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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-22857
SCHEID VINEYARDS INC.
(Exact name of small business issuer as specified in its charter)
Delaware 77-0461833
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13470 Washington Blvd.
Marina del Rey, California 90292
(Address of principal executive offices) (ZipCode)
(310) 301-1555
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
There were 5,740,350 shares outstanding of registrant's Common Stock, par value
$.001 per share, as of November 10, 1999, consisting of 2,366,250 shares of
Class A Common Stock and 3,374,100 shares of Class B Common Stock.
Transitional Small Business Disclosure Format (check one): Yes No X
----- -----
- --------------------------------------------------------------------------------
Page 1 of 14
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SCHEID VINEYARDS INC.
FORM 10-QSB INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
a. Consolidated Balance Sheets at September 30, 1999 and
December 31, 1998 3
b. Consolidated Statements of Operations for the three and nine months ended
September 30, 1999 and 1998 4
c. Consolidated Statements of Cash Flows for the nine months ended September
30, 1999 and 1998 5
d. Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 14
</TABLE>
Page 2 of 14
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCHEID VINEYARDS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- --------------
<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................................... $ 397 $ 5,031
Accounts receivable, trade .................................................. 617 728
Accounts receivable, other .................................................. - 398
Inventories ................................................................. 6,069 742
Supplies, prepaid expenses and other current assets ......................... 375 614
Deferred income taxes ....................................................... 792 38
Current portion of long-term receivable ..................................... 501 -
------------- --------------
Total current assets ................................................... 8,751 7,551
PROPERTY, PLANT AND EQUIPMENT, NET ............................................. 44,339 32,937
LONG-TERM RECEIVABLE ........................................................... 4,614 5,572
OTHER ASSETS, NET .............................................................. 578 472
------------- --------------
$ 58,282 $ 46,532
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt ........................................... $ 1,506 $ 275
Accounts payable and accrued liabilities .................................... 1,980 716
Accrued interest payable .................................................... 453 197
Income taxes payable ........................................................ - 2,480
------------- --------------
Total current liabilities .............................................. 3,939 3,668
LONG-TERM DEBT, NET OF CURRENT PORTION ......................................... 26,434 11,562
DEFERRED INCOME TAXES .......................................................... 867 867
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Total liabilities ...................................................... 31,240 16,097
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STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; 2,000,000 shares authorized; no
shares issued and outstanding ............................................. - -
Common stock,
Class A, $.001 par value; 20,000,000 shares authorized;
2,371,250 and 2,872,950 shares outstanding at September 30, 1999 and
December 31, 1998, respectively
Class B, $.001 par value; 10,000,000 shares authorized; 3,374,100 shares
issued and outstanding at September 30, 1999 and December 31, 1998 ...... 7 7
Additional paid-in capital ................................................. 21,868 21,868
Retained earnings .......................................................... 9,804 10,936
Less: treasury stock; 953,750 Class A shares at cost at
September 30, 1999 and 452,050 at December 31, 1998 ....................... (4,637) (2,376)
------------- --------------
Total stockholders' equity .............................................. 27,042 30,435
------------- --------------
$ 58,282 $ 46,532
============= ==============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
Page 3 of 14
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SCHEID VINEYARDS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Sales .............................................. $ 709 $ 1,009 $ 1,004 $ 1,754
Vineyard management, services and other fees ....... 219 259 632 696
-------- --------- --------- ---------
Total revenues ............................... 928 1,268 1,636 2,450
COST OF SALES ......................................... 482 469 662 812
-------- --------- --------- ---------
GROSS PROFIT .......................................... 446 799 974 1,638
General and administrative expenses ................ 897 891 2,842 3,038
Deferred compensation provision .................... - (706) - (706)
Interest expense (income), net ..................... 45 29 18 (3)
-------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAX PROVISION (BENEFIT) ... (496) 585 (1,886) (691)
INCOME TAX PROVISION (BENEFIT) ........................ (198) 234 (754) (276)
-------- --------- --------- ---------
NET INCOME (LOSS) ..................................... $ (298) $ 351 $ (1,132) $ (415)
======== ========= ========= =========
BASIC AND DILUTED NET INCOME (LOSS)
PER SHARE ......................................... $ (0.05) $ 0.05 $ (0.19) $ (0.06)
======== ========= ========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING ................... 6,038 6,564 6,087 6,654
======== ========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
Page 4 of 14
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SCHEID VINEYARDS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
SEPTEMBER 30,
-------------
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ......................................................................... $ (1,132) $ (415)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization and abandonments .................................... 1,200 1,141
Deferred compensation .......................................................... - (662)
Noncash compensation ........................................................... - 75
Deferred income taxes .......................................................... (754) 147
Changes in operating assets and liabilities:
Accounts receivable, trade ................................................... 111 (613)
Accounts receivable, other ................................................... 398 412
Inventories .................................................................. (5,327) (4,915)
Supplies, prepaid expenses and other current assets .......................... 239 344
Accounts payable and accrued liabilities ..................................... 1,520 599
Income taxes payable ......................................................... (2,480) -
-------- --------
Net cash used in operating activities ..................................... (6,225) (3,887)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Long-term receivable ............................................................. 457 (812)
Additions to property, plant and equipment ....................................... (12,602) (6,486)
Proceeds from sale of property, plant and equipment .............................. - 201
Other assets ..................................................................... (106) (229)
-------- --------
Net cash used in investing activities ..................................... (12,251) (7,326)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt ....................................................... 17,969 3,558
Repayment of long-term debt ...................................................... (1,866) (4,967)
Purchase of treasury shares ...................................................... (2,261) (1,192)
-------- --------
Net cash provided by (used in) financing activities ....................... 13,842 (2,601)
-------- --------
Decrease in cash and cash equivalents ..................................... (4,634) (13,814)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ...................................... 5,031 14,483
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................................ $ 397 $ 669
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Page 5 of 14
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SCHEID VINEYARDS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The consolidated financial statements included herein have been
prepared by Scheid Vineyards Inc. (the "Company" or "SVI") without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission (the "SEC"). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to such SEC rules
and regulations. In the opinion of management of the Company, the foregoing
consolidated statements contain all adjustments necessary to present fairly
the financial position of the Company as of September 30, 1999, and its
results of operations for the three and nine-month periods ended September
30, 1999 and 1998 and cash flows for the nine-month periods ended September
30, 1999 and 1998. Due to the seasonality of the wine grape business, the
interim results reflected in the foregoing consolidated financial statements
are not considered indicative of the results expected for the full fiscal
year. The Company's consolidated balance sheet as of December 31, 1998
included herein has been derived from the Company's audited financial
statements as of that date included in the Company's Annual Report on Form
10-KSB. The accompanying consolidated financial statements should be read in
conjunction with the financial statements and the notes thereto filed as part
of the Company's Annual Report on Form 10-KSB.
RECENT DEVELOPMENTS
On September 9, 1999, the Company instituted a stock repurchase
program in which the Company may spend up to $2.5 million in open market
transactions to purchase outstanding shares of its Class A Common Stock at
such times, in such amounts or blocks and at such prices as deemed
appropriate. This repurchase program will expire on December 31, 2000, and
replaces a previously existing repurchase program that was to expire on
September 30, 1999. Through November 10, 1999, the Company had repurchased
367,000 shares under this program for approximately $1,671,000. Under
previous stock repurchase programs and other repurchases, the Company had
previously repurchased 592,650 shares for an aggregate purchase price of
approximately $3,000,000.
On September 7, 1999, the Company entered into a new long-term crop
line of credit agreement with its principal bank. The new crop line expires
on June 5, 2001, provides for maximum borrowings totaling $12,000,000, and
replaces the Company's previous crop line of credit.
In December 1998, the Company signed a long-term lease for
approximately 750 acres of undeveloped land suitable for wine grape vineyards
in Greenfield, a few miles from the Company's vineyard headquarters. The
lease is for a term of up to 34 years. The planting of the entire 750-acre
vineyard, named Mesa del Rio Vineyard, including rootstock and irrigation and
trellising systems, has been completed, with the first harvest expected in
2001.
Page 6 of 14
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Scheid Vineyards Inc. is a leading independent (I.E., not winery
controlled) producer of premium varietal wine grapes. The Company currently
operates approximately 6,000 acres of wine grape vineyards. Of this total,
approximately 4,400 acres are operated for the Company's own account, and 1,600
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 13 varieties of premium wine grapes,
primarily Chardonnay, Merlot, Cabernet Sauvignon 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 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 when revenues from grape sales are recognized. In
addition, the timing of the annual harvest varies each year based primarily
on seasonal growing conditions, resulting in timing differences in the
portion of grape revenues recognized in the third and fourth quarters of any
one year. 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. These are significant
factors in comparing quarterly operating results between fiscal years.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
REVENUES. SVI derives its revenues from four sources: (i) sales of wine
grapes; (ii) sales of bulk wine; (iii) vineyard management and services revenues
consisting primarily of management and harvest fees and equipment rentals for
services provided to owners of vineyards; and (iv) sales of wine and
wine-related merchandise sold primarily through the Company's tasting room.
Sales (which is comprised of revenue from sales of wine grapes, bulk
wine, and wine and wine-related merchandise) decreased by 43% to $1,004,000 in
the nine months ended September 30, 1999 from $1,754,000 in the 1998 period, a
decrease of $750,000. Sales for the nine months ended September 30, 1999 is
comprised of $617,000 in grape sales, $215,000 in bulk wine sales and $172,000
from the sale of wine and wine-related merchandise. Sales for the nine months
ended September 30, 1998 is comprised of $635,000 in grape sales, $982,000 in
bulk wine sales and $137,000 from the sale of wine and wine-related merchandise.
Page 7 of 14
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Unusually cool spring and summer weather in the coastal
growing regions of California has had a negative impact on the yield of
grapes for the 1999 harvest. Unfavorable weather conditions persisted
throughout much of the growing season, with no sustained warming until early
October. Consequently, the "sizing up" of grapes which is promoted by warm
weather in the summer months did not occur and the wine grape harvest was
delayed three to four weeks in the coastal regions of California. Due to this
delay, crop sale revenues for 1999 will be almost entirely recognized in the
fourth quarter. Through September 30, 1999, approximately 7% of the Company's
producing acreage had been harvested. This is comparable to the 1998 harvest,
which was also delayed due to cool weather conditions. See "-Anticipated
Results For Fiscal Year Ending December 31, 1999".
Revenue from vineyard management, services and other fees decreased by
9% to $632,000 for the nine months ended September 30, 1999 from $696,000 in the
1998 period, a decrease of $64,000. The decrease was primarily due to the
elimination of a 68-acre vineyard management contract.
GROSS PROFIT. Gross profit for the nine months ended September 30, 1999
was $974,000 compared to $1,638,000 for the nine months ended September 30,
1998, a decrease of $664,000 or 41%. This decrease resulted primarily from
reductions in crop yields, reductions in sales of bulk wine, and a decrease in
management fees from 1998 to 1999.
Primarily as a result of lower yields per acre in 1999 than in 1998,
gross margin on grape sales decreased to 28% in the 1999 third quarter as
compared to 51% in the 1998 period.
Costs associated with the provision of management services are
reimbursed by the Company's clients, therefore, no cost of sales is deducted in
determining gross profit on these services.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
decreased by 6% to $2,842,000 for the nine months ended September 30, 1999 from
$3,038,000 in the 1998 period, a decrease of $196,000. The decrease was due
primarily to reductions in executive salaries and professional fees.
DEFERRED COMPENSATION PROVISION. During the nine months ended
September 30, 1998, the Company reversed an accrual of deferred compensation
in the amount of $706,000. The deferred compensation liability was due to an
arrangement whereby the Company would make annual payments to a certain
employee commencing upon his retirement. The employee passed away in August
1998 negating the need for the provision.
INTEREST EXPENSE (INCOME), NET. Net interest expense was $18,000 for
the nine months ended September 30, 1999 and net interest income was $3,000 in
the 1998 period, an increase of $21,000, and is comprised of the following:
Page 8 of 14
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1999 1998
---- -----
Interest expense .................... $ 742,000 $ 797,000
Less capitalized interest ........... (691,000) (446,000)
---------- ----------
Net interest expense ................ 51,000 351,000
Interest income ..................... (33,000) (354,000)
---------- ----------
Net interest expense (income) ....... $ 18,000 $ (3,000)
---------- ----------
---------- ----------
Total interest expense decreased primarily as a result of lower
interest rates in the 1999 period and lower average amounts outstanding under
the Company's long-term revolving credit facilities. Capitalized interest
increased in the 1999 period due to the increased expenditures for vineyard
acreage being improved or developed. The decrease in interest income in 1999 was
due to the decrease in cash holdings of the Company from 1998 to 1999, primarily
as the result of the continued development of Company-owned vineyards, the
repayment of amounts borrowed on long-term revolving credit facilities and the
repurchase of shares of the Company's Class A Common Stock.
INCOME TAX BENEFIT. The income tax benefit increased to $754,000 for
the nine months ended September 30, 1999 from $276,000 in the 1998 period.
NET LOSS. As a result of the above, the Company had a net loss for the
nine months ended September 30, 1999 of $1,132,000 as compared to $415,000 in
the 1998 period.
ANTICIPATED RESULTS FOR FISCAL YEAR ENDING DECEMBER 31, 1999
At November 10, 1999 approximately 80% of the Company's vineyard
acres had been harvested. The yield results for Chardonnay were approximately
50% to 60% below the Company's expectations in a "normal" crop year, making
it the lowest average per acre yield on mature vineyards that the Company has
ever experienced. Other white varieties were similarly affected. The
Company is currently continuing the harvest of red grapes and anticipates the
conclusion of harvest will not occur until the end of November. Thus, it is
difficult to predict the final harvest results at this time and financial
results for 1999 will not be known until year-end. Based on the harvest
results thus far, however, the Company's preliminary analysis indicates that
earnings will be very near breakeven for the year. Low yields coupled with
above-average harvest and cultural expenses necessitated by the poor weather
are the reasons for substantially decreased revenues and earnings per share.
See "--Special Note Regarding Forward-Looking Statements."
LIQUIDITY AND CAPITAL RESOURCES
SVI's primary sources of cash have historically been funds provided by
internally generated cash flow and bank borrowings. The Company has made
substantial capital expenditures to redevelop its existing vineyard properties
and acquire and develop new acreage, and the Company intends to continue these
types
Page 9 of 14
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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. The Company had working capital at
September 30, 1999 of $4,812,000 as compared to $3,883,000 at December 31, 1998,
an increase of $929,000. The increase in working capital was primarily due to
borrowings on long-term credit facilities to fund current year crop costs, the
majority of which are included as inventories at September 30, 1999.
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 Company's "crop" line has maximum credit available of
$12,000,000 and is intended to finance the Company's anticipated working capital
needs. The crop line expires June 5, 2001, and is secured by crops and other
assets of the Company. There was $7,330,000 outstanding under the crop line at
September 30, 1999. The interest rate on this line is based on the bank's
"reference" or "cost of funds" rate. At September 30, 1999, the weighted average
interest rate on borrowings under this line of credit was 7.29%.
SVI also has long-term credit facilities which expire through June 2008
and provide for maximum borrowings totaling $9,505,000, which diminish annually
through the expiration dates to a maximum allowable commitment of $5,412,000. At
September 30, 1999, the outstanding amount owed by the Company under these
facilities was $9,505,000. The interest rate on each of these lines is based on
the bank's "reference" or "cost of funds" rate. At September 30, 1999, the
weighted average per annum interest rate on these lines was 7.31%. These credit
lines are secured by deeds of trust on underlying vineyard property.
The Company also has other long-term notes payable which, as of
September 30, 1999, totaled approximately $5,990,000. The interest rate on
each of these notes is based on the bank's "reference" or "cost of funds"
rate. At September 30, 1999, the weighted average per annum interest rate on
these notes was 7.26%. These notes are secured by deeds of trust on
underlying vineyard property.
The Company also has a bank line of credit with an original maximum
loan commitment of $7,500,000, 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. Any amount borrowed on the line, even if repaid before the end of the
availability period, permanently reduces the remaining available line of credit.
At September 30, 1999, the maximum available balance on this line of credit was
$5,297,000 and the outstanding balance was $5,115,000. This line bears interest
at the bank's reference rate (5.88% at September 30, 1999) 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
Page 10 of 14
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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 September 30, 1999, the Company was
in compliance with these covenants.
Although no assurances can be given, management believes that the
Company's anticipated working capital levels and short-term borrowing
capabilities will be adequate to meet the Company's currently anticipated
liquidity needs during the next twelve months. At November 10, 1999, the Company
had $3,170,000 in borrowing availability under its long-term revolving credit
facilities and crop line of credit.
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 $16 million in capital
investment through December 31, 2001, and continued improvements and
redevelopments of existing vineyards are expected to require approximately $7
million. In addition, the Company expects to invest approximately $3 million in
equipment purchases. Of these expected capital requirements, the Company has
expended approximately $8.5 million for the development of new vineyards, $2.9
million for the continued improvement and redevelopment of existing vineyards,
and $1.6 million for equipment purchases for the nine months ended September 30,
1999. Management believes it should be able to obtain long-term funds from its
present principal lender, but there can be no assurance that the Company will be
able to obtain financing when required or that such financings will be available
on reasonable terms.
Cash used in operating activities was $6,225,000 for the nine months
ended September 30, 1999, compared to $3,887,000 for the same period in 1998, an
increase of $2,338,000. The increase was primarily due to the increase in the
net loss and the timing of the payment of 1998 income tax liabilities.
Cash used in investing activities was $12,251,000 for the nine months
ended September 30, 1999, compared to $7,326,000 for the same period in 1998, an
increase of $4,925,000. The increase was principally the result of expenditures
for the ongoing development of approximately 1,300 acres of new vineyards and
improvements in the Company's existing vineyards.
Cash provided by financing activities was $13,842,000 for the nine
months ended September 30, 1999, compared to cash used in financing activities
of $2,601,000 for the same period in 1998. Net borrowings under the Company's
long-term credit lines were $16,103,000 in 1999 as compared to net repayments in
1998 of $1,409,000. The borrowings in 1999 were used primarily for expenditures
for the 1999 crop and to fund vineyard development, primarily on the Company's
new 750-acre vineyard which the Company began developing in the fourth quarter
of 1998. In addition, the Company repurchased shares of its Class A Common Stock
in the amount of $2,261,000 during the nine months ended September 30, 1999 as
compared to $1,192,000 in the 1998 period.
Page 11 of 14
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YEAR 2000
The Year 2000 issue is the result of computer systems, including
information technology ("IT") and non-IT systems, which have the inability to
process date sensitive information with respect to the Year 2000 and thereafter.
Computers or other equipment with date-sensitive software may recognize "00" as
1900 rather than 2000. If not corrected, many computer systems could fail or
produce erroneous results. If the Company, or its significant customers,
suppliers, lenders, or other third parties fail to correct Year 2000 issues, the
Company's ability to operate its business could be materially affected.
The Company has completed the upgrading of its accounting and
financial software, and, in conjunction with the upgrade, the Company
believes that any known Year 2000 issues have been corrected.
In addition, there are also risks associated with key suppliers,
including utility companies and financial institutions, and customers over which
the Company has little or no control. The Company has made inquiries of certain
of its principal suppliers and customers with respect to their Year 2000
readiness and its potential effects on the Company.
Although no assurances can be given, the Company currently believes
that through its upgrade of its accounting and financial systems and its
evaluation of non-IT systems (including telephones and security systems), as
well as ongoing correspondence with suppliers and customers, the Year 2000 issue
will not materially impair the Company's ability to conduct business. In
addition, in addressing the Year 2000 issue, the Company has thus far not
expended a material amount, and does not anticipate future expenditures
regarding this issue to be material. To the extent the Company is not able to
address any of its Year 2000 issues, the Company believes that it could revert
to manual processes previously employed with minimal costs.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Management's Discussion and Analysis
of Financial Condition and Results of Operations are "forward-looking
statements". These forward-looking statements can generally be identified as
such because the context of the statement will include such words as the Company
"believes," "anticipates," "expects," or words of similar import. Similarly,
statements that describe the Company's future operating performance, financial
results, plans, objectives or goals are also forward-looking statements. Such
forward looking statements are subject to certain factors, risks and
uncertainties which could cause actual results to differ materially from those
currently anticipated. Such factors, risks and uncertainties include, but are
not limited to, (i) success in planting, cultivating and harvesting of existing
and new vineyards, including the effects of weather conditions (ii) success in,
and the timing of, future acquisitions, if any, of additional properties for
vineyard development and related businesses as well as variability in
acquisition and development costs, (iii) consumer demand and preferences for the
wine grape varieties produced by the Company, (iv) general health and social
concerns regarding consumption of wine and spirits, (v) the size and growth rate
of the California wine industry, (vi) seasonality of the wine grape producing
business, (vii) increases or changes in government regulations regarding
environmental impact, water use, labor or consumption of alcoholic beverages,
(viii) competition from other producers and wineries, (ix) proposed expansion of
the Company's wine business, (x) effects of variances in grape yields and prices
from
Page 12 of 14
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harvest to harvest due to agricultural, market and other factors and
relatively fixed farming costs, (xi) the Company's dependence on a small number
of clients for the purchase of a substantial portion of the Company's grape
production, (xii) the availability of financing on terms acceptable to the
Company, and (xiii) the Company's labor relations. These and other factors,
risks and uncertainties are discussed in greater detail under the caption
"Business - Cautionary Information Regarding Forward Looking Statements" in the
Company's Annual Report on Form 10-KSB filed with the Securities and Exchange
Commission on March 22, 1999. Stockholders, potential investors and other
readers are urged to consider these factors carefully in evaluating the
forward-looking statements and are cautioned not to place undo reliance on such
forward-looking statements. The forward-looking statements made herein are only
made as of the date of this Form 10-QSB and the Company undertakes no obligation
to publicly update such forward-looking statements to reflect subsequent events
or circumstances.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
Page 13 of 14
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herewith:
10.1 Credit Agreement (Crop Line of Credit) dated
September 7, 1999, by and between Sanwa Bank
California and Scheid Vineyards Inc. and Scheid
Vineyards California Inc.
27.1 Financial Data Schedule (electronically filed
herewith)
(b) The Company did not file any reports on Form 8-K during the
quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 10, 1999 SCHEID VINEYARDS INC.
/s/ Heidi M. Scheid
----------------------------
Heidi M. Scheid
Vice President Finance and Chief Financial Officer
(Duly Authorized Officer and Principal Financial
and Accounting Officer)
Page 14 of 14
<PAGE>
[LOGO]
CREDIT AGREEMENT
(CROP LINE OF CREDIT)
This Agreement (the "Agreement") is made and entered into as of September
7, 1999, by and between SANWA BANK CALIFORNIA (the "Bank") and SCHEID VINEYARDS
INC. and SCHEID VINEYARDS CALIFORNIA INC. (collectively the "Borrower"), on the
terms and conditions that follow:
SECTION
1
DEFINITIONS
1.1 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):
1.1.1 "ADVANCE": shall mean an advance to the Borrower under the credit
facility (ies) described in Section 2.
1.1.2 "BUSINESS DAY": shall mean a day, other than a Saturday or
Sunday, on which commercial banks are open for business in
California.
1.1.3 "CASH FLOW": shall mean the sum of net income after tax and
exclusive of extraordinary gains, plus depreciation and
amortization expense minus dividends and distributions.
1.1.4 "COLLATERAL": shall mean the property described in Section 3,
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.
1.1.5 "CROPS": shall mean the crops described in Section 3.
1.1.6 "CROP BUDGET": shall mean the crop budget dated May 17, 1999 for
the crop production year commencing on December 1, 1998 and ending
on November 30, 1999 (the "Current Crop Year") which budget is
attached hereto as Exhibit "A".
1.1.7 "CROP LINE OF CREDIT": shall mean the credit facility described
as such in Section 2.
1.1.8 "CURRENT ASSETS": shall mean current assets as determined in
accordance with generally accepted accounting principles, less all
amounts due from affiliates, officers or employees.
1.1.9 "CURRENT LIABILITIES": shall mean current liabilities as
determined in accordance with generally accepted accounting
principles, including any negative cash balance on the Borrower's
financial statement.
1.1.10 "DEBT": shall mean all liabilities of the Borrower less
Subordinated Debt, if any.
<PAGE>
1.1.11 "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 including, but
not limited to, investments in and all amounts due from
affiliates, officers or employees).
1.1.12 "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 (a) 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 Material at, in, or from
property, whether or not owned by the Borrower, or (b) any other
circumstances forming the basis of any violation, or alleged
violation, of any Environmental Law.
1.1.13 "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.
1.1.14 "ENVIRONMENTAL PERMITS": shall have the meaning provided in
Section 5.11 hereof.
1.1.15 "EQUIPMENT": shall mean equipment as defined in the California
Uniform Commercial Code.
1.1.16 "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.
1.1.17 "EVENT OF DEFAULT": shall have the meaning set forth in Section
7.
1.1.18 "EXPIRATION DATE": shall mean June 5, 2001, or the date of
termination of the Bank's commitment to lend under this Agreement
pursuant to Section 8, whichever shall occur first.
1.1.19 "FIXED RATE ADVANCE": shall have the respective meaning as it is
defined for each facility under Section 2, hereof if applicable.
1.1.20 "FIXED RATE": shall have the respective meaning as it is defined
for each facility under Section 2, hereof if applicable.
1.1.21 "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,
<PAGE>
hazardous constituent, special waste, hazardous substance,
hazardous material, or toxic substance, or petroleum or petroleum
derived substance or waste.
1.1.22 "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.
1.1.23 "INTEREST PERIOD": shall have the respective meaning as it is
defined for each facility under Section 2, hereof.
1.1.24 "INVENTORY": shall mean the inventory described in Section 3.
1.1.25 "LINE ACCOUNT": shall have the meaning provided in Section 2.2
hereof.
1.1.26 "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.
1.1.27 "ORDINARY COURSE OF BUSINESS": shall mean, with respect to any
transaction involving the Borrower or any of its subsidiaries or
affiliates, the ordinary course of the business of the Borrower or
such subsidiary or affiliate, as conducted generally in accordance
with past practice and undertaken in good faith and not for the
purpose of evading any covenant or restriction in this Agreement
or in any other document, instrument or agreement executed in
connection herewith.
1.1.28 "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 not yet due; (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 under Section 5.7 hereof; (v) liens and
security interests which, as of the date hereof, have been
disclosed to and 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.
1.1.29 "REFERENCE RATE": shall mean an index for a variable interest
rate which is quoted, published or announced by Bank as its
reference rate and as to which loans may be made by Bank at, above
or below such rate.
1.1.30 "SUBORDINATED DEBT": shall mean such liabilities of the Borrower
which have been subordinated to those owed to the Bank in a manner
reasonably acceptable to the Bank.
1.1.31 "VARIABLE RATE ADVANCE": shall have the respective meaning as it
is defined for each facility under Section 2, hereof.
1.1.32 "VARIABLE RATE": shall have the respective meaning as it is
defined for each facility under Section 2, hereof.
<PAGE>
1.2 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.
1.3 OTHER TERMS: Other terms not otherwise defined shall have the meanings
attributed to such terms in the California Uniform Commercial Code.
SECTION
2
CREDIT FACILITIES
2.1 THE CROP LINE OF CREDIT
2.1.1 THE CROP LINE OF CREDIT: On terms and conditions as set forth
herein, the Bank agrees to make Advances to the Borrower from time
to time from the date hereof to the Expiration Date, provided the
aggregate amount of such Advances outstanding at any time does not
exceed $12,000,000.00. Within the foregoing limits, the Borrower
may borrow, partially or wholly prepay, and reborrow under this
Section 2.1. Advances made under the Crop Line of Credit shall be
used for general corporate and working capital purposes, and to
fund the Borrower's farming operations, which advances shall be
made in accordance with the Crop Budget.
2.1.2 MAKING LINE ADVANCES: Each Advance 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
Borrower's written instructions. Subject to the requirements of
Section 4 and provided such request is made in a timely manner as
provided in Section 2.1.5 below, Advances shall be made by the
Bank under the Crop Line of Credit.
2.1.3 REPAYMENT: On the Expiration Date, the Borrower hereby promises
and agrees to pay to the Bank in full the aggregate unpaid
principal amount of all Advances then outstanding under the Crop
Line of Credit together with all accrued and unpaid interest
thereon.
2.1.4 INTEREST ON ADVANCES: Interest shall accrue from the date of each
Advance under the Crop Line of Credit at one of the following
rates, as quoted by the Bank and as elected by the Borrower
pursuant to Subsection (i) or Subsection (ii) below:
(i) VARIABLE RATE ADVANCES: A variable rate per annum
equivalent to the Reference Rate (the "Variable Rate").
Interest shall be adjusted concurrently with any change in
the Reference Rate. An Advance based upon the Variable
Rate is hereinafter referred to as a "Variable Rate
Advance".
(ii) FIXED RATE ADVANCES: A fixed rate quoted by Bank in its
sole discretion for each Advance (the "Fixed Rate") and for
such period of time that the Bank may quote and offer,
provided that any such period of time shall be for at least
30 days and provided that any such period of time does not
extend beyond the Expiration Date (the "Interest Period")
for Advances in the minimum amount of $500,000.00.
Advances based upon the Fixed Rate are hereinafter referred
to as "Fixed Rate Advances".
<PAGE>
Interest on any Advance shall be computed on the basis of 360 days
per year, but charged on the actual number of days elapsed.
The Borrower hereby promises and agrees to pay interest in arrears
on Variable Rate Advances and Fixed Rate Advances on the last
calendar day of each March, June, September, or December.
If interest is not paid as and when it is due, it shall be added
to the principal, become and be treated as a part thereof, and
shall thereafter bear like interest.
2.1.5 NOTICE OF BORROWING: Upon written or telephonic notice which
shall be received by the Bank at or before 2:00 p.m. (California
time) on a Business Day, the Borrower may borrow under the Crop
Line of Credit by requesting a Variable Rate Advance or a Fixed
Rate Advance. A Variable Rate Advance or a Fixed Rate Advance may
be made on the day notice is received by the Bank; provided,
however, that if the Bank shall not have received notice at or
before 2:00 p.m. on the day such Advance is requested to be made,
such Variable Rate Advance or Fixed Rate Advance may, at the
Bank's option, be made on the next Business Day.
2.1.6 NOTICE OF ELECTION TO ADJUST INTEREST RATE: The Borrower may
elect:
(i) That interest on a Variable Rate Advance shall be adjusted
to accrue at the Fixed Rate; provided, however, that such
notice shall be received by the Bank no later than 2:00
p.m. on the Business Day on which the Borrower requests
that interest be adjusted to accrue at the Fixed Rate.
(ii) 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 2:00 p.m. on the last day of the Interest Period
pertaining to such Fixed Rate Advance. If the Bank shall
not have received notice (as prescribed herein) of the
Borrower's election that interest on any Fixed Rate Advance
shall continue to accrue at the newly quoted 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.
2.1.7 PREPAYMENT: The Borrower may prepay any Advance in whole or in
part, at any time and without penalty, provided, however, that:
(i) any partial prepayment shall first be applied, at the Bank's
option, to accrued and unpaid interest and next to the outstanding
principal balance; and (ii) during any period of time in which
interest is accruing on any Advance on the basis of the Fixed
Rate, no prepayment shall be made except on a day which is the
last day of the Interest Period pertaining thereto. If the whole
or any part of any Fixed Rate Advance is prepaid by reason of
acceleration or otherwise, the Borrower shall, upon the Bank's
request, promptly pay to and indemnify the Bank for all costs,
expenses and any loss (including loss of future interest income)
actually incurred by the Bank and any loss (including loss of
profit resulting from the re-employment of funds) reasonably
deemed sustained by the Bank as a consequence of such prepayment.
The Bank shall be entitled to fund all or any portion of its
Advances in any manner it may determine in its sole discretion,
but all calculations and transactions hereunder shall be conducted
as though the Bank actually funded all Advances through the
purchase of dollar deposits bearing interest at the same rate as
U.S. Treasury securities in the amount of the relevant Advance and
in maturities corresponding to the date of such purchase to the
Expiration Date hereunder.
<PAGE>
2.1.8 CONVERSION FROM FIXED RATE TO VARIABLE RATE: In the event that
the Bank shall at any time determine that the accrual of interest
on the basis of the Fixed Rate (i) 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 (ii) 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 Advance bearing interest at the Fixed
Rate, shall be deemed to be a Variable Rate Advance and interest
shall thereupon immediately accrue at the Variable Rate.
2.1.9 COMMITMENT FEE: The Borrower agrees to pay to the Bank a
commitment fee on the unused portion of the Crop Line of Credit of
.15% per annum, payable quarterly in arrears, commencing October
1, 1999, and computed on a year of 360 days for actual days
elapsed, provided that the provisions of Section 6.14 hereof shall
not be deemed to be included in the unused portion of the Crop
Line of Credit.
2.2 LINE ACCOUNT:
2.2.1 The Bank shall maintain on its books a record of account in which
the Bank shall make entries for each Advance and such other debits
and credits as shall be appropriate in connection with the credit
facilities granted hereunder (the "Line Account"). The Bank shall
provide the Borrower with a statement of the Borrower's Line
Account, which statement shall be considered to be correct and
conclusively binding on the Borrower unless the Borrower notifies
the Bank to the contrary within 30 days after the Borrower's
receipt of any such statement which it deems to be incorrect.
2.2.2 If any payment required to be made by the Borrower hereunder
becomes due and payable on a day other than a Business Day, the
due date thereof shall be extended to the next succeeding Business
Day and interest thereon shall be payable at the then applicable
rate during such extension. All payments required to be made
hereunder shall be made to the office of the Bank designated for
the receipt of notices herein or such other office as Bank shall
from time to time designate.
2.3 LATE PAYMENT: In addition to any other rights the Bank may have
hereunder, if any payment of principal or interest or any portion
thereof, under this Agreement is not paid within 10 days of when due, a
late payment charge equal to five percent (5%) of such past due payment
may be assessed and shall be immediately payable.
SECTION
3
COLLATERAL
3.1 THE COLLATERAL: To secure payment and performance of all the Borrower's
Obligations under this Agreement and 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 the Bank a security interest in and
to all of the following property ("Collateral"):
(i) INVENTORY. All inventory (excluding crops) 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
<PAGE>
inventory temporarily out of the Borrower's custody or
possession, together with all returns on accounts
(the "Inventory").
(ii) ACCOUNTS. All accounts, contract rights and general
intangibles now owned or hereafter created or acquired by
the Borrower, including, but not limited to, all
receivables, goodwill, trademarks, trademark applications,
trade styles, trade names, patents, patent applications,
copyrights and copyright applications, customer lists,
business records and computer programs, tapes, disks and
related data processing software that at any time evidence
or contain information relating to any of the Collateral.
(iii) DOCUMENTS. All documents, instruments and chattel paper
now owned or hereafter acquired by the Borrower, including,
but not limited to, warehouse and other receipts, bills of
sale and bills of lading.
(iv) MONIES. All monies, deposit accounts, certificates of
deposit and securities of the Borrower now or hereafter in
the Bank's or its agents' possession.
(v) CROPS. All crops now growing or hereafter to be grown,
together with all products and proceeds thereof (the
"Crops"), on that certain real property described in the
attached Exhibit "B" (the "Real Property").
(vi) 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 farming operations of
the Borrower.
The Bank's security interest in the Collateral shall be a continuing lien and
shall include the proceeds and products of the Collateral including, but not
limited to, the proceeds of any insurance thereon.
The security interest granted to Bank in the Collateral shall not secure or be
deemed to secure any Indebtedness of the Borrower to the bank which is, at the
time of its creation, subject to the provisions of any state or federal consumer
credit or truth-in-lending disclosure statutes.
SECTION
4
CONDITIONS PRECEDENT
4.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE: The obligation of the Bank
to make the initial Advance and the first extension of credit to or on
account of the Borrower hereunder is subject to the conditions precedent
that the Bank shall have received before the date of such initial Advance
and such first extension of credit all of the following, in form and
substance satisfactory to the Bank:
(i) AUTHORITY TO BORROW. Evidence that the execution, delivery
and performance by the Borrower of this Agreement and any
document, instrument or agreement required hereunder have
been duly authorized.
(ii) FEES. Payment of all of the Bank's reasonable
out-of-pocket expenses in connection with the preparation
and negotiation of this Agreement.
(iii) FINANCING STATEMENTS. Executed UCC-1 financing
statement(s) describing the Collateral, together with
evidence of the recordation of such statement(s) as a lien
of first priority.
<PAGE>
(iv) MISCELLANEOUS. Such other evidence as the Bank may request
to establish the consummation of the transaction
contemplated hereunder and compliance with the conditions
of this Agreement.
4.2 CONDITIONS PRECEDENT TO ALL ADVANCES: The obligation of the Bank to make
each Advance and each other extension of credit to or on account of the
Borrower (including the initial Advance and the first extension of
credit) shall be subject to the further conditions precedent that, on the
date of each Advance or each extension of credit and after the making of
such Advance or extension of credit:
(i) SUBSEQUENT APPROVALS. The Bank shall have received such
supplemental approvals, opinions or documents as the Bank
may reasonably request.
(ii) REPRESENTATIONS AND WARRANTIES. The representations
contained in Section 5 and in any other document,
instrument or certificate delivered to the Bank hereunder
are true, correct and complete.
(iii) 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.
(iv) COLLATERAL. The security interest in the Collateral has
been duly authorized, created and perfected with first
priority and is in full force and effect.
SECTION
5
REPRESENTATIONS AND WARRANTIES
The Borrower hereby makes the following representations and warranties to
the Bank, which representations and warranties are continuing:
5.1 STATUS: Scheid Vineyards California is a corporation duly organized and
validly existing under the laws of the state of California and is
properly licensed and is 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.
STATUS: Scheid Vineyards Inc. is a corporation duly organized and
validly existing under the laws of the state of Delaware and is properly
licensed and is 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.
5.2 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, order, writ, judgment,
injunction, decree, determination or award presently in effect having
application to the Borrower; (ii) result in a breach of or constitute a
default under any material indenture or loan or credit agreement or other
material agreement, lease or instrument to which the Borrower is a party
or by which it or its properties may be bound or affected; or (iii)
require any consent or approval of its stockholders or violate any
provision of its articles of incorporation or by-laws.
5.3 LEGAL EFFECT: This Agreement constitutes, and any instrument, document
or agreement required hereunder when delivered hereunder will constitute,
legal, valid and binding obligations of the Borrower enforceable against
the Borrower in accordance with their respective terms.
<PAGE>
5.4 FICTITIOUS TRADE STYLES: All fictitious trade styles used by the Borrower
in connection with its business operations are San Lucas Vineyard,
Scheid, Scheid Cellars, Scheid Vineyards, and Scheid Winery. The Borrower
shall notify the Bank not less than 30 days prior to effecting any change
in the matters described herein or prior to using any other fictitious
trade style at any future date, indicating the trade style and state(s)
of its use
5.5 FINANCIAL STATEMENTS: All financial statements, information and other
data which may have been or which may hereafter be submitted by the
Borrower to the Bank are true, accurate and correct in all material
respects and have been or will be prepared in accordance with generally
accepted accounting principles consistently applied and accurately
represent the financial condition or, as applicable, the other
information disclosed therein. Since the most recent submission of such
financial information or 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.
5.6 LITIGATION: Except as have been disclosed to the Bank in writing, there
are no actions, suits or proceedings pending or, to the knowledge of the
Borrower, threatened against or affecting the Borrower or the Borrower's
properties before any court or administrative agency which, if determined
adversely to the Borrower, would have a material adverse effect on the
Borrower's financial condition or operations or on the Collateral.
5.7 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.
5.8 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.
5.9 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 such taxes which are currently payable without penalty or
interest or those which are being duly contested in good faith.
5.10 MARGIN STOCK. The proceeds of any loan or advance hereunder will not be
used to purchase or carry margin stock as such term is defined under
Regulation U of the Board of Governors of the Federal Reserve System.
5.11 ENVIRONMENTAL COMPLIANCE. Except for such failures as do not and are not
reasonably likely to have a material adverse effect on the financial
condition or operations of the Borrower or the Collateral, 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 all licenses, permits, authorizations and registrations
required under any Environmental Law ("ENVIRONMENTAL PERMITS") and
necessary for its ordinary course 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 property or operations is 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 or purchased 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 any underground storage tanks that are not properly registered or
permitted under applicable Environmental Laws, or that are leaking or
disposing of Hazardous Materials off-site, and (ii) the Borrower has
notified all of their employees of
<PAGE>
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.
5.12 INVENTORY:
(i) The Borrower keeps materially correct and accurate records.
(itemizing and describing the kind, type, quality and
quantity of inventory, the Borrower's cost therefor and
selling price thereof, and the daily withdrawals therefrom
and additions thereto).
(ii) All inventory is of good and merchantable quality, free
from defects, other than defects as the result of natural
forces beyond reasonable control of the Borrower, and
except for such other defects that do not and are not
reasonably likely to have a material adverse effect on the
financial condition or operations of the Borrower or the
Collateral.
(iii) The Borrower is not a "retail merchant" as defined in the
California Uniform Commercial Code.
5.13 WATER. As of the date of this Agreement, sufficient water is available
and is projected to be available, from verifiable surface and ground
water sources, to conduct operations materially similar to prior years'
operations as evidenced by information provided by any Borrower to the
Bank. Borrower has filed with all governmental agencies, all notices and
other documents required under Federal, state and local laws and
regulations in connection with the supply of water to and use of water
upon the Real Property, except for such failures as do not and are not
reasonably likely to have a material adverse effect on the financial
condition or operations of the Borrower or the Collateral.
SECTION
6
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 will, unless the Bank shall otherwise consent in writing:
6.1 REPORTING AND CERTIFICATION REQUIREMENTS: Deliver or cause to be
delivered to the Bank in form and detail satisfactory to the Bank:
(i) Not later than 105 days after the end of each of the
Borrower's fiscal years, a copy of the annual audited
consolidated financial report of Scheid Vineyards Inc. for
such year, prepared by a firm of certified public
accountants acceptable to Bank and accompanied by Scheid
Vineyards Inc.'s Form 10-K filed with the Securities and
Exchange Commission and not later than April 30 of each
year, the Borrower's crop budget for the the year then in
effect.
(ii) Not later than 50 days after the end of each fiscal
quarter, Scheid Vineyards Inc.'s consolidated financial
statement as of the end of such period and a copy of Scheid
Vineyards Inc.'s Form 10-Q filed with the Securities and
Exchange Commission.
(iii) Promptly upon the Bank's request, such other information
pertaining to the Borrower, the Collateral or any guarantor
hereunder as the Bank may reasonably request.
<PAGE>
6.2 FINANCIAL CONDITION: The Borrower promises and agrees, during the term
of this Agreement and until payment in full of all of the Borrower's
Obligations, the Borrower will maintain at all times:
(i) A minimum Effective Tangible Net Worth of at least
$25,000,000.00.
(ii) A ratio of Current Assets to Current Liabilities of not
less than 2 to 1, measured at the end of each fiscal year.
(iii) A ratio of Cash Flow to the current portion of long term
Debt of not less than 1.25 to 1, measured at the end of
each fiscal year.
6.3 PRESERVATION OF EXISTENCE; COMPLIANCE WITH APPLICABLE LAWS: Maintain and
preserve its existence and all rights and privileges now enjoyed; and
conduct its business and operations in accordance with all applicable
laws, rules and regulations.
6.4 MERGE OR CONSOLIDATE: Not liquidate or dissolve, merge or consolidate
with or into, or acquire any other business organization.
6.5 MAINTENANCE OF INSURANCE: Keep and maintain the Collateral insured for
not less than its full replacement value, excluding crops which will be
insured for the amount of $3,000,000.00, against all risks of loss and
damage and 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 reasonably satisfactory to the Bank.
With respect to insurance covering properties in which the Bank maintains
a security interest or lien, such insurance shall name the Bank as loss
payee pursuant to a loss payable endorsement satisfactory to the Bank and
shall not be altered or canceled except upon 10 days' prior written
notice to the Bank. Upon the Bank's request, the Borrower shall furnish
the Bank with the original policy or binder of all such insurance.
6.6 MAINTENANCE OF COLLATERAL AND OTHER PROPERTIES: Except for Permitted
Liens as permitted by Section 6.10, keep and maintain the Collateral free
and clear of all levies, liens, encumbrances and security interests
(including, but not limited to, any lien of attachment, judgment or
execution) and defend the Collateral against any such levy, lien,
encumbrance or security interest; comply with all laws, statutes and
regulations pertaining to the Collateral and its use and operation,
except for such failures to comply as are not reasonably likely to have a
material adverse effect on the financial condition or operations of the
Borrower or the Collateral; 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.
6.7 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.
<PAGE>
6.8 INSPECTION RIGHTS AND ACCOUNTING RECORDS: The Borrower will maintain
adequate books and records in accordance with generally accepted
accounting principles consistently applied and in a manner otherwise
acceptable to Bank, and, 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 discuss the
business and operations of the Borrower with any employee or
representative thereof. If the Borrower shall maintain any records
(including, but not limited to, computer generated records or 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 which it may request, all at
the Borrower's expense, the amount of which shall be payable immediately
upon demand.
6.9 PAYMENT OF DIVIDENDS: Not declare or pay any dividends on any class of
stock now or hereafter outstanding except dividends payable solely in the
Borrower's capital stock.
6.10 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 of such properties, except for Permitted Liens or as
otherwise provided in this Agreement, and liens on properties that are
not Collateral, and liens and security interests associated with
Indebtedness of up to $500,000.00 in any one fiscal year, .
6.11 TRANSFER ASSETS: Not, after the date hereof, sell, contract for sale,
convey, transfer, assign, lease or sublet, any of its assets (including,
but not limited to, the Collateral) except in the Ordinary Course of
Business and, then, only for full, fair and reasonable consideration.
6.12 CHANGE IN NATURE OF BUSINESS: Not make any material change in its
financial structure or the nature of its business as existing or
conducted as of the date hereof.
6.13 COMPENSATION OF EMPLOYEES: Compensate its employees for services
rendered at an hourly rate at least equal to the minimum hourly rate
prescribed by any applicable federal or state law or regulation.
6.14 OUT-OF-DEBT. Following the initial Advance under the Crop Line of Credit
but prior to the Expiration Date, not permit to be outstanding any
Advances under the Crop Line of Credit for a period of time equal to at
least 30 consecutive calendar days.
6.15 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
$100,000.00 or which affects the Collateral; (iii) 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, and (iv) any enforcement, cleanup, removal or other
governmental or regulatory actions instituted, completed or threatened
against the Borrower or any of its properties.
6.16 ENVIRONMENTAL COMPLIANCE: The Borrower shall conduct its operations and
keep and maintain all of its property in compliance with all
Environmental Laws, except for such failures to comply as do not and are
not reasonably likely to have a material adverse effect on the financial
condition or operations of the Borrower or the Collateral; and, upon the
written request of the Bank, the Borrower shall submit to the Bank, at
the Borrower's sole cost and expense, at reasonable intervals, a report
providing the status of any environmental, health or safety compliance,
hazard or liability.
<PAGE>
6.17 INVENTORY:
(i) The Borrower shall keep materially correct and accurate
records.
(ii) All inventory shall be of good and merchantable quality,
free from defects, other than defects as the result of
natural forces beyond the reasonable control of the
Borrower, and except for such other defects that do not and
are not reasonably likely to have a material adverse effect
on the financial condition or operations of the Borrower or
the Collateral.
(iii) At any reasonable time and from time to time, allow Bank to
have the right, upon demand, to inspect and examine
inventory and to check and test the same as to quality,
quantity, value and condition and the Borrower agrees to
reimburse the Bank for the Bank's reasonable costs and
expenses in so doing.
(iv) LOCATION OF THE HARVESTED CROPS: Any Crops now or
hereafter harvested or removed from the Real Property shall
not be stored with a bailee, warehouseman or similar party
without the Bank's prior written consent and shall be kept
only on the Real Property described on the attached Exhibit
"B". Not withstanding the foregoing, Borrower may, in the
Ordinary Course of Business, deliver possession of
harvested Crops (i) to the proposed buyer thereof prior to
the buyer's acceptance of such Crops, or (ii) to a common
carrier for delivery to buyer.
6.18 CARE AND PRESERVATION OF THE CROPS:
(i) 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; provided, however, that Borrower shall not be
required to take any such action that is not in the
Ordinary Course of Business.
(ii) Not commit or suffer to be committed any waste of or damage
to the Crops to the extent within the reasonable control of
the Borrower.
(iii) Permit the Bank and any of its agents, employees or
representatives to enter upon the Real Property at any
reasonable time and from time to time for the purpose of
examining and inspecting the Crops and the Real Property.
(iv) Harvest and prepare the Crops for market; provided,
hopwever, that Borrower shall not be required to take any
such action that is not in the ordinary course of business,
and promptly notify the Bank when harvest commences.
(v) Keep the Crops separate and always capable of
identification.
6.19 EVIDENCE OF WATER AVAILABILITY: At such times as the Bank may reasonably
request, to deliver to the Bank a certificate stating that the amount of
water available and projected to be available is sufficient to conduct
operations materially as described in Borrower's Crop Budget or
operations materially similar to prior years' operations, as evidenced by
information provided by the Borrower to the Bank. Such certificate shall
be signed, at the Bank's option, either by the Borrower or by an
independent third party, such as an officer of the Borrower's water
district or other supplier of water.
6.20 YEAR 2000 COMPLIANCE. Borrower shall perform all acts reasonably and
foreseeable to cause Borrower to become Year 2000 Compliant in a timely
manner. Such acts shall include performing a review and assessment of all
of Borrower's systems and adopting a plan with a budget for the
remediation and testing of such systems. For the purposes hereof, "Year
2000 Compliant" shall
<PAGE>
mean that all software, hardware, firmware, equipment, goods or
systems, utilized by, under the control of, and material to the
business operations or financial condition of the Borrower, will
properly perform date sensitive functions before, during and after the
Year 2000. Borrower shall use its best efforts to remain informed as
to whether its major customers, suppliers and vendors are Year 2000
Compliant. Borrower shall, upon the Bank's request, provide Bank with
such certifications or other evidence of Borrower's compliance with
the terms hereof as Bank may from time to time reasonably require.
SECTION
7
EVENTS OF DEFAULT
Any one or more of the following described events shall constitute an
event of default (an "Event of Default") under this Agreement:
7.1 NON-PAYMENT: Any Borrower shall fail to pay the principal amount of any
Obligations when due or interest on the Obligations within 10 days of
when due.
7.2 PERFORMANCE UNDER THIS AGREEMENT: The Borrower shall fail in any
material respect to perform or observe any term, covenant or agreement
contained in this Agreement or in any document, instrument or agreement
relating to this Agreement or any other document or agreement executed by
Borrower with or in favor of Bank and any such failure shall continue
unremedied for more than 30 days after written notice from the Bank to
the Borrower of the existence and character of such Event of Default.
7.3 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.
7.4 OTHER AGREEMENTS: If there is a default under any other agreement with
Bank or under an agreement to which Borrower is a party with Bank or with
a third party or parties resulting in a right by the Bank or by such
third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness.
7.5 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 and 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) in an
involuntary proceeding, any receiver, custodian or trustee shall have
been appointed for all or substantial part of the Borrower's or
guarantor's properties, assets or businesses and shall not be discharged
within 30 days after the date of such appointment.
7.6 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.
<PAGE>
7.7 SUSPENSION: The Borrower shall voluntarily suspend the transaction of
business or allow to be suspended, terminated, revoked or expired any
material permit, license or approval of any governmental body necessary
to conduct the Borrower's business as now conducted.
7.8 MATERIAL ADVERSE CHANGE: If there occurs a material adverse change in
the Borrower's business or financial condition, or if there is a material
impairment of the prospect of repayment of any portion of the Obligations
or there is a material impairment of the value or priority of the Bank's
security interest in the Collateral.
7.9 CHANGE IN OWNERSHIP: Through an amendment of the Certificate of
Incorporation of Scheid Vineyards Inc. or otherwise, persons currently
eligible to hold Class B Shares of Common Stock of Scheid Vineyards Inc.
shall fail to have sufficient voting control to elect a majority of the
authorized number of directors of Scheid Vineyards Inc.
SECTION
8
REMEDIES ON DEFAULT
Upon the occurrence of any Event of Default, the Bank may, at its sole and
absolute election, without demand and only upon such notice as may be required
by law:
8.1 ACCELERATION: Declare any or all of the Borrower's indebtedness owing to
the Bank, whether under this Agreement or any other document, instrument
or agreement, immediately due and payable, whether or not otherwise due
and payable.
8.2 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.
8.3 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.
8.4 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.
8.5 FORECLOSURE: Enforce any security interest or lien given or provided for
under this Agreement or under any security agreement, mortgage, deed of
trust or other document, in such manner and such order, as to all or any
part of the properties subject to such security interest or lien, as the
Bank, in its sole judgment, deems to be necessary or appropriate and, to
the extent permitted by applicable law, the Borrower hereby waives any
and all rights, obligations or defenses now or hereafter established by
law relating to the foregoing. In the enforcement of its security
interest or lien, the Bank is authorized to enter upon the premises where
any Collateral is located and take possession of the Collateral or any
part thereof, together with the Borrower's records pertaining thereto, or
the Bank may require the Borrower to assemble the Collateral and records
pertaining thereto and make such Collateral and records available to the
Bank at a place designated by the Bank. The Bank may sell the Collateral
or any portions thereof, together with all additions, accessions and
accessories thereto, giving only such notices and following only such
procedures
<PAGE>
as are required by law, at either a public or private sale, or both,
with or without having the Collateral present at the time of the sale,
which sale shall be on such terms and conditions and conducted in such
manner as the Bank determines in its sole judgment to be commercially
reasonable. Any deficiency which exists after the disposition or
liquidation of the Collateral shall be a continuing liability of the
Borrower to the Bank and shall be immediately paid by the Borrower to
the Bank.
8.6 CARE AND POSSESSION OF THE CROPS: Enter upon the Real Property and,
using any and all of the Borrower's equipment, machinery, tools, farming
implements and supplies, and improvements located on the Real Property:
(i) farm, cultivate, irrigate, fertilize, fumigate, prune and perform any
other act of acts appropriate or necessary to grow, care for, maintain,
preserve and protect the Crops (using any water located in, on or
adjacent to the Real Property); (ii) harvest, pick, clean and remove the
Crops from the Real Property; and (iii) appraise, store, prepare for
public or private sale, exhibit, market and sell the Crops and the
products thereof; provided that the Borrower hereby agrees that, if the
Borrower is the owner of the Real Property, the Bank shall not be
responsible or liable for returning the Real Property to its condition
immediately preceding the use of the Real Property as provided herein or
for doing such acts as may be necessary to permit future crops to be
grown on the Real Property.
8.7 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.
8.8 APPLICATION OF PROCEEDS: All amounts received by the Bank as proceeds
from the disposition or liquidation of the Collateral shall be applied to
the Borrower's indebtedness to the Bank as follows: first, to the costs
and expenses of collection, enforcement, protection and preservation of
the Bank's lien in the Collateral, including court costs and reasonable
attorneys' fees, whether or not suit is commenced by the Bank; next, to
those costs and expenses incurred by the Bank in protecting, preserving,
enforcing, collecting, liquidating, selling or disposing of the
Collateral; next, to the payment of accrued and unpaid interest on all of
the Obligations; next, to the payment of the outstanding principal
balance of the Obligations; and last, to the payment of any other
indebtedness owed by the Borrower to the Bank.
SECTION
9
MISCELLANEOUS
9.1 AMOUNTS PAYABLE ON DEMAND: If the Borrower shall fail 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 having so failed to pay such amount, create an
Advance under this Agreement in an amount equal to the amount so payable,
which Advance shall thereafter bear interest as provided hereunder.
9.2 DEFAULT INTEREST RATE: If an Event of Default, or an event which, with
notice or passage of time could become an Event of Default, has occurred
or is continuing, the Borrower shall pay to the Bank interest on any
Indebtedness or amount payable under this Agreement at a rate which is 3%
in excess of the rate or rates then in effect under this Agreement.
9.3 ASSIGNMENT OF THE BORROWER'S RIGHTS IN THE CROPS:
(i) 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,
<PAGE>
the Borrower is entitled to be indemnified by such
authority, the Borrower hereby assigns to the Bank for
security purposes and as part of the Collateral 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.
(ii) In addition, the Borrower hereby assigns and transfers to
the Bank for security purposes and as part of the
Collateral all of the Borrower's rights and interests in
and to any monies now or hereafter placed in any funds of
any marketing association, corporation, cooperative,
partnership, firm or individual now, heretofore or
hereafter handling or having to do with any of the Crops
now growing or heretofore or hereafter grown on the Real
Property or connected with the growing, marketing, farming
or other handling of such Crops and the Borrower hereby
assigns and transfers to the Bank for security purposes
and as part of the Collateral 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.
9.4 RELIANCE AND FURTHER ASSURANCES: Each warranty, representation,
covenant, obligation 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 and agreements which the Borrower now or hereafter shall give,
or cause to be given, to the Bank. Borrower agrees to execute all
documents and instruments and to perform such acts as the Bank may
reasonably deem necessary to confirm and secure to the Bank all rights
and remedies conferred upon the Bank by this agreement and all other
documents related thereto.
9.5 ATTORNEYS' FEES: Borrower shall pay to the Bank all costs and expenses,
including but not limited to reasonable attorneys fees, incurred by Bank
in connection with the administration, enforcement, including any
bankruptcy, appeal or the enforcement of any judgment or any refinancing
or restructuring of this Agreement or any document, instrument or
agreement executed with respect to, evidencing or securing the
indebtedness hereunder.
9.6 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 hereto, shall be given or made to such party by hand delivery
or through deposit in the United States mail, postage prepaid, or by
facsimile delivery, or to such other address as may be specified from
time to time in writing by either party to the other.
TO THE BORROWER: TO THE BANK:
SCHEID VINEYARDS INC. SANWA BANK CALIFORNIA
13470 Washington Blvd., Ste. 300 Fresno CBC
Marina del Rey, CA 90292 2035 Fresno Street
Attn: Michael S. Thomsen Fresno, CA 93721
Attn: Dennis Johnson
FAX: (310) 301-1569
FAX: (559) 487-2157
9.7 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 other 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,
<PAGE>
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.
9.8 CONFLICTING PROVISIONS: To the extent the 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.
9.9 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 prior
written consent of the Bank. The Bank may sell, assign or grant
participation 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.
9.10 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 without regard to conflict of law principles, to the
jurisdiction of whose courts the parties hereby submit.
9.11 WAIVER OF JURY TRIAL: THE BORROWER AND THE BANK EACH WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY
ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE
PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO
CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE BORROWER AND THE BANK
EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES
FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY
OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER
PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY
PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS.
9.12 CONFIDENTIALITY: Bank agrees that Borrower is required to provide, and
will provide Bank from time to time, information, documentation and other
materials which are confidential which shall not be disclosed by the Bank
without the prior written consent of Borrower, except that Bank may
disclose such matters to the extent compelled to do so by law and
disclosure may be made, without liability (1) To any governmental agency
or regulatory body having or claiming to have authority to regulate or
oversee any aspect of your business or that of your corporate parent or
affiliates in connection with the exercise of such authority or claimed
authority, (2) To the extent necessary or appropriate to effect or
preserve your security for any loan or to enforce any right or remedy,
(3) To your accountants, attorneys, and auditors; and (4) To any bank or
financial institution or other entity to which you in good faith desire
to sell an interest or participation in the proposed financing, provided
that any such recipient of such information agrees to keep such
information confidential as specified herein.
9.13 COUNTERPARTS: This Agreement may be executed in any number of
counterparts and all such counterparts taken together shall be deemed to
constitute one and the same instrument.
<PAGE>
9.14 HEADINGS: The headings herein set forth are solely for the purpose of
identification and have no legal significance.
9.15 ENTIRE AGREEMENT AND AMENDMENTS: 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 pertaining to the transactions contemplated
hereunder not incorporated or referenced in this Agreement or in such
documents, instruments and agreements are superseded hereby. This
Agreement may be amended only by an instrument in writing signed by the
Borrower and the Bank.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first hereinabove written.
BANK: BORROWER:
SANWA BANK CALIFORNIA SCHEID VINEYARDS INC.
BY: /s/ Dennis Johnson BY: /s/ Heidi M. Scheid
----------------------------------- --------------------------------
NAME: Dennis Johnson, Vice President, NAME: Heidi M. Scheid
BY: /s/ Michael Thomsen
--------------------------------
NAME: Michael Thomsen
SCHEID VINEYARDS CALIFORNIA INC.
BY: /s/ Heidi M. Scheid
--------------------------------
NAME: Heidi M. Scheid
BY: /s/ Michael Thomsen
--------------------------------
NAME: Michael Thomsen
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET OF SCHEID VINEYARDS INC. AS OF SEPTEMBER 30, 1999 AND THE STATEMENT OF
OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 INCLUDED ON FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 397
<SECURITIES> 0
<RECEIVABLES> 617
<ALLOWANCES> 0
<INVENTORY> 6,069
<CURRENT-ASSETS> 8,751
<PP&E> 44,339
<DEPRECIATION> 0
<TOTAL-ASSETS> 58,282
<CURRENT-LIABILITIES> 3,939
<BONDS> 26,434
0
0
<COMMON> 7
<OTHER-SE> (4,637)
<TOTAL-LIABILITY-AND-EQUITY> 58,282
<SALES> 1,004
<TOTAL-REVENUES> 1,636
<CGS> 662
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18
<INCOME-PRETAX> (1,886)
<INCOME-TAX> (754)
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,132)
<EPS-BASIC> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
