULTING FROM THE
RE-EMPLOYMENT OF FUNDS) SUSTAINED BY THE BANK AS A CONSEQUENCE OF SUCH
PREPAYMENT.
(iv) INDEMNIFICATION FOR FIXED RATE COSTS. During any period of time in
which interest on any Advance is accruing on the basis of a 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 requirements 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.
(v) INVOLUNTARY 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 (a) is 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 (b) is or has become unlawful or
infeasible 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 give
telephonic notice thereof (confirmed in writing) to the Borrower, in which
event any Fixed Rate Advance shall be deemed to be a Variable Rate Advance
and interest shall thereupon immediately accrue at the Variable Rate.
E. LATE FEE. If any regularly scheduled payment of principal and/or interest
(exclusive of the final payment upon maturity), or any portion thereof, under
this Crop Line of Credit 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.
F. MAKING LINE ADVANCES/NOTICE OF BORROWING. Each Advance made hereunder shall
be conclusively deemed to have been made at the request of and for the benefit
of the Borrower (i) when credited to any deposit account of the Borrower
maintained with the Bank or (ii) when paid in accordance with the written
instructions of the Borrower. Subject to any other requirements set forth in
this Agreement, Advances shall be made by the Bank upon telephonic or written
notice received from the Borrower in form acceptable to the Bank, which notice
shall be received by the Bank at or before 11:00 am (California time) on a
business day. The Borrower may borrow under this Crop Line of Credit by
requesting either:
(i) 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 11:00 am (California time) on
the day such Advance is requested to be made, such Variable Rate Advance
may be made, at the Bank's option, on the next business day.
(ii) A FIXED RATE ADVANCE. The Borrower may elect that an Advance be made
as a Fixed Rate Advance by requesting the Bank to provide a quote as to the
rate which would apply for a designated Interest Period and concurrently
with receiving such quote, giving the Bank irrevocable notice of the
Borrower's acceptance of the rate quoted, provided such notice shall be
given to the Bank not later than 10:00 a.m. (California time) on a date
(which shall be a Business Day) at least two days prior to the first day of
the requested Interest Period. Any telephonic or oral quote or offer by
the Bank of a Fixed Rate for a given Interest Period may be confirmed in
writing by the Bank upon the election (as provided herein) of the Borrower
to accept such terms and such confirmation shall be deemed conclusive as to
the terms quoted and offered.
G. FACILITY FEES. The Borrower hereby promises and agrees to pay the following
fees in connection with this facility: Any and all out-of-pocket expenses
incurred by the Bank.
H. EXPIRATION OF THE CROP 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, 1998
(the "Expiration Date"), and the Bank shall be under no further obligation to
advance any monies thereafter.
I. 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 this Crop Line of Credit (the
"Line Account"). The Bank shall provide the Borrower with a quarterly statement
of the Borrower's Line Account, which statement shall be considered to be
correct and conclusively binding on the Borrower unless the Bank is notified by
the Borrower to the contrary within thirty (30) days after the Borrower's
receipt of any such statement which is deemed to be incorrect.
J. 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 this Crop Line of Credit.
In addition, the Borrower hereby authorizes the Bank, if and to the extent
payment owed to the Bank under this Crop Line of Credit is not made when due, to
charge, from time to time, against any or all deposit accounts maintained with
the Bank by the Borrower any amount so due.
SECTION III
COLLATERAL
3.01. GRANT OF SECURITY INTEREST. To secure payment and performance of all
of the Borrower's Obligations under this Agreement and the performance of all
(3)
<PAGE>
the terms, covenants and agreements contained in this Agreement (and any and all
modifications, extensions and renewals of the Agreement) and in any other
document, instrument or agreement evidencing or related to the Obligations or
the Collateral, and also to secure all other liabilities, loans, guarantees,
covenants and duties owed by the Borrower to the Bank, whether or not evidenced
by this or by any other agreement, absolute or contingent, due or to become due,
now existing or hereafter and howsoever created, the Borrower hereby grants to
the Bank a security interest in and to all of the following property:
A. INVENTORY. All inventory ("Inventory") now owned or hereafter acquired
by the Borrower including, but not limited to, all raw materials, work in
process, finished goods, merchandise, parts and supplies of every kind and
description, including inventory temporarily out of the Borrower's custody
or possession, together with all returns on accounts.
B. ACCOUNTS AND CONTRACT RIGHTS. All accounts and contract rights now
owned or hereafter created or acquired by the Borrower, including but not
limited to, all receivables and all rights and benefits due to the Borrower
under any contract or agreement.
C. GENERAL INTANGIBLES. All general intangibles now owned or hereafter
created or acquired by the Borrower, including but not limited to,
goodwill, trademarks, trade styles, trade names, patents, patent
applications, software, customer lists and business records.
D. CHATTEL PAPER AND DOCUMENTS. All documents, instruments and chattel
paper now owned or hereafter acquired by the Borrower.
E. CROPS. All crops now growing or hereafter to be grown, together with
all products and proceeds thereof, on that certain real property described
in the attached Exhibit "B" (the "Crops").
F. FARM PRODUCTS. All farm products now owned or hereafter acquired by or
for the benefit of the Borrower consisting of supplies used or produced in
the operations of the Borrower including, but not limited to, all hay,
grain, forage, fodder and other feed commodities and all feed additives,
feed supplements, veterinary supplies, medicines and related products now
owned or hereafter acquired by or for the benefit of the Borrower.
G. MONIES AND OTHER PROPERTY IN POSSESSION. All monies, and property of
the Borrower now or hereafter in the possession of the Bank or the Bank's
agents, or any one of them, including, but not limited to, all deposit
accounts, certificates of deposit, stocks, bonds, indentures, warrants,
options and other negotiable and non-negotiable securities and instruments,
together with all stock rights, rights to subscribe, liquidating dividends,
cash dividends, payments, dividends paid in stock, new securities or other
property to which the Borrower may become entitled to receive on account of
such property.
3.02. CONTINUING LIEN & PROCEEDS. The Bank's security interest in the
Collateral shall be a continuing lien and shall include all proceeds and
products of the Collateral including, but not limited to, the proceeds of any
insurance thereon.
3.03. EXCLUSION OF CONSUMER DEBT. The Obligations and performance secured
hereby shall not include any indebtedness of the Borrower incurred for personal,
family or household purposes except to the extent any disclosure required under
any consumer protection law (including but not limited to the Truth in Lending
Act) or any regulation thereto, as now existing or hereafter amended, is or has
been given.
SECTION IV
CONDITIONS PRECEDENT
4.01. CONDITIONS PRECEDENT TO THE INITIAL EXTENSION OF CREDIT AND/OR FIRST
ADVANCE. The obligation of the Bank to make the initial extension of credit
and/or the first Advance hereunder is subject to the conditions precedent that
the Bank shall have received before the date of such extension of credit and/or
the first Advance all of the following, 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. GUARANTORS. Continuing guaranties in favor of the Bank, in form and
substance satisfactory to the Bank, executed by Alfred G. Scheid, Vineyard
Investors 1972 and Vineyard 405 (each a "Guarantor"), together with
evidence that the execution, delivery and performance of the Guaranties by
each Guarantor has been duly authorized.
C. LOAN FEES. Evidence that any required loan fees and expenses as set
forth above with respect to each credit facility have been paid or provided
for by the Borrower.
D. AUDIT. The opportunity to conduct an audit of the Borrower's books,
records and operations and the Bank shall be satisfied as to the condition
thereof.
E. MISCELLANEOUS DOCUMENTS. Such other documents, instruments, agreements
and opinions as are necessary, or as the Bank may reasonably require, to
consummate the transactions contemplated under this Agreement, all fully
executed.
4.02. CONDITIONS PRECEDENT TO ALL EXTENSIONS OF CREDIT AND/OR ADVANCES. The
obligation of the Bank to make any extensions of credit and/or each Advance to
or on account of the Borrower (including the initial extension of credit and/or
the first Advance) shall be subject to the further conditions precedent that, as
of the date of each extension of credit or Advance and after the making of such
extension of credit or Advance:
A. REPRESENTATIONS AND WARRANTIES. The representations and warranties set
forth in the Section entitled "Representations and Warranties" herein and
in any other document, instrument, agreement or certificate delivered to
the Bank hereunder are true and correct.
B. COLLATERAL. The security interest in the Collateral has been duly
authorized, created and perfected with first priority and is in full force
and effect and the Bank has been provided with satisfactory evidence of all
filings necessary to establish such perfection and priority.
C. 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.
D. SUBSEQUENT APPROVALS, ETC. The Bank shall have received such
supplemental approvals, opinions or documents as the Bank may reasonably
(4)
<PAGE>
request.
4.03. REAFFIRMATION OF STATEMENTS. For the purposes hereof, the Borrower's
acceptance of the proceeds of any extension of credit and the Borrower's
execution of any document or instrument evidencing or creating any Obligation
hereunder shall each be deemed to constitute the Borrower's representation and
warranty that the statements set forth above in this Section are true and
correct.
SECTION V
REPRESENTATIONS AND WARRANTIES
The Borrower hereby makes the following representations and warranties to the
Bank, which representations and warranties are continuing:
5.01. 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.
5.02. AUTHORITY. The execution, delivery and performance by the Borrower of
this Agreement and any instrument, document or agreement required hereunder 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) require any consent or approval of the
stockholders of the Borrower or violate any provision of the articles of
incorporation or by-laws of the Borrower; or (iii) 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 or affected.
5.03. 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.
5.04. FICTITIOUS TRADE STYLES. The Borrower currently uses no fictitious trade
styles in connection with its business operations. The Borrower shall notify
the Bank within thirty (30) days of the use of any fictitious trade style at any
future date, indicating the trade style and state(s) of its use.
5.05. FINANCIAL STATEMENTS. All financial statements, information and other
data which may have been and which may hereafter be submitted by the Borrower to
the Bank are true, accurate and correct and have been and will be prepared in
accordance with generally accepted accounting principles consistently applied
and accurately represent the Borrower's financial condition and, as applicable,
the other information disclosed therein. Since the most recent submission 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.
5.06. 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, operations or the Collateral.
5.07. TITLE TO ASSETS. The Borrower has good and marketable title to all of
its assets (including, but not limited to, the Collateral) and the same are not
subject to any security interest, encumbrance, lien or claim of any third person
except for Permitted Liens.
5.08. CONTINUED USE OF WATER. The real property described on the attached
Exhibit "B" has and will continue to have, the continuing, enforceable right to
receive irrigation water in such quantities, and at such times and locations as
is reasonably satisfactory for the purposes of farming, without interruption and
in such quantities, and at such times and locations, as has been historically
available to such property. The Borrower has filed with all governmental
agencies all notice 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 such property.
5.09. ERISA. If the Borrower has a pension, profit sharing or retirement plan
subject to 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.
5.10. 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.
5.11. ENVIRONMENTAL COMPLIANCE. The operations of the Borrower comply, and
during the term of this Agreement will at all times comply, in all respects with
all Environmental Laws; the Borrower has obtained licenses, permits,
authorizations and registrations required under any Environmental Law
("Environmental Permits") and necessary for its ordinary operations, all such
Environmental Permits are in good standing, and the Borrower is in compliance
with all material terms and conditions of such Environmental Permits; neither
the Borrower nor any of its present properties or operations are subject to any
outstanding written order from or agreement with any governmental authority nor
subject to any judicial or docketed administrative proceeding, respecting any
Environmental Law, Environmental Claim or Hazardous Material; there are no
Hazardous Materials or other conditions or circumstances existing, or arising
from operations prior to the date of this Agreement, with respect to any
property of the Borrower that would reasonably be expected to give rise to
Environmental Claims; provided however, that with respect to property leased
from an unrelated third party, the foregoing representation is made to the best
knowledge of the Borrower. In addition, (i) the Borrower does not have or
maintain any underground storage tanks which are not properly registered or
permitted under applicable Environmental Laws or which are leaking or disposing
of Hazardous Materials off-site, and (ii) the Borrower has notified all of its
employees of the existence, if any, of any health hazard arising from the
conditions of their employment and have met all notification requirements under
Title III of CERCLA and all other Environmental Laws.
SECTION VI
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)
<PAGE>
6.01. 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.
6.02. 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 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 be in an amount not less than the full replacement value
thereof, at the Bank's request, 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 ten (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.
6.03. MAINTENANCE OF COLLATERAL AND OTHER PROPERTIES. Except for Permitted
Liens, the Borrower shall 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, judgement 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.
6.04. LOCATION AND QUALITY OF INVENTORY. The Inventory (i) is now and shall at
all times hereafter be of good and merchantable quality and free from defects;
(ii) is not now and shall not at any time hereafter be stored with a bailee,
warehouseman or similar party without the Bank's prior written consent and, in
such event, the Borrower will concurrently therewith cause any such bailee,
warehouseman or similar party to issue and deliver to the Bank, in form
acceptable to the Bank, warehouse receipts in the Bank's name evidencing the
storage of inventory; (iii) shall at all times (except as otherwise permitted by
this section) be in the Borrower's physical possession; (iv) shall not be held
by others on consignment, sale on approval, or sale or return; and (v) shall be
kept only at the following locations(s): on the real property described on the
attached Exhibit "B"; and various processor locations.
6.05. LOCATION OF HARVESTED CROPS. Any Crops now or hereafter harvested or
removed from the real property on which they are grown shall not be stored with
a bailee, warehouseman or similar party without the Bank's prior written consent
and shall be kept only at the following locations(s): on the real property
described on the attached Exhibit "B"; and various processor locations.
6.06. CARE AND PRESERVATION OF THE 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 or damage to the Crops.
C. Permit the Bank and any of its agents, employees or representatives to
enter upon any real property on which the Crops are being grown at any
reasonable time and from time to time for the purpose of examining and
inspecting the Crops and such 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.
6.07. PAYMENT OF OBLIGATIONS AND TAXES. Make timely payment of all assessments
and taxes and all of its liabilities and obligations including, but not limited
to, trade payables, unless the same are being contested in good faith by
appropriate proceedings with the appropriate court or regulatory agency. For
purposes hereof, the Borrower's issuance of a check, draft or similar instrument
without delivery to the intended payee shall not constitute payment.
6.08. 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. In addition, the Bank may, at any reasonable time and
from time to time, conduct inspections and audits of the Collateral and the
Borrower's accounts payable, the cost and expenses of which shall be paid by the
Borrower to the Bank upon demand.
6.09. 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 120 days after the end of each of
the Borrower's fiscal years, a copy of the annual financial report of the
Borrower for such year, which report shall be a CPA audited report.
B. OTHER INFORMATION. Promptly upon the Bank's request, such other
information pertaining to the Borrower, the Collateral, or any Guarantor as
the Bank may reasonably request.
6.10. PAYMENT OF DIVIDENDS. The Borrower shall not declare or pay any
dividends on any class of its stock now or hereafter outstanding except
dividends payable solely in the corporation's capital stock.
6.11. REDEMPTION OR REPURCHASE OF STOCK. The Borrower shall not redeem or
repurchase any class of its corporate stock now or hereafter outstanding.
6.12. 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 or as otherwise provided in this Agreement.
6.13. TRANSFER ASSETS. Not sell, contract for sale, transfer, convey, assign,
lease or sublet any assets of the Borrower, including, but not limited to, the
(6)
<PAGE>
Collateral, except in the ordinary course of business as presently conducted by
the Borrower, and then, only for full, fair and reasonable consideration.
6.14. CHANGE IN THE NATURE OF BUSINESS. Not make any material change in the
Borrower's financial structure or in the nature of the Borrower's business as
existing or conducted as of the date of this Agreement.
6.15. FINANCIAL CONDITION. Maintain at all times:
A. NET WORTH. A minimum Effective Tangible Net Worth of not less than
$3,500,000.00.
B. CURRENT RATIO. A ratio of current assets to current liabilities of not
less than 2.00 to 1.00.
C. DEBT SERVICE COVERAGE RATIO. A minimum Debt Service Coverage Ratio
(defined herein as the sum of net profit after taxes plus depreciation,
amortization, and term interest expense less dividends, distributions, and
withdrawals divided by the current portion of long term debt and term
interest expense) of not less than 1.25 to 1.00.
6.16. COMPENSATION OF EMPLOYEES. Compensate the employees of the Borrower 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.
6.17. ASSUMPTION AGREEMENTS. Prior to or contemporaneously with any
dissolution of Vineyard Investors 1972 and Vineyard 405 and assumption by the
Borrower of such partnerships' assets, the Borrower promises and agrees to
assume all obligations under that certain real estate term loan by and between
Vineyard Investors 1972 and the Bank in the original principal amount of
$5,500,000.00 and that certain real estate term loan between Vineyard 405 and
the Bank in the original amount of $1,560,000.00. The Borrower further promises
and agrees to execute any and all documentation required by the Bank in
connection with the foregoing assumptions, including but not limited to,
assumption agreements and security agreements, and to assist the Bank in
obtaining any endorsements to the Bank's title policy deemed necessary by the
Bank.
6.18. ENVIRONMENTAL COMPLIANCE. The Borrower shall:
A. Conduct the Borrower's operations and keep and maintain all of its
properties in compliance with all Environmental Laws.
B. Give prompt written notice to the Bank, but in no event later than 10
days after becoming aware, of the following: (i) any enforcement, cleanup,
removal or other governmental or regulatory actions instituted, completed
or threatened against the Borrower or any of its affiliates or any of its
respective properties pursuant to any applicable Environmental Laws, (ii)
all other Environmental Claims, and (iii) any environmental or similar
condition on any real property adjoining or in the vicinity of the property
of the Borrower or its affiliates that could reasonably be anticipated to
cause such property or any part thereof to be subject to any restrictions
on the ownership, occupancy, transferability or use of such property under
any Environmental Laws.
C. Upon the written request of the Bank, the Borrower shall submit to the
Bank, at its sole cost and expense, at reasonable intervals, a report
providing an update of the status of any environmental, health or safety
compliance, hazard or liability issue identified in any notice required
pursuant to this Section.
D. At all times indemnify and hold harmless the Bank from and against any
and all liability arising out of any Environmental Claims.
6.19. NOTICE. Give the Bank prompt written notice of any and all (i) Events
of Default; (ii) litigation, arbitration or administrative proceedings to which
the Borrower is a party and in which the claim or liability exceeds $50,000.00
or which affects the Collateral; (iii) any change in the place of business of
the Borrower or the acquisition of more than one place of business by the
Borrower; (iv) any proposed or actual change in the name, identity or business
nature of the Borrower; (v) any change in the location of the Inventory or
Crops; (vi) any disease to, any destruction of, any depreciation in the value
of or any damage to the Crops; and (vii) other matters which have resulted in,
or might result in a material adverse change in the Collateral or the financial
condition or business operations of the Borrower.
SECTION VII
EVENTS OF DEFAULT
Any one or more of the following described events shall constitute an event of
default under this Agreement:
7.01. NON-PAYMENT. The Borrower shall fail to pay any Obligations within 10
days of when due.
7.02. PERFORMANCE UNDER THIS AND OTHER AGREEMENTS. 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
evidencing or relating to any indebtedness of the Borrower (whether owed to the
Bank or third persons), and any such failure (exclusive of the payment of money
to the Bank under this Agreement or under any other document, instrument or
agreement, which failure shall constitute and be an immediate Event of Default
if not paid when due or when demanded to be due) shall continue for more than 30
days after written notice from the Bank to the Borrower of the existence and
character of such Event of Default.
7.03. 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.
7.04. 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.
7.05. 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.
(7)
<PAGE>
7.06. 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.
7.07. 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.
7.08. CHANGE IN OWNERSHIP. There shall occur a sale, transfer, disposition or
encumbrance (whether voluntary or involuntary), or an agreement shall be entered
into to do so, with respect to more than 10% of the issued and outstanding
capital stock of the Borrower.
7.09. 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, which changes cause the Collateral, in the sole and
absolute judgement of the Bank, to become unacceptable as to character and
value.
SECTION VIII
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:
8.01. 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.
8.02. 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.
8.03. 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.
8.04. SEGREGATE COLLECTIONS. Require the Borrower to segregate all collections
and proceeds of the Collateral so that they are capable of identification and to
deliver such collections and proceeds to the Bank, in kind, without commingling,
at such times and in such manner as required by the Bank.
8.05. RECORDS OF COLLATERAL. Require the Borrower to periodically deliver to
the Bank records and schedules showing the status, condition and location of the
Collateral and such contracts or other matters which affect the Collateral. In
connection herewith, the Bank may conduct such audits or other examination of
such records, including, but not limited to, verification of balances owing by
any account debtor of the Borrower, as the Bank, in its sole and absolute
discretion, deems necessary.
8.06. NOTIFICATION OF ACCOUNT DEBTORS.
A. Notify any or all of the Borrower's Account Debtors, or any buyers or
transferees of the Collateral or other persons of the Bank's interest in
the Collateral and the proceeds thereof and instruct such person(s) to
thereafter make any payment due the Borrower directly to the Bank.
B. The Borrower hereby irrevocably and unconditionally appoints the Bank
as its attorney-in-fact to: (i) 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; (ii) sign the Borrower's name on any
invoice or bill of lading relating to any of the Collateral; (iii) 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 (iv) demand,
receive and endorse payment and give receipts, releases and satisfactions
for and sue for all money payable to the Borrower. All of the preceding
may be done either in the name of the Bank or in the name of the Borrower
with the same force and effect as the Borrower could have done had this
Agreement not been entered into.
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.
8.07. COMPROMISE. Grant extensions, compromise claims and settle any account
for less than the amount owing thereunder, all without notice to the Borrower or
any obligor on or guarantor of the Obligations.
8.08. CARE AND POSSESSION OF THE CROPS. Enter upon the premises where the
Crops are being grown or stored and, using any and all of the Borrower's
equipment, machinery, tools, farming implements and supplies, and improvements
located on such premises: (i) farm, cultivate, irrigate, fertilize, fumigate,
prune and perform any other act or acts appropriate or necessary to grow, care
for, maintain, preserve and protect the Crops (using any water located in, on or
adjacent to the premises); (ii) harvest, pick, clean and remove the Crops from
the premises; and (iii) appraise, store, prepare for public or private sale,
exhibit, market and sell the Crops and the products thereof. With respect to
the above, the Borrower hereby further agrees that, if the Borrower is the owner
of record of the premises upon which the Crops and the products thereof are
located, the Bank shall not be responsible or liable for returning the premises
to their condition immediately preceding the use of the premises as provided
herein or for doing such acts as may be necessary to permit future crops to be
grown on the premises.
8.09. PROTECTION OF SECURITY INTEREST. 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.
8.10. 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 relating to the Collateral, in such manner and such order, as to
all or any part of the Collateral, 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
(8)
<PAGE>
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 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 any obligor on or any guarantor of the
Obligations and shall be immediately paid to the Bank.
8.11. 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, 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.
8.12. 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.
SECTION IX
MISCELLANEOUS PROVISIONS
9.01. DEFAULT INTEREST RATE. If an Event of Default has occurred and is
continuing, the Bank, at its option, may require the Borrower to 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 otherwise then in effect under this
Agreement.
9.02. ASSIGNMENT OF THE BORROWER'S RIGHTS WITH RESPECT TO CROPS.
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 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 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.
9.03. 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.
9.04. DISPUTE RESOLUTION.
A. DISPUTES. 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: (i) this
Agreement, or any related agreements, documents or instruments, (ii) 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, (iii) any incidents, omissions, acts,
practices, or occurrences causing injury to any party whereby another party
or its agents, employees or representatives may be liable, in whole or in
part, or (iv) any aspect of the past or present relationships of the
parties, shall be resolved through a two-step dispute resolution process
administered by the Judicial Arbitration & Mediation Services, Inc.
("JAMS") as follows:
B. STEP I - MEDIATION. At the request of any party to the dispute, claim
or controversy, the matter shall be referred to the nearest office of JAMS
for mediation, which is an informal, non-binding conference or conferences
between the parties in which a retired judge or justice from the JAMS panel
will seek to guide the parties to a resolution of the case.
C. STEP II - ARBITRATION (CONTRACTS NOT SECURED BY REAL PROPERTY). Should
any dispute, claim or controversy remain unresolved at the conclusion of
the Step I Mediation Phase, then (subject to the restriction at the end of
this subparagraph) 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, California (or such other city as may be agreed upon by the
parties) and shall be administered by and in accordance with the then
existing Rules of Practice and Procedure of JAMS 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 shall apply only if, at the
time of the submission of the matter to JAMS, the dispute or issues
involved do not arise out of any transaction which is 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 the arbitrator's 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.
(9)
<PAGE>
D. STEP II - TRIAL BY COURT REFERENCE (CONTRACTS SECURED BY REAL
PROPERTY). If the dispute, claim or controversy is not one required or
agreed to be submitted to arbitration, as provided in the above
subparagraph, and has not been resolved by Step I mediation, then any
remaining dispute, claim or controversy shall be submitted for
determination by a trial on Order of Reference conducted by a retired judge
or justice from the panel of JAMS appointed pursuant to the provisions of
Section 638(1) of the California Code of Civil Procedure, or any amendment,
addition or successor section thereto, to hear the case and report a
statement of decision thereon. The parties intend this general reference
agreement to be specifically enforceable in accordance with said section.
If the parties are unable to agree upon a member of the JAMS panel to act
as referee, then one shall be appointed by the Presiding Judge of the
county wherein the hearing is to be held. The parties shall pay in
advance, to the referee, the estimated reasonable fees and costs of the
reference, as may be specified in advance by the referee. The parties
shall initially share equally, by paying their proportionate amount of the
estimated fees and costs of the reference. Failure of any party to make
such a fee deposit shall result in a forfeiture by the non-depositing party
of the right to prosecute or defend any cause of action which is the
subject of the reference, but shall not otherwise serve to abate, stay or
suspend the reference proceeding.
E. PROVISIONAL REMEDIES, SELF HELP AND FORECLOSURE. No provision of, or
the exercise of any rights under any portion of this Dispute Resolution
provision, shall limit the right of any party to exercise self help
remedies such as set off, foreclosure against any real or personal property
collateral, or the obtaining of 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
the 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 to submit the controversy or claim to arbitration.
9.05. WAIVER OF JURY. The Borrower and the Bank hereby expressly and
voluntarily waive any and all rights, whether arising under the California
constitution, any rules of the California Code of Civil Procedure, common law or
otherwise, to demand a trial by jury in any action, matter, claim or cause of
action whatsoever arising out of or in any way related to this Agreement or any
other agreement, document or transaction contemplated hereby.
9.06. RESTRUCTURING EXPENSES. In the event the Bank and the Borrower negotiate
for, or enter into, any restructuring, modification or refinancing of the
Indebtedness under this Agreement for the purposes of remedying an Event of
Default, The Bank, may require the Borrower to reimburse all of the Bank's costs
and expenses incurred in connection therewith, including, but not limited to
reasonable attorneys' fees and the costs of any audit or appraisals required by
the Bank to be performed in connection with such restructuring, modification or
refinancing.
9.07. ATTORNEYS' FEES. In the event of any suit, mediation, arbitration or
other action in relation to this Agreement or any document, instrument or
agreement executed with respect to, evidencing or securing the indebtedness
hereunder, the prevailing party, in addition to all other sums to which it may
be entitled, shall be entitled to reasonable attorneys' fees.
9.08. 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.
9.09. 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.
9.10. 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.
9.11. 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 and any guarantor.
9.12. JURISDICTION. This Agreement, any notes issued hereunder, the rights of
the parties hereunder to and concerning the Collateral, 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.
9.13. HEADINGS. The headings set forth herein are solely for the purpose of
identification and have no legal significance.
9.14. ENTIRE AGREEMENT. This Agreement and all documents, instruments and
agreements mentioned herein 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 incorporated or
referenced in this Agreement or in such documents, instruments and agreements
are superseded hereby.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of
the date first hereinabove written.
(10)
<PAGE>
BANK: BORROWER:
SANWA BANK CALIFORNIA SCHEID VINEYARDS INC.
BY: /s/ STEVEN R. EDMONSTON BY: /s/ ALFRED G. SCHEID
------------------------ ------------------------
STEVEN R. EDMONSTON, AUTHORIZED OFFICER ALFRED G. SCHEID, PRESIDENT
BY: /s/ ERNEST M. BROWN
ADDRESS: ------------------------
Fresno CBC/Agribusiness Office
2035 Fresno Street ERNEST M. BROWN, SECRETARY
Fresno, CA 93721
ADDRESS:
13470 Washington Boulevard, Suite 300
Marina Del Rey, CA 90292
(11)
<PAGE>
EXHIBIT "A"
CROP BUDGET
- --------------------------------------------------------------------------------
[OMITTED]
(12)
<PAGE>
EXHIBIT "B"
DESCRIPTION OF REAL PROPERTY
(CROPS)
[OMITTED]
(13)
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference into the Registration Statement
of Scheid Vineyards Inc. on Form S-8 (SEC File No. 333-47845, filed March 12,
1998) of our report dated February 13, 1998, appearing in the Annual Report
on Form 10-KSB of Scheid Vineyards Inc. for the year ended December 31, 1997.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
Deloitte & Touche LLP
Los Angeles, California
March 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AS OF DECEMBER 31, 1997 AND 1996 AND THE STATEMENTS OF OPERATIONS, CASH
FLOWS AND STOCKHOLDERS' EQUITY OF SCHEID VINEYARDS INC. FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
IN FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 14,483
<SECURITIES> 0
<RECEIVABLES> 761
<ALLOWANCES> 0
<INVENTORY> 1,102
<CURRENT-ASSETS> 17,159
<PP&E> 27,795
<DEPRECIATION> 0
<TOTAL-ASSETS> 49,869
<CURRENT-LIABILITIES> 1,494
<BONDS> 17,851
0
0
<COMMON> 7
<OTHER-SE> 29,114
<TOTAL-LIABILITY-AND-EQUITY> 49,869
<SALES> 18,683
<TOTAL-REVENUES> 19,870
<CGS> 6,222
<TOTAL-COSTS> 6,222
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 700
<INCOME-PRETAX> 8,733
<INCOME-TAX> 5,277<F1>
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,456
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.65
<FN>
<F1>INCOME TAX EXPENSE INCLUDES A ONE-TIME DEFERRED TAX CHARGE OF $1,390 FOR CHANGE
FROM S-CORPORATION TO C-CORPORATION STATUS.
</FN>
</TABLE>
