Document:

EXHIBIT 10.2

 

SECURITY AGREEMENT

 

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

 

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

 

ARTICLE 1

THE SECURITY

 

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

 

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

 

(b)           Inventory.

 

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

 

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

 

(e)           Farm products.

 

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

 

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

 

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

 

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

 

ARTICLE 2

THE SECURED OBLIGATIONS

 

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

 

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

 

 

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

 

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

 

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

 

ARTICLE 3

DEBTOR’S COVENANTS

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

ARTICLE 4

ADDITIONAL OPTIONAL REQUIREMENTS

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

3

 

ARTICLE 5

DEFAULTS

 

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

 

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

 

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

 

ARTICLE 6

RABOBANK’S REMEDIES AFTER DEFAULT

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

4

 

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

 

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

 

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

 

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

 

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

 

ARTICLE 7

MISCELLANEOUS

 

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

 

If to the Debtor:

 

SCHEID VINEYARDS CALIFORNIA INC.

305 Hilltown Road

Salinas, California 93908

Telephone:            (831)
455-9990

Telefacsimile:        (831)
970-8715

email:      scott@scheidvineyards.com

 

If to Rabobank:

 

RABOBANK, N.A.

6715 North Palm Avenue, Suite 208

Fresno, California 93704

Telephone: 
(559) 447-7828

 

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Facsimile:  (559) 447-7840

email:
Jill.Jelecich@Rabobank.com

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

[NO FURTHER TEXT ON PAGE]

 

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

 

	
   

  	
  DEBTOR:

  
	
   

  	
   

  
	
   

  	
  SCHEID VINEYARDS CALIFORNIA
  INC., a

  California corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael Thomsen

  	
   

  
	
   

  	
   

  	
  Michael Thomsen, Chief
  Financial Officer

  

 

7EXHIBIT 10.3

 

GUARANTY

 

THIS GUARANTY (“Guaranty”) dated as of this 28th day of June, 2005, is made
by SCHEID VINEYARDS INC., a Delaware
corporation (the “GUARANTOR”), in
favor of RABOBANK, N.A., f/k/a Valley
Independent Bank (“BANK”).

 

RECITALS

 

A.                                   SCHEID
VINEYARDS CALIFORNIA INC., a California corporation (“BORROWER”),
has applied to BANK for a loan (“Loan”) of up to
FIFTY TWO MILLION and No/100 DOLLARS ($52,000,000.00) according to the terms of
that certain Credit Agreement of even date herewith (the “Credit
Agreement”) between BORROWER and BANK. The Loan will be evidenced by
a Notes (as defined in the Credit Agreement dated as of the same date as this
Guaranty executed by BORROWER in favor of BANK in the aggregate principal
amount of FIFTY TWO MILLION and No/100 DOLLARS ($52,000,000.00), which will be
secured by, among other security, the Collateral Documents (as defined in the
Credit Agreement) dated as of the same date as this Guaranty executed in favor
of BANK covering the Collateral (as defined in the Credit Agreement) described
in the Collateral Documents.

 

B.                                     As
a condition to making the Loan, BANK has required that GUARANTOR execute and
deliver this Guaranty.

 

NOW THEREFORE, in order
to induce BANK to enter into the Credit Agreement and to make the Loan and in
consideration thereof, GUARANTOR hereby agree as
follows:

 

1.                                       Guaranty.  GUARANTOR absolutely and unconditionally
guarantees the punctual payment when due, whether at stated maturity, by
acceleration, or otherwise, of all “Obligations” of BORROWER now or later
existing under the Loan Documents (defined in the Credit Agreement) whether for
principal, interest, fees, expenses, or otherwise including, without
limitation, all real property taxes and assessments affecting the Collateral,
all costs and expenses, including insurance premiums, of maintaining in full
force all policies of insurance required pursuant to the Collateral Documents
and/or the other Loan Documents, and all costs and expenses, including
completion, repair and maintenance costs, required in order to complete and
maintain the Collateral in the condition required under the Collateral
Documents and/or the other Loan Documents (collectively, the “Obligations”). The terms “indebtedness” and “obligations”
are used in their most comprehensive sense and include all debts, obligations,
undertakings and liabilities of BORROWER incurred or created under the Loan
Documents, with or without notice to GUARANTOR, whether voluntary or
involuntary and however arising, whether due or not due, absolute or
contingent, liquidated or unliquidated, determined or undetermined, whether
BORROWER is liable individually or jointly with others, and whether recovery on
any indebtedness or obligations is now or later becomes barred by any statute
of limitations or is or later becomes otherwise unenforceable.

 

2.                                       Guaranty
Absolute.

 

(a)                                  GUARANTOR
guarantees that the Obligations will be paid and performed strictly in
accordance with the terms of the Loan Documents, regardless of any law,
regulation, or order now or later in effect in any jurisdiction affecting any
of the terms or the rights of BANK with respect thereto. The liability of
GUARANTOR under this Guaranty will be absolute and unconditional irrespective
of:

 

(i)                                      any lack of validity or enforceability of any of the Loan
Documents (or any other agreement or instrument relating to the Loan
Documents);

 

(ii)                                   any
change in the time, manner, or place of payment of, or in any other term of,
any of the Obligations, or any other amendment or waiver of or any consent to
departure from any of the Loan Documents, including, without limitation,
changes in the terms of disbursement of the Loan proceeds or repayment,
modifications, extensions (including extensions beyond and after

 

 

the original term), or renewals
of payment dates, changes in interest rate, or the advancement of additional
funds by BANK in its discretion;

 

(iii)                                any
exchange, release, or nonperfection of any collateral, or any release or
amendment or waiver of or consent to departure from any other guaranty, for any
of the Obligations; or

 

(iv)                               any other circumstance that might otherwise constitute a
defense available to, or a discharge of, BORROWER in respect of the Obligations
of GUARANTOR under this Guaranty.

 

(b)                                 Regardless
of any termination of this Guaranty or the cancellation of the Notes or any
other agreement evidencing the Obligations, if at any time any payment of any
of the Obligations (from any source) is rescinded, repaid, or must otherwise be
returned by BANK due to the insolvency, bankruptcy, or reorganization of
BORROWER or GUARANTOR, or for any other circumstance, this Guaranty will
continue to be effective or be reinstated, as the case may be, as though that
payment had not been made.

 

3
..                                    Guaranty
Independent; Waivers.

 

(a)                                  GUARANTOR
agrees that:

 

(i)                                     the
obligations under this Guaranty are joint and several and are independent of
and in addition to the undertakings of BORROWER pursuant to the Loan Documents,
any evidence of indebtedness issued in connection with the Loan, any deed of
trust or security agreement given to secure the Loan, any other guaranties
given in connection with the Loan, and any other obligations of GUARANTOR to
BANK;

 

(ii)                                  a separate action may be brought to enforce the provisions
of this Guaranty whether BORROWER is a party in any action or not;

 

(iii)                               BANK may at any time, or
from time to time, in its sole discretion:

 

(A)                              extend or change the time of payment or performance or the
manner, place, or terms of payment or performance of any of the Obligations;

 

(B)                                exchange,
release, or surrender any of the collateral security, or any part of it, by
whomever deposited, which is now or may later be held by BANK in connection
with any of the Obligations;

 

(C)                                sell
or purchase any of the collateral at public or private sale, or at any broker’s
board, in the manner permitted by law, and after all costs and expenses of
every kind for collection, sale, or delivery, the net proceeds of any sale may
be applied by BANK on any of the Obligations; and

 

(D)                               settle
or compromise with BORROWER, or any other person liable, any of the
Obligations, or subordinate the payment of it, or any part of it, to the
payment of any other debts or claims, that may at any time be due or owing to
BANK or any other person or corporation; and

 

(iv)                              BANK
will be under no obligation to marshal any assets in favor of GUARANTOR or in
payment of any of the Obligations.

 

(b)                                 GUARANTOR
waives:

 

(i)                                     presentment,
demand, protest, notice of acceptance, notice of dishonor, notice of
nonperformance, and any other notice with respect to any of the Obligations and
this Guaranty,

 

2

 

and promptness in commencing suit
against any party, or in giving any notice to or making any claim or demand on
GUARANTOR;

 

(ii)                                  any right to require BANK to proceed against BORROWER,
proceed against or exhaust any security held from BORROWER, or pursue any
remedy in BANK’s power;

 

(iii)                               any defense based on any
legal disability or other defense of BORROWER, any other guarantor, or other
person or by reason of the cessation or limitation of the liability of BORROWER
from any cause other than full payment of all sums payable under the Note and
the performance of the other Obligations;

 

(iv)                              any
defense based on any lack of authority of the officers, directors, partners, or
agents purporting to act on behalf of BORROWER or any principal of BORROWER or
any defect in the formation of BORROWER or any principal of BORROWER;

 

(v)                                 to the fullest extent permitted by law, all rights and
benefits under California Civil Code § 2809 purporting to reduce a
guarantor’s obligations in proportion to the principal obligation;

 

(vi)                              any
defense based on the application by BORROWER of the proceeds of the Loan for
purposes other than the purposes represented by BORROWER to BANK or intended or
understood by BANK or GUARANTOR;

 

(vii)                           any defense it may acquire
by reason of BANK’s election of any remedy against it or BORROWER or both,
including, without limitation, election by BANK to exercise its rights under
the power of sale in the Mortgages (as defined in the Credit Agreement) and the
consequent loss by GUARANTOR of the right to recover any deficiency from
BORROWER;

 

(viii)                        any defense based on BANK’s
failure to disclose to GUARANTOR any information concerning BORROWER’s
financial condition or any other circumstances bearing on BORROWER’s ability to
pay all sums payable under the Notes or any of the other Obligations;

 

(ix)                                any defense based on any statute or rule of law that
provides that the obligation of a surety must be neither larger in amount nor
in any other respects more burdensome than that of a principal;

 

(x)                                   any
defense based on BANK’s election, in any proceeding instituted under the
Federal Bankruptcy Code, of the application of Section 1111(b)(2) of
the Federal Bankruptcy Code or any successor statute;

 

(xi)                                any defense based on any borrowing or any grant of a
security interest under

 

§ 364
of the Federal Bankruptcy Code;

 

(xii)                             the benefit of any statute
of limitations affecting the liability of GUARANTOR or the enforcement of the
Guaranty, including, without limitation, any rights arising under California
Code of Civil Procedure § 359.5; and

 

(xiii)                          to the fullest extent
permitted by law, all rights and benefits under California Code of Civil
Procedure § 580a, purporting to limit the amount of any deficiency
judgment that might be recoverable following the occurrence of a trustee’s sale
under a deed of trust; California Code of Civil Procedure § 580b, stating
that no deficiency may be recovered on a real property purchase money
obligation; and California Code of Civil Procedure § 580d, stating that no
deficiency may be recovered on a note secured by a deed of trust on real
property in case the real property is sold under the power of sale contained in
the deed of trust, if those statutory sections have any application.

 

3

 

GUARANTOR agrees that the
payment of all sums payable under the Notes or any of the other Obligations or
any other act that tolls any statute of limitations applicable to the Notes or
the other Obligations will similarly operate to toll the statute of limitations
applicable to GUARANTOR liability.  
Without limiting the generality of the foregoing or any other provision
of this Guaranty, GUARANTOR expressly waives all benefits that might otherwise
be available to GUARANTOR under California Civil Code §§ 2809, 2810, 2819,
2839, 2845, 2849, 2850, 2899, and 3433 and California Code of Civil Procedure §§ 580a,
580b, 580d, and 726, or similar sections.

 

(c)                                  GUARANTOR
waives all rights and defenses arising out of an election of remedies by the
creditor, even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed obligation, has destroyed
the GUARANTOR’s rights of subrogation and reimbursement against the principal
by the operation of Section 580d of the Code of Civil Procedure or
otherwise.  Furthermore, GUARANTOR
understands and acknowledges that if BANK forecloses judicially or
nonjudicially against any real property security for the Loan, that foreclosure
could impair or destroy any ability that GUARANTOR may have to seek
reimbursement, contribution, or indemnification from BORROWER or others based
on any right GUARANTOR may have of subrogation, reimbursement, contribution, or
indemnification for any amounts paid by GUARANTOR under this Guaranty.  GUARANTOR further understands and
acknowledges that in the absence of this provision the potential impairment or destruction
of GUARANTOR’s rights, if any, may entitle GUARANTOR to assert a defense to
this Guaranty based on California Code of Civil Procedure § 580d, as
interpreted in Union Bank v Gradsky (1968, 2nd Dist) 265 Cal App 2d 40, 71 Cal
Rptr 64.  By executing this Guaranty,
GUARANTOR freely, irrevocably, and unconditionally:

 

(i)                                     waives and relinquishes that defense, and agrees that
GUARANTOR will be fully liable under this Guaranty even though BANK may
foreclose judicially or nonjudicially against any real property security for
the Loan;

 

(ii)                                  agrees that GUARANTOR will not assert that defense in any
action or proceeding that BANK may commence to enforce this Guaranty;

 

(iii)                               acknowledges and agrees
that the rights and defenses waived by GUARANTOR under this Guaranty include
any right or defense the GUARANTOR may have or be entitled to assert based upon
or arising out of any one or more of California Code of Civil Procedure §§ 580a,
580b, 580d, or 726, or California Civil Code § 2848; and

 

(iv)                              acknowledges and agrees that BANK is relying on this waiver
in making the Loan, and that this waiver is a material part of the
consideration that BANK is receiving for making the Loan.

 

4.                                       Guaranty
Does Not Supersede Other Guaranties. 
The obligations of GUARANTOR hereunder shall be in addition to any
obligations of GUARANTOR under any other guaranties made by GUARANTOR of the
Obligations and/or any obligations of BORROWER or any other persons or entities
heretofore given or hereafter to be given to BANK, and this Guaranty shall not
affect or invalidate any such other guaranties. 
The liability of GUARANTOR to BANK shall at all times be deemed to be
the aggregate liability of GUARANTOR under the terms of this Guaranty and of
any other guaranties heretofore or hereafter given by GUARANTOR to BANK.

 

5.                                       Representations
and Warranties.  Except as disclosed
in writing to BANK prior to the date of this Guaranty, GUARANTOR hereby
represents and warrants as follows:

 

(a)                                  Power
and Authority.

 

(i)                                     GUARANTOR
has the requisite power and authority to own and manage its properties, to
carry on its business as now being conducted.

 

4

 

(ii)                                  GUARANTOR
is in compliance in all material respects with all laws, regulations,
ordinances and orders of public authorities applicable to it.

 

(b)                                 Validity
of Guaranty.

 

(i)                                     The
execution, delivery and performance by GUARANTOR of this Guaranty (A) are
within the power of GUARANTOR, (B) have received all necessary
governmental approvals, and (C) will not violate any provision of law, any
order of any court or agency of government, or any indenture, agreement or any
other instrument to which GUARANTOR is a party or by which GUARANTOR, or its
property are bound, or be in conflict with, result in a breach of or constitute
(with due notice and/or lapse of time) a default under any such indenture,
agreement or other instrument, or result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever upon any of its property
or assets, except as contemplated by the provisions of the Loan Documents.

 

(ii)                                  This
Guaranty, when delivered to BANK, will constitute a legal, valid and binding
obligation enforceable against GUARANTOR in accordance with its terms, subject
to bankruptcy, insolvency, reorganization, receivership, moratorium and other
similar laws affecting the rights and remedies of creditors generally.

 

(c)                                  Financial
Statements.

 

(i)                                     The
Financial Statements (A) were prepared in accordance with GAAP (as defined
in the Credit Agreement) consistently applied throughout the period covered
thereby, except as otherwise expressly noted therein; (B) fairly present
the financial condition of the GUARANTOR 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 (C) show all material indebtedness and other
liabilities, direct or contingent, of the GUARANTOR 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 (as defined in the Credit Agreement).

 

(ii)                                  The
audited consolidated financial statements of the GUARANTOR, 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”) (A) were prepared in accordance with
GAAP consistently applied throughout the period covered thereby, except as
otherwise expressly noted therein; and (B) fairly present the financial
condition of the GUARANTOR, 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 (A) and (B), to the absence of
footnotes and to normal year-end adjustments.

 

(iii)                               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 (as defined in the Credit Agreement).

 

(d)                                 Other
Arrangements.  GUARANTOR is not a
party to any agreement or instrument materially and adversely affecting
GUARANTOR’s present or proposed business, properties or assets, or operations
or conditions (whether financial or otherwise); and GUARANTOR is not in
default, after giving of notice, if applicable, and/or the expiration of
applicable cure periods, in the performance, observance or fulfillment of any
of the material obligations, covenants or conditions set forth in any agreement
or instrument to which GUARANTOR is a party.

 

(e)                                  Other
Information.  All other reports,
papers and written data and information given to BANK by GUARANTOR with respect
to GUARANTOR are accurate and correct in all material respects

 

5

 

and
complete insofar as completeness may be necessary to give BANK a true and
accurate knowledge of the status of GUARANTOR.

 

(f)                                    Litigation.  There is not now pending against or affecting
GUARANTOR, nor to the knowledge of GUARANTOR is there threatened, any action,
suit or proceeding at law or in equity or by or before any administrative
agency that, if adversely determined, would materially impair or affect the
financial condition or operations of GUARANTOR.

 

(g)                                 Taxes.  GUARANTOR has filed all federal, state,
provincial, county, municipal or other income tax returns required to have been
filed by GUARANTOR and have paid all taxes that have become due pursuant to
such returns or pursuant to any assessments received by GUARANTOR, and
GUARANTOR does not know of any basis for any material additional assessment
against it in respect of such taxes.

 

(h)                                 Compliance
with Laws.  The GUARANTOR is in
compliance in all material respects with the requirements of all Laws (as
defined in the Credit Agreement) 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.

 

(i)                                     Disclosure.  The GUARANTOR has disclosed to the BANK all
agreements, instruments and corporate or other restrictions to which it 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 GUARANTOR in connection with any Loan Document to the BANK in
connection with the transactions contemplated hereby and the negotiation of
this Guaranty 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 GUARANTOR makes no representation or warranty to the BANK
that any financial or other projection or forecast provided by or on behalf of
the GUARANTOR will be achieved or that any deviation from such projection or
forecast will not be material

 

6.                                       Covenants.  So long as there are any Obligations or the
BANK shall have any “Commitment” under the Credit Agreement, the GUARANTOR will
comply with all applicable Affirmative and Negative Covenants set forth in Articles
6 and 7 of the Credit Agreement.

 

7.                                       Amendments,
Etc.  No amendment or waiver of any
provision of this Guaranty nor consent to any departure by GUARANTOR therefrom
shall in any event be effective unless the same shall be in writing and signed
by BANK, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.  No notice to or demand on GUARANTOR shall in
any case entitle it to any other or further notice or demand in similar or
other circumstances.

 

8.                                       Notices.  All notices that may be required or otherwise
provided for or contemplated under the terms of this Guaranty for any party to
serve upon or give to any other shall, whether or not so stated, be in writing,
and if not so in writing shall not be deemed to have been given, and be either
personally served or sent with return receipt requested by registered or
certified mail with postage (including registration or certification charges)
prepaid in a securely enclosed and sealed envelope, sent to the following
addresses:

 

	
  If to BANK:

  	
  RABOBANK, N.A.

  
	
   

  	
  6715 North Palm,
  Suite 208

  
	
   

  	
  Fresno,
  California 93704

  

 

6

 

	
  with a copy to:

  	
  BAIRD HOLM

  
	
   

  	
  1500 Woodmen
  Tower

  
	
   

  	
  Omaha, Nebraska
  68102

  
	
   

  	
   

  
	
  If to GUARANTOR:

  	
  SCHEID VINEYARDS
  INC.

  
	
   

  	
  305 Hilltown
  Road

  
	
   

  	
  Salinas, California
  93908

  

 

These addresses may be
changed from time to time by written notice to the other parties given in the
same manner. Any matter served on or sent to GUARANTOR or BANK in this manner
will be deemed sufficiently given for all purposes on the date three (3) business
days following the date it was deposited in a United States Post Office, except
that notices of changes of address will not be effective until actual receipt.

 

9.                                       No
Waiver; Remedies.  No failure on the
part of BANK to exercise and no delay in exercising any right or remedy
hereunder shall operate as a waiver thereof, nor shall BANK be estopped to
exercise any such right or remedy at any future time because of any such
failure or delay; nor shall any single or partial exercise of any right or
remedy hereunder preclude any other or further exercise thereof or the exercise
of any other right or remedy.  The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.

 

10.                                 Right
of Setoff.  BANK is hereby authorized
at any time and from time to time, upon the occurrence and during the
continuance of an Event of Default, without notice to GUARANTOR (any such
notice being expressly waived by GUARANTOR), to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by BANK to or for the credit or
the account of GUARANTOR against any and all of the obligations of GUARANTOR of
or hereafter existing under this Guaranty. 
BANK agrees promptly to notify GUARANTOR after any such Setoff and
application, provided that the failure to give such notice shall not affect the
validity of such Setoff and application. 
The rights of BANK under this Section 10 are in addition to
other rights and remedies (including, without limitation, other rights of
Setoff) which BANK may have.

 

11.                                 Continuing
Guaranty; Transfer of Notes. This Guaranty is a continuing guaranty and
will:

 

(a)                                  subject to the provisions of Section 2(b),
remain in full force and effect until payment in full of the indebtedness and
the Obligations and all other amounts payable under this Guaranty;

 

(b)                                 be binding on GUARANTOR; and

 

(c)                                  inure to the benefit of and be enforceable by BANK and its
successors, transferees, and assigns.

 

Without
limiting the generality of the subsection 11(c), BANK may assign or
otherwise transfer the Loan Documents in accordance with Section 9.07 of
the Credit Agreement, and upon such assignment or transfer, the Eligible
Transferee or Person (both as defined in the Credit Agreement) will become
vested with all the rights granted to BANK.

 

12.                                 Subordination.  Any Indebtedness of BORROWER now or hereafter
held by GUARANTOR is hereby subordinated to the indebtedness of BORROWER to
BANK, and such indebtedness of BORROWER to GUARANTOR shall, if collected by
GUARANTOR, be received by GUARANTOR as trustee for BANK and be paid over to
BANK on account of the indebtedness of BORROWER to BANK, if at the time of
collection an Event of Default has occurred and is continuing, but without
reducing or limiting in any manner the liability of GUARANTOR under the other
provisions of this Guaranty.

 

13.                                 No
Duty.  GUARANTOR assumes the
responsibility for keeping informed of the financial condition of BORROWER and
of all other circumstances bearing upon the risk of nonpayment or

 

7

 

nonperformance
of the Obligations, and agrees that BANK shall have no duty to advise GUARANTOR
of any information known to BANK regarding any such financial condition or
circumstances.

 

14.                                 Waiver
of Right to Trial by Jury.  GUARANTOR
AND BANK EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY
ACTION OR PROCEEDING (A) BROUGHT BY GUARANTOR, BORROWER, BANK OR ANY OTHER
PERSON RELATING TO (I) THE LOANS, (II) THIS GUARANTY OR (III) THE OTHER LOAN
DOCUMENTS, OR (B) TO WHICH BANK IS A PARTY.  GUARANTOR HEREBY AGREES THAT THIS GUARANTY
CONSTITUTES A WRITTEN CONSENT TO WAIVER OF TRIAL BY JURY PURSUANT TO THE
PROVISIONS OF CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 631 AND GUARANTOR
DOES HEREBY CONSTITUTE AND APPOINT BANK ITS TRUE AND LAWFUL ATTORNEY-IN-FACT,
WHICH APPOINTMENT IS COUPLED WITH AN INTEREST, AND GUARANTOR DOES HEREBY
AUTHORIZE AND EMPOWER BANK, IN THE NAME, PLACE AND

 

STEAD OF GUARANTOR, TO
FILE THIS GUARANTY WITH THE CLERK OR JUDGE OF ANY COURT OF COMPETENT
JURISDICTION AS A STATUTORY WRITTEN CONSENT TO WAIVER OF TRIAL BY JURY.

 

	
   

  	
  INITIALS OF
  GUARANTOR:

  	
  /s/ MT

  	
   

  

 

15.                                 Bankruptcy
of BORROWER.   Notwithstanding any
modification, discharge or extension of the Obligations or any amendment,
modification, stay or cure of BANK’s rights which may occur in any bankruptcy
or reorganization case or proceeding concerning BORROWER whether permanent or
temporary, and whether assented to by BANK, GUARANTOR hereby agrees that it
shall be obligated hereunder to pay and perform the Obligations and discharge
its other obligations in accordance with the terms of the Obligations and the
terms of this Guaranty in effect on the date hereof. GUARANTOR understands and
acknowledges that by virtue of this Guaranty, it has specifically assumed any
and all risks of a bankruptcy or reorganization case or proceeding with respect
to BORROWER.  As an example and not in
any way of limitation, a subsequent modification of the Obligations in any
reorganization case concerning BORROWER shall not affect the obligation of
GUARANTOR to pay and perform the Obligations in accordance with their original
terms.

 

16.                                 Entire
Agreement.  This Guaranty is intended
as a final expression of this agreement of guaranty and is intended also as a
complete and exclusive statement of the terms of this agreement. No course of
prior dealings between GUARANTOR and BANK, no usage of the trade, and no parol
or extrinsic evidence of any nature shall be used or be relevant to supplement,
explain, contradict or modify the terms and/or provisions of this Guaranty.

 

17.                                 Governing
Law.  This Guaranty shall be governed
by, and construed in accordance with, the laws of the State of California,
without giving effect to conflicts of law principles.

 

18.                                 Attorney
Fees and Expenses.  GUARANTOR agrees
to pay all costs, including, without limitation, attorney fees and expenses,
incurred by BANK in enforcing the terms of this Guaranty, whether or not suit
is filed.  GUARANTOR agrees to indemnify
and hold BANK harmless from all liability, loss, damage, or expense (including,
without limitation, attorney fees) that it may incur under this Guaranty, or in
the enforcement of any of BANK’s rights or remedies, or any action taken by
BANK, under this Guaranty, other than those resulting from BANK’S gross
negligence or willful misconduct.

 

19.  Miscellaneous.

 

(a)                                  Time
is of the essence hereof.

 

8

 

(b)                                 The
obligations and promises set forth herein shall be joint and several
undertakings of each of the Persons executing this Guaranty, and BANK may
proceed hereunder against any one or more of said Persons without waiving its
right to proceed against any of the others.

 

(c)                                  If
any term, provision, covenant or condition hereof or any application thereof
should be held by a court of competent jurisdiction to be invalid, void or
unenforceable, all provisions, covenants and conditions hereof, and all
applications thereof not held invalid, void or unenforceable shall continue in
full force and effect and shall in no way be affected, impaired or invalidated
thereby.

 

(d)                                 This
Guaranty may be executed in any number of counterparts and by different parties
in separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of such counterparts taken together shall
constitute but one and the same instrument.

 

(e)                                  Section headings
in the Guaranty are included for convenience of reference only and do not
constitute a part of this Guaranty for any other purpose.

 

[NO FURTHER TEXT ON PAGE]

 

9

 

IN
WITNESS WHEREOF, the undersigned has executed and delivered this Guaranty as of
the date first above written.

 

	
   

  	
  SCHEID
  VINEYARDS INC., a Delaware

  corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
       /s/
  Michael Thomsen

  
	
   

  	
   

  	
  Name:

  	
   

  	
  Michael Thomsen

  
	
   

  	
   

  	
  Its:

  	
   

  	
  Chief Financial
  Officer

  
						

 

10

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