<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ____________
Commission File No.: 0-26276
R.H. PHILLIPS, INC.
(Exact name of small business issuer in its charter)
California 68-0313739
(State or other jurisdiction of (IRS Employer Identificatioin No.)
incorporation or organization)
26836 County Road 12A, Esparto, California 95627
(Address of principal executive offices)
(916) 662-3215
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Number of shares outstanding of each of the issuer's classes of common
equity as of May 9, 1997: 6,002,902
Transitional Small Business Disclosure Format: Yes No X
This document consists of 14 pages. The Document Index is on Page 14.
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Item 1. Financial Statements
R.H. PHILLIPS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The interim financial statements as of March 31, 1997 and for the
three month periods ended March 31, 1996 and 1997 have been prepared
by R.H. Phillips, Inc. (the "Company") without audit. In the opinion of
management, the financial statements include all adjustments (which
include only normal recurring entries) necessary for a fair presentation.
The operating results for the three month periods ended March 31, 1996
and 1997 are not necessarily indicative of the results which might be
realized for the full year.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These statements
should be read in conjunction with the financial statements and notes
included in the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1996.
Net income per share for the three month period ended March 31,
1997 was computed using the weighted average number of shares of
Common Stock and dilutive Common Stock equivalents outstanding
during this period, plus 43,352 shares which were issued in April 1997
as a stock dividend. Net income per share and common shares
outstanding for the three month period ended March 31, 1996 have been
restated to account for a stock dividend of 37,500 shares which was paid
in September 1996 and the 43,352 shares which were issued in April
1997.
2. SUBSEQUENT EVENTS
In April 1997 the Company converted subordinated promissory
notes in the aggregate amount of $1,500,000 into 387,077 shares of
Common Stock. The notes became automatically convertible into
Common Stock at a price of $3.875 when the average of the closing bid
and ask price for the Common Stock exceeded $3.50 for five consecutive
trading days subsequent to December 6, 1996. All outstanding interest
and fractional shares were paid in cash at the same time. If the
promissory notes had been converted prior to March 31, 1997, total
shareholders' equity would have been $15,548,302 at that time.
In May 1997 the Company completed a sale and leaseback of
approximately 371 acres of its land. The Company will lease the land
from the purchaser, John Hancock Mutual Life Insurance Company
("Hancock") for a period of fifteen years, after which the Company has
an option to repurchase the land at a price of approximately $8,362,000.
The Company received approximately $4,209,000 upon closing, and will
receive an additional payment of approximately $1,176,000 upon
completion of certain vineyard improvements to be performed by the
Company by June 1997. The projected gain on the transaction is
approximately $400,000. Payments on the lease will begin in 1999 and
continue through 2012 at an annual rate of approximately $645,000,
payable quarterly.
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R.H. PHILLIPS, INC., dba
THE R.H. PHILLIPS VINEYARD
(A California Corporation)
BALANCE SHEET
MARCH 31, 1997
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 218,536
Accounts receivable 1,957,859
Inventories 7,799,040
Deferred income taxes and prepaid expenses 493,342
-----------
Total current assets 10,468,777
PROPERTY, PLANT, AND EQUIPMENT - net 28,597,365
OTHER ASSETS:
Note receivable from shareholder 214,404
Deferred loan fees and other, net 529,734
-----------
Total other assets 744,138
-----------
TOTAL ASSETS $39,810,280
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,058,000
Notes payable 1,134,270
Accounts payable 1,143,150
Accrued liabilities 839,152
-----------
Total current liabilities 4,174,572
LONG-TERM DEBT 14,657,183
SUBORDINATED DEBT 1,500,000
DEFERRED INCOME TAXES 935,000
COMMITMENTS AND CONTINGENCIES --
REDEEMABLE PREFERRED STOCK, redeemable at $5,000,000 4,495,146
SHAREHOLDERS' EQUITY:
Non-redeemable preferred stock, no par value, 4,500,000 --
shares authorized, none issued and outstanding
Common stock, no par value, 12,500,000 shares authorized,
5,959,550 shares issued and outstanding 12,331,225
Additional paid-in capital 336,697
Retained earnings 1,380,457
-----------
Total shareholders' equity 14,048,379
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $39,810,280
===========
See accompanying notes to financial statements.
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R.H. PHILLIPS, INC., dba
THE R.H. PHILLIPS VINEYARD
(A California Corporation)
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
1996 1997
NET SALES $ 3,185,822 $ 3,485,618
COST OF SALES 1,909,074 2,111,649
----------- -----------
GROSS PROFIT 1,276,748 1,373,969
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 801,116 950,837
----------- -----------
OPERATING INCOME 475,632 423,132
INTEREST EXPENSE (307,490) (223,578)
OTHER INCOME (EXPENSE) - NET 13,346 40,455
----------- -----------
INCOME BEFORE INCOME TAXES 181,488 240,009
PROVISION FOR INCOME TAXES (66,000) (86,400)
----------- -----------
NET INCOME $ 115,488 $ 153,609
=========== ===========
NET INCOME $ 115,488 $ 153,609
DIVIDENDS ON REDEEMABLE PREFERRED STOCK -- (75,000)
ACCRETION OF REDEEMABLE PREFERRED STOCK -- (8,366)
----------- -----------
NET INCOME APPLICABLE TO COMMON STOCK $ 115,488 $ 70,243
=========== ===========
NET INCOME PER SHARE $ .02 $ .01
=========== ===========
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 4,713,837 6,001,240
=========== ===========
See accompanying notes to financial statements
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R.H. PHILLIPS, INC., dba
THE R.H. PHILLIPS VINEYARD
(A California Corporation)
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
1996 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 115,488 $ 153,609
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 347,717 501,499
Gain on disposal of property, plant and equipment (8,342)
Changes in assets and liabilities:
Accounts receivable 790,785 1,173,391
Inventories (239,540) 11,588
Prepaid expenses 57,489 (21,804)
Other assets (38,625) (11,347)
Accounts payable and accrued liabilities 602,592 (1,132,289)
----------- -----------
Net cash provided by operating activities 1,635,906 666,305
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,499,354) (1,569,473)
Proceeds from equipment sold -- 8,342
----------- -----------
Net cash used in investing activities (1,499,354) (1,561,131)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of redeemable preferred stock 4,807,057 --
Issuance of common stock 7,750
Payment of cash dividend -- (150,000)
Proceeds from long-term debt and notes payable 901,328 4,446,242
Principal payments on long-term debt and
notes payable (6,147,690) (3,494,171)
Payment of loan origination fees (1,500) (1,000)
Note to shareholder (4,152) (3,994)
----------- -----------
Net cash provided by (used in)
financing activities (444,957) 804,827
----------- -----------
DECREASE IN CASH (308,405) (89,999)
CASH AT BEGINNING OF PERIOD 317,624 308,535
=========== ===========
CASH AT END OF PERIOD $ 9,219 $ 218,536
=========== ===========
OTHER CASH FLOW INFORMATION:
Interest paid (including capitalized interest
of $99,500 and $178,900 in 1996 and
1997, respectively) $ 272,268 $ 329,572
NONCASH TRANSACTIONS: =========== ===========
Issuance of notes payable to finance inventory
and equipment purchased $ -- $ 49,740
=========== ===========
Accretion of redeemable preferred stock $ -- $ 8,366
=========== ===========
See accompanying notes to financial statements
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
In reviewing the following management's discussion and analysis,
the reader should refer to the historical financial statements of the
Company. The discussion of the results and trends does not necessarily
imply that these results and trends will continue. For the purpose of the
following discussion, a "case" means a nine liter case of wine.
Seasonality
The Company usually experiences substantial seasonal
fluctuations in revenues and expenditures. Sales volumes generally
increase during the holiday season, which causes a large percentage of
sales to occur during the last three months of each year. The Company's
expenditures fluctuate throughout the year based on vineyard and winery
activities. Expenditures typically peak during the summer and early
autumn, due to harvest and crush activities and expenditures to fund
vineyard and winery expansions. Consequently, the Company's financial
results during the first three months of the year are not necessarily
indicative of the Company's financial performance for the entire year.
Costs of Production
During the first three months of 1997, the Company experienced
an increase in its cost of production due to reduced harvests caused by
adverse weather conditions. Many other California vineyards suffered
similar or greater reductions of their grape crops. The reduction in the
Company's grape supply has caused the Company to purchase a larger
amount of grapes and bulk wines from outside sources to meet consumer
demand for the Company's wines. Management believes that the
Company's costs of producing wines from grapes or bulk wines
purchased from outside sources is significantly higher than the costs
associated with producing wines from its own grapes. In addition, the
market price of bulk wines and grapes has increased substantially during
the past two years due to the overall reduction of the California grape
harvest and the resulting shortage of grapes and bulk wines. These
factors are likely to increase the Company's cost of production for at least
the near future.
Management believes that its vineyard and winery expansion
program will serve to reduce the Company's costs of production in future
years. The recently completed winery expansion has eliminated the
Company's need to rely on outside sources of processing and storage for
its wines, and the Company is in the process of expanding the size of its
vineyards in order to lessen its dependence on outside sources of bulk
wines and grapes.
Liquidity and Capital Resources
The Company has financed its working capital and capital
expansion needs through internally generated funds, outside credit
facilities and equity financing. The Company has made substantial
capital expenditures to expand its vineyards and winery facilities, and
intends to continue these expansions. The purpose of the expansion is to
increase the Company's production capabilities so that the Company can
obtain production efficiencies through vertical integration. The
Company's cash flows from operations alone have not been sufficient to
satisfy all of the working capital and capital expenditure requirements
needed to keep pace with its growth. Consequently, the Company
depends upon debt, equity and lease financing for its working capital and
capital expansion needs.
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The Company obtained various long-term loans for the purposes
described above. The largest of these loans was obtained from
Metropolitan Life Insurance Company ("Metropolitan") in January 1995.
This loan, pursuant to which the Company borrowed $7,500,000, has a
term of 10 years. Interest and principal on the loan are paid in monthly
installments, with eight percent of the outstanding principal paid per
annum and all remaining principal after such monthly payments to be
paid at the end of the loan's term. The annual interest rate on the loan is
presently 9.05% as to $4,600,000 of the principal amount, 8.1% as to
$1,500,000 of the principal amount, and 8.55% as to $1,400,000 of the
principal amount. The interest rate will be subject to adjustment by
Metropolitan on November 30, 1997, 2000 and 2003, at which time the
interest rate will be changed to equal that charged by Metropolitan for
similar agricultural loans at those times.
In May 1997, the Company raised funds through the sale to John
Hancock Mutual Life Insurance Company ("Hancock") of 371 acres of
land. In connection with that transaction, the Company now leases and
operates that land for a term that extends to December 31, 2012. The
Company received proceeds from the sale of approximately $4,209,000,
and Hancock is required to pay the Company approximately $1,175,000
for additional vineyard development on that land. The lease provides that
the Company will pay rent for the use of the land of approximately
$161,000 per calendar quarter beginning in 1999. The Company has an
option to repurchase the land at the end of the lease term for a price of
approximately $8,362,000.
The Company has a credit facility with U.S. Bank of California
("U.S. Bank") to finance its working capital requirements. The Company
as of March 31, 1997 could borrow a maximum of $7,000,000 under the
facility, which was then comprised of an operating line of credit of
$5,000,000, a temporary increase on the operating line of $1,000,000, and
a bridge line of $1,000,000. The operating line of credit matures in April
1999, at which time all principal and unpaid interest will be due and
payable. The annual interest rate on the operating line is either U.S.
Bank's prime rate or IBOR plus 200 basis points, at the Company's
option. The operating line is a revolving line of credit, and funds are
advanced to or paid by the Company according to its needs. As of March
31, 1997, the credit facility was fully utilized with a balance of
$7,000,000. The temporary increase on the operating line expired in April
1997, at which time it was converted into the operating line through an
increase on the operating line from $5,000,000 to $6,000,000. The
Company repaid the entire amount of the bridge line in May 1997. The
Company typically obtains each spring a short-term non-revolving line of
credit to finance crop costs for that year. In 1997, the Company obtained
from U.S. Bank a crop line of credit, under which the maximum the
Company may borrow increases monthly up to $1,400,000. The crop line
bears interest at U.S. Bank's prime rate plus 100 basis points, is non-
revolving, is secured by the grape crop, and matures in November 1997.
As of March 31, 1997, the Company carried convertible
promissory notes with an aggregate principal amount of $1,500,000.
Amounts owing under these notes bore interest at a rate of 6% per annum,
payable annually. In April 1997, all principal owing under the
convertible promissory notes was converted into 387,077 shares of
Common Stock at a price of $3.875 per share. All outstanding interest
and fractional shares were paid in cash at the same time.
In March 1996, the Company sold 500,000 shares of Senior
Redeemable Preferred Stock (the "Senior Preferred Stock") and warrants
to purchase up to 1,346,788 shares of Common Stock to Hancock. The
net proceeds the Company derived from the sale of the Senior Preferred
Stock and the warrants, after payment of offering expenses, were
approximately $4,798,000. The Senior Preferred Stock bears a
cumulative annual dividend of $1.20 per share, payable semiannually.
During the first four years after issuance, 50% of the dividend is payable
in cash and 50% of the dividend is payable in shares of Common Stock
at a price equal to the lower of the market price at the dividend payment
date or $4.00 per share. The Company will be required to redeem one-
third of the Senior Preferred Stock eight years after issuance, and one-
third in each of the succeeding years at a price of $10.00 per share.
In 1995 and 1996, the Company also raised capital through the
sale of Common Stock in two public offerings. The Company completed
a sale of Common Stock and warrants to purchase Common Stock in its
initial public offering during 1995 and completed a second public
offering of Common Stock
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in 1996. The Company received net proceeds
from these offerings, after payment of commissions and expenses, of
approximately $2,873,000 from the initial public offering and
approximately $4,484,000 from the second public offering. The warrants
which the Company issued in its initial public offering are exercisable
through October 1, 1998 at a price of $3.875 per share. As of March 31,
1997, warrants to purchase 19,065 shares of Common Stock had been
exercised, with net proceeds to the Company totaling approximately
$74,000. If the warrants are exercised in full, management estimates that
it will receive additional proceeds of approximately $1,839,000.
The Company's net working capital as of March 31, 1997 was
approximately $6,294,000, as compared to approximately $4,934,000 as
of March 31, 1996. The primary reason for the increase was an increase
in inventories, from approximately $6,594,000 at March 31, 1996 to
approximately $7,799,000 at March 31, 1997. This increase in the stated
value of inventories is indicative of the higher costs the Company
incurred in purchasing grapes and bulk wines during 1996 for wines that
constituted inventory as of March 31, 1997.
Net cash provided by operating activities for the three month
period ended March 31, 1997 was approximately $666,000, compared to
approximately $1,636,000 for the same period in 1996. The primary
reason for the change was a difference in net cash provided or used by
accounts payable, from cash provided of approximately $427,000 during
the first three months of 1996 to cash used of approximately $1,035,000
during the corresponding period in 1997. The primary reason for the
change was that accounts payable payments which would normally be
made in the first quarter of 1996 were temporarily delayed until after the
sale of the Senior Preferred Stock, which took place near the end of that
quarter.
Net cash used in investing activities for the first three months of
1997 was approximately $1,561,000, substantially the same as the
approximately $1,499,000 during the corresponding period in 1996. Cash
investments during the first three months of 1997 included approximately
$1,340,000 invested in vineyard development, approximately $39,000 in
buildings, and approximately $190,000 in equipment. These investments
were offset somewhat by the sale of certain equipment.
Net cash provided by financing activities totaled approximately
$805,000 for the three month period ended March 31, 1997, compared to
net cash used in financing activities of approximately $445,000 for the
same period in 1996. The primary reason for the change relates to the
change in accounts payable timing discussed above, which reduced short
term borrowings by the Company in 1996. Net cash provided by
financing activities for the three months ended March 31, 1997 consists
primarily of approximately $4,446,000 borrowed from U.S. Bank. These
cash inflows were partially offset by principal payments made to U.S.
Bank totaling approximately $2,918,000, to Metropolitan totaling
$150,000, and to various lenders totaling approximately $426,000. Other
factors affecting net cash provided by financing activities included
payment of a cash dividend on the Senior Preferred Stock, the issuance
of Common Stock to holders of warrants to purchase Common Stock,
payment of loan origination fees, and payments to shareholders.
As a result of the factors described above, cash decreased by
approximately $90,000 during the three month period ended March 31,
1997, compared to a decrease of approximately $308,000 for the three
month period ended March 31, 1996.
The Company plans to continue its winery expansion in 1997.
Current plans call for an addition to the existing case goods warehouse of
approximately 12,000 square feet, and the construction of a new tasting
room. The Company also plans to purchase 24 stainless steel wine tanks
and construct tank pads for them, and to purchase barrels and other
equipment. Management estimates that the cost of this project will be
approximately $2,300,000.
The Company currently intends to plant approximately 350 acres
of new vineyard in 1997, approximately 175 acres in 1998, and
approximately 50 acres each in 1999 and 2000. By the year 2000, the
Company plans to have approximately 1,700 acres of vineyard under
cultivation on approximately 2,700 acres of land either owned or leased
by the Company. However, there can be no assurance that
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the Company
will be able to acquire additional land or expand the vineyards at that rate.
Management estimates that the cost of the 1997 vineyard expansion will
be approximately $3,400,000.
The Company intends to finance the 1997 winery and vineyard
expansions with the recently completed sale and leaseback of a portion
of its land, as discussed above, internally generated funds, and
borrowings on working capital lines of credit. Management believes that
additional long-term debt, equity of lease financing may be necessary for
the Company to continue its planned expansion.
Phylloxera infestation may have a negative impact on the
Company's future grape production. Phylloxera is a root louse which
feeds on the roots of grapes, causing reduced production and eventual
vine death. Of the Company's 1,201 acres of vineyard, 289 acres have
root stock which is susceptible to Phylloxera. Management estimates that
the commercially productive life of these vineyards is ten years from
January 1, 1994, as compared with the twenty-five year life generally
estimated for vineyards, and that the reduction in the useful life of these
vineyards will result in an increase in depreciation of approximately
$65,000 per year. The Company is chemically treating all vineyards
believed to be currently at risk for Phylloxera, and estimates that these
treatments cost approximately $45,000 per year. Both the increased
depreciation charges and the cost of treatment are added to the cost of
grapes harvested, thus increasing cost of sales. The Company plans to
remove and replace all Phylloxera-infested or susceptible vines with
rootstock believed to be resistant to Phylloxera. Methods of replacement
include removing and replacing the vines, the use of grafting methods
whereby existing vines are grafted onto resistant rootstock, and the use
of interplanting, in which vines on resistant rootstock are planted between
the susceptible vines, which are then allowed to deteriorate. The
Company removed 68 acres in 1995, and 80 acres were removed in 1996.
Thirty-three acres have been replanted. The Company plans to continue
the removal and replanting of these vines at a rate of approximately 30
acres per year.
The above discussion concerning future financing needs, vineyard
and winery expansion, the impact of Phylloxera and factors affecting
liquidity are forward looking statements. Although management believes
that these statements are reasonable in view of the facts available to it, the
Company's past experience, and trends in the wine industry, there can be
no assurance that any of these statements will prove to be true. There are
many factors which could have a material impact upon whether these
projections will be realized or whether these trends will continue.
Among these factors are the following:
Availability of Future Financing. The rate at which the Company
is able to expand its facilities may become heavily dependent upon its
ability to raise additional debt or equity financing. The ability to raise
financing is in turn dependent upon a variety of factors, some of which
are outside the control of the Company. These factors include, but are not
limited to, interest rates, the availability of sources of financing and the
exercise of warrants issued in the Company's initial public offering. If
all of the warrants are not exercised, interest rates increase, or other
financing becomes unavailable or more costly to obtain, the Company
may need to reduce its rate of expansion.
Costs of Expansion. Management has based its assumptions
concerning the costs of expansion on estimates which it believes are
reasonable. However, there can be no assurance that the Company's
estimates as to the costs of expansion will prove to be correct. If these
costs are higher than anticipated, the Company may be required to raise
an even greater amount of financing or reduce the rate of expansion of its
facilities.
Costs of Production. Statements with respect to the general
decline in the Company's cost of production are based on management's
assumptions concerning the likely levels of future sales by the Company,
projected yields from the Company's vineyards and the cost and
availability of bulk wine and grapes from the spot market. For example,
if the Company's sales increase at a faster rate than anticipated or the
Company's grape production is lower than projected, the Company could
be forced to make additional purchases of grapes and wine on the spot
market. In view of current prices and lack of availability of good quality
California bulk wines and grapes, management believes that such events
could increase the Company's costs of production.
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Market Conditions. Assumptions as to the desirability of
expansion are based to a great extent on management's beliefs concerning
the current status of and trends within the wine industry. Market
conditions in the wine industry have changed substantially from time to
time. To the extent that market conditions change substantially in the
future, the rate at which the Company deems it advisable to expand its
vineyard and winery facilities may be adjusted.
Results of Operations
Net Sales
Net sales for the three month period ended March 31, 1997 were
approximately $3,486,000, an increase of approximately 9% over net
sales of approximately $3,186,000 during the same period in 1996. Net
sales during both periods included the sale of bulk wines and other items.
Excluding these sales, net sales of case wines were approximately
$3,305,000 for the three month period ended March 31, 1997, an increase
of approximately 9% over case sales totaling approximately $3,036,000
the corresponding period in 1996. The average selling price per case
increased from approximately $36.47 during the three month period
ended March 31, 1996 to approximately $41.29 for the corresponding
period in 1997. The increase in the average selling price resulted
primarily from price increases on the Company's Chardonnay and
Cabernet Sauvignon. The number of cases sold during the first three
months of 1997 was approximately 81,000, a decrease of approximately
3% from approximately 83,000 cases sold during the same period in
1996. Management expects the trend toward reduced case sales to
continue throughout 1997.
Gross Profit
Gross profit decreased from approximately 40% of sales for the
three month period ended March 31, 1996 to approximately 39% of sales
for the three month period ended March 31, 1997. Excluding the sales of
products other than case wines, the gross margins were approximately
42% for the first three months in 1996 and 40% for the corresponding
period in 1997. The average cost per case sold in the first three months
of 1997 increased by approximately 17% over that sold in the same
period in 1996, from approximately $21.20 per case to approximately
$24.78 per case. The decrease in gross margins and increase in cost per
case are attributable primarily to the higher prices of bulk wines and
grapes purchased from outside parties and to the below average harvest
experienced by the Company in 1996, as discussed above in Costs of
Production. These cost increases have been offset somewhat by the
efficiencies derived from recently planted vineyards and expanded winery
production facilities. The Company also implemented price increases,
some of which did not go into effect until April 1997, as a compensatory
measure. Management believes that the price increases will be sufficient
to offset the increase in costs.
Operating Expenses
Selling, general and administrative expenses were approximately
$951,000, or approximately 27% of sales, for the three month period
ended March 31, 1997, an increase from approximately $801,000, or
approximately 25% of sales, for the same period in 1996. Selling
expenses increased from approximately $571,000 in the first three months
of 1996 to approximately $728,000 in the corresponding period in 1997,
primarily due to higher sales program expenses. General and
administrative expenses remained substantially the same, totaling
approximately $204,000 for the three month period ended March 31,
1997, compared to approximately $210,000 in the corresponding period
in 1996.
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Interest Expense
Total interest expense for the three month period ended March 31,
1997 was approximately $224,000, or approximately 6% of sales,
compared to approximately $307,000, or approximately 10% of sales, for
the same period in 1996. The Company capitalized approximately
$179,000 of additional interest pertaining to vineyard and winery
development in the three month period ended March 31, 1997, and
approximately $100,000 in the corresponding period in 1996. Total
interest cost was substantially the same during both periods. The increase
in capitalized interest in the three month period ended March 31, 1997 as
compared to the same period in 1996, reflects the increase in vineyards
under development during 1997.
Other Income (Expense)
Other income (expense) for the three month period ended March
31, 1997 was income of approximately $40,000, compared to
approximately $13,000 for the three month period ended March 31, 1996.
The primary reason for the increase was the expansion of vineyards
owned by another winery and farmed by the Company for a management
fee on a per acre basis.
Net Income
The Company recorded net income of approximately $154,000 for
the three month period ended March 31, 1997, compared with net income
of approximately $115,000 for the three month period ended March 31,
1996. This increase was due to the factors discussed above, primarily the
increases in sales revenue and in capitalized interest, offset by the
increases in cost of sales and selling costs.
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PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
10.1 Loan Agreement and Related Agreements between
the Company and U.S. Bank, dated April 1, 1997
10.2 Real Estate Purchase Contract, Agricultural
Sublease and Related Agreements between the
Company and Farmland Management Services,
dated January 24, 1997
10.3 Real Estate Option Agreement, dated January 24,
1997 and Related Agreements between the
Company and John Hancock Mutual Life Insurance
Company
27.1 Financial Data Schedules
-12-
<PAGE> 13
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to the signed on its behalf by the
undersigned, thereunto duly authorized.
R.H. PHILLIPS, INC.
(Registrant)
Date: May 13, 1997
//s// John E. Giguiere
John E. Giguiere, Co-President
Co-Chief Executive Officer
//s// Robert T. Moore
Robert T. Moore, Chief Financial Officer
Principal Financial Officer
-13-
<PAGE> 14
EXHIBIT INDEX
Exhibit No. Description
Page No.
10.1 Loan Agreement and Related Agreements
between the Company and U.S. Bank, dated April 1, 1997
10.2 Real Estate Purchase Contract, Agricultural Sublease and
Related Agreements between the Company and Farmland
Management Services, dated January 24, 1997.
10.3 Real Estate Option Agreement, dated January 24, 1997
and Related Agreements between the Company and John
Hancock Mutual Life Insurance Company
27.1 Financial Data Schedules
-14-
<PAGE> 1
LOAN AGREEMENT
Principal Loan Date Maturity Loan No Call Collateral
$6,000,000.00 04-01-1997 04-30-1999 815-190 00012 365
Account Officer Initials
7155425480 62186
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
Borrower: R.H. Phillips, Inc. Lender: U.S. BANK OF CALIFORNIA
26836 COUNTY ROAD 12A California Corporate Banking
ESPARTO, CA 95627 980 9th Street, Suite 1100
Sacramento, CA 95814
THIS LOAN AGREEMENT between R.H. PHILLIPS, INC.
("Borrower") and U.S. BANK OF CALIFORNIA ("Lender") is made
and executed on the following terms and conditions. Borrower has
received prior commercial loans from Lender or has applied to Lender
for a commercial loan or loans and other financial accommodations,
including those which may be described on any exhibit or schedule
attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial
accommodations from Lender to Borrower, are referred to in this
Agreement individually as the "Loan" and collectively as the "Loans."
Borrower understands and agrees that: (a) in granting, renewing, or
extending any Loan, Lender is relying upon Borrower's
representations, warranties, and agreements, as set forth in this
Agreement; (b) the granting, renewing, or extending of any Loan by
Lender at all times shall be subject to Lender's sole judgment and
discretion; and (c) all such Loans shall be and shall remain subject to
the following terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of April 1, 1997, and shall
continue thereafter until all indebtedness of Borrower to Lender has
been performed in full and the parties terminate this Agreement in
writing.
DEFINITIONS. The following words shall have the following
meanings when used in this Agreement. Terms not otherwise defined in
this Agreement shall have the meanings attributed to such terms in the
Uniform Commercial Code. All references to dollar amounts shall mean
amounts in lawful money of the United States of America.
Agreement. The word "Agreement" means this Loan
Agreement, as this Loan Agreement may be amended or modified from
time to time, together with all exhibits and schedules attached to this
Loan Agreement from time to time.
Account. The word "Account" means a trade account, account
receivable, or other right to payment for goods sold or services
rendered owing to Borrower (or to a third party grantor acceptable to
Lender).
Account Debtor. The words "Account Debtor" mean the person
or entity obligated upon an Account.
Advance. The word "Advance" means a disbursement of Loan
funds under this Agreement.
Borrower. The word "Borrower" means R.H. PHILLIPS, INC.
The word "Borrower" also includes, as applicable, all subsidiaries and
affiliates of Borrower as provided below in the paragraph titled
"Subsidiaries and Affiliates."
Borrowing Base. The words "Borrowing Base" mean, as
determined by Lender from time to time, the lesser of (a)
$6,000,000.00; or (b) the sum of (c) 80.000% of the aggregate amount
of Eligible Accounts, plus (ii) 55.000% of the aggregate amount of
Eligible Inventory (not to exceed in corresponding Loan amount based
on Eligible inventory $5,000,000).
Business Day. The words "Business Day" mean a day on which
commercial banks are open for business in the State of California.
CERCLA. The word "CERCLA" means the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as
amended.
Cash Flow. The words "Cash Flow" mean net income after
taxes, and exclusive of extraordinary gains and income, plus
depreciation and amortization.
Collateral. The word "Collateral" means and includes without
limitation all property and assets granted as collateral security for a
Loan, whether real or personal property, whether granted directly or
indirectly, whether granted now or in the future, and whether granted in
the form of a security interest, mortgage, deed of trust, assignment,
pledge, chattel mortgage, chattel trust, factor's lien, equipment trust,
conditional sale, trust receipt, Lien, charge, lien or title retention
contract, lease or consignment intended as a security device, or any
other security or lien interest whatsoever, whether created by law,
contract, or otherwise. The word "Collateral" includes without
limitation all collateral described below in the section titled
"COLLATERAL."
Debt. The word "Debt" means all of Borrower's liabilities
excluding Subordinated Debt.
Eligible Accounts. The words "Eligible Accounts" mean, at any
time, all of Borrower's Accounts which contain selling terms and
conditions acceptable to Lender. The net amount of any Eligible
Account against which Borrower may borrow shall exclude all returns,
discounts, credits, and offsets of any nature. Unless otherwise agreed to
by Lender in writing, Eligible Accounts do not include:
(a) Accounts with respect to which the Account Debtor is an
officer, an employee or agent of Borrower.
(b) Accounts with respect to which the Account Debtor is a
subsidiary of, or affiliated with or related to Borrower or its
shareholders, officers, or directors.
(c) Accounts with respect to which goods are placed on
consignment, guaranteed sale, or other terms by reason of which the
payment by the Account Debtor may be conditional.
(d) Accounts with respect to which the Account Debtor is not a
resident of the United States, except to the extent such Accounts are
supported by insurance, bonds or other assurances satisfactory to
Lender.
(e) Accounts with respect to which Borrower is or may become
liable to the Account Debtor for goods sold or services rendered by the
Account Debtor to Borrower.
(f) Accounts which are subject to dispute, counterclaim, or
setoff.
(g) Accounts with respect to which the goods have not been
shipped or delivered, or the services have not been rendered, to the
Account Debtor.
(h) Accounts with respect to which Lender, in its sole
discretion, deems the creditworthiness or financial condition of the
Account Debtor to be unsatisfactory.
(c) Accounts of any Account Debtor who has filed or has had
filed against it a petition in bankruptcy or an application for relief under
any provision of any state or federal bankruptcy, insolvency, or debtor-
in-relief acts; or who has had appointed a trustee, custodian, or receiver
for the assets of such Account Debtor; or who has made an assignment
for the benefit of creditors or has become insolvent or fails generally to
pay its debts (including its payrolls) as such debts become due.
(j) Accounts with respect to which the Account Debtor is the
United States government or any department or agency of the United
States.
<PAGE> 2
04-01-1997 LOAN AGREEMENT Page 2
Loan No 815-190 (Continued)
(k) Accounts which have not been paid in full within 90 DAYS
from the invoice date. The entire balance of any Account of any single
Account debtor will be ineligible whenever the portion of the Account
which has not been paid within 90 DAYS from the invoice date is in
excess of 10.000% of the total amount outstanding on the Account.
(l) That portion of the Accounts of any single Account Debtor
which exceeds 10.000% of all of Borrower's Accounts.
(m) DATINGS, PROGRESS BILLINGS, RETAINAGES,
CASH SALES, COD, SERVICE CHARGES.
Eligible Inventory. The words "Eligible Inventory" mean, at any
time, all of Borrower's inventory as defined below except:
(a) Inventory which is not owned by Borrower free and clear of
all security interests, liens, encumbrances, and claims of third parties.
(b) Inventory which Lender, in its sole discretion, deems to be
obsolete, unsalable, damaged, defective, or unfit for further processing.
ERISA. The word "ERISA means the Employee Retirement
Income Security Act of 1974, as amended.
Event of Default. The words "Event of Default" mean and
include without limitation any of the Events of Default set forth below
in the section titled "EVENTS OF DEFAULT."
Expiration Date. The words "Expiration Date" mean the date of
termination of Lender's commitment to lend under this Agreement.
Grantor. The word "Grantor" means and includes without
limitation each and all of the persons or entities granting a Security
interest in any Collateral for the Indebtedness, including without
limitation all Borrowers granting such a Security Interest.
Guarantor. The word Guarantor" means and includes without
limitation each and all of the guarantors, sureties, and accommodation
parties in connection with any indebtedness.
Indebtedness. The word "Indebtedness" means and includes
without limitation all Loans, together with all other obligations, debts
and liabilities of Borrower to Lender, or any one or more of them, as
well as all claims by Lender against Borrower, or any one or more of
them; whether now or hereafter existing, voluntary or involuntary, due
or not due, obsolete or contingent, liquidated or unliquidated; whether
Borrower may be liable individually or jointly with others; whether
Borrower may be obligated as a guarantor, surety, or otherwise;
whether recovery upon such indebtedness may be or hereafter may
become barred by any statute of limitations; and whether such
indebtedness may be or hereafter may become otherwise unenforceable.
Inventory. The word "Inventory" means all of Borrower's raw
materials, work in process, finished goods, merchandise, parts and
supplies, of every kind and description, and goods held for sale or lease
or furnished under contracts of service in which Borrower now has or
hereafter acquires any right, whether held by Borrower or others, and
all documents of title, warehouse receipts, bills of lading, and all other
documents of every type covering all or any part of the foregoing.
Inventory includes inventory temporarily out of Borrower's custody or
possession and all returns on Accounts.
Lender. The word "Lender" means U.S. BANK OF
CALIFORNIA, its successors and assigns.
Line of Credit. The words "Line of Credit" mean the credit
facility described in the Section titled "LINE OF CREDIT" below.
Liquid Assets. The words "Liquid Assets" mean Borrower's
cash on hand plus Borrower's readily marketable securities.
Loan. The word "Loan" or "Loans" means and includes without
limitation any and all commercial loans and financial accommodations
from Lender to Borrower, whether now or hereafter existing, and
however evidenced, including without limitation those loans and
financial accommodations described herein or described on any exhibit
or schedule attached to this Agreement from time to time.
Note. The word "Note" means and includes without limitation
Borrower's promissory note or notes, if any, evidencing Borrower's
Loan obligations in favor of Lender, as well as any substitute,
replacement or refinancing note or notes therefor.
Permitted Liens. The words "Permitted Liens" mean: (a) liens
and security interests securing Indebtedness owed by Borrower to
Lender; (b) liens for taxes, assessments, or similar charges either not
yet due or being contested in good faith; (c) liens of material men,
mechanics, warehousemen, or carriers, or other like liens arising in the
ordinary course of business and securing obligations which are not yet
delinquent; (d) purchase money liens or purchase money security
interests upon or in any property acquired or held by Borrower in the
ordinary course of business to secure indebtedness outstanding on the
date of this Agreement or permitted to be incurred under the paragraph
of this Agreement titled "Indebtedness and Liens"; (e) liens and security
interests which, as of the date of this Agreement, have been disclosed
to and approved by the Lender in writing; and (f) those liens and
security interests which in the aggregate constitute an immaterial and
insignificant monetary amount with respect to the net value of
Borrower's assets.
Related Documents. The words "Related Documents" mean and
include without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security
agreements, mortgages, deeds of trust, and all other instruments,
agreements and documents, whether now or hereafter existing,
executed in connection with the Indebtedness.
Security Agreement. The words "Security Agreement" mean
and include without limitation any agreements, promises, covenants,
arrangements, understandings or other agreements, whether created by
law, contract, or otherwise, evidencing, governing, representing, or
creating a Security interest.
Security Interest. The words "Security Interest" mean and
include without limitation any type of collateral security, whether in the
form of a lien, charge, mortgage, deed of trust, assignment, pledge,
chattel mortgage, chattel trust, factor's lien, equipment trust
conditional sale, trust receipt, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments
and Reauthorization Act of 1986 as now or hereafter amended.
Subordinated Debt. The words "Subordinated Debt" mean
indebtedness and liabilities of Borrower which have been subordinated
by written agreement to indebtedness owed by Borrower to Lender in
form and substance acceptable to Lender.
Tangible net Worth. The words "Tangible Net Worth" mean
Borrower's total assets excluding all intangible assets (i.e., goodwill,
trademarks, patents, copyrights, organizational expenses, and similar
intangible items, but including leaseholds and leasehold improvements)
less total Debt.
Working Capital. The words "Working Capital" mean
Borrower's current assets, excluding prepaid expenses, less Borrower's
current liabilities.
LINE OF CREDIT. Lender agrees to make Advances to Borrower
from time to time from the date of this Agreement to the Expiration
Date, provided the aggregate amount of such Advances outstanding at
any time does not exceed the Borrowing Base. Within the foregoing
limits, Borrower may borrow, partially or wholly prepay, and reborrow
under this Agreement as follows.
Conditions Precedent to Each Advance. Lender's obligation to
make any Advance to or for the account of Borrower under this
Agreement is subject to the following conditions precedent, with all
documents, instruments, opinions, reports, and other items required
under this Agreement to be in form and substance satisfactory to
Lender:
<PAGE> 3
04-01-1997 LOAN AGREEMENT Page 3
Loan No 815-190 (Continued)
(a) Lender shall have received evidence that this Agreement and
all Related Documents have been duly authorized, executed, and
delivered by Borrower to Lender.
(b) Lender shall have received such opinions of counsel,
supplemental opinions, and documents as Lender may request.
(c) The security interests in the Collateral shall have been duly
authorized, created, and perfected with first lien priority and shall be in
full force and effect.
(d) All guaranties required by Lender for the Line of Credit
shall have been executed by each Guarantor, delivered to Lender, and
be in full force and effect.
(e) Lender, at its option and for its sole benefit, shall have
conducted an audit of Borrower's Accounts, Inventory, books, records,
and operations, and Lender shall be satisfied as to their condition.
(f) Borrower shall have paid to Lender all fees, costs, and
expenses specified in this Agreement and the Related Documents as are
then due and payable.
(g) There shall not exist at the time of any Advance a condition
which would constitute an Event of Default under this Agreement, and
Borrower shall have delivered to Lender the compliance certificate
called for in the paragraph below titled "Compliance Certificate."
Making Loan Advances. Advances under the Line of Credit
may be requested either orally or in writing by authorized persons.
Lender may, but need not, require that all oral requests be confirmed in
writing. Each Advance shall be conclusively deemed to have been made
at the request of and for the benefit of Borrower (a) when credited to
any deposit account of Borrower maintained with Lender or (b) when
advanced in accordance with the instructions of an authorized person.
Lender, at its option, may set a cutoff time, after which all requests for
Advances will be treated as having been requested on the next
succeeding Business Day.
Mandatory Loan Repayments. If at any time the aggregate
principal amount of the outstanding Advances shall exceed the
applicable Borrowing Base, Borrower, immediately upon written or
oral notice from Lender, shall pay to Lender an amount equal to the
difference between the outstanding principal balance of the Advances
and the Borrowing Base. On the Expiration Date, Borrower shall pay
to Lender in full the aggregate unpaid principal amount of all Advances
then outstanding and all accrued unpaid interest, together will all other
applicable fees, costs and charges, if any, not yet paid.
Loan Account. Lender shall maintain on its books a record of
account in which Lender shall make entries for each Advance ans such
other debits and credits as shall be appropriate in connection with the
credit facility. Lender shall provide Borrower with periodic statements
of Borrower's account, which statements shall be considered to be
correct and conclusively binding on Borrower unless Borrower notifies
Lender to the contrary within thirty (30) days after Borrower's receipt
of any such statement which Borrower deems to be incorrect.
Collateral. To secure payment of the Line of Credit and performance of
all other Loans, obligations and duties owed by Borrower to Lender,
Borrower (and others, if required) shall grant to Lender Security
interests in such property and assets as Lender may require (the
"Collateral"), including without limitation Borrower's present and
future Accounts, general intangibles, and Inventory. Lender's Security
Interests in the Collateral shall be continuing liens and shall include the
proceeds and products of the Collateral, including without limitation
the proceeds of any insurance. With respect to the Collateral, Borrower
agrees and represents and warrants to Lender:
Perfection of Security Interests. Borrower agrees to execute
such financing statements and to take whatever other actions are
requested by Lender to perfect and continue Lender's Security Interest
in the Collateral. Upon request of Lender, Borrower will deliver to
Lender any and all of the documents evidencing or constituting the
Collateral, and Borrower will note Lender's interest upon any and all
chattel paper if not delivered to Lender for possession by Lender.
Contemporaneous with the execution of this Agreement, Borrower will
execute one or more UCC financing statements and any similar
statements as may be required by applicable law, and will file such
financing statements and all such similar statements in the appropriate
location or locations. Borrower hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing any
documents necessary to perfect or to continue any Security Interest.
Lender may at any time, and without further authorization form
Borrower, file a carbon, photograph, facsimile, or other reproduction
of any financing statement for use as a financing statement. Borrower
will reimburse Lender for all expenses for the perfection, termination,
and the continuation of the perfection of Lender's security interest in
the Collateral. Borrower promptly will notify Lender of any change in
Borrower's name including any change to the assumed business names
of Borrower. Borrower also promptly will notify Lender of any change
in Borrower's Social Security Number or employer Identification
Number. Borrower further agrees to notify Lender in writing prior to
any change in address or location of Borrower's principal governance
office or should Borrower merge or consolidate with any other entity.
Collateral Records. Borrower does now, and at all times
hereafter shall, keep correct and accurate records of the Collateral, all
of which records shall be available to Lender or Lender's representative
upon demand for inspection and copying at any reasonable time. With
respect to the Accounts, Borrower agrees to keep and maintain such
records as Lender may require, including without limitation information
concerning Eligible Accounts and Account Balances and agings. With
respect to the Inventory, Borrower agrees to keep and maintain such
records as Lender may require, including without limitation information
concerning Eligible Inventory and records itemizing and describing the
kind, type, quality, and quantity of Inventory, Borrower's Inventory
costs and selling prices, and the daily withdrawals and additions to
Inventory.
Collateral Schedules. Concurrently with the execution and
delivery of this Agreement, Borrower shall execute and deliver to
Lender Schedules of Accounts and Inventory and Eligible Accounts
and Eligible Inventory, in form and substance satisfactory to the
Lender. Thereafter Borrower shall execute and deliver to Lender such
supplemental schedules of Eligible Accounts and Eligible Inventory and
such other matters and information relating to the Accounts and
Inventory as Lender may request. Supplemental schedules shall be
delivered according to the following schedule: BORROWER AGREES
TO SUBMIT TO LENDER MONTHLY ACCOUNTS PAYABLE
AGING, ACCOUNTS RECEIVABLE AGING AND BORROWER
CERTIFICATE NO LATER THAN 20 DAYS AFTER EACH
MONTH END.
Representations and Warranties Concerning Accounts. With
respect to the Accounts, Borrower represents and warrants to Lender:
(a) Each Account represented by Borrower to be an Eligible Account
for purposes of the Agreement conforms to the requirements of the
definition of an Eligible Account; (b) All Account information listed on
schedules delivered to Lender will be true and correct, subject to
immaterial variance; and (c) Lender, its assigns, or agents shall have the
right at any time and at Borrower's expense to inspect, examine, and
audit Borrower's records and to confirm with Account Debtors the
accuracy of such Accounts.
Representations and Warranties Concerning Inventory. With
respect to the Inventory, Borrower represents and warrants to Lender:
(a) all Inventory represented by Borrower to be Eligible Inventory for
purposes of this Agreement conforms to the requirements of the
definition of Eligible Inventory; (b) All Inventory values listed on
schedules delivered to Lender will be true and correct, subject to
immaterial variance; (c) The value of the Inventory will be determined
on a consistent accounting basis; (d) Except as agreed to the contrary
by Lender in writing all Eligible Inventory is now and at all times
hereafter will be in Borrower's physical possession and shall not be
held by others on consignment, sale on approval, or sale or return; (e)
Except as reflected in the Inventory schedules delivered to Lender, all
Eligible Inventory is now and at all times hereafter will be of good and
merchantable quality, free from defects; (f) Eligible Inventory is not
now and will not at any time hereafter be stored with a bailee
warehouseman, or similar party without Lender's prior written consent,
and, in such event, Borrower will concurrently at the time of bailment
cause any such bailee, warehouseman, or similar party to issue and
deliver to Lender, in form acceptable to Lender, warehouse receipts in
Lender's
<PAGE> 4
04-01-1997 LOAN AGREEMENT Page 4
Loan No 815-190 (Continued)
name evidencing the storage of Inventory; and (g) Lender, its assigns,
or agents shall have the right at any time and at Borrower's expense to
inspect and examine the Inventory and to check and test the same as to
quality, quantity, value and condition.
REPRESENTATIONS AND WARRANTIES. Borrower represents
and warrants to Lender, as of the date of this Agreement, as of the date
of each disbursement of Loan proceeds, as of the date of any renewal,
extension or modification of any Loan, and at all times any
Indebtedness exists:
Organization. Borrower is a corporation which is duly
organized, validly existing, and in good standing under the laws of the
state of Borrower's incorporation and is validly existing and in good
standing in all states in which Borrower is doing business. Borrower
has the full power and authority to own its properties and to transact
the businesses in which it is presently engaged or presently proposes to
engage. Borrower also is duly qualified as a foreign corporation and is
in good standing in all states in which the failure to so qualify would
have a material adverse effect on its businesses or financial condition.
Authorization. The execution, delivery, and performance of this
Agreement and all Related Documents by Borrower, to the extent to be
executed, delivered or performed by Borrower, have been duly
authorized by all necessary action by Borrower; do not require the
consent or approval of any other person, regulatory authority or
governmental body; and do not conflict with, result in a violation of; or
constitute a default under (a) any provision of its articles of
incorporation or organization, or bylaws, or any agreement or other
instrument binding upon Borrower or (b) any law, governmental
regulation, court decree, or order applicable to Borrower.
Financial Information. Each financial statement of Borrower
supplied to Lender truly and completely disclosed Borrower's financial
condition as of the date of the statement, and there has been no material
adverse change in Borrower's financial condition subsequent to the
date of the most recent financial statement supplied to Lender.
Borrower has no material contingent obligations except as disclosed in
such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or
agreement required hereunder to be given by Borrower when delivered
will constitute, legal, valid and binding obligations of Borrower
enforceable against Borrower in accordance with their respective terms.
Properties. Except for Permitted Liens, Borrower owns and has
good title to all of Borrower's properties free and clear of all Security
Interests, and has not executed any security documents, or financing
statements relating to such properties. All of Borrower's properties are
titled in Borrower's legal name, and Borrower has not used, or filed a
financing statement under, any other name for at least the last five (5)
years.
Hazardous Substances. The terms "hazardous waste,"
Hazardous substance," "disposal," "release," and "threatened release,"
as used in this Agreement, shall have the same meanings as set forth in
the "CERCLA," "SARA," the Hazardous Materials Transportation Act,
49 U.S.C. Section 1801, et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901, et seq., Chapters 6.5 through
7.7 of Division 20 of the California Health and Safety Code, Section
25100, et seq., or other applicable state or Federal laws, rules, or
regulations adopted pursuant to any of the foregoing. Except as
disclosed to and acknowledged by Lender in writing, Borrower
represents and warrants that: (a) during the period of Borrower's
ownership of the properties, there has been no use, generation,
manufacture, storage, treatment, disposal, release, or threatened release
of any hazardous waste or substance by any person on, under, about or
from any of the properties. (b) Borrower has no knowledge of, or
reason to believe that there has been (i) any use, generation,
manufacture, storage, treatment, disposal, release or threatened release
of any hazardous waste or substance on, under about or from the
properties by any prior owners or occupants of any of the properties, or
(ii) any actual or threatened litigation or claims of any kind by any
person relating to such matters. (c) Neither Borrower nor any tenant,
contractor, agent or other authorized user of any of the properties shall
use, generate, manufacture, store, treat, dispose of, or release any
hazardous waste or substance on, under, about or from any of the
properties; and any such activity shall be conducted in compliance with
all applicable federal, state, and local laws, regulations, and ordinances,
including without limitation those laws, regulations and ordinances
described above. Borrower authorizes Lender and its agents to enter
upon the properties to make such inspections and tests as Lender may
deem appropriate to determine compliance of the properties with this
section of the Agreement. Any inspections or tests made by Lender
shall be at Borrower's expenses and for Lender's purposes only and
shall not be construed to create any responsibility or liability on the part
of Lender to Borrower or to any other person. The representations and
warranties contained herein are based on Borrower's due diligence in
investigating the properties for hazardous waste and hazardous
substances. Borrower hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Borrower
becomes liable for cleanup or other costs under any such laws, and (b)
agrees to indemnify and hold harmless Lender against any and all
claims, losses, liabilities, damages, penalties, and expenses which
Lender may directly or indirectly sustain or suffer resulting from a
breach of this section of the Agreement or as a consequence of any use,
generation, manufacture, storage, disposal, release or threatened
release occurring prior to Borrower's ownership or interest in the
properties, whether or not the same was or should have been known to
Borrower. The provisions of this section of the Agreement, including
the obligation to indemnify, shall survive the payment of the
indebtedness and the termination on expiration of this Agreement and
shall not be affected by Lender's acquisition of any interest in any of
the properties, whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation,
administrative proceeding or similar action (including those for unpaid
taxes) against Borrower is pending or Threatened, and no other event
has occurred which may materially adversely affect Borrower's
financial condition or properties, other than litigation, claims, or other
events, if any, that have been disclosed to and acknowledged by Lender
in writing.
Taxes. To the best of Borrower's knowledge, all tax returns
and reports of Borrower that are or where required to be filed, have
been filed, and all taxes, assessments and other governmental charges
have been paid in full, except those presently being or to be contested
by Borrower in good faith in the ordinary course of business and for
which adequate reserves have been provided.
Lien Priority. Unless otherwise previously disclosed to Lender
in writing, Borrower has not entered into or granted any Security
Agreements, or permitted the filing or attachment of any Security
Interest on or affecting any of the Collateral directly or indirectly
securing repayment of Borrower's Loan and Note, that would be prior
or that may in any way be superior to Lender's Security Interests and
rights in and to such Collateral.
Binding Effect. This Agreement, the Note, all Security
Agreements directly or indirectly securing repayment of Borrower's
Loan and Note and all of the Related Documents are binding upon
Borrower as well as upon Borrower's successors, representatives and
assigns, and are legally enforceable in accordance with their respective
terms.
Commercial Purposes. Borrower intends to use the Loan
proceeds solely for business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to
which Borrower may have any liability complies in all material respects
with all applicable requirements of law and regulations, and (i) no
Reportable Event nor Prohibited Transaction (as defined in ERISA) has
occurred with respect to any such plan, (ii) Borrower has not
withdrawn from any such plan or initiated steps to do so. (iii) no steps
have been taken to terminate any such plan, and (iv) there are no
unfunded liabilities other than those previously disclosed to Lender in
writing.
Location of Borrower's Offices and Records. Borrower's place
of business, or Borrower's Chief executive office, if Borrower has
more than one place of business, is located at 26836 COUNTY ROAD
12A, ESPARTO, CA 95627. Unless Borrower has designated
otherwise in writing this location is also the office or offices where
Borrower keeps its records concerning the Collateral.
Information. All information heretofore or contemporaneously
herewith furnished by Borrower to Lender for the purposes of or in
connection with this Agreement or any transaction contemplated
hereby is, and all information hereafter furnished by or on behalf of
Borrower to Lender will be, true and accurate in every material respect
on the date as of which such information is dated or certified; and none
of such information is or will be
<PAGE> 5
04-01-1997 LOAN AGREEMENT Page 5
Loan No 815-190 (Continued)
incomplete by omitting to state any
material fact necessary to make such information not misleading.
Survival of Representations and Warranties. Borrower
understands and agrees that Lender, without independent investigation,
is relying upon the above representations and warranties in extending
Loan Advances to Borrower. Borrower further agrees that the
foregoing representations and warranties shall be continuing in nature
and shall remain in full force and effect until such time as Borrower's
Indebtedness shall be paid in full, or until this Agreement shall be
terminated in the manner provided above, whichever is the last to
occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with
Lender that, while this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material
adverse changes in Borrower's financial condition, and (b) all existing
and all threatened litigation, claims, investigations, administrative
proceedings or similar actions affecting Borrower or any Guarantor
which could materially affect the financial condition of Borrower or the
financial condition of any Guarantor.
Financial Records. Maintain its books and records in
accordance with generally accepted accounting principles, applied on a
consistent basis, and permit Lender to examine and audit Borrower's
books and records at all reasonable times.
Financial Statements. Furnish Lender with, as soon as available,
but in no event later than one hundred twenty (120) days after the end
of each fiscal year, Borrower's balance sheet and income statement for
the year ended, audited by a certified public accountant satisfactory to
Lender, and, as soon as available, but in no event later than forty (45)
days after the end of each fiscal quarter, Borrower's balance sheet and
profit and loss statement for the period ended, prepared and certified as
correct to the best knowledge and belief by Borrower's chief financial
officer or other officer or person acceptable to Lender. All financial
reports required to be provided under this Agreement shall be prepared
in accordance with generally accepted accounting principles, applied on
a consistent basis, and certified by Borrower as being true and correct.
Additional Information. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and other
reports with respect to Borrower's financial condition and business
operations as Lender may request from time to time.
Financial Covenants and Ratios. Comply with the following
covenants and ratios:
Net Worth Ratio. Maintain a ratio of Total Liabilities to
Tangible Net Worth of less than 2.00 to 1.00.
Working Capital. Maintain Working Capital in excess of
$1,800,000.00
Current Ratio. Maintain a ratio of Current Assets to
Current Liabilities in excess of 1.30 to 1.00.
Cash Flow Requirements. Maintain Cash Flow at not
less than the following level: 1.25:1.0 DEFINED AS: NET PROFIT
AFTER TAX PLUS DEPRECIATION/AMORTIZATION PLUS
INTEREST EXPENSE PLUS ADDITIONAL CAPITAL DIVIDED
BY CURRENT PORTION OF LONG TERM DEBT PLUS
DIVIDENDS/WITHDRAWALS PLUS INTEREST EXPENSE PLUS
INTERNALLY FUNDED FIXED ASSETS; MEASURED
ANNUALLY.
The following provisions shall apply for purposes of
determining compliance with the foregoing financial covenants and
ratios: BORROWER UNDERSTAND AND AGREES THAT ALL
COVENANTS AND RATIOS WILL BE MONITORED
QUARTERLY AND COMPLIANCE WILL BE TESTED
QUARTERLY. Except as provided above, all computations made to
determine compliance with the requirements contained in this
paragraph shall be made in accordance with generally accepted
accounting principles, applied on a consistent basis, and certified by
Borrower as being true and correct.
Insurance. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect
to Borrower's properties and operations, in form, amounts, coverages
and with insurance companies reasonably acceptable to Lender.
Borrower, upon request of Lender, will deliver to Lender from time to
time the policies or certificates of insurance in form satisfactory to
Lender, including stipulations that coverages will not be canceled or
diminished without at least ten (10) days' prior written notice to
Lender. Each insurance policy also shall include an endorsement
providing that coverage in favor of Lender will not be impaired in any
way by any act, omission or default of Borrower or any other person.
In connection with all policies covering assets in which Lender holds or
is offered a security interest for the Loans, Borrower will provide
Lender with such loss payable or other endorsements as Lender may
require.
Insurance Reports. Furnish to Lender, upon request of Lender,
reports on each existing insurance policy showing such information as
Lender may reasonably request, including without limitation the
following: (a) the name of the insurer; (b) the risks insured; (c) the
amount of the policy; (d) the properties insured; (e) the then current
property values on the basis of which insurance has been obtained, and
the manner of determining those values; and (f) the expiration date of
the policy. In addition, upon request of Lender (however not more
often than annually), Borrower will have an independent appraiser
satisfactory to Lender determine, as applicable, the actual cash value or
replacement cost of any Collateral. The cost of such appraisal shall be
paid by Borrower.
Other Agreements. Comply with all terms and conditions of all
other agreements, whether now or hereafter existing, between
Borrower and any other party and notify Lender immediately in writing
of any default in connection with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's
business operations, unless specifically consented to the contrary by
Lender in writing.
Taxes, Charges and Liens. Pay and discharge when
due all of its indebtedness and obligations, including without
limitation all assessments, taxes, governmental charges, levies
and liens, of every kind and nature, imposed upon Borrower or
its properties, income, or profits, prior to the date on which
penalties would attach, and all lawful claims that, if unpaid,
might become a lien or charge upon any of Borrower's
properties, income, or profits. Provided however, Borrower will
not be required to pay and discharge any such assessment, tax,
charge, levy, lien or claim so long as (a) the legality of the
same shall be contested in good faith by appropriate
proceedings, and (b) Borrower shall have established on its
books adequate reserves with respect to such contested
assessment, tax, charge, levy, lien, or claim in accordance with
generally accepted accounting practices. Borrower, upon
demand of Lender, will furnish to Lender evidence of payment
of the assessments, taxes, charges, levies, liens and claims
and will authorize the appropriate governmental official to
deliver to Lender at any time a written statement of any
assessments, taxes, charges, levies, liens and claims against
Borrower's properties, income, or profits.
Performance. Perform and comply with all terms,
conditions, and provisions set forth in this Agreement and in the
Related Documents in a timely manner, and promptly notify
Lender if Borrower learns of the occurrence of any event which
constitutes an Event of Default under this Agreement or under
any of the Related Documents.
Operations. Maintain executive and management
personnel with substantially the same qualifications and
experience as the present executive and management
personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business
affairs in a reasonable and prudent manner and in compliance
with all applicable federal, state and municipal laws,
ordinances, rules and regulations respecting its properties,
charters, businesses and operations, including without
limitation, compliance with the Americans With Disabilities Act
and with all minimum funding standards and other requirements
of ERISA and other laws applicable to Borrower's employee
benefit plans.
Inspection. Permit employees or agents of Lender at
any reasonable time to inspect any and all Collateral for the
Loan or Loans and Borrower's other properties and to examine
or audit Borrower's books, accounts, and records and to make
copies and memoranda of Borrower's books,
<PAGE> 6
04-01-1997 LOAN AGREEMENT Page 6
Loan No 815-190 (Continued)
accounts, and records. If Borrower now or at any time hereafter
maintains any records (including without limitation computer
generated records and computer software programs for the
generation of such records) in the possession of a third party,
Borrower, upon request of Lender, shall notify such party to
permit Lender free access to such records at all reasonable
times and to provide Lender with copies of any records it may
request, all at Borrower's expense.
Compliance Certificate. Unless waived in writing by
Lender, provide Lender QUARTERLY and at the time of each
disbursement of Loan proceeds with a certificate executed by
Borrower's chief financial officer, or other officer or person
acceptable to Lender, certifying that the representations and
warranties set forth in this Agreement are true and correct as of
the date of the certificate and further certifying that, as of the
date of the certificate, no Event of Default exists under this
Agreement.
Environmental Compliance and Reports. Borrower shall
comply in all respects with all environmental protection federal,
state and local laws, statutes, regulations and ordinances; not
cause or permit to exist, as a result of an intentional or
unintentional action or omission on its part or on the part of any
third party, on property owned and/or occupied by Borrower,
any environmental activity where damage may result to the
environment, unless such environmental activity is pursuant to
and in compliance with the conditions of a permit issued by the
appropriate federal, state or local governmental authorities;
shall furnish to Lender promptly and in any event within thirty
(30) days after receipt thereof a copy of any notice, summons,
lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any
intentional or unintentional action or omission on Borrower's
part in connection with any environmental activity whether or
not there is damage to the environment and/or other natural
resources.
Additional Assurances. Make, execute and deliver to
Lender such promissory notes, mortgages, deeds of trust,
security agreements, financing statements, instruments,
documents and other agreements as Lender or its attorneys
may reasonably request to evidence and secure the Loans and
to perfect all Security Interests.
RECOVERY OF ADDITIONAL COSTS. If the imposition
of or any change in any law, rule, regulation or guideline, or the
interpretation or application of any thereof by any court or
administrative or governmental authority (including any request
or policy not having the force of law) shall impose, modify or
make applicable any taxes (except U.S. federal, state or local
income or franchise taxes imposed on Lender), reserve
requirements, capital adequacy requirements or other
obligations which would (a) increase the cost to Lender for
extending or maintaining the credit facilities to which this
Agreement relates, (b) reduce the amounts payable to Lender
under this Agreement or the Related Documents, or (c) reduce
the rate of return on Lender's capital as a consequence of
Lender's obligations with respect to the credit facilities to which
this Agreement relates, then Borrower agrees to pay Lender
such additional amounts as will compensate Lender therefor,
within five (5) days after Lender's written demand for such
payment, which demand shall be accompanied by an
explanation of such imposition or charge and a calculation in
reasonable detail of the additional amounts payable by
Borrower, which explanation and calculations shall be
conclusive in the absence of manifest error.
NEGATIVE COVENANTS. Borrower covenants and
agrees with Lender that while this Agreement is in effect,
Borrower shall not, without the prior written consent of Lender:
Indebtedness and Liens. (a) Except for trade debt
incurred in the normal course of business and indebtedness to
Lender contemplated by this Agreement, create, incur or
assume indebtedness for borrowed money, including capital
leases, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security
interest in, or encumber any of Borrower's assets, or (c) sell
with recourse any of Borrower's accounts, except to Lender.
Continuity of Operations. (a) Engage in any business
activities substantially different than those in which Borrower is
presently engaged, (b) cease operations, liquidate, merge,
transfer, acquire or consolidate with any other entity, change
ownership, change its name, dissolve or transfer or sell
Collateral out of the ordinary course of business, (c) pay any
dividends on Borrower's stock (other than dividends payable in
its stock), provided, however that notwithstanding the foregoing,
but only so long as no Event of Default has occurred and is
continuing or would result from the payment of dividends, if
Borrower is a "Subchapter S Corporation" (as defined in the
Internal Revenue Code of 1986, as amended), Borrower may
pay cash dividends on its stock to its shareholders from time to
time in amounts necessary to enable the shareholders to pay
income taxes and make estimated income tax payments to
satisfy their liabilities under federal and state law which arise
solely from their status as Shareholders of a Subchapter S
Corporation because of their ownership of shares of stock of
Borrower, or (d) purchase or retire any of Borrower's
outstanding shares or alter or amend Borrower's capital
structure.
Loans, Acquisitions and Guaranties. (a) Loan, invest in
or advance money or assets, (b) purchase, create or acquire
any interest in any other enterprise or entity, or (c) incur any
obligation as surety or guarantor other than in the ordinary
course of business.
CESSATION OF ADVANCES. If Lender has made any
commitment to make any Loan to Borrower, whether under this
Agreement or under any other agreement, Lender shall have no
obligation to make Loan Advances or to disburse Loan
proceeds if: (a) Borrower or any Guarantor is in default under
the terms of this Agreement or any of the Related Documents or
any other agreement that Borrower or any Guarantor has with
Lender; (b) Borrower or any Guarantor becomes insolvent, files
a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in
Borrower's financial condition, in the financial condition of any
Guarantor, or in the value of any Collateral securing any Loan;
(d) any Guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender; or (e) Lender in good faith deems itself
insecure, even though no Event of Default shall have occurred.
ACCESS LAWS. Without limiting the generality of any
provision of this agreement requiring Borrower to comply with
applicable laws, rules, and regulations, Borrower agrees that it
will at all times comply with applicable laws relating to disabled
access including, but not limited to, all applicable titles of the
Americans with Disabilities Act of 1990.
ADDITIONAL OPERATING PROVISIONS.
BORROWER AGREES TO SUBMIT TO LENDER MONTHLY
WINE INVENTORY VALUATIONS ON A COST BASIS AND
QUARTERLY VALUATIONS ON A MARKET BASIS,
INCLUDING COPIES OF THE THEN-CURRENT PRICES AS
PUBLISHED BY SOURCES ACCEPTABLE TO LENDER
BORROWER AGREES TO SUBMIT TO LENDER AN ANNUAL
STATEMENT, PREPARE BY A WINE EXPERT ACCEPTABLE
TO LENDER, CERTIFYING THE QUALITY AND CONDITION
OF THE INVENTORY
BORROWER AGREES TO SUBMIT TO LENDER 10-K'S AND
10-Q'S WITHIN 30 DAYS OF FILING WITH SECURITY
EXCHANGE COMMISSION
BORROWER AGREES THAT INELIGIBLE INVENTORY
SHALL INCLUDE RED AND WHITE WINES AGED OVER 60
MONTHS AND 36 MONTHS, RESPECTIVELY
BORROWER AGREES THE ELIGIBLE INVENTORY WILL BE
REDUCED BY THOSE HAVING LIEN RIGHTS AND STORAGE
ACCOUNTS PAYABLE
BORROWER AGREES THAT THE LOCATIONS OF ALL
INVENTORY INCLUDE ESPARTO, LIVERMORE AND ST.
HELENA, CALIFORNIA
BORROWER AGREES THAT METHOD OF CALCULATING
UNIT PRICE FOR BORROWING PURPOSES WILL BE
DETERMINED BY PUBLISHED SOURCES ACCEPTABLE TO
BANK AND NOT TO EXCEED 100% OF COST
<PAGE> 7
04-01-1997 LOAN AGREEMENT Page 7
Loan No 815-190 (Continued)
BORROWER AGREES THAT ADVANCE RATES ON
INVENTORY ARE 55% ON BULK AND BOTTLED WINE AND
30% ON SUPPLIES (DEFINE AS NON WINE INVENTORY
USED IN BOTTLING); FMV ADJUSTMENT MADE ON A
QUARTERLY BASIS
BORROWER AGREES THAT M.S. WALKER, LAUBER
IMPORTS AND WINE WAREHOUSE ACCOUNTS
RECEIVABLES HAVE A 25% DCL UP TO $500,000.
ADDITIONAL EVENTS OF DEFAULT. IN ADDITION TO
THE EVENTS OF DEFAULT SPECIFIED IN THE EVENTS OF
DEFAULT PARAGRAPH OF THIS AGREEMENT, THE
OCCURRENCE OF ANY EVENT OF DEFAULT UNDER ANY
AGREEMENT BETWEEN METROPOLITAN LIFE INSURANCE
AND BORROWER, INCLUDING WITHOUT LIMITATION THE
LOAN AGREEMENT AND PROMISSORY NOTE DATED
4-1-97, SHALL BE AN EVENT OF DEFAULT HEREUNDER.
UPON THE OCCURRENCE OF SUCH AN EVENT OF
DEFAULT, LENDER MAY, AT ITS OPTION, EXERCISE ANY
ONE OR MORE OF THE RIGHTS AND REMEDIES
AVAILABLE UNDER THIS AGREEMENT OR UNDER
APPLICABLE LAW.
ADDITIONAL FINANCIAL REQUIREMENTS.
BORROWER AGREES TO MAINTAIN A WORKING CAPITAL
IN EXCESS OF $1,800,000.00 WHICH IS TO INCLUDE THE
LINE OF CREDIT IN THE CALCULATIONS
BORROWER AGREES TO MAINTAIN A RATIO OF 1.30 TO
1.00 OF CURRENT ASSETS TO CURRENT LIABILITIES
WHICH IS TO INCLUDE THE LINE OF CREDIT IN THE
CALCULATIONS.
AGRICULTURAL BUDGET. Borrower will provide
Lender with a monthly expense recap to budget and will remain
within peak debt.
RIGHT OF SETOFF. Borrower grants to Lender a
contractual possessory security interest in, and hereby assigns,
conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's
accounts with Lender (whether checking, savings, or some
other account), including without limitation all accounts held
jointly with someone else and all accounts Borrower may open
in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest
would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums
owing on the Indebtedness against any and all such accounts,
and, at Lender's option, to administratively freeze all such
accounts to allow Lender to protect Lender's charge and setoff
rights provided on this paragraph.
EVENTS OF DEFAULT. Each of the following shall
constitute an Event of Default under this Agreement:
Default on Indebtedness. Failure of Borrower to make
any payment when due on the Loans.
Other Defaults. Failure of Borrower or any Grantor to
comply with or to perform when due any other term, obligation,
covenant or condition contained in this Agreement or in any of
the Related Documents, or failure of Borrower to comply with or
to perform any other term, obligation, covenant or condition
contained in any other agreement between Lender and
Borrower.
Default in Favor of Third Parties. Should Borrower or
any Grantor default under any loan, extension of credit, security
agreement, purchase or sales agreement, or any other
agreement, in favor of any other creditor or person that may
materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related
Documents.
False Statements. Any warranty, representation or
statement made or furnished to Lender by or on behalf of
Borrower or any Grantor under this Agreement or the Related
Documents is false or misleading in any material respect at the
time made or furnished, or becomes false or misleading at any
time thereafter.
Defective Collateralization. This Agreement or any of
the Related Documents ceases to be in full force and effect
(including failure of any Security Agreement to create a valid
and perfected Security Interest) at any time and for any reason.
Insolvency. The dissolution or termination of Borrower's
existence as a going business, the insolvency of Borrower, the
appointment of a receiver for any part of Borrower's property,
any assignment for the benefit of creditors, any type of creditor
workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of
foreclosure or forfeiture proceedings, whether by judicial
proceeding, self-help, repossession or any other method, by
any creditor of Borrower, any creditor of any Grantor against
any collateral securing the Indebtedness, or by any
governmental agency. This includes a garnishment,
attachment, or levy on or of any of Borrower's deposit accounts
with Lender.
Events Affecting Guarantor. Any of the preceding events
occurs with respect to any Guarantor of any of the
Indebtedness or any Guarantor dies or becomes incompetent,
or revokes or disputes the validity of, or liability under, any
Guaranty of the Indebtedness.
Change In Ownership. Any change in ownership of
twenty-five percent (25%) or more of the common stock of
Borrower.
Adverse Change. A material adverse change occurs in
Borrower's financial condition, or Lender believes the prospect
of payment or performance of the Indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of
Default shall occur, except where otherwise provided in this
Agreement or the Related Documents, all commitments and
obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate
(including any obligation to make Loan Advances or
disbursements), and, at Lender's option, all Indebtedness
immediately will become due and payable, all without notice of
any kind to Borrower, except that in the case of an Event of
Default of the type described in the "Insolvency" subsection
above, such acceleration shall be automatic and not optional.
In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in
equity, or otherwise. Except as may be prohibited by applicable
law, all of Lender's rights and remedies shall be cumulative and
may be exercised singularly or concurrently. Election by
Lender to pursue any remedy shall not exclude pursuit of any
other remedy, and an election to make expenditures or to take
action to perform an obligation of Borrower or of any Grantor
shall not affect Lender's right to declare a default and to
exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following
miscellaneous provisions are a part of this Agreement:
Amendments. This Agreement, together with any
Related Documents, constitutes the entire understanding and
agreement of the parties as to the matters set forth in this
Agreement. No alteration of or amendment to this Agreement
shall be effective unless given in writing and signed by the party
or parties sought to be charged or bound by the alteration or
amendment.
Applicable Law. This Agreement has been delivered to
Lender and accepted by Lender in the State of California. If
there is a lawsuit, Borrower agrees upon Lender's request
to submit to the jurisdiction of the courts of Sacramento
County, the State of California. Subject to the provisions
on arbitration, this Agreement shall be governed by and
construed in accordance with the laws of the State ofCalifornia.
Arbitration. Lender and Borrower agree that all
disputes, claims and controversies between them, whether
individual, joint, or class in nature, arising from this
Agreement or otherwise, including without limitation
contract and tort disputes, shall be arbitrated pursuant to
the Rules of the American Arbitration Association, upon
request of either party. No act to take or dispose of any
Collateral shall constitute a
<PAGE> 8
04-01-1997 LOAN AGREEMENT Page 8
Loan No 815-190 (Continued)
waiver of this arbitration agreement or be prohibited by this
arbitration agreement. This includes, without limitation,
obtaining injunctive relief or a temporary restraining order;
invoking a power of sale under any deed of trust or mortgage;
obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including
taking or disposing of such property with or without judicial
process pursuant to Article 9 of the Uniform Commercial Code.
Any disputes, claims, or controversies concerning the
lawfulness or reasonableness of any act, or exercise of any
right, concerning any Collateral, including any claim to rescind,
reform, or otherwise modify any agreement relating to the
Collateral, shall also be arbitrated, provided however that no
arbitrator shall have the right or the power to enjoin or restrain
any act of any party. Lender and Borrower agree that in the
event of an action for judicial foreclosure pursuant to California
Code of Civil Procedure Section 726, or any similar provision in
any other state, the commencement of such an action will not
constitute a waiver of the right to arbitrate and the court shall
refer to arbitration as much of such action, including
counterclaims, as lawfully may be referred to arbitration.
Judgment upon any award rendered by any arbitrator may be
entered in any court having jurisdiction. Nothing in this
Agreement shall preclude any party from seeking equitable
relief from a court of competent jurisdiction. The statute of
limitations, estoppel, waiver, laches, and similar doctrines which
would otherwise be applicable in an action brought by a party
shall be applicable in any arbitration proceeding, and the
commencement of an arbitration proceeding shall be deemed
the commencement of an action for these purposes. The
Federal Arbitration Act shall apply to the construction,
interpretation, and enforcement of this arbitration provision.
Caption Headings. Caption headings in this Agreement
are for convenience purposes only and are not to be used to
interpret or define the provisions of this Agreement.
Multiple Parties; Corporate Authority. All obligations of
Borrower under this Agreement shall be joint and several, and
all references to Borrower shall mean each and every Borrower.
This means that each of the persons signing below is
responsible for all obligations in this Agreement.
Consent to Loan Participation. Borrower agrees and
consents to Lender's sale or transfer, whether now or later, of
one or more participation interests in the Loans to one or more
purchasers, whether related or unrelated to Lender. Lender
may provide, without any limitation whatsoever, to any one or
more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any other
matter relating to the Loan, and Borrower hereby waives any
rights to privacy it may have with respect to such matters.
Borrower additionally waives any and all notices of sale of
participation interests, as well as all notices of any repurchase
of such participation interests. Borrower also agrees that the
purchasers of any such participation interests will be
considered as the absolute owners of such interests in the
Loans and will have all the rights granted under the
participation agreement or agreements governing the sale of
such participation interests. Borrower further waives all rights
of offset or counterclaim that it may have now or later against
Lender or against any purchaser of such a participation interest
and unconditionally agrees that either Lender or such
purchaser may enforce Borrower's obligation under the Loans
irrespective of the failure or insolvency of any holder of any
interest in the Loans. Borrower further agrees that the
purchaser of any such participation interests may enforce its
interests irrespective of any personal claims or defenses that
Borrower may have against Lender.
Costs and Expenses. Borrower agrees to pay upon
demand all of Lender's expenses, including without limitation
attorneys' fees, incurred in connection with the preparation,
execution, enforcement, modification and collection of this
Agreement or in connection with the Loans made pursuant to
this Agreement. Lender may pay someone else to help collect
the Loans and to enforce this Agreement, and Borrower will pay
that amount. This includes, subject to any limits under
applicable law, Lender's attorneys' fees and Lender's legal
expenses, whether or not there is a lawsuit, including attorneys'
fees for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also
will pay any court costs, in addition to all other sums provided
by law.
Notices. All notices required to be given under this
Agreement shall be given in writing, may be sent by
telefacsimile, and shall be effective when actually delivered or
when deposited with a nationally recognized overnight courier
or deposited in the United States mail, first class, postage
prepaid, addressed to the party to whom the notice is to be
given at the address shown above. Any party may change its
address for notices under this Agreement by giving formal
written notice to the other parties, specifying that the purpose of
the notice is to change the party's address. To the extent
permitted by applicable law, if there is more than one Borrower,
notice to any Borrower will constitute notice to all Borrowers.
For notice purposes, Borrower will keep Lender informed at all
times of Borrower's current address(es).
Severability. If a court of competent jurisdiction finds
any provision of this Agreement to be invalid or unenforceable
as to any person or circumstance, such finding shall not render
that provision invalid or unenforceable as to any other persons
or circumstances. If feasible, any such offending provision shall
be deemed to be modified to be within the limits of
enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other
provisions of this Agreement in all other respects shall remain
valid and enforceable.
Subsidiaries and Affiliates of Borrower. To the extent
the context of any provisions of this Agreement makes it
appropriate, including without limitation any representation,
warranty or covenant, the word "Borrower" as used herein shall
include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no
circumstances shall this Agreement be construed to require
Lender to make any Loan or other financial accommodation to
any subsidiary or affiliate of Borrower.
Successors and Assigns. All covenants and
agreements contained by or on behalf of Borrower shall bind its
successors and assigns and shall inure to the benefit of Lender,
its successors and assigns. Borrower shall not, however, have
the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
Survival. All warranties, representations, and covenants
made by Borrower in this Agreement or in any certificate or
other instrument delivered by Borrower to Lender under this
Agreement shall be considered to have been relied upon by
Lender and will survive the making of the Loan and delivery to
Lender of the Related Documents, regardless of any
investigation made by Lender or on Lender's behalf.
Time Is of the Essence. Time is of the essence in the
performance of this Agreement.
Waiver. Lender shall not be deemed to have waived any
rights under this Agreement unless such waiver is given in
writing and signed by Lender. No delay or omission on the part
of Lender in exercising any right shall operate as a waiver of
such right or any other right. A waiver by Lender of a provision
of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that
provision or any other provision of this Agreement. No prior
waiver by Lender, nor any course of dealing between Lender
and Borrower, or between Lender and any Grantor, shall
constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future
transactions. Whenever the consent of Lender is required
under this Agreement, the granting of such consent by Lender
in any instance shall not constitute continuing consent in
subsequent instances where such consent is required, and in
all cases such consent may be granted or withheld in the sole
discretion of Lender.
<PAGE> 9
04-01-1997 LOAN AGREEMENT Page 9
Loan No 815-190 (Continued)
BORROWER ACKNOWLEDGES HAVING READ ALL THE
PROVISIONS OF THIS LOAN AGREEMENT, AND BORROWER
AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
APRIL 1, 1997.
BORROWER:
R. H. PHILLIPS, INC.
By://s// Robert T. Moore
TITLE CFO
By://s// Lane Giguiere
TITLE VP Operations
LENDER:
U.S. BANK
By: //s// Karen L. Howe
Authorized Officer
<PAGE> 10
DISBURSEMENT REQUEST AND AUTHORIZATION
Principal Loan Date Maturity Loan No Call Collateral
$6,000,000.00 04-01-1997 04-30-1999 815-190 00012 365
Account Officer Initials
7155425480 62186
Borrower: R. H. PHILLIPS, INC.
26836 COUNTY ROAD 12A
ESPARTO, CA 95627
Lender: U.S. BANK
California Corporate Banking
980 9th Street, Suite 1100
Sacramento, CA 95814
LOAN TYPE. This is a Variable Rate (at LENDER'S PRIME RATE.
THIS IS THE RATE OF INTEREST WHICH LENDER FROM
TIME TO TIME ESTABLISHES AS ITS PRIME RATE AND IS
NOT, FOR EXAMPLE, THE LOWEST RATE OF INTEREST
WHICH LENDER COLLECTS FROM ANY BORROWER OR
CLASS OF BORROWERS), Revolving Line of Credit Loan to a
Corporation for $6,000,000.00 due on April 30, 1999. This is a
secured renewal loan.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan
is for:
Personal, Family, or Household Purposes or Personal
Investment.
X Business (Including Real Estate Investment).
SPECIFIC PURPOSE. The specific purpose of this loan is:
SUPPORT SHORT-TERM OPERATING AND CASH FLOW
NEEDS.
DISBURSEMENT INSTRUCTIONS. Borrower understands that
no loan proceeds will be disbursed until all of Lender's conditions for
making the loan have been satisfied. Please disburse the loan proceeds
of $6,000,000.00 as follows:
Undisbursed Funds: $6,000,000.00
Note Principal: $6,000,000.00
CHARGES PAID IN CASH. Borrower has paid or will pay in cash
as agreed the following charges:
Prepaid Finance Charges Paid in Cash: $15,000.00
$15,000.00 LOAN FEES
Total Charges Paid in Cash: $15,000.00
TAX IDENTIFICATION CERTIFICATION. The Tax
Identification Number for R.H. PHILLIPS, INC. is 68-0313737. I
certify under penalties of perjury the above tax identification
information is correct.
PAYMENT BY AUTOMATIC DEDUCTION. Borrower hereby
authorizes Lender to automatically deduct the amount of all principal
and/or interest payments on this Note from Borrower's account number
8110-012690 with Lender or such other account as Borrower may
designate in writing. If there are insufficient funds in the account to
pay the automatic deduction in full, Lender may allow the account to
become overdrawn, or Lender may reverse the automatic deduction.
Borrower will pay all fees on the account which result from the
automatic deductions, including any overdraft/NSF charges. If for any
reason Lender does not charge the account for a payment, or if an
automatic payment is reversed, the payment is still due according to
this Note. If the account is a Money Market Account, the number of
withdrawals from that account is limited as set out in the account
agreement. Lender may cancel the automatic deduction at any time in
its discretion.
COMMERCIAL SWEEP ACCOUNT LINE OF CREDIT
ADDENDUM. An exhibit, titled "COMMERCIAL SWEEP
ACCOUNT LINE OF CREDIT ADDENDUM," is attached to this
Agreement and by this reference is made a part of this Agreement just
as if all the provisions, terms and conditions of the Exhibit had been
fully set forth in this Agreement.
FINANCIAL CONDITION. BY SIGNING THIS
AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO LENDER THAT THE INFORMATION
PROVIDED ABOVE IS TRUE AND CORRECT AND THAT
THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN
BORROWER'S FINANCIAL CONDITION AS DISCLOSED IN
BORROWER'S MOST RECENT FINANCIAL STATEMENT TO
LENDER. THIS AUTHORIZATION IS DATED APRIL 1, 1997.
BORROWER:
R. H. PHILLIPS, INC.
By: //s// Lane Giguiere By: //s// Robert T. Moore
TITLE VP Operations TITLE CFO
<PAGE> 11
ALTERNATIVE RATE OPTIONS
PROMISSORY NOTE
(PRIME RATE, IBOR)
$ 6,000,000.00 Date: APRIL 1, 1997
R. H. PHILLIPS, INC. ("Borrower")
U. S. BANK ("Lender")
1. TYPE OF CREDIT. This note is given to evidence
Borrower's obligation to repay all sums which Lender may from
time to time advance to Borrower ("Advances") under a:
single disbursement loan. Amounts loaned to Borrower
hereunder will be disbursed in a single Advance in the
amount shown in Section 2.
revolving line of credit. No Advances shall be made which
create a maximum amount outstanding at any one time
which exceeds the maximum amount shown in Section 2.
However, Advances hereunder may be borrowed, repaid
and reborrowed, and the aggregate Advances loaned
hereunder from time to time may exceed such maximum
amount.
non-revolving line of credit. Each Advance made from time
to time hereunder shall reduce the maximum amount
available shown in Section 2. Advances loaned hereunder
which are repaid may not be reborrowed.
2. PRINCIPAL BALANCE. The unpaid principal balance of
all Advances outstanding under this note ("Principal Balance") at
one time shall not exceed $6,000,000.00.
3. PROMISE TO PAY. For value received Borrower promises
to pay to Lender or order at 980 9Tth Street, Suite 1100,
Sacramento, CA 95814 , the Principal Balance of this note, with
interest thereon at the rate(s) specified in Sections 4 and 11
below.
4. INTEREST RATE. The interest rate on the Principal
Balance outstanding may vary from time to time pursuant to the
provisions of this note. Subject to the provisions of this note,
Borrower shall have the option from time to time of choosing to
pay interest at the rate or rates and for the applicable periods of
time based on the rate options provided herein; provided,
however, that once Borrower notifies Lender of the rate option
chosen in accordance with the provisions of this note, such notice
shall constitute Borrower's irrevocable request for an Advance
hereunder at the rate option specified in such notice. The rate
options are the Prime Borrowing Rate and the IBOR Borrowing
Rate, each as defined herein.
(a) The Prime Borrowing Rate.
(i) The Prime Borrowing Rate is a per annum rate equal
to Lender's prime rate plus 0.00% per annum.
(ii) Whenever Borrower desires to use the Prime
Borrowing Rate option, Borrower shall give Lender notice orally or
in writing in accordance with Section 15 of this note, which notice
shall specify the requested disbursement date and principal
amount of the Advance, and that Borrower has chosen the Prime
Borrowing Rate option.
(iii) Prepayments of all or any part of the Principal Balance
bearing interest at the Prime Borrowing Rate may be made at any
time without penalty. Upon prepayment of any such principal
amount, Borrower also must pay all accrued interest thereon to
the date of prepayment.
(iv) Subject to Section 11 of this note, interest shall accrue
on the unpaid Principal Balance at the Prime Borrowing Rate
unless and except to the extent that the IBOR Borrowing Rate is
in effect.
(b) The IBOR Borrowing Rate.
(i) The following terms shall have the following meanings:
"Business Day" means any day other than a Saturday,
Sunday, or other day that commercial banks in Portland, Oregon
or New York City are authorized or required by law to close.
"IBOR Amount" means each principal amount for
which Borrower chooses to have the IBOR Borrowing Rate apply
for any specified IBOR Interest Period.
"IBOR Interest Period" means as to any IBOR Amount,
a period of 1, 2, or 3 months commencing on the date the IBOR
Borrowing Rate becomes applicable thereto; provided, however,
that: (A) no IBOR Interest Period shall be selected which would
extend beyond April 30, 1999; (B) no IBOR Interest Period shall
extend beyond the date of any principal payment required under
Section 6 of this note, unless the sum of the principal amounts
bearing interest at the Prime Borrowing Rate, plus IBOR Amounts
with IBOR Interest Periods ending on or before the scheduled
date of such principal payment, plus principal amounts remaining
unborrowed under a line of credit, equals or exceeds the amount
of such principal payment; (C) any IBOR Interest Period which
would otherwise expire on a day which is not a Business Day,
shall be extended to the next succeeding Business Day, unless
the result of such extension would be to extend such IBOR
Interest Period into another calendar month, in which event the
IBOR Interest Period shall end on the immediately preceding
Business Day; and (D) any IBOR Interest Period that begins on
the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month
at the end of such IBOR Interest Period) shall end on the last
Business Day of a calendar month.
(ii) The IBOR Borrowing Rate is Lender's IBOR Rate plus
2.00% per annum. Lender's IBOR Rate for any IBOR Interest
Period is the rate per annum (computed on the basis of a 360-day
year and the actual number of days elapsed) equal to the
arithmetic average (rounded upward to the nearest 1/16 of 1%) of
the rates per annum determined by Lender as of the times
specified in Section 4(b)(iii) on the date two (2) Business Days
prior to the first day of such IBOR Interest Period as the rates
offered to Lender by three Eurodollar money market dealers in
such Eurodollar market as may be selected by Lender for U.S.
dollar deposits to be delivered on the first day of such IBOR
Interest Period for the number of months therein; provided,
however, that Lender's IBOR Rate shall be adjusted to take into
account the maximum reserves required to be maintained for
Eurocurrency liabilities by banks during each such IBOR Interest
Period as specified in Regulation D of the Board of Governors of
the Federal Reserve System or any successor regulation.
(iii) Borrower may obtain IBOR Borrowing Rate quotes
from Lender between 8:00 a.m. and 12:00 noon (Portland, Oregon
time) on any Business Day. Any IBOR Borrowing Rate quoted
(A) before 10:00 a.m. shall be based on Lender's IBOR Rate
determined as of approximately 8:00 a.m. on such day, and
Borrower may request an Advance at such rate only by giving
Lender notice in accordance with Section 4(b)(iv) before 10:00
a.m. on such day; and (B) between 10:00 a.m. and 12:00 noon
shall be based on Lender's IBOR Rate determined as of
approximately 10:00 a.m. on such day, and Borrower may request
an Advance at such rate only by giving Lender notice in
accordance with Section 4(b)(iv) not later than 12:00 noon on
such day.
(iv) Whenever Borrower desires to use the IBOR
Borrowing Rate option, Borrower shall give Lender irrevocable
notice (either in writing or orally and promptly confirmed in writing)
between 8:00 a.m. and 12:00 noon (Portland, Oregon time) two
(2) Business Days in advance of the desired effective date of such
rate. Any oral notice shall be given by, and any written notice or
confirmation of an oral notice shall be signed by, the person(s)
authorized in Section 15 of this note, and shall specify the
requested effective date of the rate, IBOR Interest Period and
IBOR Amount, and whether Borrower is requesting a new
Advance at the IBOR Borrowing Rate under a line of credit,
conversion of any portion of the Principal Balance bearing interest
at the Prime Borrowing Rate to an IBOR Amount, or a new IBOR
Interest Period for an outstanding IBOR Amount. Notwithstanding
any other term of this
Page 1 of 4
<PAGE> 12
note, Borrower may elect the IBOR Borrowing Rate in the
minimum principal amount of $ 500,000.00 and in integral
multiples of $ 100,000.00; provided, however, that no more than
10 separate IBOR Interest Periods may be in effect at any one
time.
(v) Borrower may not prepay all or any part of any IBOR
Amount(s).
(vi) If at any time Lender's IBOR Rate is unascertainable
or unavailable to Lender or if IBOR Rate loans become unlawful,
the option to select the IBOR Borrowing Rate shall terminate
immediately. If the IBOR Borrowing Rate is then in effect, (A) it
shall terminate automatically with respect to all IBOR Amounts
(i) on the last day of each then applicable IBOR Interest Period,
if Lender may lawfully continue to maintain such loans, or
(ii) immediately if Lender may not lawfully continue to maintain
such loans through such day, and (B) subject to Section 11, the
Prime Borrowing Rate automatically shall become effective as to
such amounts upon such termination.
(vii) If at any time after the date hereof (A) any revision in
or adoption of any applicable law, rule, or regulation or in the
interpretation or administration thereof (i) shall subject Lender or
its Eurodollar lending office to any tax, duty, or other charge, or
change the basis of taxation of payments to Lender with respect
to any loans bearing interest based on Lender's IBOR Rate, or
(ii) shall impose or modify any reserve, insurance, special deposit,
or similar requirements against assets of, deposits with or for the
account of, or credit extended by Lender or its Eurodollar lending
office, or impose on Lender or its Eurodollar lending office any
other condition affecting any such loans, and (B) the result of any
of the foregoing is (i) to increase the cost to Lender of making or
maintaining any such loans or (ii) to reduce the amount of any
sum receivable under this note by Lender or its Eurodollar lending
office, Borrower shall pay Lender within 15 days after demand by
Lender such additional amount as will compensate Lender for
such increased cost or reduction. The determination hereunder
by Lender of such additional amount shall be conclusive in the
absence of manifest error. If Lender demands compensation
under this Section 4(b)(vii), Borrower may upon three (3) Business
Days' notice to Lender pay the accrued interest on all IBOR
Amounts, together with any additional amounts payable under
Section 4(b)(viii). Subject to Section 11, upon Borrower's paying
such accrued interest and additional costs, the Prime Borrowing
Rate immediately shall be effective with respect to the unpaid
principal balance of such IBOR Amounts.
(viii) Upon any termination of any IBOR Borrowing Rate
(including but not limited to conversion to another rate) or
payment of all or any portion of any IBOR Amount on a date other
than the last day of the then applicable IBOR Interest Period,
including without limitation (A) acceleration under Section 11 or
(B) repayment in response to a notice under Section 4(b)(vii),
Borrower shall pay to Lender on demand such amount as Lender
reasonably determines (determined as though 100% of the
applicable IBOR Amount had been funded in the applicable
Eurodollar market) is equivalent to all direct or indirect losses,
expenses, liabilities, or reductions in yield to Lender resulting
therefrom, whether incurred in connection with liquidation or
reemployment of funds or otherwise.
(ix) If Borrower chooses the IBOR Borrowing Rate,
Borrower shall pay interest based on such rate, plus any other
applicable taxes or charges hereunder, even though Lender may
have obtained the funds loaned to Borrower from sources other
than the applicable Eurodollar market. Lender's determination of
the IBOR Borrowing Rate and any such taxes or charges shall be
conclusive in the absence of manifest error.
(x) Notwithstanding any other term of this note, Borrower
may not select the IBOR Borrowing Rate if an event of default
hereunder has occurred and is continuing.
(xi) Nothing contained in this note, including without
limitation the determination of any IBOR Interest Period or
Lender's quotation of any IBOR Borrowing Rate, shall be
construed to prejudice Lender's right, if any, to decline to make
any requested Advance or to require payment on demand.
5. COMPUTATION OF INTEREST. All interest under Section
4 and Section 11 will be computed at the applicable rate based on
a 360-day year and applied to the actual number of days elapsed.
6. PAYMENT SCHEDULE.
(a) Principal. Principal shall be paid:
on demand.
on demand, or if no demand, on April 30, 1999.
on .
subject to Section 7, in installments of
each, plus accrued interest
each including accrued interest
beginning on and on the same day of each
thereafter until when the entire Principal Balance
plus interest thereon shall be due and payable.
(b) Interest.
(i) Interest on all amounts bearing interest at the Prime
Borrowing Rate shall be paid:
on the 15th day of April, 1997 and on the same
day of each month thereafter prior to maturity and at maturity.
at maturity.
at the time each principal installment is due and
at maturity.
(ii) Interest on all IBOR Borrowing Rate Amounts shall be
paid:
on the last day of the applicable IBOR Interest
Period, and if such IBOR Interest Period is
longer than three months, on the last day of
each three month period occurring during such
IBOR Interest Period, and at maturity.
on the 15th day of April, 1997 and on the same
day of each MONTH thereafter prior to
maturity and at maturity.
at maturity.
at the time each principal installment is due and
at maturity.
7. CHANGE IN PAYMENT AMOUNT. If the interest rate on
this note is subject to change in accordance with Section 4, the
holder of this note may, from time to time, in holder's sole
discretion, increase or decrease the amount of each of the
installments remaining unpaid at the time of each change in rate
to an amount holder in its sole discretion deems necessary to
continue amortizing the Principal Balance at the same rate
established by the installment amounts specified in Section 6(a),
whether or not a "balloon" payment may also be due upon
maturity of this note. Holder shall notify the undersigned of each
such change in writing. Whether or not the installment amount is
increased under this Section 7, Borrower understands that, as a
result of increases in the rate of interest in accordance with
Section 4, the final payment due, whether or not a "balloon"
payment, shall include the entire Principal Balance and interest
thereon then outstanding, and may be substantially more than the
installment specified in Section 6.
8. ALTERNATE PAYMENT DATE. Notwithstanding any other
term of this note, if in any month there is no day on which a
scheduled payment would otherwise be due (e.g. February 31),
such payment shall be paid on the last banking day of that month.
9. PAYMENT BY AUTOMATIC CHARGE.
Please automatically deduct the amount of all principal and
interest payments from account number 8110-012690. If there are
insufficient funds in the account to pay the automatic deduction in
full, Lender may allow the account to become overdrawn, or
Lender may reverse the automatic deduction. Borrower will pay
all the fees on the account which result from the automatic
deductions, including any overdraft/NSF charges. If for any
reason Lender does not charge the account for a payment, or if an
automatic payment is reversed, the payment is still due according
to this note. If the account is a Money
Page 2 of 4
<PAGE> 13
Market Account, the number of withdrawals from that account is
limited as set out in the agreement. Lender may cancel the
automatic deduction at any time in its discretion.
Provided, however, if no account number is entered above,
Borrower does not want to make payments by automatic charge.
10. LENDER'S PRIME RATE. Lender's prime rate is the rate
of interest which Lender from time to time establishes as its prime
rate and is not, for example, the lowest rate of interest which
Lender collects from any borrower or class of borrowers. When
Lender's prime rate is applicable under Section 4(a) or 11(b), the
interest rate hereunder shall be adjusted without notice effective
on the day Lender's prime rate changes, but in no event shall the
rate of interest be higher than allowed by law.
11. DEFAULT .
(a) Without prejudice to any right of Lender to require payment
on demand or to decline to make any requested Advance, each of
the following shall be an event of default: (i) Borrower fails to
make any payment when due. (ii) Borrower fails to perform or
comply with any term, covenant or obligation in this note or any
agreement related to this note, or in any other agreement or loan
Borrower has with Lender. (iii) Borrower defaults under any loan,
extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor
or person that may materially affect any of Borrower's property or
Borrower's ability to repay this note or perform Borrower's
obligations under this note or any related documents. (iv) Any
representation or statement made or furnished to Lender by
Borrower or on Borrower's behalf is false or misleading in any
material respect. (v) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an
assignment for the benefit of creditors, or any proceeding is
commenced either by Borrower or against borrower under any
bankruptcy or insolvency laws. (vi) Any creditor tries to take any
of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's
accounts with Lender. (vii) Any of the events described in this
default section occurs with respect to any guarantor of this note
or any guaranty of Borrower's indebtedness to Lender ceases to
be, or is asserted not to be, in full force and effect. (viii) Lender
in good faith deems itself insecure. If this note is payable on
demand, the inclusion of specific events of default shall not
prejudice Lender's right to require payment on demand or to
decline to make any requested Advance.
(b) Without prejudice to any right of Lender to require payment
on demand, upon the occurrence of an event of default, Lender
may declare the entire unpaid Principal Balance on this note and
all accrued unpaid interest immediately due and payable, without
notice. Upon default, including failure to pay upon final maturity,
Lender, at its option, may also, if permitted under applicable law,
increase the interest rate on this note to a rate equal to the Prime
Borrowing Rate plus 5%. The interest rate will not exceed the
maximum rate permitted by applicable law. In addition, if any
payment of principal or interest is 15 or more days past due,
Borrower will be charged a late charge of 5% of the delinquent
payment.
12. EVIDENCE OF PRINCIPAL BALANCE; PAYMENT ON
DEMAND. Holder's records shall, at any time, be conclusive
evidence of the unpaid Principal Balance and interest owing on
this note. Notwithstanding any other provisions of this note, in the
event holder makes Advances hereunder which result in an
unpaid Principal Balance on this note which at any time exceeds
the maximum amount specified in Section 2, Borrower agrees that
all such Advances, with interest, shall be payable on demand.
13. LINE OF CREDIT PROVISIONS. If the type of credit
indicated in Section 1 is a revolving line of credit or a non-
revolving line of credit, Borrower agrees that Lender is under no
obligation and has not committed to make any Advances
hereunder. Each Advance hereunder shall be made at the sole
option of Lender.
14. DEMAND NOTE. If this note is payable on demand,
Borrower acknowledges and agrees that (a) Lender is entitled to
demand Borrower's immediate payment in full of all amounts
owing hereunder and (b) neither anything to the contrary
contained herein or in any other loan documents (including but not
limited to, provisions relating to defaults, rights of cure, default
rate of interest, installment payments, late charges, periodic
review of Borrower's financial condition, and covenants) nor any
act of Lender pursuant to any such provisions shall limit or impair
Lender's right or ability to require Borrower's payment in full of all
amounts owing hereunder immediately upon Lender's demand.
15. REQUESTS FOR ADVANCES.
(a) Any Advance may be made or interest rate option selected
upon the request of Borrower (if an individual), any of the
undersigned (if Borrower consists of more than one individual),
any person or persons authorized in subsection (b) of this Section
15, and any person or persons otherwise authorized to execute
and deliver promissory notes to Lender on behalf of Borrower.
(b) Borrower hereby authorizes any one of the following
individuals to request Advances and to select interest rate
options:
JOHN GIGUIERE, KARL E. GIGUIERE, LANE GIGUIERE,
ROBERT MOORE, OR BETH BRADY
unless Lender is otherwise instructed in writing.
(c) All Advances made pursuant to this Section 15 shall be
disbursed by deposit directly to Borrower's account with Lender,
or by cashier's check issued to Borrower.
(d) Borrower agrees that Lender shall have no obligation to
verify the identity of any person making any request pursuant to
Section 15, and Borrower assumes all risks of the validity and
authorization of such requests. In consideration of Lender
agreeing, at its sole discretion, to make Advances upon such
requests, Borrower promises to pay holder, in accordance with the
provisions of this note, the Principal Balance together with interest
thereon and other sums due hereunder, although any Advances
may have been requested by a person or persons not authorized
to do so.
16. PERIODIC REVIEW. Lender will review Borrower's credit
accommodations periodically. At the time of the review, Borrower
will furnish Lender with any additional information regarding
Borrower's financial condition and business operations that
Lender requests. This information may include but is not limited
to, financial statements, tax returns, lists of assets and liabilities,
agings of receivables and payable, inventory schedules, budgets
and forecasts. If upon review, Lender, in its sole discretion,
determines that there has been a material adverse change in
Borrower's financial condition, Borrower will be in default. Upon
default, Lender shall have all rights specified herein.
17. NOTICES. Any notice hereunder may be given by ordinary
mail, postage paid and addressed to Borrower at the last known
address of Borrower as shown on holder's records. If Borrower
consists of more than one person, notification of any of said
persons shall be complete notification of all. Notice may be given
either before or reasonably soon after the effective date of the
change.
18. ATTORNEY FEES. Whether or not litigation or arbitration
is commenced, Borrower promises to pay all costs of collecting
overdue amounts. Without limiting the foregoing, in the event that
holder consults an attorney regarding the enforcement of any of
its rights under this note or any document securing the same, or
if this note is placed in the hands of an attorney for collection or
if suit or litigation is brought to enforce this note or any document
securing the same, Borrower promises to pay all costs thereof
including such additional sums as the court or arbitrator(s) may
adjudge reasonable as attorney fees, including without limitation,
costs and attorney fees incurred in any appellate court, in any
proceeding under the bankruptcy code, or in any receivership and
post-judgment attorney fees incurred in enforcing any judgment.
19. WAIVERS; CONSENT. Each party hereto, whether maker,
co-maker, guarantor or otherwise, waives diligence, demand,
presentment for payment, notice of non-payment, protest and
notice of protest and waives all defenses based on suretyship or
impairment of collateral. Without notice to Borrower and without
diminishing or affecting Lender's rights or Borrower's obligations
hereunder, Lender may deal in any manner with any person who
at any time is liable for, or provides any real or personal property
collateral for, any indebtedness of Borrower to Lender, including
the indebtedness evidenced by this note. Without limiting the
foregoing, Lender may, in its sole discretion: (a) make secured or
unsecured loans to Borrower and agree to any number of waivers,
modifications, extensions and renewals of any length of such
loans, including the loan evidenced by this note; (b) impair,
release (with or without substitution of new collateral), fail to
perfect a security interest in, fail to preserve the value of, fail to
dispose of in accordance with applicable law, any collateral
provided by any person; (c) sue, fail to sue, agree not to sue,
release, and settle or compromise with, any person.
20. JOINT AND SEVERAL LIABILITY. All undertakings of the
undersigned Borrowers are joint and several and are binding upon
any marital community of which any of the undersigned are
members. Holder's rights and remedies under this note shall be
cumulative.
Page 3 of 4
<PAGE> 14
21. ARBITRATION.
(a) Either Lender or Borrower may require that all disputes,
claims, counterclaims and defenses, including those based on or
arising from any alleged tort ("Claims") relating in any way to this
note or any transaction of which this note is a part (the "Loan"), be
settled by binding arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association and Title
9 of the U.S. Code. All Claims will be subject to the statutes of
limitation applicable if they were litigated. This provision is void
if the Loan, at the time of the proposed submission to arbitration,
is secured by real property located outside of Oregon or
Washington, or if the effect of the arbitration procedure (as
opposed to any Claims of Borrower) would be to materially impair
Lender's ability to realize on any collateral securing the Loan.
(b) If arbitration occurs and each party's Claim is less than
$100,000, one neutral arbitrator will decide all issues; if any
party's Claim is $100,000 or more, three neutral arbitrators will
decide all issues. All arbitrators will be active California State Bar
members in good standing. All arbitration hearings will be held in
Seattle, Washington. In addition to all other powers, the
arbitrator(s) shall have the exclusive right to determine all issues
of arbitrability. Judgment on any arbitration award may be
entered in any court with jurisdiction.
(c) If either party institutes any judicial proceeding relating to the
Loan, such action shall not be a waiver of the right to submit any
Claim to arbitration. In addition, each has the right before, during
and after any arbitration to exercise any number of the following
remedies, in any order or concurrently: (i) setoff; (ii) self-help
repossession; (iii) judicial or non-judicial foreclosure against real
or personal property collateral; and (iv) provisional remedies,
including injunction, appointment of receiver, attachment, claim
and delivery and replevin.
22. GOVERNING LAW.
This note shall be governed by and construed and enforced in
accordance with the laws of the State of Washington without
regard to conflicts of law principles; provided, however, that to the
extent that Lender has greater rights or remedies under Federal
law, this provision shall not be deemed to deprive Lender of such
rights and remedies as may be available under Federal law.
EACH OF THE UNDERSIGNED HEREBY ACKNOWLEDGES
RECEIPT OF A COMPLETED COPY OF THIS DOCUMENT.
R. H. PHILLIPS, INC.
Borrower Name (Corporation, Partnership or other Entity)
By //s// Lane Giguiere Title VP Operations
By //s// Robert T. Moore Title CFO
For valuable consideration, Lender agrees to the terms of the
arbitration provision set forth in this note.
Lender Name: U.S. BANK
By: Karen T. Howe
Title: Vice President
Date: 4-1-97
Page 4 of 4
<PAGE> 1
REAL ESTATE PURCHASE CONTRACT
Date: Jan 24, 1997 R.E.# 6166
FARMLAND MANAGEMENT SERVICES, hereinafter
referred to as "Buyer", a California corporation, or its nominee, having
its principal office at 138 Regis Street, Suite A, Turlock, California
95382, hereby offers to purchase from R H Phillips, Inc.
hereinafter referred to as "Seller", the land identified below, hereinafter
referred to as "Property," for the amount and upon the terms and
conditions set forth herein; and the Addendum attached hereto; Seller
hereby agrees to sell said Property to Buyer upon said terms and
conditions ("Contract").
1. Purchase Price. The purchase price for the Property shall be
Four Million Two Hundred Eight Thousand Six Hundred Twenty-Five
Dollars ($ 4,208,625.00) ("Purchase Price").
2. Close of Escrow. Escrow shall be opened within three
(3) days of receipt of Seller's acceptance of this Contract at the local
office of Chicago Title Company (1941 Mitchell Road, Suite F, Ceres,
California 95307, Attention: Bobbie Sesma) ("Escrow Agent"). The
escrow contemplated by this Contract shall close within ninety (90)
days of the opening of escrow, or within thirty (30) days of Buyer's
written approval of all phases of the Environmental Assessment
undertaken pursuant to Section 19 of this Contract, whichever occurs
later ("Close of Escrow"). Close of Escrow shall mean when the deed
to the Property is recorded vesting title in Buyer.
3. Property. The Property which is the subject of this Contract
is that land located in Yolo County, State of
California , more particularly described in Exhibit "A" attached
hereto and be reference made a part hereof, together with all buildings,
improvements, fixtures, personal property, oil, gas and mineral rights
and appurtenances located thereon and all easements in respect thereto
("Property").
4. Payment of Purchase Price. Buyer shall pay the total
amount of the Purchase Price as follows:
A. Forty-Two Thousand Dollars
($42,000.00 ) shall be deposited into escrow within three (3) days of
opening of escrow of this Contract.
B. Should Buyer elect not to cancel this Contract as
provided in Section 5 of this Contract, Buyer shall deposit Forty-Two
Thousand Dollars ($ 42,000.00) into escrow within ten (10)
days after expiration of the Feasibility Period as established in Section
5.
C. The balance of the Purchase Price shall be paid in
cash through escrow upon Close of Escrow.
5. Feasibility Period. Buyer shall have a period of sixty (60)
days from the date of opening of escrow of this Contract during which
Buyer can examine the Property and determine the feasibility of the
Property for Buyer's intended use ("Feasibility Period"). During the
Feasibility Period, Buyer may terminate this Contract without liability
of any kind by notice to Seller and Escrow Agent, and Escrow Agent
shall return any funds deposited by Buyer into escrow to Buyer, less
documented costs of Escrow Agent.
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6. Condition of Title. Said Property is to be conveyed at the
Close of Escrow by a Grant Deed running to Buyer and conveying a
good and clear record and marketable fee-simple title to the property,
free and clear of all liens and encumbrances, except those specifically
approved in writing by Buyer.
7. Evidence of Title. Evidence of title to the Property shall be
by an ATLA Owner's Title Insurance Policy on ALTA Owner's Policy
1970 Form B, with ALTA Endorsement Form 1 coverage and,
otherwise, in form and substance in all respects acceptable to Buyer, in
the amount of the total purchase price issued by Chicago Title Company
("Title Company"). Within fifteen (15) days after the date of opening
escrow, Seller shall deliver to Buyer, at Seller's expense, a Preliminary
Title Report, together with the recorded documents underlying each of
the listed exceptions. Said policy shall insure in Buyer good and clear
record and marketable title in fee simple to the Property, free and clear
from all liens and encumbrances, except those which are approved in
writing by Buyer.
If title to all or part of the property is defective or unmarketable
or if the Property is subject to any liens or encumbrances which are
unacceptable to Buyer, Seller shall have a reasonable time, not to
exceed thirty (30) days after written notice thereof, within which to
remedy or remove any such lien or encumbrance. If seller fails to do
so, this Contract shall, at the option of the Buyer, become null and
void; all consideration, if any, paid by Buyer to Seller and all funds
deposited by Buyer into escrow (less documented expenses of Escrow
Agent) shall be returned to Buyer forthwith; and both parties hereto
shall be relieved of all further liability.
8. Survey. A satisfactory ALTA survey (Class "C"
requirements) of the Property by a registered land surveyor must be
furnished to Buyer before Close of Escrow, at Seller's cost.
9. Expenses. Seller and Buyer, at the Close of Escrow, shall
pay equally all costs and expenses incurred by Seller and Buyer in
connection with the purchase by Buyer, including, but not limited to,
all costs and charges for title examination and title insurance, abstract
continuation, recording and filing fees, and revenue or documentary
stamps. Unless otherwise specified in this Contract, Buyer shall pay all
other expenses reasonably incurred by Buyer in order to evaluate the
Property for the sale.
10. Prorations. Real estate taxes, rents, charges for utility
services and all other
operating costs and expenses which relate directly to the operation of
the Property shall be prorated to the day of Close of Escrow, except as
provided in Section 19 of this contract.
11. Closing. At the Close of Escrow, Seller will deliver to
Buyer:
A. Possession of the Property; and
B. Instruments, in form and substance satisfactory
to Buyer assigning and transferring to Buyer all
of Seller's rights, title, and interest in and to all
tangible personal property upon the Property and
all leases and other instruments affecting the
Property.
12. Risk of Loss. Risk of loss to the Property from fire or
other casualty will be borne by Seller until the Close of Escrow. If the
Property shall be damaged or destroyed by fire or other casualty prior
to Close of Escrow or if, for any reason, the Property is not in at least
as good a condition prior to Close of Escrow as the condition of said
Property at the time of Buyer's inspection thereof, Buyer may:
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<PAGE> 3
A. Elect to proceed with the transaction, in which
event Buyer shall be entitled to all
insurance proceeds payable to Seller under any
and all policies of insurance covering the
Property so damaged or destroyed; or
B. Elect to rescind this Contract, in which event all
parties hereto shall be released from all liability
hereunder and all consideration shall be returned
to Buyer. If Buyer elects to rescind this
Agreement, it shall so notify Seller within thirty
(30) days after Buyer has received written notice
of such fire or destruction or has become aware
of any changes in condition since its last
inspection of the Property.
13. Condemnation. In the event that all, or any portion of, the
Property becomes the subject of any condemnation proceeding, or
threat thereof, by a public or quasi-public authority having the power
of eminent domain, Seller shall immediately notify Buyer thereof, both
orally and in writing; and in such event, Buyer may:
A. Elect to proceed with the transaction, in which
event Buyer shall be entitle to all proceeds of any
award, or payment in lieu thereof, resulting from
such proceedings or threat thereof;
B. Elect to rescind this Contract, in which event all
parties hereto shall be released from all liability
hereunder; and the consideration paid by Buyer
to Seller, if any, and any funds deposited by
Buyer in Escrow, less documented expenses of
Escrow Agent, shall be forthwith returned. If
Buyer elects to rescind this Contract, it shall so
notify Seller within thirty (30) days after Buyer
has received written notice of such proceedings.
14. Assignment. Seller's rights under this Contract shall not be
assignable in any way, by operation of law or otherwise. Seller agrees
to perform and comply with all agreements, conditions, and covenants
required by this Contract to be performed or complied with, provided
that Buyer may expressly waive, in writing, in whole or in part,
Seller's performance or compliance with any of such agreements,
condition, or covenants. In the event of a default by either Seller or
Buyer hereunder, Seller or Buyer, as the case may be, shall have the
right to pursue such remedies at law or in equity as may be afforded to
said party under applicable laws, including, without limitation, specific
performance of provisions hereof.
15. Seller's Warranties.
A. Seller represents and warrants that, to the best of the
Seller's knowledge, the Property is not in violation of any federal,
state, or local law, ordinance or regulation relating to industrial hygiene
or to the environmental conditions on, under, or about the Property or
the improvements, including, but not limited, to soil and groundwater
conditions. Seller further represents and warrants that, to the best of its
knowledge, during the time in which Seller owned the Property neither
Seller nor, to the best of Seller's knowledge, any third party has used,
generated, manufactured, stored, or disposed of on, under, or about the
Property or transported to or from the Property any flammable
explosive, radioactive materials, hazardous wastes, toxic substances or
related materials ("Hazardous Materials"). For the purpose of this
provision, Hazardous Materials shall include, but not be limited to,
substances such as friable asbestos or those defined as "hazardous
substances," "hazardous materials," or "toxic substances" in the
comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.; the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, etseq.;
the Resource Conservation and
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<PAGE> 4
Recovery Act, 42 U.S.C. Section
6901 et seq.; those substances defined as "hazardous wastes" in Section
25117 of the California Health and Safety Code or as "hazardous
substances" in Section 25316 of the California Health and Safety Code;
and in the regulations adopted and publications promulgated pursuant
to said laws and any amendments thereto. Seller hereby agrees to
indemnify and hold harmless Buyer, its directors, officers, employees,
and agents against any and all liability, including reasonable attorneys'
fees, resulting directly or indirectly from a breach of the representations
and warranties set forth in this Paragraph.
B. Seller warrants that, to the best of Seller's
knowledge, no zoning, building, or similar law or ordinance is violated
by the maintenance, operation, or use of the Property. Seller has
received no actual notice of any change contemplated in any applicable
laws, ordinances or restriction, or any judicial or administrative action,
or any action by adjacent landowners or natural or artificial conditions
upon the Property which would prevent, impede, limit, or render more
costly Buyer's contemplated use of the Premises.
C. At present and as of the Close of Escrow, to the best
of Seller's knowledge the quality, quantity, adequacy, availability,
reliability, or transferability of surface or well water or water rights for
the Property or the eligibility of the Property or the Buyer to receive
water from any irrigation or water district is sufficient to meet the
intended farm operation of Buyer as described in Agricultural Sublease
between the Buyer and Seller (the "Sublease") for the term of the
Sublease.
D. Prior to the conveyance of the Property, Buyer shall
not, by entering into this Contract or otherwise, acquire or assume any
liability in respect to the Property; and Seller hereby indemnifies and
agrees to hold Buyer harmless from any such liability.
E. For the purpose of this Section, the phrase "to the
best of Seller's knowledge" shall mean that the Seller is unaware of any
facts that would make the representations and warranties untrue, but has
not conducted any independent investigation to verify the accuracy
thereof.
16. Records. Seller shall provide to Buyer any and all records
requested by Buyer, including, but not limited to, production records,
financial data, cultural costs, and water records. Seller further warrants
that said records are accurate and free of any material misrepresentation
or omissions.
17. Waiver. No failure of either party to exercise any power
given hereunder or to insist upon strict compliance with any obligation
specified herein, and no custom or practice at variance with the terms
hereof shall constitute a waiver of either party's rights to demand exact
compliance with the terms hereof.
18. Commissions. Seller warrants and represents to Buyer that
no commissions are or will be payable as a result of the transaction
herein provided for; or if any such commissions are payable, Seller will
pay the same. Seller hereby indemnifies Buyer of, from and against
any and all claims and commissions which may arise as a result of the
transaction herein provided for.
19. Environmental Assessment. Seller shall provide Buyer with
any information Seller may have on toxic or hazardous wastes related
to the Property. Immediately upon acceptance of this Contract, Buyer
will hire an engineer, at Seller's expense, to undertake what is
commonly known in the industry as a "Phase I" Environmental Site
Assessment ("Phase I Report"). Seller will deposit into escrow upon
acceptance of this contract, $5,400 for the cost of the Phase I Report.
Any amount over the $5,400 for the Phase I Report will be paid by
Buyer. Buyer will have 15 working days from the date the Phase I
Report is received to review and undertake one of the following actions,
but this does not restrict the right of the Buyer to terminate this
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<PAGE> 5
Contract during the feasibility period:
(i) give Seller and Escrow Holder written notice of
Buyer's acceptance of the Phase I Report.
(ii) direct engineer to undertake a "Phase II"
environmental site assessment at Seller's cost, if such additional work
is recommended by the engineer in the Phase I Report.
(iii) direct engineer to undertake a "Phase II"
environmental site assessment at Buyer's cost if such additional work
is not recommended by the engineer in the Phase I Report, but Buyer
reasonably believes such work is required in order to fully assess the
environmental integrity of the Property.
20. Authority. Buyer and Seller warrant to each other that it
is fully authorized to enter into this Contract in the capacity indicated
by its signature and agrees to be bound by this Contract as of the day
and year first mentioned above upon the execution of this Contract by
each other party. Further, Seller warrants that it is the sole record
owner of the Property and has the legal right to sell the Property.
21. Access. Seller grants to Buyer, upon the execution of this
Agreement, the right for Buyer, and Buyer's agents and employees, to
enter onto the Premises to make such inspections, surveys, and conduct
such tests, including, but not limited to, the use of a back hoe to inspect
soil conditions, as Buyer, in Buyer's sole discretion, deems necessary
or desirable. Buyer shall indemnify and hold Seller harmless from any
and all costs caused by the entry onto the Property of Buyer, and
Buyer's agents and employees pursuant to this Paragraph. The
inspection by Buyer or the opportunity to inspect by Buyer does not
affect the applicability of the warranties made by the Seller in this
Contract.
22. Lot Line Adjustment. The parties understand that the Seller
must receive approval from the County of Yolo to sever a portion of the
Premises from an existing parcel and to adjust the lot lines of an
existing parcel before the Premises may be conveyed to the Buyer as
contemplated under this Contract. The Seller will use all commercially
reasonable efforts to obtain such consent prior to the date the Close of
Escrow is to take place. If those approvals are not obtained by that
date, Buyer shall have the option exercisable by written notice within
ten (10) days thereafter, to either (i) extend the date for the Close of
Escrow an additional forty five (45) days, or (ii) terminate this Contract
without liability to either party, in which case the Deposit(s) held by the
Escrow Holder shall be returned to the Buyer with interest, less
documented expenses of Escrow Agent. In the event that Buyer elects
to extend the date for the Close of Escrow as provided herein, and the
adjustments to be completed by Seller are still not completed following
the expiration of such forty five (45) day period, Buyer shall have an
additional option exercisable by written notice within ten (10) days after
the expiration of the previously extended date for the Close of Escrow,
to either (i) extend the date for the Close of Escrow an additional forty
five (45) days, or (ii) terminate this Contract without liability to either
party, in which case the Deposit(s) held by the Escrow Holder shall be
returned to the Buyer with interest, less documented expenses of
Escrow Agent. In the event that Buyer elects to extend the date for the
Close of Escrow an additional time and after the expiration of such time
period Seller has still not completed the adjustments, this Contract shall
terminate without liability to either party and the Deposit(s) held by the
Escrow Holder shall be returned to the Buyer with interest, less
documented expenses of Escrow Agent.
23. Additional Improvements. In the spring of 1997,
approximately 80 acres of new vineyard will be planted on ground
previously deep ripped in the northwest portion of the block commonly
called the North Jones Vineyard. The improvements and work is to be
completed by the Seller in accordance with the Buyer's standards and
specifications on or before June 1, 1997. The improvements include
but are not limited to the below and above ground irrigation system in
the form of a drip system; stakes, wire, clips and end posts for
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a complete multi-wire trellis system; varietal vines on hybrid rootstock.
After approval of the completion by the Buyer, Buyer will pay Seller
$1,175,531.
The obligations contained in this section shall survive the Close
of Escrow and the recordation of the grant deed for the property.
Buyer's obligation to make the payment provided herein is subject to
the Seller not being in default of its obligations under that certain
Agricultural Sublease Agreement between Seller and Farmland
Management Services on the date such payment is to be made.
The assignment of this Contract by Buyer to John Hancock
Mutual Life Insurance Company on or before the Close of Escrow shall
be a condition precedent to Seller's obligation to perform its obligations
under this Contract.
24. Condition Precedent. As a condition precedent to Buyer's
obligations to Purchase the Property, which are made for the benefit of
Buyer, Seller shall not be in breach of any of the warranties set forth in
this Contract prior to the close of escrow. If Seller is in breach of any
of the warranties set forth in this contract, Buyer shall have the absolute
right to terminate this Contract. Specifically, if the environmental
assessment (s) performed pursuant to Section 19 of this Contract is (are)
not acceptable to Buyer, in Buyer's sole discretion, Buyer shall have the
absolute right to terminate this Contract. Upon termination of this
Contract pursuant to this Section, the Deposit (s) held by Escrow
Holder pursuant to Section 4 of this Contract shall be returned to Buyer
with interest, less documented expenses of Escrow Agent, and all
parties shall be released from liability under this Contract.
25. Miscellaneous.
A. This Contract, together with the Sublease and a
Property Purchase Option Agreement between the parties, constitutes
the entire agreement of the parties hereto; and no modification hereof
shall be binding, except by a written instrument signed by Buyer and
Seller. No representations, inducements, promises or agreements shall
be binding upon any party except as herein stated.
B. Buyer, in the event of any insolvency or bankruptcy
action or proceeding filed by or against Seller, or Seller's nominee,
shall, at Buyer's option, have no obligation to purchase the Property
and any consideration paid or funds deposited in Escrow (less
documented expenses of Escrow Agent) shall be returned to Buyer.
C. Time is of the essence of this Contract and each and
every provision hereof.
D. This Contract and the provisions hereof shall be
governed by and construed in accordance with the laws of the State of
California.
E. This Contract shall be binding upon and shall inure
to the benefit of, and be enforceable by, the heirs, executors,
administrators, successors, and assigns of the parties hereto, subject to
the terms hereof.
F. The terms, condition, warranties, and representations
of this Contract shall survive the Close of Escrow and passage of title
to the Property, and shall not merge with the Deed that affects the
passage of title.
G. Should any litigation commence between the parties
to this Contract concerning the rights
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and duties of any party pursuant
to, related to, or arising from, this Contract, the prevailing party in
such litigation shall be entitled, in addition to such other relief as may
by granted, to a reasonable sum as and for his attorneys' fees and costs
of such litigation as shall be determined by the court in such litigation,
or in a separate action brought for that purpose.
H. This Contract maybe executed simultaneously in one
or more counterparts, each of which shall be an original, but all of
which together shall constitute one and the same document.
I. Except as otherwise expressly provided by law, any
and all notices or other communication required or permitted by this
Contract or by law to be served on or delivered or given to a party by
another party to this Contract shall be in writing, and shall be deemed
duly served, given, or delivered when personally delivered to the party
to whom it is directed or, in lieu of such personal service,(i) two (2)
days after such written notice is deposited in the United States mail,
first class, postage prepaid, addressed to the party at the address
identified for that party in this Contract, or, (ii) upon confirmation of
delivery by delivery service when sent by overnight delivery with
charges prepaid or charged to the sender's account and addressed to the
party at the address identified for that party in this Contract (iii) upon
receipt if sent by fax to the last fax number of the recipient known to
the party giving notice and so long as a duplicate copy of the notice is
promptly sent by United States mail in the manner set forth above,
provided however, a fax received after 5 p.m. shall be deemed received
on the next day. Any party may change their address for the purpose
of this Section by giving notice pursuant to this subsection.
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BUYER: FARMLAND MANAGEMENT SERVICES, a
California corporation
By //s// Joseph P Silveria
Its President
Address of Buyer:
138 Regis Street, Suite A By //s// Dorthy Luiz
Turlock, CA 95382 Its Secretary
FAX (209) 669-0811
ACCEPTANCE
Buyer's signature constitutes an offer to Seller to purchase the
Property on the terms and conditions set forth in the Contract above.
This offer shall remain irrevocably open until 5:00 p.m. on January 31
, 19 97. If it is not accepted by Seller by that date, it shall be
considered revoked. If Seller accepts this offer within the time
specified, communication of the acceptance to Buyer shall be satisfied
only upon Buyer's receipt within twenty-four (24) hours of one copy of
this Contract executed by Seller.
The undersigned Seller accepts and agrees to the terms and
conditions of the Real Estate Purchase Contract set forth above.
Dated: January 24, 1997
SELLER:
Address of Seller:
//s// Karl Giguiere
R.H. Phillips Vineyard
26836 County Road 12A
Esparto, CA 95627
(916) 662-3215
Fax#: 662-2880
FAX
PCORIG.CON (Rev. 11/07/96)
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<PAGE> 9
ADDENDUM TO REAL ESTATE
PURCHASE CONTRACT #6166
Dated: January 24, 1997
1. At Closing of Escrow, the property will not be encumbered by
any employment agreements or contracts, or equipment leases
or liens that may exist written or verbal.
2. Buyer and Seller agree that concurrent with the closing:
(i) Farmland Management Services and Seller will
enter into and sign that certain Agricultural
Sublease attached hereto as Exhibit 'B';
(ii) Seller will execute and deliver the financing
documents and certificate of insurance
contemplated by the Agricultural Sublease; and
(iii) Buyer and Seller will enter into that certain
Option Agreement attached hereto as Exhibit
'C'.
The signature and delivery of each of these documents as
required by each party is a condition precedent to the
consummation of the purchase and sale by the other party. It is
intended that each of the agreements referred to in this section
be effective immediately following the closing but be of no
force or effect if the closing does not occur.
3. Buyer and Seller will sign a shared well agreement for the wells
on the subject property before the end of the Feasibility Period.
4. Buyer's right of entry on the Property for the purposes of
exploring, prospecting, developing and producing any and all
coal, oil, gas, minerals and mineral rights on or underneath the
surface of the Property shall be limited to one (1) two and one-
half (2 1/2) acre surface area location on the Property, adjacent to
County Road 12A or County Road 87A. The surface area
location shall be mutually agreed upon by Buyer and Seller prior
to the Close of Escrow of the Property and shall be reflected on
the Buyer's Grant Deed.
"Seller" "Buyer"
Farmland Management Services, a
California corporation
By //s// Karl Giguiere By //s// Joseph P Silveria
Its President
By //s// Dorthy Luiz
Its Secretary
<PAGE> 10
EXHIBIT A
The 371 + acres are located in Yolo County, California.
APN 54-12-02 80 Acres
APN 54-12-03 291 Acres
Seller has proposed lot line adjustments and parcel splits with the
county reflected in the map attached. Before the close of escrow, all
parcel splits and lot line adjustments will be completed substantially as
provided.
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EXHIBIT "B"
AGRICULTURAL SUBLEASE
Date: Jan 24, 1997 R.E.# 6166
1. Parties. This Agricultural Sublease ("Lease") is being
entered into by and between FARMLAND MANAGEMENT
SERVICES, ("Lessor"), and R H Phillips, Inc. , ("Lessee").
2. Property. Upon and subject to the terms and conditions of
this Lease, Lessor hereby leases to Lessee and Lessee hereby leases
from Lessor that certain real estate located in the County of Yolo
, State of California, together with all improvements
now or hereafter located thereon, as more particularly described in
Exhibit A attached hereto and made a part hereof, (the "Farm"). The
Farm is owned, or operated for the owner, by John Hancock Mutual
Life Insurance Company, its agents, representatives or assigns
("Hancock") and has been leased to Lessor pursuant to the Master
Lease between Lessor and Hancock.
3. Term and Effective Date. The Farm is hereby leased for
the term specified in Paragraph 1 of Exhibit B attached hereto and made
a part hereof. On the first day of the Lease term, Lessee shall be
entitled to possession of the Farm, subject to compliance with the terms
and conditions of this Lease and payment of the rent set forth in
paragraph 4 hereof. The Lease term ends at midnight on the last day
of the term of the Lease unless sooner terminated as provided in this
Lease.
4. Rent. In consideration of the leasing, occupancy and use of
the Farm, Lessee hereby promises and agrees to pay, yield and deliver
the cash and/or crop-share rent in the amount specified and in the
manner specified in paragraph 2 of Exhibit B to Lessor.
5. Irrigation. Lessee shall preserve and protect all irrigation,
drainage, or pumping items and equipment and any and all
appurtenances thereto situated on the Farm and shall properly lubricate,
service and care for same so as to prevent undue wear and tear on the
items or equipment. Lessee shall also be responsible, unless otherwise
provided in this Lease, for all services, maintenance, repairs to and
replacement, if necessary, of the irrigation, drainage and pumping items
and equipment or appurtenances thereto. Lessee shall furnish, at its
sole expense, any irrigation, drainage or pumping items or equipment
not included in the Farm as are necessary to the proper irrigation,
drainage and operation of the Farm. All those items or equipment shall
become a part of the Farm, with the exception of those items brought
onto the Farm to temporarily replace a piece of equipment which has
been removed for repair. Lessee shall not remove any irrigation,
drainage or pumping items, equipment or appurtenances thereto from
the Farm and shall return same to Lessor in good working condition
upon the expiration or earlier termination of this Lease. When the
Farm is used for dry land farming and where no irrigation is in use or
required, all irrigation requirements contained in this Lease shall be
automatically eliminated.
6. Water. Lessor makes no warranty or agreement of any kind
concerning the amount or quality of water or water rights on or
available to the Farm or whether drainage or irrigation of the Farm is
feasible or necessary, and Lessee shall in no way hold Lessor
responsible for any shortage or excess of water for any intended
purposes or for any deficiency in the quality of water on the Farm.
Lessee agrees that water or water rights related to the Farm shall be
preserved and used solely in connection with the operation of the Farm.
Lessee shall not remove any water from the Farm or otherwise dispose
of any water, except in connection with the proper drainage of the
Farm, without the express prior written consent of Lessor.
7. Condition of Farm. Lessee has inspected the Farm and is
fully familiar with the physical
<PAGE> 12
condition thereof, has received the same
in good order and condition, and agrees that the Farm complies in all
respects with the requirements of this Lease. Lessor makes no
representation or warranty with respect to the condition of the Farm or
its fitness or availability for any particular use, and Lessor shall not be
liable for any latent or patent defect therein. Lessee shall not do or
permit any act or thing which is contrary to any legal or insurance
requirement, which might impair the value or usefulness of the Farm
or any part thereof, or which constitutes a public or private nuisance or
waste. This Lease shall be subject to any existing rights of others,
including but not limited to easements, rights of way, water rights,
mineral rights, oil and gas leases and restrictions on use of the Farm.
8. Payment of Taxes and Utilities. All real property general
and special taxes and assessments related to the Farm and any
improvements now hereafter located thereon shall be paid by Lessee.
Lessee shall also pay any personal property taxes or assessment related
to the Farm or property located thereon. Utilities, including but not
limited to gas, telephone, electricity and water, rendered to and used in
connection with the Farm shall be paid by Lessee. All costs, charges,
and assessments for irrigation water shall be paid by Lessee. If water
is furnished to the Farm by a water company or public district, Lessor
does NOT warrant that water charges and the total cost for water will
remain the same as in preceding years.
9. Repairs to Farm. Lessee, at its expense, shall repair,
maintain and keep the Farm and all improvements thereon in good
condition. No substitution, alteration of, or addition to the Farm or to
the improvements located thereon may be made without the express,
prior written consent of Lessor, except as provided in paragraph 6
hereof concerning irrigation equipment.
10. Assignment or Sublease. Lessee shall not sublet the Farm
or any part thereof, assign this Lease in whole or in part, or in any way
encumber this Lease or the Farm without Lessor's prior written
consent. Lessor may assign this Lease, in whole or in part, and shall
thereupon be released of all duties and obligations under this Lease.
Upon a termination of Lessor's leasehold interest in the Farm for any
reason, Lessee shall attorn to and accept Hancock or its assignee as the
lessor for the balance of the term remaining under this Lease, subject
to all the terms and conditions of this Lease, on condition that Hancock
shall perform all of Lessor's obligations under this Lease from and after
the date of termination of Lessor's leasehold interest in the Farm.
11. Operations and Good Farming and Husbandry
Practices.
11.1. Use of the Farm. Lessee shall use due diligence and
farming practices, consistent with the highest-quality farming practices
in the county where the Farm is located, in all aspects pertaining to the
growing, storing and marketing of the crops and in the general conduct
of operations and use of the Farm. Lessee shall operate and use the
Farm for the sole purpose of conducting an agricultural operation under
the terms and conditions provided in this Lease. Lessee shall, in due
and proper season, perform all work required and essential in a good
and workmanlike manner as will be conducive to the very best results
to be had and obtained by a high-quality system of husbandry and
farming. If this Lease covers permanent crops, Lessee shall care for,
protect and maintain the crops in a good and workmanlike manner
consistent with the highest-quality farming practices in the county
where the Farm is located.
11.2. Equipment, Tools, Seeds, and Labor. Lessee shall use
and furnish, at its sole expense, necessary equipment, tools, seeds and
labor proper or necessary to a top-quality husbandry and farming
operation on the Farm.
11.3. Pests, Diseases, Weeds and Erosion. Lessee shall use
all diligence by the best means known for the controlling and curing of
pests and diseases which hinder and menace growing crops, supply and
use all required means to rid the Farm of same, and keep the Farm and
crops thereon free from all
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<PAGE> 13
types of weeds. Lessee agrees to adopt low-
input sustainable agricultural practices with respect to the Farm when
said practices can be implemented without any adverse impact on the
investment returns from the Farm. Lessee shall take reasonable care to
prevent soil erosion by strip-cropping and contouring, as well as by
filling in or otherwise controlling small washes or ditches that may
form on the Farm. Lessee shall keep in good repair all terraces, open
ditches and inlets and outlets of tile drains and shall preserve all
established watercourses or ditches, including grass waterways, situated
or lying on the Farm. Before performing any drainage work, Lessee
agrees to check with the county Soil Conservation Service office in
regard to the wetland status of the area affected and obtain prior
approval for the drainage work to be performed. Lessee shall cut and
remove or spray and destroy all noxious weeds before they revert to
seed and shall cut and spray all other weeds and grasses growing on the
Farm, in the fields, farmstead, roadsides, irrigation ditches and fence
rows; and in all other respects, shall attend to the care and maintenance
of the Farm in a good and prudent manner. Lessee shall obtain any
burning permits necessary in compliance herewith. If the Farm
contains any Highly Erodible Land (HEL) as determined by the local
Soil Conservation Service office, Lessee agrees to farm the Farm in a
manner as to comply with the stated conservation plan.
11.4. Livestock. Lessee is hereby permitted to keep and raise
on the Farm only livestock as has been approved in writing by Lessor.
Lessee shall be responsible for assuring that all livestock remain within
the confines of the Farm. Lessee shall, in the care and maintenance of
livestock, follow good health and sanitation measures and take adequate
and necessary precautions to safeguard the livestock from disease.
Lessee shall prevent trampling or overgrazing of fields by stock and
rooting by hogs to avoid any injury to the Farm which would result
therefrom. Lessee shall be responsible for the immediate removal of
dead livestock. Prior to irrigation of a pasture by Lessee, all livestock
grazing thereon shall be rotated to other fields whenever possible. In
the event of ice formation on the Farm, Lessee shall break up the ice to
allow livestock access to drinking water. Lessee shall not, without the
prior written consent of Lessor:
11.4.A. allow any livestock, other than livestock owned
by Lessee, to roam and graze upon the stock-fields, stubble-fields,
pasture or rangeland situated on the Farm; or
11.4.B. pasture new seedlings of perennial legumes or
grasses in the year in which same are seeded.
11.5. Removal of Crop Residue. Lessee shall not,
without the prior written consent of Lessor, burn or otherwise remove
cornstalks or other crop residue resulting from the conduct of its
farming and agricultural operations on the Farm; but shall, as soon as
practicable, attend to the spreading of all crop residue, manure, straw
and the like upon those fields which have been specified and agreed
upon by Lessor.
11.6. Restrictions on Plowing and Removal of Trees. Lessee
shall not, without the prior written consent of Lessor,:
11.6.A. plow permanent pasture, meadowland or
rangeland comprising the Farm; or
11.6.B. cut any trees growing on the Farm, either for
sale or for personal use, and may remove only dead or unmarketable
timber with the prior approval of Lessor and only for uses approved by
Lessor.
11.7. Approved Crops. Unless otherwise consented to in
writing by the Lessor, only the crops and pasturage and acreage
specified in paragraph 3 of Exhibit B shall be grown, produced, or
raised by Lessee on the Farm.
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<PAGE> 14
12. Destruction. In the case of a destruction of all or any
portion of the Farm, there shall be no abatement or reduction of rent.
Lessee waives the provisions of California Civil Code Section 1932(2) and
Civil Code section 1933(4) with respect to any destruction of the Farm.
13. Inspection. Lessor or Hancock, or their authorized
representatives or assignees, may enter the Farm at any time for the
purpose of inspecting same or for the purpose of doing any work and
taking any action thereon as may be necessary or appropriate for the
purpose (but nothing contained in this Lease shall create or imply any
duty on the part of Lessor or Hancock or their assignees to make any
inspection or do any work) and for the purpose of showing the Farm to
prospective purchasers. Entry for the purposes specified herein shall not
constitute an eviction of Lessee nor termination of this Lease. At all
times, Lessor shall have access to the Farm and to all reports, records,
and information of the Lessee in respect thereto, for the purposes of
inspecting, determining, and ascertaining that all of the requirements of
the Lease and the Exhibits hereto have been fulfilled; including, without
limitation, the crop-share portions belonging to Lessor, operation and
maintenance procedures, and the public liability insurance
requirements. Lessee shall maintain accurate and complete records of
its operations on the Farm and make them available at any time for
inspection and examination by Lessor. Lessee agrees to provide
information as requested by Lessor with regard to fertilizer used, tillage
practices, acreage reports, chemical usage, and crop yields in a timely
manner.
14. Legal Requirements. Lessee, at its expense, shall
promptly and diligently comply with all legal requirements pertaining
to the operation of the Farm and the farming thereof.
14.1. Permits, Licenses, Franchises, and Other
Authorizations. Lessee, at its expense, shall promptly and diligently
procure, maintain and comply with all permits, licenses, franchises and
other authorizations which are now or at any time hereafter may be
required for the use and operation of the Farm contemplated hereby.
14.2. Compliance with Laws. Lessee, at its expense,
shall promptly and diligently comply strictly and in all respects with
any and all current and future federal, state, and local laws, statutes,
rules, regulations and ordinances, orders, judgments, decrees,
injunctions, authorizations, directions, and requirements of all
governments, departments, commissions, boards, courts, authorities,
agencies, officials and officers as amended and modified from time to
time which are now, or at any time hereafter, may be applicable to the
operation of the Farm and the farming thereof, including but not limited
to full compliance with government A.S.C.S. programs and with
federal, state, and local common law.
15. Condemnation. In the event of a taking by condemnation,
eminent domain or other legal proceedings, of the entire Farm, this
Lease shall terminate as of the date of the taking; and the award shall
be payable to Hancock. A partial taking which makes it economically
unfeasible to continue a farming operation on the remaining acreage
shall be considered a total taking and shall be covered by the preceding
sentence. In the event of a partial taking leaving a unit of economical
farming size, this Lease shall continue in full force and effect on the
remaining acreage, with proportionate reduction in rent on a per
farmable acre basis and with any condemnation award to be paid to
Hancock. If this is a crop-share lease, any award for growing crops
shall be divided between Lessor and Lessee according to the rental
division as provided for in this Lease.
16. Indemnification and Insurance. Lessee shall protect,
indemnify and hold harmless Lessor and Hancock from and against all
liabilities, obligations, claims, damages, penalties, causes of action,
costs and expenses (including, without limitation, attorneys' fees and
expenses) imposed upon, incurred by, or asserted against Lessor,
Hancock, or the Farm by reason of the operations conducted by Lessee
on the Farm or as a result of any failure on the part of Lessee to
perform or comply with any of the terms of
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<PAGE> 15
this Lease. The obligations
of Lessee under this section shall survive any termination of this Lease.
Lessee agrees, during the term of this Lease or any renewals thereof,
to carry general liability insurance for personal injury and property
damage liability. The insurance policy shall name Lessor and Hancock
(or their assignees) as insureds and be with an insurance carrier
acceptable to Lessor. The insurance shall provide for property damage
liability coverage of not less than one hundred percent (100%) of the
replacement value of the property insured (at least $500,000.00) and
public liability coverage of at least One Million dollars ($1,000,000.00)
for each occurrence. The insurance shall provide protection against any
peril included within the classification "Fire and Extended Coverage"
together with coverage against vandalism and malicious mischief.
Written documentation of the coverage shall be provided by Lessee to
Lessor. The insurance policies shall name Hancock and Lessor (or their
assignees) and Lessee as insureds as their respective interests appear and
shall include an effective waiver by the carrier of all rights of
subrogation against any named insured of the insured's interest in the
Farm or any income derived from the Farm and shall provide that
insurance proceeds shall be payable for the benefit of Hancock and
Lessor (or their assignees), and Lessee as their respective interests may
appear. The insurance policies shall also provide that any losses shall
be payable, notwithstanding any act or failure to act or negligence of
Hancock, Lessor, Lessee, or any other person, corporation or other
business entity and that no cancellation, reduction in amount or material
change in coverage shall be made effective until at least thirty (30) days
after receipt by Lessor and Lessee of written notice thereof. The
insurance shall be issued by insurance carriers approved by Lessor
whose rating is at least Bests "B" and shall either be primary or, if a
blanket policy, provide that the amount of insurance will not be affected
by other policy losses.
17. Waste and Protection of the Farm. Lessee shall not
commit or permit waste or strip, shall supervise the Farm at all times,
and shall exercise every reasonable effort to prevent theft, vandalism
and other damage to the Farm.
18. No Claims Against Lessor, Etc. Nothing contained in this
Lease shall constitute any consent or request by Lessor, express or
implied, for the performance of any labor or services; the furnishing of
any materials or other property in respect of the Farm or any part
thereof; nor as giving Lessee any right, power or authority to contract
for or permit the performance of any labor or services or the furnishing
of any materials or other property in a fashion as would permit the
making of any claim against Lessor, it being understood and agreed that
the relationship between the parties hereunder shall consist solely as that
of landlord and tenant (Lessor and Lessee); and in no event and under
no circumstances shall the relationship be considered or construed as an
agency, partnership, joint venture, or any similar relationship.
19. Defaults, Termination, Repossession and Reletting. If
any Event of Default, as defined below, shall have occurred and be
continuing, Lessor whether or not the Lease term shall have terminated
pursuant to this paragraph 19, may enter upon and repossess the Farm
or any part thereof by summary proceeding, ejection or otherwise, and
may remove Lessee and all other persons and any and all property
therefrom. Lessor shall be under no liability for or by reason of any
entry, repossession or removal. At any time or from time to time after
the repossession of the Farm or any part thereof, whether or not the
Lease term shall have been terminated pursuant to this paragraph 18,
Lessor may (but shall be under no obligation to) relet the Farm or any
part thereof for the account of Lessee, in the name of Lessee or Lessor
or otherwise, without notice to Lessee, for the term or terms and on the
conditions and for the uses as Lessor in its uncontrolled discretion, may
determine and may collect and receive the rents therefor. Lessor shall
not be responsible or liable for any failure to relet the Farm or any part
thereof or for any failure to collect any rent due upon any reletting.
Lessee shall reimburse Lessor for all costs and expenses incurred by or
on behalf of Lessor (including, without limitation, attorneys' fees and
expenses) occasioned by any default by Lessee under this Lease. The
following events ("Events of Default") constitute a default under this
Lease:
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<PAGE> 16
19.1. Failure to Pay Rent. Lessee fails to pay any rent
when and as same becomes due and payable;
19.2. Failure to Comply with Other Terms of this
Lease. Lessee fails to perform or comply with any of the other terms
hereof, and the failure continues for more than ten (10) days after
notice thereof from Lessor and Lessee has not within that period
commenced with due diligence and dispatch the curing of the default;
19.3. Insolvency. Lessee either:
19.3.A. makes a general assignment for the
benefit of creditors;
19.3.B. admits in writing the inability to pay
debts as they become due;
19.3.C. files a petition in bankruptcy;
19.3.D. is adjudicated a bankrupt or insolvent;
19.3.E. files a petition seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation;
19.3.F. files an answer admitting, or fails
seasonably to contest, the material allegations of a petition filed against
Lessee in any bankruptcy or insolvency proceedings;
19.3.G. seeks, consents to, or acquiesces in the
appointment of any trustee, receiver or liquidator of Lessee or any
material part of its properties;
19.4. Commencement of Proceeding Against Lessee.
Within ten (10) days after the commencement of any proceeding against
Lessee seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present
or future statute, law or regulation, the proceeding has not been
dismissed; or within ten (10) days after the appointment, without the
consent or acquiescence of Lessee, or any trustee, receiver or liquidator
of Lessee or of any material part of its properties, the appointment has
not been vacated;
19.5. Entry of Final Judgment Against Lessee.
Within ten (10) days after the entry of a final judgment for the payment
of money is rendered against Lessee, the judgment has not been
discharged or execution thereof stayed pending appeal; or within ten
(10) days after the expiration of any stay, the judgment has not been
discharged then, and in any event, Lessor at any time thereafter may
give a written termination notice to Lessee; and on the date specified in
the notice, this Lease shall terminate and, subject to paragraph 19
hereof, the Lease term shall expire and terminate by limitation; and all
rights of Lessee under this Lease shall cease, unless, before the
specified date:
19.5.A. all arrears of rent and all other sums
payable by Lessee under this Lease together with interest thereon at the
rate specified in paragraph 5 of Exhibit B and all costs and expenses,
including, without limitation, attorneys' fees and expenses, incurred by
or on behalf of Lessor hereunder have been paid by Lessee; and
19.5.B. all other defaults at the time existing
under this Lease shall have been fully remedied to the satisfaction of
Lessor.
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<PAGE> 17
20. Survival of Lessee's Obligations; Damages. No
expiration or termination of this Lease or the term thereof pursuant to
paragraph 18 or by operation of law, or otherwise, and no repossession
of the Farm or any part thereof pursuant to paragraph 18, or otherwise,
shall relieve Lessee of its liabilities and obligations hereunder, all of
which shall survive the expiration, termination or repossession. In the
event of any expiration, termination or repossession, Lessee shall pay
to Lessor all rents and other sums required to be paid by Lessee up to
the time of the expiration, termination or repossession; and thereafter
Lessee (until the end of what would have been the full term of this
Lease in the absence of the expiration, termination or repossession and
whether or not the Farm or any part thereof shall have been relet) shall
be liable to Lessor for and shall pay to Lessor as liquidated and agreed
current damages for Lessee's default all rent and other sums which
would be payable under this Lease by Lessee in the absence of the
expiration, termination or repossession LESS all net rents collected by
Lessor from any reletting effected for the account of the Lessee
pursuant to paragraph 18, after deducting from the proceeds all of
Lessor's expenses in connection with the reletting (including, without
limitation, all repossession costs, brokerage commissions, legal and
accounting expenses, attorney's fees and expenses, employees'
expenses, promotional expenses, and expenses of preparation for the
reletting). Lessee shall pay current damages annually on the rent
payment dates applicable in the absence of the expiration, termination
or repossession; and Lessor shall be entitled to recover the same from
Lessee on each applicable date.
21. Performance on Behalf of Lessee. In the event that
Lessee shall fail to make any payment or perform any act required
hereunder to be made or performed by Lessee, then Lessor may, but
shall be under no obligation to, after notice to Lessee as may be
reasonable under the circumstances, make a payment or perform an act
with the same effect as if made or performed by Lessee. Entry by
Lessor upon the Farm for the above purpose shall not waive or release
Lessee from any obligation or default hereunder. Lessee shall
reimburse, with interest at the rate specified in paragraph 5 of Exhibit
B, Lessor for all sums so paid by Lessor and all costs and expenses
incurred by Lessor in connection with the performance of any act which
Lessee fails to perform as required by this Lease.
22. Quiet Enjoyment. Lessor covenants with Lessee that upon
Lessee's entry onto the Farm and Lessee's performance of each of the
terms and conditions of this Lease, Lessee shall have full freedom and
use of the Farm in accordance with the terms hereof.
23. Remedies. Each right, power and remedy of Lessor
provided in this Lease, or now or hereafter existing at law or in equity
or by statute or otherwise, shall be cumulative and concurrent and shall
be in addition to every other right, power or remedy provided for in
this Lease, or now or hereafter existing at law or in equity or by statute;
and the exercise or beginning of the exercise by Lessor of any one or
more of the rights, powers, or remedies provided for in this Lease or
now or hereafter existing at law or in equity or by statute or otherwise
shall not preclude the simultaneous or later exercise by Lessor of any
or all other rights, powers or remedies.
24. Waiver. No failure by Lessor or Lessee to insist upon the
strict performance of any term hereof or to exercise any right, power
or remedy consequent upon a default thereof, and no submission by
Lessee or acceptance by Lessor of full or partial rent during the
continuance of any default, shall constitute a waiver of any default or
any term. No waiver of any default shall affect or alter this Lease
which shall continue in full force and effect or affect the respective
rights of Lessor or Lessee with respect to any other then-existing or
subsequent default.
25. Notices. Any notices provided for herein shall be in
writing and sent by registered or certified mail to the Lessor and the
Lessee at the respective address set forth in paragraph 6 of Exhibit B or
to the address as shall be supplied in writing by either party to the
other.
26. Provisions Subject to Applicable Law/Severability. All
rights, powers and remedies
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<PAGE> 18
provided herein may be exercised only to
the extent that the exercise thereof does not violate any applicable law
and are intended to be limited to the extent necessary so that they will
not render this Lease invalid or unenforceable. If any term of this
Lease shall be held to be invalid, illegal or unenforceable, the validity
of the other terms of this Lease shall in no way be affected thereby.
This Lease shall be governed by and construed according to the laws of
the state where the Farm is located.
27. Conveyance by Lessor. In case the original or any
successor Lessor shall convey or otherwise dispose of its interest in the
Farm, it shall thereupon be released from all liabilities and obligations
of Lessor under this Lease; and the liabilities and obligations shall be
binding solely on the then Lessor of the Farm.
28. Lessor's Liens. Subject to any specific requirements set
forth in paragraph 7 of Exhibit B, a crop lien is hereby established for
the benefit of Lessor for any unpaid rentals. In connection therewith,
Lessee agrees to execute a security agreement and financing statement
if same is required by Lessor. Lessor shall be entitled to and shall have
a valid claim and lien against Lessee to recover for all money advanced
for employment of labor or otherwise advanced to protect Lessor
against any loss due to Lessee's failure to fulfill and perform or carry
out the conditions and agreements. No lien created by Lessee shall ever
be or become prior to Lessor's claim and lien. Lessor shall have a
valid first lien on the share of crops of Lessee, for the rent and for
damages due Lessor under the terms and conditions of this Lease.
29. Minerals. All coal, oil, gas, minerals and mineral rights
in, on or underneath the surface of the Farm or any part thereof have
been reserved to Hancock or its assignee and are not covered by this
Lease. Hancock or its assignee has the right to enter in and upon the
surface of the Farm to have, use and enjoy so much of the Farm as
shall be required to prospect and explore for, develop and produce from
the Farm or any part thereof within the confines of the 2 1/2 acre area
designated in the Grant Deed, all of which shall be done as a reserved
right and without opposition or hindrance from the Lessee, as fully and
completely as if this Lease had not been made. At the time of the
possession for the above purposes, if the land has been prepared for
crops, or if a crop is growing thereon, then Lessee shall be reimbursed
for any damages resulting to it from the loss of use of the Farm; and the
rent shall be proportionately reduced for any subsequent years
remaining under the term of this Lease. If the Farm has not been
prepared for a crop, then it shall be subject to occupancy as reserved
land under the direction of Hancock or its assignee for its use and
occupancy and, in that event, Lessee shall make no claim for damages
against Lessor or Hancock or their assignees, provided that the rent
shall be proportionately reduced.
30. Conservation Damage or Destruction. Lessee, in the
operation and use of the Farm for the purposes set forth herein, shall
not cause, consent to, or in any way or manner, allow any act or
practice to be perpetrated upon the Farm which would ultimately result
in damage to or destruction of a conservation practice.
31. Hazardous Materials.
31.1. Use of Hazardous Materials and
Indemnification.
31.1.A. Lessee covenants that it shall not cause
or permit any Hazardous Material to be generated, stored, used,
treated, handled, processed, transferred, transported or disposed of or
otherwise released on the Farm by Lessee, its agents, employees, or
contractors without the prior written consent of Lessor. In no event
shall Lessee allow or otherwise authorize discharge or release of any
Hazardous Materials to any sewer, storm water system, stream, or other
unauthorized point, on the Farm.
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<PAGE> 19
31.1.B. If Lessee breaches the obligations stated
in 30.1.A., or if contamination of the Farm by Hazardous Material
occurs as a result of the action or inaction of Lessee, its agents,
employees, or contractors, then Lessee shall indemnify, defend, and
hold Lessor and Hancock and their assignees harmless from any and all
claims, judgments, damages, penalties, fines, costs, liabilities or losses
(including, without limitation, damages and expenses suffered or
incurred by Lessor or Hancock, as the owner of the Farm, by virtue of
any assertion of Federal or State lien or claim brought or filed against
Lessor and/or Hancock or their assignees or the Farm, diminution in
value of the Farm, damage arising from any adverse impact on
marketing of the Farm, and sums paid in settlement of claims,
attorneys' fees, consultant fees and expert fees) which arise during or
after the Lease term as a result of the contamination.
31.1.C. The indemnification of Hancock and
Lessor and their assignees by Lessee, includes, without limitation, costs
incurred in connection with any investigation of site conditions or any
clean-up or remediation work required by any federal, state or local
governmental agency because of Hazardous Material(s) present in the
soil or groundwater on or under the Farm. In the event of any
contamination of the Farm or release or disposal of any quantity of
Hazardous Material(s) on the Farm, Lessee shall promptly notify
Hancock and Lessor, shall comply with all applicable laws, and shall
promptly take all actions, in accordance with the provisions of all
applicable environmental laws, at its sole expense, as are necessary to
return the Farm to the condition existing prior to the presence of any
Hazardous Material(s) on the Farm. Lessee shall receive certification
from the appropriate state environmental agency that the Farm, and any
other affected property, has been cleaned up to the satisfaction of the
agency. The foregoing indemnity shall survive the expiration or earlier
termination of this Lease.
31.1.D. Lessee shall be unconditionally and
absolutely liable for all losses and damages sustained by Hancock and
Lessor and their assignees as a result of any breach of, or the failure by
Lessee to perform under, any environmental representation, warranty,
covenant, obligation and indemnification provided in this Lease.
Lessee shall pay any costs, expenses, claims, damages and attorney's
fees due under this paragraph regardless of whether the amounts occur
pre-petition or post-petition after the filing for any bankruptcy or
reorganization relief under state or federal laws.
31.2. Hazardous Materials Definition. As used
herein, "Hazardous Materials" means:
31.2.A. any hazardous or toxic substance,
material or waste, including, but not limited to, any substance, product,
or other material of any nature whatsoever which is or becomes listed,
regulated or addressed pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Section 9601,
et seq. ("CERCLA"); the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801 et seq.; the Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901 et seq. ("RCRA"); the Toxic Substances
Control Act, 15 U.S.C. Sections 2601 et seq.; the Clean Water Act, 33
U.S.C. Section 1251 et seq., all as amended; or any other federal, state
or local statute, law, ordinance, resolution, code, rule, regulation, order
or decree regulating, relating to, or imposing liability or standards of
conduct concerning, any hazardous, toxic or dangerous waste,
substance or material, as now or at any time hereafter in effect;
31.2.B. any substance, product, waste or other
material of any nature whatsoever which may give rise to liability under
any of the above statutes or under any statutory or common law theory
based on negligence, trespass, intentional tort, nuisance, equitable
indemnity, or strict liability or under any reported decisions of a state
or federal court.
31.3. Disclosure. At the commencement of this Lease
and annually thereafter, Lessee
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<PAGE> 20
covenants to disclose to Lessor the
names and amounts of all Hazardous Materials, or any combination
thereof, which are or will be generated, stored, used or disposed of on
the Farm. Lessee shall promptly provide Hancock and Lessor with all
notices and other communications received from any federal, state, and
local department and/or agency which enforces and administers
environmental laws.
31.4. Inspection. Hancock, Lessor and their agents and
assignees shall have the right, but not the duty, to inspect the Farm at
any time to determine whether Lessee is complying with the terms of
this paragraph 31. If Hancock or Lessor or their agents or assignees
determine that Lessee is not in compliance with this paragraph 30,
Hancock and Lessor and their agents and assignees may immediately
enter the Farm to remedy, at Lessee's sole expense, any contamination
of Hazardous Material(s) caused by Lessee's failure to comply with
applicable laws and to take any and all other actions Hancock or Lessor
deems necessary to cure the failure of compliance, notwithstanding any
other provision of this Lease. Lessee shall immediately reimburse
Lessor or Hancock or their assignees for any amounts paid by them
together with interest thereon at the maximum rate allowed by
applicable state law from the date of the payment. Entry by Hancock
or Lessor or their assignees upon the Farm for the above purpose shall
not waive or release Lessee from any obligations or default hereunder.
31.5. Default. Any default under this paragraph 30
shall be an Event of Default enabling Lessor to exercise any of the
remedies set forth in this Lease. The terms of this paragraph 31 shall
survive the termination of this Lease.
32. Hunting Privileges. Hancock has reserved and retained
any and all hunting and recreational rights and privileges. Hunting and
recreation are prohibited on the Farm, except by Lessee with Lessor
and Hancock's prior written consent.
33. Time is of the Essence. Time is of the essence in the
performance by Lessee of the agreements and obligations as provided
by this Lease.
34. End of Lease Term. Upon expiration or other termination
of the terms of this Lease, Lessee shall immediately quit and surrender
to Lessor the Farm in good order and condition, ordinary wear and tear
excepted, and shall remove all of Lessee's equipment. Lessee shall
restore any damage to the Farm caused by the removal of Lessee's
equipment. No holding over shall be permitted without Lessor's prior
written consent. If Lessee should remain in possession of the Farm
after the expiration or earlier termination of the lease such possession
by Lessee shall be deemed to be a month to month tenancy terminable
on thirty (30) days notice given at any time by either party with rent
during such tenancy to be One Hundred Fifty Percent (150%) of the
rental payable during the initial term of this Lease prorated to be paid
on a monthly basis.
35. Payments Are Rent. All sums of money or charges
required to be paid by Lessee under this Lease shall be deemed rental
for the Farm and may be designated as such in any statutory notice to
pay rent or quit the Farm.
36. Miscellaneous. This Lease may be amended, waived,
discharged or terminated only by an instrument in writing, signed by
both parties. This Lease shall be binding upon and inure to the benefit
of and be enforceable by the respective successors and assigns of the
parties hereto. The headings of this Lease are for purposes of reference
only and shall not limit or define the meaning hereof.
THIS LEASE SHALL BECOME EFFECTIVE AND IN
FULL FORCE UPON THE CLOSE OF ESCROW
PERTAINING TO THE PURCHASE OF THE FARM
BY THE LESSOR PURSUANT TO THE TERMS OF
THE REAL ESTATE PURCHASE CONTRACT,
DATED JANUARY 24, 1997, BETWEEN THE
LESSOR AND THE
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<PAGE> 21
LESSEE. IN THE EVENT THAT
THE PURCHASE AND SALE OF THE FARM DOES
NOT OCCUR WITHIN THE PERIOD SPECIFIED IN
SUCH CONTRACT, THIS LEASE SHALL BECOME
NULL AND VOID UNLESS THE PARTIES AGREE
OTHERWISE IN WRITING.
IN WITNESS WHEREOF, the parties hereto, on the date first-
above written, have caused this Lease to be executed in duplicate.
LESSOR: FARMLAND MANAGEMENT SERVICES, a
California corporation
By: //s// Joseph P Silveria
Its: President
LESSEE: R.H. Phillips, Inc.
By: //s// Karl Giguiere
Its: Co-CEO
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<PAGE> 22
EXHIBIT A
AGRICULTURAL LEASE
Dated: Jan 24, 1997, by and between:
FARMLAND MANAGEMENT SERVICES, LESSOR
AND
R H Phillips, Inc., LESSEE
Legal Description
-12-
<PAGE> 23
EXHIBIT B
AGRICULTURAL LEASE
Dated: Jan 24, 1997, by and between:
FARMLAND MANAGEMENT SERVICES, LESSOR
AND
R H Phillips, Inc., LESSEE
1. Term and Effective Date. The term of this Lease shall be fifteen
years beginning on close of escrow and
ending on December 31, 2012, unless sooner terminated
as provided in the Lease. The executed Lease shall be delivered, along
with other documents required by the Lease, to Lessor on or before
close of escrow.
2. Rent. The amount of cash and/or crop-share rent due shall be
$645,017 per year beginning January 1, 1999
and shall be paid in the following
manner and at the following times:
$161,254 January 1, April 1, July 1, and October 1 of each year the
lease is enforce.
3. Approved Crops. Only the following crops and pasturage and
acreage thereof shall be grown, produced or raised by Lessee on the
Farm:
Wine Grapes.
4. Production Costs. If this is a crop-share lease, production costs
shall be allocated and paid as follows:
Production Costs:
N/A
Lime:
Application Costs:
Harvesting and Trucking Costs:
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<PAGE> 24
5. Interest. All past due rent and all other sums payable by Lessee
under this Lease shall accrue interest at the lesser of 18 percent per
annum or the maximum rate allowable by law, from the date due or the
date incurred by Lessor, as applicable.
6. Notices. Notices shall be in writing and sent by registered or
certified mail to the Lessor at Farmland Management Services, 138
Regis Street, Suite A, Turlock, California 95382
and to Lessee at R H Phillips, Inc., 26836 County Road 12A, Esparto,
California 95627. Any notices required to be sent to
Hancock under this Lease shall be in writing and sent by registered mail
to Hancock at John Hancock Mutual Life Insurance Company, P.O.
Box 111, Boston, Massachusetts 02117.
7. Lessor's Liens. In addition to the provisions contained in
paragraph 28 of the Lease, the following provisions shall apply with
regard to Lessor's liens:
8. Exercise of Option. This Sublease will terminate upon the
closing of the purchase and sale of the Farm due to the exercise of the
option held by Lessee to purchase the Farm pursuant to the terms of the
Option Agreement between Lessee and John Hancock. Rental for any
partial period due to a termination pursuant to this section shall be
prorated as of such closing date.
LESSOR: FARMLAND MANAGEMENT SERVICES
By //s// Joseph P Silveria
Its President
LESSEE: R.H. Phillips, Inc.
By //s// Karl Giguiere
Its Co-CEO
14
<PAGE> 25
EXHIBIT "A"
DESCRIPTION
Page 1 Order No. 1007484 DS
A PORTION OF THE NORTH HALF OF SECTION 17 AND A PORTION OF THE N.W. 1/4 OF
SECTION 16, ALL IN T. 11 N., R. 1 WEST M.D.B. &M., YOLO COUNTY CALIFORNIA,
BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:
bEGINNING AT A 2" DIA, BOILER TUBE MONUMENT, MARKING THE NORTHWEST CORNER OF
SAID SECTION 17, AS SAID MONUMENT IS SHOWN ON THAT CERTAIN MAP FILED FOR
RECORD IN BOOK 12 OF MAPS AND SURVEY AT PAGES 99 AND 100, YOLO COUNTY
RECORDS, AND THENCE FROM SAID POINT OF BEGINNING ALONG THE NORTH LINE OF
SAID SECTION 17, S. 89 24' 14" E. 2689.90 FEET; THENCE S. 89 18'03" E.
2689.89 FEET TO THE NORTHEAST CORNER OF SAID SECTION 17, THENCE, ALONG
THE NORTH LINE OF SAID SECTION 16, S. 89 57' 23" E. 1823.02 FEET; THENCE
LEAVING SAID SECTION LINE, S. 00 58'43" EAST 2656.24 FEET TO THE SOUTH
LINE OF SAID N.W. 1/4 OF SECTION 16, SAID POINT ALSO BEING THE CENTERLINE
OF COUNTY ROAD 12-A; THENCE ALONG THE SOUTH LINE OF SAID N.W. 1/4, N.
89 59'38" W. 1823.02 FEET TO THE SOUTHWEST CORNER OF SAID N.W. 1/4
OF SECTION 16; THENCE N. 00 58'41" W. 83.70 FEET TO A POINT IN THE CENTERLINE
OF SAID COUNTY ROAD 12-A; THENCE FOLLOWING THE CENTERLINE OF SAID COUNTY
ROAD 12-A, THE FOLLOWING COURSES AND DISTANCES; N. 75 15'01" W. 1008.10 FEET;
N. 84 20'18" W. 446.03 FEET; n 81 15'21" W. 1430.41 FEET; N. 76 57'56" W.
615.55 FEET TO A TANGENT POINT; THENCE ALONG A CURVE TO THE LEFT HAVING
A CENTRAL ANGLE OF 75 08'09", A RADIUS OF 97.63 FEET, AND SUBTENDED BY
A CHORD BEARING S. 65 27'59" W. 119.06 FEET TO A POINT INTERSECTING THE
CENTERLINE OF OAT CREEK; THENCE UPSTREAM ALONG THE CENTERLINE OF SAID
OAK CREEK THE FOLLOWING CORSES AND DISTANCES: S. 81 51'25" WEST. 538.48
FEET; N. 54 14'49" W. 183.11 FEET; S. 79 54'52" W. 156.86 FEET; N. 41 59'42"
W. 153.61 FEET; N. 56 18'12" W. 278.32 FEET; N. 28 24'06" W. 146.31 FEET;
N. 65 07'25" W. 258.99 FEET; S. 63 29'42" W. 158.62 FEET; N. 70 25'01"
W. 129.03; S. 88 42'53" W. 89.69 FEET AND N 79 59'59" W. 15.99 FEET TO A
POINT ON THE WEST LINE OF SAID SECTION 17; THENCE ALONG SAID WEST LINE;
N. 01 26'41" W. 1544.43 FEET TO THE POINT OF BEGINNING AS SET FORTH
AND DESCRIBED AS PARCEL 5 IN THAT CERTAIN CERTIFICATE OF COMPLIANCE
RECORDED MAY 2, 1997 SERIES NO. 97-0010480 OFFICIAL RECORDS.
A PORTION OF THE FOLLOWING ASSESSOR'S PARCEL NOS.:
54-110-01; 54-120-02; 54-120-03
<PAGE> 1
OPTION AGREEMENT
REAL ESTATE
This Option Agreement, dated May 6, 1997, is entered into
by and between John Hancock Mutual Life Insurance Company (the
"Owner") and R.H. Phillips, Inc. ("R.H. Phillips") with respect to the
following facts:
The Owner and R.H. Phillips are parties to a Real Estate
Purchase Contract, dated January 24, 1997 (the "Real
Estate Contract"), pursuant to which R.H. Phillips will
sell certain real estate to the Owner or its agent. R.H.
Phillips is also a party to an Agricultural Sublease, dated
January 24, 1997, pursuant to which R.H. Phillips will
then lease and operate such real estate (including all
equipment, improvements and fixtures located on that
real estate) from Farmland Management Services, who
is in turn a lessee of the Owner. A legal description of
such real estate is set forth as Exhibit A to this
Agreement (the "Option Property"). One of the terms of
the Real Estate Contract and the Agricultural Sublease is
that the Owner agrees to grant R.H. Phillips an option
to repurchase the Option Property from the Owner in
accordance with the terms of this Agreement.
IN VIEW OF THE FOREGOING FACTS, and the mutual covenants
contained herein, the Owner and R.H. Phillips hereby agree as follows:
1. Grant of Option. The Owner hereby grants to R.H. Phillips an
option to purchase the Option Property, together with all easements and
other rights appurtenant thereto and any improvements, fixtures or
personal property installed, constructed or situated thereon (the
"Option"). The grant of the Option is in consideration of the
consummation of the transactions described in the Real Estate Purchase
Contract and the Agricultural Sublease and no separate cash
consideration shall be required to maintain this option as irrevocable
until the Option expires or is terminated as provided below.
2. Purchase Price. The purchase price for the Option Property shall
be $8,361,669, subject to adjustment as provided in this Agreement (the
"Purchase Price"). The Purchase Price shall be payable in cash or such
other form as the parties mutually agree in writing. The Purchase Price
will be paid at such time and in such manner as is specified in the
Option Purchase Agreement, attached hereto as Exhibit B.
3. Option Term. R.H. Phillips may exercise the Option beginning on
January 1, 2012 and at any time thereafter until June 30, 2012 (the
"Option Period"), after which date the Option will expire. For the
purposes of this Agreement, the Option will be deemed "exercised"
upon the delivery of the Exercise Notice as defined and described in
Section 5 of this Agreement.
-1-
<PAGE> 2
4. Termination of Option. Notwithstanding the period specified in
Section 3, the Option will terminate immediately upon the occurrence
of any of the following events, regardless of whether the Option Period
has expired.
a. If the Agricultural Sublease, as it may be amended from
time to time, or any successor agreement concerning the lease and
operation of the Option Property between R.H. Phillips and the lessor
of the Option Property at that time, has been terminated by the lessor
due to a breach of such agreement by R.H. Phillips, which breach has
not been cured by R.H. Phillips within the time specified in the
Agricultural Sublease;
b. If R.H. Phillips commits a material breach of the Option
Purchase Agreement, which breach has not been cured within the
period set forth in the Option Purchase Agreement; or
c. Upon the sale, assignment or transfer of this Option by R.H.
Phillips in violation of this Agreement.
5. Manner of Exercise. R.H. Phillips may exercise the Option by
delivering to the Owner a written notice of its intention to exercise the
Option (the "Exercise Notice"). The Purchase Date shall be December
31, 2012 or, if that day is a weekend day or legal holiday, on the
following business day thereafter. Together with the Exercise Notice,
R.H. Phillips shall deliver to the Owner an executed Option Purchase
Agreement with the blanks in that document completed. No later than
10 days after delivery of the Exercise Notice is made to the Owner, the
Owner shall execute and return the Option Purchase Agreement. The
purchase and sale of the Option Property shall thereafter take place in
accordance with the Option Purchase Agreement.
6. No Default. R.H. Phillips may only exercise the Option and
purchase the Option Property if it is not in default of any obligation
under the Agricultural Sublease as of the time that the Option is
exercised or at the time at which R.H. Phillips is to close the purchase
of the Option Property.
7. No Liens or Encumbrances. At the Close of Escrow, the Owner
shall convey the Option Property free and clear of all liens and
encumbrances with the exception of: (i) liens and encumbrances set
forth in the policy of title insurance issued to the Owner at the time the
Property was conveyed to the Owner or the Owner's agent by R.H.
Phillips; (ii) liens and encumbrances resulting from actions or omissions
of R.H. Phillips in the operation of the Option Property; (iii) liens and
encumbrances resulting from the failure of R.H. Phillips to pay
property taxes in accordance with the Agricultural Sublease or from
other violations of the Agricultural Sublease by R.H. Phillips; (iv)
easements, covenants and encumbrances of a non-monetary nature
created in good faith by the Owner which do not materially and
adversely impair R.H. Phillips's intended use of the Option Property;
and (v) such liens and encumbrances consented to by R.H. Phillips in
writing.
8. Assignment by R.H. Phillips. R.H. Phillips may not sell, assign or
otherwise transfer the Option without the prior written consent of the
Owner, which consent may be withheld in the Owner's sole discretion.
R.H. Phillips may not hypothecate, pledge or encumber the Option
without the prior
-2-
<PAGE> 3
written consent of the Owner, which consent shall not
be unreasonably withheld. Nothing in this Section 8 shall prohibit any
transfer of rights by operation of law or in connection with the sale by
R.H. Phillips of substantially all of its assets, provided that the
transferee, by operation of law or by express agreement, assumes all of
the liabilities and obligations of R.H. Phillips under this Agreement and
the Agricultural Sublease.
9. Assignment by the Owner. The Owner may sell, transfer or assign
its rights under this Agreement in connection with the sale or other
transfer of its ownership interest in the Option Property. The parties
understand that the covenants, obligations and liabilities of the Owner
under this Agreement shall attach to and run with the Option Property
and shall be binding upon any purchaser or transferee of the Option
Property from the Owner.
10. Purchase of Less than All Property. The Option granted to R.H.
Phillips under this Agreement shall apply to the purchase of the entire
Option Property only and nothing in this Agreement shall provide R.H.
Phillips with the right to purchase only a portion of the Option Property
without the prior written consent of the Owner. The foregoing sentence
notwithstanding, in the event that a portion of the Option Property is
taken due to eminent domain, R.H. Phillips may purchase the
remaining portion of the Option Property. If R.H. Phillips purchases
less than all of the Option Property, the Purchase Price shall be
proportionately reduced to reflect the reduction in the size of the Option
Property being purchased.
11. Exercise at Discretion of R.H. Phillips. R.H. Phillips shall have
the sole and exclusive right to determine whether to exercise the
Option. Nothing in this Agreement shall limit in any way the right of
R.H. Phillips to make the decision as to whether it will or will not
exercise the Option in its sole discretion. However, if R.H. Phillips
does exercise the Option, R.H. Phillips will be legally obligated to
purchase the Property in accordance with and subject to the provisions
of this Agreement and the Option Purchase Agreement.
12. Recordation of Memorandum of Agreement. Upon the execution
of this Agreement, the parties shall execute, acknowledge and cause to
be recorded in the Official Records of Yolo County a Memorandum of
Option, substantially in the form of Exhibit C to this Agreement,
sufficient to give notice of the Option, the term of the Option and the
rights of R.H. Phillips hereunder. If R.H. Phillips fails to exercise the
Option or the Option terminates prior to its exercise, R.H. Phillips shall
execute, acknowledge and deliver to the Owner, no later than three
days after the termination of the Option, a quitclaim deed or other
reasonable documentation in recordable form to verify the termination
or expiration of the Option.
13. Notices. All notices under this Agreement shall be in writing and
delivered personally, by nationally recognized overnight courier service
(delivery charges paid by sender) or by first class mail, postage
prepaid, to the following addresses:
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<PAGE> 4
If to the Owner:
Hancock Agricultural Invest.
Group
99 High Street, 26th Floor
Boston, MA 02110-2320
Attention: Managing Director
With a copy to:
Farmland Management Services
138 Regis Street, Suite A
Turlock, CA 95382
Attention: President
If to R.H. Phillips:
R.H. Phillips, Inc.
26836 County Road 12A
Esparto, California 95627
Attention: Chief Financial Officer
For the purposes of this Agreement, notices will be deemed
delivered upon receipt if delivered personally, on the next business day
following deposit with an overnight courier if delivered by overnight
courier or on the third business day following deposit with the U.S.
Postal Service if sent via first class mail.
14. Miscellaneous. This Agreement shall be governed by and
construed in accordance with the laws of the State of California,
excluding that state's conflicts of laws principles. This Agreement,
together with the Sublease, the Real Estate Purchase Contract and all
attachments and exhibits hereto and thereto, constitute the entire
agreement between the parties with respect to the subject matter hereof
and supersede all prior or contemporaneous agreements, whether oral
or written, of the parties pertaining to that subject matter. This
Agreement may not be amended except in the form of a writing signed
by both parties to this Agreement. No right of either party under this
Agreement shall be waived unless that waiver is in a written document
signed by the party who has waived that right. No waiver of any right
in any specific instance will be deemed a waiver of that right in any
subsequent instance or any other right. This Agreement may be
executed in one or more counterparts, which together shall constitute
one original.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
JOHN HANCOCK MUTUAL R.H. Phillips, Inc.
LIFE INSURANCE
COMPANY
By: Hancock Natural Resource By: //s// Robert T. Moore
Group, Inc. Title: CFO
By: /S/ Jeffrey A. Conrad
Title: Vice President
-4-
<PAGE> 5
EXHIBIT A
LEGAL DESCRIPTION OF PROPERTY
A PORTION OF THE NORTH HALF OF SECTION 17 AND A PORTION OF THE N.W. 1/4 OF
SECTION 16, ALL IN T. 11 N., R. 1 WEST M.D.B. &M., YOLO COUNTY CALIFORNIA,
BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:
bEGINNING AT A 2" DIA, BOILER TUBE MONUMENT, MARKING THE NORTHWEST CORNER OF
SAID SECTION 17, AS SAID MONUMENT IS SHOWN ON THAT CERTAIN MAP FILED FOR
RECORD IN BOOK 12 OF MAPS AND SURVEY AT PAGES 99 AND 100, YOLO COUNTY
RECORDS, AND THENCE FROM SAID POINT OF BEGINNING ALONG THE NORTH LINE OF
SAID SECTION 17, S. 89 24' 14" E. 2689.90 FEET; THENCE S. 89 18'03" E.
2689.89 FEET TO THE NORTHEAST CORNER OF SAID SECTION 17, THENCE, ALONG
THE NORTH LINE OF SAID SECTION 16, S. 89 57' 23" E. 1823.02 FEET; THENCE
LEAVING SAID SECTION LINE, S. 00 58'43" EAST 2656.24 FEET TO THE SOUTH
LINE OF SAID N.W. 1/4 OF SECTION 16, SAID POINT ALSO BEING THE CENTERLINE
OF COUNTY ROAD 12-A; THENCE ALONG THE SOUTH LINE OF SAID N.W. 1/4, N.
89 59'38" W. 1823.02 FEET TO THE SOUTHWEST CORNER OF SAID N.W. 1/4
OF SECTION 16; THENCE N. 00 58'41" W. 83.70 FEET TO A POINT IN THE CENTERLINE
OF SAID COUNTY ROAD 12-A; THENCE FOLLOWING THE CENTERLINE OF SAID COUNTY
ROAD 12-A, THE FOLLOWING COURSES AND DISTANCES; N. 75 15'01" W. 1008.10 FEET;
N. 84 20'18" W. 446.03 FEET; n 81 15'21" W. 1430.41 FEET; N. 76 57'56" W.
615.55 FEET TO A TANGENT POINT; THENCE ALONG A CURVE TO THE LEFT HAVING
A CENTRAL ANGLE OF 75 08'09", A RADIUS OF 97.63 FEET, AND SUBTENDED BY
A CHORD BEARING S. 65 27'59" W. 119.06 FEET TO A POINT INTERSECTING THE
CENTERLINE OF OAT CREEK; THENCE UPSTREAM ALONG THE CENTERLINE OF SAID
OAK CREEK THE FOLLOWING CORSES AND DISTANCES: S. 81 51'25" WEST. 538.48
FEET; N. 54 14'49" W. 183.11 FEET; S. 79 54'52" W. 156.86 FEET; N. 41 59'42"
W. 153.61 FEET; N. 56 18'12" W. 278.32 FEET; N. 28 24'06" W. 146.31 FEET;
N. 65 07'25" W. 258.99 FEET; S. 63 29'42" W. 158.62 FEET; N. 70 25'01"
W. 129.03; S. 88 42'53" W. 89.69 FEET AND N 79 59'59" W. 15.99 FEET TO A
POINT ON THE WEST LINE OF SAID SECTION 17; THENCE ALONG SAID WEST LINE;
N. 01 26'41" W. 1544.43 FEET TO THE POINT OF BEGINNING AS SET FORTH
AND DESCRIBED AS PARCEL 5 IN THAT CERTAIN CERTIFICATE OF COMPLIANCE
RECORDED MAY 2, 1997 SERIES NO. 97-0010480 OFFICIAL RECORDS.
A PORTION OF THE FOLLOWING ASSESSOR'S PARCEL NOS.:
54-110-01; 54-120-02; 54-120-03
<PAGE> 6
EXHIBIT C
When Recorded Mail to:
Frederick K. Koenen,
Attorney at Law
555 Montgomery Street, Suite 1405
San Francisco, CA 94111
Reserved for
Recorder's Use
MEMORANDUM OF OPTION AGREEMENT
This Memorandum of Option Agreement is executed in
connection and concurrently with a certain Real Estate Purchase Option
Agreement, dated January 24, 1997, (the "Option Agreement") between
John Hancock Mutual Life Insurance Company (the "Owner") and R.H.
Phillips, Inc. ("R.H. Phillips") relating to certain real property located
in the County of Yolo, State of California, a legal description of which
is set forth in Exhibit A to this Memorandum (the "Property").
18. Option. The Owner hereby grants to R.H. Phillips the right to
purchase all right, title and interest in and to the Property, together with
all easements and other rights appurtenant thereto and any
improvements, fixtures or personal property installed, constructed or
situated thereon, free from any encumbrances or rights of others except
for those specifically provided for under the Option Agreement (the
"Option"). The grant of the Option is in consideration for the sale of
the Property by R.H. Phillips to the Owner or the Owner's nominee
pursuant to the terms of a Real Estate Purchase Contract, dated January
24, 1997, and an Agricultural Sublease, dated January 24, 1997,
pertaining to the Property and no additional consideration shall be
necessary to make the Option irrevocable.
19. Term of Option. R.H. Phillips may exercise the Option beginning
on January 1, 2012 and at any time thereafter until June 30, 2012, after
which date the Option will expire. If R.H. Phillips exercises the
Option, the purchase of the Property shall take place on December 31,
2012 or, if that day is a weekend day or holiday, on the next business
day thereafter.
20. Price, Manner of Exercise. The manner in which the Option may
be exercised, the purchase price for the Property and the other terms
and conditions governing the Option are set forth in the Option
Agreement.
Date: May 6, 1997 JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By: Hancock Natural Resource Group, Inc.
By: //s// Jeffrey A. Conrad
Jeffrey A. Conrad
Title: Vice President
-1-
<PAGE> 7
ACKNOWLEDGMENT
State of California )
County of Suffolk )
)
On May 6, 1997, before
me, Josephine A. Pepper, personally appeared
Jeffrey A. Conrad, personally known to me (or proved to me
on the basis of satisfactory evidence) to be the person whose name is
subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his
signature on the instrument the person, or the entity upon behalf of
which the person acted, executed the instrument.
WITNESS my hand and official seal,
Signature: //s// Josephine A. Pepper (Seal)
Josephine A. Pepper
Notary Public
My Comm. Expires Aug. 14, 2003
-2-
<PAGE> 8
EXHIBIT A
LEGAL DESCRIPTION OF PROPERTY
A PORTION OF THE NORTH HALF OF SECTION 17 AND A PORTION OF THE N.W. 1/4 OF
SECTION 16, ALL IN T. 11 N., R. 1 WEST M.D.B. &M., YOLO COUNTY CALIFORNIA,
BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:
bEGINNING AT A 2" DIA, BOILER TUBE MONUMENT, MARKING THE NORTHWEST CORNER OF
SAID SECTION 17, AS SAID MONUMENT IS SHOWN ON THAT CERTAIN MAP FILED FOR
RECORD IN BOOK 12 OF MAPS AND SURVEY AT PAGES 99 AND 100, YOLO COUNTY
RECORDS, AND THENCE FROM SAID POINT OF BEGINNING ALONG THE NORTH LINE OF
SAID SECTION 17, S. 89 24' 14" E. 2689.90 FEET; THENCE S. 89 18'03" E.
2689.89 FEET TO THE NORTHEAST CORNER OF SAID SECTION 17, THENCE, ALONG
THE NORTH LINE OF SAID SECTION 16, S. 89 57' 23" E. 1823.02 FEET; THENCE
LEAVING SAID SECTION LINE, S. 00 58'43" EAST 2656.24 FEET TO THE SOUTH
LINE OF SAID N.W. 1/4 OF SECTION 16, SAID POINT ALSO BEING THE CENTERLINE
OF COUNTY ROAD 12-A; THENCE ALONG THE SOUTH LINE OF SAID N.W. 1/4, N.
89 59'38" W. 1823.02 FEET TO THE SOUTHWEST CORNER OF SAID N.W. 1/4
OF SECTION 16; THENCE N. 00 58'41" W. 83.70 FEET TO A POINT IN THE CENTERLINE
OF SAID COUNTY ROAD 12-A; THENCE FOLLOWING THE CENTERLINE OF SAID COUNTY
ROAD 12-A, THE FOLLOWING COURSES AND DISTANCES; N. 75 15'01" W. 1008.10 FEET;
N. 84 20'18" W. 446.03 FEET; n 81 15'21" W. 1430.41 FEET; N. 76 57'56" W.
615.55 FEET TO A TANGENT POINT; THENCE ALONG A CURVE TO THE LEFT HAVING
A CENTRAL ANGLE OF 75 08'09", A RADIUS OF 97.63 FEET, AND SUBTENDED BY
A CHORD BEARING S. 65 27'59" W. 119.06 FEET TO A POINT INTERSECTING THE
CENTERLINE OF OAT CREEK; THENCE UPSTREAM ALONG THE CENTERLINE OF SAID
OAK CREEK THE FOLLOWING CORSES AND DISTANCES: S. 81 51'25" WEST. 538.48
FEET; N. 54 14'49" W. 183.11 FEET; S. 79 54'52" W. 156.86 FEET; N. 41 59'42"
W. 153.61 FEET; N. 56 18'12" W. 278.32 FEET; N. 28 24'06" W. 146.31 FEET;
N. 65 07'25" W. 258.99 FEET; S. 63 29'42" W. 158.62 FEET; N. 70 25'01"
W. 129.03; S. 88 42'53" W. 89.69 FEET AND N 79 59'59" W. 15.99 FEET TO A
POINT ON THE WEST LINE OF SAID SECTION 17; THENCE ALONG SAID WEST LINE;
N. 01 26'41" W. 1544.43 FEET TO THE POINT OF BEGINNING AS SET FORTH
AND DESCRIBED AS PARCEL 5 IN THAT CERTAIN CERTIFICATE OF COMPLIANCE
RECORDED MAY 2, 1997 SERIES NO. 97-0010480 OFFICIAL RECORDS.
A PORTION OF THE FOLLOWING ASSESSOR'S PARCEL NOS.:
54-110-01; 54-120-02; 54-120-03
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<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE MARCH 31, 1997 BALANCE SHEET, STATEMENT OF OPERATIONS
AND STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Mar-31-1997
<CASH> 218536
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<RECEIVABLES> 1994216
<ALLOWANCES> 36357
<INVENTORY> 7799040
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<DEPRECIATION> 5128542
<TOTAL-ASSETS> 39810280
<CURRENT-LIABILITIES> 4174572
<BONDS> 17092183
<COMMON> 12331225
4495146
0
<OTHER-SE> 1717154
<TOTAL-LIABILITY-AND-EQUITY> 39810280
<SALES> 3485618
<TOTAL-REVENUES> 3485618
<CGS> 2111649
<TOTAL-COSTS> 2111649
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 223578
<INCOME-PRETAX> 240009
<INCOME-TAX> 86400
<INCOME-CONTINUING> 153609
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