As filed with the Securities and Exchange Commission on February 4, 1999
Registration No. 333-_______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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RAVENSWOOD WINERY, INC.
(Exact name of registrant as specified in its charter)
California 2080 94-3026706
- ------------------------------ -------------------------- -------------------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code) Identification No.)
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18701 Gehricke Road
Sonoma, California 95476
(707) 938-1960
(Address, including zip code and telephone number,
including area code of registrant's principal executive offices)
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Justin M. Faggioli
Executive Vice President and Secretary
18701 Gehricke Road
Sonoma, California 95476
(707) 938-1960
(Name, address, including zip code and
telephone number, including area code of agent for service)
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Copies to:
Mark P. Tanoury, Esq.
Bruce Maximov, Esq. Vincent P. Pangrazio, Esq.
Maria L. Pizzoli, Esq. Nicole C. Deiger, Esq.
David E. Stoll, Esq. Cooley Godward LLP
Farella Braun & Martel LLP 3000 Sand Hill Road
235 Montgomery Street Building 3, Suite 230
San Francisco, California 94104 Menlo Park, California 94025
Approximate date of commencement of proposed sale to public: As soon as
practicable after the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box: [ ]
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<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
=====================================================================================================================
Proposed Maximum Proposed Maximum
Title of Securities to Amount to be Offering Aggregate Offering Amount of
be Registered Registered(1) Price Per Share(2) Price(1)(2) Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, no par value per share 1,150,000 shares $13.50 $15,525,000 $4,315.95
=====================================================================================================================
<FN>
(1) Includes up to 150,000 shares of Common Stock that the Underwriters have
the option to purchase to cover over-allotments, if any. See
"Underwriting."
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) of the Securities Act, as amended.
</FN>
</TABLE>
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
================================================================================
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell securities, and we are not soliciting offers to buy these securities, in
any state where the offer or sale is not permitted.
Initial Public Offering Prospectus
Subject to Completion, February 4, 1999
1,000,000 Shares of Common Stock
$ __________________ per share
[Ravenswood logo] RAVENSWOOD
WINERY
Ravenswood Winery, Inc.
18701 Gehricke Road
Sonoma, California 95476
We produce, market and sell
premium California wines
exclusively under the
Ravenswood brand name.
The Offering
Per Share Total
----------- -------
Public Price .................. $ $
Underwriting discounts and
commissions .................. $ $
Proceeds to Ravenswood ......... $ $
This is our initial public offering
and no public market currently
exists for our shares. The
offering price may not reflect the
market price of our shares after
the offering. We expect that the
public offering price in the
offering will be between $10.50
and $13.50 per share.
Proposed Trading Symbol:
The Nasdaq National Market -- RVWD
------------
This offering involves a high degree of risk. You should purchase shares only if
you can afford a complete loss. See "Risk Factors" beginning on page 5.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Ravenswood has granted the underwriter a 30-day option to purchase up to an
additional 150,000 shares of common stock to cover over-allotments. W.R.
Hambrecht & Company, LLC expects to deliver shares of common stock to purchasers
on ________________, 1999.
WR HAMBRECHT + CO
_________________________, 1999
<PAGE>
[GRAPHIC OMITTED]
(Full-page photograph of three bottles of Ravenswood wine)
<PAGE>
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock. In this prospectus, the words
"Ravenswood," "we," "us" and "our" refer to Ravenswood Winery, Inc. (unless the
context indicates otherwise).
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TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY ......................................................... 1
THE OFFERING ............................................................... 3
SUMMARY FINANCIAL DATA ................................................... 4
RISK FACTORS ............................................................... 5
THE COMPANY ............................................................... 14
USE OF PROCEEDS ............................................................ 14
DIVIDEND POLICY ............................................................ 14
CAPITALIZATION ............................................................ 15
DILUTION .................................................................. 16
SELECTED FINANCIAL DATA ................................................... 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ................................................... 18
BUSINESS ................................................................... 26
MANAGEMENT ................................................................. 44
CERTAIN TRANSACTIONS ....................................................... 50
PRINCIPAL SHAREHOLDERS ..................................................... 52
DESCRIPTION OF CAPITAL STOCK ............................................... 54
SHARES ELIGIBLE FOR FUTURE SALE ............................................ 57
PLAN OF DISTRIBUTION ....................................................... 59
LEGAL MATTERS .............................................................. 60
EXPERTS .................................................................... 61
ENGAGEMENT OF NEW AUDITORS ................................................. 61
ADDITIONAL INFORMATION ..................................................... 61
INDEX TO FINANCIAL STATEMENTS .............................................. F-1
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Until ______________, 1999 (25 days after the date of this prospectus) all
dealers that buy, sell or trade our common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This requirement is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
"Ravenswood," the Ravenswood logo and the slogan "No Wimpy Wines" are federally
registered trademarks of Ravenswood Winery, Inc. All other trademarks or
tradenames referred to in this prospectus are the property of their respective
owners.
<PAGE>
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. This
summary is not complete and may not contain all of the information that you
should consider before investing in our common stock. You should read the entire
prospectus carefully. Unless otherwise indicated, any information contained in
this prospectus assumes that: (i) the underwriter will not exercise its
over-allotment option and (ii) we will complete a 63-for-1 split in our common
stock prior to the closing of this offering. This prospectus contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Exchange Act of 1934 which involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
those set forth under "Risk Factors" and elsewhere in this prospectus.
Our Business: We produce, market and sell premium California wines
exclusively under the Ravenswood brand name. The majority of
the wines we produce and sell are red wines, including Merlot,
Cabernet Sauvignon and, particularly, Zinfandel. To a lesser
extent, we produce white wines, including Chardonnay, French
Colombard and Gew -urztraminer. Our approach focuses on the
use of old-world French winemaking techniques to produce
premium wines of exceptional quality and on building awareness
and loyalty for the Ravenswood brand.
Our Strategy: We concentrate on producing wines that enhance our reputation
for high quality and further establish our brand identity, in
order to achieve a competitive advantage in every segment of
the premium wine market in which we operate. To this end, we
have adopted the following strategies:
* Focus on Product Offerings that Give the Consumer
Demonstrable Value
* Strategically Manage Our Brand
* Produce High-Quality Products that Emphasize the
Winemaking Process
* Maintain Broad, Efficient Distribution Channels
* Selectively Invest in Vineyards and Production
Facilities
* Retain and Further Develop Our Professional
Management Team
Our Market: Industry analysts estimate that United States sales of
California premium wines have grown from approximately $866
million in 1987 to $3.6 billion in 1997. We believe this
growth can be attributed, among other things, to an
increasingly discriminating customer base that is willing to
pay for higher quality wines.
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1
<PAGE>
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Increased sales of red wines, the category on which we focus
our product portfolio, have caused the majority of growth in
the market for premium wines. Industry analysts estimate that
sales of nine liter cases of red wine (which include twelve,
750 ml bottles per case) grew 158% from 1991 to 1997, from
22.1 million cases to 57.2 million cases. This increase in
sales represents approximately 67% of the total growth in the
premium wine industry during this period.
Our Products: Our wines target specific varietals and prices within the
super-premium and ultra-premium categories of the premium wine
market. We offer our products in three series:
* the value-priced Vintners Blend Series, with a
suggested retail price of approximately $9.75 to
$11.25 per 750 ml bottle;
* the intermediate-priced County Series, with a
suggested retail price of approximately $12 to $18.50
per 750 ml bottle; and
* the higher-priced Vineyard Designate Series, with a
suggested retail price of approximately $18 to $31.50
per 750 ml bottle.
The actual price of any particular wine may be either higher
or lower than suggested retail, depending upon the type of
retail outlet and location where it is sold.
Red wines, particularly Zinfandel, comprise the vast majority
of our products. Our red wines accounted for approximately 91%
of our gross sales in the 1998 fiscal year, with sales of
Zinfandel accounting for approximately 63% of our gross sales
for that period.
Although we currently own and manage 14 acres of planted
vineyards, we rely almost exclusively upon grapes supplied by
third parties, and we use leased storage and crush facilities
for a substantial portion of our wine production. We also
purchase bulk wine of superior quality from third parties to
incorporate into some of our products. We believe that this
approach has enabled us to sustain the growth necessary to
capitalize on favorable trends in the demand for California
premium wines, while minimizing our investment of capital in
the acquisition and development of land and capital equipment
until our production levels warranted such investment.
Our Brand: We have made significant investments in the development of the
Ravenswood brand name, packaging and trademarks, and expect to
continue to do so in the future. We believe that the
distinctive Ravenswood name, which is derived from a character
in the opera Lucia di Lammermoor by Gaetano Donizetti, our
unique logo, and our trademarked slogan, "No Wimpy Wines,"
convey a recognizable and high-quality image that has
contributed to our success.
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2
<PAGE>
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Our Distribution: We do not have an in-house sales staff. We have developed a
broad network of brokers and distributors throughout the
United States and in more than 15 export markets. We sell our
products directly in California, using five warehouses
throughout the state and seven brokers. Elsewhere, we use a
network of over 75 distributors. We also sell our wines
directly through mail order in the United States, where
permitted by law, as well as through the tasting room in our
Gehricke Road facility in Sonoma, California.
Our History: We released our first wines, consisting of 327 cases of the
1976 vintage Zinfandel, in 1979. Thereafter, our production
and sales levels have increased substantially, to
approximately 191,655 cases and $17.0 million in gross sales
for the fiscal year ended June 30, 1998.
THE OFFERING
Type of Security ........................ Common Stock
Shares to be Offered .................... 1,000,000 shares
Common Stock to be Outstanding after the
Offering ............................... 4,550,852 shares(1)
Use of Proceeds ......................... For working capital, to expand our
production facilities and for general
corporate purposes, including retiring
indebtedness. See "Use of Proceeds."
Proposed Nasdaq National Market Symbol .. RVWD
- ----------
(1) Based on shares outstanding on December 31, 1998. Excludes: (i) 500,000
shares of common stock reserved for issuance under our 1999 Equity
Incentive Plan; (ii) 50,000 shares of common stock reserved for issuance
under our Employee Stock Purchase Plan; and (iii) up to 454,622 shares of
common stock issuable upon conversion of outstanding convertible
debentures. See "Capitalization," "Management--1999 Equity Incentive Plan,"
"--Employee Stock Purchase Plan" and "Description of Capital
Stock--Debentures."
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3
<PAGE>
<TABLE>
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SUMMARY FINANCIAL DATA
(in thousands, except per share data and Other Data)
<CAPTION>
Six Months Ended
Fiscal Year Ended June 30, December 31,
-------------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1997 1998
-------- -------- -------- -------- -------- -------- --------
(Unaudited) (Audited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Gross Sales ...................................... $ 6,340 $ 8,548 $ 11,028 $ 12,247 $ 17,017 $ 8,855 $ 12,195
Less Excise Taxes ............................... 142 237 249 330 553 197 276
Less Discounts, Returns and Allowances .......... 440 409 556 394 574 273 337
-------- -------- -------- -------- -------- -------- --------
Net Sales ........................................ 5,758 7,902 10,223 11,523 15,890 8,385 11,582
Cost of Goods Sold ............................... 2,826 2,633 4,886 5,196 7,397 3,652 5,066
-------- -------- -------- -------- -------- -------- --------
Gross Profit ..................................... 2,932 5,269 5,337 6,327 8,493 4,733 6,516
Operating Expenses ............................... 1,962 3,297 2,849 3,355 4,105 1,852 2,340
-------- -------- -------- -------- -------- -------- --------
Operating Income ................................. 970 1,972 2,488 2,972 4,388 2,881 4,176
Other Income (Expense) ........................... 55 (192) (297) (437) (474) (114) (147)
-------- -------- -------- -------- -------- -------- --------
Income Before Income Taxes ....................... 1,025 1,780 2,190 2,535 3,914 2,767 4,029
Provision for Income Taxes ....................... 433 763 921 1,067 1,592 1,133 1,744
-------- -------- -------- -------- -------- -------- --------
Net Income ....................................... $ 592 $ 1,017 $ 1,269 $ 1,468 $ 2,322 $ 1,634 $ 2,285
======== ======== ======== ======== ======== ======== ========
Basic Earnings per Share (1) ..................... $ 0.16 $ 0.28 $ 0.35 $ 0.40 $ 0.67 $ 0.47 $ 0.66
======== ======== ======== ======== ======== ======== ========
Weighted Average Number of
Common Shares Outstanding (1) ................... 3,636 3,636 3,636 3,636 3,492 3,505 3,479
Diluted Earnings per Share (1) ................... $ 0.16 $ 0.27 $ 0.33 $ 0.39 $ 0.63 $ 0.44 $ 0.61
======== ======== ======== ======== ======== ======== ========
Weighted Average Number of
Common Shares and Equivalents
Outstanding (1) ................................. 3,636 3,884 3,939 3,939 3,795 3,808 3,847
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31, 1998
--------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 Actual As Adjusted(2)
------- ------- ------- ------- ------- ------- --------------
(Unaudited) (Audited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash & Cash Equivalents .............................. $ 103 $ 542 $ 766 $ 212 $ 102 $ 3,171 $14,401
Inventories .......................................... 2,787 3,979 5,144 7,158 10,427 12,931 12,931
Property, Plant and Equipment, Net ................... 84 2,075 2,445 2,647 2,974 3,870 3,870
Total Assets ......................................... 4,051 8,685 10,591 12,040 15,977 23,224 34,454
Current Liabilities .................................. 1,944 2,752 3,231 3,159 4,693 6,112 6,112
Long-Term Liabilities ................................ 79 2,723 2,662 2,622 2,910 4,765 4,765
Total Shareholders' Equity ........................... 2,028 3,210 4,698 6,259 8,374 12,347 23,577
</TABLE>
Fiscal Year
Ended June 30,
-------------------- Six Months Ended
1997 1998 December 31, 1998
------- ------- -----------------
(Unaudited) (Unaudited)
Other Data:
Cases Sold ......................... 131,175 191,655 130,493
Average Price Per Case ............. $ 91.58 $ 87.37 $ 92.03
- ----------
(1) Computed on the basis described in Notes 1 and 15 to our Financial
Statements.
(2) Adjusted to reflect the sale of the 1,000,000 shares of common stock
offered hereby at an assumed initial public offering price of $12.00 per
share after deducting underwriting fees and commissions and estimated
offering expenses payable by us, and the receipt and application of the
estimated net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."
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4
<PAGE>
RISK FACTORS
Investing in our common stock is risky. You should carefully consider the
following risks before making an investment decision. The risks described below
are not the only ones that we face. Additional risks that generally apply to
publicly traded companies and companies in our industry, that we have not yet
identified or that we think are immaterial may also impair our business
operations. Our business, operating results and financial condition could be
adversely affected by any of the following risks. The trading price of our
common stock could decline due to any of these risks, and you could lose all or
part of your investment. You should also refer to the other information set
forth in this prospectus, including our financial statements and the related
notes. This prospectus contains forward-looking statements that involve risks
and uncertainties. These forward-looking statements are usually accompanied by
words such as "believes," "anticipates," "plans," "expects" and similar
expressions. Our actual results may differ materially from the results discussed
in the forward-looking statements because of factors such as the risks described
below.
Our Profits Depend Largely on Sales of Our Red Wines
Our red wines accounted for approximately 91% of our gross sales in the 1998
fiscal year, with sales of Zinfandel accounting for approximately 63% of our
gross sales for that period. Over the past decade, the demand for premium wine,
particularly red wine such as Zinfandel, has increased considerably. We cannot
assure you, however, that consumer demand for red wines will continue to grow in
the future or remain at current levels.
Research by wine industry sources indicates that a small segment of the
population that frequently drinks wine has generated most of the growth in wine
consumption. We cannot assure you that the demand for premium wine within this
segment of the population, or within the rest of the population, will continue
to grow or remain at current levels. See "Business--Ravenswood Products."
We Rely on Independent Grape Growers and Bulk Wine Suppliers for Substantially
All of Our Annual Production
We contract with over 60 independent growers annually to obtain grapes for our
wine production. Although we believe we have good relationships with these
independent grape growers, we may not be able to contract for the purchase of
grapes at acceptable prices from these or other suppliers in the future. The
business terms of our purchase agreements vary; however, many of them require
that, while either party may terminate the agreement at any time, both parties
must continue to abide by its terms for three years following termination. In
addition, many of our purchase agreements are not in writing.
We are dependent on bulk wine suppliers for the production of several of our
wines, particularly our Vintners Blend Series. We do not have contracts with
bulk wine suppliers or agreements that would protect us from fluctuations in the
price or availability of bulk wine. The availability and price of bulk wine
significantly affect the quality and production levels of our products that
contain bulk wine. The price, quality and available quantity of bulk wine have
fluctuated in the past. It is possible that we will not be able to purchase bulk
wine of acceptable quality at acceptable prices and quantities in the future,
which could increase the cost or reduce the amount of wine we produce for sale.
This could cause reductions in our sales and profits. See "Business--Grape and
Bulk Wine Supply."
We May Not Be Able to Acquire Enough Quality Grapes for Our Wines
A number of factors determine the quality and quantity of grape supply, such as
weather conditions, pruning methods, the existence of diseases and pests, and
the number of vines
5
<PAGE>
producing grapes. The level of consumer demand for wine also determines the
adequacy of grape supply. Although we believe that we can secure a sufficient
supply of grapes from independent growers, grape supply shortages may occur. A
shortage in the supply of wine grapes could cause an increase in the price of
some or all of the grape varieties required for our wine production and/or a
reduction in the amount of wine we are able to produce, which could harm our
business and reduce our sales and profits.
An oversupply of grapes may also adversely affect our business. The recent
increase in demand for premium wine has resulted in the planting of additional
vineyards, both domestically and internationally, and the replanting of existing
vineyards to greater densities. Many industry sources expect a significant
increase in the supply of premium wine grapes. Although this increase in supply
may cause a decrease in the prices we pay independent growers for their grapes,
an oversupply of grapes may significantly increase the amount of premium wine
produced. An increase in the supply of premium wine may reduce the price of
premium wines, including those we produce, which could reduce our sales.
Oversupply may also increase the amount of premium wine available to our
distributors and retail outlets, thereby increasing competition in our
distribution channels.
Due to the effects of El Ni -no, the grape supply available to us for the 1998
harvest was lower than for the 1997 harvest, which we believe was an unusually
large harvest. Although we expect to compensate in part for this shortfall by
purchasing bulk wine, the inventory of our 1998 vintage may be less than that of
our 1997 vintage. As a result, the growth of our sales may be limited in fiscal
years 2000 and 2001, when most of our 1998 vintage will be released for sale.
See "Business--Grape and Bulk Wine Supply."
Bad Weather, Pests and Plant Diseases Would Limit Our Grape Supply
Although we grow only a small portion of the grapes we use, our business is
still subject to numerous agricultural risks. Various diseases affecting
vineyards, pests and extreme weather conditions could reduce the quality and
quantity of grapes available to us, which in turn could reduce the quality or
amount of wine we produce. A deterioration in the quality of our wines could
harm our brand name, and a decrease in our production could reduce our sales and
profits.
Phylloxera, a pest that feeds on susceptible grape rootstocks, has infested, and
may in the future infest, some vineyards from which we purchase grapes.
Phylloxera can cause a grapevine to become economically unproductive within two
or three years of infestation. Replanted vines generally take from three to five
years to bear grapes in commercial amounts. Phylloxera infestations or the
spread of other plant insects or diseases, such as Pierce's Disease or Fan Leaf
Virus, may reduce the supply of grapes available to us. Most of the vineyards
that supply our grapes are primarily planted to rootstocks believed to be
resistant to Phylloxera. However, we cannot be certain that these vineyards, or
vineyards from which we obtain grapes in the future, will not become susceptible
to current or new strains of Phylloxera, plant insects or diseases. Any
resulting reduction in grape supply could reduce our sales and profits.
The Loss of Key Employees Would Damage Our Reputation and Business
We believe that our success largely depends on the continued employment of a
number of our key employees, including W. Reed Foster, our Chairman and Chief
Executive Officer, and Joel E. Peterson, our President and Winemaker. Any
inability or unwillingness of Mr.
6
<PAGE>
Foster, Mr. Peterson or other key management team members to continue in their
present capacities could harm our business and our reputation. See "Management."
We Depend on Third Parties to Sell Our Wine
In many states, including California, and in Europe, we use brokers who act as
our sales agents in exchange for commissions. Whether or not we use a broker as
a sales agent, our sales outside of California largely depend on the use of a
distributor.
In the 1998 fiscal year, approximately 75% of our gross sales were made through
brokers. Our most successful broker was responsible for 21% of our gross sales
in the 1998 fiscal year, and our ten most successful brokers were responsible
for 69% of our gross sales in the 1998 fiscal year. A change in our relationship
with any of our brokers could harm our business and reduce our sales.
Our sales outside of California largely depend on the use of distributors. While
no one distributor accounted for more than 7% of our gross sales for the 1998
fiscal year, our ten largest distributors accounted for approximately 23% of our
gross sales for that period. We expect that sales to our ten largest
distributors will continue to represent a substantial portion of our sales in
the future. The laws and regulations of several states prohibit distributor
changes except under certain limited circumstances, making it difficult to
terminate a distributor. As a result, it may be difficult for us to replace
distributors that do not perform adequately, which may reduce our sales and
profits.
We depend largely on our distributors in areas outside California to market our
products to the restaurants and retail outlets they service. Other premium wine
producers, as well as the producers of alternative beverages, compete for our
distributors' marketing resources. A failure by our distributors to market our
products as effectively as they, or other distributors, market our competitors'
products could harm our business. See "Business--Sales and Distribution."
Our Business is Seasonal
We experience seasonal and quarterly fluctuations in sales, operating expenses
and net income. Generally, the second and third quarters of our fiscal year have
lower sales volumes than the first and fourth quarters. We have managed, and
will continue to manage, our business to achieve long-term objectives. In doing
so, we may make decisions that we believe will enhance our long-term
profitability, even if such decisions may reduce quarterly earnings. Such
decisions include: when to release our wines for sale; how to position our wines
competitively; and which grape and bulk wine sources to use to produce our
wines. In addition, fluctuations in our distributors' inventory levels may
affect our sales volume. These and other factors relating to seasonality and
business decisions may cause fluctuations in the market price of our common
stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Our Ever-Increasing Competition May Hurt Our Business
The premium wine industry is intensely competitive and highly fragmented. Some
of the competitive factors in the market for premium wine are:
* Brand recognition
* Product quality
* Access to distribution channels
* Price
7
<PAGE>
The increase in the number of our competitors may prevent us from successfully
establishing our brand name or obtaining sufficient marketing and sales support
from our distributors. In addition, many of our competitors have greater name
recognition, larger customer bases, significantly broader distribution and
substantially more financial and marketing resources than we do. As a result, we
may not be able to compete successfully against these other producers of premium
wines.
We have traditionally competed with high-quality wineries from the Napa and
Sonoma counties of California and, to a lesser extent, French and Italian
wineries. Increasingly, we are also facing competition from wineries in other
regions of California and the United States, as well as new international
competition from wineries located in other European countries, South America and
Australia.
We also compete with popular low-priced "generic" wines and with beer and other
alcoholic and non-alcoholic beverages both for demand and for access to
distribution channels. Many of the producers of these beverages also have
significantly greater financial, technical, marketing and public relations
resources than we do. Our sales may be harmed to the extent any alternative
beverages are introduced that compete with wine. We may not be able to compete
successfully against such wine or alternative beverage producers. See
"Business--Competition."
We Will Need More Working Capital to Grow
Our inability to obtain additional working capital on acceptable terms would
limit our growth and could have a negative impact on our business. We use
substantial amounts of our working capital to purchase our grape and bulk wine
supplies from third parties and to pay for the use of third-party production
facilities in our wine production. We also need capital to fund our own
grape-growing and winemaking activities. We expect that we will need an
increased amount of working capital over the next several years to fund
increases in our production level and inventory. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
We Depend on Third Parties to Produce Our Wine
We currently rely substantially on the assistance of third parties in various
stages of our wine production. We use third-party facilities for the crushing
and fermentation of a majority of our grapes and the storage of some of our
wine. We do not have long-term agreements with any of these facilities. Our
inability in the future to use these or alternative facilities, at reasonable
prices or at all, could increase the cost or reduce the amount of our
production, which could reduce our sales and our profits. See "Business--Wine
Production Facilities."
Our Facilities Expansion Plans May Not be Successful
We are currently building a new facility (the "Quarry Facility") in order to
increase our production capacity. Our failure to complete the Quarry Facility,
or otherwise expand our production capabilities, would limit our production
capacity, would require greater use of third-party production facilities, and
could reduce our sales and/or profits. Upon its completion, we expect to use
both the Quarry Facility and our current facility (the
8
<PAGE>
"Gehricke Road Facility") for a majority of our operations. We will need to make
significant capital investments for the construction and completion of the
Quarry Facility. Although we believe that we will have access to sufficient
capital to complete the facility, we may need additional financing.
We expect to utilize the Quarry Facility fully upon its completion. As a result,
any further expansion of our production capacity may require us to use
third-party production facilities or to continue to expand our own production
capacity. Our failure to expand our production capacity, or to secure capacity
from third parties, either at acceptable prices or at all, could limit our
production and reduce our sales and/or profits. See "Business--Wine Production
Facilities," and "Certain Transactions."
Infringement of Our Trademarks May Damage Our Brand Name or Our Business
Our wines are branded consumer products. Our ability to distinguish our brand
name from those of our competitors depends, in part, on the strength and
vigilant enforcement of our trademarks. Competitors may use trademarks,
trade-names or trade dress which are similar to those we use, thereby weakening
our intellectual property rights. If our competitors infringe on our trademark
rights, we may have to litigate in order to protect such rights. Litigation may
result in significant expense and divert our attention from business operations.
In addition, we cannot assure you that we would be successful in protecting our
trademark rights. See "Business--Trademarks."
Adverse Public Opinion About Alcohol May Harm Our Business
While a number of research studies suggest that moderate alcohol consumption may
provide various health benefits, other studies conclude or suggest that alcohol
consumption has no health benefits and may increase the risk of stroke, cancer
and other illnesses. An unfavorable report on the health effects of alcohol
consumption could significantly reduce the demand for wine, which could harm our
business and reduce our sales and profits.
In recent years, certain activist groups have used advertising and other methods
to inform the public about the societal harms associated with the consumption of
alcoholic beverages. Such groups have also sought, and continue to seek,
legislation to reduce the availability of alcoholic beverages, to increase the
penalties associated with the misuse of such beverages, or to increase the costs
associated with the production of alcoholic beverages. Over time, such efforts
could cause a reduction in the consumption of alcoholic beverages generally,
which could harm our business and reduce our sales and profits.
Contamination of Our Wines Would Harm Our Business
Because our products are designed for human consumption, our business is subject
to certain hazards and liabilities related to food products, such as
contamination. A discovery of contamination in any of our wines, through
tampering or otherwise, could result in a recall of our products. Any such
recall would significantly damage our reputation for product quality, which we
believe is one of our principal competitive assets, and could seriously harm our
business and sales. Although we maintain insurance to protect against such
risks, we may not be able to maintain such insurance on acceptable terms and
such insurance may not be adequate to cover any resulting liability.
Increased Regulatory Costs or Taxes Would Harm Our Financial Performance
The wine industry is regulated extensively by the Federal Bureau of Alcohol,
Tobacco and Firearms, various foreign agencies, and state and local liquor
authorities. These regulations
9
<PAGE>
and laws dictate such matters as licensing requirements, trade and pricing
practices, permitted distribution channels, permitted and required labeling,
advertising, and relationships with distributors and retailers. Recent and
future zoning ordinances, environmental restrictions and other legal
requirements may limit our plans to expand our production capacity, as well as
any future development of new vineyards and wineries. In addition, new
regulations or requirements, or increases in excise taxes, income taxes,
property and sales taxes, or international tariffs, could harm our business and
operating results. Future legal or regulatory challenges to the wine industry
could also harm our business and impact our operating results. See "Business
- --Government Regulation."
Our Existing Shareholders Will Retain Significant Control Over Our Company After
This Offering
Following this offering and assuming that all debentures held by our directors
and executive officers and their respective affiliates that are convertible
within 60 days of December 31, 1998 have been converted, our directors and
executive officers and their respective affiliates will beneficially own
2,225,641 shares of common stock, or approximately 48.5% of our outstanding
common stock. Of these shares, 2,131,151 shares, plus an additional 19,530
shares not held of record by management, have been placed in a voting trust. The
trustees of this voting trust are Messrs. Foster, Peterson and Faggioli, and Mr.
James F. Wisner, all of whom serve as directors of Ravenswood. As a result,
Messrs. Foster, Peterson, Faggioli and Wisner have significant influence in the
election of directors and the approval of certain corporate actions that must be
submitted for a vote of shareholders. The interests of these management
shareholders may conflict with the interests of other shareholders, and the
actions they take or approve may be contrary to those desired by the other
shareholders. Such concentration of ownership may also have the effect of
delaying, preventing or deterring an acquisition of our company by a third
party. See "Principal Shareholders."
Natural Disasters Could Destroy Our Facilities or Our Inventory
The Gehricke Road Facility, the Quarry Facility and all of the third-party
facilities we use to produce and store our wine are located in areas that are
subject to earthquake activity. If we lost all or a portion of our wine prior to
its sale or distribution as a result of earthquake activity, we would lose our
investment in, and anticipated profits and cash flows from, such wine. Such a
loss would seriously harm our business and reduce our sales and profits.
In addition, we must store our wine in a limited number of locations for a
period of time prior to its sale or distribution. Any intervening catastrophies,
such as a fire, that result in the destruction of all or a portion of our wine
would result in a loss of our investment in, and anticipated profits and cash
flows from, such wine. Such a loss would seriously harm our business and reduce
our sales and profits.
The Success of this Offering Depends on a New Underwriter and a Novel Plan of
Distribution
The offering price for the shares being sold in this offering will be determined
by negotiations between our company and W.R. Hambrecht & Company, LLC, an
underwriter that has been in business for less than one year, by reference to
the results of an auction process conducted by W.R. Hambrecht & Company, LLC.
This novel plan of distribution by a relatively newly formed underwriter may
result in price and volume volatility in the market for our common stock after
the completion of this offering, which may reduce the market price of our common
stock. In addition, we may not be able to obtain sufficient research
10
<PAGE>
coverage from market analysts after the offering. The lack of such coverage may
reduce or limit the market price, liquidity or trading volume of our common
stock. See "Plan of Distribution."
Our Management Will Retain Broad Discretion in the Use of the Proceeds from this
Offering
We expect to use a portion of the proceeds from this offering for general
corporate purposes, including working capital. As a result, our board of
directors and management will have significant flexibility in using these funds.
In addition, our shareholders face the risk that the proceeds from this offering
may not be invested in a manner that will generate a return. See "Use of
Proceeds."
Sales of Additional Shares Could Cause the Price of Our Stock to Decline and
Could Harm Our Ability to Raise Funds from Stock Offerings in the Future
Sales of a large number of shares of common stock in the market after the
offering, or a belief that such sales could occur, could cause a drop in the
market price of our common stock and could impair our ability to raise capital
through offerings of our equity securities. Upon completion of this offering,
there will be 4,550,852 shares of our common stock outstanding. All of the
1,000,000 shares sold in this offering will be freely tradable without
restrictions or further registration under the Securities Act, unless such
shares are purchased by our "affiliates," as that term is defined in Rule 144
under the Securities Act. The remaining 3,550,852 shares of common stock held by
existing shareholders will be "restricted securities" as that term is defined in
Rule 144. These restricted shares will be available for sale in the public
market as follows:
* 866,248 restricted shares will be eligible for sale on the date of this
prospectus pursuant to Rule 144(k);
* 1,810,620 restricted shares will be eligible for sale 90 days after the
date of this prospectus pursuant to Rule 144 and Rule 701 of the Securities
Act; and
* the remainder of the restricted shares will be eligible for sale from time
to time thereafter upon expiration of one-year holding periods and subject
to the requirements of Rule 144.
Upon completion of this offering, there will be 454,622 shares issuable upon
conversion of outstanding convertible debentures, all of which are immediately
convertible. Shares issuable upon conversion of the convertible debentures will
be available for sale in the public market as follows:
* 273,000 of such shares will be eligible for sale on the date of this
prospectus pursuant to Rule 144(k);
* 12,250 of such shares will be eligible for sale 90 days after the date of
this prospectus pursuant to Rule 144; and
* the remainder of such shares will be eligible for sale from time to time
thereafter upon expiration of one-year holding periods and subject to the
requirements of Rule 144.
After the completion of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act to register 500,000 shares
reserved for issuance under our 1999
11
<PAGE>
Equity Incentive Plan and 50,000 shares reserved for issuance under our
Employee Stock Purchase Plan. Upon registration, all of these shares will be
freely tradeable when issued. See "Shares Eligible for Future Sale."
We May be Harmed by Year 2000 Hardware and Software Problems
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field and cannot reliably
distinguish dates beginning on January 1, 2000 from dates prior to the year
2000. Many companies' software and computer systems may need to be upgraded or
replaced in order to process correctly dates beginning in 2000 and to comply
with the Year 2000 requirements. We are reviewing our information systems for
any potential Year 2000 problems that might arise as a result of these
requirements, and do not believe such systems will be affected by the upcoming
change in century. However, we use third-party equipment and software that may
not be Year 2000 compliant. If such third-party equipment or software fails to
process dates for the year 2000 and thereafter properly, such a failure could
cause us to incur unanticipated expenses to remedy any problems, which could
harm our business. In addition, we rely on various service providers, including
banks, and on grape and bulk wine suppliers, third-party production facilities
and distributors. The software and computer systems of any of these entities
could have Year 2000 problems. A disruption in the supply of services or
products we receive from any of these entities due to Year 2000 problems could
harm our business. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Prior to this Offering There Has Been No Public Market for Our Common Stock
While we have applied to list the common stock on The Nasdaq National Market, we
cannot assure you that a trading market for the common stock will develop or how
liquid that market might be. The initial public offering price of the common
stock has been determined through negotiations between our company and W.R.
Hambrecht & Company, LLC, as underwriter for the offering. You may not be able
to resell your shares at or above the initial public offering price. See "Plan
of Distribution."
Certain Provisions Contained in Our Charter and Bylaws May Delay or Prevent a
Takeover of Our Company
Certain provisions of our Amended and Restated Articles of Incorporation could
make it more difficult for a third party to acquire control of our company, even
if such change in control would be beneficial to our shareholders. For example,
our board of directors is authorized to issue up to 1,000,000 shares of
preferred stock, and to determine the rights of those shares, without any
shareholder vote. The issuance of such preferred stock may hinder any
acquisition of our company by a third party.
In addition, our Articles and Amended and Restated Bylaws require that
shareholder actions occur at duly called meetings of the shareholders, do not
permit cumulative voting in the election of directors once we have met certain
thresholds, and require advance notice of shareholder proposals and nominations.
These provisions may make it more difficult for shareholders to replace current
members of our board of directors and may make the acquisition of our company by
a third party more difficult. See "Description of Capital Stock."
Investors in this Offering Will Suffer Immediate Dilution
The initial public offering price will be substantially higher than the book
value per share of our common stock. Investors purchasing common stock in this
offering will therefore incur
12
<PAGE>
immediate and substantial dilution in the net tangible book value of their
shares equal to $6.85 per share, assuming an initial public offering price of
$12.00 per share. In addition, to the extent outstanding debentures are
converted into common stock, investors in this offering will incur additional
dilution. See "Dilution."
We Do Not Anticipate Paying Any Cash Dividends
We are restricted from paying cash dividends on our common stock under our
credit agreements and do not anticipate paying any cash dividends in the
foreseeable future. See "Dividend Policy."
13
<PAGE>
THE COMPANY
We originally formed Ravenswood as a partnership in 1976 and reorganized as a
limited partnership in 1979. We were incorporated in the State of California in
1986. We maintain our principal executive offices at 18701 Gehricke Road,
Sonoma, California 95476. Our telephone number is (707) 938-1960 and our Web
site is located at www.ravenswood-wine.com. Information contained on our Web
site does not constitute a part of this prospectus.
USE OF PROCEEDS
We estimate that we will receive net proceeds of $11,230,000 from the sale of
the 1,000,000 shares of common stock offered hereby, assuming an initial public
offering price of $12.00 per share and after deducting estimated underwriting
discounts and offering expenses. We currently intend to use the net proceeds of
this offering for working capital, to expand our production facilities and for
general corporate purposes, including retiring indebtedness under our lines of
credit. As of December 31, 1998, borrowings of an aggregate of approximately
$1,529,887 were outstanding under our two lines of credit and we expect that
approximately the same amounts will be outstanding under the lines of credit on
the closing date of this offering.
As of December 31, 1998, the lines of credit had the following maturities,
balances, interest rates and uses:
Maturity Balance Interest Rate Use
- -------- ------- ------------- ---
June 1, 2001 ............. $950,000 8.3% For working capital
December 1, 2024 ......... $579,887 7.1% To fund the construction of
the Quarry Facility
The cost, timing and amount of funds required by our company cannot be precisely
determined at this time and will be based on numerous factors. Our board of
directors has broad discretion in determining how the proceeds of this offering
will be applied. We intend to invest the net proceeds in short-term, investment
grade interest-bearing obligations until they are used.
DIVIDEND POLICY
We have never paid cash dividends on our common stock and do not anticipate
paying such dividends in the foreseeable future. We currently intend to retain
any future earnings to develop and expand our business. The terms of our credit
agreements impose restrictions on our ability to declare and pay dividends.
14
<PAGE>
CAPITALIZATION
<TABLE>
The following table sets forth our capitalization as of December 31, 1998, (i)
on an actual basis and (ii) on an as adjusted basis after giving effect to the
sale of the 1,000,000 shares of common stock offered hereby at an assumed public
offering price of $12.00 per share and the receipt of the estimated net proceeds
therefrom. This table only presents summary information. In reading it, you
should refer to our financial statements and related notes, which are included
elsewhere in this prospectus.
<CAPTION>
December 31, 1998
-----------------------
As
Actual Adjusted
------- --------
(in thousands)
<S> <C> <C>
Long-Term Debt--including current portion ................................................................. $ 4,964 $ 4,964
------- -------
Shareholders' Equity:
Preferred Stock, no par value; 1,000,000 shares authorized and none
outstanding (actual and as adjusted) (1) .............................................................. -- --
Common Stock, no par value; 20,000,000 shares authorized and
3,550,852 outstanding (actual); 20,000,000 authorized and 4,550,852
outstanding (as adjusted) (1)(2) ...................................................................... 2,492 13,722
Retained Earnings ...................................................................................... 9,855 9,855
------- -------
Total Shareholders' Equity ............................................................................. 12,347 23,577
======= =======
Total Capitalization ...................................................................................... $17,311 $28,541
======= =======
<FN>
- ------------
(1) Reflects board and shareholder approval in February 1999 of the
authorization of 1,000,000 shares of preferred stock and an increase in the
number of authorized shares of common stock from 1,000,000 to 20,000,000.
(2) Excludes: (i) 500,000 shares of common stock reserved for issuance under
our 1999 Equity Incentive Plan; (ii) 50,000 shares of common stock reserved
for issuance under our Employee Stock Purchase Plan; and (iii) up to
454,622 shares of common stock issuable upon conversion of outstanding
convertible debentures. See "Management--1999 Equity Incentive Plan,"
"--Employee Stock Purchase Plan" and "Description of Capital
Stock--Debentures."
</FN>
</TABLE>
15
<PAGE>
DILUTION
Our net tangible book value as of December 31, 1998 was approximately $12.2
million, or $3.44 per share of outstanding common stock. Net tangible book value
per share is equal to our total tangible assets less our total liabilities,
divided by the number of outstanding shares of common stock. Dilution per share
represents the difference between the price per share paid by investors in this
offering and the as adjusted net tangible book value per share immediately after
this offering.
<TABLE>
After giving effect to the sale of the 1,000,000 shares of common stock offered
hereby, at an assumed initial public offering price of $12.00 per share (after
deducting the estimated fees payable to the underwriter and offering expenses
payable by us), our as adjusted net tangible book value at December 31, 1998
would have been approximately $23.4 million, or $5.15 per share. This represents
an immediate dilution of $6.85 per share to new investors purchasing shares in
this offering. The following table illustrates this per share dilution:
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share ...................... $ 12.00
--------
Net tangible book value per share as of December 31, 1998 ......... $ 3.44
Increase per share attributable to new investors .................. 1.71
-------
As adjusted net tangible book value after this offering ........... 5.15
--------
Dilution per share to new investors in this offering ................. $ 6.85
========
</TABLE>
<TABLE>
The following table summarizes, on a pro forma basis after giving effect to the
offering, the number of shares purchased from us, the total consideration paid
and the average price per share paid by existing shareholders and by the new
investors purchasing the shares offered hereby assuming an initial public
offering price of $12.00 per share:
<CAPTION>
Average
Price Paid
Shares Purchased Total Consideration (1) Per Share
-------------------------- ------------------------- ------------
Number Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Existing shareholders 3,550,852 78.0% $ 2,491,646 17.2% $ 0.70
New public investors 1,000,000 22.0 12,000,000 82.8 12.00
--------- ------ ----------- -----
Total 4,550,852 100.00% $14,491,646 100%
<FN>
- ------------
(1) Based on shares outstanding on December 31, 1998. Excludes: (i) 500,000
shares of common stock reserved for issuance under our 1999 Equity
Incentive Plan; (ii) 50,000 shares of common stock reserved for issuance
under our Employee Stock Purchase Plan; and (iii) up to 454,622 shares of
common stock issuable upon conversion of outstanding convertible
debentures. See "Capitalization," "Management--1999 Equity Incentive Plan,"
"--Employee Stock Purchase Plan" and "Description of Capital
Stock--Debentures."
</FN>
</TABLE>
16
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
The following table sets forth our selected financial data as of and for each of
the fiscal years in the five-year period ended June 30, 1998, as of December 31,
1998 and for the six-month periods ended December 31, 1997 and 1998. The
statements of operations data for each of the fiscal years in the two-year
period ended June 30, 1998 and the balance sheet data as of June 30, 1997 and
1998 have been derived from our financial statements, audited by Odenberg,
Ullakko, Muranishi & Co. LLP, independent auditors, which are included elsewhere
in this prospectus. The statements of operations data for each of the fiscal
years in the three-year period ended June 30, 1996 and the balance sheet data as
of June 30, 1994, 1995 and 1996 have been derived from our unaudited financial
statements, which are not included in this prospectus. The statements of
operations data for the six-month periods ended December 31, 1997 and 1998 and
the balance sheet data as of December 31, 1998 have been derived from our
unaudited financial statements that include, in the opinion of our management,
all normal and recurring adjustments that our management considers necessary for
a fair statement of the quarterly results. The operating results for the six
months ended December 31, 1998 are not necessarily indicative of results that
may be expected for the year ending June 30, 1999. The following information is
qualified by reference to, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and related notes included in this prospectus.
<CAPTION>
Six Months Ended
Fiscal Year Ended June 30, December 31,
-------------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1997 1998
-------- -------- -------- -------- -------- -------- --------
(Unaudited) (Audited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
(In thousands, except per share data)
Gross Sales ..................................... $ 6,340 $ 8,548 $ 11,028 $ 12,247 $ 17,017 $ 8,855 $ 12,195
Less Excise Taxes .............................. 142 237 249 330 553 197 276
Less Discounts, Returns and Allowances ......... 440 409 556 394 574 273 337
-------- -------- -------- -------- -------- -------- --------
Net Sales ....................................... 5,758 7,902 10,223 11,523 15,890 8,385 11,582
Cost of Goods Sold .............................. 2,826 2,633 4,886 5,196 7,397 3,652 5,066
-------- -------- -------- -------- -------- -------- --------
Gross Profit .................................... 2,932 5,269 5,337 6,327 8,493 4,733 6,516
Operating Expenses .............................. 1,962 3,297 2,849 3,355 4,105 1,852 2,340
-------- -------- -------- -------- -------- -------- --------
Operating Income ................................ 970 1,972 2,488 2,972 4,388 2,881 4,176
Other Income (Expense) .......................... 55 (192) (297) (437) (474) (114) (147)
-------- -------- -------- -------- -------- -------- --------
Income Before Income Taxes ...................... 1,025 1,780 2,190 2,535 3,914 2,767 4,029
Provision for Income Taxes ...................... 433 763 921 1,067 1,592 1,133 1,744
-------- -------- -------- -------- -------- -------- --------
Net Income ...................................... $ 592 $ 1,017 $ 1,269 $ 1,468 $ 2,322 $ 1,634 $ 2,285
======== ======== ======== ======== ======== ======== ========
Basic Earnings per Share (1) .................... $ 0.16 $ 0.28 $ 0.35 $ 0.40 $ 0.67 $ 0.47 $ 0.66
======== ======== ======== ======== ======== ======== ========
Weighted Average Number of Common Shares
Outstanding (1) ................................ 3,636 3,636 3,636 3,636 3,492 3,505 3,479
Diluted Earnings per Share (1) .................. $ 0.16 $ 0.27 $ 0.33 $ 0.39 $ 0.63 $ 0.44 $ 0.61
======== ======== ======== ======== ======== ======== ========
Weighted Average Number of Common Shares
and Equivalents Outstanding (1) ................ 3,636 3,884 3,939 3,939 3,795 3,808 3,847
</TABLE>
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------------------
1994 1995 1996 1997 1998 December 31, 1998
------- ------- ------- ------- ------- -----------------
(Unaudited) (Audited) (Unaudited)
Balance Sheet Data:
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Cash & Cash Equivalents ............... $ 103 $ 542 $ 766 $ 212 $ 102 $ 3,171
Inventories ........................... 2,787 3,979 5,144 7,158 10,427 12,931
Proper, Plant and Equipment, Net ...... 84 2,075 2,445 2,647 2,974 3,870
Total Assets .......................... 4,051 8,685 10,591 12,040 15,977 23,224
Current Liabilities ................... 1,944 2,752 3,231 3,159 4,693 6,112
Long-Term Liabilities ................. 79 2,723 2,662 2,622 2,910 4,765
Total Shareholders' Equity ............ 2,028 3,210 4,698 6,259 8,374 12,347
<FN>
- ------------
(1) Computed on the basis described in Notes 1 and 15 to our Financial
Statements.
</FN>
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and related notes included elsewhere in this prospectus.
Except for historical information contained herein, the discussion in this
prospectus contains certain forward-looking statements that involve risks and
uncertainties. Ravenswood's actual results could differ materially from those
discussed below. Factors that could cause or contribute to such differences
include, among others, those discussed below, in "Risk Factors" and elsewhere in
this prospectus. Ravenswood does not intend to update these forward-looking
statements.
Overview
Ravenswood produces, markets and sells premium California wines exclusively
under the Ravenswood brand name. The vast majority of wines produced and sold by
Ravenswood are red varietals, including Merlot, Cabernet Sauvignon and,
particularly, Zinfandel. To a lesser extent, Ravenswood produces white wines,
including Chardonnay, French Colombard and Gew -urztraminer. Ravenswood's red
wines accounted for approximately 91% of its gross sales in the 1998 fiscal
year, with sales of Zinfandel accounting for approximately 63% of its gross
sales for that period. Ravenswood believes that sales of its red wines,
particularly Zinfandel, will continue to account for a significant portion of
its sales in the future.
Ravenswood was founded as a partnership in 1976 by W. Reed Foster, Ravenswood's
Chairman and Chief Executive Officer, and Joel E. Peterson, Ravenswood's
President and Winemaker. In its initial year of operation, Ravenswood harvested
and crushed Zinfandel grapes from two Sonoma County vineyards. In 1979,
Ravenswood converted to a limited partnership and released its first wines,
consisting of 327 cases of the 1976 vintage Zinfandel. Ravenswood incorporated
in California in 1986.
Since its inception, Ravenswood has grown by increasing its production volume
and its portfolio of premium wine products. For the fiscal year ended June 30,
1998, Ravenswood realized gross sales of $17.0 million from the sale of 191,655
cases (which include twelve, 750 ml bottles per case) and Ravenswood branded
merchandise. For the 1996 vintage, which was primarily sold in the 1998 fiscal
year, Ravenswood offered 37 different wine products within three series. These
product series include:
* the value-priced Vintners Blend Series, with a suggested retail price of
approximately $9.75 to $11.25 per 750 ml bottle;
* the intermediate-priced County Series, with a suggested retail price of
approximately $12 to $18.50 per 750 ml bottle; and
* the higher-priced Vineyard Designate Series, with a suggested retail price
of approximately $18 to $31.50 per 750 ml bottle.
All of Ravenswood's products are priced within the super-premium and
ultra-premium categories of the premium wine market. The actual price of any
particular wine may be either higher or lower than suggested retail, depending
upon the type of retail outlet and location where it is sold. See
"Business--Ravenswood's Products."
The mix of products sold in any given period affects Ravenswood's gross profit
as a percentage of net sales (gross margin). In particular, as sales of the
value-priced Vintners Blend Series have increased as a percentage of gross
sales, Ravenswood's gross margin has decreased. The gross margin for the
Vintners Blend Series is traditionally more variable than
18
<PAGE>
Ravenswood's higher-priced product series because a significant portion of the
wine used in these products is purchased in the bulk market rather than produced
by Ravenswood from grapes acquired from its traditional grape suppliers.
Ravenswood has no bulk wine purchase contracts, and the price, quality and
available quantity of bulk wine have fluctuated in the past and Ravenswood
expects that they will continue to fluctuate in the future.
The timing for release of certain of Ravenswood's products, particularly its
County Series and Vineyard Designate Series, also significantly affects
Ravenswood's sales in specific periods. Ravenswood traditionally releases new
vintages of its Vineyard Designate Series in the fourth fiscal quarter or the
first fiscal quarter of the subsequent fiscal year. In addition, the release
dates of some of Ravenswood's County Series wines fluctuate between the third
and fourth fiscal quarters of each fiscal year. The timing of these release
dates is based upon the winemakers' determination as to the optimal flavor
characteristics of these wines. Release dates have fluctuated in the past and
can be expected to continue to fluctuate from year to year, which may make
comparison of results on a period-to-period basis less meaningful.
The pricing for grapes obtained from Ravenswood's suppliers is determined
annually by reference to certain benchmark price quotations or through
negotiation. As a result, the cost of grapes used in Ravenswood's wine
production has fluctuated and is expected to continue to fluctuate. Ravenswood
has traditionally attempted to moderate and stabilize price increases from year
to year. Consequently, gross margins realized by Ravenswood have fluctuated in
the past and are expected to continue to fluctuate with the price of grapes used
in production. See "Business--Grape and Bulk Wine Supply."
Ravenswood does not have an in-house sales staff. It markets and sells its wine
both to "on-premise" restaurants and "off-premise" retailers, such as liquor
stores, specialty wine stores, supermarkets and discounters. Ravenswood sells
its products directly in California, utilizing five warehouses throughout the
state and a network of seven brokers. Ravenswood realizes significantly greater
gross margins in areas, such as California, where it relies on direct sales
facilitated through brokers without the use of distributors. Sales within
California, not including sales through Ravenswood's tasting room, accounted for
approximately 39% of Ravenswood's net sales in the 1998 fiscal year. Ravenswood
believes that sales within California will continue to account for a substantial
portion of its sales in the future.
19
<PAGE>
Results of Operations
The following table sets forth certain items from Ravenswood's statement of
income, expressed as a percentage of net sales, for the periods indicated:
Fiscal Year Six Months Ended
Ended June 30, December 31,
-------------------- ------------------
Statement of Income Data: 1997 1998 1997 1998
- ---------------------------------- ------- ------- ------- -------
Net Sales ........................ 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold ............... 45.1 46.6 43.6 43.7
------- ------- ------- -------
Gross Profit ..................... 54.9 53.4 56.4 56.3
Operating Expenses ............... 29.1 25.8 22.1 20.2
------- ------- ------- -------
Operating Income ................. 25.8 27.6 34.3 36.1
Other Expense, net ............... 3.8 3.0 1.3 1.3
------- ------- ------- -------
Income Before Income Taxes ....... 22.0 24.6 33.0 34.8
Provision for Income Taxes ....... 9.3 10.0 13.5 15.1
------- ------- ------- -------
Net Income ....................... 12.7% 14.6% 19.5% 19.7%
======= ======= ======= =======
Six Months Ended December 31, 1998 and 1997
Sales
Net sales consist of gross sales of Ravenswood's wines and merchandise, less
excise taxes, discounts, returns and allowances. Net sales of Ravenswood's
products increased to $11.6 million in the six months ended December 31, 1998,
from $8.4 million in the six months ended December 31, 1997. This increase is
primarily attributable to an increase in the volume of wines produced and sold
by Ravenswood. In the six months ended December 31, 1998, case sales of
Ravenswood's products increased to 130,493 cases, from 91,681 cases in the six
months ended December 31, 1997, while the average price per case decreased by
approximately 2.7%. This decrease in average price per case is primarily
attributable to the increase in sales of Ravenswood's value-priced Vintners
Blend Series as a percentage of gross sales and, to a lesser extent, to the
respective release dates of certain Vineyard Designate Series Zinfandel products
in each of these periods.
The percentages of gross sales attributable to Ravenswood's Vintners Blend
Series, County Series and Vineyard Designate Series were approximately 48%, 26%
and 24%, respectively, in the six months ended December 31, 1998, as compared to
43%, 31% and 24%, respectively, in the corresponding period in 1997. Sales of
Ravenswood branded merchandise accounted for approximately 2% of gross sales in
each of these periods. Ravenswood expects that the percentage of gross sales
attributable to sales of its Vintners Blend Series and, to a lesser extent, its
County Series, will increase relative to sales of Ravenswood's Vineyard
Designate Series as Ravenswood continues to expand its production and product
offerings within these segments.
Cost of Goods Sold
Cost of goods sold includes the costs of raw materials (grapes and bulk wine),
packaging, labor used in wine production, bottling, warehousing and overhead on
winery facilities and equipment. These costs are capitalized as inventory and
depleted as costs of goods sold are recognized. Cost of goods sold increased to
$5.1 million, or 43.7% of net sales, in the six-month period ended December 31,
1998, from $3.7 million, or 43.6% of net sales, in the corresponding period in
1997. The increase in the amount of cost of goods sold over these respective
periods is primarily due to increases in the total volume of wine sold.
20
<PAGE>
Gross Profit
Ravenswood's gross profit increased to $6.5 million in the six months ended
December 31, 1998, from $4.7 million in the corresponding period in 1997, but
decreased as a percentage of net sales to 56.3% from 56.4% in these respective
periods. The increase in the amount of gross profit is primarily attributable to
increases in sales volumes across all product lines, particularly the Vintners
Blend Series.
Operating Expenses
Operating expenses consist of sales and marketing overhead, commissions paid to
independent brokers, advertising and merchandising expenses, salaries and
facilities expenses unrelated to wine production, insurance and professional
services expenses. Operating expenses increased to $2.3 million in the six
months ended December 31, 1998, from $1.9 million in the corresponding period in
1997. As a percentage of net sales, operating expenses decreased to 20.2% of net
sales in the six months ended December 31, 1998, from 22.1% of net sales in the
six months ended December 31, 1997. The increase in operating expenses is
primarily attributable to increases in brokerage commissions related to
Ravenswood's increased sales volumes, particularly in California. The decrease
in operating expenses as a percentage of net sales is primarily attributable to
increased sales volumes without corresponding increases in administrative staff
or other overhead expenses. Ravenswood expects operating expenses to increase as
it continues to increase production and becomes a public company.
Other Expense, Net
Other expense consists of non-operating income and expense items, which
primarily consist of interest on outstanding indebtedness. These items have
tended to fluctuate from year to year. Other expense amounted to $113,588 and
$146,955 in the six months ended December 31, 1997 and 1998, respectively.
Ravenswood expects that these expenses will increase as it is required to pay
interest on $1,687,500 worth of convertible debentures issued in the second
quarter of the 1999 fiscal year. Ravenswood expects that this expense may be
offset in part by interest earned on that portion of the proceeds of this
offering that is retained as working capital. Interest payments on the
debentures commenced in January 1999 and will continue to be paid on a quarterly
basis until such debentures are converted or redeemed, or mature. See
"Description of Capital Stock--Debentures."
Provision for Income Taxes
The provision for income taxes reflects the estimated annualized effective tax
rate of 43.3% at December 31, 1998, and 40.9% at December 31, 1997. Ravenswood
does not expect a material change in its effective tax rate in the near future.
Fiscal Years Ended June 30, 1998 and 1997
Sales
Net sales of Ravenswood's products increased to $15.9 million in the 1998 fiscal
year, from $11.5 million in the 1997 fiscal year. This increase is primarily
attributable to an increase in the volume of wines produced and sold by
Ravenswood. In the 1998 fiscal year, case sales increased to 191,655 cases from
131,175 cases in the 1997 fiscal year, while the average price per case
decreased from $91.58 to $87.37 in these respective periods. The decrease in
average price per case is primarily attributable to the increase in sales of the
value-priced
21
<PAGE>
Vintners Blend Series as a percentage of gross sales and, to a lesser extent,
the timing of release dates for certain Vineyard Designate Series Zinfandel
products in these respective periods.
The percentages of gross sales attributable to the Vintners Blend Series, County
Series and Vineyard Designate Series were 56%, 27% and 16%, respectively, in the
1998 fiscal year, as compared to 43%, 32% and 22%, respectively, in the 1997
fiscal year. Sales of Ravenswood branded merchandise accounted for approximately
2% of gross sales in each of these periods.
Cost of Goods Sold
Cost of goods sold increased to $7.4 million, or 46.6% of net sales, in the 1998
fiscal year, from $5.2 million, or 45.1% of net sales, in the 1997 fiscal year.
The increase in the amount of cost of goods sold over these respective periods
is primarily due to increases in the total volume of wine sold. The increase in
cost of goods sold as a percentage of net sales is primarily attributable to the
increase in sales of Ravenswood's lower-margin Vintners Blend Series as a
percentage of gross sales.
Gross Profit
Ravenswood's gross profit increased to $8.5 million in the 1998 fiscal year,
from $6.3 million in the 1997 fiscal year, but decreased as a percentage of net
sales, to 53.4% from 54.9% in these respective periods. The increase in
aggregate gross profit is primarily attributable to increases in sales volumes
across all of Ravenswood's product lines, particularly the Vintners Blend
Series. The decrease in gross profit as a percentage of net sales is primarily
attributable to an increase in sales of the lower-margin Vintners Blend Series
as a percentage of gross sales.
Operating Expenses
Operating expenses increased to $4.1 million in the 1998 fiscal year, from $3.4
million in the 1997 fiscal year, but decreased as a percentage of net sales to
25.8% in the 1998 fiscal year from 29.1% in the 1997 fiscal year. The increase
in the amount of operating expenses is primarily attributable to increases in
brokerage commissions related to Ravenswood's increased sales volumes and, to a
lesser extent, increased expenditures on advertising and promotional efforts.
The decrease in operating expenses as a percentage of net sales is primarily
attributable to increased sales volumes without corresponding increases in
administrative staff or other overhead expenses.
Other Expense, Net
Other expense amounted to $474,340 and $437,258, or 3.0% and 3.8% of net sales,
in the 1998 and 1997 fiscal years, respectively.
Provision for Income Taxes
The provision for income taxes reflects the estimated annualized effective tax
rate of 40.7% in the 1998 fiscal year and 42.1% in the 1997 fiscal year.
22
<PAGE>
Selected Quarterly Results of Operations
<TABLE>
The following table presents Ravenswood's results of operations for each of the
six quarters prior to and including the quarter ended December 31, 1998. The
quarterly information is unaudited, but management believes that the information
regarding these quarters has been prepared on the same basis as the audited
financial statements appearing elsewhere in this prospectus. In the opinion of
management, all necessary adjustments have been included to present fairly the
unaudited quarterly results when read in conjunction with the financial
statements and related notes appearing elsewhere in this prospectus.
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------
September 30, December 31, March 31, June 30, September 30, December 31,
1997 1997 1998 1998 1998 1998
------ ------ ------ ------ ------ ------
Statement of Income Data:
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Gross Sales ............................................. $4,578 $4,277 $3,795 $4,367 $6,342 $5,853
Less Excise Taxes ..................................... 129 68 84 272 225 51
Less Discounts, Allowances and Returns ................ 123 150 135 165 155 182
------ ------ ------ ------ ------ ------
Net Sales ............................................... 4,325 4,059 3,576 3,930 5,962 5,620
Cost of Goods Sold ...................................... 1,804 1,848 1,787 1,958 2,528 2,538
------ ------ ------ ------ ------ ------
Gross Profit ............................................ 2,521 2,211 1,789 1,972 3,434 3,082
------ ------ ------ ------ ------ ------
Operating Expenses ...................................... 880 972 914 1,341 1,215 1,125
------ ------ ------ ------ ------ ------
Operating Income ........................................ 1,642 1,239 875 631 2,219 1,957
Other (Income) Expense .................................. 34 79 100 260 73 74
------ ------ ------ ------ ------ ------
Income Before Income Taxes .............................. 1,607 1,160 775 371 2,146 1,884
Provision for Income Taxes .............................. 658 475 315 144 929 815
------ ------ ------ ------ ------ ------
Net Income .............................................. $ 949 $ 685 $ 460 $ 228 $1,217 $1,068
====== ====== ====== ====== ====== ======
</TABLE>
Ravenswood has experienced seasonal and quarterly fluctuations in sales,
operating expenses and net income. Because Ravenswood manages its business to
achieve long-term strategic objectives, it may make decisions that it believes
will enhance its long-term growth and profitability, even if such decisions
adversely affect quarterly earnings. Such decisions include: when to release its
wines for sale; how to position its wines competitively; and which grape and
bulk wine sources to use to produce its wines. In particular, the release dates
of Ravenswood's Vineyard Designate Series and County Series have resulted in
fluctuations in Ravenswood's results on a quarter-to-quarter basis. In addition,
Ravenswood's sales volume may change depending upon its distributors' inventory
levels. The results of operations for any quarter are not necessarily indicative
of the results of any future period. The market price of Ravenswood's common
stock may fluctuate significantly in response to these quarter-to-quarter
variations.
Liquidity and Capital Resources
Ravenswood has funded its capital requirements primarily with cash flows from
operations, a mix of short-term and long-term borrowings, and the sale of its
securities. Cash and cash equivalents totaled $3,171,374 at December 31, 1998,
as compared to $102,272 at June 30, 1998. The increase in cash and cash
equivalents is primarily due to the receipt of the net proceeds from
Ravenswood's sale of certain securities completed in December 1998.
Net cash provided by operations was $655,773 in the six months ended December
31, 1998, as compared to $124,197 in the six months ended December 31, 1997. For
the 1998 fiscal year, net cash used for operations was $357,171, as compared to
net cash provided by
23
<PAGE>
operations of $265,809 in the 1997 fiscal year. The principal use of cash from
operations in each of these respective periods was the acquisition of additional
inventory through increased production, while the principal source of cash in
each such period was net income.
Net cash used for investing activities totaled $891,336 in the six months ended
December 31, 1998, as compared to $243,229 in the six months ended December 31,
1997. Net cash used for investing activities was $490,621 for the 1998 fiscal
year, as compared to $312,386 in the 1997 fiscal year. The increases were
primarily a result of costs associated with the Quarry Facility. Ravenswood
expects that net cash used for investing activities will increase in the future
as additional investments in plant and equipment are made in completing the
Quarry Facility.
Net cash provided by financing activities was $3,304,665 in the six months ended
December 31, 1998, as compared to $72,923 in the six months ended December 31,
1997. Net cash provided by financing activities totaled $738,103 in the 1998
fiscal year, as compared to $507,595 used for financing activities in the 1997
fiscal year. The principal sources of cash provided by financing activities in
each of these respective periods were short-term borrowings under two lines of
credit with Pacific Coast Farm Credit Services and long-term borrowings,
including additional obligations to Pacific Coast. In addition, in the six
months ended December 31, 1998, a principal source of cash was Ravenswood's sale
of certain securities completed in December 1998. The principal use of cash from
financing activities in each of these respective periods was for repayment
obligations under Ravenswood's various short- and long-term borrowing
arrangements. In addition, Ravenswood used $278,255 in cash for the repurchase
of outstanding shares of common stock from one of its former officers in the
1998 fiscal year.
The majority of Ravenswood's grape purchases occur in the second fiscal quarter,
when the fruit is harvested. Most grape purchase contracts specify the timing of
payment for these purchases. Ravenswood typically makes several payments to each
grower in the quarters following each harvest. The actual dates vary depending
upon the terms of the individual contract. Based upon its grape purchase
contracts for the 1998 harvest, these payments will be made in the following
manner: 42%, 19% and 21% in the second, third and fourth quarters of fiscal
1999, respectively, and 18% in the first quarter of fiscal 2000. As a result of
harvest costs and the timing of grape and bulk purchase payments, Ravenswood's
inventory and related cash requirements generally peak during the second or
third fiscal quarters. Cash requirements also fluctuate depending upon the level
and timing of capital spending and tax payments.
In December 1994, Ravenswood completed a sale of $865,000 of convertible
debentures due December 31, 2004. Each $10,000 debenture is convertible into
3,500 shares of common stock at any time prior to December 31, 1999 upon request
of the holder. If the debentures are not converted, Ravenswood may redeem them
at face value at any time during the period from January 1, 2000 until the
maturity date. Ravenswood pays interest quarterly on the debentures based on a
floating index tied to prime bank rates for a five-year period. The interest
rate is adjusted every 18 months, except that in no period may the interest rate
adjustment exceed 2%, or the maximum interest rate exceed 11%.
In December 1998, Ravenswood completed a sale of $1,687,500 of convertible
debentures due December 31, 2008 and $1,687,500 of common stock. Each $10,000
debenture is convertible into 900 shares of common stock at any time prior to
December 31, 2003, upon request of the holder. If the debentures are not
converted, Ravenswood may redeem them at face value at any time during the
period from January 1, 2004 until the maturity date.
24
<PAGE>
Ravenswood pays interest quarterly on the debentures in an amount equal to the
prime interest rate quoted by Bank of America NT&SA plus 1%. The interest rate
is adjusted every 18 months, except that in no period may the interest rate
adjustment exceed 2%, or the maximum interest rate exceed 11%.
Ravenswood has two lines of credit with Pacific Coast Farm Credit Association,
pursuant to which Ravenswood may borrow up to a total of $2.8 million. As of
December 31, 1998, Ravenswood had $1,529,887 outstanding pursuant to these lines
of credit. In addition. Ravenswood is currently negotiating with Pacific Coast
Farm Credit Association for an additional $4 to $5 million line of credit to be
secured by the Quarry Facility. Since 1989, Ravenswood has periodically borrowed
funds for short-term working capital from certain of its executive officers. As
of December 31, 1998, Ravenswood had outstanding promissory notes in the
principal amount of $50,250 payable to Mr. Foster, its Chairman and Chief
Executive Officer, and additional promissory notes in the principal amount of
$46,143 payable to Mr. Peterson, its President and Winemaker. See "Certain
Transactions."
Ravenswood anticipates that its capital expenditures will increase substantially
in the 1999 fiscal year as it undertakes to complete the Quarry Facility. The
full extent of Ravenswood's future capital requirements and the adequacy of its
available funds will depend on many factors, not all of which can be accurately
predicted. Although no assurance can be given, Ravenswood believes that
anticipated cash flow from operations, borrowings under its existing credit
agreements, its proposed additional line of credit, and proceeds from this
offering and other recent financing activities will be sufficient to fund its
capital requirements, including its planned expansion, for at least the next 12
months. In the event that additional capital is required, Ravenswood may seek to
raise that capital through public or private equity or debt financings. Future
capital funding transactions may result in dilution to purchasers in this
offering. There can be no assurance that such capital will be available on
favorable terms, if at all. See "Business--Wine Production Facilities."
Risks Associated with Potential Year 2000 Problems
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field and cannot reliably
distinguish dates beginning on January 1, 2000 from dates prior to the year
2000. Many companies' software and computer systems may need to be upgraded or
replaced in order to process correctly dates beginning in 2000 and to comply
with the Year 2000 requirements. Ravenswood is reviewing its information systems
for any potential Year 2000 problems that might arise as a result of these
requirements, and does not believe such systems will be affected by the upcoming
change in century. However, Ravenswood utilizes third-party equipment and
software that may not be Year 2000 compliant. If such third-party equipment or
software fails to process dates for the year 2000 and thereafter properly, such
a failure could cause Ravenswood to incur unanticipated expenses to remedy any
problems, which could harm its business. In addition, Ravenswood relies on
various service providers, including banks, and on grape and bulk wine
suppliers, third-party production facilities and distributors. The software and
computer systems of any of these entities could have Year 2000 problems. A
disruption in the supply of services or products Ravenswood receives from any of
these entities due to Year 2000 problems could harm its business.
25
<PAGE>
BUSINESS
Overview
Ravenswood produces, markets and sells premium California wines exclusively
under the Ravenswood brand name. The vast majority of the wines Ravenswood
produces and sells are red wines, including Merlot, Cabernet Sauvignon and,
particularly, Zinfandel. To a lesser extent, Ravenswood produces white wines,
including Chardonnay, French Colombard and Gewurztraminer.
Ravenswood produces wines in three series:
* the value-priced Vintners Blend Series, with a suggested retail price of
approximately $9.75 to $11.25 per 750 ml bottle;
* the intermediate-priced County Series, with a suggested retail price of
approximately $12 to $18.50 per 750 ml bottle; and
* the higher-priced Vineyard Designate Series, with a suggested retail price
of approximately $18 to $31.50 per 750 ml bottle.
The actual price of any particular wine may be either higher or lower than
suggested retail, depending upon the type of retail outlet and location where it
is sold. All of these products are within the super-premium and ultra-premium
categories of the premium wine market generally recognized by the wine trade.
Ravenswood believes that the scope of its product offerings, coupled with its
emphasis on red wines, has positioned it well within the fastest growing
segments of the premium wine market. Since its inception, Ravenswood has
continued to expand its product portfolio by including new labels in its County
Series and its Vineyard Designate Series and by developing and steadily
increasing the production of its Vintners Blend Series. For its 1996 vintage,
Ravenswood marketed and sold 37 different wines within its three product series.
Ravenswood's approach focuses on using old-world French winemaking techniques to
produce premium wines of exceptional quality and on building awareness and
loyalty for the Ravenswood brand. Ravenswood has traditionally concentrated
investment in developing its brand name, building inventory and expanding
distribution channels, rather than developing vineyard holdings and production
facilities. Although Ravenswood currently owns and manages 14 acres of planted
vineyards, it relies almost exclusively on grapes supplied by third parties. A
majority of these grapes are crushed and fermented at facilities owned by third
parties, in accordance with Ravenswood's prescribed winemaking practices.
Ravenswood also purchases bulk wine of superior quality, which is incorporated
into its products, particularly its Vintners Blend Series. A substantial portion
of Ravenswood's wines is stored at facilities leased for this purpose by
Ravenswood.
Ravenswood believes this strategy has enabled it to sustain the growth necessary
to capitalize on favorable trends in the demand for California premium wines,
while minimizing the need to invest large amounts of capital in the acquisition
and development of land and capital equipment until its production levels
warranted such investment.
Ravenswood was founded in 1976 by Messrs. Foster and Peterson when Mr. Peterson
harvested and crushed Zinfandel grapes from two Sonoma County vineyards. In
1979, Ravenswood released its first wines, consisting of 327 cases of the 1976
vintage Zinfandel. Since its founding, and particularly since 1991, Ravenswood's
production and sales levels
26
<PAGE>
have increased substantially, to approximately 191,655 cases sold and $17.0
million in gross sales for the 1998 fiscal year. From the 1994 fiscal year to
the 1998 fiscal year, the compound annual growth rate of Ravenswood's gross
sales was approximately 28%.
Ravenswood has occupied the Gehricke Road Facility in Sonoma, California since
1991. This facility includes a tasting room, which Ravenswood uses to promote
consumer demand and generate direct retail sales, as well as a wine production
facility, a barrel storage warehouse and executive offices. Recognizing its
anticipated growth and the potential scarcity of future winemaking capacity in
the Napa and Sonoma counties of California, Ravenswood is building a new winery
facility in Sonoma County, which is referred to as the Quarry Facility.
Ravenswood believes that the Quarry Facility will reduce its reliance on leased
storage space and custom crush production facilities and improve its ability to
control the quality of its wines and operate efficiently.
Varietal Wines
In the United States, wines are classified as "non-varietal" or "varietal."
Non-varietal wines contain less than 75% of a single grape variety. While there
are non-varietal blends sold within the premium category, non-varietal wines are
often sold as "generic" or "jug" wines and include wines named after European
regions (e.g., Burgundy and Chablis), as well as wines simply labeled "red" or
"white." Generic or jug wines are packaged primarily in large-size containers
(e.g., three-, four- and five-liter sizes) and usually retail for less than
$3.00 per 750 ml equivalent unit.
As prescribed by United States Federal Bureau of Alcohol, Tobacco, and Firearms
regulation, varietal wines must contain at least 75% of the single grape variety
for which they are named. Wine production outside the United States relies on a
significant number of grape varieties, and most of the better known wines are
not varietally designated. The majority of high-quality wine produced in the
United States is varietal and, particularly in California, is comprised of a
limited number of grape varieties with distinct characteristics. The predominant
varietal wines produced in California include the following:
Cabernet Sauvignon: The Cabernet Sauvignon varietal, which is the most famous
grape of France's Bordeaux region, is a hybrid of Cabernet
Franc (a red grape) and Sauvignon Blanc (a white grape). It
produces red wines that are highly aromatic, with
significant depth and intensity of flavor. Cabernet
Sauvignon has traditionally been blended with other select
grape varieties, but in the United States, and particularly
California, it is not unusual to have wines that contain
90% to 100% of this varietal. The most highly regarded
Cabernet Sauvignon wines are generally stored in French or
American oak barrels for 18 to 30 months prior to bottling
in order to impart a distinctive flavor, while softening
the effect of the natural grape skin astringent (tannin)
that is highly concentrated in the Cabernet Sauvignon
grape.
Chardonnay: The Chardonnay grape is a versatile varietal that grows
well in a variety of locations throughout the world,
including California. The Chardonnay grape produces white
wines that winemakers can relatively easily manipulate in
order to produce distinctive flavors. Chardonnay is often
highly regarded for the significant impact oak
27
<PAGE>
aging can have on enhancing the fruit and spice flavors of
the grape. Chardonnay is the most plentiful white grape in
California and is planted in virtually all of its wine
growing regions, producing wines that range from jug to
ultra-premium quality.
Merlot: Like Cabernet Sauvignon, Merlot's prominence originated in
the Bordeaux region of France, where it is mainly blended
with other varietals according to local winemaking
traditions. It is the predominant grape of the Pomerol
appellation in Bordeaux, and Chateau Petrus, the most
famous wine of that appellation, is nearly 100% Merlot.
Wide-scale production of Merlot in California has developed
over the last 15 to 20 years. Due to its popularity, Merlot
is being widely planted in California and Chile, even
though it is considered difficult to grow because of its
uneven crop production. Merlot is typically considered
softer and more supple tasting than Cabernet Sauvignon.
Zinfandel: Zinfandel arrived in California in the mid-1800s from a
horticultural collection in New York. The origins of
Zinfandel are unknown, although it is closely related to
the ancient Plavic Mali varietal from Croatia. Zinfandel is
well suited to the California climate and is widely planted
throughout the state. Much of the Zinfandel grown in
California is used in the production of white Zinfandel, a
blush-colored slightly sweet wine that is served chilled.
Traditional Zinfandel, a red wine, can range from
short-lived wines with light berry flavors and mild tannins
to robust, intensely-flavored wines with strong tannins
that are vinted to improve with age. California has a
number of old Zinfandel vineyards that range from 50 to 100
years old. Many of these vineyards are farmed without
irrigation, are planted relatively densely, and are
frequently planted in prime grape-growing locations. Such
vines produce smaller, more uniform crops of superior
quality and are highly sought after by wineries such as
Ravenswood.
While these varietal grapes are widely produced and the wines produced from them
are generally considered the most popular with consumers, other varietals,
including Sauvignon Blanc, Gew -urztraminer, Pinot Noir, Sangiovese, Petite
Sirah, Syrah, and Grenache, are also produced in significant quantities
throughout the world, including California. In addition, wines blended from
varietal grapes that do not consist of 75% or more of one varietal are commonly
produced worldwide. California has experienced a growing trend toward producing
more ultra-premium non-varietal wines. Perhaps the most well known of these are
the "Meritage" (rhymes with "heritage") wines that use varietal grapes commonly
associated with Bordeaux. These Meritage wines are both white and red. The
whites are usually a combination of Sauvignon Blanc and Semillion, while the
reds are some combination of Cabernet Sauvignon, Cabernet Franc, Merlot, Petite
Verdot and Malbec. There has also been a trend in California to produce
Rhone-style blends. These blends include grapes such as Rousanne and Marsanne
for white wines, and Syrah, Grenache, Mourvedre and Cinsault for red wines.
28
<PAGE>
The Premium Wine Market
Most varietal wines and blends of highly regarded varietals are generally
considered "premium" wines and typically retail for more than $3.00 per 750 ml
equivalent unit. The premium category is often divided into three major
segments: "popular premium" wines, which retail for between $3.00 and $7.00 per
750 ml equivalent unit; "super-premium" wines, which retail for between $7.00
and $14.00 per 750 ml equivalent unit; and "ultra-premium" wines, which retail
for $14.00 or more per 750 ml equivalent unit. Industry analysts estimate that
in 1997, shipments of popular-premium, super-premium and ultra-premium wines
accounted for 66%, 27% and 7%, respectively, of premium wine cases shipped in
the United States and 46%, 35% and 19%, respectively, of premium wine revenues
(as indicated in the chart below). Ravenswood's products fall exclusively into
the super-premium and ultra-premium segments of the premium wine category.
The United States Premium Wine Shipments By Segment: 1997*
[GRAPHIC OMITTED]
(Two pie charts showing percentages of cases and revenues by popular,
super-premium and ultra-premium)
* Source: Gomberg, Fredrickson and Associates
During the last ten years, consumer preferences for wine in the United States
have shifted significantly away from generic jug wines toward premium wines sold
in 750 ml bottles. Industry analysts estimate that United States shipments of
California premium wines have grown from approximately $866 million in 1987 to
approximately $3.6 billion in 1997. Ravenswood believes this growth in the
premium wine category can be attributed to, among other things, an increasingly
discriminating customer base that appreciates higher quality wines and is
willing to pay for them.
As a result of changing consumer preferences, as well as several studies
suggesting various health benefits from the moderate consumption of red wine,
the vast majority of the recent growth in the wine industry has been in the
sales of red wine. Industry analysts estimate that sales of nine-liter cases of
red wine grew 158% from 1991 to 1997, from 22.1 million cases to 57.2 million
cases (as indicated in the following chart). This amounts to approximately 67%
of the growth in the premium wine industry during this period.
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[GRAPHIC OMITTED] Percentage Increase: 1991 - 1997*
(Bar graph showing
United States table Red: 158%
wine shipments White: 15%
by color, Blush: 16%
from 1991 to 1997
(in millions of cases))
* Source: Gomberg, Fredrickson and Associates
Within the red wine category, Cabernet Sauvignon has historically dominated
sales relative to other varietals. In recent years, however, other varietals,
including Merlot and, more recently, Zinfandel, have fueled much of the growth
in sales of red wines. The following table sets forth estimated shipments for
certain red wines by varietal, as measured in millions of nine-liter cases.
<TABLE>
United States Shipments of California Premium Red Wines by Varietal*
(millions of nine-liter cases)
<CAPTION>
Compound
Annual
Growth Rate
1990 1991 1992 1993 1994 1995 1996 1997 1990-1997
------ ------ ------ ------ ------ ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cabernet Sauvignon ...... 4.6 5.0 6.7 7.5 8.7 9.8 11.3 11.8 14.4%
Merlot .................. 0.6 0.8 1.4 2.0 2.8 3.8 5.3 7.0 42.0%
Red Zinfandel ............ 0.6 0.7 0.8 0.9 1.2 1.6 2.1 2.4 21.9%
Pinot Noir ............... 0.3 0.3 0.4 0.5 0.6 0.7 0.8 0.9 17.0%
<FN>
- ------------
* Source: Gomberg, Fredrickson and Associates
</FN>
</TABLE>
The Ravenswood Strategy
Ravenswood believes that its mix of premium wine products of different varietals
and different price segments has positioned it to take advantage of the rapid
growth in the consumption of premium wines, particularly California red
varietals. Ravenswood's objectives are to continue to concentrate on producing
wines that enhance its reputation for high quality and further establish its
brand identity in order to achieve a competitive advantage in every segment of
the premium wine market in which Ravenswood operates. To achieve these
objectives, Ravenswood has developed the following strategies:
Focus on Product Offerings Although demand for premium California wine has
that Give the Consumer increased across the spectrum of wine varietals
the Demonstrable Value: in the last decade, most prominent growth in the
past six years has been in the demand for red
wines. Red wines accounted for approximately 91%
of Ravenswood's gross sales in the 1998 fiscal
year. As a result, Ravenswood believes it has
been and continues to be well positioned to take
advantage of the growing consumer preference for
premium red wine. In particular, Ravenswood
believes its emphasis on the
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production of Zinfandel has allowed it to become
recognized as a quality leader in this segment
of the wine market. Ravenswood intends to
continue to focus on meeting consumer demand by
producing wines which enhance its reputation for
expertise, demonstrable value and high quality,
thereby further promoting the favorable image of
its products.
Strategically Manage Consumer research indicates that the majority of
the Brand: wine consumers prefer wines with which they are
familiar and consider a recognizable brand name
very important when purchasing wine. Ravenswood
believes the quality of its wines, its
distinctive Ravenswood brand and logo, and the
irreverent image created through its "No Wimpy
Wines" slogan have resulted in high brand
awareness relative to other wineries of
equivalent size. Ravenswood intends to continue
to invest in the promotion of its brand name and
image in order to continue to generate favorable
brand awareness.
Produce High-Quality Ravenswood believes it has consistently offered
Products that Emphasize the consumers high-quality wines of excellent value
Winemaking Process: in each price segment of the premium wine market
in which it operates. Ravenswood's team of
winemakers produces these wines by using
high-quality premium wine grapes, while
maintaining strict adherence to Ravenswood's
artisinal winemaking techniques, which are
designed to produce the highest quality wine.
Ravenswood believes that its old-world French
winemaking techniques impart a distinctive style
to its wines, which is evident even when blended
with purchased bulk wine, as is Ravenswood's
practice with its Vintners Blend Series. Many of
Ravenswood's grapes are purchased from
dry-farmed vineyards that yield low crops with
concentrated fruit flavors. In addition, younger
vineyards from which Ravenswood acquires grapes
are regularly thinned at the request of
Ravenswood to ensure the premium quality of the
grapes they produce. Ravenswood often pays a
premium for grapes that are grown according to
these specifications. Ravenswood intends to
continue to emphasize the high-quality results
of its winemaking process as it promotes its
existing products and develops additional
product offerings.
Maintain Broad, Efficient Ravenswood has developed a broad network of
Distribution Channels: brokers and distributors throughout the United
States and in more than 15 export markets.
Ravenswood sells its products directly in
California, using five warehouses throughout the
state and a network of seven brokers. Elsewhere
throughout the United States and
internationally, Ravenswood uses a network of
over 75 distributors. Ravenswood has
concentrated on the establishment of
relationships with smaller, regionally-based
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brokers and distributors for which Ravenswood is
a prominent brand. Ravenswood believes that such
arrangements create incentives for both
Ravenswood and its distribution partners to
position the Ravenswood brand optimally.
Selectively Invest in Ravenswood has focused on promoting the
Vineyards and Production Ravenswood brand and implementing its winemaking
Facilities: process while relying on independent growers for
grape supply and, to a certain extent, third
parties for wine production. In addition to
utilizing independent facilities, Ravenswood
currently produces a portion of its annual
volume at the Gehricke Road Facility. While
Ravenswood believes that it will continue to
focus primarily on the development of the
Ravenswood brand, it is building the Quarry
Facility to accommodate the increase in its wine
production and to reduce its reliance upon the
limited capacity available at third-party
production facilities. Upon completion of the
Quarry Facility, Ravenswood expects to utilize
fully both the Quarry Facility and the Gehricke
Road Facility for its wine production.
Ravenswood believes the addition of the Quarry
Facility will present several benefits,
including: consolidation of operations so as to
improve coordination of management and staff;
substantial cost savings; and closer control of
Ravenswood's winemaking techniques to ensure
continued high-quality standards.
Retain and Further Develop Ravenswood believes its professional management
the Professional team's depth and experience in winemaking,
Management Team: marketing and business strategy will be
important in guiding Ravenswood's growth. Since
its establishment in 1976, Ravenswood has been
operated by a management team dedicated to the
production of the highest quality wines in each
of the categories of the premium wine market in
which it competes. Ravenswood believes that in
order to meet its objectives, it must continue
to attract and retain qualified winemaking
experts and management through compensation
benefits as well as opportunities for
advancement.
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<PAGE>
Ravenswood Products
Ravenswood has traditionally focused on the production of wines within the
super-premium and ultra-premium categories of the premium wine market.
Ravenswood's wines target specific varietals and prices within these categories.
Ravenswood offers its products in three series:
* the value-priced Vintners Blend Series, with a suggested retail price of
approximately $9.75 to $11.25 per 750 ml bottle;
* the intermediate-priced County Series, with a suggested retail price of
approximately $12 to $18.50 per 750 ml bottle; and
* the higher-priced Vineyard Designate Series, with a suggested retail price
of approximately $18 to $31.50 per 750 ml bottle.
The actual price of any particular wine may be either higher or lower than
suggested retail, depending upon the type of retail outlet and location where it
is sold.
Vintners Blend: Ravenswood's Vintners Blend Series consists of
wines produced from grapes of specific varietals
but sourced from a variety of locations
(appellations) in California. In producing its
Vintners Blend Series, Ravenswood uses grapes
obtained from independent growers in premium
grape-growing regions in Northern California and
bulk wine derived from grapes grown in various
California appellations. Ravenswood currently
produces Vintners Blend Series wines in
Zinfandel, Merlot and Chardonnay varietals.
While its Vintners Blend Series provides lower
margins than Ravenswood's other products, the
flexibility provided by using grapes and bulk
wine of varying appellations enables Ravenswood
to produce its Vintners Blend Series on a larger
scale than its other products and thereby
generate greater sales. In the 1998 fiscal year,
sales of the Vintners Blend Series totaled $9.5
million, or 56% of Ravenswood's gross sales.
County Series: Ravenswood's County Series consists of specific
varietal wines primarily vinted by Ravenswood
and blended from grapes acquired from various
independent growers within the specific
appellations of Napa County, Sonoma County,
Amador County and Lodi County. Ravenswood
believes that its County Series provides
consumers with a reasonably priced ultra-premium
varietal wine derived solely from grapes of
highly regarded appellations of the California
premium wine industry. For its 1996 vintage,
Ravenswood offered twelve different wines within
its County Series. In the 1998 fiscal year,
sales of the County Series totaled $4.5 million,
or 27% of Ravenswood's gross sales.
Vineyard Designate Series: Ravenswood's Vineyard Designate Series consists
of ultra-premium varietal and Meritage wines
derived from grapes supplied by specific
vineyards within Napa and
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<PAGE>
Sonoma counties. Ravenswood believes that
Vineyard Designate Series wines represent the
unique characteristics of each designated
vineyard and its respective grape varietal.
Ravenswood also believes that its Vineyard
Designate Series' emphasis on old-world French
winemaking techniques sets a standard for high
quality that enhances the perceived value of the
products in each of its product series. For its
1996 vintage, Ravenswood offered 22 different
wines within its Vineyard Designate Series. The
number of products offered within the Vineyard
Designate Series varies from year to year. This
variation results from two factors: the number
of vineyards available for designation and the
winemakers' discretion as to whether harvested
grapes merit Vineyard Designate Series status.
In the 1998 fiscal year, sales of the Vineyard
Designate Series totaled $2.7 million, or 16% of
Ravenswood's gross sales.
<TABLE>
The table below summarizes the number of wines offered in each product series,
by varietal, for the Ravenswood 1996 vintage:
<CAPTION>
Vintners Blend County Vineyard Designate Total
---------------- -------- -------------------- -------
<S> <C> <C> <C> <C>
Zinfandel ..................................... 1 4 10 15
Merlot ........................................ 1 2 4 7
Cabernet Sauvignon, Cabernet Franc
and Bordeaux Varietal Blends ................. -- 3 4 7
Miscellaneous Reds/Blends .................... -- 1 1 2
Chardonnay .................................... 1 -- 2 3
Miscellaneous Whites .......................... -- 2 1 3
--- --- --- ---
TOTAL ......................................... 3 12 22 37
</TABLE>
The vast majority of Ravenswood's products in all of its product series are red
wines, particularly Zinfandel. Ravenswood's red wines accounted for
approximately 91% of its gross sales in the 1998 fiscal year, with sales of
Zinfandel accounting for approximately 63% of its gross sales for that period.
Ravenswood estimates that production of future vintages will continue to consist
primarily of red wines, although it expects that a lesser percentage of
Ravenswood's total production will consist of Zinfandel. While Ravenswood will
continue to attempt to expand its sales and name recognition selectively,
Ravenswood believes that its current mix of products is well suited to the
growing demand for red wines, and it intends to continue to devote a majority of
its production to its existing red wines.
Ravenswood believes that by focusing on its unique winemaking process and
emphasizing red wine, it has achieved a reputation for high quality and
distinctive flavors within the market for red wines, particularly with respect
to its Zinfandel and its Vineyard Designate Series. Ravenswood intends to
maintain its position as a prominent supplier in the product categories in which
it has already established itself. It also plans to explore additional
opportunities to produce alternative varietal or blended products in those areas
where its focus can enable Ravenswood to establish a similar reputation for
excellence and build favorable awareness for the Ravenswood brand.
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<PAGE>
Ravenswood's Red Winemaking Process
In producing its premium wine products, Ravenswood employs traditional old-world
French winemaking techniques modified to embrace important aspects of modern
winemaking. Ravenswood's red winemaking techniques are most closely patterned
after those used in France in the 19th century. Ravenswood believes that
winemaking, in large part, is a natural process, and that intervention into that
process should be minimal. Nevertheless, Ravenswood's winemaking techniques
demand careful attention to, and monitoring of, the wines from the vineyard
through the bottling and shipping of its finished products.
Substantially all of the grapes utilized in the production of Ravenswood's wines
are purchased from independent growers. Ravenswood plays an active role,
however, in the management of the grapes that it purchases by monitoring the
development of the crop and working directly with vineyard owners to determine
optimal plans for nurturing and harvesting grapes.
After the grapes are harvested, they are immediately crushed and pumped into
fermenting tanks. Ravenswood currently utilizes independent crush and
fermentation facilities for the production of all of its Vintners Blend Series.
It currently crushes and ferments the majority of its County Series and all of
its Vineyard Designate Series at the Gehricke Road Facility. Using wild natural
yeasts found on the grapes, a combination of the grapes, juice, seeds and stems
is left to ferment for a period ranging from one to four weeks, during which
time the sugar in the grapes is converted to alcohol. During fermentation, the
grape skins are mixed with the fermenting juice through a process known as
"punching down," which provides maximum contact between the skins and the juice.
Ravenswood's Vineyard Designate Series is fermented in open-top redwood
fermentation tanks of approximately five- to eight-ton capacity that permit
punching down to be done by hand and optimize the distribution of heat
throughout the fermentation process. Ravenswood's County Series is fermented in
a mix of open-top redwood and stainless steel fermentation tanks ranging in size
from six to 20 tons. Fermentation of Ravenswood's Vintners Blend Series takes
place exclusively in 20- to 60-ton stainless steel fermentation tanks. Most of
Ravenswood's wines are allowed to go through malolactic fermentation, a
secondary fermentation which adds complexity and flavor to the wines.
When the fermentation process is completed, the wine is gently pressed to
separate the juice from the grape skins and stems. It is then stored for aging.
All of Ravenswood's Vineyard Designate Series and substantially all of its
County Series are stored in 60-gallon French oak barrels of various ages.
Approximately 25-30% of Ravenswood's County Series and 30-60% of its Vineyard
Designate Series are stored in new French oak barrels. Ravenswood believes that
storage in new French oak barrels provides superior flavor characteristics in
comparison to other storage alternatives. Approximately 30% of Ravenswood's
annual production of Vintners Blend Series wine is stored in French oak barrels.
The remaining wine used to produce the Vintners Blend Series is stored in
stainless steel tanks or purchased as bulk wine from outside suppliers.
Ravenswood ages its red wines for various periods ranging from approximately one
year for its Vintners Blend Series to approximately two years for certain of the
wines in its Vineyard Designate Series. After aging is complete, the barrels are
emptied and the wines are blended and stored briefly in stainless steel tanks.
To a very limited extent, Ravenswood may blend bulk wine of superior quality
into a portion of its County Series. Ravenswood's Vintners Blend Series is
blended using a proportion of
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<PAGE>
French oak barreled wine, wine stored in stainless steel tanks and bulk wine
acquired from independent wineries. Once blended, Ravenswood's wines are bottled
at the Gehricke Road Facility and certain other custom bottling facilities.
After bottling, Ravenswood's winemakers release the wines for distribution at
such time as they deem appropriate.
Although Ravenswood currently uses a variety of production facilities to
complete the production of its annual wine volume, it prescribes the processes
used at such facilities in order to maintain consistency in the flavor and
quality of its products. Ravenswood believes that the hand-crafted techniques
employed in the production of its Vineyard Designate Series and County Series
and the inclusion of a prominent percentage of such hand-crafted wines into its
large volume, value-priced Vintners Blend Series has enabled Ravenswood to
establish a reputation for value at each price segment within the premium wine
market in which Ravenswood currently competes. As Ravenswood expands production
of its existing wines and adds new wines to its product portfolio, it intends to
continue to use these same practices to ensure the quality of its wines and to
enhance awareness of the Ravenswood brand name.
Marketing
A primary focus of Ravenswood's marketing is associating the Ravenswood brand
name with high-quality and distinctive flavor within the super-premium and
ultra-premium segments of the premium wine market. Ravenswood believes it has
developed a favorable reputation and strong brand awareness among wine consumers
and resellers for its red wines, in particular its Zinfandel, Merlot, Cabernet
Sauvignon and proprietary blends. Ravenswood has invested, and expects to
continue to invest significantly, in the development of its brand name,
packaging and trademarks. Ravenswood believes that the distinctive Ravenswood
name, which is derived from a character in the opera Lucia di Lammermoor by
Gaetano Donizetti, and its distinctive logo, created by Berkeley poster artist
and printer David Lance Goines, convey a recognizable and high-quality image
that has contributed to its success.
In addition, Ravenswood has invested substantially in promoting its trademarked
slogan "No Wimpy Wines," which it believes accurately and humorously conveys its
core marketing philosophy: to demystify wine and make it intellectually
accessible to a broad range of consumers. At the same time, Ravenswood believes
this slogan, which Ravenswood has idiosyncratically translated into over a dozen
languages in its promotional materials, portrays the robust, full-bodied nature
of its products, particularly its red wines.
The focus of Ravenswood's marketing strategy is to attract core wine consumers.
Consumer research indicates that the vast majority of the wine consumed in the
United States is consumed by a small percentage of the adult population. While
Ravenswood believes its promotional messages are appealing to a wide audience of
consumers, it also believes a marketing effort focused upon core wine consumers
is more effective than campaigns aimed at broadening the population of wine
consumers in general. As a result, Ravenswood has not traditionally relied on
broad-based advertising in the promotion of its wine and instead has relied on
targeted marketing strategies aimed at the core population of wine consumers.
As part of its targeted marketing strategy, Ravenswood has traditionally relied
on its management's personal involvement in the marketing of its wines. Mr.
Foster, Ravenswood's Chief Executive Officer, and Mr. Peterson, its President
and Winemaker, as well as other employees, spend considerable time each year
leading tours at the Gehricke Road Facility as well as traveling on behalf of
Ravenswood throughout the country to meet with consumers,
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<PAGE>
distributors, wholesalers, restaurateurs and wine writers. Although Ravenswood
expects to expand its marketing efforts in the future, it anticipates that its
executive management will continue to personally promote its products and brand
name.
A key element of Ravenswood's marketing is its tasting room located at its
Gehricke Road Facility. The tasting room, which is open seven days a week,
offers tastings of Ravenswood's product line, Ravenswood logo merchandise and a
daily tour of the winery operations. The tasting room also offers barbecues on
summer weekends, which encourages visitors to linger over lunch. Ravenswood
believes that this welcoming, relaxed atmosphere is an integral part of its
casual and approachable style and assists in the development of a favorable
image for the Ravenswood brand.
Consumer research also indicates that a majority of core wine consumers rate
brand name familiarity as a very important attribute in selecting a wine for
purchase. Ravenswood intends to continue to invest in the promotion of its brand
name, logo and slogan in the future to increase the familiarity and favorable
impression of the Ravenswood brand. Such investment is likely to include
increased strategic marketing and distribution efforts in key geographic regions
in the United States and select export markets, as well as an emphasis on
building brand awareness through its Internet presence.
Sales and Distribution
Ravenswood does not have an in-house sales staff. Its products are sold both at
"on-premise" restaurants and "off-premise" retailers such as liquor stores,
specialty wine stores, supermarkets and discounters. Ravenswood sells to
retailers directly through brokers in California and certain key geographic
markets and through a network of wholesale distributors elsewhere in the United
States and in 15 export markets. Brokers act as an independent sales force and
receive commissions as compensation for their sales. Brokers do not take title
to the wines they sell. Distributors purchase wine from Ravenswood and sell the
wine to their own retail accounts, such as restaurants, grocery stores and wine
shops.
Ravenswood primarily uses smaller, well-positioned brokers and distributors for
whom Ravenswood is a key brand. Although Ravenswood has very few long-term
agreements for the distribution of its products, Ravenswood believes that its
relationships with its existing brokers and distributors are excellent.
Ravenswood's executive management also takes an active role in assisting brokers
and distributors with sales within California and within major geographic
markets outside California.
In many states, including California, and in Europe, Ravenswood uses brokers who
act as sales agents in exchange for commissions. In the 1998 fiscal year,
approximately 75% of Ravenswood's gross sales were made using brokers. In the
1998 fiscal year, its most successful broker was responsible for 21% of its
gross sales, and its ten most successful brokers were responsible for 69% of its
gross sales. Within California, Ravenswood currently uses seven brokers and five
warehouses located throughout the state. For the 1998 fiscal year, approximately
39% of Ravenswood's gross sales resulted from sales within California (excluding
sales through Ravenswood's tasting room).
Whether or not Ravenswood uses a broker as a sales agent, Ravenswood's sales
outside of California generally require the use of distributors. While no one
distributor accounted for more than 7% of its sales for the 1998 fiscal year,
its ten largest distributors accounted for approximately 23% of its gross sales
for that period. In order to facilitate broad distribution of its products
throughout various geographic markets, Ravenswood has traditionally
37
<PAGE>
allocated its available production among its brokers and distributors.
Ravenswood believes that the breadth of its distributor network, which
participated in approximately 49% of Ravenswood's gross sales for the 1998
fiscal year, ensures that the elimination of any one specific distribution
relationship will not adversely affect out-of-state sales.
Beginning in 1991, Ravenswood began selling wines and some merchandise directly
to consumers through the tasting room at its Gehricke Road Facility.
Ravenswood's gross sales from its tasting room have grown substantially since
1992, and accounted for approximately 11% of its gross sales for the 1998 fiscal
year. Although Ravenswood sells some of its products through direct mail
channels, where permitted by law, it does not anticipate a material increase in
the percentage of sales derived from direct sales to consumers in the near
future.
Grape and Bulk Wine Supply
The Gehricke Road Facility includes 14 acres of vineyards, only three of which
are currently productive. The remaining acreage has been replanted and will
resume production over the next three years. Ravenswood is dependent upon
independent grape growers and bulk wine suppliers for substantially all of its
annual wine production. Ravenswood obtains its grapes for wine production from
more than 60 suppliers located in Sonoma and Napa counties, and other Northern
California premium grape-growing counties. Ravenswood is not dependent upon any
one supplier for a significant portion of its total required grape supply in any
given harvest season. Ravenswood's largest supplier typically accounts for no
more than 8% of the total grapes crushed for Ravenswood's annual wine
production, and the top three suppliers together generally account for no more
than 20% of the total grapes crushed. Ravenswood believes there are sufficient
alternative supplies of high-quality grapes to ensure continuing production of
high-quality wines in the event that it cannot obtain grapes from any particular
supplier.
In working with its growers, Ravenswood relies on both personal and contractual
relationships. Ravenswood has entered into grape purchase agreements with the
growers of a majority of the grapes used in its annual production. The business
terms of these purchase agreements vary; however, the majority of Ravenswood's
purchase agreements require that, while either party may terminate the agreement
at any time, both parties must abide by its terms for three years following
termination. The majority of such contracts provide for pricing formulas tied to
the Final Grape Crush Report published annually by the California Department of
Food and Agriculture. Ravenswood also purchases grapes from some of its growers
in amounts and at prices that are negotiated from year to year. These
year-to-year arrangements are often not in writing. Ravenswood traditionally has
relied on, and continues to seek to establish, relationships with growers that
have a long-term perspective, whose vineyards have the potential for developing
distinctive wines, and for whom Ravenswood is an important customer.
Ravenswood relies on several specific grape suppliers for its Vineyard Designate
Series in order to produce wines from those specific vineyards. For the 1996
vintage, Ravenswood produced 22 separate wines within the Vineyard Designate
Series. The vast majority of growers supplying grapes for Ravenswood's Vineyard
Designate Series have entered into grape supply agreements with Ravenswood.
Ravenswood believes that the pricing arrangements with these growers and the
prestige and notoriety related to the production of a wine within the Vineyard
Designate Series have led to stable and long-term relationships with those
suppliers.
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<PAGE>
Ravenswood is also dependent on bulk wine suppliers for the production of
several of its wines, particularly its Vintners Blend Series. Ravenswood does
not have contracts with bulk wine suppliers or agreements that would protect it
from fluctuations in the price or availability of bulk wine. The availability
and price of bulk wine significantly affect the quality and production level of
Ravenswood's products that contain bulk wine. The price, quality and available
quantity of bulk wine have fluctuated in the past. It is possible that
Ravenswood will not be able to purchase bulk wine of acceptable quality at
acceptable prices and quantities in the future.
The quality and quantity of grape supply is determined by a combination of
factors, including weather conditions during the growing season, pruning
methods, diseases and pests, and the number of vines producing grapes. The
adequacy of grape supply is further influenced by consumer demand for wine.
While Ravenswood believes that it can secure a sufficient supply of grapes from
grape supply contracts with independent growers, there can be no assurance that
grape supply shortages will not occur as a result of agricultural risks. Due to
the effects of El Ni -no, the grape supply available to Ravenswood for the 1998
harvest was lower than for the 1997 harvest, which Ravenswood believes was an
unusually large harvest. Although Ravenswood expects to compensate in part for
this shortfall by the purchase of bulk wine, the inventory of Ravenswood's 1998
vintage may be less than that of the 1997 vintage. As a result, the growth of
Ravenswood's sales may be limited in fiscal years 2000 and 2001, when most of
its 1998 vintage will be released for sale.
Ravenswood believes it has maintained good relationships with its grape
suppliers in the past, and it expects no material adverse change in these
relationships in the foreseeable future. Nevertheless, shortages in the supply
of wine grapes could result in an increase in the price of some or all grape
varieties and a corresponding increase in the cost to Ravenswood of its wine
production as well as a potential shortfall in Ravenswood's inventory. An
increase in the cost of producing Ravenswood's wines or a shortfall in inventory
could reduce the amount of wine Ravenswood produces for sale, and could result
in reductions in its sales and profits.
The recent increase in demand for premium wine has resulted in the planting of
additional vineyards both domestically and internationally and the replanting of
existing vineyards to greater densities. Many industry sources expect a
significant increase in the supply of premium wine grapes in the next few years.
Although this increase in supply may cause a decrease in the prices Ravenswood
pays independent growers for their grapes, an oversupply of grapes may
significantly increase the amount of premium wine produced. An increase in the
supply of premium wine may reduce the price of premium wines, including those
Ravenswood produces, and therefore may harm its business and reduce its sales.
Oversupply may also increase the amount of premium wine available to its
distributors and retail outlets, thereby increasing competition in its
distribution channels.
Wine Production Facilities
Ravenswood currently uses the Gehricke Road Facility, which it owns, two leased
barrel-storage warehouses and three production facilities operated by third
parties to crush, ferment, store and bottle its annual wine production.
Typically, Ravenswood's agreements with third-party production partners have
one-year terms. Ravenswood believes such arrangements are acceptable because of
the excellent relationships maintained with such producers. If, however,
Ravenswood were not able to secure the use of such facilities, and could not
undertake increased production activities through its own facilities, its
production, and therefore its sales and profits, could be limited.
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<PAGE>
Due to the increase in Ravenswood's production over the past several years and
its increasing dependence on a limited supply of independent production
facilities, Ravenswood has undertaken to increase its own production capacity.
Its Gehricke Road Facility is currently operating at full capacity. Ravenswood
is in the process of building the Quarry Facility as an additional production
facility on a leased, approximately 30-acre location in the Sonoma Valley.
Preliminary site work began on the Quarry Facility during the fall of 1998, and
construction commenced in February 1999. Ravenswood anticipates that the
facility will be operational by late summer or early autumn of 1999.
Ravenswood has developed a master plan for the Quarry Facility, which includes a
45,000 square-foot building with facilities capable of crushing 2,700 tons of
grapes and storing 11,000 barrels of wine. Although Ravenswood initially plans
to bottle a maximum of 250,000 cases of wine annually at the Quarry Facility, it
anticipates that it will be able to expand the facility in the future to
significantly increase production should Ravenswood seek to increase its
permitted capacity. The Quarry Facility will also support certain warehouse and
administrative office activities.
Upon completion of the Quarry Facility, Ravenswood believes that it will use
both its Gehricke Road Facility and the Quarry Facility to full capacity.
Ravenswood believes that the construction of the Quarry Facility will result in
immediate and substantial savings because in-house production will cost less
than paying outside vendors for custom crushing, fermentation, storage and
bottling. Ravenswood anticipates that consolidating its facilities will improve
the management and coordination of production staff and facilities. In addition,
Ravenswood believes such consolidation will allow it to reduce its future
reliance upon production facilities owned by independent third parties.
Ravenswood believes the increased control over the production process provided
by the completion of the Quarry Facility will enhance its ability to apply its
traditional winemaking processes on a consistent basis. Use of the Quarry
Facility will also assist Ravenswood in maintaining the label terminology
"Produced and Bottled by Ravenswood Winery, Sonoma, CA." Production of wine at
non-Ravenswood locations sometimes requires different labeling.
Ravenswood believes that it will have access to adequate capital to complete the
Quarry Facility. Ravenswood's failure to complete the facility, or otherwise
expand its production capabilities, could limit its production and therefore its
sales and profits.
Ravenswood anticipates that the Quarry Facility will initially be primarily
dedicated to production. The Gehricke Road Facility will remain as a
fully-integrated winery, focusing on the production of the Vineyard Designate
Series, Ravenswood's tasting room and administrative offices.
Competition
The premium wine industry is intensely competitive and highly fragmented.
Ravenswood's wines compete in the premium wine market with the hundreds of other
wineries producing and marketing California wine as well as other producers of
domestic premium wines and producers of imported wines coming primarily from
France, Italy, Spain, Australia and Chile. Ravenswood's wines also compete with
popular-priced generic wines and with other alcoholic and, to a lesser degree,
non-alcoholic beverages for shelf space in retail stores and for marketing focus
by Ravenswood's independent brokers and distributors, many of which carry
extensive brand portfolios.
Ravenswood believes that the primary competitive factors in the wine industry
tend to be brand recognition, product quality, access to distribution channels
and price. Although
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<PAGE>
Ravenswood believes it is competitive in each of these areas, there can be no
assurance that it will be able to compete effectively in the future. The wine
industry has experienced significant consolidation in recent years. Despite
numerous brand labels, industry analysts estimate that seven wineries accounted
for approximately 53% of the total California premium wine shipments in 1997, by
volume. Large volume competitors, such as Beringer Estates, Gallo, Kendall
Jackson and Robert Mondavi, which compete directly with Ravenswood in the
premium wine market, have significantly greater capital resources, more
sophisticated promotional practices, and substantially larger and more developed
distribution networks than Ravenswood. As a result, Ravenswood may not be able
to compete successfully against these producers of premium wines.
As a result of its distribution strategy, Ravenswood believes that it has been
able to compete effectively, particularly with respect to its higher-end
products, with much larger-scale wine producers that rely on larger distributors
or internal sales forces. In recent years, an increasing number of smaller
wineries have adopted an approach to winemaking similar to Ravenswood's, which
emphasizes production processes and brand awareness over investment in land and
production capacity. Ravenswood believes that these competitors, such as Cline
Cellars, Kenwood, Rabbit Ridge, Ridge Vineyards and Rosenblum Cellars, appeal to
many of the same consumers as those targeted by Ravenswood. Ravenswood believes
that, while brand awareness is an important component to core wine consumers,
most wine consumers are loyal to more than one brand of premium wine. As a
result, Ravenswood must constantly promote its wines to its existing customer
base. The increase in the number of Ravenswood's competitors may prevent it from
successfully establishing its brand name or obtaining sufficient marketing focus
from its independent brokers and distributors, which could harm its business and
reduce its sales and profits.
Government Regulation
The wine industry is subject to extensive regulation by the Federal Bureau of
Alcohol, Tobacco and Firearms ("BATF"), various foreign agencies, and state and
local liquor authorities. These regulations and laws dictate such matters as
licensing requirements, trade and pricing practices, permitted distribution
channels, permitted and required labeling, advertising and relations with
wholesalers and retailers.
Federal regulation of Ravenswood's activities is partially overseen by the BATF.
Ravenswood is required by the BATF to carry a license and bond to produce
alcoholic beverages. The BATF also must approve all labels on wine products
destined for wholesale and retail distribution. The BATF also regulates certain
elements of wine production.
The State of California regulates Ravenswood's activities through the Alcoholic
Beverage Control (the "ABC"). Ravenswood holds a permit with the ABC to produce
and sell alcoholic beverages. The State of California also regulates the sales
and distribution of Ravenswood's products in the state.
In addition, Ravenswood is subject to regulation by each state in which its
products are sold, and many of those states restrict the shipment of alcoholic
beverages by Ravenswood directly to consumers. The laws and regulations of
several states also prohibit changes of distributors except under certain
limited circumstances, making it difficult to terminate a distributor without
reasonable cause, as defined by applicable statutes.
Ravenswood periodically uses various chemical herbicides, fungicides and
pesticides on the vineyards it cultivates, some of which contain hazardous or
toxic substances. The use and storage of these chemicals are, to varying
degrees, subject to federal and state regulation.
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<PAGE>
The expansion of the Gehricke Road Facility and Quarry Facility, and the
development of new vineyards and winery facilities, may be limited by zoning
ordinances, environmental restrictions and other legal requirements. In
addition, new regulations or requirements or increases in excise taxes, income
taxes, property and sales taxes and international tariffs could materially
adversely affect the financial results of Ravenswood. Ravenswood can provide no
assurance that there will not be future legal or regulatory challenges to the
industry, which could have a material adverse effect on Ravenswood's business,
financial condition and results of operations.
Properties
Ravenswood currently operates one owned and two leased locations in Sonoma. The
Gehricke Road Facility, which Ravenswood owns, is comprised of two buildings
totaling approximately 12,600 square feet. This facility houses the majority of
Ravenswood's production equipment, its administrative offices, a small
laboratory, a retail tasting room, and a warehouse space for barrel and tank
storage. The Gehricke Road Facility is situated on approximately 25 acres, 14 of
which are Zinfandel and Merlot vineyards. Ravenswood's two additional production
and operation facilities, which it leases, are used primarily for barrel storage
and aging of wines. These facilities comprise a total of approximately 31,900
square feet. Ravenswood also leases a 1,000 square-foot office in San Francisco
for administrative and sales purposes.
In addition, Ravenswood is currently constructing the Quarry Facility, which is
located on leased land consisting of approximately 30 acres in Sonoma County.
Upon completion of the Quarry Facility, Ravenswood expects to use the Quarry
Facility and the Gehricke Road Facility for its operations. Ravenswood leases
this property from the spouse and brother-in-law of Justin Faggioli, its
Executive Vice President. The lease expires on December 31, 2032 and provides
for monthly payments that are adjusted annually. In addition, the lease provides
Ravenswood with a right of first refusal to purchase a portion of the property
and an option to extend the lease upon its expiration, under certain
circumstances. See "Certain Transactions."
Trademarks
"Ravenswood," the Ravenswood logo and the slogan "No Wimpy Wines" are federally
registered trademarks owned by Ravenswood. These registered trademarks are
important to Ravenswood in its efforts to solidify and increase awareness of the
Ravenswood brand and to compete effectively in the premium wine industry.
Legal Proceedings
There are no material legal proceedings pending to which Ravenswood is a party.
Ravenswood's management knows of no legal actions being contemplated by or
against Ravenswood.
Employees
As of December 31, 1998, Ravenswood had approximately 32 full-time employees, 23
of whom were salaried, with the remaining employees paid an hourly wage. From
time to time, Ravenswood needs to hire part-time employees, primarily for
bottling wines and harvesting and maintaining vineyards. The number of part-time
employees typically ranges between
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<PAGE>
seven and eight persons, is generally for a short duration of time (up to three
months), and does not materially affect Ravenswood's operations. The tasting
room employs approximately ten part-time employees annually, in addition to its
three full-time employees. Ravenswood expects that the number of employees will
not increase substantially in the next 12 months.
None of Ravenswood's employees are represented by a union. Ravenswood believes
salaries paid and benefits provided to its employees are competitive for the
wine industry. Ravenswood believes that its relationship with its employees is
excellent.
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<PAGE>
MANAGEMENT
Executive Officers and Directors
Ravenswood's executive officers and directors and their ages as of February 1,
1999 are as follows:
Name Age Position
- ------------------------------------ ----- -------------
W. Reed Foster ..................... 67 Chairman, Chief Executive Officer
and Director
Joel E. Peterson ................... 51 President, Winemaker and Director
Justin M. Faggioli ................. 47 Executive Vice President, Secretary
and Director
Callie S. Konno (1) ................ 45 Chief Financial Officer, Treasurer
and Director
James F. Wisner(1)(2) .............. 65 Director
Robert E. McGill, III(1)(2) ........ 67 Director
- ------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
W. Reed Foster co-founded Ravenswood in 1976. He has served as Chairman, Chief
Executive Officer and a director since Ravenswood's incorporation in 1986. From
1970 until joining Ravenswood, Mr. Foster operated a commercial real estate firm
in San Francisco. He also co-founded the San Francisco Vintner's Club, serving
as its president for six years, and served as an officer of Draper & Esquin, a
retail wine shop, for 15 years. He received a B.A. in philosophy from Williams
College and an M.B.A. from the Harvard Graduate School of Business
Administration.
Joel E. Peterson co-founded Ravenswood in 1976. He has served as President,
Winemaker and a director since Ravenswood's incorporation in 1986. From 1973
until joining Ravenswood, Mr. Peterson was a wine writer and a consultant in
the art of traditional winemaking (as practiced in Bordeaux and Burgundy). Mr.
Peterson holds a B.S. in Microbiology and Biochemistry from Oregon State
University and a Medical Technology degree from the University of California,
San Francisco. Mr. Peterson was actively involved in immunology research at Mt.
Zion Hospital until 1977.
Justin M. Faggioli has served as Executive Vice President of Ravenswood since
January 1995, and as Secretary and a director since October 1996. Prior to
joining Ravenswood, from May 1991 until January 1995, Mr. Faggioli operated a
2,600-acre ranch in Sonoma County owned by his wife's family and helped develop
a 175-acre vineyard on that property. Mr. Faggioli holds B.S. and M.S. degrees
in Earth Sciences from Stanford University and an M.B.A. from the Harvard
Graduate School of Business Administration.
Callie S. Konno has served as Ravenswood's Chief Financial Officer since 1996
and has served as a director since February 1999. From 1993 until her
appointment as Chief Financial Officer, Ms. Konno served as Secretary of
Ravenswood and was responsible for various accounting and administrative
duties. She holds an A.B. in History and International Relations from
Occidental College and an M.L.I.S. in Library and Information Studies from the
University of California, Berkeley. In addition, Ms. Konno has passed the
Certified Public Accountants examination.
James F. Wisner has served as a director since Ravenswood's incorporation in
1986. Mr. Wisner currently practices law as a sole practitioner. From 1972
until 1992, Mr. Wisner was a partner in the law firm of Bancroft, Avery &
McAllister in San Francisco, California. He holds an A.B. in American History
from Yale University, a J.D. from Stanford University and an M.B.A. from Golden
Gate University.
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<PAGE>
Robert E. McGill, III has served as a director of Ravenswood since February
1999. Mr. McGill currently serves as a director of Connecticut Surety
Corporation, an insurance company, and Chemfab Corporation, a specialty
materials manufacturing company. In addition, he currently serves as a trustee
of Travelers Mutual & Variable Annuity Funds, an investment company. From 1975
to 1995, Mr. McGill served in various senior management positions, including,
most recently, as Executive Vice President, Finance and Administration, and,
from 1983 to 1995 as a director, of The Dexter Corporation, a specialty
materials and chemical manufacturing company. Mr. McGill received a B.A. in
Economics from Williams College and an M.B.A. from the Harvard Graduate School
of Business Administration.
Each director holds office until the next annual meeting of shareholders or
until the director's successor is duly elected and qualified. Officers are
elected by the board of directors at each annual meeting and serve at the
pleasure of the board of directors.
Audit Committee
The board of directors has established an Audit Committee consisting of Ms.
Konno and Messrs. Wisner and McGill. The Audit Committee reviews with
Ravenswood's independent auditors the scope and timing of their audit services
and any other services that they are asked to perform, the auditor's report on
Ravenswood's financial statements following completion of their audit, and
Ravenswood's policies and procedures with respect to internal accounting and
financial controls. In addition, the Audit Committee makes annual
recommendations to the board of directors for the appointment of independent
auditors for the ensuing year.
Compensation Committee
The board of directors has established a Compensation Committee consisting of
Messrs. Wisner and McGill. Ravenswood expects that the Compensation Committee
will make recommendations to the board of directors regarding executive
compensation.
Director Compensation
Directors receive no cash compensation for serving as directors of Ravenswood.
Ravenswood intends to grant stock options to purchase 5,000 shares of common
stock to each of Messrs. Wisner and McGill on the effective date of this
offering at the initial public offering price. These options will vest annually
over five years from the date of grant.
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<PAGE>
Executive Compensation
The following table sets forth certain information for the fiscal year ended
June 30, 1998, regarding the compensation earned by the Chief Executive Officer
and each of Ravenswood's three most highly compensated executive officers other
than the Chief Executive Officer whose salary plus bonus exceeded $100,000 for
the fiscal year ended June 30, 1998 (together, the "Named Executive Officers").
No stock options were granted to or exercised by any of the Named Executive
Officers in the fiscal year ended June 30, 1998.
<TABLE>
Summary Compensation Table
<CAPTION>
Annual Compensation (1)
-------------------------------------------
All Other
Name and Principal Position Salary($) Bonus($) Compensation($)(2)
- --------------------------- -------- -------- -------------------
<S> <C> <C> <C>
W. Reed Foster ................................. $149,942 $ 35,000 $ 7,398
Chairman and Chief Executive Officer
Joel E. Peterson ............................... $149,942 $ 35,000 $ 1,467
President and Winemaker
Justin M. Faggioli ............................. $108,654 $ 35,000 $ 5,749
Executive Vice President and Secretary
Callie S. Konno ................................ $ 76,047 $ 35,000 $ 4,442
Chief Financial Officer and Treasurer
<FN>
- -------------------
(1) In accordance with the rules of the Securities and Exchange Commission, the
compensation described in this table does not include perquisites and other
personal benefits received by the Named Executive Officers which do not
exceed the lesser of $50,000 or 10% of the total salary and bonus reported
for such Named Executive Officer.
(2) Consists of matching contributions under Ravenswood's 401(k) retirement
plan.
</FN>
</TABLE>
1999 Equity Incentive Plan
Ravenswood's 1999 Equity Incentive Plan was adopted by Ravenswood's board of
directors and approved by its shareholders in February 1999. There are 500,000
shares of common stock reserved for issuance under the plan and no options have
been granted under the plan as of February 1, 1999. Ravenswood intends to grant
stock options to purchase an aggregate of 279,500 shares of common stock on the
effective date of this offering at exercise prices equal to the initial public
offering price (except in the case of Messrs. Foster and Peterson, whose stock
option exercise prices will be equal to 110% of the initial public offering
price), including the following grants to its Named Executive Officers:
Number of Shares Granted
Name Pursuant to Options
- ---- -------------------
W. Reed Foster ................... 50,000
Joel E. Peterson ................. 50,000
Justin M. Faggioli ............... 37,500
Callie S. Konno .................. 37,500
These options will vest annually over five years from the date of grant.
No awards may be granted under the plan after February 2009, but the vesting and
effectiveness of awards previously granted may extend beyond that date.
The plan provides for the grant of incentive stock options ("ISOs") intended to
qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"),
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<PAGE>
non-statutory stock options ("NSOs"), restricted stock awards and other
stock-based awards. All officers, employees, directors, independent contractors
and consultants to Ravenswood and its subsidiaries are eligible to receive
awards under the plan. Under present law, however, ISOs may be granted only to
employees. No participant may receive an award for more than 100,000 shares in
any calendar year.
Ravenswood may grant options at an exercise price equal to or greater than the
fair market value of the common stock on the date of grant. Under present law,
ISOs and options intended to qualify as performance-based compensation under
Section 162(m) of the Code may not be granted at an exercise price less than the
fair market value of the common stock on the date of grant (or less than 110% of
the fair market value in the case of ISOs granted to optionees holding more than
10% of the outstanding securities of Ravenswood). In addition, for each
participant, the maximum aggregate fair market value on the date of grant of all
shares subject to ISOs first exercisable in any one year may not exceed
$100,000. The plan permits the board of directors to determine how optionees may
pay the exercise price of their options, including by cash, delivery to
Ravenswood of a promissory note, by surrender to Ravenswood of shares of common
stock, or, in connection with a "cashless exercise" through a broker, by
delivery of an irrevocable notice of exercise or by any combination of the
permitted forms of payment.
Options will expire on a date determined by the board of directors, provided
that the expiration date for ISOs may not be more than ten years from the date
of grant (or five years in the case of ISOs granted to optionees holding more
than 10% of the outstanding securities of Ravenswood). Each option is
exercisable during the lifetime of the optionee only by such optionee, except as
permitted by the board of directors.
The board of directors may grant restricted shares, which are shares of common
stock that are subject to transfer restrictions determined by the board of
directors and subject to substantial risk of forfeiture unless and until
specific conditions established by the board at the time of grant are met. Such
conditions may be based upon continuing employment or achievement of
pre-established performance goals, or both, as determined by the board of
directors.
The plan also authorizes the board of directors to award or offer bonuses of
shares of common stock, either restricted or non-restricted, as current or
deferred compensation, in lieu of all or any portion of the cash compensation to
which the employee is entitled.
The board of directors administers the plan. The board also has the authority to
adopt, amend and repeal the administrative rules, guidelines and practices
relating to the plan and to interpret its provisions; provided, however, that no
amendment, suspension or termination of the plan may alter or impair an interest
granted to a beneficiary under the plan without such beneficiary's written
consent. The board may delegate its authority under the plan to a committee of
the board, subject to certain limitations.
In the event of a merger, liquidation or other "Acquisition Event" (as described
in the plan), the board of directors is authorized to provide for outstanding
options or other stock-based awards to be assumed or replaced by the acquiror
and to take certain other actions, including accelerating the vesting schedule
of awards.
Stock options granted under the plan are intended to be "performance-based
compensation" and therefore not subject to the deduction limitation of Section
162(m) of the Code. Under generally accepted accounting principles, as currently
applied, Ravenswood will not incur accounting charges with respect to stock
options granted or exercised under the plan.
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<PAGE>
Ravenswood will, however, incur accounting charges for the fair market value of
stock options granted to non-employee directors, consultants or independent
contractors, as well as restricted stock grants or stock bonus awards, as of the
date of each grant or award. Stock options will also affect the amount of
diluted earnings per share, in accordance with Financial Accounting Standard
128. Under Financial Accounting Standard 123, Ravenswood will provide footnote
disclosure in its financial statements of the assumed value of all options
granted under the plan and the actual value of restricted stock and stock bonus
awards granted under the plan.
Employee Stock Purchase Plan
Ravenswood's Employee Stock Purchase Plan was adopted by Ravenswood's board of
directors and approved by its shareholders in February 1999. Ravenswood has
reserved 50,000 shares of common stock for issuance under the Employee Stock
Purchase Plan.
The plan, which is intended to qualify as an "employee stock purchase plan"
under Section 423 of the Code, provides that all employees of Ravenswood,
including directors of Ravenswood who are employees, and all employees of
participating subsidiaries, whose customary employment is more than 20 hours per
week for more than five months in any calendar year, are eligible to participate
in the plan. Employees who would immediately after the grant own 5% or more of
the total combined voting power or value of the stock of Ravenswood or any
subsidiary are not eligible to participate. As of February 1, 1999,
approximately 31 employees would have been eligible to participate in the plan.
The plan may be amended solely by the board of directors, except with respect to
an increase in the number of shares reserved for issuance under the plan, which
would require shareholder approval.
On the first day of a designated payroll deduction period (the "Offering
Period"), Ravenswood will grant to each eligible employee who has elected to
participate in the plan an option to purchase shares of common stock. The
employee may authorize an amount (a whole percentage from between 1% and 10% of
his or her base pay) to be deducted by Ravenswood during the Offering Period. On
the last day of the Offering Period, the employee is deemed to have exercised
the option, at the option exercise price, to the extent of accumulated payroll
deductions. Under the terms of the plan, the option price may be set at an
amount as low as 85% of the average market price per share (as defined in the
plan) of the common stock on either the first day or the last day of the
Offering Period, whichever is lower. An employee may not purchase more than 500
shares in any one Offering Period. The board of directors may, in its
discretion, choose an Offering Period of any length not exceeding 27 months.
An employee who is not a participant in the plan on the last day of the Offering
Period is not entitled to exercise any option, and the employee's accumulated
payroll deductions will be refunded. An employee's rights under the plan
terminate upon voluntary withdrawal from the plan at any time, or when the
employee ceases employment for any reason, except that upon termination of
employment because of death, the employee's beneficiary has certain rights to
elect to exercise the option to purchase the shares that the accumulated payroll
deductions in the participant's account would purchase at the date of death.
Because participation in the plan is voluntary, Ravenswood cannot now determine
the number of shares of common stock to be purchased by any particular executive
officer, by all current executive officers as a group, or by non-executives as a
group.
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<PAGE>
All shares of common stock purchased by an employee will be held by Ravenswood
or by an agent of Ravenswood and will be registered in the name of the Employee
Stock Purchase Plan. Ravenswood or its agent will abstain from voting any shares
held under the plan. An employee's interest in the amount of cash and/or shares
held on his or her behalf will be fully vested and non-forfeitable at all times.
An employee may have any shares of common stock held on his or her behalf under
the Employee Stock Purchase Plan distributed to him or her in certain
circumstances.
401(k) Savings Plan
In April 1995 Ravenswood instituted a defined contribution retirement plan,
intended to qualify under Sections 401(a) and 401(k) of the Code. All full-time
employees of Ravenswood are eligible to participate in the retirement plan on
the first day of the semi-annual period following one year of employment. The
retirement plan provides that each participant may contribute from 1% to 15% of
compensation, subject to statutory limitations. Under the retirement plan,
Ravenswood may also make discretionary contributions based on a certain
percentage of a participant's contributions, as determined by Ravenswood or such
additional amounts as Ravenswood may deem appropriate. In connection with the
adoption of the retirement plan, the board of directors approved a matching
contribution of 66% of the first 6% of employee contributions. Ravenswood's
contributions under the retirement plan totaled $53,089 for the 1998 fiscal
year.
Limitation of Liability and Indemnification Matters
Ravenswood's Bylaws provide that Ravenswood will indemnify its directors and
executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by California law. Ravenswood is also
empowered under its Bylaws to enter into indemnification contracts with its
directors and officers and to purchase insurance on behalf of any person it is
required or permitted to indemnify. Pursuant to this provision, Ravenswood has
entered into indemnity agreements with each of its directors and executive
officers.
Ravenswood has obtained officer and director liability insurance with respect to
liabilities arising out of certain matters, including matters arising under the
Securities Act. In addition, Ravenswood's Articles provide that, to the fullest
extent permitted by California law, Ravenswood's directors will not be liable
for monetary damages for breach of the directors' fiduciary duties to Ravenswood
and its shareholders. This provision in the Articles does not eliminate the duty
of care, and in appropriate circumstances equitable remedies such as an
injunction or other forms of non-monetary relief would remain available under
California law. Each director will continue to be subject to liability for
breach of the director's duty of loyalty to Ravenswood, for acts or omissions
involving intentional misconduct or bad faith, for knowing violations of law,
for any transaction from which the director derived an improper personal
benefit, for improper transactions between the director and Ravenswood and for
improper distributions to shareholders and loans to directors and officers. This
provision also does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws. There is no pending litigation or proceeding involving a director or
officer of Ravenswood as to which indemnification is being sought, nor is
Ravenswood aware of any pending or threatened litigation that may result in
claims for indemnification by any director or officer.
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<PAGE>
CERTAIN TRANSACTIONS
On August 25, 1992, Ravenswood entered into a deferred compensation agreement
with Mr. Foster, its Chairman and Chief Executive Officer, entitling him to
receive upon termination of his employment the value of 345,731 shares of common
stock, payable in shares or cash at Ravenswood's discretion. Effective July 1,
1998, Ravenswood and Mr. Foster mutually terminated this arrangement upon
Ravenswood's issuing to Mr. Foster the 345,731 shares of common stock, and
agreeing to lend him up to $335,000 to pay taxes related to his receipt of these
shares. The loan (which was partially funded in December 1998, with the balance
to be drawn in April 1999) is due on December 21, 2008, with interest payable
annually at 5.3% per annum. The loan is unsecured. See Notes 11 and 16 of the
notes to Ravenswood's financial statements.
From August until December 1998, certain officers and directors of Ravenswood
participated in a private placement of an aggregate of $1,687,500 of convertible
debentures and $1,687,500 of common stock by Ravenswood, as follows:
Name Security Amount Purchased
---- -------- ----------------
W. Reed Foster .......... Convertible Debentures $ 62,500
Common Stock $ 62,500
Justin M. Faggioli ...... Convertible Debentures $134,283
Common Stock $187,500
Robert E. McGill, III ... Convertible Debentures $ 62,500
Common Stock $ 62,500
Each $10,000 convertible debenture is convertible into 900 shares of common
stock. The per share price of the common stock sold in the private placement was
$7.94 per share. The purchase price of the securities sold to these officers and
directors in the private placement was determined based on Ravenswood's board of
directors' good faith determination of the fair market value of such securities,
and was equivalent to the price paid for such securities by unrelated third
parties in the transaction.
In connection with the proposed expansion of the Quarry Facility, Ravenswood has
entered into an agreement to lease approximately 30 acres of land in Sonoma
County, California from Sandra D. Donnell and Bruce B. Donnell, the wife and
brother-in-law, respectively, of Mr. Faggioli, Ravenswood's Executive Vice
President. The lease, which is dated as of January 1, 1999, provides for monthly
payments and expires on December 31, 2032. Payments under the lease from
Ravenswood to Ms. Donnell and Mr. Donnell totaled $20,672 for calendar 1998, and
are expected to total $29,255 for calendar 1999, and approximately $41,344 for
calendar 2000, subject to certain annual adjustments.
Mr. Faggioli, Ms. Donnell and Mr. Donnell, together, are 15% partners in
Sangiacomo-El Novillero Vineyards. This partnership leases land from Sandra D.
Donnell and sells a portion of its grapes to Ravenswood. Grape payments by
Ravenswood to the Sangiacomo Partnership totaled $88,872 in calendar 1997 and
$147,490 in calendar 1998.
Ravenswood has periodically borrowed funds for short-term working capital from
certain of its executive officers. As of December 31, 1998, Ravenswood had
outstanding promissory notes in the principal amount of $50,250 payable to Mr.
Foster, and promissory notes in the principal amount of $46,143 payable to Mr.
Peterson, Ravenswood's President and Winemaker. With the exception of two notes
in the principal amount of $25,000 payable to
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<PAGE>
each of Mr. Foster and Mr. Peterson, respectively, which are due in June 30,
2004, each of the notes is payable upon demand by the holder. The notes bear
interest at rates ranging from 10% to 11% per annum.
Mr. Peterson has two outstanding promissory notes payable to Ravenswood for an
aggregate principle amount of $22,000. The notes bear interest at 8.5% per
annum and are due in January 2004 and April 2004.
Mr. Peterson's wife, Madeleine Deininger, serves as a broker for Ravenswood in
the New England states. Pursuant to this agreement, Ms. Deininger received sales
commissions totaling $154,575 in calendar 1997 and $214,018 in calendar 1998.
Ravenswood believes that the foregoing transactions were in its best interest.
As a matter of policy, the transactions were, and all future transactions
between Ravenswood and any of its officers, directors or principal shareholders
will be, approved by a majority of the disinterested members of the board of
directors, will be on terms no less favorable to Ravenswood than could be
obtained from unaffiliated third parties and will be to serve bona fide business
purposes of Ravenswood.
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<PAGE>
PRINCIPAL SHAREHOLDERS
<TABLE>
The following table sets forth certain information regarding beneficial
ownership of Ravenswood's common stock as of December 31, 1998, and as adjusted
to reflect the sale of the common stock offered hereby, for (i) each person who
is known by Ravenswood to beneficially own more than 5% of the outstanding
shares of common stock, (ii) each director of Ravenswood, (iii) each Named
Executive Officer and (iv) all directors and executive officers of Ravenswood as
a group.
<CAPTION>
Percentage of Shares
Outstanding
-----------------------
Number of Shares Beneficially Prior to After
Name(1) Owned (2) Offering Offering
- ------- --------- -------- --------
<S> <C> <C> <C>
W. Reed Foster (3)(4)(5) ................................ 2,164,181 60.9% 47.5%
Joel E. Peterson (3)(4)(6) .............................. 2,150,681 60.6% 47.3%
Justin M. Faggioli (3)(4)(7) ............................ 2,186,391 61.4% 47.9%
James F. Wisner (3)(4)(8) ............................... 2,150,681 60.6% 47.3%
Callie S. Konno ......................................... 59,850 1.7% 1.3%
Robert E. McGill, III (9) ............................... 25,750 * *
All directors and executive officers as
a group (6 persons) (10) ............................... 2,225,641 62.1% 48.5%
<FN>
- ------------
* Less than 1%.
(1) The address of each of the directors and executive officers of Ravenswood
is c/o Ravenswood Winery, Inc., 18701 Gehricke Road, Sonoma, CA 95476.
(2) Based on 3,550,852 shares outstanding as of December 31, 1998. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Unless otherwise indicated, each person or entity
named in the table has sole voting power and investment power (or shares
such power with his or her spouse) with respect to all shares of capital
stock listed as owned by such person. Shares issuable upon the exercise of
outstanding options that are currently exercisable or become exercisable
within sixty days of December 31, 1998, or debentures that are currently
convertible or become convertible within sixty days of December 31, 1998
are considered outstanding for the purpose of calculating the percentage of
outstanding shares of Ravenswood held by such person, but not for the
purpose of calculating the percentage of outstanding shares of Ravenswood
held by any other person.
(3) Includes 2,150,681 shares of common stock held in a voting trust, as to
which Messrs. Foster, Peterson, Faggioli and Wisner, exercise voting
control as trustees. See "Description of Capital Stock--Voting Trust."
Messrs. Foster, Peterson, Faggioli and Wisner disclaim beneficial ownership
of 1,732,500 shares, 746,411 shares, 2,059,331 shares and 1,993,181 shares,
respectively, of such common stock.
(4) Excluding the shares of common stock beneficially owned by Messrs. Foster,
Peterson, Faggioli and Wisner solely as a result of their status as
trustees of the Voting Trust, Messrs. Foster, Peterson, Faggioli and
Wisner's beneficial ownership disclosure would appear as follows:
</FN>
</TABLE>
Percentage of Shares
Outstanding
---------------------
Number of Shares Prior to After
Name(1) Beneficially Owned (2) Offering Offering
------- ---------------------- -------- --------
W. Reed Foster (5) ............ 431,681 12.1% 9.5%
Joel E. Peterson (6) .......... 1,404,270 39.6% 30.9%
Justin M. Faggioli (7) ........ 127,060 3.6% 2.8%
James F. Wisner (8) ........... 157,500 4.4% 3.5%
(5) Includes 5,625 shares of common stock issuable upon conversion of certain
outstanding convertible debentures. Does not include 151,200 shares held by
an irrevocable trust established for the benefit of Mr. Foster's children.
(6) Does not include 151,200 shares held by an irrevocable trust established
for the benefit of Mr. Peterson's children.
52
<PAGE>
(7) Includes 12,085 shares of common stock issuable upon conversion of certain
outstanding convertible debentures, 4,789 shares of which are held by Mr.
Faggioli's spouse.
(8) Includes 31,500 shares held by Mr. Wisner's spouse.
(9) Includes 17,875 shares of common stock issuable upon conversion of certain
outstanding convertible debentures. Also includes 13,500 shares held in a
family trust established for the benefit of Mr. McGill.
(10) Includes 35,585 shares of common stock issuable upon conversion of certain
outstanding convertible debentures.
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of Ravenswood
will consist of 20,000,000 shares of common stock, no par value, and 1,000,000
shares of preferred stock, no par value. As of December 31, 1998, there were
outstanding 3,550,852 shares of common stock held by approximately 60
shareholders of record and no shares of preferred stock. Of the 20,000,000
shares of common stock authorized, 500,000 are reserved for issuance pursuant to
the 1999 Equity Incentive Plan, 50,000 are reserved for issuance pursuant to the
Employee Stock Purchase Plan, 454,622 are reserved for issuance upon the
conversion of outstanding debentures, and 1,000,000 are being offered hereby.
Common Stock
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the shareholders. Subject to
preferences that may be applicable to any outstanding shares of preferred stock,
the holders of common stock are entitled to receive ratably such dividends as
may be declared by the board of directors out of funds legally available
therefor. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of Ravenswood, holders of the common stock are entitled to share
ratably in all assets remaining after payment of liabilities and the liquidation
preferences of any outstanding shares of preferred stock. Holders of common
stock have no preemptive rights and no right to convert their common stock into
any other securities. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are, and
all shares of common stock to be outstanding upon the closing of this offering
will be, fully paid and nonassessable. The rights, preferences and privileges of
holders of common stock are subject to the rights of holders of shares of any
series of preferred stock which Ravenswood may designate and issue in the
future.
Voting Trust
A portion of Ravenswood's outstanding common stock, totaling 2,150,681 shares
(representing approximately 60.6% of the outstanding common stock prior to the
offering and approximately 47.3% after the offering), is held in a voting trust,
for which Messrs. Foster, Peterson, Faggioli and Wisner serve as trustees. As
long as Mr. Peterson is a trustee of the voting trust, all decisions except
decisions to amend or terminate the voting trust require the approval of Mr.
Peterson and one other trustee; however, decisions to amend or terminate the
voting trust require the approval of Mr. Peterson and two other trustees. If Mr.
Peterson is no longer a trustee of the voting trust, all decisions require the
approval of three trustees; however, decisions to amend or terminate the voting
trust require the approval of the three remaining trustees and Mr. Peterson's
successor trustee (who shall be appointed by the three remaining trustees).
Shares may be released from the voting trust upon transfer of shares for
estate-planning purposes, in connection with the sale of shares, or upon the
approval of the trustees.
Preferred Stock
Pursuant to Ravenswood's Articles, the board of directors has the authority,
without further action by the shareholders, to issue up to 1,000,000 shares of
preferred stock in one or more series and to fix the designations, powers,
preferences, privileges and relative participating, optional or special rights
of such stock, and the qualifications, limitations or restrictions
54
<PAGE>
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, any or all of which may be greater than
the rights of the common stock. The board of directors, without shareholder
approval, may issue preferred stock with voting, conversion or other rights that
could adversely affect the voting power and other rights of the holders of
common stock. Preferred stock could thus be issued quickly with terms which
could delay or prevent a change in control of Ravenswood or make removal of
management more difficult. Additionally, the issuance of preferred stock may
have the effect of decreasing the market price of the common stock and may
adversely affect the voting and other rights of the holders of common stock.
Upon the closing of this offering, there will be no shares of preferred stock
outstanding, and Ravenswood currently has no plans to issue any of its preferred
stock.
Debentures
Ravenswood has outstanding $865,000 of convertible debentures due December 31,
2004. Each $10,000 debenture is convertible into 3,500 shares of common stock at
any time prior to December 31, 1999 upon request of the holder. If the
debentures are not converted, Ravenswood may redeem them at face value at any
time from January 1, 2000 until the maturity date. Ravenswood pays interest
quarterly on the debentures based on a floating index tied to prime bank rates
for a five-year period. The interest rate is adjusted every 18 months, except
that in no period may the interest rate adjustment exceed 2% or the maximum
interest rate exceed 11%.
Ravenswood has outstanding $1,687,500 of convertible debentures due December 31,
2008. Each $10,000 debenture is convertible into 900 shares of common stock at
any time prior to December 31, 2003 upon request of the holder. If the
debentures are not converted, Ravenswood may redeem them at face value at any
time from January 1, 2004 until the maturity date. Ravenswood pays interest
quarterly on the debentures in an amount equal to the prime interest rate quoted
by Bank of America NT&SA plus 1%. The interest rate is adjusted every 18 months,
except that in no period may the interest rate adjustment exceed 2% or the
maximum interest rate exceed 11%.
Registration Rights
Upon conversion of debentures due December 31, 2004, shareholders holding an
aggregate of 302,750 shares of common stock will have certain registration
rights with respect to those shares. If Ravenswood proposes to register any of
its common stock under the Securities Act, except registrations relating to
employee benefit plans or certain acquisitions, the rights holders may require
Ravenswood to include all or a portion of such shares in such registration. All
registration expenses incurred in connection with these registrations will be
borne by Ravenswood. A holder of the registration rights must pay all
underwriting discounts, selling commissions and stock transfer taxes applicable
to the sale of his or her registrable shares of common stock. In connection with
this offering, Ravenswood has requested that the rights holders waive their
registration rights.
Certain Antitakeover Effects
Ravenswood's Articles and Bylaws require that, effective upon the closing of
this offering, any action required or permitted to be taken by Ravenswood's
shareholders must be effected at a duly called annual or special meeting of the
shareholders, and may not be effected by a
55
<PAGE>
consent in writing. In addition, the Bylaws require advance notice of
shareholder proposals and nominations for board elections. Ravenswood's Articles
also specify that the authorized number of directors within the range specified
in Ravenswood's Bylaws may be changed only by resolution of the board of
directors. Ravenswood's Bylaws may be amended by its board of directors or its
shareholders; however, its shareholders may amend the Bylaws only by the
affirmative vote of at least two-thirds of the outstanding voting securities.
These provisions may have the effect of deterring hostile takeovers or delaying
changes in the control or management of Ravenswood.
Ravenswood's Articles and its Bylaws provide that Ravenswood will indemnify its
officers and directors as permitted by California law against losses that they
may incur in investigations and legal proceedings resulting from their service
to Ravenswood, which may include service in connection with takeover defense
measures. Such provisions may have the effect of preventing changes in
Ravenswood's management.
In addition, once Ravenswood is qualified for listing on the Nasdaq National
Market and has at least 800 holders of its equity securities, its charter
documents will eliminate cumulative voting, which may make it more difficult for
a third party to gain control of Ravenswood's board of directors.
Transfer Agent and Registrar
ChaseMellon Shareholders Services, LLC has been appointed as the transfer agent
and registrar for Ravenswood's common stock.
Listing
Ravenswood has applied to list its common stock on the Nasdaq National Market
under the trading symbol "RVWD."
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of this offering, Ravenswood will have outstanding an aggregate
of 4,550,852 shares of common stock. Of these shares, the 1,000,000 shares sold
in this offering will be freely tradable without restrictions or further
registration under the Securities Act unless such shares are purchased by
"affiliates" of Ravenswood, as that term is defined under Rule 144 under the
Securities Act. The remaining 3,550,852 shares of common stock held by existing
shareholders will be "restricted securities" as that term is defined in Rule 144
under the Securities Act (the "Restricted Shares"). Restricted Shares may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rule 144 or Rule 701 under the Securities Act.
Ravenswood has agreed not to offer, sell, contract to sell, or otherwise dispose
of any shares of common stock, or any options or warrants to purchase common
stock other than the shares or options issued under Ravenswood's 1999 Equity
Incentive Plan, Employee Stock Purchase Plan or upon conversion of outstanding
convertible debentures, for a period of 90 days after the date of this
prospectus, except with the prior written consent of W. R. Hambrecht & Company,
LLC.
The Restricted Shares will be available for sale in the public market as
follows:
* 866,248 Restricted Shares will be eligible for sale on the date of this
prospectus pursuant to rule 144(k);
* 1,810,620 Restricted Shares will be eligible for sale 90 days after the
date of this prospectus pursuant to Rule 144 and Rule 701 of the Securities
Act; and
* the remaining Restricted Shares will be eligible for sale from time to time
thereafter upon expiration of one-year holding periods and subject to the
requirements of Rule 144.
Upon completion of this offering, there will be 454,622 shares issuable upon
conversion of outstanding convertible debentures ("Debenture Shares"), all of
which are immediately convertible. Debenture Shares will be available for sale
in the public market as follows:
* 273,000 Debenture Shares will be eligible for sale on the date of this
prospectus pursuant to Rule 144(k);
* 12,250 Debenture Shares will be eligible for sale 90 days after the date of
this prospectus pursuant to Rule 144; and
* the remaining Debenture Shares will be eligible for sale from time to time
thereafter upon expiration of one-year holding periods and subject to the
requirements of Rule 144.
In general, beginning 90 days after the date of this prospectus, Restricted
Shares or Debenture Shares that are held for at least one year may be sold
pursuant to Rule 144, subject to certain volume limitations. Sales under Rule
144 are also subject to certain requirements relating to manner of sale, notice
and availability of current public information about Ravenswood. Additionally,
in general, a person who is not an affiliate of Ravenswood is entitled to sell
such shares under Rule 144(k) without regard to the limitations described above,
provided the person has held Restricted Shares or Debenture Shares for at least
two years. The foregoing is only a summary of Rule 144 and is not intended to be
a complete description of it.
57
<PAGE>
Certain of the Restricted Shares held by Mr. Foster were issued in reliance upon
Rule 701 and may be sold beginning 90 days after the date of this prospectus
under Rule 144, without compliance with the one-year minimum holding period
requirement.
As of February 1, 1999, no options had been granted under the 1999 Equity
Incentive Plan. Ravenswood intends to grant options to purchase an aggregate of
279,500 shares of common stock on the effective date of this offering at the
initial public offering price. After the completion of this offering, Ravenswood
intends to file a registration statement under the Securities Act to register
the 500,000 shares of common stock reserved for issuance under the 1999 Equity
Incentive Plan and the 50,000 shares of common stock reserved for issuance under
the Employee Stock Purchase Plan. Upon registration, all of these shares will be
freely tradeable when issued.
Prior to this offering, there has been no public market for the common stock of
Ravenswood, and the effect, if any, that the sale or availability for sale of
shares of additional common stock will have on the trading price of the common
stock cannot be predicted. Nevertheless, sales of substantial amounts of such
shares in the public market, or the perception that such sales could occur,
could adversely affect the trading price of the common stock and could impair
Ravenswood's future ability to raise capital through an offering of its equity
securities.
58
<PAGE>
PLAN OF DISTRIBUTION
Subject to the terms and conditions of an Underwriting Agreement, W.R. Hambrecht
& Company, LLC (the "Underwriter") has agreed to purchase from Ravenswood all of
the shares of common stock offered hereby. The Underwriting Agreement provides
that the obligations of the Underwriter are subject to certain conditions
precedent, including the absence of any material adverse change in Ravenswood's
business, and the receipt of certain certificates, opinions and letters from
Ravenswood and its counsel and independent auditors. Subject to those
conditions, the Underwriter is committed to purchase all shares of common stock
offered if any of such shares are purchased.
The Underwriter proposes to offer the shares of common stock directly to the
public at the offering price set forth on the cover page of this prospectus, as
such price is determined pursuant to the process described below, and to certain
dealers at such price less a concession not in excess of $ per share. Any
dealers or agents that participate in the distribution of the common stock may
be deemed to be underwriters within the meaning of the Securities Act, and any
discounts, commissions or concessions received by them and any provided pursuant
to the sale of the shares by them might be deemed to be underwriting discounts
and commissions under the Securities Act. After the public offering of the
shares, the offering price and other selling terms may be changed by the
Underwriter.
In determining the public offering price set forth on the cover page of this
prospectus, the Underwriter and certain dealers will solicit indications of
interest for the shares to be offered from prospective investors. Such
indications of interest will indicate the number of shares the potential
investor proposes to purchase and the price proposed to be paid for such shares.
No indication of interest will be accepted by the Underwriter, nor will any
funds with respect to any indication of interest be collected, prior to
effectiveness of the registration statement filed with the Securities and
Exchange Commission in connection with this offering. The Underwriter reserves
the right to accept or reject any indication of interest submitted by a
prospective investor either directly to the Underwriter or through a selected
dealer.
The price per share at which the common stock will be sold to the public (the
"Offer Price") will be determined by negotiation between the Underwriter and
Ravenswood by reference to a price per share (the "Clearing Price") that equals
the highest price set forth in valid indications of interest at which all of the
shares offered may be sold to potential investors. The Offer Price may be less
than the Clearing Price. Pursuant to the terms of a Master Selected Dealers
Agreement, the Underwriter has agreed to offer shares to dealers on behalf of
certain prospective investors from whom such dealers have solicited indications
of interest at or in excess of the Offer Price. Such dealers have agreed with
the Underwriter to reoffer any shares which they purchase from the Underwriter
solely to such prospective investors unless otherwise consented to by the
Underwriter. The Underwriter also intends to offer shares to prospective
investors from whom it solicits indications of interest directly. The
Underwriter may alter this plan of distribution as it, in its sole discretion,
deems necessary.
The proposed plan of distribution, particularly with respect to the
determination of the offering price and allocation of shares, may differ
materially from typical offerings of securities to the public and may result in
price and volume volatility in the market for Ravenswood's common stock after
the completion of this offering. Such price and volume volatility may adversely
affect the market price of Ravenswood's common stock.
Ravenswood has granted to the Underwriter an option, exercisable no later than
30 days after the date of this prospectus, to purchase up to an aggregate of
150,000 additional shares
59
<PAGE>
of common stock at the Offer Price, less the underwriting discount, set forth on
the cover page of this prospectus. To the extent that the Underwriter exercises
this option, the Underwriter will have a firm commitment to purchase the
additional shares, and Ravenswood will be obligated, pursuant to the option, to
sell such additional shares to the Underwriter to the extent the option is
exercised. The Underwriter may exercise such option only to cover
over-allotments made in connection with the sale of shares offered.
The Underwriting Agreement provides that Ravenswood will indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act, or contribute to payments that the Underwriter may be required
to make.
Ravenswood has agreed not to offer, sell, contract to sell, or otherwise dispose
of any shares of common stock, or any options or warrants to purchase common
stock other than the shares of common stock or options to acquire common stock
issued under Ravenswood's 1999 Equity Incentive Plan, Employee Stock Purchase
Plan or upon the conversion of outstanding convertible debentures, for a period
of 90 days after the date of this prospectus, except with the prior written
consent of the Underwriter.
Prior to the offering, there has been no public market for Ravenswood's common
stock. The initial public offering price for the common stock will be determined
by the process described herein and does not necessarily bear any direct
relationship to Ravenswood's assets, current earnings or book value or to any
other established criteria of value, although these factors were considered in
establishing the initial public offering price range. Among other factors
considered in determining the initial public offering price range were market
conditions, the industry in which Ravenswood operates, an assessment of
Ravenswood's management, its operating results, its capital structure, the
business potential of Ravenswood, the demand for similar securities of
comparable companies and other factors deemed relevant.
Certain persons participating in this offering may engage in transactions that
stabilize, maintain or otherwise affect the price of Ravenswood's common stock,
including over-allotment, stabilizing and short-covering transactions in such
securities, and the imposition of a penalty bid, in connection with the
offering.
W.R. Hambrecht & Company, LLC is an investment banking firm formed as a limited
liability company in February 1998. The manager of W.R. Hambrecht & Company,
LLC, William R. Hambrecht, has 40 years of experience in the securities
industry. Persons affiliated and associated with W.R. Hambrecht & Company, LLC
beneficially own an aggregate of approximately 23,265 shares of Ravenswood's
common stock, including shares issuable upon the conversion of convertible
debentures.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for Ravenswood by
Farella Braun & Martel LLP of San Francisco, California. Certain legal matters
in connection with the offering will be passed upon for the Underwriter by
Cooley Godward LLP of Menlo Park, California.
60
<PAGE>
EXPERTS
The financial statements of Ravenswood as of June 30, 1998 and 1997, and for
each of the two fiscal years ended June 30, 1997 and June 30, 1998, included in
the Registration Statement of which this prospectus is a part, have been
included herein in reliance on the report of Odenberg, Ullakko, Muranishi & Co.
LLP, independent accountants, given on the authority of that firm as an expert
in accounting and auditing.
ENGAGEMENT OF NEW AUDITORS
Effective July 1, 1998, Odenberg, Ullakko, Muranishi & Co. LLP were engaged as
Ravenswood's independent accountants. Prior to that date, Field Accountancy
Corporation was Ravenswood's independent accountant, but did not conduct an
audit of, or issue an opinion concerning, Ravenswood's financial statements. The
decision to change accountants was approved by Ravenswood's board of directors.
Prior to July 1, 1998, Ravenswood did not consult with Odenberg, Ullakko,
Muranishi & Co. LLP on items which involved Ravenswood's accounting principles
or the form of audit opinion to be issued on Ravenswood's financial statements.
ADDITIONAL INFORMATION
Ravenswood has filed with the Securities and Exchange Commission (the
"Commission"), a registration statement on Form SB-2 under the Securities Act
with respect to the shares offered hereby. This prospectus does not contain all
of the information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to Ravenswood and the
shares offered hereby, reference is made to the registration statement, and the
exhibits and schedules filed as part thereof through the Electronic Data
Gathering, Analysis and Retrieval system. Statements contained in this
prospectus as to the content of any contract or other document referred to are
not necessarily complete, and, in each instance, if such contract or document is
filed as an exhibit, reference is made to the copy of such contract or document
filed as an exhibit to the registration statement. Each statement is qualified
in all respects by such reference to such exhibit. A copy of the registration
statement, and the exhibits and schedules thereto, may be inspected without
charge at the public reference facilities maintained by the Commission in Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices located at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048, and copies of all or any part of the
registration statement may be obtained from such offices upon the payment of the
fees prescribed by the Commission. The public may obtain information on the
operation of the Commission's public reference facilities by calling 1 (800)
SEC-0330. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the Commission's Web site is
www.sec.gov.
Ravenswood intends to furnish its shareholders with annual reports containing
audited financial statements and with quarterly reports for each of the first
three quarters of each fiscal year containing summary financial information.
61
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Odenberg, Ullakko, Muranishi & Co. LLP,
Independent Accountants .................................................. F-2
Balance Sheets ......................................................... F-3
Statements of Income ................................................... F-4
Statements of Shareholders' Equity ....................................... F-5
Statements of Cash Flows ................................................ F-6
Notes to Financial Statements .......................................... F-7
F-1
<PAGE>
September 15, 1998,
except for Note 16, which is as of
February 1, 1999
To the Board of Directors and
Shareholders of
Ravenswood Winery, Inc.
REPORT OF INDEPENDENT ACCOUNTANTS
In our opinion, the accompanying balance sheet and the related statements of
income, shareholders' equity and cash flows present fairly, in all material
respects, the financial position of Ravenswood Winery, Inc. at June 30, 1998 and
1997, and the results of its operations and its cash flows for the fiscal years
then ended in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
ODENBERG, ULLAKKO, MURANISHI & CO. LLP
San Francisco, California
F-2
<PAGE>
<TABLE>
RAVENSWOOD WINERY, INC.
BALANCE SHEET
<CAPTION>
June 30, December 31,
----------------------------- -----------------------------
1 9 9 8 1 9 9 7 1 9 9 8 1 9 9 7
----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 102,272 $ 211,961 $ 3,171,374 $ 165,852
Accounts receivable, less allowance for doubtful
accounts of $10,000 at June 30, 1998 and
December 31, 1998 and $31,213 at June 30, 1997
and December 31, 1997 ...................................... 1,906,498 1,568,491 2,654,480 1,849,911
Refundable income taxes ..................................... 73,849 33,886 240,882 160,808
Inventories ................................................ 10,427,359 7,158,002 12,931,338 10,290,223
Prepaid expenses ............................................ 38,569 47,771 85,517 70,939
Deferred tax assets ......................................... 270,822 192,954 29,940 209,687
----------- ----------- ----------- -----------
Total current assets ..................................... 12,819,369 9,213,065 19,113,531 12,747,420
----------- ----------- ----------- -----------
Property, plant and equipment, less
accumulated depreciation ................................... 2,973,814 2,646,814 3,869,953 2,773,311
Notes receivable from shareholder ........................... 28,312 26,442 87,747 27,377
Other assets ................................................ 155,615 154,429 153,034 158,407
----------- ----------- ----------- -----------
3,157,741 2,827,685 4,110,734 2,959,095
----------- ----------- ----------- -----------
$15,977,110 $12,040,750 $23,224,265 $15,706,515
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ........................... $ 194,464 $ 154,890 $ 86,133 $ 163,011
Current portion of capital lease
obligations ................................................ 189,975 153,102 112,707 160,179
Short-term borrowings ....................................... 1,350,000 698,199 1,529,887 825,000
Accounts payable ............................................ 2,330,967 1,725,988 3,760,686 3,580,116
Accrued commissions ......................................... 246,483 148,628 375,252 263,526
Accrued liabilities ......................................... 381,013 278,577 247,460 252,509
----------- ----------- ----------- -----------
Total current liabilities ................................ 4,692,902 3,159,384 6,112,125 5,244,341
Long-term liabilities:
Long-term debt, net ......................................... 1,795,665 1,514,577 1,787,858 1,730,832
Notes payable to shareholders, net .......................... 50,000 50,000 50,000 50,000
Capital lease obligations, net .............................. 199,719 192,697 375,226 201,604
Convertible debentures ...................................... 865,000 865,000 2,552,500 865,000
----------- ----------- ----------- -----------
Total liabilities ........................................ 7,603,286 5,781,658 10,877,709 8,091,777
----------- ----------- ----------- -----------
Shareholders' equity:
Preferred stock, no par value; one million shares
authorized, none issued .................................... -- -- -- --
Common stock, no par value; 20
million shares authorized .................................. 804,146 737,804 2,491,646 732,804
Retained earnings ........................................... 7,569,678 5,521,288 9,854,910 6,881,934
----------- ----------- ----------- -----------
Total shareholders' equity ............................... 8,373,824 6,259,092 12,346,556 7,614,738
----------- ----------- ----------- -----------
Commitments (See Notes 11, 13 and 16)
$15,977,110 $12,040,750 $23,224,265 $15,706,515
=========== =========== =========== ===========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
F-3
<PAGE>
<TABLE>
RAVENSWOOD WINERY, INC.
STATEMENT OF INCOME
<CAPTION>
Fiscal year ended June 30, Six months ended December 31,
--------------------------------- ---------------------------------
1 9 9 8 1 9 9 7 1 9 9 8 1 9 9 7
------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Gross sales .......................................... $ 17,016,866 $ 12,246,716 $ 12,194,996 $ 8,855,184
Less excise taxes ................................. 552,499 330,133 275,795 196,998
Less discounts, returns and allowances ............ 573,762 393,881 336,684 273,403
------------ ------------ ------------ ------------
Net sales ............................................ 15,890,605 11,522,702 11,582,517 8,384,783
Cost of goods sold ................................... 7,397,362 5,196,152 5,066,471 3,652,357
------------ ------------ ------------ ------------
Gross profit ......................................... 8,493,243 6,326,550 6,516,046 4,732,426
Operating expenses ................................... 4,105,089 3,354,595 2,340,009 1,851,859
------------ ------------ ------------ ------------
Operating income ..................................... 4,388,154 2,971,955 4,176,037 2,880,567
------------ ------------ ------------ ------------
Other income (expense):
Interest expense .................................. (523,551) (392,600) (225,669) (164,388)
Impairment loss on vineyard ....................... -- (136,144) -- --
Other, net ........................................ 49,211 91,486 78,713 50,800
------------ ------------ ------------ ------------
(474,340) (437,258) (146,956) (113,588)
------------ ------------ ------------ ------------
Income before income taxes ........................... 3,913,814 2,534,697 4,029,081 2,766,979
Provision for income taxes ........................... 1,592,169 1,066,503 1,743,849 1,133,078
------------ ------------ ------------ ------------
Net income ........................................... $ 2,321,645 $ 1,468,194 $ 2,285,232 $ 1,633,901
============ ============ ============ ============
Basic earnings per share ............................. $ 0.67 $ 0.40 $ 0.66 $ 0.47
============ ============ ============ ============
Weighted average number of
common shares outstanding ........................... 3,491,981 3,636,356 3,478,954 3,505,106
============ ============ ============ ============
Diluted earnings per share ........................... $ 0.63 $ 0.39 $ 0.61 $ 0.44
============ ============ ============ ============
Weighted average number of common shares
and equivalents outstanding ......................... 3,794,732 3,939,107 3,847,331 3,807,857
============ ============ ============ ============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
F-4
<PAGE>
<TABLE>
RAVENSWOOD WINERY, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
<CAPTION>
Common Stock
------------------------------- Retained
Shares Amount Earnings Total
------------ ------------ ------------ ------------
(as restated)
<S> <C> <C> <C> <C>
Balance at June 30, 1996 ................................... 3,149,998 $ 644,512 $ 4,053,094 $ 4,697,606
Compensation related to deferred compensation plan ...... 93,292 93,292
Net income .............................................. 1,468,194 1,468,194
------------ ------------ ------------ ------------
Balance at June 30, 1997 ................................... 3,149,998 737,804 5,521,288 6,259,092
Repurchase of common shares from former officer ......... (157,500) (5,000) (273,255) (278,255)
Compensation related to deferred compensation plan ...... 71,342 71,342
Net income .............................................. 2,321,645 2,321,645
------------ ------------ ------------ ------------
Balance at June 30, 1998 ................................... 2,992,498 804,146 7,569,678 8,373,824
Shares issued related to deferred compensation plan ..... 345,731
Shares issued ........................................... 212,623 1,687,500 1,687,500
Net income .............................................. 2,285,232 2,285,232
------------ ------------ ------------ ------------
Balance at December 31, 1998 (unaudited) ................... 3,550,852 $ 2,491,646 $ 9,854,910 $ 12,346,556
============ ============ ============ ============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
F-5
<PAGE>
<TABLE>
RAVENSWOOD WINERY, INC.
STATEMENT OF CASH FLOWS
<CAPTION>
Six months ended
Fiscal year ended June 30, December 31,
----------------------------- -----------------------------
1 9 9 8 1 9 9 7 1 9 9 8 1 9 9 7
----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Operations:
Net income ................................................... $ 2,321,645 $ 1,468,194 $ 2,285,232 $ 1,633,901
Items not requiring the current use of cash:
Depreciation and amortization .............................. 168,784 225,026 170,668 119,314
Deferred income taxes ...................................... (77,868) (56,608)
Deferred compensation ...................................... 71,342 93,292
Impairment loss on vineyard ................................ 136,144
Changes in other operating items:
Accounts receivable ....................................... (338,007) (12,721) (747,982) (281,420)
Refundable income taxes ................................... (39,963) 22,006 73,849 (126,922)
Inventories ............................................... (3,269,357) (2,014,283) (2,503,980) (3,132,222)
Prepaid expenses .......................................... 9,202 (29,734) (46,947) (23,168)
Other assets .............................................. (8,220) 15,586 (6,560)
Accounts payable .......................................... 604,979 475,547 1,429,719 1,854,128
Accrued liabilities ....................................... 200,292 (56,640) (4,786) 87,146
----------- ----------- ----------- -----------
Cash provided by (used for) operations .................. (357,171) 265,809 655,773 124,197
----------- ----------- ----------- -----------
Investments:
Additions to plant and equipment ............................. (490,621) (312,386) (831,901) (243,229)
Shareholder receivables ...................................... (59,435)
Cash used for investing activities ...................... (490,621) (312,386) (891,336) (243,229)
----------- ----------- ----------- -----------
Financing:
Short-term borrowings, net ................................... 651,801 (351,801) 150,000 126,801
Proceeds from long-term debt 410,642 278,225
Repayments of long-term debt ................................. (46,085) (155,794) (220,335) (53,878)
Proceeds from convertible debentures and common
shares issued .............................................. 3,375,000
Repurchase of common shares from former officer .............. (278,255) (278,225)
----------- ----------- ----------- -----------
Cash provided by (used for) financing activities ........ 738,103 (507,595) 3,304,665 72,923
----------- ----------- ----------- -----------
Increase (decrease) in cash and cash equivalents .............. (109,689) (554,172) 3,069,102 (46,109)
Cash and cash equivalents at beginning of period .............. 211,961 766,133 102,272 211,961
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period .................... $ 102,272 $ 211,961 $ 3,171,374 $ 165,852
=========== =========== =========== ===========
Cash paid during the period for:
Interest ..................................................... $ 484,670 $ 378,162 $ 209,497 $ 139,617
=========== =========== =========== ===========
Income taxes ................................................. $ 1,660,344 $ 1,125,404 $ 1,670,000 $ 1,260,000
=========== =========== =========== ===========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
F-6
<PAGE>
RAVENSWOOD WINERY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Organization, operations and summary of significant accounting policies:
Organization
Ravenswood Winery, Inc. (the "Company") was founded in 1976, became a California
Limited Partnership in 1979, and was subsequently incorporated in the State of
California on December 23, 1986. The Company produces, markets, and sells
California wines exclusively under the Ravenswood brand name.
Concentration of risk
The Company obtains its grapes from over sixty independent grape growers and
bulk wine suppliers located in Sonoma, Napa and other North Coast Counties.
These sources account for 95% or more of its annual wine production. The Company
relies upon certain varietals, notably Zinfandel, which accounted for
approximately 63% of the total dollar sales for the fiscal year ended June 30,
1998. In addition, the Company relies on the winemaking capacity of other
companies and is limited to one-year contractual obligations with all custom
crush facilities.
The Company performs ongoing credit evaluations of its distributors and
customers and generally does not require collateral. The Company maintains
reserves for potential credit losses and such losses have been within
management's expectations.
The Company places its cash and temporary cash investments with financial
institutions. At June 30, 1998 and periodically throughout the fiscal year, such
investments were in excess of FDIC insurance limits.
A summary of significant accounting policies follows:
Revenue recognition
Sales are recorded when merchandise is shipped.
Inventories
Inventories are stated at the lower of cost or market (on the first-in,
first-out basis), and include finished goods, raw materials, packaging materials
and product merchandise. Finished goods include costs of raw materials (grapes
and bulk wine), packaging, labor used in wine production, bottling, warehousing
and overhead on winery facilities and equipment.
Costs associated with growing crops are recorded as inventory and are recognized
as inventory costs in the fiscal year in which the related crop is harvested.
In accordance with general practice in the wine industry, wine inventories are
included in current assets although a portion of such inventories may be aged
for periods longer than one year.
Property, plant and equipment
Property, plant and equipment are carried at cost. The cost of repairs and
maintenance is expensed as incurred; major replacements and improvements are
capitalized. Costs incurred in developing vineyards, including interest costs,
are capitalized until the vineyards become commercially productive. When assets
are retired or disposed of, the cost and accumulated depreciation are removed
from the accounts, and any resulting gains or losses are included in
F-7
<PAGE>
income in the year of disposition. Depreciation is computed using both the
straight-line and accelerated methods over the estimated useful lives of the
assets. Leased equipment under capitalized leases are generally amortized over
the terms of the leases or their estimated useful lives, whichever is shorter.
Impairment of long-lived assets is measured on the basis of anticipated
undiscounted cash flows for each asset. Based upon the Company's analysis, a
$136,144 impairment loss relating to the vineyards was reported for the fiscal
year ended June 30, 1997. The impairment loss is included in other income and
expenses in the accompanying statement of income.
Cash and cash equivalents
The Company considers all short-term interest-bearing investments with original
maturities of less than three months to be cash equivalents.
Income taxes
Deferred income taxes are computed using the liability method. Under the
liability method, taxes are recorded based on the future tax effects of the
difference between the tax and financial reporting bases of the Company's assets
and liabilities.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results when ultimately realized could differ from those estimates.
Fair value of financial instruments
The carrying amount of accounts receivable, prepaid expenses, notes receivable
from shareholders, accounts payable, accrued liabilities, short-term borrowings,
long-term debt, capital lease obligations and convertible debentures is a
reasonable estimate of the fair value of these financial instruments.
Earnings per share
Basic earnings per share represents income available to common shareholders
divided by the weighted average number of common shares outstanding during the
measurement period, after giving retroactive effect to: (1) shares issued under
a deferred compensation arrangement in July 1998 (see Notes 11 and 16); (2) the
63-to-1 stock split approved in February 1999 (see Note 16); and (3) common
stock issued in December 1998 (using the "treasury stock method") at prices
below the assumed initial public offering price (see Note 16).
Diluted earnings per share represents the income available to common
shareholders divided by: (1) the weighted average number of common shares
outstanding during the measurement period, after giving retroactive effect to
(a) shares issued under a deferred compensation
F-8
<PAGE>
arrangement in July 1998, (b) the stock split approved in February 1999, and (c)
common stock issued in December 1998 (using the "treasury stock method") at
prices below the assumed initial public offering price; and (2) the potentially
dilutive common shares issuable for convertible debt that was outstanding during
the measurement period.
Unaudited interim financial statements
The unaudited interim financial statements for the six month periods ended
December 31, 1998 and 1997 include, in the opinion of management, all
adjustments, consisting of normal recurring accruals, considered necessary for a
fair presentation of such financial information. Operating results for the
six-month period ended December 31, 1998 are not necessarily indicative of the
results that may be expected for the year ending June 30, 1999.
Reclassification of financial statement presentation
Certain reclassifications have been made to the fiscal 1997 financial statements
to conform to the fiscal 1998 financial statement presentation.
NOTE 2--Inventories: Inventories are summarized as follows:
June 30,
------------------------------
1 9 9 8 1 9 9 7
-------------- -------------
Bulk wine ..................... $ 7,898,937 $ 5,341,378
Bottled wine .................. 2,285,862 1,636,409
Crop costs ..................... 37,691 44,675
Supplies ..................... 72,902 41,161
Tasting room merchandise ...... 131,967 94,379
------------- ------------
$ 10,427,359 $ 7,158,002
============= ============
Certain of the foregoing assets are pledged as security for certain indebtedness
(See Notes 5 and 6).
NOTE 3--Property, plant and equipment:
Property, plant and equipment is summarized as follows:
June 30,
----------------------------
1 9 9 8 1 9 9 7
------------ -------------
Land ................................... $ 245,135 $ 245,135
Vineyards .............................. 56,264 56,264
Vineyards under development ............ 235,879 123,075
Building and improvements .............. 1,716,781 1,637,635
Leasehold improvements ................. 94,828 39,011
Machinery and equipment ................ 706,164 584,052
Barrels and equipment held under
capital leases ........................ 870,468 611,657
Tanks .................................. 145,688 68,874
Office equipment ....................... 110,678 99,193
Transportation equipment ............... 12,409 13,309
------------ ------------
4,194,294 3,478,205
Less--accumulated depreciation ......... 1,220,480 831,391
------------ ------------
$ 2,973,814 $ 2,646,814
============ ============
Included in property, plant and equipment are barrels and equipment leased under
capital leases with cost and accumulated depreciation totaling $870,468 and
$472,185, respectively, at June 30, 1998; and $611,657 and $249,125,
respectively, at June 30, 1997.
F-9
<PAGE>
NOTE 4--Notes receivable from shareholder:
The notes receivable from shareholder at June 30, 1998 and 1997 consist of two
unsecured notes bearing annual interest at 8.5% and due January 2004 and April
2004.
NOTE 5--Short-term borrowing arrangements:
At June 30, 1998, the Company has a $2 million revolving line of credit with
Pacific Coast Farm Credit Services, ACA ("Association") that expires on June 1,
2001. The loan agreement provides that the principal advances under the facility
cannot exceed certain percentages of eligible accounts receivable and wine
inventories as defined in the agreement. The borrowings bear annual interest at
a variable rate established by the Association (8.86% and 9.57% at June 30, 1998
and 1997, respectively). The borrowings are secured by the Company's accounts
receivable, wine inventories and equipment. Borrowings under the line of credit
at June 30, 1998 and 1997 were $1,350,000 and $698,199, respectively.
The loan contains various covenants which include, among other things, a
requirement to maintain a minimum working capital of $3.25 million, a ratio of
liabilities to tangible net worth of not greater than 1.5 to 1, and a current
ratio of at least 1.75 to 1, and provides for restrictions on the payment of
dividends and distributions to shareholders.
F-10
<PAGE>
NOTE 6--Long-term debt:
Long-term debt is summarized as follows:
June 30,
------------------------
1998 1997
---------- ----------
Note payable to Pacific Coast Farm Credit
Services, ACA ("Association") with annual
interest at a variable rate established by
the Association (7.65% at June 30, 1998),
payable in quarterly interest installments
until December 1, 1999 and commencing March
1, 2000 in quarterly principal and interest
installments of $34,795 through December 1,
2024, secured by property and equipment
(see Note 3) ........................................ $1,552,500
Note payable to an individual with annual
interest at 11%, payable in monthly
interest installments until January 1,
2000, thereafter payable in monthly
principal and interest installments (as
defined in the agreement) through October
1, 2009, secured by property and equipment
(see Note 3) ........................................ $1,450,000
Note payable to the Association with annual
interest at a variable rate established by
the Association (8.86% at June 30, 1998),
payable in quarterly principal and interest
installments of $17,390 through June 1,
2002, secured by property and equipment
(see Note 3) ........................................ 227,265
Revolving equity line of credit note payable
($835,000 commitment) to the Association
with annual interest at a variable rate
established by the Association (7.65% at
June 30, 1998), payable in quarterly
interest only installments until December
1, 1999 and commencing March 1, 2000 in
equal quarterly principal and interest
installments through December 1, 2024,
secured by property and equipment (see Note
3) .................................................. 29,887
Note payable to bank with annual interest at
10%, payable in monthly principal and
interest installments of $1,600 through
November 11, 2000, secured by computer
equipment (see Note 3) .............................. 39,304 53,513
Other unsecured notes payable with annual
interest ranging from 10% to 11%, payable
in monthly principal and interest
installments as defined to January 31, 1999
through June 2001 ................................... 26,030 40,816
---------- ----------
1,874,986 1,544,329
Less--current portion ................................ 79,321 29,752
---------- ----------
$1,795,665 $1,514,577
========== ==========
Scheduled annual maturities of long-term debt are as follows: $79,321 - fiscal
1999; $124,281 - fiscal 2000; $90,443 - fiscal 2001; $84,161 - fiscal 2002;
$27,420 - fiscal 2003 and $1,469,360 thereafter.
F-11
<PAGE>
NOTE 7--Notes payable to shareholders:
<TABLE>
Notes payable to shareholders are summarized as follows:
<CAPTION>
June 30,
-------------------
1 9 9 8 1 9 9 7
-------- --------
<S> <C> <C>
Notes payable to Joel Peterson, unsecured, with annual interest ranging
from 10% to 11%, due on demand and on June 30, 2004 ................... $ 46,143 $ 56,138
Notes payable to W. Reed Foster, unsecured, with annual interest ranging
from 10% to 11%, due on demand and on June 30, 2004 ................... 119,000 119,000
-------- --------
165,143 175,138
Less--current portion .................................................. 115,143 125,138
-------- --------
$ 50,000 $ 50,000
======== ========
</TABLE>
NOTE 8--Capital lease obligations:
The Company leases barrels and other equipment that are accounted for as capital
leases. Minimum future lease payments under the capital leases are as follows:
Fiscal year
-----------
1999 ......................................... $ 222,844
2000 ......................................... 155,852
2001 ......................................... 59,935
2002 ......................................... 14,736
2003 ......................................... 1,994
----------
Net minimum lease payments ................. 455,361
Less--amount representing interest ........... 65,667
----------
Present value of net minimum lease payments ... 389,694
Less--current portion ....................... 189,975
----------
$ 199,719
==========
The net book value of leased barrels and equipment included in property, plant
and equipment at June 30, 1998 is $398,283.
NOTE 9--Convertible debentures:
At June 30, 1998 and 1997, the Company had $865,000 of convertible debentures
outstanding. The terms of the convertible debentures provide for current
interest payments to be made based on a floating index tied to prime bank rates
for a five-year period (9.5% at June 30, 1998). The initial rate and minimum
interest rate was set at 8% per annum, with a ceiling rate of 11%.
Conversion rights allow debenture holders to convert debt into 302,750 (as
restated for 63-to-1 stock split) shares of common stock at the option of the
debenture holders for a five-year period ending December 31, 1999. The
conversion price is stated at $2.857 per share. After the five-year conversion
period, the Company may redeem any convertible debt not converted to stock at
any time until the debenture's maturity on December 31, 2004.
F-12
<PAGE>
NOTE 10--Income taxes:
The provision for income taxes is as follows:
Fiscal year ended June 30,
--------------------------------
1 9 9 8 1 9 9 7
----------- -----------
Current tax expense:
Federal ........................... $ 1,306,069 $ 868,184
State and local ................... 363,968 254,927
----------- -----------
1,670,037 1,123,111
----------- -----------
Deferred tax benefit:
Federal ........................... (71,875) (48,771)
State and local ................... (5,993) (7,837)
----------- -----------
(77,868) (56,608)
----------- -----------
$ 1,592,169 $ 1,066,503
=========== ===========
Deferred income taxes are provided for the temporary differences between the
financial reporting and tax bases of the Company's assets and liabilities.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
Deferred tax assets and liabilities are comprised of the following:
June 30,
--------------------------
1 9 9 8 1 9 9 7
--------- ---------
Deferred tax assets:
Deferred compensation ...................... $ 240,882 $ 212,670
State taxes ................................ 37,074
--------- ---------
277,956 212,670
--------- ---------
Deferred tax liabilities:
Depreciation and amortization .............. (7,134)
Inventory costing .......................... (19,716)
--------- ---------
(7,134) (19,716)
--------- ---------
Net deferred tax asset ....................... $ 270,822 $ 192,954
========= =========
<TABLE>
A reconciliation of income tax computed at the federal statutory corporate tax
rate to the provision for income taxes follows:
<CAPTION>
Fiscal year ended June 30,
------------------------------------------------------------
1 9 9 8 1 9 9 7
------------------------- -------------------------
Amount % Amount %
---------- ----- ---------- -----
<S> <C> <C> <C> <C>
Income taxes at federal statutory rate .............................. $1,330,697 34.0 % $ 861,797 34.0 %
Increase in income taxes resulting from:
State and local income taxes net of federal benefit ................. 228,567 5.84 155,630 6.14
Permanent differences ............................................... 32,905 .86 49,076 1.94
---------- ----- ---------- -----
$1,592,169 40.70% $1,066,503 42.08%
========== ===== ========== =====
</TABLE>
NOTE 11--Deferred compensation agreement:
On August 25, 1992, the Company entered into a deferred compensation agreement
with its chairman and chief executive officer, W. Reed Foster. The agreement
established an account
F-13
<PAGE>
with 5,487.8 units. Each unit was the equivalent value of one share of common
stock and contained an equivalent right to cash and common stock dividends and
all stock splits and other benefits paid to the shareholders of the Company. At
June 30, 1998, the estimated fair value of the units was $111.00 per unit, which
is included in common stock in the accompanying balance sheet. Compensation
expense relating to this agreement is $71,342 and $93,292, respectively, for the
fiscal years ended June 30, 1998 and 1997 and is included in operating expenses
in the accompanying statement of income.
Under the terms of the agreement, upon termination of employment, the Company
had the option of paying the full amount of the account as follows: (1) in stock
within thirty days of termination of employment or (2) in equal cash
installments over a four-year period plus interest at prime rate (as defined in
the agreement). As of July 1, 1998, the deferred compensation agreement was
terminated and, the Company issued 345,731 (as restated for the 63-to-1 stock
split) shares of common stock to Mr. Foster. (see Note 16).
NOTE 12--Voting trust:
On August 25, 1992, the Board of Directors authorized the creation of a Voting
Trust for all of the common stock of the Company. On November 1, 1993, the
shareholders approved the terms and conditions contained in the Trust which
provides for four trustees, who currently are: Joel Peterson, W. Reed Foster,
Justin Faggioli and James Wisner. The original Voting Trust Agreement was
replaced by a Voting Trust Agreement which is dated May 27, 1998 and which
extends to May 26, 2008. As long as Mr. Peterson is a trustee of the Voting
Trust, all decisions except decisions to amend or terminate the Voting Trust
require the approval of Mr. Peterson and one other trustee; however, decisions
to amend or terminate the Voting Trust require the approval of Mr. Peterson and
two other trustees. If Mr. Peterson is no longer a trustee of the voting trust,
all decisions require the approval of three trustees; however, decisions to
amend or terminate the Voting Trust require the approval of the three remaining
trustees and Mr. Peterson's successor trustee (who shall be appointed by the
three remaining trustees). As of December 31, 1998, 2,150,681 (as restated for
63-to-1 stock split) shares of common stock were subject to the terms of the
Voting Trust (see Note 16).
NOTE 13--Commitments and contingencies:
The Company leases certain warehouse space under noncancellable operating leases
that expire on dates ranging from October 1999 to October 2008. Under the terms
of certain of the leases, rent is contingent on the amount of bulk wine and/or
case goods stored at any given time and is adjusted annually for increases in
building operating costs. Rental expense (including contingent rent) was
$468,616 for 1998 and $317,507 for 1997. Minimum future rental payments for each
of the next five fiscal years and thereafter are as follows: $224,432 - fiscal
1999; $145,764 - fiscal 2000; $73,796 - fiscal 2001; $61,252 - fiscal 2002;
$61,252 - fiscal 2003 and $106,176 thereafter.
The Company has contracted with various growers and certain wineries to supply
approximately 95% of its future grape and bulk wine requirements. While most of
these contracts call for prices to be determined by market conditions, several
long-term contracts provide for minimum grape or bulk wine purchase prices.
The Company has established a plan to achieve Year 2000 compliance in its
electronic information systems and does not believe this plan will materially
affect the Company's results of operations or financial position.
F-14
<PAGE>
NOTE 14--401(k) savings plan:
The Company has a 401(k) savings plan that is available to eligible employees.
Employer contributions to the plan are at the discretion of the Board of
Directors and amounted to $53,089 in the 1998 fiscal year and $41,057 in the
1997 fiscal year.
NOTE 15--Earnings per share:
Basic earnings per share represents income available to common shareholders
divided by the weighted average number of common shares outstanding during the
measurement period, after giving retroactive effect to: (1) shares issued under
a deferred compensation arrangement in July 1998 (see Notes 11 and 16); (2) the
63-to-1 stock split approved in February 1999 (see Note 16); and (3) common
stock issued in December 1998 (using the "treasury stock method") at prices
below the assumed initial public offering price (see Note 16).
Diluted earnings per share represents the income available to common
shareholders divided by: (1) the weighted average number of common shares
outstanding during the measurement period, after giving retroactive effect to
(a) shares issued under a deferred compensation arrangement in July 1998, (b)
the 63-to-1 stock split approved in February 1999, and (c) common stock issued
in December 1998 (using the "treasury stock method") at prices below the assumed
initial public offering price; and (2) the potentially dilutive common shares
issuable for convertible debt that was outstanding during the measurement
period.
F-15
<PAGE>
<TABLE>
A summary of the basic and diluted earnings per share calculations is as
follows:
<CAPTION>
Fiscal year ended June 30, Six months ended December 31,
---------------------------- ----------------------------
1 9 9 8 1 9 9 7 1 9 9 8 1 9 9 7
---------- ---------- ---------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
BASIC
Average shares outstanding [A] ................................ 3,005,625 3,150,000 2,992,500 3,018,750
Shares issued under deferred
compensation arrangement [B] ................................. 345,731 345,731 345,731 345,731
Shares issued in December 1998 [C] ............................ 140,625 140,625 140,723 140,625
---------- ---------- ---------- ----------
Weighted average number of common shares outstanding .......... 3,491,981 3,636,356 3,478,954 3,505,106
========== ========== ========== ==========
Net income .................................................... $2,321,645 $1,468,194 $2,285,232 $1,633,901
========== ========== ========== ==========
Per share amount .............................................. $ 0.67 $ 0.40 $ 0.66 $ 0.47
========== ========== ========== ==========
DILUTED
Average shares outstanding [A] ................................ 3,005,625 3,150,000 2,992,500 3,018,750
Shares issued under deferred compensation arrangement [B] ..... 345,731 345,731 345,731 345,731
Shares issued in December 1998 [C] ............................ 140,625 140,625 140,723 140,625
Net effect of potentially dilutive common stock issuable for
convertible debentures ....................................... 302,751 302,751 368,377 302,751
---------- ---------- ---------- ----------
Weighted average number of common shares and
equivalents outstanding ...................................... 3,794,732 3,939,107 3,847,331 3,807,857
========== ========== ========== ==========
Net income ....................................................... $2,321,645 $1,468,194 $2,285,232 $1,633,901
Interest on convertible debt, net of tax benefit ................. 49,305 55,793 45,168 24,653
---------- ---------- ---------- ----------
Net income, after adding interest on debentures .................. $2,370,950 $1,523,987 $2,330,400 $1,658,554
========== ========== ========== ==========
Per share amount .............................................. $ 0.63 $ 0.39 $ 0.61 $ 0.44
========== ========== ========== ==========
<FN>
- ------------
[A] Reflects the retroactive effect of the 63-to-1 stock split approved in
February 1999.
[B] Reflects the retroactive effect of the shares issued under a deferred
compensation agreement in July 1998.
[C] Represents the retroactive effect using the "treasury stock method" for
common stock issued in December 1998 at prices below the assumed initial
public offering price.
</FN>
</TABLE>
NOTE 16--Subsequent events:
As of July 1, 1998, the Company and its chairman and chief executive officer, W.
Reed Foster (see Note 11), agreed to terminate his deferred compensation
agreement. Under the terms of the agreement, the Company issued Mr. Foster
345,731 (as restated for 63-to-1 stock split) shares of common stock and agreed
to loan Mr. Foster up to $335,000 to pay taxes related to his receipt of these
shares. The loan, which was partially funded in December 1998, with the balance
to be funded in April 1999, is due on December 21, 2008 with interest payable
annually at 5.3% per annum. In connection with the termination of the deferred
compensation agreement, the Company amended the Voting Trust to include the
345,731 shares issued to Mr. Foster.
In December 1998, the Company completed a sale of $1,687,500 of convertible
debentures due December 31, 2008 and $1,687,500 of common stock. Each $10,000
debenture is convertible into 900 (as restated for 63-to-1 stock split) shares
of common stock at any time prior to December 31, 2003 upon request of the
holder. If the debentures are not converted,
F-16
<PAGE>
the Company may redeem them at face value at any time during the period from
January 1, 2004 until the maturity date. The Company pays interest quarterly on
the debentures in an amount equal to the prime interest rate quoted by Bank of
America NT & SA plus 1%. The interest rate is adjusted every 18 months, except
that in no period may the interest rate adjustment exceed 2% or the maximum
interest rate exceed 11%.
In January 1999, the Company entered into an agreement to lease approximately 30
acres of land in Sonoma County, California from Sandra D. Donnell and Bruce B.
Donnell, the wife and brother-in-law, respectively, of Justin M. Faggioli, the
Company's Executive Vice President. The Company is in the process of building a
new winery facility on the leased property to expand its production capacity.
The lease provides for monthly payments that are adjusted annually and has a
term ending December 31, 2032. The Company is in the process of negotiating bank
financing required for the construction of the new facility.
On February 1, 1999, the Board of Directors declared a 63-to-1 stock split of
the Company's common stock. All shares and per share data have been restated to
reflect the stock split. In addition, the Board of Directors has authorized one
million shares of preferred stock and increased the number of authorized shares
of common stock from one million to twenty million.
On February 1, 1999, the Company's Board of Directors adopted and the Company's
shareholders approved the 1999 Equity Incentive Plan to provide for the grant of
incentive stock options intended to qualify under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), nonstatutory stock options,
restricted stock awards and other stock-based awards to the Company's officers,
employees, directors, independent contractors, consultants, vendors and
suppliers. There are 500,000 shares of common stock reserved for issuance under
the plan. No options have been granted under the plan to date, although the
Company intends to grant options to purchase an aggregate of 279,500 shares of
common stock in connection with its initial public offering. No awards may be
granted under the plan after January 2009, but the vesting of awards previously
granted may extend beyond that date.
On February 1, 1999, the Company's Board of Directors adopted and the Company's
shareholders approved the Employee Stock Purchase Plan with 50,000 shares of
common stock available for issuance thereunder. The plan, which is intended to
qualify as an employee stock purchase plan under Section 423 of the Code,
provides that all employees of the Company, including directors of the Company
who are employees, whose customary employment is more than 20 hours per week for
more than five months in any calendar year, are eligible to participate in the
plan. Employees who would immediately after the grant own 5% or more of the
total combined voting power or value of the stock of the Company or any
subsidiary are not eligible to participate. Eligible employees may elect to have
up to 10% of their earnings withheld and applied to the purchase of common stock
at a price equal to as low as 85% of the average market price per share (as
defined in the plan) of the common stock on either the first day or the last day
of the relevant offering period, whichever is lower. An employee may not
purchase more than 500 shares in any one offering period. No shares of common
stock have been issued pursuant to the purchase plan to date.
On February 1, 1999, the Company's board of directors approved a resolution to
conduct an initial public offering in early 1999.
F-17
<PAGE>
[GRAPHIC OMITTED]
(Full-page Ravenswood slogan "No Wimpy Wines" with logo)
<PAGE>
[GRAPHIC OMITTED]
(Full-page Ravenswood logo)
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Articles 5 and 6 of Ravenswood's Articles provide for the indemnification of the
officers and directors of the company to the fullest extent permissible under
California law. In addition, Article 6 of Ravenswood's Bylaws, as amended,
requires that Ravenswood indemnify, and, in certain instances, advance expenses
to, its agents with respect to certain costs, expenses, judgments, fines,
settlements and other amounts incurred in connection with any proceeding, to the
fullest extent permitted by California law. Persons covered by this
indemnification provision include current and former directors, officers,
employees and other agents of Ravenswood, as well as persons who serve at the
request of Ravenswood as directors, officers, employees or agents of another
enterprise.
Section 317(b) of the California Corporations Code (the "Corporations Code")
provides that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any "proceeding" (as defined in Section 317(a)
of the Corporations Code), other than an action by or in the right of the
corporation to procure a judgment in its favor, by reason of the fact that such
person is or was a director, officer, employee or other agent of the corporation
(collectively, an "Agent"), against expenses, judgments, fines, settlements and
other amounts actually and reasonably incurred in connection with such
proceeding if the Agent acted in good faith and in a manner the Agent reasonably
believed to be in the best interests of the corporation and, in the case of a
criminal proceeding, had no reasonable cause to believe the conduct was
unlawful.
Section 317(c) provides that a corporation shall have power to indemnify any
Agent who was or is a party or is threatened to be made a party to any
threatened, pending or completed action by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person is or was
an Agent, against expenses actually and reasonably incurred by the Agent in
connection with the defense or settlement of such action if the Agent acted in
good faith and in a manner such Agent believed to be in the best interests of
the corporation and its shareholders.
Section 317(c) further provides that no indemnification may be made thereunder
for any of the following: (i) in respect of any claim, issue or matter as to
which the Agent shall have been adjudged to be liable to the corporation, unless
and only to the extent that the court in which such proceeding is or was pending
shall determine that such Agent is fairly and reasonably entitled to
indemnification for expenses, (ii) of amounts paid in settling or otherwise
disposing of a pending action without court approval and (iii) of expenses
incurred in defending a pending action which is settled or otherwise disposed of
without court approval. Section 317(d) of the Corporations Code requires that an
Agent be indemnified against expenses actually and reasonably incurred to the
extent the Agent has been successful on the merits in the defense of proceedings
referred to in subdivisions (b) or (c) of Section 317.
Except as provided in Section 317(d), and pursuant to Section 317(e),
indemnification under Section 317 shall be made by the corporation only if
specifically authorized and upon a determination that indemnification is proper
in the circumstances because the Agent has met the applicable standard of
conduct set forth in Section 317(b) or (c), which determination is made by any
of the following: (i) a majority vote of a quorum consisting of directors who
are
II-1
<PAGE>
not parties to the proceeding, (ii) if such a quorum of directors is not
obtainable, by independent legal counsel in a written opinion, (iii) approval of
the shareholders, provided that any shares owned by the Agent may not vote
thereon, or (iv) the court in which such proceeding is or was pending. Pursuant
to Section 317(f) of the Corporations Code, the corporation may advance expenses
incurred in defending any proceeding upon receipt of an undertaking by the Agent
to repay such amount if it is ultimately determined that the Agent is not
entitled to be indemnified.
Section 317(h) provides, with certain exceptions, that no indemnification shall
be made under Section 317 where it appears that it would be inconsistent with a
provision of the corporation's articles or, bylaws, a shareholder resolution or
an agreement which prohibits or otherwise limits indemnification, or where it
would be inconsistent with any condition expressly imposed by a court in
approving a settlement.
In addition, Article 6 of Ravenswood's Bylaws authorizes Ravenswood to purchase
and maintain insurance on behalf of any person indemnified by Ravenswood.
Ravenswood expects to obtain a directors and officers liability insurance policy
prior to the closing of this offering.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses to be incurred in connection
with the sale and distribution of the securities being registered hereby, other
than underwriting discounts and commissions. All amounts are estimated except
the Securities and Exchange Commission registration fee and the National
Association of Securities Dealers, Inc. filing fee.
SEC registration fee ............................................. $ 4,316
National Association of Securities Dealers, Inc. filing fee ...... 2,053
Blue Sky fees and expenses ....................................... 2,000
Nasdaq National Market filing fee ................................. 63,725
Accounting fees and expenses .................................... 25,000
Legal fees and expenses .......................................... 85,000
Printing and engraving expenses ................................. 60,000
Registrar and Transfer Agent's fees .............................. 5,000
Miscellaneous fees and expenses ................................. 42,906
---------
Total: ............................................................ $290,000
=========
Item 26. Recent Sales of Unregistered Securities.
Since January 1996, Ravenswood has sold and issued the following unregistered
securities (share numbers and dollar amounts do not reflect the 63-for-1 split
to be effected in connection with this offering):
As of July 1, 1998, Ravenswood issued 5,487.8 shares of common stock to W. Reed
Foster, Ravenswood's Chairman and Chief Executive Officer, in connection with
the termination of a deferred compensation agreement entered into in August
1992.
From August until December 1998, Ravenswood sold a total of 3,375 shares of
common stock to accredited investors at a price of $500.00 per share and 168.75
convertible debentures at a price of $10,000 per debenture, for aggregate
consideration of $3,375,000 in cash.
II-2
<PAGE>
The shares of common stock and debentures issued in the above transactions were
offered and sold in reliance upon the exemptions from registration under Section
4(2) of the Securities Act, or Regulation D or Rule 701 promulgated under the
Securities Act. The recipients of the above-described securities represented
their intention to acquire the securities for investment only and not with a
view to distribution thereof. Appropriate legends were affixed to the stock
certificates and convertible debentures issued in such transactions. All
recipients had adequate access, through employment or other relationships, to
information about Ravenswood.
Item 27. Exhibits and Financial Statement Schedules.
a. Index to Exhibits
Exhibit
Number Description of Document
- -------- ---------------------------------------------------------------------
1.1 Form of Underwriting Agreement*
3.1 Amended and Restated Articles of Incorporation of Ravenswood Winery,
Inc.
3.2 Amended and Restated Bylaws of Ravenswood Winery, Inc.
4.1 Specimen Stock Certificate*
5.1 Opinion of Farella Braun & Martel LLP*
9.1 Voting Trust Agreement*
10.1 1999 Equity Incentive Plan for Ravenswood Winery, Inc.
10.2 Employee Stock Purchase Plan for Ravenswood Winery, Inc.
10.3 Form of Indemnification Agreement for Ravenswood Winery, Inc.
10.4 Revolving Line of Credit Promissory Note and Agreement with Pacific
Coast Farm Credit Services, ACA, dated as of April 1, 1998.
10.5 Revolving Equity Line of Credit Promissory Note and Loan Agreement
with Pacific Coast Farm Credit Services, ACA, dated as of April 8,
1998.
10.6 Notes payable from Ravenswood Winery, Inc. to W. Reed Foster
10.7 Notes payable from Ravenswood Winery, Inc. to Joel E. Peterson and
notes payable from Joel E. Peterson to Ravenswood Winery, Inc.
10.8 Quarry Winery Lease Agreement, dated as of January 1, 1999
10.9 Stock Agreement and Amendment of Voting Trust by and between
Ravenswood Winery, Inc. and W. Reed Foster effective as of July 1,
1998 and note payable from W. Reed Foster to Ravenswood Winery, Inc.
10.10 Form of Convertible Subordinated Debenture dated as of January 1995.
10.11 Form of Convertible Subordinated Debenture dated as of December
1998.*
10.12 Marketing, Sales Agency and Administrative Services Agreement between
Ravenswood Winery, Inc. and Harvest Wines, Inc.
11.1 Statement of Computation of Earnings Per Share
23.1 Consent of Odenberg, Ullakko, Muranishi & Co. LLP
23.2 Consent of Farella Braun & Martel LLP (included in Exhibit 5.1)*
25.1 Power of Attorney (see p. II-5)
27.1 Financial Data Schedule
- -----------
* To be filed by amendment
II-3
<PAGE>
Item 28. Undertakings.
(a) The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that it will:
(1) For purposes of determining any liability under the Securities Act,
treat the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time as the initial bona fide offering of
those securities.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and authorizes this registration statement
to be signed on its behalf by the undersigned, in the County of Sonoma, State of
California, on February 3, 1999.
RAVENSWOOD WINERY, INC.
/s/ Callie S. Konno
-------------------------------------
Callie S. Konno
Chief Financial Officer, Treasurer
and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints W. Reed Foster, Joel E. Peterson, Justin M. Faggioli
and Callie S. Konno, and each of them, such person's true and lawful
attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for such person and in such person's name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments, exhibits thereto, and other documents in connection therewith to
this Registration Statement and any subsequent registration statement filed by
the Registrant pursuant to Rule 462(b) of the Securities Act, which relates to
this Registration Statement) and to file the same with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
each of said attorneys-in-fact and agents, or any of them, or their substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
II-5
<PAGE>
<TABLE>
Pursuant to the requirements of the Securities Act, this Registration Statement
has been signed below by the following persons in the capacities and on the
dates indicated.
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ W. Reed Foster Chairman of the Board and Chief February 3, 1999
- ----------------------------- Executive Officer (Principal
W. Reed Foster Executive Officer)
/s/ Joel E. Peterson President, Winemaker and Director February 3, 1999
- -----------------------------
Joel E. Peterson
/s/ Justin M. Faggioli Executive Vice President, Secretary and February 3, 1999
- ----------------------------- Director
Justin M. Faggioli
/s/ Callie S. Konno Chief Financial Officer, Treasurer and February 3, 1999
- ----------------------------- Director (Principal Financial and
Callie S. Konno Accounting Officer)
/s/ James F. Wisner Director February 3, 1999
- -----------------------------
James F. Wisner
/s/ Robert E. McGill, III Director February 3, 1999
- -----------------------------
Robert E. McGill, III
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Document
------ -----------------------
3.1 Amended and Restated Articles of Incorporation of Ravenswood Winery,
Inc.
3.2 Amended and Restated Bylaws of Ravenswood Winery, Inc.
10.1 1999 Equity Incentive Plan for Ravenswood Winery, Inc.
10.2 Employee Stock Purchase Plan for Ravenswood Winery, Inc.
10.3 Form of Indemnification Agreement for Ravenswood Winery, Inc.
10.4 Revolving Line of Credit Promissory Note and Agreement with Pacific
Coast Farm Credit Services, ACA, dated as of April 1, 1998.
10.5 Revolving Equity Line of Credit Promissory Note and Loan Agreement
with Pacific Coast Farm Credit Services, ACA, dated as of April 8,
1998.
10.6 Notes payable from Ravenswood Winery, Inc. to W. Reed Foster
10.7 Notes payable from Ravenswood Winery, Inc. to Joel E. Peterson and
notes payable from Joel E. Peterson to Ravenswood Winery, Inc.
10.8 Quarry Winery Lease Agreement dated as of January 1, 1999
10.9 Stock Agreement and Amendment of Voting Trust by and between
Ravenswood Winery, Inc. and W. Reed Foster, effective as of July 1,
1998 and note payable from W. Reed Foster to Ravenswood Winery, Inc.
10.10 Form of Convertible Subordinated Debenture dated as of January 1995.
10.12 Marketing, Sales Agency and Administration Services Agreement between
Ravenswood Winery, Inc. and Harvest Wines Inc.
11.1 Statement of Computation of Earnings Per Share
23.1 Consent of Odenberg, Ullakko, Muranishi & Co. LLP
25.1 Power of Attorney (see p. II-6)
27.1 Financial Data Schedule
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
RAVENSWOOD WINERY, INC.
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
RAVENSWOOD WINERY, INC.
The undersigned certify that:
1. They are the President and Secretary, respectively, of Ravenswood
Winery, Inc., a California corporation (the "Corporation").
2. The Articles of Incorporation of the Corporation are amended and
restated to read in their entirety as follows:
FIRST: The name of the Corporation is Ravenswood Winery, Inc.
SECOND: The purpose of the Corporation is to engage in any
lawful act or activity for which a corporation may be organized under the
General Corporation Law of California other than the banking business, the trust
company business or the practice of a profession permitted to be incorporated by
the California Corporations Code.
THIRD:
(a) The Corporation is authorized to issue two classes of
stock, to be designated, respectively, Preferred Stock ("Preferred Stock") and
Common Stock ("Common Stock"). The total number of shares of capital stock that
the Corporation shall have the authority to issue is twenty-one million
(21,000,000). The total number of shares of Preferred Stock the Corporation
shall have the authority to issue is one million (1,000,000). The total number
of shares of Common Stock the Corporation shall have the authority to issue is
twenty million (20,000,000). Upon the amendment of this article, each
outstanding share is split into sixty-three (63) shares.
(b) The Board of Directors of the Corporation (the "Board of
Directors") is expressly authorized to provide for the issue of all or any of
the shares of the Preferred Stock in one or more series, and to fix the number
of shares and to determine or alter for each such series, such voting powers,
full or limited, or no voting powers (other than as prescribed by law), and such
designations, preferences and relative, participating, optional or other rights,
and such qualifications, limitations or restrictions thereof, as shall be stated
and expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issue of such shares and as may be permitted by the California
Corporations Code. The Board of Directors is also expressly authorized to
increase or decrease the number of shares of any series subsequent to the issue
of shares of that series (but not below the number of shares of such series then
outstanding). In case the number of shares of any such series shall be so
decreased, the shares constituting such decrease shall again be authorized for
issuance as Preferred Stock.
1
<PAGE>
(c) Except to the extent required by applicable law, the
Corporation will not issue fractional shares of stock, either originally or upon
transfer, including issuances required in connection with mergers,
reorganizations or reclassifications or the exercise of option, warrant,
conversion or similar rights. In connection with any issuance of shares which,
in the absence of the foregoing provision, would require the issuance of
fractional shares, the Corporation shall pay in cash to those entitled thereto
the fair value of the fractional shares they would otherwise have received.
FOURTH: In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors shall have the power, both before
and after receipt of any payment for any of the Corporation's capital stock, to
adopt, amend, repeal or otherwise alter the Bylaws of the Corporation without
any action on the part of the shareholders. The grant of such power to the Board
of Directors, however, shall not divest the shareholders of, nor limit, their
power to adopt, amend, repeal or otherwise alter the Bylaws; provided that any
action by the shareholders to adopt, amend, repeal or otherwise alter the Bylaws
shall not be effective except upon the affirmative vote of not less than
two-thirds of the shares of the Corporation then issued and outstanding which
have the right to vote on the matter. Any amendment of this Article Fourth shall
require the approval by the affirmative vote of not less than two-thirds of the
shares of the Corporation then issued and outstanding which have the right to
vote on the matter.
FIFTH: The liability of the directors of the Corporation for
monetary damages shall be eliminated to the fullest extent permissible under
California law.
SIXTH: The Corporation is authorized to provide
indemnification of agents (as defined in Section 317 of the California
Corporations Code) for breach of duty to the Corporation and its shareholders
through bylaw provisions or through agreements with the agents, or both, in
excess of the indemnification otherwise permitted by Section 317 of the
California Corporations Code, subject to the limits on such excess
indemnification set forth in Section 204 of the California Corporations Code.
SEVENTH: Effective on the date that the Corporation first
becomes required to file periodical and other reports pursuant to Section 13 of
the Securities Exchange Act of 1934, and with respect to any actions to be taken
thereafter, any action required or permitted to be taken by shareholders of the
Corporation must be taken at a duly called annual meeting or a duly called
special meeting of shareholders of the Corporation, and no action may be taken
by the written consent of the shareholders. Any amendment of this Article
Seventh shall require the approval by the affirmative vote of not less than
two-thirds of the shares of the Corporation then issued and outstanding which
have the right to vote on the matter.
3. The foregoing amendment and restatement of the Articles of
Incorporation has been duly approved by the Board of Directors.
4. The foregoing amendment and restatement of the Articles of
Incorporation has been duly approved by the required vote of shareholders in
accordance with Sections 902 and 903 of the California Corporations Code. The
total outstanding shares of the Corporation are 3,550,852 shares of Common
Stock, all of which were entitled to vote with respect to the present
2
<PAGE>
amendment and restatement of the Articles of Incorporation. The affirmative vote
of more than 50% of the Common Stock was required for approval of the amendment
and restatement of the Articles of Incorporation. In accordance with Section
903(a)(1) of the California Corporations Code, in excess of 50% of the Common
Stock voted in favor of the amendment and restatement of the Articles of
Incorporation.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge.
Date: February 1, 1999
/s/ Joel E. Peterson
-----------------------------------------------------
Joel E. Peterson, President
/s/ Justin M. Faggioli
-----------------------------------------------------
Justin M. Faggioli, Secretary
3
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
RAVENSWOOD WINERY, INC.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE 1 - OFFICES...............................................................................................1
1.1 Principal Office...........................................................................................1
1.2 Other Offices..............................................................................................1
ARTICLE 2 - MEETINGS OF SHAREHOLDERS..............................................................................1
2.1 Place of Meetings..........................................................................................1
2.2 Annual Meetings of Shareholders............................................................................1
2.3 Special Meetings...........................................................................................1
2.4 Notice of Shareholders' Meetings...........................................................................2
2.5 Manner of Giving Notice; Affidavit of Notice...............................................................2
2.6 Quorum.....................................................................................................2
2.7 Adjourned Meeting and Notice Thereof.......................................................................3
2.8 Voting.....................................................................................................3
2.9 Waiver of Notice or Consent by Absent Shareholders.........................................................4
2.10 Record Date for Shareholder Notice and Voting.............................................................4
2.11 Proxies...................................................................................................4
2.12 Inspectors of Election....................................................................................5
2.13 Advance Notice of Shareholder Nominees....................................................................6
2.14 Advance Notice of Shareholder Business....................................................................6
ARTICLE 3 - DIRECTORS.............................................................................................7
3.1 Powers.....................................................................................................7
3.2 Number and Qualification of Directors......................................................................7
3.3 Election and Term of Office of Directors...................................................................7
3.4 Vacancies..................................................................................................7
3.5 Place of Meetings and Telephonic Meetings..................................................................8
3.6 Annual Meetings............................................................................................8
3.7 Other Regular Meetings.....................................................................................8
3.8 Special Meetings...........................................................................................8
3.9 Quorum.....................................................................................................9
3.10 Waiver of Notice..........................................................................................9
3.11 Adjournment...............................................................................................9
3.12 Notice of Adjournment.....................................................................................9
3.13 Action Without Meeting....................................................................................9
3.14 Fees and Compensation of Directors.......................................................................10
ARTICLE 4 - COMMITTEES...........................................................................................10
4.1 Committees of Directors...................................................................................10
4.2 Meetings and Action of Committees.........................................................................10
i
<PAGE>
ARTICLE 5 - OFFICERS.............................................................................................11
5.1 Officers..................................................................................................11
5.2 Election of Officers......................................................................................11
5.3 Subordinate Officers, Etc. ...............................................................................11
5.4 Removal and Resignation of Officers.......................................................................11
5.5 Vacancies in Offices......................................................................................11
5.6 Chairman of the Board.....................................................................................11
5.7 Chief Executive Officer...................................................................................12
5.8 President.................................................................................................12
5.9 Vice Presidents...........................................................................................12
5.10 Secretary................................................................................................12
5.11 Chief Financial Officer..................................................................................13
ARTICLE 6 - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS...................................13
6.1 Agents, Proceedings and Expenses..........................................................................13
6.2 Actions Other Than by the Corporation.....................................................................13
6.3 Actions by the Corporation................................................................................14
6.4 Successful Defense by Agent...............................................................................14
6.5 Required Approval.........................................................................................14
6.6 Advance of Expenses.......................................................................................15
6.7 Other Contractual Rights..................................................................................15
6.8 Limitations...............................................................................................15
6.9 Insurance.................................................................................................15
6.10 Fiduciaries of Corporate Employer Benefit Plan...........................................................16
6.11 Other Indemnification....................................................................................16
ARTICLE 7 - RECORDS AND REPORTS..................................................................................16
7.1 Maintenance of Share Register.............................................................................16
7.2 Maintenance and Inspection of Bylaws......................................................................16
7.3 Maintenance of Other Corporate Records....................................................................16
7.4 Inspection by Directors...................................................................................17
7.5 Annual Report to Shareholders.............................................................................17
ARTICLE 8 - CORPORATE LOANS AND GUARANTEES.......................................................................17
8.1 Shareholder Approval......................................................................................17
8.2 Board Approval............................................................................................17
ARTICLE 9 - GENERAL CORPORATE MATTERS............................................................................17
9.1 Record Date for Purposes Other Than Notice and Voting.....................................................17
9.2 Checks, Drafts, Evidences of Indebtedness.................................................................18
9.3 Corporate Contracts and Instruments; How Executed.........................................................18
9.4 Certificates for Shares...................................................................................18
9.5 Lost Certificates.........................................................................................18
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9.6 Representation of Shares of Other Corporations............................................................19
9.7 Construction and Definitions..............................................................................19
ARTICLE 10 - AMENDMENTS..........................................................................................19
10.1 Amendments...............................................................................................19
</TABLE>
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AMENDED AND RESTATED BYLAWS
OF
RAVENSWOOD WINERY, INC.
ARTICLE 1
OFFICES
1.1 Principal Office. The Board of Directors shall fix the location of
the principal executive office of the corporation at any place within or outside
the State of California. If the principal executive office is located outside
this state, and the corporation has one or more business offices in this state,
the Board of Directors shall likewise fix and designate a principal business
office in the State of California.
1.2 Other Offices. The Board of Directors may at any time establish
branch or subordinate offices at any place or places where the corporation is
qualified to do business.
ARTICLE 2
MEETINGS OF SHAREHOLDERS
2.1 Place of Meetings. Meetings of shareholders shall be held at any
place within or outside the State of California designated by the Board of
Directors. In the absence of any such designation, shareholders' meetings shall
be held at the principal executive office of the corporation.
2.2 Annual Meetings of Shareholders. The annual meeting of shareholders
shall be held each year on a date and at a time designated by the Board of
Directors. At each annual meeting directors shall be elected, and any other
proper business may be transacted.
2.3 Special Meetings. A special meeting of the shareholders may be
called at any time by the Board of Directors, or by the Chairman of the Board,
or by the President, or by one or more shareholders holding shares in the
aggregate entitled to cast not less than ten percent (10%) of the votes at any
such meeting.
If a special meeting is called by any person or persons other than the
Board of Directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board, the President, any
Vice President or the Secretary of the corporation. The officer receiving such
request forthwith shall cause notice to be given to the shareholders entitled to
vote, in accordance with the provisions of Sections 2.4 and 2.5, that a meeting
will be held at the time requested by the person or persons calling the meeting
not less than thirty-five (35) nor more than sixty (60) days after the receipt
of the request. If the notice is not given within twenty (20) days after receipt
of the request, the person or persons requesting the meeting may give the
notice. Nothing contained in this paragraph of this Section 2.3 shall be
construed as limiting, fixing or affecting the time when a meeting of
shareholders called by action of the Board of Directors may be held.
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2.4 Notice of Shareholders' Meetings. All notices of meetings of
shareholders shall be sent or otherwise given in accordance with Section 2.5 not
less than ten (10) nor more than sixty (60) days before the date of the meeting
being noticed. The notice shall specify the place, date and hour of the meeting
and (i) in the case of a special meeting, the general nature of the business to
be transacted, or (ii) in the case of the annual meeting, those matters which
the Board of Directors, at the time of giving the notice, intends to present for
action by the shareholders. The notice of any meeting at which directors are to
be elected shall include the name of any nominee or nominees which, at the time
of the notice, management intends to present for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California, (ii)
an amendment of the Articles of Incorporation, pursuant to Section 902 of such
Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of
such Code, (iv) a voluntary dissolution of the corporation, pursuant to Section
1900 of such Code, or (v) a distribution in dissolution other than in accordance
with the rights of outstanding preferred shares pursuant to Section 2007 of such
Code, the notice shall also state the general nature of such proposal.
2.5 Manner of Giving Notice; Affidavit of Notice. Notice of any meeting
of shareholders shall be given either personally or by first-class mail or
telegraphic or other written communication, charges prepaid, addressed to the
shareholder at the address of such shareholder appearing on the books of the
corporation or given by the shareholder to the corporation for the purpose of
notice. If no such address appears on the corporation's books or has been so
given, notice shall be deemed to have been given if sent by first-class mail or
telegraphic or other written communication to the corporation's principal
executive office, or if published at least once in a newspaper of general
circulation in the county where such office is located. Notice shall be deemed
to have been given at the time when delivered personally or deposited in the
mail or sent by telegram or other means of written communication.
If any notice addressed to a shareholder at the address of such
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at such address, all future notices or reports shall be deemed to have been duly
given without further mailing if the same shall be available to the shareholder
upon written demand of the shareholder at the principal executive office of the
corporation for a period of one (1) year from the date of the giving of such
notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting shall be executed by the Secretary, any Assistant
Secretary or any transfer agent of the corporation giving such notice, and shall
be filed and maintained in the minute book of the corporation.
2.6 Quorum. The presence in person or by proxy of the holders of a
majority of the shares entitled to vote at any meeting of shareholders shall
constitute a quorum for the
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transaction of business. The shareholders present at a duly called or held
meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum, if any action taken (other than adjournment) is approved by at
least a majority of the shares required to constitute a quorum.
2.7 Adjourned Meeting and Notice Thereof. Any shareholders' meeting,
annual or special, whether or not a quorum is present, may be adjourned from
time to time by the vote of the majority of the shares represented at such
meeting, either in person or by proxy, but in the absence of a quorum, no other
business may be transacted at such meeting, except as provided in Section 2.6.
When any meeting of shareholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place thereof are announced at a meeting at which the
adjournment is taken, unless a new record date for the adjourned meeting is
fixed, or unless the adjournment is for more than forty-five (45) days from the
date set for the original meeting, in which case the Board of Directors shall
set a new record date. Notice of any such adjourned meeting, if required, shall
be given to each shareholder of record entitled to vote at the adjourned meeting
in accordance with the provisions of Sections 2.4 and 2.5. At any adjourned
meeting, the corporation may transact any business which might have been
transacted at the original meeting.
2.8 Voting. Every shareholder shall be entitled to one vote for each
full share of the corporation held, and to cumulate such votes at any election
of directors under the conditions prescribed by law; provided that, effective
upon the corporation becoming a "listed company" (as defined in Section 301.5 of
the Corporations Code of California), cumulative voting shall be eliminated.
The shareholders entitled to vote at any meeting of shareholders shall
be determined in accordance with the provisions of Section 2.11, subject to the
provisions of Sections 702 to 704, inclusive, of the Corporations Code of
California (relating to voting shares held by a fiduciary, in the name of a
corporation or in joint ownership). Such vote may be by voice vote or by ballot;
provided, however, that all elections for directors must be by ballot upon
demand by a shareholder at any election and before the voting begins. Any
shareholder entitled to vote on any matter (other than the election of
directors) may vote part of the shares in favor of the proposal and refrain from
voting the remaining shares or vote them against the proposal, but, if the
shareholder fails to specify the number of shares such shareholder is voting
affirmatively, it will be conclusively presumed that the shareholder's approving
vote is with respect to all shares such shareholder is entitled to vote. If a
quorum is present, the affirmative vote of the majority of the shares
represented at the meeting and entitled to vote on any matter (other than the
election of directors so long as cumulative voting is in effect) shall be the
act of the shareholders, unless the vote of a greater number or voting by
classes is required by the California General Corporation Law or the Articles of
Incorporation.
So long as cumulative voting is in effect, at any shareholders' meeting
involving the election of directors, no shareholder shall be entitled to
cumulate votes (i.e., cast for any one
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or more candidates a number of votes greater than the number of the
shareholder's shares) unless such candidate or candidates' names have been
placed in nomination prior to commencement of the voting and a shareholder has
given notice prior to commencement of the voting of the shareholder's intention
to cumulate votes. If any shareholder has given such notice, then every
shareholder entitled to vote may cumulate such shareholder's votes for
candidates in nomination and give one candidate a number of votes equal to the
number of directors to be elected, multiplied by the number of votes to which
such shareholder's shares are entitled, or distribute the shareholder's votes on
the same principle among any or all of the candidates, as the shareholder thinks
fit. The candidates receiving the highest number of votes, up to the number of
directors to be elected, shall be elected.
2.9 Waiver of Notice or Consent by Absent Shareholders. The
transactions of any meeting of shareholders, either annual or special, however
called and noticed, and wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each person
entitled to vote, not present in person or by proxy, signs a written waiver of
notice or a consent to a holding of the meeting, or an approval of the minutes
thereof. The waiver of notice or consent need not specify either the business to
be transacted or the purpose of any annual or special meeting of shareholders,
except that if action is taken or proposed to be taken for approval of any of
those matters specified in the second paragraph of Section 2.4, the waiver of
notice or consent shall state the general nature of such proposal. All such
waivers, consents or approvals shall be filed with the corporate records or made
a part of the minutes of the meeting.
Attendance of a person at a meeting shall also constitute a waiver of
notice of such meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at the meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
of the meeting if such objection is expressly made at the meeting.
2.10 Record Date for Shareholder Notice and Voting . For purposes of
determining the shareholders entitled to notice of any meeting or to vote, the
Board of Directors may fix, in advance, a record date, which shall not be more
than sixty (60) days nor less than ten (10) days prior to the date of any such
meeting, and in such case only shareholders of record on the date so fixed are
entitled to notice and to vote, as the case may be, notwithstanding any transfer
of any shares on the books of the corporation after the record date fixed as
aforesaid, except as otherwise provided in the California General Corporation
Law.
If the Board of Directors does not so fix a record date, the record
date for determining shareholders entitled to notice of or to vote at a meeting
of shareholders shall be at the close of business on the business day next
preceding the day on which notice is given or, if notice is waived, at the close
of business on the business day next preceding the day on which the meeting is
held.
2.11 Proxies. Every person entitled to vote for directors or on any
other matter shall have the right to do so either in person or by one or more
agents authorized by a written
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proxy signed by the person and filed with the Secretary of the corporation. A
proxy shall be deemed signed if the shareholder's name is placed on the proxy
(whether by manual signature, typewriting, telegraphic transaction or otherwise)
by the shareholder or the shareholder's attorney-in-fact. A validly executed
proxy which does not state that it is irrevocable shall continue in full force
and effect unless (i) revoked by the person executing it, prior to the vote
pursuant thereto, by a writing delivered to the corporation stating that the
proxy is revoked or by a subsequent proxy executed by, or attendance at the
meeting and voting in person by, the person executing the proxy; or (ii) written
notice of the death or incapacity of the maker of such proxy is received by the
corporation before the vote pursuant thereto is counted; provided, however, that
no such proxy shall be valid after the expiration of eleven (11) months from the
date of such proxy, unless otherwise provided in the proxy. The revocability of
a proxy that states on its face that it is irrevocable shall be governed by the
provisions of Section 705(e) and (f) of the Corporations Code of California.
2.12 Inspectors of Election. Before any meeting of shareholders, the
Board of Directors may appoint any persons other than nominees for office to act
as inspectors of election at the meeting or its adjournment. If no inspectors of
election are so appointed, the chairman of the meeting may, and on the request
of any shareholder or a shareholder's proxy shall, appoint inspectors of
election at the meeting. The number of inspectors shall be either one (1) or
three (3). If inspectors are appointed at a meeting on the request of one or
more shareholders or proxies, the holders of a majority of shares or their
proxies present at the meeting shall determine whether one (1) or three (3)
inspectors are to be appointed. If any person appointed as inspector fails to
appear or fails or refuses to act, the chairman of the meeting may, and upon the
request of any shareholder or a shareholder's proxy shall, appoint a person to
fill such vacancy.
The duties of these inspectors shall be as follows:
(a) Determine the number of shares outstanding and the voting
power of each, the shares represented at the meeting, the existence of
a quorum, and the authenticity, validity and effect of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the
election or vote with fairness to all shareholders.
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2.13 Advance Notice of Shareholder Nominees. Nominations of persons for
election to the Board of Directors of the corporation may be made at a meeting
of shareholders by or at the direction of the Board of Directors or by any
shareholder of the corporation entitled to vote in the election of directors at
the meeting who complies with the notice procedures set forth in this Section.
Such nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the corporation. To be timely, a shareholder's notice shall be delivered to
or mailed and received at the principal executive offices of the corporation not
less than thirty (30) days nor more than sixty (60) days prior to the meeting;
provided, however, that in the event less than forty-five (45) days notice or
prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not
later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. Such shareholder's notice shall set forth (a) as to each person, if any,
whom the shareholder proposes to nominate for election or re-election as a
director: (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the corporation which are beneficially owned by
such person, (iv) any other information relating to such person that is required
by law to be disclosed in solicitations of proxies for election of directors,
and (v) such person's written consent to being named as a nominee and to serving
as a director if elected; and (b) as to the shareholder giving the notice: (i)
the name and address, as they appear on the corporation's books, of such
shareholder, (ii) the class and number of shares of the corporation which are
beneficially owned by such shareholder, and (iii) a description of all
arrangements or understandings between such shareholder and each nominee and any
other person or persons (naming such person or persons) relating to the
nomination. At the request of the Board of Directors, any person nominated by
the Board for election as a director shall furnish to the Secretary of the
corporation that information required to be set forth in the shareholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a director of the corporation unless nominated in accordance
with the procedures set forth in this Section. The chairman of the meeting
shall, if the facts warrant, determine and declare at the meeting that a
nomination was not made in accordance with the procedures prescribed by these
Bylaws, and if he should so determine, he shall so declare at the meeting and
the defective nomination shall be disregarded.
2.14 Advance Notice of Shareholder Business. At an annual meeting of
the shareholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be: (a) as specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before the meeting by a
shareholder. Business to be brought before an annual meeting by a shareholder
shall not be considered properly brought if the shareholder has not given timely
notice thereof in writing to the Secretary of the corporation. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than thirty (30) nor
more than sixty (60) days prior to the meeting; provided, however, that in the
event that less than forty-five (45) days notice or prior public disclosure of
the date of the meeting is given or made to shareholders, notice by the
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shareholder to be timely must be so received not later than the close of
business on the tenth day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure was made. A
shareholder's notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting: (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and address of
the shareholder proposing such business, (iii) the class and number of shares of
the corporation which are beneficially owned by the shareholder, (iv) any
material interest of the shareholder in such business, and (v) any other
information that is required by law to be provided by the shareholder in his
capacity as a proponent of a shareholder proposal. Notwithstanding anything in
these Bylaws to the contrary, no business shall be conducted at any annual
meeting except in accordance with the procedures set forth in this Section. The
chairman of the annual meeting shall, if the facts warrant, determine and
declare at the meeting that business was not properly brought before the meeting
and in accordance with the provisions of this Section, and, if he should so
determine, he shall so declare at the meeting that any such business not
properly brought before the meeting shall not be transacted.
ARTICLE 3
DIRECTORS
3.1 Powers. Subject to the provisions of the California General
Corporation Law and any limitations in the Articles of Incorporation and these
Bylaws relating to action required to be approved by the shareholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
Board of Directors.
3.2 Number and Qualification of Directors. The authorized number of
directors shall be, until changed by a Bylaw duly adopted by the shareholders,
such number as may from time to time be authorized by resolution of the Board of
Directors, provided that the minimum number of directors of the corporation
shall not be less than four (4) and the maximum number of directors of the
corporation shall not be more than seven (7) and that no amendment may change
the stated maximum number of authorized directors to a number greater than two
(2) times the stated minimum number of directors minus one (1). The Board of
Directors, and not the shareholders, shall have the exclusive right to fix the
exact number of authorized directors within the limits set forth above.
3.3 Election and Term of Office of Directors. Directors shall be
elected at each annual meeting of the shareholders to hold office until the next
annual meeting. Each director, including a director elected to fill a vacancy,
shall hold office until the expiration of the term for which elected and until a
successor has been elected and qualified.
3.4 Vacancies. Vacancies in the Board of Directors (including, without
limitation, vacancies occurring by reason of the removal of directors) may be
filled by approval of the Board or, if the number of directors then in office is
less than a quorum, by (i) the unanimous written consent of the directors then
in office, (ii) the affirmative vote of a majority of
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the directors then in office at a meeting held pursuant to notice or waivers of
notice complying with Section 307 of the Corporations Code or (iii) a sole
remaining director. Each director so elected shall hold office until the next
annual meeting of the shareholders and until a successor has been elected and
qualified.
A vacancy or vacancies in the Board of Directors shall be deemed to
exist in the case of the death, resignation or removal of any director, or if
the Board of Directors by resolution declares vacant the office of a director
who has been declared of unsound mind by an order of court or convicted of a
felony, or if the authorized number of directors be increased, or if the
shareholders fail, at any meeting of shareholders at which any director or
directors are elected, to elect the full authorized number of directors to be
voted for at that meeting.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors.
Any director may resign upon giving written notice to the Chairman of
the Board, the President, the Secretary or the Board of Directors. A resignation
shall be effective upon the giving of the notice, unless the notice specifies a
later time for its effectiveness. If the resignation of a director is effective
at a future time, the Board of Directors may elect a successor to take office
when the resignation becomes effective.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of his term of office.
3.5 Place of Meetings and Telephonic Meetings. Regular meetings of the
Board of Directors shall be held at such times and places as the Board, by
resolution, may designate from time to time. Notice of regular meetings need not
be given. Special meetings of the Board shall be held at any place within or
without the State that has been designated in the notice of the meeting or, if
not stated in the notice or if there is no notice, at the principal executive
office of the corporation. Any meeting, regular or special, may be held by
conference telephone or similar communication equipment, so long as all
directors participating in such meeting can hear one another, and all such
directors shall be deemed to be present in person at such meeting.
3.6 Annual Meetings. Immediately following each annual meeting of
shareholders, the Board of Directors shall hold a regular meeting for the
purpose of organization, any desired election of officers and the transaction of
other business. Notice of this meeting shall not be required.
3.7 Other Regular Meetings. Other regular meetings of the Board of
Directors shall be held without call at such time as shall from time to time be
fixed by the Board of Directors. Such regular meetings may be held without
notice.
3.8 Special Meetings. Special meetings of the Board of Directors for
any purpose or purposes may be called at any time by the Chairman of the Board
or the President or any Vice President or Secretary or any two (2) directors.
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Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at his or her address as
it is shown upon the records of the corporation. In case such notice is mailed,
it shall be deposited in the United States mail at least four (4) days prior to
the time of the holding of the meeting. In case such notice is delivered
personally, or by telephone or telegram, it shall be delivered personally or by
telephone or to the telegraph company at least forty-eight (48) hours prior to
the time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated to either the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose of the meeting or the place if the meeting is to be held at the
principal executive office of the corporation.
3.9 Quorum. A majority of the authorized number of directors shall
constitute a quorum for the transaction of business, except to adjourn as
hereinafter provided. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present shall be
regarded as the act of the Board of Directors, subject to the provisions of
Section 310 of the Corporations Code of California (approval of contracts or
transactions in which a director has a direct or indirect material financial
interest), Section 311 (appointment of committees), and Section 317(e)
(indemnification of directors). A meeting at which a quorum is initially present
may continue to transact business notwithstanding the withdrawal of directors,
if any action taken is approved by at least a majority of the required quorum
for such meeting.
3.10 Waiver of Notice. The transactions of any meeting of the Board of
Directors, however called and noticed or wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice if a quorum be
present and if, either before or after the meeting, each of the directors not
present signs a written waiver of notice, a consent to holding the meeting or an
approval of the minutes thereof. The waiver of notice or consent need not
specify the purpose of the meeting. All such waivers, consents and approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting. Notice of a meeting shall also be deemed given to any director who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice to such director.
3.11 Adjournment. A majority of the directors present, whether or not
constituting a quorum, may adjourn any meeting to another time and place.
3.12 Notice of Adjournment. Notice of the time and place of holding an
adjourned meeting need not be given, unless the meeting is adjourned for more
than twenty-four (24) hours, in which case notice of such time and place shall
be given prior to the time of the adjourned meeting, in the manner specified in
Section 3.8, to the directors who were not present at the time of the
adjournment.
3.13 Action Without Meeting. Any action required or permitted to be
taken by the Board of Directors may be taken without a meeting, if all members
of the Board shall individually or collectively consent in writing to such
action. Such action by written consent
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shall have the same force and effect as a unanimous vote of the Board of
Directors. Such written consent or consents shall be filed with the minutes of
the proceedings of the Board.
3.14 Fees and Compensation of Directors. Directors and members of
committees may receive such compensation, if any, for their services, and such
reimbursement of expenses, as may be fixed or determined by resolution of the
Board of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee or otherwise, and receiving compensation for such services.
ARTICLE 4
COMMITTEES
4.1 Committees of Directors. The Board of Directors may, by resolution
adopted by a majority of the authorized number of directors, designate one (1)
or more committees, each consisting of two (2) or more directors, to serve at
the pleasure of the Board. The Board may designate one (1) or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of the committee. Any such committee, to the extent provided in the
resolution of the Board, shall have all the authority of the Board, except with
respect to:
(a) the approval of any action which, under the General
Corporation Law of California, also requires shareholders' approval or
approval of the outstanding shares;
(b) the filling of vacancies on the Board of Directors or in
any committee;
(c) the fixing of compensation of the directors for serving on
the Board or on any committee;
(d) the amendment or repeal of Bylaws or the adoption of new
Bylaws;
(e) the amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation,
except at a rate or in a periodic amount or within a price range
determined by the Board of Directors; or
(g) the appointment of any other committees of the Board of
Directors or members thereof.
4.2 Meetings and Action of Committees. Meetings and actions of
committees shall be governed by, and held and taken in accordance with, the
provisions of these Bylaws, Section 3.5 (place of meetings), 3.7 (regular
meetings), 3.8 (special meetings and notice), 3.9 (quorum), 3.10 (waiver of
notice), 3.11 (adjournment), 3.12 (notice of adjournment) and 3.13 (action
without meeting), with such changes in the context of those Bylaws as are
necessary to substitute the committee and its members for the Board of Directors
and its members, except that
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the time of regular meetings of committees may be determined by resolution of
the Board of Directors as well as the committee, special meetings of committees
may also be called by resolution of the Board of Directors and notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The Board of Directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these Bylaws.
ARTICLE 5
OFFICERS
5.1 Officers. The officers of the corporation shall be (i) a Chairman
of the Board or a President (or both), (ii) a Secretary, and (iii) a Chief
Financial Officer. The corporation may also have, at the discretion of the Board
of Directors, one or more Vice Presidents, one or more Assistant Secretaries,
one or more Assistant Treasurers and such other officers as may be appointed in
accordance with the provisions of Section 5.3. Any number of offices may be held
by the same person.
5.2 Election of Officers. The officers of the corporation, except such
officers as may be appointed in accordance with the provisions of Section 5.1,
shall be chosen by the Board of Directors, and each shall serve at the pleasure
of the Board, subject to the rights, if any, of an officer under any contract of
employment.
5.3 Subordinate Officers, Etc. The Board of Directors may appoint, and
may empower the Chairman of the Board or the President to appoint, such other
officers as the business of the corporation may require, each of whom shall hold
office for such period, have such authority and perform such duties as are
provided in the Bylaws or as the Board of Directors may from time to time
determine.
5.4 Removal and Resignation of Officers. Subject to the rights, if any,
of an officer under any contract of employment, any officer may be removed,
either with or without cause, by the Board of Directors, at any regular or
special meeting thereof, or, except in case of an officer chosen by the Board of
Directors, by any officer upon whom such power of removal may be conferred by
the Board of Directors.
Any officer may resign at any time by giving written notice to the
corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective. Any such resignation is without prejudice to the rights, if
any, of the corporation under any contract to which the officer is a party.
5.5 Vacancies in Offices. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these Bylaws for regular appointments to such office.
5.6 Chairman of the Board. The Chairman of the Board, shall, if
present, preside at all meetings of the Board of Directors and all meetings of
shareholders and shall
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exercise and perform such other powers and duties as may be from time to time
assigned to the Chairman by the Board of Directors or prescribed by the Bylaws.
If there is no Chief Executive Officer (including by reason of disability), the
Chairman of the Board shall, in addition, be the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in Section 5.7.
5.7 Chief Executive Officer. Subject to such oversight authority, if
any, as may be given by the Board of Directors to the Chairman of the Board, if
there be such an officer, the Chief Executive Officer shall, subject to the
control of the Board of Directors, have general authority for the supervision,
direction and control of the business and the officers of the corporation. In
the absence of the Chairman of the Board, or if there be none, the Chief
Executive Officer shall preside at all meetings of the shareholders and all
meetings of the Board of Directors. He shall have the general powers and duties
of management usually vested in the office of Chief Executive Officer of a
corporation, and shall have such other powers and duties as may be prescribed by
the Board of Directors or the Bylaws.
5.8 President. Subject to such oversight authority, if any, as may be
given by the Board of Directors to the Chairman of the Board, if there be such
an officer, or to the Chief Executive Officer, if there be such an officer, the
President shall, subject to the control of the Board of Directors, have general
supervision of the operations of the business. In the absence of the Chairman of
the Board and the Chief Executive Officer, or if there be none, the President
shall preside at all meetings of the shareholders and all meetings of the Board
of Directors. He shall have the general powers and duties of management usually
vested in the office of President of a corporation, and shall have such other
powers and duties as may be prescribed by the Board of Directors or the Bylaws.
If there is no Chief Executive Officer or Chairman of the Board (including by
reason of disability), the President shall, in addition, be the Chief Executive
Officer of the corporation and shall have the powers and duties prescribed in
Section 5.7.
5.9 Vice Presidents. In the absence or disability of the President, the
Vice Presidents, if any, in order of their rank as fixed by the Board of
Directors or, if not ranked, a Vice President designated by the Board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
President. The Vice Presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them, respectively, by
the Board of Directors or the Bylaws, the President or the Chairman of the Board
if there is no President.
5.10 Secretary. The Secretary shall keep, or cause to be kept, at the
principal executive office or such other place as the Board of Directors may
order, a book of minutes of all meetings and actions of directors, committees of
directors and shareholders, with the time and place of holding, whether regular
or special, and, if special, how authorized, the notice thereof given, the names
of those present at directors' and committee meetings, the number of shares
present or represented at shareholders meetings and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the
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Board of Directors, a share register, or a duplicate share register, showing the
names of all shareholders and their addresses, the number and classes of shares
held by each, the number and date of certificates issued for the same, and the
number and date of cancellation of every certificate surrendered for
cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the Board of Directors required by the Bylaws or by
law to be given, and he shall keep the seal of the corporation, if one be
adopted, in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors or by the Bylaws.
5.11 Chief Financial Officer. The Chief Financial Officer shall keep
and maintain, or cause to be kept and maintained, adequate and correct books and
records of accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings and shares. The books
of account shall be open at all reasonable times to inspection by any director.
The Chief Financial Officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the Board of Directors. The Chief Financial
Officer shall disburse the funds of the corporation as may be ordered by the
Board of Directors, shall render to the President and directors, whenever they
request it, an account of all of his transactions as Chief Financial Officer and
of the financial condition of the corporation, and shall have other powers and
perform such other duties as may be prescribed by the Board of Directors or the
Bylaws.
ARTICLE 6
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
6.1 Agents, Proceedings and Expenses. For the purposes of this Article,
"agent" means any person who is or was a director, officer, employee or other
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise, or was a
director, officer, employee or agent of a foreign or domestic corporation which
was a predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation; "proceeding" means any threatened,
pending or completed action or proceeding, whether civil, criminal,
administrative or investigative; and "expenses" includes, without limitation,
attorneys' fees and any expenses of establishing a right to indemnification
under Section 6.4 or paragraph (c) of Section 6.5.
6.2 Actions Other Than by the Corporation. Subject to the specific
determination required by Section 6.5, the corporation shall, and it hereby
agrees to, indemnify any person who was or is a party or is threatened to be
made a party to any proceeding (other than an action by or in the right of the
corporation to procure a judgment in its favor) by reason of the fact that such
person is or was an agent of the corporation, against expenses, judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with such
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proceeding if it is determined, pursuant to Section 6.5, that such person acted
in good faith and in a manner such person reasonably believed to be in the best
interests of the corporation and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of such person was unlawful. The
termination of any proceeding by judgment, order, settlement, conviction or upon
a plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which the
person reasonably believed to be in the best interests of the corporation or
that the person had reasonable cause to believe that the person's conduct was
unlawful.
6.3 Actions by the Corporation. Subject to the specific determination
required by Section 6.5, the corporation shall, and it hereby agrees to,
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was an agent of the corporation, against expenses actually and
reasonably incurred by such person in connection with the defense or settlement
of such action if it is determined, pursuant to Section 6.5, that such person
acted in good faith, in a manner such person believed to be in the best interest
of the corporation and with such care, including reasonable inquiry, as an
ordinarily prudent person in a like position would use under similar
circumstances. No indemnification shall be made under this Section 6.3:
(a) In respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation in the
performance of such person's duty to the corporation, unless and only
to the extent that the court in which such proceeding is or was pending
shall determine upon application that, in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity
for the expenses which such court shall determine;
(b) Of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court approval; or
(c) Of expenses incurred in defending a threatened or pending
action which is settled or otherwise disposed of without court
approval.
6.4 Successful Defense by Agent. To the extent that an agent of the
corporation has been successful on the merits in defense of any proceeding
referred to in Section 6.2 or 6.3 or in defense of any claim, issue or matter
therein, the agent shall be indemnified against expenses actually and reasonably
incurred by the agent in connection therewith.
6.5 Required Approval. Except as provided in Section 6.4, any
indemnification under this Article shall be made by the corporation only if
authorized in the specific case, upon a determination that indemnification of
the agent is proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Section 6.2 or 6.3, by:
(a) A majority vote of a quorum consisting of directors who
are not parties to such proceeding;
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(b) Approval of the shareholders, with the shares owned by the
person to be indemnified not being entitled to vote thereon; or
(c) The court in which such proceeding is or was pending upon
application made by the corporation or the agent or the attorney or
other person rendering services in connection with the defense, whether
or not such application by the agent, attorney or other person is
opposed by the corporation.
Upon written request to the Board by any person seeking indemnification
under Section 6.2 or 6.3, the Board shall promptly determine whether the
applicable standard of conduct set forth in Section 6.2 or 6.3 has been met and,
if so, the Board shall authorize indemnification. If the Board cannot authorize
indemnification because the number of directors who are parties to the
proceeding with respect to which indemnification is sought prevent the formation
of a quorum of directors who are not parties to such proceeding, the Board shall
promptly call a meeting of shareholders. At such meeting, the shareholders shall
determine whether the applicable standard of conduct set forth in Section 6.2 or
6.3 has been met and, if so, the shareholders present at the meeting in person
or by proxy shall authorize indemnification.
6.6 Advance of Expenses. Expenses incurred in defending any proceeding
shall be advanced by the corporation prior to the final disposition of such
proceeding upon receipt of an undertaking by or on behalf of the agent to repay
such amount unless it shall be determined ultimately that the agent is entitled
to be indemnified as authorized in this Article.
6.7 Other Contractual Rights. No provision made by the corporation to
indemnify its or its subsidiary's directors or officers for the defense of any
proceeding, whether contained in a resolution of shareholders or directors, an
agreement or otherwise, shall be valid unless consistent with this Article.
Nothing contained in this Article shall affect any right to indemnification to
which persons other than such directors and officers may be entitled by contract
or otherwise.
6.8 Limitations. No indemnification or advance shall be made under this
Article, except as provided in Section 6.4 or paragraph (c) of Section 6.5, in
any circumstance where it appears:
(a) That it would be inconsistent with a provision of the
Articles, a Bylaw, a resolution of the shareholders or an agreement in
effect at the time of the accrual of the alleged cause of action
asserted in the proceeding in which the expenses were incurred or other
amounts were paid, which prohibits or otherwise limits indemnification;
or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
6.9 Insurance. The corporation shall have the power to purchase and
maintain insurance on behalf of any agent of the corporation against any
liability asserted against or incurred by the agent in such capacity or arising
out of the agent's status as such, whether or not
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the corporation would have the power to indemnify the agent against such
liability under the provisions of this Article.
6.10 Fiduciaries of Corporate Employer Benefit Plan. This Article does
not apply to any proceeding against any trustee, investment manager or other
fiduciary of an employee benefit plan in such person's capacity as such, even
though such person may also be an agent as defined in Section 6.1 of the
employer corporation. The corporation shall, and it hereby agrees to, indemnify
each officer, director or employee of the corporation against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with any action taken or omitted by such person in such person's
capacity as trustee, investment manager or other fiduciary of any employee
benefit plan of the corporation unless, or to the extent that, the Board of
Directors of the corporation shall reasonably determine that any such action so
taken or omitted by such person constituted gross negligence or willful
misconduct on the part of such person. Expenses reasonably incurred by any such
person in defending any liability asserted against such person in any such
capacity shall be advanced by the corporation but shall be repaid to the
corporation by such person if, or to the extent that, the Board of Directors of
the corporation shall reasonably determine that the action allegedly taken or
omitted by such person upon which the asserted liability is based constituted
gross negligence or willful misconduct on the part of such person.
6.11 Other Indemnification. Nothing in this Article shall restrict the
power of the corporation to indemnify its agents under any provision of the
California General Corporation Law, as amended from time to time, or under any
other provision of law from time to time applicable to the corporation, nor
shall anything in this Article authorize the corporation to indemnify its agents
in situations prohibited by the California General Corporation Law or other
applicable law.
ARTICLE 7
RECORDS AND REPORTS
7.1 Maintenance of Share Register. The corporation shall keep at its
principal executive office, or at the office of its transfer agent or registrar,
if either be appointed and as determined by resolution of the Board of
Directors, a record of its shareholders, giving the names and addresses of all
shareholders and the number and class of shares held by each shareholder.
7.2 Maintenance of Bylaws. The corporation shall keep at its principal
executive office, or if its principal executive office is not in the State of
California, at its principal business office in this State, the original or a
copy of the Bylaws as amended to date, which shall be open to inspection by the
shareholders at all reasonable times during office hours. If the principal
executive office of the corporation is outside this State and the corporation
has no principal business office in this State, the Secretary shall, upon the
written request of any shareholder, furnish to such shareholder a copy of the
Bylaws as amended to date.
7.3 Maintenance of Other Corporate Records. The accounting books and
records and minutes of proceedings of the shareholders and the Board of
Directors and any committee or committees of the Board of Directors shall be
kept at such place or places
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designated by the Board of Directors, or, in the absence of such designation, at
the principal executive office of the corporation. The minutes shall be kept in
written form and the accounting books and records shall be kept either in
written form or in any other form capable of being converted into written form.
7.4 Inspection by Directors. Every director shall have the absolute
right at any reasonable time to inspect all books, records and documents of
every kind and the physical properties of the corporation and each of its
subsidiary corporations. Such inspection by a director may be made in person or
by agent or attorney and the right of inspection includes the right to copy and
make extracts.
7.5 Annual Report to Shareholders. Unless otherwise expressly required
by the General Corporation Law, the annual report to shareholders referred to in
Section 1501 of the General Corporation Law is hereby expressly waived and
dispensed with; provided, that nothing herein set forth shall be construed to
prohibit or restrict the right of the Board to issue such annual or other
periodic reports to the shareholders of the corporation as they may from time to
time consider appropriate.
ARTICLE 8
CORPORATE LOANS AND GUARANTEES
8.1 Shareholder Approval. The corporation shall not make any loan of
money or property to, or guarantee the obligation of, any director or officer of
the corporation or its parent or subsidiary, unless the transaction or an
employee benefit plan authorizing such loans or guarantees, after disclosure of
the right under such a plan to include officers or directors:
(a) is approved by a majority of the shareholders, with the
shares owned by the director or officer, or by the directors or
officers then eligible to participate in such plan, not being entitled
to vote thereon; or
(b) is approved by the unanimous vote of the shareholders.
8.2 Board Approval. Notwithstanding Section 8.1, in the event the
corporation has outstanding shares held of record by one hundred (100) or more
persons on the date of approval by the Board, the Board alone by a vote
sufficient without counting the vote of any interested director or directors may
approve such a loan or guarantee to an officer, whether or not a director, or an
employee benefit plan authorizing such a loan or guarantee to an officer,
provided that the Board determines that such a loan or guarantee or plan may
reasonably be expected to benefit the corporation.
ARTICLE 9
GENERAL CORPORATE MATTERS
9.1 Record Date for Purposes Other Than Notice and Voting. For purposes
of determining the shareholders entitled to receive payment of any dividend or
other distribution or allotment of any rights or entitled to exercise any rights
in respect of any other lawful action,
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the Board of Directors may fix, in advance, a record date, which shall not be
more than sixty (60) days prior to any such action, and in such case only
shareholders of record on the date so fixed are entitled to receive the
dividend, distribution or allotment of rights or to exercise the rights, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date fixed as aforesaid, except as otherwise
provided in the California General Corporation Law.
If the Board of Directors does not so fix a record date, the record
date for determining shareholders for any such purpose shall be at the close of
business on the day on which the Board adopts the resolution relating thereto,
or the sixtieth (60th) day prior to the date of such action, whichever is later.
9.2 Checks, Drafts, Evidences of Indebtedness. All checks, drafts or
other orders for payment of money, notes or other evidences of indebtedness,
issued in the name of or payable to the corporation, shall be signed or endorsed
by such person or persons and in such manner as, from time to time, shall be
determined by resolution of the Board of Directors.
9.3 Corporate Contracts and Instruments; How Executed. The Board of
Directors, except as otherwise provided in these Bylaws, may authorize any
officer or officers, agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances; and, unless so authorized or
ratified by the Board of Directors or within the agency power of an officer, no
officer, agent or employee shall have any power or authority to bind the
corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or to any amount.
9.4 Certificates for Shares. A certificate or certificates for shares
of the capital stock of the corporation shall be issued to each shareholder when
any such shares are fully paid, and the Board of Directors may authorize the
issuance of certificates or shares as partly paid, provided that such
certificates shall state the amount of the consideration to be paid therefor and
the amount paid thereon. All certificates shall be signed in the name of the
corporation by the Chairman of the Board or Vice Chairman of the Board or the
President or Vice President and by the Chief Financial Officer or an Assistant
Treasurer or the Secretary or any Assistant Secretary, certifying the number of
shares and the class or series of shares owned by the shareholder. Any or all of
the signatures on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if such person were an officer, transfer
agent or registrar at the date of issue.
9.5 Lost Certificates. Except as hereinafter in this Section 9.5
provided, no new certificate for shares shall be issued in lieu of an old
certificate unless the latter is surrendered to the corporation and canceled at
the same time. The Board of Directors may in case any share certificate or
certificate for any other security is lost, stolen or destroyed, authorize the
issuance of a new certificate in lieu thereof, upon such terms and conditions as
the
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Board may require, including provisions for indemnification of the corporation
secured by a bond or other adequate security sufficient to protect the
corporation against any claim that may be made against it, including any expense
or liability, on account of the alleged loss, theft or destruction of such
certificate or the issuance of such new certificate.
9.6 Representation of Shares of Other Corporations. The Chairman of the
Board, the President or any Vice President, or any other person authorized by
resolution of the Board of Directors or by any of the foregoing designated
officers, is authorized to vote on behalf of the corporation any and all shares
of any other corporation or corporations, foreign or domestic, standing in the
name of the corporation. The authority herein granted to said officers to vote
or represent on behalf of the corporation any and all shares held by the
corporation in any other corporation or corporations may be exercised by any
such officer in person or by any person authorized to do so by proxy duly
executed by said officer.
9.7 Construction and Definitions. Unless the context requires
otherwise, the general provisions, rules of construction and definitions in the
California General Corporation Law shall govern the construction of the Bylaws.
Without limiting the generality of the foregoing, the singular number includes
the plural, the plural number includes the singular, and the term "person"
includes both a corporation or other entity and a natural person.
ARTICLE 10
AMENDMENTS
10.1 Amendments. In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors shall have the power, both before
and after receipt of any payment for any of the corporation's capital stock, to
adopt, amend, repeal or otherwise alter these Bylaws without any action on the
part of the shareholders. The grant of such power to the Board of Directors,
however, shall not divest the shareholders of, nor limit, their power to adopt,
amend, repeal or otherwise alter these Bylaws; provided that any action by the
shareholders to adopt, amend, repeal or otherwise alter the Bylaws (including,
without limitation, this Section 10.1) shall not be effective except upon the
affirmative vote of not less than two-thirds of the shares of the corporation
then issued and outstanding which have the right to vote on the matter.
[CERTIFICATION APPEARS ON NEXT PAGE]
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I, Justin M. Faggioli, hereby certify:
1. That I am the duly elected and acting Secretary of Ravenswood
Winery, Inc., a California corporation.
2. That the foregoing Amended and Restated Bylaws constitute the Bylaws
of the Corporation as adopted by the directors of this corporation by unanimous
written consent on February 1, 1999.
3. That the foregoing Amended and Restated Bylaws of the Corporation
were adopted by the shareholders of the corporation by written consent on
February 1, 1999.
In witness whereof, I have hereunto subscribed my name on February 1,
1999.
/s/ Justin M. Faggioli
----------------------------------------
Justin M. Faggioli, Secretary
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EXHIBIT 10.1
1999 EQUITY INCENTIVE PLAN
FOR RAVENSWOOD WINERY, INC.
<PAGE>
RAVENSWOOD WINERY, INC.
1999 EQUITY INCENTIVE PLAN
SECTION 1. GENERAL
1.1. Purpose. The Ravenswood 1999 Equity Incentive Plan (the "Plan")
has been established by Ravenswood Winery, Inc. (the "Company") to (i) attract
and retain persons eligible to participate in the Plan; (ii) motivate
Participants, by means of appropriate incentives, to achieve long-range goals;
(iii) provide incentive compensation opportunities that are competitive with
those of other similar companies; and (iv) further align Participants' interests
with those of the Company's other shareholders through compensation that is
based on the Company's common stock; and thereby promote the long-term financial
interest of the Company and the Subsidiaries, including the growth in value of
the Company's equity and enhancement of long-term shareholder return.
1.2. Participation. Subject to the terms and conditions of the Plan,
the Committee shall determine and designate, from time to time, from among the
Eligible Individuals, those persons who will be granted one or more Awards under
the Plan, and thereby become "Participants" in the Plan. In the discretion of
the Committee, a Participant may be granted any Award permitted under the
provisions of the Plan, and more than one Award may be granted to a Participant.
Awards may be granted as alternatives to or in replacement of awards outstanding
under the Plan, or any other plan or arrangement of the Company or a Subsidiary
(including a plan or arrangement of a business or entity, all or a portion of
which is acquired by the Company or a Subsidiary).
1.3. Operation, Administration, and Definitions. The operation and
administration of the Plan, including the Awards made under the Plan, shall be
subject to the provisions of Section 5 (relating to operation and
administration). Capitalized terms in the Plan shall be defined as set forth in
the Plan (including the definition provisions of Section 2 of the Plan).
SECTION 2. DEFINED TERMS
In addition to the other definitions contained herein, the following
definitions shall apply:
Award. The term "Award" shall mean any award or benefit granted under
the Plan, including, without limitation, the grant of Options, Stock Unit
Awards, Restricted Stock Awards, Restricted Stock Unit Awards and Performance
Share Awards.
Board. The term "Board" shall mean the Board of Directors of the
Company.
Change of Control. The term "Change of Control" shall mean:
(i) a merger or consolidation in which securities possessing
more than 50% of the total combined voting power of the Company's outstanding
securities are transferred to one
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or more persons who were not stockholders of the Company immediately before such
merger or consolidation; or
(ii) the sale or transfer or other disposition of all or
substantially all of the Company's assets.
A transaction shall not constitute a Change in Control if its
sole purpose is to change the state of the Company's incorporation or to create
a holding company that will be owned in substantially the same propostions by
the persons who held the Company's securities immediately before such
transaction.
Change of Control Value. The term "Change of Control Value" means the
amount determined in clause (i), (ii) or (iii), whichever is applicable, as
follows: (i) the per share price offered to shareholders of the Company in any
merger, consolidation, sale of assets or dissolution transaction, (ii) the price
per share offered to shareholders of the Company in any tender offer or exchange
offer whereby a Change of Control takes place or (iii) if a Change of Control
occurs other than as described in clause (i) or clause (ii), the fair market
value per share determined by the Board as of the date determined by the Board
to be the date of cancellation and surrender of an Option. If the consideration
offered to shareholders of the Company in any Change of Control consists of
anything other than cash, the Board shall determine the fair cash equivalent of
the portion of the consideration offered which is other than cash.
Code. The term "Code" means the Internal Revenue Code of 1986, as
amended. A reference to any provision of the Code shall include reference to any
successor provision of the Code.
Eligible Individual. The term "Eligible Individual" shall mean any
employee of the Company or a Subsidiary, and any consultant or other person
providing services to the Company or a Subsidiary. An Award may be granted to an
employee, in connection with hiring, retention or otherwise, prior to the date
the employee first performs services for the Company or the Subsidiaries,
provided that such Awards shall not become vested prior to the date the employee
first performs such services.
Employee. The term "Employee" shall mean any individual who is a
common-law employee of the Company or Subsidiary.
Fair Market Value. For purposes of determining the "Fair Market Value"
of a share of Stock as of any date, the following rules shall apply:
(i) If the principal market for the Stock is a national
securities exchange or the Nasdaq stock market, then the "Fair Market Value" as
of that date shall be the mean between the lowest and highest reported sale
prices of the Stock on the prior trading date on the principal exchange on which
the Stock is then listed or admitted to trading.
(ii) If sale prices are not available or if the principal
market for the Stock is not a national securities exchange and the Stock is not
quoted on the Nasdaq stock market, the
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average between the highest bid and lowest asked prices for the Stock on such
prior trading day as reported on the NASDAQ OTC Bulletin Board Service or by the
National Quotation Bureau, Incorporated or a comparable service.
Participant. The term "Participant" shall mean any individual granted
awards or options under the Plan.
Stock. The term "Stock" shall mean shares of common stock of the
Company.
Subsidiaries. The term "Subsidiary" shall mean any company or other
entity in which the Company holds 50% or more of the voting power of such other
company or entity.
SECTION 3. OPTIONS
3.1. Definitions.
(a) The grant of an "Option" entitles the Participant to
purchase shares of Stock at an Exercise Price established by the Committee.
Options granted under this Section 3 may be either Incentive Stock Options
("ISOs") or Non-Qualified Options ("NQOs"), as determined in the discretion of
the Committee. An "ISO" is an Option that is intended to satisfy the
requirements applicable to an "incentive stock option" described in section
422(b) of the Code. An "NQO" is an Option that is not intended to be an
"incentive stock option" as that term is described in section 422(b) of the
Code.
(b) The term "Optionee" shall mean any Participant who
receives an Option under this Section 3.
3.2. Exercise Price. The "Exercise Price" of each Option granted under
this Section 3 shall be established by the Committee or shall be determined by a
method established by the Committee at the time the Option is granted; except
that the Exercise Price shall not be less than 100% of the Fair Market Value of
a share of Stock on the date of grant.
3.3. Exercise. An Option shall be exercisable in accordance with such
terms and conditions and during such periods as may be established by the
Committee.
3.4. Payment of Option Exercise Price. The payment of the Exercise
Price of an Option granted under this Section 3 shall be subject to the
following:
(a) Subject to the following provisions of this subsection
3.4, the full Exercise Price for shares of Stock purchased upon the exercise of
any Option shall be paid at the time of such exercise.
(b) The Exercise Price shall be payable in cash or by
tendering, by either actual delivery of shares or by attestation, shares of
Stock owned by the Participant and acceptable to the Committee, and valued at
Fair Market Value as of the day of exercise, or in any combination thereof, as
determined by the Committee.
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(c) The Committee may permit a Participant to elect to pay the
Exercise Price upon the exercise of an Option by irrevocably authorizing a third
party to sell shares of Stock (or a sufficient portion of the shares) acquired
upon exercise of the Option and remit to the Company a sufficient portion of the
sale proceeds to pay the entire Exercise Price and any tax withholding resulting
from such exercise.
3.5. Settlement of Award. Shares of Stock delivered pursuant to the
exercise of an option shall be subject to such conditions, restrictions and
contingencies as the Committee may establish in the applicable Award Agreement.
The Committee, in its discretion, may impose such conditions, restrictions and
contingencies with respect to shares of Stock acquired pursuant to the exercise
of an Option as the Committee determines to be desirable.
3.6 Vesting. The Option Agreement for each individual Option grant
shall provide that the Option subject to such Option Agreement shall become
exercisable ("vest") at a rate to be determined by the Committee or by the Board
at the time of grant. The Committee or the Board may also provide for the
acceleration of vesting in certain circumstances.
SECTION 4. OTHER STOCK AWARDS
4.1. Definitions.
(a) A "Stock Unit" Award is the grant of a right to receive
shares of Stock in the future.
(b) A "Performance Share" Award is a grant of a right to
receive shares of Stock or Stock Units which is contingent on the achievement of
performance or other objectives during a specified period.
(c) A "Restricted Stock" Award is a grant of shares of Stock,
and a "Restricted Stock Unit" Award is a grant of a right to receive shares of
Stock in the future, with such shares of Stock or right to future delivery of
such shares of Stock subject to a risk of forfeiture or other restrictions that
will lapse upon the achievement of one or more goals relating to completion of
service by the Participant, or achievement of performance or other objectives,
as determined by the Committee.
4.2. Restrictions on Stock Awards. Each Stock Unit Award, Restricted
Stock Award, Restricted Stock Unit Award and Performance Share Award shall be
subject to the following:
(a) Any such Award shall be subject to such conditions,
restrictions and contingencies as the Committee shall determine.
(b) The Committee may designate whether any such Award being
granted to any Participant is intended to be "performance-based compensation" as
that term is used in section 162(m) of the Code. Any such Awards designated as
intended to be "performance-based compensation" shall be conditioned on the
achievement of one or more performance goals. Each
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performance goal that may be used by the Committee for such Awards shall
identify one or more business criteria that is to be monitored during the
relevant period. Such criteria may include, among other things, any of the
following: funds from operations per share; return on net assets; operating
ratios; cash flow; shareholder return; revenue growth; net income; earnings per
share; debt reduction; return on investment; or revenue.
(c) The Committee shall determine the target level of
performance that must be achieved with respect to each criterion that is
identified in the performance goal in order for a performance goal to be treated
as attained.
For Awards intended to be "performance-based compensation,"
the grant of the Awards and the establishment of the performance goals shall be
made during the period required under Code section 162(m).
SECTION 5. OPERATION AND ADMINISTRATION
5.1. Effective Date. The Plan shall be effective as of February 1, 1999
(the "Effective Date"). The Plan shall be unlimited in duration and, in the
event of Plan termination, shall remain in effect as long as any Awards under it
are outstanding; provided, however, that, to the extent required by the Code, no
ISO may be granted under the Plan on a date that is more than ten years from the
date the Plan is adopted or, if earlier, the date the Plan is approved by
shareholders.
5.2. Shares Subject to Plan. The shares of Stock for which Awards may
be granted under the Plan shall be subject to the following:
(a) Subject to the following provisions of this subsection
5.2, the maximum number of shares of Stock that may be delivered to Participants
and their beneficiaries under the Plan shall be 500,000.
(b) To the extent any shares of Stock covered by an Award are
not delivered to a Participant or beneficiary because the Award is forfeited,
such shares shall not be deemed to have been delivered for purposes of
determining the maximum number of shares of Stock available for delivery under
the Plan.
(c) If the exercise price of any stock option granted under
the Plan is satisfied by tendering shares of Stock to the Company (by either
actual delivery or by attestation), only the number of shares of Stock issued
net of the shares of Stock tendered shall be deemed delivered for purposes of
determining the maximum number of shares of Stock available for delivery under
the Plan.
(d) Subject to paragraph 5.2(e), the following additional
maximums are imposed under the Plan.
(i) The maximum number of shares of Stock that may be
issued as Options intended to be ISOs shall be 500,000.
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(ii) The maximum number of shares that may be covered
by Awards granted to any one individual pursuant to Section 3 (relating to
Options) shall be 200,000 during the duration of the Plan, subject to adjustment
by the Board or the Committee.
(e) In the event of a corporate transaction involving the
Company (including, without limitation, any stock dividend, stock split,
extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination or exchange of shares), the
Committee may adjust Awards to preserve the benefits or potential benefits of
the Awards. Action by the Committee may include: (i) adjustment of the number
and kind of shares which may be delivered under the Plan; (ii) adjustment of the
number and kind of shares subject to outstanding Awards; (iii) adjustment of the
Exercise Price of outstanding Options; and (iv) any other adjustments that the
Committee determines to be equitable.
5.3. General Restrictions. Delivery of shares of Stock or other amounts
under the Plan shall be subject to the following:
(a) Notwithstanding any other provision of the Plan, the
Company shall have no liability to deliver any shares of Stock under the Plan or
make any other distribution of benefits under the Plan unless such delivery or
distribution would comply with all applicable laws (including, without
limitation, the requirements of the Securities Act of 1933 and state securities
laws), and the applicable requirements of any securities exchange or similar
entity.
(b) To the extent that the Plan provides for issuance of stock
certificates to reflect the issuance of shares of Stock, the issuance may be
effected on a non-certificated basis, to the extent not prohibited by applicable
law or the applicable rules of any stock exchange.
5.4. Tax Withholding. All distributions under the Plan are subject to
withholding of all applicable taxes, and the Committee may condition the
delivery of any shares or other benefits under the Plan on satisfaction of the
applicable withholding obligations. The Committee, in its discretion, and
subject to such requirements as the Committee may impose prior to the occurrence
of such withholding, may permit such withholding obligations to be satisfied
through cash payment by the Participant, through the surrender of shares of
Stock which the Participant already owns, or through the surrender of shares of
Stock to which the Participant is otherwise entitled under the Plan.
5.5. Use of Shares. Subject to the overall limitation on the number of
shares of Stock that may be delivered under the Plan, the Committee may use
available shares of Stock as the form of payment for compensation, grants or
rights earned or due under any other compensation plans or arrangements of the
Company or a Subsidiary, including the plans and arrangements of the Company or
a Subsidiary assumed in business combinations.
5.6. Dividends and Dividend Equivalents. An Award (including, without
limitation, an Option) may provide the Participant with the right to receive
dividend payments or dividend equivalent payments with respect to Stock subject
to the Award (both before and after the Stock subject to the Award is earned,
vested or acquired), which payments may be either made currently or credited to
an account for the Participant, and may be settled in cash or Stock as
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determined by the Committee. Any such settlements, and any such crediting of
dividends or dividend equivalents or reinvestment in shares of Stock, may be
subject to such conditions, restrictions and contingencies as the Committee
shall establish, including the reinvestment of such credited amounts in Stock
equivalents.
5.7. Payments. Any Award settlement, including payment deferrals, may
be subject to such conditions, restrictions and contingencies as the Committee
shall determine. The Committee may permit or require the deferral of any Award
payment, subject to such rules and procedures as it may establish, which may
include provisions for the payment or crediting of interest, or dividend
equivalents, including converting such credits into deferred Stock equivalents.
Each Subsidiary shall be liable for payment of cash due under the Plan with
respect to any Participant to the extent that such benefits are attributable to
the services rendered for that Subsidiary by the Participant. Any disputes
relating to liability of a Subsidiary for cash payments shall be resolved by the
Committee.
5.8. Transferability. Except as otherwise provided by the Committee,
Awards under the Plan are not transferable except as designated by the
Participant by will or by the laws of descent and distribution.
5.9. Form and Time of Elections. Unless otherwise specified herein,
each election required or permitted to be made by any Participant or other
person entitled to benefits under the Plan, and any permitted modification or
revocation thereof, shall be in writing filed with the Committee at such times,
in such form, and subject to such restrictions and limitations, not inconsistent
with the terms of the Plan, as the Committee shall require.
5.10. Agreement With Company. An Award under the Plan shall be subject
to such terms and conditions, not inconsistent with the Plan, as the Committee
shall, in its sole discretion, prescribe. The terms and conditions of any Award
to any Participant shall be reflected in such form of written document as is
determined by the Committee. A copy of such document shall be provided to the
Participant, and the Committee may, but need not, require that the Participant
shall sign a copy of such document. Such document is referred to in the Plan as
an "Award Agreement" regardless of whether any Participant signature is
required.
5.11. Action by Company or Subsidiary. Any action required or permitted
to be taken by the Company or any Subsidiary shall be by resolution of its board
of directors, or by action of one or more members of the board (including a
committee of the board) who are duly authorized to act for the board, or (except
to the extent prohibited by applicable law or applicable rules of any stock
exchange) by a duly authorized officer of such company.
5.12. Gender and Number. Where the context admits, words in any gender
shall include any other gender, words in the singular shall include the plural,
and the plural shall include the singular.
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5.13. Limitation of Implied Rights.
(a) Neither a Participant nor any other person shall, by
reason of participation in the Plan, acquire any right in or title to any
assets, funds or property of the Company or any Subsidiary whatsoever,
including, without limitation, any specific funds, assets or other property
which the Company or any Subsidiary, in their sole discretion, may set aside in
anticipation of a liability under the Plan. A Participant shall have only a
contractual right to the Stock or amounts, if any, payable under the Plan,
unsecured by any assets of the Company or any Subsidiary, and nothing contained
in the Plan shall constitute a guarantee that the assets of the Company or any
Subsidiary shall be sufficient to pay any benefits to any person.
(b) The Plan does not constitute a contract of employment, and
selection as a Participant will not give any participating employee the right to
be retained in the employ of the Company or any Subsidiary, nor any right or
claim to any benefit under the Plan, unless such right or claim has specifically
accrued under the terms of the Plan. Except as otherwise provided in the Plan,
no Award under the Plan shall confer upon the holder thereof any rights as a
shareholder of the Company prior to the date on which the individual fulfills
all conditions for receipt of such rights.
5.14. Evidence. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information which the person acting on
it considers pertinent and reliable, and signed, made or presented by the proper
party or parties.
SECTION 6. CHANGE IN CONTROL
Upon the occurrence of a Change in Control, the Committee or Board
shall, in its sole discretion and without the consent or approval of any
Participant, have the power to take any action, including, but not limited to
the following:
(a) accelerate the time at which Options then outstanding may
be exercised so that such Options may be exercised in full for a limited period
of time on or before a specified date (before or after such Change in Control)
fixed by the Board, after which specified date all unexercised Options and all
rights of Optionees thereunder shall terminate;
(b) require the mandatory surrender to the Company by selected
Optionees of some or all of the outstanding Options held by such Optionees
(irrespective of whether such Options are then exercisable under the provisions
of the Plan) as of a date (before or after such Change in Control) specified by
the Committee or Board, in which event the Board shall thereupon cancel such
options and pay to each Optionee an amount of cash per share equal to the
excess, if any, of the Change of Control Value of the shares subject to such
Option over the exercise price(s) under such Options for such shares;
(c) make such adjustments to Options then outstanding as the
Board deems appropriate to reflect such Change of Control (provided, however,
that the Board may determine in its sole discretion that no adjustment is
necessary to Options then outstanding);
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(d) provide that thereafter upon any exercise of an Option
theretofore granted the Optionee shall be entitled to purchase under such
Option, in lieu of the number of shares of Common Stock as to which such Option
shall then be exercisable, the number and class of shares of stock or other
securities or property (including, without limitation, cash) to which the
Optionee would have been entitled pursuant to the terms of the agreement of
merger, consolidation or sale of assets or plan of liquidation and dissolution
if, immediately prior to such merger, consolidation or sale of assets or any
distribution in liquidation and dissolution of the Company, the Optionee had
been the holder of record of the number of shares of Common Stock then covered
by such Option; or
(e) cancel the Options granted if the Fair Market Value of the
Common Stock underlying the Options is below the Option exercise price.
SECTION 7. COMMITTEE
7.1. Administration. The authority to control and manage the operation
and administration of the Plan may be vested in a committee (the "Committee") in
accordance with this Section 7. The Committee shall be selected by the Board,
and shall consist solely of two or more members of the Board. If the Committee
does not exist, or for any other reason determined by the Board, the Board may
take any action under the Plan that would otherwise be the responsibility of the
Committee.
7.2. Powers of Committee. The Committee's administration of the Plan
shall be subject to the following:
(a) Subject to the provisions of the Plan, the Committee will
have the authority and discretion to select from among the Eligible Individuals
those persons who shall receive Awards, to determine the time or times of
receipt, to determine the types of Awards and the number of shares covered by
the Awards, to establish the terms, conditions, performance criteria,
restrictions and other provisions of such Awards, and (subject to the
restrictions imposed by Section 8) to cancel or suspend Awards.
(b) To the extent that the Committee determines that the
restrictions imposed by the Plan preclude the achievement of the material
purposes of the Awards in jurisdictions outside the United States, the Committee
will have the authority and discretion to modify those restrictions as the
Committee determines to be necessary or appropriate to conform to applicable
requirements or practices of jurisdictions outside of the United States.
(c) The Committee will have the authority and discretion to
interpret the Plan, to establish, amend and rescind any rules and regulations
relating to the Plan, to determine the terms and provisions of any Award
Agreement made pursuant to the Plan, and to make all other determinations that
may be necessary or advisable for the administration of the Plan.
(d) Any interpretation of the Plan by the Committee and any
decision made by it under the Plan is final and binding on all persons.
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(e) In controlling and managing the operation and
administration of the Plan, the Committee shall take action in a manner that
conforms to the articles and bylaws of the Company and applicable corporate law.
7.3. Delegation by Committee. Except to the extent prohibited by
applicable laws (including, without limitation, the requirements of of the
Securities Act of 1933 and state securities laws) or the applicable requirements
of any securities exchange or similar entity, the Committee may allocate all or
any portion of its responsibilities and powers to any one or more of its members
and may delegate all or any part of its responsibilities and powers to any
person or persons selected by it. Any such allocation or delegation may be
revoked by the Committee at any time.
7.4. Information to be Furnished to Committee. The Company and
Subsidiaries shall furnish the Committee with such data and information as it
determines may be required for it to discharge its duties. The records of the
Company and Subsidiaries as to an employee's or Participant's employment,
termination of employment, leave of absence, reemployment and compensation shall
be conclusive on all persons unless determined to be incorrect. Participants and
other persons entitled to benefits under the Plan must furnish the Committee
such evidence, data or information as the Committee considers desirable to carry
out the terms of the Plan.
SECTION 8. AMENDMENT AND TERMINATION
The Board may, at any time, amend or terminate the Plan, provided that
no amendment or termination may, in the absence of written consent to the change
by the affected Participant (or, if the Participant is not then living, the
affected beneficiary), adversely affect the rights of any Participant or
beneficiary under any Award granted under the Plan prior to the date such
amendment is adopted by the Board; provided that adjustments pursuant to
subsection 5.2(e) shall not be subject to the foregoing limitations of this
Section 8.
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EXHIBIT 10.2
EMPLOYEE STOCK PURCHASE PLAN
FOR RAVENSWOOD WINERY, INC.
<PAGE>
RAVENSWOOD WINERY, INC.
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests
of Ravenswood Winery, Inc. by providing eligible employees with the opportunity
to acquire a proprietary interest in the Corporation through participation in a
payroll deduction-based employee stock purchase plan.
Capitalized terms herein shall have the meanings assigned to such terms
in the attached Appendix.
2. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
3. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares of Common Stock
purchased on the open market. The maximum number of shares of Common Stock which
may be issued over the term of the Plan shall not exceed 50,000 shares.
B. Should any change be made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and class of securities issuable under the Plan,
(ii) the maximum number and class of securities purchasable per Participant on
any one Purchase Date and (iii) the number and class of securities and the price
per share in effect under each outstanding purchase right in order to prevent
the dilution or enlargement of benefits thereunder.
4. PURCHASE PERIODS
A. Shares of Common Stock shall be offered for purchase under the Plan
through a series of successive Purchase Periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.
B. Each Purchase Period shall be six (6) months in duration, unless
otherwise determined by the Plan Administrator prior to the start date of the
Purchase Period, and provided
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that the initial Purchase Period shall commence at the Effective Time and shall
terminate on the last business day of that calendar year. Subsequent Purchase
Periods, each of six (6) months duration, shall commence on the first business
day of each January and July thereafter, unless otherwise designated by the Plan
Administrator. The Plan Administrator shall have complete discretion to change
the start date and the duration of a Purchase Period, provided Eligible
Employees are notified prior to the start date of any Purchase Period for which
such change is to be effective, and provided, further, that no Purchase Period
shall have a duration exceeding twenty-seven (27) months.
5. ELIGIBILITY
A. Each Eligible Employee of a Participating Corporation shall be
eligible to participate in the Plan in accordance with the following provisions:
(i) An individual who is an Eligible Employee on the start
date of any Purchase Period under the Plan shall be eligible to commence
participation in that Purchase Period on such start date.
(ii) An individual who first becomes an Eligible Employee
after the start date of any Purchase Period will not be eligible to commence
participation under the Plan until the start date of the next Purchase Period on
which he/she remains an Eligible Employee.
B. To participate in the Plan for a particular Purchase Period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (which may include a stock purchase agreement and a payroll
deduction authorization form) and file such forms with the Plan Administrator
(or its designate) on or before the start date for the Purchase Period.
6. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes of
acquiring shares of Common Stock under the Plan may be any multiple of one
percent (1%) of the Cash Compensation paid to the Participant during that
Purchase Period, up to a maximum of ten percent (10%). The deduction rate so
authorized shall continue in effect for the remainder of the Purchase Period,
except to the extent such rate is changed in accordance with the following
guidelines:
(i) The Participant may, at any time during the Purchase
Period, reduce his or her rate of payroll deduction to become effective as soon
as possible after filing the appropriate form with the Plan Administrator. The
Participant may not, however, effect more than one (1) such reduction per
Purchase Period.
(ii) The Participant may, prior to the commencement of any new
Purchase Period, increase the rate of his or her payroll deduction by filing the
appropriate form with the Plan Administrator. The new rate (which may not exceed
the ten percent (10%) maximum) shall become effective as of the start date of
the Purchase Period following the filing of such form.
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B. Payroll deductions shall begin on the first pay day following the
start date for the Purchase Period and shall (unless sooner terminated by the
Participant) continue through the pay day ending with or immediately prior to
the last day of that Purchase Period. The amounts so collected shall be credited
to the Participant's book account under the Plan, but no interest shall be paid
on the balance from time to time outstanding in such account. The amounts
collected from the Participant shall not be held in any segregated account or
trust fund and may be commingled with the general assets of the Corporation and
used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the termination of
the Participant's purchase right in accordance with the provisions of the Plan.
D. The Participant's acquisition of Common Stock under the Plan on any
Purchase Date shall neither limit nor require the Participant's acquisition of
Common Stock on any subsequent Purchase Date.
7. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a separate
purchase right for each Purchase Period in which he or she participates. The
purchase right shall be granted on the start date of the Purchase Period and
shall provide the Participant with the right to purchase shares of Common Stock
upon the terms set forth below. The purchase right shall continue until the end
of the Purchase Period, and shall be automatically exercised on the last
business day of the respective Purchase Period each year (the last business day
of June and the last business day of December) or such other date as may be
selected by the Plan Administrator as the ending date for the Purchase Period).
The Participant shall execute a stock purchase agreement embodying such terms
and such other provisions (not inconsistent with the Plan) as the Plan
Administrator may deem advisable.
Under no circumstances shall purchase rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning of Code Section 424(d)), or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Corporation
or any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall be
automatically exercised on the respective Purchase Date, and shares of Common
Stock shall accordingly be purchased on behalf of each Participant (other than
any Participant whose payroll deductions have previously been refunded in
accordance with the Termination of Purchase Right provisions below) on each such
Purchase Date. The purchase shall be effected by applying the Participant's
payroll deductions for the Purchase Period ending on such Purchase Date
(together with any carryover deductions from the preceding Purchase Period) to
the purchase of whole shares of Common Stock (subject to the limitation on the
maximum number of shares purchasable per Participant on any one Purchase Date)
at the purchase price in effect for the Participant for that Purchase Date.
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C. PURCHASE PRICE. The purchase price per share at which Common Stock
will be purchased on the Participant's behalf on each Purchase Date shall be
equal to eighty-five percent (85%) of the lower of (i) the Fair Market Value per
share of Common Stock on the start date for that Purchase Period or (ii) the
Fair Market Value per share of Common Stock on that Purchase Date.
Notwithstanding the foregoing, the Administrator may establish, with respect to
any Purchase Period, a different purchase price, which shall be no lower than
the purchase price set forth in the preceding sentence, so long as the
Administrator gives all Eligible Employees reasonable notice of such different
purchase price at least sixty (60) days prior to the commencement of such
Purchase Period, in which event the different purchase price so established
shall remain in effect for all subsequent Purchase Periods unless and until
changed again by the Administrator.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of Common Stock
purchasable by a Participant on each Purchase Date shall be the number of whole
shares obtained by dividing the amount collected from the Participant through
payroll deductions during the Purchase Period ending with that Purchase Date
(together with any carryover deductions from the preceding Purchase Period) by
the purchase price in effect for the Participant for that Purchase Date.
However, the maximum number of shares of Common Stock purchasable per
Participant on any Purchase Date shall not exceed five hundred (500) shares,
subject to periodic adjustments in the event of certain changes in the
Corporation's capitalization.
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not applied to the
purchase of shares of Common Stock on any Purchase Date because they are not
sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date, or at the option of the Plan
Administrator, may be used to buy fractional shares. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable by the Participant on the
Purchase Date shall be promptly refunded, without interest.
F. TERMINATION OF PURCHASE RIGHT. The following provisions shall govern
the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next Purchase
Date , terminate his or her outstanding purchase right by filing the appropriate
form with the Plan Administrator (or its designate), and no further payroll
deductions shall be collected from the Participant with respect to the
terminated purchase right. Any payroll deductions collected during the Purchase
Period in which such termination occurs shall, at the Participant's election, be
immediately refunded, without interest, or held for the purchase of shares on
the next Purchase Date. If no such election is made at the time such purchase
right is terminated, then the payroll deductions collected with respect to the
terminated right shall be refunded as soon as possible, without interest.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the Purchase Period
for which the terminated purchase right was granted. In order to resume
participation in any subsequent Purchase Period, such
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individual must re-enroll in the Plan (by making a timely filing of the
prescribed enrollment forms) on or before the start date for that Purchase
Period.
(iii) Should the Participant cease to remain an Eligible
Employee for any reason (including death, disability or change in status) while
his or her purchase right remains outstanding, then that purchase right shall
immediately terminate, and all of the Participant's payroll deductions for the
Purchase Period in which the purchase right so terminates shall be immediately
refunded; provided that, to the extent permitted by Code Section 423 and the
applicable regulations, upon termination of employment due to death, the
Participant's beneficiaries may elect to purchase the shares that the
accumulated payroll deductions in the Participant's account would purchase at
the date of death. Notwithstanding the foregoing, should the Participant cease
to remain in active service by reason of an approved unpaid leave of absence,
then the Participant shall have the election, exercisable up until the last
business day of the Purchase Period in which such leave commences, to (a)
withdraw all the funds in the Participant's payroll account at the time of the
commencement of such leave or (b) have such funds held for the purchase of
shares at the end of such Purchase Period. In no event, however, shall any
further payroll deductions be added to the Participant's account during such
leave. Upon the Participant's return to active service, his or her payroll
deductions under the Plan shall automatically resume at the rate in effect at
the time the leave began, provided the Participant returns to service prior to
the expiration date of the Purchase Period in which such leave began.
G. CORPORATE TRANSACTION. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective date of any
Corporate Transaction, by applying the payroll deductions of each Participant
for the Purchase Period in which such Corporate Transaction occurs to the
purchase of whole shares of Common Stock at a purchase price per share equal to
eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of
Common Stock on the start date for the Purchase Period in which such Corporate
Transaction occurs or (ii) the Fair Market Value per share of Common Stock
immediately prior to the effective date of such Corporate Transaction. However,
the applicable limitation on the number of shares of Common Stock purchasable
per Participant shall continue to apply to any such purchase.
The Corporation shall use its best efforts to provide at least ten (10)
days prior written notice of the occurrence of any Corporate Transaction, and
Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Corporate Transaction.
H. PRORATION OF PURCHASE RIGHTS. Should the total number of shares of
Common Stock which are to be purchased pursuant to outstanding purchase rights
on any particular date exceed the number of shares then available for issuance
under the Plan, the Plan Administrator shall either (i) make a pro-rata
allocation of the available shares on a uniform and nondiscriminatory basis, in
which case the payroll deductions of each Participant, to the extent in excess
of the aggregate purchase price payable for the Common Stock pro-rated to such
individual, shall be refunded, without interest, or (ii) increase the number of
shares then available for issuance under the Plan, subject to shareholder
approval, by an amount at least sufficient to
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permit the purchase of all shares which are to be purchased pursuant to
outstanding purchase rights on such date.
I. ASSIGNABILITY. During the Participant's lifetime, the purchase right
shall be exercisable only by the Participant and shall not be assignable or
transferable by the Participant.
J. SHAREHOLDER RIGHTS. A Participant shall have no shareholder rights
with respect to the shares subject to his or her outstanding purchase right
until the shares are purchased on the Participant's behalf in accordance with
the provisions of the Plan and the Participant has become a holder of record of
the purchased shares.
8. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire Common
Stock pursuant to any purchase right outstanding under this Plan if and to the
extent such accrual, when aggregated with (i) rights to purchase Common Stock
accrued under any other purchase right granted under this Plan and (ii) similar
rights accrued under other employee stock purchase plans (within the meaning of
Code Section 423) of the Corporation or any Corporate Affiliate, would otherwise
permit such Participant to purchase more than twenty-five thousand dollars
($25,000) worth of stock of the Corporation or any Corporate Affiliate
(determined on the basis of the Fair Market Value of such stock on the date or
dates such rights are granted) for each calendar year such rights are at any
time outstanding.
B. For purposes of applying such accrual limitations, the following
provisions shall be in effect:
(i) The right to acquire Common Stock under each outstanding
purchase right shall accrue on each successive Purchase Date.
(ii) No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has already accrued in
the same calendar year the right to acquire Common Stock under one or more other
purchase rights in an amount equal to twenty-five thousand dollars ($25,000)
worth of Common Stock (determined on the basis of the Fair Market Value of such
stock on the date or dates of grant) for each calendar year such rights were at
any time outstanding.
C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Purchase Period, then the payroll
deductions which the Participant made during that Purchase Period with respect
to such purchase right shall be promptly refunded, without interest.
D. In the event there is any conflict between the provisions of this
Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
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9. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board as of February 1, 1999, and
approved by the shareholders as of February 1, 1999. It shall become effective
at the Effective Time, provided that no purchase rights granted under the Plan
shall be exercised, and no shares of Common Stock shall be issued hereunder,
until the Corporation shall have complied with all applicable requirements of
the 1933 Act (including the registration of the shares of Common Stock issuable
under the Plan on a Form S-8 registration statement filed with the Securities
and Exchange Commission), all applicable listing requirements of any stock
exchange (or the Nasdaq National Market, if applicable) on which the Common
Stock is listed for trading and all other applicable requirements established by
law or regulation. In the event such shareholder approval is not obtained, or
such compliance is not effected, within twelve (12) months after the date on
which the Plan is adopted by the Board, the Plan shall terminate and have no
further force or effect and all sums collected from Participants during the
initial Purchase Period shall be refunded.
B. Unless sooner terminated by the Board, the Plan shall terminate upon
the earliest of (i) February 1, 2009, (ii) the date on which all shares
available for issuance under the Plan shall have been sold pursuant to purchase
rights exercised under the Plan or (iii) the date on which all purchase rights
are exercised in connection with a Corporate Transaction. No further purchase
rights shall be granted or exercised, and no further payroll deductions shall be
collected, under the Plan following its termination.
10. AMENDMENT OF THE PLAN
The Board may alter, amend, suspend or discontinue the Plan at any
time, to become effective immediately following the close of any Purchase
Period. However, the Board may not, without the approval of the Corporation's
shareholders, (i) materially increase the number of shares of Common Stock
issuable under the Plan or the maximum number of shares purchasable per
Participant on any one Purchase Date, except for permissible adjustments in the
event of certain changes in the Corporation's capitalization as provided in
Section 3.B hereof, (ii) alter the purchase price formula so as to reduce the
purchase price payable for the shares of Common Stock purchasable under the
Plan, or (iii) materially modify the requirements for eligibility to participate
in the Plan.
11. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the Plan
shall be paid by the Corporation.
B. Nothing in the Plan shall confer upon the Participant any right to
continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.
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C. The provisions of the Plan shall be governed by the laws of the
State of California without resort to that State's conflict-of-laws rules.
D. The Plan is designed to qualify under Section 423 of the Code.
Payroll deductions will be made on an after-tax basis.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. Board shall mean the Corporation's Board of Directors.
B. Cash Compensation shall mean the (i) regular base salary paid to a
Participant by one or more Participating Companies during such individual's
period of participation in the Plan, plus (ii) all of the following amounts to
the extent paid in cash: overtime payments, bonuses, commissions, profit-sharing
distributions and other incentive-type payments (including, in the case of any
amounts referred to in clause (i) or (ii), any pre-tax contributions made by the
Participant to any Code Section 401(k) salary deferral plan or any Code Section
125 cafeteria benefit program now or hereafter established by the Corporation or
any Corporate Affiliate). However, Cash Compensation shall not include any
contributions (other than Code Section 401(k) or Code Section 125 contributions)
made on the Participant's behalf by the Corporation or any Corporate Affiliate
to any deferred compensation plan or welfare benefit program now or hereafter
established.
C. Common Stock shall mean the Corporation's Common Stock.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
E. Corporate Affiliate shall mean any parent or subsidiary corporation
of the Corporation (as determined in accordance with Code Section 424), whether
now existing or subsequently established.
F. Corporate Transaction shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to such
transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete liquidation or
dissolution of the Corporation.
G. Corporation shall mean Ravenswood Winery, Inc., a California
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Ravenswood Winery, Inc., which shall by appropriate
action adopt the Plan.
H. Effective Time shall mean the time at which the Underwriting
Agreement is executed and finally priced. Any Corporate Affiliate which becomes
a Participating Corporation after such Effective Time shall designate a
subsequent Effective Time with respect to its employee-Participants.
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I. Eligible Employee shall mean any employee, except any person who is
engaged, on a regularly scheduled basis for fewer than twenty (20) hours per
week or for fewer than five (5) months per calendar year, in the rendition of
personal services to any Participating Corporation as an employee for earnings
considered wages under Code Section 3401(a).
J. Fair Market Value per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question, as such price is reported by
the National Association of Securities Dealers on the Nasdaq National Market or
any successor system. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange determined
by the Plan Administrator to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Common Stock on the date
in question, then the Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation exists.
(iii) For purposes of the initial offering period which begins
at the Effective Time, the Fair Market Value shall be deemed to be equal to the
price per share at which the Common Stock is sold in the initial public offering
pursuant to the Underwriting Agreement.
K. 1933 Act shall mean the Securities Act of 1933, as amended.
L. Participant shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.
M. Participating Corporation shall mean the Corporation and such
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan as of the Effective Time are listed in
attached Schedule A.
N. Plan shall mean the Corporation's Employee Stock Purchase Plan, as
set forth in this document.
O. Plan Administrator shall mean the Board or, if established, the
committee of two (2) or more Board members appointed by the Board to administer
the Plan.
P. Purchase Date shall mean the last business day of each Purchase
Period.
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Q. Purchase Period shall mean each successive period at the end of
which there shall be purchased shares of Common Stock on behalf of each
Participant.
R. Stock Exchange shall mean either the American Stock Exchange or the
New York Stock Exchange.
S. Underwriting Agreement shall mean the agreement between the
Corporation and the underwriter managing the initial public offering of the
Common Stock.
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SCHEDULE A
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
Ravenswood Winery, Inc.
A-1
EXHIBIT 10.3
INDEMNIFICATION AGREEMENT
FOR RAVENSWOOD WINERY, INC.
<PAGE>
RAVENSWOOD WINERY, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "Agreement") is made and entered
into as of ________________, by and between Ravenswood Winery, Inc., a
California corporation (the "Company"), and ___________________________
("Indemnitee").
RECITALS
The Company and Indemnitee recognize the increasing difficulty in
obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance;
The Company and Indemnitee further recognize the substantial increase in
corporate litigation in general, subjecting officers and directors to expensive
litigation risks at the same time as the availability and coverage of liability
insurance has been severely limited;
Indemnitee does not regard the current protection available as adequate
under the present circumstances, and Indemnitee and other officers and directors
of the Company may not be willing to continue to serve as officers and directors
without additional protection; and
The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve as officers and directors of
the Company and to indemnify its officers and directors so as to provide them
with the maximum protection permitted by law.
The Company and Indemnitee hereby agree as follows:
1. Indemnification.
(a) Third Party Proceedings. The Company shall indemnify
Indemnitee if Indemnitee is or was a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee, consultant or agent of the Company, or any
subsidiary of the Company, by reason of any action or inaction on the part of
Indemnitee while an officer, director, employee, consultant or agent, or by
reason of the fact that Indemnitee is or was serving at the request of the
Company as a director, officer, employee, consultant or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), liabilities, losses, judgments, fines,
settlements (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld or delayed) and other amounts
actually and reasonably incurred by Indemnitee in connection with such action,
suit or proceeding, if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in the best interests of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
Indemnitee's conduct was unlawful. The
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termination of any action or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that Indemnitee did not act in good faith and in a
manner which Indemnitee reasonably believed to be in the best interests of the
Company, or, with respect to any criminal action or proceeding, had reasonable
cause to believe that Indemnitee's conduct was unlawful.
(b) Proceedings By or in the Right of the Company. The Company
shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding by or in the right of the Company or any subsidiary of the Company to
procure a judgment in its favor by reason of the fact that Indemnitee is or was
a director, officer, employee, consultant or agent of the Company, or any
subsidiary of the Company, by reason of any action or inaction on the part of
Indemnitee while an officer, director, employee, consultant or agent, or by
reason of the fact that Indemnitee is or was serving at the request of the
Company as a director, officer, employee, consultant or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), liabilities, losses, judgments, fines,
settlements (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld or delayed) and other amounts
actually and reasonably incurred by Indemnitee in connection with the defense or
settlement of such action, suit or proceeding, if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in the best interests of
the Company and its shareholders, except that no indemnification shall be made
in respect of any claim, issue or matter as to which Indemnitee shall have been
adjudged to be liable to the Company in the performance of Indemnitee's duty to
the Company and its shareholders unless and only to the extent that the court in
which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for expenses and then only to the
extent that the court shall determine.
(c) Mandatory Payment of Expenses. To the extent that
Indemnitee has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 1(a) or 1(b) herein or the
defense of any claim, issue or matter therein, Indemnitee shall be indemnified
against all expense, liability or loss (including attorneys' fees) actually and
reasonably incurred by Indemnitee in connection therewith.
2. Agreement to Serve. Indemnitee agrees to serve in the capacity set
forth on the signature page of this Agreement. Indemnitee may at any time and
for any reason resign from such position (subject to any other contractual
obligation or any obligation imposed by operation of law). The Company shall
have no obligation under this Agreement to continue Indemnitee in any position
with the Company.
3. Expense Advances; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall make Expense
Advances to Indemnitee upon receipt of a written undertaking by or on behalf of
the Indemnitee to repay such amounts if it shall ultimately be determined that
Indemnitee is not entitled to be indemnified therefor by the Company. Any
written undertaking by Indemnitee to repay such
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Expense Advances hereunder shall be unsecured and no interest shall be charged
thereon. The Expense Advances to be made hereunder shall be paid by the Company
to Indemnitee within ten (10) days following delivery of a written request
therefor by Indemnitee to the Company. The Expense Advances referred to in this
Section 3(a) do not include amounts actually paid in settlement of any such
action or proceeding; the parties hereto acknowledge that this Section 3(a)
provides for the advancement of expenses and that indemnification for amounts
paid in settlement of any action or proceeding is governed by Section 1 hereof.
(b) Determination of Conduct. Any indemnification (unless
ordered by a court) shall be made by the Company only as authorized in the
specific case upon a determination that indemnification of Indemnitee is proper
under the circumstances because Indemnitee has met the applicable standard of
conduct set forth in Sections 1(a) or 1(b) herein. Such determination shall be
made by any of the following: (1) the Board of Directors (or by an executive
committee thereof) by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, (2) if such a quorum is not
obtainable, or, even if obtainable, if a quorum of disinterested directors so
directs, by Independent Legal Counsel in a written opinion rendered to
Indemnitee and the Company, (3) the shareholders, with the shares owned by
Indemnitee not being entitled to vote thereon, or (4) the court in which such
proceeding is or was pending upon application made by the Company or Indemnitee
or the attorney or other person rendering service in connection with the
defense, whether or not such application by Indemnitee, the attorney or the
other person is opposed by the Company; provided, however, that if there has
been a Change in Control since the date of this Agreement, such determination
shall be made by Independent Legal Counsel, in a written opinion rendered to
Indemnitee and the Company.
To the extent Independent Legal Counsel is utilized to make
such determination, the Company hereby agrees to abide by the decision of the
Independent Legal Counsel. The Company agrees to pay the reasonable fees of the
Independent Legal Counsel referred to above and to indemnify fully such counsel
against any and all expense, liability or loss (including attorneys' fees)
arising out of or relating to this Agreement. Notwithstanding any other
provision of this Agreement, the Company shall not be required to pay expenses
of more than one Independent Legal Counsel in connection with all matters
concerning a single Indemnitee, and such Independent Legal Counsel shall be the
Independent Legal Counsel for any or all other Indemnitees, unless (i) the
Company otherwise determines, or (ii) any Indemnitee shall submit a written
statement to the Company setting forth in detail a reasonable objection to such
Independent Legal Counsel representing other Indemnitees.
(c) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to his right to be indemnified under this Agreement, or
Indemnitee's right to receive Expense Advances under this Agreement, give the
Company notice in writing as soon as practicable of any claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company at the address shown on the signature page of this
Agreement (or such other address as the Company shall designate in writing to
Indemnitee). Notice shall be deemed received three business days after the date
postmarked if sent by domestic certified or registered
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mail, properly addressed; otherwise notice shall be deemed received when such
notice shall actually be received by the Company. In addition, Indemnitee shall
give the Company such information and cooperation as it may reasonably require
and as shall be within Indemnitee's power. So long as the Company shall not be
prejudiced thereby, the failure to notify the Company under this Section 3(c)
shall not affect the Company's obligation to indemnify Indemnitee under this
Agreement.
(d) Procedure. Any indemnification provided for in Section 1
hereof, under any statute, or under any provision of the Company's Articles of
Incorporation or Bylaws providing for indemnification, shall be made no later
than thirty (30) days after receipt of the written request of Indemnitee. If
such indemnification is not paid in full by the Company within thirty (30) days
after a written request for payment thereof has first been received by the
Company, Indemnitee may, but need not, at any time thereafter, bring an action
against the Company to recover the unpaid amount of the claim and, subject to
Section 13 of this Agreement, Indemnitee shall also be entitled to be paid for
the expenses (including attorneys' fees) of bringing such action. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in connection with any action or proceeding in advance of its
final disposition) that Indemnitee has not met the standards of conduct which
make it permissible under applicable law for the Company to indemnify Indemnitee
for the amount claimed, but the burden of proving such defense by clear and
convincing evidence shall be on the Company, and Indemnitee shall be entitled to
receive Expense Advances pursuant to Subsection 3(a) unless and until such
defense may be finally adjudicated by court order or judgment from which no
further right of appeal exists. It is the parties' intention that if the Company
contests Indemnitee's right to indemnification, the question of Indemnitee's
right to indemnification shall be for the court to decide, and neither the
failure of the Company (including its Board of Directors, any committee or
subgroup of the Board of Directors, Independent Legal Counsel or its
shareholders) to have made a determination that indemnification of Indemnitee is
proper in the circumstances because Indemnitee has met the applicable standard
of conduct required by applicable law, nor an actual determination by the
Company (including its Board of Directors, any committee or subgroup of the
Board of Directors, Independent Legal Counsel or its shareholders) that
Indemnitee has not met such applicable standard of conduct, shall create a
presumption that Indemnitee has or has not met the applicable standard of
conduct.
(e) Notice to Insurers. If, at the time of the receipt of a
notice of a claim pursuant to Section 3(c) hereof, the Company has directors'
and officers' liability insurance in effect, the Company shall give prompt
notice of the commencement of such proceeding to the insurers in accordance with
the procedures set forth in the respective policies. The Company shall
thereafter use commercially reasonable efforts to cause such insurers to pay, on
behalf of Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(f) Selection of Counsel. In the event the Company shall be
obligated under Section 3(a) hereof to pay Expense Advances in connection with
any proceeding against Indemnitee, the Company, if appropriate, shall be
entitled to assume the defense of such
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proceeding, with counsel approved by Indemnitee (which approval shall not be
unreasonably withheld or delayed), upon the delivery to Indemnitee of written
notice of its election so to do. After delivery of such notice, approval of such
counsel by Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to Indemnitee under this Agreement for any fees of
separate counsel subsequently incurred by Indemnitee with respect to the same
proceeding, provided that (i) Indemnitee shall have the right to employ his
separate counsel in any such proceeding at Indemnitee's expense; and (ii) if (A)
the employment of separate counsel by Indemnitee has been previously authorized
by the Company, (B) Indemnitee shall have reasonably concluded that there may be
a conflict of interest between the Company and Indemnitee in the conduct of any
such defense or (C) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, then the fees and expenses of
Indemnitee's separate counsel shall be the obligations of the Company.
4. Additional Indemnification Rights; Non-Exclusivity.
(a) Application. The provisions of this Agreement shall be
deemed applicable to all actual or alleged actions or omissions by Indemnitee
during any and all periods of time that Indemnitee was, is, or shall be serving
as a director and/or officer of the Company.
(b) Scope. The Company hereby agrees to indemnify Indemnitee
to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of this
Agreement, the Company's Articles of Incorporation, the Company's Bylaws or by
statute. In the event of any change after the date of this Agreement in any
applicable law, statute or rule which expands the right of a California
corporation to indemnify a member of its board of directors or an officer,
employee or agent, such changes shall be ipso facto, within the purview of
Indemnitee's rights and the Company's obligations, under this Agreement. In the
event of any change in any applicable law, statute or rule which narrows the
right of a California corporation to indemnify a member of its Board of
Directors or an officer, employee or agent, such changes, to the extent not
otherwise required by such law, statute or rule to be applied to this Agreement
shall have no effect on this Agreement or the parties' rights and obligations
hereunder.
(c) Non-Exclusivity. The indemnification and the payment of
expenses provided for in this Agreement shall not be deemed exclusive of any
rights to which Indemnitee may be entitled under the Company's Articles of
Incorporation, its Bylaws, any agreement, any vote of shareholders or
disinterested directors, the General Corporation Law of the State of California,
or otherwise, both as to action taken or not taken in Indemnitee's official
capacity and as to action taken or not taken in another capacity while holding
such office. The indemnification provided under this Agreement shall continue as
to Indemnitee for any action taken or not taken while serving in an indemnified
capacity even though he may have ceased to serve in such capacity at the time of
any action or other covered proceeding.
5. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred by him in the investigation, defense, appeal or
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settlement of any civil or criminal action or proceeding, but not, however, for
the total amount thereof, the Company shall nevertheless indemnify Indemnitee
for the portion of such expenses, judgment, fines or penalties to which
Indemnitee is entitled.
6. Directors' and Officers' Liability Insurance. The Company shall,
from time to time, make the good faith determination whether or not it is
practicable for the Company to obtain and maintain a policy or policies of
insurance with reputable insurance companies providing the officers and
directors of the Company with coverage for losses from wrongful acts, or to
ensure the Company's performance of its indemnification obligations under this
Agreement. Among other considerations, the Company will weigh the costs of
obtaining such insurance coverage against the protection afforded by such
coverage. In all policies of directors' and officers' liability insurance,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is an officer; or of the Company's key
employees, if Indemnitee is a key employee; or of the Company's agents, if
Indemnitee is an agent; or of the Company's fiduciaries, if Indemnitee is a
fiduciary. Notwithstanding the foregoing, the Company shall have no obligation
to obtain or maintain such insurance if the Company determines in good faith
that such insurance is not reasonably available, if the premium costs for such
insurance are disproportionate to the amount of coverage provided, if the
coverage provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or if Indemnitee is covered by similar insurance
maintained by a subsidiary or parent of the Company.
7. Severability. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable for any reason whatsoever: (a)
the validity, legality and enforceability of the remaining provisions of this
Agreement (including, without limitation, each portion of any section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, each
portion of any section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
8. Exceptions. Except as provided in Section 4(b) hereof, the Company
shall not be obligated pursuant to the terms of this Agreement to provide any of
the following:
(a) Excluded Acts. An indemnification of Indemnitee for any
acts or omissions or transactions from which a director may not be relieved of
liability under the California General Corporation Law; provided, however, that
notwithstanding any limitation set forth in this Section 8(a) regarding the
Company's obligation to provide indemnification, Indemnitee shall be entitled
under Section 3 hereof to receive Expense Advances hereunder with respect to any
such claim unless and until a court having jurisdiction over the claim shall
have made a final judicial determination (as to which all rights of appeal
therefrom have been
6
<PAGE>
exhausted or lapsed) that Indemnitee has engaged in acts, omissions or
transactions for which Indemnitee is prohibited from receiving indemnification
under applicable law.
(b) Claims Initiated by Indemnitee. An indemnification of
Indemnitee or the provision of Expense Advances to Indemnitee with respect to
proceedings or claims initiated or brought voluntarily by Indemnitee and not by
way of defense, counterclaim or crossclaim, except (i) with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Articles of Incorporation or Bylaws or statute or law, (ii) in specific cases if
the Board of Directors has approved the initiation or bringing of such claim; or
(iii) as otherwise required under Section 317 of the California General
Corporation Law;
(c) Lack of Good Faith. An indemnification of Indemnitee for
any expenses incurred by the Indemnitee with respect to any proceeding
instituted by Indemnitee to enforce or interpret this Agreement, if a court of
competent jurisdiction determines that each of the material assertions made by
Indemnitee in such proceeding was not made in good faith or was frivolous;
(d) Insured Claims. An indemnification of Indemnitee for
expenses or liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) which have been paid directly to Indemnitee by an insurance carrier
under a policy of directors' and officers' liability insurance maintained by the
Company; or
(e) Short Swing Profits. An indemnification of Indemnitee for
expenses or the payment of profits arising from the purchase and sale by the
Indemnitee of securities in violation of Section 16(b) of the Securities and
Exchange Act of 1934, as amended, or any similar successor statute; provided,
however, that notwithstanding any limitation set forth in this Section 8(e)
regarding the Company's obligation to provide indemnification, Indemnitee shall
be entitled under Section 3 hereof to receive Expense Advances hereunder with
respect to any such claim unless and until a court having jurisdiction over the
claim shall have made a final judicial determination (as to which all rights of
appeal therefrom have been exhausted or lapsed) that Indemnitee has violated
said statute.
9. Effectiveness of Agreement. This Agreement shall be effective as of
the date set forth on the first page and shall apply to acts or omissions of
Indemnitee which occurred prior to such date if Indemnitee was an officer,
director, employee, consultant or other agent of the Company, or was serving at
the request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, at the time
such act or omission occurred.
10. Construction of Certain Phrases. For purposes of this Agreement:
(a) References to "Change in Control" shall mean, and shall be
deemed to have occurred if, on or after the date of this Agreement, (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company
7
<PAGE>
acting in such capacity, becomes the "beneficial owner" (as defined in Rule
13d-3 under said Act), directly or indirectly, of securities of the Company
representing more than 50% of the total voting power represented by the
Company's then outstanding voting securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose election was
previously so approved, cease for any reason to constitute a majority thereof,
or (iii) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 80% of the total voting power represented by the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of (in one transaction or a series of related
transactions) all or substantially all of the Company's assets.
(b) References to the "Company" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger to which
Ravenswood Winery, Inc. is or was a party which, if its separate existence had
continued, would have had power and authority to indemnify its directors,
officers, employees or agents, so that if Indemnitee is or was a director,
officer, employee or agent of such constituent corporation, or is or was serving
at the request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, Indemnitee shall stand in the same position under the provisions of
this Agreement with respect to the resulting or surviving corporation as
Indemnitee would have with respect to such constituent corporation if its
separate existence had continued.
(c) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
Indemnitee with respect to an employee benefit plan; and references to "serving
at the request of the Company" shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves
services by, such director, officer, employee, agent or fiduciary with respect
to an employee benefit plan, its participants, or beneficiaries.
(d) The term "expenses" shall include any and all expenses
(including attorneys' fees and all other costs, expenses and obligations
incurred in connection with investigating, defending, being a witness in or
participating in (including on appeal), or preparing to defend, be a witness in
or to participate in, any action, suit, proceeding, alternative dispute
resolution mechanism, hearing, inquiry or investigation), judgments, fines,
penalties and amounts paid in settlement (if such settlement is approved in
advance by the Company, which approval shall not be unreasonably withheld or
delayed), actually and reasonably incurred, whether or not initiated prior to
the effective date hereof. The parties hereby agree that solely for the purposes
8
<PAGE>
of this Agreement, all expenses that are certified by affidavit of Indemnitee's
counsel as being reasonable shall be presumed conclusively to be reasonable.
(e) References to "Expense Advances" shall mean payment to
Indemnitee pursuant to Section 3 of expenses in advance of settlement of or
final judgment in any action, suit, proceeding or alternative dispute resolution
mechanism, hearing, inquiry or investigation.
(f) References to "Independent Legal Counsel" shall mean an
attorney or firm of attorneys selected by Indemnitee and approved by the Company
(which approval shall not be unreasonably withheld or delayed), who shall not
have otherwise performed services for the Company or Indemnitee within the last
three years (other than with respect to matters concerning the rights of
Indemnitee under this Agreement, or of other indemnitees under similar indemnity
agreements).
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original, and all of which
together shall constitute one and the same instrument.
12. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors, assigns (including any direct or indirect successor by
purchase, merger, consolidation or otherwise to all or substantially all of the
business or assets of the Company), spouses, heirs and legal and personal
representatives. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as a director, officer, employee, agent or
fiduciary (as applicable) of the Company or of any other enterprise at the
Company's request.
13. Expenses Incurred in Action Relating to Enforcement or
Interpretation. In the event that any action is instituted by Indemnitee under
this Agreement or under any liability insurance policies maintained by the
Company to enforce or interpret any of the terms hereof or thereof, Indemnitee
shall be entitled to be paid and indemnified for all court costs and expenses
incurred with respect to such action (including, without limitation, attorneys'
fees), regardless of whether Indemnitee is ultimately successful in such action,
unless as a part of such action, a court of competent jurisdiction makes a final
determination (as to which all rights of appeal therefrom have been exhausted or
lapsed) that each of the material assertions made by Indemnitee as a basis for
such action was not made in good faith or was frivolous; provided, however, that
until such final judicial determination is made, Indemnitee shall be entitled
under Section 3 hereof to receive payment of Expense Advances hereunder with
respect to such action. In the event of an action instituted by or in the name
of the Company under this Agreement or to enforce or interpret any of the terms
of this Agreement, Indemnitee shall be entitled to be paid and indemnified for
all expenses incurred by Indemnitee in defense of such action (including
attorneys' fees and costs and expenses incurred with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court of competent jurisdiction expressly determines that each of
Indemnitee's material defenses to such action was made in bad faith or was
frivolous; provided, however, that until such final judicial
9
<PAGE>
determination is made, Indemnitee shall be entitled under Section 3 herein to
receive payment of Expense Advances hereunder with respect to such action.
14. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this Agreement, or
as subsequently modified by written notice.
15. Choice of Law and Consent to Jurisdiction. This Agreement shall be
governed by and its provisions construed in accordance with the laws of the
State of California as applied to contracts between California residents entered
into and to be performed entirely within California. The Company and Indemnitee
each hereby irrevocably consent to the jurisdiction of the courts of the State
of California for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agree that any action instituted
under this Agreement shall be brought only in the state courts of the State of
California.
The parties hereto have executed or caused to be executed this
Agreement as of the date first above written.
Ravenswood Winery, Inc. INDEMNITEE:
By: _____________________________ ____________________________________
(signature)
Title: ___________________________ ____________________________________
(print name)
Address: 18701 Gehricke Road
Sonoma, California 95476
------------------------------------
(relationship to the Company)
Address:
------------------------------------
------------------------------------
------------------------------------
10
Exhibit 10.4
<TABLE>
<CAPTION>
MEMBER DESIGNATION Assn. No. Branch No. Document Member Loan Number Note No.
No. Number
<S> <C> <C> <C> <C> <C> <C>
Ravenswood Winery, Inc. 176 002 0005092841 1 1
</TABLE>
REVOLVING LINE OF CREDIT PROMISSORY NOTE AND AGREEMENT
Petaluma, California April 01, 1998
PROMISE TO PAY. FOR VALUE RECEIVED, on June 01, 2001 the undersigned
("Borrower") jointly and severally promises to pay to the order of Pacific Coast
Farm Credit Services, ACA ("Lender") at its office in Windsor, California the
sum of Two Million and no/100 Dollars ($ 2,000,000.00), including capital stock
or participation certificates, or so much of that sum as may be advanced or
readvanced by Lender under this note ("Note"), including the renewed/unpaid
balance of any notes described herein, with interest on the unpaid principal
balance. Said interest, if not paid when due, shall be added to principal and an
appropriate amount of capital stock or participation certificates as required by
Lender's bylaws, and such amount shall bear interest at the same rate as
principal. Payments may be made at any time and in any amount during the term of
this Note, unless otherwise required by Lender in writing.
REVOLVING LINE OF CREDIT. Lender shall make available to Borrower a revolving
line of credit exclusive of amounts advanced to purchase stock or participation
certificates, in the principal amount not to exceed Two Million and no/100
Dollars ($ 2,000,000.00), outstanding at any one time, or the borrowing base or
other guidelines, where applicable, whichever is less. Any disbursements shall
be made in accordance with written budget and cash flow projections prepared by
Borrower and approved by Lender or in accordance with other written disbursement
instructions set forth by Lender. Subject to the terms and conditions of this
Note and the Loan Agreements (defined below), as amounts advanced hereunder are
repaid, they may be reborrowed. As conditions to advances or readvances by
Lender to Borrower on the revolving line of credit there shall not exist an
event of default under this Note or any loan agreement, deed of trust, mortgage,
or security agreement, or an event which upon a lapse of time or giving of
notice or both would become an event of default under this Note or any loan
agreement, deed of trust, mortgage, or security agreement. Borrower understands,
acknowledges and agrees that capital stock or participation certificates of
Lender may only be redeemed upon approval of Lender's board of directors, at an
amount not to exceed par value.
( ) With each draw, Borrower shall purchase capital stock or participation
certificates of Lender in the amount required by Lender's bylaws.
The terms and conditions of this Note are subject to the provisions of Lender's
loan agreement dated March 01, 1995, and any applicable, written supplemental
letter agreements or written supplemental loan agreements (the "Loan
Agreements").
Each advance shall be made upon a verbal, written, or telecopied request from
Borrower to Lender. Such request shall specify the date of the requested advance
and the amount thereof. Upon fulfillment of the applicable conditions for making
an advance, Lender shall disburse the amount of the requested advance to
Borrower in such manner as Lender and Borrower may from time to time agree.
Lender may rely on any verbal request for an advance as fully as if such request
were in writing.
INTEREST. Interest shall be calculated daily on the basis of a 365-day year.
Interest shall accrue on the principal amount disbursed to Borrower at the
variable interest rate as established by Lender for the interest rate group to
which this Note is assigned. The initial interest rate in effect on this date is
8.81 % per annum. The interest rate applicable to this Note may be adjusted
automatically as of the first day of any month to the rate then made applicable
to Borrower's assigned interest rate group. Borrower understands and agrees that
(1) the interest rate group to which this Note is assigned may be changed at any
time to any other interest rate group at the sole and complete discretion of
Lender, and (2) the interest rate group shall be automatically adjusted to the
highest interest rate group, if a default or event of default shall occur under
this Note or under any other note or agreement between Borrower and Lender. If
Lender changes Borrower's interest rate, Lender will give Borrower notice of the
change in rate as required by the then applicable law.
DEFAULT AND ACCELERATION. This Note shall be in default and, at the sole option
of Lender or its successors and assigns, the unpaid principal balance of this
Note, together with all accrued interest, shall become immediately due and
payable without notice if: (1) Borrower fails to make any payment under this
Note when due; (2) a default or event of default occurs in the payment or
performance of any obligation contained in a deed of trust, mortgage, security
agreement, or any other agreement regarding security for this Note; or (3) a
default or event of default occurs in the payment or performance of any
obligation contained in any loan agreement, promissory note, or other agreement
between Borrower and Lender. No delay or omission on the part of Lender in
exercising its rights hereunder shall operate as a waiver of such rights.
<PAGE>
STANDARD CONDITIONS
Principal and interest shall be payable in lawful money of the United States.
Further, Borrower hereby severally waives diligence, presentment for payment or
acceptance, demand, protest and notice of protest, notice of dishonor, notice of
non-payment, and notice of any other kind whatsoever, and all defenses on the
grounds of any extension of time of payment or release of collateral or parties.
To the extent that the Western Farm Credit Bank ("Bank") gives or has given
value to Lender in reliance upon this Note, Borrower severally waives any and
all defenses or rights of offset which Borrower may have against Lender when
this Note is held by said Bank or its successors or assigns. Borrower further
agrees that failure on the part of Lender to exercise any power, right or
privilege hereunder, or to insist upon prompt compliance with the terms hereof,
shall not constitute a waiver thereof.
ATTORNEYS' FEES AND COSTS. Borrower agrees to pay to Lender or the holder of
this Note, on demand, all costs, expenses and disbursements, inlcuding without
limitation all reasonable attorneys' fees, incurred by it in the enforcement,
collection, renewal, extension or modification of this Note, or any other
agreement related to the indebtedness evidenced by this Note, or any renewal,
extension or modification thereof. Any such amount may also be added by Lender
to the principal balance of the indebtedness and an appropriate amount of
capital stock or participation certificates as required by Lender's bylaws, and
such amounts shall thereafter bear interest at the rate set forth in this Note.
The fees and costs described herein shall be in addition to those set forth in
the Loan Agreements, deed of trust or any other written agreement between
Borrower and Lender.
TRANSFER BY LENDER. Lender may sell, transfer or assign this Note or any portion
thereof, and deliver to the transferee(s) ("Noteholder") all or any portion of
the property then held by it as security hereunder, and the Noteholder shall
thereupon become vested with all the power and rights herein given to Lender
with respect thereto and at such time the term "Lender" as herein used shall be
deemed to mean and and include the "Noteholder"; and Lender shall thereafter be
forever relieved and fully discharged from any and all liability or
responsibility to Borrower, but Lender shall retain all rights and powers hereby
given with respect to property not so transferred, sold or assigned.
DISCLOSURE CONSENT. By signing this Note, Borrower agrees that Lender may
disclose financial information to other Farm Credit System institutions.
Borrower further authorizes Lender to make credit inquiries, verify credit,
verify employment, and to obtain credit agency reports regarding Borrower.
INCORPORAT1ON BY REFERENCE. This Note Includes all amendments, supplements and
modifications to it; and also incorporates by reference the terms of all
assignments, instruments, documents, other writings or written agreements
between Borrower and Lender, including without limitation, applications, loan
commitments, notes and security documents.
APPLICABLE LAW. Enforcement of this Note, security agreement and any other
document executed in connection herewith shall be governed by and construed in
accordance with federal laws to the extent applicable, and shall otherwise be
governed by the laws of the state specified on page one of this Note,
immediately above the first paragraph.
TRANSACTION SUMMARY. All disbursements and repayments of Indebtedness shall be
posted on Lender's accounting records. Periodically, Lender shall send Borrower
a transaction summary or a similar loan accounting. If Borrower falls to object
to the accounting in writing within 30 days of its mailing by Lender, Borrower
shall have waived any right to object to the accuracy of the accounting and the
accounting may be admitted into evidence by Lender for the purpose of
establishing the balance due Lender in any legal proceeding arising between the
parties.
SPECIFIC WAIVERS OF EACH BORROWER. The indebtedness of each Borrower is
independent of the indebtedness of all other Borrowers. Each Borrower expressly
waives any right to require Lender to proceed against any other Borrower, to
proceed against or exhaust any collateral, to pursue any remedy Lender may have
at any time, and the benefit of any statute of limitations affecting its
liability under this Note or any other loan document. Each Borrower waives any
and all defenses by reason of (a) any disability or other defense of any other
Borrower with respect to the indebtedness owed to Lender, (b) the termination
for any reason whatsoever of the liability of any other Borrower, (c) any act or
omission of Lender that directly or indirectly results in or aids the discharge
or release of any other Borrower, any guarantor, or any security provided by any
Borrower or guarantor, (d) the failure by Lender to perfect any security
interest or lien on any collateral, and (e) an election of remedies by the
Lender, even though that election of remedies, such as a nonjudicial foreclosure
with respect to security for this Note, has destroyed the Borrower's rights of
subrogation, contribution, reimbursement, indemnity, setoff or other recourse
against another Borrower by the operation of Section 580d of the California Code
of Civil Procedure or otherwise.
Each Borrower agrees that Lender may at any time, without notice, release all or
any part of the security for this Note (including all or any part of the
premises covered by any referenced mortgage or deed of trust), grant extensions,
change terms of payment, deferments, renewals or reamortizations of any part of
the debt evidenced by this Note, and release from personal liability any one or
more of the parties who are or may become liable for this debt; all without
affecting the personal liability of any other party. The Borrower and endorsers
of this Note also severally waive any and all other defense or right of offset
against the holder hereof. No Borrower shall have any right of subrogation,
contribution, reimbursement, indemnity, set off, or other recourse and waives
the benefit of, or any right to participate in, any collateral until such time
as all of the obligations owed by Borrower to Lender under this Note shall have
been paid in full. Each Borrower, to the extent it may lawfully do so, waives
any defense under California anti-deficiency statutes, or comparable provisions
of the laws of any other state to the recovery of a deficiency after a
foreclosure sale of any real property.
Each Borrower represents and warrants to Lender that it has established adequate
means of obtaining from each other Borrower, on a continuing basis, information
pertaining to the businesses, operations and conditions (financial or otherwise)
of each other Borrower and its properties, and each Borrower now is and will be
familiar with the businesses, operations and conditions (financial or otherwise)
of each other Borrower and its properties. Each Borrower waives and relinquishes
any duty on the part of Lender (if such duty exists) to disclose to any Borrower
any matter, fact or thing related to the businesses, operations, or conditions
(financial or otherwise) of any other Borrower or its properties. Without
limiting the generality of the foregoing, each Borrower waives any defenses or
rights arising under or of the kind described in California Civil Code sections
2795, 2808, 2809, 2810, 2815, 2819 through 2825 (inclusive), 2832, 2839, and
2845 through 2850 (inclusive) and similar laws in other jurisdictions.
<PAGE>
The unenforceability or invalidity of any provision of this Note shall not
render any other provision contained herein unenforceable or invalid.
The liability of each Borrower executing this Note shall be that of co-maker and
not that of an endorser, accommodation party or guarantor. The separate property
of any married person executing this Note shall be liable for the indebtedness
evidenced hereby.
[ ] This Note is a renewal and is executed, delivered, and accepted, not in
payment of, but for the purpose of renewing the unpaid balances in the following
described Note(s): _____________________________________________________________
================================================================================
and also evidences an additional advance of $__________________.
The representatives of Lender are not authorized to make any oral agreements or
assurances. Do not sign this Note if you believe that there are any agreements
or understandings between you and Lender that are not set forth in writing in
this Note or the other loan documents.
BY SIGNING, BORROWER ACKNOWLEDGES THAT BORROWER HAS READ AND AGREES TO THE TERMS
OF THIS NOTE AND HAS RECEIVED A COMPLETED COPY OF THIS NOTE AND THE RELATED
MORTGAGE, DEED OF TRUST OR OTHER SECURITY DOCUMENTS WITH ALL APPLICABLE BLANKS
FILLED IN PRIOR TO OR AS A PART OF THE CONSUMMATION OF THIS TRANSACTION.
Ravenswood Winery, Inc.
By: /s/ W. REED FOSTER
-------------------------------------------------
W. Reed Foster, Chairman Of The Board
By: /s/ JOEL E. PETERSON
-------------------------------------------------
Joel E. Peterson, President
INDORSEMENT - The within Note is hereby indorsed by the payee named in the body
of said Note as if the name of the payee were actually executed under this
indorsement.
PAY TO THE ORDER OF WESTERN FARM CREDIT BANK, Sacramento, California
<PAGE>
INTEREST RATE DISCLOSURE STATEMENT
DATE: April 01, 1998 LOAN/CUSTOMER NO.: 0005092841 LOAN NO.: 1
-----
From LENDER: Pacific Coast Farm Credit Services, ACA
Address: P. 0. Box 949, Petaluma, CA 94952
To BORROWER(s): Ravenswood Winery, Inc.
The following disclosure is made by Pacific Coast Farm Credit Services, ACA
(hereinafter "Lender") in accordance with Section 4.13(a) of the Farm Credit Act
of 1971, as amended, 12 U.S.C. Section 2199. This loan is not subject to the
Truth-in-Lending Act, 15 U.S.C. Sections 1601 et seq.; the effective interest
rate described herein should not be interpreted as the equivalent of the annual
percentage rate under Truth-in-Lending standards.
- ----------------------------------- -----------------------------------------
STATED INTEREST RATE EFFECTIVE INTEREST RATE
The rate of interest currently The stated rate of interest adjusted to
applicable to your loan* take into account the purchase of stock
and loan origination charges, if any
8.81%
8.81%
- ----------------------------------- -----------------------------------------
*Except for the stock portion of your loan which is held in a separate variable
rate account (Loan "9" on your Member Summary) and is at n/a%. (This applies to
certain ACAs/PCAs only.)
REPRESENTATIVE EXAMPLE: The effective interest rate set forth above is based on
stock or participation certificates of $1,000.00 and loan origination charges of
$ 0.00. The effective interest rate is the interest rate applicable to a loan
which takes into consideration the amount of any stock or participation
certificates which the borrower must purchase pursuant to bylaw, policy or
regulation in order to obtain the loan, and any loan origination charges. It is
an estimate at a point in time, and over the life of the loan may be affected by
such factors as changes in loan provisions, method of stock retirement, the
amount of stock or participation certificates required, the timing of repayment
or change in the stated rate. For example, if the stated interest rate and the
loan origination charges for this loan were the same as set forth above, but the
amount of stock or participation certificates required to be held is increased
by 1.0%, the effective interest rate would be 8.90%.
LOAN OPTIONS: Lender offers the following types of loans:
( ) Short and Intermediate-term Loans: Loans for production, operational or
harvest needs, with a maturity of one year or less; loans for capital
purposes with a maturity up to seven years; and subject to special
eligibility requirements, Special 10-year IT or 15-year Aquatic loans.
( ) Long-term Loans: Loans with maturities from five to forty years, secured by
a first lien on eligible real property, to an eligible agricultural
borrower, and subject to certain eligibility requirements and loan purpose
restrictions, loans to processing and marketing facilities, farm-related
businesses, or rural residents.
(x) Short, Intermediate and Long-term Loans: Loans for production, operational
or harvest needs or for capital purposes with maturities not more than ten
years (fifteen years for Aquatic loans); loans from ten to forty years,
secured by a first lien on eligible real property, to an eligible
agricultural borrower, and subject to certain eligibility requirements and
loan purpose restrictions, loans to processing and marketing facilities,
farm-related businesses, or rural residents.
STOCK REQUIREMENT: Applicant was previously provided with information concerning
stock investment with this Farm Credit System institution. Such information
included disclosure of the at-risk nature of the investment, namely, that except
with respect to eligible borrower stock under Section 4.9A of the Farm Credit
Act of 1971, as amended, stock that is purchased in this institution is at-risk.
THE LOAN DOCUMENTS CONTAIN SPECIFIC INFORMATION REGARDING THE TERMS AND
CONDITIONS OF YOUR LOAN. IF YOU HAVE ANY QUESTIONS CONCERNING THE INFORMATION
CONTAINED IN THIS STATEMENT, PLEASE CONTACT YOUR LOAN OFFICER.
<PAGE>
TYPE OF RATE:
(x) This is a VARIABLE RATE LOAN. During the term of the loan, the stated
rate of interest is subject to change:
( ) Every 6 months, 1, 3, 5, 7, 10, 15 or 20 year(s) ("Repricing
Periods" which period Borrower selects) and by any amount. You
may change to a different Repricing Period, offered by Lender
under its Repricing Mortgage plan at that time, at any Change
Date (date that the interest rate can change), without
incurring a penalty.
( ) Every [( ) 5 years] or [( ) 10 years] and by any amount. You
will be notified at least 45 days in advance of a change in
the interest rate.
(x) At any time and by any amount. You will be notified of changes
in the interest rate within the then applicable laws.
Exception: Commercial Fixed Interest Rate Repricing: Should a
qualified borrower be approved to have interest accrue on this
loan at a fixed rate under the Lender's Fixed Rate Pricing
Program, the principal amount and the rate will be fixed as
stated for the duration set forth in your conversion
agreement, confirmation notice, or similar documents which
will also disclose the new interest rate and the effective
date.
Lender has a differential interest rate program. Borrower's assignment
to the rate group for these loans are based upon an evaluation of a
combination of factors including Borrower's credit quality, quality of
the collateral and costs of servicing the loan.
In adjusting variable rate loans, certain standard factors are
considered including changes in costs of funds, operating expenses,
earnings requirements to meet certain capital objectives, credit risk
factors and the competitive environment. These standard factors may
change during the term of the loan.
( ) This is an ADJUSTABLE RATE LOAN. The stated rate of interest is
subject to change during the life of the loan. The interest rate on the
loan may be changed every ____ months (adjustment period).
Periodic Adjustment Cap. The rate may not increase or decrease
more than ____% at each adjustment period. Lifetime Cap/Floor.
Over the life of the loan the rate may not increase or
decrease more than ____% over/under the initial interest rate.
The new rate for this loan will be calculated as follows: 45 days prior
to the loan's Change Date (the day the interest rate can change),
Lender adds the Notes margin to the index and applies the above
Periodic Adjustment and Lifetime Cap/Floor.
( ) This is a FIXED INTEREST RATE LOAN. The stated rate of interest on the
full amount of the loan is not subject to change during the life of the
loan.
( ) This is a PRIME RATE LOAN. The stated rate of interest is subject to
change during the life of the loan at any time the prime rate as
published in the Wall Street Journal is increased or decreased and by
any amount said prime rate increases or decreases ( ) plus ( ) minus
____ percent per annum above/below prime. On any installment promissory
note transaction, the loan's may increase or decrease each year.
( ) This is a LIBOR RATE LOAN. The stated rate of interest is subject to
change during the life of the loan each mouth that the LIBOR rate as
published in the Wall Street Journal is increased or decreased and by
any amount said LIBOR rate increases or decreases ( ) plus ( ) minus
____ percent per annum ("margin") above/below said LIBOR rate. On any
installment promissory note transaction, the loan's margin may increase
or decrease each year.
If you have questions about the interest rate charged for your loan, you have
the right to request a review of the loan to determine that the proper interest
rate has been assigned, and you are entitled to a written explanation of the
basis for the interest rate charged and how the Borrower's status may be
improved to receive a lower rate. 12 U.S.C. Section 2199.
BORROWER RIGHTS: This loan is subject to the borrower rights generally described
below and more fully as set forth in the Farm Credit Act of 1971, as amended, 12
U.S.C. Section 2199, et. seq.:
Access to Documents (Section 2200). At loan closing, Borrower (or
Borrower's agent, if applicable) shall receive copies of loan documents
signed by Borrower. Upon request thereafter, Borrower is entitled to:
(1) copies of all documents signed or delivered to Borrower; and (2)
copies of Lender's charter and bylaws.
Notice of Action on Application (Section 2201). Lender shall provide
prompt written notice of action taken on loan and restructure
applications.
Credit Review Committee/Restructuring Loans (Sections 2202 and
2202a-c). Borrower is entitled to the right to seek restructuring of
certain distressed loans and a right to a review of certain adverse
decisions by a Credit Review Committee all as more fully set forth in
Lender's Distressed Loan Restructuring Policy, which policy is
available upon request.
Miscellaneous (Sections 2202d, e). If Borrower has made all accrued
payments of principal, interest and penalties, Lender may not foreclose
because Borrower has failed to post additional collateral. Lender may
not require a reduction in outstanding principal balance which exceeds
regularly scheduled principal installment except in certain
circumstances. If Borrower pays all accrued payments, including
penalties, Lender may not accelerate loan based solely on Borrower's
untimely payments. Lender may not require a Borrower who has pledged
agricultural property to waive any state mediation rights.
Right of First Refusal (Section 2219a). When the Lender first elects to
sell or lease agricultural real property acquired by Lender which was
previously owned by Borrower, the Lender must first notify the Borrower
of his/her right to purchase or lease the property as set forth in the
Act.
Exhibit 10.5
REVOLVING EQUITY LINE OF CREDIT
PROMISSORY NOTE AND LOAN AGREEMENT
Loan Number 0425985800
April 08, 1998 Petaluma, California
1. PROMISE TO PAY.
FOR VALUE RECEIVED, the undersigned ("Borrower", whether one or more)
jointly and severally Promises to pay to the order of Pacific Coast Farm Credit
Services, ACA ("Lender") a corporation organized and existing under the laws of
the United States of America, at its principal office at Windsor, California or
at such other place as may be designated in writing by Lender, the principal sum
of Eight Hundred Thirty Five Thousand and no/100 dollars ($ 835,000.00) ,
including capital stock or participation certificates ("Maximum Loan Amount"),
or so much of that sum as may be advanced or re-advanced by Lender under this
Revolving Equity Line of Credit Promissory Note and Loan Agreement ("Note"),
with interest on the unpaid principal balance.
2. REVOLVING LINE OF CREDIT.
A. Lender shall make available to Borrower a revolving line of credit in a
principal amount not to exceed at any one time the Maximum Loan Amount.
Subject to the terms and conditions of this Note, as amounts borrowed
hereunder are repaid during the Draw Period as defined below, they may
be reborrowed. Borrower shall purchase capital stock or participation
certificates in the amount required by Lender's bylaws, which are
subject to change.
B. Until December 01, 1999 ("Draw Period"), Borrower may draw amounts
hereunder, subject to the terms and conditions of this Note. The Draw
Period may be terminated by Borrower at any time by written notice to
Lender. Subject to the terms and conditions of this Note, and provided
Borrower is not in default under paragraph 6 of this Note, Lender shall
make advances to Borrower upon request. If such an event of default
occurs, one of Lender's remedies includes Lender's right to terminate
Borrower's right to make draws. Such termination may be with or without
notice to Borrower.
C. Draws must be in increments of not less than One Thousand and no/100
dollars ($1,000.00), or the remaining amount available under the Note,
whichever is less. All draws requested hereunder by Borrower shall be
drawn in accordance with procedures established by Lender.
3. REPAYMENT.
A. Principal And Interest Shall Be Payable To Lender As Follows:
(x) 1. During the Draw Period:
(x) Interest Only: During the Draw Period, Borrower shall pay on
June 01, 1998 and every three months thereafter, all
interest then accrued during the billing period based on the
daily principal balance.
( ) [Loan Matures at End of Draw Period:] on
______________ ("Maturity Date") Borrower shall pay
the entire unpaid principal sum together with all
interest accrued thereon.
( ) Principal Reduction and Interest: Beginning on _____________
and on that date each year thereafter during the Draw
Period, the Maximum Loan Amount shall each be reduced by
-------------------- --------------------------------------
dollars ($_________) ["Adjustment Amount"]. If, after
reducing the Maximum Loan Amount, the outstanding principal
balance
<PAGE>
exceeds the reduced Maximum Loan Amount, Borrower shall pay
the difference within thirty days of written request by
Lender. Borrower shall also pay on ___________ and every
____________ thereafter, all interest then accrued during
the billing period based on the daily principal balance.
( ) [Loan Matures at End of Draw Period:] On _________
("Maturity Date") Borrower shall pay the entire
unpaid principal sum together with all interest
accrued thereon.
(x) 2. During the Amortized Balance Period:
a. Provided the Borrower is not then in default and
there is no event which with the passage of time
would become an event of default under the terms of
this Note, then on the first day after the end of the
Draw Period, the outstanding principal balance then
due ("Amortized Balance") shall be fully amortized in
accordance with the terms hereof over the remaining
term of the Note ("Amortized Balance Period").
Provided Borrower is current on all scheduled
payments due under the Draw Period, any interest
accrued and unpaid since the last scheduled payment
under the Draw Period shall be added to the first
installment due under the Amortized Balance Period.
b. Borrower shall make equally amortized payments of
principal and interest based on the Amortized Balance
beginning on March 01, 2000 and every three months
until December 01, 2024 ("Maturity Date") at which
time the entire remaining principal balance, together
with all accrued interest and all other obligations
evidenced by this Note shall be fully due and
payable.
( ) 3. Repayment Per Attached Schedule:
a. Borrower shall make interest and principal
payments during the Draw Period, and the
Amortized Balance Period if applicable, per
the attached Repayment Schedule.
B. Repayment Upon Early Termination.
1. If Borrower terminates the Draw Period, the
obligation evidenced by this Note shall be equally
amortized over the remaining term of the Note based
on the repayment frequency for principal payments
specified in Paragraphs 3(A)(2)(b), or if none, then
based on the interest only payment frequency
specified in Paragraph 3(A)(1).
2. If Lender elects not to accelerate the loan in
conjunction with the termination of the Draw Period
in the event of a default, then if the loan
originally provided for an Amortized Balance Period
under Paragraph 3(A)(2), the outstanding obligation
shall be immediately equally amortized over the
remaining term of the Note based on the repayment
frequency for payments specified in Paragraph
3(A)(2). If the loan originally provided for the loan
to mature at the end of the Draw Period, interest
only payments shall continue until the Maturity Date
specified in Paragraph 3(A).
3. The terms of Paragraph 3(C)(1) shall also apply to
any early amortization of the Note.
C. Additional Terms of Repayment. Borrower shall also be subject to the
following terms for repayment:
1. The amount of the installments shall be increased or
decreased to reflect any increase or decrease in the
interest rate described in Paragraph 4 below. Any
payment received by Lender after Lender has closed
its books for the day will be applied on the
subsequent business day.
2. Provided Borrower is not in default under this Note,
Borrower has the right to make payments in advance of
the scheduled payment dates. Such an advance payment
is referred to as "prepayment". If Borrower, in
making a prepayment, intends the prepayment to be
applied to reduce the principal balance of the Note,
Borrower must so inform Lender in writing
accompanying the prepayment. Absent such a writing,
or unless agreed to in writing otherwise, Lender may
apply all payments, including regular installments,
received from or on behalf of Borrower and all
proceeds of real or personal property collateral to
principal, interest or any part of the indebtedness
as defined in the deed of trust, mortgage or security
agreement as Lender, in its sole discretion, may
choose. Borrower may make a full prepayment or
partial prepayment without paying a prepayment fee.
If Borrower makes a partial prepayment, there will be
no delays in the due dates of Borrower's installment
payments unless Lender agrees in writing to those
delays. Unless Borrower and Lender agree otherwise,
Lender at its sole discretion may reamortize the Note
on the basis of the new principal balance; otherwise,
the making of a prepayment will operate only to
discharge the Note at an earlier date.
<PAGE>
4. INTEREST.
A. Initial Interest Rate. The rate of interest applicable to the Note is a
variable interest rate and shall change in accordance with Paragraphs
4(B) through (D) below. Interest shall accrue at the variable interest
rate as established by Lender for the interest rate group to which this
Note is assigned. The initial interest rate that will be charged
commencing on the date Lender disburses principal is 7.60% per annum.
Interest will be charged on that part of outstanding principal which
has not been paid and shall be calculated on the basis of a 360-day
year and a 30-day month. During the Draw Period interest shall be
calculated daily on this basis. Interest charged hereunder, including
any accelerated interest rate described in Section 6 below, shall not
be limited by the laws of any state relating to a legal rate or other
rate of interest, but shall be governed solely by applicable federal
laws.
B. Change in Interest Rate and Interest Rate Group. The interest rate
applicable to this Note may be adjusted automatically as of the first
day of any month to the rate then made applicable to the Note's
assigned interest rate group under the provisions of Lender's variable
interest rate plan in effect at that time. In adjusting the rate,
Lender considers certain standard factors set forth in the plan,
including but not limited to, changes in its costs of funds, operating
expenses, earnings requirements to meet certain capital objectives,
credit risk factors, and the competitive environment, which factors may
change during the term of the loan. Upon any adjustment to the rate of
interest, the installments of principal and/or interest due hereunder
shall be increased or decreased so that the indebtedness will be repaid
within the original loan term. Borrower understands and agrees that (1)
the interest rate group to which this Note is assigned may be changed
at any time to any other interest rate group based on Lender's
evaluation of the change in Borrower's credit quality, quality of
collateral, costs of servicing the loan, and other factors which are
set forth in Lender's interest rate plan in effect at that time; and
(2) the interest rate group shall be automatically adjusted to the
highest interest rate group if a default or event of default shall
occur under this Note or under any other note or agreement between
Borrower and Lender.
C. Notice. If Lender changes Borrower's interest rate, Lender will give
Borrower notice of the change in rate as required by the then
applicable law.
D. Conversion Option. Provided Borrower is not in default, Borrower shall
have the option to convert at the end of the Draw Period from the
variable interest rate to any other interest rate program Lender may
offer for loans in amount and terms similar to Borrower's. Such
conversion is subject to approval by Lender and payment of all
applicable fees, charges and accrued interest.
5. LATE CHARGES FOR OVERDUE PAYMENTS.
If Lender has not received the full amount of any installment by the end of the
fifteenth calendar day after the date it is due, a late charge shall be imposed.
The amount of the charge will be 5.00 percent of the overdue installment with a
minimum charge of $25.00. Borrower will pay this late charge promptly but only
once for each overdue installment.
6. DEFAULT.
Borrower is in default of this Note under the following circumstances: (a)
Borrower fails to pay principal or interest as set forth in this Note; (b)
Borrower breaches any term, condition or representation in this Note or in any
document in connection with this Note or in connection with any other loan of
this Lender, or any other lender; (c) If any of Borrower's representations to
this, or any other lender in connection with any loan prove to be materially
false or misleading; (d) Lender determines that Borrower is unable to repay the
sums owed Lender under this Note as agreed or Lender in good faith otherwise
deems itself insecure; (e) If, in Lender's reasonable determination, there shall
occur any material adverse change in the financial condition of Borrower or in
the value of the collateral; (f) Borrower's death, dissolution, incapacity or
termination of existence; (g) Borrower's insolvency, business failure,
application for or consent to appointment of a receiver/custodian or trustee for
itself or any of its assets, assignment to an agent authorized to liquidate any
substantial amount of assets, assignment for the benefit of creditors by, or
commencement of any proceeding under any bankruptcy or insolvency law by or
against Borrower, or any guarantor, endorser, or surety for Borrower; (h) Any
judgment, writ, levy, lien, attachment, notice of tax lien, tax lien, or similar
process shall be entered or filed against Borrower or any guarantor or any of
Borrower's or any of guarantor's properties and is not vacated, bonded or stayed
to the satisfaction of Lender; (i) An event of default shall occur under any
guaranty given to Lender as security for this Note, or any guarantor shall
purport to terminate, repudiate or contest any such guaranty; any guarantor who
is a natural person shall die; or any guarantor that is not a natural person
shall be dissolved or terminated; (j) Borrower sells, leases, conveys,
alienates, or transfers, or enters into any agreement for the sale, lease,
conveyance, alienation, transfer or nonuse of any water or water right, or
similar term such as Water Asset, as may be defined in any deed of trust,
mortgage, security agreement or other agreement relating to the pledge of water
or water rights.
<PAGE>
A. Remedies. If an event of default shall occur, Lender shall have all
rights, powers and remedies available under this Note or any other loan
document, or agreement, or accorded by law or at equity, including the
right to suspend or terminate the right of Borrower to make draws
hereunder, to foreclose on any and all collateral and to exercise any
or all of the rights of a mortgagee, trust deed beneficiary, or secured
party pursuant to applicable law. All rights, powers, and remedies of
Lender may be exercised at any time by Lender and from time to time
after the occurrence of an event of default. All rights, powers, and
remedies of Lender in connection with this Note and any loan document
are cumulative and not exclusive and shall be in addition to any other
rights, powers, or remedies provided by law or equity. Lender may
enforce any security interest or lien given or provided for under this
Note or any other document in such manner and in such order, as to all
or any part of the collateral as Lender, in its sole judgment, deems to
be necessary or appropriate, and Borrower, to the extent Borrower can,
waives any and all rights, obligations, or defenses now or hereafter
established by law relating to the foregoing. The mortgage, deed of
trust or security agreement provides that advances made by Lender shall
become a part of the principal evidenced by this Note, and also states
additional conditions under which the entire Note may be accelerated
and become immediately due and payable and will be subject to interest
and acceleration interest.
B. Acceleration and Interest Upon Acceleration. On Borrower's default, and
at Lender's option, all unpaid principal, including amounts advanced
for taxes, insurance, and other expenses provided herein, accrued
unpaid interest and amounts charged in Section 5, shall become
immediately due and payable without presentment, demand, notice of
non-payment, or protest. Interest on said accelerated amount shall be
4.00% per annum above the interest rate in effect at the time as stated
in Section 4(A)-(D) above.
C. Waiver. Any delay, failure or discontinuance of Lender in exercising
any right or remedy shall not waive that right or remedy or any other
right or remedy. Any explicit waiver of default by Lender must be in
writing and signed by Lender. No waiver of default by Lender shall
operate as a waiver of any other default or of the same default on a
future occasion.
7. USE OF FUNDS.
Borrower represents and warrants that any funds drawn hereunder will be used
primarily for business or agricultural purposes and not for personal, family, or
household purposes. Borrower understands and acknowledges that Lender has relied
on this representation in establishing this revolving line of credit in favor of
Borrower and will rely on this representation in making any advance under this
Note.
8. APPOINTMENT OF AGENT.
Borrower hereby appoints Callie Konno or Justin Faggioli ("Agent") to draw loan
funds under this Note during the Draw Period. Lender, at its sole option, may
require that all requests for loan funds be in writing, signed by Agent, in a
form acceptable to Lender. If oral requests for loan funds are permitted,
Lender's records shall be conclusive evidence of such requests for loan funds.
Facsimile documents may be accepted by Lender as originals. Any draw by Agent
constitutes an ongoing representation and warranty by Borrower that there is not
at the time of request or payment of any draw, any event of default pending
under the Note or any deed of trust or mortgage securing the Note, and that
title to any such security has not been transferred.
Draws shall be paid according to Agent's instructions, except that checks
representing loan funds shall always be made payable to at least one Borrower
and wire transfers shall only be permitted if Borrower has authorized the
account into which the funds are to be deposited. The appointment of the
above-named Agent pursuant to this paragraph shall remain in full force and
effect until written notice of revocation of appointment signed by any one of
the undersigned has been received by Lender. Upon receipt of such written
revocation, until a new agent is appointed in writing by Borrower, draw requests
submitted with less than all the Borrowers' signatures shall be made payable to
all Borrowers.
Borrower shall indemnify and hold Lender harmless from loss or liability of any
kind arising from or related to any action or inaction taken by Lender in good
faith in reliance on this appointment or any instructions from the Agent or
Borrower pursuant to this provision.
STANDARD CONDITIONS
While this Note is in effect Borrower will: (1) at Lender's request, furnish
information to Lender relating to Borrower's business and financial affairs and
permit Lender to examine Borrower's books and records; (2) maintain all other
loans with Lender in a current status; (3) allow Lender to inspect and appraise
Lender's collateral; (4) promptly notify Lender of any potential material
adverse change in financial condition or notify Lender in writing of any
possible default under this Note or any other loan agreement with Lender or with
any other lender or of any event which would become an event of default upon the
lapse of time or the giving of notice or both; (5) execute all other documents
as Lender may lawfully require in connection with this Note; and (6) comply with
all terms and conditions of all other documents executed in connection with this
Note.
<PAGE>
TRANSFER BY LENDER. Lender may sell, transfer or assign this Note or any portion
thereof, and deliver to the transferee(s) ("Noteholder") all or any portion of
the property then held by it as security hereunder, and the Noteholder shall
thereupon become vested with all the power and rights herein given to Lender
with respect thereto and at such time the term "Lender" as herein used shall be
deemed to mean and include the "Noteholder"; and Lender shall thereafter be
forever relieved and fully discharged from any and all liability or
responsibility to Borrower, but Lender shall retain all rights and powers hereby
given with respect to property not so transferred, sold or assigned.
FINANCIAL REPORTS. Borrower shall furnish Lender as soon as possible, but in no
event later than 120 days after each fiscal year, financial reports for each of
the undersigned, including a balance sheet and a profit and loss statement.
FEES AND CHARGES OF ATTORNEYS AND OTHERS. In the event that Lender employs
attorneys, accountants, appraisers, consultants, or other professional
assistance, including the services of any such person who is a direct employee
of Lender, in connection with any of the following, then, the reasonable amount
of costs, expenses and fees incurred by Lender shall be payable on demand.
Lender may, at its option, add the amount of such costs, expenses and reasonable
fees to the principal amount of the loan and an appropriate amount of capital
stock or participation certificates as required by Lender's bylaws and Farm
Credit Administration ("FCA") regulations. Lender thereafter may charge interest
on such amount at the interest rate then applicable to the principal.
Costs, expenses and reasonable fees of professionals covered by this provision
include such charges for the following:
(A) The preparation, modification, or renewal of this Note, or any security
agreement, deed of trust, or mortgage ("Security Instrument"), or any
other documentation incident to the loan transaction;
(B) Advising Lender subsequent to the initial disbursement of loan proceeds
concerning its legal rights and obligations with regard to the Note or
security given for the Note, including advising Lender with regard to
Borrower's exercise of any rights under the provisions of the Farm
Credit Act, as amended, FCA regulations, any policy or program of
Lender, or any state or federal law or regulation and bankruptcy laws
and rules;
(C) Any litigation, dispute, proceeding or action, whether instituted by
Lender, Borrower, or any other person, relating to the Note, security
given for the Note, or Borrower's affairs, including representation of
Lender in any bankruptcy, insolvency, or reorganization case or
proceeding instituted by or against Borrower, and any attempt by Lender
to enforce any rights against Borrower;
(D) In the event of any controversy, claim or dispute relating to the Note,
security given for the Note, any Security Instrument or other
agreements between Borrower and Lender, including but not limited to
any action to construe or enforce the terms of the loan obligations and
security agreements, the prevailing party shall be entitled to recover
its reasonable costs, expenses, and reasonable attorney fees;
(E) In the event of bankruptcy or insolvency proceedings (whether state or
federal) instituted by or against Borrower or third parties with whom
Borrower has entered contractual relationships, the Lender may recover
all costs, expenses and reasonable attorney fees incurred to protect or
defend Lender's right under the Note, any Security Instrument and other
documents underlying the loan transactions whether such costs,
expenses, and attorney fees be contractual or bankruptcy related,
including costs, expenses, and attorney fees for meetings, sessions,
matters, proceedings and litigation involving issues solely distinct to
federal bankruptcy law, rules and proceedings as well as other federal
and state litigation and proceedings;
(F) The inspection, verification, protection, collection, processing, sale,
liquidation, or disposition of security given for the Note;
(G) The cost of any appraisal or collateral evaluation of all or any part
of the real property security, which Lender may from time to time
obtain as part of Lender's reasonable administration of the Note;
(H) Any of the type of expenses referred to in (A) through (G) above
incurred by Lender in connection with any guaranty of the Note.
<PAGE>
TRANSACTION SUMMARY. All disbursements and repayments of indebtedness shall be
posted on Lender's accounting records. Periodically, Lender shall send Borrower
a transaction summary or a similar loan accounting. If Borrower fails to object
to the accounting in writing within 30 days of its mailing by Lender, Borrower
shall have waived any right to object to the accuracy of the accounting and the
accounting may be admitted into evidence by Lender for the purpose of
establishing the balance due Lender in any legal proceeding arising between the
parties.
NOTICES. Borrower shall promptly give written notice to Lender of: (a) any
enforcement action brought against Borrower by any governmental regulatory body
or law enforcement authority or any dispute between Borrower and any such
authority or body; (b) any pending or threatened litigation or court proceeding
brought against Borrower; (c) the death or disability of any Borrower or
guarantor; (d) any material adverse change in Borrower's financial condition;
and (e) the occurrence of any event of default or any event that with a lapse of
time or the giving of notice or both would become an event of default.
LOAN CHARGES. If a law, which applies to this Note and which sets maximum loan
charges, is finally interpreted so that the interest or other loan charges
collected or to be collected in connection with this Note exceed the permitted
limits, then: (a) any such loan charge shall be reduced by the amount necessary
to reduce the charge to the permitted limit; and (b) any sums already collected
which exceeded permitted limits will be refunded to Borrower, without interest
thereon. Lender may choose to make this refund by reducing the principal
Borrower owes under this Note or by making a direct payment to Borrower. If a
refund reduces principal, the reduction will be treated as a partial prepayment.
DISCLOSURE AND INQUIRIES. By signing this Note, Borrower agrees that Lender may
disclose financial information to other Farm Credit System institutions.
Borrower further authorizes Lender from time to time, to make such inquiries and
gather such information as Lender deems necessary and reasonable to administer
the Note. Lender is also authorized from time to time to make credit inquiries,
verify credit, verify employment, and obtain credit agency reports regarding
Borrower or any spouse of Borrower.
BORROWER'S GUARANTEES. By signing this Note, Borrower warrants that Borrower has
legal authority to enter into this transaction, that the terms and conditions of
this contract do not contravene the terms and conditions of any other
contract(s) of Borrower, that Borrower's representations in connection with this
loan are true and accurate, and that Borrower is not involved in, or has any
expectations of involvement in, any legal action that might impair Borrower's
financial condition or ability to continue business.
SEVERABILITY. In the event that one or more of the provisions of this Note or
any other loan documents should be deemed or held to be invalid, illegal,
unenforceable or against public policy in any respect, the validity, legality,
and enforceability of the remaining provisions shall not in anyway be affected
or impaired.
CAPTIONS. Captions used in this Note are inserted only as a matter of
convenience and for reference, and in no way define, limit or describe the scope
or intent of any term or provision.
APPLICABLE LAW. Enforcement of this Note, any Security Instrument, and any other
document executed in connection herewith shall be governed by and construed in
accordance with federal laws to the extent applicable, and shall otherwise be
governed by the laws of the state specified on page one of this Note,
immediately above Section 1.
INTEGRATION CLAUSE; AMENDMENTS MUST BE IN WRITING. This Note, any Security
Instrument and modifications thereof, executed by Lender and Borrower in
connection herewith, or as required by this Note, constitute the entire
agreement between Borrower and Lender and supersedes all prior negotiations,
communications, discussions, oral agreements, and promises concerning this loan.
The Note shall not include any loan application or any written correspondence
submitted by Borrower to Lender that has not been agreed to by Lender in
writing. To the extent that any of the terms or provisions contained in this
Note are inconsistent with those contained in any previous loan agreement or
security agreement or any other agreements executed prior to this Note, the
terms and provisions contained herein shall control. Otherwise, such provisions
shall be considered cumulative. This Note may be amended or modified only by a
written instrument executed by each party hereto.
<PAGE>
HAZARDOUS SUBSTANCE INDEMNITY. Borrower indemnifies and agrees to hold Lender
harmless from any losses or damages suffered by Lender that arise from the
release, threatened release, discharge, manufacture, use, storage,
transportation or presence of any hazardous substance in connection with the
business of Borrower or on any real property owned or occupied by Borrower,
whether pledged as security for this Note or not. The indemnity covers the
officers, directors, agents, and attorneys of Lender and extends to attorneys
fees and other costs and expenses incurred by Lender in connection with the
foregoing. The term "hazardous substance" shall mean any material or substance
which is now or hereafter considered "hazardous" or "toxic" or subject to any
other deleterious classification under any federal, state, or local law.
NOTWITHSTANDING ANY OTHER PROVISION OF THIS NOTE OR THE LOAN DOCUMENTS, THIS
INDEMNITY SHALL SURVIVE REPAYMENT OF THE INDEBTEDNESS.
OBLIGATIONS OF PERSONS UNDER THIS NOTE. The liability of each Borrower executing
this Note shall be that of co-maker and not that of an endorser, guarantor or
accommodation party and shall be joint and several. The separate property of any
married person executing this Note shall be liable for the indebtedness
evidenced hereby.
SPECIFIC WAIVERS OF EACH BORROWER. The indebtedness of each Borrower is
independent of the indebtedness of all other Borrowers. Each Borrower expressly
waives any right to require Lender to proceed against any other Borrower, to
proceed against or exhaust any collateral, to pursue any remedy Lender may have
at any time, and the benefit of any statute of limitations affecting its
liability under this Note or any other loan document. Each Borrower waives any
and all defenses by reason of (a) any disability or other defense of any other
Borrower with respect to the indebtedness owed to Lender, (b) the termination
for any reason whatsoever of the liability of any other Borrower, (c) any act or
omission of Lender that directly or indirectly results in or aids the discharge
or release of any other Borrower, any guarantor, or any security provided by any
Borrower or guarantor, (d) the failure by Lender to perfect any security
interest or lien on any collateral, and (e) an election of remedies by the
Lender, even though that election of remedies, such as a nonjudicial foreclosure
with respect to security for this Note, has destroyed the Borrower's rights of
subrogation, contribution, reimbursement, indemnity, set off, or other recourse
against another Borrower by the operation of Section 580d of the California Code
of Civil Procedure or otherwise.
Each Borrower agrees that Lender may at any time, without notice, release all or
any part of the security for this Note (including all or any part of the
premises covered by the referenced mortgage or deed of trust), grant extensions,
change terms of payment, deferments, renewals or reamortizations of any part of
the debt evidenced by this Note, and release from personal liability any one or
more of the parties who are or may become liable for this debt; all without
affecting the personal liability of any other party. The Borrower and endorsers
of this Note also severally waive any and all other defense or right of offset
against the holder hereof. No Borrower shall have any right of subrogation,
contribution, reimbursement, indemnity, set off, or other recourse and waives
the benefit of, or any right to participate in, any collateral until such time
as all of the obligations owed by Borrower to Lender under this Note shall have
been paid in full. Each Borrower, to the extent it may lawfully do so, waives
any defense under California anti-deficiency statutes, or comparable provisions
of the laws of any other state to the recovery of a deficiency after a
foreclosure sale of such property.
Each Borrower represents and warrants to Lender that it has established adequate
means of obtaining from each other Borrower, on a continuing basis, information
pertaining to the businesses, operations and conditions (financial or otherwise)
of each other Borrower and its properties, and each Borrower now is and will be
familiar with the businesses, operations and conditions (financial or otherwise)
of each other Borrower and its properties. Each Borrower waives and relinquishes
any duty on the part of Lender (if such duty exists) to disclose to any Borrower
any matter, fact or thing related to the businesses, operations, or conditions
(financial or otherwise) of any other Borrower or its properties. Without
limiting the generality of the foregoing, each Borrower waives any defenses or
rights arising under or of the kind described in California Civil Code sections
2795, 2808, 2809, 2810, 2815, 2819 through 2825 (inclusive), 2832, 2839, and
2845 through 2850 (inclusive) and similar laws in other jurisdictions.
UNIFORM SECURED NOTE. This Note is a uniform instrument with limited variations
in some jurisdictions. In addition to the protections given to Lender under this
Note, the Security Instrument securing this Note protects Lender from possible
losses which might result if Borrower does not keep the promises made in this
Note. That Security Instrument describes how and under what conditions Borrower
may be required to make immediate payment in full of all amounts owed under this
Note. One of those conditions relates to any transfer of the property covered by
the deed of trust, which provides as follows:
<PAGE>
10. (a) In the event the herein-described Property, or any part
thereof, or any interest therein, is sold, agreed to be sold, conveyed,
alienated or further encumbered or transferred, including any water
transfer as defined in subsection (b) below, by Trustor, or by
operation of law or otherwise, without Beneficiary's prior written
consent, all Indebtedness, irrespective of the maturity dates, at the
option of the holder hereof, and without demand or notice, shall
immediately become due and payable. Failure to exercise such option
shall not constitute a waiver of the right to exercise this option in
the event of subsequent sale, agreement to sell, conveyance or
alienation.
(b) A water transfer is any transfer, assignment, sale,
agreement to sell, conveyance, exchange, gift, encumbrance, pledge,
hypothecation, alienation, grant of option to purchase, or other
disposition of, directly, indirectly or in trust, voluntarily or
involuntarily, by operation of law or otherwise, or the entry into a
binding agreement to do any of the foregoing with respect to all or any
part of any existing or hereafter created or acquired Water Assets.
The representatives of Lender are not authorized to make any oral agreements or
assurances. Do not sign this Note if you believe that there are any agreements
or understandings between you and Lender that are not set forth in writing in
this Note or the other loan documents.
BY SIGNING, BORROWER ACKNOWLEDGES THAT BORROWER HAS READ AND AGREES TO THE TERMS
OF THIS NOTE, INCLUDING THE STANDARD CONDITIONS, AND HAS RECEIVED A COMPLETED
COPY OF THIS NOTE AND THE RELATED MORTGAGE, DEED OF TRUST OR OTHER SECURITY
DOCUMENTS WITH ALL APPLICABLE BLANKS FILLED IN PRIOR TO OR AS A PART OF THE
CONSUMMATION OF THIS TRANSACTION.
This Note is secured by personal property liens and by a deed of trust dated
April 8, 1998 to be recorded in the official records of Sonoma County, State of
California.
Ravenswood Winery, Inc.
By: /s/ W. REED FOSTER
-----------------------------------------------
W. Reed Foster, Chairman Of The Board
By: /s/ JOEL E. PETERSON
-----------------------------------------------
Joel E. Peterson, President
INDORSEMENT - The within Note is hereby indorsed by the payee named in the body
of said Note as if the name of the payee were actually executed under the
indorsement.
PAY TO THE ORDER OF WESTERN FARM CREDIT BANK, Sacramento, California.
<PAGE>
INTEREST RATE DISCLOSURE STATEMENT
DATE: April 08, 1998 LOAN/CUSTOMER NO.: 0425985800 LOAN NO.:___________
From LENDER: Pacific Coast Farm Credit Services, ACA
Address: P. 0. Box 949, Petaluma, CA 94952
To BORROWER(s): Ravenswood Winery, Inc.
The following disclosure is made by Pacific Coast Farm Credit Services, ACA
(hereinafter "Lender") in accordance with Section 4.13(a) of the Farm Credit Act
of 1971, as amended, 12 U.S.C. Section 2199. This loan is not subject to the
Truth-in-Lending Act, 15 U.S.C. Sections 1601 et seq.; the effective interest
rate described herein should not be interpreted as the equivalent of the annual
percentage rate under Truth-in-Lending standards.
- ----------------------------------- ------------------------------------------
STATED INTEREST RATE EFFECTIVE INTEREST RATE
The rate of interest currently The stated rate of interest adjusted to
applicable to your loan* take into account the purchase of stock
and loan origination charges, if any
7.60%
7.80%
- ----------------------------------- ------------------------------------------
*Except for the stock portion of your loan which is held in a separate variable
rate account (Loan "9" on your Member Summary) and is at n/a%. (This applies to
certain ACAs/PCAs only.)
REPRESENTATIVE EXAMPLE: The effective interest rate set forth above is based on
stock or participation certificates of $1,000.00 and loan origination charges of
$ 20,000.00. The effective interest rate is the interest rate applicable to a
loan which takes into consideration the amount of any stock or participation
certificates which the borrower must purchase pursuant to bylaw, policy or
regulation in order to obtain the loan, and any loan origination charges. It is
an estimate at a point in time, and over the life of the loan may be affected by
such factors as changes in loan provisions, method of stock retirement, the
amount of stock or participation certificates required, the timing of repayment
or change in the stated rate. For example, if the stated interest rate and the
loan origination charges for this loan were the same as set forth above, but the
amount of stock or participation certificates required to be held is increased
by 1.0%, the effective interest rate would be 7.88%.
LOAN OPTIONS: Lender offers the following types of loans:
( ) Short and Intermediate-term Loans: Loans for production, operational or
harvest needs, with a maturity of one year or less; loans for capital
purposes with a maturity up to seven years; and subject to special
eligibility requirements, Special 10-year IT or 15-year Aquatic loans.
( ) Long-term Loans: Loans with maturities from five to forty years,
secured by a first lien on eligible real property, to an eligible
agricultural borrower, and subject to certain eligibility requirements
and loan purpose restrictions, loans to processing and marketing
facilities, farm-related businesses, or rural residents.
(x) Short, Intermediate and Long-term Loans: Loans for production,
operational or harvest needs or for capital purposes with maturities
not more than ten years (fifteen years for Aquatic loans); loans from
ten to forty years, secured by a first lien on eligible real property,
to an eligible agricultural borrower, and subject to certain
eligibility requirements and loan purpose restrictions, loans to
processing and marketing facilities, farm-related businesses, or rural
residents.
STOCK REQUIREMENT: Applicant was previously provided with information concerning
stock investment with this Farm Credit System institution. Such information
included disclosure of the at-risk nature of the investment, namely, that except
with respect to eligible borrower stock under Section 4.9A of the Farm Credit
Act of 1971, as amended, stock that is purchased in this institution is at-risk.
THE LOAN DOCUMENTS CONTAIN SPECIFIC INFORMATION REGARDING THE TERMS AND
CONDITIONS OF YOUR LOAN. IF YOU HAVE ANY QUESTIONS CONCERNING THE INFORMATION
CONTAINED IN THIS STATEMENT, PLEASE CONTACT YOUR LOAN OFFICER.
<PAGE>
TYPE OF RATE:
(x) This is a VARIABLE RATE LOAN. During the term of the loan, the stated
rate of interest is subject to change:
( ) Every 6 months, 1, 3, 5, 7, 10, 15 or 20 year(s) ("Repricing
Periods" which period Borrower selects) and by any amount. You
may change to a different Repricing Period, offered by Lender
under its Repricing Mortgage plan at that time, at any Change
Date (date that the interest rate can change), without
incurring a penalty.
( ) Every [( ) 5 years] or [( ) 10 years] and by any amount. You
will be notified at least 45 days in advance of a change in
the interest rate.
(x) At any time and by any amount. You will be notified of changes
in the interest rate within the then applicable laws.
Exception: Commercial Fixed Interest Rate Repricing: Should a
qualified borrower be approved to have interest accrue on this
loan at a fixed rate under the Lender's Fixed Rate Pricing
Program, the principal amount and the rate will be fixed as
stated for the duration set forth in your conversion
agreement, confirmation notice, or similar documents which
will also disclose the new interest rate and the effective
date.
Lender has a differential interest rate program. Borrower's assignment
to the rate group for these loans are based upon an evaluation of a
combination of factors including Borrower's credit quality, quality of
the collateral and costs of servicing the loan.
In adjusting variable rate loans, certain standard factors are
considered including changes in costs of funds, operating expenses,
earnings requirements to meet certain capital objectives, credit risk
factors and the competitive environment. These standard factors may
change during the term of the loan.
( ) This is an ADJUSTABLE RATE LOAN. The stated rate of interest is
subject to change during the life of the loan. The interest rate on the
loan may be changed every ____ months (adjustment period).
Periodic Adjustment Cap. The rate may not increase or decrease
more than ____% at each adjustment period. Lifetime Cap/Floor.
Over the life of the loan the rate may not increase or
decrease more than ____% over/under the initial interest rate.
The new rate for this loan will be calculated as follows: 45 days prior
to the loan's Change Date (the day the interest rate can change),
Lender adds the Notes margin to the index and applies the above
Periodic Adjustment and Lifetime Cap/Floor.
( ) This is a FIXED INTEREST RATE LOAN. The stated rate of interest on the
full amount of the loan is not subject to change during the life of the
loan.
( ) This is a PRIME RATE LOAN. The stated rate of interest is subject to
change during the life of the loan at any time the prime rate as
published in the Wall Street Journal is increased or decreased and by
any amount said prime rate increases or decreases ( ) plus ( ) minus
____ percent per annum above/below prime. On any installment promissory
note transaction, the loan's may increase or decrease each year.
( ) This is a LIBOR RATE LOAN. The stated rate of interest is subject to
change during the life of the loan each mouth that the LIBOR rate as
published in the Wall Street Journal is increased or decreased and by
any amount said LIBOR rate increases or decreases ( ) plus ( ) minus
____ percent per annum ("margin") above/below said LIBOR rate. On any
installment promissory note transaction, the loan's margin may increase
or decrease each year.
If you have questions about the interest rate charged for your loan, you have
the right to request a review of the loan to determine that the proper interest
rate has been assigned, and you are entitled to a written explanation of the
basis for the interest rate charged and how the Borrower's status may be
improved to receive a lower rate. 12 U.S.C. Section 2199.
BORROWER RIGHTS: This loan is subject to the borrower rights generally described
below and more fully as set forth in the Farm Credit Act of 1971, as amended, 12
U.S.C. Section 2199, et. seq.:
Access to Documents (Section 2200). At loan closing, Borrower (or
Borrower's agent, if applicable) shall receive copies of loan documents
signed by Borrower. Upon request thereafter, Borrower is entitled to:
(1) copies of all documents signed or delivered to Borrower; and (2)
copies of Lender's charter and bylaws.
Notice of Action on Application (Section 2201). Lender shall provide
prompt written notice of action taken on loan and restructure
applications.
Credit Review Committee/Restructuring Loans (Sections 2202 and
2202a-c). Borrower is entitled to the right to seek restructuring of
certain distressed loans and a right to a review of certain adverse
decisions by a Credit Review Committee all as more fully set forth in
Lender's Distressed Loan Restructuring Policy, which policy is
available upon request.
Miscellaneous (Sections 2202d, e). If Borrower has made all accrued
payments of principal, interest and penalties, Lender may not foreclose
because Borrower has failed to post additional collateral. Lender may
not require a reduction in outstanding principal balance which exceeds
regularly scheduled principal installment except in certain
circumstances. If Borrower pays all accrued payments, including
penalties, Lender may not accelerate loan based solely on Borrower's
untimely payments. Lender may not require a Borrower who has pledged
agricultural property to waive any state mediation rights.
Right of First Refusal (Section 2219a). When the Lender first elects to
sell or lease agricultural real property acquired by Lender which was
previously owned by Borrower, the Lender must first notify the Borrower
of his/her right to purchase or lease the property as set forth in the
Act.
<PAGE>
LOAN FUNDING STATEMENT
Billing Name: Ravenswood Winery, Inc.
Loan Number: 0425986600
Escrow No.: 172471CF
Total Amount of Loan .............................................. $835,000.00
Loan Fee $20,000.00
Appraisal Fee $5,000.00
Less: Prepaid Fees $0.00
Total Closing Costs ............................................... ($25,000.00)
Funds for preliminary costs associated with new
production facility ($805,000.00)
------------
Total loan proceeds to be funded ................................... $5,000.00
Ravenswood Winery, Inc.
By: _______________________________________________
W. Reed Foster, Chairman of the Board
By: _______________________________________________
Joel E. Peterson, President
Exhibit 10.6
STRAIGHT NOTE
$36,000.00 San Francisco, California, October 12, 1989
July 1, 1998 after date, for value received, Ravenswood Winery, Inc.
promises to pay to W. Reed Foster, or order, at 21415 Broadway, Sonoma, CA 95476
the sum of Thirty-six Thousand and no/100 Dollars, with interest from October
12, 1989 until paid, at the rate of Eleven (11) per cent, per annum, payable
July 1, 1998.
Should interest not be so paid, it shall thereafter bear like interest
as the principal, but such unpaid interest so compounded shall not exceed an
amount equal to simple interest on the unpaid principal at the maximum rate
permitted by law. Should default be made in the payment of any installment of
interest when due, then the whole sum of principal and interest shall become
immediately due and payable at the option of the holder of this note. Should
suit be commenced to collect this note or any portion thereof, such sum as the
Court may deem reasonable shall be added hereto as attorney's fees. Principal
and interest payable in lawful money of the United States of America.
/s/ JOEL E. PETERSON
---------------------------
Joel E. Peterson, President
<PAGE>
STRAIGHT NOTE
$40,000.00 San Francisco, California, June 25, 1991
On demand, for value received, RAVENSWOOD WINERY, INC. promises to pay
to W. REED FOSTER, or order, at 655 Sutter Street, San Francisco, CA 94102 the
sum of Forty Thousand ($40,000.00) DOLLARS, with interest from June 25, 1991
until paid, at the rate of 11 per cent, per annum, payable on demand.
Should interest not be so paid it shall thereafter bear like interest
as the principal, but such unpaid interest so compounded shall not exceed an
amount equal to simple interest on the unpaid principal at the maximum rate
permitted by law. Should default be made in payment of interest when due the
whole sum of principal and interest shall become immediately due at the option
of the holder of this note. Principal and interest payable in lawful money of
the United States. If action be instituted on this note I promise to pay such
sum as the Court may fix as attorney's fees. Principal and interest payable in
lawful money of the United States of America.
/s/ JOHN R. KEMBLE, JR.
- ---------------------------------
John R. Kemble, Jr., Secretary-Treasurer
Ravenswood Winery, Inc.
<PAGE>
STRAIGHT NOTE
$11,000.00 San Francisco, California, July 5, 1991
July 1, 1998 after date, for value received, Ravenswood Winery, Inc.
promises to pay to W. Reed Foster, or order, at 18701 Gehricke Road, Sonoma, CA
95476 the sum of Eleven Thousand and no/100 Dollars, with interest from July 5,
1991 until paid, at the rate of Ten (10) per cent, per annum, payable July 1,
1998.
Should interest not be so paid, it shall thereafter bear like interest
as the principal, but such unpaid interest so compounded shall not exceed an
amount equal to simple interest on the unpaid principal at the maximum rate
permitted by law. Should default be made in the payment of any installment of
interest when due, then the whole sum of principal and interest shall become
immediately due and payable at the option of the holder of this note. Should
suit be commenced to collect this note or any portion thereof, such sum as the
Court may deem reasonable shall be added hereto as attorney's fees. Principal
and interest payable in lawful money of the United States of America.
/s/ JOEL E. PETERSON
---------------------------
Joel E. Peterson, President
<PAGE>
STRAIGHT NOTE
$17,000.00 San Francisco, California, June 30, 1992
July 1, 1998 after date, for value received, Ravenswood Winery, Inc.
promises to pay to W. Reed Foster, or order, at 18701 Gehricke Road, Sonoma, CA
95476 the sum of Seventeen Thousand and no/100 Dollars, with interest from June
30, 1992 until paid, at the rate of Ten (10) per cent, per annum, payable July
1, 1998.
Should interest not be so paid, it shall thereafter bear like interest
as the principal, but such unpaid interest so compounded shall not exceed an
amount equal to simple interest on the unpaid principal at the maximum rate
permitted by law. Should default be made in the payment of any installment of
interest when due, then the whole sum of principal and interest shall become
immediately due and payable at the option of the holder of this note. Should
suit be commenced to collect this note or any portion thereof, such sum as the
Court may deem reasonable shall be added hereto as attorney's fees. Principal
and interest payable in lawful money of the United States of America.
/s/ JOEL E. PETERSON
---------------------------
Joel E. Peterson, President
<PAGE>
STRAIGHT NOTE
(BALLOON PAYMENT)
$25,000.00 SONOMA, CALIFORNIA July 1, 1994
DUE ON OR BEFORE June 30, 2004, for value received, we promise to pay
in lawful money of the United States of America, to W. REED FOSTER, or order, at
place designated by payee, the principal sum of TWENTY-FIVE THOUSAND AND NO/100
DOLLARS ($25,000.00) with interest in like lawful money from July 1, 1994 until
paid at the rate of eleven and no/100 percent (11.0%) per annum. Interest shall
be payable in annual installments due on or before July 1, 1995. Interest is due
and payable each year on the 1st day of July, with principal payment of $25,000
due at maturity on June 30, 2004.
Principal and interest payable in lawful money of the United States of
America. Should default be made in payment of interest when due, the whole sum
of principal and interest shall become immediately due at the option of the
holder of this note. If action be instituted on this note, we promise to pay
such sum as the court may fix as attorney's fees.
RAVENSWOOD WINERY, INC.
A California Corporation
/s/ JOEL E. PETERSON
- --------------------------------
By: JOEL E. PETERSON, PRESIDENT
/s/ W. REED FOSTER
- --------------------------------
W. REED FOSTER
As an Individual
Exhibit 10.7
STRAIGHT NOTE
$17,000.00 San Francisco, California, July 3, 1992
July 1, 1998 after date, for value received, Ravenswood Winery, Inc.
promises to pay to Joel E. Peterson, or order, at 18701 Gehricke Road, Sonoma,
CA 95476 the sum of Seventeen Thousand and no/100 Dollars, with interest from
July 3, 1992 until paid, at the rate of Ten (10) per cent, per annum, payable
July 1, 1998.
Should interest not be so paid, it shall thereafter bear like interest
as the principal, but such unpaid interest so compounded shall not exceed an
amount equal to simple interest on the unpaid principal at the maximum rate
permitted by law. Should default be made in the payment of any installment of
interest when due, then the whole sum of principal and interest shall become
immediately due and payable at the option of the holder of this note. Should
suit be commenced to collect this note or any portion thereof, such sum as the
Court may deem reasonable shall be added hereto as attorney's fees. Principal
and interest payable in lawful money of the United States of America.
/s/ W. REED FOSTER
---------------------------
W. Reed Foster, Chairman
<PAGE>
STRAIGHT NOTE
(BALLOON PAYMENT)
$25,000.00 SONOMA, CALIFORNIA July 1, 1994
DUE ON OR BEFORE June 30, 2004, for value received, we promise to pay
in lawful money of the United States of America, to JOEL PETERSON, or order, at
place designated by payee, the principal sum of TWENTY-FIVE THOUSAND AND NO/100
DOLLARS ($25,000) with interest in like lawful money from July 1, 1994 until
paid at the rate of eleven and no/100 percent (11.0%) per annum. Interest shall
be payable in annual installments due on or before July 1, 1995. Interest is due
and payable each year on the 1st day of July, with principal payment of $25,000
due at maturity on June 30, 2004.
Principal and interest payable in lawful money of the United States of
America. Should default be made in payment of interest when due, the whole sum
of principal and interest shall become immediately due at the option of the
holder of this note. If action be instituted on this note, we promise to pay
such sum as the court may fix as attorney's fees.
/s/ JOEL E. PETERSON
- --------------------------------
JOEL PETERSON
As an Individual
RAVENSWOOD WINERY, INC.
A California Corporation
/s/ W. REED FOSTER
- --------------------------------
By: W. REED FOSTER, CHAIRMAN
<PAGE>
STRAIGHT NOTE
(BALLOON PAYMENT)
$5,499.85 SONOMA, CALIFORNIA May 1, 1996
DUE ON OR BEFORE April 30, 2006, for value received, we promise to pay
in lawful money of the United States of America, to JOEL PETERSON, or order, at
place designated by payee, the principal sum of FIVE THOUSAND FOUR HUNDRED
NINETY-NINE AND 85/100 DOLLARS with interest in like lawful money from May 1,
1996 until paid at the rate of ten and no/100 percent (10.0%) per annum.
Interest shall be payable in annual installments due on or before May 1, 1997.
Interest is due and payable each year on the 1st day of May, with principal
payment of $5,499.85 due at maturity on April 30, 2006. This note replaces the
note payable to Joel Peterson from Ravenswood Winery dated July 5, 1991.
Principal and interest payable in lawful money of the United States of
America. Should default be made in payment of interest when due, the whole sum
of principal and interest shall become immediately due at the option of the
holder of this note. If action be instituted on this note, we promise to pay
such sum as the court may fix as attorney's fees.
/s/ JOEL E. PETERSON
- --------------------------------
JOEL PETERSON
As an Individual
RAVENSWOOD WINERY, INC.
A California Corporation
/s/ W. REED FOSTER
- --------------------------------
By: W. REED FOSTER, CHAIRMAN
<PAGE>
STRAIGHT NOTE
(BALLOON PAYMENT)
$8,637.81 SONOMA, CALIFORNIA May 1, 1996
DUE ON OR BEFORE April 30, 2006, for value received, we promise to pay
in lawful money of the United States of America, to JOEL PETERSON, or order, at
place designated by payee, the principal sum of EIGHT THOUSAND SIX HUNDRED
THIRTY-SEVEN AND 81/100 DOLLARS with interest in like lawful money from May 1,
1996 until paid at the rate of eleven and no/100 percent (11.0%) per annum.
Interest shall be payable in annual installments due on or before May 1, 1997.
Interest is due and payable each year on the 1st day of May, with principal
payment of $8,637.81 due at maturity on April 30, 2006. This note replaces the
note payable to Joel Peterson from Ravenswood Winery dated October 11, 1989.
Principal and interest payable in lawful money of the United States of
America. Should default be made in payment of interest when due, the whole sum
of principal and interest shall become immediately due at the option of the
holder of this note. If action be instituted on this note, we promise to pay
such sum as the court may fix as attorney's fees.
/s/ JOEL E. PETERSON
- --------------------------------
JOEL PETERSON
As an Individual
RAVENSWOOD WINERY, INC.
A California Corporation
/s/ W. REED FOSTER
- --------------------------------
By: W. REED FOSTER, CHAIRMAN
<PAGE>
STRAIGHT NOTE
(BALLOON PAYMENT)
$12,000.00 SONOMA, CALIFORNIA January 5, 1995
DUE ON OR BEFORE January 5, 2004, for value received, I promise to pay
in lawful money of the United States of America, to RAVENSWOOD WINERY, INC., or
order, at place designated by payee, the principal sum of TWELVE THOUSAND AND
NO/100 DOLLARS ($12,000.00) with interest in like lawful money from January 5,
1995 until paid at the rate of eight and 50/100 percent (8.5%) per annum.
Interest shall be payable in annual installments due on or before January 5,
1996 and to be due on the 5th of January for the years 1997, 1998, 1999, 2000,
2001, 2002, 2003 and 2004, with principal payment of $12,000 due at maturity on
January 5, 2004.
Principal and interest payable in lawful money of the United States of
America. Should default be made in payment of interest when due, the whole sum
of principal and interest shall become immediately due at the option of the
holder of this note. If action be instituted on this note, I promise to pay such
sum as the court may fix as attorney's fees.
/s/ JOEL E. PETERSON
- --------------------------------
JOEL PETERSON
As an Individual
RAVENSWOOD WINERY, INC.
A California Corporation
/s/ W. REED FOSTER
- --------------------------------
By: W. REED FOSTER, CHAIRMAN
<PAGE>
STRAIGHT NOTE
(BALLOON PAYMENT)
$10,000.00 SONOMA, CALIFORNIA APRIL 5, 1995
DUE ON OR BEFORE April 5, 2004, for value received, I promise to pay in
lawful money of the United States of America, to RAVENSWOOD WINERY, INC., or
order, at place designated by payee, the principal sum of TEN THOUSAND AND
NO/100 DOLLARS ($10,000.00) with interest in like lawful money from April 5,
1995 until paid at the rate of eight and 50/100 percent (8.5%) per annum.
Interest shall be payable in annual installments due on or before April 5, 1996
and to be due on the 5th of April for the years 1997, 1998, 1999, 2000, 2001,
2002, 2003 and 2004, with principal payment of $10,000 due at maturity on
January 5, 2004.
Principal and interest payable in lawful money of the United States of
America. Should default be made in payment of interest when due, the whole sum
of principal and interest shall become immediately due at the option of the
holder of this note. If action be instituted on this note, I promise to pay such
sum as the court may fix as attorney's fees.
/s/ JOEL E. PETERSON
- --------------------------------
JOEL PETERSON
As an Individual
RAVENSWOOD WINERY, INC.
A California Corporation
/s/ W. REED FOSTER
- --------------------------------
By: W. REED FOSTER, CHAIRMAN
Exhibit 10.8
QUARRY WINERY LEASE AGREEMENT
TABLE OF CONTENTS
1. Premises..................................................................2
2. Winery Use Permit and Other Permits.......................................3
3. Term......................................................................4
4. Uses Allowed By the Lease.................................................4
5. Rent......................................................................5
6. Other Uses of Lessor's Land...............................................9
7. Schedule..................................................................9
8. Possession................................................................9
9. Improvements..............................................................9
10. Lessor's Nominee........................................................11
11. Role of Justin M. Faggioli..............................................12
12. Repairs.................................................................12
13. Taxes...................................................................13
14. Utilities...............................................................15
15. Insurance and Casualty Events...........................................15
16. Liens and Encumbrances..................................................17
17. Access..................................................................18
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18. Water Licenses..........................................................20
19. Condemnation............................................................21
20. Disposal of Crush Residue and Pomace....................................22
21. Assignment or Subletting................................................22
22. Lessor's and JMF's Investment in Ravenswood Winery, Inc.................23
23. Termination in the Event Building Permit is Not Obtained................24
24. Default; Remedies.......................................................24
25. Surrender...............................................................30
26. Dispute Resolution and Arbitration......................................30
27. Right of the First Option to Purchase...................................31
28. Right of the First Option to Rent.......................................33
29. Renewal of the Lease and Buyout of Lessee Improvements..................35
30. Memorandum of Lease.....................................................36
31. Attorney's Fees.........................................................36
32. Notices.................................................................36
33. Toxic and Hazardous Substances..........................................37
34. Compliance with Laws, etc...............................................39
35. Liability and Indemnity.................................................40
36. Miscellaneous...........................................................41
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QUARRY WINERY LEASE AGREEMENT
This lease (the "Lease") is entered into as of January 1, 1999 among and between
Bruce B. Donnell and Sandra D. Donnell, jointly and severally, as tenants in
common, collectively dba as Donnell-El Novillero Ranch ("Lessor") and Ravenswood
Winery, Inc. ("Lessee").
RECITALS
The parties agree the following recitals are true and correct:
WHEREAS, Bruce B. Donnell and Sandra D. Donnell own certain parcels of
land and a use permit, as specified in a resolution adopted by the Sonoma County
Board of Supervisors (Resolution Number 97-0124), to construct and to operate a
250,000 case winery on portions of these parcels, and;
WHEREAS, Lessor has neither the interest nor the expertise to build and
to operate a winery on the Premises (as defined below), and;
WHEREAS, Lessee desires to lease the portions of the parcels which are
included in the use permit and are zoned for agricultural use and intends to
design, to secure financing for, and to build and to operate a winery on the
leased portions under the terms of this agricultural lease as more fully set
forth below, and;
WHEREAS, no rights, interests, licenses or ownership will be created,
however inadvertently, that will extend beyond the term of this Lease unless
specifically agreed to by the parties in this Lease or in a separate writing
signed by the parties, and;
WHEREAS, recognizing the long-term nature of this Lease and the
complexity of the issues involved, both parties have attempted to anticipate
potential problems and issues that may arise in the future. The parties
anticipate that they will be able to resolve
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any future problems and issues that may arise in the future and that are not
resolved or not covered in this Lease in an open and amicable manner, and;
WHEREAS, the Premises as (defined below) are portions of parcels owned
by Lessor, and Lessee shall have no rights of use, or access to, other portions
of the parcels or to other property of Lessor, except as permitted in this
Lease. The remaining portions of Lessor's parcels which are not included in the
leased premises shall remain free for whatever uses Lessor desires, provided any
such uses do not negatively impact Lessee, and;
WHEREAS, Lessor does not have any specific long-term plan for the
unleased portions of the parcels; however, the expectation of the parties is
that such use will not be inconsistent with a winery use.
AGREEMENT
Now, therefore, in consideration of the foregoing and the mutual
promises of the parties and the conditions of this Lease, the parties hereby
agree as follows:
1. Premises
The premises to be leased to Lessee (the "Premises") shall consist of:
(a) a winery site of approximately 11 acres upon which the winery and
the septic system shall be located. Exhibit 1 describes the proposed
location of the winery site and a portion of the Premises referred to
below in Section 1(b) and Section 1(c). Each of the Exhibits referenced
in this Lease is attached to and is hereby incorporated into and made a
part of this Lease. A legal description of the
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winery and septic system site is attached as Exhibit 2. The winery and
septic system sites are located on Sonoma County Assessors Parcel #
142-122-04.
(b) a wastewater pond and discharge area identified on Exhibit 1. A
legal description of this wastewater pond and discharge area is
attached as Exhibit 3. The wastewater ponds are located on Sonoma
County Assessors Parcel # 121-158-077.
(c) access to the winery site and wastewater ponds and discharge area.
These accessroutes are described on Exhibit 4.
(d) access for constructing, using and maintaining utilities, water
systems, wastewater piping and other purposes described on Exhibit 4.
Lessor and Lessee shall use their best efforts to ensure that the Premises are
confined to the areas identified on Exhibits 1 through 4. However, due to the
lack of certainty of the exact location of the areas of the Premises and the
potential need to modify the areas in response to construction conditions,
Lessee and Lessor agree that the actual legal descriptions of the Premises will
be modified, in the event that they differ from Exhibits 2 and 3, when the
winery, including its septic and wastewater systems, is operational and an
occupancy permit has been received from the County of Sonoma. Upon the
commencement of this Lease, Lessor agrees that Lessee shall have access to the
Premises in order to design, build and operate a winery.
2. Winery Use Permit and Other Permits
The use permit from the County of Sonoma pursuant to County Resolution Number
97-0124 is attached as Exhibit 5 (the "Use Permit"). The Use Permit and other
permits or rights obtained by Lessor for the benefit of the winery project are
incorporated into this
3.
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Lease for the benefit of the Lessee until the termination of this Lease, at
which time they shall become the property of Lessor.
3. Term
The term of this Lease shall commence upon the date of execution of this Lease
and shall end on December 31, 2032.
4. Uses Allowed By the Lease
The Premises are leased to Lessee for the purpose of building and operating a
winery facility and for all such other uses as are reasonably incident thereto
and as allowed by and in conformance with the Use Permit and other applicable
laws. Lessee shall not convert the Premises to any other use without the written
consent of the Lessor. Allowed uses shall include, without limitation, all
winery and winemaking related activities, including but not limited to crushing,
fermenting, bulk wine storage, bottling, case goods storage, and maintaining
administrative offices. Both parties understand that it is very likely that
Lessee will take the steps necessary to obtain permits to allow Lessee to build
and to operate a tasting room on the site upon cessation of quarry activities.
If Lessee desires to obtain a use permit to operate a tasting room, Lessor and
Lessee shall attempt to negotiate and to reach agreement on rent and other
business terms based upon this additional use of the Premises. Lessor also
agrees to cooperate in obtaining a new use permit from the County of Sonoma
which will allow such uses on the Premises. If the parties cannot reach
agreement on rental terms for the additional use, the parties agree to enter
into arbitration pursuant to the arbitration procedure described in Section 26
of this Lease. The above notwithstanding, the results of said arbitration shall
not result in an extension of the Lease term. In the event a use permit to
operate a tasting room is
4.
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obtained for the Premises from the County of Sonoma, and Lessee and Lessor have
reached agreement on rent and other business terms, the parties agree that any
such uses by Lessee shall be limited to the following activities: public tours
and tasting, retail sales of wine, food and merchandise, food demonstrations and
teaching, public food service within tasting room hours, promotional dinners and
business related events. Any promotional dinners shall be limited to no more
than 200 people. Other uses may be allowed provided that they are in conformance
with the use permit and Lessee has obtained prior written approval from Lessor,
which approval may or may not be granted at Lessor's sole discretion.
5. Rent
(a) Schedule of Payments
The schedule for rental payments shall be as follows:
(i) For the period of January 1, 1998 through July 31, 1998,
rent of $1,500 per month shall be paid by Lessee to Lessor.
(ii) For the period of August 1, 1998 through April 30, 1999,
base rent of $1,722.66 per month, which is one-half of the
Initial Base Rent established in Section 5(b) below, shall be
paid by Lessee to Lessor.
(iii) The first inflation adjustment, which shall be
calculated pursuant to Subsection (c) below, shall be
effective and commence on May 1, 1999. This inflation
adjustment shall be applied to the $1722.66 per month rent
amount.
5.
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(iv) August 1, 1999 through April 30, 2000: Base Rent
increases to 100% of the Initial Base Rent to $3,445.31 per
month plus inflation adjustments to date.
(v) May 1, 2000: Inflation adjustment to Base Rent.
(vi) May 1, 2001: Inflation adjustment to Base Rent.
(vii) May 1, 2002: Inflation adjustment to Base Rent.
(viii) May 1, 2003: Inflation adjustment to Base Rent.
(ix) May 1, 2004: Market adjustment to establish a new Base
Rent, if warranted.
(x) May 1, 2005: Inflation adjustment to Base Rent.
(xi) May 1, 2006: Inflation adjustment to Base Rent.
(xii) May 1, 2007: Inflation adjustment to Base Rent.
(xiii) May 1, 2008: Inflation adjustment to Base Rent.
(xiv) May 1, 2009: Market adjustment to establish a new Base
Rent, if warranted.
(xv) May 1, 2010 through December 31, 2032: Continue the five
year cycle of Market Rate adjustment on each fifth year to
establish a new Base Rent, if warranted, with inflation
adjustment each of the four intervening years.
(b) Initial Base Rent
The Initial Base Rent of $3,445.31 per month was established by
utilizing the methodology calculated by North Coast Appraisal Services
(the "Appraiser") in its April 27, 1997 report (the "Appraisal") to
establish the Base Rent and to revise
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it to reflect their consultation report dated July 16, 1998 (the
"Consultation Report"). The Appraisal and the Consultation Report are
attached as Exhibits 6 and 7, respectively.
(c) Inflation Adjustment
The Base Rent shall be adjusted for inflation annually, with the
exception of those years in which Market Rate adjustments are made. The
Inflation Adjustment shall be effective on May 1 of each year. The
Inflation Adjustment shall be the increase or decrease in the Consumer
Price Index (the "Index") for all urban consumers and all items for the
San Francisco-Oakland-San Jose region that occurs in the preceding
calendar year. The initial value of the Index was 162.6 on December 31,
1997 and the base period was 1982-84 (value=100). The Inflation
Adjustment to the Base Rent on May 1 of each year shall be the
percentage increase or decrease in the Index for January 1 through
December 31 of the preceding calendar year. In the event the Index
ceases to exist, Lessee and Lessor shall use any successor to such
Index. Any inflation adjustment shall be limited to a maximum of five
percent (5%) increase or decrease in any one year. Inflation in excess
of this amount shall not cumulate and shall not be taken into account.
(d) Market Adjustment
The Base Rent shall be adjusted, if warranted, by a Market Adjustment
as of May 1 of the following years: 2004, 2009, 2014, 2019, 2024 and
2029. No annual Inflation Adjustment shall take place in these years.
Any qualified appraiser experienced in the valuation of real property
in Sonoma County selected by Lessor shall be engaged by Lessee to
determine a new Base Rent based upon the
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methodology used to determine the initial base rent as described in
Exhibits 6 and 7. Lessee and Appraiser shall provide the revised Market
Rate in a manner such that the base rate shall be adjusted by May 1 of
each year in which a Market Rate Adjustment is to take place. The new
Base Rent may increase or decrease. In the event the revised market
rate has not been determined by May 1 in the years specified, Lessor
may, at Lessee's expense, engage the services of an independent
appraiser to determine the revised Market Rate. The revised Market Rate
determined by this appraiser shall be binding upon Lessor and Lessee
and shall be effective as of May 1 of the appropriate year. In the
event the selected appraiser is not able to provide the revised market
rent rate, Lessor and Lessee shall use their best efforts to select a
replacement appraiser that is acceptable to both parties. In the event
that such an acceptable replacement appraiser cannot be found, each
party, at its own expense, shall engage the services of an appraiser
with an Accredited Rural Appraiser (ARA) Certificate to determine a
market rent rate. The revised Market Rent Rate shall be the average of
the respective market rent rates determined by the two appraisers. The
above notwithstanding, in no event shall any rent adjustment under the
terms of this Agreement be used to reduce the rent to less than the
Initial Base Rent of $3,445.31 per month. Rent shall be paid in advance
on the first day of each month. Rental payments shall be paid one-half
each to Bruce B. Donnell and Sandra D. Donnell. For example, if the
monthly Base Rent is $3,445.30 per month, Bruce B. Donnell and Sandra
D. Donnell will each receive $1,722.65. Uneven amounts shall be rounded
up with
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numbers five (5) and above to the next highest number. Rent shall be
sent to the following address:
Bruce B. Donnell; Sandra D. Donnell
El Novillero-Donnell Ranch
P.O. Box 1003
Tiburon, CA 94920
6. Other Uses of Lessor's Land
The Premises are portions of larger parcels of land which are subject to other
existing and future uses by Lessor and other tenants of Lessor. Such existing
uses currently include but are not limited to aggregate extraction and
processing (quarry), cattle grazing, hunting, recreation and hay farming. Lessee
shall not restrict the present or future activities of or access by these other
tenants and/or uses on other portions of the parcel. Lessor shall take
commercially reasonable efforts to cause other tenants and/or activities to not
unreasonably interfere with Lessee's use of the Premises.
7. Schedule
Lessee shall use its best efforts to design, to build and to begin operating the
winery facility by December 31, 2000. Lessor shall assist Lessee in obtaining
all necessary permits. The cost of the permits shall be borne by Lessee.
8. Possession
Lessor shall deliver possession of the Premises to Lessee upon execution of this
Lease.
9. Improvements
Lessee shall have the right to make any improvements or other alterations to the
Premises as Lessee may deem necessary or desirable in order to design, build and
operate a winery in accordance with Section 4 (Uses) of this Lease. Lessor's
nominee may assist Lessee in coordinating improvements with Lessor and Lessor's
other tenants, agents or
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representatives. All of Lessee's non-removable improvements permanently affixed
to the real property, including but not necessarily limited to, buildings, all
or part of the plumbing, electrical wiring, hot and cold water systems,
utilities, fire suppression systems, septic systems, outdoor work areas,
wastewater systems, and all subsequent additions thereto and alterations therein
and replacements thereof, shall become and remain a part of the Premises,
subject to normal wear and tear and the use and occupancy of Lessee, and Lessee
shall not remove, destroy, or materially alter the same, except as otherwise
provided in this Lease.
Notwithstanding the foregoing, upon the expiration or termination of the Lease
term, all such non-removable improvements shall become the property of Lessor
and Lessee shall have the right to remove all other property of a removable
nature then located on the Premises. Lessee shall provide Lessor with
information concerning the improvements to be made and the schedule of their
installation. Lessee shall make and notify Lessor of such improvements in a
timely manner so as to minimize the impact upon Lessor's other tenants including
the quarry, cattle and retail operations. Any improvements shall be made in a
manner that does not unreasonably restrict Lessor's, their heirs', successors',
assigns', agents' or employees' access to other portions of Lessor's property.
Lessee, upon the expiration or termination of the Lease term, at its option,
shall be able to remove all fixtures and equipment, including without
limitation, winemaking and office equipment, fermenters, crushers, barrels,
tanks, desks, computers, stoves, refrigerators, chillers, pumps, compressors,
bottling equipment and similar property and equipment not permanently affixed to
the real property. The foregoing notwithstanding, it is agreed to by both
parties that upon termination or expiration of this Lease, Lessor shall receive
a
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building in broom clean condition, complete with non-removable equipment, in
good, serviceable condition subject to normal wear and tear. It is not the
intention of either party that Lessor receive a functional winery upon
termination or expiration of this Lease. Rather, it is the intention of both
parties that Lessor receive structures, non-removable equipment, septic systems,
wastewater systems, water sources and utilities in such condition, subject to
normal wear and tear, that the Premises can be used by Lessor or another party
for other purposes. When the building is completed and the winery is
operational, Lessee shall, within thirty (30) days of such date, provide Lessor
with a listing of all property that it considers not permanently affixed to the
real property and thus removable. Thereafter, Lessee shall provide Lessor with
notice of and details concerning any additional purchases/additions of removable
property. The items identified by Lessee in this process shall be then
considered removable property unless contested by Lessor within 30 days of
receipt of any such notice. In the event Lessor contests the inclusion of any
item in any notice, Lessor and Lessee shall use reasonable commercial efforts to
resolve the situation. In the event that an agreement is not reached by the
parties, the matter shall be submitted to arbitration pursuant to the
arbitration procedure in Section 26 of this Lease. In the event that any lender
of Lessee requests, as part of a construction loan or a loan to finance
improvements for the Premises, rights to certain improvements that are
removable, the parties agree to cooperate in good faith to permit the granting
of such rights.
10. Lessor's Nominee
Lessor wishes to appoint a nominee (the "Nominee") for the purpose of
communications between the parties with regard to the terms of this Lease and
operations under it.
11.
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Lessor's Nominee shall be Justin M. Faggioli ("JMF") who shall serve until
replaced by an alternate nominee in a writing signed by both Lessors, or until
at least one of the Lessors, in a signed writing, objects to his further
service. Lessor's alternate Nominee shall be Sandra D. Donnell. Nominee is
hereby authorized to conduct communications with Lessee on behalf of Lessor.
Nominee shall act in conformance with the terms and conditions of this Lease. In
communicating with Lessor, Lessee may, but is not required to, communicate with
anyone in addition to the Nominee.
11. Role of Justin M. Faggioli
Lessor and Lessee acknowledge and agree that JMF has shared interests with both
Lessor and Lessee. JMF is the spouse of Sandra D. Donnell and the brother-in-law
of Bruce B. Donnell. He is Lessor's Nominee and is active in the management of
Lessor's property, including the parcels containing the Premises. He is also an
officer, shareholder and director of the Lessee. JMF has been, and will continue
to be, active in these roles and in all aspects of this Lease and its
implementation. The parties understand that there is a conflict of interest in
his roles as a representative of, a potential beneficiary of, and an affiliate
of both parties. All parties agree that JMF has, to date, kept them fully
informed of all relevant details and decisions with respect to the terms and
conditions of this Lease, and that both parties have had the opportunity to, and
have employed the services of, other professionals to review the terms and
conditions of this Lease on their behalf. In executing this Lease, neither party
is relying upon the representations, warranties, assertions or claims made by
JMF. Both parties, as to JMF as a third party beneficiary, agree to hold JMF
harmless and release him from any and all claims against him that may have
occurred in the past or may occur in the future arising from this Lease, unless
any
12.
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such claim arises from his gross negligence or willful misconduct. The above
notwithstanding, the terms of this Section shall only apply to any claims
arising between the parties and JMF with respect to this Lease and/or the
landlord (Lessor) - tenant (Lessee) relationship.
12. Repairs
At all times during the term hereof, Lessee shall, at its cost and expense, use
reasonable commercial efforts to keep and maintain the Premises and other
facilities in good condition and repair, normal wear and tear excepted. Lessee
shall keep and maintain the Premises, at its expense, in good condition and
repair, subject to normal wear and tear, including but not limited to, the
foundations, exterior walls, structural portions of the interior bearing walls,
the roof of the building, wastewater systems and perimeter appurtenant
structures, slabs and fences, the interior and exterior wall surfaces, the
windows, doors, fire suppression systems, electrical and plumbing systems and
other permanent improvements. In the event of any damage, Lessee shall use
reasonable commercial efforts to repair such damage. In the event major repairs
or maintenance on non-removable improvements are required that Lessee would
normally undertake but which may not be commercially reasonable due to the
remaining term of the Lease, Lessee shall notify Lessor of its intention not to
make such a repair. In such an event, Lessee and Lessor shall make reasonable
efforts to determine if a repair is warranted and to share costs between the
parties. In the event an arrangement is not made between the parties, the
parties may submit the dispute to arbitration pursuant to the terms of Section
26 of this Lease. Alternatively, Lessor may elect, at its sole expense, to make
such repairs. An example of such a situation would be the need to replace a
major portion of
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the roof with only 5 years remaining on the Lease. In such an example, the
parties may elect to prorate the expected life of the roof with Lessee paying
for the prorated portion represented by the remaining term of the Lease and
Lessor paying the balance.
13. Taxes
Lessor shall pay and discharge all taxes on the assessed value of the land and
improvements included in the Premises, existing at the commencement of the
Lease, and on other improvements, if any, made by Lessor during the term of this
Lease, and Lessor shall be responsible for any increase in taxes caused by acts
of Lessor, including but not limited to a transfer of ownership of the Premises.
Lessee shall pay and discharge all other real property and excise taxes, general
and special assessments, and other charges of every description which during the
term of this Lease may be levied upon or assessed against the Premises or any
interests therein attributable to improvements made thereon by Lessee and any of
Lessee's personal property thereon. In this regard, Lessee shall promptly apply
for and use its best reasonable efforts to obtain a subrogation of taxes from
the County Assessor's office for the purposes of receiving a separate billing
for taxes for which Lessee is responsible as described above. The subrogation of
taxes will allow Lessee separately to pay and discharge those taxes that are its
responsibility. In the event a subrogation of the type described above is not
obtained by Lessee, Lessee shall obtain a subrogation for the entire parcel on
which the Premises is located and Lessor shall reimburse Lessee for the amount
of property taxes, any general and special assessments levied against the
Premises for improvements existing on the Premises prior to the commencement of
the Lease, and other improvements made by Lessor on the assessed parcels during
the term of this Lease, and any other taxes for which Lessor is
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responsible. In such event, Lessor shall reimburse Lessee within ten (10) days
after written request by Lessee, which request shall be accompanied by a copy of
the current tax bill. If Lessor shall fail to reimburse Lessee for such taxes,
Lessee may, in addition to any other rights and remedies arising from such
default, offset the unpaid reimbursement against the next rental payment due
under this Lease, together with interest thereon accruing from the date
reimbursement was due, at an annual rate equal to the lesser of ten percent
(10%) per annum or the maximum rate permitted by law.
14. Utilities
Lessee shall, at Lessee's expense, connect to the electric utilities that exist
on the Premises. Lessee shall have its own electric meters and pay for all
electricity and any other utilities consumed by Lessee on the Premises. In the
event that an easement is required by a utility to provide service to the
Premises, Lessor agrees to grant and to otherwise help to create such an
easement, provided that any easement created coincides with the term of this
Lease and does not conflict with other uses of Lessor's property. Lessee shall
pay for any and all costs associated with installing and operating utility
services required, including but not limited to electrical service for the
winery and wastewater system.
15. Insurance and Casualty Events
(a) Lessee shall, at all times during the term of this Lease, maintain
policies of Worker's Compensation insurance as required by law and
commercial general liability policy of insurance with a limit of not
less than two million dollars ($2,000,000) aggregate and not less than
two million dollars ($2,000,000) per occurrence. Lessee shall maintain
all risk property insurance for the buildings
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and related improvements on a replacement cost basis. Lessee agrees to
name Lessor as an additional insured on Lessee's liability insurance
policy, and written proof of said coverage shall be furnished to Lessor
annually. The insurance policies required to be carried by Lessee
hereunder may be carried as part of a blanket policy of insurance. No
policy shall be cancelable or subject to reduction of coverage except
after thirty (30) days written notice to Lessor.
(b) Notwithstanding anything herein to the contrary, to the extent of
insurance proceeds received with respect to a loss, each party hereto,
respectively, hereby waives any right of recovery against the other
party for any loss or damage caused by such other party with respect to
the Premises, any improvements thereon, or any other land or
improvements used by Lessee pursuant to the terms of this Lease,
whether or not such loss is caused by the fault or negligence of the
other party. Lessor and Lessee shall each obtain from their respective
insurers a waiver of rights of subrogation, which is consistent with
this Subsection 15(b), which the insurer of one party might have
against the other.
(c) In the event that the Premises become commercially unfit for the
purposes for which Lessee intended by entering this Lease and insurance
proceeds are inadequate to restore the Premises to a reasonably fit
condition, due to events, including but not limited to, fire, flood,
earthquake, acts of God or nature, explosion, casualty of war, labor
dispute, permanent failure of supplies of electrical power, violence,
any governmental law, order, regulation or ordinance, or any other act
or condition beyond the reasonable control of Lessor or Lessee, Lessee
may elect, in its sole discretion, to terminate this Lease by providing
16.
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written notice to Lessor within ninety (90) days of the occurrence of
such condition or event. The notice shall set a termination date that
shall give Lessee a reasonable time to vacate the Premises. Lessee
shall pay rent until it vacates the Premises. As of the date of
termination of all or a portion of this Lease, the rent hereunder shall
be appropriately prorated or adjusted. If Lessee elects to terminate
this Lease, Lessee shall forfeit the appraised value of Lessee's
non-removable improvements and the $1,700,000, in each case as referred
to in Section 29 below. Lessor shall have the option (a) to require
Lessee to clear the site of debris and to restore the site to a graded,
buildable surface, similar to that existing prior to the construction,
or (b) to receive the estimated cost of such restoration in lieu of
Lessee's completing the work required under this Section 15(c). Lessor
shall inform Lessee of its decision within ninety (90) days of the
receipt of the notice of termination. The work shall be completed, or
the cash for the estimated cost shall be paid to Lessee, no later than
365 days after Lessor's notification of Lessee regarding its decision.
16. Liens and Encumbrances
(a) Lessee shall keep the Premises and its improvements free from any
liens arising out of any work performed, material furnished, or
obligations incurred by or for Lessee. If any such lien is
involuntarily placed upon the Premises, Lessee shall, within thirty
(30) days after the filing of such lien, cause such lien to be removed
of record. Notwithstanding anything herein to the contrary, Lessee
shall be entitled without the consent of Lessor, at any time, or from
time to time, to finance its operations on the Premises by pledging the
inventories, improvements
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and equipment on the Premises as collateral, or by encumbering,
pledging or mortgaging the leasehold interest, providing that any such
pledging shall not extend beyond the term of this Lease and shall not
place any encumbrance or obligation on the Lessor, its heirs,
successors or assigns. Lessor agrees to cooperate as reasonably
requested by Lessee.
(b) Lessor hereby represents and warrants to Lessee to the best of
their knowledge that they have good and lawful title to the Premises,
free and clear of all claims, liens, and encumbrances, easements,
conditions, rights of way, or covenants other than as shown on the
preliminary title insurance report issued by First American Title
Company Report #172472BCF dated April 1, 1998. Lessor has not assigned,
nor do they have knowledge of any assignment of, water rights to
others.
17. Access
(a) During the term of this Lease, Lessor grants to Lessee a
non-exclusive easement for all reasonable and necessary access to the
Premises for all lawful uses associated with the purposes of this
Lease, including but not limited to, a non-exclusive assignment of the
easement from Highway 121 onto the Premises. The access roads included
in the easement are identified on Exhibit 1 and shall consist of access
to the winery, septic leach-field, existing water source, wastewater
ponds and wastewater disposal area. Such access shall include access
for the installation, maintenance and repair of utility, water,
wastewater and septic systems. As shown on Exhibit 1, winery access
shall be limited to the north entrance from Highway 121 to the quarry.
No access to the winery is permitted
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through the south entrance from Highway 121 to the quarry. This
restriction is necessary in order to maintain separation between winery
and quarry activities. Lessee shall have the right, at Lessee's
expense, to make any improvements to the roadways used for such access
that Lessee deems necessary or desirable in connection with Lessee's
use thereof. Any changes made to the roadways shall be in keeping with
Lessor's other uses of the roadway. Lessee shall indemnify and hold
Lessor harmless from any liability, loss, cost or expense arising from
Lessee's use of the roadways, except to the extent arising from the
negligence or misconduct of Lessor, its agents, employees, contractors,
or invitees.
(b) Throughout the term of this Lease, Lessor shall have the right to
use the roadways located on the Premises if required for the purposes
of access to the property owned by Lessor adjacent to the Premises.
Lessor shall indemnify, defend and hold Lessee harmless from any
liability, loss, cost or expense arising from Lessor's use of such
roads, except to the extent arising from the negligence or misconduct
of Lessee, its agents, employees, contractors, or invitees.
(c) Lessor, its agents, employees, contractors, heirs, successors and
assigns shall have the right of access to and through the Premises at
all times so long as such access does not interfere with Lessee's use
of the Premises. Lessor may lease the wastewater discharge area to
other tenants for agriculturally related uses (e.g., cattle grazing)
provided that any such lessee's use does not materially interfere with
Lessee's use of this portion of the Premises.
(d) The quarry operator, C.R. Fedrick Inc. or its successor, shall have
the right to reasonably enter into and pass through roadways on the
Premises if required in
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order to obtain access to other areas of the parcel for purposes
related to the quarry operations, including but not limited to,
maintenance of buried electrical conduit, access to areas for
maintenance, access to roads for maintenance, access to preexisting
water systems and water use requirements and maintenance of pumping
equipment and electrical utilities used in conjunction with quarrying
operations. Any such access to the Premises by the quarry operator
shall not unreasonably interfere with winery operations or with
Lessee's use of the Premises.
(e) This Lease shall not create any rights of use, licenses, access or
easements on or to the Premises except as explicitly stated in this
Lease. No rights of use, access or easements shall be created, even
inadvertently, beyond the term of this Lease or the date of termination
of this Lease, whichever is earlier.
18. Water Licenses
(a) Lessor grants to Lessee a non-exclusive license and access to the
well identified on Exhibit 1, providing that such license and use does
not restrict or interfere with preexisting use of the well and its
water by the operator of the quarry for its operations. The quarry
operation shall have priority access to water supplies from the
existing well. Lessee shall have the license to drill wells and/or
create reservoirs on the Premises and to otherwise develop the water
supply available to the Premises in such manner as Lessee shall deem
appropriate or desirable for the operation of a winery.
(b) Lessee shall have the non-exclusive license to drill a well or
wells on the Premises and to use exclusively the water from such wells.
Lessee shall
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indemnify and hold Lessor harmless from any liability, loss, cost, or
expense arising from Lessee's development and use of the water sources
described in Subsections 18(a) and 18(b), except to the extent arising
from the negligence or misconduct of Lessor, its agents, employees,
contractors, or invitees.
(c) Lessee agrees that any changes made by Lessee to the existing water
system shall be made in a manner so as not to cause any unreasonable
disruption to the existing water service to the quarry. So long as
Lessee utilizes the existing well presently being used by the quarry,
Lessee shall share proportionately in the use and the operating
expenses of the existing well with the quarry operator, including the
costs of electricity, maintenance and repair.
(d) Lessor shall use reasonable efforts to assist Lessee to obtain any
permits necessary to develop water sources and/or reservoirs at
Lessee's expense. This Lease shall not create any rights of Lessee to
water on the Premises except as explicitly stated in this Lease. No
rights to water use shall be created, even inadvertently, beyond the
term of this Lease. No water shall be transferred off the Premises
except with the written consent of Lessor.
(e) Any such licenses created under this Section 18, shall be
terminated at the end of the Lease term or date of termination,
whichever is earlier.
19. Condemnation
If all or any portion of the Premises shall be taken as a result of the exercise
of the power to eminent domain, this Lease shall terminate as to the part so
taken. In the case of a partial taking, Lessee shall have the right to terminate
this Lease as to the balance of the Premises by written notice to Lessor within
ninety (90) days after such date, if Lessee
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shall otherwise reasonably determine that the partial taking shall materially
handicap, impede, impair, or render infeasible Lessee's use of the balance of
the Premises. Such termination by Lessee shall be effective as of the date of
Lessee's notice or such later date as may be specified in Lessee's notice. As of
the date of termination of all or a portion of this Lease, the rent hereunder
shall be appropriately prorated or adjusted. All expenses necessary to restore
fences and to replace access roads lost by the condemnation shall be borne by
Lessor. Lessee shall be entitled to all of that portion of the award
attributable to the value of its Leasehold, the use of its Leasehold and its
Leasehold improvements taken by the condemning authority (other than the fences
and access roads which Lessor shall be obligated to replace pursuant to this
Section 19), all as pro-rated over the length of the remainder of the Lease
term.
20. Disposal of Crush Residue and Pomace
Lessor shall allow Lessee to have access to other portions of Lessor's property
not included in the Premises for the disposal of organic, non-toxic,
non-hazardous wastes consisting of the by-products of the crushing and
fermenting activities of a winery. Lessee and Lessor shall develop a system, and
identify sites, for disposal that are mutually agreeable. In the event such
winery wastes are judged by any regulatory agency to constitute a toxic or
hazardous waste, Lessee shall immediately discontinue disposal of such by
products on Lessor's property or on the Premises.
21. Assignment or Subletting
Except as may be otherwise expressly permitted herein, Lessee shall not assign
or sublet any of its interests under this Lease or otherwise transfer or
encumber all or any part of Lessee's interest in this Lease without Lessor's
prior written consent, which consent shall
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not unreasonably be withheld or delayed for all or any of the uses described in
Section 4. Any subletting without Lessor's prior written consent shall be void
and shall, at the option of Lessor, terminate this Lease. This Lease shall not,
nor shall any interest therein, be assignable as to the interest of Lessee, by
operation of law, without the prior written consent of Lessor, which consent
shall not be unreasonably withheld or delayed. Notwithstanding the above, any
business combination, merger, sale of all or substantially all of the assets of
Lessee, whether or not Lessee is the surviving party, shall be permitted;
provided that any successor, assignee, or sublessee of any interest in this
Lease agrees in writing to be bound by the terms of this Lease.
22. Lessor's and JMF's Investment in Ravenswood Winery, Inc.
Lessor and JMF have paid for many expenditures on behalf of the winery project
in advance of the execution of this Lease. The parties agree that it is to their
mutual advantage to make these expenditures an investment in Ravenswood Winery,
Inc. In addition, Sandra D. Donnell and Justin M. Faggioli, separately or
jointly, may wish to make additional investments in Ravenswood Winery, Inc.
Exhibit 8 contains the following information with respect to the investment by
Lessor, Sandra D. Donnell and Justin M. Faggioli in Ravenswood Winery, Inc.:
o Expenditures paid by Bruce B. Donnell and Sandra D. Donnell.
o Expenditures paid jointly by Sandra D. Donnell and Justin M. Faggioli.
o Additional separate capital investment by Justin M Faggioli and/or Sandra D.
Donnell.
Lessee shall deliver to Lessor and/or Justin M. Faggioli, subordinated
convertible debentures and common stock in Ravenswood Winery, Inc. in the names
and amounts
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defined in Exhibit 8. The terms and conditions of the common stock and
convertible debentures issued under the terms of this Lease are contained in the
Ravenswood Winery, Inc. Offering Memorandum dated August 3, 1998.
23. Termination in the Event Building Permit is Not Obtained
In the event a building permit has not been obtained by Lessee within five years
from the date of execution of this Lease, this Lease shall terminate, unless
both parties agree in writing to continue the Lease.
24. Default; Remedies
(a) Events of Lessee's Default. Lessee shall be in default of its
obligations under this Lease if any of the following events occur:
(i) Lessee fails to pay any rent when due or any other sum
within thirty (30) days following written demand by Lessor; or
(ii) Lessee fails to perform or breaches any term, covenant,
or condition of this Lease except those requiring the payment
of rent, and Lessee fails to cure such default within thirty
(30) days after delivery of written notice from Lessor
specifying the nature of such default; or
(iii) Lessee makes an assignment, sublease, or other transfer
in violation of this Lease; or
(iv) Lessee makes a general assignment of its assets for the
benefit of its creditors; or
(v) There occurs an appointment of a custodian or receiver
with respect to, or other judicial seizure of: (a)
substantially all of Lessee's assets; (b) any property of
Lessee essential to the conduct of Lessee's
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business in the Premises; or (c) the leasehold interest
created by this Lease; and Lessee fails to obtain a return or
release of such property within thirty (30) days thereafter or
prior to sale or other disposition, whichever is earlier; or
(vi) Lessee vacates or abandons the Premises; or
(vii) A court makes or enters any decree or order with respect
to Lessee or Lessee submits to or seeks a decree or order (or
a petition or pleading is filed in connection therewith)
which: (a) grants or constitutes (or seeks) an order for
relief, appointment of a trustee, or confirmation of a
reorganization plan under the bankruptcy laws of the United
States; (b) approves as properly filed a petition seeking
liquidation or reorganization under said bankruptcy laws or
any other debtor's relief law or statute of the United States
or any state thereof; or (c) otherwise directs (or seeks) the
winding up or liquidation of Lessee; provided, however, that
if any such petition, decree or order, is not voluntarily
filed or made by Lessee, that Lessee shall not be in default
until such petition, decree or order remains undischarged for
a period of thirty (30) days.
(b) Lessor's Remedies. In the event of any default by Lessee, Lessor
shall have the following remedies, in addition to all other rights and
remedies provided by any law or otherwise provided in this Lease, to
which Lessor may resort cumulatively, or in the alternative:
(i) Lessor may keep this Lease in effect and enforce, by an
action at law or in equity, all of its rights and remedies
under the Lease, including
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(a) the right to recover the rent and other sums as they
become due by appropriate legal action, (b) the remedies of
injunctive relief and special performance to compel Lessee to
perform its obligations under this Lease, and (c) the right to
cause a receiver to be appointed to administer the Premises.
(ii) Lessor may make any payment or perform any obligation of
Lessee. All sums paid by Lessor and all necessary costs of
such performance by Lessor, together with interest at the
highest rate permitted by law from the date the sum is paid by
Lessor until Lessor is reimbursed by Lessee, shall be
reimbursed to Lessor on demand by Lessor. Lessor shall have
the same rights and remedies in the event of nonpayment of
such amounts by Lessee as in the case of failure by Lessee in
the payment of rent.
(iii) Lessor may, at Lessor's election, enter the Premises and
re-lease them, or any part of them, to third parties for
Lessee's account. Lessee shall be liable immediately to Lessor
for all costs Lessor incurs in re-leasing the Premises,
including broker's commissions, expenses of altering and
preparing the Premises required by the re-leasing, and like
costs. Re-letting can be for a period shorter or longer than
the remaining term of this Lease. Lessee shall pay to Lessor
the rent and other sums due under this Lease on the date the
rent is due, less the rent and other sums Lessor received from
any re-leasing. No act by Lessor allowed by this Subsection
24(b) shall terminate this Lease unless Lessor notifies Lessee
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in writing that Lessor elects to terminate this Lease.
Notwithstanding any re-leasing without termination, Lessor may
later elect to terminate this Lease because of the default by
Lessee.
(iv) In the event Lessee breaches this Lease and vacates or
abandons the Premises, this Lease shall not terminate unless
Lessor chooses to terminate the Lease at the time of such
breach or abandonment. Such action by Lessor shall cause this
Lease to terminate, regardless of whether Lessor has
theretofore exercised any other of its remedies. No act by or
on behalf of Lessor intended to mitigate the adverse effect of
such breach shall constitute termination of Lessee's right to
possession unless Lessor gives Lessee written notice of
termination. Should Lessor not terminate this Lease by giving
Lessee written notice, Lessor may enforce all its rights and
remedies under this Lease including the right to recover the
rent as it becomes due under the Lease as provided in
California Civil Code Section 1951.4, as in effect on the
effective date of this Lease.
(v) Lessor may, at Lessor's election, terminate this Lease by
giving Lessee written notice of termination, in which event
this Lease shall terminate on the date set forth for
termination in such notice. No act by or on behalf of Lessor
intended to mitigate the adverse effect of Lessee's default
shall constitute a termination of the Lease or Lessee's right
to possession unless Lessor gives Lessee written notice of
termination. Any such termination shall not relieve Lessee
from payment of any sums then due Lessor or from any claim for
damages resulting from Lessee's default.
27.
<PAGE>
Following termination of the Lease, and without prejudice to
any other remedies Lessor may have, Lessor may then or any
time thereafter (a) peaceably reenter the Premises upon
voluntary surrender by Lessee or expel or remove Lessee
therefrom together with any other persons occupying it, using
such legal proceedings as are then available, (b) repossess
and use the Premises or re-lease it or any part thereof for
such term, at such rent, and upon such other terms and
conditions as Lessor in its sole discretion may determine, and
(c) remove all property of Lessee therefrom at Lessee's
expense.
(vi) In the event Lessor terminates this Lease, Lessor shall
be entitled, at Lessor's election, to damages in an amount as
set forth in California Civil Code Section 1951.2 as in effect
on the effective date of this Lease. For purposes of computing
damages pursuant to said Section 1951.2, the highest interest
rate permitted by laws shall be used. Such damages shall
include without limitation:
(1) The amount at the time of award by which the
unpaid rent for the balance of the term after the
time of award exceeds the amount of such rental loss
that Lessee proves could be reasonably avoided,
computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco at
the time of award plus one percent (1%); and
(2) Any other amount necessary to compensate Lessor
for all detriment proximately caused by Lessee's
failure to perform
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Lessee's obligations under this Lease, or which in
the ordinary course of things would be likely to
result therefrom, including, without limitation, the
following: (a) expenses for repairing or restoring
the Premises; (b) expenses for improving the Premises
for the purpose of re-leasing; (c) broker's fees,
advertising costs and other expenses of re-leasing
the Premises; (d) costs of carrying the Premises,
such as taxes, insurance premiums, utilities, and
security precautions; (e) expenses in retaking
possession of the Premises; and (f) attorney's fees
and court costs incurred by Lessor in retaking
possession of the Premises and in releasing the
Premises or otherwise incurred as a result of
Lessee's default.
(c) Lessor's Default and Lessee's Remedies. In the event
Lessor fails toperform any of its obligations under this Lease
and fails to cure such default within thirty (30) days after
written notice from Lessee specifying the nature of such
default where such default could reasonably be cured within
said thirty (30) day period; or where such default could not
reasonably be cured within said thirty (30) day period, Lessor
fails to commence such cure within said thirty (30) day period
and thereafter continuously with due diligence prosecute such
cure to completion, then Lessee shall have the following
remedies only:
(i) Lessee may proceed in equity or at law to compel
Lessor to perform its obligations and/or to recover
damages proximately caused by such failure to perform
(except to the extent Lessee has waived its right to
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damages resulting from injury to person or damage to
property as provided herein).
(ii) Lessee may terminate this Lease following notice
and expiration of the cure periods set forth above.
Such termination shall be effective upon the date set
forth in the notice.
Lessee hereby waives the provisions of Section 1932(1), 1941
and 1942 of the California Civil Code and/or any similar or
successor law regarding Lessee's right to terminate this Lease
or to make repairs and deduct the expenses of such repairs
from the rent due under the Lease. Lessee hereby waives any
right of redemption or relief from forfeiture under the laws
of the State of California, or under any other present or
future law, including the provisions of Sections 1174 and 1179
of the California Code of Civil Procedure.
25. Surrender
Except for termination under Section 15(c) or a taking by condemnation under
Section 19, on the last day of the Lease term, or on any sooner lease
termination, Lessee shall surrender to Lessor the Premises and the non-removable
improvements described above in Section 9 in good operating condition, broom
clean, ordinary wear and tear excepted. Lessee shall repair any damage to the
permanent improvements and/or Premises occasioned by the installation or removal
of Lessee's property.
26. Dispute Resolution and Arbitration
To ensure rapid and economical resolution of any and all disputes which may
arise in connection with this Lease, the parties agree that any and all
disputes, claims, causes of action, in law or in equity, arising from or
relating to this Lease or its enforcement,
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performance, breach, or interpretation shall be resolved by final and binding
confidential arbitration through Judicial Arbitration & Mediation
Services/Endispute, Inc. ("JAMS") under the then existing JAMS Rules of Practice
and Procedure, with such arbitration to be held in San Francisco, California.
Nothing in this Section is intended to prevent either party from obtaining
injunctive relief in court to prevent irreparable harm pending the conclusion of
such arbitration. The above notwithstanding, the results of said arbitration
shall not result in any extension of the Lease term.
27. Right of the First Option to Purchase
Lessee shall have a right of first option to purchase ("Option to Purchase")
that portion of the Premises consisting of parcel # 142-122-04 (the "Optioned
Premises"). The Optioned Premises shall not include the portions of the Premises
described in Exhibit 3, any wastewater ponds, or any access to such portions of
the Premises or wastewater ponds. This First Option to Purchase shall be
personal to the Lessee, and shall not, under any circumstances be assignable.
If, during the term of this Lease, Lessor desires to make to any party a bona
fide offer to sell the Optioned Premises or any portion thereof, or Lessor
receives an offer to purchase the Optioned Premises or any portion thereof,
which Lessor is willing to accept, Lessor shall notify Lessee in writing of such
offer to sell or such offer to purchase, as applicable, which notice shall
specify the terms and conditions of such offer and, as applicable, the identity
of the proposed offeree if known, or the prospective purchaser for a purchase;
and if such offer shall affect less than all of the Optioned Premises, Lessor
shall identify the portion of the Optioned Premises affected by the offer. Such
notice shall be referred to herein as "Lessor's Option to Purchase Notice." The
Lessor's Option to Purchase Notice shall constitute an offer by Lessor to
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sell the property specified in Lessor's Option to Purchase Notice to Lessee on
the terms set forth in Lessor's Option to Purchase Notice. Lessee shall have
forty-five (45) days from receipt of Lessor's Option to Purchase Notice to
accept such offer, by written notice to Lessor. If the offer is so accepted, the
purchase and sale of the property shall be closed within one hundred twenty
(120) days after such acceptance. If Lessee rejects the offer or fails timely to
accept the offer, Lessor may, during the six-month period following expiration
of the forty-five (45) day offer period, enter into an agreement to sell the
property at a price not lower, and on terms not more favorable to the purchaser,
than the price and terms contained in Lessor's Option to Purchase Notice. If no
agreement is entered into within such six-month period, or if an agreement is
entered into with such six-month period but the purchase has not been closed
within sixty (60) days after expiration of such six-month period, neither the
Optioned Premises, nor any portion thereof, shall thereafter be sold without
first being re-offered to Lessee in accordance with the terms of this Section.
Lessee's Option to Purchase shall not apply to sales or other transfers
affecting the Optioned Premises or any portion thereof, between and among the
members of Lessor's families or any entity under the control of any of the
Lessors or any individual in Lessor's family. Lessor shall be able to conduct
transactions between their families without notifying Lessee. Examples of
transactions between Lessor's families may include, but are not limited to the
following: sale, gift, trade and distribution from an estate; provided, however,
that said family grantees shall then be bound by Lessee's Option to Purchase in
connection with any subsequent proposed transfers to non-family members. Lessee
shall, as promptly as reasonably practical, notify Lessor of any material
transactions affecting
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ownership of the Optioned Premises or any portion thereof. This Option to
Purchase shall not be transferable or assignable to any party by Lessee or to
any party who assumes Lessee's interests hereunder due to a default or
foreclosure by any lender.
28. Right of the First Option to Rent
Subject to the termination of this option as set forth below, Lessee shall have
a right of first option to rent the Premises ("Option to Rent") subject to all
of the following conditions: (a) this Option to Rent has not expired; and (b)
the other potential future tenant use is as a winery owned by an independent
third party, i.e., an entity that is not owned by either the Lessors, their
heirs, successors or assigns or by Lessee. If all of the aforementioned
conditions are present, Lessee shall have a right of first option to rent the
Premises, and such option to rent will expire on and shall be of no force or
effect after December 31, 2029. This Option to Rent shall be personal to the
Lessee, and shall not, except as otherwise provided herein, under any
circumstances be assignable. If, prior to the termination of this Option to
Rent, Lessor shall desire to make to any party a bona fide offer to rent or
lease the Premises or any portion thereof, or Lessor shall receive an offer to
rent which Lessor is willing to accept, Lessor shall notify Lessee in writing of
such offer, which notice shall specify the terms and conditions of such offer
and the identity of the prospective purchaser; and if such offer shall affect
less than all of the Premises, Lessor shall identify the portion of the Premises
to be transferred. Such notice shall be referred to herein as "Lessor's Option
to Rent Notice." The Lessor's Option to Rent Notice shall constitute an offer by
Lessor to rent the Premises, or the portion thereof specified in Lessor's Option
to Rent Notice, to Lessee on the terms set forth in Lessor's Option to Rent
Notice, and Lessee shall have forty five (45) days from receipt of Lessor's
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Option to Rent Notice to accept such offer, by written notice to Lessor. If the
offer is so accepted, the rent of the Premises (or the portion thereof specified
in Lessor's Option to Rent Notice) shall be consummated within one hundred
twenty (120) days after such acceptance. If Lessee rejects the offer or fails
timely to accept the offer, Lessor may, during the six-month period following
expiration of the 45 day offer, enter into an agreement to rent the Premises at
a price not lower, and on terms not more favorable to the purchaser, than the
price and terms contained in Lessor's Option to Rent Notice. If no agreement is
entered into within such six-month period, or if an agreement is entered into
within such six-month period but the rent has not been consummated within sixty
(60) days after expiration of such six-month period, neither the Premises (nor
any portion thereof) shall thereafter be rented without first being re-offered
to Lessee in accordance with the terms of this Section. Lessee's Option to Rent
shall not apply to rents, leases or similar transactions between or within the
individuals within Lessor's families or any entity under the control of any of
the Lessors or any individual in Lessor's family. Lessor shall be able to
conduct transactions between their families without notifying Lessee. Examples
of transactions between Lessor's families may include, but are not limited to
the following: sale, rental, lease, gift, trade and distribution from an estate;
provided, however, that said family grantees shall then be bound by this Option
to Rent in connection with any subsequent transfers to non-family members. In
the event that the rights under this Lease are assumed by a Lender of Lessee,
then the Option to Rent set forth in this Section 28 shall be exercisable by
such lender.
34.
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29. Renewal of the Lease and Buyout of Lessee Improvements
(a) If Lessee shall desire to remain on the Premises beyond the term of
the Lease, Lessee shall so notify Lessor no later than July 1, 2025 and
the parties shall promptly enter into good faith negotiations regarding
the terms of such new tenancy and the parties intentions with respect
to the Premises. If a new lease has not been executed by the parties
prior to January 1, 2027, Lessor shall have the right to initiate
negotiations with other interested parties.
(b) In the event that the parties are unable to negotiate a new lease
by January 1, 2027, Lessor shall pay Lessee for the value of the
non-removable leasehold improvements made by Lessee, in accordance with
the following procedures. The demand by Lessee shall include a
contractually binding notice from Lessee that it will vacate the
Premises at the end of the term. This notice shall not affect Lessor's
Option to Rent under Section 28 of this Lease. The parties agree that
an appraiser selected in accordance with the qualifications set forth
in Section 5(d) shall be acceptable. Such appraiser shall conduct an
appraisal of the non-removable improvements made by Lessee and begin
such appraisal commencing during January 2030. A copy of the results of
such appraisal shall be delivered to Lessee and Lessor no later than
January 1, 2031. The cost of the appraisal shall be shared by Lessee
and Lessor. On or before December 31, 2032, Lessor shall pay to Lessee
the lesser of (a) the dollar value of the appraised value of Lessee's
non-removable improvements made to the Premises or (b) $1,700,000.
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30. Memorandum of Lease
Lessor and Lessee shall cause a memorandum of this Lease, in the form attached
hereto as Exhibit 9, to be executed and recorded in the office of the County
Clerk of Sonoma County. Upon termination of this Lease and upon a request by
Lessor, Lessee shall execute a quit claim deed or termination of Lease in
recordable form and shall cooperate with Lessor in recording same.
31. Attorney's Fees
In the event that any dispute arising out of or in any way connected with this
Lease, is arbitrated or otherwise litigated, the party not prevailing in such
dispute shall pay any and all legal costs and expenses incurred by the other
party in enforcing or establishing its rights hereunder, including, without
limitation, court costs and reasonable attorneys' fees. The trier of fact shall
determine the party not prevailing on each issue. This determination may be
proportional and the trier of fact shall have the right to determine and to
allocate who shall pay what amounts of such legal costs.
32. Notices
Any notice required or permitted hereunder shall be given in writing and shall
be deemed effectively given upon personal delivery, including delivery by
express courier, or two (2) days after deposit in the United States Post Office,
by registered or certified mail with postage and fees prepaid, addressed as
follows:
To Lessor: El Novillero-Donnell Ranch
P. O. Box 1003
Tiburon, CA 94920
ATTN: Justin M. Faggioli
To Lessee: Ravenswood Winery, Inc.
18701 Gehricke Road
Sonoma, CA 95476
36.
<PAGE>
ATTN: W. Reed Foster
or at such other addresses as may be specified by either party hereto by written
notice given to the other.
33. Toxic and Hazardous Substances
Storage of toxic substances, fuels or other supplies shall be in strict
accordance with local, state and federal regulations. For the purposes of this
Section 33, all uses of the words "Lessee" and "Lessor" shall be expanded to
include their respective employees, agents or contractors.
(a) Lessee agrees to assume and to be solely responsible for all costs
and expenses of every kind relating to toxic and/or hazardous
substances, fuels, or other supplies, stored and/or used by Lessee on
the Premises herein leased, including but not limited to compliance
with all permit and reporting requirements and remediation of all
contamination in accordance with all applicable laws and
investigations, claims, lawsuits, proceedings, citations, cease and
desist orders, abatement orders, or other actions or orders of any kind
against the demised Premises and/or Lessor and/or Lessee, whether by
any private party or any administrative, judicial, or quasi-judicial
boards, court or agency, having jurisdiction over the property, Lessor
and/or Lessee. Lessee hereby further agrees to indemnify, protect, and
hold harmless Lessor, their employees, agents, heirs, and assigns, from
and against any and all response costs, losses, claims, demands, causes
of action, lawsuits, proceedings, enforcement actions, obligations and
liabilities of any kind arising out of the presence of hazardous
substances stored and/or used by Lessee on the Premises or
contamination by hazardous substances
37.
<PAGE>
caused by Lessee, including any amounts which Lessor is called upon to
pay in costs, expenses and attorney's fees incurred by Lessor in
defending or protecting their interests. Lessee further agrees, at
Lessee's sole cost and expense, to defend Lessor, either separately or
jointly with Lessee at Lessor's sole election, against any and all
lawsuits, proceedings, or other enforcement actions arising out of any
contamination caused by Lessee, presence of hazardous substances stored
and/or used by Lessee on the Premises and/or legal proceedings arising
from Lessee's use or storage of hazardous substances on the Premises.
The indemnification and covenants to protect, hold harmless and defend
contained in this Section shall survive the termination of the Lease
and shall inure to the benefit of and be binding upon the respective
heirs, successors and assigns of Lessor and Lessee.
(b) Lessor hereby notifies Lessee that no toxic and hazardous
substances exist on the Premises. Lessor agrees to assume and be solely
responsible for all costs and expenses of every kind relating to toxic
and/or hazardous substances, fuels, or other supplies, stored and/or
used by Lessor on the Premises herein leased or which were present on
the Premises at the commencement of this Lease, including but not
limited to compliance with all permit and reporting requirements and
remediation of all contamination in accordance with all applicable laws
and investigations, claims, lawsuits, proceedings, citations, cease and
desist orders, abatement orders, or other actions or orders of any kind
against the demised Premises and/or Lessor and/or Lessee, whether by
any private party or any administrative, judicial, or quasi-judicial
boards, court or agency, having jurisdiction of the property, Lessor
and/or Lessee. Lessor hereby further agrees to
38.
<PAGE>
indemnify, protect, and hold harmless Lessee, their employees, agents,
heirs, and assigns, from and against any and all response costs,
losses, claims demands, causes of action, lawsuits, proceedings,
enforcement actions, obligations and liabilities of any kind arising
out of the presence of hazardous substances stored and/or used by
Lessor on the Premises or contamination by hazardous substances caused
by Lessor or which existed on the Premises at the commencement of this
Lease, including in any amounts which Lessee is called upon to pay in
costs, expenses and attorneys' fees incurred by Lessee in defending or
protecting their interests. Lessor further agrees, at Lessor's sole
cost and expense, to defend Lessee, either separately or jointly with
Lessor at Lessee's sole election, against any and all lawsuits,
proceedings, or other enforcement actions arising out of any
contamination caused by Lessor, presence of hazardous substances stored
and/or used by Lessor on the Premises and/or legal proceedings arising
from Lessor's use or storage of hazardous substances on the Premises.
The indemnification and covenants to protect, hold harmless and defend
contained in this Section shall survive the termination of this Lease
and shall inure to the benefit of and be binding upon the respective
heirs, successors and assigns of Lessor and Lessee.
34. Compliance with Laws, etc.
Any County of Sonoma or other public entity fees occasioned by Lessee's use of
the Premises shall be the sole responsibility of Lessee. Lessee shall not use,
or permit said Premises, or any part thereof, to be used for any purpose or
purposes other than for which the Premises are hereby leased. Any rules or
regulations deemed applicable by any governmental authority to Lessee's
operation shall be promptly complied with by Lessee,
39.
<PAGE>
and Lessee agrees to indemnify and to hold harmless Lessor from any
responsibility therefor. Notwithstanding any of the previous provisions of this
Section, Lessee shall not be required to maintain, correct, restore or bear any
costs with respect to any of the following:
(a) Building and safety code violations, except for such requirements
as are imposed upon the Premises solely because of the specific nature
of Lessee's use of the Premises.
(b) Clean-up or restoration of the environment due to hazardous waste
or other environmental pollutants affecting the Premises, except for
those which result from Lessee's operations on the Premises or actions
taken by Lessee that result in contamination to the Premises.
(c) Any latent defects in the structure of the Premises and any
condition caused by such latent defects.
35. Liability and Indemnity
Lessee agrees to indemnify, defend and hold the Lessor harmless from all claims
in negligence and torts (including costs and expenses of defending against such
claims) arising or alleged to arise from any act or omission of Lessee or
Lessee's agents, employees or contractors occurring during the term of this
Lease in or about the Premises, except to the extent arising from the act or
omission of Lessor, its agents or employees. Lessee agrees to use and to occupy
the Premises at Lessee's own risk and hereby releases Lessor, and Lessor's
agents and employees, from all claims for any damage or injury to person or
property to the full extent permitted by law, other than any damage or injury
caused by any act or omission of Lessor, its agents or employees.
40.
<PAGE>
Lessor in turn agrees to indemnify, defend and hold Lessee harmless from all
claims, in negligence and torts (including costs and expenses of defending
against such claims) arising or alleged to arise from any act or omission of
Lessor or Lessor's agents or employees, of Lessor occurring during the term of
this Lease, except to the extent arising from the act or omission of Lessee, its
agents or employees.
36. Miscellaneous
(a) The obligations of each person signing this Lease as Lessor shall
be joint and several. The words "Lessor" and "Lessee" as used herein
shall include the plural, as well as the singular. The captions
preceding the articles of this Lease have been inserted solely as a
matter of convenience, and such captions in no way define or limit the
scope or intent of any provision of this Lease.
(b) The terms, covenants and conditions contained in this Lease shall
bind and inure to the benefit of Lessor and Lessee and their respective
successors and permitted assigns.
(c) This Lease shall be construed and enforced in accordance with the
laws of the State of California. This instrument, including the
Exhibits hereto (which are expressly made a part of this Lease),
contains the entire agreement between the parties (not including,
however, any agreement as to partnership, corporation or other
relationship among the parties constituting the Lessor or Lessee), and
all prior negotiations and agreements are merged herein.
(d) Except as herein otherwise specifically provided, the parties shall
have all rights and remedies provided by law in the event of any
default.
41.
<PAGE>
(e) This Lease may be amended only by a writing executed by the parties
hereto.
(f) The waiving by Lessor or Lessee of any agreement, condition, or
provision herein contained shall not be deemed to be a waiver of any
subsequent breach of the same or any other agreement, condition, or
provision herein contained, nor shall any custom or practice which may
develop between the parties in the administration of the terms hereof
be construed to waive or to lessen the rights of Lessee or Lessor to
insist upon the performance by the other in strict accordance with said
terms.
(g) Time is of the essence of this Lease and each and all of its
provisions.
(h) Lessor represents to Lessee that to the best of Lessor's knowledge:
(i) There exist no substances identified as hazardous or toxic
by any federal, state, or local law or regulation on or under
the Premises or in any water supply or groundwater located on
the Premises or, in any land, water supply or groundwater
adjacent to the Premises, and there are no underground tanks
on the Premises; and
42.
<PAGE>
(ii) There are no actions, suits or proceedings, pending or
threatened, against or affecting Lessor or the Premises, at
law or in equity, in or before any federal, state, municipal,
or other governmental court, department or agency, that
involve or may affect the Premises, this Lease, or Lessee's
contemplated use of the Premises.
IN WITNESS WHEREOF, the parties hereto have executed this Lease on
January 1, 1999.
Lessor: Lessee:
/s/ BRUCE B. DONNELL /s/ W. REED FOSTER
- --------------------------- ------------------------------------
Bruce B. Donnell W. Reed Foster, Chairman
Ravenswood Winery, Inc.
/s/ SANDRA D. DONNELL /s/ JOEL E. PETERSON
- --------------------------- ------------------------------------
Sandra D. Donnell Joel E. Peterson, President
Ravenswood Winery, Inc.
43.
EXHIBIT 10.9
STOCK AGREEMENT AND AMENDMENT OF VOTING TRUST
The undersigned, all of the Directors and Voting Trustees of Ravenswood
Winery, Inc., and W. Reed Foster, also acting in his individual capacity, hereby
set forth their agreement to terminate a certain stock plan in favor of Mr.
Foster and to amend the Voting Trust Agreement covering certain shares of the
Company, which Voting Trust is dated the 27th day of May, 1998 (the "Voting
Trust").
In consideration of the mutual promises of the parties and the terms
set forth below, the parties hereby agree as follows:
1. RECITALS: This Stock Agreement And Amendment of Voting Trust ("This
Agreement") is entered into upon the facts and the understandings set forth
below in this paragraph, which the parties agree are true and correct.
a. The Company and W. Reed Foster entered into a
Phantom/Preference Share Plan as of August 25, 1992, as amended to date (the
"Plan"). The Plan contains units equivalent to 5,487.8 shares of the Common
Stock of the Company.
b. As part of the audit for the Company's financial affairs
for its fiscal year ending June 30, 1998, it became clear to the Directors that
they would have to change the Plan. Generally Accepted Accounting Principles as
applied to the Plan made accounting for the Plan difficult and would likely
cause continuous and perhaps confusing adjustments to earnings. Accordingly, as
a part of the audit, the Directors decided, and Mr. Foster agreed, to value the
Plan account as at June 30 1998, to terminate the Plan effective July 1, 1998,
and to distribute the number of shares of Common Stock covered by the Plan (the
"Shares") to Mr. Foster, in full satisfaction of the Company's obligation under
the Plan.
c. As a part of the termination of the Plan the parties have
tried to follow the terms of the Plan and the longstanding intent of the
parties, upon termination of the Plan, to issue Common Stock, only. To the
extent there is any conflict between This Agreement and the Plan, This Agreement
constitutes an amendment of the Plan.
<PAGE>
d. However, notwithstanding sub-paragraph c. above, there was
concern about the potential dilutive effect on voting power of the issuance of
the Shares while Mr. Foster remains an employee of the Company, as this was not
contemplated by the Plan. As a result, the parties have agreed to restrict,
specially, the voting of the Shares. Accordingly, the Shares shall be deposited
in the Voting Trust and they shall remain subject to the terms of the Voting
Trust, as amended by This Agreement, until the end of the term of the Voting
Trust or until Mr. Foster no longer is employed by the Company, whichever first
occurs.
2. TERMINATION OF THE PLAN: The 5,487.8 shares of Common Stock covered
by the Plan shall be issued in full satisfaction of the Company's obligation
under the Plan and the Plan shall be considered terminated as of July 1, 1998.
Reed Foster shall select the name of the issuee as the beneficial owner of the
Shares, whether as an individual or individuals or a trust. It is understood
that on behalf of any such shareholder Mr. Foster represents that the shares
shall be acquired and held for the account of the holder for investment and not
with a view to distribution within the meaning of the Securities Act of 1933.
3. DEPOSIT INTO THE VOTING TRUST: It is understood and agreed that the
Company shall deposit the Shares into the Voting Trust and they shall be held by
the Trustees in the Voting Trust subject to the terms of the Voting Trust, as
amended by This Agreement.
4. AMENDMENT OF THE VOTING TRUST: It is understood and agreed that This
Agreement is an amendment of the Voting Trust and it shall be attached to and
shall be a part of the Voting Trust. It is further understood and agreed that
whether or not other shares are added to or subtracted from the Voting Trust or
whether the Voting Trust is terminated as to other shares, that the Shares shall
remain subject to the Voting Trust. With respect to the Shares, the Voting Trust
shall continue and the Shares shall remain subject to the Voting Trust for the
full legal term of the Voting Trust or until Mr. Foster leaves the employment of
the Company, whichever first occurs. It shall take a unanimous vote of the
Trustees to amend the Voting Trust with respect to the Shares or to permit the
removal of the Shares from the Voting Trust, absent Mr. Foster leaving the
employment of the Company.
2
<PAGE>
5. LOAN TO MR. FOSTER: In lieu of the Company redeeming any of the
Shares under paragraph 4 of the Plan, it is agreed that the Company shall lend
to Mr. Foster up to $335,000 as needed by him between now and April 15, 1999 to
fund income tax obligations (including Medicare Tax) arising from the
distribution of the Shares based on the share account as valued in the audit, of
$111 per share. The loan shall be repayable by Mr. Foster in accordance with the
form of promissory note that shall be executed at the time of the execution of
This Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement And
Amendment Of Voting Trust on the 21st day of December, 1998, effective as of
July 1, 1998.
/s/ W. REED FOSTER
------------------------------------
W. Reed Foster
RAVENSWOOD WINERY, INC.
By: /s/ JOEL PETERSON
--------------------------------
Joel Peterson
President
By: /s/ JUSTIN FAGGIOLI
--------------------------------
Justin Faggioli
Executive Vice President
TRUSTEES and DIRECTORS:
/s/ JUSTIN M. FAGGIOLI
------------------------------------
Justin M. Faggioli
/s/ W. REED FOSTER
------------------------------------
W. Reed Foster
/s/ JOEL E. PETERSON
------------------------------------
Joel E. Peterson
/s/ JAMES F. WISNER
------------------------------------
James F. Wisner
3
<PAGE>
STRAIGHT NOTE
up to $335,000.00 SONOMA, CALIFORNIA December 21, 1998
DUE ON OR BEFORE December 20, 2008, for value received, I promise to
pay in lawful money of the United States of America, to RAVENSWOOD WINERY, INC.,
or order, at place designated by payee, the principal sum of up to THREE HUNDRED
THIRTY-FIVE THOUSAND AND NO/100 DOLLARS ($335,000.00), as drawn by W. Reed
Foster from time to time, with interest in like lawful money from December 21,
1998 until paid at the rate of five and 30/100 percent (5.3%) per annum. The
maximum principal amount of this note may be drawn down in installments by April
15, 1999. Interest shall be payable on the outstanding principal amount in
annual installments due on or before December 21, 1999, and to be due on the
21st of December for the years 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007
and 2008, with payment of all principal due on December 21, 2008.
Principal and interest payable in lawful money of the United States of
America. Should default be made in payment of interest due, the whole sum of
principal and interest shall become immediately due at the option of the holder
of this note. If action be instituted on this note, I promise to pay such sum as
the court may fix as attorney's fees. This note may be prepaid in whole or in
part, without penalty.
/s/ W. REED FOSTER
- --------------------------------------------
W. Reed Foster
As An Individual
RAVENSWOOD WINERY, INC.
A California Corporation
By: /s/ CALLIE S. KONNO
----------------------------------------
Callie S. Konno, Treasurer and
Chief Financial Officer
Exhibit 10.10
CONVERTIBLE SUBORDINATED DEBENTURE
(Dated as of January 1, 1995)
FOR VALUE RECEIVED, Ravenswood Winery, Inc., a California corporation
(the "Borrower"), hereby promises to pay to __________________________________
________________ (the "Holder"), or order, (subject to the offer requirement of
section 7.4), the "Principal" sum of ______________ Dollars ($________). Such
payment shall be made no later than 5 P.M., Pacific Time on December 31, 2004
("Maturity"). Conversion of this Debenture shall constitute payment in full of
all Principal. Borrower shall also pay interest upon the Principal outstanding
from time to time at the rate of eight per cent (8%) per annum from the date
hereof until this Debenture is converted or all Principal is paid, whichever
first occurs. Interest shall be payable quarterly in arrears commencing with the
first payment on April 1, 1995. Any balance of interest shall be paid at
conversion or Maturity as applicable. The initial eight percent (8%) interest
rate shall be subject to adjustment every 18 months as provided in Section 8.8.
Both Principal and interest shall be payable in lawful money of the
United States of America at the address which the Holder has provided to the
Borrower in writing. Borrower shall be entitled to take reasonable measures to
verify the Current Holder and the then current payment address before making any
payment, and time taken for such measures shall not cause a default hereunder.
The securities represented hereby have not been registered under the
Securities Act of 1933 (the "Act") or any state securities laws and may not be
resold, transferred, pledged, hypothecated or otherwise assigned until
compliance with the restrictions in Section 7.5 of this Debenture have occurred.
- --------------------------------------------------------------------------------
FEDERAL EXEMPTION: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THESE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT."
1
<PAGE>
ARTICLE ONE
SUBORDINATION
1.1 Senior Indebtedness. As used in this Debenture, the term "Senior
Indebtedness" shall mean the principal of all indebtedness of the Borrower
regardless of whether incurred on, before or after the date of this Debenture
(i) for money borrowed from any bank, and evidenced by notes, bonds, debentures
or other written obligations and such notes, bonds, debentures or other written
obligations are interest bearing securities only and are not convertible or
issued in connection with the issue of warrants or options, whether separate or
attached, or some other rights to receive stock or participate in the earnings
of the Borrower in any form, including dividend distributions, (ii) the
Borrower's indebtedness to Farm Credit Association, where the Borrower has a
line of credit, currently at a maximum amount of $663,270 per year, renewable
annually, and (iii) in connection with any renewals or extensions of any
indebtedness described in (i) or (ii) above. Borrower reserves the right to
increase the number of its sources of bank credit, as well as to increase the
maximum loan amounts. Use of available funds for payments on Senior Indebtedness
shall not be a default under payments due to the Holder. Any such payments not
made to Holder shall cumulate at the Debenture rate of interest until paid.
1.2 Subordination. The Borrower covenants and agrees and the Holder, by
acceptance hereof, covenants, expressly for the benefit of the present and
future holders of Senior Indebtedness, that the payment of the principal and
interest on this Debenture is expressly subordinated in right of payment to the
payment in full of principal and interest and any fees, charges or penalties of
Senior Indebtedness. Upon any terminating liquidation of assets of the Borrower,
upon the occurrence of any dissolution, winding up, liquidation, whether or not
in bankruptcy, insolvency or receivership proceedings, the Borrower shall not
pay thereafter and the Holder shall not be entitled to receive thereafter, any
amount in respect of the principal and interest of the Debenture unless and
until the Senior Indebtedness shall have been paid or otherwise discharged. Upon
any dissolution, winding up, liquidation or reorganization, any payment or
distribution of assets of the Borrower, whether in cash, property or securities,
to which the Holder would be entitled except for the provisions hereof, shall be
paid by the liquidating trustee or agent or other person
2
<PAGE>
making such payment or distribution, whether a trustee in bankruptcy, a receiver
or liquidating trustee or otherwise, directly to the holders of Senior
Indebtedness, or the representative or representatives rateably according to the
aggregate amounts remaining unpaid on Senior Indebtedness held or represented by
each, to the extent necessary to pay Senior Indebtedness after giving effect to
any concurrent payment or distribution to the holders of Senior Indebtedness.
1.3 Rights Against Borrower and Others. It is understood that the
provisions of this Article One captioned "Subordination" are, and are intended
to be, solely for the purpose of defining the relative rights of the Holder on
the one hand and the holder of the Senior Indebtedness of the Borrower on the
other hand. Nothing contained in this Article One or elsewhere in this Debenture
shall or is intended to impair, as between the Borrower, its creditors other
than a holder of Senior Indebtedness, and the Holder, the unconditional and
absolute obligation of the Borrower to pay the Holder the principal of and
interest on the Debenture as and when the same shall become due and payable in
accordance with its terms or affect the relative rights of the Holder and the
creditors of the Borrower, other than a holder of such Senior Indebtedness; nor
shall anything herein prevent the Holder from exercising all remedies otherwise
permitted by applicable law upon default under the Debenture, subject to the
rights, if any, of a holder of Senior Indebtedness in respect to cash, property
or securities of the Borrower received upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Borrower referred to in this
Article One captioned "Subordination," the Holder shall be entitled to rely upon
any order or decree made by any court of competent jurisdiction in which any
dissolution, winding up, liquidation or reorganization proceedings are pending,
or upon a certificate of a liquidating trustee or agent or other person making
any distribution to the Holder, for the purpose of ascertaining the persons
entitled to participate in such distribution, the holders of Senior Indebtedness
and other indebtedness of the Borrower, the amounts thereof or payable thereon,
the amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article One.
3
<PAGE>
ARTICLE TWO
PREPAYMENT
2.1 Prepayment. This Debenture shall be subject to prepayment, in whole
or in part, at any time after expiration of the conversion right herein and
prior to maturity, at the option of Borrower. Each prepayment shall include the
principal amount to be prepaid plus all interest due to the prepayment date. In
the case of partial prepayment, the amount and other details thereof shall be
noted on this Debenture.
ARTICLE THREE
CONVERSION AND PURCHASE RIGHTS
3.1 Conversion Right. The Holder shall have the right from and after
the date of this Debenture and then at any time at or prior to 5 o'clock p.m.
Pacific local time on December 31, 1999, to convert all, and not a portion, of
this Debenture into fully paid and nonassessable shares of the Capital Stock of
Borrower. If conversion is not requested at or before this time the conversion
right shall terminate and be of no further force or effect. If the indebtedness
represented by this Debenture has been paid or otherwise discharged, the rights
set forth in this Debenture shall not survive such payment or discharge
including but not limited to the right to convert into shares of Capital Stock
of Borrower. "Capital Stock" shall mean the common voting stock of Borrower.
Upon the surrender hereof, accompanied by the Holder's written request for
conversion, which request shall be irrevocable, Borrower shall pay within 30
days all interest accrued hereon to the date of conversion and issue and deliver
to the Holder certificates evidencing such shares of stock as hereinafter set
forth.
Subject to readjustment as provided in Section 3.2 hereof, the
Conversion Price (hereinafter the "Conversion Price") and number of shares shall
be as follows:
Each $100,000 Debenture may be converted to 547.3 shares of Capital
Stock for a price of $182 per share. The total amount of Debentures issued will
be $_________. If all Debentures are converted, and there are no adjustments
under Section 3.2, the Holders will have, in aggregate, 8.65% of the 50,000
currently outstanding shares of
4
<PAGE>
Capital Stock of the Company. Debentures in an amount more or less than $100,000
shall be entitled to proportional conversion rounded down to the nearest
hundredth share.
3.2 Adjustment of Conversion Terms. The Conversion Price and the number
and kind of shares to be issued to the Holder upon conversion pursuant to
Section 3.1 shall be adjusted to reflect the effect of any consolidation,
merger, sale of assets, reclassification of shares, share issuance or any other
change in the status of the Capital Stock or the rights or privileges of holders
of the Capital Stock (herein called a "Change" in the Capital Stock) which
occurs prior to conversion. Such adjustment to the shares of Capital Stock to be
issued upon a conversion to reflect a Change shall be calculated as if the
Debenture had been converted and the Capital Stock into which the Debenture can
be converted was issued and outstanding immediately prior to the Change and then
was adjusted, like all other shares of Capital Stock then outstanding, to
reflect the Change. Accordingly, if the debenture is then converted after a
Change, the shares issued in the conversion shall be shares adjusted to reflect
the Change. After conversion the shares issued in the conversion shall be
treated like all other similar shares outstanding when any subsequent Change
occurs.
3.3 Cash Distributions. No adjustment on account of cash dividends or
interest on Capital Stock into which this Debenture can be converted will be
made to the Conversion Price at the number of shares into which this Debenture
can be converted.
3.4 Fractional Shares. Fractional shares of Capital Stock shall be
issued in connection with any conversion hereunder rounded down to the nearest
one hundredth share.
3.5 Authorized Shares. Borrower covenants that during the period the
conversion right exists, Borrower shall reserve from its authorized and unissued
Capital Stock a sufficient number of shares to provide for the issuance of
Capital Stock upon the conversion of this Debenture. Borrower agrees that its
issuance of this Debenture shall constitute full authority to its officers who
are charged with the duty of executing stock certificates to execute and issue
the necessary certificates for shares of Capital Stock upon the conversion of
this Debenture.
3.6 Method of Conversion. This Debenture may be converted by the Holder
in whole, only, by the surrender of this Debenture at the principal office of
the Borrower as provided in section 3.1.
5
<PAGE>
ARTICLE FOUR
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that:
4.1 Existence and Rights. At the date hereof Borrower is a corporation
duly organized and existing under the laws of the State of California without
limit as to the duration of its existence, and is authorized and in good
standing to do business in the State of California. Borrower has corporate
powers and adequate authority, rights and franchises to own its property and to
carry on its business as now conducted, and is duly qualified and in good
standing in each State in which the character of the properties owned by it
herein or the conduct of its business makes such qualification necessary; and
Borrower has the corporate power and adequate authority to issue this Debenture
and the underlying shares of Capital Stock. Borrower has no investment in any
other corporation.
4.2 Debenture Authorized. The execution and delivery of this Debenture
and the performance of the provisions of this Debenture are not in contravention
of or in conflict with any law or regulation or any term or provision of
Borrower's Articles of Incorporation or By-Laws and are duly authorized and do
not require the consent or approval of any governmental body or other regulatory
authority; and this Debenture is the valid, binding and legally enforceable
obligation of Borrower in accordance with the terms herein.
4.3 No Conflict. The execution, delivery and performance of this
Debenture are not in contravention of or conflict with any agreement, indenture
or undertaking to which Borrower is a party or by which it or any of its
property may be bound or affected, and does not cause any lien, charge or other
encumbrance to be created or imposed upon any such property by reason thereof.
4.4 Shares Outstanding. As of the date hereof, the Borrower's
authorized Capital Stock consists of 1,000,000 shares of which 50,000 shares are
outstanding. As of this date no shares have been reserved for issuance under a
Qualified Employee Stock Option Plan. Upon the date of this debenture there are
no other shares of Common or Preferred Stock reserved for issuance or subject to
any agreement, right, option or warrant with respect to the sale or issuance
thereof by Borrower.
6
<PAGE>
ARTICLE FIVE
RECORDS AND REPORTS
Borrower shall maintain a standard and modern system of accounting applied on a
consistent basis. Financial data shall be from the books and records of the
Borrower, presented under the tax basis of accounting which the Borrower uses in
preparation of the Borrower's income tax reports. This data shall be subjected
to an accountant's reviewed financial report. It shall permit representatives of
Holder, as long as it holds this Debenture, or any securities acquired upon
conversion of this Debenture, to have access to and to examine its properties,
books and records to the extent permitted under California law for shareholders.
Borrower shall also provide such other information relating to the affairs of
Borrower to which shareholders are entitled under California law as Holder may
request from time to time.
ARTICLE SIX
EVENTS OF DEFAULT
Except as provided in Article One, the failure to pay any installment of
principal or interest hereon when due and continuance thereof for a period of
ten business days after written notice to Borrower from Holder shall be a
default hereunder.
ARTICLE SEVEN
REGISTRATION
7.1 Investment Representation. Holder hereby represents and warrants
that it has acquired this Debenture for the purpose of investment and with no
present intent to sell or to distribute the same. Should it exercise the
conversion privilege contained herein, any securities of Borrower so acquired
will be with the same investment intent.
7
<PAGE>
7.2 Definitions. The following constitute definitions of certain of the
terms used in this Article:
A. "Act" means the Securities Act of 1933 as amended.
B. "Commission" means the Securities and Exchange Commission.
C. "Securities" shall mean the Debenture, and any of the shares
issuable upon the conversion thereof.
7.3 Registration Initiated By Borrower. The Borrower agrees that it
will give at least 30 days prior written notice to all holders of its intention
to file any registration statement covering any of its securities and will
afford such Holders the opportunity to register their holdings of Securities
thereunder and to take advantage, to a reasonable extent, of all blue sky
qualifications effected by the Borrower in connection therewith, provided Holder
notifies Borrower within 10 days of such notice from Borrower, that Holder
wishes to participate. The costs and expenses of registration statements filed
by Borrower as provided in this Section shall be borne by Borrower.
7.4 Right of First Offer. Prior to the expiration of the conversion
right, Holder shall not be entitled to transfer this Debenture or any interest
in it without first offering to transfer the entire Debenture to Borrower for a
price and upon terms chosen by Holder, all as provided in this section.
Any attempted transfer that does not comply with this section shall be
void, and of no force or effect. Without limiting any other remedies, Borrower
shall be entitled to an injunction requiring Holder to comply with the
provisions of this section. The only exception to the restriction on transfer in
this section is for transfer at death and certain lifetime transfers to family
as described later in this section.
If Holder wishes to transfer this Debenture in a transaction not
excepted below, Holder shall, in writing, first offer this Debenture to
Borrower, stating the price and terms upon which Holder offers to transfer the
Debenture to Borrower. Any consideration in kind shall also be stated in money
terms so in all cases the transfer can be closed by the payment of money.
Borrower shall have fifteen (15) business days in which to accept the offer and
a total of thirty (30) business days in which to close the transfer. Time is of
the essence for this transaction. Borrower shall have the right to designate a
third person or persons to accept the offer, however, once the offer is
accepted, Borrower, as well as any third person, shall be jointly and severally
liable, including but not limited to reasonable attorneys fees
8
<PAGE>
and costs to the prevailing party, in case of litigation concerning the offer
transaction.
If Holder's offer is not accepted within the fifteen business day
period, Holder shall be free to transfer the Debenture for a price and upon
terms which are not more favourable to the transferee than were offered to
Borrower. The transfer shall include Holder's entire interest in the Debenture.
If a transfer is not contracted for within one calendar year from the date that
Holder is free to offer the transfer to others, and closed within a total of
fourteen (14) calendar months from that date, then any transfer shall require a
new offer to Borrower by Holder.
The exception to Holder's obligation first to offer this Debenture to
Borrower before any transfer, as provided above, is that Holder shall have the
right to transfer by will to anyone and to transfer this Debenture to children,
to parents, to a spouse, or parents of a spouse, or trusts for the benefit of
any of them. To qualify for this exception the Holder must transfer the entire
Debenture. It may be transferred to more than one transferee, however, only one
excepted transfer per transferee is allowed and the transferee shall not be
entitled to transfer pursuant to this exception. Thus a transferee shall not be
entitled to transfer without first making the offer set forth above. Each
transferee, by will or otherwise, shall be required to agree to and to sign a
copy of these transfer restrictions. When an excepted transfer results in
multiple ownership of this Debenture and the conversion right has not expired,
the owners shall designate one of their group to represent them. Borrower shall
be entitled to rely upon any agreement or representation of the representative.
If the owners do not designate a representative within thirty (30) days after a
request by Borrower, Borrower shall have the right to designate one of the
owners as the representative of the owners upon whom Borrower can rely. Within
Borrower's sole discretion, Borrower shall have the right to modify this
exception to the transfer restriction in order to meet what Borrower considers
to be appropriate family planning goals of a Holder.
7.5 Restriction on Transfer. In addition to Section 7.4 above, no
Holder shall transfer any Securities until the Holder has first given written
notice to Borrower describing briefly the manner of any such proposed transfer
and until (i) the Borrower has received from Holder's counsel an opinion
satisfactory to Borrower that such transfer can be made without compliance with
the registration provisions of the Act and without the necessity of perfection
of an exemption pursuant to the Act, or (ii) a registration statement filed by
Borrower is declared effective by the Commission or steps necessary to perfect
an exemption are completed.
9
<PAGE>
7.6 Legend. Any certificate representing Securities shall be stamped
with a suitable endorsement to the effect that said Securities are subject to
the terms and conditions of this Article and stating that said terms and
conditions are fully set forth in this Article, a copy of which is on file and
available for the inspection at the main office of the Borrower.
ARTICLE EIGHT
MISCELLANEOUS
8.1 Survival of Warranties. All agreements, representations and
warranties made herein shall survive the execution and delivery hereof.
8.2 Failure or Indulgence Not Waiver. No failure or delay on the part
of Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
8.3 Notices. Any notice herein required or permitted to be given shall
be in writing and may be personally served or sent by United States mail and
shall be deemed to have been given when deposited in the United States mail,
registered, with postage prepaid and properly addressed. For the purposes
hereof, the address of the Holder and the address of Borrower shall be as
follows:
Borrower Holder
-------- ------
Ravenswood Winery, Inc.
655 Sutter Street #408
San Francisco, CA 94102
Both Holder and Borrower may change the address for service by service of
written notice to the other as herein provided. Telegraphic and "FAX" notice is
also permitted.
8.4 Amendment Provision. The term "Debenture" or "this Debenture" and
all reference thereto, as used throughout this instrument, shall mean this
instrument as originally executed or if later amended or supplemented.
10
<PAGE>
8.5 Assignability. Subject to the provisions of section 7.4 this
Debenture shall be binding upon Borrower, its successors and assigns, and shall
inure to the benefit of Holder, its successors and assigns.
8.6 Cost of Collection. If default is made in the payment of this
Debenture, Borrower shall pay the Holder hereof costs of collection, including
reasonable attorneys' fees, should Holder prevail.
8.7 Governing Law. This Debenture has been executed by Borrower in, and
shall be governed by the laws of the State of California.
8.8 Interest Rate. Notwithstanding any other provision of this
Debenture, the maximum total interest that the Holder shall be entitled to
receive hereunder shall not exceed the maximum rate permitted under applicable
law. Subject to this limitation, the initial 8% interest rate shall be subject
to adjustment up or down after the first 18 months, and every 18 months
thereafter to 1% over the prime interest rate or the Bank's index rate given to
prime commercial customers (the Prime Rate) by the Bank of America, NTSA, San
Francisco, California. There will be a limit of a 2% adjustment, plus or minus,
at any one adjustment period, and a maximum interest rate of 11%. Prime Rate
changes which produce rates which exceed these limits shall not be taken into
account.
IN WITNESS HEREOF, Borrower has caused this Debenture to be signed in its name
by its duly authorized officers.
Dated:
Ravenswood Winery, Inc.
by: _______________________________
Attest: ___________________________
11
Exhibit 10.12
MARKETING, SALES AGENCY AND ADMINISTRATIVE SERVICES AGREEMENT
This Agreement is entered into as of March 1, 1983 by and between Ravenswood
Winery, a California Corporation, 18701 Gehricke Road, Sonoma, California 95476
[PH: (707) 938-1960; FAX (707) 938-9459] ("Principal"), and Harvest Wines, Inc.,
P.O. Box 1487, Sonoma, CA 95476 [PH: (707) 996-6661; FAX: (707) 996-6690]
("Agent").
Principal hereby appoints Agent as one of its non-exclusive marketing and sales
representatives within the Territory, that includes Northern California and
selected other areas in the State of California, and Agent hereby accepts the
appointment. This Agreement shall be for a one-year term and shall be
automatically renewed on its anniversary date for an additional one-year term
ending December 1 of each calendar year, unless either party gives notice to the
other not less than 30 days before the anniversary date of its intention not to
renew. The Agreement may also be terminated as provided in paragraph 8, below.
The parties agree to the following terms and conditions:
1. Agency
(a) Agent agrees to make presentations of Principal's wine and other products
(the "Products") to qualified purchasers and inform such potential purchasers of
the characteristics, price, availability, and other relevant information about
the Products. Agent shall also provide administrative services for Principal,
which shall include tracking sales, depletion and marketing data and forwarding
such correspondence, orders or other information, as Principal shall from
time-to-time reasonably request.
(b) Agent is responsible for public relations and marketing activities within
the Territory.
(c) Agent shall use Agent's best efforts to visit retail premises in the
Territory where the Products are available for sale, on a regular basis, as
agreed between Principal and Agent to review display and storage procedures and
to insure that Products are property displayed and that Principal's storage
guidelines are being followed.
2. Samples and Advertising Materials
Principal shall, at its own expense, ship samples and/or furnish Agent with a
reasonable supply of samples of the Products to be used in connection with
marketing and sales activities. Additionally, Principal will provide Agent with
promotional materials and will authorize Agent to use its promotional materials
in conjunction with marketing activities.
3. Pricing and Products
(a) The price list attached hereto as Exhibit "A" is the price that Principal
currently charges for its Products, exclusive of freight and insurance (F.O.B.
winery). Principal shall have total responsibility for setting the price of its
Products and for informing Agent, in writing, of any changes in the prices of
any of its Products, and of the prices of any new Products produced by Principal
that are marketed and sold by Agent.
1
<PAGE>
(b) Agent shall quote only the prices set forth in Exhibit "A", as such prices
may be changed from time to time by Principal pursuant to subsection (a) above.
In the event that a prospective purchaser wishes to negotiate a different price
or different terms, Agent shall inform Principal of the terms and conditions
that such prospective purchaser is offering. Agent shall not forward to
Principal any order from any purchaser for the sale of the Products on prices
and terms other than those set forth in Exhibit "A" unless Agent shall have
obtained the prior oral or written approval of Principal to forward such order
on such terms and conditions.
(c) Agent shall make no allowances or adjustments in accounts or authorize the
return of Products, without the prior oral or written consent of Principal.
(d) Principal shall determine which products and quantities available for sale
by Agent. Agent acknowledges that Principal's products may be on allocation from
time to time. Agent also acknowledges that Principal may not offer all of its
products for sale by agent.
4. Ordering and Delivery
(a) Agent shall forward all orders to Principal promptly upon receipt from the
purchaser, and each order shall be subject to acceptance by the Principal.
Principal may accept or reject any order in its sole discretion.
(b) Principal shall be deemed to have accepted an order upon the earlier of (i)
Principal's notice to the purchaser, or (ii) Principal's rendering an invoice.
(c) Principal shall be solely responsible for delivery of Products to
purchasers, except as agreed upon by both parties.
5. Agency Expenses, Fees and Commissions
(a) Except as expressly set forth in this Agreement, Agent shall assume and pay
all costs of conducting Agent's obligations under this Agreement.
(b) Principal shall pay to Agent, but only after payment has been received, a
sales commission equal to twelve and one-half percent (12.5%) of the cash
received by Principal in payment of invoices by purchasers who are Agent's
accounts. Principal shall pay commissions for orders forwarded to Principal
prior to the end of the Term, and within thirty (30) days following the end of
the Term, as set forth in Section 8, even if such orders are not accepted by
Principal until after the end of the Term.
(c) Commissions shall be deemed earned by Agent upon receipt of payment for an
order by Principal. All commissions earned shall be due and payable on a monthly
basis to Agent, immediately following the month during which the payment was
received by Principal. If commissions earned exceed $5,000 per month, commission
shall be paid twice monthly.
6. Invoices and Collection
2
<PAGE>
(a) Principal, which exercises complete control over approval of purchasers'
credit, orders and contracts, shall have full responsibility for all collections
and bad debts with respect to the fulfilling of orders. Notwithstanding the
foregoing, Principal shall debit Agent for commissions owing or paid to Agent
with respect to any payment that was made on insufficient funds of the purchaser
or that Principal must return.
(b) Agent may not accept funds from purchasers on account of Product purchases.
Agent warrants that it shall inform all purchasers that it is not authorized by
Principal to accept funds.
7. Due Diligence, Compliance with Laws and Indemnification
(a) Principal assumes all responsibility for the design, development, supply,
production and performance of the Products and for the protection of its
trademarks, tradenames and other intangible personal property. Principal assumes
all responsibility for, and shall bear all liabilities and expenses, and shall
indemnify and hold Agent harmless from, all liability, cost, expense, claim,
loss or damages caused by reason of any Product (whether or not defective), or
any act or omission of Principal, including but not limited to injury (whether
to body, property, personal or business character or reputation) sustained by
any person or to any person or to any property, and for any violation of any law
or regulation regarding the production or sale of the Products, which may result
from the sale or distribution of the Products by Agent.
(b) Principal will use its best efforts promptly to forward to Agent a copy of
all inquiries relative to the Product received by Principal from any potential
or actual customers or purchasers within the Territory for Agents attention and
handling along with a copy of any acknowledgment Principal may desire to forward
to the inquirer. Principal shall inform Agent of any information which may be
reasonably advantageous or required by Agent to enable it to process the inquiry
intelligently and successfully.
(c) Agent shall comply with all federal, state and local laws, rules and
regulations which pertain to its business of providing sales, marketing and
administrative services for Principal in the Territory.
(d) Agent holds no federal or state alcoholic beverage permits or licenses in
its name and conducts its activities on behalf of Principal at the express
direction of Principal, and under the authority of Principal's licenses and
permits as an agent of Principal. Principal acknowledges that it is responsible
for compliance with state and federal alcoholic beverage laws and regulations,
that it is entering into this agreement with Agent for the purpose of providing
sales, marketing and administrative services and that it is responsible to
alcoholic beverage regulatory authorities for Agent's activities.
(e) Notwithstanding the foregoing, Agent assumes all responsibility for, shall
bear all monetary liabilities and expenses, and shall indemnify and hold
Principal harmless from, all monetary liability, cost, expense, claim, loss or
damages caused by reason of any act or omission of Agent, including but not
limited to injury (whether to body, property, personal or business character or
reputation) sustained by any person or to any person or to any property, and for
any violation of any law or regulation regarding the activities of Agent
pursuant to this Agreement.
3
<PAGE>
8. Termination
(a) Either party may treat this Agreement as breached, and, without prejudice to
any other rights, may terminate this Agreement by giving written notice to the
other, upon the substantial failure of the other party to perform one or more of
its obligations which shall not have been cured within thirty (30) days after
written notice.
(b) This Agreement may be terminated or not renewed at the end of any contract
year, by either party giving the other, on or before 30 days prior to the
anniversary date of the contract, written notice of its intent to not renew the
Agreement. Upon written termination given by one party to the other, this
Agreement shall remain applicable with respect to any Orders of Products which
the Agent has previously forwarded to Principal and which Principal accepts, and
with respect to any other Orders received by Principal within thirty (30) days
after the effective date of termination and accepted for fulfillment.
9. Events Following Expiration or Termination
(a) Upon any termination, Agent shall release and promptly deliver to Principal
all signs, displays, cards and other advertising and promotional material
bearing Principal's name then in Agent's possession which Principal had supplied
to Agent without charge. If Agent had paid for any such items, it shall return
them to Principal, or as directed by Principal, at Principal's option, at
Agent's laid-in cost plus reasonable costs Agent incurs in making such returns.
Agent also agrees to remove, within thirty (30) days, Principal's trade name,
trademarks, labels or other Principal insignia from Agent's stationary and other
property.
10. Governing Law and Disputes
This Agreement is to be governed and construed in accordance with the laws of
the State of California, provided, however, that it is subject to the Federal
Alcohol Administration Act and all regulations promulgated pursuant to such Act.
Any disputes or controversies arising in connection with this Agreement shall be
resolved under California law by arbitration in San Francisco, California, in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, to which jurisdiction the parties hereto submit. The parties
further agree that the award rendered by such arbitrators shall include the
costs and attorneys fees of the prevailing party and that such award may be
entered in any court having jurisdiction over the parties.
11. Trademarks
(a) Principal grants to Agent the non-exclusive right to use the trademark
rights for the branded Products (the "Trademarks") in the Territory during the
term of this Agreement, including any extensions, only in connection with
Agent's activities on behalf of Principal. All use of the Trademarks shall be in
good taste and shall not be denigrating in any fashion or manner to Principal or
the Trademarks. Agent shall provide Principal with reasonable access to the
materials in which the Trademarks are used. Principal reserves the right to
disapprove or modify any actual
4
<PAGE>
or proposed use of the Trademarks by Agent. Agent shall comply with Principal's
instructions relating to form and placement of trademark legends and notices on
any or all materials.
(b) If Agent asserts, or a governmental body of competent jurisdiction at any
time rules, that Agent's right to use the Trademarks is exclusive within the
Territory the grant of Trademark rights set forth in this Agreement shall
terminate. In such event at Principal's option, a new trademark agreement may be
entered into between Principal and Agent on such terms and conditions as
Principal may provide.
(c) Agent acknowledges Principal's exclusive right, title and interest in the
Trademarks and will not at any time do, or cause to be done, any act that
contests or impairs Principal's exclusive right title and interest. In
connection with the use of the Trademarks, Agent shall not in any manner
represent that it has any ownership Interest in the Trademarks, or in the
registration thereof. Agent acknowledges that use of the Trademarks shall not
create in its favor any right, title or interest in or to the Trademarks and
that all use it makes of the Trademarks shall be for the express benefit of
Principal.
(d) Upon termination of this Agreement for any reason, Agent shall cease and
desist from all use of the Trademarks in any way, and all trademark rights set
forth in this Agreement shall immediately revert to Principal. Agent will at no
time adopt or use, without Principal's prior written consent, any mark that is
similar to, or likely to be confused with, Principal's trademark.
(e) Agent agrees to cooperate with Principal in safeguarding the Trademarks.
Agent agrees to promptly notify Principal of any infringement of the Trademarks
or unfair competition with the Trademarks or the Products, actual or threatened,
which may come to Agent's attention. Agent shall cooperate with Principal in the
protection of the Trademarks, as Principal shall direct, it being understood
that all expenses in connection therewith shall be borne by Principal.
12. Force Majeure
If either party is prevented from performing any of its obligations under this
Agreement because of an event beyond its reasonable control, such as, but not
limited to, a strike, act of God, fire, flood, war, insurrection, riot, plant
breakdown, embargo, explosion, lack of material supplies, lack of common carrier
facilities, shortage of Products or government order or decree, the affected
party shall be excused from performance for the duration of the event.
13. Waiver
The failure or omission by either party to insist upon or enforce any of the
terms of this Agreement shall not be deemed a waiver of such term unless the
waiver is in writing and signed by the party against whom such waiver is sought
to be enforced. Waiver of any one term shall not be deemed a waiver of any other
term. Waiver of any one term on any one occasion shall not be deemed a waiver of
the same term on any other occasion.
14. Adherence to Laws
5
<PAGE>
(a) Agent understands and acknowledges that it is Principal's policy to comply
with all federal, state and local laws, rules and regulations governing this
Agreement and the performance of the obligations of the parties under this
Agreement. Agent further acknowledges that it is a violation of this policy for
a principal, agent or sales representative to dictate a resale price, or to
force adherence to suggested participation in sales promotions or suggested
resale prices. Agent further acknowledges that no Principal employee or
representative has the power or authority to act contrary to this policy, that
any action contrary to this policy by any such Principal employee or
representative shall not bind Principal or Agent, and that Agent shall
immediately notify Principal in writing of any Principal employee's or
representative's act or attempted act that Agent suspects, or has reason to
believe, is a violation of this policy.
(b) Nothing herein shall be construed to permit or require either party to do
any act or thing in contravention of agency or instrumentality of the United
States or of any jurisdiction in which Agent distributes the Products pursuant
to this Agreement. Principal and Agent mutually agree to do all things
reasonably necessary in order to enable both or either of them to comply with
all such laws and regulations.
15. Agency Relationship
(a) Agent is an independent contractor providing sales, marketing and
administrative services to Principal.
(b) Agent shall have the right to employ suitable and desirable salespeople,
agents, employees and representatives ("Agent's employees"). Principal shall be
held harmless by Agent from any claim by Agents employees relating to salaries,
commissions, expense reimbursement or other forms of compensation. Agent
warrants and represents to Principal that Agents employees shall be subordinate
to Agent and subject to each and all of the terms and conditions of this
Agreement.
16. Notices
Any notice, demand, request, or other communication required or permitted shall
be deemed to be properly given when either (i) sent to the address of the party
to whom it is being sent, as set forth below; (ii) sent by prepaid first class
mail to such address; (iii) sent by facsimile copier to the copier number set
forth above.
17. Nature of Agreement
This Agreement shall not be construed in any way to deem Agent an agent or
franchisee of Principal for any purpose whatsoever except as explicitly set
forth in this Agreement. The parties acknowledge that their relationship under
this Agreement is a relationship of principal and agent and not a relationship
of franchiser and franchisee.
18. Entire Agreement; Severability; Amendments
(a) This Agreement constitutes the entire agreement between the Principal and
the Agent concerning the subject matter herein and supersedes all prior and
contemporaneous oral and
6
<PAGE>
written agreements between the parties. Neither party is relying upon any
warranties, representations or inducements not set forth herein.
(b) In the event that any part of this Agreement is deemed invalid, or
unenforceable due to no fault of either party, the remainder of this Agreement
shall remain in full force and effect.
(c) This Agreement may only be amended by an instrument in writing which
expressly refers to this Agreement, specifically states that it is intended to
amend this Agreement, and is signed by both parties.
19. Binding Agreement
This Agreement shall be binding upon the parties hereto and their successors.
20. Effective Date
This Agreement shall be effective as of the date first written above.
PRINCIPAL
Ravenswood Winery
BY: /S/ JOEL E. PETERSON
---------------------------
Joel E. Peterson
President
AGENT
Harvest Wines, Inc.
BY: /S/ SCOTT HORINE
---------------------------
Scott Horine
President
7
<TABLE>
Exhibit 11.1
RAVENSWOOD WINERY, INC.
COMPUTATION OF EARNINGS PER SHARE
AND COMMON SHARE EQUIVALENT
<CAPTION>
Fiscal year ended June 30, Six months ended December 31,
----------------------------- -----------------------------
1 9 9 8 1 9 9 7 1 9 9 8 1 9 9 7
---------- ---------- ---------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
BASIC
Average shares outstanding [A] 3,005,625 3,150,000 2,992,500 3,018,750
Shares issued under deferred
compensation arrangement [B] 345,731 345,731 345,731 345,731
Shares issued in December 1998 [C] 140,625 140,625 140,723 140,625
---------- ---------- ---------- ----------
Weighted average number of common shares outstanding 3,491,981 3,636,356 3,478,954 3,505,106
========== ========== ========== ==========
Net income $2,321,645 $1,468,194 $2,285,232 $1,633,901
========== ========== ========== ==========
Per share amount $ .67 $ .40 $ .66 $ .47
========== ========== ========== ==========
DILUTED
Average shares outstanding [A] 3,005,625 3,150,000 2,992,500 3,018,750
Shares issued under deferred
compensation arrangement [B] 345,731 345,731 345,731 345,731
Shares issued in December 1998 [C] 140,625 140,625 140,723 140,625
Net effect of potentially dilutive
common stock issuable for
convertible debentures 302,751 302,751 368,377 302,751
---------- ---------- ---------- ----------
Weighted average number of common shares and
equivalents outstanding 3,794,732 3,939,107 3,847,331 3,807,857
========== ========== ========== ==========
Net income $2,321,645 $1,468,194 $2,285,232 $1,633,901
Interest on convertible debt, net of tax
benefit 49,305 55,793 45,168 24,653
---------- ---------- ---------- ----------
Net income , after adding interest on
debentures $2,370,950 $1,523,987 $2,330,400 $1,658,554
========== ========== ========== ==========
Per share amount $ .63 $ .39 $ .61 $ .44
========== ========== ========== ==========
<FN>
[A] Reflects the retroactive effect of the 63-to-1 stock split approved in
February 1999.
[B] Reflects the retroactive effect of the shares issued under a deferred
compensation arrangement in early fiscal 1999.
[C] Represents the retroactive effect using the "treasury stock method" for
common stock issued in December 1998 at prices below the assumed initial
public offering price.
</FN>
</TABLE>
<PAGE>
<TABLE>
RAVENSWOOD WINERY, INC.
COMPUTATION OF EARNINGS PER SHARE
AND COMMON SHARE EQUIVALENT
<CAPTION>
Fiscal year ended June 30,
----------------------------------------------
1 9 9 6 1 9 9 5 1 9 9 4
---------- ---------- ----------
<S> <C> <C> <C>
BASIC
Average shares outstanding [A] 3,150,000 3,150,000 3,150,000
Shares issued under deferred compensation arrangement [B] 345,731 345,731 345,731
Shares issued in December 1998 [C] 140,625 140,625 140,625
---------- ---------- ----------
Average shares outstanding 3,636,356 3,636,356 3,636,356
========== ========== ==========
Net income $1,268,832 $1,016,745 $ 591,962
========== ========== ==========
Per share amount $ 0.349 $ 0.280 $ 0.163
========== ========== ==========
DILUTED
Average shares outstanding [A] 3,150,000 3,150,000 3,150,000
Shares issued under deferred compensation arrangement [B] 345,731 345,731 345,731
Shares issued in December 1998 [C] 140,625 140,625 140,625
Net effect of potentially dilutive common stock issuable
for convertible debentures 302,751 247,920
---------- ---------- ----------
Total 3,939,107 3,884,276 3,636,356
========== ========== ==========
Net income $1,268,832 $1,016,745 $ 591,962
Interest on convertible debt, net of tax benefit 41,520 33,906
---------- ---------- ----------
Net income, after deducting interest on debentures $1,310,352 $1,050,651 $ 591,962
========== ========== ==========
Per share amount $ 0.333 $ 0.270 $ 0.163
========== ========== ==========
<FN>
[A] Reflects the retroactive effect of the 63 to 1 stock split occurring in
early 1999.
[B] Reflects the retroactive effect of the shares issued under a deferred
compensation arrangement in early fiscal 1999.
[C] Represents the retroactive effect using the "treasury stock method" for
common stock issued in December 1998 at prices below the planned initial
public offering price.
</FN>
</TABLE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form SB-2 of our report dated September 15, 1998,
except as to certain subsequent events described in Note 16, which is as of
February 1, 1999, relating to the financial statements of Ravenswood Winery,
Inc., which appears in such Prospectus. We also consent to the references to us
under the headings "Experts" and "Selected Financial Data" in such Prospectus.
However, it should be noted that Odenberg, Ullakko, Muranishi & Co. LLP has not
prepared or certified such "Selected Financial Data."
ODENBERG, ULLAKKO, MURANISHI & CO. LLP
San Francisco, California
February 1, 1999
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<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1999
<PERIOD-START> JUL-01-1997 JUL-01-1998
<PERIOD-END> JUN-30-1998 DEC-31-1998
<CASH> 102,272 3,171,374
<SECURITIES> 0 0
<RECEIVABLES> 1,916,498 2,664,480
<ALLOWANCES> 10,000 10,000
<INVENTORY> 10,427,359 12,931,338
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<PP&E> 4,194,294 5,259,843
<DEPRECIATION> 1,220,480 1,389,890
<TOTAL-ASSETS> 15,977,110 23,224,265
<CURRENT-LIABILITIES> 4,692,902 6,112,125
<BONDS> 7,603,286 10,877,709
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<SALES> 15,890,605 11,582,517
<TOTAL-REVENUES> 17,016,866 12,194,996
<CGS> 7,397,362 5,066,471
<TOTAL-COSTS> 4,105,089 2,340,009
<OTHER-EXPENSES> 523,551 225,669
<LOSS-PROVISION> (6,722) 1,212
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 3,913,814 4,029,081
<INCOME-TAX> 1,592,169 1,743,849
<INCOME-CONTINUING> 2,321,645 2,285,232
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<EXTRAORDINARY> 0 0
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<NET-INCOME> 2,321,645 2,285,232
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