Exhibit
10.1


 


CREDIT
AGREEMENT


 


Dated as of June 28, 2005


 


between


 


SCHEID
VINEYARDS CALIFORNIA INC.


 


as
the Borrower,


 


and


 


RABOBANK
N.A.


 





















 


Table of Contents


 


	
  Article I.

  	
   

  	
  DEFINITIONS AND ACCOUNTING
  TERMS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  1.01

  	
   

  	
  Defined Terms

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  1.02

  	
   

  	
  Other Interpretive Provisions

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  1.03

  	
   

  	
  Accounting Terms

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  1.04

  	
   

  	
  Rounding

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  1.05

  	
   

  	
  References to Agreements and
  Laws

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article II.

  	
   

  	
  THE COMMITMENTS AND CREDIT
  EXTENSIONS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.01

  	
   

  	
  Revolving Loans

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.02

  	
   

  	
  Borrowings, Conversions and
  Continuations of Revolving Loans

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.03

  	
   

  	
  Prepayments of Revolving
  Loans

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.04

  	
   

  	
  Reduction or Termination of
  Revolving Commitments

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.05

  	
   

  	
  Repayment of Revolving Loans

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.06

  	
   

  	
  Interest on Revolving Loans

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.07

  	
   

  	
  Term Loans

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.08

  	
   

  	
  Borrowings, Conversions and
  Continuations of Term Loans

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.09

  	
   

  	
  Prepayments of Term Loans

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.10

  	
   

  	
  Reduction or Termination of
  Term Loan Commitments

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.11

  	
   

  	
  Repayment of Term Loans

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.12

  	
   

  	
  Interest on Term Loans

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.13

  	
   

  	
  Fees

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.14

  	
   

  	
  Computation of Interest and
  Fees

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.15

  	
   

  	
  Evidence of Debt

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.16

  	
   

  	
  Payments Generally

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.17

  	
   

  	
  Release of Mortgages

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article III.

  	
   

  	
  TAXES, YIELD PROTECTION AND
  ILLEGALITY

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  3.01

  	
   

  	
  Taxes

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  3.02

  	
   

  	
  Illegality

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  3.03

  	
   

  	
  Inability to Determine Rates

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  3.04

  	
   

  	
  Increased Cost and Reduced
  Return; Capital Adequacy; Reserves on LIBOR Rate Loans

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  3.05

  	
   

  	
  Funding Losses

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  3.06

  	
   

  	
  Matters Applicable to all Requests for
  Compensation

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  3.07

  	
   

  	
  Survival

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article IV.

  	
   

  	
  CONDITIONS PRECEDENT TO CREDIT EXTENSIONS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  4.01

  	
   

  	
  Conditions of Initial Credit Extension

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  4.02

  	
   

  	
  Conditions to all Credit Extensions and
  Conversions and Continuations

  	
   

  



 


i





















 


	
  Article V.

  	
   

  	
  REPRESENTATIONS AND WARRANTIES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.01

  	
   

  	
  Existence, Qualification and Power;
  Compliance with Laws

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.02

  	
   

  	
  Authorization; No Contravention

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.03

  	
   

  	
  Governmental Authorization

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.04

  	
   

  	
  Binding Effect

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.05

  	
   

  	
  Financial Statements; No Material Adverse
  Effect

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.06

  	
   

  	
  Litigation

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.07

  	
   

  	
  No Default

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.08

  	
   

  	
  Ownership of Property; Liens

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.09

  	
   

  	
  Environmental Compliance

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.10

  	
   

  	
  Insurance

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.11

  	
   

  	
  Taxes

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.12

  	
   

  	
  ERISA
  Compliance

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.13

  	
   

  	
  Subsidiaries

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.14

  	
   

  	
  Disclosure

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.15

  	
   

  	
  Compliance with Laws

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.16

  	
   

  	
  Margin Regulations; Investment Company Act;
  Public Utility Holding Company Act

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.17

  	
   

  	
  Reserved

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.18

  	
   

  	
  Rights in Collateral; Priority of Liens

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article VI.

  	
   

  	
  AFFIRMATIVE COVENANTS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.01

  	
   

  	
  Financial Statements

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.02

  	
   

  	
  Certificates; Other Information

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.03

  	
   

  	
  Notices

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.04

  	
   

  	
  Payment of Obligations

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.05

  	
   

  	
  Preservation of Existence, Etc.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.06

  	
   

  	
  Maintenance of Properties

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.07

  	
   

  	
  Maintenance of Insurance

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.08

  	
   

  	
  Compliance with Laws

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.09

  	
   

  	
  Books
  and Records

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.10

  	
   

  	
  Inspection and Appraisal Rights

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.11

  	
   

  	
  Use
  of Proceeds

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.12

  	
   

  	
  Financial Covenants

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.13

  	
   

  	
  Collateral Records

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.14

  	
   

  	
  Security Interests

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.15

  	
   

  	
  Deposit
  Accounts

  	
   

  



 


ii





















 


	
  Article VII.

  	
   

  	
  NEGATIVE COVENANTS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  7.01

  	
   

  	
  Liens

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  7.02

  	
   

  	
  Investments

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  7.03

  	
   

  	
  Indebtedness

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  7.04

  	
   

  	
  Fundamental Changes

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  7.05

  	
   

  	
  Dispositions

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  7.06

  	
   

  	
  Distributions

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  7.07

  	
   

  	
  Change in Nature of Business

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  7.08

  	
   

  	
  Transactions with Affiliates

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  7.09

  	
   

  	
  Margin Regulations

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  7.10

  	
   

  	
  Swap
  Contracts

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article VIII.

  	
   

  	
  EVENTS OF DEFAULT AND REMEDIES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  8.01

  	
   

  	
  Events
  of Default

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  8.02

  	
   

  	
  Remedies Upon Event of Default

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  8.03

  	
   

  	
  Application of Funds

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Article IX.

  	
   

  	
  MISCELLANEOUS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9.01

  	
   

  	
  Amendments,
  Etc.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9.02

  	
   

  	
  Notices and Other Communications; Facsimile
  Copies

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9.03

  	
   

  	
  No Waiver; Cumulative Remedies

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9.04

  	
   

  	
  Attorney Costs, Expenses and Taxes

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9.05

  	
   

  	
  Indemnification by the Borrower

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9.06

  	
   

  	
  Payments Set Aside

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9.07

  	
   

  	
  Binding Effect; Successors and Assigns

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9.08

  	
   

  	
  Confidentiality

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9.09

  	
   

  	
  Set-off

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9.10

  	
   

  	
  Interest Rate Limitation

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9.11

  	
   

  	
  Counterparts

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9.12

  	
   

  	
  Integration

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9.13

  	
   

  	
  Survival of Representations and Warranties

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9.14

  	
   

  	
  Severability

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9.15

  	
   

  	
  Governing Law; Submission to Jurisdiction

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9.16

  	
   

  	
  Waiver of Right to Trial by Jury

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9.17

  	
   

  	
  Time of the Essence

  	
   

  



 


iii





















 


	
  SCHEDULES

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.01

  	
  Commitments

  	
   

  
	
   

  	
  5.06

  	
  Litigation

  	
   

  
	
   

  	
  5.09

  	
  Environmental
  Matters

  	
   

  
	
   

  	
  5.13

  	
  Subsidiaries
  and Other Equity Investments

  	
   

  
	
   

  	
  7.01

  	
  Existing
  Liens

  	
   

  
	
   

  	
  7.03

  	
  Existing
  Indebtedness

  	
   

  
	
   

  	
  10.02

  	
  Addresses
  for Notices

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  EXHIBITS

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Form of

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  A

  	
   

  	
  Term
  Loan Notice

  	
   

  
	
   

  	
  B

  	
   

  	
  Revolving
  Loan Notice

  	
   

  
	
   

  	
  C

  	
   

  	
  Term
  Note

  	
   

  
	
   

  	
  C-1

  	
   

  	
  Revolving
  Note

  	
   

  
	
   

  	
  D

  	
   

  	
  Borrowing
  Base Revolving Loan Certificate

  	
   

  
	
   

  	
  D-1

  	
   

  	
  Borrowing
  Base Term Loan Certificate

  	
   

  
	
   

  	
  E

  	
   

  	
  Compliance
  Certificate

  	
   

  



 


iv





















 


CREDIT AGREEMENT


 


This CREDIT
AGREEMENT (“Agreement”) is entered into as of
June 28, 2005, between SCHEID VINEYARDS
CALIFORNIA INC., a California corporation and RABOBANK
N.A., a national banking association (the “Bank”).


 


Borrower has
requested that the Bank provide credit facilities, and the Bank is willing to
do so on the terms and conditions set forth herein.


 


In
consideration of the mutual covenants and agreements herein contained, the
parties hereto covenant and agree as follows:


 


ARTICLE I.           DEFINITIONS AND ACCOUNTING TERMS


 


1.01        Defined Terms.  As used in this
Agreement, the following terms shall have the meanings set forth below:


 


“Adjusted
EBITDA” means the Borrower’s and Guarantor’s consolidated EBITDA, excluding
the effect of any non-operating cash flows, including gains or losses from the
sale of assets, Swap Contracts or vineyard removals.


 


“Adjusted
EBITDA Coverage Ratio” means, (a) Adjusted EBITDA divided by
(b) the Borrower’s and Guarantor’s consolidated total interest expense
calculated on a rolling four quarter basis.


 


“Affiliate”
means, with respect to any Person, another Person that directly or indirectly
through one or more intermediaries, Controls, or is Controlled
by or is under common Control with, the Person specified.  “Control” means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the
ability to exercise voting power, by contract or otherwise.  Without limiting the generality of the
foregoing, a Person shall be deemed to be Controlled
by another Person if such other Person possesses, directly or indirectly, power
to vote 51% or more of the securities having ordinary voting power for the
election of directors, managing general partners or equivalent governing body
of such Person.


 


“Agreement”
means this Credit Agreement.


 


“Annual
Budget” means Borrower’s annual consolidated budget and cash flow
projections for the current Crop Year, to include all farming income and
expenses, operating expenses, capital expenditures and debt service, as
subsequently reviewed and approved by the Bank.


 


“Applicable
Rate” means Pricing Level 4; and from time to time, after the Adjustment
Date, the following percentages per annum, based upon the Adjusted EBITDA
Coverage Ratio (the “Financial Covenant”)
as set forth in the most recent Compliance Certificate received by the Bank
pursuant to Section 6.02(b) for the most recent fiscal
quarter, commencing with such Compliance Certificate to be delivered on or by
June 30, 2005:


 


Applicable Rate


 




	
  Pricing

  Level

  	
   

  	
  Adjusted EBITDA

  Coverage Ratio

  	
   

  	
  Non-Use Fee

  	
   

  	
  LIBOR Rate

  	
   

  	
  Base Rate

  	
   

  
	
  1

  	
   

  	
  <2.50 to 1.00

  	
   

  	
  .25

  	
  %

  	
  2.25

  	
  %

  	
  +0.25

  	
  %

  
	
  2

  	
   

  	
  2.51 to 1.00 — 3.00 to 1

  	
   

  	
  .20

  	
  %

  	
  2.00

  	
  %

  	
  +0.00

  	
  %

  
	
  3

  	
   

  	
  3.01 to 1.00 - 3.49 to 1

  	
   

  	
  .15

  	
  %

  	
  1.75

  	
  %

  	
  -0.25

  	
  %

  
	
  4

  	
   

  	
  >3.50 to 1

  	
   

  	
  .10

  	
  %

  	
  1.50

  	
  %

  	
  -0.50

  	
  %

  






 


(Any increase or decrease in the Applicable Rate resulting from a
change in the Financial Covenant shall become effective as of the first
Business Day of the month immediately following the date a Compliance
Certificate is delivered pursuant to Section 6.02(b); provided,
however, that if a Compliance Certificate is not delivered when due


 


1





















 


in accordance with such Section 6.02(b), then Pricing Level
1 shall apply commencing as of the first Business Day of the month) following
the date such Compliance Certificate was required to have been delivered and
continuing; provided, however, that if such Compliance Certificate is delivered
after its due date, then Pricing Level 1 shall cease to apply under this
proviso as of the fifth Business Day of the month following the date such
Compliance Certificate was delivered).


 


“Appraisal”
means the appraisal prepared, as applicable, and/or any appraisal in a form
acceptable to the Bank after the date of this Agreement with respect to any
Eligible Real Estate and Eligible Leasehold Real Estate, pursuant to Section 6.10
of this Agreement.


 


 “Attorney Costs” means and includes all
reasonable fees, expenses and disbursements of any law firm or other external
counsel.


 


“Attributable
Indebtedness” means, on any date, (a) in respect of any capital lease
of any Person, the capitalized amount thereof that would appear on a balance
sheet of such Person, and (b) in respect of any Synthetic Lease
Obligation, the capitalized amount of the remaining lease payments under the
relevant lease that would appear on a balance sheet of such Person if such
lease were accounted for as a capital lease.


 


“Available
Credit Amount” means the amount designated as Available Credit Amount on
the most recent 
Borrowing Base Certificate for the Term Loans.


 


“Availability
Period” means (A) the period from and including the Closing Date to
the earliest of (i) the Revolving Loan Maturity Date or Term Loan Maturity
Date, as applicable, (ii) the date of termination of the Revolving
Commitments pursuant to Section 2.04 or the Term Loan Commitments pursuant
to Section 2.10 related to a prepayment under Section 2.09(a),
and (iii) the date of termination of the commitment of the Bank to make
Loans pursuant to Section 8.02(a), and (B) solely for purposes of Section 2.07,
the date of the termination of the Term Loan Commitments pursuant to Section 2.10.


 


“Bank’s
Office” means Bank’s address and, as appropriate, account as set forth on Schedule 9.02,
or such other address or account as the Bank may from time to time notify the
Borrower.


 


“Base Rate”
means a fluctuating rate of interest equal to the highest rate published from
time to time in the “Money Rates” section of The Wall Street Journal as
the “Prime Rate” for that day (or, if that source is not available, an
alternate source as determined by the Bank). 
Any change in the “Prime Rate” shall take effect at the opening of
business on the effective date of that change.


 


“Base Rate Loan” means, as applicable,
unless otherwise indicated, a Revolving Loan or a Term Loan that bears interest based on the Base Rate.


 


“Base Rate
Principal” has the meaning specified in Sections 2.03(d) and
2.09(d), as applicable.


 


“Borrower” has the meaning specified
in the introductory paragraph hereto.


 


“Borrower Account” has the meaning
specified in Section 2.16(a)(iii).


 


“Borrowing” means Committed Borrowing.


 


“Borrowing Base Certificate” means a
certificate setting forth the information and calculations necessary to
determine, as applicable, the Borrowing Base Revolving Loan or Borrowing Base
Term Loan, in substantially the form of Exhibit D and D-1,
signed by the chief financial officer or another authorized officer of the
Borrower.


 


“Borrowing Base Revolving Loan” means
the lesser of $15,000,000; or


 


75% of Eligible Accounts; plus


 


2





















 


70% of Eligible Inputs; plus


 


the
lesser of $5,000,000.00, 60% of the Value of Eligible Inventory, or the cost of
Eligible Inventory.


 


“Borrowing Base Term Loan” means as of
any date the lesser of (i) the Term Loan Commitment, as of such date; or
(ii) 60% of the Value of Eligible Real Estate, plus 50% of the
Value of the Eligible Leasehold Real Estate, minus 100% of the
cumulative Term Loan Commitment reduction, as set forth on Schedule 2.01.


 


“Budget Comparison” means a written
comparison of the Annual Budget to actual income and expenses for the
applicable reporting period.


 


“Bulk Wine Contracts” means all
contracts for the purchase of bulk wine.


 


“Business Day” means any day other
than a Saturday, Sunday or other day on which commercial banks are authorized
to close under the Laws of, or are in fact closed in, the state where Bank’s
Office is located and, if such day relates to any LIBOR Rate Loan, means any
such day on which dealings in Dollar deposits are conducted by and between
banks in the London interbank eurodollar market.


 


“Change of Control” means any event or
series of events by which (i) the Scheid Principals shall cease to own and
control at least 51% of the Equity Interests and Voting Stock in the Guarantor
or (ii) the Guarantor shall cease to own and control 100% of the Equity
Interests and Voting Stock in the Borrower.


 


“Closing Date” means the first date
all the conditions precedent in Section 4.01 are satisfied or
waived in accordance with Section 9.01 (or, in the case of Section 4.01(j),
waived by the Person entitled to receive the applicable payment).


 


“Closing Financial Statements” has the
meaning specified in Section 5.05(b).


 


“Code” means the Internal Revenue Code
of 1986.


 


“Collateral” shall mean any and all
assets and rights and interests in or to property of the Borrower and each of
the other Loan Parties, whether real or personal, tangible or intangible, in
which a Lien is granted or purported to be granted pursuant to the Collateral
Documents; provided, however, that in no event shall Collateral include
any membership or ownership interest in Borrower.


 


“Collateral Documents” means all
agreements, instruments and documents now or hereafter executed and delivered
in connection with this Agreement pursuant to which Liens are granted or
purported to be granted to the Bank in Collateral securing all or part of the
Obligations each in form and substance satisfactory to the Bank.


 


“Committed Borrowing” means a
borrowing consisting of simultaneous Loans of the same Type and, in the case of
LIBOR Rate Loans, having the same Interest Period made by the Bank pursuant to Sections
2.01 and 2.07.


 


“Committed Loan Notice” means a notice
of (a) a Committed Borrowing, (b) a conversion of Loans from one Type
to the other, or (c) a continuation of LIBOR Rate Loans, pursuant to Sections
2.02(a) and 2.08(a), which, if in writing, shall be substantially in
the form of Exhibit A or Exhibit B, as applicable.


 


“Commitments” means the Revolving
Commitments and the Term Loan Commitments.


 


 “Compliance
Certificate” means a certificate substantially in the form of Exhibit E.


 


“Contractual Obligation” means, as to
any Person, any provision of any security issued by such Person or of any
agreement, instrument or other undertaking to which such Person is a party or
by which it or any of its property is bound.


 


“Control” has the meaning specified in
the definition of “Affiliate”.


 


3





















 


“Cost” means the cost of Eligible
Inventory as determined in accordance with GAAP.


 


“Credit Extension” means a Borrowing.


 


“Crops” means all of the Borrower’s
farm products including but not limited to crops growing or to be grown on, and
all crops that have been harvested or severed from the Eligible Real Estate or
the Eligible Leasehold Real Estate.


 


“Crop Year” means the period from
December 1 of any year through November 30 of the following year.


 


“Debtor Relief Laws” means the
Bankruptcy Code of the United States, and all other liquidation,
conservatorship, bankruptcy, assignment for the benefit of creditors,
moratorium, rearrangement, receivership, insolvency, reorganization, or similar
debtor relief Laws of the United States or other applicable jurisdictions from
time to time in effect and affecting the rights of creditors generally.


 


“Default Rate” means an interest rate
equal to the interest rate (including any Applicable Rate) otherwise applicable
to such Revolving Loan or Term Loan plus 4% per annum, and in the case of the
Fixed Rate, the Fixed Rate plus 4% per annum, in each case to the fullest
extent permitted by applicable Laws.


 


“Deposit Accounts” means any demand
deposit or other type of bank account.


 


“Deposit Obligations” means all
obligations, indebtedness, and liabilities of Borrower or Guarantor to the Bank
or any Affiliate of the Bank arising pursuant to any deposit, lock box or cash
management arrangements entered into by the Bank or any Affiliate of the Bank
with the Borrower or Guarantor, whether now existing or hereafter arising,
whether direct, indirect, related, unrelated, fixed, contingent, liquidated,
unliquidated, joint, several, or joint and several, including, without
limitation, the obligation, indebtedness, and liabilities of the Borrower or
Guarantor to repay any credit extended in connection with such arrangements,
interest thereon, and all fees, costs, and expenses (including attorneys’ fees
and expenses) provided for in the documentation executed in connection
therewith.


 


“Disposition” or “Dispose” means
the sale, transfer, license, lease or other disposition (including any sale and
leaseback transaction) of any property by any Person, including any sale,
assignment, transfer or other disposal, with or without recourse, of any notes
or accounts receivable or any rights and claims associated therewith.


 


“Distribution” means any dividend or
other distribution (whether in cash, securities or other property) with respect
to any capital stock or other equity interest of the Borrower, Guarantor or any
Subsidiary, or any payment (whether in cash, securities or other property),
including any sinking fund or similar deposit on account of the purchase,
redemption, retirement, acquisition, cancellation or termination of any such
capital stock or other equity interest or of any option, warrant or other right
to acquire any such capital stock or other equity interest.


 


“Dollar” and “$” mean lawful
money of the United States.


 


“EBITDA” means for any fiscal period
of the Borrower and Guarantor the consolidated net income of the Borrower and
Guarantor for such fiscal period, plus interest expense, depreciation,
amortization and provision for income taxes for such fiscal period.


 


“Eligible Accounts” shall consist
solely of trade accounts in which the Bank has a first priority security
interest which have been created in the ordinary course of the Borrower’s
business and upon which the Borrower’s right to receive payment is absolute and
not contingent upon the fulfillment of any condition whatsoever, but shall not
include:


 


(a)           any account which is more than sixty (60) days past due;


 


4





















 


(b)           any
account for which there exists any right of set-off, defense or discount
(except regular discounts allowed in the ordinary course of business to promote
prompt payment and promotional allowances or discounts established by Borrower
in the ordinary course of business which are disclosed to the Bank) or for
which any defense or counterclaim has been asserted, to the extent of such
right of set-off, defense, discount or asserted counterclaim;


 


(c)           any account which arises from the sale or lease to or
performance of services for, or represent an obligation of, an officer,
director, employee, subsidiary or Affiliate of Borrower;


 


(d)           any
account which represents an obligation of an account debtor located outside the
United States and Canada unless such account is (i) supported by a letter
of credit in form and substance acceptable to the Bank, issued by a financial
institution acceptable to the Bank, (ii) cash against documents
transaction, or (iii) covered by credit insurance in form, substance and
amount, by an insurer, reasonably satisfactory to the Bank and with respect to
an account which represents an obligation of an account debtor located in
Canada (i) all documents from the Borrower necessary to perfect a security
interest in such accounts and (ii) an opinion of Borrower’s Canadian
counsel in form and substance acceptable to the Bank;


 


(e)           any account owed to any governmental
unit or entity, except for (i) any account as to which the Borrower has
complied with the Assignment of Claims Act of 1940 or any other applicable
states, rule or regulation to the Bank’s satisfaction in the exercise of its
reasonable business judgment, or (ii) any account arising from a transaction
with any state or other governmental entity or with any agency, department or
division thereof that does not have a statutory counterpart to the Assignment
of Claims Act of 1940; and


 


(f)            any account deemed ineligible by the Bank, when the Bank, in
its sole discretion, deems the creditworthiness or financial condition of the
account debtor, or the industry in which the account debtor is engaged, to be
unsatisfactory.


 


“Eligible Inputs” means (a) all
amounts expended by the Borrower to prepare for and produce Crops, including
interest expense, applicable harvest costs, and an allocation of seventy-five
percent (75%) of overhead, excluding non-cash items (depreciation and
amortization) as set forth in the Annual Budget; and (b) until the earlier
of February 28 of each calendar year or the approval of the applicable
Annual Budget by the Bank, such expenses for the months of December,
January and February 1 through 28 of each calendar year, as set forth
in the prior calendar year Annual Budget.


 


“Eligible Inventory” means all wine
inventory in salable condition in which the Bank has a first priority security
interest.


 


“Eligible Leasehold Real Estate” means
the Real Estate held in leasehold estate by the Borrower, as of the Closing Date,
(i) for which the Bank has received an executed Landlord Consent;
(ii) for which the Borrower has exercised each individual option, if any,
to extend or renew the term of any ground lease within one (1) year prior
to the last day upon which any such option may be exercised; and (iii) in
which the Bank has a first priority security interest.


 


“Eligible Real Estate” means the Real
Estate of Borrower, as of the Closing Date, in which the Bank has a first
priority security interest.


 


“Eligible
Transferee” shall mean (a) any Affiliate of Bank; and (b) any commercial
bank, financial institution, insurance company, investment or mutual fund or
other entity that is an “accredited investor” (as defined in Regulation D under
the Securities Exchange Act) and which extends credit or buys loans in the
ordinary course of business.


 


“Environmental Laws” means any and all
Federal, state, local, and foreign statutes, laws, regulations, ordinances,
rules, judgments, orders, decrees, permits, concessions, grants, franchises,
licenses, agreements or governmental restrictions relating to pollution and the
protection of the environment or the release of any materials


 


5





















 


into
the environment, including those related to hazardous substances or wastes, air
emissions and discharges to waste or public systems.


 


“Environmental Liability” means any
liability, contingent or otherwise (including any liability for damages, costs
of environmental remediation, fines, penalties or indemnities), of the
Borrower, the Guarantor, any other Loan Party or any of their respective
Subsidiaries directly or indirectly resulting from or based upon
(a) violation of any Environmental Law, (b) the generation, use,
handling, transportation, storage, treatment or disposal of any Hazardous
Materials, (c) exposure to any Hazardous Materials, (d) the release
or threatened release of any Hazardous Materials into the environment or
(e) any contract, agreement or other consensual arrangement pursuant to
which liability is assumed or imposed with respect to any of the foregoing.


 


“Equity Interest” means as to any
Person, any and all shares, interests, participations, rights or other
equivalents (however designated) of any class of preferred, common or other
capital stock, share capital or similar equity interest of a Person including,
without limitation, any partnership interest in any partnership or limited
partnership and any membership interest in any limited liability company or
other ownership or profit interest that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
such Person and any and all warrants, rights, options, obligations or other
equity securities of or in such Person, and rights to acquire any of the
foregoing, but excluding Debt other than Debt that is convertible into, or
exchangeable for, any of the foregoing Equity Interests.


 


“ERISA” means the Employee Retirement
Income Security Act of 1974.


 


“ERISA Affiliate” means any trade or
business (whether or not incorporated) under common control with Borrower
within the meaning of Section 414(b) or (c) of the Code (and
Sections 414(m) and (o) of the Code for purposes of provisions relating to
Section 412 of the Code).


 


“ERISA
Event” means (a) a Reportable Event with respect to a Pension Plan;
(b) a withdrawal by Borrower or any ERISA Affiliate from a Pension Plan
subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer (as defined in Section 4001(a)(2) of ERISA) or a
cessation of operations that is treated as such a withdrawal under
Section 4062(e) of ERISA; (c) a complete or partial withdrawal
by Borrower or any ERISA Affiliate from a Multiemployer Plan or notification
that a Multiemployer Plan is in reorganization; (d) the filing of a notice
of intent to terminate, the treatment of a Plan amendment as a termination
under Sections 4041 or 4041A of ERISA, or the commencement of proceedings by
the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event
or condition which might reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the
imposition of any liability under Title IV of ERISA, other than for PBGC
premiums due but not delinquent under Section 4007 of ERISA, upon  Borrower or any ERISA Affiliate.


 


“Event of
Default” has the meaning specified in Section 8.01.


 


“Financial
Statements” has the meaning specified in Section 6.01.


 


“GAAP”
means generally accepted accounting principles in the United States set forth
in the opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or such other
principles as may be approved by a significant segment of the accounting
profession in the United States, that are applicable to the circumstances as of
the date of determination, consistently applied.


 


“Governmental
Authority” means 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.


 


“Guarantee”
means, as to any Person, any (a) any obligation, contingent or otherwise,
of such Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness or other obligation payable or


 


6





















 


performable by another Person
(the “primary obligor”) in any manner,
whether directly or indirectly, and including any obligation of such Person,
direct or indirect, (i) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Indebtedness or other obligation, (ii) to
purchase or lease property, securities or services for the purpose of assuring
the obligee in respect of such Indebtedness or other obligation of the payment
or performance of such Indebtedness or other obligation, (iii) to maintain
working capital, equity capital or any other financial statement condition or
liquidity or level of income or cash flow of the primary obligor so as to
enable the primary obligor to pay such Indebtedness or other obligation, or
(iv) entered into for the purpose of assuring in any other obligee against
loss in respect thereof (in whole or in part), or (b) any Lien on any
assets of such Person securing any Indebtedness or other obligation of any
other Person, whether or not such Indebtedness or other obligation is assumed
by such Person (or any right, contingent or otherwise, of any holder of such
Indebtedness to obtain any such Lien). 
The amount of any Guarantee shall be deemed to be an amount equal to the
stated or determinable amount of the related primary obligation, or portion
thereof, in respect of which such Guarantee is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
as determined by the guaranteeing Person in good faith.  The term “Guarantee” as a verb has a
corresponding meaning.  For purposes of
this Agreement, he term “Guarantee” does not include endorsement of instruments
in the ordinary course of business.


 


“Guarantor”
means Scheid Vineyards, Inc., a Delaware corporation.


 


“Guaranty”
means the Guaranty of the Guarantor and any person which hereafter executes a
Guaranty of the Obligations, all in a form as provided by the Bank.


 


“Hazardous
Materials” means all explosive or radioactive substances or wastes and all
hazardous or toxic substances, wastes or other pollutants, including petroleum
or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated
biphenyls, radon gas, infectious or medical wastes and all other substances or
wastes of any nature regulated pursuant to any Environmental Law.


 


“Indebtedness”
means, as to any Person at a particular time, all of the following:


 


(a)           all obligations of such Person for
borrowed money and all obligations of such Person evidenced by bonds,
debentures, notes, loan agreements or other similar instruments;


 


(b)           all direct or contingent obligations
of such Person arising under letters of credit (including standby and
commercial), bankers’ acceptances, bank guaranties, surety bonds and similar
instruments;


 


(c)           net
obligations of such Person under any Swap Contract;


 


(d)           all
obligations of such Person to pay the deferred purchase price of property or
services (other than trade accounts payable in the ordinary course of
business);


 


(e)           indebtedness (excluding prepaid
interest thereon) secured by a Lien on property owned or being purchased by
such Person (including indebtedness arising under conditional sales or other
title retention agreements), whether or not such indebtedness shall have been
assumed by such Person or is limited in recourse;


 


(f)            capital
leases and Synthetic Lease Obligations; and


 


(g)           all
Guarantees of such Person in respect of any of the foregoing.


 


For all
purposes hereof, the Indebtedness of any Person shall include the Indebtedness
of any partnership or joint venture (other than a joint venture that is itself
a corporation or limited liability company) in which such Person is a general partner
or a joint venturer, unless such Indebtedness is expressly made non-recourse to
such Person.  The amount of any net
obligation under any Swap Contract on any date shall be Swap Termination Value
thereof as of such date.  The amount of
any capital lease or Synthetic Lease Obligation as of any date shall be deemed
to be the amount of Attributable Indebtedness in respect thereof as of such
date.


 


7





















 


“Indemnified
Liabilities” has the meaning specified in Section 9.05.


 


“Indemnitees”
has the meaning specified in Section 9.05.


 


“Information”
has the meaning specified in Section 9.08.


 


“Interest
Payment Date” means, (a) as to any LIBOR Rate Loan, the last day of
each Interest Period applicable to such Loan and the Revolving Loan Maturity
Date or Term Loan Maturity Date, as applicable; provided, however,
that if any Interest Period for a LIBOR Rate Loan exceeds three months, the
respective dates that fall every three months after the beginning of such
Interest Period shall also be Interest Payment Dates; and (b) as to any
Base Rate Loan the first Business Day of each calendar month and the Revolving
Loan Maturity Date or Term Loan Maturity Date, as applicable.


 


“Interest
Period” means as to each LIBOR Rate Loan, the period commencing on the date
such LIBOR Rate Committed Loan is disbursed or converted to or continued as a
LIBOR Rate Loan and ending on the date one, two, three or six months
thereafter, as selected by Borrower in its Committed Loan Notice, or such other
period that is twelve months or less requested by Borrower and consented to by
the Bank; provided that:


 


(a)           any Interest Period that would
otherwise end on a day that is not a Business Day shall be extended to the next
succeeding Business Day unless, such Business Day falls in another calendar
month, in which case such Interest Period shall end on the next preceding
Business Day;


 


(b)           any Interest Period that begins on
the last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of the calendar month at the end of
such Interest Period; and


 


(c)           no Interest
Period shall extend beyond the Revolving Loan Maturity Date or Term Loan
Maturity Date, as applicable.


 


“Investment”
means, as to any Person, any direct or indirect acquisition or investment by
such Person, whether by means of (a) the purchase or other acquisition of
capital stock or other securities of another Person, (b) a loan, advance
or capital contribution to, Guarantee or assumption of debt of, or purchase or
other acquisition of any other debt or equity participation or interest in,
another Person, including any partnership or joint venture interest in such other
Person (but excluding endorsement of instruments in the ordinary course of
business), or (c) the purchase or other acquisition (in one transaction or
a series of transactions) of assets of another Person that constitute a
business unit.  For purposes of covenant
compliance, the amount of any Investment shall be the amount actually invested,
without adjustment for subsequent increases or decreases in the value of such
Investment.


 


“IRS”
means the United States Internal Revenue Service.


 


“Landlord
Consent” means a consent from any Lessor of real
property to Borrower in a form as provided by the Bank.


 


“Laws”
means, collectively, Federal, state and local statutes, treaties, rules,
guidelines, regulations, ordinances, codes and administrative or judicial precedents
or authorities, including the interpretation or administration thereof by any
Governmental Authority charged with the enforcement, interpretation or
administration thereof, and all applicable administrative orders, directed
duties, requests, licenses, authorizations and permits of, and agreements with,
any Governmental Authority, in each case whether or not having the force of
law.


 


“LIBOR Rate”
means for any Interest Period with respect to any LIBOR Rate Loan, a rate per
annum determined by the Bank pursuant to the following formula:


 


8





















 


	
  LIBOR Rate =

  	
   

  	
  LIBOR Base
  Rate

  	
   

  
	
   

  	
   

  	
  1.00 – LIBOR
  Reserve Percentage

  	
   

  



 


Where,


 


“LIBOR Base Rate” means, for such
Interest Period:


 


(a)           the rate per annum equal to the rate
determined by the Bank to be the London interbank offered rate that appears in
the Wall Street Journal (Official BBA (British Bankers Association) LIBOR
Fixings) (or any successor thereto) for deposits in Dollars (for delivery on
the first day of such Interest Period) with a term equivalent to such Interest
Period, determined as of approximately 11:00 a.m. (London time) two
Business Days prior to the first day of such Interest Period, or


 


(b)           if the rate referenced in the
preceding clause (a) does not appear on such page or service
or such page or service shall not 
be available, the rate per annum equal to the rate determined by the
Bank to be the offered rate on such other page or other service that
displays an average British Bankers Association Interest Settlement Rate for
deposits in Dollars (for delivery on the first day of such Interest Period)
with a term equivalent to such Interest Period, determined as of approximately
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period, or


 


(c)           if the rates referenced in the
preceding clauses (a) and (b) are not available, the
rate per annum determined by the Bank as the rate of interest at which deposits
in Dollars for delivery on the first day of such Interest Period in same day
funds in the approximate amount of the LIBOR Rate Committed Loan being made,
continued or converted by the Bank and with a term equivalent to such Interest
Period would be offered by the Bank’s London Branch to major banks in the
London interbank eurodollar market at their request at approximately
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period.


 


“LIBOR
Reserve Percentage” means, for any day during any Interest Period, the
reserve percentage (expressed as a decimal, carried out to five decimal places)
in effect on such day, whether or not applicable to the Bank, under regulations
issued from time to time by the Board of Governors of the Federal
Reserve System of the United States for determining the maximum reserve
requirement (including any emergency, supplemental or other marginal reserve
requirement) with respect to Eurocurrency funding (currently referred to as “Eurocurrency Liabilities”). 
The LIBOR Rate for each outstanding LIBOR Rate Loan shall be adjusted
automatically as of the effective date of any change in the LIBOR Reserve
Percentage.


 


“LIBOR Rate
Loan” means, as applicable, unless otherwise indicated, a Revolving Loan or
a Term Loan that bears interest at a rate based on the LIBOR Rate.


 


“Lien”
means any mortgage, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or other), charge, or preference, priority or
other security interest or preferential arrangement of any kind or nature
whatsoever (including any conditional sale or other title retention agreement,
and any financing lease having substantially the same economic effect as any of
the foregoing.


 


“Loan”
means, as applicable, an extension of credit by the Bank to the Borrower under Article II
in the form of a Revolving Loan or a Term Loan.


 


“Loan
Documents” means this Agreement, the Notes, the Security Agreement, the
Guaranty and all other agreements, documents, instruments, and certificates of
the Borrower or Guarantor delivered to, or in favor of, the Bank under this
Agreement or in connection herewith or therewith, including, without
limitation, all agreements, documents, instruments, certificates and delivered
in connection with the extension of Loans by the Bank.


 


“Loan
Notice” means, as applicable, Exhibit A and Exhibit B.


 


9





















 


“Loan
Parties” means, collectively, the Borrower, the Guarantor and each Person
(other than the Bank) executing a Loan Document including, without limitation
each Person executing a Collateral Document.


 


“Loan to
Collateral Ratio” means the ratio of the Term Loans outstanding, at any
time, to the Value of the Eligible Real Estate and the Value of the Eligible
Leasehold Real Estate.


 


“Material
Adverse Effect” means (a) a material adverse change in, or a material
adverse effect upon, the operations, business, properties, liabilities (actual
and contingent), or condition (financial or otherwise) of the Borrower, the
Guarantor and their respective Subsidiaries taken as a whole or the Collateral,
which results in a long-term material impairment (i) of the ability of the
Borrower to pay its obligations to the Bank under any Loan Document to which it
is a party as such obligations become due and payable and (ii) in the
value of the Collateral in relation to the Obligations outstanding; or
(b) a material adverse effect upon the legality, validity, binding effect
or enforceability against any Loan Party of any Loan Document to which it is a
party.


 


“Material
Subsidiary” means any Subsidiary of Borrower or Guarantor that would be a
“significant subsidiary”, as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Securities Act of 1933, as amended.


 


“Mortgage”
means a mortgage, deed of trust or other real estate encumbrance instrument in
a form as provided by the Bank, covering the Real Estate.


 


“Multiemployer
Plan” means any employee benefit plan of the type described in
Section 4001(a)(3) of ERISA, to which Borrower, Guarantor or any
ERISA Affiliate makes or is obligated to make contributions, or during the
preceding five plan years, has made or been obligated to make contributions.


 


“Note”
means, as applicable, a promissory note made by the Borrower in favor of the
Bank evidencing Revolving Loans and Term Loans made by the Bank, substantially
in the form of Exhibits C and C-1.


 


“Obligations”
means all advances to, and debts, liabilities, obligations, covenants and
duties of, any Loan Party arising under any Loan Document or otherwise with
respect to any Loan, including any Swap Obligation, all Deposit Obligations
whether direct or indirect (including those acquired by assumption), absolute
or contingent, due or to become due, now existing or hereafter arising and
including interest and fees that accrue after the commencement by or against
any Loan Party or any Affiliate thereof of any proceeding under any Debtor
Relief Laws naming such Person as the debtor in such proceeding, regardless of
whether such interest and fees are allowed claims in such proceeding.


 


“Organization
Documents” means, (a) with respect to any corporation, the certificate
or articles of incorporation and the bylaws (or equivalent or comparable
constitutive documents with respect to any non-U.S. jurisdiction);
(b) with respect to any limited liability company, the certificate or
articles of formation and operating agreement; and (c) with respect to any
partnership, joint venture, trust or other form of business entity, the
partnership, joint venture or other applicable agreement of formation and any
agreement, instrument, filing or notice with respect thereto filed in
connection with its formation or organization with the  applicable Governmental Authority in the
jurisdiction of its formation or organization and, if applicable, any
certificate or articles of formation or organization of such entity.


 


“Other
Taxes” has the meaning specified in Section 3.01(b).


 


“Outstanding
Amount” means with respect to Revolving Loans and/or Term Loans, as
applicable, on any date, the aggregate outstanding principal amount thereof
after giving effect to any borrowings and prepayments or repayments of
Revolving Loans and Term Loans, as the case may be, occurring on such date.


 


“PBGC”
means the Pension Benefit Guaranty Corporation.


 


“Pension
Plan” means any “employee pension benefit plan” (as such term is defined in
Section 3(2) of ERISA), other than a Multiemployer Plan, that is
subject to Title IV of ERISA and is sponsored or maintained by


 


10





















 


Borrower, Guarantor or any
ERISA Affiliate or to which Borrower, Guarantor or any ERISA Affiliate
contributes or has an obligation to contribute, or in the case of a multiple
employer or other plan described in Section 4064(a) of ERISA, has
made contributions at any time during the immediately preceding five plan
years.


 


“Permitted
Liens” has the meaning specified in Section 7.01.


 


“Person”
means any individual, trustee, corporation, general partnership, limited
partnership, limited liability company, joint stock company, trust,
unincorporated organization, bank, business association, firm, joint venture or
Governmental Authority.


 


“Plan”
means any “employee benefit plan” (as such term is defined in
Section 3(3) of ERISA) established by Borrower, Guarantor or, with
respect to any such plan that is subject to Section 412 of the Code or
Title IV of ERISA, any ERISA Affiliate.


 


“Potential
Default” means any event or condition that with the giving of any notice,
the passage of time, or both, would be an Event of Default.


 


“Real
Estate” means the real estate held in either fee simple title or leasehold
estate by the Borrower described in the Mortgages.


 


“Reportable
Event” means any of the events set forth in Section 4043(c) of
ERISA, other than events for which the 30 day notice period has been waived.


 


“Request for Credit Extension” means with respect to a
Borrowing, conversion or continuation of Loans, a Loan Notice.


 


“Responsible
Officer” means the chief executive officer, president, chief financial
officer, treasurer or assistant treasurer of a Loan Party.  Any document delivered hereunder that is
signed by a Responsible Officer of a Loan Party shall be conclusively presumed
to have been authorized by all necessary corporate, partnership and/or other
action on the part of such Loan Party and such Responsible Officer shall be
conclusively presumed to have acted on behalf of such Loan Party.


 


“Revolving
Commitment” means, as to the Bank, its obligation to make Revolving Loans
to the Borrower pursuant to Section 2.01, in an aggregate principal
amount at any one time outstanding not to exceed the amount set forth opposite
the Bank’s name on Schedule 2.01.


 


“Revolving
Loan” has the meaning specified in Section 2.01.


 


“Revolving
Loan Maturity Date” means July 15, 2008.


 


“Scheid Principals”
means all of the following: (i) Alfred G. Scheid, Scott D. Scheid, Heidi M.
Scheid and Kurt J. Gollnick (the “Scheid Individuals”),
(ii) any spouse of any Scheid Individual, (iii) any lineal descendant
(including by adoption) of any Scheid Individual (each Person described in
clauses (i), (ii) and (iii) a “Scheid Party”),
(iv) any of the following acting in his or her capacity as such: (A) the
executor, administrator or personal representative of a Scheid Party, and (B)
the guardian or conservator of a Scheid Party who is adjudged disabled or
incompetent by a court of competent jurisdiction, (v) any trust (including a
voting trust) established principally for the benefit of a Scheid Party, (vi)
any limited partnership, limited liability partnership or limited liability
company in which one or more Scheid Parties holds all of the partnership
interests or membership interests, as applicable, and (viii) any corporation
with respect to which one or more Scheid Parties holds all of the outstanding
voting securities and has the power to elect all of the directors.


 


“Subsidiary”
of a Person means a corporation, partnership, joint venture, limited liability
company or other business entity of which a majority of the shares of
securities or other interests having ordinary voting power for the election of
directors or other governing body (other than securities or interests having
such power only by reason of the happening of a contingency) are at the time
beneficially owned, or the management of which is otherwise


 


11





















 


controlled,
directly, or indirectly through one or more intermediaries, or both, by such
Person.  Unless otherwise specified, all
references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a
Subsidiary or Subsidiaries of Borrower or Guarantor.


 


“Swap
Contract” means (a) any and all rate swap transactions, basis swaps,
credit derivative transactions, forward rate transactions, commodity swaps,
commodity options, forward commodity contracts, equity or equity index swaps or
options, bond or bond price or bond index swaps or options or forward bond or
forward bond price or forward bond index transactions, interest rate options,
forward foreign exchange transactions, cap transactions, floor transactions,
collar transactions, currency swap transactions, cross-currency rate swap
transactions, currency options, spot contracts, or any other similar
transactions or any combination of any of the foregoing (including any options
to enter into any of the foregoing), whether or not any such transaction is
governed by or subject to any master agreement, and (b) any and all
transactions of any kind, and the related confirmations, which are subject to
the terms and conditions of, or governed by, any form of master agreement published
by the International Swaps and Derivatives Association, Inc., any
International Foreign Exchange Master Agreement, or any other master agreement
(any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or
liabilities under any Master Agreement.


 


“Swap
Obligations” means all obligations, indebtedness, and liabilities of
Borrower to the Bank or any Affiliate of the Bank, arising pursuant to any Swap
Contract entered into by the Bank or Affiliate with Borrower, whether now
existing or hereafter arising, whether direct, indirect, related, unrelated,
fixed, contingent, liquidated, unliquidated, joint, several, or joint and
several, including, without limitation, all fees, costs, and expenses (including
attorneys’ fees and expenses) provided for in such Swap Contracts.


 


“Swap
Termination Value” means, in respect of any one or more Swap Contracts,
after taking into account the effect of any legally enforceable netting
agreement relating to such Swap Contracts, (a) for any date on or after
the date such Swap Contracts have been closed out and termination value(s)
determined in accordance therewith, such termination value(s), and (b) for
any date prior to the date referenced in clause (a), the amount(s) determined
as the mark-to-market value(s) for such Swap Contracts, as determined based
upon one or more mid-market or other readily available quotations provided by
any recognized dealer in such Swap Contracts (which may include the Bank or any
Affiliate of the Bank).


 


“Synthetic
Lease Obligation” means the monetary obligation of a Person under
(a) a so-called synthetic, off-balance sheet or tax retention lease, or
(b) an agreement for the use or possession of property creating
obligations that do not appear on the balance sheet of such Person but which,
upon the insolvency or bankruptcy of such Person, would be characterized as the
indebtedness of such Person (without regard to accounting treatment).


 


“Tangible
Net Worth” means the value of Borrower’s and Guarantor’s consolidated total
assets (including leaseholds and leasehold improvements and reserves against
assets but excluding goodwill, patents, trademarks, trade names, organization
expense, unamortized debt discount and expense, capitalized or deferred research
and development costs, deferred marketing expenses, and other like intangibles,
and monies due from Affiliates, officers, directors, employees, shareholders,
members or managers), provided that any real estate shall be valued based on
the most recent Appraisal based on the value set forth in such Appraisal (as of
the date of the calculation of Tangible Net Worth), less Total Liabilities
(including but not limited to accrued and deferred income taxes).


 


“Taxes”
has the meaning specified in Section 3.01(a).


 


“Term Loan”
has the meaning specified in Section 2.07.


 


“Term Loan
Commitment” means, as to the Bank, its obligation to make Term Loans to the
Borrower pursuant to Section 2.07, in an aggregate principal amount
at any one time outstanding not to exceed the amount set forth opposite the
Bank’s name on Schedule 2.01.


 


“Term Loan
Maturity Date” means July 15, 2015.


 


“Threshold
Amount” means $1,000,000.


 


12





















 


“Total
Liabilities” means the sum of Borrower’s and Guarantor’s consolidated
current liabilities plus long term liabilities.


 


“Total
Outstandings” means the aggregate Outstanding Amount of all Revolving
Loans, and as applicable all Term Loans.


 


“Type”
means with respect to a Loan, its character as a Base Rate Loan or a LIBOR Rate
Loan.


 


“Unfunded
Pension Liability” means the excess of a Pension Plan’s benefit liabilities
under Section 4001(a)(16) of ERISA, over the
current value of that Pension Plan’s assets, determined in accordance with the
assumptions used for funding the Pension Plan pursuant to Section 412 of
the Code for the applicable plan year.


 


“United States,”
and “U.S.” mean the United States of America.


 


“Value”
means with respect to (i) Eligible Real Estate, the value as of the date
of the determination as reflected in the most current Appraisal;
(ii) Eligible Leasehold Real Estate, the value as of the date of the
determination as reflected in the most current Appraisal; and
(iii) Eligible Inventory, the market value as determined by the Bank.


 


“Violation”
has the meaning specified in Section 5.12(e).


 


“Voting
Stock” means any Equity Interest or other securities of any class of a
Person whose holders are entitled under ordinary circumstances to vote for the
election of directors of such Person (or Persons performing similar functions)
(irrespective of whether at the time securities of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency).


 


“Wine Grape
Contracts” means all contracts for the purchase of wine grapes produced on
the Eligible Real Estate and the Eligible Leasehold Real Estate.


 


“Working
Capital” means Borrower’s and Guarantor’s consolidated total current assets
minus total current liabilities (including any outstanding principal amount of
the Revolving Loans), plus the amount of the Available Credit Amount.


 


1.02        Other Interpretive
Provisions.  With
reference to this Agreement and each other Loan Document, unless otherwise
specified herein or in such other Loan Document:


 


(a)           The meanings of defined terms are
equally applicable to the singular and plural forms of the defined terms.


 


(b)           (i)            The
words “herein”, “hereto”,
“hereof” and “hereunder”
and words of similar import when used in any Loan Document shall refer to such
Loan Document as a whole and not to any particular provision thereof;  (ii) Article, Section, Exhibit and
Schedule references are to the Loan Document in which such reference
appears; (iii) the term “including” is
by way of example and not limitation; and (iv) the term “documents” includes any and all instruments, documents,
agreements, certificates, notices, reports, financial statements and other
writings, however evidenced, whether in physical or electronic form.


 


(c)           In the computation of periods of time
from a specified date to a later specified date, the word “from”
means “from and including;” the words “to” and “until”
each mean “to but excluding;” and the word “through” means “to and including.”


 


(d)           Section headings herein and in
the other Loan Documents are included for convenience of reference only and
shall not affect the interpretation of this Agreement or any other Loan
Document.


 


1.03        Accounting Terms.  All accounting terms
not specifically or completely defined herein shall be construed in conformity
with, and all financial data (including financial ratios and other financial
calculations)


 


13





















 


required
to be submitted pursuant to this Agreement shall be prepared in conformity with
and applied in a manner consistent with that used in preparing the Financial
Statements, except as otherwise specifically prescribed herein.


 


1.04        Rounding.  Any financial ratios
required to be maintained by any Loan Party pursuant to this Agreement shall be
calculated by dividing the appropriate component by the other component,
carrying the result to one place more than the number of places by which such
ratio is expressed herein and rounding the result up or down to the nearest
number (with a rounding-up if there is no nearest number).


 


1.05        References to
Agreements and Laws.  Unless
otherwise expressly provided herein, (a) references to Organization
Documents, agreements (including the Loan Documents) and other contractual
instruments shall be deemed to include all subsequent amendments, restatements,
extensions, supplements and other modifications thereto, but only to the extent
that such amendments, restatements, extensions, supplements and other
modifications are not prohibited by any Loan Document; and (b) references
to any Law shall include all statutory and regulatory provisions consolidating,
amending, replacing, supplementing or interpreting such Law.


 


ARTICLE II.         THE
COMMITMENTS AND CREDIT EXTENSIONS.


 


2.01        Revolving Loans.  Subject to the terms and conditions set forth
herein, the Bank agrees to make loans (each such loan, a “Revolving
Loan”) to the Borrower from time to time, on any Business Day during
the Availability Period, in an aggregate amount not to exceed at any time
outstanding the amount of the Revolving Commitment; provided, however, that
after giving effect to any Revolving Loan, the Outstanding Amount shall not
exceed the lesser of the Borrowing Base Revolving Loan or the Revolving
Commitments.  Within the limits of the
Revolving Commitment, and subject to the other terms and conditions hereof, the
Borrower may borrow under this Section 2.01, prepay under Section 2.03,
and reborrow under this Section 2.01.  Revolving Loans may be Base Rate Revolving
Loans or LIBOR Rate Loans, as further provided herein.


 


2.02        Borrowings,
Conversions and Continuations of Revolving Loans.


 


(a)           Each Borrowing, each conversion of
Revolving Loans from one Type to the other, and each continuation of LIBOR Rate
Loans shall be made upon the Borrower’s irrevocable notice to the Bank, which
may be given by telephone.  Each such
notice must be received by the Bank not later than 2:00 p.m., Fresno,
California time, (i) on the requested date of any Borrowing of, conversion
to or continuation of LIBOR Rate Loans or of any conversion of LIBOR Rate Loans
to Base Rate Loans, and (ii) on the requested date of any Borrowing of
Base Rate Loans.  Each telephonic notice
by the Borrower pursuant to this Section 2.02(a) must be
confirmed promptly by delivery to the Bank of a written Loan Notice, appropriately
completed and signed by the Responsible Officers of the Borrower.  Each Borrowing of, conversion to or
continuation of LIBOR Rate Loans shall be in a principal amount of $1,000,000
or a whole multiple of $500,000 in excess thereof.  Each Loan Notice (whether telephonic or
written) shall specify (i) whether the Borrower is requesting a Borrowing,
a conversion of Revolving Loans from one Type to the other, or a continuation
of LIBOR Rate Loans, (ii) the requested date of the Borrowing, conversion
or continuation, as the case may be (which shall be a Business Day),
(iii) the principal amount of Revolving Loans to be borrowed, converted or
continued, (iv) the Type of Revolving Loans to be borrowed or to which
existing Revolving Loans are to be converted, and (v) if applicable, the
duration of the Interest Period with respect thereto.  If the Borrower fails to specify a Type of
Revolving Loan in a Loan Notice or if the Borrower fails to give a timely
notice requesting a conversion or continuation, then the applicable Loans shall
be made, or converted to, Base Rate Loans. 
Any such automatic conversion to Base Rate Loans shall be effective as
of the last day of the Interest Period then in effect with respect to the applicable
LIBOR Rate Loans.  If the Borrower
requests a Borrowing of, conversion to, or continuation of LIBOR Rate Loans in
any such Loan Notice, but fails to specify an Interest Period, it will be
deemed to have specified an Interest Period of one month.


 


(b)           Upon satisfaction of the applicable
conditions set forth in Section 4.02 (and, if such Borrowing is the
initial Credit Extension, Section 4.01), the Bank shall make all
funds so available to the Borrower either by (i) crediting the account of
the Borrower on the books of the Bank with the amount of such funds or
(ii) wire transfer of such funds, in each case in accordance with
instructions provided to (and reasonably acceptable to) the Bank by the
Borrower.


 


(c)           Except as otherwise provided herein,
a LIBOR Rate Loan may be continued or converted only on


 


14





















 


the
last day of an Interest Period for such LIBOR Rate Loan.  During the existence of a Potential Default
or Event of Default, no Revolving Loans may be requested as, converted to or
continued as LIBOR Rate Loans without the consent of the Bank.


 


(d)           The Bank shall promptly notify the
Borrower of the interest rate applicable to any Interest Period for LIBOR Rate
Loans upon determination of such interest rate. 
The determination of the LIBOR Rate by the Bank shall be conclusive in
the absence of manifest error.


 


(e)           After giving effect to all
Borrowings, all conversions of Loans from one Type to the other, and all
continuations of Revolving Loans as the same Type, there shall not be more than
six (6) Interest Periods in effect with respect to Revolving Loans.


 


2.03        Prepayments of
Revolving Loans.


 


(a)           The Borrower shall, within one
(1) Business Day following the earlier of the delivery of a Borrowing Base
Certificate hereof or the day upon which such Borrowing Base Certificate was
due, either (i) prepay the Revolving Loans in the amount, if any, by which
the Outstanding Amounts of the Revolving Loans on the date of prepayment under
this Section 2.03(a) exceeds the Borrowing Base Revolving Loan
at such time, together with accrued interest to the date of such prepayment on
the amount prepaid, or (ii) pledge and assign to the Bank additional
collateral acceptable to the Bank, in the Bank’s sole discretion, and deliver
all documentation that the Bank, in its sole discretion, may require in
connection with such pledge and assignment and the perfection of a
first-priority security interest in such additional collateral, so that, as
applicable, the Borrowing Base Revolving Loan, plus the value assigned by the
Bank, in its sole discretion, to such additional collateral equals or exceeds
the Outstanding Amounts.


 


(b)           The Borrower may, upon notice to the
Bank, at any time or from time to time voluntarily prepay Loans in whole or in
part without premium or penalty; provided that (i) such notice must
be received by the Bank not later than 2:00 p.m., Fresno CA time,
(A) three Business Days prior to any date of prepayment of LIBOR Rate
Loans, and (B) on the date of prepayment of Base Rate Loans; and (ii) any
prepayment of LIBOR Rate Loans shall be in a principal amount of $1,000,000 or
a whole multiple of $100,000 in excess thereof, or, in each case, if less, the
entire principal amount thereof then outstanding.  Each such notice shall specify the date and
amount of such prepayment and the Type(s) of Loans to be prepaid.  If such notice is given by the Borrower, the
Borrower shall make such prepayment and the payment amount specified in such
notice shall be due and payable on the date specified therein.  Any prepayment of a LIBOR Rate Loan shall be
accompanied by all accrued interest thereon, together with any additional
amounts required pursuant to Section 3.05.


 


(c)           If for any reason the Outstanding
Amount at any time exceed the Revolving Commitment
then in effect, the Borrower shall immediately prepay the Revolving Loans in an
aggregate amount equal to such excess.


 


(d)           If on the date a principal payment is
made with respect to the Revolving Loans, interest is calculated with respect
to such portion of the Commitments both on the basis of the Base Rate and the
LIBOR Rate then such payment shall be applied first to the principal for which
interest is calculated on the basis of the Base Rate (the “Base Rate
Principal”).  Only when the
Base Rate Principal is fully paid shall the principal payment be applied to the
LIBOR Rate Loan(s) principal.  If more
than one LIBOR Rate Loan is outstanding, the principal amount shall be applied
to the LIBOR Rate Loans in the order of maturity, with the LIBOR Rate Loans
with the shortest time to maturity paid first.


 


2.04        Reduction or
Termination of Revolving Commitments.  (a) 
The Borrower may, upon notice to the Bank, terminate the Revolving Commitments,
or from time to time permanently reduce the Revolving Commitments; provided
that (i) any such notice shall be received by the Bank not later than
2:00 p.m., five Business Days prior to the date of termination or
reduction, (ii) any such partial reduction shall be in an aggregate amount
of $1,000,000 or any whole multiple of $100,000 in excess thereof, and
(iii)  the Borrower shall not terminate or reduce the Revolving
Commitments if, after giving effect thereto and to any concurrent prepayments
hereunder, the Outstanding Amount would exceed the Revolving Commitments.  Once reduced in accordance with this Section 2.04,
the Revolving Commitments may not be increased.


 


15





















 


2.05        Repayment of Revolving
Loans.  The
Borrower shall repay to the Bank on the Revolving Loan Maturity Date the aggregate
principal amount of Revolving Loans outstanding on such date.


 


2.06        Interest on Revolving
Loans.


 


(a)           Subject to the provisions of subsection (b) below,
(i) each LIBOR Rate Loan shall bear interest on the outstanding principal
amount thereof for each Interest Period at a rate per annum equal to the LIBOR
Rate for such Interest Period plus the Applicable Rate; and
(ii) each Base Rate Loan shall bear interest on the outstanding principal
amount thereof from the applicable borrowing date at a rate per annum equal to
the Base Rate plus the Applicable Rate.


 


(b)           If any amount payable by the Borrower
under any Loan Document is not paid when due (without regard to any applicable
grace periods), whether at stated maturity by acceleration or otherwise, such
amount shall thereafter bear interest at a fluctuating interest rate per annum
at all times equal to the Default Rate to the fullest extent permitted by
applicable Laws.  Furthermore, while any
Event of Default exists (or after acceleration), the Borrower shall pay
interest on the principal amount of all outstanding Obligations at a
fluctuating interest rate per annum at all times equal to the Default Rate to
the fullest extent permitted by applicable Laws.  Accrued and unpaid interest on past due
amounts (including interest on past due interest) shall be due and payable upon
demand.


 


(c)           Interest on each LIBOR Rate Loan
shall be due and payable in arrears on each Interest Payment Date applicable
thereto and at such other times as may be specified herein.  Interest on each Base Rate Loan shall be due
and payable in arrears on the first day of each calendar month and at such
other times as may be specified herein. 
Interest hereunder shall be due and payable in accordance with the terms
hereof before and after judgment, and before and after the commencement of any
proceeding under any Debtor Relief Law.


 


(d)           Borrower shall not be required to pay
any “Non-Use Fee” shown in the definition of Applicable Rate on any Borrowing
of Revolving Loans.


 


2.07        Term Loans.  Subject to the terms and conditions set forth
herein, the Bank agree to make loans (each such loan, a “Term
Loan”) to the Borrower from time to
time, on any Business Day during the Availability Period, in an aggregate
amount not to exceed at any time outstanding the amount of the Term Loan
Commitment; provided, however, that after giving effect to any Term Loan,
(i) the Outstanding Amount shall not exceed the lesser of the Borrowing
Base Term Loan or the Term Loan Commitments, and (ii) the aggregate Outstanding
Amount of the Term Loans of the Bank shall not exceed the lesser of the
Borrowing Base Term Loan or such Bank’s Term Loan Commitment.  Within the limits of the Bank’s Term Loan
Commitment, and subject to the other terms and conditions hereof, the Borrower may
borrow under this Section 2.07, prepay under Section 2.09,
and reborrow under this Section 2.07.


 


2.08        Borrowings,
Conversions and Continuations of Term Loans.


 


(a)           Each Borrowing, each conversion of
Term Loans from one Type to the other, and each continuation of LIBOR Rate Loan
shall be made upon the Borrower’s irrevocable notice to the Bank, which may be
given by telephone.  Each such notice
must be received by the Bank not later than 12:00 p.m., Fresno, California
time, (i) three Business Days prior to the requested date of any Borrowing
of, conversion to or continuation of LIBOR Rate Loans or of any conversion of
LIBOR Rate Loans to Base Rate Loans, and (ii) one Business Day prior to
the requested date of any Borrowing of Base Rate Loans.  Each telephonic notice by the Borrower
pursuant to this Section 2.08 must be confirmed promptly by
delivery to the Bank of a written Loan Notice, appropriately completed and
signed by a Responsible Officer of the Borrower.  Each Borrowing of, conversion to or continuation
of LIBOR Rate Loans shall be in a principal amount of $5,000,000 or a whole
multiple of $500,000 in excess thereof. 
Each Borrowing of or conversion to Base Rate Loans shall be in a
principal amount of $1,000,000 or a whole multiple of $100,000 in excess
thereof.  Each Loan Notice (whether
telephonic or written) shall specify (i) whether the Borrower are
requesting a Borrowing, a conversion of Term Loans from one Type to the other,
or a continuation of LIBOR Rate Loans, (ii) the requested date of the
Borrowing, conversion or continuation, as the case may be (which shall be a
Business Day), (iii) the principal amount of Loans to be borrowed,
converted or continued, (iv) the Type of Loans to be borrowed or to which
existing Loans are to be converted, and (v) if applicable, the duration of
the Interest Period with respect thereto. 
If the Borrower fails to specify a Type of Loan in a Loan Notice


 


16





















 


or
if the Borrower fails to give a timely notice requesting a conversion or
continuation, then the applicable Loans shall be made, or converted to, Base
Rate Loans.  Any such automatic
conversion to Base Rate Loans shall be effective as of the last day of the
Interest Period then in effect with respect to the applicable LIBOR Rate
Loans.  If the Borrower requests a
Borrowing of, conversion to, or continuation of LIBOR Rate Term in any such
Loan Notice, but fails to specify an Interest Period, it will be deemed to have
specified an Interest Period of one month.


 


(b)           Upon satisfaction of the applicable
conditions set forth in Section 4.02 (and, if such Borrowing is the
initial Credit Extension, Section 4.01), the Bank shall make the
funds available to the Borrower either by (i) crediting the account of the
Borrower on the books of the Bank with the amount of such funds or
(ii) wire transfer of such funds, in each case in accordance with
instructions provided to (and reasonably acceptable to) the Bank by the
Borrower.


 


(c)           Except as otherwise provided herein,
a LIBOR Rate Loan may be continued or converted only on the last day of an
Interest Period for such LIBOR Rate Loan. 
During the existence of a Potential Default or Event of Default, no Term
Loans may be requested as, converted to or continued as LIBOR Rate Loans without
the consent of the Bank.


 


(d)           The Bank shall promptly notify the
Borrower of the interest rate applicable to any Interest Period for LIBOR Rate
Loans upon determination of such interest rate. 
The determination of the LIBOR Rate by the Bank shall be conclusive in
the absence of manifest error.


 


(e)           After giving effect to all
Borrowings, all conversions of Loans from one Type to the other, and all
continuations of Term Loans as the same Type, there shall not be more than six
(6) Interest Periods in effect with respect to Term Loans.


 


2.09        Prepayments of Term
Loans.


 


(a)           The Borrower shall, within one
(1) Business Day following the earlier of the delivery of the Borrowing
Base Term Loan Certificate hereof or the day upon which such Borrowing Base
Term Loan Certificate was due, either (i) prepay the Term Loans, in the
amount, if any, by which the Outstanding Amounts of the Term Loans, on the date
of prepayment under this Section 2.09(a) exceeds the Borrowing
Base Term Loan at such time, together with accrued interest to the date of such
prepayment on the amount prepaid, or (ii) pledge and assign to the Bank
additional collateral acceptable to the Bank in the Bank’s sole discretion, and
deliver all documentation that the Bank, in its sole discretion, may require in
connection with such pledge and assignment and the perfection of a
first-priority security interest in such additional collateral, so that the
Borrowing Base Term Loan, plus the value assigned by the Bank, in its sole
discretion, to such additional collateral equals or exceeds the Outstanding
Amount.


 


(b)           The Borrower may, upon notice to
Bank, at any time or from time to time voluntarily prepay Term Loans in whole
or in part without premium or penalty; provided that (i) such
notice must be received by the Bank not later than 12:00 p.m., Fresno,
California time, (A) three Business Days prior to any date of prepayment
of LIBOR Rate Loans, and (B) on the date of prepayment of Base Rate Loans;
(ii) any prepayment of LIBOR Rate Loans shall be in a principal amount of
$1,000,000 or a whole multiple of $100,000 in excess thereof; and
(iii) any prepayment of Base Rate Loans shall be in a principal amount of
$1,000,000 or a whole multiple of $100,000 in excess thereof, or, in each case,
if less, the entire principal amount thereof then outstanding.  Each such notice shall specify the date and
amount of such prepayment and the Type(s) of Term Loans to be prepaid.  If such notice is given by the Borrower, the
Borrower shall make such prepayment and the payment amount specified in such
notice shall be due and payable on the date specified therein.  Any prepayment of a LIBOR Rate Loan shall be
accompanied by all accrued interest thereon, together with any additional
amounts required pursuant to Section 3.05.  Each such prepayment shall be applied to the
Term Loans.


 


(c)           If for any reason the Term Loans at
any time exceed the Term Loan Commitments then in effect, the Borrower shall
immediately prepay the Term Loans in an aggregate amount equal to such excess.


 


17





















 


(d)           If on the date a principal payment is
made with respect to the Term Loans, interest is calculated with respect to
such portion of the Commitments both on the basis of the Base Rate and the
LIBOR Rate then such payment shall be applied first to the principal for which
interest is calculated on the basis of the Base Rate (the “Base Rate
Principal”).  Only when the
Base Rate Principal is fully paid shall the principal payment be applied to the
LIBOR Rate Loan(s) principal.  If more
than one LIBOR Rate Loan is outstanding, the principal amount shall be applied
to the LIBOR Rate Loans in the order of maturity, with the LIBOR Rate Loans
with the shortest time to maturity paid first.


 


2.10        Reduction or
Termination of Term Loan Commitments.  The
Borrower may, upon notice to the Bank, terminate the Term Loan Commitments, or
from time to time permanently reduce the Term Loan Commitments; provided
that (i) any such notice shall be received by the Bank not later than 2:00 p.m.,
five Business Days prior to the date of termination or reduction, (ii) any
such partial reduction shall be in an aggregate amount of $1,000,000 or any
whole multiple of $100,000 in excess thereof and (iii) the Borrower shall
not terminate or reduce the Term Loan Commitments if, after giving effect
thereto and to any concurrent prepayments hereunder, the Outstanding Amount
would exceed the Term Loan Commitments. 
Once reduced in accordance with this Section 2.10 the Term
Loan Commitments may not be increased.


 


2.11        Repayment of Term
Loans.  The
Borrower shall repay to the Bank on the Term Loan Maturity Date the aggregate
principal amount of Term Loans outstanding on such date.


 


2.12        Interest on Term
Loans.


 


(a)           Subject to the provisions of subsection (b) below,
(i) each LIBOR Rate Loan shall bear interest on the outstanding principal
amount thereof for each Interest Period at a rate per annum equal to the LIBOR
Rate for such Interest Period plus the Applicable Rate; and
(ii) each Base Rate Loan shall bear interest on the outstanding principal
amount thereof from the applicable borrowing date at a rate per annum equal to
the Base Rate plus the Applicable Rate.


 


(b)           If any amount payable by the Borrower
under any Loan Document is not paid when due (without regard to any applicable
grace periods), whether at stated maturity by acceleration or otherwise, such
amount shall thereafter bear interest at a fluctuating interest rate per annum
at all times equal to the Default Rate to the fullest extent permitted by
applicable Laws.  Furthermore, while any
Event of Default exists (or after acceleration), the Borrower shall pay
interest on the principal amount of all outstanding Obligations at a
fluctuating interest rate per annum at all times equal to the Default Rate to
the fullest extent permitted by applicable Laws.  Accrued and unpaid interest on past due
amounts (including interest on past due interest) shall be due and payable upon
demand.


 


(c)           Interest on each Term Loan shall be
due and payable in arrears on each Interest Payment Date applicable thereto and
at such other times as may be specified herein. 
Interest hereunder shall be due and payable in accordance with the terms
hereof before and after judgment, and before and after the commencement of any
proceeding under any Debtor Relief Law.


 


2.13        Fees.


 


(a)           Non-Use Fee.  The Borrower shall pay to the Bank in
accordance with a non-use fee equal to the applicable “Non-Use Fee” shown in
the definition of Applicable Rate times the average daily amount by
which the Commitments exceed the Outstanding Amount.  The “Non-Use Fee” shown in the definition of
Applicable Rate shall accrue at all times during the Availability Period,
including at any time during which one or more conditions in Article IV
is not met, and shall be due and payable quarterly in arrears on the first
Business Day of each March, June, September and December, commencing with
the first such date to occur after the Closing Date, and on the Revolving Loan
Maturity Date or the Term Loan Maturity Date, as applicable.  The “Non-Use Fee” shown in the definition of
Applicable Rate shall be calculated quarterly in arrears, and if there is any
change in the Applicable Rate during any quarter, the actual daily amount shall
be computed and multiplied by the Applicable Rate separately for each period
during such quarter that such Applicable Rate was in effect.


 


(b)           Bank Fees.  The Borrower shall pay to the Bank the
following fees:


 


18





















 


(i)            Review Fee.  An annual review fee in an
amount equal to Ten Thousand and No/100 Dollars ($10,000.00) payable on the
Closing Date and on the anniversary of the Closing Date in each subsequent
calendar year until the Revolving Loan Maturity Date.


 


(ii)           Commitment Fee.  On the Closing Date, a one-time Commitment
Fee equal to One Hundred Eighty Five Thousand and No/100 Dollars ($185,000.00).


 


2.14        Computation of
Interest and Fees.  All
computations of interest for Base Rate Loans when the Base Rate is determined
by the Bank’s prime rate shall be made on the basis of a year of 365 or 366
days, as the case may be.  All other
computations of interest and all fees shall be made on the basis of a year of
360 days and the actual number of days elapsed, (which results in more fees or
interest, as applicable, being paid than if computed on the basis of a 365 day
year).  Interest shall accrue on each
Loan for the day on which the Loan is made, and shall not accrue on a Loan, or
any portion thereof, for the day on which the Loan or such portion is paid, provided
that any Loan that is repaid on the same day on which it is made shall, subject
to Section 2.16(a), bear interest for one day.


 


2.15        Evidence of Debt.  The Credit
Extensions made by the Bank shall be evidenced by one or more accounts or records
maintained by the Bank in the ordinary course of business.  The accounts or records maintained by the
Bank shall be conclusive absent manifest error of the amount of the Credit
Extensions made by the Bank to the Borrower and the interest and payments thereon.  Any failure to so record or any error in
doing so shall not, however, limit or otherwise affect the obligation of the
Borrower hereunder to pay any amount owing with respect to the Obligations.  In the event of any conflict between the
accounts and records maintained by the Bank and the accounts and records of the
Borrower in respect of such matters, the accounts and records of the Bank shall
control in the absence of manifest error. 
The Bank may attach schedules to its Note and endorse thereon the date,
Type (if applicable), amount and maturity of the applicable Loans and payments
with respect thereto.


 


2.16        Payments Generally.


 


(a)           (i) 
All payments to be made by Borrower shall be made without condition or
deduction for any counterclaim, defense, recoupment or setoff. Except as
otherwise expressly provided herein, all payments by the Borrower hereunder,
excluding payments of Revolving Loans, shall be made to the Bank at the Bank’s
Office in Dollars and in immediately available funds not later than 2:00 p.m,
Fresno, California time, on the date specified herein.  All payments received by the Bank after
2:00 p.m., Fresno, California time, shall be deemed received on the next
succeeding Business Day and any applicable interest or fee shall continue to
accrue.


 


(ii)  All
payments of Revolving Loans to be made by Borrower shall be made without
condition or deduction for any counterclaim, defense, recoupment or setoff.
Except as otherwise expressly provided herein, all payments by the Borrower
hereunder, shall be made to the Bank, at the Bank’s Office in Dollars and in
immediately available funds not later than 12:00 noon, Fresno, California time,
on the date specified herein.  All
payments received by the Bank after 12:00 noon, Fresno, California time, shall
be deemed received on the next succeeding Business Day and any applicable
interest or fee shall continue to accrue.


 


(iii)  On
each date when the payment of any principal, interest or fees are due hereunder
or under any Note, the Borrower agrees to maintain on deposit in an ordinary
checking account maintained by the Borrower with the Bank (as such account
shall be designated by the Borrower in a written notice to the Bank from time
to time, the “Borrower Account”) an amount
sufficient to pay such principal, interest or fees in full on such date.  Borrower hereby authorizes the Bank
(A) to deduct automatically all principal, interest or fees when due
hereunder or under any Note from Borrower Account, and (B) if and to the
extent any payment of principal, interest or fees under this Agreement or any
Note is not made when due to deduct any such amount from any or all of the
accounts of Borrower maintained at the Bank. 
The Bank agrees to provide written notice to the Borrower of any
automatic deduction made pursuant to this Section 2.16(a)(iii) showing
in reasonable detail the amounts of such deduction.  The Bank agrees to reimburse Borrower for any
amounts deducted from such accounts in excess of amount due hereunder and under
any other Loan Documents.


 


19





















 


(b)           If any payment to be made by Borrower
shall come due on a day other than a Business Day, payment shall be made on the
next following Business Day, and such extension of time shall be reflected in
computing interest or fees, as the case may be.


 


2.17        Release of
Mortgages.  To
the extent that the Borrower reduces the Term Loan Commitments pursuant to Section 2.10,
which results in a Borrowing Base Term Loan in excess of such reduced Term Loan
Commitment, the Bank shall (at Borrower’s request and expense), so long as no
Potential Default or Event of Default exists, provide for the release of
Mortgages, such that the Borrowing Base Term Loan is not less than one hundred
percent (100%) of the Term Loan Commitments. 
In the event that the Borrower requests a release of Mortgages, such
release is subject to the Banks review of the Eligible Real Estate and the
Eligible Leasehold Real Estate, including, but not limited to an Appraisal if
deemed necessary by the Bank.


 


ARTICLE III.        TAXES, YIELD PROTECTION AND
ILLEGALITY


 


3.01        Taxes.


 


(a)           Any and all payments by the Borrower
to or for the account of the Bank under any Loan Document shall be made free
and clear of and without deduction for any and all present or future taxes,
duties, levies, imposts, deductions, assessments, fees, withholdings or similar
charges, and all liabilities with respect thereto, excluding, in the
case of the Bank, taxes imposed on or measured by its overall net income, and
franchise taxes imposed on it (in lieu of net income taxes), by the
jurisdiction (or any political subdivision thereof) under the Laws of which the
Bank, is organized or maintains a lending office (all such non-excluded taxes,
duties, levies, imposts, deductions, assessments, fees, withholdings or similar
charges, and liabilities being hereinafter referred to as “Taxes”).  If the Borrower shall be required by any Laws
to deduct any Taxes from or in respect of any sum payable under any Loan
Document to the Bank, (i) the sum payable shall be increased as necessary
so that after making all required deductions (including deductions applicable
to additional sums payable under this Section 3.01(a)), the Bank
receives an amount equal to the sum it would have received had no such deductions
been made, (ii) the Borrower shall make such deductions, (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable Laws, and (iv) within 30
days after the date of such payment, the Borrower shall furnish to the Bank the
original or a certified copy of a receipt evidencing payment thereof.


 


(b)           In addition, the Borrower agrees to
pay any and all present or future stamp, court or documentary taxes and any
other excise or property taxes or charges or similar levies which arise from
any payment made under any Loan Document or from the execution, delivery,
performance, enforcement or registration of, or otherwise with respect to, any
Loan Document (hereinafter referred to as “Other Taxes”).


 


(c)           If the Borrower shall be required to
deduct or pay any Taxes or Other Taxes from or in respect of any sum payable
under any Loan Document to the Bank, the Borrower shall also pay to the Bank,
at the time interest is paid, such additional amount that the Bank specifies is
necessary to preserve the after-tax yield (after factoring in all taxes,
including taxes imposed on or measured by net income) that the Bank would have
received if such Taxes or Other Taxes had not been imposed.


 


(d)           The Borrower agrees to indemnify the
Bank for (i) the full amount of Taxes and Other Taxes (including any Taxes
or Other Taxes imposed or asserted by any jurisdiction on amounts payable under
this Section 3.01(d)) paid by the Bank, (ii) amounts payable
under Section 3.01(c) and (iii) any liability (including
additions to tax, penalties, interest and expenses) arising therefrom or with
respect thereto, in each case whether or not such Taxes or Other Taxes were
correctly or legally imposed or asserted by the relevant Governmental
Authority.  Payment under this subsection (d) shall
be made within 30 days after the date the Bank makes a demand therefor.


 


3.02        Illegality.               If the
Bank determines that any Law has made it unlawful, or that any Governmental
Authority has asserted that it is unlawful, for the Bank or its applicable Bank
Office to make, maintain or fund LIBOR Rate Loans, or to determine or charge
interest rates based upon the LIBOR Rate, then, on notice thereof by the Bank
to the Borrower, any obligation of the Bank to make or continue LIBOR Rate
Loans or to convert Base Rate Loans to LIBOR Rate Loans shall be suspended
until the Bank notifies the Borrower that the


 


20





















 


circumstances
giving rise to such determination no longer exist.  Upon receipt of such notice, the Borrower
shall, upon demand from the Bank, prepay or, if applicable, convert all LIBOR
Rate Loans of the Bank to Base Rate Loans, either on the last day of the
Interest Period therefor, if the Bank may lawfully continue to maintain such
LIBOR Rate Loans to such day, or immediately, if the Bank may not lawfully
continue to maintain such LIBOR Rate Loans. 
Upon any such prepayment or conversion, the Borrower shall also pay
accrued interest on the amount so prepaid or converted and all amounts due
under Section 3.05 in accordance with the terms thereof due to such
prepayment or conversion.  The Bank
agrees to designate a different Bank Office if such designation will avoid the
need for such notice and will not, in the good faith judgment of the Bank,
otherwise be materially disadvantageous to the Bank.


 


3.03        Inability to Determine
Rates.  If the
Bank determines in connection with any request for a LIBOR Rate Loan or a
conversion to or continuation thereof for any reason that (a) Dollar
deposits are not being offered to banks in the London interbank eurodollar
market for the applicable amount and Interest Period of such LIBOR Rate Loan,
(b) adequate and reasonable means do not exist for determining the LIBOR
Rate for any requested Interest Period with respect to a proposed LIBOR Rate
Loan, or (c) the LIBOR Rate for any requested Interest Period with respect
to a proposed LIBOR Rate Loan does not adequately and fairly reflect the cost
to the Bank of funding such LIBOR Rate Loan, the Bank will promptly so notify
the Borrower.  Thereafter, the obligation
of the Bank to make or maintain LIBOR Rate Loans shall be suspended until the
Bank revokes such notice.  Upon receipt
of such notice, the Borrower may revoke any pending request for a Borrowing of,
conversion to or continuation of LIBOR Rate Loans or, failing that, will be
deemed to have converted such request into a request for a Borrowing of Base
Rate Loans in the amount specified therein.


 


3.04        Increased Cost and
Reduced Return; Capital Adequacy; Reserves on LIBOR Rate Loans.


 


(a)           If the Bank determines that as a
result of the introduction of or any change in or in the interpretation of any
Law, or the Bank’s compliance therewith, during any Interest Period, there
shall be any increase in the cost to the Bank of agreeing to make or making,
funding or maintaining LIBOR Rate Loans, or a reduction in the amount received
or receivable by the Bank in connection with any of the foregoing (excluding
for purposes of this subsection (a) any such increased costs
or reduction in amount resulting from (i) Taxes or Other Taxes (as to
which Section 3.01 shall govern), (ii) changes in the basis of
taxation of overall net income or overall gross income by the United States or
any foreign jurisdiction or any political subdivision of either thereof under
the Laws of which the Bank is organized or has its Bank’s Office, and
(iii) reserve requirements utilized, as to LIBOR Rate Loans, in the
determination of the LIBOR Rate), then from time to time upon demand of the
Bank, the Borrower shall pay to the Bank such additional amounts as will
compensate the Bank for such increased cost or reduction with respect to the
Loan amounts subject to such Interest Period.


 


(b)           If the Bank determines that the
introduction of any Law during any Interest Period regarding capital adequacy
or any change therein or in the interpretation thereof, or compliance by the
Bank (or the Bank’s Office) therewith, has the effect of reducing the rate of
return on the capital of the Bank or any corporation controlling the Bank as a
consequence of Bank’s obligations hereunder (taking into consideration its
policies with respect to capital adequacy and the Bank’s desired return on
capital), then from time to time upon demand of the Bank, the Borrower shall
pay to the Bank such additional amounts as will compensate the Bank for such
reduction with respect to the Loan amounts subject to such Interest Period.


 


3.05        Funding Losses.  Upon demand of the
Bank from time to time, the Borrower shall promptly compensate the Bank for and
hold the Bank harmless from any loss, cost or expense incurred by it as a
result of:


 


(a)           any continuation, conversion, payment
or prepayment of any Loan other than a Base Rate Loan on a day other than the
last day of the Interest Period for such Loan (whether voluntary, mandatory,
automatic, by reason of acceleration, or otherwise); or


 


(b)           any failure by the Borrower (for a
reason other than the failure of the Bank to make a Loan) to prepay, borrow,
continue or convert any Loan other than a Base Rate Loan on the date or in the
amount notified by the Borrower, and any loss or expense arising from the
liquidation or reemployment of funds obtained by it to maintain such Loan or
from fees payable to terminate the deposits from which such funds were
obtained.  The Borrower shall also pay
any customary administrative fees charged by the Bank in connection with the
foregoing.


 


21





















 


For purposes of
calculating amounts payable by the Borrower to the Bank under this Section 3.05,
the Bank shall be deemed to have funded each LIBOR Rate Loan made by it at the
LIBOR Base Rate used in determining the LIBOR Rate for such Loan by a matching deposit
or other borrowing in the London interbank eurodollar market for a comparable
amount and for a comparable period, whether or not such LIBOR Rate Loan was in
fact so funded.


 


BORROWER
HEREBY EXPRESSLY WAIVE ANY RIGHT IT MAY HAVE UNDER CALIFORNIA CIVIL CODE
2954.10 TO PREPAY THE LOANS HEREUNDER, IN WHOLE OR IN PART, WITHOUT PREPAYMENT
CHARGE, BREAKAGE CHARGE, COST OR FEE, UPON ACCELERATION OF THE REVOLVING LOAN
MATURITY DATE OR TERM LOAN MATURITY DATE, AS APPLICABLE, HEREUNDER, AND AGREE
THAT IF FOR ANY REASON, A PREPAYMENT OF ANY OR ALL OF THE LOANS IS MADE,
WHETHER VOLUNTARILY, INVOLUNTARILY OR UPON OR FOLLOWING ANY ACCELERATION OF THE
REVOLVING LOAN MATURITY DATE OR THE TERM LOAN MATURITY DATE, AS APPLICABLE, OF
THIS AGREEMENT BY THE BANK, THEN BORROWER SHALL PAY THE AMOUNTS DUE THE BANK
PURSUANT TO SECTION 3.05 HEREOF. 
BORROWER HEREBY DECLARES THAT THE BANK’S AGREEMENT TO MAKE THE LOANS AT
THE INTEREST RATES AND FOR THE TERMS SET FORTH IN THIS AGREEMENT CONSTITUTES
ADEQUATE CONSIDERATION, GIVEN INDIVIDUAL WEIGHT BY BORROWER, FOR THIS WAIVER
AND AGREEMENT.


 


	
   

  	
  INITIALS: 

  	
   

  	
  /s/ MT

  



 


3.06                        Matters
Applicable to all Requests for Compensation.  A certificate of the Bank claiming
compensation under this Article III and setting forth the
calculation of the additional amount or amounts to be paid to it hereunder
shall be conclusive in the absence of manifest error.  In determining such amount, the Bank may use
any reasonable averaging and attribution methods.


 


3.07                        Survival.  All of the Borrower’s Obligations under
this Article III shall survive termination of the Commitments and
repayment of all other Obligations hereunder.


 


ARTICLE IV.                     CONDITIONS PRECEDENT TO CREDIT EXTENSIONS


 


4.01                        Conditions
of Initial Credit Extension.  The
obligation of the Bank to make its initial Credit Extension hereunder is
subject to satisfaction of the following conditions precedent:


 


The
Bank’s receipt of the following, each of which shall be originals or facsimiles
(followed promptly by originals) unless otherwise specified, each properly
executed by a Responsible Officer of the signing Loan Party, each dated the
Closing Date (or, in the case of certificates of governmental officials, a
recent date before the Closing Date) and each in form and substance
satisfactory to the Bank and its legal counsel:


 


(a)                                  executed counterparts of this Agreement  and all Collateral Documents sufficient in
number for distribution to the Bank and the Borrower;


 


(b)                                 a Note executed by the Borrower in favor of the Bank;


 


(c)                                  the Guaranty executed by the Guarantor in favor of the Bank;


 


(d)                                 such
certificates of resolutions or other action, incumbency certificates and/or
other certificates of Responsible Officers of the Borrower and Guarantor as the
Bank may require evidencing the identity, authority and capacity of each
Responsible Officer thereof authorized to act as a Responsible Officer in
connection with this Agreement and the other Loan Documents to which the
Borrower or Guarantor is a party;


 


(e)                                  such
documents and certificates as the Bank may reasonably require to evidence that
each Loan Party is duly organized or formed and that the Borrower and Guarantor
are, validly existing, in good standing and qualified to engage in business in
each jurisdiction where its ownership, lease or operation of properties or the
conduct of its business requires such qualification, except to the extent that
failure to do so could not reasonably be expected to have a Material Adverse
Effect;


 


22





















 


(f)                                    a favorable opinion of counsel to the Borrower and Guarantor
acceptable to the Bank, addressed to the Bank, as to such matters concerning
the Borrower and Guarantor and the Loan Documents in form and substance
satisfactory to the Bank;


 


(g)                                 certificates
of a Responsible Officer of the Borrower and Guarantor either (A) attaching
copies of all consents, licenses and approvals required in connection with the
execution, delivery and performance by such Loan Party and the validity against
the Borrower of the Loan Documents to which it is a party, and such consents,
licenses and approvals shall be in full force and effect, or (B) stating
that no such consents, licenses or approvals are so required;


 


(h)                                 certificates
signed by a Responsible Officer of the Borrower and Guarantor certifying (A) that
the conditions specified in Sections 4.02 have been satisfied, and (B) that
there has been no event or circumstance since the date of the Closing Financial
Statements that have had or could reasonably be expected to have a Material
Adverse Effect;


 


(i)                                     evidence
that all insurance required to be maintained pursuant to the Loan Documents has
been obtained and is in effect, including all necessary crop insurance on the
Crops produced on the Eligible Real Estate and Eligible Leasehold Real Estate;


 


(j)                                     such other assurances, certificates, documents, consents,
evidence of perfection of all Liens securing the Obligations or opinions as the
Bank reasonably may require;


 


(k)                                  any fees required to be paid on or before the Closing Date
shall have been paid;


 


(l)                                     an
appraisal of all Eligible Real Estate and Eligible Leasehold Real Estate as of
the Closing Date in a form acceptable to the Bank;


 


(m)                               copies
of UCC search reports listing all financing statements and other encumbrances
which names the Borrower granting a security interest in the Collateral (under
its present name and any previous name) and which are filed in the
jurisdictions in which the Borrower or any other party to the Collateral
Documents is located, organized or maintains any assets, together with copies
of such financing statements;


 


(n)                                 copies of all licenses, permits or other Governmental
Authority relating to the operations of the Borrower;


 


(o)                                 unless
waived by the Bank, the Borrower shall have paid all Attorney Costs of the Bank
to the extent invoiced prior to or on the Closing Date, plus such additional
amounts of Attorney Costs as shall constitute its reasonable estimate of
Attorney Costs incurred or to be incurred by it through the closing proceedings
(provided that such estimate shall not thereafter preclude a final settling of
accounts between the Borrower and the Bank);


 


(p)                                 a completed Borrowing Base Certificate;


 


(q)                                 the Closing Date shall have occurred on or before July 1,
2005;


 


(r)                                    receipt by the Bank of the executed Mortgages;


 


(s)                                  an
ALTA lender’s title insurance policy from a title company acceptable to the
Bank, effective as of a date no earlier than the date and time of recording of
any deed of trust or mortgage included in the Collateral Documents, in such
amounts as determined by the Bank, insuring the Bank’s interest in the Real
Estate, with only such exceptions as may be approved by the Bank, and including
all endorsements required by the Bank; and


 


23





















 


(t)                                    the Borrower’s environmental questionnaire and all other
evidence and documentation required by the Bank concerning the environmental
condition of the Real Estate (the “Environmental
Questionnaire”).


 


4.02                        Conditions
to all Credit Extensions and Conversions and Continuations.  


 


The
obligation of the Bank to honor any Request for Credit Extension is subject to
the following conditions precedent:


 


(a)                                  The
representations and warranties of the Borrower contained in Article V or
any other Loan Document, or which are contained in any document
furnished at any time under or in connection herewith, shall be true and
correct in all material respects on and as of the date of such Credit
Extension, conversion or continuation, except to the extent that such
representations and warranties specifically refer to an earlier date, in which
case they shall be true and correct in all material respects as of such earlier
date, and except that for purposes of this Section 4.02, the
representations and warranties contained in subsections (a), (b) and
(c) of Section 5.05 shall be deemed to refer to the
most recent statements furnished pursuant to subsections (a) and (b),
respectively, of Section 6.01.


 


(b)                                 No
Event of Default shall exist, or would result from such proposed Credit
Extension and no Potential Default or Event of Default shall exist, or would
result from such conversion or continuation.


 


(c)                                  The
Bank shall have received a Request for Credit Extension in accordance with the
requirements hereof.


 


(d)                                 The
Bank shall have received, in form and substance satisfactory to it, such other
assurances, certificates, documents or consents related to the foregoing as the
Bank reasonably may require.


 


(e)                                  The
Outstanding Amount with respect to Revolving Loans do
not exceed the Borrowing Base Revolving Loan.


 


(f)                                    The
Outstanding Amount with respect to Term Loans do not
exceed the Borrowing Base Term Loan.


 


(g)                                 With
respect to Revolving Loans, the Bank has approved an Annual Budget for the
applicable Crop Year on or before February 28 of each calendar year; and
the Bank shall not unreasonably withhold, condition or
delay such consent.


 


Each
Request for Credit Extension submitted by the Borrower shall be deemed to be a
representation and warranty that the conditions specified in Sections 4.02
have been satisfied on and as of the date of the applicable Credit Extension.


 


ARTICLE V.                           REPRESENTATIONS AND WARRANTIES


 


The
Borrower represents and warrants to the Bank that:


 


5.01                        Existence,
Qualification and Power; Compliance with Laws. 
The Borrower (a) is duly organized or formed, validly existing
and in good standing under the Laws of the jurisdiction of its incorporation or
organization, (b) has all requisite power and authority and all requisite
governmental licenses, authorizations, consents and approvals to (i) own
its assets and carry on its business and (ii)  execute, deliver, and
perform its obligations under the Loan Documents to which it is a party, and (c) is
duly qualified and is licensed and in good standing under the Laws of each
jurisdiction where its ownership, lease or operation of properties or the
conduct of its business requires such qualification or licenses, except in each
case referred to in clause (b)(i) or (c), to the extent that
failure to do so could not reasonably be expected to have a Material Adverse
Effect.


 


24





















 


5.02                        Authorization;
No Contravention.  The execution,
delivery and performance by the Borrower of each Loan Document to which the
Borrower is party, have been duly authorized by all necessary corporate or
other organizational action, and do not and will not (a) contravene the
terms of any of the Borrower’s Organization Documents; (b) conflict with
or result in any breach or contravention of, or the creation of any Lien under,
(i) any Contractual Obligation to which the Borrower is a party or (ii) any
order, injunction, writ or decree of any Governmental Authority or any arbitral
award to which the Borrower or its property is subject; or (c) violate any
Law.


 


5.03                        Governmental
Authorization.  No approval, consent,
exemption, authorization, or other action by, or notice to, or filing with, any
Governmental Authority or any other Person is necessary or required in
connection with the execution, delivery or performance by, or enforcement
against, the Borrower of this Agreement or any other Loan Document, other than
the filing of any UCC financing statements or recordation of any Mortgages.


 


5.04                        Binding
Effect.  This Agreement has been, and
each other Loan Document, when delivered hereunder, will have been, duly
executed and delivered by the Borrower that is party thereto.  This Agreement constitutes, and each other
Loan Document when so delivered will constitute, a legal, valid and binding
obligation of the Borrower, enforceable against the Borrower that is party
thereto in accordance with its terms, subject to principals of equity and
creditor’s rights, generally.


 


5.05                        Financial
Statements; No Material Adverse Effect.


 


(a)                                  The
Financial Statements (i) were prepared in accordance with GAAP
consistently applied throughout the period covered thereby, except as otherwise
expressly noted therein; (ii) fairly present the financial condition of
the Borrower and its Subsidiaries as of the date thereof and their results of
operations for the period covered thereby in accordance with GAAP consistently
applied throughout the period covered thereby, except as otherwise expressly
noted therein; and (iii) show all material indebtedness and other
liabilities, direct or contingent, of the Borrower and its Subsidiaries as of
the date thereof that are required to be disclosed on a balance sheet, and the
footnotes thereto, prepared in accordance with GAAP, including liabilities for
taxes, material commitments and Indebtedness.


 


(b)                                 The
audited consolidated financial statements of the Borrower and its Subsidiaries
dated December 31, 2004, and the related consolidated statements of income
or operations, shareholders’ equity and cash flows for the fiscal quarter ended
on that date (collectively, the “Closing Financial
Statements”) (i) were prepared in accordance with GAAP
consistently applied throughout the period covered thereby, except as otherwise
expressly noted therein; and (ii) fairly present the financial condition
of the Borrower and its Subsidiaries as of the date thereof and their results
of operations for the period covered thereby, subject in the case of clauses
(i) and (ii), to the absence of footnotes and to normal
year-end adjustments.


 


(c)                                  Since
the date of the Closing Financial Statements, there has been no event or
circumstance, either individually or in the aggregate, that has had or could
reasonably be expected to have a Material Adverse Effect.


 


5.06                        Litigation.  Except as specifically disclosed in Schedule 5.06
hereto, there are no actions, suits, proceedings, claims or disputes pending
or, to the knowledge of the Borrower after due and diligent investigation,
threatened or contemplated, at law, in equity, in arbitration or before any
Governmental Authority, by or against the Borrower or any of its Subsidiaries
or against any of their properties or revenues that (a) purport to affect
or pertain to this Agreement or any other Loan Document, or any of the
transactions contemplated hereby, or (b) either individually or in the
aggregate, if determined adversely, could reasonably be expected to have a
Material Adverse Effect.


 


25





















 


5.07                        No
Default.  Neither the Borrower nor
any Subsidiary is in default under or with respect to any Contractual
Obligation that could either individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. 
No Event of Default has occurred and is continuing or would result from
the consummation of the transactions contemplated by this Agreement or any other
Loan Document.


 


5.08                        Ownership
of Property; Liens.  The Borrower and
each Subsidiary has good record and marketable title in fee simple to, or valid
leasehold interests in, all real property necessary or used in the ordinary
conduct of its business, except for such defects in title as could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.  The property of the
Borrower and its Subsidiaries is subject to no Liens, other than Liens
permitted by Section 7.01.


 


5.09                        Environmental
Compliance.  The Borrower and its
Subsidiaries conduct in the ordinary course of business a review of the effect
of existing Environmental Laws and claims alleging potential liability or
responsibility for violation of any Environmental Law on their respective
businesses, operations and properties, and as a result thereof the Borrower has
reasonably concluded that, except as specifically disclosed in Schedule 5.09
hereto, it is in compliance with such Environmental Laws and that no breach of
such Environmental Laws or claims exist that, individually or in the aggregate,
reasonably can be expected to have a Material Adverse Effect.


 


5.10                        Insurance.  The properties (including all Crops and
all other Collateral) of the Borrower and its Subsidiaries are insured with
financially sound and reputable insurance companies not Affiliates of the
Borrower, in such amounts, after giving effect to any self-insurance compatible
with the following standards, with such deductibles and covering such risks as
are customarily carried by companies engaged in similar businesses and owning
similar properties in localities where the Borrower or the applicable
Subsidiary operates.


 


5.11                        Taxes.  The Borrower and its Subsidiaries have
filed all Federal, state and other material tax returns and reports required to
be filed, and have paid all Federal, state and other material taxes,
assessments, fees and other governmental charges levied or imposed upon them or
their properties, income or assets otherwise due and payable, except those
which are being contested in good faith by appropriate proceedings diligently
conducted and for which adequate reserves in accordance with GAAP.  There is no proposed tax assessment against
the Borrower or any Subsidiary that would, if made, have a Material Adverse
Effect.


 


5.12                        ERISA
Compliance.


 


(a)                                  Each
Plan is in compliance in all material respects with the applicable provisions
of ERISA, the Code and other Federal or state Laws.  Each Plan that is intended to qualify under Section 401(a) of
the Code has received a favorable determination letter from the IRS or an
application for such a letter is currently being processed by the IRS with
respect thereto and, to the best knowledge of Borrower, nothing has occurred
which would prevent, or cause the loss of, such qualification.  Borrower and each ERISA Affiliate have made
all required contributions to each Plan subject to Section 412 of the
Code, and no application for a funding waiver or an extension of any
amortization period pursuant to Section 412 of the Code has been made with
respect to any Plan.


 


(b)                                 There
are no pending or, to the best knowledge of Borrower, threatened claims,
actions or lawsuits, or action by any Governmental Authority, with respect to
any Plan that could reasonably be expected to have a Material Adverse
Effect.  There has been no prohibited
transaction or violation of the fiduciary responsibility rules with
respect to any Plan that has resulted or could reasonably be expected to result
in a Material Adverse Effect.


 


(c)                                  (i) No
ERISA Event has occurred or is reasonably expected to occur; (ii) no
Pension Plan has any Unfunded Pension Liability; (iii) neither Borrower
nor any ERISA Affiliate has incurred, or reasonably expects to incur, any
liability under Title IV of ERISA with respect to any Pension Plan (other than
premiums due and not delinquent under Section 4007 of ERISA); (iv) neither
Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur,
any liability (and no event has occurred which, with the giving of notice under
Section 4219 of ERISA, would result in such liability) under Sections 4201
or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither
Borrower nor any ERISA Affiliate has engaged in a transaction that could be
subject to Sections 4069 or 4212(c) of ERISA.


 


26





















 


(d)                                 Borrower
understands that the source of funds for the Loan will not include assets of an
“employee benefit plan”, as defined in Title 1 of ERISA or in Section 4975
of the Code.


 


(e)                                  (i) the
Borrower is not a Plan, or a “governmental plan” within the meaning of Section 3(32)
of ERISA; (ii) Borrower is not subject to state statutes regulating
investments and  fiduciary obligations
with respect to governmental plans; (iii) the assets of the Borrower do
not constitute “plan assets” of one or more plans within the meaning of 29
C.F.R. Section 2510.3-101; and (iv) one or more of the
following circumstances is true: (1) equity interests in Borrower are
publicly offered securities, within the meaning of 29 C.F.R. Section 2510.3-101(b)(2);
(2) less than twenty-five percent (25%) of all equity interests in
Borrower are held by “benefit plan investors” within the meaning of 29 C.F.R. Section 2510.3-101(f)(2);
or (3) the Borrower qualifies as an “operating company” or a “real estate
operating company” within the meaning of 29 C.F.R. Section 2510.3-101(c) or
(e).  Borrower shall deliver to the Bank
such certifications and/or other evidence periodically requested by the Bank,
in its sole discretion, to verify these representations and warranties.  Failure to deliver these certifications or
evidence, breach of these representations and warranties, or consummation of
any transaction which would cause this Agreement or any exercise of the Bank’s
rights under this Agreement to (i) constitute a non-exempt prohibited
transaction under ERISA or (ii) violate ERISA or any state statute
regulating governmental plans (collectively, a “Violation”),
shall be an Event of Default. 
Notwithstanding anything in the Loan Documents to the contrary, no sale,
assignment, or transfer of any direct or indirect right, title, or interest in
the Borrower or the Collateral (including creation of a junior lien,
encumbrance or leasehold interest) shall be permitted which would, in the Bank’s
opinion, negate Borrower’s representations in this Section 5.12 or
cause a Violation.


 


5.13                        Subsidiaries.  As of the Closing Date, the Borrower has
no Subsidiaries other than those specifically disclosed in Part (a) of
Schedule 5.13 and has no equity investments in any other
corporation or entity other than those specifically disclosed in Part(b) of Schedule 5.13.


 


5.14                        Disclosure.  The Borrower has disclosed to the Bank
all agreements, instruments and corporate or other restrictions to which it or
any of its Subsidiaries is subject, and all other matters known to it, that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect.  No report,
financial statement, certificate or other information furnished (whether in
writing or orally) by or on behalf of the Borrower in connection with any Loan
Document to the Bank in connection with the transactions contemplated hereby
and the negotiation of this Agreement or delivered hereunder (as modified or
supplemented by other information so furnished) contains any material
misstatement of fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.  The foregoing notwithstanding, the Borrower
makes no representation or warranty to the Bank that any financial or other
projection or forecast provided by or on behalf of the Borrower will be
achieved or that any deviation from such projection or forecast will not be
material.


 


5.15                        Compliance
with Laws.  The Borrower and each
Subsidiary are in compliance in all material respects with the requirements of
all Laws and all orders, writs, injunctions and decrees applicable to it or to
its properties, except in such instances in which (a) such requirement of
Law or order, writ, injunction or decree is being contested in good faith by
appropriate proceedings diligently conducted or (b) the failure to comply
therewith, either individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.


 


5.16                        Margin
Regulations; Investment Company Act; Public Utility Holding Company Act.


 


(a)                                  The
Borrower is not engaged and Borrower will not engage, principally or as one of
its important activities, in the business of purchasing or carrying margin
stock (within the meaning of Regulation U issued by the FRB), or extending
credit for the purpose of purchasing or carrying margin stock.


 


(b)                                 Neither
the Borrower, nor any Person Controlling the Borrower, nor any Subsidiary (i) is
a “holding company,” or a “subsidiary company” of a “holding
company,” or an “affiliate” of a
“holding company” or of a “subsidiary company” of a “holding
company,” within the meaning of the Public Utility Holding Company
Act of 1935, or (ii) is or is required to be registered as an “investment company” under the Investment Company Act of
1940.


 


27





















 


5.17                        Reserved.  5.18             Rights
in Collateral; Priority of Liens.  The
Borrower owns its property granted by it as Collateral under the Collateral
Documents, free and clear of any and all Liens in favor of third parties, other
than Permitted Liens.  Upon the proper
filing of UCC financing statements and the Mortgages, and the taking of the
other actions required by the Bank, the Liens granted pursuant to the
Collateral Documents will constitute valid and enforceable first, prior and
perfected Liens on the Collateral in favor of the Bank, subject to Permitted
Liens.


 


ARTICLE VI.                       AFFIRMATIVE COVENANTS


 


So
long as the Bank and Guarantor, as applicable, shall have any Commitments
hereunder, any Loan or other Obligation shall remain unpaid or unsatisfied, the
Borrower and Guarantor, as applicable, shall, and shall (except in the case of
the covenants set forth in Sections 6.01, 6.02, 6.03 and 6.11)
cause each Subsidiary to:


 


6.01                        Financial
Statements.  Deliver to the Bank a
copy of the following, in form and detail satisfactory to the Bank:


 


(a)                                  as
soon as available, but in any event within ninety (90) days after the end of
each fiscal year of the Borrower and Guarantor, a balance sheet as at the end
of such fiscal year, and the related consolidated statements of income or
operations, stockholders’ equity and cash flows for such fiscal year, setting
forth in each case in comparative form the figures for the previous fiscal
year, all in reasonable detail and prepared in accordance with GAAP, audited
and accompanied by a report and opinion of an independent certified public
accountant reasonably acceptable to the Bank, which report and opinion and
shall not be subject to any “going concern” or like qualification or exception
or any qualification or exception as to the scope of such review; and


 


(b)                                 as
soon as available, but in any event within forth-five (45) days after the end
of each fiscal quarter of each fiscal year of the Borrower and Guarantor, an
internally prepared consolidated balance sheet as at the end of such fiscal
quarter, and the related consolidated statements of income or operations,
shareholders’ equity and cash flows for such fiscal quarter and for the portion
of the fiscal year then ended, setting forth in each case in comparative form
the figures for the corresponding fiscal quarter of the previous fiscal year
and the corresponding portion of the previous fiscal year, all in reasonable
detail certified by a Responsible Officer as fairly presenting the financial
condition, results of operations, shareholders’ equity and cash flows in
accordance with GAAP, subject only to normal year-end audit adjustments and the
absence of footnotes.


 


6.02                        Certificates;
Other Information.  Deliver to the
Bank a copy of the following, in form and detail satisfactory to the Bank:


 


(a)                                  concurrently with the delivery of the financial statements
referred to in Section 6.01(a), a duly completed Compliance
Certificate signed by a Responsible Officer of the Borrower and the Guarantor,


 


(b)                                 as
soon as available, but in any event, within 45 days after the end of each
fiscal quarter, a duly completed Compliance Certificate signed by a Responsible
Officer of the Borrower and the Guarantor;


 


(c)                                  as
soon as available, but in any event, within 30 days after the end of each
month, a Borrowing Base Certificate, signed by a Responsible Officer of the
Borrower;


 


(d)                                 as soon as available, but in any event, within 45 days after
the end of each fiscal quarter, a Budget Comparison;


 


(e)                                  as soon as available, but in any event, within forty-five
(45) days after the end of each fiscal quarter, a listing of all Bulk Wine
Contracts and Wine Grape Contracts;


 


(f)                                    as soon as available, but in any event, no later than January 31,
of each year, the Annual Budget;


 


(g)                                 promptly after any request by the Bank, copies of any
management letters or recommendations submitted to the shareholders, officers,
directors or managers of the Borrower or Guarantor by independent


 


28





















 


accountants
in connection with the accounts or books of the Borrower, Guarantor or any
Subsidiary, or any review of any of them; and


 


(h)                                 promptly after the Borrower or Guarantor has notified the
Bank of any intention by the Borrower or Guarantor to treat the Loans and
related transactions as being a “reportable transaction” (within the meaning of
Treasury Regulation Section 1.6011-4), a duly completed copy of IRS Form 8886
or any successor form.


 


6.03                        Notices.  Promptly notify the Bank:


 


(a)                                  of the occurrence of any Potential Default or Event of
Default;


 


(b)                                 of
any matter that has resulted or could reasonably be expected to result in a
Material Adverse Effect, including (i) breach or non-performance of, or
any default under, a Contractual Obligation of Borrower, Guarantor or any
Subsidiary; (ii) any dispute, litigation, investigation, proceeding or
suspension between Borrower, Guarantor or any Subsidiary and any Governmental
Authority; or (iii) the commencement of, or any material development in,
any litigation or proceeding affecting Borrower, Guarantor or any Subsidiary,
including pursuant to any applicable Environmental Laws;


 


(c)                                  the occurrence of any ERISA Event;


 


(d)                                 of any material change in accounting policies or financial
reporting practices by Borrower, Guarantor or any Subsidiary; and


 


(e)                                  the
commencement of, or any material development in, any litigation or proceeding
commenced against or affecting Borrower, Guarantor or any Subsidiary where the
amount in controversy is equal to or greater than $100,000.00 net of insurance.


 


Each
notice pursuant to this Section 6.03 shall be accompanied by a
statement of a Responsible Officer of Borrower and Guarantor setting forth
details of the occurrence referred to therein and stating what action the
applicable Borrower has taken and proposes to take with respect thereto.  Each notice pursuant to Section 6.03(a) shall
describe with particularity any and all provisions of this Agreement and any
other Loan Document that have been breached.


 


6.04                        Payment
of Obligations.  Pay and discharge,
prior to delinquency, all Borrower’s and Guarantor’s obligations and
liabilities, including (a) all tax liabilities, assessments and
governmental charges or levies upon it or its properties or assets, unless the
same are being contested in good faith by appropriate proceedings diligently
conducted and adequate reserves are being maintained by Borrower, Guarantor or
such Subsidiary in accordance with GAAP; (b) all lawful, undisputed claims
which, if unpaid, would by law become a material Lien upon its property; and (c) all
Indebtedness, as and when due and payable, but subject to any subordination
provisions contained in any instrument or agreement evidencing such
Indebtedness.


 


6.05                        Preservation
of Existence, Etc.  (a) Preserve,
renew and maintain in full force and effect Borrower’s and Guarantor’s legal
existence and good standing under the Laws of the jurisdiction of its
organization, except in a transaction permitted by Section 7.04 or 7.05;
(b) take all reasonable action to maintain all rights, privileges,
permits, licenses and franchises necessary or desirable in the normal conduct
of Borrower’s and Guarantor’s business, except to the extent that failure to do
so could not reasonably be expected to have a Material Adverse Effect; and (c) preserve
or renew all of Borrower’s and Guarantor’s registered patents, trademarks,
trade names and service marks, the non-preservation of which could reasonably
be expected to have a Material Adverse Effect.


 


6.06                        Maintenance
of Properties.  (a) Maintain,
preserve and protect all of Borrower’s and Guarantor’s material properties and
equipment necessary in the operation of their respective businesses in good
working order and condition, ordinary wear and tear excepted; (b) make all
necessary repairs thereto and renewals and replacements thereof except where
the failure to do so could not reasonably be expected to have a Material


 


29





















 


Adverse Effect; and (c) use
the standard of care typical in the industry in the operation and maintenance
of their respective facilities.


 


6.07                        Maintenance
of Insurance.  (a) Maintain with
financially sound and reputable insurance companies not Affiliates of Borrower
and approved by the Bank, insurance with respect to its properties (including
insurance on all Crops and the other Collateral) and business against loss or
damage of the kinds customarily insured against by Persons engaged in the same
or similar business, of such types and in such amounts (after giving effect to
any self-insurance compatible with the following standards) as are customarily
carried under similar circumstances by such other Persons and providing for not
less than 30 days’ prior notice to the Bank of termination, lapse or
cancellation of such insurance; (b) provide that all policies of liability
insurance shall name the Bank as an additional insured and all property, flood
and business interruption insurance policies, if any, shall provide that all
proceeds under such policies shall be payable to the Bank; and (c) provide
copies of all policies of crop insurance as required under Section 4.01.


 


6.08                        Compliance
with Laws.  Comply in all material
respects with the requirements of all Laws, and all orders, writs, injunctions
and decrees applicable to Borrower or Guarantor or to their respective
businesses or property, except in such instances in which (a) such
requirement of Law or order, writ, injunction or decree is being contested in
good faith by appropriate proceedings diligently conducted; or (b) the
failure to comply therewith could not reasonably be expected to have a Material
Adverse Effect.


 


6.09                        Books
and Records.


 


(a) 
Borrower and Guarantor shall maintain proper books of record and account, in
which full, true and correct entries consistently applied shall be made of all
financial transactions and matters involving the assets and business of
Borrower, Guarantor or such Subsidiary, as the case may be; and (b) maintain
such books of record and account in material conformity with all applicable
requirements of any Governmental Authority having regulatory jurisdiction over
Borrower, Guarantor or such Subsidiary, as the case may be.  Borrower shall maintain at all times books
and records pertaining to the Collateral in such detail, form and scope as the
Bank shall reasonably require.


 


6.10                        Inspection
and Appraisal Rights.  Permit representatives
and independent contractors of the Bank to visit and inspect any of its
properties and the Collateral to conduct an appraisal of the Collateral, to
examine Borrower’s or Guarantor’s corporate, financial and operating records,
and make copies thereof or abstracts therefrom, and to discuss the Borrower’s
and Guarantor’s affairs, finances and accounts with their respective directors,
officers (with a senior officer of the Borrower present), and independent
public accountants, all such collateral inspections at the expense of the
Borrower and with respect to appraisals, unless more frequently requested by
the Borrower, only one during each calendar year at the expense of the Borrower
and at such reasonable times during normal business hours and as often as may
be reasonably desired, upon reasonable advance notice to the Borrower and/or
Guarantor; provided, however, that when an Event of Default
exists the Bank (or any of its representatives or independent contractors) may
do any of the foregoing, including an appraisal, at the expense of the Borrower
and/or Guarantor at any time during normal business hours and without advance
notice.


 


6.11                        Use
of Proceeds.  Use the proceeds of the
Credit Extensions for general business purposes not in contravention of any Law
or of any Loan Document.


 


6.12                        Financial
Covenants.


 


(a)                                  Total
Liabilities to Tangible Net Worth. 
Maintain as of the end of the first three fiscal quarters of each year,
a ratio of Total Liabilities to Tangible Net Worth of not greater than 1.50 to
1.00 and as of December 31 of each year, a ratio of Total Liabilities to
Tangible Net Worth of not greater than 1.25 to 1.0:


 


(b)                                 Working
Capital.  Maintain at all times,
Working Capital of not less than $11,000,000.


 


(c)                                  Adjusted
EBITDA Coverage Ratio.  Maintain
Adjusted EBITDA Coverage Ratio of not less than 2.25 to 1 as of end of each
fiscal quarter on a rolling four quarter basis.


 


30





















 


(d)                                 Annual
Budget Variance. Not permit as of the end of each fiscal quarter, for the
portion of the fiscal year ended with such quarter, actual expenses when
compared to the Annual Budget to exceed projected expenses for such period by
more than 15%.


 


6.13                        Collateral
Records.  Borrower agrees to execute
and deliver promptly, to the Bank, from time to time, solely for the Bank’s
convenience in maintaining a record of the Collateral, such written statements
and schedules as the Bank may reasonably require designating, identifying or
describing the Collateral.  The failure by
such  Borrower,
however, to promptly give the Bank such statements or schedules shall not
affect, diminish, modify or otherwise limit the Liens on the Collateral granted
pursuant to the Collateral Documents.


 


6.14                        Security
Interests.  Borrower shall defend the
Collateral against all claims and demands of all Persons at any time claiming
the same or any interest therein, subject to Permitted Liens.  Borrower shall comply with the requirements
of all state and federal laws in order to grant to the Bank valid and perfected
first priority security interests in the Collateral, with perfection, in the
case of any investment property or deposit account, being effected by giving
the Bank control of such investment property or deposit account, rather than by
the filing of a UCC financing statement with respect to such investment
property.  The Bank is hereby authorized
by the Borrower to file any UCC financing statements covering the Collateral
whether or not Borrower’s signatures appear thereon.  Borrower shall do whatever the Bank may
reasonably request, from time to time, to effect the purposes of this Agreement
and the other Loan Documents, including filing notices of liens, UCC financing
statements, fixture filings and amendments, renewals and continuations thereof;
cooperating with the Bank’s representatives; keeping stock records; obtaining
waivers from landlords and mortgagees and from warehousemen and their landlords
and mortgages; and, paying claims which might, if unpaid, become a Lien on the
Collateral.


 


6.15                        Deposit
Accounts.


 


Maintain
its primary Deposit Accounts with the Bank except such Deposit Accounts as may
be agreed to by the Bank.


 


ARTICLE VII.                   NEGATIVE COVENANTS


 


So
long as the Bank shall have any Commitments hereunder, any Loan or other
Obligation hereunder shall remain unpaid or unsatisfied, Borrower and
Guarantor, as applicable, shall not, nor shall Borrower or Guarantor permit any
Subsidiary to, directly or indirectly:


 


7.01                        Liens.  Create, incur, assume or suffer to exist,
any Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, other than the following (collectively, the “Permitted Liens”):


 


(a)                                  Liens
pursuant to any Loan Document;


 


(b)                                 Liens
existing on the date hereof and listed on Schedule 7.01 hereto and
any renewals or extensions thereof, provided that the property covered
thereby is not increased and any renewal or extension of the obligations
secured or benefited thereby is permitted by Section 7.03(b);


 


(c)                                  Liens
for taxes not yet delinquent or which are being contested in good faith and by
appropriate proceedings diligently conducted, if adequate reserves with respect
thereto are maintained on the books of the applicable Person, in accordance
with GAAP;


 


(d)                                 Carriers’,
warehousemen’s, mechanics’, materialmen’s, repairmen’s, agricultural workers’
or other like Liens arising in the ordinary course of business which are not
overdue for a period of more than 30 days or which are being contested in good
faith and by appropriate proceedings diligently conducted, if adequate reserves
with respect thereto are maintained on the books of the applicable Person, in
accordance with GAAP;


 


(e)                                  Pledges
or deposits in the ordinary course of business in connection with workers’
compensation, unemployment insurance and other social security legislation,
other than any Lien imposed by ERISA;


 


31





















 


(f)                                    Deposits
to secure the performance of bids, trade contracts and leases (other than
Indebtedness), statutory obligations, surety bonds (other than bonds related to
judgments), contracts for the purchase of property, performance bonds and other
obligations of a like nature, in each case incurred in the ordinary course of
business and not representing an obligation for borrowed money;


 


(g)                                 Easements,
Williamson Contracts, rights-of-way, restrictions and other similar
encumbrances affecting real property which, in the aggregate, are not
substantial in amount, and which do not in any case materially detract from the
value of the property subject thereto or materially interfere with the ordinary
conduct of the business of the applicable Person;


 


(h)                                 Liens
securing judgments for the payment of money not constituting an Event of
Default under Section 8.01(h) or securing appeal or other surety
bonds relating to such judgments;


 


(i)                                     Liens
in favor of customs or revenue authorities arising as a matter of law to secure
payment of customs duties in connection with the importation of goods;


 


(j)                                     Liens
on insurance proceeds in favor of insurance companies, granted solely to secure
financed insurance premiums;


 


(k)                                  Liens
in favor of other financial institutions arising in connection with the
applicable Person’s deposit accounts or securities accounts held at such
institutions; provided that, in the case of the Borrower’s accounts, Bank has a
perfected security interest in the amounts held in such accounts;


 


(l)                                     Licenses
and sublicenses granted in the ordinary course of the applicable Person’s
business and, with respect to any licenses where such Person is the licensee,
any interest or title of a licensor;


 


(m)                               Leases
and subleases entered into in the ordinary course of the applicable Person’s
business;


 


(n)                                 Liens
to secure purchase money Indebtedness permitted under Section 7.03;
provided that (i) such Lien does not attach to any property other than the
property purchased with such Indebtedness and other such property purchased
with purchase money Indebtedness, (ii) the principal amount of the
Indebtedness secured by such Lien does not exceed the costs of the property so
held or acquired (which costs shall include shipping, tax and installation
charges financed by the Person holding such Lien), and (iii) such Lien is
created contemporaneously with, or within ninety (90) days after, the
acquisition of such property; and


 


(o)                                 Liens
that secured obligations that in the aggregate are an immaterial and
insignificant monetary amount with respect to the net value of the Borrower’s
assets.


 


7.02                        Investments.  Make any Investments, except:


 


(a)                                  Investments
held by Borrower, Guarantor or such Subsidiary in the form of cash equivalents
or short-term marketable debt securities;


 


(b)                                 Investments
of Borrower or Guarantor in any respective wholly-owned Subsidiary and
Investments of any wholly-owned Subsidiary in Borrower, Guarantor or in another
wholly-owned Subsidiary;


 


(c)                                  Investments
consisting of extensions of credit in the nature of accounts receivable or
notes receivable arising from the grant of trade credit in the ordinary course
of business, and Investments received in satisfaction or partial satisfaction
thereof from financially troubled account debtors to the extent reasonably
necessary in order to prevent or limit loss;


 


(d)                                 Deposits,
repayments and other credits to suppliers in the ordinary course of business;


 


(e)                                  Investments
consisting of (i) travel advances and employee relocation loans and other
employee loans and advances in the ordinary course of business and (ii) loans
to employees relating to the purchase of


 


32





















 


equity securities of the
Borrower, Guarantor or any of their Subsidiaries pursuant to board-approved
employee stock purchase plan agreements for which no cash proceeds are
distributed in connection therewith; provided, however, that the Investments
described in this subsection 7.02(e) do not exceed in the aggregate
at any one time $1,000,000.00; and


 


(f)                                    Investments
not otherwise described in this Section 7.02 that do not exceed in
the aggregate at any one time $500,000.00.


 


7.03                        Indebtedness.  Create, incur, assume or suffer to exist any Indebtedness, except:


 


(a)                                  Indebtedness
under the Loan Documents;


 


(b)                                 Indebtedness
of Borrower or Guarantor outstanding on the date hereof and listed on Schedule 7.03
hereto and any refinancings, refundings, renewals or extensions thereof; provided
that the amount of such Indebtedness is not increased at the time of such
refinancing, refunding, renewal or extension except by an amount equal to a
reasonable premium or other reasonable amount paid, and fees and expenses
reasonably incurred, in connection with such refinancing and by an amount equal
to any existing commitments unutilized thereunder;


 


(c)                                  obligations
(contingent or otherwise) of Borrower, Guarantor or any Subsidiary existing or
arising under any Swap Contract, provided that (i) such obligations
are (or were) entered into by such Person in the ordinary course of business
for the purpose of directly mitigating risks associated with liabilities,
commitments, investments, assets, or property held or reasonably anticipated by
such Person, or changes in the value of securities issued by such Person and
not for purposes of speculation or taking a “market view;” and (ii) such
Swap Contract does not contain any provision exonerating the non-defaulting
party from its obligation to make payments on outstanding transactions to the
defaulting party; and


 


(d)                                 Indebtedness
or Borrower or Guarantor in respect of capital leases, Synthetic Lease
Obligations and purchase money obligations for personal property and any refinancings,
refundings, renewals or extensions of such purchase money obligations for
personal property; provided, however, that the aggregate amount
of all such Indebtedness under this clause (d) at any one time outstanding
shall not exceed $1,000,000.00 in any single fiscal year.


 


7.04                        Fundamental
Changes.  Merge, dissolve, liquidate,
consolidate with or into, another Person, or Dispose of (whether in one
transaction or in a series of transactions) all or substantially all of either
Borrower’s or Guarantor’s assets (whether now owned or hereafter acquired) to
or in favor of any Person, except that, so long as no Potential Default or
Event of Default exists or would result therefrom:


 


(a)                                  any
Subsidiary may merge with (i) its respective Borrower or Guarantor, provided
that such Borrower or Guarantor shall be the continuing or surviving Person, or
(ii) any one or more other Subsidiaries, provided that when any
wholly-owned Subsidiary is merging with another Subsidiary, the wholly-owned
Subsidiary shall be the continuing or surviving Person;


 


(b)                                 any Subsidiary may dispose of all or substantially all of
its assets (upon voluntary liquidation or otherwise), to its respective
Borrower or Guarantor or to another Subsidiary; provided that if the
transferor in such a transaction is a wholly-owned Subsidiary, then the
transferee must also be a wholly-owned Subsidiary; and


 


(c)                                  any Disposition described in Section 7.05(e).


 


Notwithstanding
the terms of this Section 7.04 or any other terms or provisions
hereof or of the Loan Documents, transfers of interests in the Borrower or the
Guarantor shall not be an Event of Default hereunder or under the Loan
Documents as long as no Change in Control occurs thereby.


 


33





















 


7.05                        Dispositions.  Make any Disposition or enter into any
agreement to make any Disposition, except:


 


(a)                                  Dispositions
of obsolete or worn out property, whether now owned or hereafter acquired, in
the ordinary course of business;


 


(b)                                 Dispositions
of inventory and farm products in the ordinary course of business;


 


(c)                                  Dispositions
of equipment to the extent that (i) such property is exchanged for credit
against the purchase price of similar replacement property or (ii) the
proceeds of such Disposition are reasonably promptly applied to the purchase
price of such replacement property;


 


(d)                                 Dispositions
of property by any Subsidiary to Borrower or to a wholly-owned Subsidiary;


 


(e)                                  Dispositions
of property by Borrower to any wholly-owned Subsidiary, provided that such Subsidiary,
in conjunction with such Disposition, shall become a Loan Party either as a
co-borrower or as a guarantor (as determined by the Bank) by executing a
Guaranty or any other documents required by the Bank, in form and substance
reasonably satisfactory to the Bank, of the Obligations securing a grant of
first priority security interest in all of such Subsidiary’s assets, subject to
Permitted Liens;


 


(f)                                    Dispositions
permitted by Section 7.04;


 


(g)                                 Dispositions
of real property;


 


(h)                                 The
termination or expiration of contractual rights and obligations in the ordinary
course of business; and


 


(i)                                     Dispositions
occurring as a result of a casualty event or condemnation by a governmental
authority.


 


provided,
however, that any Disposition pursuant to clauses (b) through
(g) shall be for fair market value and provided, further,
with respect to any Disposition pursuant to clause (g), that after
taking into account the effect of such Disposition, the Disposition does not
result in an Event of Default and such Disposition would not result in the
Outstanding Amount of Term Loans to exceed the Borrowing Base Term Loan.


 


7.06                        Distributions.  Declare or make, directly or indirectly,
any Distributions, or incur any obligation (contingent or otherwise) to do so,
except that:


 


(a)                                  each
Subsidiary may make Distributions to the applicable Borrower or Guarantor and
to wholly-owned Subsidiaries (and, in the case of a Distribution by a
non-wholly-owned Subsidiary, to Borrower, Guarantor and any Subsidiary and to
each other owner of capital stock or other equity interests of such Subsidiary
on a pro rata basis based on their relative ownership interests);


 


(b)                                 Borrower,
Guarantor and each Subsidiary may declare and make dividend payments or other
distributions payable solely in the common stock or other common equity
interests of such Person; and


 


(c)                                  In
the absence of an Event of Default, the Borrower, Guarantor and each Subsidiary
may purchase, redeem or otherwise acquire shares of its common stock or other
common equity interests or warrants or options to acquire any such shares with
the proceeds received from the substantially concurrent issue of new shares of
its common stock or other common equity interests; provided, however,
that the aggregate amount of all such Distributions under this clause (c) shall
not exceed $1,000,000.00, excluding any dollar for dollar proceeds of equity
issuances after the Closing Date, in any single fiscal year unless otherwise
consented to by the Bank.


 


7.07                        Change in Nature of Business.  Engage in any material line of business
substantially different from those lines of business conducted by Borrower,
Guarantor and any of their Subsidiaries on the date hereof and businesses
ancillary or related to such lines of business.


 


34





















 


7.08                        Transactions
with Affiliates.  Enter into any
transaction of any kind with any Affiliate of Borrower or Guarantor, whether or
not in the ordinary course of business, other than on fair and reasonable terms
substantially as favorable to Borrower, Guarantor or such Subsidiary as would
be obtainable by Borrower, Guarantor or such Subsidiary at the time in a
comparable arm’s length transaction with a Person other than an Affiliate, provided
that the foregoing restriction shall not apply to transactions between or among
Borrower, Guarantor and any of their wholly-owned Subsidiaries or between and
among any wholly-owned Subsidiaries.


 


7.09                        Margin
Regulations.  Use the proceeds of any
Credit Extension, whether directly or indirectly, and whether immediately,
incidentally or ultimately, to purchase or carry margin stock (within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System
of the United States) or to extend credit to others for the purpose of purchasing
or carrying margin stock or to refund indebtedness originally incurred for such
purpose.


 


7.10                        Swap
Contracts.  Enter into or permit any
Subsidiary to enter into any Swap Contract without the prior written consent of
the Bank.


 


ARTICLE VIII.               EVENTS OF DEFAULT AND REMEDIES


 


8.01                        Events
of Default.  Any of the following
shall constitute an Event of Default:


 


(a)                                  Non-Payment.  Borrower fails to pay (i) when and as
required to be paid herein, any amount of principal of any Loan, or (ii) within
five (5) days of the date when due, any interest on any Loan, or any
commitment or other fee due hereunder, or (iii) within ten (10) days
of the date when due, any other amount payable hereunder or under any other
Loan Document; or


 


(b)                                 Specific
Covenants.  The Borrower or Guarantor
fail to perform or observe any term, covenant or agreement contained in any of Sections
6.01, 6.02, 6.03, 6.05, 6.10,  6.12(a), 6.12(b),
6.12(c) or Article VII (other than Section 7.01)
or the Borrower fails to observe the covenant in Section 6.12(d) for
two (2) consecutive fiscal quarters; or


 


(c)                                  Other
Defaults.  Borrower or Guarantor fail
to perform or observe any other covenant or agreement (not specified in subsection (a) or
(b) above) contained in any Loan Document on its part to be performed
or observed or any default or event of default under any other Loan Document,
and such failure continues for 30 days; provided, however, that the
period to cure such failure or default shall be extended for a reasonable
amount of time (not to exceed ninety (90) days) so long as Borrower or
Guarantor, as applicable, has expeditiously commenced to cure and is pursuing
with due diligence to cure such failure or default; or


 


(d)                                 Representations
and Warranties.   Any representation,
warranty, certification or statement of fact made or deemed made by or on
behalf of Borrower herein, in any other Loan Document, or in any document
delivered in connection herewith or therewith shall be incorrect or misleading
when made or deemed; or


 


(e)                                  Cross-Default.  (i) Borrower, Guarantor or any
Subsidiary (A) fails to make any payment when due (whether by scheduled
maturity, required prepayment, acceleration, demand, or otherwise) in respect
of any Indebtedness for money borrowed or Guarantee of any Indebtedness for
money borrowed (other than Indebtedness hereunder and Indebtedness under Swap
Contracts) having an aggregate principal amount (including undrawn committed or
available amounts and including amounts owing to all creditors under any
combined or syndicated credit arrangement) of more than the Threshold Amount,
or (B) fails to observe or perform any other agreement or condition
relating to any such Indebtedness or Guarantee or contained in any instrument
or agreement evidencing, securing or relating thereto, or any other event
occurs, the effect of which default or other event in each of (A) or (B) above
is to cause, or to permit the holder or holders of such Indebtedness or the
beneficiary or beneficiaries of such Guarantee (or a trustee or agent on behalf
of such holder or holders or beneficiary or beneficiaries) to cause, with the
giving of notice if required, such Indebtedness to be demanded or to become due
or to be repurchased, prepaid, defeased or redeemed (automatically or
otherwise), or an offer to repurchase, prepay, defease or redeem such
Indebtedness to be made prior to its stated maturity, or such


 


35





















 


Guarantee to become
payable or cash collateral in respect thereof to be demanded; provided,
however, that an Event of Default under this subsection 8.01(e)(i) caused
by an event of default with respect to any of the foregoing described
Indebtedness for money borrowed or Guarantee shall be automatically cured for
purposes of this subsection 8.01(e)(i) upon the cure or waiver
of the default with respect to such other Indebtedness for money borrowed or
Guarantee; or (ii) there occurs under any Swap Contract an Early
Termination Date (as defined in such Swap Contract) resulting from (A) any
event of default under such Swap Contract as to which Borrower or any
Subsidiary is the Defaulting Party (as defined in such Swap Contract) or (B) any
Termination Event (as so defined) under such Swap Contract as to which Borrower
or any Subsidiary is an Affected Party (as so defined) and, in either event,
the Swap Termination Value owed by Borrower or such Subsidiary as a result
thereof is greater than the Threshold Amount and such Swap Termination Value is
not paid within five (5) days of the date due; or


 


(f)                                    Insolvency
Proceedings, Etc.  Borrower,
Guarantor or any of its Material Subsidiaries institutes or consents to the
institution of any proceeding under any Debtor Relief Law, or makes an
assignment for the benefit of creditors; or applies for or consents to the
appointment of any receiver, trustee, custodian, conservator, liquidator,
rehabilitator or similar officer for it or for all or any material part of its
property; or any receiver, trustee, custodian, conservator, liquidator,
rehabilitator or similar officer is appointed without the application or
consent of such Person and the appointment continues undischarged or unstayed
for 90 calendar days; or any proceeding under any Debtor Relief Law relating to
any such Person or to all or any material part of its property is instituted
without the consent of such Person and continues undismissed or unstayed for 90
calendar days, or an order for relief is entered in any such proceeding; or


 


(g)                                 Inability
to Pay Debts; Attachment.  (i) Borrower,
Guarantor or any Material Subsidiary becomes unable or admits in writing its
inability or fails generally to pay its debts as they become due, or (ii) any
writ or warrant of attachment or execution or similar process is issued or
levied against all or any material part of the property of any such Person and
is not released, vacated or fully bonded within 30 days after its issue or
levy; or


 


(h)                                 Judgments.  There is entered against Borrower, Guarantor
or any Subsidiary (i) a final judgment or order for the payment of money
in an aggregate amount exceeding the Threshold Amount (to the extent not
covered by independent third-party insurance as to which the insurer does not
dispute coverage), or (ii) any one or more non-monetary final judgments
that have, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect and, in either case, (A) enforcement
proceedings are commenced by any creditor upon such judgment or order, or (B) there
is a period of ten (10) consecutive days during which a stay of
enforcement of such judgment, by reason of a pending appeal or otherwise, is
not in effect; or


 


(i)                                     ERISA.  (i) An ERISA Event occurs with respect
to a Pension Plan or Multiemployer Plan which has resulted or could reasonably
be expected to result in liability of Borrower or Guarantor under Title IV
of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate
amount in excess of the Threshold Amount, or (ii) Borrower, Guarantor or
any ERISA Affiliate fails to pay when due, after the expiration of any applicable
grace period, any installment payment with respect to its withdrawal liability
under Section 4201 of ERISA under a Multiemployer Plan in an aggregate
amount in excess of the Threshold Amount; or


 


(j)                                     Invalidity
of Loan Documents.  Any Loan Document,
at any time after its execution and delivery and for any reason other than as
expressly permitted hereunder or satisfaction in full of all the Obligations,
ceases to be in full force and effect; or any Loan Party or any other Person
contests in any manner the validity or enforceability of any Loan Document; or
any Loan Party denies that it has any or further liability or obligation under
any Loan Document, or purports to revoke, terminate or rescind any Loan
Document, or any Lien with respect to any material portion of the Collateral
intended to be secured thereby ceases to be, or, subject to Section 7.01,
is not, valid, perfected and prior to all other Liens  or is terminated, revoked or declared void;
or


 


(k)                                  Change
of Control.  There occurs any Change
of Control and the Bank, within thirty (30) days of such occurrence, elects to
demand repayment of the Obligations as a result of such Change of Control and
the Obligations are not fully repaid by the expiration of such thirty (30) day
period; or


 


(l)                                     Material
Adverse Effect.  There occurs any
event or circumstance that has a Material Adverse Effect.


 


36





















 


8.02                        Remedies
Upon Event of Default. 
If any Event of Default occurs and exists, the Bank may take any or
all of the following actions:


 


(a)                                  declare the commitment of the Bank to make Loans to be
terminated, whereupon such commitments and obligation shall be terminated;


 


(b)                                 declare
the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid
thereon, and all other amounts owing or payable hereunder or under any other
Loan Document to be immediately due and payable, without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived
by the Borrower; and


 


(c)                                  exercise on behalf of itself all rights and remedies
available to it under the Loan Documents or applicable law;


 


provided,
however, that upon the occurrence of an actual or deemed entry of an
order for relief with respect to Borrower under the Bankruptcy Code of the
United States, the obligation of the Bank to make Loans shall automatically
terminate, the unpaid principal amount of all outstanding Loans and all
interest and other amounts as aforesaid shall automatically become due and
payable, in each case without further act of the Bank.


 


8.03                        Application
of Funds.  (a)          After the exercise of remedies provided for
in Section 8.02 (or after the Revolving Loans have automatically
become immediately due and payable as set forth in the proviso to Section 8.02),
any amounts received on account of the Revolving Loans or amounts received from
the collection or disposition of Crops or accounts shall be applied by the Bank
in the following order:


 


First, to payment of fees,
indemnities, expenses and other amounts (including Attorney Costs and amounts
payable under Article III) (other than principal and interest)
payable to the Bank;


 


Second, to payment of accrued and
unpaid interest on the Revolving Loans;


 


Third, to payment of unpaid
principal of the Revolving Loans;


 


Fourth, to the payment of Swap
Obligations;


 


Fifth, to the payment of any unpaid
Obligations set forth in this Section 8.03(a) in accordance
with Section 8.03(b) below; and


 


Last, the balance, if any, after all
of the foregoing and any other Obligations have been indefeasibly paid in full,
to the Borrower or as otherwise required by Law.


 


(b)                                 After
the exercise of remedies provided for in Section 8.02 (or after the
Term Loans have automatically become immediately due and payable), any amounts
received on account of the Term Loans or amounts received from the disposition
of the Real Estate and related property (other than Crops or accounts) shall be
applied by the Bank in the following order:


 


First, to payment of fees,
indemnities, expenses and other amounts (including Attorney Costs and amounts
payable under Article III) (other than principal and interest)
payable to the Bank;


 


Second, to payment of accrued and
unpaid interest on the Term Loans;


 


Third, to payment of unpaid
principal of the Term Loans;


 


Fourth, to the payment of Swap
Obligations;


 


Fifth, to the payment of any unpaid
Obligations set forth in this Section 8.03(b) in accordance
with Section 8.03(a) above; and


 


37





















 


Last, the balance, if any, after all
of the foregoing and any other Obligations have been indefeasibly paid in full,
to the Borrower or as otherwise required by Law.


 


ARTICLE IX.                       MISCELLANEOUS


 


9.01                        Amendments,
Etc.  No amendment or waiver of any
provision of this Agreement, the Note or any other Loan Document to which the
Borrower is a party, nor any consent to any departure by the Borrower
therefrom, shall in any event be effective unless the same shall be agreed or
consented to by the Bank and the Borrower, and each such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.


 


9.02                        Notices
and Other Communications; Facsimile Copies.


 


(a)                                  General.  Unless otherwise expressly provided herein,
all notices and other communications provided for hereunder shall be in writing
(including by facsimile transmission). 
All such written notices shall be mailed, faxed or delivered, to the
applicable address, facsimile number or (subject to subsection (c) below)
electronic mail address, and all notices and other communications expressly
permitted hereunder to be given by telephone shall be made to the applicable
telephone number, specified for such Person on Schedule 9.02 or to
such other address, facsimile number, electronic mail address or telephone
number as shall be designated by such party in a notice to the other
parties.  All such notices and other
communications shall be deemed to be given or made upon the earlier to occur of
(i) actual receipt by the relevant party hereto and (ii) (A) if
delivered by hand or by courier, upon delivery; (B) if delivered by mail,
four Business Days after deposit in the mails, postage prepaid; (C) if
delivered by facsimile, when sent and 
the sender has received electronic confirmation of error free receipt;
and (D) if delivered by electronic mail (which form of delivery is subject
to the provisions of subsection (c) below), when delivered; provided,
however, that notices and other communications to the Bank pursuant to Article II
shall not be effective until actually received by the Bank.  In no event shall a voicemail message be
effective as a notice, communication or confirmation hereunder.


 


(b)                                 Effectiveness
of Facsimile Documents and Signatures. 
Loan Documents may be transmitted and/or signed by facsimile.  The effectiveness of any such documents and
signatures shall, subject to applicable Law, have the same force and effect as
manually-signed originals and shall be binding on all Loan Parties and the
Bank.  The Bank may also require that any
such documents and signatures be confirmed by a manually-signed original
thereof; provided, however, that the failure to request or
deliver the same shall not limit the effectiveness of any facsimile document or
signature.


 


(c)                                  Limited
Use of Electronic Mail.  Electronic mail and internet and
intranet websites may be used only to distribute routine communications, such
as financial statements, and to distribute Loan Documents for execution by the
parties thereto, and may not be used for any other purpose.


 


(d)                                 Reliance
by the Bank.  The
Bank shall be entitled to rely and act upon any notices (including telephonic
Committed Loan Notices ) purportedly given by or on
behalf of the Borrower even if (i) such notices were not made in a manner
specified herein, were incomplete or were not preceded or followed by any other
form of notice specified herein, or (ii) the terms thereof, as understood
by the recipient, varied from any confirmation thereof.  The Borrower shall indemnify the Bank from
all losses, costs, expenses and liabilities resulting from the reliance by such
Person on each notice purportedly given by or on behalf of the Borrower.  All telephonic notices to and other
communications with the Bank may be recorded by the Bank, and each of the
parties hereto hereby consents to such recording.


 


9.03                        No
Waiver; Cumulative Remedies.  No
failure by the Bank to exercise, and no delay by any such Person in exercising,
any right, remedy, power or privilege hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power
or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege.  The rights, remedies, powers and privileges
herein provided are cumulative and not exclusive of any rights, remedies,
powers and privileges provided by law.


 


38





















 


9.04                        Attorney
Costs, Expenses and Taxes.  The
Borrower agrees (a) to pay or reimburse the Bank for all costs and expenses
incurred in connection with the development, preparation, negotiation and
execution of this Agreement and the other Loan Documents and any amendment,
waiver, consent or other modification of the provisions hereof and thereof
(whether or not the transactions contemplated hereby or thereby are
consummated), and the consummation and administration of the transactions
contemplated hereby and thereby, including all Attorney Costs and costs and
expenses in connection with the use of IntraLinks, Inc. or other similar
information transmission systems in connection with this Agreement, and (b) to
pay or reimburse the Bank for all costs and expenses incurred in connection
with the enforcement, attempted enforcement, or preservation of any rights or
remedies under this Agreement or the other Loan Documents (including all such
costs and expenses incurred during any “workout” or restructuring in respect of
the Obligations and during any legal proceeding, including any proceeding under
any Debtor Relief Law), including all Attorney Costs.  The foregoing costs and expenses shall
include all search, filing, recording, title insurance and appraisal charges
and fees and taxes related thereto, and other out-of-pocket expenses incurred by
the Bank and the cost of independent public accountants and other outside
experts retained by the Bank.  The
agreements in this Section 9.04 shall survive the termination of
the Commitments and repayment of all other Obligations.


 


9.05                        Indemnification
by the Borrower.   Whether or not the
transactions contemplated hereby are consummated, the Borrower shall indemnify
and hold harmless the Bank and its respective Affiliates, directors, officers,
employees, counsel, agents and attorneys-in-fact (collectively the “Indemnitees”) from and against any and all liabilities,
obligations, losses, damages, penalties, claims, demands, actions, judgments,
suits, costs, expenses and disbursements (including Attorney Costs) of any kind
or nature whatsoever which may at any time be imposed on, incurred by or asserted
against any such Indemnitee in any way relating to or arising out of or in
connection with (a) the execution, delivery, enforcement, performance or
administration of any Loan Document or any other agreement, letter or
instrument delivered in connection with the transactions contemplated thereby
or the consummation of the transactions contemplated thereby, (b) any
Commitment, Loan or the use or proposed use of the proceeds therefrom, (c) any
actual or alleged presence or release of Hazardous Materials on or from any
property currently or formerly owned or operated by the Borrower, Guarantor any
Subsidiary or any Environmental Liability related in any way to the Borrower,
Guarantor any Subsidiary, or (d) any actual or prospective claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether based on contract, tort or any other theory (including any
investigation of, preparation for, or defense of any pending or threatened
claim, investigation, litigation or proceeding) and regardless of whether
Indemnitee is a party thereto (all the foregoing, collectively, the “Indemnified Liabilities”); provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that such
liabilities, obligations, losses, damages, penalties, claims, demand, actions,
judgments, suits, costs, expenses or disbursements  have resulted from the gross negligence or
willful misconduct of such Indemnitee. No Indemnitee shall be liable for any
damages arising from the use by others of any information or other materials
obtained through IntraLinks or other similar information transmission systems
in connection with this Agreement, nor shall any Indemnitee have any liability
for any indirect or consequential damages relating to this Agreement or any
other Loan Document or arising out of its activities in connection herewith or
therewith (whether before or after the Closing Date). The agreements in this Section 9.05
shall survive the replacement of the Bank, the termination of the Commitments
and the repayment, satisfaction or discharge of all the other Obligations. All
amounts due under this Section 9.05 shall be payable within ten
Business Days after demand therefor.


 


9.06                        Payments
Set Aside.  To the extent that any
payment by or on behalf of the Borrower is made to the Bank, or the Bank
exercises its right of set-off, and such payment or the proceeds of such
set-off or any part thereof is subsequently invalidated, declared to be
fraudulent or preferential, set aside or required (including pursuant to any
settlement entered into by the Bank in its discretion) to be repaid to a
trustee, receiver or any other party, in connection with any proceeding under
any Debtor Relief Law or otherwise, then, to the extent of such recovery, the
obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such set-off had not occurred.


 


9.07                        Binding
Effect; Successors and Assigns.  (A)  This
Agreement shall be binding upon and inure to the benefit of the Borrower, the
Bank and their respective successors and permitted assigns, except that the
Borrower shall not have the right to assign or otherwise transfer its rights
hereunder or any interest herein without the prior written consent of the Bank.


 


39





















 


(B)                                The
Bank shall have the right at any time, but only with the prior written consent
of the Borrower (which shall not be unreasonably delayed or withheld), to sell
or assign this Agreement, the Note and the other Loan Documents to an Eligible
Transferee; provided, however, that upon the occurrence and during the
continuance of an Event of Default, the Bank may sell or assign this Agreement,
the Note and the other Loan Documents without the consent of the Borrower to
any party.


 


(C)                                The
Bank shall have the right at any time, without the consent of the Borrower or
any other Person, to sell participations in all or any portion of its rights in
this Agreement or its Commitment, Loans, Notes, participation obligations and
interests, rights and security under this Agreement and any of the other Loan
Documents to an Eligible Transferee, other than any competitor of the Borrower;
provided, however, that (i) the Bank’s obligations under the Loan
Documents (including, without limitation, its Commitment) shall remain
unchanged, (ii) the Bank shall remain solely responsible to the Borrower
for the performance of such obligations, (iii) the Bank shall remain the
holder of its Note for all purposes of any Loan Document, (iv) the
Borrower shall continue to deal solely and directly with the Bank in connection
with such Bank’s rights and obligations under the Loan Documents, and (v) the
Bank shall not sell a participation that conveys to the participant the right
to vote or give or withhold consents under any Loan Document, other than the
right to vote upon or consent to (A) any increase of the Bank’s
Commitments subject to such participation, (B) any reduction of the
principal amount of, or interest to be paid on, the Loans or other Loan
Obligations of the Bank, (C) any reduction of any fee, or other amount
payable to the Bank under any Loan Document, (D) any postponement of any
date for the payment of any amount payable in respect of the Loans subject to
such participation or other Loan Obligations of the Bank, or (E) the
release of any Collateral or the release of the Borrower from liability arising
under the Loan Documents.


 


(D)                               In
connection with any such proposed assignment, negotiation, hypothecation,
granting of a participation or other transfer or arrangement, the Bank may
disclose to the proposed assignee, participant or other transferee or
institution any information that the Borrower is required to deliver to the
Bank pursuant to this Agreement or the other Loan Documents, and the Borrower
shall cooperate fully with the Bank, in providing any such information to any
proposed assignee, participant or other transferee or institution.


 


9.08                        Confidentiality.  The Bank agrees to maintain the confidentiality
of the Information (as defined below), except that Information may be disclosed
(a) to its and its Affiliates’ directors, officers, employees and agents,
including accountants, legal counsel and other advisors (it being understood
that the Persons to whom such disclosure is made will be informed of the
confidential nature of such Information and instructed to keep such Information
confidential); (b) to the extent requested by any regulatory authority; (c) to
the extent required by applicable laws or regulations or by any subpoena or
similar legal process; (d) to any other party to this Agreement; (e) in
connection with the exercise of any remedies hereunder or any other Loan
Document or any suit, action or proceeding relating to this Agreement or any
other Loan Document or the enforcement of rights hereunder or under any other
Loan Document; (f) subject to an agreement containing provisions
substantially the same as those of this Section 9.08, to (i) any
assigns or participants, or prospective assigns or participants, pursuant to Section 9.07;
(ii) any direct or indirect contractual counterparty or prospective
counterparty (or such contractual counterparty’s or prospective counterparty’s
professional advisor) to any credit derivative transaction relating to
obligations of a Loan Party; (g) with the consent of the Borrower or
Guarantor, as applicable; (h) to the extent such Information (i) becomes
publicly available other than as a result of a breach of this Section 9.08
or (ii) becomes available to the Bank on a nonconfidential basis from a
source other than the Borrower or Guarantor, as applicable; or (i) to the
National Association of Insurance Commissioners or any other similar
organization.  In addition, the Bank may
disclose the existence of this Agreement and information about this Agreement
to market data collectors, similar service providers to the lending industry,
and service providers to the Bank in connection with the administration and
management of this Agreement, the other Loan Documents, the Commitments, and
the Credit Extensions.  For the purposes
of this Section 9.08, “Information”
means all information received from any Loan Party relating to any Loan Party
or its business, other than any such information that is available to the Bank
on a nonconfidential basis prior to disclosure by any Loan Party; provided,
that, in the case of information received from any Loan Party after the date
hereof, such information is clearly identified in writing at the time of
delivery as confidential.  Any Person
required to maintain the confidentiality of
Information as provided in this Section 9.08 shall be considered to
have complied with its obligation to do so if such Person has exercised the
same degree of care to maintain the confidentiality of such Information as such
Person would accord to its own confidential information.  In addition, the Bank may disclose to any
agency or organization that assigns standard identification numbers to loan
facilities such basic information describing the facilities provided hereunder
as is necessary to assign unique identifiers (and, if


 


40





















 


requested, supply a copy
of this Agreement), it being understood that the Person to whom such disclosure
is made will be informed of the confidential nature of such Information and
instructed to make available to the public only such Information as such person
normally makes available in the course of its business of assigning
identification numbers.


 


9.09                        Set-off.  In addition to any rights and remedies of
the Bank provided by law, upon the occurrence and during the continuance of any
Event of Default, the Bank is authorized at any time and from time to time,
without prior notice to the Borrower or any other Loan Party, any such notice
being waived by the Borrower (on its own behalf and on behalf of each Loan
Party) to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held by, and other indebtedness at any time owing by, the Bank to or for the
credit or the account of the respective Loan Parties against any and all
Obligations owing to the Bank hereunder or under any other Loan Document, now
or hereafter existing, irrespective of whether or not the Bank shall have made
demand under this Agreement or any other Loan Document and although such
Obligations may be contingent or unmatured or denominated in a currency
different from that of the applicable deposit or Indebtedness.  The Bank agrees promptly to notify the
Borrower after any such set-off and application made by the Bank; provided,
however, that the failure to give such notice shall not affect the
validity of such set-off and application.


 


9.10                        Interest
Rate Limitation.  Notwithstanding
anything to the contrary contained in any Loan Document, the interest paid or
agreed to be paid under the Loan Documents shall not exceed the maximum rate of
non-usurious interest permitted by applicable Law (the “Maximum Rate”).  If the Bank shall receive interest in an
amount that exceeds the Maximum Rate, the excess interest shall be applied to
the principal of the Loans or, if it exceeds such unpaid principal, refunded to
the Borrower.  In determining whether the
interest contracted for, charged, or received by the Bank exceeds the Maximum
Rate, such Person may, to the extent permitted by applicable Law, (a) characterize
any payment that is not principal as an expense, fee, or premium rather than
interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize,
prorate, allocate, and spread in equal or unequal parts the total amount of
interest throughout the contemplated term of the Obligations hereunder.


 


9.11                        Counterparts.  This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.


 


9.12                        Integration.  This Agreement, together with the other
Loan Documents, comprises the complete and integrated agreement of the parties
on the subject matter hereof and thereof and supersedes all prior agreements,
written or oral, on such subject matter. 
In the event of any conflict between the provisions of this Agreement
and those of any other Loan Document, the provisions of this Agreement shall
control; provided that the inclusion of supplemental rights or remedies
in favor of the Bank in any other Loan Document shall not be deemed a conflict
with this Agreement.  Each Loan Document
was drafted with the joint participation of the respective parties thereto and
shall be construed neither against nor in favor of any party, but rather in
accordance with the fair meaning thereof.


 


9.13                        Survival
of Representations and Warranties.  All
representations and warranties made hereunder and in any other Loan Document or
other document delivered pursuant hereto or thereto or in connection herewith
or therewith shall survive the execution and delivery hereof and thereof.  Such representations and warranties have been
or will be relied upon by the Bank, regardless of any investigation made by the
Bank or on its behalf and notwithstanding that the Bank may have had notice or
knowledge of any Potential Default or Event of Default at the time of any
Credit Extension, and shall continue in full force and effect as long as any
Loan or any other Obligation hereunder shall remain unpaid or unsatisfied.


 


9.14                        Severability.  If any provision of this Agreement or the
other Loan Documents is held to be illegal, invalid or unenforceable, (a) the
legality, validity and enforceability of the remaining provisions of this
Agreement and the other Loan Documents shall not be affected or impaired
thereby and (b) the parties shall endeavor in good faith negotiations to
replace the illegal, invalid or unenforceable provisions with valid provisions
the economic effect of which comes as close as possible to that of the illegal,
invalid or unenforceable provisions.  The
invalidity of a provision in a particular jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.


 


41





















 


9.15                        Governing
Law; Submission to Jurisdiction.


 


(a)                                  THIS
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF CALIFORNIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE;  PROVIDED
THAT THE BANK SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.


 


(b)                                 ANY
LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA SITTING
IN FRESNO, CALIFORNIA OR OF THE UNITED STATES FOR THE EASTERN DISTRICT OF SUCH
STATE, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER AND THE
BANK CONSENT, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS.  THE
BORROWER AND THE BANK IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION
TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING
OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF ANY LOAN
DOCUMENT OR OTHER DOCUMENT RELATED THERETO. THE BORROWER AND THE BANK WAIVES
PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE
MADE BY ANY OTHER MEANS PERMITTED BY THE LAW OF SUCH STATE.  NOTHING IN THIS SECTION 9.15
SHALL AFFECT THE RIGHT OF THE BANK TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR AFFECT THE RIGHT OF THE BANK TO BRING ANY ACTION OR
PROCEEDING AGAINST THE BORROWER OR THE COLLATERAL IN THE COURTS OF ANY OTHER
JURISDICTIONS.


 


9.16                        Waiver
of Right to Trial by Jury.  EACH
PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR
IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE
PARTIES HERETO OR ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE
TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO
THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 9.16
WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO
THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.


 


9.17                        Time
of the Essence.  Time is of the
essence of the Loan Documents.


 


 [NO FURTHER TEXT ON PAGE]


 


[BLANK PAGE TO FOLLOW]


 


42





















 


[PAGE INTENTIONALLY LEFT BLANK]


 


 


[SIGNATURE PAGE TO FOLLOW]


 





















 


IN WITNESS WHEREOF, the parties
hereto have caused this Agreement to be duly executed as of the date first
above written.


 


	
   

  	
  SCHEID
  VINEYARDS CALIFORNIA INC.,

  
	
   

  	
  a California
  corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
       /s/ Michael Thomsen

  
	
   

  	
   

  	
  Michael Thomsen, Chief Financial Officer

  



 





















 


	
   

  	
  RABOBANK, N.A.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
                /s/
  Glenn Burgess

  
	
   

  	
   

  	
  Name:

  	
       Glenn Burgess

  
	
   

  	
   

  	
  Title:

  	
      Vice President

  
					



 





















 


SCHEDULE 2.01


 


COMMITMENTS


 


	
  Revolving
  Commitment

  	
  $15,000,000

  	
   

  
	
   

  	
   

  	
   

  
	
  Term Loan
  Commitment

  	
  $37,000,000,
  reducing

  annually by $2,000,000.00

  commencing on December 15,

  2007 and each December 15th

  thereafter