EXHIBIT 10.2


 


SECURITY AGREEMENT


 


This SECURITY AGREEMENT (this “Agreement”),
is dated and made effective as of June 28, 2005 between SCHEID VINEYARDS CALIFORNIA INC., a California corporation (
the “Debtor”) to and in favor of RABOBANK, N.A. (“Rabobank”).


 


Capitalized terms used in this Agreement without
definition have the meanings given them in that certain Credit Agreement dated
as of the date of this Agreement, by and between the Debtor and Rabobank (the “Credit Agreement”).


 


ARTICLE 1

THE SECURITY


 


The Debtor hereby assigns and grants to Rabobank, a
security interest in all of the following described property now owned or
hereafter acquired by the Debtor (collectively, the “Collateral”):


 


(a)           Accounts, contract rights, documents,
documents of title, payment intangibles, investment property, chattel paper,
instruments and deposit accounts.


 


(b)           Inventory.


 


(c)           Equipment, other than equipment used
in connection with the Debtor’s winery operations on the Hacienda property
described on Exhibit “A” attached hereto.


 


(d)           Fixtures, other than fixtures used in
connection with the Debtor’s winery operations on the Hacienda property
described on Exhibit “A” attached hereto.


 


(e)           Farm products.


 


(f)            General intangibles, including, but
not limited to, all Intellectual Property (defined herein).


 


(g)           Accessions, attachments and other
additions to the Collateral, and all tools, parts and equipment used in
connection with the Collateral.


 


(h)           Substitutes or replacements for any
Collateral, all proceeds, products, rents and profits of any Collateral, all
rights under warranties and insurance contracts covering the Collateral, and
any causes of action relating to the Collateral.


 


(i)            Books and records pertaining to any
Collateral, including but not limited to any computer-readable memory and any
computer hardware or software necessary to process such memory (“Books and Records”).


 


ARTICLE 2

THE SECURED OBLIGATIONS


 


The Debtor makes the assignment and grants the security interest to
secure the following obligations (collectively, the “Secured
Obligations”) in any order of priority that Rabobank may choose:


 


(a)           payment and performance of all
Obligations (as defined in the Credit Agreement), including, but not limited to
the indebtedness of the Debtor to Rabobank in the amount of up to
$52,000,000.00 evidenced by the Notes (as defined in the Credit Agreement);


 





















 


(b)           payment and performance of all
obligations of the Debtor arising under this Agreement;


 


(c)           payment and performance of all future
advances and other obligations of the Debtor to Rabobank, whether now existing
or hereafter incurred or created, whether voluntary or involuntary, whether due
or not due, whether absolute or contingent, or whether incurred directly or
acquired by Rabobank by assignment or otherwise, and including any obligation
or liability arising pursuant to any derivative or hedge transaction of any
kind entered into with Rabobank and/or any Affiliate of Rabobank; and


 


(d)           payment and performance of all
modifications, amendments, extensions, and renewals, however evidenced, of any
of the matters described in this Article 2.


 


ARTICLE 3

DEBTOR’S COVENANTS


 


The Debtor represents, covenants and warrants that,
unless compliance is waived by Rabobank in writing:


 


(a)           The Debtor will properly preserve,
maintain and care for the Collateral in good working order and condition,
ordinary wear and tear excepted; defend the Collateral against any adverse
claims and demands that could reasonably be expected to have a Material Adverse
Effect; protect, diligently collect all accounts consistent with current
business practices; and keep complete, current, and accurate Books and Records
with respect to the Collateral and any proceeds or collections.


 


(b)           The Debtor will notify Rabobank in
writing prior to any change in the location(s) of (i) the Debtor’s place
of business or the Debtor’s chief executive office if the Debtor has more than
one place of business, (ii) the Debtor’s state of organization, (iii) the
Debtor’s books and records concerning any Collateral.  The Debtor will notify Rabobank in writing
prior to any change in the Debtor’s name, identity or business structure.


 


(c)           Except for liens expressly permitted
under the terms of the Credit Agreement, the Debtor has not granted and will
not grant any security interest in any of the Collateral except to Rabobank,
and will keep the Collateral free of all liens, claims, security interests and
encumbrances of any kind or nature except the security interest of Rabobank and
such permitted liens.


 


(d)           The Debtor will promptly notify
Rabobank in writing of any event which (i) materially adversely affects
the value of the Collateral, and (ii) affects the ability of the Debtor or
Rabobank to dispose of the Collateral, or the rights and remedies of Rabobank
in relation thereto, including, but not limited to, the levy of any legal
process against any Collateral and the adoption of any marketing order,
arrangement or procedure materially adversely affecting the Collateral, whether
governmental or otherwise.


 


(e)           The Debtor will comply with all laws
and regulations, whether federal or state, relating to any subsidy,
entitlement, price support or similar program to which the Debtor may be
entitled, to the extent that the Debtor’s Board of Directors, in its reasonable
business judgment, determines the Debtor should participate in.  The Debtor will execute such additional
documents as may be reasonably requested by Rabobank in connection with
Rabobank’s security interest in such rights, including but not limited to
government assignment forms.


 


(f)            Upon request of Rabobank, the Debtor
shall furnish to Rabobank a list in writing of the buyers, processors,
commission merchants, cooperatives, or selling agents to or through whom the
Debtor sells any farm product or other Collateral.  In the event that the Debtor thereafter sells
farm products or other Collateral to or through a person or entity not
identified in the list, the Debtor shall notify


 


2





















 


Rabobank of the sale not less than seven (7) days
prior to the sale.  The list and any
notice shall include the name and address of each person or entity and an
identification of the types of farm products or other Collateral sold to or
through that person or entity.


 


(g)           The Debtor shall pay all costs
necessary to preserve, defend, enforce and collect the Collateral, including
but not limited to taxes, assessments, insurance premiums, repairs, rent,
storage costs and expenses of sales, and any costs to perfect Rabobank’s
security interest.  Without waiving the
Debtor’s default for failure to make any such payment, Rabobank at its option
may pay any such costs and expenses, discharge encumbrances on the Collateral,
and pay for insurance of the Collateral, and such payments shall be a part of
the Secured Obligations and bear interest at the rate set out in the Secured
Obligations.  The Debtor agrees to
reimburse Rabobank on demand for any costs so incurred.


 


(h)           Until Rabobank exercises its rights
to make collection, the Debtor will diligently collect all Collateral
consistent with current business practices.


 


(i)            If any Collateral is or becomes the
subject of any registration certificate, certificate of deposit or negotiable
document of title, including any warehouse receipt or bill of lading, the Debtor
shall immediately deliver such document to Rabobank, together with any
necessary endorsements.


 


(j)            The Debtor will not sell, lease,
agree to sell or lease, or otherwise dispose of any Collateral except in
accordance with Section 7.05(b) of the Credit Agreement.


 


(k)           The Debtor will not attach any
Collateral to any real property or fixture in a manner which might cause such
Collateral to become a part thereof (i) unless the Debtor first obtains
the written consent of any owner, holder of any lien on the real property or
fixture, or other person having an interest in such property to the removal by
Rabobank of the Collateral from such real property or fixture, or (ii) Rabobank
has a lien against such real property pursuant to a Deed of Trust which is a
Loan Document.  Such written consent
shall be in form and substance acceptable to Rabobank and shall provide that
Rabobank has no liability to such owner, holder of any lien, or any other
person.


 


ARTICLE 4

ADDITIONAL OPTIONAL REQUIREMENTS


 


The Debtor agrees that Rabobank may at its option at
any time, whether or not an Event of Default exists:


 


(a)           Require the Debtor to deliver to
Rabobank (i) copies of or extracts from the Books and Records, (ii) records
and schedules which show the status and condition of the Collateral and where
it is located, and (iii) information on any contracts or other matters
affecting the Collateral.


 


(b)           Require the Debtor to deliver to
Rabobank any instruments or chattel paper.


 


The Debtor agrees that
Rabobank may at its option at any time, while an Event of Default exists:


 


(a)           Notify any account debtor, any buyers
of the Collateral, or any other persons of Rabobank’s interest in the
Collateral.


 


(b)           Require the Debtor to notify any
account debtor to forward all payments and proceeds of the Collateral to
Rabobank.


 


(c)           Require the Debtor to promptly market
any crops or other farm products covered by this Agreement, if, in Rabobank’s
opinion, the withholding of same from sale may jeopardize the Debtor’s ability
to obtain a price sufficient to satisfy the Secured Obligations or any portion
thereof.


 


3





















 


ARTICLE 5

DEFAULTS


 


Any one or more of the following shall be a default
hereunder:


 


(a)           An Event of Default under the Credit
Agreement or any other Loan Document.


 


(b)           The Debtor breaches any term,
provision, warranty or representation under this Agreement.


 


ARTICLE 6

RABOBANK’S REMEDIES AFTER DEFAULT


 


If an Event of Default exists, Rabobank may do any one
or more of the following:


 


(a)           Pursue any or all of Rabobank’s
remedies as set forth in this Agreement or the Credit Agreement.


 


(b)           Enforce the security interest given
hereunder pursuant to the Uniform Commercial Code, as adopted and enacted by
the State of California (the “Uniform Commercial Code”)
and any other existing and future laws, orders, ordinances, rules and
regulations by any nation or government, any state or other political
subdivision thereof, any agency, authority, instrumentality, regulatory body,
court, administrative tribunal, central bank or other entity exercising
executive, legislative, judicial, taxing, regulatory or administrative powers
or functions of or pertaining to government, with authority over the Debtor,
and its respective properties, as applicable, including all laws relating to or
imposing liability or standards of conduct concerning protection of health or
the environment (the “Applicable Law”).


 


(c)           Enforce the security interest of
Rabobank in any deposit account of the Debtor maintained with Rabobank by applying
such account to the Secured Obligations.


 


(d)           Require the Debtor to obtain Rabobank’s
prior written consent to any sale, lease, agreement to sell or lease, or other
disposition of any Collateral, other than ordinary course Inventory sales.


 


(e)           Require the Debtor to segregate all
collections and proceeds of the Collateral so that they are capable of
identification and deliver daily such collections and proceeds to Rabobank in
kind.


 


(f)            Require the Debtor to assemble the
Collateral, including the Books and Records, and make them available to
Rabobank at a place designated by Rabobank.


 


(g)           Enter upon the property where any
Collateral, including any Books and Records, are located and take possession of
such Collateral and such Books and Records, and use such property (including
any buildings and facilities that are located on real property pledged pursuant
to the deeds of trust granted by Debtor to secure the Secured Obligations) and
any of the Debtor’s equipment (other than equipment that is excluded from
Collateral definition), if Rabobank deems such use necessary or advisable in
order to take possession of, hold, preserve, process, assemble, prepare for
sale or lease, market for sale or lease, sell or lease, or otherwise dispose
of, any Collateral.


 


(h)           Demand and collect any payments on
and proceeds of the Collateral.  In
connection therewith the Debtor irrevocably authorizes Rabobank to endorse or
sign the Debtor’s name on all checks, drafts, collections, receipts and other
documents, and to take possession of and open the mail addressed to the Debtor
and remove therefrom any payments and proceeds of the Collateral.


 


4





















 


(i)            Grant extensions and compromise or
settle claims with respect to the Collateral for less than face value, upon
reasonable prior notice to the Debtor as may be required under the Uniform
Commercial Code.


 


(j)            Use or transfer any of the Debtor’s
rights and interests in any Intellectual Property now owned or hereafter
acquired by the Debtor, if Rabobank deems such use or transfer necessary or
advisable in order to take possession of, hold, preserve, process, assemble,
prepare for sale or lease, market for sale or lease, sell or lease, or
otherwise dispose of, any Collateral. 
The Debtor agrees that any such use or transfer shall be without any
additional consideration to the Debtor. 
As used in this Agreement, “Intellectual Property”
means all trade secrets, computer software, service marks, trademarks, trade
names, trade styles, copyrights, patents, applications for any of the
foregoing, customer lists, working drawings, instructional manuals, and rights
in processes for technical manufacturing, packaging and labeling, in which the
Debtor has any right or interest, whether by ownership, license, contract or
otherwise.


 


(k)           Have a receiver appointed by any
court of competent jurisdiction to take possession of the Collateral.  The Debtor hereby consents to the appointment
of such a receiver and agree not to oppose any such appointment.


 


(l)            Take such measures as Rabobank may
deem necessary or advisable to take possession of, hold, preserve, process,
assemble, insure, prepare for sale or lease, market for sale or lease, sell or
lease, or otherwise dispose of, any Collateral, and the Debtor hereby
irrevocably constitutes and appoints Rabobank as the Debtor’s attorney-in-fact
to perform all acts and execute all documents in connection therewith.


 


(m)          Without notice or demand to the
Debtor, set off and apply against any and all of the Secured Obligations any
and all deposits (general or special, time or demand, provisional or final) and
any other Secured Obligations, at any time held or owing by Rabobank or any of
Rabobank’s agents or affiliates to or for the credit of the account of the
Debtor or any guarantor or endorser of the Secured Obligations.


 


ARTICLE 7

MISCELLANEOUS


 


(a)           All notices and other communications
provided for hereunder shall be given in accordance with the requirements of
the Credit Agreement, to the address, facsimile number or (subject to the
Credit Agreement), electronic mail address specified below, or to such other
address as shall be designated by such party in a notice to the other parties.


 


If to the Debtor:


 


SCHEID VINEYARDS CALIFORNIA INC.


305 Hilltown Road


Salinas, California 93908


Telephone:            (831)
455-9990


Telefacsimile:        (831)
970-8715


email:      scott@scheidvineyards.com


 


If to Rabobank:


 


RABOBANK, N.A.


6715 North Palm Avenue, Suite 208


Fresno, California 93704


Telephone: 
(559) 447-7828


 


5





















 


Facsimile:  (559) 447-7840


email:
Jill.Jelecich@Rabobank.com


 


(b)           Any waiver, express or implied, of
any provision hereunder and any delay or failure by Rabobank to enforce any
provision shall not preclude Rabobank from enforcing any such provision
thereafter.


 


(c)           The
Debtor shall, at the request of Rabobank, execute such other agreements,
documents, or instruments in connection with this Agreement as Rabobank may
reasonably deem necessary.  The Debtor
hereby authorizes Rabobank to file one or more financing statements and such
other documents as Rabobank may from time to time require to perfect or
continue the perfection of Rabobank’s security interest in any of the
Collateral.  The Debtor shall pay all
fees and costs that Rabobank may incur in preparing and filing such documents
in public offices and in obtaining such record searches as Rabobank may
reasonably require.


 


(d)           This
Agreement shall be governed by and construed according to the laws of the State
of California, without giving effect to conflicts of law principals.


 


(e)           All rights and remedies herein
provided are cumulative and not exclusive of any rights or remedies otherwise
provided by the Applicable Law.  Any
single or partial exercise of any right or remedy shall not preclude the
further exercise thereof or the exercise of any other right or remedy.


 


(f)            All terms not defined herein or in
the Credit Agreement are used as set forth in the Uniform Commercial Code.


 


(g)           In the event of any action by
Rabobank to enforce this Agreement or to protect the security interest of
Rabobank in the Collateral, or to take possession of, hold, preserve, process,
assemble, insure, prepare for sale or lease, market for sale or lease, sell or
lease, or otherwise dispose of, any Collateral, the Debtor agrees to pay
immediately the costs and expenses thereof, together with reasonable attorney’s
fees and allocated costs for in-house legal services.


 


(h)           This Agreement shall constitute a
continuing agreement, applying to all future as well as existing transactions,
whether or not of the character contemplated at the date of this Agreement, and
if all transactions between Rabobank and the Debtor shall be closed at any
time, shall be equally applicable to any new transactions thereafter.


 


(i)            Rabobank’s rights hereunder shall
inure to the benefit of its successors and assigns.  In the event of any assignment or transfer by
Rabobank of any of the Secured Obligations or the Collateral, Rabobank
thereafter shall be fully discharged from any responsibility with respect to
the Collateral so assigned or transferred, but Rabobank shall retain all rights
and powers hereby given with respect to any of the Secured Obligations or the
Collateral not so assigned or transferred. 
All representations, warranties and agreements of the Debtor if more
than one are joint and several and all shall be binding upon the personal
representatives, heirs, successors and assigns of the Debtor.


 


[NO FURTHER TEXT ON PAGE]


 


6





















 


IN WITNESS WHEREOF, the
Debtor has executed this Security Agreement as of the date first above written.


 


	
   

  	
  DEBTOR:

  
	
   

  	
   

  
	
   

  	
  SCHEID VINEYARDS CALIFORNIA
  INC., a

  California corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael Thomsen

  	
   

  
	
   

  	
   

  	
  Michael Thomsen, Chief
  Financial Officer

  



 


7