<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 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.
(Name of small business issuer in its charter)
California
(State or other jurisdiction of
incorporation or organization)
68-0313739
(I.R.S. Employer
Identification No.)
26836 County Road 12A, Esparto, California
(Address of principal executive offices)
95627
(Zip Code)
Issuer's telephone number: (530) 662-3215
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
No Par Common Stock
______________________________________________________________
(Title of Class)
Warrants to Purchase Common Stock,
Expiring October 1, 1998
______________________________________________________________
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $17,258,287
Aggregate market value of the voting stock held by non-affiliates based
on the closing price at which the stock was sold on the Nasdaq
National Market as of March 2, 1998 was approximately $13,739,547.
Number of shares outstanding of each of the issuer's classes of common
equity as of March 13, 1998: 6,433,182
Documents incorporated by reference: Annual Proxy Statement for
Security Holders for fiscal year ended December 31, 1997
Transitional Small Business Disclosure Format: Yes No X
<PAGE>
<PAGE> 2
PART I
Item 1. Description of Business
General
R.H. Phillips, Inc. ("R.H. Phillips" or "the Company")
makes and sells premium and super premium varietal table wines.
The Company's vineyard, winery and corporate headquarters are
located in the Dunnigan Hills region of California, approximately 30
miles northeast of the Napa Valley wine region. The Company's
wines are sold throughout the United States and in several other
countries. John and Karl Giguiere, the Co-Chief Executive Officers
of the Company, founded R.H. Phillips in the early 1980s. Sales of
R.H. Phillips' wines have increased from 4,500 cases in 1984 to
371,000 cases in 1997.
For purposes of the following discussion, a "case" means a
nine liter case of wine. All numbers are approximate.
Business of Issuer
Strategy
R.H. Phillips is a leading California wine producer. The
Company specializes in the production of Chardonnay as well as
Syrah and Viognier, which are Rhone Valley varietals. The
Company owns or leases more than 1,500 acres of grapes in the
Dunnigan Hills viticultural region. The Company's strategy is to
combine high quality wine-making technology with low fruit costs
from its vineyards in order to increase gross margins and production
of its super premium wines. The Company's Syrah plantings make
it one of the leading producers of Rhone Valley varietals in the
United States.
Products
The Company produces and sells wines in the category
known as "table wines." Table wines contain 7% to 14% alcohol by
volume, and are generally consumed with foods. Table wines that
retail for less than $3 per 750 ml (milliliter) bottle are generally
referred to as generic or "jug" wines. Table wines which retail in
the $3 to $7 range are referred to as "premium" or "popular
premium" wines. Wines which retail between $7 and $14 per bottle
are considered "super premium" wines and those which retail above
$14 per bottle are considered "ultra premium" wines.
The Company has developed a diverse line of products
including popular premium and super premium varietal table wines.
The Company markets its products under five brand groups, each of
which is defined by a type of wine and price structure.
EXP . The EXP Series consists of a Syrah and an estate
bottled Viognier, which are varietals traditionally grown in France's
southern Rhone Valley. Rhone Valley varietals adapt well to the
warm Dunnigan Hills climate. EXP Syrah is fermented using
several yeast strains to encourage a broad range of flavor
development. Warm fermentation temperatures are employed to aid
in the development of soft tannins and intense color. EXP Viognier
is estate bottled. After pressing and cold settling, Viognier juice is
fermented at cool temperatures, creating slow fermentation in
barrels and tanks. The wine is left in contact with fermentation lees
to encourage yeasty, toasty characteristics. The EXP wines, which
are produced in 750 ml bottles and have a suggested retail price of
$12, are "super premium" wines that have gained recognition for
quality.
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Toasted Head . The Company introduced its Toasted
Head Series during 1997. Toasting is a method used by coopers to
alter and influence the impact of wood barrel aging on the quality of
wine. Woody aromas are subdued by toasting, while spicy, sweet,
burnt and vanilla aromas are increased by the process. For Toasted
Head wines, the barrel staves and heads are moderately toasted.
This series includes a 100% estate bottled Chardonnay which is
fermented in French and American oak barrels and is allowed to age
sur lie to develop richness. Part of the wine goes through malolactic
fermentation to soften its texture. Toasted Head Chardonnay is aged
up to ten months in oak. The series also includes a Cabernet
Sauvignon/Syrah blend, which is aged approximately eighteen
months in French and American oak barrels. The wines are kept in
small individual lots until the final blend is assembled. The Toasted
Head Series is packaged in a 750 ml bottle and has a suggested retail
price of $12.
Barrel Cuvee. Chardonnay and Cabernet Sauvignon
products comprise the Barrel Cuvee Series. The Company is a
recognized quality leader for Chardonnay and Cabernet Sauvignon
priced under $10 per bottle and has received significant positive
recognition from well-known wine critics. Approximately 60% of
Barrel Cuvee Chardonnay is either fermented or aged in a
combination of French and American oak barrels. The wine is left
in contact with fermentation lees in order to encourage yeasty, toasty
characteristics. These processes give the wines a competitive
quality edge within their price structure. Wines in the Barrel Cuvee
Series are bottled in 750 ml and 1.5 liter bottles. The 750 ml bottle
has a suggested retail price of $8 per bottle.
Night Harvest . The Night Harvest Series consists of three
products: Sauvignon Blanc, Mistura and White Zinfandel.
Sauvignon Blanc is fermented and aged in stainless steel tanks to
preserve maximum fruit flavors. Mistura is a blend produced from
several Rhone Valley varietals from the Dunnigan Hills as well as
select areas of California. The Company's White Zinfandel uses
cold fermentation to preserve the fruity fermentation esters. The
wine is blended with Chenin Blanc and Muscat in an effort to
showcase its fruit flavors. Night Harvest wines are bottled in 500 ml,
750 ml and 1.5 liter bottles. Suggested retail prices for blends in
this group, depending on bottle size, range from $6 to $10 per bottle.
Chateau St. Nicholas . The Chateau St. Nicholas Series
is sold only during the holiday season, and consists of Chardonnay
and White Zinfandel. The wines are sold in a 750 ml bottle or in a
gift pack containing two 500 ml bottles. Chateau St. Nicholas has
a suggested retail price of $6 to $7 for the 750 ml bottles, and $12
for the gift pack.
Zinfandel. The Company plans to introduce its Zinfandel
Series during 1998. This series will consist of Zinfandel wines
produced from different California vineyards. Management intends
to package the wines in a 750 ml bottle with a suggested retail price
of $12 to $14, depending on the vineyard. Management believes
this wine will be of a quality comparable to the EXP and Toasted
Head series.
Sales By Product
Chardonnay, which historically has been the Company's
largest selling varietal, accounted for 47% of sales in 1997.
Sauvignon Blanc was the next largest varietal, with 18% of sales.
Sales by product line have been dominated by the Barrel Cuvee
Series, which generated 55% of 1997 sales. The Night Harvest
Series accounted for 30% of 1997 sales. The Company plans to
emphasize sales of its higher priced EXP, Toasted Head, and
Zinfandel products in the future.
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Distribution
The Company's sales strategy has focused on the creation,
retention and expansion of a large, nationwide distributor network
supported by sales personnel and commissioned brokers. The
Company's brands are distributed nationwide by a network of 90
unrelated distributors who purchase from the Company at wholesale
prices. The Company employs a National Sales Manager and five
sales representatives who work with certain distributors to sell the
Company's products. In addition, the Company uses independent
wine brokers. The brokers, who are paid a commission based on
sales revenue, accounted for 63% of sales during 1997. Each sales
representative and broker is responsible for managing the wholesale
network established in his or her region by facilitating
communication, dealing with special promotions, and monitoring
sales performance.
The Company's largest customers in 1997 were Lauber
Imports, Ltd., Wine Warehouse, and M.S. Walker. Lauber Imports,
which distributes wines in the northeastern United States, accounted
for 12% of sales in 1997. Wine Warehouse distributes wine in
California, and accounted for 11% of sales. M.S. Walker, also
located in the northeast, accounted for 7% of sales. In December
1997, the Company moved its California distribution from Wine
Warehouse to Young's Market Company. Management believes
that the move to Young's Market Company will have the long term
benefit of improving product distribution in California.
The Company's wines are sold throughout the United States
and in several other countries. The northeastern United States,
which is the Company's largest region, accounted for 34% of sales
in 1997. The northern Midwest was the second largest region with
11% of sales. The Company exported 1% of its sales, primarily to
Canada.
The Company's standard sales terms provide that payments
are due 30 to 60 days after shipment at prices set forth on the
Company's price lists. The Company does not have contracts with
any of its distributors which obligate them to purchase any specified
amount of wine over any defined period. It is therefore possible for
a distributor, including one of the Company's major distributors, to
cease purchases of the Company's wines at any time.
Sales and Marketing
The Company's sales and marketing activities take various
forms. Advertising and sales promotional activities are used to
promote products in either a "push" or "pull" manner. "Push"
programs include promotional allowance rebates or discounts and
product samples. "Pull" programs include media advertising, point
of sale materials, a tasting room, and various promotional events.
Management believes that "push" programs are the more cost
effective method to generate new sales. Although pull programs are
more costly to implement, management believes that they may
provide a greater return over the long run by building brand
recognition.
Suppliers
The Company purchases raw materials from outside parties
to conduct its business. Raw materials include items such as
grapevines, trellis materials, grapes, bulk wines, and packaging
materials. Management believes that it has strong relationships with
all of its major suppliers, is not dependent on any single supplier,
and would be able to find substitute suppliers if necessary.
<PAGE> 5
Because the Company's product sales exceed its current
grape production, it has been necessary to purchase bulk wine and
grapes from outside suppliers. In 1997, 71% of the Company's wine
sales came from bulk grapes and wine purchased on the open
market or through supply contracts. The supply and price of
available grapes have historically been subject to considerable
fluctuations. The Company has expanded its vineyards to lessen its
dependence on outside sources of bulk wine and grapes, and
anticipates that the full benefit of the vineyard expansion will be
realized over the next several years as the vines mature.
Research and Development
The Company conducts research in several areas in an effort
to improve vineyard yield, wine quality and processing efficiency.
Vineyard research includes testing irrigation levels, soil
amendments, cover crops, and trellising, clonal and rootstock
valuations as well as canopy management techniques. Winemaking
research is carried out on a year round bases, and has included
experiments with yeast strains, enzymes, fermentation techniques,
fruit maturities, and extensive barrel evaluation trials.
The Company actively exchanges viticultural and
winemaking information with other firms in the industry and
maintains a close working relationship with the faculty of the
Department of Enology and Viticulture at the University of
California at Davis. Staff members of R.H. Phillips have visited
several wineries in Europe and Australia, and personnel from
French, Australian and South African wineries and vineyards have
toured its facilities. These visits have resulted in a valuable
exchange of technical information.
Competition
The California table wine industry in 1997 had
approximately $4.9 billion in sales according to the December 1997
edition of WINEDATA published by Gomberg, Fredrikson and
Associates. There are approximately 850 commercial wineries
currently in California, which are concentrated in the major
viticultural regions of the state. The three largest wineries, known
as "the Big Three," are E. & J. Gallo, Canandaigua West, and The
Wine Group. The shipment volume of the Big Three in 1996
accounted for approximately 60% of total wine sales from
California producers. The Company is the 24th largest shipper of
wines in California, according to the 1997 edition of WINEDATA.
The California wine industry is extremely competitive.
Many new wineries have been established in the last few years
which compete to some extent with the Company. Management
believes that competition in the wine industry will likely increase,
which could potentially reduce future profits. Plantings of vineyards
have increased over the last several years. As a result, there may be
certain grape varietals that will be in oversupply in the future as the
vineyards begin to produce crops. Such an oversupply may result in
increased pressure on wine prices.
Trademarks
The Company has adopted a program to establish and
protect its trademarks and trade names. The Company has obtained
federal registrations for its EXP, Toasted Head, Night Harvest,
Mistura and Chateau St. Nicholas trademarks from the U.S. Patent
& Trademark Office.
<PAGE> 6
Employees
R.H. Phillips employs 160 people full-time. In addition, the
Company employs temporary labor for vineyard development,
pruning and harvest, and winery crush and bottling. None of the
Company's employees are covered by a collective bargaining
agreement and the Company is unaware of any labor disputes with
its employees.
Agricultural Hazards
Grape growing for wine production is heavily dependent
upon favorable weather conditions. Drought or excessive rain can
adversely affect production. Excessive heat or cold, especially near
the time for harvest, can adversely affect grape quality and,
consequently, the quality of wine. Weather has had a large impact
on the California wine industry in recent years, causing fluctuations
in crop yields.
Phylloxera, Other Diseases
Over the past several years many California vineyards have
been severely damaged by Phylloxera, an aphid-sized root louse.
The pest lives and propagates in the soil and feeds on the roots of
vines. Phylloxera is not harmful to humans, but it can affect grape
quality and causes a progressive decline in grape production.
Chemical insecticides can slow the progress of vine deterioration,
but once a vine is infested it is not possible to eradicate Phylloxera.
Phylloxera has impacted several grape growing regions, including
Napa, Sonoma, Monterey, Mendocino and Lake counties.
Due to the Company's warmer climate and careful farming
practices, the Phylloxera infestation in its vineyards was somewhat
delayed. However, of the 1,549 acres of vineyards currently owned
or leased by the Company, 187 acres have rootstock known to be
susceptible to Phylloxera. Based on tests performed by the
Company, management believes that portions of these 187 acres
show physical symptoms of decline. The Company is using a
variety of methods to combat Phylloxera infestation. Vines which
are not severely damaged or are not yet infested are grafted onto
resistant rootstock, or new vines on resistant rootstock are planted
between the Phylloxera infested vines, which are then allowed to
deteriorate. The Company replaced the more severely damaged
vines and the Phylloxera susceptible vines bearing grape varieties
which the Company has de-emphasized. All replacement vines have
rootstock which is believed in the industry to be resistant to
Phylloxera.
In addition to Phylloxera, grape vines are subject to a variety
of other damaging diseases which have afflicted California
vineyards. Management is unaware of any diseases in the
Company's vineyards other than normal grape growing conditions
such as mildew and insect infestation. The Company is treating
these with chemical treatments and the use of organic methods,
such as natural insect enemies of the pests.
Water Supply
The Company has several wells on its property which have
historically supplied sufficient quantities of water for irrigation.
However, there can be no assurance that the wells will provide
sufficient water during a severe drought. Future expansion of
vineyards in the Dunnigan Hills region may be limited by the
availability of water.
<PAGE> 7
Regulation
The U.S. wine industry is subject to substantial federal, state
and local regulation. The Bureau of Alcohol, Tobacco and Firearms
("BATF") is the federal agency primarily responsible for regulating
the production and sale of wine. The BATF has promulgated
numerous wine industry-related regulations. These regulations
include the licensing of wine producers, limitations on chemical
additives in wines, advertising standards, labeling requirements and
numerous other aspects of wine production and sales. The BATF
also collects federal excise taxes on wine. The amount of federal
excise tax is based on the total volume of wine shipped and the
alcohol content of that wine. The tax on wine with an alcohol
content less than 14% is lower than the tax assessed on wine with a
higher alcohol content. The current federal excise tax on wines
produced by the Company, all of which contain less than 14%
alcohol, is $1.07 per gallon.
State governments also regulate the production, shipment
and marketing of wine. The wine regulatory agency in California is
the Department of Alcoholic Beverage Control. The California state
excise tax is $0.20 per gallon of wine sold into California. Missouri
and Wisconsin also collect excise taxes based on the volume of sales
into those states. Although the laws and regulatory requirements of
the states differ, most states require that wineries be licensed by the
appropriate state authorities before they are allowed to ship wine
into the state. The Company has obtained licenses from those other
states in which it believes it is necessary to be licensed. Most states
also require prior state approval of wine labels and set other
standards for the manufacture and sale of wine. Wineries are
subject to periodic inspections and audits by the BATF and state
alcohol regulatory authorities.
In addition to alcohol-related governmental regulations,
grape growers, wine producers and wine shippers are subject to a
broad range of other regulatory requirements, such as local zoning
regulations. Other regulations govern the use, storage and
disposition of pesticides, fuels and lubricants and other chemicals.
The Company believes it is in substantial compliance with all
material applicable laws and regulations relating to its business.
Management is unaware of any environmental problems on or near
the vineyard or winery that would have a material adverse effect on
the financial condition of the Company.
Seasonality
The Company usually experiences substantial seasonal
fluctuations in revenue 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. In 1997,
32% of total sales occurred during this period. 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 to fund
vineyard and winery expansions.
Working Capital
The Company typically keeps large amounts of inventories
on hand. Inventories include unfinished products such as the current
grape crop, bulk wine stored in tanks and barrels, and packaging
supplies, as well as finished wines. The Company generally keeps
sufficient finished product on hand to allow rapid turnaround of
wine orders. Management believes that large inventories are
standard in the wine industry for these reasons.
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Year 2000
The Company uses several computer programs, some of
which may be affected by programming limitations due to the
upcoming year 2000. Management is in the process of reviewing
the Company's computer systems to determine whether any
software requires updating or replacement. The programmer of the
Company's primary software has advised management that the cost
to reprogram its software will be borne by the programmer.
Management believes that the cost to the Company of Year 2000
expenditures will be zero, and therefore does not expect Year 2000
expenditures to have a material effect on results of operations,
liquidity, or capital resources.
Item 2. Description of Property
The Company owns or leases 2,696 acres of land in
California's Dunnigan Hills region, located in northern Yolo County.
A total of 1,549 acres are currently planted in vineyards, of which
767 are mature and produce a crop. The 435 acres which were
planted in 1996 are scheduled to produce their first crop in 1998,
and the 347 acres planted in 1997 will mature in 1999.
The Company's winery facility and administrative
headquarters are located on the Company's land. The winery facility
includes bottling, barrel storage and warehouse buildings, wine
storage and fermentation tanks, and grape processing equipment.
Storage capacity in the Company's warehouse is 110,000 cases of
wine, which is fully utilized. The Company owns or leases 7,400
oak barrels capable of holding 438,000 gallons. The Company's
wine tank capacity is 1,544,000 gallons, for a total capacity of
1,982,000 gallons. The maximum bulk wine on hand at one time
during 1997 was 1,530,000 gallons. The Company plans to increase
its tank capacity, purchase additional barrels, and lease offsite
warehouse space during 1998 to accommodate planned growth.
In May 1997, the Company sold 371 acres of land being
developed into vineyard to John Hancock Mutual Life Insurance
Company ("Hancock"). In connection with that transaction, the
Company now manages, operates and leases the land and vineyards
from a subtenant of Hancock, Farmland Management Services, for
a term that expires on December 31, 2012. The lease requires the
Company to pay rent of $161,000 per calendar quarter beginning in
1999 and complete the vineyards that are still under development.
The Company has granted to Metropolitan Life Insurance
Company ("Metropolitan") a deed of trust on certain real property
and a security interest in certain equipment and other assets as
security for a long term loan the Company received from
Metropolitan. The Company maintains insurance policies with
respect to its principal properties which, in management's opinion,
are adequate in view of the value of the property and the nature of
its business.
Item 3. Legal Proceedings
The Company is not the subject of any material litigation.
Item 4. Submission of Matters to a Vote of Security Holders
None
<PAGE> 9
PART II
Item 5. Market for Common Equity and Related Stockholder
Matters.
The Company's Common Stock and warrants to purchase
Common Stock are listed on the Nasdaq National Market. As of
March 13, 1998, there were 318 holders of record of the Company's
Common Stock.
The high and low bid prices for the Common Stock by
quarter for the past two years are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1996
<S> <C> <C>
First Quarter........................ $6.75 $3.00
Second Quarter....................... $6.75 $4.88
Third Quarter........................ $6.50 $3.75
Fourth Quarter....................... $4.12 $2.75
Year Ended December 31, 1997
First Quarter........................ $4.13 $2.75
Second Quarter....................... $4.38 $3.06
Third Quarter........................ $4.44 $3.44
Fourth Quarter....................... $4.25 $3.00
</TABLE>
The information concerning the high and low bid prices is
based on reports the Company received from the Nasdaq National
Market.
The Company has not paid dividends on its Common Stock
to date. Management intends to reinvest earnings in the
development of its business and does not anticipate paying Common
Stock dividends for the foreseeable future. The Board of Directors
may reevaluate its policies with respect to the payment of Common
Stock dividends in the future.
Payment of dividends on the Common Stock is subject to
certain limitations under the Company's loan agreements with
Metropolitan and U.S. Bank of California ("U.S. Bank"). In
addition, the Senior Preferred Stock of the Company provides that
semi-annual dividends payable on those shares must be paid in full
or set aside for payment before any dividends are paid on the
Common Stock.
Item 6. 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 R.H. Phillips, Inc. The discussion of the results and trends does
not necessarily imply that these results and trends will continue. For
the following discussion, a "case" means a 9-liter case of wine. All
numbers are approximate.
<PAGE> 10
Forward-Looking Statements
The Company provides in this report and elsewhere from
time to time forward-looking statements regarding the Company,
its products, the wine business, and general business and
economic conditions. Examples of forward-looking statements
include projections regarding future expansion, trends in the wine
industry, sources of supply, costs of production, profit margins,
and availability and sources of financing. The actual results of
the Company may vary due to a variety of factors, including the
following:
Availability of Future Financing. The Company may
continue to heavily depend upon its ability to raise additional debt
or equity financing for its working capital and capital expansion
needs. 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 financing sources, and general economic
conditions. If interest rates increase or other financing becomes
unavailable or more costly to obtain, the Company may not be
able to raise sufficient capital to supply its needs.
Costs of Expansion. Management has based its
assumptions concerning the costs of expansion on assumptions
which it believes are reasonable. However, there can be no
assurance that the Company's estimates will prove to be correct.
If costs are higher than anticipated, the Company may be required
to raise an even greater amount of financing or reduce the rate of
facility expansion.
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. Management believes that such events could increase the
Company's costs of production.
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 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.
Other Factors. A variety of other factors could affect the
actual results of the Company. These include changes in economic
conditions, unexpected adverse weather or growing conditions,
reduction or increases in consumer demand, changes in
governmental regulation concerning the production and sale of
wine, and increased competition from foreign or domestic wine
producers.
Seasonality
The Company usually experiences substantial seasonal
fluctuations in revenue 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. In 1997,
32% of total sales occurred during this period. The Company's
expenditures fluctuate throughout the year based on vineyard and
winery activities.
<PAGE> 11
Expenditures typically peak during the summer and early autumn,
due to harvest and crush activities and expenditures to fund vineyard
and winery expansions.
Costs of Production
The Company experienced an increase in its cost of goods
during 1997 due to adverse weather conditions during the 1996
growing season, which caused below average crop yields in 1996.
Many other California vineyards suffered similar or greater
reductions of their grape crops. The reduction in the Company's
grape supply compelled the Company to increase its grape and
bulk wine purchases to meet consumer demand for the
Company's wines. At the same time, the market price of bulk
wines and grapes had increased substantially due to below
average California grape harvests in 1995 and 1996.
The Company realized above average yields from its
1997 crop. The Company's vineyards produced 5,100 tons of
grapes in 1997, compared with 2,400 tons in 1996. The increase
was primarily due to above average yields per acre due to
favorable growing conditions, and production from new
vineyards. The increased 1997 grape tonnage reduced the cost
per gallon of wine produced from Company vineyards.
Consequently, management believes that the Company's cost of
goods will likely decline in 1998, and that the Company will have
more wine available for sale. The Company has expanded the
size of its vineyards to lessen its dependence on outside sources
of bulk wines and grapes and further reduce its cost of goods.
The Company anticipates that the full benefit of the vineyard
expansion should continue to be realized over the next several
years as the vines mature.
Results of Operations
Year Ended December 31, 1996
Net Sales
Net sales for the year ended December 31, 1996 were
$16,928,000, an increase of 9% over net sales in the prior year.
Excluding the sales of bulk wines and other items, net sales were
$15,820,000 in 1996, an increase of 9% over 1995. The average
selling price per case was $39.33 in 1996. The increase in the
average selling price resulted primarily from price increases on the
Company's Chardonnay and Cabernet Sauvignon. The Company
sold 402,000 cases in 1996, substantially the same as 1995.
Gross Profit
Gross profit was $6,792,000 in 1996, an 18% increase over
the previous year. Excluding the sales of bulk wines and other
items, gross profit was $6,554,000 in 1996, a 21% increase over
1995. The higher gross profit in 1996 was primarily due to the price
increases discussed above.
<PAGE> 12
Selling Expenses
Selling expenses decreased $131,000 in 1996 as compared
to the previous year. The decrease was primarily due to lower sales
program expenses.
General and Administrative Expenses
General and administrative expenses increased $179,000 in
1996 as compared to the prior year. The increase was primarily due
to an accounts receivable write off and reclass of certain salary
expense.
Interest Expense
Interest expense for the year ended December 31, 1996 was
$862,000, a 16% decrease from the prior year. The Company
capitalized $599,000 of additional interest pertaining to vineyard
and winery development in 1996. The increase in interest during
1996 was primarily due to increased levels of borrowing by the
Company to finance vineyard and winery expansion in 1996. The
interest is attributable to the Company's borrowings on its bank
lines of credit and other debt obligations.
Other Income (Expense)
Other expense for the year ended December 31, 1996 was
$152,000, compared to other income of $29,000 for the prior year.
The large expense in 1996 was primarily due to a provision for
impairment of vineyards believed to be susceptible to Phylloxera.
An accelerated depreciation schedule had been based on
management's original plan to remove and replace 30 acres per
year. However, 148 acres were removed during 1995 and 1996.
The provision for impairment was recorded to reduce the book value
of the remaining vineyards to their estimated economic value as of
December 31, 1996.
Net Income
The Company recorded net income of $1,293,000 for the
year ended December 31, 1996, a 72% increase over the previous
year. The increase was primarily due to higher sales prices and
lower product costs, which resulted in higher profit margins.
Year Ended December 31, 1997
Net Sales
Net sales in 1997 were $17,258,000, an increase of 2%
over net sales of $16,928,000 during 1996. Excluding the sales
of bulk wines and other items, net sales were $16,245,000 in
1997, an increase of 3% over sales of $15,820,000 in 1996. The
average selling price per case increased from $39.33 in 1996 to
$43.73 in 1997. The Company sold 371,000 cases in 1997, a
decrease of 8% from 402,000 cases in 1996. The decrease was
primarily due to adverse weather conditions during the 1996
growing season which reduced the availability of wine to sell in
1997.
Gross profit
Gross profit was $7,204,000 in 1997, a 6% increase over
$6,792,000 in 1996. Excluding the sales of bulk wines and other
items, gross profit was $6,999,000 in 1997, compared to
$6,554,000
<PAGE> 13
in 1996. Gross margins were 42% in 1997, compared to 40% in
1996. The cost per case increased during 1997, primarily due to
higher prices of bulk wines and grapes purchased from outside
parties and the below average harvest experienced by the
Company in 1996. The Company implemented price increases
during 1997 to compensate for higher prices of bulk wine and
grapes. As a result, gross margins increased in 1997 despite
higher costs.
Selling Expenses
Selling expenses were $3,359,000, or 19% of sales, in
1997, an increase from $3,054,000, or 18% of sales, in 1996. The
$305,000 increase is primarily due to increased labor costs.
General and Administrative Expenses
General and administrative expenses were $918,000, or
5% of sales, in 1997, an increase from $800,000, or 5% of sales,
in 1996. The $118,000 increase is primarily due to increased
labor costs.
Interest Expense
Interest expense in 1997 was $908,000, compared to
$862,000 in 1996. The Company capitalized $624,000 of
additional interest pertaining to vineyard and winery development
during 1997, and $599,000 during 1996. The increase in total
interest in 1997 is primarily due to borrowings to fund winery and
vineyard expansions. The interest is attributable to the
Company's borrowings on its bank lines of credit and other debt
obligations.
Other Income (Expense)
Other income was $105,000 in 1997, compared to other
expense of $152,000 in 1996. The expense in 1996 was primarily
due to an adjustment to accelerated depreciation of phylloxerated
vineyards. The income in 1997 was primarily from vineyard
management fees.
Net Income
The Company generated net income of $1,334,000 in
1997, compared to $1,293,000 in 1996. The $41,000 increase
was primarily due to higher gross profit, which was partially
offset by increases in selling, general, and administrative
expenses.
Liquidity and Capital Resources
The Company has financed its working capital and capital
expansion needs through internally generated funds, outside credit
facilities, equity financing, and the sale and leaseback of certain
assets. The Company has made substantial capital expenditures
to expand its vineyards and winery facilities to obtain production
efficiencies through vertical integration and increased product
sales. The Company's cash flows from operations 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 has depended upon debt, equity, and
lease financing for its working capital and capital expansion
needs.
<PAGE> 14
The Company had cash totaling $109,000 on December
31, 1997, a decrease from $309,000 on December 31, 1996.
Sources of cash during 1997 included cash from operations of
$685,000, proceeds from notes payable of $5,170,000, proceeds
from long-term debt of $21,052,000, and proceeds from the sale
of property and vineyards of $5,419,000. Cash used during 1997
included $6,910,000 invested in plant and equipment, $5,613,000
used to repay notes payable, and $18,985,000 used to repay long-
term debt.
Current assets increased by $1,677,000 during 1997,
primarily due to an increase in inventories from $7,808,000 on
December 31, 1996 to $9,928,000 on December 31, 1997. The
increase is primarily due to larger volumes of bulk wine. Current
liabilities decreased by $1,306,000 during 1997, primarily due to
a decrease in accounts payable from $2,178,000 on December 31,
1996 to $818,000 on December 31, 1997. The decrease was
primarily due to the timing of accounts payable payments at year
end. These factors caused net working capital to increase
$2,983,000, from $7,016,000 on December 31, 1996 to
$9,999,000 on December 31, 1997.
The Company has several long-term loans, the largest of
which was obtained from Metropolitan Life Insurance Company
("Metropolitan"). The Company borrowed $7,500,000 from
Metropolitan in January 1995. In December 1997, the Company
refinanced that loan at a lower interest rate and borrowed
additional funds from Metropolitan, making the total principal
amount of the loan $11,000,000. The unpaid principal under the
loan accrues interest at an annual rate of 7.79%. The Company
is required to make monthly principal payments of $60,000 plus
accrued interest. The loan matures in January 2013, at which
time the Company will be required to make a balloon payment of
$200,000.
The Company has a line of credit of $6,000,000 with U.S.
Bank of California ("U.S. Bank") to finance its working capital
requirements. The line of credit is secured by accounts receivable
and inventory, and matures in April 1999. The annual interest
rate on the line is either U.S. Bank's prime rate or IBOR plus 200
basis points, at the Company's option. The balance on the line at
December 31, 1997 was $3,233,000.
In May 1997, the Company sold 371 acres of land being
developed into vineyard to John Hancock Mutual Life Insurance
Company ("Hancock"). In connection with that transaction, the
Company now manages, operates and leases the land and
vineyards from a subtenant of Hancock, Farmland Management
Services, for a term that expires on December 31, 2012. The
Company received proceeds from the sale of $4,209,000 in May
1997 and $1,175,000 in June 1997. The lease provides that the
Company will pay rent of $161,000 per calendar quarter
beginning in 1999. The lease is accounted for as an operating
lease.
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 $4,785,000.
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
<PAGE> 15
$4.00 per share. The Company is 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 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.
The Company expanded its winery in 1997 by enlarging
its case goods warehouse, increasing stainless steel tank storage
and fermentation capacity, and purchasing support equipment.
The winery expansion cost $2,381,000. During 1998 the
Company plans to add a tasting room at an estimated cost of
$600,000, and to invest an estimated $3,200,000 in tanks, barrels,
presses and other equipment. Additional winery expansion
projects are anticipated for the future to handle the increased
production from the Company's recently planted vineyards. The
Company planted 347 acres of new vineyard in 1997, which
included 115 acres of vineyard sold to and leased back from
Hancock. The 1997 vineyard expansion, including acres
previously planted but not yet fully productive and excluding
acreage sold to Hancock, cost $2,974,000. The Company plans
to invest an estimated $1,800,000 to continue the development of
recently planted vineyards during 1998. The Company financed
1997 capital projects primarily with the proceeds from the
Hancock sale. The Company plans to fund 1998 capital projects
with internally generated funds and additional debt.
Phylloxera infestation may have a negative impact on the
Company's future grape production. Phylloxera is a root louse
which feeds on grape roots, causing reduced production and
eventual vine death. Of the Company's 1,549 acres of vineyard,
187 acres have root stock which is susceptible to Phylloxera.
Management estimates these vineyards will be commercially
productive for ten years (until 2004), as compared with twenty-
five years generally estimated for vineyards without Phylloxera.
The reduction in vineyard useful life causes an increase in
depreciation and maintenance expense. The increased expenses
are added to the cost of grapes harvested, thus increasing cost of
sales. The Company is in the process of replacing the majority of
Phylloxera-infested or susceptible vines with rootstock believed
to be resistant to Phylloxera.
Item 7. Financial Statements
The audited financial statements of the Company are set
forth in this report beginning at page F-1.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
<PAGE> 16
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act
Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act is
presented in the Company's Annual Proxy for Security Holders for
fiscal year ended December 31, 1997, and is incorporated by
reference herein.
Item 10. Executive Compensation
Executive Compensation is presented in the Company's
Annual Proxy for Security Holders for fiscal year ended December
31, 1997, and is incorporated by reference herein.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
Security Ownership of Certain Beneficial Owners and
Management is presented in the Company's Annual Proxy for
Security Holders for fiscal year ended December 31, 1997, and is
incorporated by reference herein.
Item 12. Certain Relationships and Related Transactions
Certain Relationships and Related Transactions is presented
in the Company's Annual Proxy for Security Holders for fiscal year
ended December 31, 1997, and is incorporated by reference herein.
Item 13. Exhibits and Reports on Form 8-K
(a) Audited Financial Statements of the Company are
attached to this annual report beginning on page F-1. Other exhibits
attached to this annual report are as follow:
<TABLE>
<CAPTION>
(a) Exhibits
Exhibit
No.
Description
<S> <C>
3.1 (A) Articles of Incorporation
3.2 (B) Bylaws
4.1 (B) Form of Common Stock Certificate
4.2 (B) Form of Publicly Traded Warrant
10.1 Loan Agreement between the Company and
Metropolitan Life Insurance Company and
Related Agreements, dated December 22, 1997
10.2 (F) Loan Agreement between the Company and U.S. Bank and Related
Agreements, dated April 1, 1997.
10.3 (A) Loan Agreement between the Company and Heller Financial
and Related Documents, dated October 20, 1995
<PAGE> 17
10.4 (B) Promissory Note, dated December 31, 1993, by RHP
Vineyards, Inc., payable to R.H. Phillips Partners
10.5 (C) R.H. Phillips, Inc. 1995 Stock Option Plan and
Forms of Incentive Stock Option and
Nonstatutory Stock Option Agreements
10.6 (B) Securities Purchase Agreement between the
Company and John Hancock Mutual Life
Insurance Company, dated March 27, 1996
10.7 (B) Form of Common Stock Purchase Warrant issued
to John Hancock Mutual Life Insurance
Company, dated March 27, 1996
10.8 (G) Common Stock Purchase Warrant, dated July 30,
1996, issued to Van Kasper & Company
10.9 (D) Underwriting Agreement, dated July 30, 1996,
between the Company and Van Kasper & Company
10.10 (B) Common Stock Purchase Warrant issued to
Capitol Bay Securities, dated March 31, 1995.
10.11 (E) Description of Compensation Arrangements with
Victor Motto, director of the Company
10.12 (G) Loan agreement between the Company and U.S.
Bancorp and Related Agreements, dated
December 31, 1996
10.13 (H) Real Estate Purchase Contract, Agricultural
Sublease and Related Agreements between the
Company and Farmland Management Services,
dated January 24, 1997
10.14 (H) Amendment to the Real Estate Purchase
Contract, Agricultural Sublease and Related
Agreements between the Company and Farmland
Management Services, dated January 24, 1997
10.15 Employment Agreement between the Company
and John Giguiere, dated March 3, 1998
10.16 Employment Agreement between the Company
and Karl Giguiere, dated March 3, 1998
23.1 Consent of KPMG Peat Marwick LLP, Certified
Public Accountants
27.1 Financial Data Schedule
</TABLE>
(A) Filed as an exhibit to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1995 and
incorporated by reference herein.
(B) Filed as an exhibit to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1994 and
incorporated by reference herein.
<PAGE> 18
(C) Filed as an exhibit to the Company's Quarterly Report on
Form 10-QSB for the nine month period ended September 30,
1995 and incorporated by reference herein.
(D) Filed as an exhibit to the Company's Registration Statement
on Form SB-2, dated June 5, 1996, and incorporated by reference
herein.
(E) Filed as an exhibit to the Company's Registration Statement
on Form SB-2, Amendment No. 2, dated July 16, 1996, and
incorporated by reference herein.
(F) Filed as an exhibit to the Company's Quarterly Report on
Form 10-QSB for the three month period ended March 31, 1997
and incorporated by reference herein.
(G) Filed as an exhibit to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1996 and
incorporated by reference herein.
(H) Filed as an exhibit to the Company's Quarterly Report on
Form 10-QSB for the six month period ended June 30, 1997 and
incorporated by reference herein.
(b) Current Reports on Form 8-K.
None.
<PAGE> 19
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange
Act, the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
R.H. PHILLIPS, INC.
By: //s//John E. Giguiere
______________________________
John E. Giguiere, Co-President and
Co-Chief Executive Officer
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS, that each
person whose signature appears below appoints John E. Giguiere
and Michael J. Motroni, substitution, for them in any and all
capacities, to sign any amendments to other documents in
connection therewith, with the Securities and Exchange
Commission, hereby ratifying and conferring all that each of said
attorney-in-fact, or his substitute or substitutes, may do or cause
to be done by virtue hereof.
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
____________ _____ ____
<S> <C> <C>
//s//John E. Giguiere John E. Giguiere 3/25/98
_____________________ Co-President, Co- _______
Chief Executive
Officer, Director
(Principal Executive
Officer)
/s//Karl E. Giguiere
___________________ Karl E. Giguiere 3/24/98
Co-President, Co- _______
Chief Executive
Officer, Director
(Principal Executive
Officer)
//s//Michael J. Motroni Michael J. Motroni 3/24/98
_______________________ Vice President, _______
Finance (Principal
Financial Officer)
//s//Richard A. Pierce Richard A. Pierce 3/24/98
_______________________ Controller (Principal _______
Accounting Officer)
//s//Lane C. Giguiere Lane C. Giguiere 3/24/98
______________________ Vice-President _______
Operations,
Secretary, Director
//s//R. Ken Coit R. Ken Coit, Director 3/27/98
______________________ _______
//s//Victor L. Motto Victor L. Motto, 3/27/98
______________________ Director _______
</TABLE>
<PAGE> 20
R.H. PHILLIPS, INC.
INDEX TO FINANCIAL STATEMENTS
Page
INDEPENDENT AUDITORS' REPORT F1
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997:
Balance Sheet F2
Statements of Operations F3
Statements of Shareholders' Equity F4
Statements of Cash Flows F5
Notes to Financial Statements F6-F15
<PAGE> 21
Independent Auditors' Report
The Board of Directors
R.H. Phillips, Inc.:
We have audited the accompanying balance sheet of R.H.
Phillips, Inc. as of December 31, 1997, and the related statements
of operations, shareholders' equity, and cash flows for each of the
years in the two year period ended December 31, 1997. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of R.H.
Phillips, Inc. as of December 31, 1997, and the results of its
operations and its cash flows for each of the years in the two year
period ended December 31, 1997 in conformity with generally
accepted accounting principles.
//s//KPMG Peat Marwick LLP
Sacramento, California
March 13, 1997
<PAGE>22
<TABLE>
R.H. PHILLIPS, INC.
BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<CAPTION>
ASSETS
<S>
<C>
CURRENT ASSETS:
Cash $ 109
Accounts receivable 2,513
Inventories 9,928
Deferred income taxes and prepaid expenses 846
__________
Total current assets 13,396
PROPERTY, PLANT, AND EQUIPMENT - net 28,870
OTHER ASSETS:
Notes receivable from shareholders and
other affiliates 224
Deferred loan fees and other, net 474
Total other assets 698
__________
TOTAL ASSETS 42,964
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,258
Notes payable 396
Accounts payable 818
Accrued liabilities 925
__________
Total current liabilities 3,397
LONG-TERM DEBT 16,369
DEFERRED INCOME TAXES 1,410
DEFERRED GAIN AND VINEYARD DEVELOPMENT COSTS 892
COMMITMENTS AND CONTINGENCIES -
REDEEMABLE PREFERRED STOCK, redeemable at $5,000,000 4,511
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, 6,433,182 shares issued
and outstanding 14,041
Additional paid-in capital 337
Retained earnings 2,007
__________
Total shareholders' equity 16,385
__________
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $42,964
==========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE> 23
<TABLE>
R.H. PHILLIPS, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<CAPTION>
1996 1997
<S> <C> <C>
NET SALES $16,928 $17,258
COST OF SALES 10,136 10,054
_______ _______
GROSS PROFIT 6,792 7,204
SELLING EXPENSES 3,054 3,359
GENERAL AND ADMINISTRATIVE 800 918
EXPENSES _______ _______
OPERATING INCOME 2,938 2,927
INTEREST EXPENSE (862) (908)
OTHER INCOME (EXPENSE) - NET (152) 105
_______ _______
INCOME BEFORE INCOME TAXES 1,924 2,124
PROVISION FOR INCOME TAXES (631) (790)
_______ _______
NET INCOME $ 1,293 $ 1,334
======= =======
NET INCOME $ 1,293 $ 1,334
DIVIDENDS AND ACCRETION ON
REDEEMABLE PREFERRED STOCK (250) (337)
NET INCOME APPLICABLE TO $ 1,043 $ 997
COMMON STOCK
NET INCOME PER SHARE -
BASIC AND DILUTED $ .20 $ .16
COMMON AND COMMON
EQUIVALENT SHARES
OUTSTANDING 5,346,167 6,370,001
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE> 24
<TABLE>
R.H. PHILLIPS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1997
(IN THOUSANDS)
<CAPTION>
Non- Common Additional Retained Total
redeemable Stock Paid-in Earnings
Preferred Capital
Stock
<S> <C> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY
JANUARY 1, 1996 $ -- $ 7,623 $ -- $ 417 $ 8,040
WARRANTS ASSOCIATED WITH
REDEEMABLE PREFERRED STOCK -- -- 337 -- 337
ACCRETION OF REDEEMABLE
PREFERRED STOCK -- -- -- (25) (25)
ISSUANCE OF COMMON STOCK
-- 4,550 -- -- 4,550
DIVIDEND ON REDEEMABLE
PREFERRED STOCK -- -- -- (225) (225)
ISSUANCE OF STOCK DIVIDEND -- 150 -- (150) --
NET INCOME YEAR ENDED
DECEMBER 31, 1996 -- -- -- 1,293 1,293
__________ ________ ________ _______ _______
SHAREHOLDERS' EQUITY
DECEMBER 31, 1996 -- 12,323 337 1,310 13,970
ACCRETION OF REDEEMABLE
PREFERRED STOCK -- -- -- (37) (37)
ISSUANCE OF COMMON STOCK -- 1,418 -- -- 1,418
DIVIDEND ON REDEEMABLE
PREFERRED STOCK -- -- -- (300) (300)
ISSUANCE OF STOCK DIVIDEND -- 300 -- (300) --
NET INCOME YEAR ENDED
DECEMBER 31, 1997 -- -- -- 1,334 1,334
__________ ________ ________ _______ _______
SHAREHOLDERS' EQUITY
DECEMBER 31, 1997 $ -- $ 14,041 $ 337 $ 2,007 $16,385
========== ======== ======== ======= =======
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE> 25
<TABLE>
R.H. PHILLIPS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1997
(IN THOUSANDS)
<CAPTION>
<S> 1996 1997
CASH FLOWS FROM OPERATING ACTIVITIES: <C> <C>
Net income $ 1,293 $ 1,334
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income taxes 126 355
Depreciation and amortization 1,590 1,829
Loss on disposal of property, plant and equipment 231 55
Net changes in assets and liabilities:
Accounts receivable (65) 618
Inventories (1,013) (1,722)
Prepaid expenses 76 (254)
Other assets (85) (83)
Accounts payable and accrued liabilities 758 (1,447)
________ ________
Net cash provided by operating activities 2,911 685
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (12,400) (6,910)
Proceeds from property, plant and equipment sold 49 5,419
________ ________
Net cash used in investing activities (12,351) (1,491)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of (cost of issuing) redeemable
preferred stock 4,798 (13)
Issuance of common stock 4,550 23
Payment of cash dividend (150) (300)
Proceeds from long-term debt and notes payable 18,938 26,222
Principal payments on long-term debt
and notes payable (18,662) (24,598)
Payment for development of leased vineyards
and related fees -- (637)
Other financing activities (43) (91)
_______ ________
Net cash provided by financing activities 9,431 606
DECREASE IN CASH (9) (200)
CASH AT BEGINNING OF PERIOD 318 309
_______ ________
CASH AT END OF PERIOD $ 309 $ 109
======= ========
OTHER CASH FLOW INFORMATION:
Interest paid (including capitalized interest of
$599 and $624 in 1996 and 1997, respectively) $ 1,225 $ 1,438
Income tax paid $ 453 $ 649
NONCASH TRANSACTIONS:
Issuance of notes payable to finance inventory,
property, plant and equipment purchased $ 555 $ 552
Issuance of stock dividend $ 150 $ 300
Accretion of redeemable preferred stock $ 25 $ 37
Accrual of cash dividend $ 75 $ --
Conversion of subordinated debt to common stock
(net of issuance costs of $105) $ -- $ 1,395
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE> 26
R.H. PHILLIPS, INC.
NOTES TO FINANCIAL
STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Organization - R.H. Phillips, Inc. (the "Company"), a California
corporation formed in February 1994, produces, markets, and
sells premium quality California table wines. The Company also
farms vineyards which supply a portion of its annual grape
requirements. The Company sells most of its products to
distributors for resale to restaurants, food service, wine shops,
independent liquor stores and, to a lesser degree, grocery stores.
Inventories are stated at the lower of FIFO (first-in, first-out) cost
or market. Cost includes the cost of grown and purchased grapes
and wines, production costs, and packaging materials. Wine
inventories are classified as current assets in accordance with
recognized trade practice although certain inventories are aged for
periods longer than one year. Crop costs associated with farming
vineyards prior to the harvest are deferred and recognized in the
year the grapes are harvested.
Property, plant and equipment are stated at cost and are
depreciated using the straight-line method over the estimated
useful lives of the assets. Vineyard lives range from 10 to 25
years, buildings and improvements lives range from 12 to 45
years, and equipment lives range from 5 to 30 years. Major
property additions and betterments are capitalized, and
maintenance and repairs are expensed as incurred. The cost of
property sold or otherwise disposed of, and the related
accumulated depreciation, are removed from the accounts at the
time of sale and any resulting gain or loss is included in
operations.
Costs of planting new vines and ongoing cultivation costs for
vines not yet bearing, including interest, are capitalized.
Depreciation commences in the first year the vineyard yields a
commercial crop, generally in the third year after development
began.
The Company's long-lived assets and certain identifiable
intangibles are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
Deferred Loan Fees and Other consists primarily of deferred loan
fees, and are amortized using the straight-line method over the
term of the loan, or over lives ranging from 2 to 5 years.
Accumulated amortization was $289,700 at December 31, 1997.
Estimates and Certain Risks - The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
The Company's three largest distributors accounted for 12%, 11%
and 7% of sales in 1997 and 13%, 11% and 10% in 1996.
Accounts receivable from these distributors on December 31,
1997 was $987,000.
<PAGE> 27
The Company employs five sales representatives who work with
certain distributors to sell the Company's products. In addition,
the Company uses independent wine brokers. The Company's
largest sales volume is attributable to a broker, whose
organization generated $7,793,000, or 45% of total sales in 1997
and $7,722,000, or 46% of sales, in 1996.
Income taxes - The Company accounts for income taxes using the
asset and liability method, under which deferred income taxes are
provided for the temporary differences between the tax basis of
assets and liabilities and their related financial statement amounts
using current income tax rates.
Net income per share - Net income per share is calculated based
on the weighted average number of common shares and dilutive
potential common shares outstanding, including 50,578 shares
from the stock dividend paid on March 16, 1998 related to the
Preferred Stock. The Company's warrants to purchase Common
Stock and employee stock options, aggregating 2,814,406 at
December 31, 1996 and 2,469,667 at December 31, 1997, were
anti-dilutive and therefore had no effect on net income per share.
Recent Pronouncements - The Company adopted the provisions
of Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128") as of January 1, 1997. This
statement requires a change in the method used to compute
earnings per share and the restatement of all prior periods. The
adoption of SFAS 128 did not have a material effect on the
Company.
The Company also adopted the provisions of Statement of
Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure" ("SFAS 129") as of
December 31, 1997. This statement lists required disclosures
about capital structure that had been included in a number of
previously existing, separate statements and opinions. Adoption
of SFAS 129 did not have a material effect on the Company's
financial statements.
Prospective Accounting Developments - In June 1997, the
Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130") and Statement of
Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information", ("SFAS
131"). SFAS 130 establishes standards for reporting and display
of comprehensive income and its components (revenues,
expenses, gains and losses) in annual financial statements. SFAS
131 establishes reporting standards for operating segments in the
annual financial statements of public entities, and requires those
entities to report selected information about operating segments
in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and
services, geographic areas, and major customers. Both of these
Statements are effective for periods beginning after December 15,
1997. Management believes that the adoption of these Statements
will not have a material impact on the Company's financial
position, results of operations, or liquidity.
Reclassification - Certain 1996 amounts have been reclassified
for comparative purposes to conform to present year presentation.
2. INVENTORIES
Inventories consist of the following at December 31, 1997:
(In thousands)
<TABLE>
<S> <C>
Bulk wine $ 7,632
Bottled wine 1,083
Bottling supplies and other 464
Deferred crop costs 749
_______
Total $ 9,928
=======
</TABLE>
<PAGE> 28
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following
at December 31, 1997:
<TABLE>
<CAPTION> (In thousands)
<S> <C>
Land $ 2,619
Vineyard improvements 6,526
Buildings 5,176
Machinery and equipment 13,727
Vehicles and office fixtures 920
________
Total 28,968
Less accumulated depreciation 6,043
________
Total 22,925
Construction in progress 5,945
________
Property, plant, and equipment - net $ 28,870
========
</TABLE>
Total depreciation expense during the years ended
December 31, 1996 and 1997 was approximately
$1,383,000 and $1,693,000, respectively.
Plant and equipment under capital leases as of December
31, 1997 is as follows:
<TABLE>
<CAPTION> (In thousands)
<S> <C>
Machinery and equipment $ 886
Less accumulated depreciation 391
__________
Net $ 495
==========
</TABLE>
Depreciation expense for machinery and equipment under
capital leases was approximately $118,000 and $100,000
for the years ended December 31, 1996 and 1997,
respectively.
4. NOTES RECEIVABLE FROM SHAREHOLDERS
AND OTHER AFFILIATES
Notes receivable from shareholders and other affiliates
consist of the following as of December 31, 1997:
<TABLE> (In thousands)
<CAPTION>
<S> <C>
Note receivable from RHP Vineyards, Inc. $ 155
Notes receivable from employee and affiliate 69
_____
Total $ 224
=====
</TABLE>
The notes receivable bear interest at 7%, are unsecured,
and mature July 30, 2000. RHP Vineyards, Inc. is a major
shareholder of the Company. Interest receivable pertaining
to the notes receivable was approximately $49,000 at
December 31, 1997.
<PAGE> 29
5. NOTES PAYABLE
Notes payable at December 31, 1997 consists of a note
payable to a grower in the amount of $396,000. The note
bears interest at an annual rate of 9.5% and is unsecured.
All outstanding principal and interest were paid in January
1998.
6. LONG-TERM DEBT
Long-term debt consists of the following at December 31,
1997:
<TABLE>
<CAPTION> (In thousands)
<S> <C>
Note payable to insurance company, interest at 7.79%, $11,000
principal and interest payable monthly through January 2013,
secured by various assets of the Company
Note payable to bank, interest at prime or IBOR plus 200 3,233
basis points, principal due April 1999, interest payable
monthly, collateralized by accounts receivable
and inventory (1)
Note payable to bank, interest at one month LIBOR plus 330 basis 1,589
points, principal and interest due in 42 monthly payments of
$19,911 followed by 42 monthly payments of $29,867,
balance due December 2003, secured by certain equipment
Note payable to finance company, interest at 7.95%, principal 878
and interest payable in sixty monthly payments of $18,027,
balance due December 2002, secured by certain equipment
Note payable to finance company, payable in sixty monthly 360
installments of $10,744 plus interest at one month LIBOR
plus 332 basis points, due November 2000, secured by
certain equipment
Notes payable to shareholder and employee, interest at 7%, 49
due June 1999
Capital lease obligations 441
Other 77
_______
Total 17,627
Less current maturities 1,258
_______
Long-term portion $16,369
=======
</TABLE>
(1) Maximum amount that can be borrowed on the note is $6,000,000.
The amount outstanding as of December 31, 1997 consists of
$2,552,000 borrowed against the line and $681,000 in outstanding
checks. $2,767,000 was available at December 31, 1997.
Principal payments required on long-term debt (other than
capital leases) for each of the next five years ending
December 31, are as follows:
<TABLE>
<CAPTION> (In thousands)
<S> <C>
1998 $ 1,088
1999 4,367
2000 1,194
2001 1,187
2002 1,215
Thereafter 8,135
_______
Total $17,186
=======
</TABLE>
<PAGE> 30
The Company leases certain winery and other equipment
under noncancellable capital leases. Future minimum
lease payments under these leases for each of the next
five years ending December 31 are as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
1998 $ 211
1999 224
2000 33
2001 26
2002 16
________
Total 510
Less amounts representing interest 69
________
Net minimum lease payments $ 441
========
</TABLE>
7. INCOME TAXES
The provision for income taxes consists of the following
for the years ended December 31:
<TABLE>
<CAPTION> (In thousands)
1996 1997
<S>
Current: <C> <C>
Federal $ 490 $ 439
State 15 (4)
_____ _____
Total current provision 505 435
Deferred:
Federal 155 259
State (29) 96
_____ _____
Total deferred provision 126 355
_____ _____
$ 631 $ 790
===== =====
</TABLE>
Deferred income taxes included in the balance sheet at
December 31, 1997 are as follows:
<TABLE>
<CAPTION> (In thousands)
<S> <C>
Current deferred tax assets:
Nondeductible reserves and difference between
book and tax basis of inventory $ 379
State manufacturer's investment credit 124
Noncurrent deferred tax assets:
Difference between book and tax basis of
intangible assets 220
Other 2
_____
Total deferred tax asset 725
Noncurrent deferred tax liability:
Difference between book and tax basis
of property, plant and equipment 1,632
______
Net deferred tax liability $ 907
======
</TABLE>
<PAGE> 31
Management believes that it is more likely than not that all
the deferred tax assets as of December 31, 1997 will be
realized and, therefore, no allowance for deferred tax assets
was made as of December 31, 1996 or December 31, 1997.
The provision for income taxes is at an effective rate
different from the statutory tax rate of 34% when applied to
the pre-tax income of $1,924,000 and $2,124,000 for the
years ended December 31, 1996 and 1997, respectively, as
a result of the following:
<TABLE>
<CAPTION> 1996 1997
<S> <C> <C>
Expected U.S. Federal income tax 34% 34%
State franchise tax, net of federal benefit 6% 6%
Permanent difference in basis of assets 1% 1%
State manufacturer's investment credit (7%) (6%)
Other (1%) 2%
___ ___
Total 33% 37%
=== ===
</TABLE>
The Company utilized $138,000 of the state
manufacturer's investment credit in 1996 and $119,000 in
1997. The remaining carry forward of $124,000 is due to
expire in 2007.
8. DEFERRED GAIN AND VINEYARD
DEVELOPMENT COSTS
In May 1997, the Company sold 371 acres of land being
developed into vineyard to John Hancock Mutual Life
Insurance Company ("Hancock"). In connection with that
transaction, the Company now manages, operates and
leases the land and vineyards from a subtenant of Hancock,
Farmland Management Services, for a term that expires on
December 31, 2012. The Company received proceeds
from the sale of $5,384,000. The lease provides that the
Company will pay rent of $161,000 per calendar quarter
beginning in 1999. At June 30, 1997, the Company held
an option to repurchase the land and vineyard at the end of
the lease term. The lease was accounted for as a long-term
capital lease.
On September 30, 1997, the Company renegotiated the
lease agreement with Hancock whereby the option to
repurchase the land and vineyard at the end of the lease
was given up by the Company in exchange for a right of
first refusal. The lease is therefore accounted for as an
operating lease.
The Company recognized deferred gain and vineyard
development costs of $1,529,000 at the time of closing,
which consists of the difference between the actual costs of
the property sold and the funds received by the Company.
The Sale and Leaseback agreement with Hancock requires
that the Company complete the vineyards that are still
under development. The Company expended $637,000
between the date of closing and December 31, 1997 on the
development of the vineyards and related expenses,
decreasing the deferral to $892,000 at December 31, 1997.
Management estimates that the remaining costs to
complete the development will be $479,000. This amount
will reduce the deferral as incurred. The remainder,
estimated to be $413,000, will be amortized to income
over the life of the lease.
9. COMMITMENTS AND CONTINGENCIES
As of December 31, 1997, the Company believes that up
to 187 acres of vineyard may be susceptible to Phylloxera.
Based on tests performed, management believes that
portions of these 187 acres show physical symptoms of
decline. The Company is using a variety of methods to
combat Phylloxera infestation. Although this acreage will
ultimately require replacement, management estimates
that these vineyards will remain commercially productive
for six more years. The Company has reduced the
depreciable life of these vineyards to reflect the expected
remaining commercial productivity.
<PAGE> 32
The Company is party to various legal proceedings arising
in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will
not have a material adverse impact on the Company's
financial position, results of operation, or liquidity.
10. REDEEMABLE PREFERRED STOCK
In March 1996, the Company completed a private
placement sale of 500,000 shares of Senior Preferred
Redeemable Stock ("Preferred Stock") and warrants to
purchase up to 1,346,788 shares of Common Stock.
500,000 shares of Preferred Stock are issued and
outstanding as of December 31, 1997. The net proceeds
the Company derived from the sale of the Preferred Stock
and the warrants, after offering expenses, totaled
$4,785,000. The Preferred Stock bears a 12% cumulative
annual dividend, payable semiannually. During the first
four years after issuance, 50% of the dividend will be paid
in cash and 50% of the dividend will be paid in shares of
Common Stock at a price equal to the lower of the average
daily market price over a period of 20 consecutive trading
days before the dividend payment date or $4.00 per share.
Thereafter, the dividend will be payable in cash. The
Company will be required to redeem one-third of the
Preferred Stock eight years after issuance and one-third of
the Preferred Stock in each of the succeeding years at a
price of $10.00 per share. The carrying value of the
Preferred Stock was originally $4,449,000, net of offering
expenses and the estimated value of the warrants. The
carrying value was $4,511,000 at December 31, 1997, and
the Preferred Stock is redeemable at $5,000,000. The
difference between the carrying value and the redemption
value is being accreted over the life of the Preferred Stock
using the interest method.
11. SHAREHOLDERS' EQUITY
In connection with its initial public offering of Common
Stock in March 1995, the Company issued 493,563
warrants to purchase one share of Common Stock at a
price of $3.875. The warrants are currently exercisable
and expire October 1, 1998. The Board of Directors may
lengthen the exercise period for the warrants at any time.
The Company may repurchase, or "call", the warrants upon
30 days notice at a price of $0.25 per warrant while the
warrants are exercisable if the closing bid price per share
of Common Stock exceeds $4.50 per share for five
consecutive trading days.
The Company completed a second public offering of
Common Stock in July 1996. The Company issued
1,270,000 shares of Common Stock in connection with the
offering at a price of $4.375 per share. The net proceeds
from the offering, after payment of underwriting discounts
and offering expenses, totaled approximately $4,484,000.
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. In connection with the conversion, the
Company charged the remaining deferred issuance costs of
$105,000 resulting in a net value of $1,395,000 being
recorded in the Statement of Shareholders' Equity.
As of December 31, 1997, warrants to purchase 19,065
shares of Common Stock had been exercised, with net
proceeds to the Company of approximately $74,000. The
Company has issued 119,969 shares of Common Stock to
the holder of its Redeemable Preferred Stock as stock
dividends.
In addition to the warrants issued in connection with the
Company's initial public offering, warrants have been
issued to the underwriters of both public offerings and to
the holder of its Redeemable Preferred Stock. The
Company issued warrants to purchase 98,713 shares of
Common Stock to the underwriter of the initial public
offering. These warrants are exercisable at $5.57 per
share. The Company issued warrants to purchase 122,000
shares of Common Stock at a price of $5.25 to the
underwriter of its secondary public offering. The holder of
the Company's Redeemable Preferred Stock received
warrants to purchase 1,381,321 shares of Common Stock
at a price of $3.90. All underwriter warrants and warrants
held by the holder of the Company's Redeemable
Preferred Stock
<PAGE> 33
are currently exercisable. The total number of warrants
outstanding as of December 31, 1997 was 2,076,532.
Payment of dividends on the Common Stock is subject to
certain limitations under the Company's loan agreements
. In addition, the Senior Preferred Stock of the Company
provides that semi-annual dividends payable on those
shares must be paid in full or set aside for payment before
any dividends are paid on the Common Stock.
12. STOCK COMPENSATION PLANS AND
WARRANTS
At December 31, 1997, the Company had three stock-
based compensation plans, which are described below.
The Company applies APB Opinion No. 25 in accounting
for its stock compensation plans. Accordingly, no
compensation cost has been recognized for its fixed stock
option plan and underwriter warrant plans. Had
compensation cost for the Company's three stock-based
compensation plans been recognized consistent with FASB
Statement No. 123, the Company's net income and
earnings per share would have the pro forma amounts
indicated below. For purposes of pro forma disclosures,
the estimated fair value of the options is amortized to
expense over the options' vesting periods.
<TABLE>
<CAPTION> 1996 1997
<S>
Net income (in thousands): <C> <C>
As reported $1,293 $1,334
Pro forma 1,233 1,243
Earnings per share:
As reported $ 0.20 $ 0.16
Pro forma 0.18 0.14
</TABLE>
Fixed Stock Option Plan - Under the 1995 Employee Stock
Option Plan, the Company may grant options to its
employees for up to 815,000 shares of Common Stock. The
exercise price of each option is no less than the market price
of the Company's stock on the date of the grant and an
option's maximum term is ten years. Options generally vest
ratably over the four years following the date of grant.
The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option pricing model. The
fair value of options granted during the year ended
December 31, 1997 assumed a dividend yield of 0%, an
expected volatility of 37%, a risk free interest rate of 5.71%
and an expected term of six years. All assumptions in the
Black-Scholes option pricing model were based on
weighted averages.
The Black-Scholes option valuation model was developed
for use in estimating the fair value of traded options which
have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of
highly subjective assumptions including the expected stock
price volatility. Because the Company's employee stock
options have characteristics significantly different from
those of traded options, and because changes in the
subjective input assumptions can materially affect the fair
value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure
of the fair value of its employee stock options.
A summary of the status of the Company's fixed option
plan as of December 31, 1996 and 1997 and changes during
the years ended on those dates is presented below:
<PAGE> 34
<TABLE>
<CAPTION> 1996 1997
Average Average
Exercise Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
Outstanding at beginning of year 449,460 $ 3.90 427,668 $ 3.90
Granted -- -- 196,548 4.14
Exercised -- -- (4,086) 3.75
Forfeited (21,792) 3.75 (58,566) 3.75
_______ _________ _______ _________
Outstanding at end of year 427,668 $ 3.90 561,564 $ 4.01
======= ========= ======= =========
Options exercisable at year end 106,917 $ 3.90 202,509 $ 3.96
======= ========= ======= =========
Weighted average fair value of
Options granted during year $ -- $ 1.26
========= =========
</TABLE>
The following summarizes information about fixed
options outstanding at December 31, 1997:
<TABLE>
<S> <C>
Range of exercise prices $3.25 to $4.25
Number outstanding at December 31, 1997 561,564
Options outstanding:
Weighted average remaining contractual life 8.2 years
Weighted average exercise price $4.01
Options exercisable:
Number exercisable at December 31, 1997 202,509
Weighted average exercise price $3.96
</TABLE>
Underwriter Warrant Plans - The Company granted
warrants for shares of Common Stock to each of its
underwriters for its two public stock offerings. The number
of shares granted was 98,713 for the Company's initial
public offering, and 122,000 for the Company's secondary
public offering. Under both plans, the exercise price was
above the market price of the Company's stock on the date
of the grant and each warrant's maximum term is five years.
The fair value of each warrant grant is estimated on the date
of grant using the Black-Scholes option pricing model. No
warrants were granted during the year ended December 31,
1997. The fair value of warrants granted during the year
ended December 31, 1996 assumed a dividend yield of 0%,
an expected volatility of 15%, a risk free interest rate of 6%
and an expected term of five years. All assumptions in the
Black-Scholes option pricing model were based on weighted
averages.
A summary of the status of the Company's underwriter
warrant plans as of December 31, 1996 and 1997 and
changes during the years ended on those dates is presented
below:
<TABLE>
<CAPTION> 1996 1997
Average Average
Exercise Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
Outstanding at beginning of year 98,713 $ 5.57 220,713 $ 5.39
Granted 122,000 5.25 -- --
Exercised -- -- -- --
Forfeited -- -- -- --
_______ _________ _______ _________
Outstanding at end of year 220,713 $ 5.39 220,713 $ 5.39
======= ========= ======= =========
<PAGE> 35
Warrants exercisable at year end 98,713 $ 5.57 220,713 $ 5.39
======= ========= ======= =========
Weighted average fair value of
Warrants granted during year $ 0.69 $ --
========= =========
</TABLE>
The following summarizes information about
underwriter warrants outstanding at December 31, 1997:
<TABLE>
<S> <C>
Range of exercise prices $5.25 to $5.57
Number of warrants outstanding at December 31, 1997 220,713
Warrants outstanding:
Weighted average remaining on contractual life 2.9 years
Weighted average exercise price $5.39
Warrants exercisable:
Number of warrants exercisable at December 31, 1997 220,713
Weighted average exercise price $5.39
</TABLE>
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to
estimate the fair value of each class of financial
instruments. The carrying amounts of cash, notes
receivable from shareholders, accrued liabilities and notes
payable approximate fair value because of the short
maturity of those instruments. The fair value of the
Company's long-term debt is estimated based on the
quoted market prices for the same or similar issues or on
the current rates offered to the Company for debt of the
same remaining maturities, and is approximately the same
as the carrying value.
<PAGE> 1
__________________________________________
METROPOLITAN LIFE INSURANCE COMPANY,
a New York corporation
R. H. PHILLIPS, INC.,
a California corporation
_______________
LOAN AGREEMENT
Dated as of December 22, 1997
Adjustable Rate Secured Promissory Note
Due January 1, 2013
_________________________________________
<PAGE> 2
TABLE OF CONTENTS
PAGE
SECTION 1. LOAN.. . . . . . . . . . . . . . 2
1.1. Loan. . . . . . . . . . . . . . . . 2
a. Loan Amount. . . . . . . . . . 2
b. Disbursement and Use of
Loan Proceeds. . . . . . . . . . . . . 2
c. Loan Closing Date. . . . . . . 2
d. Promissory Notes . . . . . . . 3
e. Conditions to Loan
Closing. . . . . . . . . . . . . . . . 3
1.2. Security. . . . . . . . . . . . 3
a. Deed of Trust. . . . . . . . . 3
b. Security Agreement.. . . . . . 4
c. Assignment.. . . . . . . . . . 4
1.3. Priority of MetLife's
Liens. . . . . . . . . . . . . . . . . 4
a. Annual Subordination.. . . . . 5
b. New Crop Loans.. . . . . . . . 5
c. Limit on Amount of
Subordination. . . . . . . . . . . . . 5
1.4. Interest Rates. . . . . . . . . 5
a. Initial Interest Rate. . . . . 5
b. Adjustments of Interest
Rate.. . . . . . . . . . . . . . . . . 5
c. Overdue Interest Rate. . . . . 5
d. Usury. . . . . . . . . . . . . 6
SECTION 2. PAYMENT. . . . . . . . . . . . . . 6
2.1. Payments. . . . . . . . . . . . . . 6
2.2. Prepayment. . . . . . . . . . . . . 6
a. Prepayments Not Subject
to Charge. . . . . . . . . . . . . . . 6
b. Optional Prepayments
Subject to Charge. . . . . . . . . . . 7
c. Prepayment Charge Upon
Acceleration.. . . . . . . . . . . . . 7
d. Prepayment Charge. . . . . . . 8
e. Borrower's
Acknowledgements and
Agreements Regarding
Prepayment Charge. . . . . . . . . . . 8
2.3. Manner of Payment.. . . . . . . . . . 8
SECTION 3. REPRESENTATIONS AND
WARRANTIES.. . . . . . . . . . . . . . . . . . 9
3.1. Financial Statements. . . . . . . . 9
3.2. No Material Changes.. . . . . . . . 9
3.3. Title to Properties.. . . . . . . . 9
3.4. Liens.. . . . . . . . . . . . . . . 9
3.5. Leases. . . . . . . . . . . . . . . 10
3.6. Capital Lease Conversion. . . . . . 10
3.7. Rights. . . . . . . . . . . . . . . 10
3.8. Litigation. . . . . . . . . . . . . 10
a. Suits. . . . . . . . . . . . . 10
b. Violations of Law. . . . . . . 10
3.9. No Burdensome Provisions. . . . . . 10
3.10. Compliance with Other
Instruments. . . . . . . . . . . . . . . . 11
3.11. ERISA. . . . . . . . . . . . . . . 11
3.12. Regulation G; Use of
Proceeds.. . . . . . . . . . . . . . . . . 11
<PAGE> 3
3.13. Tax Liability. . . . . . . . . . . 12
3.14. Governmental Action. . . . . . . . 12
3.15. Offering of Note.. . . . . . . . . 12
3.16. Hazardous Waste. . . . . . . . . . 13
3.17. Separate Property. . . . . . . . . 13
3.18. No Flood Zone. . . . . . . . . . . 13
3.19. No Affiliation with
MetLife. . . . . . . . . . . . . . . . . . 13
3.20. No Foreign Person. . . . . . . . . 13
3.21. Disclosure.. . . . . . . . . . . . 14
SECTION 4. CONDITIONS OF THE LOAN.. . . . . . 14
4.1. Representations, Defaults,
and Condition of Title.. . . . . . . . . . 14
a. Representations True.. . . . . 14
b. No Default.. . . . . . . . . . 14
c. Condition of Title.. . . . . . 14
d. Affidavit. . . . . . . . . . . 15
4.2. Opinion of Borrower's
Counsel. . . . . . . . . . . . . . . . . . . 15
4.3. Opinion of Lender's
Counsel. . . . . . . . . . . . . . . . . . 15
4.4. Legality. . . . . . . . . . . . . . 15
4.5. Proceedings.. . . . . . . . . . . . 15
4.6. Environmental Audit
Results. . . . . . . . . . . . . . . . . . . 15
SECTION 5. ADDITIONAL INFORMATION
AND INSPECTION.. . . . . . . . . . . . . . . 16
5.1. Financial Statements and
Reports. . . . . . . . . . . . . . . . . . . 16
a. Quarterly Statements.. . . . . 16
b. Annual Statements. . . . . . . 16
c. Other Statements and
Disclosures. . . . . . . . . . . . . . 17
5.2. Inspection. . . . . . . . . . . . . 19
SECTION 6. AFFIRMATIVE COVENANTS. . . . . . . 19
6.1. To Pay Note.. . . . . . . . . . . . 19
6.2. Maintenance of Office.. . . . . . . 20
6.3. To Keep Books.. . . . . . . . . . . 20
6.4. Payment of Taxes and
Liabilities. . . . . . . . . . . . . . . . 20
6.5. Corporate Existence.. . . . . . . . 20
6.6. Maintenance of Properties
and Leases.. . . . . . . . . . . . . . . . 20
6.7. To Insure.. . . . . . . . . . . . . 21
a. All-Risk Insurance.. . . . . . 21
b. Liability Insurance. . . . . . 21
c. Worker's Compensation
Insurance. . . . . . . . . . . . . . . 21
d. Other Insurance. . . . . . . . 21
e. Coverage Terms.. . . . . . . . 21
6.8. Legal and Environmental
Compliance.. . . . . . . . . . . . . . . . 22
a. Licenses.. . . . . . . . . . . 22
b. Other Compliance.. . . . . . . 22
c. Tied-House Regulations . . . . 22
SECTION 7. RESTRICTIVE COVENANTS. . . . . . 23
7.1. Financial Restrictions. . . . . . . . 23
a. Current Ratio. . . . . . . . . 23
b. Total Debt.. . . . . . . . . . 23
<PAGE> 4
c. Consolidated Tangible Net
Worth. . . . . . . . . . . . . . . . . 23
d. Interest Coverage
Ratio. . . . . . . . . . . . . . . . . 23
e. Operating Leases.. . . . . . . 23
f. Restricted Payments. . . . . . 23
g. Restricted Investments.. . . . 24
7.2. Transactions with
Affiliates.. . . . . . . . . . . . . . . . . 24
7.3. Encumbrances On and
Transfers of the Collateral. . . . . . . . . 24
a. Improper Transfers.. . . . . . 24
b. Permitted Transfers. . . . . . 25
7.4. Change of Control.. . . . . . . . . 25
SECTION 8. DEFAULTS AND REMEDIES. . . . . . . 25
8.1. Events of Default.. . . . . . . . . 25
a. Defaults in Payment. . . . . 25
b. Other Defaults.. . . . . . . . 26
c. Defaults Under Other
Debt.. . . . . . . . . . . . . . . . . 26
d. Bankruptcy.. . . . . . . . . . 26
e. Order for Relief.. . . . . . . 26
f. General Assignment for
Creditors. . . . . . . . . . . . . . . 26
g. Unsatisfied Judgment.. . . . . 27
h. ERISA Defaults.. . . . . . . . 27
i. Non-Compliance with
Environmental Laws.. . . . . . . . . . 27
j. Misrepresentation. . . . . . . 27
8.2. Acceleration. . . . . . . . . . . . . 27
8.3. Suits for Enforcement.. . . . . . . . 28
8.4. Costs and Expenses. . . . . . . . . . 28
8.5. Remedies Not Waived.. . . . . . . . . 28
8.6. Remedies Cumulative.. . . . . . . . . 28
SECTION 9. DEFINITIONS. . . . . . . . . . . 29
9.1. Accounting Terms. . . . . . . . . . 29
9.2. Specifically-Defined
Terms. . . . . . . . . . . . . . . . . . . 29
a. "Affiliate". . . . . . . . . . 29
b. "Bankruptcy Law" . . . . . . . 29
c. "Board of Directors" . . . . . 29
d. "Business Day" . . . . . . . . 30
e. "Change of Control". . . . . . 30
f. "Collateral" . . . . . . . . . 30
g. "Consolidated Current
Assets . . . . . . . . . . . . . . . . 30
h. "Consolidated Current
Liabilities" . . . . . . . . . . . . . 30
i. "Consolidated Net
Income". . . . . . . . . . . . . . . . 30
j. "Consolidated Net
Income Available for
Interest and Rent" . . . . . . . . . . 30
k. "Consolidated Tangible
Net Worth. . . . . . . . . . . . . . . 30
l. "Consolidated Total
Capitalization". . . . . . . . . . . . 31
m. "Consolidated Total
Debt". . . . . . . . . . . . . . . . . 31
n. "Debt" . . . . . . . . . . . . 31
o. "Equipment Lease
Assignments" . . . . . . . . . . . . . 31
p. "ERISA". . . . . . . . . . . . 31
q. "Event of Default" . . . . . . 32
<PAGE> 5
r. "GAAP" . . . . . . . . . . . . 32
s. "Hazardous Materials . . . . . 32
t. "Interest Charges" . . . . . . 32
u. "Law". . . . . . . . . . . . . 32
v. "Lien" . . . . . . . . . . . . 32
w. "Loan" . . . . . . . . . . . . 32
x. "Loan Documents" . . . . . . . 32
y. "Material" . . . . . . . . . . 32
z. "Note" . . . . . . . . . . . . 33
aa. "Operating Lease" . . . . . . 33
ab. "Overdue Interest
Rate". . . . . . . . . . . . . . . . . 33
ac. "Permitted
Encumbrances". . . . . . . . . . . . . 33
ad. "Person". . . . . . . . . . . 33
ae. "Plans and
Specifications". . . . . . . . . . . . 33
af. "Prepayment Charge" . . . . . 33
ag. "Property". . . . . . . . . . 33
ah. "Restricted
Investments" . . . . . . . . . . . . . 33
ai. "Rights". . . . . . . . . . . 34
aj. "Title Policy". . . . . . . . 34
ak. "Use" . . . . . . . . . . . . 35
SECTION 10. MISCELLANEOUS.. . . . . . . . . 35
10.1. Processing Fee.. . . . . . . . . . 35
10.2. Loss, Theft, Destruction
or Mutilation of Note. . . . . . . . . . . 35
10.3. Stamp Taxes, Recording
Fees, and Other Loan
Expenses.. . . . . . . . . . . . . . . . . 35
10.4. Successors and Assigns.. . . . . . 36
10.5. Notices. . . . . . . . . . . . . . 36
10.6. Severability.. . . . . . . . . . . 37
10.7. Governing Law. . . . . . . . . . . 37
10.8. Waiver and Modification
and Waiver.. . . . . . . . . . . . . . . . 37
10.9. Construction.. . . . . . . . . . . 37
10.10. Counterparts. . . . . . . . . . . 38
10.11. Exhibits. . . . . . . . . . . . . 38
10.12. Final Loan Agreement. . . . . . . 38
<PAGE> 6
R. H. PHILLIPS, INC.,
a California corporation
LOAN AGREEMENT
$11,000,000.00
December 22, 1997
THIS LOAN AGREEMENT
between R. H. PHILLIPS, INC., a
California corporation
("Borrower"), and METROPOLITAN
LIFE INSURANCE COMPANY, a New
York corporation ("MetLife"),
witnesseth:
RECITALS:
a. Borrower and
MetLife entered into
a written Loan
Agreement dated as of
January 20, 1995 (the
"Existing Loan
Agreement").
b. Pursuant to the
Existing Loan
Agreement, MetLife
has loaned to
Borrower the sum of
$7,500,000.00 in a
series of three loan
installments (the
"Existing Debt"),
which are represented
by three Promissory
Notes payable by
Borrower to MetLife
(the "Existing
Notes"). The
Existing Notes are
secured by Deed of
Trust dated January
20, 1995 and recorded
in Yolo County,
California, on
January 20, 1995, as
Document No. 95-
0001260-00 (the
"Existing Deed of
Trust").
c. As of October
20, 1997, the unpaid
principal balance
under the Existing
Debt was
$6,450,000.00.
d. By this
Agreement, Borrower
and MetLife desire to
provide for MetLife
to refinance the
Existing Debt and to
loan Borrower
additional funds for
repayment of other
indebtedness and for
capital improvements
to be made in
connection with its
operations, which
refinancing and
additional loan shall
be in the amount and
on the terms and
conditions set forth
in this Agreement.
<PAGE> 7
AGREEMENT:
THEREFORE, Borrower
and MetLife hereby agree as
follows:
SECTION 1. LOAN.
1.1. Loan. Subject to
the terms and conditions set
forth in this Agreement,
Borrower agrees to borrow from
MetLife, and MetLife agrees to
lend to Borrower, an amount not
to exceed $11,000,000.00, as
set forth hereinbelow (the
"Loan").
(1) Loan Amount.
The principal amount of the
Loan shall be equal to the
lesser of the following:
(1) $11,000,000.00; or
(2) The sum of (a)
$5,500,000.00, plus
(b) sixty-five
percent (65%) of the
fair market value of
the property and
equipment (exclusive
of leased equipment)
used by Borrower for
its Winery (defined
below), as determined
by the appraisal to
be conducted by
Marshal and Stevens,
Incorporated, which
appraisal shall be in
form and content
acceptable to MetLife
(the "Appraisal").
(2) Disbursement and
Use of Loan Proceeds. On the
Loan Closing Date (defined
below), MetLife shall apply and
disburse the Loan proceeds, as
follows:
(1) MetLife shall apply
that portion of the
Loan proceeds that is
required to repay,
without prepayment
charge, all of the
unpaid principal and
accrued interest
under the Existing
Debt;
(2) MetLife shall
disburse to Borrower
the remainder of the
Loan proceeds (the
"Additional Funds").
Borrower represents and agrees
that all of the Additional
Funds shall be used for the
purposes of repayment of debt
and of acquiring and installing
capital improvements for use in
Borrower's vineyard and winery
operations.
(3) Loan Closing
Date. As used herein, the
"Loan Closing Date" shall mean
the date on which MetLife
releases to Borrower the
Additional Funds and the Deed
of Trust (described below) is
recorded with respect to that
real property described in the
Exhibit A attached hereto (the
"Property"). The parties
anticipate that the Loan
Closing Date will occur on or
about December 22, 1997, and it
in no
<PAGE> 8
event shall occur later than
March 1, 1998 without MetLife's
written consent.
(4) Promissory
Notes. The Loan shall be
evidenced by a Promissory Note
having the form, terms, and
provisions substantially as set
forth in Exhibit B attached
hereto (the "Note"), dated as
at the Loan Closing Date, duly
executed by Borrower, having as
the initial principal amount
the amount of the Loan and
becoming due and payable on
January 1, 2013.
MetLife shall, promptly
following the Loan Closing
Date, return to Borrower the
Existing Notes, marked "Paid",
and deliver to Borrower a
written release of the
Guaranties of the Existing
Debt.
(5) Conditions to
Loan Closing. In addition to
any other conditions set forth
in the Loan Documents,
MetLife's obligation to make
the Loan shall be subject to
the following conditions
precedent:
(a) Loan Documents. On
or before the Loan
Closing Date,
Borrower shall have
delivered the
following-listed
items to MetLife, all
in form and content
reasonably
satisfactory to
MetLife:
1) the Note;
2) the Collateral
Documents
(described
below);
3) an Unsecured
Indemnity
Agreement;
4) all other Loan
Documents
(excepting only
those
contemplated
herein to be
delivered
subsequently).
(b) Title Policy.
Borrower shall cause
Fidelity National
Title Insurance
Company ("Title
Company") to issue
the Title Policy (as
defined in section
9.2).
1.2. Security. Payment
of the Note shall be secured by
all of the following, each of
which shall be dated as of
December 22, 1997 and delivered
as at the Loan Closing Date,
and shall be satisfactory in
form and substance to MetLife
and its legal counsel (all
documents representing security
for the Loan are collectively
referred to herein as the
"Collateral Documents"):
(1) Deed of Trust.
A first deed of trust,
assignment of rents and
security agreement (the "Deed
of Trust") to be entered into
by Borrower with respect to
inter alia: (1) Borrower's
winery located at Road 12A and
Road 87,
<PAGE> 9
in Yolo County, California (the
"Winery"); and
(2) approximately 1,512 acres
of agricultural real property
located in Yolo County,
California (the "Farm
Property"); and
(2) Security
Agreement. A security
agreement between Borrower, as
debtor, and MetLife, as secured
party (the "Security
Agreement"), granting MetLife
(except where otherwise
expressly indicated below) a
first-priority security
interest in, inter alia:
(1) Tangible Personal
Property. All goods,
equipment, fixtures,
and other tangible
personal property of
Borrower utilized in
connection with, or
located at, the
Winery (but not
Borrower's farm
machinery and rolling
stock);
(2) Rights. Trademarks,
trade names,
copyrights, patents,
governmental
licenses, franchises,
certificates,
consents, permits and
approvals necessary
to enable it to carry
on its business in
all Material respects
as now conducted and
to own and operate
the properties
Material to its
business as now owned
and operated or as
such business may
hereafter be expanded
(collectively,
"Rights"); and
(3) Crops and Farm
Fixtures. All crops
growing or to be
grown, wells, pumps,
pipelines, and other
fixtures located on
or arising from the
Farm Property;
all as more fully described in
said Security Agreement, which
security interest shall be
perfected by filing with the
California Secretary of State
and recording with the Yolo
County Recorder of one or more
financing statements; and
(3) Assignment. An
assignment of each of the
leases (the "Equipment Lease
Assignments") with respect to
Borrower's rights under all
leases in which Borrower is or
may at any time become a party
as lessee pertaining to any
equipment used in connection
with the Winery, and the
parties agree that Borrower
shall not, without MetLife's
prior written consent, modify,
cancel, or terminate any lease
assigned to MetLife.
1.3. Priority of
MetLife's Liens. Unless
otherwise specified herein or
in any of the other Loan
Documents, all Liens securing
the Loan are and shall be
first-priority Liens.
Notwithstanding the foregoing,
so long as Borrower is not in
default under any of the Loan
Documents, Borrower may
encumber the crops to be grown
on the Farm Property (including
severed crops and the proceeds
therefrom) by a
<PAGE> 10
security agreement and
financing statement granted to
a qualified agricultural lender
("Ag Lender"), and MetLife will
subordinate its security
interest in such crops to
Borrower's current and future
Ag Lenders, subject to the
following terms and conditions:
(1) Annual
Subordination. The
subordination shall be limited
to the crops produced during a
specified one-year period (or
such longer period as may be
agreed to by MetLife);
(2) New Crop Loans.
The subordination shall be
limited to new crop loans, and
shall not apply to any amounts
which the Ag Lender has
previously advanced, or which
the Ag Lender has previously
committed to advance, at the
time of such subordination; and
(3) Limit on Amount
of Subordination. The
subordination shall be limited
to the amounts actually
advanced by the Ag Lender for
Borrower's production of crops.
1.4. Interest Rates.
(1) Initial Interest
Rate. Subject to adjustment as
set forth below and so long as
it is not in default, the
initial interest rate of the
Note shall be seven and 79/100
percent (7.79%) per annum.
(2) Adjustments of
Interest Rate. The interest
rate applicable to the Note
shall be subject to adjustment
by MetLife effective on and
after each of January 1, 2001,
January 1, 2004, January 1,
2007, and January 1, 2010 (in
each case, an "Interest Rate
Adjustment Date"). The
interest rate shall be adjusted
to the existing rate being
offered by MetLife on
comparable agricultural credits
at that time. Borrower may
prepay the Note in full or in
part on any Interest Rate
Adjustment Date, as provided in
section 2.2.a below.
(3) Overdue Interest
Rate. In the event Borrower
shall fail to pay the Note or
any payment owing in respect of
the Note according to the terms
thereof and hereof (inclusive
of any other permitted payments
of which Borrower has notified
MetLife) on the date fixed for
such payment or prepayment, and
notwithstanding any cure period
provided in section 8.1 below
or in any other applicable
document, the Note shall bear
interest at the Overdue
Interest Rate (defined in
section 9.2) from and after the
date the payment was due until
paid and, so far as may be
lawful, any overdue installment
of interest shall bear interest
at said rate.
<PAGE> 11
(4) Usury. In the
event the interest provisions
hereof or any exaction provided
for herein or in any of the
other Loan Documents shall
result for any reason and at
any time during the term of
this Loan in an effective rate
of interest which exceeds the
limit of any applicable usury
or other Law, all sums in
excess of those lawfully
collectible as interest for the
period in question shall,
without further agreement or
notice between or by any party
hereto, be applied on principal
immediately upon receipt as
though the payor had
specifically designated such
extra sums to be so applied to
principal, and the holder of
the Note shall accept such
extra payment or payments as a
premium-free prepayment. If
any such amounts are in excess
of the principal then
outstanding, any excess shall
be repaid to Borrower. In no
event shall any agreed-to or
actual exaction as
consideration for the Loan
exceed the limits imposed or
provided by Law for the use or
detention of money or for
forbearance in seeking its
collection.
SECTION 2. PAYMENT.
2.1. Payments.
Commencing on February 1, 1998,
Borrower shall make monthly
payments of principal and
interest accrued on the unpaid
balances of the Note. Borrower
shall pay principal at the rate
of $60,000.00 per month;
provided, however, that the
monthly principal payment shall
be proportionately reduced to
the extent that the original
principal balance of the Loan
is less than $11,000,000.00 (as
provided in section 1.1.a).
The parties acknowledge that
the $60,000.00 per month
principal payment will not
fully amortize the Loan and
that a balloon payment will be
due at maturity.
2.2. Prepayment. Except
as otherwise expressly set
forth in this section 2.2: (i)
Borrower shall not have the
right to pay any portion of the
Loan other than according to
the schedule set forth in
section 2.1; and (ii) if
Borrower prepays the Loan in
whole or in part, whether
voluntarily, involuntarily, by
operation of Law, or as a
result of the holder's exercise
of any power of acceleration
(for default, change of
ownership, or otherwise), such
prepayment shall be subject to
the Prepayment Charge set forth
below.
(1) Prepayments Not
Subject to Charge. Borrower
may prepay the Note in whole or
in part on any Interest Rate
Adjustment Date, without
prepayment charge or penalty,
on the terms and conditions set
forth in this section 2.2.a.
(1) Notice of Prepayment.
If Borrower elects to
prepay as provided in
this section, then
Borrower shall give
MetLife written
notice of such
election within
<PAGE> 12
ninety (90) days
after Borrower's
receipt of notice of
the increased rate,
which notice shall
specify the date of
prepayment (which
date shall be no
later than thirty
(30) days after the
Interest Rate
Adjustment Date on
which the adjustment
will become
effective) and the
amount of principal
to be repaid.
Failure to give such
notice of prepayment
in the time and
manner provided
herein shall obligate
Borrower absolutely
and unconditionally
to pay interest on
the Note from and
after such Interest
Rate Adjustment Date
at the adjusted
interest rate.
(2) Amount and
Application of
Prepayment. Any such
prepayment shall
include accrued
interest at the rate
of the higher of the
then-current interest
rate and the proposed
adjusted rate from
and including the
Interest Rate
Adjustment Date to
the date of
prepayment, but
without premium.
Such optional
prepayments shall be
applied to principal
installments in the
inverse order of
maturity.
(2) Optional
Prepayments Subject to Charge.
Borrower may, at its option,
prepay the Note in full or in
part on the due date of any
payment under the Note, which
prepayment shall be subject to
the Prepayment Charge (as
hereafter defined), as provided
in this section 2.2.b.
(1) Notice of Prepayment.
If Borrower elects to
prepay as provided in
this section, then
Borrower shall give
MetLife written
notice of any such
intended prepayment
not less than thirty
(30) nor more than
ninety (90) days
prior to the date
fixed in such notice
for prepayment (the
"Prepayment Date"),
which notice shall
specify the date of
prepayment and the
amount of principal
to be prepaid.
(2) Amount and
Application of
Prepayment. On the
Prepayment Date,
Borrower shall pay
all accrued interest
as at said date. Any
prepayments of the
Loan's principal
balance shall be
applied to principal
installments in the
inverse order of
maturity.
(3) Prepayment
Charge Upon Acceleration. In
the event of an acceleration of
the maturity of the Note, for
any reason, the Prepayment
Charge computed as provided in
section 2.2.d, shall
immediately become due and
payable without notice or
demand together with accrued
interest thereon at the Overdue
Interest Rate; provided,
however, that, for purposes of
computing the Prepayment Charge
in such
<PAGE> 13
event, the Prepayment Date
shall be deemed to be the date
upon which the Note shall have
become due and payable.
(4) Prepayment
Charge. The term "Prepayment
Charge" shall mean the present
value of the interest lost by
MetLife as a result of the
prepayment over the remaining
life of the Loan (based on the
Loan's interest rate and
amortization schedule in effect
at the time of prepayment),
which present value shall be
determined by discounting, at
the applicable Treasury Rate
from the respective scheduled
payment dates to the Prepayment
Date. The Treasury Rate with
respect to each payment date is
the yield which shall be
imputed, by linear
interpolation, from the current
weekly yield of those United
States Treasury Note having
maturities as close as
practicable to the scheduled
payment dates, as published in
the most recent Federal Reserve
Statistical Release H.15 (519)
or any successor publication
thereto.
The Prepayment Charge
shall be determined by MetLife
in good faith, as of 5:00 p.m.,
New York time, on the fifth
Business Day prior to the
Prepayment Date. Promptly upon
such determination MetLife
shall notify Borrower in
writing of the amount of such
Prepayment Charge, setting
forth in reasonable detail the
computation thereof. On the
Prepayment Date, Borrower shall
prepay the unpaid principal of
the Note, together with the
Prepayment Charge and interest
accrued thereon to the
Prepayment Date. Payment of
the Prepayment Charge shall be
made as provided in section 2.3
below.
(5) Borrower's
Acknowledgements and Agreements
Regarding Prepayment Charge.
Borrower hereby expressly
acknowledges and agrees:
(i) that the Prepayment Charge
provided for herein is
reasonable, (ii) that legal
counsel of Borrower's own
choosing has advised Borrower
with respect to such Prepayment
Charge, (iii) that any
prepayment made at a time when
it is otherwise restricted
under the Note will result in
significant loss and damage to
the holder of the Note,
requiring such holder to secure
reinvestments at additional
costs which might not produce
the same economic benefit to
such holder as the economic
benefits under the Note,
(iv) that the Prepayment Charge
is a reasonable estimate of
such loss and damage, and (v)
Borrower shall be estopped
hereafter from claiming
differently as to any of the
foregoing. The Prepayment
Charge is not intended to serve
as a penalty, but instead shall
serve as liquidated damages to
provide MetLife with the
benefit of its bargain.
2.3. Manner of Payment.
Notwithstanding any provision
to the contrary contained in
the Note, Borrower will
promptly and punctually pay to
MetLife by check mailed (not
later than three days prior to
the date any payment is due) to
<PAGE> 14
Metropolitan Life Insurance
Company, Agricultural
Investments, Box 27-131, Kansas
City, Missouri 64180-0001 or by
such other method or to such
other address as may be
designated in writing by
MetLife, all amounts payable in
respect of the principal of and
interest on the Note and
Prepayment Charge, if any,
without any presentment thereof
and without any notation of
such payment being made
thereon.
SECTION 3. REPRESENTATIONS AND
WARRANTIES.
Borrower represents and
warrants that:
3.1. Financial
Statements. Borrower has
furnished to MetLife copies of
its balance sheets as of
December 31 in each of the
years 1991 through 1996,
inclusive, and as of September
30, 1997, for the nine-month
period ending on said date (the
"Balance Sheets"), and the
related consolidated statements
of operations, changes in
stockholders' equity and
statements of cash flows of
Borrower for the fiscal years
ended on said dates,
accompanied in each case by the
report of its independent
certified public accountants
after review. (All of said
Balance Sheets and other
financial statements are
referred to collectively as the
"Financial Statements".)
The Financial Statements,
including the related schedules
and notes, are complete and
correct and fairly present: (a)
the financial condition of
Borrower as at the respective
dates of said balance sheets,
and (b) the results of the
operations and statements of
cash flows of Borrower for the
periods ended on said dates,
all in conformity with
generally accepted accounting
principles applied on a
consistent basis (except as
otherwise stated therein or in
the notes thereto) throughout
the periods involved.
3.2. No Material Changes.
There has been no Material
adverse change in the business,
operations, properties, assets,
prospects or condition,
financial or other, of Borrower
subsequent to the date of
latest Financial Statements
that Borrower has provided to
MetLife.
3.3. Title to Properties.
Borrower has good and
marketable fee title to all of
the Property, and Borrower has
good and marketable title to
all other property reflected on
the Balance Sheets or purported
to have been acquired by
Borrower after said date,
excepting, however, property
sold or otherwise disposed of
subsequent to said date in the
ordinary course of business.
3.4. Liens. Exhibit C
hereto correctly sets forth all
Liens, easements, covenants,
conditions, and restrictions
which relate or attach to the
Property. None of Borrower's
<PAGE> 15
properties or assets reflected
in the latest Balance Sheet
provided to MetLife, or
acquired by Borrower after said
date, is held by Borrower
subject to Liens which, in the
aggregate, would not be
permitted by section 6.4, or
which are not disclosed in
Exhibit C hereto.
3.5. Leases. Borrower
enjoys peaceful and undisturbed
possession under all of the
leases under which it is
operating as lessee, and all
such leases are valid
(including, in each instance,
good title being vested in the
lessor thereunder), subsisting,
and in full force and effect.
3.6. Capital Lease
Conversion. The 1997 sale
lease-back of 371 acres to John
Hancock Life Insurance Co. for
$5,384,000 has been
renegotiated so as to be
classified in Borrower's
financial statements as a long
term operating lease, rather
than as a capital lease.
3.7. Rights. Borrower
possesses and, to the best of
Borrower's knowledge, it will
continue to possess all Rights
that are Material to the
operations of Borrower, all of
which Rights are valid and
subsisting without known
conflict with the rights of
others.
3.8. Litigation. To the
best of Borrower's knowledge
after due inquiry:
(1) Suits. There
are no actions, suits or
proceedings (whether or not
purportedly on behalf of
Borrower) pending or, to the
knowledge of Borrower,
threatened against or affecting
Borrower at law or in equity or
before or by any federal,
state, municipal or other
governmental department,
commission, board, bureau,
agency or instrumentality,
domestic or foreign, or before
any arbitrator of any kind,
which involve any of the
transactions herein
contemplated or the possibility
of any Material and adverse
change in the business,
operations, properties, assets,
prospects or condition,
financial or otherwise, of
Borrower; and
(2) Violations of
Law. Borrower is not in
default or violation of any
Law, which default or violation
might have a Material adverse
effect on the business,
operations, properties,
prospects or condition,
financial or other, of
Borrower, and for which
sufficient funds have been
deposited in escrow to pay, in
the event of an adverse
judgment, all damages claimed
thereunder.
3.9. No Burdensome
Provisions. Borrower is not a
party to any agreement or
instrument or subject to any
charter or other corporate or
legislative restriction or any
judgment,
<PAGE> 16
order, writ, injunction,
decree, award, rule or
regulation which Materially and
adversely affects or in the
future may (so far as Borrower
can now reasonably foresee)
Materially and adversely affect
the business, operations,
properties, assets, prospects
or condition, financial or
other, of Borrower.
3.10. Compliance with
Other Instruments. Except for
certain financial covenants
under the Existing Debt owed to
MetLife, which have been
disclosed to MetLife, and
except as disclosed in that
letter from Mike Motroni,
Chief Financial Officer of
Borrower, to David Hyatt, of
MetLife, dated December 10,
1997, Borrower is not in
default in the performance,
observance or fulfillment of
any of the obligations,
covenants or conditions
contained in any bond,
debenture, note or other
evidence of Debt of Borrower or
contained in any instrument
under or pursuant to which any
thereof has been issued or made
and delivered. Neither the
execution and delivery of the
Loan Documents by Borrower, the
consummation by Borrower of the
transactions herein and therein
contemplated, nor compliance by
Borrower with the terms,
conditions and provisions
thereof will violate any
provision of Law to which
Borrower is a party or by which
any term thereof is bound or
conflict with or result in a
breach of any of the terms,
conditions or provisions of an
agreement to which Borrower is
a party or to which Borrower is
otherwise bound, or constitute
a default thereunder, or result
in the creation or imposition
of any Lien of any nature
whatsoever upon any of the
properties or assets of
Borrower (other than the Liens
created by the Collateral
Documents).
3.11. ERISA. Borrower
has not incurred any liability
(including any contingent
liability) to the Pension
Benefit Guaranty Corporation or
to any pension plan, and all
amounts required to be paid
under any plan have been paid.
3.12. Regulation G; Use
of Proceeds. Borrower does not
have any present intention of
acquiring any "margin stock" as
defined in Regulation G (12
C.F.R., Chapter II, Part 207)
of the Board of Governors of
the Federal Reserve System
(herein called "margin stock").
The proceeds from the issuance
of the Note will be used by
Borrower for repayment of debt
and for capital improvements.
None of such proceeds will be
used, directly or indirectly,
for the purpose of purchasing
or carrying any margin stock or
for the purpose of reducing or
retiring any indebtedness which
was originally incurred to
purchase or carry margin stock
or for any other purpose which
might constitute this
transaction a "purpose credit"
within the meaning of said
Regulation G. Neither Borrower
nor any agent acting on
Borrower's behalf has taken or
will take any
<PAGE> 17
action which might cause the
transaction contemplated herein
to violate said Regulation G,
Regulation T (12 C.F.R.,
Chapter II, Part 220) or
Regulation X (12 C.F.R.,
Chapter II, Part 224) or any
other regulation of the Board
of Governors of the Federal
Reserve System or to violate
the Securities Exchange Act of
1934, in each case as now in
effect or as the same may
hereafter be in effect.
3.13. Tax Liability.
Borrower has filed all tax
returns which are required to
be filed and has paid all taxes
which have become due pursuant
to such returns and all other
taxes, assessments, fees and
other governmental charges upon
Borrower and upon Borrower's
properties, assets, income and
franchises which have become
due and payable by Borrower,
except those wherein the
amount, applicability or
validity are being contested by
Borrower by appropriate
proceedings in good faith and
in respect of which adequate
reserves have been established.
In the opinion of Borrower, all
tax liabilities of Borrower
were adequately provided for as
of November 1, 1997, and are
now so provided for on the
books of Borrower.
3.14. Governmental
Action. No action of, or
filing with, any governmental
or public body or authority is
required to authorize, or is
otherwise required in
connection with, the execution,
delivery and performance by
Borrower of any of the Loan
Documents (other than
recordation of the Deed of
Trust, and the Assignment in
the Office of the Recorder of
Yolo County, California, the
filing of financing statements
with respect to the Collateral
(as defined in the Security
Agreement) in the Office of the
Secretary of State of
California and in the Office of
the Recorder of Yolo County,
California, all of which will
have been duly recorded or
filed on or prior to the Loan
Closing Date).
3.15. Offering of Note.
Neither Borrower nor any agent
acting on its behalf has,
either directly or indirectly,
sold or offered for sale or
disposed of, or attempted or
offered to dispose of, the Note
or any part thereof, or any
similar obligation of Borrower
to, or has solicited any offers
to buy any thereof from, or has
otherwise approached or
negotiated in respect thereof
with, any Person or Persons
other than MetLife and no more
than 51 other institutional
investors; and Borrower agrees
that neither it nor any agent
acting on its behalf will sell
or offer for sale or dispose
of, or attempt or offer to
dispose of, any thereof to, or
solicit any offers to buy any
thereof from, or otherwise
approach or negotiate in
respect thereof with, any
Person or Persons so as thereby
to bring the issuance or
delivery of the Note within the
provisions of Section 5 of the
Securities Act of 1933, as
amended. Borrower makes the
representation set
<PAGE> 18
forth in this section 3.15 in
reliance upon the following
representation by MetLife:
MetLife is making this Loan and
acquiring the Note for its own
account for the purpose of
investment and not with a view
to sale or distribution
thereof; provided, however,
that any future disposition of
the Note or any interests
therein, or any other property
or rights held by MetLife,
shall at all times be and
remain within the sole
discretion of MetLife.
3.16. Hazardous Waste.
Neither the Property nor any
portion thereof, nor any other
property owned or controlled by
Borrower, has been or will be
subjected to any Use of
Hazardous Materials, other than
those agricultural chemicals
customarily used in the
vineyard and winery operations
of the type currently conducted
by Borrower at the Property,
all of which have been and will
be Used in accordance with all
Laws.
3.17. Separate Property.
Each parcel of the Property
described in the Deed of Trust
is taxed and billed separately
from any other real property,
whether or not subject to the
Deed of Trust.
3.18. No Flood Zone. No
part of the Property is located
within a flood zone.
3.19. No Affiliation with
MetLife. No director, or
officer of Borrower, and (to
the best of Borrower's
knowledge and belief, without
investigation) no other
shareholder holding ten percent
(10%) or more of Borrower's
outstanding stock:
(1) is an officer or
director of MetLife
or
(2) is a relative of an
officer or director
of MetLife within the
following categories:
a son, daughter or
descendant of either;
a stepson,
stepdaughter,
stepfather,
stepmother; a
father, mother or
ancestor of either,
or a spouse. It is
expressly understood
that for the purpose
of determining any of
the foregoing
relationships, a
legally adopted child
of a person is
considered a child of
such person by blood.
3.20. No Foreign Person.
Borrower is not a "foreign
person" under the International
Foreign Investment Survey Act
of 1976, the Agricultural
Foreign Investment Disclosure
Act of 1978, the Foreign
Investments in Property Tax Act
of 1980, the amendments of such
Acts or regulations promulgated
pursuant to such Acts.
<PAGE> 19
3.21. Disclosure.
Neither any of the Loan
Documents (including all
Exhibits thereto), nor any
certificate or other data
furnished to MetLife in writing
by or on behalf of Borrower in
connection with the
transactions contemplated by
this Agreement contains any
untrue or Materially misleading
statement of a Material fact,
or omits a Material fact
necessary to make the
statements contained therein
not misleading, or, as to any
future representations made
therein, contains any statement
which Borrower presently has
any reason to believe will be
untrue or Materially misleading
at the time the representation
is intended to be effective.
To the best knowledge of
Borrower, there is no fact
which Materially and adversely
affects or (so far as Borrower
can now reasonably foresee) in
the future may Materially and
adversely affect the business,
operations, properties, assets,
prospects or condition,
financial or other, of Borrower
which has not been disclosed to
MetLife in writing. Without
limiting the foregoing, as of
the date hereof, the
representations and warranties
contained in Borrower's
Affidavit are true and correct.
SECTION 4. CONDITIONS OF THE
LOAN.
MetLife's obligation to
make the Loan as provided above
also shall be contingent upon
satisfaction of each of the
following conditions precedent.
4.1. Representations,
Defaults, and Condition of
Title. Each of the following
shall be true as of the Loan
Closing Date:
(1) Representations
True. The representations and
warranties of Borrower in this
Agreement and in all other Loan
Documents (excepting only those
representations and warranties
that relate solely to another
disbursement) shall be true,
with the same effect as though
such representations and
warranties had been made on and
as of the Loan Closing Date in
question;
(2) No Default. No
event which is, or with notice
or lapse of time or both would
be, an Event of Default shall
have occurred and be
continuing;
(3) Condition of
Title. Except to the extent
otherwise expressly agreed in
writing by MetLife, MetLife's
liens securing the Loan shall
be and remain first-priority
liens; there shall be no
mechanic's or materialman's
lien of record against any of
the Property; and Borrower
shall have caused to be
delivered to MetLife current
Uniform Commercial Code
searches upon Borrower showing
no liens or other
<PAGE> 20
objectionable matters that
could affect the priority of
MetLife's security interests
under the Loan Documents; and
(4) Affidavit.
MetLife shall have received an
affidavit of a responsible
officer of Borrower to each
such effect, dated as of the
Loan Closing Date in question.
4.2. Opinion of
Borrower's Counsel. As at the
Loan Closing Date for such
disbursement, MetLife shall
have received from Evers &
Andelin LLP, attorney at law,
counsel for Borrower, a
favorable opinion in form and
substance acceptable to MetLife
and MetLife's legal counsel,
and as to such other matters
incident to the transactions
contemplated by this Agreement
as MetLife may reasonably
request.
4.3. Opinion of Lender's
Counsel. MetLife shall have
received on the Loan Closing
Date from Thomas, Snell,
Jamison, Russell and Asperger,
P.C., 2445 Capitol Street,
Fresno, California 93721 (P.O.
Box 1461, Fresno, California
93716-1461), counsel for
MetLife, a favorable opinion as
to such matters incident to the
transactions contemplated by
this Agreement as MetLife may
reasonably request.
4.4. Legality. MetLife
shall have satisfied itself
that the Note being given to
MetLife on the Loan Closing
Date qualifies as a legal
investment for mutual life
insurance companies under the
New York Insurance Law (without
resort to any provision of such
law, such as Section 1405(a)(8)
thereof, permitting limited
investments by MetLife without
restriction as to the character
of the particular investment),
and such purchase shall not
subject MetLife to any penalty
or other onerous condition
under or pursuant to any Law;
and MetLife shall have received
such certificates or other
evidence as MetLife may
reasonably request to establish
compliance with this condition.
4.5. Proceedings. All
proceedings to be taken in
connection with the
transactions contemplated by
this Agreement and the other
Loan Documents, and all
documents incidental thereto,
shall be satisfactory in form
and substance to MetLife and
Metlife's legal counsel, and
MetLife shall have received
copies of all documents which
MetLife may reasonably request
in connection with said
transactions and copies of all
records in connection therewith
in form and substance
satisfactory to MetLife.
4.6. Environmental Audit
Results. Borrower shall have
an engineer satisfactory to
MetLife perform an
environmental investigation of
the Property, including soil
and groundwater analysis if
deemed necessary by MetLife
based on the engineer's report,
to determine the existence and
levels of
<PAGE> 21
hazardous substances on the
Property and to assess compli-
ance with all applicable
federal, state and local
environmental Laws. MetLife's
obligation to make the Loan is
conditioned on the engineer
issuing a report to MetLife,
prior to the Loan Closing Date,
certifying that his inspection
disclosed no evidence that the
Property contains above
surface, surface or subsurface
contamination by any hazardous
waste, asbestos, oil or
petroleum hydrocarbons,
pesticides or toxic or
hazardous substances as defined
in any federal, state or local
environmental Law, and that
Borrower is otherwise in
compliance with the Laws
referred to herein, and the
environmental audit report
otherwise is satisfactory to
MetLife. Borrower shall bear
the costs of any such
environmental investigation.
SECTION 5. ADDITIONAL
INFORMATION AND INSPECTION.
5.1. Financial Statements
and Reports. From and after
the date hereof and so long as
MetLife (or a nominee
designated by MetLife) shall
hold the Note, Borrower will
deliver to MetLife the
statements and disclosures
described below, in duplicate.
(1) Quarterly
Statements. Within sixty (60)
days after the close of each
fiscal quarter, Borrower shall
provide to MetLife Borrower's
unaudited quarterly financial
statements prepared in
accordance with generally
accepted accounting principles
and on a basis consistent with
that of previous years (except
as otherwise stated therein or
in the notes thereto);
(2) Annual
Statements. Within one hundred
twenty (120) days after the
close of each fiscal year,
Borrower shall provide to
MetLife:
(1) Annual Financial
Statements.
Borrower's
consolidated
financial statements
in reasonable detail,
prepared on a basis
consistent with that
of previous years
(except as otherwise
stated therein or in
the notes thereto),
and accompanied by a
report or opinion of
independent certified
public accountants
selected by Borrower,
and reasonably
accepted by MetLife,
stating that such
financial statements
present fairly the
consolidated
financial condition
and results of
operations and cash
flows of Borrower in
accordance with
generally accepted
accounting principles
consistently applied
(except for changes
with which such
accountants concur)
and that the
examination of such
accountants in
connection with such
financial
<PAGE> 22
statements has been
made in accordance
with generally
accepted accounting
review standards; and
(2) Certificate of
Compliance. A
certificate signed by
a responsible officer
of Borrower, stating
and setting forth the
following:
(a) as of the end of
the preceding
fiscal year, the
extent to which
Borrower has
complied with
the requirements
of sections 7.1
and 7.2,
inclusive,
including in
each case a
brief
description,
together with
all necessary
computations, of
the manner in
which such
compliance was
determined and
the respective
amounts as of
the end of or
for such fiscal
year of their
annualized
rentals/operatin
g income
pursuant to
section 7.1.
(b) that a review of
the activities
of Borrower
during the
preceding fiscal
year has been
made under
supervision to
determine
whether Borrower
has fulfilled
all of
Borrower's
obligations
under the Loan
Documents; and
(c) that, to the
best of its
knowledge, and
except as set
forth in
paragraph 3.10
above, Borrower
is not and has
not been in
default in the
fulfillment of
any of the
terms,
covenants,
provisions or
conditions of
the Loan
Documents, and
no Event of
Default or event
which, with
notice or lapse
of time or both,
would become an
Event of Default
exists or
existed or, if
any such default
or Event of
Default or event
exists or
existed,
specifying the
nature and
status thereof,
including the
period of
existence
thereof and what
action Borrower
is taking or
proposes to take
with respect
thereto;
(3) Other Statements
and Disclosures. In addition
to the above-described
statements and certificate,
Borrower shall provide to
MetLife the following-listed
disclosures:
(1) Reports to Government
Agencies. As soon as
practicable, copies
of all: (a) financial
statements which
Borrower sends or
makes available
generally to any
governmental agency
or agencies; and
(b) regular periodic
reports, if any,
which Borrower may
file with any
governmental agency
or agencies and which
disclose any Material
adverse
<PAGE> 23
change in the assets,
operations, or
financial position of
Borrower;
(2) Notice of Event of
Default. Immediately
upon Borrower
becoming aware of the
existence of a
condition, event or
act which constitutes
an Event of Default
or an event of
default under any
other Material Debt
of Borrower, or an
event which, with
notice or lapse of
time or both, would
constitute such an
Event of Default or
event of default, a
written notice
specifying the nature
and status thereof,
including the period
of existence thereof
and what action
Borrower is taking or
proposes to take with
respect thereto;
(3) ERISA Disclosures.
Immediately upon
Borrower becoming
aware of the
occurrence of any
(a) "reportable
event," as defined in
Section 4043(b) of
ERISA, or (b) non-
exempted "prohibited
transaction," as
defined in Sections
406 and 408 of ERISA
and Section 4975 of
the Internal Revenue
Code of 1986, as
amended in connection
with any "employee
pension benefit
plan," as defined in
Section 3 of ERISA,
or any trust created
thereunder, a written
notice specifying the
nature thereof, what
action Borrower is
taking or proposes to
take with respect
thereto and, when
known, any action
taken or demand made
by the Internal
Revenue Service or
the Pension Benefit
Guaranty Corporation
with respect thereto;
(4) Adverse Developments.
Immediately upon
Borrower becoming
aware of the
occurrence of any of
the following-
described events
which could
Materially and
adversely affect the
business, properties,
prospects or
financial condition
of Borrower, taken as
a whole (including
any such action
commenced by
counterclaim),
written notice
specifying the nature
thereof and what
action Borrower is
taking with respect
thereto: (a) any
surrender of assets
of Borrower in
satisfaction of any
Debt, (b) the
dissolution of any
operating partnership
or real estate
ownership partnership
in which Borrower has
a Material
investment, (c) the
termination or
expiration of any
lease of real
property to which
Borrower is a party,
or (d) the
commencement of any
litigation, including
any arbitration or
mediation, and of any
proceedings before
any governmental
agency; and
<PAGE> 24
(5) Information Requested
by MetLife. Upon
request, such other
information as to the
business and
properties of
Borrower, including
financial statements
of Borrower, or other
reports which
Borrower has filed
with any governmental
department, bureau,
commission or agency,
as MetLife may from
time to time
reasonably request.
5.2. Inspection. From
and after the date hereof and
so long as MetLife (or a
nominee designated by MetLife)
shall hold the Note, MetLife,
through its lawful
representatives, shall have the
right, upon forty-eight (48)
hours telephonic notice to
Borrower (or, in the event of
emergency, upon such lesser
notice as may be reasonable in
the circumstances), to: (i)
visit and inspect, at MetLife's
expense, any of the properties
of Borrower; (ii) examine
Borrower's books of account and
discuss the affairs and
finances of Borrower with its
managers and independent public
accountants, all at such
reasonable times and as often
as MetLife may reasonably
request; and (iii) contact such
third parties doing business
with Borrower and engage in
such other auditing procedures
as MetLife deems reasonable to
ensure the validity of
MetLife's security interests or
the accuracy of Borrower's
representations, warranties and
certifications. In connection
with such inspections, MetLife
and MetLife's engineers,
contractors and other
representatives shall have the
right to perform such
environmental audits and other
environmental examinations of
the Property as MetLife deems
necessary or advisable from
time to time. Such
environmental audits and
examinations shall be at
MetLife's cost and expense if
such audits and examinations
reveal no violation of any
representation or warranty or
covenant contained in the Loan
Documents, otherwise such costs
and expenses shall be borne
solely by Borrower. MetLife
shall keep confidential the
trade secrets and other
confidential information
received from Borrower;
provided, however, that MetLife
shall be entitled to disclose
such information for purposes
reasonably related to the Loan,
including administration,
collection, enforcement, and
sale or other transfer of the
Loan, or as required to comply
with applicable laws,
regulations, and orders.
SECTION 6. AFFIRMATIVE
COVENANTS.
Borrower covenants and
agrees that so long as the Note
shall be outstanding:
6.1. To Pay Note.
Borrower will pay or cause to
be paid the principal and
interest (and Prepayment
Charge, if applicable) as and
when they become due in respect
of the Note according to the
terms thereof and hereof
(inclusive of
<PAGE> 25
any other permitted payments of
which Borrower has notified
MetLife).
6.2. Maintenance of
Office. Borrower will maintain
an office at the Winery (or
such other place in the United
States of America as Borrower
may designate in writing to the
holder of the Note), where
notices, presentations and
demands to or upon Borrower in
respect of the Note may be
given or made.
6.3. To Keep Books.
Borrower will, and will cause
each of its Subsidiaries to,
keep proper books of record and
account in accordance with
generally accepted accounting
principles.
6.4. Payment of Taxes and
Liabilities. Borrower will pay
and discharge promptly all
taxes, assessments and
governmental charges or levies
imposed upon Borrower, its
income or profits or its
property before the same shall
become in default, as well as
all lawful claims and
liabilities of any kind
(including claims and
liabilities for labor,
materials and supplies) which,
if unpaid, might by law become
a Lien upon its property;
provided, however, that
Borrower shall not be required
to pay any such tax,
assessment, charge, levy or
claim if the amount,
applicability or validity
thereof shall currently be
contested in good faith by
appropriate proceedings, and if
Borrower shall have set aside
on its books reserves in
respect thereof (segregated to
the extent required by
generally accepted accounting
principles) deemed adequate in
the opinion of MetLife.
6.5. Corporate Existence.
Borrower shall do all things
necessary to preserve and keep
in full force and effect its
corporate existence, rights
(charter and statutory) and
franchises, in good standing;
provided, however, that neither
Borrower nor any Subsidiary
shall be required to preserve
any right or franchise if the
Board of Directors shall
reasonably determine that the
preservation thereof is no
longer desirable in its conduct
of business.
6.6. Maintenance of
Properties and Leases.
Borrower shall maintain and
keep all of Borrower's
properties in which MetLife
holds a security interest in
good condition, repair and
working order, normal wear and
tear excepted, and supplied
with all necessary equipment
and make all necessary repairs,
renewals, replacements,
betterments and improvements
thereof, all as may be
necessary so that the business
carried on in connection
therewith may be properly and
advantageously conducted at all
times.
<PAGE> 26
6.7. To Insure. Borrower
will (in addition to the
insurance required to be
maintained pursuant to the Deed
of Trust and the Security
Agreement), at all times until
its obligations under the Loan
Documents are fully satisfied,
keep and maintain in force and
effect the following-described
insurance coverages.
(1) All-Risk
Insurance. Borrower shall keep
all of Borrower's insurable
properties insured against all
risks usually insured against
by persons operating like
properties in the same
geographical areas where the
properties are located, in
amounts reasonably acceptable
to MetLife; provided, however,
that Borrower shall not be
required to carry earthquake
insurance.
(2) Liability
Insurance. Borrower shall
maintain public liability
insurance against claims for
personal injury, death or
property damage suffered by
others upon or in or about any
premises occupied by Borrower
or occurring as a result of
Borrower's and its employees'
and agents' maintenance or
operation of any airplanes,
automobiles, trucks or other
vehicles or other facilities
(including any machinery used
therein or thereon) or as the
result of the use of products
sold by Borrower or services
rendered by Borrower.
(3) Worker's
Compensation Insurance.
Borrower shall maintain all
such worker's compensation or
similar insurance as may be
required under the Laws of any
State or jurisdiction in which
Borrower may be engaged in
business.
(4) Other Insurance.
Borrower shall maintain such
other types of insurance with
respect to Borrower's business
as is usually carried by
persons of comparable size
engaged in the same or similar
business and similarly
situated.
(5) Coverage Terms.
All insurance for which
provision has been made
pursuant to sections 6.7.b and
6.7.d shall be maintained in at
least such amounts as such
insurance is usually carried by
persons of comparable size
engaged in the same or a
similar business and similarly
situated. All insurance herein
provided for shall be effected
under a valid and enforceable
policy or policies issued by
insurers of recognized
responsibility, except that
Borrower may effect worker's
compensation or other similar
insurance in respect of
operations in any State or
other jurisdiction either
through an insurance fund
operated by such State or other
jurisdiction or by causing to
be maintained a system or
systems of self-insurance which
are in accord with applicable
Laws. Borrower shall furnish
MetLife with certificates or
other evidence satisfactory to
MetLife
<PAGE> 27
showing compliance with the
foregoing provisions and, if
required by MetLife, shall
cause MetLife to be named an
additional insured on such
policies, shall cause the
certificates thereof to provide
that they may not be canceled
without at least 30 days'
advance written notice to
MetLife, and shall, upon
MetLife's written request,
deposit the policies with
MetLife.
6.8. Legal and
Environmental Compliance.
Borrower will, in addition to
any other requirement or
representation contained in the
Loan Documents, cause its
operations and properties to
comply with all Laws.
(1) Licenses.
Borrower shall maintain in good
standing all Licenses and other
approvals required to be
obtained in connection with the
operation of the Winery
substantially as it now is
operated and as such operations
may hereafter be expanded.
(2) Other
Compliance. Borrower shall
maintain the Winery in good
condition and working order and
take all necessary action to
keep the Winery and its present
use in compliance with all
applicable legal and
contractual requirements with
regard to the use thereof,
including, without limitation,
all zoning, subdivision,
environmental, waste discharge,
groundwater, air quality, flood
hazard, fire safety, planning,
building and other Laws and
requirements of any
governmental agency.
(3) Tied-House
Regulations. Borrower
acknowledges that MetLife has
ownership interests in
properties used for the sale of
alcoholic beverages in
California and other states and
has ownership interests with or
loans to entities owning such
properties. Borrower further
acknowledges that various
states have restrictions
("Tied-House Regulations")
limiting vertical integration
in the production and
distribution of alcoholic
beverages, some of which
restrictions may from time to
time apply to this loan and to
such interests held by MetLife.
Therefore, to the extent that
such an undertaking is
reasonably necessary in
MetLife's opinion to avoid
violation of any applicable
laws, including Tied-House
Regulations, Borrower shall,
upon the request of MetLife,
enter into written undertakings
that would restrict or prohibit
sales of its products to the
retail outlets in which MetLife
has an ownership or other
interests that are then subject
to applicable Tied-House
Regulations.
<PAGE> 28
SECTION 7. RESTRICTIVE
COVENANTS.
Borrower covenants and
agrees that, so long as the
Note shall be outstanding, it
shall keep and observe the
following covenants:
7.1. Financial
Restrictions. At all times
until the Loan has been fully
repaid, Borrower shall observe
the covenants set forth in this
section 7.1.
(1) Current Ratio.
The ratio of Borrower's
Consolidated Current Assets to
its Consolidated Current
Liabilities shall at all times
be at least 2.0 to 1.0.
(2) Total Debt. The
ratio of Consolidated Total
Debt (including loan
guarantees) to Consolidated
Total Capitalization shall not
at any time exceed fifty-five
and 7/10 percent (55.7%).
(3) Consolidated
Tangible Net Worth. Borrower's
Consolidated Tangible Net Worth
shall not at any time be less
than the "Minimum Net Worth"
for the fiscal year in
question. The Minimum Net
Worth for the fiscal year that
commenced on January 1, 1997,
shall be not less than
$17,200,000.00. The Minimum
Net Worth for each succeeding
fiscal year, through and
including the year commencing
on January 1, 2002, shall
increase (but not decrease)
over the prior fiscal year's
Minimum Net Worth by an amount
equal to twenty-five percent
(25%) of the prior year's
Consolidated Net Income. For
years after the year commencing
on January 1, 2002, until the
Loan is paid in full, the
Minimum Net Worth shall remain
the same.
(4) Interest
Coverage Ratio. Borrower will
not permit, as of the end of
each fiscal quarter, the
Consolidated Net Income
Available for Interest and Rent
for each rolling eight fiscal
quarter period to be less than
one hundred twenty-five percent
(125%) of the sum of:
(i) Interest Charges and
(ii) the Rent Charges due to
John Hancock Life Insurance Co.
of $161,000 payable quarterly,
for such rolling eight fiscal
quarter period. The initial
eight-quarter period shall
include fiscal years 1996 and
1997.
(5) Operating
Leases. Borrower's financial
obligations scheduled to fall
due during any fiscal year
under leases with terms in
excess of one year shall not at
any time exceed $744,000.00,
including the John Hancock Life
Insurance Co. lease obligation.
(6) Restricted
Payments. Borrower shall not
pay any dividend (other than a
dividend payable solely in
Borrower's common stock), make
any distributions, or purchase
<PAGE> 29
or otherwise acquire shares of
any class of its capital stock
(any such dividend,
distribution, purchase, or
acquisitions will be referred
to as a "Payment"), except as
follows:
(1) Required Payments on
Redeemable Preferred
Stock: So long as no
Event of Default
exists, Borrower
shall be entitled to
make the payments
required by it to be
made on the existing
500,000 shares of
Redeemable Preferred
Stock currently held
by John Hancock Life
Insurance Co.; and
(2) Other Payments:
Borrower shall be
entitled to make
Payments to the
extent that the
aggregate total of
all such Payments
made after the Loan
Closing Date would
not exceed the sum
of:
(a) 75% (or minus
100% of any
deficit) of
Consolidated Net
Income for the
period beginning
with the first
quarter ending
after the Loan
Closing Date and
ending with the
last full
quarter prior to
the date of such
proposed
Payment,
computed on a
cumulative
basis; plus
(b) the net cash
proceeds
received after
the Loan Closing
Date from
Borrower's sales
of shares of its
capital stock.
(7) Restricted
Investments. The aggregate
amount invested by Borrower in
Restricted Investments (defined
in section 9.2.ah below) shall
not at any time exceed 10% of
Borrower's Consolidated
Tangible Net Worth.
7.2. Transactions with
Affiliates. Borrower will not
engage in any transaction with
an Affiliate on terms more
favorable to the Affiliate than
would have been obtainable by
such Affiliate in arm's length
dealing in the ordinary course
of business with a Person who
is not an Affiliate.
7.3. Encumbrances On and
Transfers of the Collateral.
(1) Improper
Transfers. Except for
Permitted Encumbrances,
Borrower will not create,
incur, assume or suffer to
exist any Lien on any of the
Collateral or any interest
therein, whether voluntarily or
by operation of law; provided,
however, that Borrower shall
have thirty (30) days after
notice of the imposition of any
judgement lien, tax lien, or
other involuntary lien upon any
of the Collateral, in which to
remove the same. Except as
permitted below, Borrower will
not sell, convey, lease, assign
or otherwise
<PAGE> 30
transfer all or any of the
Collateral or any interest
therein, whether voluntarily or
by operation of law.
(2) Permitted
Transfers. Neither of the
types of transactions described
in this section shall be
prohibited by the preceding
section, provided that they are
conducted on the terms
described below. Borrower may
sell or otherwise dispose of,
free from the lien of the
Collateral Documents,
furniture, furnishings,
equipment, tools, appliances,
machinery, fixtures, or
appurtenances subject to the
lien hereof, which may become
worn out, undesirable,
obsolete, disused or
unnecessary for use in the
operation of the Winery or the
vineyard upon replacing the
same by, or substituting for
the same, or other furniture,
furnishings, equipment, tools,
appliances, machinery, or
fixtures of at least equal
capacity and value to Borrower
and costing not less than the
amount realized from the
property sold or otherwise
disposed of, which shall
forthwith become, without
further action, subject to the
lien and security interest of
the Collateral Documents and
which shall remain free and
clear of any Lien, including,
without limitation, vendors'
liens. Notwithstanding the
foregoing, Borrower may dispose
of personal property Collateral
in the ordinary course of
business or in minor amounts
without replacement provided
that Borrower at all times
maintains, free and clear of
third-party Liens (except that
purchase-money liens on
equipment other than MetLife's
Collateral shall be permitted),
sufficient Collateral for the
full operation of its business
at its current capacity.
7.4. Change of Control.
The Loan shall, at the election
of MetLife, become fully due
and payable at any time when a
Change of Control (defined in
section 9.2.e) has occurred at
any time prior to January 1,
2000, without MetLife's prior
written consent. Borrower
shall prepay the Note's unpaid
principal and accrued interest
together with a Prepayment
Charge calculated as provided
in section 2.2.c, within 30
days after receipt of written
notice of such election by
MetLife.
SECTION 8. DEFAULTS AND
REMEDIES.
8.1. Events of Default.
Any of the following-described
events shall constitute an
"Event of Default", regardless
of the reason for the
occurrence of such event,
whether such occurrence shall
be voluntary or involuntary or
be effected by operation of law
or pursuant to any judgment,
decree or order of any court or
any order, rule or regulation
of any administrative or
governmental body:
(1) Defaults in
Payment. Default in the
payment of any interest upon,
or principal of (or prepayment
premium, if
<PAGE> 31
any, on), the Note, when and as
the same shall become due and
payable, whether at maturity or
at a date fixed for payment or
prepayment (including, without
limitation, with reference to
the Note, a principal payment
or prepayment as provided in
sections 2.1 or 2.2), or by
acceleration or otherwise upon
the Note held by MetLife when
such payment becomes due and
payable, and such default
continues for a period of ten
(10) days after notice by
MetLife; or
(2) Other Defaults.
Default in the performance or
observance of any other
covenant, agreement or
condition provided in any of
the Loan Documents to be
performed by Borrower, and such
default continues for a period
of thirty (30) days after
notice by MetLife; or
(3) Defaults Under
Other Debt. Borrower fails to
pay when due, whether by
acceleration or otherwise, any
indebtedness of Borrower (other
than the Note) or any condition
or default exists under any
such other indebtedness or
under any agreement under which
the same may have been issued
permitting such indebtedness to
become or be declared due prior
to the stated maturity thereof;
provided, however, to the
extent that the aggregate of
all past-due amounts under such
other indebtedness does not
exceed a total of $500,000.00
at any one time, then such
defaults under other
indebtedness shall not be
deemed an Event of Default
under this section; or
(4) Bankruptcy.
Borrower files a petition
seeking relief for Borrower
under any Bankruptcy Law (as
defined in section 9.2), or an
answer consenting to, admitting
the Material allegations of or
otherwise not controverting, or
fails timely to controvert, any
petition filed against Borrower
seeking relief under any
Bankruptcy Law, or any petition
by or against Borrower seeking
any of the relief specified in
section 8.1.e is not dismissed
within ninety (90) days of its
filing; or
(5) Order for
Relief. A court of competent
jurisdiction enters an order
under any Bankruptcy Law for
relief, or adjudging Borrower a
bankrupt or insolvent, or
approving as properly filed a
petition seeking relief against
Borrower, or approving any
arrangement, composition,
extension or adjustment with
creditors, or appointing a
receiver, liquidator, assignee,
sequestrator, trustee,
custodian or similar official
of Borrower or of any
substantial part of Borrower's
property, which is not stayed
within sixty (60) days from the
date of entry thereof; or
(6) General
Assignment for Creditors.
Borrower makes a general
assignment for the benefit of
its creditors;
<PAGE> 32
or Borrower consents to the
appointment of or taking
possession by a receiver,
liquidator, assignee,
sequestrator, trustee,
custodian or similar official
of Borrower or of all or any
substantial part of Borrower's
property; or Borrower admits to
its insolvency or inability to
pay, or fails to pay, its debts
generally as such debts become
due; or
(7) Unsatisfied
Judgment. The rendering
against Borrower of a final
non-appealable judgment, decree
or order for the payment of
money in excess of $500,000.00
and the continuance of such
judgment, decree or order
unsatisfied and in effect for
any period of sixty (60)
consecutive days without a stay
of execution; or
(8) ERISA Defaults.
Borrower (1) engages in any
non-exempted "prohibited
transaction," as defined in
Sections 406 and 408 of ERISA
and Section 4975 of the
Internal Revenue Code of 1986,
as amended, (2) incurs any
"accumulated funding
deficiency," as defined in
Section 302 of ERISA, in an
amount in excess of $10,000.00,
whether or not waived, or
(3) terminates or permits the
termination of an "employee
pension benefit plan," as
defined in Section 3 of ERISA,
in a manner which could result
in the imposition of a Lien on
any property of Borrower
pursuant to Section 4068 of
ERISA securing an amount in
excess of $10,000.00; or
(9) Non-Compliance
with Environmental Laws.
Borrower fails to meet any
mandated requirements for
compliance, or otherwise fail
to comply with any requirement
or condition of, any Law for
the protection of the
environment which occurs at any
of the Property, and such
failure to comply could have a
Material adverse impact on
Borrower; or
(10)
Misrepresentation. Any
representation or warranty made
by Borrower herein or in any
other Loan Document or in any
certificate or instrument
furnished in connection
therewith proves to have been
false or misleading in any
respect as of the date made.
8.2. Acceleration. Upon
the occurrence of any one or
more Events of Default, all
principal and accrued interest
under the Note shall, at the
election of the holder thereof,
become immediately due and
payable upon the giving of
written notice of such
election; provided, however,
that upon the occurrence of an
Event of Default described in
sections 8.1.d, 8.1.e, or
8.1.f, the entire outstanding
principal amount of the Note,
together with accrued interest
thereon at the Overdue Interest
Rate, shall immediately become
due and payable without notice
or demand. Upon any
acceleration of the Note,
Borrower shall immediately pay
the outstanding
<PAGE> 33
principal and accrued interest
under the Note together with
the Prepayment Charge as
provided in section 2.2.c.
8.3. Suits for
Enforcement. If Event of
Default occurs, the holder of
the Note may proceed to protect
and enforce its rights by suit
in equity, action at law or
other appropriate proceeding,
whether for the specific
performance of any covenant
contained in any of Loan
Documents or in aid of the
exercise of any power granted
therein or may proceed to
enforce the payment of the Note
or to enforce any other legal
or equitable right of the
holder of the Note. Borrower
agrees that Borrower's
obligations under Section 2,
including, without limitation,
any applicable Prepayment
Charge, are of the essence of
this Agreement, and upon
application to any court of
equity having jurisdiction in
the premises, the original
holder of the Note shall be
entitled to a decree against
Borrower requiring specific
performance of such
obligations.
8.4. Costs and Expenses.
Borrower shall pay to the
holder of the Note, to the
extent permitted under
applicable Law, all reasonable
out-of-pocket expenses incurred
by such holder as shall be
sufficient to cover the cost
and expense of enforcing such
holder's rights under the Note
and any of the other Loan
Documents or the collecting and
foreclosing upon, or protecting
or otherwise dealing with, the
Collateral, or participating in
any litigation or bankruptcy
proceeding for the protection
or enforcement of the holder's
Collateral or claim upon the
Note against Borrower or
otherwise incurred in
connection with the occurrence
of an Event of Default, said
expenses to include reasonable
compensation to the attorneys
and counsel of such holder for
any services rendered in that
connection.
8.5. Remedies Not Waived.
No covenant, term or condition
of any of the Loan Documents,
or the breach thereof, shall be
deemed waived, except by
written consent of the holder
of the Note, and no course of
dealing between the holder of
the Note and Borrower or any
delay or failure on the part of
the holder in exercising any
rights under the Note or under
any of the other Loan Documents
shall operate as a waiver of
any rights of such holder. Any
waiver of any provision of the
Loan Documents as to any
instance shall in no event be
deemed a waiver of the same
provision with respect to any
other instance or of any other
provision of the Loan
Documents.
8.6. Remedies Cumulative.
No remedy herein or in the Note
or in any of the other Loan
Documents conferred upon the
holder of the Note is intended
to be exclusive of any other
remedy, and each and every
remedy shall be in addition to
<PAGE>
every other remedy given under
the Loan Documents or now or
hereafter existing at law or in
equity or by statute or
otherwise.
SECTION 9. DEFINITIONS.
For all purposes of this
Agreement, to the extent
applicable, except as otherwise
expressly provided or unless
the context otherwise requires
the terms listed below shall
have the meanings indicated in
this Section.
9.1. Accounting Terms.
All accounting terms used
herein and not expressly
defined in this Agreement shall
have the meanings respectively
given to them in accordance
with GAAP as it exists at the
date of applicability thereof.
9.2. Specifically-Defined
Terms.
(1) "Affiliate"
means any Person (other than
Borrower or any Subsidiary)
which, directly or indirectly,
controls or is controlled by or
is under common control with
Borrower or any subsidiary, or
which beneficially owns or
holds or has the power to
direct the voting power of 5%
or more of any class of Voting
Stock of Borrower or a
Subsidiary, or which has 5% or
more of its Voting Stock (or in
the case of a Person which is
not a corporation, 5% or more
of its equity interest)
beneficially owned or held,
directly or indirectly, by
Borrower or a Subsidiary. For
purposes of this definition,
"Voting Stock" means, as
applied to the stock of any
corporation, stock of any class
or classes (however designated)
having ordinary voting power
for the election of any of the
directors of such corporation
other than stock having such
power only by reason of the
happening of a contingency.
(2) "Bankruptcy Law"
means Title 11 of the United
States Code or any other Laws
of the United States of America
or any State thereof or of any
other country providing for the
reorganization, winding-up, or
liquidation of insolvent
corporations or providing for
any arrangement, composition,
extension or adjustment with
creditors, as now constituted
or hereafter amended, or any
successor or replacement
statutes of any such
jurisdiction providing relief
for insolvent debtors in place
of such presently-existing
Laws.
(3) "Board of
Directors" means either the
board of directors of Borrower
(or, when so specified or the
context so indicates, a
Subsidiary) or, if duly
authorized to exercise the
power of the Board of
Directors, any duly authorized
committee thereof.
<PAGE> 35
(4) "Business Day"
means any day on which banks
are required to be open to
carry on their normal business
in the States of California and
New York.
(5) "Change of
Control" means:
(1) John E. Giguiere or
Karl E. Giguiere, or
both, cease to be
members of the Board
of Directors and
officers of Borrower;
or
(2) John E. Giguiere and
Karl E. Giguiere
cease to be in
control of day-to-day
management of
Borrower's business
operations.
(6) "Collateral"
means all property and assets,
and proceeds thereof,
subjected, or intended to be
subjected, at any time to the
Liens of any of the Loan
Documents.
(7) "Consolidated
Current Assets" means, as of
the date of determination
thereof, the aggregate of all
assets which in accordance with
GAAP would be so classified and
appear as current assets on the
consolidated balance sheet of
Borrower and its Subsidiaries.
(8) "Consolidated
Current Liabilities" means, as
of the date of determination
thereof, the aggregate of all
liabilities which in accordance
with GAAP would be so
classified and appear as
current liabilities on the
consolidated balance sheet of
Borrower and its Subsidiaries.
(9) "Consolidated
Net Income" means the net
income of Borrower and its
Subsidiaries, after eliminating
inter-company items, all as
consolidated and determined in
accordance with GAAP.
(1) "Consolidated
Net Income Available for
Interest and Rent" with respect
to any period, means the sum of
Consolidated Net Income (before
income taxes) for the period
plus the sum of (i) Interest
Charges for the period, and
(ii) the Rent Charges due for
the period to John Hancock Life
Insurance Company in the amount
of $161,000.00 per quarter.
(10) "Consolidated
Tangible Net Worth" means, as
of the date of determination
thereof, Consolidated Net Worth
(Stockholders' Equity) plus
preferred stock, less the
amounts of the following-listed
items: intangibles, goodwill,
and indebtedness receivables
from any of Borrower's
shareholders or Affiliates.
<PAGE> 36
(11) "Consolidated
Total Capitalization" means
the sum of Consolidated Total
Debt plus Consolidated Tangible
Net Worth.
(12) "Consolidated
Total Debt" means all
consolidated Debt.
(13) "Debt" means,
with respect to any Person,
without duplication,
(1) its
liabilities for
borrowed money,
(2) its
liabilities for the
deferred purchase
price of property
acquired by such
Person (excluding
accounts payable
arising in the
ordinary course of
business but
including, without
limitation, all
liabilities created
or arising under any
conditional sale or
other title retention
agreement with
respect to any such
property);
(3) its capital
lease obligations;
(4) all
liabilities for
borrowed money
secured by any Lien
with respect to any
property owned by
such Person (whether
or not it has assumed
or otherwise become
liable for such
liabilities, and
(5) any
Guaranty of such
Person with respect
to liabilities of a
type described in any
of clauses 9.2.n.(1)
through 9.2.n.(4)
hereof.
Debt of any Person shall
include all obligations of such
Person of the character
described in clauses 9.2.n.(1)
through 9.2.n.(5) to the extent
that such Person remains
legally liable in respect
thereof notwithstanding that
any such obligation is deemed
to be extinguished under GAAP.
The interest and
redemption obligations
associated with the Redeemable
Preferred Stock held by John
Hancock Life Insurance Co.
shall not be included in Debt
for purposes of this Agreement,
so long as that stock is not
converted into indebtedness.
(14) "Equipment
Lease Assignments" has the
meaning
specified in section 1.2.c.
(15) "ERISA" means
the Employee Retirement Income
Security Act of 1974, as
amended.
<PAGE> 37
(16) "Event of
Default" has the meaning
specified in section 8.1.
(17) "GAAP" means,
as to a particular individual
corporation or other entity and
at a particular time of
determination, such accounting
practices and principles as
conform at such time of
determination to generally
accepted accounting principles.
(18) "Hazardous
Materials" has the meaning
specified in Exhibit D attached
hereto.
(19) "Interest
Charges" means, with respect to
any Debt, of Borrower or any of
its Subsidiaries for any
period, all amounts which
would, in accordance with GAAP,
be deducted in computing
Consolidated Net Income for
such period on account of
interest on such Debt,
including without limitation
imputed interest in respect of
Capitalized Lease Obligations
and amortization of debt
discount.
(20) "Law" means any
law, statute, ordinance,
treaty, regulation, order,
injunction, writ, decree,
award, or other mandate or
prohibition made by or on
behalf of any arbitrator having
jurisdiction or any
governmental entity or
instrumentality, whether
legislative, judicial, or
executive, and whether federal,
state or local, which may apply
to the matter in question.
(21) "Lien" means
any mortgage, lien, pledge,
security interest, encumbrance
or charge of any kind, whether
or not consensual, any
conditional sale or other title
retention agreement or any
Capital Lease.
(22) "Loan" has the
meaning specified in
section 1.1.
(23) "Loan
Documents" means this
Agreement, the Note, the
Collateral Documents, and all
other agreements, financing
statements, and other documents
at any time executed by
Borrower pursuant to this
Agreement, the Note, or the
Collateral Documents.
(24) "Material",
except where otherwise defined
or the context clearly
otherwise requires, shall mean
any of the following: (1) an
amount in excess of
$250,000.00; (2) an effect
that, if liquidated, would
exceed said sum; or (3) any
event or condition which may
require the cessation of normal
operations at the vineyard or
on any of the Winery's
significant product lines,
other than the voluntary
discontinuance of or reduction
in inventory with respect to
any product lines, for a period
exceeding thirty (30) working
<PAGE> 38
days. For purposes of this
definition, a product line will
be deemed significant if the
contribution margin (i.e.,
sales revenue less cost of
goods sold and selling
expenses) for such product line
exceeded $250,000.00 during the
preceding twelve-month period.
(25) "Note" shall
have the meaning assigned in
section 1.1.d.
(26) "Operating
Lease" means any lease of real
or personal property under
which Borrower or a Subsidiary
is lessee (or guarantor of the
lessee's obligations), other
than (1) leases between
Borrower and its Subsidiaries
or between Subsidiaries of
Borrower, (2) Capital Leases,
and (3) leases of office
equipment, data processing
equipment not used in
Borrower's Winery production
operations, automobiles and
trucks, and leases of office
and space in each case having
an initial term (including any
period for which the lease may
be renewed or extended at the
option of the lessor or lessee)
of less than one (1) year.
(27) "Overdue
Interest Rate" means the lesser
of the following: (1) five
percent (5%) per annum over the
interest rate in effect
immediately prior to the time
the Overdue Interest Rate is
applicable, and (2) the maximum
interest rate allowed by law.
(28) "Permitted
Encumbrances" means those Liens
described on Exhibit B to the
Deed of Trust and the Lien of
the Deed of Trust.
(29) "Person"
includes an individual, a
corporation, a partnership, a
joint venture, a trust, an
unincorporated organization or
a government or any agency or
political subdivision thereof.
(30) "Plans and
Specifications" means all
plans, drawings, schematics,
specifications, materials and
parts lists, and all
modifications thereof, prepared
or used in connection with
acquisition and installation of
the Improvements.
(31) "Prepayment
Charge" has the meaning
specified in section 2.2.d.
(32) "Property"
means all of the property
described in the Deed of Trust.
(33) "Restricted
Investments" means any
investment, whether by
acquisition of stock or Debt,
or by loan, advance, transfer
of property out of the ordinary
<PAGE> 39
course of business, capital
contribution, extension of
credit on terms other than
those normal in the business of
Borrower or such Subsidiary, or
otherwise (the foregoing items
being herein collectively
called "Investments", and
individually, an "Investment");
provided, however, that the
term "Restricted Investment"
shall not include any
investment in:
(1) assets which are used
by Borrower, or any
subsidiary of
Borrower, in the
ordinary course of
business;
(2) wholly-owned
subsidiaries of
Borrower;
(3) direct obligations
of, or obligations
unconditionally
guaranteed by, the
United States and
maturing within one
year from the date of
acquisition by
Borrower;
(4) commercial paper
maturing not more
than 270 days after
the date of issuance,
which is rated at
least "P-2" or "A-2"
by Moody's or
Standard & Poor's
rating services; and
(5) certificates of
deposit issued by
commercial banks
located in the United
States having
"investment grade"
ratings from a major
rating agency and
having capital,
surplus, and
undivided profits
aggregating at least
$250,000,000.00.
(34) "Rights" has
the meaning specified in
section 1.2.b.(2).
(35) "Title Policy"
means an American Land Title
Association loan title
insurance policy (1970 form),
insuring MetLife's security
interest in the Winery and the
Farm Property as a first-
priority lien thereon, in the
aggregate amount of the Loan
theretofore and then being
advanced by MetLife, and
showing fee simple title vested
in the Trustors under the Deed
of Trust and subject only to
the title exceptions
represented in the Deed of
Trust. The Title Policy shall
include the following-listed
endorsements: Comprehensive
Endorsement (Form 100);
Comprehensive Zoning
Endorsement (Form 3.1); Access
and Contiguity Endorsements;
Tax Parcel Endorsement; Usury
Endorsement; Mechanics' and
Materialmen's Lien
Endorsements; and Variable
Interest Rate Endorsements.
Fidelity National Title
Insurance Company of
California, a California
corporation, may issue up to
$2,900,000 of the total
coverage of the Title Policy.
Fidelity National Title
Insurance Company of New York,
a New York corporation, shall
issue the remaining coverage
under the Title Policy and
shall, together with the issuer
of the
<PAGE> 40
first $2,900,000 of coverage,
be jointly and severally liable
for the first $1,000,000 of
benefits paid under the Title
Policy.
(36) "Use" means any
use, production, release,
storage, handling or disposal
of Hazardous Materials by
Borrower any other person
whomsoever.
SECTION 10. MISCELLANEOUS.
10.1. Processing Fee.
The parties acknowledge and
agree that Borrower has paid to
MetLife a non-refundable
processing fee in the amount of
$55,000.00 (the "Loan Fee").
The Loan Fee is in addition to
Borrower's reimbursement of
MetLife's out-of-pocket
expenses incurred in connection
with the Loan, and shall be
retained by MetLife whether or
not the Loan herein
contemplated shall be
consummated. In the event that
the Loan's original principal
balance is less than
$11,000,000.00 (as provided in
section 1.1.a), then the Loan
Fees shall be reduced to an
amount equal to one-half of one
percent (0.05%) of the original
Loan balance.
In the event that the Loan
does not close, because MetLife
and Borrower cannot agree on
the Loan Documents, then
MetLife shall retain the sum of
$15,000.00 of the Loan Fee, and
shall refund the rest of the
Loan Fee to Borrower, after
payment of all Loan transaction
costs incurred by MetLife
(which shall be borne by
Borrower whether or not the
Loan closes).
10.2. Loss, Theft,
Destruction or Mutilation of
Note. Upon receipt of evidence
reasonably satisfactory to
Borrower of the loss, theft,
destruction or mutilation of
the Note, and, in the case of
any such loss, theft or
destruction, upon receipt of a
bond of indemnity reasonably
satisfactory to Borrower or, in
the case of any such
mutilation, upon surrender and
cancellation of such Note,
Borrower will make and deliver,
in lieu of such lost, stolen,
destroyed or mutilated Note, a
new Note of like tenor and
unpaid principal amount and
dated the date of, or, if
later, the date to which
interest has been paid on, the
lost, stolen, destroyed or
mutilated Note. In the case of
a holder of the Note which is
an institutional investor (such
as MetLife), its own unsecured
agreement of indemnity shall be
deemed satisfactory to
Borrower.
10.3. Stamp Taxes,
Recording Fees, and Other Loan
Expenses. Borrower will pay,
and save MetLife and any
subsequent holders of the Note
harmless against, any and all
liability (including any
interest or penalty for non-
payment or delay in payment)
with respect to all costs of
executing,
<PAGE> 41
delivering, recording, and
filing (as appropriate) the
Loan Documents and closing each
disbursement of the Loan,
including, without limitation:
attorneys' fees (provided that
Borrower's obligation for
attorneys' fees in negotiating,
documenting, and closing the
Loan shall not exceed
$20,000.00), survey costs,
appraisal fees, premiums for
title insurance policies and
endorsements and related
expenses, and environmental
audit reviews and related
expenses, documentary transfer
and other taxes (other than any
such tax incurred upon a
transfer of the Note by
MetLife), if any, recording and
filing fees which may be
payable or determined to be
payable in connection with the
transactions contemplated by
the Loan Documents, including,
without limitation, the issue
and delivery of the Note, the
execution, delivery, filing and
recording of the Collateral
Documents and financing
statements related thereto, or
any modification, amendment or
alteration thereof. Borrower's
obligations under this section
10.3 shall survive the payment
or prepayment of the Note.
10.4. Successors and
Assigns. All covenants,
agreements, representations and
warranties made in any of the
Loan Documents, or in any
certificates delivered in
connection therewith, by or on
behalf of Borrower shall
survive the issue and delivery
of the Note to MetLife, the
making of the Loan by MetLife
as provided in section 1.1, and
shall bind the successors and
assigns of Borrower, whether so
expressed or not, and all such
covenants, agreements,
representations and warranties
shall inure to the benefit of
MetLife's successors and
assigns, including any
subsequent holder of any of the
Note.
10.5. Notices. All
communications provided for
under any of the Loan Documents
(other than payments in respect
of the Note, which shall be
made in accordance with section
2.3) shall be in writing, and
if to MetLife, mailed (by
registered or certified mail,
postage prepaid, return receipt
requested) or delivered to the
parties, addressed as follows:
If to Metropolitan Life Insurance Company
MetLife: Agricultural Investments
8717 West 110th Street, Suite 700
Overland Park, Kansas 66210
Attention: Senior Vice-President
with a copy to: Metropolitan Life Insurance Company
Agricultural Investments
7100 N. Financial Drive
Fresno, California 93710-2921
Attention: Manager
<PAGE> 42
If to Borrower: R. H. Phillips, Inc.
26836 County Road 12A
Esparto, California 95627
Attention: Chief Financial Officer
or addressed to either party at
any other address in the United
States of America that such
party may hereafter designate
by written notice to the other
party. Communications mailed
as aforesaid shall be deemed
sufficiently made three (3)
days after the time such
communication is deposited in
the mails. Failure to conform
to the requirement that notices
be sent by registered or
certified mail shall not defeat
the effectiveness of any notice
actually received by the
addressee.
10.6. Severability. If
any provision of this Agreement
or of any of the other Loan
Documents, or the application
thereof as to any person or
circumstance, is determined to
be invalid or unenforceable to
any extent, the remainder of
this Agreement and such other
Loan Documents, and the
application of such provision
to other persons or
circumstances, shall not be
affected thereby and shall be
enforced to the maximum extent
permitted by law.
10.7. Governing Law.
This Agreement shall be
construed in accordance with
and governed by laws of the
State of California applicable
to contracts made and to be
performed solely within said
State.
10.8. Waiver and
Modification and Waiver.
MetLife may waive any condition
precedent to its obligations
under any of the Loan Documents
and may waive any Event of
Default. No waiver as to one
condition or Event of Default
or other provision of the Loan
Documents shall be deemed a
waiver as to any other instance
or other provision. No
provision of this Agreement may
be waived, changed or modified,
or the discharge thereof
acknowledged, orally, but only
by an agreement in writing
signed by the party against
whom the enforcement of any
waiver, change, modification or
discharge is sought.
10.9. Construction. This
Agreement shall not be strictly
construed against or in favor
of any party hereto. Except as
the context otherwise requires,
the term "including" (and all
variations of that word) will
be construed as though
immediately followed by the
words "without limitation."
The headings of the sections
and sections of this Agreement
and the other Loan Documents
are inserted for the
convenience of the reader only
and do not constitute part of
this Agreement or such other
Loan Documents.
<PAGE> 43
10.10. Counterparts.
This Agreement may be executed
simultaneously in two or more
counterparts, each of which
shall be deemed an original,
and it shall not be necessary
in making proof of this
Agreement to produce or account
for more than one such
counterpart.
10.11. Exhibits. The
following-listed Exhibits are
attached hereto and by this
reference incorporated herein:
EXHIBIT A - Real Property
EXHIBIT B - Form of Note
EXHIBIT C - Liens
EXHIBIT D - Definition of
Hazardous Materials
10.12. Final Loan
Agreement. The parties further
acknowledge and agree that:
THIS WRITTEN
AGREEMENT, THE NOTE,
THE COLLATERAL
DOCUMENTS, AND THE
OTHER LOAN DOCUMENTS
ARE THE FINAL,
COMPLETE, AND
EXCLUSIVE EXPRESSION
OF THE CREDIT
AGREEMENT BETWEEN
BORROWER AND METLIFE
AND MAY NOT BE
CONTRADICTED AS
EVIDENCE OF ANY PRIOR
OR CONTEMPORANEOUS
ORAL AGREEMENT
BETWEEN BORROWER AND
METLIFE. BORROWER
AND METLIFE HEREBY
AFFIRM THAT THERE IS
NO UNWRITTEN ORAL
CREDIT AGREEMENT
BETWEEN BORROWER AND
METLIFE WITH RESPECT
TO THE SUBJECT MATTER
OF THIS WRITTEN
CREDIT AGREEMENT, THE
NOTE, THE COLLATERAL
DOCUMENTS, AND ANY
RELATED LOAN
DOCUMENTS.
IN WITNESS WHEREOF,
the parties have executed this
Agreement as of the date first
above written at Fresno,
California.
BORROWER: R. H. PHILLIPS, INC., a
California corporation
By: //s//John
Giguiere
Title:
President
By: //s//Mike Motroni
Title: Chief Financial Officer
METLIFE: METROPOLITAN LIFE INSURANCE COMPANY, a
New York corporation
By: Kenneth L. Kollar
Title: Vice President
<PAGE> 44
EXHIBIT A
TO
R. H. PHILLIPS, INC.
LOAN AGREEMENT
LEGAL DESCRIPTION
Real property situated in the
State of California, County of
Yolo, described as follows:
PARCEL 1:
The South half of Section 9;
the North half of Section 16;
and the North half of the
Northwest quarter and the
Southwest quarter of the
Northwest quarter of Section
15, all in Township 11 North,
Range 1 West, M.D.B&M.
APN: 54-060-05, 54-100-04, a
portion of 54-110-01
EXCEPTING THEREFROM all that
portion of Section 16 as con-
veyed to John Hancock Mutual
Life Insurance Company in the
deed recorded May 7, 1997,
Instrument No. 97-0010854-00
and more particularly described
as follows:
BEGINNING at a iron pipe
monument, marking the Northwest
corner of said Section 16, as
said monument is shown on that
certain Map filed for record in
Book 12 of Maps and Surveys at
Page 99 and 100, Yolo County
Records, and thence from said
point of beginning along the
North line of said Section 16,
South 89 56 23" East 1823.02
feet; thence leaving said
Section line, South 00 58 43"
East 2656.24 feet to the South
line of said Northwest one-
quarter of Section 16, said
point also being the centerline
of County Road 12-A; thence
along the South line of said
Northwest one-quarter, North 89
59 38" West 1823.02 feet to the
Southwest corner of said
Northwest one-quarter of
Section 16; thence North 00 58
41" West 2573.73 feet to the
point of beginning.
PARCEL 2:
Parcel One of Parcel Map No.
3256 for Giguiere Ranch, Inc.,
filed for record in the Office
of the Yolo County Recorder on
November 14, 1983 in Book 7 of
Parcel Maps, page 16.
APN: 54-120-09, 54-130-02
PARCEL 3:
Parcel Two and Three as shown
on Parcel Map No. 3256 for
Giguiere Ranch, Inc., filed for
record in the Yolo County
Recorder's Office on
November 14, 1983 in Book 7 of
Parcel Maps, page 16.
APN: 54-050-02, 54-120-01, 54-
120-08
<PAGE> 45<PAGE>
EXHIBIT B
TO
R. H. PHILLIPS, INC.
LOAN AGREEMENT
R. H. PHILLIPS, INC.,
a California corporation
ADJUSTABLE RATE SECURED
PROMISSORY NOTE
Date: December 22, 1997Fresno, California
Maturity: January 1, 2013 $11,000,000.00
For value received, the
undersigned, R. H. PHILLIPS,
INC., a California corporation
("Borrower"), hereby promises
to pay to the order of
Metropolitan Life Insurance
Company, a New York corporation
("MetLife"), the principal
amount of Eleven Million
Dollars ($11,000,000.00), in
such coin or currency of the
United States of America as at
the time of payment shall be
legal tender for public and
private debts, at the address
provided in the Loan Agreement
(as hereinafter defined), and
to pay interest (computed on
the basis of a 365-day year) at
said address, in like coin or
currency, on the unpaid portion
of said principal amount at the
rate of Seven and 79/100
Percent (7.79%) per annum
(subject to adjustment on
January 1, 2001, January 1,
2004, January 1, 2007 and
January 1, 2010, as provided in
the Loan Agreement) until all
unpaid principal due under this
Note shall have been paid in
full, and at the Overdue
Interest Rate (as defined in
the Loan Agreement) on any
payment of principal not made
on the date fixed therefor, and
so far as may be lawful, on any
payment of interest not made on
the date fixed therefor.
Interest under this Note
shall accrue from and after the
date hereof.
Payments of accrued
interest only shall be due and
payable on January 1, 1998. On
February 1, 1998, monthly
payments of principal and
interest shall commence, with
principal being payable at the
rate of Sixty Thousand and
No/100 Dollars ($60,000.00) per
month, plus accrued interest,
and continue until January 1,
2013, at which date all unpaid
principal and accrued interest
hereunder shall be due and
payable in full.
The principal obligation
evidenced by this Note repre-
sents a loan made by MetLife to
Borrower (the "Loan"). The
Loan is made and this Note is
issued pursuant to and is
entitled to the benefits of
that written Loan Agreement,
dated as of December 22, 1997,
between the undersigned and
MetLife (the "Loan Agreement"),
the terms and provisions of
<PAGE> 46
which are hereby incorporated
by reference and made a part of
the terms of this Note.
This Note is secured by
and entitled to the benefits of
the following-listed documents:
(i) a Deed of Trust, Assignment
of Rents, and Security
Agreement dated December 22,
1997, made by the undersigned
as trustor in favor of MetLife
as beneficiary; (ii) a Security
Agreement dated of even date
therewith made by the
undersigned as debtors and
MetLife as secured party; and
(iii) an Assignment of Rents
and Leases of even date
therewith made by the
undersigned as assignors in
favor of MetLife as assignee.
This Note is subject to
mandatory and optional
principal payments, in whole
and in part, in certain cases
with a premium and in other
cases without a premium, as
provided in the Loan Agreement.
The interest rate applicable to
this Note shall be subject to
adjustment by the holder hereof
as provided in the Loan
Agreement. The unpaid
principal balance and all other
amounts owing under this Note
may be declared to be due and
payable upon the happening of
any of the following-listed
events, as defined in and
subject to the provisions of
the Loan Agreement: (1) an
Event of Default, (2) a Change
of Control, or (3) an Improper
Transfer of any of the
Collateral or any interest
therein.
In the event that this
Note or any of the instruments
referred to herein are placed
in the hands of an attorney or
attorneys for collection or
enforcement, or if MetLife is
required to obtain attorneys
and incur expenses and attorney
fees by reason of litigation or
participation in bankruptcy
proceedings for the protection
or enforcement of MetLife's
collateral and claim against
the undersigned, then in all
such cases, MetLife shall be
entitled to reasonable attor-
ney's fees and expenses from
the undersigned, including (not
by way of limitation) those
fees and expenses incurred in
any action for relief from stay
or in enforcement of any judg-
ment.
The undersigned waives
diligence, demand, presentment,
notice of nonpayment and
protest, and consents to
extensions of the time of
payment, surrender or
substitution of security, or
forbearance, or other
indulgence, without notice.
-------------------------------
-
-
-
-
-
-
<PAGE>
<PAGE> 47
This Note shall be
construed in accordance with
and governed by the laws of the
State of California applicable
to contracts made and to be
performed in said State.
IN WITNESS WHEREOF, the
undersigned has made this Note
as of the day and year first
above written.
R. H. PHILLIPS, INC., a
California corporation
By:___________________
Title:________________
By:___________________
Title:________________
<PAGE> 48
<PAGE>
EXHIBIT C
TO
R. H. PHILLIPS, INC.
LOAN AGREEMENT
LIENS
A. REAL PROPERTY. The
Property is subject only
to the following-listed
items shown in the
Preliminary Report of
Fidelity National Title
Insurance Company dated
October 21, 1997, Order
No. 112062, which report
is incorporated herein:
(1) Items will be
satisfactory to be
shown in the title
report: 16, 17, 18,
19, 20, 21, 22, 23,
24, 25, 26, 27, 28,
29, 30, 31, 32, 33,
34, 35, 36, 40, 43
and 44;
(2) Items Nos. 1, 2, 3,
4, 5, 6, 7, 8, 9, 10,
11, 12, 13, 14 and 15
are to be designated
as current;
(3) Item Nos. 37, 38, 39
and 41 are to be
reconveyed; and
(4) Item No. 42 is to be
partially
subordinated to
MetLife's security
interest.
B. PERSONAL PROPERTY. The
personal property
Collateral is subject only
to those liens listed in
Exhibit C-1 attached
hereto and incorporated
herein.<PAGE>
<PAGE> 49
EXHIBIT C-1
TO
R. H. PHILLIPS, INC.
LOAN AGREEMENT
PERSONAL PROPERTY LIENS
(1) UCC-1 Financing
Statement filed with
the California
Secretary of State on
March 27, 1985, File
No. 85074972; The
R.H. Phillips
Vineyard, Clark
Smith, John Giguiere,
Karl Giguiere, Chris
Giguiere, and The
R.H. Phillips
Vineyard, Inc.,
Debtor; ITT
Commercial Finance
Corp., Secured Party;
UCC-2 Amendment filed
with the California
Secretary of State on
April 28, 1986; The
R.H. Phillips
Vineyard, Clark
Smith, John Giguiere,
Karl Giguiere, Chris
Giguiere, and The
R.H. Phillips
Vineyard, Inc.
Debtor; ITT
Commercial Finance
Corp., Secured Party;
UCC-2 Amendment filed
with the California
Secretary of State on
June 13, 1988; The
R.H. Phillips
Vineyard, Inc., Clark
Smith, John Giguiere,
Karl Giguiere, Chris
Giguiere, and The
R.H. Phillips
Vineyard, Inc.
Debtor; ITT
Commercial Finance
Corp., Secured Party;
UCC-2 Assignment
filed with the
California Secretary
of State on
September 19, 1995,
File No. 95268C0363;
The R.H. Phillips
Vineyard, Clark
Smith, John Giguiere,
Karl Giguiere, Chris
Giguiere, and The
R.H. Phillips
Vineyard, Inc.
Debtor; ITT
Commercial Finance
Corp., Secured Party;
U.S. Bank of
California, Assignee
of Secured Party.
(2) UCC-1 Financing
Statement filed with
the California
Secretary of State on
June 13, 1988, File
No. 88141790; The
R.H. Phillips
Vineyard, Inc.,
Debtor; ITT
Commercial Finance
Corp., Secured Party;
UCC-2 Amendment filed
with the California
Secretary of State on
March 6, 1992; The
R.H. Phillips
Vineyard, Inc.,
Debtor; ITT
Commercial Finance
Corp., Secured Party;
UCC-2 Amendment filed
with the California
Secretary of State on
March 23, 1993; The
R.H. Phillips
Vineyard, Inc.,
Debtor; ITT
Commercial Financial
Corp., Secured Party;
<PAGE> 50
UCC-2 Assignment
filed with the
California Secretary
of State on
September 19, 1995,
File No. 95268C0352;
The R.H. Phillips
Vineyard, Inc.,
Debtor; ITT
Commercial Finance
Corp., Secured Party;
U.S. Bank of
California, Assignee
of Secured Party.
(3) UCC-1 Financing
Statement filed with
the California
Secretary of State on
April 4, 1989, File
No. 89085189; R.H.
Phillips, Partners, A
California Limited
Partnership, Debtor,
ITT Commercial
Finance Corp.,
Secured Party;
UCC-2 Amendment filed
with the California
Secretary of State on
March 6, 1992; R.H.
Phillips Partners, A
California Limited
Partnership, Debtor;
ITT Commercial
Finance Corp.,
Secured Party;
UCC-2 Amendment filed
with the California
Secretary of State on
March 23, 1993; R.H.
Phillips Partners, A
California Limited
Partnership, Debtor;
ITT Commercial
Finance Corp.,
Secured Party;
UCC-2 Amendment filed
with the California
Secretary of State on
July 25, 1994; R.H.
Phillips Partners, A
California Limited
Partnership, Debtor;
ITT Commercial
Finance Corp.,
Secured Party;
UCC-2 Assignment
filed with the
California Secretary
of State on
September 19, 1995,
File No. 95268C0354;
R.H. Phillips
Partners, A
California
Partnership, Debtor;
ITT Commercial
Finance Corp.,
Secured Party; U.S.
Bank Of California,
Assignee of Secured
Party.
(4) UCC-1 Financing
Statement filed with
the Secretary of
State on July 6,
1992, File No.
92146834; R.H.
Phillips Partners,
Debtor; Hoover
Tractor, Secured
Party; Agricredit
Acceptance Corp.,
Assignee of Secured
Party.
(5) UCC-1 Financing
Statement filed with
the Secretary of
State on April 19,
1993, File NO.
93077800; R.H.
Phillips Vineyard,
Debtor; San Sierra
Business Systems,
Secured Party.
(6) UCC-1 Financing
Statement filed with
the Secretary of
State on August 16,
1993, File No.
93166938; The R.H.
Phillips Vineyard,
Debtor; Bridgeway
Capital Corp.,
Secured Party; Bank
of San Francisco,
Assignee of Secured
Party.
<PAGE> 51
(7) UCC-1 Financing
Statement filed with
the Secretary of
State on September
30, 1993, File No.
93199384; R.H.
Phillips Partners, A
California Limited
Partnership, Debtor;
Bridgeway Capital
Corporation, Secured
Party; The CIT
Group/Equipment
Financing Inc.,
Assignee of Secured
Party.
(8) UCC-1 Financing
Statement filed with
the Secretary of
State on December 22,
1993, File No.
93257086; R.H.
Phillips Partners,
Debtor; Georgie Girl
Intl. Ltd., Secured
Party.
(9) UCC-1 Financing
Statement filed with
the Secretary of
State on June 6,
1994, File No.
94112742; R.H.
Phillips Partners, A
California Limited
Partnership, Debtor;
The CIT
Group/Equipment
Financing, Inc.,
Secured Party;
UCC-2 Assignment
filed with the
California Secretary
of State on December
29, 1994.
(10) UCC-1 Financing
Statement filed with
the Secretary of
State on July 18,
1994, File No.
94145792; R.H.
Phillips Partners, A
California Limited
Partnership, Debtor;
The CIT
Group/Equipment
Financing, Inc.,
Secured Party;
UCC-2 Assignment
filed with the
California Secretary
of State on December
29, 1994.
(11) UCC-1 Financing
Statement filed with
the California
Secretary of State on
July 25, 1994, File
No. 94151009; R.H.
Phillips, Inc.,
Debtor; ITT
Commercial Finance
Corp., Secured Party;
UCC-2 Assignment
filed with the
California Secretary
of State on September
19, 1995, File No.
95268C0366; R.H.
Phillips, Inc.,
Debtor; U.S. Bank of
California, Assignee
of Secured Party.
(12) UCC-1 Financing
Statement filed with
the California
Secretary of State on
August 1, 1994, File
No. 94155595; R.H.
Phillips Partners, A
California Limited
Partnership, Debtor;
Bridgeway Capital
Corporation, Secured
Party.
(13) UCC-1 Financing
Statement filed with
the California
Secretary of State on
December 9, 1994,
File No. 9434960678;
R.H. Phillips
Partners, A
California Limited
Partnership, Debtor;
Bridgeway Capital
<PAGE> 52
Corporation, Secured
Party; The CIT
Group/Equipment
Financing, Inc.,
Assignee of Secured
Party.
(14) UCC-1 Financing
Statement filed with
the California
Secretary of State on
February 21, 1995,
File No. 9505660278;
R.H. Phillips, Inc.,
Debtor; Metropolitan
Life Insurance
Company, Secured
Party.
(15) UCC-1 Financing
Statement filed with
the California
Secretary of State on
March 10, 1995, File
No. 9507460232; R.H.
Phillips, Inc.,
Debtor; Bridgeway
Capital Corporation,
Secured Party; The
CIT Group/Equipment
Financing, Inc.,
Assignee of Secured
Party.
(16) UCC-1 Financing
Statement filed with
the California
Secretary of State on
May 18, 1995, File
No. 9505660278; R.H.
Phillips, Debtor;
Dolk Tractor Co.,
Secured Party; Kubota
Credit Corporation,
Assignee of Secured
Party.
(17) UCC-1 Financing
Statement filed with
the California
Secretary of State on
June 2, 1995, File
No. 9515761020; R.H.
Phillips Vineyards,
Debtor; Pitney Bowes
Credit Corporation,
Secured Party.
(18) UCC-1 Financing
Statement filed with
the California
Secretary of State on
May 11, 1995, File
No. 9513560536; R.H.
Phillips, Debtor;
Dolk Tractor Co.,
Secured Party.
(19) UCC-1 Financing
Statement filed with
the California
Secretary of State on
July 3, 1995, File
No. 9519360071; R.H.
Phillips, Inc.,
Debtor; U.S. Bank of
California, Secured
Party.
(20) UCC-1 Financing
Statement filed with
the California
Secretary of State on
July 3, 1995, File
No. 9519360076; R.H.
Phillips, Inc.,
Debtor; U.S. Bank of
California, Secured
Party.
(21) UCC-1 Financing
Statement filed with
the California
Secretary of State on
August 29, 1995, File
No. 9524860037; R.H.
Phillips, Inc.,
Debtor; Metropolitan
Life Insurance
Company, Secured
Party.
(22) UCC-1 Financing
Statement filed with
the California
Secretary of State on
October 2, 1995, File
No. 9530060467; R.H.
Phillips, Inc.,
Debtor; Heller
Financial, Inc.
(CEFD), Secured
Party.
<PAGE> 53
(23) UCC-1 Financing
Statement recorded
October 16, 1996 in
Yolo County Official
Records as Instrument
No. 96-0025415-00;
R.H. Phillips, Inc.,
Debtor; U.S. Bank Of
California, Secured
Party.
(24) UCC-1 Financing
Statement filed with
the California
Secretary of State on
March 1, 1996, File
No. 9606760084; R.H.
Phillips, Inc.,
Debtor; U.S. Bank of
California, Secured
Party.
(25) UCC-1 Financing
Statement filed with
the California
Secretary of State on
April 26, 1996, File
No. 9612060253; R.H.
Phillips Vineyard
Inc., Debtor; Perin
Co., Inc. Secured
Party; TMCC, Assignee
of Secured Party.
(26) UCC-1 Financing
Statement filed with
the California
Secretary of State on
May 7, 1996, File No.
9613060189; R.H.
Phillips, Debtor;
Dolk Tractor Company,
Secured Party; Kubota
Credit Corp.,
Assignee of Secured
Party.
(27) UCC-1 Financing
Statement filed with
the California
Secretary of State on
December 17, 1996,
File No. 9635261187;
R.H. Phillips, Inc.,
Debtor; Hyster Sales
Co., Secured Party.
UCC-2 Assignment
filed with the
California Secretary
of State on May 20,
1997, File No.
97141C0759; R.H.
Phillips Inc.,
Debtor; Industrial
Finance Company,
Secured Party.
(28) UCC-1 Financing
Statement filed with
the California
Secretary of State on
December 24, 1996,
File No. 9636260495;
R.H. Phillips, Inc.,
Debtor; U.S. Bancorp
Leasing & Financial,
Secured Party.
(29) UCC-1 Financing
Statement filed with
the California
Secretary of State on
February 3, 1997,
File No. 9703860404;
R.H. Phillips, Inc.,
Debtor; Hyster Sales
Co., Secured Party;
The CIT
Group/Equipment
Financing Inc.,
Assignee of Secured
Party;
UCC-2 Assignment
filed with the
California Secretary
of State on May 20,
1997,
(30) UCC-1 Financing
Statement filed with
the California
Secretary of State on
April 21, 1997, File
No. 9711360636; R.H.
Phillips, Debtor;
Kubota Credit Corp.,
Secured Party.
<PAGE> 54
(31) UCC-1 Financing
Statement filed with
the California
Secretary of State on
October 20, 1997,
File No. 9730060199;
R.H. Phillips, Inc.,
Debtor; Caterpillar
Financial Services
Corporation, Secured
Party.
(32) UCC-1 Financing
Statement, signed
November 21, 1997,
R.H. Phillips, Inc.,
Debtor; General
Electric Capital
Corporation, Secured
Party.
<PAGE> 55<PAGE>
EXHIBIT D
TO
R. H. PHILLIPS, INC.
LOAN AGREEMENT
"Hazardous Materials"
means and includes all of the
following, without limitation:
(1) Those substances included within the
definitions of "hazardous substances,"
"hazardous materials," "toxic substances,"
or "solid waste" in the Comprehensive
Environmental Response Compensation and Liability
Act of 1980 (42 U.S.C. Sec 9601 et seq.)
("CERC LA"), as amended by Superf under Amendments
and Reauthorization Act of 1986 (Pub. L. 99-499 100
Stat. 1613) ("SARA"), the Resource
Conservation and Recovery Act of 1976 (42 U.S.C.
SEC 6901 et seq.) ("RCRA"), and the Hazardous
Materials Transportation Act, 49 U.S.C. SEC 1801
et seq., and in the regulations promulgated pursuant to
said laws, all as amended;
(2) Those substances listed in the United States Department
of Transportation Table (49 CFR 172.10 1 and amendments
thereto) or by the Environmental Protection Agency
(or any successor agency) as hazardous substances
(40 CFR Part 302 and amendments thereto);
(3) Any material, waste or substance which is
(A) petroleum,
(B) asbestos,
(C) polychlorinated biphenyls,
(D) designated as a "hazardous substance" pursuant to
Section 311 of the Clean Water Act, 33 U.S.C. sec 1251
et seq. (33 U.S.C. sec 1321) or listed pursuant to
Section 307 of the Clean Water Act (33 U.S.C. sec 1317);
(E) flammable explosives; or
(F) radioactive materials;
(4) Any material, waste or substance which is or becomes
regulated as hazardous or toxic under the Clean Water
Act (33 U.S.C. 1251 et seq.) or the Safe Drinking
Water Act (42 U.S.C. 300f et seq.);
(5) Any material, waste or substance which is or becomes
regulated as hazardous or toxic under the Carpenter
Presley-Tanner Hazardous Substance Account Act (California
Health and Safety Code 25300 et seq.), the California
Hazardous Waste Control Law (California Health and Safety
Code 25100 et seq.), or the California Minimum Standards
for Management of Hazardous and Extremely Hazardous
<PAGE> 56
Wastes (Title 22, California Code of Regulations 66001
et seq.); and
(6) Such other substances, materials and wastes which are or
become regulated as hazardous or toxic under any applicable
local, state or federal law, or the United States government,
or which are classified as hazardous or toxic under federal,
state, or local laws or regula-tions.
<PAGE> 57
R. H. PHILLIPS, INC.,
a California corporation
ADJUSTABLE RATE SECURED
PROMISSORY NOTE
Date: December 22, 1997Fresno, California
Maturity: January 1, 2013 $11,000,000.00
For value received, the
undersigned, R. H. PHILLIPS,
INC., a California corporation
("Borrower"), hereby promises
to pay to the order of
Metropolitan Life Insurance
Company, a New York corporation
("MetLife"), the principal
amount of Eleven Million
Dollars ($11,000,000.00), in
such coin or currency of the
United States of America as at
the time of payment shall be
legal tender for public and
private debts, at the address
provided in the Loan Agreement
(as hereinafter defined), and
to pay interest (computed on
the basis of a 365-day year) at
said address, in like coin or
currency, on the unpaid portion
of said principal amount at the
rate of Seven and 79/100
Percent (7.79%) per annum
(subject to adjustment on
January 1, 2001, January 1,
2004, January 1, 2007 and
January 1, 2010, as provided in
the Loan Agreement) until all
unpaid principal due under this
Note shall have been paid in
full, and at the Overdue
Interest Rate (as defined in
the Loan Agreement) on any
payment of principal not made
on the date fixed therefor, and
so far as may be lawful, on any
payment of interest not made on
the date fixed therefor.
Interest under this Note
shall accrue from and after the
date hereof.
Payments of accrued
interest only shall be due and
payable on January 1, 1998. On
February 1, 1998, monthly
payments of principal and
interest shall commence, with
principal being payable at the
rate of Sixty Thousand and
No/100 Dollars ($60,000.00) per
month, plus accrued interest,
and continue until January 1,
2013, at which date all unpaid
principal and accrued interest
hereunder shall be due and
payable in full.
The principal obligation
evidenced by this Note repre-
sents a loan made by MetLife to
Borrower (the "Loan"). The
Loan is made and this Note is
issued pursuant to and is
entitled to the benefits of
that written Loan Agreement,
dated as of December 22, 1997,
between the undersigned and
MetLife (the "Loan Agreement"),
the terms and provisions of
<PAGE> 58
which are hereby incorporated
by reference and made a part of
the terms of this Note.
This Note is secured by
and entitled to the benefits of
the following-listed documents:
(i) a Deed of Trust, Assignment
of Rents, and Security
Agreement dated December 22,
1997, made by the undersigned
as trustor in favor of MetLife
as beneficiary; (ii) a Security
Agreement dated of even date
therewith made by the
undersigned as debtors and
MetLife as secured party; and
(iii) an Assignment of Rents
and Leases of even date
therewith made by the
undersigned as assignors in
favor of MetLife as assignee.
This Note is subject to
mandatory and optional
principal payments, in whole
and in part, in certain cases
with a premium and in other
cases without a premium, as
provided in the Loan Agreement.
The interest rate applicable to
this Note shall be subject to
adjustment by the holder hereof
as provided in the Loan
Agreement. The unpaid
principal balance and all other
amounts owing under this Note
may be declared to be due and
payable upon the happening of
any of the following-listed
events, as defined in and
subject to the provisions of
the Loan Agreement: (1) an
Event of Default, (2) a Change
of Control, or (3) an Improper
Transfer of any of the
Collateral or any interest
therein.
In the event that this
Note or any of the instruments
referred to herein are placed
in the hands of an attorney or
attorneys for collection or
enforcement, or if MetLife is
required to obtain attorneys
and incur expenses and attorney
fees by reason of litigation or
participation in bankruptcy
proceedings for the protection
or enforcement of MetLife's
collateral and claim against
the undersigned, then in all
such cases, MetLife shall be
entitled to reasonable attor-
ney's fees and expenses from
the undersigned, including (not
by way of limitation) those
fees and expenses incurred in
any action for relief from stay
or in enforcement of any judg-
ment.
The undersigned waives
diligence, demand, presentment,
notice of nonpayment and
protest, and consents to
extensions of the time of
payment, surrender or
substitution of security, or
forbearance, or other
indulgence, without notice.
-------------------------------
-
-
-
-
-
-
<PAGE> 59
This Note shall be
construed in accordance with
and governed by the laws of the
State of California applicable
to contracts made and to be
performed in said State.
IN WITNESS WHEREOF, the
undersigned has made this Note
as of the day and year first
above written.
R. H. PHILLIPS, INC., a
California corporation
By://s//John Giguiere
___________________________
Title: President
_______________________
By://s//Mike Motroni
___________________________
Title: Chief Financial Officer
_____________________________
<PAGE> 60
Recording Requested by
and When Recorded Return To:
Russell O. Wood, Esq.
Thomas, Snell, Jamison,
Russell and Asperger
Post Office Box 1461
Fresno, California 93716
DEED OF TRUST, ASSIGNMENT
OF RENTS
AND
SECURITY AGREEMENT
THIS DEED OF TRUST,
ASSIGNMENT OF RENTS, AND
SECURITY AGREEMENT
(collectively "Deed of Trust")
made this 22nd day of December,
1997, between: R. H. PHILLIPS,
INC., a California corporation,
having its principal office and
place of business at 26836
County Road 12A, Esparto,
California 95627 ("Trustor");
JERRY MICHEL, whose mailing
address is 7100 North Financial
Drive, Suite 105, Fresno,
California 93710 ("Trustee");
and METROPOLITAN LIFE INSURANCE
COMPANY, a New York corpora-
tion, having its principal
office and place of business at
One Madison Avenue, New York,
New York 10010 or any subse-
quent holder of the Note (as
hereinafter defined), as
beneficiary ("MetLife"):
W I T N E S S E T H:
WHEREAS, Trustor is justly
indebted to MetLife in the
principal amount of Eleven
Million Dollars
($11,000,000.00) evidenced by a
certain Adjustable Rate Secured
Promissory Note dated of even
date herewith, the final
payment of which is due on
January 1, 2013, executed by
Trustor and delivered to
MetLife (the "Note"), as
provided in (i) said Note, (ii)
that certain Loan Agreement
dated of even date herewith
(the "Loan Agreement"), (iii) a
Security Agreement dated of
even date herewith made by
Trustor (the "Security
Agreement"), (iv) an Assignment
of Rents and Leases dated of
even date
<PAGE> 61
herewith made by Trustor, and
(v) an Assignment of Leases as
Additional Security dated of
even date herewith made by
Trustor (the "Equipment Lease
Assignment") (the Security
Agreement, the Assignment of
Rents and Leases, and the
Equipment Lease Assignment are
sometimes collectively referred
to hereinafter as the "Other
Security Documents");
WHEREAS, MetLife is
desirous of securing the prompt
payment of the Note, together
with interest and premium, if
any, thereon and late charges,
if any, due thereunder, in
accordance with the terms of
the Note and the Loan Agree-
ment, and any additional
indebtedness accruing to
MetLife on account of any
future payments, advances or
expenditures made by MetLife
pursuant to the Note, the Loan
Agreement, this Deed of Trust,
or the Other Security Documents
(all of which are hereinafter
sometimes collectively called
the "indebtedness secured here-
by");
NOW THEREFORE, to secure
the performance and observance
by Trustor of all of the terms,
covenants and conditions in the
Note, the Loan Agreement, this
Deed of Trust, and the Other
Security Documents, and
further, in order to charge the
properties, interests and
rights hereinafter described
with such payment, performance
and observance, and for and in
consideration of the sums dis-
bursed by MetLife under the
Note and for other good and
valuable consideration, the
receipt and sufficiency whereof
are hereby acknowledged,
Trustor has executed and
delivered this Deed of Trust
and does hereby irrevocably
grant, transfer, convey and
assign to Trustee, IN TRUST,
WITH POWER OF SALE, for the
benefit and security of
MetLife, under and subject to
the terms and conditions here-
inafter set forth, all of the
following-described property,
now or hereafter owned (such
property is hereinafter some-
times referred to collectively
as the "Property"), to-wit:
(A) All those certain
tracts, pieces or parcels of
land and the easements, if any,
more particularly described in
Exhibit A attached hereto and
by this reference made a part
hereof, which consist of a
winery (the "Winery") and farm
property (the "Farm Property"),
and hereinafter are sometimes
called the "Land";
(B) All buildings,
structures and improvements of
every nature whatsoever now or
hereafter situated on the Land,
including: (1) all chattels,
goods, furnishings, furniture,
fixtures, machinery, equipment,
appliances, systems and
building materials, and
personal property of every kind
and nature whatsoever
(excluding inventory and work
in process) which are now or
hereafter owned by Trustor and
which are or shall be attached
to the Winery or which are or
shall be located in, on, or
about the Winery and used or
intended to
<PAGE> 62
be used in or in connection
with the use, operation, or
enjoyment of the Winery,
including all that property
described in Exhibit B-1,
attached hereto, and (2) all
pumps, power units, pipes and
other irrigation equipment on
or used for the benefit of the
Farm Property;
(C) All vines and crops
growing or to be grown on the
Land, and all products, and
supplies from or for all such
vines and crops, together with
all proceeds therefrom (see
Paragraph 1.17 below regarding
subordination);
(D) All easements,
rights-of-way, strips and gores
of land, vaults, streets, ways,
alleys, passages, sewer rights,
waters, water courses, water
rights and powers, and all
estates, rights, titles,
interests, licenses,
privileges, liberties,
tenements, hereditaments and
appurtenances whatsoever, in
any way belonging, relating or
appertaining to the Land and
the property referred to in
Paragraphs A through C above,
or any part thereof, or which
hereafter shall in any way
belong, relate or be
appurtenant thereto, now owned
or hereafter acquired by
Trustor, and the reversion and
reversions, remainder and
remainders, and the rents,
issues, profits and revenues of
the Land and the property
referred to in said Paragraphs
and from the business operated
by Trustor therefrom, from time
to time accruing, and all of
the estate, right, title,
interest, property, possession,
claim and demand whatsoever at
law, as well as in equity, of
Trustor of, in and to the same;
and
(E) Any and all greater
right, title and interest which
Trustor may hereafter acquire
in and to all or any portion of
the Property, which shall be
deemed to be automatically
included and encumbered by this
Deed of Trust, without the
necessity of further filings;
WITHOUT limitation of the
foregoing, Trustor hereby also
assigns to MetLife all
dividends, distributions,
proceeds, rents, issues, and
profits from the Property,
RESERVING, HOWEVER, the right
to collect and use the same so
long as there is no existing
default under the Note, the
Loan Agreement, the Other
Security Documents, and this
Deed of Trust, or any or some
of said documents, and Trustor
does hereby authorize MetLife
to collect and recover the same
in the name of Trustor or
Trustor's successor in interest
by any lawful means;
WITHOUT limitation of the
foregoing, Trustor hereby
further grants to MetLife,
pursuant to the provisions of
the Uniform Commercial Code of
the State of California, a
security interest in all of the
above-described property, which
<PAGE> 63
property includes, without
limitation, goods which are or
are to become fixtures.
This Deed of Trust is
intended to operate as a
fixture filing financing
statement to perfect the
security interest of MetLife in
and to all fixtures included in
the Property, pursuant to the
terms of Division Nine of the
California Commercial Code and
shall be both filed with the
California Secretary of State
and recorded as a fixture
filing in the real estate
records of the County where the
Land is located.
THIS DEED OF TRUST IS
GIVEN TO SECURE: (a) payment
of the Note, and
(b) performance of each and
every one of the covenants,
conditions and agreements
contained in this Deed of
Trust, the Note, the Loan
Agreement, and the Other Secur-
ity Documents and all
amendments, modifications or
supplements thereto, and in any
other agreement, document or
instrument to which reference
is expressly made in this Deed
of Trust or which secures the
Note.
PROVIDED, HOWEVER, that
these presents are upon the
condition that, if Trustor
shall pay or cause to be paid
to MetLife the principal,
interest and premiums payable
pursuant to the Note and the
Loan Agreement, at the times
and in the manner stipulated
therein and herein, all without
any deduction or credit for
taxes or other similar charges
paid by Trustor, and shall
keep, perform and observe all
and singular the covenants and
promises to be kept by Trustor
pursuant to the Note, this Deed
of Trust, the Loan Agreement,
and the Other Security
Documents, then MetLife shall
in writing request the Trustee
to terminate this Deed of Trust
by proper Deed of Reconveyance,
but it shall otherwise remain
in full force and effect.
AND TRUSTOR COVENANTS AND
AGREES WITH METLIFE THAT:
ARTICLE XXXIII.
A. Performance of
Documents. Trustor will
perform, observe and comply
with all provisions hereof and
of the Note, the Loan
Agreement, and the Other
Security Documents and will
duly and punctually pay to
MetLife the sum of money
expressed in the Note with
interest and premium, if any,
thereon and all other sums
required to be paid by Trustor
pursuant to the provisions of
the Note, the Loan Agreement,
this Deed of Trust, and the
Other Security Documents, all
without any deductions, offset,
or credit for taxes or other
similar charges paid by
Trustor.
B. Representation of
Title. At the time of the
delivery of these presents,
Trustor is well seized of an
indefeas
<PAGE> 64
ible estate in fee simple in
all portions of the Property
constituting real property, and
Trustor owns good title to the
portion of the Property which
constitutes personal property,
that Trustor's title in the
Property is subject only to the
matters set forth in Exhibit C
attached hereto and made a part
hereof, and they have good
right, full power and lawful
authority to convey and
mortgage and grant a security
interest in the same, in the
manner and form aforesaid;
that, except as set forth in
Exhibit C hereto, the Property
is free and clear of all liens,
charges, easements, covenants,
conditions, restrictions and
encumbrances whatsoever,
including, as to the personal
property and fixtures, security
agreements, conditional sales
contracts and anything of a
similar nature; and that
Trustor shall and will warrant
and forever defend the title to
the Property against the claims
of all persons whomsoever.
C. Taxes, Liens and Other
Charges.
1. Trustor will pay
promptly, when and as due, and
upon written request will
promptly exhibit to MetLife
receipts for the payment of,
all taxes, assessments, water
rates, sewer charges, license
fees, dues, charges, fines and
impositions of every nature
whatsoever charged, imposed,
levied or assessed or to be
charged, imposed, levied or
assessed upon or against the
Property or any part thereof,
or upon the interest of MetLife
in the Property, as well as all
income taxes, assessments and
other governmental charges
lawfully levied and imposed by
the United States of America or
any state, county, municipality
or other taxing authority in
respect of the Property or any
part thereof, or any charge
which, if unpaid, would or
could become a lien or charge
upon the Property, or any part
thereof.
Notwithstanding the
foregoing, Trustor shall have
the right to contest the amount
of any real estate taxes and
assessments pursuant to
applicable law, so long as the
following conditions are met:
i. Either (a) such
taxes and assessments are
paid in full prior to the
date of any delinquency or
the date additional
penalties would be
assessed, or (b) prior to
the date of any such
contest, Trustor shall
provide MetLife with a
bond or escrow deposit
satisfactory to MetLife in
an amount equal to at
least one hundred twenty
percent (120%) of the
amounts contested and
remaining unpaid; and
ii. Such contest
shall be in accordance
with all applicable laws;
and
<PAGE> 65
iii. Upon final
determination of the
amounts of such taxes and
assessments, Trustor shall
immediately pay all
amounts due.
Notwithstanding the
foregoing, MetLife may
require Trustor to
immediately pay such taxes
and assessments being
contested if MetLife
determines that its
security may be impaired
thereby.
b. Subject to
Section 1.17 below, Trustor
will not allow any
construction, mechanic's,
laborer's, materialmen's,
manager's, statutory or other
lien or any other security
interest or encumbrance
(excepting only liens of real
property taxes expressly
permitted hereunder and the
liens and security interests in
favor of MetLife) to be placed
upon or to remain outstanding
upon any of the Property.
c. In the event of
the passage, after the date of
this Deed o Trust, of any law
deducting from the value of the
Property, for the purposes of
taxation, any lien thereon or
any security interest therein,
or changing in any way the laws
now in force governing the
taxation of mortgages, deeds of
trust and/or security
agreements or debts secured by
mortgages, deeds of trust
and/or security agreements, or
the manner of collecting any
such taxes, which has the
effect of imposing payment upon
MetLife of the whole or any
portion of any taxes,
assessments, or other similar
charges against the Property,
all sums secured by this Deed
of Trust and all interest
accrued thereon (but not
including any Prepayment Charge
as set forth in the Loan
Agreement) shall, without
notice, become due and payable
forthwith at the option of
MetLife; provided, however,
that such election by MetLife
shall be ineffective if prior
to the due date thereof:
(1) Trustor is permitted by law
(including, without limitation,
applicable interest rate laws),
to, and actually does, pay such
taxes or the increased portion
thereof (in addition to paying
all sums secured by this Deed
of Trust when and as due and
payable), or (2) Trustor agrees
with MetLife in writing to pay,
or to reimburse MetLife for the
payment of, any such taxes or
the increased portion thereof
when thereafter levied against
the Property or any portion
thereof. Any sums paid by
MetLife pursuant to this
Section 1.3.c shall be
reimbursed to MetLife in
accordance with the provisions
of Paragraph 2.4 hereinbelow.
d. Trustor will pay
when due any charges for utili-
ties, whether public or
private, with respect to the
Property or any part thereof
and all license fees, rents or
other charges for the use of
any appurtenances to the
Property.
e. After the occurrence of
an Event of Default (as defined
below), at MetLife's option,
Trustor will pay to MetLife on
the same day the regular
installments of interest
<PAGE> 66
are due and payable pursuant to
the terms of the Note and Loan
Agreement until all
indebtedness secured hereby is
fully paid, an amount equal to
one-quarter (1/4) of the yearly
(i) taxes, assessments and
other similar charges as
estimated by MetLife to be
sufficient to enable MetLife to
pay at least thirty (30) days
before they become due, all
taxes, assessments and other
similar charges against the
Property or any part thereof,
and (ii) premiums for insurance
required by Paragraph 1.4
hereof as estimated by MetLife
to be sufficient to enable
MetLife to pay at least thirty
(30) days before they become
due all such premiums for
insurance. These payments
shall be in addition to the
aforesaid regular installments
of principal and interest.
Such added payments shall not
be, nor be deemed to be, trust
funds, but may be commingled
with the general funds of
MetLife or its designee, and no
interest shall be payable in
respect thereof. Payment by
MetLife for such purposes may
be made by MetLife at its
discretion even though
subsequent owners of the
Property may benefit thereby.
In refunding (at its election)
any of the amounts held by
MetLife pursuant to this
Paragraph 1.3.e, MetLife may
deal with whomever is
represented to be the owner of
the Property at such time.
Upon demand of MetLife, Trustor
agrees to deliver to MetLife
such additional monies as are
necessary to make up any defi-
ciencies in the amounts
necessary to enable MetLife to
pay such taxes, assessments and
other similar charges and
insurance premiums. MetLife
may apply to the reduction of
the sums secured hereby, in
such manner as MetLife shall
determine, any amount held by
MetLife hereunder.
f. Trustor will not
claim or demand or be entitled
to receive any credit or
credits on the principal,
interest or premiums payable
under the terms of the Note or
the Loan Agreement or on any
other sums secured hereby for
so much of the taxes,
assessments or similar charges
assessed against the Property
or any part thereof as are
applicable to the indebtedness
secured hereby or to MetLife's
interest in the Property. No
deduction shall be claimed from
the taxable value of the
Property or any part thereof by
reason of the Note, this Deed
of Trust, the Loan Agreement,
or the Other Security
Documents.
1.4. Insurance. Trustor
will procure and maintain for
the benefit of MetLife during
the term of this Deed of Trust,
a policy or policies (i)
insuring the Property against
fire, lightning, extended
coverage, vandalism and
malicious mischief and such
other insurable perils (but not
earthquake coverage) as MetLife
may require, (ii) public
liability insurance in an
amount acceptable to MetLife,
(iii) if required by MetLife,
business interruption insurance
in an amount acceptable to
MetLife, (iv) machinery
insurance, if
<PAGE> 67
required by MetLife, in an
amount acceptable to MetLife
covering physical damage to any
or all refrigeration or cooling
systems, conveyor systems,
processing systems, irrigation
equipment or such additional
equipment as MetLife reasonably
may require at any time (such
insurance will also include
physical damage to the
Property), and (v) affording
such other or additional
coverage as from time to time
may be requested by MetLife.
Trustor shall pay for all
premiums on such policies. The
companies issuing such
policies, and the amounts,
forms, expiration dates and
substance of such policies,
shall be reasonably acceptable
to MetLife and shall contain,
in favor of MetLife, the New
York Standard Non-Contributory
Mortgagee Clause, or its
equivalent, and a Loss Payable
Endorsement and a Replacement
Cost Endorsement, all in form
reasonably satisfactory to
MetLife. At least fifteen (15)
days prior to the expiration
date of each such policy, a
renewal thereof satisfactory to
MetLife shall be delivered to
MetLife. Trustor shall deliver
to MetLife receipts evidencing
the payment for all such
insurance policies and
renewals. The delivery of the
insurance policies shall
constitute an assignment as
further security for the
indebtedness secured hereby of
all unearned premiums. In the
event of the foreclosure of
this Deed of Trust or any other
transfer of title to the
Property in extinguishment in
whole or in part of the
indebtedness secured hereby,
all right, title and interest
of Trustor in and to all
insurance policies then in
force shall pass to the pur-
chaser or grantee.
MetLife is hereby
authorized and empowered, at
its option, to make or file
proofs of loss or damage and to
adjust or compromise any loss
under any insurance policies on
the Property, and to collect
and receive the proceeds from
any such policy or policies.
Each insurance company is
hereby authorized and directed
to make payment for all such
losses directly to MetLife
instead of to Trustor. After
deducting from said insurance
proceeds all of its expenses
incurred in the collection and
administration of such sums,
including attorneys' fees,
MetLife may apply the net
proceeds or any part thereof,
at its option, either toward
restoring the Property or as a
credit on any portion of the
indebtedness secured hereby
selected by it without premium
or penalty, whether then
matured or to mature in the
future, or at the option of
MetLife, such sums either
wholly or in part may be paid
over to Trustor, on such terms
and conditions as MetLife in
its discretion may specify, to
be used to repair the
buildings, structures or
improvements, or to build new
ones in their place, or for any
other purpose or object
satisfactory to MetLife in
accordance with the terms of
this Deed of Trust or the Other
Security Documents, without
affecting the lien of this Deed
of Trust for the full amount
<PAGE> 68
secured hereby before such
payment took place. MetLife
shall not be held responsible
for any failure to collect any
insurance proceeds due under
the terms of any policy
regardless of the cause of such
failure or for any use by
Trustor of any amount of such
proceeds as MetLife may pay
over to Trustor.
1.5 Condemnation. If all
or any material part of the
Property shall be damaged or
taken through condemnation
(which term, when used in this
Deed of Trust, shall include
any damage or taking by any
governmental authority and any
transfer by private sale in
lieu thereof), either
temporarily or permanently, the
entire indebtedness secured
hereby shall, at the option of
MetLife, become immediately due
and payable without premium or
penalty. MetLife shall be
entitled to all compensation,
awards and other payments or
relief therefor and is hereby
authorized, at its option, to
commence, appear in and
prosecute, in its own or
Trustor's name, any action or
proceeding relating to any
condemnation, and to settle or
compromise any claim in
connection therewith. All such
compensation, awards, damages,
claims, rights, actions and
proceedings, and the right
thereto, are hereby assigned by
Trustor to MetLife. After
deducting from said
condemnation proceeds all of
its expenses incurred in the
collection and administration
of such sums, including
attorneys' fees, MetLife may
apply the net proceeds or any
part thereof, at its option,
either toward restoring the
Property or as a credit on any
portion of the indebtedness
secured hereby selected by it,
whether then matured or to
mature in the future, or for
any other purpose or object
satisfactory to MetLife,
without affecting the lien of
this Deed of Trust. Trustor
agrees to execute such further
assignments of any
compensations, awards, damages,
claims, rights, actions and
proceedings as MetLife may
require. MetLife shall not be
held responsible for any
failure to collect any amount
in connection with any such
proceeding regardless of the
cause of such failure or for
any use by Trustor of such
amounts as MetLife may pay over
to Trustor.
1.6 Care of the Property.
a. Trustor will
preserve and maintain the
Property in good condition and
repair, will not commit or
suffer any waste thereof.
Trustor will not do or suffer
to be done anything which will
increase the risk of fire or
other hazard to the Property or
any part thereof.
b. Except as
otherwise provided herein or in
the Loan Agreement, no
buildings, structures,
improvements, fixtures,
personal property or other part
of the Property shall be
removed, demolished or altered
structurally to any extent or
altered nonstructurally in any
material respect
<PAGE> 69
without the prior written
consent of MetLife. Trustor
may sell or otherwise dispose
of, free from the lien of this
Deed of Trust, furniture,
furnishings, equipment, tools,
appliances, machinery, fix-
tures, or appurtenances subject
to the lien hereof, which may
become worn out, undesirable,
obsolete, disused or unneces-
sary for use in the operation
of the Property, not exceeding
in value at the time of
disposition thereof Two Hundred
Fifty Thousand Dollars
($250,000.00) for any single
transaction, or a total of Five
Hundred Thousand Dollars
($500,000.00) in any one fiscal
year of Trustor, upon replacing
the same by, or substituting
for the same, other furniture,
furnishings, equipment, tools,
appliances, machinery,
fixtures, or appurtenances not
necessarily of the same
character, but of at least
equal value to Trustor, costing
not less than the amount
realized from the property sold
or otherwise disposed of, and
free and clear of all Liens,
which replacement property
shall forthwith become, without
further action, subject to the
lien and security interest of
this Deed of Trust.
c. If the Property
or any part thereof is damaged
by fire or any other cause,
such that the estimated cost to
repair exceeds the lesser of
(i) the amount of the
deductible under any applicable
insurance policies, or (ii) the
sum of $250,000, then Trustor
will give immediate written
notice of the same to MetLife.
d. Upon forty-eight
(48) hours telephonic notice to
Borrower (or, in the event of
emergency, upon such lesser
notice as is reasonable in the
circumstances), MetLife or its
representatives are hereby
authorized to enter upon and
inspect the Property at any
time during normal business
hours during the term of this
Deed of Trust.
e. Trustor will
promptly comply, and cause the
Property and the occupants or
users thereof to comply, with
all present and future laws,
ordinances, orders, rules and
regulations and other
requirements of any
governmental authority
affecting the Property or any
part thereof or the use or
occupancy thereof and with all
terms, covenants, conditions
and restrictions of any
instruments and documents of
record or otherwise affecting
the Property, or any part
thereof, or the use or
occupancy thereof.
f. If all or any
part of the Property shall be
damaged by fire or other
casualty, Trustor will promptly
restore the Property to no less
than the equivalent of its
original condition, regardless
of whether or not there shall
be any insurance proceeds
therefor and whether or not the
same are made available by
MetLife for such purpose. If a
part of the Property shall be
physically damaged through
<PAGE> 70
condemnation, Trustor will
promptly restore, repair or
alter the remaining property in
a manner satisfactory to
MetLife.
g. Trustor hereby
represents and warrants to
MetLife (i) that the Property
does not have stored or con-
tained on it any waste,
asbestos, oil or petroleum
hydrocarbons, pesticides or
toxic or hazardous substances
or any such materials, other
than those pesticides,
herbicides and other
agricultural chemicals or
products customarily used in
agricultural and commercial
operations of the type
currently conducted by Trustor
on the Property; (ii) that no
such materials, chemicals, or
products have been or are
stored in underground storage
tanks at the Property; (iii)
that Trustor has never been and
is not now a party to any
litigation or administrative
proceedings, and none is
presently threatened, which
asserts or alleges that Trustor
violated any federal, state or
local environmental law,
statute, or regulation or the
common law of any state
pertaining to the condition or
use of real property; (iv) that
neither Trustor nor the
Property is or has been subject
to any judgment, decree, order
or citation related to or
arising out of any federal,
state, or local environmental
law, statute, or regulation;
(v) as to all operations,
including but not limited to
the use of the pesticides,
herbicides, other agricultural
chemicals and oil or petroleum
hydrocarbons so used in
agricultural and commercial
operations on the Property,
Trustor represents and warrants
that during all previous times,
and in the future times while
MetLife has a mortgage interest
in the Property, Trustor has
been and will be in compliance
with all present and future
federal, state and local
environmental statutes,
regulations, and ordinances and
have and will secure and hold
all applicable licenses and
permits. Trustor hereby
further represents and warrants
to MetLife that it has not
caused or permitted, and
Trustor will not hereafter
cause or permit: (i) the use of
the Property for any of (a) a
sanitary land fill, (b) a dump,
or (c) disposal of waste, oil
or petroleum hydrocarbons,
pesticides or toxic or
hazardous substances as defined
in any federal, state or local
environmental law, statute or
regulation of any kind, (ii)
the deposit or location in,
under or upon the Property or
any adjacent parcels thereto
(to the extent Trustor may be
able to control, direct, or
regulate activities on such
adjacent parcels) of any such
waste, oil, pesticides,
substances or materials in
violation of any applicable
federal, state or local
environmental law, statute or
regulation, or (iii) the
contamination by any such
waste, oil or petroleum hydro-
carbons, pesticides, substances
or materials of any part of the
Property or any adjacent
parcels thereto (to the extent
Trustor may be able to control,
direct, or regulate activities
on such adjacent parcels), in-
cluding the ground water
located thereon or thereunder.
All toxic or hazardous
<PAGE> 71
substances or materials, or oil
or petroleum hydrocarbons as
defined in any federal, state
or local environmental law,
statute or regulation, which
have been or may be used by any
person for any purpose upon the
Property have been and shall be
used or stored thereon only in
a safe, approved manner, in
accordance with all industrial
standards and with all laws,
regulations and requirements
for such storage promulgated by
any governmental authority.
The Property has not been and
will not hereafter be used for
the purpose of storing such
substances for any use other
than normal business operations
and no such storage or use has
been or will hereafter other-
wise be allowed on the Property
or any adjacent parcels thereto
(to the extent Trustor may be
able to control, direct, or
regulate activities on such
adjacent parcels) in such a
manner which has caused or will
cause, or which has increased
or will increase the likelihood
of causing, the release of such
substances onto the Property or
any adjacent parcels thereto
(to the extent Trustor may be
able to control, direct, or
regulate activities on such
adjacent parcels). Trustor
agrees to provide MetLife
immediately upon receipt or
sending copies of any
correspondence, notice,
pleading, citation, complaint,
order, decree or other docu-
ments from any source (whether
public entity or private,
actual, or potential litigant)
asserting or alleging a circum-
stance or condition in
violation of any federal, state
or local environmental law,
statute or regulation or the
common law of any state
pertaining to the use or
condition of real property. If
Trustor fails to comply with
any of the foregoing or in the
event of any breach of any
warranty, misrepresentation or
nonfulfillment of any
obligation by Trustor herein,
MetLife may either (i) declare
a default under this Deed of
Trust, or (ii) cause the
removal of any hazardous
material from the Property, or
both. The costs of hazardous
material removal shall be added
to the indebtedness secured
hereby, whether or not such
costs exceed the principal
amount of the Note and whether
or not a court has ordered the
cleanup, and shall become due
and payable, without notice,
and with interest thereon at
the default rate specified in
the Note. After the occurrence
of a default or an Event of De-
fault, Trustor shall give
MetLife, its agents and
employees access to the
Property to remove any
hazardous material. MetLife,
however, has no affirmative
obligation to remove any
hazardous material, and this
Deed of Trust and any other
documents securing the
indebtedness secured hereby
shall not be construed as
creating any such obligation.
Trustor shall protect, defend,
indemnify and hold MetLife
harmless from and against all
loss, cost (including attor-
neys' fees), liability, damage,
claim or obligation, whenever
asserted or brought, known or
unknown: (i) arising in connec-
tion with or resulting from any
breach of warranty, misrepre-
sentation or nonfulfillment of
any agreement by Trustor
<PAGE> 72
herein, (ii) based upon or
otherwise resulting from an
alleged or claimed violation of
any federal, state or local
environmental law, regulation
or ordinance, or common law of
any state, including but not
limited to any tort claims,
that pertain or relate in any
respect or manner to the
Property, incurred by MetLife
by reason of any violation of
any applicable statute or
regulation (whether such
liability is to a private party
or any government unit, state
or federal), or (iii) by reason
of the imposition of any
governmental lien for the
recovery of environmental
cleanup costs expended by
reason of such violation,
without regard to fault on the
part of Trustor. This
indemnity shall survive the
termination of Trustor's
indebtedness to MetLife and
shall continue thereafter so
long as MetLife is subject to
any possible claim or
threatened, pending or
completed action, suit or
proceeding, whether civil,
criminal or investigative, by a
federal, state or other
governmental body or private
party or parties, regarding the
health, industrial hygiene,
occupational or the envi-
ronmental conditions on, under
or about the Property. The
liability of Trustor under this
indemnity shall not be con-
strued as arising from any
fraud by MetLife, willful
injury by MetLife to the person
or property of another, or
MetLife's willful or negligent
violation of law.
D. Further Assurances;
After Acquired Property. At
any time, and from time to
time, upon request by MetLife,
Trustor will make, execute and
deliver or cause to be made,
executed and delivered, to
MetLife, and where appropriate,
to cause to be recorded and/or
filed and from time to time
thereafter to be re-recorded
and/or refiled at such time and
in such offices and places as
shall be deemed desirable by
MetLife, any and all such other
and further mortgages, security
agreements, financing
statements, continuation state-
ments, instruments of further
assurances, certificates and
other documents as may, in the
reasonable opinion of MetLife,
be necessary or desirable in
order to effectuate, complete,
enlarge (so as to cover
additional Collateral), or
perfect, or to continue and
preserve: (a) the obligations
of Trustor under the Note, this
Deed of Trust, the Loan
Agreement, and the Other
Security Documents, and
(b), subject to Section 1.17
below, the lien and security
interest of this Deed of Trust
as a first and prior lien and
security interest upon all of
the Property, whether now owned
or hereafter acquired by
Trustor. Upon any failure by
Trustor so to do, MetLife may
make, execute, record, file,
re-record and/or refile any and
all such mortgages, security
agreements, financing
statements, continuation
statements, instruments,
certificates and documents for
and in the name of Trustor, and
Trustor hereby irrevocably
appoints MetLife the agent and
attorney-in-fact of Trustor so
to do. The lien and security
interest hereof will automati-
cally attach, without further
<PAGE> 73
act, to all after-acquired
property attached to and/or
used or stored in connection
with the operation of Trustor's
business in, on and from the
Property or any part thereof.
E. Leases and Other
Agreements Affecting Property.
Trustor will duly and
punctually perform all terms,
covenants, conditions and
agreements binding upon it or
the Property under any lease or
any other similar agreement of
any nature whatsoever which
involves or affects (i) the
Property or any part thereof,
or (ii) the operation of
Trustor's business in, on, and
from the Property or any part
thereof. Upon request by
MetLife, Trustor agrees to
furnish MetLife with executed
copies of all leases and other
agreements now existing or
hereafter entered into with
respect to all or any part of
the Property or the operation
of Trustor's business in, on,
and from the Property or any
part thereof. Trustor will
not, without the express
written consent of MetLife,
enter into any new lease or
modify, surrender, terminate,
extend or renew, either orally
or in writing, any lease now
existing or hereafter created
upon the Property, or any part
thereof. In addition, Trustor
will not permit an assignment
or sublease without the express
written consent of MetLife. If
MetLife so requests, Trustor
shall cause the tenant under
each or any of such leases to
enter into subordination and
attornment agreements with
MetLife which are satisfactory
to MetLife. Trustor will not
accept payment of advance rents
or security deposits, if any,
equal, in the aggregate, to
more than one (1) year's rent
without the express written
consent of MetLife. In order
to further secure payment of
the indebtedness secured hereby
and the observance, performance
and discharge of Trustor's
obligations under the Loan
Agreement, the Note, the Other
Security Documents, and here-
under, Trustor hereby assigns,
transfers and sets over to
MetLife all of Trustor's right,
title and interest in, to and
under all leases now or
hereafter affecting the
Property or any part thereof,
and in and to all of the rents,
issues, profits, revenues,
awards and other benefits now
or hereafter arising from the
Property or any part thereof.
Unless and until an Event of
Default occurs, Trustor shall
be entitled to collect the
rents, issues, profits,
revenues, awards and other
benefits of the Property
(except as otherwise provided
in this Deed of Trust) as and
when they become due and pay-
able.
F. Management Agreements.
Trustor further covenants and
agrees that any agreement for
the management of the Property:
(i) shall provide that the
obligation to pay any amount
thereunder will not be enforce-
able against any party other
than the party who entered into
such agreement, (ii) shall
provide that such agreement,
together with any and all liens
and claims for lien that any
manager or other person or
<PAGE> 74
entity performing the duties of
a manager thereunder has or may
thereafter have thereunder or
for managing the Property or
any part thereof, shall be in
all respects subordinate to the
lien of this Deed of Trust, and
(iii) shall not be enforceable
against MetLife. Trustor shall
furnish MetLife with evidence
of the foregoing which is in
all respects satisfactory to
MetLife.
G. Expenses. Trustor
will immediately upon demand
pay or reimburse MetLife for
all attorneys' fees, costs and
expenses incurred by MetLife in
any proceedings involving the
estate of a decedent, an
insolvent or a bankrupt, or in
any action, proceeding or
dispute of any kind in which
MetLife is made a party, or
appears as an intervener or
party (whether as plaintiff,
petitioner, complainant,
defendant, respondent, or
otherwise) affecting or
relating to the Note, this Deed
of Trust, the Loan Agreement,
the Other Security Documents,
Trustor, or the Property,
including, but not limited to,
the foreclosure of this Deed of
Trust, any condemnation action
involving the Property, or any
action to protect the security
hereof. If Trustor fails to
pay such amounts upon demand,
any such amounts paid by
MetLife shall, at MetLife's
option, be added to the
indebtedness secured hereby and
secured by the lien and secu-
rity interest of this Deed of
Trust, and shall bear interest
at the rate provided in the
Note for interest payable after
default (or quoted Overdue
Interest Rate).
H. Books, Records and
Accounts. Trustor will keep
and maintain or will cause to
be kept and maintained proper
and accurate books, records and
accounts reflecting all items
of income and expense in
connection with the operation
of the Property or in
connection with any services,
materials, equipment or
furnishings provided in
connection with the operation
of the Property, whether such
income or expenses be realized
by Trustor or by any other
person or entity whatsoever.
Upon forty-eight (48) hours
telephonic notice to Borrower,
MetLife or its designee shall
have the right from time to
time at all times during normal
business hours to examine such
books, records and accounts at
the office of Trustor or other
person or entity maintaining
such books, records and
accounts and to make such
copies or extracts thereof as
MetLife may desire. Trustor
will also from time to time
furnish to MetLife such
financial statements and other
information as MetLife may
reasonably request.
I. Estoppel Affidavits.
Trustor, within ten (10) days
after written request from
MetLife, shall furnish a writ-
ten statement, duly
acknowledged, setting forth the
unpaid principal of, and
interest on, the indebtedness
<PAGE> 75
secured hereby and whether or
not any offsets or defenses
exist against such principal
and interest.
J. Subrogation. MetLife
shall be subrogated to the
claims and liens of all parties
whose claims or liens are
discharged or paid with the
proceeds of the indebtedness
secured hereby.
K. Use of Property.
Trustor will not make, suffer
or permit, without the prior
written consent of MetLife, any
use of the Property for any
purpose other than that for
which the same is used or
intended to be used as of the
date of this Deed of Trust.
L. Use of Proceeds.
1. Trustor
represents and agrees that the
proceeds of the Note will not
be used primarily for personal,
family, or household purposes.
2. All agreements
between Trustor and MetLife
(including, without limitation,
this Deed of Trust, the Note,
the Loan Agreement, the Other
Security Documents, and any
other documents securing the
indebtedness secured hereby)
are expressly limited so that
in no event whatsoever shall
the amount paid or agreed to be
paid to MetLife exceed the
highest lawful rate of interest
permissible under the laws of
the State of California. If,
from any circumstances whatso-
ever, fulfillment of any
provision hereof or of the Note
or any other documents securing
the indebtedness secured
hereby, at the time performance
of such provision shall be due,
shall involve exceeding the
limit of validity prescribed by
law which a court of competent
jurisdiction may deem
applicable hereto, then ipso
facto, the obligation to be
fulfilled shall be reduced to
the highest lawful rate of
interest permissible under the
laws of the State of
California, and if for any
reason whatsoever, MetLife
shall ever receive as interest
an amount which would be deemed
unlawful, such interest shall
be applied to the payment of
the last maturing installment
or installments of the
indebtedness secured hereby
(whether or not due and
payable) and not to the payment
of interest. If any such
amounts are in excess of the
indebtedness then outstanding,
any excess shall be paid to
Trustor.
M. Prohibition of
Transfer. Except as permitted
in the Loan Agreement and in
Sections 1.7 above and 1.17
below, Trustor will not, with-
out the prior written consent
of MetLife, sell, assign or
transfer, whether by operation
of law or otherwise, all or any
portion of its interest in the
Property. Any such sale,
assignment or transfer made
without MetLife's prior written
consent shall be null and void
and of
<PAGE> 76
no force and effect, but the
attempt at making thereof
shall, at the option of
MetLife, constitute an Event of
Default under this Deed of
Trust.
N. Subordination to Crop
Financier. Pursuant to the
provisions of Section 1.6 of
the Loan Agreement, MetLife
shall subordinate, for not
longer than one (1) growing
season at a time (or such
longer period as may be agreed
to by MetLife), the security
interest created hereunder in
Trustor's crops to the
institutional lender providing
the current year's crop
financing to Trustor.
O. Prohibition of Further
Encumbrances. Except as
permitted in the Loan Agreement
and in Section 1.17 above,
Trustor will not create, incur,
assume or suffer to exist any
lien, mortgage, deed of trust,
pledge or other encumbrance
(collectively, "encumbrance")
on any of the Property or any
interest therein. Any
encumbrance attached or
attaching to any of the
Property in violation of this
Section shall, at the option of
MetLife, constitute an Event of
Default under this Deed of
Trust.
P. Licenses and
Authorizations. Trustor shall
obtain all licenses, permits
and authorizations which may be
necessary or appropriate for
the use and operation of the
buildings, structures and
improvements now or hereafter
situated on the Land and
constituting a part of the
Property, including without
limitation, licenses for the
operation of Borrower's
business as contemplated in the
Loan Agreement. Such licenses,
permits and authorizations
shall be maintained at all
times during the term of this
Deed of Trust, and, to the
extent permitted by law, shall,
at the request of MetLife, be
assigned to MetLife.
ARTICLE II
2.1 Events of Default.
The terms "Event of Default" or
"Events of Default", wherever
used in this Deed of Trust,
shall mean any one or more of
the following events:
a. Failure by
Trustor to pay when due any
installment of principal or
interest, or both (or prepay-
ment premium, if any,), due
under the Note or Loan
Agreement when and as the same
shall become due and payable,
whether at maturity or at a
date fixed for principal
payment or prepayment
(including, without limitation,
a principal payment or
prepayment as provided in the
Loan Agreement), or by
acceleration or otherwise, and
such failure continues for a
period of ten (10) days after
notice by MetLife; or
<PAGE> 77
b. Failure by
Trustor to duly observe or
perform any other term,
covenant, condition or
agreement of the Note, the Loan
Agreement, this Deed of Trust,
or the Other Security
Documents, and such failure
shall continue for a period of
thirty (30) days after notice
by MetLife, or such longer
period as may be specified in
such instruments; or
c. Failure by
Trustor to duly observe or
perform any term, covenant,
condition or agreement in any
assignment of lease, assignment
of rents or any other agreement
given or made as additional
security for the performance of
the Note, the Loan Agreement,
this Deed of Trust, or the
Other Security Documents, and
such failure shall continue for
a period of thirty (30) days
after notice; or
d. In the event
that the indebtedness hereby
secured is at any time
guaranteed, failure by any
guarantor of Trustor's obliga-
tions to MetLife secured hereby
to duly observe or perform any
term, covenant, condition or
agreement in any guaranty
agreement made by such
guarantor for the benefit of
MetLife; or
e. The filing by
Trustor or any guarantor of
Trustor's obligations to
MetLife secured hereby, of a
voluntary petition in bank-
ruptcy, or Trustor's or any
such guarantor's adjudication
as a bankrupt or insolvent, or
the filing by Trustor or any
such guarantor of any petition
or answer seeking or acquies-
cing in any reorganization,
arrangement, composition, re-
adjustment, liquidation,
dissolution or similar relief
for itself under any present or
future federal, state or other
law or regulation relating to
bankruptcy, insolvency or other
relief for debtors, or
Trustor's or any such
guarantor's seeking or
consenting to or acquiescing in
the appointment of any trustee,
receiver or liquidator of
itself or any portion of its
assets or of all or any part of
the Property or of any or all
of the rents, issues, profits
or revenues thereof, or the
making of any general
assignment for the benefit of
creditors, or the admission in
writing of its inability, or
failure, to pay its debts
generally as they become due;
or
f. The entry by a
court of competent jurisdiction
of an order, judgment or decree
approving a petition filed
against Trustor or any such
guarantor seeking any
reorganization, arrangement,
composition, readjustment,
liquidation, dissolution or
similar relief under any
present or future federal,
state or other law or
regulation relating to bank-
ruptcy, insolvency or other
similar relief for debtors,
which order, judgment or decree
remains unvacated and unstayed
for an aggregate of sixty (60)
days (whether or not
consecutive) from the date of
entry thereof, or the
appointment of any
<PAGE> 78
trustee, receiver or liquidator
of Trustor or of any such
guarantor or of all or any part
of the Property or of any or
all of the rents, issues,
profits or revenues thereof
without its consent or
acquiescence, which appointment
shall remain unvacated or
unstayed for an aggregate of
sixty (60) days (whether or not
consecutive); or
g. Any
representation or warranty made
hereunder or in Trustor's
Affidavit dated of even date
herewith and delivered to
MetLife simultaneously with
this Deed of Trust, shall be or
proves to be incorrect or
false.
2.2 Acceleration of
Maturity. If an Event of
Default shall have occurred,
then the entire indebtedness
secured hereby and, to the
fullest extent permitted by
applicable law, any premium
with respect to prepayment as
provided in the Loan Agreement,
shall, at the option of
MetLife, without notice, except
as required by law, immediately
become due and payable without
any presentment, demand,
protest or notice (presentment,
demand, protest and notice
being hereby waived).
Thereafter, MetLife may:
a. Deliver to the
Trustee a written declaration
of default and request that the
Trustee exercise the power of
sale granted herein at which
time the Trustee shall cause a
written notice of default and
election to cause Trustor's
interest in the Property to be
sold, which notice Trustee
shall cause to be duly filed
for record in the official
records of all counties in
which the Property is located
and to further proceed in
accordance with the provisions
of the California Civil Code
Sections 2924 and following;
b. Commence an
action to foreclose this Deed
of Trust as a mortgage, appoint
a receiver, or specifically
enforce any of the covenants
herein contained; or
c. Exercise any and
all rights of MetLife provided
for by law, in this Deed of
Trust, the Loan Agreement, the
Note, the Other Security
Documents, or any other
instrument evidencing or
securing the indebtedness
described hereinabove as may be
applicable upon the occurrence
of any event of default.
Trustor hereby waives the
provisions of California Civil
Code Section 2954.10 or any
other statutes or case law
which may at any time apply to
any obligation hereby secured
that would limit MetLife's
right to charge a prepayment
premium after acceleration of
the obligation for a prohibited
transfer of any interest in the
Property, or for any other
reason. Except as expressly
provided in the Loan Agreement,
Trustor hereby waives the right
to repay the Note or any other
<PAGE> 79
obligation secured by this Deed
of Trust, in whole or in part,
under any provisions of this
Deed of Trust or otherwise,
without premium.
- Trustor Initial Below -
//s//JG
_______
//s//MM
_______
2.3 MetLife's Right to
Enter and Take Possession,
Operate and Apply Revenues.
a. If an Event of
Default shall have occurred and
be continuing, Trustor, upon
demand of MetLife, shall forth-
with surrender to MetLife the
actual possession, and if and
to the extent permitted by law,
MetLife itself, or by such
officers or agents as it may
appoint, may enter and take
possession, of all or any part
of the Property, and may
exclude Trustor and its agents
and employees wholly therefrom,
and may have joint access with
Trustor to the books, papers
and accounts of Trustor.
b. If Trustor shall
for any reason fail to
surrender or deliver the
Property or any part thereof
after such demand by MetLife,
MetLife may obtain a judgment
or decree conferring on MetLife
the right to immediate posses-
sion or requiring the delivery
of immediate possession of all
or part of such Property to
MetLife, to the entry of which
judgment or decree Trustor
specifically consents.
c. Trustor will pay
to MetLife, upon demand, all
expenses (including, without
limitation, fees and expenses
of attorneys, accountants and
agents) of obtaining such
judgment or decree or of
otherwise seeking to enforce
its rights under the Note, this
Deed of Trust, the Loan
Agreement, or the Other
Security Documents, and all
such expenses shall, until
paid, be secured by this Deed
of Trust and shall bear inter-
est at the Overdue Interest
Rate as specified in the Note.
d. Upon every such
entering upon or taking of
possession, MetLife may hold,
store, use, operate, manage and
control the Property and
conduct the business thereof,
and, from time to time (i) make
all necessary and proper
maintenance, repairs, renewals,
replacements, additions,
betterments and improvements
thereto and thereon and
purchase or otherwise acquire
additional fixtures, personalty
and other property; (ii) insure
or keep the Property insured;
(iii) manage and operate the
Property and the business
theretofore operated by Trustor
in, on and from the Property
and exercise
<PAGE> 80
all the rights and powers of
Trustor to the same extent as
Trustor could in its own name
or otherwise with respect to
the same; and (iv) enter into
any and all agreements with
respect to the exercise by
others of any of the powers
herein granted to MetLife, all
as MetLife from time to time
may determine to be to its best
advantage. MetLife may collect
and receive all the rents,
issues, profits and revenues of
the same, including those past
due as well as those accruing
thereafter, and, after
deducting (aa) all expenses of
taking, holding, managing and
operating the Property and the
business theretofore operated
by Trustor in, on and from the
Property (including
compensation for the services
of all persons employed for
such purposes), (bb) the cost
of all such maintenance, re-
pairs, renewals, replacements,
additions, betterments, im-
provements and purchases and
acquisitions for the Property,
(cc) the cost of such
insurance, (dd) such taxes,
assessments and other similar
charges as MetLife may deter-
mine to pay, (ee) other proper
charges upon the Property or
any part thereof, and (ff) the
compensation, expenses and
disbursements of the attorneys
and agents of MetLife, shall
apply the remainder of the
monies and proceeds so received
by MetLife, first to payment of
any premiums due pursuant to
the Loan Agreement, second to
payment of accrued interest,
third to the payment of
deposits required in Paragraph
1.3.e above, and fourth to the
payment of principal.
METLIFE SHALL BE
LIABLE TO ACCOUNT ONLY FOR
RENTS, ISSUES, PROFITS,
REVENUES, AWARDS AND OTHER
BENEFITS OF THE PROPERTY
ACTUALLY RECEIVED BY METLIFE
PURSUANT TO ANY PROVISION OF
THIS DEED OF TRUST.
e. In the event
MetLife acquires title to, or
possession or ownership of, any
Property following the exercise
of any of MetLife's rights and
remedies under this Deed of
Trust or under the Note, the
Loan Agreement, or any of the
Other Security Documents,
MetLife and/or any subsequent
owner of the Property shall
acquire the nonexclusive
license to grow and market all
varieties of fruit produced by
any trees, vines, or other
crops planted on the Land
without obligation to make any
patent or royalty payments to
Trustor in respect of any
patented crop varieties now or
hereafter planted on the Land,
and may: (i) market the crops
produced by any such patented
varieties under the varietal
names customarily used for such
crops without any payment to
Trustor in respect thereof, and
(ii) transfer the right to use
such varietal names to any
subsequent purchaser or owner
of the Property. MetLife
acknowledges that, to the
extent that persons who are not
parties to this Deed of Trust
("Third Parties") are entitled
to receive royalties in
connection with the sale of
certain patented varieties of
crops grown on the Property,
nothing in this Deed of Trust
is intended or shall be
<PAGE> 81
construed to abrogate, waive,
or impair the rights of such
Third Parties.
f. MetLife shall
have no liability for any loss,
damage, injury, cost or expense
resulting from any action or
omission by it or its
representatives which was taken
or omitted in good faith.
2.4 Performance by
MetLife of Defaults. If any
default shall occur in the
payment, performance or
observance of any term,
representation, warranty,
covenant or condition of this
Deed of Trust (whether or not
the same shall constitute an
Event of Default, due to the
lack of notice, insufficient
passage of time, or otherwise),
MetLife may (but shall not be
obligated to), at its option,
pay, perform or observe the
same or take any action
necessary to cause any
representation or warranty to
be true, and all payments made
or costs or expenses incurred
by MetLife in connection
therewith, shall be secured
hereby and shall be, without
demand, immediately repaid by
Trustor to MetLife with
interest thereon at the Overdue
Interest Rate. MetLife shall
be the sole judge of the
necessity for any such actions
and of the amounts to be paid.
MetLife is hereby empowered to
enter and to authorize others
to enter upon the Property or
any part thereof for the
purpose of performing or
observing any such defaulted
term, covenant or condition
without thereby becoming liable
to Trustor or any person in
possession holding under
Trustor. No payment,
performance, or observance by
MetLife shall be deemed a
waiver of, or in any way
relieve Trustor from, any
default or Event of Default
hereunder.
2.5 Receiver. If an
Event of Default shall have
occurred, MetLife, upon
application to a court of
competent jurisdiction, shall
be entitled, as a matter of
strict right and without notice
or regard to the occupancy or
value of any security for the
indebtedness or the insolvency
of any party bound for its
payment, to the appointment of
a receiver to take possession
of and to operate the Property
and to collect and apply the
rents, issues, profits and
revenues thereof. The receiver
shall have all of the rights
and powers to the fullest
extent permitted by law.
Trustor will pay to MetLife
upon demand (with interest
thereon at the Overdue Interest
Rate) all expenses, including
receiver's fees, attorneys'
fees, costs and agent's
compensation, incurred pursuant
to the provisions of this
Paragraph, and all such
expenses shall be secured by
this Deed of Trust and shall
bear interest at the Overdue
Interest Rate.
2.6 Foreclosure by
Trustee's Power of Sale.
Should MetLife elect to
foreclose by requesting the
Trustee to exercise the power
of sale herein contained,
MetLife shall
<PAGE> 82
notify the Trustee in writing
of such election and the
Trustee shall immediately give
Notice of Default and otherwise
proceed in accordance with the
provisions of the California
Civil Code Sections 2924 and
following, then in effect.
Upon receipt of payment of
the price bid at any sale by
the Trustee, the Trustee shall
deliver a Trustee's deed to the
purchaser conveying the
Property. Recitals in the
Trustee's deed shall be prima
facie evidence of the truth of
the statements made therein.
The Trustee shall apply the
proceeds of the sale in the
following order: (a) to all
reasonable costs and expenses
of the sale, including but not
limited to, all Trustee's fees
and costs allowable under
California law, including those
allowable under California
Civil Code Section 2924d, or
any corresponding provision of
any future law, and attorneys'
fees actually incurred by the
Trustee; (b) to all sums
secured by this Deed of Trust;
(c) to the payment of junior
trust deeds, mortgages, or
other lienholders; and (d) the
excess, if any, to the person
or persons legally entitled
thereto.
In the event that, after
the filing of the Notice of
Default, Trustor shall pay to
MetLife or its successor-in-
interest the entire amount then
due under the terms of this
Deed of Trust and the
obligations secured hereby, in-
cluding costs and expenses
actually incurred in enforcing
the terms of those obligations
secured hereby and all
Trustee's fees and costs
allowable under California law,
including those allowable under
California Civil Code Sections
2924c and 2924d, or any
corresponding provisions of any
future law, other than such
portion of the principal as
would not then be due had no
default occurred, then this
Deed of Trust shall be
reinstated and shall be and
remain in force and effect the
same as if no acceleration had
occurred. Upon reinstatement,
the Trustee shall execute and
file of record a proper Cancel-
lation of Notice of Default.
2.7 Remedies Not
Exclusive. The Trustee and
MetLife, and each of them,
shall be entitled to enforce
the payment and performance of
any indebtedness or obligation
secured hereby, and to exercise
all rights and powers under
this Deed of Trust, under any
loan instrument or other
agreement, or under any laws
now or hereafter enacted,
notwithstanding the fact that
some or all of the indebtedness
and obligations secured hereby
may now or hereafter be
otherwise secured, whether by
mortgage, deed of trust,
pledge, lien, assignment or
otherwise. Neither the
acceptance of this Deed of
Trust nor its enforcement,
whether by court action or
pursuant to the power of sale
or any other powers herein
contained, shall prejudice or
in any manner affect the
Trustee's or MetLife's
<PAGE> 83
right to realize upon or to en-
force any other security now or
hereafter held by the Trustee
or MetLife, it being agreed
that the Trustee and MetLife,
and each of them, shall be
entitled to enforce this Deed
of Trust and any other security
now or hereafter held by the
Trustee or MetLife in such
order and in such manner as
they, or either of them, may in
their absolute discretion
determine. No remedy herein
conferred upon or reserved to
the Trustee or MetLife is
intended to be exclusive of any
other remedy provided or
permitted hereunder or by law,
and each of them shall be
permitted to enforce all powers
and remedies now or hereafter
existing hereunder or at law or
in equity or by statute. Every
power or remedy given to the
Trustee or MetLife hereunder or
under the Note, the Loan
Agreement, the Other Security
Documents, or under any other
documents issued in connection
therewith, and every other
power or remedy to which either
of them may be otherwise
entitled, may be exercised,
concurrently or independently,
from time to time and as often
as may be deemed expedient, by
the Trustee or by MetLife, and
either of them may pursue
inconsistent remedies. Nothing
herein shall be construed as
prohibiting MetLife from
seeking a deficiency judgment
against Trustor to the extent
such judgment is permitted by
law.
2.8 Purchase by MetLife.
Upon any sale of the Property
pursuant to the power of sale
by the Trustee, pursuant to a
decree of foreclosure, or in
any other manner permitted by
law, MetLife may bid for and
purchase the Property and shall
be entitled to apply all or any
part of the indebtedness
secured hereby as a credit to
the purchase price.
2.9 Fees and Expenses;
Application of Proceeds of
Sale. In any exercise of the
power of sale by the Trustee,
suit to foreclose the lien
hereof, or any other action
undertaken to protect the
interest of MetLife, there
shall be allowed and included
as additional indebtedness
secured hereby, to the extent
permitted by applicable law,
all costs and expenses which
may be paid or incurred by or
on behalf of MetLife or holders
of the Note for attorneys'
fees, appraisers' fees,
receiver's costs and expenses,
insurance, taxes, outlays for
documentary and expert
evidence, costs for
preservation of the Property,
stenographer's charges, publi-
cation cost and costs of
procuring all abstracts of
title, title searches and
examinations, guarantee
policies, and similar data and
assurances with respect to
title as MetLife or holders of
the Note may deem to be
reasonably necessary.
2.10 Waiver of
Appraisement, Valuation, Stay,
Extension and Redemption Laws.
Trustor agrees to the fullest
extent permitted by law, that
if an Event of Default occurs
hereunder, neither Trustor nor
anyone claiming through or
under
<PAGE> 84
it shall or will set up, claim
or seek to take advantage of
any appraisement, valuation,
stay, extension, homestead or
redemption laws now or
hereafter in force, in order to
prevent or hinder the
enforcement or foreclosure of
this Deed of Trust, or the
absolute sale of the property
hereby conveyed, or the final
and absolute putting into pos-
session thereof, immediately
after such sale, of the
purchasers thereat, and
Trustor, for itself and all who
may at any time claim through
or under them, hereby waives
and releases to the fullest
extent that it may lawfully so
do, the benefit of all such
laws (including, without
limitation, all rights under
and by virtue of the homestead
exemption laws of the State of
California) and any and all
rights to have the assets
comprised in the security
intended to be created hereby
marshalled upon any foreclosure
of the lien hereof.
2.11 Leases. MetLife, at
its option, is authorized to
foreclose this Deed of Trust
subject to the rights of any
tenants of the Property, and
the failure to make such
tenants parties to any such
foreclosure proceedings and to
foreclose their rights will not
be, nor be asserted to be by
Trustor, a defense to any
proceedings instituted by
MetLife to collect the sums
secured hereby, or to any
deficiency remaining unpaid
after the foreclosure sale of
the Property.
2.12 Discontinuance of
Proceedings and Restoration of
the Parties. In case MetLife
shall have proceeded to enforce
any right, power or remedy
under this Deed of Trust by
foreclosure, entry or
otherwise, and such proceedings
shall have been discontinued or
abandoned for any reason, or
shall have been determined
adversely to MetLife, then and
in every such case Trustor and
MetLife shall be restored to
their former positions and
rights hereunder, and all
rights, powers and remedies of
MetLife shall continue as if no
such proceeding had been taken.
2.13 Remedies Cumulative.
No right, power or remedy
conferred upon or reserved to
MetLife by this Deed of Trust
is intended to be exclusive of
any other right, power or
remedy, but each and every
right, power and remedy shall
be cumulative and concurrent
and shall be in addition to any
other right, power and remedy
given hereunder or now or here-
after existing at law or in
equity or by statute.
2.14 Waiver. No delay or
omission of MetLife or of any
holder of the Note to exercise
any right, power or remedy
accruing upon any default shall
exhaust or impair any such
right, power or remedy or shall
be construed to be a waiver of
any such default, or
acquiescence therein; and every
right, power and remedy given
by this Deed of Trust to
<PAGE> 85
MetLife may be exercised from
time to time and as often as
may be deemed expedient by
MetLife. No consent or waiver,
expressed or implied, by
MetLife to or of any breach or
default by Trustor in the
performance of its obligations
hereunder shall be deemed or
construed to be a consent or
waiver to or of any other
breach or default in the per-
formance of the same or any
other obligations of Trustor
hereunder. Failure on the part
of MetLife to complain of any
act or failure to act or to
declare an Event of Default,
irrespective of how long such
failure continues, shall not
constitute a waiver by MetLife
of its rights hereunder or
impair any rights, powers or
remedies on account of any
breach or default by Trustor.
If MetLife (a) grants
forbearance or any extension of
time for the payment of any
sums secured hereby; (b) takes
other or additional security
for the payment of any sums
secured hereby; (c) waives or
does not exercise any right
granted herein or in the Note,
the Loan Agreement, the Other
Security Documents, or in any
other document or instrument
securing the Note; (d) releases
with or without consideration
any of the Property from the
lien of this Deed of Trust or
any other security for the
payment of the indebtedness
secured hereby; (e) changes any
of the terms, covenants, condi-
tions or agreements of the
Note, the Loan Agreement, the
Other Security Documents, this
Deed of Trust, or any other
document or instrument securing
the Note; (f) consents to the
filing of any map, plat or
replat or condominium
declaration affecting the
Property; (g) consents to the
granting of any easement or
other right affecting the
Property; or (h) makes or
consents to any agreement
subordinating the lien hereof,
any such act or omission shall
not release, discharge, modify,
change or affect (except to the
extent of the changes referred
to in clause (e) above) the
original liability under the
Note, the Loan Agreement, the
Other Security Documents, this
Deed of Trust or any other
obligation of Trustor or any
subsequent purchaser of the
Property or any part thereof,
or any maker, cosigner,
endorser, surety or guarantor;
nor shall any such act or
omission preclude MetLife from
exercising any right, power or
privilege herein granted or
intended to be granted in the
event of any default then made
or of any subsequent default,
nor, except as otherwise
expressly provided in an
instrument or instruments
executed by MetLife, shall the
lien of this Deed of Trust or
the priority thereof be altered
thereby, whether or not there
are junior lienors and whether
or not they consent to any of
the foregoing. In the event of
the sale or transfer, by
operation of law or otherwise,
of all or any part of the
Property, MetLife, without
notice, is hereby authorized
and empowered to deal with any
such vendee or transferee with
reference to the Property or
the indebtedness secured
hereby, or with reference to
any of the terms, covenants,
conditions or agreements
hereof, as
<PAGE> 86
fully and to the same extent as
it might deal with the original
parties hereto and without in
any way releasing or dis-
charging any liabilities,
obligations or undertakings.
The foregoing shall not limit
the prohibition against such
sale or transfer as set forth
in Paragraph 1.16 hereof.
ARTICLE III
3.1 Trustee. The Trustee
may resign at any time without
cause, and MetLife may at any
time and without cause appoint
a successor or substitute
Trustee. The Trustee shall not
be liable to any party,
including, without limitation,
MetLife, Trustor, or any
purchaser of the Property, for
any loss or damage unless due
to reckless or willful
misconduct, and shall not be
required to take any action in
connection with the enforcement
of this Deed of Trust unless
indemnified, in writing, for
all costs, compensation or
expenses which may be
associated therewith. Should
the Trustee exercise the power
of sale herein granted, said
Trustee may postpone the sale
of all or any portion of the
Property, as provided by law,
or sell the Property as a
whole, or in separate parcels
or lots.
3.2 MetLife's Powers.
Without affecting the liability
of any other person liable for
the payment of any obligation
herein mentioned, and without
affecting the lien or charge of
this Deed of Trust upon any
portion of the Property not
then or theretofore released as
security for the full amount of
all unpaid obligations, MetLife
may, from time to time and
without notice (i) release any
person so liable; (ii) extend
the maturity or alter any of
the terms of any such obliga-
tions; (iii) grant other
indulgences; (iv) release or
reconvey, or cause to be
released or reconveyed at any
time, at MetLife's option, any
parcel, portion or all of the
Property; (v) take or release
any other or additional
security for any obligation
herein mentioned; or (vi) make
compositions or other
arrangements with debtors in
relation thereto.
3.3 Suits to Protect the
Property. MetLife shall have
the power to (a) institute and
maintain such suits and pro-
ceedings as it may deem
expedient to prevent any
impairment of the Property by
any acts which may be unlawful
or in violation of this Deed of
Trust; (b) preserve or protect
its interest in the Property
and in the rents, issues,
profits and revenues arising
therefrom; and (c) restrain the
enforcement of or compliance
with any legislation or other
governmental enactment,
regulation, rule, order or
other requirement that may be
unconstitutional or otherwise
invalid, if the enforcement of
or compliance with, such
enactment, regulation, rule,
order or other requirement
would impair the security
hereunder or be prejudicial to
the interest of
<PAGE> 87
MetLife, and all costs and
expenses incurred by MetLife in
connection therewith
(including, without limitation,
attorneys' fees) shall be paid
by Trustor to MetLife on demand
(with interest at the Overdue
Interest Rate) and shall be
additional indebtedness secured
hereby.
3.4 MetLife May File
Proofs of Claim. In the case
of any receivership,
insolvency, bankruptcy,
reorganization, arrangement,
adjustment, composition or
other proceedings, MetLife, to
the extent permitted by law,
shall be entitled to file such
proofs of claim and other
documents as may be necessary
or advisable in order to have
the claims of MetLife allowed
in such proceedings for the
entire amount due and payable
by Trustor under this Deed of
Trust as at the date of the
institution of such proceedings
and for any additional amount
which may become due and
payable by Trustor hereunder
after such date.
3.5 Successors and
Assigns. This Deed of Trust
shall inure to the benefit of
and be binding upon Trustor and
MetLife and their respective
heirs, executors, legal repre-
sentatives, successors and
assigns. Whenever a reference
is made in this Deed of Trust
to Trustor or to MetLife, such
reference shall be deemed to
include a reference to the
heirs, executors, legal
representatives, successors and
assigns of Trustor or MetLife.
3.6 Request for Notices.
The parties hereby request that
a copy of any notice of default
hereunder and a copy of any
notice of sale hereunder be
mailed to each party to this
Deed of Trust in the manner
prescribed by applicable law.
Except for any other notice
required under applicable law
to be given in another manner,
any notice provided for in this
Deed of Trust shall be given by
mailing such notice by
certified mail addressed to the
parties at the addresses herein
set forth.
Any notice provided for in
this Deed of Trust shall be
effective upon mailing in the
manner designated herein. If
Trustor is more than one person
and/or entity, notice sent to
the address set forth herein
shall be notice to all such
persons and/or entities.
3.7 Notices. All
notices, demands and requests
given or required to be given
by either party hereto to the
other party shall be in
writing. All such notices,
demands and requests by MetLife
to Trustor shall be deemed to
have been properly given if
served in person or if sent by
United States registered or
certified mail, postage
prepaid, addressed to Trustor
at the address set forth below,
or to
<PAGE> 88
such other address as Trustor
may from time to time designate
by written notice to MetLife
given as herein required:
R. H. Phillips, Inc.
26836 County Road 12A
Esparto, California
95627
Attention: Chief Financial Officer
All notices, demands and
requests by Trustor to MetLife
shall be deemed to have been
properly given if served in
person and if sent by United
States registered or certified
mail, postage prepaid,
addressed to MetLife at:
Metropolitan Life Insurance Company
Agricultural Investments
8717 West 110th Street, Suite 700
Overland Park, Kansas 66210
Attention: Vice President
with a copy to:
Metropolitan Life Insurance Company
Agricultural Investments
7100 North Financial Drive, Suite 105
Fresno, California 93710
Attn: Manager
or to such other address as
MetLife may from time to time
designate by written notice to
Trustor given as herein
required.
Notices, demands and
requests given by mail in the
manner aforesaid shall be
deemed sufficiently served or
given for all purposes
hereunder three (3) days after
the time such notice, demand or
request shall be deposited in
the mails. Failure to conform
to the requirement that any
notices provided for in this
Deed of Trust be sent by
registered or certified mail
shall not defeat the
effectiveness of any notice
actually received by the
addressee.
3.8 Terminology. All
personal pronouns used in this
Deed of Trust, whether used in
the masculine, feminine or
neuter gender, shall include
all other genders; the singular
shall include the plural, and
vice versa. Titles and sec-
tions are for convenience only
and neither limit nor amplify
the provisions of this Deed of
Trust itself, and all refer-
ences herein to Articles,
Sections or Paragraphs shall
refer to the corresponding
Articles, Sections or
Paragraphs of this Deed of
Trust unless specific reference
is made to such Articles,
Sections or Paragraphs of
another document or instrument.
Except as the context otherwise
requires, the term
<PAGE> 89
"including" (and all variations
of that word) will be construed
as though immediately followed
by the words "without
limitation."
3.9 Severability. If any
provision of this Deed of Trust
or the application thereof to
any person or circumstance
shall be invalid or
unenforceable to any extent,
the remainder of this Deed of
Trust and the application of
such provision to other persons
or circumstances shall not be
affected thereby and shall be
enforced to the greatest extent
permitted by law.
3.10 Applicable Law.
This Deed of Trust shall be
interpreted, construed and
enforced according to the laws
of the State of California
applicable to contracts made
and to be performed solely
within said State.
3.11 Security Agreement.
This Deed of Trust shall be
construed as a security
agreement within the meaning
of, and shall create a security
interest under, the Uniform
Commercial Code as adopted by
the State of California, with
respect to any part of the
Property which constitutes fix-
tures or personal property,
including, but not limited to,
crops, goods, equipment,
contract rights, and the
proceeds therefrom. MetLife
shall have all the rights with
respect to such fixtures and
personal property afforded to
it by said Uniform Commercial
Code in addition to, but not in
limitation of, the other rights
afforded MetLife by this Deed
of Trust or any other
agreement.
3.12 Modification. No
change, amendment, modifica-
tion, cancellation or discharge
hereof, or any part hereof,
shall be valid unless in
writing and signed by the
parties hereto or their
respective successors and
assigns.
3.13 No Merger. It being
the desire and intention of the
parties hereto that this Deed
of Trust and the lien thereof
do not merge in fee simple
title to the Property, it is
hereby understood and agreed
that should MetLife now own or
hereafter acquire any
additional or other interests
in or to said property or the
ownership thereof, then, unless
a contrary interest is
manifested by MetLife as
evidenced by an appropriate
document duly recorded, this
Deed of Trust and the lien
thereof shall not merge in the
fee simple title, toward the
end that this Deed of Trust may
be foreclosed as if owned by a
stranger to the fee simple
title.
3.14 Delivery of Summons,
Etc. If any action or proceed-
ing shall be instituted to
evict Trustor or recover
possession of the Property or
any part thereof or otherwise
affecting the Property or this
Deed of Trust, Trustor will
<PAGE>
immediately, upon service
thereof on or by Trustor,
deliver to MetLife a true copy
of each precipe, petition,
summons, complaint, notice of
action, order to show cause and
all other process, pleadings
and papers, however designated,
served in any such action or
proceeding.
3.15 Joint and Several.
If, at any time, Trustor con-
sists of more than one person
or entity, the liability of
each hereunder shall be joint
and several.
3.16 Truth-In-Lending.
Trustor represents and agrees
that the obligation secured
hereby is an exempt transaction
under the Truth-In-Lending Act,
15 U.S.C., Section 1601 et seq.
3.17 Reconveyance. Upon
payment of all sums secured by
this Deed of Trust, MetLife
shall request that the Trustee
reconvey the Property and shall
surrender this Deed of Trust
and all notes evidencing
indebtedness secured by this
Deed of Trust to the Trustee.
The Trustee shall reconvey the
Property without warranty and
without charge to the person or
persons legally entitled
thereto. Such person or
persons shall pay all costs of
recordation, if any.
IN WITNESS WHEREOF, the
undersigned have caused this
instrument to be executed as of
the date first above written.
R. H. PHILLIPS, INC., a
California corporation
By: //s//John Giguiere
__________________________
Title: President
_______________________
By: //s//Mike Motroni
__________________________
Title: Chief Financial Officer
_______________________
<PAGE> 91
STATE OF CALIFORNIA )
) ss.
COUNTY OF ________ )
On
__________________, 19__,
before me, ________________
____________________, a Notary
Public in and for the State of
California, personally appeared
, personally known to me (or
proved to me on the basis of
satisfactory evidence) to be
the person(s) whose name(s)
is/are subscribed to the within
instrument and acknowledged to
me that he/she/they executed
the same in his/her/their
authorized capacity(ies), and
that by his/her/their
signatures on the instrument
the person(s), or the entity
upon behalf of which the
person(s) acted, executed the
instrument.
WITNESS my hand and
official seal.
Signature
STATE OF CALIFORNIA )
) ss.
COUNTY OF ________ )
On
__________________, 19__,
before me, ________________
____________________, a Notary
Public in and for the State of
California, personally appeared
, personally known to me (or
proved to me on the basis of
satisfactory evidence) to be
the person(s) whose name(s)
is/are subscribed to the within
instrument and acknowledged to
me that he/she/they executed
the same in his/her/their
authorized capacity(ies), and
that by his/her/their
signatures on the instrument
the person(s), or the entity
upon behalf of which the
person(s) acted, executed the
instrument.
WITNESS my hand and
official seal.
Signature
<PAGE> 92
EXHIBIT A
LEGAL DESCRIPTION
Real property situated in the
State of California, County of
Yolo, described as follows:
PARCEL 1:
The South half of Section 9;
the North half of Section 16;
and the North half of the
Northwest quarter and the
Southwest quarter of the
Northwest quarter of Section
15, all in Township 11 North,
Range 1 West, M.D.B&M.
APN: 54-060-05, 54-100-04, a
portion of 54-110-01
EXCEPTING THEREFROM all that
portion of Section 16 as con-
veyed to John Hancock Mutual
Life Insurance Company in the
deed recorded May 7, 1997,
Instrument No. 97-0010854-00
and more particularly described
as follows:
BEGINNING at a iron pipe
monument, marking the Northwest
corner of said Section 16, as
said monument is shown on that
certain Map filed for record in
Book 12 of Maps and Surveys at
Page 99 and 100, Yolo County
Records, and thence from said
point of beginning along the
North line of said Section 16,
South 89 56 23" East 1823.02
feet; thence leaving said
Section line, South 00 58 43"
East 2656.24 feet to the South
line of said Northwest one-
quarter of Section 16, said
point also being the centerline
of County Road 12-A; thence
along the South line of said
Northwest one-quarter, North 89
59 38" West 1823.02 feet to the
Southwest corner of said
Northwest one-quarter of
Section 16; thence North 00 58
41" West 2573.73 feet to the
point of beginning.
PARCEL 2:
Parcel One of Parcel Map No.
3256 for Giguiere Ranch, Inc.,
filed for record in the Office
of the Yolo County Recorder on
November 14, 1983 in Book 7 of
Parcel Maps, page 16.
APN: 54-120-09, 54-130-02
PARCEL 3:
Parcel Two and Three as shown
on Parcel Map No. 3256 for
Giguiere Ranch, Inc., filed for
record in the Yolo County
Recorder's Office on
November 14, 1983 in Book 7 of
Parcel Maps, page 16.
APN: 54-050-02, 54-120-01, 54-
120-08
<PAGE> 93
EXHIBIT B-1
WINERY EQUIPMENT
The collateral
includes all of the following-
described property:
All of the items
described below which are or
shall be attached to any
buildings, structures or
improvements, or which are or
shall be located in, on or
about the Winery, or which,
wherever located (including,
without limitation, in
warehouse or other storage
facilities or in the possession
of or on the premises of
vendors or manufacturers
thereof), are used or intended
to be used in or in connection
with the construction,
fixturing, equipping,
furnishing, use, transportation
of personal property to or
from, operation or enjoyment of
the Winery or the improvements
thereon, together with the
benefit of any deposits or
payments now or hereafter made
by Trustor or on Trustor's
behalf in connection with any
thereof:
(1) barrels, fermentation
tanks, storage tanks,
and other storage
facilities and their
related equipment;
(2) receiving, crushing,
filtering, and
bottling equipment;
(3) copiers, printers,
and other office
equipment; and
(4) all other equipment
and personal property
of every kind and
nature whatsoever
(excluding inventory
and work-in-process),
including, without
limitation, all
plumbing, gas, and
electric pipes,
wiring, and fixtures,
heating, ventilation,
and air conditioning
equipment, cold
storage and
controlled atmosphere
storage facilities,
heat exchangers,
cooling and
refrigeration
equipment, storage
tanks, metering
equipment,
compressors, cooling
towers, refrigerant
storage tanks, pipes,
coils, controls,
refrigerants,
evaporators,
eliminators, wiring,
crushers, stemmers,
hydraulic systems and
pumps, presses,
filtering equipment,
dejuicers,
separators, vacuum
pans, washing
equipment,
centrifuges, fillers,
cappers, gauges,
labelers, boilers,
wirers,
desulfurizers,
welders, fans, pumps,
hoses, motors, bins,
scales, tanks,
blowers, driers,
hoists, radiators,
heaters, engines and
machinery, boilers,
transformers and
related
<PAGE> 94
transmission and
safety facilities,
meters, signs,
carpeting and other
floor coverings,
water heaters,
including all pumps,
power units, motors,
engines, wiring,
pipes and other
equipment,
attachments, and
property connected
with any of the
foregoing, and
computers and all
hardware and software
therefor. Including
(without limitation)
those items listed in
Exhibit B-2 attached
hereto.
<PAGE> 95
EXHIBIT B-2
EQUIPMENT LIST
A. Bottling Line:
1. 5 - Paul sterile
cartridge filters
2. 1 - Capsules shrink
sealer (Phase Fire
Systems, Inc.)
3. 1 - Kromes bottle
labeler
4. 1 - Mustang bottle
labeler
5. 1 - Orbit #60 bottle
washer
6. All conveyers to
connect the various
components
7. 1 - C&G rotary labeling
machine
8. 1 - Bottle line clean
room
9. 1 - Bertoloso 6-head
corker
10. 2 - Millipore 6-round
filter housing
11. 1 - Berchi case packer
12. 2 - Case sealers
13. 2 - Ink jet prints
(cases & bottles)
14. 1 - Cork elevator
Archimedes
15. 1 - Stainless steel
tube & tube heat
exchanger
B. Pumps:
16. 5 - 10 Hp portable
centrifugal pumps
17. 2 - Portable
centrifugal pumps
(Thompson Model #61852)
18. 1 - Sien positive
displacement pump
19. 1 - Positive
displacement pump
20. 1 - Schneider positive
displacement pump
21. 2 - Tri-Clover positive
displacement pumps
(Model F589)
22. 1 - Mohno positive
displacement pump
23. 1 - Kiesel cavity pump
C: Crush Pad:
24. 1 - Pomace removal
conveyor
25. 1 - Stainless steel
must chiller
26. 1 - Delta crusher-
destemmer
27. 1 - Rauch crusher-
destemmer with auger
28. 1 - 5 ton hoist system,
crane
29. 1 - Wes-Tec grape
sorting table
D. Wine Storage Tanks:
30. 14 - 3,000 gallon
stainless steel wine
storage tanks
31. 26 - 6,000 gallon
stainless steel wine
storage tanks
32. 17 - 12,000 gallon
stainless steel wine
storage tanks
33. 18 - 25,000 gallon
stainless steel wine
storage tanks
34. 10 - 18,000 gallon
stainless steel wine
storage tanks
35. 6 - 1,500 gallon
stainless steel wine
storage tanks
<PAGE> 96
36. 6 - 3,980 gallon
stainless steel wine
storage tanks
37. 1 - 229 gallon
stainless steel wine
storage tank
38. 3 - 4,960 gallon
stainless steel wine
storage tanks
39. 1 - 790 gallon
stainless steel wine
storage tank
40. 1 - 1,960 gallon
stainless steel wine
storage tank
41. 1 - 2,550 gallon
stainless steel wine
storage tank
E: Cellar Equipment:
42. 1,573 - 2 barrel metal
racks
43. 86 - 4 barrel metal
racks
44. 1 - Phase I through III
catwalk system
45. Lab equipment, pallet
jacks, welders, piping,
tank washers, barrel
washers, agitators,
stirrers, fittings,
meters, stainless steel
transfer lines, air
compressor,
miscellaneous tools,
water softener unit
46. Miscellaneous wine
hoses
F. Refrigeration Unit:
47. 1 - 30 Ton Comp. Thermo
system for sale on
consignment
48. 4 - 5 Ton Comp. (Refer-
Tech Refrigeration
System)
49. 1 - Hench Refrigeration
computer control system
50. 1 - FES 250 Hp/ 200
tons screw comp.
refrigeration system
51. Glycol piping
G. Hot Water:
52. 1 - Fred Band hot water
boiler and heat-X
system
53. 1 - water softener unit
H. Office Equipment:
54. Various 286 386, 486
and Laptop computers,
fax machines, copiers,
phone and Voicemail
systems, support
equipment, furnishing
and tasting room items.
55. 2 - Mac graphic art
computers, and printers
56. 1 - high resolution
color copier
I. Filters:
57. 1 - Velo leaf filter 20
M2
58. 1 - Velo Filter (Model
D458) with electric
motor & pump
59. 1 - Eimco Lees filter
press
J. Barrels:
60. 3215 wine barrels
<PAGE> 97
K. Fork Lifts:
61. 1 - Toyota, 3,000 pound
capacity, propane
powered
62. 2 - Caterpillar, 5,000
pound capacity, propane
powered
L. Scales:
63. 70 foot truck scale
M. Miscellaneous Equipment:
64. 2 - 400 gallon
stainless steel juice
pans
65. 4 - Guthe mixers
66. 1 - Mueller heat
exchanger
67. 1 - Electric Genie man
lift
68. 1 - Forklift bin dumper
N. Leased Equipment:
69. 1 - 500 gallon
stainless steel
portable wine storage
tank
70. 1 - 2,000 gallon
stainless steel
portable wine storage
tank
71. 1 - Viking
positive
displacement
bottling pump
72. Several Hewlett Packard
computers
73. 1 - Kiesel cavity pump
74. 1 - Amos crusher-
destemmer
75. 1 - Stainless steel
grape receiving hopper
system
76. 1 - 3,000 gallon
stainless steel wine storage tank
77. 12 - 6,000 gallon
stainless steel wine
storage tanks
78. 1 - 12,000 gallon
stainless steel wine
storage tank
79. 10 - 25,000 gallon
stainless steel wine
storage tanks
80. 1 - 18,000 gallon
stainless steel wine
storage tank
81. 2 - 50,000 gallon
stainless steel wine
storage tanks
82. 1 - 1,000 gallon
stainless steel wine
storage tank
83. 1 - 500 gallon
stainless steel wine
storage tank
84. 1 - Diemme 32,000 liter
tank press
85. 1 - Diemme 26,000 liter
tank press
86. 1 - Diemme 15,000 liter
tank press
87. 940(approx) - 2 barrel
metal racks
88. 600(approx) - 4 barrel
metal racks
89. 1 - Irapp 40 ton
refrigeration system
90. 1 - Stainless steel
velo filter
91. 1 - Cobert Olimpia 32
filler
92. 4,859 wine barrels
93. 1 - Toyota, 5,000 pound
capacity, propane
powered
94. 1 - Hyster, 5,000 pound
capacity, propane
powered
<PAGE> 98
O. Irrigation Equipment:
95. Engines, motors, pumps,
filters and fertilizer
tanks
One Johnson pump - #18940,
Gearhead Serial No. 144149
with 125 horsepower
Cummings diesel motor,
Serial No. A9403255;
One Johnson pump, Gearhead
Serial No. 145636 with 125
horsepower Cummings diesel
motor, Serial No. 44990428;
One submerged pump with 15
horsepower submerged motor;
One Johnson pump with 125
horsepower Newman electric
motor, Serial No. S15031223.
<PAGE> 99<PAGE>
EXHIBIT
C
TITLE DEFECTS
A. The lien of the
institutional lender providing
the current year's crop financing
to Trustor (see Section 1.17).
B. Permitted Exceptions
from Title Reports, as follows:
See Exhibit C-1
<PAGE>
<PAGE> 100
EXHIBIT C-1
PERMITTED EXCEPTIONS
The real property is subject only
to the following-listed items
shown in the Preliminary Report
of Fidelity National Title
Insurance Company dated October
21, 1997, Order No. 112062:
(1) Items will be
satisfactory to be
shown in the title
report: 16, 17, 18,
19, 20, 21, 22, 23, 24,
25, 26, 27, 28, 29, 30,
31, 32, 33, 34, 35, 36,
40, 43 and 44;
(2) Items Nos. 1, 2, 3, 4,
5, 6, 7, 8, 9, 10, 11,
12, 13, 14 and 15 are
to be designated as
current;
(3) Item Nos. 37, 38, 39
and 41 are to be
reconveyed; and
(4) Item No. 42 is to be
partially subordinated
to MetLife's security
interest.
<PAGE> 101
UNSECURED INDEMNITY
AGREEMENT
This Unsecured Indemnity
Agreement (this "Agreement") is
entered into as of December 22,
1997, between R. H. PHILLIPS,
INC., a California corporation
("Borrower"), and METROPOLITAN
LIFE INSURANCE COMPANY, a New
York corporation ("MetLife"),
with reference to the following
facts:
Q. MetLife has loaned or
has committed to loan to Borrower
the sum of up to Eleven Million
and No/100 Dollars
($11,000,000.00) (the "Loan"),
payment of which is evidenced by
an adjustable rate promissory
note of even date herewith (the
"Note"), as provided in that Loan
Agreement between Borrower and
MetLife of even date herewith.
R. The Note is, secured by
a Deed of Trust, Assignment of
Rents and Security Agreement of
even date herewith (the "Deed of
Trust") executed by Borrower, as
trustor, in favor of MetLife, as
beneficiary, encumbering certain
real and other property more
particularly described in the
Deed of Trust (referred to in the
Deed of Trust and herein as the
"Property").
S. As a condition to
making the Loan, MetLife requires
Borrower to indemnify and hold
harmless MetLife from any
Environmental Claim, any
Requirements of Environmental
Law, and any violation of any
Environmental Permit, and all
Costs (as the foregoing terms are
defined in Exhibit A hereto)
relating to the Property.
MetLife would not make the Loan
without this Agreement, and
Borrower acknowledges and under-
stands that this Agreement is a
material inducement for MetLife's
agreement to make the Loan. This
Agreement is not intended to be,
nor shall it be, secured by the
Deed of Trust, and it is not
intended to secure payment of the
Note, but rather is an
independent obligation of
Borrower.
NOW, THEREFORE, in
consideration of the sum of TEN
DOLLARS ($10.00), in hand paid,
and other good and valuable
consideration, the receipt and
sufficiency of which are hereby
acknowledged, Borrower agrees as
follows:
1. Indemnification.
a. Borrower shall
protect, defend, indemnify, and
hold harmless MetLife, its
officers, directors,
shareholders, agents and
employees and their respective
heirs, legal representatives,
successors and assigns (MetLife
and all such other persons and
entities being referred to herein
individually as an "Indemnitee"
and collectively as "Indemni-
tees") from and against all Costs
which at any time may be
<PAGE> 102
imposed upon the Property, the
Indemnitees, or any of them,
arising out of or in connection
with: (i) Requirements of
Environmental Law; (ii)
Environmental Claims; (iii) the
failure of Borrower, or any other
party directly or indirectly con-
nected with the Property, or
affiliated with Borrower, to
obtain, maintain, or comply with
any Environmental Permit; and/or
(iv) the presence or existence of
Hazardous Materials (as defined
in Exhibit B hereto) at, on,
about, under, within, near or in
connection with the Property.
Notwithstanding anything to the
contrary set forth in this Agree-
ment, the liability of Borrower
under this paragraph shall arise
only from the matters described
herein which occur or arise (in
whole or in part) prior to the
complete satisfaction, assignment
or reconveyance of the Deed of
Trust.
b. In the event that
any investigation, site
monitoring, containment, cleanup,
removal, restoration or other
remedial work of any kind or
nature (the "Remedial Work") is
necessary or desirable under any
applicable local, state or
federal law or regulation, any
judicial order, or by any
governmental or non-governmental
entity or person because of, or
in connection with, the current
or future presence, suspected
presence, release or suspected
release of Hazardous Materials in
or into the air, soil, ground
water, surface water or soil
vapor at, on, about, under,
within or near the Property (or
any portion thereof), Borrower
shall within thirty (30) days
after written demand for
performance thereof by any
Indemnitee (or such shorter
period of time as may be required
under any applicable law,
regulation, order or agreement),
promptly commence, or cause to be
commenced, and thereafter
diligently prosecute to
completion, all such Remedial
Work. All Remedial Work shall be
performed by one or more
contractors, approved in advance
in writing by MetLife, and under
the supervision of a consulting
engineer approved in advance in
writing by MetLife. All Costs
related to such Remedial Work
shall be paid by Borrower
including, without limitation,
Costs incurred by any Indemnitee
in connection with monitoring or
review of such Remedial Work. In
the event Borrower shall fail to
promptly commence, or cause to be
commenced, or fail to diligently
prosecute to completion, such
Remedial Work, MetLife may, but
shall not be required to, cause
such Remedial Work to be
performed and all Costs shall
become an Environmental Claim
hereunder.
c. This Agreement, and
all rights and obligations
hereunder shall survive: (i)
surrender of the Note; (ii) sat-
isfaction, assignment or
reconveyance of the Deed of Trust
and release of other security
provided in connection with the
Loan; (iii) foreclosure of the
Deed of Trust and other security
instruments in connection with
the Loan; acquisition of
<PAGE> 103
the Property by MetLife; and (iv)
transfer of all of MetLife's
rights in the Loan and the
Property.
d. Nothing contained
in this Agreement shall prevent
or in any way diminish or
interfere with any rights or
remedies, including, without
limitation, the right to
contribution, which any
Indemnitee may have against
Borrower or any other party under
the Comprehensive Environmental
Response, Compensation and
Liability Act of 1980 (codified
at Title 42 U.S.C. sec 9601 et
seq.), as it may be amended from
time to time, or any other
applicable federal, state or
local laws, all such rights being
hereby expressly reserved.
2. Notice of Actions.
a. Borrower shall give
immediate written notice to
MetLife of: (i) any proceeding,
inquiry, notice, or other
communication by or from any
governmental or non-governmental
entity regarding the presence or
suspected presence of any
Hazardous Material at, on, about,
under, within, near or in
connection with the Property or
any migration thereof from or to
the Property; (ii) any actual or
alleged violation of any
Requirements of Environmental
Law; (iii) all Environmental
Claims; (iv) the discovery of any
occurrence or condition on any
real property adjoining or in the
vicinity of the Property that
could cause the Property or any
part thereof to be subject to any
restrictions on ownership,
occupancy, transferability, or
use, or subject the owner or any
person having any interest in the
Property to any liability,
penalty, or disability under any
Requirements of Environmental
Law; and (v) the receipt of any
notice or discovery of any
information regarding any actual,
alleged, or potential use,
manufacture, production, storage,
spillage, seepage, release,
discharge, disposal or any other
presence or existence of any
Hazardous Material at, on, about,
under, within, near or in
connection with the Property.
b. Immediately upon
receipt of the same, Borrower
shall deliver to MetLife copies
of any and all Environmental
Claims, and any and all orders,
notices, permits, applications,
reports, and other
communications, documents, and
instruments pertaining to the
actual, alleged, or potential
presence or existence of any
Hazardous Material at, on, about,
under, within, near or in
connection with the Property.
c. MetLife shall have
the right (but no obligation) to
join and participate in, as a
party if it so elects, any legal
proceedings or actions in
connection with the Property
involving any Environmental
Claim, any Hazardous Material or
Requirements of Environmental
Law, and Borrower
<PAGE> 104
shall reimburse MetLife upon
demand for all of MetLife's Costs
in connection therewith.
3. Procedures Relating to
Indemnification.
a. In any circumstance
in which this Agreement applies,
MetLife may, but shall not be
obligated to, employ its own
legal counsel and consultants to
investigate, prosecute,
negotiate, or defend any such
Environmental Claim and MetLife
shall have the right to
compromise or settle the same
without the necessity of showing
actual liability therefor, and
without the consent of Borrower.
Borrower shall reimburse MetLife,
upon demand, for all Costs
reasonably incurred by MetLife,
including the amount of all Costs
of settlements entered into by
MetLife.
b. Borrower shall not,
without the prior written consent
of MetLife: (i) settle or
compromise any action, suit,
proceeding, or claim or consent
to the entry of any judgment that
does not include as an
unconditional term thereof the
delivery by the claimant or
plaintiff to MetLife of (x) a
full and complete written release
of MetLife (in form, scope and
substance satisfactory to MetLife
in its sole discretion) from all
liability in respect of such
action, suit or proceeding and
(y) a dismissal with prejudice of
such suit, action or proceeding;
or (ii) settle or compromise any
action, suit, proceeding, or
claim in any manner that may
adversely affect MetLife as
determined by MetLife in its sole
discretion.
4. Binding Effect.
a. This Agreement
shall be binding upon Borrower
and its successors and permitted
assigns and shall inure to the
benefit of the Indemnitees and
their successors and assigns,
including as to MetLife, without
limitation, any holder of the
Note and any affiliate of MetLife
which acquires all or part of the
Property by any sale, assignment,
deed in lieu of foreclosure,
foreclosure under the Deed of
Trust, or otherwise. The
obligations of Borrower under
this Agreement shall not be
assigned without the prior
written consent of MetLife, which
consent may be given or withheld
in the sole discretion of
MetLife.
b. This Agreement
shall run with the land described
in Exhibit C attached hereto and
constitute the binding obligation
of all parties having a legal
ownership interest in the
Property (as distinguished from
only an equitable or mortgage
interest or interest of a secured
creditor) at any time during the
time that the Deed of Trust
constitutes a lien upon the
Property. All such parties shall
be deemed an indemnitor under
this Agreement. This Agreement
<PAGE> 105
or a memorandum thereof, at
Indemnitee's option, may be
placed of record against the
Property to impart notice of this
Agreement to all parties in
ownership of the Property during
the term of the Deed of Trust.
Upon termination of the lien of
the Deed of Trust, the
memorandum, but not this
Agreement, shall automatically
become null and void as to
subsequent owners of the Property
unless such subsequent owners
were also owners of the Property
during the term of the Deed of
Trust, and the Memorandum's
becoming null and void upon
termination of the lien of the
Deed of Trust shall not
invalidate, impair, or limit any
obligations then existing
hereunder in favor of
Indemnitees, or any of them.
5. Liability of Borrower.
The liability of Borrower under
this Agreement shall in no way be
limited or impaired by the
provisions of the Note, Deed of
Trust or any of the other
documents evidencing or securing
the Loan, or any amendment,
modification, extension or
renewal thereof. In addition,
the liability of Borrower under
this Agreement shall in no way be
limited or impaired by any sale,
assignment, or foreclosure of the
Note or Deed of Trust or any sale
or transfer of all or any part of
the Property or any interest
therein.
6. Waiver. Borrower:
waives any right or claim of
right to cause a marshalling of
its assets or to cause MetLife to
proceed against any of the
security for the Loan before
proceeding under this Agreement
against Borrower; agrees that any
payments required to be made
hereunder shall become due on
demand; expressly waives and
relinquishes all rights and
remedies accorded by applicable
law to indemnitors or guarantors;
and the indemnity provided for
hereunder shall neither be
contingent upon the existence of
any rights of subrogation nor
subject to any claims or defenses
whatsoever that may be asserted
in connection with the
enforcement or attempted
enforcement of any subrogation
rights, including, without
limitation, any claim that
subrogation rights were abrogated
by any acts or omissions of
MetLife.
7. Notices. All notices,
consents, approvals, elections
and other communications
(collectively "Notices")
hereunder shall be in writing
(whether or not the other
provisions of this Agreement
expressly so provide) and shall
be deemed to have been duly given
if mailed by United States
registered or certified mail,
with return receipt requested,
postage prepaid, or by United
States Express Mail or courier
service to the parties at the
following addresses (or at such
other addresses as shall be given
in writing by any party to the
others pursuant to this Section
7) and shall be deemed complete
upon receipt or refusal to accept
delivery as
<PAGE> 106
indicated in the return receipt
or in the receipt of such Express
Mail or courier service:
If to Borrower: R. H. Phillips, Inc.
26836 County Road 12A
Esparto, California 95627
Attention: Chief Financial Officer
If to MetLife: Metropolitan Life Insurance Company
Agricultural Investments
8717 West 110th Street, Suite 700
Overland Park, Kansas 66210
Attention: Senior Vice-President
With a copy to: Metropolitan Life Insurance Company
Agricultural Investments
7100 North Financial Drive, Suite 105
Fresno, California 93710
Attention: Manager
8. Attorneys' Fees. In the
event that any Indemnitee brings
or otherwise becomes a party to
any suit or other proceeding
(including, without limitation,
any administrative proceedings)
with respect to the subject
matter or enforcement of this
Agreement, such Indemnitee shall,
in addition to such other relief
as may be awarded, be entitled to
recover from Borrower attorneys'
fees, expenses and costs of
investigation as are actually
incurred (including, without
limitation, attorneys' fees,
expenses and costs of investiga-
tion incurred in appellate
proceedings, costs incurred in
establishing the right to
indemnification, or in any action
or participation in, or in
connection with, any case or pro-
ceeding under Chapter 7, 11 or 13
of the Bankruptcy Code, 11 U.S.C.
sec 101 et seq., or any successor
statutes).
9. Governing Law. This
Agreement and the rights and
obligations of the parties
hereunder shall in all respects
be governed by, and construed and
enforced in accordance with, the
laws of the State of California
("State"). Borrower hereby
irrevocably submits to the
non-exclusive jurisdiction of any
State or federal court sitting in
the State over any suit, action
or proceeding arising out of or
relating to this Agreement, and
hereby agrees and consents that,
in addition to any other methods
of service of process in any such
suit, action or proceeding in any
State or federal court sitting in
the State, service of process may
be made by certified or
registered mail, return receipt
requested, directed to Borrower
at the address indicated in
Section 7 hereof, and service so
made shall be complete five (5)
days after the same shall have
been so mailed.
<PAGE> 107
10. Successive Actions. A
separate right of action
hereunder shall arise each time
MetLife acquires knowledge of any
matter indemnified under this
Agreement. Separate and
successive actions may be brought
hereunder to enforce any of the
provisions hereof at any time and
from time to time. No action
hereunder shall preclude any
subsequent action, and Borrower
hereby waives and covenants not
to assert any defense in the
nature of splitting of causes of
action or merger of judgments.
11. Partial Invalidity. If
any provision of this Agreement
shall be determined to be
unenforceable in any
circumstances by a court of
competent jurisdiction, then the
balance of this Agreement shall
be enforceable nonetheless, and
the subject provision shall be
enforceable in all other
circumstances.
12. Interest on Unpaid
Amounts. All amounts required to
be paid or reimbursed to any
Indemnitee hereunder shall bear
interest from the date of
expenditure by such Indemnitee or
the date of written demand to
Borrower hereunder, whichever is
earlier, until paid to
Indemnitee(s). The interest rate
shall be the lesser of (a)
eighteen percent (18%) per annum
or (b) the maximum rate then
permitted for the parties to
contract for under applicable
law.
IN WITNESS WHEREOF, the
parties have executed this
Agreement as of the date first
set forth above.
BORROWER: R. H. PHILLIPS, INC., a
California corporation
By: //s//John Giguiere
___________________________
Title: President
___________________________
By: //s//Mike Motroni
___________________________
Title: Chief Financial Officer
___________________________
METLIFE: METROPOLITAN LIFE INSURANCE COMPANY,
a New York corporation
By: //s// Kenneth L. Kollar
___________________________
Title: Vice President
___________________________
<PAGE> 108
STATE OF CALIFORNIA )
) ss.
COUNTY OF ________ )
On __________________,
1997, before me, ________________
____________________, a Notary
Public in and for the State of
California, personally appeared
, personally known to me (or
proved to me on the basis of
satisfactory evidence) to be the
person(s) whose name(s) is/are
subscribed to the within
instrument and acknowledged to me
that he/she/they executed the
same in his/her/their authorized
capacity(ies), and that by
his/her/their signatures on the
instrument the person(s), or the
entity upon behalf of which the
person(s) acted, executed the
instrument.
WITNESS my hand and
official seal.
Signature
STATE OF CALIFORNIA )
) ss.
COUNTY OF ________ )
On __________________,
1997, before me, ________________
____________________, a Notary
Public in and for the State of
California, personally appeared
,
personally known to me (or proved
to me on the basis of
satisfactory evidence) to be the
person(s) whose name(s) is/are
subscribed to the within
instrument and acknowledged to me
that he/she/they executed the
same in his/her/their authorized
capacity(ies), and that by
his/her/their signatures on the
instrument the person(s), or the
entity upon behalf of which the
person(s) acted, executed the
instrument.
WITNESS my hand and
official seal.
Signature
<PAGE> 109<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF ________ )
On __________________,
1997, before me, ________________
____________________, a Notary
Public in and for the State of
California, personally appeared
, personally known to me (or
proved to me on the basis of
satisfactory evidence) to be the
person(s) whose name(s) is/are
subscribed to the within
instrument and acknowledged to me
that he/she/they executed the
same in his/her/their authorized
capacity(ies), and that by
his/her/their signatures on the
instrument the person(s), or the
entity upon behalf of which the
person(s) acted, executed the
instrument.
WITNESS my hand and
official seal.
Signature
<PAGE> 110
EXHIBIT A
TO
UNSECURED INDEMNITY AGREEMENT
DEFINITIONS
Definitions. For purposes
of this Agreement, the following
terms shall have the following
meanings:
(a) "Environmental
Claim" shall include, but not be
limited to, any claim, demand,
action, cause of action, suit,
loss, cost, damage, fine,
penalty, expense, liability,
judgment, proceeding, or injury,
whether threatened, sought,
brought, or imposed, that seeks
to impose costs or liabilities
for (i) noise; (ii) pollution or
contamination of the air, surface
water, ground water, or soil;
(iii) solid, gaseous, or liquid
waste generation, handling,
treatment, storage, disposal, or
transportation; (iv) exposure to
Hazardous Materials; (v) the
manufacture, processing,
distribution in commerce, use, or
storage of Hazardous Materials;
(vi) injury to or death of any
person or persons directly or
indirectly connected with
Hazardous Materials and directly
or indirectly related to the
Property; (vii) destruction or
contamination of any property
directly or indirectly connected
with Hazardous Materials and
directly or indirectly related to
the Property; or (viii) any and
all penalties directly or
indirectly connected with
Hazardous Materials and directly
or indirectly related to the
Property. The term "Environmen-
tal Claim" also includes (i) the
costs of removal of any and all
Hazardous Materials from all or
any portion of the Property, (ii)
costs required to take necessary
precautions to protect against
the release of Hazardous
Materials at, on, in, about,
under, within, near or in con-
nection with the Property in or
into the air, soil, surface
water, ground water, or soil
vapor, any public domain, or any
surrounding areas, and (iii)
costs incurred to comply, in
connection with all or any
portion of the Property or any
surrounding areas, with all
applicable laws with respect to
Hazardous Materials, including
any such laws applicable to the
work referred to in this
sentence. "Environmental Claim"
also means any asserted or actual
breach or violation of any
Requirements of Environmental
Law, or any event, occurrence, or
condition as a consequence of
which, pursuant to any
Requirements of Environmental
Law, (i) Indemnitors, MetLife, or
any owner, occupant, or person
having any interest in the
Property shall be liable or
suffer any disability, or (ii)
the Property shall be subject to
any restriction on use,
ownership, transferability, or
(iii) any Remedial Work shall be
required.
<PAGE> 111
(b) "Environmental
Permit" means any permit,
license, approval, or other
authorization with respect to any
activities, operations, or
businesses conducted on or in
relation to the Property under
any applicable law, regulation,
or other requirement of the
United States or any state,
municipality, or other
subdivision or jurisdiction
related to pollution or
protection of health or the
environment, or any private
agreement (such as covenants,
conditions and restrictions),
including laws, regulations or
other requirements relating to
emissions, discharges, or
releases or threatened releases
of Hazardous Materials into
ambient air, surface water,
ground water, or soil, or
otherwise relating to the
manufacture, processing,
distribution, use, generation,
treatment, storage, disposal,
transportation, or handling of
Hazardous Materials directly or
indirectly related to the
Property.
(c) "Costs" shall mean
all liabilities, losses, costs,
damages, (including consequential
damages), expenses, claims,
attorneys' fees, experts' fees,
consultants' fees and
disbursements of any kind or of
any nature whatsoever. For the
purposes of this definition, such
losses, costs and damages shall
include, without limitation,
remedial, removal, response,
abatement, cleanup, legal,
investigative and monitoring
costs and related costs,
expenses, losses, damages,
penalties, fines, obligations,
defenses, judgments, suits,
proceedings and disbursements.
(d) "Environmental Law
Requirements" means all
requirements of environmental or
ecological laws or regulations or
controls related to the Property,
including all requirements
imposed by any law, rule, order,
or regulations of any federal,
state, or local executive,
legislative, judicial,
regulatory, or administrative
agency, board, or authority, or
any private agreement (such as
covenants, conditions and
restrictions), which relate to
(i) noise; (ii) pollution or
protection of the air, surface
water, ground water, or soil;
(iii) solid, gaseous, or liquid
waste generation, treatment,
storage, disposal, or
transportation; (iv) exposure to
Hazardous Materials; or (v)
regulation of the manufacture,
processing, distribution and
commerce, use, or storage of
Hazardous Materials.
<PAGE> 112<PAGE>
EXHIBIT B
TO
UNSECURED INDEMNITY AGREEMENT
DEFINITION OF HAZARDOUS MATERIALS
The term "Hazardous
Materials" shall include without
limitation:
(i) Those substances
included within the definitions
of "hazardous substances,"
"hazardous materials," "toxic
substances," or "solid waste" in
the Comprehensive Environmental
Response Compensation and
Liability Act of 1980 (42 U.S.C.
sec 9601 et seq.) ("CERCLA"), as
amended by Superfund Amendments
and Reauthorization Act of 1986
(Pub. L. 99-499 100 Stat. 1613)
("SARA"), the Resource
Conservation and Recovery Act of
1976 (42 U.S.C. sec 6901 et seq.)
("RCRA"), and the Hazardous
Materials Transportation Act, 49
U.S.C. SEC 1801 et seq., and in the
regulations promulgated pursuant
to said laws, all as amended;
(ii) Those substances
listed in the United States
Department of Transportation
Table (49 CFR 172.101 and
amendments thereto) or by the
Environmental Protection Agency
(or any successor agency) as
hazardous substances (40 CFR Part
302 and amendments thereto);
(iii) Any material,
waste or substance which is (A)
petroleum, (B) asbestos, (C)
polychlorinated biphenyls, (D)
designated as a "hazardous
substance" pursuant to Section
311 of the Clean Water Act, 33
U.S.C. SEC 1251 et seq. (33 U.S.C.
SEC 1321) or listed pursuant to
Section 307 of the Clean Water
Act (33 U.S.C. SEC 1317); (E)
flammable explosives; or (F)
radioactive materials;
(iv) Any material,
waste or substance which is or
becomes regulated as hazardous or
toxic under the Clean Water Act
(33 U.S.C. 1251 et seq.) or the
Safe Drinking Water Act (42
U.S.C. 300f et seq.);
(v) Any material,
waste or substance which is or
becomes regulated as hazardous or
toxic under the Carpenter
Presley-Tanner Hazardous
Substance Account Act (California
Health and Safety Code 25300 et
seq.), the California Hazardous
Waste Control Law (California
Health and Safety Code 25100 et
seq.), or the California Minimum
Standards for Management of
Hazardous and Extremely Hazardous
Wastes (Title 22, California Code
of Regulations 66001 et seq.);
and
<PAGE> 113
(vi) Such other
substances, materials and wastes
which are or become regulated as
hazardous or toxic under any
applicable local, state or
federal law, or the United States
government, or which are
classified as hazardous or toxic
under federal, state, or local
laws or regulations.
<PAGE> 114<PAGE>
EXHIBIT C
TO
UNSECURED INDEMNITY AGREEMENT
PROPERTY DESCRIPTION
Real property situated in the
State of California, County of
Yolo, described as follows:
PARCEL 1:
The South half of Section 9; the
North half of Section 16; and the
North half of the Northwest
quarter and the Southwest quarter
of the Northwest quarter of
Section 15, all in Township 11
North, Range 1 West, M.D.B&M.
APN: 54-060-05, 54-100-04, a
portion of 54-110-01
EXCEPTING THEREFROM all that
portion of Section 16 as conveyed
to John Hancock Mutual Life
Insurance Company in the deed
recorded May 7, 1997, Instrument
No. 97-0010854-00 and more
particularly described as
follows:
BEGINNING at a iron pipe
monument, marking the Northwest
corner of said Section 16, as
said monument is shown on that
certain Map filed for record in
Book 12 of Maps and Surveys at
Page 99 and 100, Yolo County
Records, and thence from said
point of beginning along the
North line of said Section 16,
South 89 56 23" East 1823.02
feet; thence leaving said Section
line, South 00 58 43" East
2656.24 feet to the South line of
said Northwest one-quarter of
Section 16, said point also being
the centerline of County Road
12-A; thence along the South line
of said Northwest one-quarter,
North 89 59 38" West 1823.02
feet to the Southwest corner of
said Northwest one-quarter of
Section 16; thence North 00 58
41" West 2573.73 feet to the
point of beginning.
PARCEL 2:
Parcel One of Parcel Map No. 3256
for Giguiere Ranch, Inc., filed
for record in the Office of the
Yolo County Recorder on
November 14, 1983 in Book 7 of
Parcel Maps, page 16.
APN: 54-120-09, 54-130-02
PARCEL 3:
Parcel Two and Three as shown on
Parcel Map No. 3256 for Giguiere
Ranch, Inc., filed for record in
the Yolo County Recorder's Office
on November 14, 1983 in Book 7 of
Parcel Maps, page 16.
APN: 54-050-02, 54-120-01, 54-
120-08
<PAGE> 115
Footer B -- SPACER
This comment is the only thing contained in this footer.
The purpose
of the footer is to fool the program into thinking page 1 is
as long as page 2; it acts as a placeholder for the page
number footer which will begin on page 2.ASSIGNMENT OF LEASES
AS ADDITIONAL SECURITY
(LESSEE'S INTEREST --
BRIDGEWAY & CIT)
December 22, 1997
FOR VALUE RECEIVED, the
undersigned, R. H. PHILLIPS,
INC., a California corporation
("Assignor"), hereby GRANTS,
ASSIGNS, TRANSFERS and SETS OVER
unto METROPOLITAN LIFE INSURANCE
COMPANY, a New York corporation,
its successors and assigns
("MetLife"):
(a) all of the rights,
titles, and interests
of Assignor whatsoever
arising from or which
may be had under any
and all lease
agreements described in
Exhibit A attached
hereto (the "Leases"),
true and correct copies
of which have been
delivered to MetLife
and by this reference
incorporated herein as
though set forth in
full;
(b) Assignor's rights under
any extensions or
renewals of the Leases;
and
(d) all guaranties,
amendments,
replacements, exten-
sions and renewals of
the Leases,
AS ADDITIONAL COLLATERAL SECURITY
FOR: (i) the payment of the
indebtedness secured by the Deed
of Trust, Assignment of Rents and
Security Agreement, of even date
herewith, executed by Assignor
(and others) for the benefit of
MetLife and recorded
contemporaneously herewith (said
document, as the same may be
amended and modified from time to
time hereafter, is herein called
the "Deed of Trust"), including,
without limitation, the
indebtedness now or hereafter
evidenced by the Note (as defined
in the Deed of Trust) and the
Loan Agreement (the "Loan
Agreement") of even date
herewith, and (ii) the
performance of all the covenants,
warranties, representations,
terms and conditions of the Note,
Deed of Trust, Loan Agreement,
this document and all other
documents securing said
indebtedness.
As used hereinafter, the
term "Loan Documents" shall mean
the Note, the Deed of Trust, the
Loan Agreement, and this
Assignment of Rents and Leases.
Assignor will observe and
perform all covenants, condi-
tions, and agreements in the
Leases on the part of Assignor to
be observed and performed
thereunder. Assignor will not,
<PAGE> 116
without the prior written consent
of MetLife: (a) take any action
or exercise any right or option
which would permit the lessor
under the Leases to cancel or
terminate said Leases, or
(b) permit Assignor's interest in
the Leases to be or become
subordinate to any lien or
security interest other than
those in favor of MetLife.
In the event such an Event
of Default, as defined in the
Loan Agreement, occurs, MetLife
shall be entitled forthwith,
without any notice whatsoever to
Assignor beyond the notice
required under the Loan
Agreement, to take possession and
control of the property described
in the Leases (the "Equipment")
and shall have the sole and
exclusive right and authority to
manage and operate the same, with
full power to employ agents to
manage the Equipment, and to do
all acts relating to such
management, including, but not
limited to, contracting and
paying for such repairs and
replacements thereto as in the
sole judgment and discretion of
MetLife may be necessary to
maintain the same in an
operational condition, purchasing
and paying for such additional
materials and equipment as in the
sole judgment of MetLife may be
necessary to maintain a proper
income from the Equipment,
employing necessary operational
employees, maintenance employees,
purchasing fuel, providing
utilities and paying for all
other necessary expenses incurred
in the operation of the
Equipment, maintaining adequate
insurance coverage over hazards
customarily insured against and
paying the premiums therefor, and
adding such expenses to the
indebtedness secured by the Deed
of Trust.
In the event such an Event
of Default shall have occurred,
Assignor agrees to endorse and
deliver to MetLife the original
Leases, all amendments or
extensions thereof, and other
agreements relating or pertaining
to the operation of the
Equipment. Without limiting the
provisions of the immediately
preceding sentence, and whether
or not Assignor endorses and/or
delivers said Leases and other
agreements to MetLife, as
aforesaid, this Assignment of
Leases shall be deemed to be an
assignment of all such other
agreements to MetLife.
It is further understood and
agreed that this Assignment of
Leases shall not operate to place
responsibility for the control,
care, management or repair of the
Equipment upon MetLife, nor for
the performance of any of the
terms and conditions of the
Leases or other agreements
assigned hereunder, nor shall it
operate to make MetLife
responsible or liable for: (i)
any waste committed on the
Equipment by Assignor or any
other party; or (ii) any
dangerous or defective condition
of the Equipment; or (iii) the
presence, use, storage, disposal,
or migration at, in, on, under,
or
<PAGE> 117
from said Equipment of any
materials defined as hazardous or
toxic under any applicable laws
or regulations; or (iv) any
negligence in the management,
upkeep, repair or control of the
Equipment resulting in loss or
injury to any lessee, invitee,
licensee, employee or stranger.
If MetLife elects to take
possession of the Equipment
pursuant to this assignment,
MetLife shall do so by giving
written notice of such election
to the lessor and its assignee
(if any) executing the Lessor's
Acknowledgement hereinbelow,
which notice shall constitute an
assumption by MetLife of the
lessee's obligations accruing
under the Lease from and after
the date of such notice (but
shall not constitute an
assumption of any previously-
accrued obligations); provided,
however, that such election and
assumption by MetLife shall
neither release Assignor from any
of its obligations under the
Lease, whenever accruing, nor
release Assignor from any of its
obligations to MetLife.
The acceptance of this
Assignment of Leases shall be
without prejudice to and shall
not constitute a waiver on the
part of MetLife of any of
MetLife's rights or remedies
under the terms and conditions of
the Loan Documents, at law or in
equity, or otherwise.
Assignor hereby assigns to
MetLife (a) any award or other
payment which Assignor may
hereafter become entitled to
receive with respect to the
Leases or other agreement relat-
ing or pertaining to the
operation of the Equipment as a
result of or pursuant to any
bankruptcy, insolvency, or
reorganization or similar
proceedings involving any other
party under such Leases or other
agreement, and (b) any and all
payments made by or on behalf of
any other party. Assignor hereby
irrevocably appoints MetLife as
its attorney to appear in any
such proceeding and/or to collect
any such award or payment.
This Assignment of Leases
shall be approved and accepted in
writing by the lessor under the
Leases and the Lessor's assignee,
in the form set forth below.
The remedies of MetLife
hereunder are cumulative, and the
exercise of any one or more of
the remedies provided for herein
shall not be construed as a
waiver of any of the other
remedies of MetLife as long as
any obligation under the Loan
Documents remains unsatisfied.
All rights of MetLife
hereunder shall inure to the
benefit of its successors and
assigns, and all obligations of
Assignor shall bind its
successors and assigns. Assignor
agrees that if MetLife gives
notice to Assignor of an assign-
ment of said rights, upon such
notice the liability of
<PAGE> 118
Assignor to the assignee shall be
immediate and absolute. Assignor
will not set up any claims
against the original or any
intervening assignee as a
defense, counterclaim or set off
to any action brought by any such
assignee for any amounts due
hereunder or for possession of or
the exercise of rights with
respect to the collateral
security provided hereby.
All notices, demands, and
requests given hereunder shall be
in writing. All such notices,
demands and requests by MetLife
to Assignor shall be deemed to
have been properly given if
served in person or if sent by
United States registered or
certified mail, postage prepaid,
addressed to Assignor at:
R. H. Phillips, Inc.
26836 County Road 12A
Esparto, California 95627
Attention: Chief Financial
Officer
or to such other address as it
may from time to time designate
by written notice to MetLife
given as herein required. All
notices, demands and requests by
Assignor to MetLife shall be
deemed to have been properly
given if served in person or if
sent by United States registered
or certified mail, postage
prepaid, addressed to MetLife at:
Metropolitan Life Insurance Company
Agricultural Investments
8717 West 110th Street, Suite 700
Overland Park, Kansas 66210
Attention: Senior Vice-President
with a copy to:
Metropolitan Life Insurance Company
Agricultural Investments
7100 N. Financial Drive
Fresno, California 93710-2921
Attention: Manager
or to such other address as
MetLife may from time to time
designate by written notice to
Assignor given as herein
required. Notices, demands and
requests given by mail in the
manner aforesaid shall be deemed
sufficiently served or given for
all purposes hereunder three (3)
days after the time such notice,
demand or request shall be
deposited in the mails.
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<PAGE> 119
Failure to conform to the
requirement that notices be sent
by
registered or certified mail
shall not defeat the effective-
ness of any notice actually
received by the addressee.
IN WITNESS WHEREOF, Assignor
has caused this Assignment to be
signed in its name and to be
dated as of the day and year
first above written.
ASSIGNOR:
R. H. PHILLIPS, INC., a California corporation
By: //s//John Giguiere
_______________________________
Title: President
_______________________________
By:
//s//Mike Motroni
_______________________________
Title: Chief Financial Officer
_______________________________
<PAGE> 120
STATE OF CALIFORNIA )
) ss.
COUNTY OF ________ )
On __________________,
19__, before me, ________________
____________________, a Notary
Public in and for the State of
California, personally appeared
,
personally known to me (or proved
to me on the basis of
satisfactory evidence) to be the
person(s) whose name(s) is/are
subscribed to the within
instrument and acknowledged to me
that he/she/they executed the
same in his/her/their authorized
capacity(ies), and that by
his/her/their signatures on the
instrument the person(s), or the
entity upon behalf of which the
person(s) acted, executed the
instrument.
WITNESS my hand and
official seal.
Signature
STATE OF CALIFORNIA )
) ss.
COUNTY OF ________ )
On __________________,
19__, before me, ________________
____________________, a Notary
Public in and for the State of
California, personally appeared
,
personally known to me (or proved
to me on the basis of
satisfactory evidence) to be the
person(s) whose name(s) is/are
subscribed to the within
instrument and acknowledged to me
that he/she/they executed the
same in his/her/their authorized
capacity(ies), and that by
his/her/their signatures on the
instrument the person(s), or the
entity upon behalf of which the
person(s) acted, executed the
instrument.
WITNESS my hand and
official seal.
Signature
<PAGE> 121
LESSOR'S ACKNOWLEDGEMENT
Each of the undersigned
acknowledges the foregoing
ASSIGNMENT OF LEASES AS
ADDITIONAL SECURITY, between R.
H. PHILLIPS, INC., a California
corporation as Assignor and
METROPOLITAN LIFE INSURANCE
COMPANY, a New York corporation,
its successors and assigns as
Assignee, dated December 1, 1997,
and respectively represents as
follows:
(1) BRIDGEWAY CAPITAL
CORPORATION, a
corporation, is the
sole current lessor
under the lease(s)
listed under the
heading "Bridgeway
Leases" in Exhibit A;
and
(2) CIT GROUP/EQUIPMENT
FINANCING, INC., a
corporation, is the
sole current lessor
under the lease(s)
listed under the
heading "CIT Leases" in
Exhibit A
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<PAGE> 122
Each of the undersigned
hereby acknowledges the interests
granted to MetLife in this
Assignment, and hereby consents
thereto.
The undersigned's acknowledgement
pertains only to the Leases
described on Exhibit A to this
Assignment of Leases.
Bridgeway:
Dated:
___________,
1997
BRIDGEWAY CAPITAL CORPORATION, a corporation
By:
Title:
By:
Title:
ADDRESS:
______________________
______________________
______________________
CIT:
Dated:
December 14,
1997
CIT GROUP/EQUIPMENT FINANCING, INC., a corporation
By://s//Phil Eberhard
____________________
Title: Portfolio Officer
________________
By://s//Jim Gerard
____________________
Title: Assistant Secretary
___________________
ADDRESS: 212 Ashford Parkway
________________________
Atlanta, GA 30338
________________________
<PAGE> 123
EXHIBIT A
LIST OF LEASES
(6) Equipment Lease dated
September 1, 1993 between R.H.
Phillips Partners, a California
limited partnership, and
Bridgeway Capital Corporation.
(7) Lease dated January 1, 1995
between R.H. Phillips, Inc. and
Bridgeway Capital Corporation.
(8) Lease dated October 1, 1994
between R.H. Phillips Partners, a
California limited partnership,
and Bridgeway Capital
Corporation.
(9) Lease dated September 1, 1993
between R.H. Phillips Partners, a
California limited partnership,
and Bridgeway Capital
Corporation.
<PAGE> 124
SECURITY AGREEMENT
THIS AGREEMENT, made and
entered into this 22nd day of
December, 1997, by and between:
R. H. PHILLIPS, INC., a
California corporation
("Debtor"), and METROPOLITAN LIFE
INSURANCE COMPANY, a New York
corporation ("Secured Party"):
RECITALS:
W I T N E S S E T H:
T. Debtor owns, in fee
simple, certain real property in
Yolo County, California, more
particularly described in
Exhibit A attached hereto and by
this reference made a part
hereof, which consists of a
winery (the "Winery") and farm
property (the "Farm Property"),
including all wells, pumps,
pipelines, irrigation facilities,
buildings, structures and other
improvements and property
constructed thereon or affixed
thereto (all of the above-
described real property will be
referred to as the "Land").
U. Secured Party has agreed
to make a loan (the "Loan") to
Debtor in the principal amount of
Eleven Million and No/100 Dollars
($11,000,000.00).
V. The Loan is to be
evidenced by an Adjustable Rate
Secured Promissory Note made by
Debtor and payable to Secured
Party (said Promissory Note, and
any instrument issued in
substitution or exchange
therefor, as the foregoing may be
amended, modified or supplemented
from time to time hereafter, is
hereinafter called the "Note"),
as further evidenced by a Loan
Agreement of even date herewith
(the "Loan Agreement"), and as
secured by a Deed of Trust,
Assignment of Rents and Security
Agreement of even date herewith
encumbering the Land (said
document, as the same may be
amended, modified or supplemented
from time to time hereafter, is
hereinafter called the "Deed of
Trust"), and various other
security documents.
W. Secured Party requires,
as a condition precedent to its
making the Loan, that Debtor
enter into this Agreement.
AGREEMENT:
NOW, THEREFORE, in
consideration of the foregoing
and as an inducement to Secured
Party to make the Loan, Debtor
hereby agrees as follows:
1. Grant of Security
Interests. Debtor hereby grants
to Secured Party, its successors
and assigns, continuing
<PAGE> 125
security interests in all of the
property described or referred to
in Exhibit B, attached hereto and
incorporated herein by this
reference, now owned or hereafter
acquired (the "Collateral"), to
secure the payment and
performance of the following-
described obligations
(hereinafter collectively called
the "Obligations"):
(1) The payment of the
principal of, interest
and premiums on, and
the performance of all
covenants, agreements,
liabilities and
obligations of Debtor,
under the Note, the
Deed of Trust, the Loan
Agreement, and all
other obligations of
Debtor under any other
instrument given to
secure the Note; and
(2) Any and all covenants,
agreements, liabilities
and obligations of
Debtor, to Secured
Party, its successors
and assigns, provided
for or arising under
this Agreement; and
(3) All costs and expenses
of collection, legal
expenses and attorneys'
fees incurred by
Secured Party, its
successors and assigns,
in the enforcement of
the rights of Secured
Party hereunder or in
any litigation or
bankruptcy proceeding
for the protection of
Secured Party's
collateral and claim
against Debtor.
2. Affirmative Covenants
and Representations. Debtor
hereby covenants, represents, and
warrants to Secured Party, its
successors and assigns, as
follows:
a. Report of
Collateral. Upon notice given by
Secured Party from time to time,
Debtor shall prepare and deliver
to Secured Party a full inventory
listing, as of the date such
notice is given, all items then
constituting the Collateral and
such other information as Secured
Party may request with respect to
purchases or sales or other
acquisitions or dispositions of
the Collateral. Each such
inventory shall be certified as
being true, complete and correct
by a duly authorized
representative of Debtor or the
Trustor-Guarantors, who own the
Collateral. Unless Secured Party
agrees otherwise, in writing, all
Collateral owned by Debtor will
be kept at the Winery and all
Collateral owned by Trustor-
Guarantors will be kept at the
Farm Property.
b. Title and Liens.
Except for the security interest
granted hereunder, Debtor is and
will be at all times the sole
owner of the Collateral free
(except to the extent permitted
under Paragraph 1.3 of the Deed
of Trust) from any lien, security
interest, pledge or encumbrance,
and no person other than Secured
Party has or (except to the
extent permitted under the Deed
of Trust) will have any
<PAGE> 126
security interest or lien upon
any of the Collateral, and that
other than for such exceptions
permitted under the Deed of
Trust, Debtor will defend the
Collateral against all claims and
demands of all persons at any
time claiming the same or any
interest therein.
Except for the
financing statement to be filed
pursuant to this Agreement or any
other financing statements
running for the benefit of
Secured Party, and except as
otherwise provided in the Loan
Agreement, no financing statement
or other acknowledgment of lien
covering any Collateral or any
proceeds thereof is on file in
any public office. Debtor shall
immediately give Secured Party
notice in writing of any change
in its address from that shown in
this Agreement, shall also upon
demand execute and deliver to
Secured Party such financing
statements, assignments, and
other documents in form satisfac-
tory to Secured Party, and do all
such further acts and things as
Secured Party may at any time and
from time to time reasonably
request or as may be necessary or
appropriate to establish and
maintain a valid perfected
security interest in the
Collateral as security for the
Obligations, free of any liens,
claims or encumbrances in favor
of any person other than Secured
Party, and Debtor will pay the
cost of filing or recording the
same or filing or recording this
Agreement in all public offices
wherever filing or recording is
deemed by Secured Party to be
necessary or desirable. Without
limitation of the foregoing,
Debtor will execute and endorse
such documents, certificates or
forms as may be necessary or
appropriate in order that the
security interests of Secured
Party hereunder may be noted by
the proper authorities upon the
certificates to title of each of
the motor vehicles, if any,
described herein, and will
deliver or cause to be delivered
to Secured Party any and all such
documents or certificates of
title relating to such
Collateral.
c. No Transfers.
Except to the extent as may be
permitted under the Deed of Trust
or the Loan Agreement, Debtor
will not sell or offer to sell,
assign, pledge, lease or
otherwise transfer or encumber
the Collateral, or any interest
therein, without the prior
written consent of Secured Party.
d. Insurance. Debtor
will maintain or cause to be
maintained insurance at all times
with respect to the Collateral,
in such form, with such
companies, in such amounts and
against such risks as Secured
Party may request, such insurance
to be payable to Secured Party
and Debtor as their interests may
appear. All such policies of
insurance shall provide for a
minimum of thirty (30) days'
prior written notice of
cancellation or amendment to
Secured Party. Debtor shall
furnish Secured Party with
certificates or other
<PAGE> 127
evidence satisfactory to Secured
Party showing compliance with the
foregoing provisions and, if
required by Secured Party, shall
deposit the policies with Secured
Party.
e. Care of Collateral.
Debtor will keep all Collateral
in good order and repair
(ordinary wear and tear excepted)
and will not waste or destroy (or
suffer or permit the waste or
destruction of) the Collateral or
any part thereof; Debtor will not
use (or suffer or permit the use
of) the Collateral in violation
of any statute, ordinance or
policy of insurance thereon; and
Secured Party may examine and
inspect the Collateral at any
reasonable time or times,
wherever located.
f. Taxes. Debtor will
pay or cause to be paid promptly
when due all taxes, assessments
and other impositions levied upon
the Collateral or for its use or
operation or upon this Agreement.
g. Costs of
Enforcement. Debtor shall pay
all costs and expenses of
collection, legal expenses and
reasonable attorneys' fees
incurred by Secured Party, its
successors and assigns, to
establish, perfect, secure and
enforce the security interest
purported to be created hereby
and the costs and expenses of
appearing in or defending any
action or proceeding arising
under, growing out of or in any
manner connected with this
Security Agreement or the
obligations, duties or
liabilities of Debtor or Secured
Party hereunder, including but
not limited to, bankruptcy
proceedings.
3. Cure by Secured Party.
At its option, Secured Party may
(but shall have no obligation to)
cure any default by Debtor
hereunder, including: discharge
taxes, liens, security interests
or other encumbrances at any time
affecting the Collateral; pay for
the maintenance, repair and
preservation of the Collateral;
place and pay for insurance on
the Collateral upon failure by
Debtor to provide insurance
satisfactory to Secured Party as
provided by this Agreement. To
the extent permitted by
applicable law and without
limitation of any other rights
and remedies it may have, Secured
Party shall be entitled to
immediate reimbursement from
Debtor for any payment made or
any expense incurred by Secured
Party pursuant to the foregoing
authorizations, together with
interest thereon at the default
rate of interest under the Note
from the date paid or incurred,
as the case may be, until
reimbursement by Debtor.
4. Possession by Debtor.
Until Default (as hereinafter
defined), Debtor may have the
possession of the Collateral and
may use same in the operation of
the Winery and the Farm Property
in any lawful manner not
inconsistent with this
<PAGE> 128
Agreement and not inconsistent
with any policy of insurance
thereon.
5. Default. The occurrence
of any of the following events or
conditions shall constitute a
"Default" under this Agreement:
(a) An Event of
Default under the Note, the Deed
of Trust, the Loan Agreement or
any default under the terms of
any other instrument evidencing
or securing the indebtedness
secured by the Deed of Trust,
which default shall continue
after any period for curing such
default applicable thereto
contained in such document or
instrument;
(b) Default in the
performance by Debtor of any of
the other Obligations or of any
other covenants, agreements, or
obligations contained or referred
to herein or in any of such other
Obligations to be performed by
Debtor; or
(c) Sale, transfer or
encumbrance of any of the
Collateral, except as provided in
the Deed of Trust or in the Loan
Agreement or in accordance with
the terms of this Agreement, or
the making of any levy, seizure
or attachment thereof or thereon.
6. Remedies. If a Default
shall occur hereunder and be
continuing at any time thereafter
(such Default not having been
previously cured), Secured Party
shall have all the remedies of a
secured party under the
California Commercial Code and
all other rights and remedies now
or hereafter provided or
permitted by law, including,
without limitation, the right to
take immediate and exclusive
possession of the Collateral, or
any part thereof, and for that
purpose Secured Party may, as far
as Debtor can give authority
therefor, with or without
judicial process, enter (if this
can be done without breach of the
peace) upon the Land or any other
premises on which the Collateral
or any part thereof may be
situated. Without limitation of
the foregoing, Secured Party
shall be entitled to hold,
maintain, preserve and prepare
all of the Collateral for sale
and to dispose of said
Collateral, if Secured Party so
chooses, from the Land provided
that Secured Party may require
Debtor to assemble such
Collateral and make it available
to Secured Party for disposition
at a place to be designated by
Secured Party (which may be other
than the Land) from which the
Collateral would be sold or
disposed of, and provided further
that, for a reasonable period of
time prior to the disposition of
such Collateral, Secured Party
shall have the right to use same
in the operation of the Winery
and the Farm Property. Debtor
will execute and deliver to
Secured Party any and all forms,
documents, certificates and
registrations as may be necessary
or appropriate to enable Secured
Party to sell and deliver good
and
<PAGE> 129
clear title to the Collateral to
the buyer at the sale as herein
provided. Unless the Collateral
is of the type customarily sold
on a recognized market, Secured
Party will give Debtor at least
ten (10) days' notice of the time
and place of any public sale of
such Collateral or of the time
after which any private sale or
any other intended disposition
thereof is to be made. The
requirements of reasonable notice
shall be met if such notice is
given to Debtor at least ten (10)
days before the time of the sale
or disposition. Secured Party
may buy at any public sale and,
if the Collateral is of a type
customarily sold in a recognized
market or is a type which is the
subject of widely distributed
standard price quotations, it may
buy at private sale. Unless
Secured Party shall otherwise
elect, any sale of the Collateral
shall be solely as a unit and not
in separate lots or parcels, it
being expressly agreed, however,
that Secured Party shall have the
absolute right to dispose of such
Collateral in separate lots or
parcels. Secured Party shall
further have the absolute right
to elect to sell the Collateral
as a unit with, and not
separately from, the Land and the
Facility. The net proceeds
realized upon any disposition of
the Collateral, after deduction
for the expenses of retaking,
holding, preparing for sale,
selling and the like and the
attorneys' fees and legal
expenses incurred by Secured
Party shall be applied towards
satisfaction of such of the
Obligations secured hereby, and
in such order of application, as
Secured Party may elect. If all
of the Obligations are satisfied,
Secured Party will account to
Debtor for any surplus realized
on such disposition. The
remedies of Secured Party
hereunder are cumulative and the
exercise of any one or more of
the remedies provided for herein,
under the Uniform Commercial Code
or otherwise, shall not be
construed as a waiver of any of
the other remedies of Secured
Party so long as any part of the
Obligations remains unsatisfied.
7. Patented Crops. In the
event Secured Party acquires
title to, or possession or
ownership of, any Collateral fol-
lowing the exercise of any of
Secured Party's rights and
remedies under this Security
Agreement or under the Loan
Agreement, the Note, or the Deed
of Trust, Secured Party and/or
any subsequent owner of the
Collateral shall acquire the
non-exclusive license to grow and
market all varieties of crops
produced by any trees, vines, or
other multiple-season crops
planted on the Land without
obligation to make any patent or
royalty payments to Debtor in
respect of any patented crop
varieties now or hereafter
planted on the Land, and may (i)
market the crops produced by any
such patented varieties under the
varietal names customarily used
for such crops without any
payment to Debtor in respect
thereof, and (ii) transfer the
right to use such varietal names
to any subsequent purchaser or
owner of the Collateral.
<PAGE> 130
8. Miscellaneous
Provisions.
a. Notices. All
notices, demands and requests
given or required to be given
hereunder shall be in writing.
All such notices, demands and
requests by Secured Party to
Debtor shall be deemed to have
been properly given if served in
person or if sent by United
States registered or certified
mail, postage prepaid, addressed
to Debtor at:
R. H. Phillips, Inc.
26836 County Road 12A
Esparto, California
95627
Attention: Chief Financial Officer
or to such other address as the
party to be addressed may from
time to time designate by written
notice to Secured Party given as
herein required. All notices,
demands and requests by Debtor to
Secured Party shall be deemed to
have been properly given if
served in person or if sent by
United States registered or
certified mail, postage prepaid,
addressed to Secured Party at:
Metropolitan Life Insurance Company
Agricultural Investments
8717 West 110th Street, Suite 700
Overland Park, Kansas 66210
Attention: Senior Vice-President
with a copy to:
Metropolitan Life Insurance Company
Agricultural Investments
7100 North Financial Drive, Suite 105
Fresno, California 93710
Attention: Manager
or to such other address as
Secured Party may from time to
time designate by written notice
to Debtor given as herein
required. Notices, demands and
requests given by mail in the
manner aforesaid shall be deemed
sufficiently served or given for
all purposes hereunder three (3)
days after the time such notice,
demand or request shall be
deposited in the mails. Failure
to conform to the requirement
that notices be sent by
registered or certified mail
shall not defeat the
effectiveness of any notice
actually received by the
addressee.
b. Defenses. Debtor
will not set up any claim against
Secured Party as a defense,
counterclaim or set-off to any
action brought by any such
assignee for any amounts due
hereunder or for possession of
the Collateral.
<PAGE> 131
c. Waiver. No waiver
by Secured Party of any Default
hereunder shall operate as a
waiver of any other Default or of
the same Default on a future
occasion.
d. Interpretation.
Wherever possible, each provision
of this Agreement shall be
interpreted in such manner as to
be effective and valid under
applicable law, but if any
provision of this Agreement shall
be prohibited by or invalid under
applicable law, such provision
shall be ineffective to the
extent of such prohibition or
invalidity, without invalidating
the remainder of such provision
or the remaining provisions of
this Agreement. Except as the
context otherwise requires, the
term "including" (and all
variations of that word) will be
construed as though immediately
followed by the words "without
limitation." Headings of
sections and subsections of this
Agreement are for convenience of
the reader and shall not be used
to construe this Agreement. The
terms and provisions contained
herein shall, unless the context
otherwise requires, have the
meanings and be construed as
provided in the California
Commercial Code. Without
limitation of the foregoing, this
Agreement shall be governed by,
and construed in accordance with,
the laws of the State of
California.
e. Relationship to
Deed of Trust. Debtor hereby
further agrees for itself,
successors and assigns that (a)
this Agreement does not
constitute a waiver or partial
waiver by Secured Party of any of
its rights under the Deed of
Trust and (b) this Agreement does
not in any way release Debtor, as
Trustor, from its obligations to
comply with every term, pro-
vision, condition, covenant,
agreement, representation, war-
ranty and obligation of the Deed
of Trust, and that each of the
same remain in full force and
effect and must be complied with
by said Trustor thereunder.
f. Successors and
Assignment. All rights of
Secured Party hereunder shall
inure to the benefit of its
successors and assigns; and all
obligations of Debtor shall bind
its respective successors and
assigns. All rights of Secured
Party in, to and under this
Agreement and in and to the
Collateral shall pass to and may
be exercised by any assignee
thereof. Debtor agrees that if
Debtor has knowledge of an
assignment of said rights, the
liability of Debtor to the
Assignee shall be immediate and
absolute.
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<PAGE> 132
g. Joint and Several
Obligations. To the extent that
Debtor consists of more than one
person, and whether individuals
or entities, the obligations of
Debtor hereunder shall be joint
and several.
IN WITNESS WHEREOF, this
Security Agreement has been
executed as of the day and year
first above written.
DEBTOR:
R. H. PHILLIPS, INC., a California corporation
By://s//John Giguiere
______________________
Title: President
______________________
By://s//Mike Motroni
______________________
Title: Chief Financial Officer
_____________________________
SECURED PARTY:
METROPOLITAN LIFE INSURANCE COMPANY,
a New York corporation
By://s//David Hyatt
________________________
Title: Manager, Special Projects
________________________________
<PAGE> 134
EXHIBIT A
LEGAL DESCRIPTION
Real property situated in the
State of California, County of
Yolo, described as follows:
PARCEL 1:
The South half of Section 9; the
North half of Section 16; and the
North half of the Northwest
quarter and the Southwest quarter
of the Northwest quarter of
Section 15, all in Township 11
North, Range 1 West, M.D.B&M.
APN: 54-060-05, 54-100-04, a
portion of 54-110-01
EXCEPTING THEREFROM all that
portion of Section 16 as conveyed
to John Hancock Mutual Life
Insurance Company in the deed
recorded May 7, 1997, Instrument
No. 97-0010854-00 and more
particularly described as
follows:
BEGINNING at a iron pipe
monument, marking the Northwest
corner of said Section 16, as
said monument is shown on that
certain Map filed for record in
Book 12 of Maps and Surveys at
Page 99 and 100, Yolo County
Records, and thence from said
point of beginning along the
North line of said Section 16,
South 89 56 23" East 1823.02
feet; thence leaving said Section
line, South 00 58 43" East
2656.24 feet to the South line of
said Northwest one-quarter of
Section 16, said point also being
the centerline of County Road
12-A; thence along the South line
of said Northwest one-quarter,
North 89 59 38" West 1823.02
feet to the Southwest corner of
said Northwest one-quarter of
Section 16; thence North 00 58
41" West 2573.73 feet to the
point of beginning.
PARCEL 2:
Parcel One of Parcel Map No. 3256
for Giguiere Ranch, Inc., filed
for record in the Office of the
Yolo County Recorder on
November 14, 1983 in Book 7 of
Parcel Maps, page 16.
APN: 54-120-09, 54-130-02
PARCEL 3:
Parcel Two and Three as shown on
Parcel Map No. 3256 for Giguiere
Ranch, Inc., filed for record in
the Yolo County Recorder's Office
on November 14, 1983 in Book 7 of
Parcel Maps, page 16.
APN: 54-050-02, 54-120-01, 54-
120-08
<PAGE> 134
EXHIBIT B
COLLATERAL
(1) All trees, vines, and
other permanent
plantings now or
hereafter located on
the real property
described in Exhibit A
to the document of
which this Exhibit B is
a part (the "Land");
(2) All property described
on or referred to in
Exhibit B-1 and B-2,
attached hereto and
incorporated herein;
(3) All crops and farm
products growing or to
be grown on the Land,
whether the same are
attached to the Land or
trees and vines thereon
or have been harvested
(provided, however,
that harvested grapes
shall be deemed
inventory and no longer
crops subject to this
security interest, from
and after the time when
they have been
crushed);
(4) All water and watering
rights, of every kind
and description, and
all irrigation
equipment, including
all pumps, power units,
pipes and other
equipment connected
therewith, appurtenant
to or used for the
benefit or enjoyment of
the Land;
(5) All contract rights,
trademarks, trade
names, copyrights,
patents, governmental
licenses, franchises,
certificates, consents,
permits and approvals
now or hereafter owned
by Debtor and relating
to the ownership, use,
operation or enjoyment
of the Winery or the
Farm Property, the
improvements thereon,
and the fixtures,
equipment and personal
property described
above; and
(6) All extensions,
additions,
improvements,
betterments, dividends,
distributions,
proceeds, renewals and
replacements of any of
the foregoing, together
with the benefit of any
deposits or payments
now or hereafter made
by Debtor or on its
behalf in connection
with any of the
foregoing.
<PAGE> 135
EXHIBIT B-1
WINERY EQUIPMENT
The collateral includes
all of the following-described
property:
All of the items
described below which are or
shall be attached to any
buildings, structures or
improvements, or which are or
shall be located in, on or about
the Winery, or which, wherever
located (including, without
limitation, in warehouse or other
storage facilities or in the
possession of or on the premises
of vendors or manufacturers
thereof), are used or intended to
be used in or in connection with
the construction, fixturing,
equipping, furnishing, use,
transportation of personal
property to or from, operation or
enjoyment of the Winery or the
improvements thereon, together
with the benefit of any deposits
or payments now or hereafter made
by Trustor or on Trustor's behalf
in connection with any thereof:
(1) barrels, fermentation
tanks, storage tanks,
and other storage
facilities and their
related equipment;
(2) receiving, crushing,
filtering, and bottling
equipment;
(3) copiers, printers, and
other office equipment;
and
(4) all other equipment and
personal property of
every kind and nature
whatsoever (excluding
inventory and work-in-
process), including,
without limitation, all
plumbing, gas, and
electric pipes, wiring,
and fixtures, heating,
ventilation, and air
conditioning equipment,
cold storage and
controlled atmosphere
storage facilities,
heat exchangers,
cooling and
refrigeration
equipment, storage
tanks, metering
equipment, compressors,
cooling towers,
refrigerant storage
tanks, pipes, coils,
controls, refrigerants,
evaporators,
eliminators, wiring,
crushers, stemmers,
hydraulic systems and
pumps, presses,
filtering equipment,
dejuicers, separators,
vacuum pans, washing
equipment, centrifuges,
fillers, cappers,
gauges, labelers,
boilers, wirers,
desulfurizers, welders,
fans, pumps, hoses,
motors, bins, scales,
tanks, blowers, driers,
hoists, radiators,
heaters, engines and
machinery, boilers,
transformers and
related
<PAGE> 136
transmission and safety
facilities, meters,
signs, carpeting and
other floor coverings,
water heaters,
including all pumps,
power units, motors,
engines, wiring, pipes
and other equipment,
attachments, and
property connected with
any of the foregoing,
and computers and all
hardware and software
therefor. Including
(without limitation)
those items listed in
Exhibit B-2 attached
hereto.
<PAGE> 137
EXHIBIT B-2
EQUIPMENT LIST
A. Bottling Line:
1. 5 - Paul sterile
cartridge filters
2. 1 - Capsules shrink
sealer (Phase Fire
Systems, Inc.)
3. 1 - Kromes bottle
labeler
4. 1 - Mustang bottle
labeler
5. 1 - Orbit #60 bottle
washer
6. All conveyers to
connect the various
components
7. 1 - C&G rotary labeling
machine
8. 1 - Bottle line clean
room
9. 1 - Bertoloso 6-head
corker
10. 2 - Millipore 6-round
filter housing
11. 1 - Berchi case packer
12. 2 - Case sealers
13. 2 - Ink jet prints
(cases & bottles)
14. 1 - Cork elevator
Archimedes
15. 1 - Stainless steel
tube & tube heat
exchanger
B. Pumps:
16. 5 - 10 Hp portable
centrifugal pumps
17. 2 - Portable
centrifugal pumps
(Thompson Model #61852)
18. 1 - Sien positive
displacement pump
19. 1 - Positive
displacement pump
20. 1 - Schneider positive
displacement pump
21. 2 - Tri-Clover positive
displacement pumps
(Model F589)
22. 1 - Mohno positive
displacement pump
23. 1 - Kiesel cavity pump
C: Crush Pad:
24. 1 - Pomace removal
conveyor
25. 1 - Stainless steel
must chiller
26. 1 - Delta crusher-
destemmer
27. 1 - Rauch crusher-
destemmer with auger
28. 1 - 5 ton hoist system,
crane
29. 1 - Wes-Tec grape
sorting table
D. Wine Storage Tanks:
30. 14 - 3,000 gallon
stainless steel wine
storage tanks
31. 26 - 6,000 gallon
stainless steel wine
storage tanks
32. 17 - 12,000 gallon
stainless steel wine
storage tanks
33. 18 - 25,000 gallon
stainless steel wine
storage tanks
34. 10 - 18,000 gallon
stainless steel wine
storage tanks
35. 6 - 1,500 gallon
stainless steel wine
storage tanks
<PAGE> 138
36. 6 - 3,980 gallon
stainless steel wine
storage tanks
37. 1 - 229 gallon
stainless steel wine
storage tank
38. 3 - 4,960 gallon
stainless steel wine
storage tanks
39. 1 - 790 gallon
stainless steel wine
storage tank
40. 1 - 1,960 gallon
stainless steel wine
storage tank
41. 1 - 2,550 gallon
stainless steel wine
storage tank
E: Cellar Equipment:
42. 1,573 - 2 barrel metal
racks
43. 86 - 4 barrel metal
racks
44. 1 - Phase I through III
catwalk system
45. Lab equipment, pallet
jacks, welders, piping,
tank washers, barrel
washers, agitators,
stirrers, fittings,
meters, stainless steel
transfer lines, air
compressor,
miscellaneous tools,
water softener unit
46. Miscellaneous wine
hoses
F. Refrigeration Unit:
47. 1 - 30 Ton Comp. Thermo
system for sale on
consignment
48. 4 - 5 Ton Comp. (Refer-
Tech Refrigeration
System)
49. 1 - Hench Refrigeration
computer control system
50. 1 - FES 250 Hp/ 200
tons screw comp.
refrigeration system
51. Glycol piping
G. Hot Water:
52. 1 - Fred Band hot water
boiler and heat-X
system
53. 1 - water softener unit
H. Office Equipment:
54. Various 286 386, 486
and Laptop computers,
fax machines, copiers,
phone and Voicemail
systems, support
equipment, furnishing
and tasting room items.
55. 2 - Mac graphic art
computers, and printers
56. 1 - high resolution
color copier
I. Filters:
57. 1 - Velo leaf filter 20
M2
58. 1 - Velo Filter (Model
D458) with electric
motor & pump
59. 1 - Eimco Lees filter
press
J. Barrels:
60. 3215 wine barrels
<PAGE> 139
K. Fork Lifts:
61. 1 - Toyota, 3,000 pound
capacity, propane
powered
62. 2 - Caterpillar, 5,000
pound capacity, propane
powered
L. Scales:
63. 70 foot truck scale
M. Miscellaneous Equipment:
64. 2 - 400 gallon
stainless steel juice
pans
65. 4 - Guthe mixers
66. 1 - Mueller heat
exchanger
67. 1 - Electric Genie man
lift
68. 1 - Forklift bin dumper
N. Leased Equipment:
69. 1 - 500 gallon
stainless steel
portable wine storage
tank
70. 1 - 2,000 gallon
stainless steel
portable wine storage
tank
71. 1 - Viking
positive
displacement
bottling pump
72. Several Hewlett Packard
computers
73. 1 - Kiesel cavity pump
74. 1 - Amos crusher-
destemmer
75. 1 - Stainless steel
grape receiving hopper
system
76. 1 - 3,000 gallon
stainless steel wine storage tank
77. 12 - 6,000 gallon
stainless steel wine
storage tanks
78. 1 - 12,000 gallon
stainless steel wine
storage tank
79. 10 - 25,000 gallon
stainless steel wine
storage tanks
80. 1 - 18,000 gallon
stainless steel wine
storage tank
81. 2 - 50,000 gallon
stainless steel wine
storage tanks
82. 1 - 1,000 gallon
stainless steel wine
storage tank
83. 1 - 500 gallon
stainless steel wine
storage tank
84. 1 - Diemme 32,000 liter
tank press
85. 1 - Diemme 26,000 liter
tank press
86. 1 - Diemme 15,000 liter
tank press
87. 940(approx) - 2 barrel
metal racks
88. 600(approx) - 4 barrel
metal racks
89. 1 - Irapp 40 ton
refrigeration system
90. 1 - Stainless steel
velo filter
91. 1 - Cobert Olimpia 32
filler
92. 4,859 wine barrels
93. 1 - Toyota, 5,000 pound
capacity, propane
powered
94. 1 - Hyster, 5,000 pound
capacity, propane
powered
<PAGE> 140
O. Irrigation Equipment:
95. Engines, motors, pumps,
filters and fertilizer
tanks
One Johnson pump - #18940,
Gearhead Serial No. 144149
with 125 horsepower
Cummings diesel motor,
Serial No. A9403255;
One Johnson pump, Gearhead
Serial No. 145636 with 125
horsepower Cummings diesel
motor, Serial No. 44990428;
One submerged pump with 15
horsepower submerged motor;
One Johnson pump with 125
horsepower Newman electric
motor, Serial No. S15031223.
<PAGE> 141
RECORDING REQUESTED BY,
AND WHEN RECORDED, MAIL TO:
Russell O. Wood, Esq.
Thomas, Snell, Jamison,
Russell and Asperger
Post Office Box 1461
Fresno, CA 93716
SPACE ABOVE FOR RECORDER'S USE
INTER-CREDITOR AGREEMENT
REGARDING
R. H. PHILLIPS, INC.,
A CALIFORNIA CORPORATION
THIS INTER-CREDITOR
AGREEMENT (herein referred to as
the "Agreement") is made as of
December 22, 1997, by and between
METROPOLITAN LIFE INSURANCE
COMPANY, a New York corporation
("MetLife"), and U. S. BANK
NATIONAL ASSOCIATION ("Bank").
RECITALS:
A. MetLife is in the
process of extending to R. H.
PHILLIPS, INC., a California
corporation ("Borrower") a loan
of $11,000,000.00 (the "MetLife
Loan") which will be secured by,
among other things, that real
property of Borrower consisting
of farm land and a winery, which
is described in Exhibit A
attached hereto (the "Real
Property"), and by the equipment,
fixtures, and other items of
personal property described in
Exhibit B attached hereto (the
"MetLife Collateral").
B. Bank has extended
to Borrower a line of credit
which is secured by that property
of Borrower (the "Bank
Collateral") described in those
Financing Statements listed in
Exhibit C attached hereto.
C. MetLife is
unwilling to extend the MetLife
Loan to Debtor unless Bank
subordinates its security
interest in those portions of the
Bank Collateral that are
described in Exhibit D attached
hereto (the "Subordinated
Property") to MetLife's security
interest, and the parties desire
to
<PAGE> 142
clarify their relationship with
respect to other matters
concerning their respective
security positions.
AGREEMENT:
NOW THEREFORE, the
parties, for good and valuable
consideration, hereby agree as
follows:
1. Concurrent
Security Interests.
a. Subordination.
Subject to all other terms and
provisions of this Agreement, the
security interest and priority of
Bank in the Subordinated Property
is hereby sub-ordinated to the
security interest and priority of
MetLife therein, to the extent
that MetLife now or from time to
time hereafter holds a security
interest therein to secure sums
and obligations owed by Borrower
with respect to the MetLife Loan.
This Agreement may be recorded
and, upon MetLife's request, the
parties shall cooperate in filing
with the California Secretary of
State appropriate UCC-2
subordination statements to give
notice of any subordination
pursuant to this Agreement.
b. Junior
Interests. Bank hereby consents
to MetLife acquiring security
interests junior to Bank in the
Bank Collateral other than the
Subordinated Property (as to
which MetLife shall have the
first-priority position as
provided herein).
c. Crop Liens.
So long as any sum remains owing
under the MetLife Loan, any crop
lien heretofore or hereafter
given by Borrower to Bank,
regardless of its terms, shall be
deemed to encumber at any time
only: (i) the current year's crop
and (ii) to the extent of new
funds actually advanced by Bank
that are applied toward cultural
activities on the Real Property
for the succeeding year's crops,
such succeeding year's crops.
2. Joint Use of
Facilities. The parties acknowl-
edge that, in the event one or
both of them finds it necessary
to take possession of the
property encumbered by their
respective security interests,
some coordination of their
activities is in order.
Therefore, the parties agree as
follows:
a. Use by Bank.
Bank shall have access to the
winery and may use the fixtures
and equipment thereon for the
purposes of conducting a public
or private auction or other sale
or transfer of the Bank's
collateral or removing the
inventory subject to its security
interest, which removal may
include processing and bottling
bulk inventory for sale, and Bank
may use Borrower's labels for
purposes of bottling and selling
Borrower's then-
<PAGE> 143
existing inventory. Bank's use
shall be subject to the following
terms and conditions:
(1) such use shall be in
compliance with
applicable laws and
regulations and shall
be at Bank's own risk
and expense, and Bank
shall bear any costs of
utilities or other
goods and services
consumed in the course
of such use;
(2) Bank shall (i) complete
its use of the farm
portion of the Real
Property within the
period of time (not to
exceed one year after
Bank forecloses on or
otherwise obtains
possession of the farm
property) that is
ordinarily and
customarily required to
farm, cultivate and
harvest the current
year's crops thereon
and (ii) complete its
use of the winery
portion of the Real
Property within 120
days after Bank
forecloses or otherwise
obtains the right to
possession of the
inventory, provided
that such use by Bank
shall not interfere
with MetLife's
operation of the Real
Property and its
fixtures and equipment,
and any property
remaining at the winery
after such 120-day
period shall be deemed
to have been released
by Bank, and during
such 120-day period
Bank shall remove its
inventory from tanks,
vats, and other holding
facilities as may be
necessary to
accommodate incoming
juice; and
(3) The parties acknowledge
that, in order to
exercise its rights
hereunder, Bank may
need the right to use
any or all of the Real
Property and other
assets thereon
regardless of whether
such assets constitute
a part of the Bank's
collateral. Therefore,
during any Harvest
Period and to enable
Bank to exercise its
rights hereunder, Bank
shall have, and is
hereby granted, the
right to have access to
and use any or all of
the Real Property and
all fixtures, equipment
and other items of
personal property
located thereon or used
in connection therewith
(including, without
limitation, all water
rights, all water
irrigation and water
delivery systems, all
water sprinkler
systems, all water
pumps and all water
wells), to the extent
such property is then
owned or controlled by
MetLife. Given the
nature of the vines on
which much of the
Bank's collateral is
grown and harvested,
MetLife acknowledges
that, as part of the
exercise of the rights
of the Bank hereunder
and in order to care
properly for the Bank's
collateral, Bank may
prune or otherwise cut
(in accordance with
applicable farming and
agricultural practices)
those vines.
(4) Bank shall indemnify,
defend, and hold the
Real Property, MetLife,
and its subsidiaries,
and their directors,
officers, employees,
and agents free and
harmless from and
against any claim,
liability, loss, or
expense (including
reasonable attorneys'
fees) arising from
Bank's use of the Real
Property and the water,
equipment, and fixtures
thereon.
b. Use by
MetLife. MetLife and its
assignees may, but shall have no
obligation to, use Borrower's
trade names, trademarks, styles,
and labels.
c. Notice of
Foreclosure. MetLife and Bank
shall give the other written
notice of the commencement by it
of any foreclosure against the
collateral of the other.
3. Miscellaneous
Terms.
a. Successors and
Assigns. This Agreement shall
bind and inure to the benefit of
the respective successors and
assigns of each of the parties.
b. Authority.
Each party represents that it has
the power, authority, and right
to enter into and perform this
Agreement.
c. Further
Assurances. The parties each
agree to make, execute, and de-
liver such other documents, and
<PAGE> 144
to undertake such other and fur-
ther acts, as may be reasonably
necessary to carry out the intent
of this Agreement.
d.
Interpretation. This Agreement
shall not be strictly construed
against or in favor of any party
here-to. Except as the context
otherwise requires, the term
"including" (and all variations
of that word) will be construed
as though immediately followed by
the words "without limitation."
The headings of Sections and
Subsections are for the
convenience of the reader only
and shall not be used to construe
the meaning of any provision of
this Agreement.
e. Attorneys'
Fees. In the event of any action
at law or suits in equity in
relation to this Agreement, the
prevailing party, in addition to
all other sums which it may be
entitled, shall be entitled to a
reasonable sum for attorneys'
fees.
f. Notices. Any
notices required or convenient to
be given under this Agreement
shall be in writing, and any such
written notice shall be deemed to
have been duly given on the
earlier of (i) the date that such
notice is received or (ii) the
date that it is mailed via either
registered or certified mail,
return receipt requested, postage
prepaid, to the parties at the
addresses below:
if to Metropolitan Life Insurance Company
MetLife: Agricultural Investments
Santa Cruz Building
7100 N. Financial Dr., Ste. 105
Fresno, CA 93720-2900
Attention: David Hyatt
and if to U.S. Bank National Association
U.S. Bank: 980 Ninth Street, Suite 1100
Sacramento, CA 95814
Attn: Karen Howe
Either party may change its
address by giving notice of such
change. Failure to give any
notice in a manner provided in
this Subsection shall not defeat
the effectiveness of any written
notice that is actually and
timely received.
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<PAGE> 145
g. Application of
Law. This Agreement shall be
governed by and construed in
accordance with the laws of the
State of California applicable
with respect to contracts made
and entirely to be performed
within said State.
IN WITNESS WHEREOF, the
parties have executed this
Agreement as of the date first
set forth above.
Bank: MetLife:
U.S. BANK NATIONAL METROPOLITAN LIFE INSURANCE
ASSOCIATION COMPANY, a New York corporation
By: By://s//David Hyatt
_________________________
Title: Title: Manager, Special Projecs
____________________________
BORROWER'S CONSENT
The undersigned hereby
consents to the foregoing
Agreement.
Dated: _____________, 1997.
R. H. PHILLIPS, INC., a
California corporation
By://s//John Giguiere
________________________
Title: President
________________________
By://s//Mike Motroni
________________________
Title: Chief Financial Officer
____________________________
<PAGE> 146
STATE OF CALIFORNIA )
) ss.
COUNTY OF ________ )
On __________________,
19__, before me, ________________
____________________, a Notary
Public in and for the State of
California, personally appeared
,
personally known to me (or proved
to me on the basis of
satisfactory evidence) to be the
person(s) whose name(s) is/are
subscribed to the within
instrument and acknowledged to me
that he/she/they executed the
same in his/her/their authorized
capacity(ies), and that by
his/her/their signatures on the
instrument the person(s), or the
entity upon behalf of which the
person(s) acted, executed the
instrument.
WITNESS my hand and
official seal.
Signature
STATE OF CALIFORNIA )
) ss.
COUNTY OF Fresno )
______
On December 19,1997,
before me, Carol J. Hinton, a
Notary Public in and for the
State of California, personally
appeared David Hyatt, personally
known to me (or proved to me on
the basis of satisfactory
evidence) to be the person(s)
whose name(s) is/are subscribed
to the within instrument and
acknowledged to me that
he/she/they executed the same in
his/her/their authorized
capacity(ies), and that by
his/her/their signatures on the
instrument the person(s), or the
entity upon behalf of which the
person(s) acted, executed the
instrument.
WITNESS my hand and
official seal.
Signature//s//Carol J. Hinton
________________________
<PAGE> 147
STATE OF CALIFORNIA )
) ss.
COUNTY OF ________ )
On __________________,
19__, before me, ________________
____________________, a Notary
Public in and for the State of
California, personally appeared
,
personally known to me (or proved
to me on the basis of
satisfactory evidence) to be the
person(s) whose name(s) is/are
subscribed to the within
instrument and acknowledged to me
that he/she/they executed the
same in his/her/their authorized
capacity(ies), and that by
his/her/their signatures on the
instrument the person(s), or the
entity upon behalf of which the
person(s) acted, executed the
instrument.
WITNESS my hand and
official seal.
Signature
<PAGE> 148
INTER-CREDITOR AGREEMENT
EXHIBIT A
DESCRIPTION OF REAL PROPERTY
Real property situated in the
State of California, County of
Yolo, described as follows:
PARCEL 1:
The South half of Section 9; the
North half of Section 16; and the
North half of the Northwest
quarter and the Southwest quarter
of the Northwest quarter of
Section 15, all in Township 11
North, Range 1 West, M.D.B&M.
APN: 54-060-05, 54-100-04, a
portion of 54-110-01
EXCEPTING THEREFROM all that
portion of Section 16 as conveyed
to John Hancock Mutual Life
Insurance Company in the deed
recorded May 7, 1997, Instrument
No. 97-0010854-00 and more
particularly described as
follows:
BEGINNING at a iron pipe
monument, marking the Northwest
corner of said Section 16, as
said monument is shown on that
certain Map filed for record in
Book 12 of Maps and Surveys at
Page 99 and 100, Yolo County
Records, and thence from said
point of beginning along the
North line of said Section 16,
South 89 56 23" East 1823.02
feet; thence leaving said Section
line, South 00 58 43" East
2656.24 feet to the South line of
said Northwest one-quarter of
Section 16, said point also being
the centerline of County Road
12-A; thence along the South line
of said Northwest one-quarter,
North 89 59 38" West 1823.02
feet to the Southwest corner of
said Northwest one-quarter of
Section 16; thence North 00 58
41" West 2573.73 feet to the
point of beginning.
PARCEL 2:
Parcel One of Parcel Map No. 3256
for Giguiere Ranch, Inc., filed
for record in the Office of the
Yolo County Recorder on
November 14, 1983 in Book 7 of
Parcel Maps, page 16.
APN: 54-120-09, 54-130-02
PARCEL 3:
Parcel Two and Three as shown on
Parcel Map No. 3256 for Giguiere
Ranch, Inc., filed for record in
the Yolo County Recorder's Office
on November 14, 1983 in Book 7 of
Parcel Maps, page 16.
APN: 54-050-02, 54-120-01, 54-
120-08
<PAGE> 149
EXHIBIT B
COLLATERAL
(1) All trees, vines, and
other permanent
plantings now or
hereafter located on
the real property
described in Exhibit A
to the document of
which this Exhibit B is
a part (the "Land");
(2) All property described
on or referred to in
Exhibit B-1 and B-2,
attached hereto and
incorporated herein;
(3) All crops and farm
products growing or to
be grown on the Land,
whether the same are
attached to the Land or
trees and vines thereon
or have been harvested
(provided, however,
that harvested grapes
shall be deemed
inventory and no longer
crops subject to this
security interest, from
and after the time when
they have been
crushed);
(4) All water and watering
rights, of every kind
and description, and
all irrigation
equipment, including
all pumps, power units,
pipes and other
equipment connected
therewith, appurtenant
to or used for the
benefit or enjoyment of
the Land;
(5) All contract rights,
trademarks, trade
names, copyrights,
patents, governmental
licenses, franchises,
certificates, consents,
permits and approvals
now or hereafter owned
by Debtor and relating
to the ownership, use,
operation or enjoyment
of the Winery or the
Farm Property, the
improvements thereon,
and the fixtures,
equipment and personal
property described
above; and
(6) All extensions,
additions,
improvements,
betterments, dividends,
distributions,
proceeds, renewals and
replacements of any of
the foregoing, together
with the benefit of any
deposits or payments
now or hereafter made
by Debtor or on its
behalf in connection
with any of the
foregoing.
<PAGE> 150
EXHIBIT B-1
WINERY EQUIPMENT
The collateral includes
all of the following-described
property:
All of the items
described below which are or
shall be attached to any
buildings, structures or
improvements, or which are or
shall be located in, on or about
the Winery, or which, wherever
located (including, without
limitation, in warehouse or other
storage facilities or in the
possession of or on the premises
of vendors or manufacturers
thereof), are used or intended to
be used in or in connection with
the construction, fixturing,
equipping, furnishing, use,
transportation of personal
property to or from, operation or
enjoyment of the Winery or the
improvements thereon, together
with the benefit of any deposits
or payments now or hereafter made
by Trustor or on Trustor's behalf
in connection with any thereof:
(1) barrels, fermentation
tanks, storage tanks,
and other storage
facilities and their
related equipment;
(2) receiving, crushing,
filtering, and bottling
equipment;
(3) copiers, printers, and
other office equipment;
and
(4) all other equipment and
personal property of
every kind and nature
whatsoever (excluding
inventory and work-in-
process), including,
without limitation, all
plumbing, gas, and
electric pipes, wiring,
and fixtures, heating,
ventilation, and air
conditioning equipment,
cold storage and
controlled atmosphere
storage facilities,
heat exchangers,
cooling and
refrigeration
equipment, storage
tanks, metering
equipment, compressors,
cooling towers,
refrigerant storage
tanks, pipes, coils,
controls, refrigerants,
evaporators,
eliminators, wiring,
crushers, stemmers,
hydraulic systems and
pumps, presses,
filtering equipment,
dejuicers, separators,
vacuum pans, washing
equipment, centrifuges,
fillers, cappers,
gauges, labelers,
boilers, wirers,
desulfurizers, welders,
fans, pumps, hoses,
motors, bins, scales,
tanks, blowers, driers,
hoists, radiators,
heaters, engines and
machinery, boilers,
transformers and
related
<PAGE> 151
transmission and safety
facilities, meters,
signs, carpeting and
other floor coverings,
water heaters,
including all pumps,
power units, motors,
engines, wiring, pipes
and other equipment,
attachments, and
property connected with
any of the foregoing,
and computers and all
hardware and software
therefor. Including
(without limitation)
those items listed in
Exhibit B-2 attached
hereto.
I. Filters:
57. 1 - Velo leaf filter 20
M2
58. 1 - Velo Filter (Model
D458) with electric
motor & pump
59. 1 - Eimco Lees filter
press
J. Barrels:
60. 3215 wine barrels
<PAGE> 154
K. Fork Lifts:
61. 1 - Toyota, 3,000 pound
capacity, propane
powered
62. 2 - Caterpillar, 5,000
pound capacity, propane
powered
L. Scales:
63. 70 foot truck scale
M. Miscellaneous Equipment:
64. 2 - 400 gallon
stainless steel juice
pans
65. 4 - Guthe mixers
66. 1 - Mueller heat
exchanger
67. 1 - Electric Genie man
lift
68. 1 - Forklift bin dumper
N. Leased Equipment:
69. 1 - 500 gallon
stainless steel
portable wine storage
tank
70. 1 - 2,000 gallon
stainless steel
portable wine storage
tank
71. 1 - Viking
positive
displacement
bottling pump
72. Several Hewlett Packard
computers
73. 1 - Kiesel cavity pump
74. 1 - Amos crusher-
destemmer
75. 1 - Stainless steel
grape receiving hopper
system
76. 1 - 3,000 gallon
stainless steel wine storage tank
77. 12 - 6,000 gallon
stainless steel wine
storage tanks
78. 1 - 12,000 gallon
stainless steel wine
storage tank
79. 10 - 25,000 gallon
stainless steel wine
storage tanks
80. 1 - 18,000 gallon
stainless steel wine
storage tank
81. 2 - 50,000 gallon
stainless steel wine
storage tanks
82. 1 - 1,000 gallon
stainless steel wine
storage tank
83. 1 - 500 gallon
stainless steel wine
storage tank
84. 1 - Diemme 32,000 liter
tank press
85. 1 - Diemme 26,000 liter
tank press
86. 1 - Diemme 15,000 liter
tank press
87. 940(approx) - 2 barrel
metal racks
88. 600(approx) - 4 barrel
metal racks
89. 1 - Irapp 40 ton
refrigeration system
90. 1 - Stainless steel
velo filter
91. 1 - Cobert Olimpia 32
filler
92. 4,859 wine barrels
93. 1 - Toyota, 5,000 pound
capacity, propane
powered
94. 1 - Hyster, 5,000 pound
capacity, propane
powered
<PAGE> 155
O. Irrigation Equipment:
95. Engines, motors, pumps,
filters and fertilizer
tanks
One Johnson pump - #18940,
Gearhead Serial No. 144149
with 125 horsepower
Cummings diesel motor,
Serial No. A9403255;
One Johnson pump, Gearhead
Serial No. 145636 with 125
horsepower Cummings diesel
motor, Serial No. 44990428;
One submerged pump with 15
horsepower submerged motor;
One Johnson pump with 125
horsepower Newman electric
motor, Serial No. S15031223.
<PAGE> 156
LIST OF BANK'S FINANCING STATEMENTS
(1) UCC-1 Financing
Statement recorded
October 16, 1996 in
Yolo County Official
Records as Instrument
No. 96-0025415-00; R.H.
Phillips, Inc., Debtor;
U.S. Bank Of
California, Secured
Party.
(2) UCC-1 Financing
Statement filed with
the California
Secretary of State on
April 4, 1989, File No.
89085189; R.H.
Phillips, Partners, A
California Limited
Partnership, Debtor,
ITT Commercial Finance
Corp., Secured Party;
UCC-2 Amendment filed
with the California
Secretary of State on
March 6, 1992; R.H.
Phillips Partners, A
California Limited
Partnership, Debtor;
ITT Commercial Finance
Corp., Secured Party;
UCC-2 Amendment filed
with the California
Secretary of State on
March 23, 1993; R.H.
Phillips Partners, A
California Limited
Partnership, Debtor;
ITT Commercial Finance
Corp., Secured Party;
UCC-2 Amendment filed
with the California
Secretary of State on
July 25, 1994; R.H.
Phillips Partners, A
California Limited
Partnership, Debtor;
ITT Commercial Finance
Corp., Secured Party;
UCC-2 Assignment filed
with the California
Secretary of State on
September 19, 1995,
File No. 95268C0354;
R.H. Phillips Partners,
A California
Partnership, Debtor;
ITT Commercial Finance
Corp., Secured Party;
U.S. Bank Of
California, Assignee of
Secured Party.
(3) UCC-1 Financing
Statement filed with
the California
Secretary of State on
July 25, 1994, File No.
94151009; R.H.
Phillips, Inc., Debtor;
ITT Commercial Finance
Corp., Secured Party;
UCC-2 Assignment filed
with the California
Secretary of State on
September 19, 1995,
File No. 95268C0366;
R.H. Phillips, Inc.,
Debtor; ITT Commercial
Finance Corp., Secured
Party; U.S. Bank of
California, Assignee of
Secured Party.
<PAGE> 157
(4) UCC-1 Financing
Statement filed with
the California
Secretary of State on
July 3, 1995, File No.
9519360071; R.H.
Phillips, Inc., Debtor;
U.S. Bank of
California, Secured
Party.
(5) UCC-1 Financing
Statement filed with
the California
Secretary of State on
July 3, 1995, File No.
9519360076; R.H.
Phillips, Inc., Debtor;
U.S. Bank of
California, Secured
Party.
(6) UCC-1 Financing
Statement filed with
the California
Secretary of State on
March 1, 1996, File No.
9606760084; R.H.
Phillips, Inc., Debtor;
U.S. Bank of
California, Secured
Party.
(7) UCC-1 Financing
Statement filed with
the California
Secretary of State on
June 13, 1988, File No.
88141790; The R.H.
Phillips Vineyard,
Inc., Debtor; ITT
Commercial Finance
Corp., Secured Party;
UCC-2 Amendment filed
with the California
Secretary of State on
March 6, 1992; The R.H.
Phillips Vineyard,
Inc., Debtor; ITT
Commercial Finance
Corp., Secured Party;
UCC-2 Amendment filed
with the California
Secretary of State on
March 23, 1993; The
R.H. Phillips Vineyard,
Inc., Debtor; ITT
Commercial Financial
Corp., Secured Party;
UCC-2 Assignment filed
with the California
Secretary of State on
September 19, 1995,
File No. 95268C0352;
The R.H. Phillips
Vineyard, Inc., Debtor;
ITT Commercial Finance
Corp., Secured Party;
U.S. Bank of
California, Assignee of
Secured Party.
(8) UCC-1 Financing
Statement filed with
the California
Secretary of State on
March 27, 1985, File
No. 85074972; The R.H.
Phillips Vineyard,
Debtor; ITT Commercial
Finance Corp., Secured
Party;
UCC-2 Amendment filed
with the California
Secretary of State on
April 28, 1986; The
R.H. Phillips Vineyard,
Debtor; ITT Commercial
Finance Corp., Secured
Party;
UCC-2 Amendment filed
with the California
Secretary of State on
June 13, 1988; The R.H.
Phillips Vineyard,
Inc., Debtor; ITT
Commercial Finance
Corp., Secured Party;
<PAGE> 158
UCC-2 Assignment filed
with the California
Secretary of State on
September 19, 1995,
File No. 95268C0363;
The R.H. Phillips
Vineyard, Debtor; ITT
Commercial Finance
Corp., Secured Party;
U.S. Bank of
California, Assignee of
Secured Party.
<PAGE> 159 INTER-CREDITOR AGREEMENT
EXHIBIT D
SUBORDINATED PROPERTY
(a) All property described
on or referred to in
Exhibits B-1 and B-2 to
this Agreement;
(b) All contract rights,
trademarks, trade
names, copyrights,
patents, governmental
licenses, franchises,
certificates, consents,
permits and approvals
now or hereafter owned
by Debtor and relating
to the ownership, use,
operation or enjoyment
of the winery located
on the real property
described in Exhibit A
to this Agreement, the
improvements thereon,
and the fixtures,
equipment and personal
property described
above; and
(c) All extensions,
additions,
improvements,
betterments, dividends,
distributions,
proceeds, renewals and
replacements of any of
the foregoing, together
with the benefit of any
deposits or payments
now or hereafter made
by Debtor or on its
behalf in connection
with any of the
foregoing.
<PAGE> 160
Recording Requested by
and When Recorded Return To:
Russell O. Wood, Esq.
Thomas, Snell, Jamison,
Russell and Asperger
Post Office Box 1461
Fresno, California 93716
ASSIGNMENT OF RENTS AND LEASES
December 22, 1997
FOR VALUE RECEIVED, the
undersigned, R. H. PHILLIPS,
INC., a California corporation
("Assignor"), hereby GRANTS,
ASSIGNS, TRANSFERS and SETS OVER
unto METROPOLITAN LIFE INSURANCE
COMPANY, a New York corporation,
its successors and assigns
("Assignee"):
(a) all of the rents,
issues, profits and
income whatsoever
arising from or which
may be had under any
leases or tenancies
(the "Leases") now
existing or which may
be hereafter created
(and under any ex-
tensions or renewals
thereof) on all or any
part of the real estate
described in Exhibit A
attached hereto and by
this reference made a
part hereof, and the
buildings and
improvements now or
hereafter located
thereon (said real
estate, buildings and
improvements being
hereinafter together
called the "Property");
(b) all right, title and
interest of Assignor in
and to all Leases; and
(c) all guaranties,
amendments,
replacements, exten-
sions and renewals of
the Leases and any of
them,
AS ADDITIONAL COLLATERAL SECURITY
FOR: (i) the payment of the
indebtedness secured by the Deed
of Trust, Assignment of Rents and
Security Agreement of even date
herewith, executed by Assignor
for the benefit of Assignee and
recorded contemporaneously
herewith (said document, as the
same may be amended and modified
from time to time hereafter, is
herein
<PAGE> 161
called the "Deed of Trust"),
including, without limitation,
the indebtedness now or hereafter
evidenced by the Note (as defined
in the Deed of Trust), and the
Loan Agreement (the "Loan
Agreement") of even date
herewith, and (ii) the per-
formance of all the covenants,
warranties, representations,
terms and conditions of the Note,
Deed of Trust, Loan Agreement,
Guaranty Agreement, this document
and all other documents securing
said indebtedness.
As used hereinafter, the
term "Loan Documents" shall mean
the Note, the Deed of Trust, the
Loan Agreement, the Guaranty
Agreement, and this Assignment of
Rents and Leases.
Assignor will observe and
perform all covenants, condi-
tions, and agreements in any
Lease or in any assignment in
fact given by Assignor to
Assignee of any particular Lease
on the part of Assignor or the
landlord to be observed and per-
formed thereunder. Assignor will
not, without the prior written
consent of Assignee: (a) accept
any payment of rent or
installments of rent (including,
without limitation, security
deposits) for more than two (2)
months in advance; (b) amend,
cancel, abridge, terminate, or
modify any Lease; (c) take any
action or exercise any right or
option which would permit the
tenant under any Lease to cancel
or terminate said Lease; or (d)
permit any Lease to be or become
subordinate to any lien other
than the lien of the Deed of
Trust or any lien to which the
Deed of Trust is now or may
pursuant to its respective terms
become subordinate. As used in
this Assignment of Rents and
Leases, the terms "Lease" and
"Leases" shall include, without
limitation, all agreements for
the management, maintenance or
operation of any part of the
Property.
It is agreed that Assignor
shall be entitled to collect and
retain the rents, issues and
profits of and from the Property
or any part thereof unless an
Event of Default, as defined in
any of the Loan Documents occurs.
In the event such an Event of
Default shall have occurred,
Assignee shall be entitled
forthwith, without any notice
whatsoever to Assignor, to take
possession and control of the
Property and shall have the sole
and exclusive right and authority
to manage and operate the same,
to collect the rents, issues,
profits and income therefrom,
with full power to employ agents
to manage the Property, and to do
all acts relating to such
management, including, but not
limited to, contracting and
paying for such repairs and
replacements to the buildings and
fixtures, equipment and personal
property located therein and used
in any way in the operation, use,
and occupancy of the Property, as
in the sole judgment and
discretion of Assignee may be
necessary to maintain the same in
an operational condition,
purchasing and paying for such
additional materials and
equipment as in the sole judgment
of Assignee
<PAGE> 162
may be necessary to maintain a
proper income from the Property,
employing necessary operational
employees, maintenance employees,
purchasing fuel, providing
utilities and paying for all
other necessary expenses incurred
in the operation of the Property,
maintaining adequate insurance
coverage over hazards customarily
insured against and paying the
premiums therefor, and applying
the net rents, issues, profits
and income so collected from the
Property, after deducting the
cost of collection thereof, which
shall include a reasonable
management fee for any management
agent so employed, against the
amount expended for repairs,
upkeep, maintenance service,
fuel, utilities, taxes,
assessments, insurance premiums
and such other expenses as it may
be necessary or desirable to
incur, in the sole discretion of
Assignee, in connection with the
operation of the Property, and
against interest, principal or
other charges which have or which
may become due, from time to
time, under the terms of the Loan
Documents.
In the event such an Event
of Default shall have occurred,
Assignor agrees to endorse and
deliver to Assignee all
then-existing Leases and other
agreements relating or pertaining
to the operation of the Property.
Without limiting the provisions
of the immediately preceding
sentence, and whether or not
Assignor endorses and/or delivers
said Leases and other agreements
to Assignee, as aforesaid, this
Assignment of Rents and Leases
shall be deemed to be an
assignment of all such Leases and
other agreements to Assignee.
The provisions hereof shall not
limit the effect of any assign-
ments of particular Leases and
other agreements in fact given to
Assignee by Assignor.
It is further understood
that this Assignment of Rents and
Leases shall not operate to place
responsibility for the control,
care, management or repair of the
premises upon Assignee, nor for
the performance of any of the
terms and conditions of the Lease
or other agreements assigned
hereunder, nor shall it operate
to make Assignee responsible or
liable for: (i) any waste
committed on the premises by
Assignor or any other party; or
(ii) any dangerous or defective
condition of the premises
described in the Lease; or (iii)
the presence, use, storage,
disposal, or migration at, in,
on, under, or from said premises
of any materials defined as
hazardous or toxic under any
applicable laws or regulations;
or (iv) any negligence in the
management, upkeep, repair or
control of the premises resulting
in loss or injury to any tenant,
invitee, licensee, employee or
stranger.
The acceptance of this
Assignment of Rents and Leases
and the collection of the rents
and profits hereby assigned in
the event of an Event of Default,
as referred to above, shall be
without prejudice to and shall
not constitute a
<PAGE> 163
waiver on the part of Assignee of
any of Assignee's rights or
remedies under the terms and
conditions of the Loan Documents,
at law or in equity, or
otherwise.
Assignor hereby assigns to
Assignee: (a) any award or other
payment which Assignor may
hereafter become entitled to
receive with respect to a Lease
or other agreement relating or
pertaining to the operation of
the Property as a result of or
pursuant to any bankruptcy,
insolvency, or reorganization or
similar proceedings involving any
other party under such Lease or
other agreement; and (b) any and
all payments made by or on behalf
of any other party. Assignor
hereby irrevocably appoints
Assignee as its attorney to
appear in any such proceeding
and/or to collect any such award
or payment.
Upon Assignee's request,
Assignor shall notify any tenants
or other parties of the existence
of this Assignment of Rents and
Leases, and Assignee may, at its
option, do the same.
The remedies of Assignee
hereunder are cumulative, and the
exercise of any one or more of
the remedies provided for herein
shall not be construed as a
waiver of any of the other
remedies of Assignee as long as
any obligation under the Loan
Documents remains unsatisfied.
All rights of Assignee
hereunder shall inure to the
benefit of its successors and
assigns, and all obligations of
Assignor shall bind each of
Assignor's successors and
assigns. All rights of Assignee
in, to and under this Assignment
of Rents and Leases and in and to
the collateral security provided
hereby shall pass to and may be
exercised by any assignee
thereof. Assignor agrees that if
Assignee gives notice to Assignor
of an assignment of said rights,
upon such notice the liability of
Assignor to the assignee shall be
immediate and absolute. Assignor
will not set up any claims
against the original or any
intervening Assignee as a de-
fense, counterclaim or set off to
any action brought by any such
assignee for any amounts due
hereunder or for possession of or
the exercise of rights with
respect to the collateral
security provided hereby.
All notices, demands, and
requests given hereunder shall be
in writing. All such notices,
demands and requests by Assignee
to Assignor shall be deemed to
have been properly given if
served in person or if sent by
United States
<PAGE> 164
registered or certified mail,
postage prepaid, addressed to As-
signor at:
R. H. Phillips, Inc.
26836 County Road 12A
Esparto, California 95627
Attention: Chief Financial Officer
or to such other address as it
may from time to time designate
by written notice to Assignee
given as herein required. All
notices, demands and requests by
Assignor to Assignee shall be
deemed to have been properly
given if served in person or if
sent by United States registered
or certified mail, postage
prepaid, addressed to Assignee
at:
Metropolitan Life Insurance Company
Agricultural Investments
8717 West 110th Street, Suite 700
Overland Park, Kansas 66210
Attention: Senior Vice-President
with a copy to:
Metropolitan Life Insurance Company
Agricultural Investments
7100 N. Financial Drive
Fresno, California 93710-2921
Attention: Manager
or to such other address as
Assignee may from time to time
designate by written notice to
Assignor given as herein
required. Notices, demands and
requests given by mail in the
manner aforesaid shall be deemed
sufficiently served or given for
all purposes hereunder three (3)
days after the time such notice,
demand or request shall be
deposited in the mails. Failure
to conform to the requirement
that notices be sent by
registered or certified mail
shall not defeat the
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<PAGE> 165
effectiveness of any notice
actually received by the
addressee.
IN WITNESS WHEREOF, the
undersigned has caused this
Assignment to be signed in their
names and to be dated as of the
day and year first above written.
Assignor:
R. H. PHILLIPS, INC., a California corporation
By://s//John Giguiere
_________________________
Title: President
_________________________
By://s//Mike Motroni
_________________________
Title: Chief Financial Officer
_________________________
<PAGE> 166
STATE OF CALIFORNIA )
) ss.
COUNTY OF ________ )
On __________________,
19__, before me, ________________
____________________, a Notary
Public in and for the State of
California, personally appeared
,
personally known to me (or proved
to me on the basis of
satisfactory evidence) to be the
person(s) whose name(s) is/are
subscribed to the within
instrument and acknowledged to me
that he/she/they executed the
same in his/her/their authorized
capacity(ies), and that by
his/her/their signatures on the
instrument the person(s), or the
entity upon behalf of which the
person(s) acted, executed the
instrument.
WITNESS my hand and
official seal.
Signature
STATE OF CALIFORNIA )
) ss.
COUNTY OF ________ )
On __________________,
19__, before me, ________________
____________________, a Notary
Public in and for the State of
California, personally appeared
,
personally known to me (or proved
to me on the basis of
satisfactory evidence) to be the
person(s) whose name(s) is/are
subscribed to the within
instrument and acknowledged to me
that he/she/they executed the
same in his/her/their authorized
capacity(ies), and that by
his/her/their signatures on the
instrument the person(s), or the
entity upon behalf of which the
person(s) acted, executed the
instrument.
WITNESS my hand and
official seal.
Signature
<PAGE> 167
EXHIBIT A
DESCRIPTION OF REAL PROPERTY
Real property situated in the
State of California, County of
Yolo, described as follows:
PARCEL 1:
The South half of Section 9; the
North half of Section 16; and the
North half of the Northwest
quarter and the Southwest quarter
of the Northwest quarter of
Section 15, all in Township 11
North, Range 1 West, M.D.B&M.
APN: 54-060-05, 54-100-04, a
portion of 54-110-01
EXCEPTING THEREFROM all that
portion of Section 16 as conveyed
to John Hancock Mutual Life
Insurance Company in the deed
recorded May 7, 1997, Instrument
No. 97-0010854-00 and more
particularly described as
follows:
BEGINNING at a iron pipe
monument, marking the Northwest
corner of said Section 16, as
said monument is shown on that
certain Map filed for record in
Book 12 of Maps and Surveys at
Page 99 and 100, Yolo County
Records, and thence from said
point of beginning along the
North line of said Section 16,
South 89 56 23" East 1823.02
feet; thence leaving said Section
line, South 00 58 43" East
2656.24 feet to the South line of
said Northwest one-quarter of
Section 16, said point also being
the centerline of County Road
12-A; thence along the South line
of said Northwest one-quarter,
North 89 59 38" West 1823.02
feet to the Southwest corner of
said Northwest one-quarter of
Section 16; thence North 00 58
41" West 2573.73 feet to the
point of beginning.
PARCEL 2:
Parcel One of Parcel Map No. 3256
for Giguiere Ranch, Inc., filed
for record in the Office of the
Yolo County Recorder on
November 14, 1983 in Book 7 of
Parcel Maps, page 16.
APN: 54-120-09, 54-130-02
PARCEL 3:
Parcel Two and Three as shown on
Parcel Map No. 3256 for Giguiere
Ranch, Inc., filed for record in
the Yolo County Recorder's Office
on November 14, 1983 in Book 7 of
Parcel Maps, page 16.
APN: 54-050-02, 54-120-01, 54-
120-08
<PAGE> 168
BORROWER'S AFFIDAVIT
AFFIANT: R. H. PHILLIPS, INC.,
a California corporation ("Borrower")
This Affidavit is delivered to
Metropolitan Life Insurance
Company ("MetLife") by Affiant,
as an inducement to MetLife to
disburse certain funds in
connection with an Eleven Million
and No/100 Dollar
($11,000,000.00) loan from
MetLife to Affiant (the "Loan")
as evidenced and secured by on or
more Adjustable Rate Secured
Promissory Notes, Loan Agreement,
Deed of Trust, separate Security
Agreement, Loan Guaranty
Agreement, and certain other
related documents of even date
herewith (collectively the "Loan
Documents"). All terms not
otherwise defined herein shall
have the same meaning as set
forth in the Loan Documents.
STATE OF CALIFORNIA )
) SS:
COUNTY OF YOLO )
After being first duly sworn, the
undersigned represents and
warrants to MetLife, under
penalty of perjury under the laws
of the State of California, as
follows:
0.1. REPRESENTATIONS MADE BY
BORROWER ALONE:
(1) Borrower is
conducting its business and
entering into the
transactions contemplated by
the Loan Documents as a
California corporation, and
the principal place of
business of Borrower is
26836 County Road 12A,
Esparto, California 95627.
(2) Borrower is a
corporation duly formed,
validly existing and duly
authorized to do business
under the laws of the State
of California.
(3) All certificates,
licenses, permits and other
approvals required to be
obtained by Borrower in
order to engage in the
business in which it is
presently engaged or in
which it contemplates
engaging have been duly
obtained and, if required,
filed, and are in full force
and effect.
(4) The sole business
of Borrower on the real
property described in
Exhibit A hereto (the "Real
Property") is the ownership,
management, and operation of
a farming operation and a
winery (the "Winery")
<PAGE> 169
(5) As of this date,
Borrower is well seized of
an indefeasible estate in
fee simple in the Real
Property and the
improvements located thereon
(the "Improvements"),
subject only to matters set
forth in the Loan Documents.
(6) All of the
machinery, equipment,
systems, facilities and
other personal property used
in or associated with
maintenance and operation of
the Real Property and the
Improvements (the "Personal
Property") is owned by
Borrower free and clear of
all liens, claims,
encumbrances, security
interests and rights of
others except as otherwise
disclosed in the Loan Docu-
ments, and all of the
Personal Property is located
at the Real Property except
as Borrower otherwise has
disclosed to MetLife in
writing.
(7) Since MetLife's
last inspection thereof,
(i) there has been no damage
or destruction to any part
of the Real Property or
Personal Property by fire or
other casualty that has not
heretofore been repaired.
There are presently no
existing defects on the
Personal Property, and no
repairs or alterations
thereof or modifications
thereto are reasonably
necessary or appropriate
except for normal and
routine maintenance; and
(ii) no part of the Real
Property or Improvements has
been taken by the exercise
of the power of eminent
domain or condemnation and
there is no proceeding for
such a taking pending or
threatened.
(8) The Personal
Property is in good
condition and working order
(with ordinary wear and tear
excepted) and the Real
Property and Personal
Property and the present use
thereof comply, in all
material respects, with all:
1) applicable legal and
contractual requirements
(including, without
limitation, any leases) with
regard to the use, occupancy
and construction thereof,
including, without
limitation, any zoning,
subdivision, environmental,
air quality, flood hazard,
fire safety, planning,
handicapped facilities,
building and other
governmental laws,
ordinances, codes,
regulations, orders and
requirements of any
governmental agency,
2) building, occupancy and
other permits, licenses and
other approvals and (c)
declarations, conditions,
easements, rights-of-way,
covenants and restrictions
of record, the violation of
which could materially and
adversely affect the
business or financial
condition of the Borrower.
There are no violations or
alleged or asserted
violations of law, municipal
ordinances, public or
private contracts,
declarations, covenants,
conditions, or restrictions
of record, or other
requirements with respect to
the Real Property or
Improvements, or
<PAGE> 170
any part thereof, of which
the Borrower is aware that
could materially and
adversely affect the
Borrower's business or
financial condition. The
zoning and subdivision
approval of the Real
Property and the right and
ability to construct, use or
operate the Improvements are
not in any way dependent
upon or related to any real
estate other than the Real
Property.
(9) All licenses,
permits and approvals, if
any, needed in connection
with the construction, use,
operation and occupancy of
the Improvements as the same
have been constructed and
are presently being used and
occupied and the use of the
Personal Property, have been
duly issued and paid for and
are in full force and
effect.
(10) The existing
access between the
Improvements (and every part
thereof) and public roads is
sufficient to comply with
all presently existing laws,
ordinances, regulations,
agreements and restrictions
affecting the Real Property
or Improvements and for the
present use of the Real
Property and Improvements.
The streets, roads and
avenues adjoining the Real
Property have been fully
improved and dedicated to
and accepted for maintenance
and public use by the public
authority having jurisdic-
tion thereof.
(11) All utility
services necessary and
sufficient for the operation
of the Improvements for
their intended purposes are
available at the boundaries
of the Real Property, and
the Real Property and
Improvements have been
lawfully and properly tied
into each of such services.
(12) The Real
Property is not situated in
an area designated as having
special flood hazards, as
defined by the Flood
Disaster Protection Act of
1973, as amended.
(13) There are no
unpaid or outstanding real
estate or other taxes or
assessments on or against
the Real Property,
Improvements or Personal
Property, or any part
thereof, except only general
real estate taxes for 1997-
1998 not yet due and
payable. Copies of the
current general real estate
tax bills with respect to
the Real Property and
Improvements have been
delivered to MetLife. Said
bills cover the whole of the
Real Property and
Improvements and do not
cover or apply to any other
property. There are no
special assessments against
the Real Property or
Improvements and there is no
pending or contemplated
action pursuant to which any
<PAGE> 171
special assessment may be
levied against the Real
Property or Improvements.
(14) The Real
Property has never been used
for the production, release,
storage or disposal of
hazardous wastes or
hazardous materials except
for those pesticides,
herbicides and other
agricultural chemicals
customarily used in the
operations of the type
currently conducted on the
Real Property and which have
been, are and shall be used
in accordance with all
applicable laws and
regulations. Neither
Borrower nor any of its
agents: 1) has received any
notice of any hazardous or
other waste substances or
materials in, under or upon
the Real Property or of any
violation of any environ-
mental protection laws or
regulations with respect to
the Real Property or 2)
knows of any basis for any
such notice or violation
with respect to the Real
Property.
Borrower covenants and
agrees with MetLife that,
throughout the term of the
Loan, all toxic substances
or materials, within the
definition of any applicable
statute or regulation, which
may be used by any person
for any purpose upon the
Real Property shall be used
or stored thereon only in a
safe, approved manner, in
accordance with all
industrial standards and all
laws, regulations and
requirements for such
storage promulgated by any
governmental authority, that
the Real Property will not
be used for the principal
purpose of storing such
substances and that no such
storage or use will
otherwise be allowed on the
Real Property or any
adjacent parcels thereto
which will cause, or which
will increase the likelihood
of causing, an impermissible
release of such substances
onto the Real Property or
any adjacent parcels
thereto.
Borrower shall protect,
defend, indemnify and hold
MetLife harmless from and
against all loss, cost
(including attorneys' fees),
liability and damage
whatsoever incurred by
MetLife by reason of any
violation of any applicable
statute or regulation for
the protection of the
environment which occurs
upon the Real Property, or
by reason of the imposition
of any governmental lien for
the recovery of
environmental cleanup costs
expended by reason of such
violation, without regard to
fault on the part of
Borrower. The liability of
Borrower under this
indemnity shall not be
construed as arising from
any fraud by Lender, willful
injury by Lender to the
person or property of
another, or Lender's willful
or negligent violation of
law.
<PAGE> 172
(15) All necessary
action has been taken to
empower Borrower to execute
and deliver this Affidavit
and all other Loan
Documents.
(16) Borrower's
taxpayer identification
number is correctly set
forth below:
68-0313739
(17) Borrower is not
insolvent or bankrupt, and
there has been no: (i)
assignment made for the
benefit of the creditors of
Borrower; (ii) appointment
of a receiver of Borrower or
for the properties of
Borrower; or (iii)
bankruptcy, reorganization,
or liquidation proceeding
instituted by or against
Borrower.
(18) There has been no
material adverse change in
any representations made or
information heretofore
supplied by or on behalf of
Borrower in connection with
the Loan as to (i) the
composition, structure,
finances, business
operations, credit,
prospects or financial
condition of Borrower; (ii)
the income, condition, or
ownership of the Real
Property and Personal
Property; and (iii) any
other features of the
transaction contemplated
under the Loan Documents.
(19) Except as
otherwise disclosed in the
Loan Documents, there is no
litigation, arbitration, or
other proceeding or
governmental investigation
pending or threatened
against or relating to
Borrower, or its property,
assets, or business,
including, without limita-
tion, the Real Property, the
Improvements, the Personal
Property, and (to the best
of Borrower's knowledge and
belief) there is no basis
for any such litigation,
arbitration, or other
proceeding or governmental
investigation, which may
have a material and adverse
impact upon the business or
financial condition of the
Borrower.
(20) The Loan
Documents, including this
Affidavit, have been duly
and validly authorized,
executed, and delivered by
Borrower, or such other
person or entity, as the
case may be, and are in full
force and effect and binding
upon and enforceable against
Borrower, or such other
person or entity in
accordance with their
respective terms. No
default exists under the
Loan Documents and no act
has occurred and no
condition exists which, with
the giving of notice or
passage of time, or both,
could constitute a default
under the Loan Documents.
<PAGE> 173
(21) All
representations and
warranties contained herein
shall survive the
disbursement and closing of
the Loan without limit.
Further affiant sayeth not.
R. H. PHILLIPS, INC., a California corporation
By://s//John Giguiere
____________________
Title: President
_________________
By://s//Mike Motroni
____________________
Title: Chief Financial
Officer
_________________
Date:_________, 1997
<PAGE> 174
EXHIBIT A
LEGAL DESCRIPTION OF REAL
PROPERTY
Real property situated in
the State of California,
County of Yolo, described
as follows:
PARCEL 1:
The South half of Section
9; the North half of
Section 16; and the North
half of the Northwest
quarter and the Southwest
quarter of the Northwest
quarter of Section 15, all
in Township 11 North, Range
1 West, M.D.B&M.
APN: 54-060-05, 54-100-
04, a portion of 54-110-01
EXCEPTING THEREFROM all
that portion of Section 16
as conveyed to John Hancock
Mutual Life Insurance
Company in the deed
recorded May 7, 1997,
Instrument No. 97-0010854-
00 and more particularly
described as follows:
BEGINNING at a iron pipe
monument, marking the
Northwest corner of said
Section 16, as said
monument is shown on that
certain Map filed for
record in Book 12 of Maps
and Surveys at Page 99 and
100, Yolo County Records,
and thence from said point
of beginning along the
North line of said Section
16, South 89 56 23" East
1823.02 feet; thence
leaving said Section line,
South 00 58 43" East
2656.24 feet to the South
line of said Northwest one-
quarter of Section 16, said
point also being the
centerline of County Road
12-A; thence along the
South line of said
Northwest one-quarter,
North 89 59 38" West
1823.02 feet to the
Southwest corner of said
Northwest one-quarter of
Section 16; thence North
00 58 41" West 2573.73
feet to the point of
beginning.
PARCEL 2:
Parcel One of Parcel Map
No. 3256 for Giguiere
Ranch, Inc., filed for
record in the Office of the
Yolo County Recorder on
November 14, 1983 in Book 7
of Parcel Maps, page 16.
APN: 54-120-09, 54-130-
02
PARCEL 3:
Parcel Two and Three as
shown on Parcel Map No.
3256 for Giguiere Ranch,
Inc., filed for record in
the Yolo County Recorder's
Office on November 14, 1983
in Book 7 of Parcel Maps,
page 16.
APN: 54-050-02, 54-120-
01, 54-120-08
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated March 3,
1998, is entered into by and between R.H. Phillips, Inc., a
California corporation (the "Company"), and John Giguiere, an
individual (the "Executive"), with respect to the following
facts:
The Company owns and operates a vineyard and
winery in the Dunnigan Hills Area of Yolo
County in California. The Executive currently
serves as the Co-Chief Executive Officer and
President of the Company. There is currently in
place no agreement between the Executive and
the Company to employ the Executive for any
specific term nor is there any written agreement
setting forth the terms and conditions under
which the Executive is employed by the
Company. The parties believe it is in their best
interests to enter into such an agreement.
IN VIEW OF THE FOREGOING, the parties hereby agree as
follows:
I. Agreement of Employment. The Company agrees to employ
the Executive, and the Executive agrees to accept such
employment, subject to the terms and conditions set forth
below.
II. Duties. The Executive shall serve as the President and Co-
Chief Executive Officer of the Company during the term set
forth in Section 8 of this Agreement. The Executive shall be
responsible for the administration and general supervision of
the Company's business and shall perform those other duties of
the President as set forth in the Bylaws of the Company. The
Executive shall devote full time and effort to the performance
of his duties and shall perform his duties in a capable and
competent manner.
III. Salary.
A. Base Salary. The Company shall pay the Executive a
base salary, payable semi-monthly or in such other installments
as the Company generally pays its employees (the "Base
Salary") . The Base Salary shall equal $150,000 multiplied by
a fraction, the numerator of which is the CPI (as defined below)
as of January of the year the Base Salary is being paid and the
denominator of which is the CPI as of January 1, 1997. The
Base Salary shall be adjusted on January 1 of each year during
the Term to reflect changes in the CPI over the prior year. The
foregoing notwithstanding, the Base Salary shall not be
decreased to reflect any decline in the CPI. For the purposes of
this Agreement, the "CPI" shall be the Consumer Price Index
for Region IX of the United States as defined and calculated by
the U.S. Bureau of Labor Statistics.
B. Additional Payment. In addition to the Base Salary,
the Executive shall receive an additional payment for services
rendered to the Company in 1997. The amount of this payment
shall equal the difference between $150,000 and (i) the total
salary the Executive received during 1997 (but not including
any bonus attributable to 1996 which was paid in 1997), plus
(ii) the total bonus
<PAGE> 2
paid to the Executive in 1998 which was attributable to
services rendered in 1997. The additional payment shall be
paid in two equal installments, beginning on the date that the
first installment of the Base Salary is to be paid.
IV. Reimbursement for Expenses. The parties understand that
the Executive may incur substantial expenses in the
performance of his duties. The Company shall promptly
reimburse the Executive for expenses incurred by him in the
performance of his duties under this Agreement, including but
not limited to travel, lodging, entertainment and similar
expenses, which are reasonable in view of the duties the
Executive is responsible for performing. In addition, the
Company shall provide the Executive with an automobile
allowance as determined from time to time by the Board of
Directors.
V. Vacation. The Executive shall be entitled to a paid
vacation of four weeks per year. Accrual of vacation time,
timing of vacations and other matters related to vacations shall
be governed by the vacation policies of the Company.
VI. Other Benefits. The Executive shall be entitled to health
insurance, disability insurance, life insurance, retirement and
other benefits as are granted by the Company to its officers in
general and such other benefits as the Board of Directors may
provide. In addition, the Company acknowledges that it
intends to obtain directors and officers liability insurance and
that the Executive shall be entitled to coverage under that
policy to the same extent as all other directors and officers.
VII. Stock Options. The Company shall grant to the Executive
an option to purchase 75,000 shares of the Company's
Common Stock under the Company's 1995 Stock Option Plan
(the "Plan"). The parties have executed a certain Stock Option
Agreement concurrently with this Agreement, and that Stock
Option Agreement, and not this Agreement, shall govern the
terms and conditions of that option.
VIII. Term. Unless the Executive's employment is earlier
terminated by the Company, or the Executive resigns his
employment for good cause, as provided elsewhere in this
Agreement, the Executive shall serve as the Company's
President and Co-Chief Executive Officer pursuant to and in
accordance with this Agreement until December 31, 1999 (the
"Term").
IX. Termination by Company for Cause. Section 8
notwithstanding, the Company may terminate the Executive's
employment for cause at any time upon granting notice to the
Executive. For the purposes of this Agreement, "cause" is
defined as follows:
A. Fraud perpetrated on the Company, theft or
embezzlement of the Company's property or assets;
B. Intentional misconduct or gross negligence by the
Executive in the performance of his duties;
<PAGE> 3
C. Failure by the Executive to perform his duties under
this Agreement if such failure constitutes willful misconduct or
gross negligence;
D. The commission by the Executive of a misdemeanor
involving dishonesty or a felony;
E. A material breach of this Agreement by the
Executive; or
F. The death or disability of the Executive.
For the purposes of this Agreement, "disability" is
defined as a physical or mental impairment which renders the
Executive materially unable to perform his duties under this
Agreement for a period of no less than 180 days. In the event
of the Executive's disability, the Company shall provide
uninterrupted health insurance benefits to the Executive for the
duration of his disability, regardless of whether the Company
terminates his employment pursuant to this Section 9.
X. Termination for Good Reason. Section 8 notwithstanding,
the Executive may cease providing the services for the
Company specified in this Agreement upon notice to the
Company for good reason. For the purposes of this Agreement,
"good reason" is defined as
A. A material breach of the employment agreement by
the Company; or
b.. A material diminution in the duties assigned to the
Executive by the Company or the assignment to the Executive
of duties materially inconsistent with those set forth in this
Agreement.
XI. Termination Other Than for Cause. Section 8
notwithstanding and in addition to its rights to terminate the
Executive's employment for cause, the Company may
terminate the Executive's employment in its sole discretion at
any time other than for cause at any time upon granting 30 days
notice to the Executive.
XII. Severance Payments. If during the Term the Company
terminates the Executive's employment other than for cause or
if the Executive terminates his employment for good reason,
the Company shall continue to pay the Executive's Base Salary
(including the annual increases thereof) and shall continue to
provide health insurance benefits to the Executive for a period
of two years following the effective date of termination.
XIII. Required Residence. In view of the responsibilities
which the Executive is to perform, the Executive understands
that it is vital he reside close to the Company's place of
business. As a consequence, the Executive agrees to reside as a
condition of his employment at the farm house located on the
Company's property during the term of his employment, for the
convenience of the Company, on a rent free basis. The
Company agrees to pay all taxes on and maintain the farm
house for such period as the Executive resides there, and shall
reimburse the Executive for all repairs which the Executive
makes to the farm house. If the Executive's employment is
terminated during the Term other than for cause or if the
Executive resigns from his
<PAGE> 4
employment for good reason, the Executive will be allowed to
remain at the farmhouse for a period of six months from the
date of termination of employment and will be reimbursed for
moving expenses, not to exceed $10,000, for relocating from
the farmhouse.
XIV. Confidential Information. The Executive recognizes that
he possesses and will continue to possess confidential
information relating to the business of the Company. This
confidential information includes, but is not limited to,
customer and distribution lists, sales reports, financial data,
improvements, discoveries, trade secrets and other proprietary
information which relate to the Company's products, processes
or business practices. Immediately upon the termination or
expiration of his employment, the Executive shall return to the
Company all records in his possession which contain such
confidential information, including but not limited to written
records or information recorded on computer disk or other
electro-magnetic media, whether or not The Executive prepared
such records. The Executive agrees that he will limit
disclosure of confidential information to those with a need to
know such information and only for the purpose of performing
his duties under this Agreement.
XV. Non-Competition.
A. Definition. For the purposes of this Agreement,
"Competitive Business Activity" shall mean: (i) acting or
serving as a principal, agent, proprietor, officer, director,
employee, consultant or advisor to any business (other than the
Company) which operates, owns or invests in one or more
vineyards or wineries; or (ii) owning or acquiring, directly or
indirectly, shares, membership interests, limited partnership
interests or other ownership interest of any business (other than
the Company) which operates, owns or invests in one or more
vineyards or wineries.
B. No Competitive Business Activities. During such
period as the Executive is employed by the Company pursuant
to this Agreement and during such period as the Executive is
receiving any severance payments, the Executive will not
engage in any Competitive Business Activities. If the
Executive engages in any Competitive Business Activity during
such period as he is receiving severance payments, the
Executive will relinquish all rights to any further severance
payments. Nothing in this Section 15.b shall limit any remedy
available to the Company for a breach of any provision of this
Agreement.
C. Passive Investments Permitted. The Executive shall
not be deemed to be engaged in a Competitive Business
Activity solely because he owns or acquires shares,
membership interests or limited partnership interests of a
business if : (i) those ownership interests are traded on a
national securities exchange, the Nasdaq National Market or
the Nasdaq SmallCap Market; and (ii) the Executive, together
with the Executive's spouse and immediate family members,
owns no more than 1% of any class of equity security of that
business and controls no more than 1% of the total voting
power of that business.
XVI. Indemnification. The Company and the Executive are
parties to an indemnification agreement which provides,
among its other terms, that the Company will indemnify,
defend and hold the
<PAGE> 5
Executive harmless for various actions performed by the
Executive on behalf of the Company in connection with the
performance of his duties. Nothing in this Agreement shall
amend or modify the rights and obligations of the parties
pursuant to that indemnification agreement.
XVII. Miscellaneous.
A. With the exception of matters pertaining to the stock
options described in Section 7 and the right of the Executive to
indemnification as described in Section 16, this Agreement
constitutes the entire understanding of the parties with respect
to the subject matter described herein. With the exception of
the stock option and indemnification agreements described in
this Agreement, this Agreement supersedes in its entirety all
prior and contemporaneous written and oral agreements with
respect to that subject matter.
B. This Agreement may not be modified or amended
except through a written instrument signed by both parties. No
right of any party under this Agreement will be deemed waived
unless that waiver is in the form of a writing which has been
signed by the party who has waived that right. The waiver of a
right under this Agreement shall not constitute a waiver of any
other right under this Agreement.
C. All notices required or contemplated under this
Agreement shall be in writing and delivered either personally
or by certified mail, return receipt requested. Notices shall be
sent to the addresses set forth below each party's signature or to
such other address or addresses as the parties may advise each
other in writing.
IN WITNESS WHEREOF, the parties have entered into this
Agreement as of the date written above.
R.H. PHILLIPS, INC.
//s// Michael J. Motroni //s//John Giguiere
_________________________ _____________________
Michael J. Motroni, John Giguiere
Chief Financial Officer
Address: Address:
26836 County Road 12A 26836 County Road 12A
Esparto, CA 95627 Esparto, CA 95627
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT
AGREEMENT, dated March 3, 1998, is
entered into by and between R.H. Phillips,
Inc., a California corporation (the
"Company"), and Karl Giguiere, an
individual (the "Executive"), with respect to
the following facts:
The Company owns and
operates a vineyard and winery
in the Dunnigan Hills Area of
Yolo County in California. The
Executive currently serves as
the Co-Chief Executive Officer
of the Company. There is
currently in place no
agreement between the
Executive and the Company to
employ the Executive for any
specific term nor is there any
written agreement setting forth
the terms and conditions under
which the Executive is
employed by the Company.
The parties believe it is in their
best interests to enter into such
an agreement.
IN VIEW OF THE FOREGOING, the
parties hereby agree as follows:
XVIII. Agreement of Employment. The
Company agrees to employ the Executive,
and the Executive agrees to accept such
employment, subject to the terms and
conditions set forth below.
XIX. Duties. The Executive shall serve as
the Co-Chief Executive Officer of the
Company during the term set forth in
Section 8 of this Agreement. The Executive
shall be responsible for the administration
and general supervision of the Company's
vineyard operations. The Executive shall
devote full time and effort to the
performance of his duties and shall perform
his duties in a capable and competent
manner.
XX. Salary.
A. Base Salary. The Company shall
pay the Executive a base salary, payable
semi-monthly or in such other installments
as the Company generally pays its
employees (the "Base Salary") . The Base
Salary shall equal $150,000 multiplied by a
fraction, the numerator of which is the CPI
(as defined below) as of January of the year
the Base Salary is being paid and the
denominator of which is the CPI as of
January 1, 1997. The Base Salary shall be
adjusted on January 1 of each year during
the Term to reflect changes in the CPI over
the prior year. The foregoing
notwithstanding, the Base Salary shall not be
decreased to reflect any decline in the CPI.
For the purposes of this Agreement, the
"CPI" shall be the Consumer Price Index for
Region IX of the United States as defined
and calculated by the U.S. Bureau of Labor
Statistics.
B. Additional Payment. In addition
to the Base Salary, the Executive shall
receive an additional payment for services
rendered to the Company in 1997. The
amount of this payment shall equal the
difference between $150,000 and (i) the total
salary the Executive received during 1997
(but not including any bonus attributable to
1996 which was paid in 1997), plus (ii) the
total bonus paid to the Executive in 1998
which was attributable to services rendered
in 1997. The additional
<PAGE> 2
payment shall be paid in two equal
installments, beginning on the date that the
first installment of the Base Salary is to be
paid.
XXI. Reimbursement for Expenses. The
parties understand that the Executive may
incur substantial expenses in the
performance of his duties. The Company
shall promptly reimburse the Executive for
expenses incurred by him in the
performance of his duties under this
Agreement, including but not limited to
travel, lodging, entertainment and similar
expenses, which are reasonable in view of
the duties the Executive is responsible for
performing. In addition, the Company shall
provide the Executive with an automobile
allowance as determined from time to time
by the Board of Directors.
XXII. Vacation. The Executive shall be
entitled to a paid vacation of four weeks per
year. Accrual of vacation time, timing of
vacations and other matters related to
vacations shall be governed by the vacation
policies of the Company.
XXIII. Other Benefits. The Executive shall
be entitled to health insurance, disability
insurance, life insurance, retirement and
other benefits as are granted by the
Company to its officers in general and such
other benefits as the Board of Directors may
provide. In addition, the Company
acknowledges that it intends to obtain
directors and officers liability insurance and
that the Executive shall be entitled to
coverage under that policy to the same
extent as all other directors and officers.
XXIV. Stock Options. The Company shall
grant to the Executive an option to purchase
75,000 shares of the Company's Common
Stock under the Company's 1995 Stock
Option Plan (the "Plan"). The parties have
executed a certain Stock Option Agreement
concurrently with this Agreement, and that
Stock Option Agreement, and not this
Agreement, shall govern the terms and
conditions of that option.
XXV. Term. Unless the Executive's
employment is earlier terminated by the
Company, or the Executive resigns his
employment for good cause, as provided
elsewhere in this Agreement, the Executive
shall serve as the Company's Co-Chief
Executive Officer pursuant to and in
accordance with this Agreement until
December 31, 1999 (the "Term").
XXVI. Termination by Company for Cause.
Section 8 notwithstanding, the Company
may terminate the Executive's employment
for cause at any time upon granting notice to
the Executive. For the purposes of this
Agreement, "cause" is defined as follows:
A. Fraud perpetrated on the
Company, theft or embezzlement of the
Company's property or assets;
B. Intentional misconduct or gross
negligence by the Executive in the
performance of his duties;
C. Failure by the Executive to
perform his duties under this Agreement if
such failure constitutes willful misconduct
or gross negligence;
<PAGE> 3
D. The commission by the Executive
of a misdemeanor involving dishonesty or a
felony;
E. A material breach of this
Agreement by the Executive; or
F. The death or disability of the
Executive.
For the purposes of this Agreement,
"disability" is defined as a physical or
mental impairment which renders the
Executive materially unable to perform his
duties under this Agreement for a period of
no less than 180 days. In the event of the
Executive's disability, the Company shall
provide uninterrupted health insurance
benefits to the Executive for the duration of
his disability, regardless of whether the
Company terminates his employment
pursuant to this Section 9.
XXVII. Termination for Good Reason.
Section 8 notwithstanding, the Executive
may cease providing the services for the
Company specified in this Agreement upon
notice to the Company for good reason. For
the purposes of this Agreement, "good
reason" is defined as
A. A material breach of the
employment agreement by the Company; or
b.. A material diminution in the
duties assigned to the Executive by the
Company or the assignment to the Executive
of duties materially inconsistent with those
set forth in this Agreement.
XXVIII. Termination Other Than for Cause.
Section 8 notwithstanding and in addition to
its rights to terminate the Executive's
employment for cause, the Company may
terminate the Executive's employment in its
sole discretion at any time other than for
cause at any time upon granting 30 days
notice to the Executive.
XXIX. Severance Payments. If during the
Term, the Company terminates the
Executive's employment other than for cause
or if the Executive terminates his
employment for good reason, the Company
shall continue to pay the Executive's Base
Salary (including the annual increases
thereof) and shall continue to provide health
insurance benefits to the Executive for a
period of two years following the effective
date of termination.
XXX. Confidential Information. The
Executive recognizes that he possesses and
will continue to possess confidential
information relating to the business of the
Company. This confidential information
includes, but is not limited to, customer and
distribution lists, sales reports, financial
data, improvements, discoveries, trade
secrets and other proprietary information
which relate to the Company's products,
processes or business practices.
Immediately upon the termination or
expiration of his employment, the Executive
shall return to the Company all records in
his possession which contain such
confidential information, including but not
limited to written records or information
recorded on computer disk or other electro-
magnetic media, whether or not The
Executive prepared such records. The
Executive agrees that he will limit disclosure
of confidential information to those with a
need to know such information and only for
the purpose of performing his duties under
this Agreement.
<PAGE> 4
XXXI. Non-Competition.
A. Definition. For the purposes of
this Agreement, "Competitive Business
Activity" shall mean: (i) acting or serving as
a principal, agent, proprietor, officer,
director, employee, consultant or advisor to
any business (other than the Company)
which operates, owns or invests in one or
more vineyards or wineries; or (ii) owning
or acquiring, directly or indirectly, shares,
membership interests, limited partnership
interests or other ownership interest of any
business (other than the Company) which
operates, owns or invests in one or more
vineyards or wineries.
B. No Competitive Business
Activities. During such period as the
Executive is employed by the Company
pursuant to this Agreement and during such
period as the Executive is receiving any
severance payments, the Executive will not
engage in any Competitive Business
Activities. If the Executive engages in any
Competitive Business Activity during such
period as he is receiving severance
payments, the Executive will relinquish all
rights to any further severance payments.
Nothing in this Section 14.b shall limit any
remedy available to the Company for a
breach of any provision of this Agreement.
C. Passive Investments Permitted.
The Executive shall not be deemed to be
engaged in a Competitive Business Activity
solely because he owns or acquires shares,
membership interests or limited partnership
interests of a business if : (i) those
ownership interests are traded on a national
securities exchange, the Nasdaq National
Market or the Nasdaq SmallCap Market; and
(ii) the Executive, together with the
Executive's spouse and immediate family
members, owns no more than 1% of any
class of equity security of that business and
controls no more than 1% of the total voting
power of that business.
XXXII. Indemnification. The Company and
the Executive are parties to an
indemnification agreement which provides,
among its other terms, that the Company
will indemnify, defend and hold the
Executive harmless for various actions
performed by the Executive on behalf of the
Company in connection with the
performance of his duties. Nothing in this
Agreement shall amend or modify the rights
and obligations of the parties pursuant to
that indemnification agreement.
XXXIII. Miscellaneous.
A. With the exception of matters
pertaining to the stock options described in
Section 7 and the right of the Executive to
indemnification as described in Section 15,
this Agreement constitutes the entire
understanding of the parties with respect to
the subject matter described herein. With
the exception of the stock option and
indemnification agreements described in this
Agreement, this Agreement supersedes in its
entirety all prior and contemporaneous
written and oral agreements with respect to
that subject matter.
B. This Agreement may not be
modified or amended except through a
written instrument signed by both parties.
No right of any party under this Agreement
will be deemed waived unless that waiver is
in the form of a writing which has been
signed by the party who has waived that
right.
<PAGE> 5
The waiver of a right under this Agreement
shall not constitute a waiver of any other
right under this Agreement.
C. All notices required or
contemplated under this Agreement shall be
in writing and delivered either personally or
by certified mail, return receipt requested.
Notices shall be sent to the addresses set
forth below each party's signature or to such
other address or addresses as the parties may
advise each other in writing.
IN WITNESS WHEREOF, the parties have
entered into this Agreement as of the date
written above.
R.H. PHILLIPS, INC.
//s//Michael J. Motroni //s//Karl Giguiere
________________________ _________________________
Michael J. Motroni, Karl Giguiere
Chief Financial Officer
Address: Address:
26836 County Road 12A 26836 County Road 12A
Esparto, CA 95627 Esparto, CA 95627
<PAGE> 1
The Board of Directors
R.H. Phillips, Inc.:
We consent to incorporation by reference in
the post-effective amendment no. 2 on Form
S-3 to the registration statement (No. 33-
83914-LA) on Form SB-2 and in the
registration statement (No. 33-93654) on
Form S-8 of R.H. Phillips, Inc. of our report
dated March 13, 1998, relating to the
balance sheet of R.H. Phillips, Inc. as of
December 31, 1997, and the related
statements of operations, shareholders'
equity, and cash flows for each of the years
in the two year period ended December 31,
1997, which report appears in the December
31, 1997, annual report on Form 10-KSB of
R.H. Phillips, Inc.
//s//KPMG Peat Marwick LLP
Sacramento, California
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE DECEMBER 30, 1997 BALANCE SHEET, STATEMENT OF OPERATIONS
AND STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 109
<SECURITIES> 0
<RECEIVABLES> 2,567
<ALLOWANCES> 54
<INVENTORY> 9,928
<CURRENT-ASSETS> 13,396
<PP&E> 34,913
<DEPRECIATION> 6,043
<TOTAL-ASSETS> 42,964
<CURRENT-LIABILITIES> 3,397
<BONDS> 17,779
<COMMON> 14,041
4,511
0
<OTHER-SE> 1,010
<TOTAL-LIABILITY-AND-EQUITY> 42,964
<SALES> 17,258
<TOTAL-REVENUES> 17,258
<CGS> 10,054
<TOTAL-COSTS> 10,054
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 908
<INCOME-PRETAX> 2,124
<INCOME-TAX> 790
<INCOME-CONTINUING> 1,334
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,334
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
