CREDIT AGREEMENT
THIS AGREEMENT is entered into as of the 25th day of September, 1996,
by and between THE CHALONE WINE GROUP, LTD. (formerly known as CHALONE
INCORPORATED), a California corporation ("Borrower"), and XXXXX FARGO BANK,
NATIONAL ASSOCIATION ("Bank").
RECITAL
Bank has provided certain credit accommodations to Borrower pursuant to
the terms and conditions contained in a credit agreement dated July 31, 1995, as
amended from time to time (the "Prior Agreement").
Borrower and Bank have agreed to amend and restate the Prior Agreement
pursuant to the terms and conditions that follow.
NOW, THEREFORE, Bank and Borrower hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
set forth after each, with such meanings to be equally applicable to the
singular and plural forms of the terms defined:
"Bankruptcy Code" means the Bankruptcy Reform Act, Title 11 of the
United States Code, as amended or recodified from time to time.
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"Business Day" means any day except a Saturday, Sunday or any other day
designated as a holiday under federal or California statute or regulation.
"Credits" means the Line of Credit and the Term Loan.
"Current Ratio" means total current assets, divided by total current
liabilities excluding the final balloon installment of the Term Loan to the
extent that such installment exceed the required monthly principal payment(s) in
the month prior to the maturity(ies) times 12 and are due within one (1) year
following the date as of which the Current Ratio is being determined.
"EBITDA Coverage Ratio" means the aggregate of net income after taxes
plus minority interests, depreciation, amortization and other non-cash expenses
plus interest expense plus tax provision divided by the aggregate of the current
portion of long-term debt plus interest expense. For the purpose of determining
the current portion of long term debt for the Term Loan to the extent that such
loans become due within one (1) year following the date as of which EBITDA
Coverage Ratio is being determined, the current portion to be used for this
covenant calculation shall be equal to the required monthly principal payment in
the month prior to the maturity times 12.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended or recodified from time to time.
"Events of Default" has the meaning set forth in Section 7.1 hereof.
"Letter of Credit" shall have the meaning ascribed to in Section
2.7(c).
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"Letter of Credit Agreement" means Bank's standard form Letter of
Credit Agreement.
"Line of Credit" means a revolving credit accommodation in the maximum
principal amount of $10,000,000.00 as more fully described in Section 2.7.
"Line of Credit Note" means the promissory note which evidences the
Line of Credit, in the form and content of Exhibit A, attached hereto.
"Loan Documents" means this Agreement, the Notes and each other
document, contract and instrument required by or at any time delivered to Bank
in connection with this Agreement.
"Notes" means the Line of Credit Note, and the Term Note.
"Prime Rate" means at any time the rate of interest most recently
announced within the Bank at its principal office in San Francisco as its Prime
Rate, with the understanding that the Bank's Prime Rate is one of its base rates
and serves as the basis upon which effective rates of interest are calculated
for those loans making reference thereto, and is evidenced by the recording
thereof in such internal publication or publications as the Bank may designate.
"Subordinated Debt" means indebtedness owed by Borrower or a third
party, which indebtedness has been subordinated to Borrower's obligations to
Bank pursuant to agreement in form and content acceptable to Bank.
"Tangible Net Worth" means the aggregate of total stockholders' equity
(including minority interests) less the aggregate of any treasury stock, any
acquisition intangibles or
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other intangible assets and any obligations due from stockholders, employees
and/or affiliates.
"Term Loan" means a credit accommodation in the original principal
amount of $5,855,000.00, as more fully described in Section 2.1 hereof.
"Term Note" means a promissory note executed by Borrower to evidence
the Term Loan, substantially in the form of Exhibit B, attached hereto.
ARTICLE II
THE CREDITS
Section 2.1. Term Loan.
(a) Term Loan. Bank agrees to make the Term Loan to Borrower in the
original principal amount of FIVE MILLION EIGHT HUNDRED FIFTY-FIVE THOUSAND
DOLLARS ($5,855,000.00), the proceeds of which shall be used to consolidate and
refinance the outstanding principal balances of Term Loans A, B and C granted
under the Prior Agreement.
Borrower's obligation to repay the Term Loan shall be evidenced by the
Term Note, all terms of which are incorporated herein by this reference.
(b) Repayment. The principal amount of the Term Loan shall be repaid in
accordance with the provisions of the Term Note.
(c) Prepayment. Borrower may prepay principal on the Term Loan solely
in accordance with the provisions of the Term Note.
(d) Interest. The outstanding principal balance of the Term Loan shall
bear interest at a rate(s) per annum as set forth in the Term Note.
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(e) Term Loan Commitment Fee. Borrower shall pay to Bank a
non-refundable commitment fee for the Term Loan equal to one-percent (1.00%) of
the original principal amount of the Term Loan, which commitment fee shall be
due and payable in full on the date of execution hereof.
Section 2.2. LINE OF CREDIT.
(a) Line of Credit. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to time up
to and including June 30, 1997, not to exceed at any time the aggregate
principal amount of TEN MILLION DOLLARS ($10,000,000.00) ("Line of Credit"), the
proceeds of which shall be used to assist with working capital requirements.
Borrower's obligation to repay advances under the Line of Credit shall be
evidenced by the Line of Credit Note.
(b) Borrowing and Repayment. Borrower may from time to time during the
term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all the limitations, terms and conditions
contained herein; provided however, that the total outstanding borrowings under
the Line of Credit (whether as advances, Letters of Credit or Foreign Exchange
Contracts) shall not at any time exceed the maximum principal amount available
thereunder, as set forth in this Agreement. In the event of acceleration by Bank
of the indebtedness owed to Bank by Xxxx Valley Vineyard, Borrower hereby
authorizes and instructs Bank to advance under the Line of Credit an amount
equal to the amount due from Borrower to Xxxx Valley Vineyard (the "EVV
Payable") and apply such amount to such indebtedness.
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(c) Letter of Credit Subfeature. As a subfeature under the Line of
Credit, Bank agrees from time to time up to and including June 30, 1997, to
issue for the account of Borrower commercial letters of credit for the purpose
of financing imported wine inventory and wine barrels (each individually a
"Letter of Credit" and collectively "Letters of Credit"); provided however, that
the form and substance of each Letter of Credit shall be subject to approval by
Bank, in its sole discretion; and provided further that the aggregate principal
amount of all outstanding Letters of Credit shall at no time exceed TWO HUNDRED
SEVENTY FIVE THOUSAND AND NO/100 DOLLARS ($275,000.00). Each Letter of Credit
shall be issued for a term as designated by Borrower; provided however, that no
Letter of Credit shall have an expiration date subsequent to September 30, 1997.
The outstanding amount of all Letters of Credit shall be reserved under the Line
of Credit and shall not be available for advances thereunder. Each Letter of
Credit shall be subject to the terms and conditions of this Agreement, the
Letter of Credit Agreement and related documents, if any, required by Bank in
connection with the issuance of such Letter of Credit. Each draft paid by Bank
under a Letter of Credit shall be deemed an advance under the Line of Credit and
shall be repaid by Borrower in accordance with the terms and conditions of this
Agreement applicable to such advances; provided however, that if the Line of
Credit is not available, for any reason whatsoever, at the time any draft is
paid by Bank, then the full amount of such draft shall be immediately due and
payable, together with interest thereon, from the date such amount is paid by
Bank to the date such amount is
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fully repaid by Borrower, at the rate of interest applicable to advances under
the Line of Credit. In such event, Borrower agrees that Bank, at Bank's sole
discretion, may debit Borrower's deposit account with Bank for the amount of any
such draft.
(d) Borrowing Base. Notwithstanding any other provision of this
Agreement, the aggregate amount of all outstanding borrowings (whether as
advances or Letters of Credit) under the Line of Credit shall not at any time
exceed a maximum of (i) eighty percent (80%) of Borrower's assigned eligible
accounts receivable, as determined by Bank upon receipt and review of such
collateral reports and other documents as Bank may require; plus (ii) fifty-five
percent (55%) of the value of Borrower's bulk wine inventory with value
determined in accordance with Bank's crush report; plus (iii) fifty percent
(50%) of the average FOB price of bottled domestic wine, but not to exceed
$50.00 per case; plus (iv) fifty percent (50%) of the value of bottled imported
wine, with such value limited to not more than $1,500,000.00 and defined as the
lower of cost or market value (in all instances, exclusive of work in process
and inventory which is obsolete, unsalable or damaged, as determined by Bank
upon receipt and review of said collateral reports and other documents); less
(v) the amount from time to time owed by Borrower to Xxxx Valley Vineyard. In no
event shall the outstanding principal balance of advances against inventory
exceed NINE MILLION THREE HUNDRED THOUSAND DOLLARS ($9,300,000.00).
Borrower acknowledges that the foregoing advance rate against eligible
accounts receivable was established by Bank with
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the understanding that, among other items, the aggregate of all returns,
rebates, discounts, credits and allowances for the immediately preceding three
(3) months at all times shall be less than five percent (5%) of Borrower's gross
sales for said period. If such dilution of Borrower's accounts for the
immediately preceding three (3) months at any time exceeds five percent (5%) of
Borrower's gross sales for said period, or if there at any time exists any other
matters, events, conditions or contingencies which Bank reasonably believes may
affect payment of any portion of Borrower's accounts, Bank, in its sole
discretion, may reduce said advance rate to a percentage appropriate to reflect
such additional dilution and/or establish additional reserves against Borrower's
eligible accounts receivable.
As used herein, "eligible accounts receivable" shall consist solely of
trade accounts which have been created in the ordinary course of Borrower's
business and upon which Borrower's right to receive payment is absolute and not
contingent upon the fulfillment of any condition whatsoever, and shall not
include:
(i) any account which is past due more than twice Borrower's
standard selling terms;
(ii) any account for which there exists any right of setoff,
defense or discount (except regular discounts allowed in the
ordinary course of business to promote prompt payment) or for
which any defense or counterclaim has been asserted;
(iii) any account which represents an obligation of any state or
municipal government or of the United
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States government or any political subdivision thereof (except
accounts which represent obligations of the United States
government and for which Bank's forms N-138 and N-139 have
been duly executed and acknowledged);
(iv) any account which represents an obligation of an account
debtor located in a foreign country;
(v) any account which arises from the sale or lease to or
performance of services for, or represents an obligation of,
an employee, affiliate, partner, parent or subsidiary of
Borrower;
(vi) that portion of any account which represents interim or
progress xxxxxxxx or retention rights on the part of the
account debtor;
(vii) any account which represents an obligation of any account
debtor when twenty percent (20%) or more of Borrower's
accounts from such account debtor are not eligible pursuant to
(i) above;
(viii) that portion of any account from an account debtor which
represents the amount by which Borrower's total accounts from
said account debtor exceeds twenty-five percent (25%) of
Borrower's total accounts; except for accounts from Pastornak
Wine Imports which represents the amount by which Borrower's
total accounts from Pastornak Wine Imports exceeds fifty
percent (50%) of Borrowers total accounts;
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(ix) any account deemed ineligible by Bank when 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.
Section 2.3. INTEREST/FEES - LINE OF CREDIT.
(a) Line of Credit. The outstanding principal balance of the Line of
Credit, or such portions thereof as Borrower shall designate, shall bear
interest at the rate(s) of interest set forth in the Line of Credit Note.
(b) Unused Commitment Fee. Borrower shall pay to Bank a fee equal to
one quarter of one percent (.25%) per annum (computed on the basis of a 360 day
year, actual days elapsed) on the average daily unused amount of the Line of
Credit, which fee shall be calculated on a monthly basis by Bank and shall be
due and payable by Borrower in arrears within five (5) days after each billing
is sent by Bank.
(c) Charges; Illegality. Borrower shall pay to Bank all costs for the
accounts receivable and inventory audits.
(d) Audit Fees. Borrower shall pay to Bank all costs for accounts
receivable and inventory audits.
(e) Letter of Credit Fees. Borrower shall pay to Bank fees upon the
issuance or amendment of each Letter of Credit and upon the payment by Bank of
each draft under any Letter of Credit determined in accordance with Bank's
standard fees and charges in effect at the time any Letter of Credit is issued
or amended or any draft is paid.
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Section 2.4. COMPUTATION OF INTEREST. Interest on the Credits shall be
computed on the basis of a 360-day year, actual days elapsed and shall be
payable at the times and places set forth in the Notes.
Section 2.5. PAYMENT OF PRINCIPAL/INTEREST/FEES. Bank shall, and
Borrower hereby authorizes Bank to, debit any demand deposit account of Borrower
with Bank for all payments of principal, interest and fees as they become due on
any of the Credits. Should, for any reason whatsoever, the funds in any such
demand deposit account be insufficient to pay all principal, interest and/or
fees when due, Borrower shall immediately upon demand remit to Bank the full
amount of any such deficiency.
Section 2.6. COLLATERAL. As security for all indebtedness of Borrower
to Bank pursuant to this Agreement, Borrower grants to Bank (i) security
interests of first priority in all Borrower's crops, farm products, equipment,
accounts receivable, general intangibles (including without limitation,
trademarks and trade names), other rights to payment, inventory and fixtures and
all proceeds of the foregoing; (ii) a lien of first priority on that certain
real property on the Chalone Winery located at Stone Wall Canyon Road, Monterey,
California; (iii) a lien of a first priority on Borrower's leasehold estate on
the Acacia Winery located at 0000 Xxx Xxxxxx Xxxx, Xxxx, Xxxxxxxxxx and
ownership interest in the improvements thereon; and (iv) a lien of first
priority on the Carmenet Vineyard located at 0000 Xxxx Xxxxxxxx Xxxx, Xxxxxx,
Xxxxxxxxxx. In addition, Borrower shall grant Bank a lien of second priority on
real property located at Los Amigos Vineyard, purchased in April, 1996 from
Beckstoffer Vineyards and
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located adjacent to the Acacia Winery. All of the foregoing shall be evidenced
by and subject to the terms of such documents as Bank shall reasonably require,
all in form and substance satisfactory to Bank. Borrower shall execute such
further documentation as Bank may from time to time require to further evidence
or perfect any security interest or lien on the collateral hereinabove
described. Borrower shall reimburse Bank, immediately upon demand, for all costs
and expenses incurred by Bank in connection with any of the foregoing security,
including without limitation filing and recording fees and costs of appraisals,
audits and title insurance.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Bank,
which representations and warranties shall survive the execution of this
Agreement and shall continue in full force and effect until the full and final
payment, and satisfaction and discharge, of all obligations of Borrower to Bank
subject to this Agreement.
Section 3.1. LEGAL STATUS. Borrower is a corporation duly organized and
existing and in good standing under the laws of the State of California, and is
qualified or licensed to do business, and is in good standing as a foreign
corporation, if applicable, in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower.
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Section 3.2. AUTHORIZATION AND VALIDITY. The Loan Documents have been
duly authorized, and upon their execution and delivery in accordance with the
provisions hereof will constitute legal, valid and binding agreements and
obligations of Borrower or the party which executes the same, enforceable in
accordance with their respective terms.
Section 3.3. NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any law
or regulation, or contravene any provision of its Articles of Incorporation or
By-laws, or result in a breach of or constitute a default under any contract,
obligation, indenture or other instrument to which Borrower is a party or by
which Borrower may be bound.
Section 3.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings before any governmental authority, arbitrator, court or
administrative agency which may adversely affect the financial condition or
operation of Borrower other than those disclosed by Borrower to Bank in writing
prior to the date hereof.
Section 3.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial
statement of Borrower dated June 30, 1996 heretofore delivered by Borrower to
Bank is complete and correct and presents fairly the financial condition of
Borrower; discloses all liabilities of Borrower that are required to be
reflected or reserved against under generally accepted accounting principles,
whether liquidated or unliquidated, fixed or contingent; and has been prepared
in accordance with generally accepted accounting
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principles consistently applied. Since the date of such financial statement
there has been no material adverse change in the financial condition of
Borrower, nor has Borrower mortgaged, pledged or granted a security interest or
encumbered any of its assets or properties except as disclosed by Borrower to
Bank in writing prior to the date hereof or as permitted by this Agreement.
Section 3.6. INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of its income tax payable with respect to any
year.
Section 3.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower is a party or by which Borrower may be
bound that requires the subordination in right of payment of any of Borrower's
obligations subject to this Agreement to any other obligation of Borrower.
Section 3.8. PERMITS, FRANCHISES. Borrower possesses, and will
hereafter possess, all permits, memberships, franchises, contracts and licenses
required and all trademark rights, trade names, trade name rights, patents,
patent rights and fictitious name rights necessary to enable it to conduct the
business in which it is now engaged without conflict with the rights of others.
Section 3.9. ERISA. Borrower is in compliance in all material respects
with all applicable provisions of ERISA; Borrower has not violated any provision
of any defined employee pension benefit plan (as defined in ERISA) maintained or
contributed to by Borrower (each, a "Plan"); no Reportable Event as defined in
ERISA has occurred and is continuing with respect
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to any Plan initiated by Borrower; Borrower has met its minimum funding
requirements under ERISA with respect to each Plan; and each Plan will be able
to fulfill its benefit obligations as they come due in accordance with the Plan
documents and under generally accepted accounting principles.
Section 3.10. OTHER OBLIGATIONS. Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
Section 3.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, Borrower is in compliance in all
material respects with all applicable environmental, hazardous waste, health and
safety statutes and regulations governing its operations and/or properties,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA), the Superfund Amendments and
Reauthorization Act of 1986 (XXXX), the Federal Resource Conservation and
Recovery Act of 1976, the Federal Toxic Substances Control Act and the
California Health and Safety Code. None of the operations of Borrower is the
subject of any federal or state investigation evaluating whether any remedial
action involving a material expenditure is needed to respond to a release of any
toxic or hazardous waste or substance into the environment. Borrower has no
material contingent liability in connection with any release of any toxic or
hazardous waste or substance into the environment.
Section 3.12. REAL PROPERTY COLLATERAL. Except as disclosed by Borrower
to Bank in writing prior to the date
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hereof, with respect to any real property collateral required hereby:
(a) All taxes, governmental assessments, insurance premiums, and water,
sewer and municipal charges, and rents (if any) which previously became due and
owing in respect thereof have been paid as of the date hereof.
(b) There are no mechanics' or similar liens or claims which have been
filed for work, labor or material (and no rights are outstanding that under law
could give rise to any such lien) which affect all or any interest in any such
real property and which are or may be prior to or equal to the lien thereon in
favor of Bank.
(c) None of the improvements which were included for purpose of
determining the appraised value of any such real property lies outside of the
boundaries and/or building restriction lines thereof, and no improvements on
adjoining properties materially encroach upon any such real property.
(d) There is no pending, or to the best of Borrower's knowledge
threatened, proceeding for the total or partial condemnation of all or any
portion of any such real property, and all such real property is in good repair
and free and clear of any damage that would materially and adversely affect the
value thereof as security and/or the intended use thereof.
ARTICLE IV
CONDITIONS
Section 4.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation
of Bank to grant any of the Credits is subject to
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the fulfillment to Bank's satisfaction of all of the following conditions:
(a) Approval of Bank Counsel. All legal matters incidental to the
granting of each of the Credits shall be satisfactory to counsel of Bank.
(b) Documentation. Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Notes.
(ii) Acknowledgment of Security Interest.
(iii) Waiver of Landlord.
(iv) Security Agreement (Equipment & Fixtures).
(v) Security Agreement (Farm Products & Timber).
(vi) Security Agreement - Rights to Payment and
Inventory.
(vii) Consent by Lessor of Real Property.
(viii) Amended and Restated Deed of Trust.
(ix) Such other documents as Bank may require under any
other section of this Agreement.
(c) Insurance. Borrower shall have delivered to Bank evidence of
insurance coverage on all Borrower's property, covering risks, in amounts,
issued by companies and in form and substance satisfactory to Bank, and where
required by Bank, with loss payable endorsements in favor of Bank.
(d) Financial Condition. There shall have been no material adverse
change, as determined by Bank, in the financial condition or business of
Borrower, nor any material decline, as determined by Bank, in the market value
of any collateral required hereunder or a substantial or material portion of the
assets of Borrower.
Section 4.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
Bank to make each extension of credit requested by
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Borrower hereunder shall be subject to the fulfillment to Bank's satisfaction of
each of the following conditions:
(a) Compliance. The representations and warranties contained herein
shall be true on and as of the date of the signing of this Agreement and on the
date of each extension of credit by Bank pursuant hereto, with the same effect
as though such representations and warranties had been made on and as of each
such date, and on each such date, no Event of Default as defined herein, and no
condition, event or act which with the giving of notice or the passage of time
or both would constitute such an Event of Default, shall have occurred and be
continuing or shall exist.
(b) Documentation. Bank shall have received all additional documents
which may be required in connection with such extension of credit.
ARTICLE V
AFFIRMATIVE COVENANTS
Borrower covenants that so long as any of the Credits remain available
or any liabilities (whether direct or contingent, liquidated or unliquidated) of
Borrower to Bank under any of the Loan Documents remain outstanding, and until
payment in full of all obligations of Borrower subject hereto, Borrower shall:
Section 5.1. PUNCTUAL PAYMENTS. Punctually pay the interest and
principal on each of the Loan Documents requiring any such payments at the times
and place and in the manner specified therein, and any fees or other liabilities
due under
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any of the Loan Documents at the times and place and in the manner specified
therein.
Section 5.2. ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time, to inspect, audit
and examine such books and records, to make copies of the same, and to inspect
the properties of Borrower.
Section 5.3. FINANCIAL STATEMENTS. Provide to Bank all of the
following, in form and detail satisfactory to Bank:
(a) not later than 120 days after and as of the end of each fiscal
year, an audited, unqualified financial statement of Borrower, prepared by a
certified public accountant acceptable to Bank, to include balance sheet, income
statement and statement of cash flow and all footnotes;
(b) not later than 45 days after and as of the end of each month, a
financial statement of Borrower, prepared by Borrower and signed by either the
Chief Financial Officer or the Controller, to include balance sheet, income
statement and statement of cash flows, all in form and substance acceptable to
Bank;
(c) not later than 30 days after and as of the end of each month, an
aged listing of accounts receivable and accounts payable, and of reconciliation
of accounts (Bank form CMS-505), together with an inventory designation
statement;
(d) not later than 45 days after and as of the end of each quarter, an
inventory report listing inventory by winery;
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(e) from time to time such other information as Bank may reasonably
request.
Section 5.4. COMPLIANCE. Maintain all licenses, permits, governmental
approvals, rights, privileges and franchises necessary for the conduct of its
business; conduct its business in an orderly and regular manner; and comply with
the provisions of all documents pursuant to which Borrower is organized and/or
which govern Borrower's continued existence and with the requirements of all
laws, rules, regulations and orders of any governmental authority applicable to
Borrower or its business.
Section 5.5. INSURANCE. Maintain and keep in force insurance of the
types and in amounts customarily carried in lines of business similar to
Borrower's, including but not limited to fire, extended coverage, public
liability, property damage and workers, compensation, carried with companies and
in amounts satisfactory to Bank, and deliver to Bank from time to time at Bank's
request schedules setting forth all insurance then in effect.
Section 5.6. FACILITIES. Keep all Borrower's properties useful or
necessary to Borrower's business in good repair and condition, and from time to
time make necessary repairs, renewals and replacements thereto so that
Borrower's properties shall be fully and efficiently preserved and maintained.
Section 5.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due
any and all indebtedness, obligations, assessments and taxes, both real or
personal and including federal and state income taxes, except such as Borrower
may in good faith contest or as to which a bona fide dispute may arise,
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provided provision is made to the satisfaction of Bank for eventual payment
thereof in the event that it is found that the same is an obligation of
Borrower.
Section 5.8. LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or threatened against Borrower in excess of $500,000.00.
Section 5.9. FINANCIAL CONDITION. Maintain Borrower's financial
condition as follows using generally accepted accounting principles consistently
applied and used consistently with prior practices, except to the extent
otherwise set forth in this Agreement:
(a) Current Ratio not at any time less than 1.50 to 1.0, with "Current
Ratio" defined as in Article I.
(b) Tangible Net Worth plus Subordinated Debt not at any time less than
$48,000,000.00, with "Tangible Net Worth" and "Subordinated Debt" defined as in
Article I.
(c) Total Liabilities divided by Tangible Net Worth plus Subordinated
Debt not at any time greater than .65 to 1.0, with "Total Liabilities" defined
as the aggregate of current liabilities and non-current liabilities less
subordinated debt, and with "Tangible Net Worth" defined as in Article I.
(d) EBITDA Coverage Ratio not less than 1.5 to 1.0 on a rolling four
(4) quarter basis, determined as of each fiscal quarter end with EBITDA Coverage
Ratio defined as in Article I.
(e) Fiscal year end pre-tax income not less than $100,000.00 determined
as of each fiscal year end.
(f) 12 Month Sales (defined as bona fide arms length sales of finished
cased goods on a trailing twelve (12) month basis)
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not less than 200,000 cases, determined as of the last day of each month.
Section 5.10. NOTICE TO BANK. Promptly (but in no event more than five
(5) days after the occurrence of each such event or matter) give written notice
to Bank in reasonable detail of:
(a) the occurrence of any Event of Default, or any condition, event or
act which with the giving of notice or the passage of time or both would
constitute such an Event of Default; (b) any change in the name or the
organizational structure of Borrower; (c) the occurrence and nature of any
Reportable Event or Prohibited Transaction, each as defined in ERISA, or any
funding deficiency with respect to any Plan; or (d) any termination or
cancellation of any insurance policy which Borrower is required to maintain, or
any uninsured or partially uninsured loss through liability or property damage,
or through fire, theft or any other cause affecting Borrower's property in
excess of an aggregate of $500,000.00.
ARTICLE VI
NEGATIVE COVENANTS
Borrower further covenants that so long as any of the Credits remains
available or any liabilities (whether direct or contingent, liquidated or
unliquidated) of Borrower to Bank under any of the Loan Documents remain
outstanding, and until payment in full of all obligations of Borrower subject
hereto, Borrower will not without the prior written consent of Bank:
22
Section 6.1. USE OF FUNDS. Use any of the proceeds of any of the
Credits except for the purposes stated in Article II hereof.
Section 6.2. CAPITAL EXPENDITURES. Make any additional investment in
fixed assets in excess of an aggregate of $5,800,000.00 in fiscal year ending
December 31, 1996 and $2,700,000.00 in any fiscal year thereafter.
Section 6.3. OTHER INDEBTEDNESS. Create, incur, assume or permit to
exist any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) liabilities of Borrower to Bank; (b)
any other liabilities of Borrower existing as of, and disclosed to Bank in
writing prior to, the date hereof; (c) financing for Canoe Ridge Winery, LLC and
CanoeCo Partners not to exceed $1,500,000.00 in aggregate; and (d) indebtedness
in the principal amount of $1,000,000.00 incurred to purchase land contiguous to
the Acacia Vineyard.
Section 6.4. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances
to or investments in any person or entity, except for Borrower's investments to
date in Xxxx Valley Vineyards, CanoeCo Partners, Canoe Ridge Winery, LLC,
Borrower's investment in Xxxxxx-Xxxxx and loans, advances or investments
required in accordance with Joint Venture Agreements of Xxxx Valley Vineyards
and CanoeCo Partners existing as of the date hereof.
Section 6.5. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to
exist a security interest in, or lien upon, all or any portion of Borrower's
assets now owned or hereafter acquired,
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except (a) any of the foregoing in favor of Bank; (b) any of the foregoing which
is existing as of, and disclosed to Bank in writing prior to, the date hereof;
(c) liens granted in connection with capitalized leases entered into by Borrower
in the ordinary course of business; and (d) a lien on the land contiguous to the
Acacia Vineyard to secure the indebtedness described in 6.3(d) above.
ARTICLE VII
EVENTS OF DEFAULT
Section 7.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal, interest, fees
or other amounts payable under any of the Loan Documents.
(b) Any financial statement or certificate furnished to Bank in
connection with this Agreement or any representation or warranty made by
Borrower hereunder shall prove to be false, incorrect or incomplete in any
material respect when furnished or made.
(c) Any default in the performance of or compliance with any
obligation, agreement or other provision contained herein (other than those
referred to in subsections (a) and (b) above), and with respect to any such
default which by its nature can be cured, such default shall continue for a
period of twenty (20) days from its occurrence.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of
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any contract or instrument (other than any of the Loan Documents) pursuant to
which Borrower or Xxxx Valley Vineyards has incurred any debt or other liability
to any person or entity, including Bank.
(e) Any default in the payment or performance of any obligation, or any
defined event of default, under any of the Loan Documents other than this
Agreement.
(f) The filing of a notice of judgment lien against Borrower; or the
recording of any abstract of judgment against Borrower in any county in which
Borrower has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against the
assets of Borrower; or the entry of a judgment against Borrower.
(g) Borrower shall become insolvent, or shall suffer or consent to or
apply for the appointment of a receiver, trustee, custodian or liquidator of
itself or any of its property, or shall generally fail to pay its debts as they
become due, or shall make a general assignment for the benefit of creditors;
Borrower shall file a voluntary petition in bankruptcy, or seeking
reorganization, in order to effect a plan or other arrangement with creditors or
any other relief under the Bankruptcy Code, or under any state or federal law
granting relief to debtors, whether now or hereafter in effect; or any
involuntary petition or proceeding pursuant to the Bankruptcy Code or any other
applicable state or federal law relating to bankruptcy, reorganization or other
relief for debtors is filed or commenced against Borrower, or Borrower shall
file an answer admitting the jurisdiction of the court and the material
25
allegations of any involuntary petition; or Borrower shall be adjudicated a
bankrupt, or an order for relief shall be entered by any court of competent
jurisdiction under the Bankruptcy Code or any other applicable state or federal
law relating to bankruptcy, reorganization or other relief for debtors.
(h) There shall exist or occur any event or condition which Bank in
good faith believes impairs, or is substantially likely to impair, the prospect
of payment or performance by Borrower of its obligations under any of the Loan
Documents.
(i) The dissolution or liquidation of Borrower; or Borrower, or any of
its directors, stockholders or members, shall take action seeking to effect the
dissolution or liquidation of Borrower.
Section 7.2. REMEDIES. If an Event of Default shall occur, (a) any
indebtedness of Borrower under any of the Loan Documents, any term thereof to
the contrary notwithstanding, shall at Bank's option and without notice become
immediately due and payable without presentment, demand, protest or notice of
dishonor, all of which are hereby expressly waived by Borrower; (b) the
obligation, if any, of Bank to permit further borrowings hereunder shall
immediately cease and terminate; and (c) Bank shall have all rights, powers and
remedies available under each of the Loan Documents, or accorded by law,
including without limitation the right to resort to any or all security for any
of the Credits and to exercise any or all of the rights of a beneficiary or
secured party pursuant to applicable law. All rights, powers and remedies of
Bank in connection with each of the Loan Documents may be exercised at any time
by Bank and from
26
time to time after the occurrence of an Event of Default, are cumulative and not
exclusive, and shall be in addition to any other rights, powers or remedies
provided by law or equity.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Bank of any breach of or default under any of the Loan Documents must be
in writing and shall be effective only to the extent set forth in such writing.
Section 8.2. NOTICES. All notices, requests and demands which any party
is required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:
BORROWER: THE CHALONE WINE GROUP, LTD.
000 Xxxxxxx Xxxx
Xxxx, XX 00000
Attention: Xxxxxxx Xxxxxxxx, EVP & CFO
BANK: XXXXX FARGO BANK, NATIONAL ASSOCIATION
Xxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Attention: Xxxxx O'Melveny, VP
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and
27
demand shall be deemed given or made as follows: (a) if sent by hand delivery,
upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or
three (3) days after deposit in the U.S. mail, first class and postage prepaid;
and (c) if sent by telecopy, upon receipt.
Section 8.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full amount of all costs and expenses,
including reasonable attorneys, fees (to include outside counsel fees and all
allocated costs of Bank's in-house counsel), incurred by Bank in connection with
(a) the negotiation and preparation of this Agreement and each other of the Loan
Documents, Bank's continued administration hereof and thereof, and the
preparation of amendments and waivers hereto and thereto, (b) the enforcement of
Bank's rights and/or the collection of any amounts which become due to Bank
under any of the Loan Documents, and (c) the prosecution or defense of any
action in any way related to any of the Loan Documents, including without
limitation any action for declaratory relief.
Section 8.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding on
and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without the prior
written consent of Bank. Bank reserves the right to sell, assign, transfer,
negotiate or grant participations in all or any part of, or any interest in,
Bank's rights and benefits under each of the Loan Documents. In connection
therewith, Bank may disclose all documents and information which Bank now has or
may hereafter
28
acquire relating to any of the Credits, Borrower or its business, or any
collateral required hereunder.
Section 8.5. ENTIRE AGREEMENT, AMENDMENT. This Agreement and each other
of the Loan Documents constitute the entire agreement between Borrower and Bank
with respect to the Credits and supersede all prior negotiations,
communications, discussions and correspondence concerning the subject matter
hereof. This Agreement may be amended or modified only by a written instrument
executed by each party hereto.
Section 8.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the Loan Documents
to which it is not a party.
Section 8.7. TIME. Time is of the essence of each and every provision
of this Agreement and each other of the Loan Documents.
Section 8.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
Section 8.9. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, except to the
extent that Bank has greater
29
rights or remedies under Federal law, whether as a national bank or otherwise,
in which case such choice of California law shall not be deemed to deprive Bank
of such rights and remedies as may be available under Federal law.
SECTION 8.10. ARBITRATION.
(a) Arbitration. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this Agreement. A "Dispute" shall mean any action, dispute,
claim or controversy of any kind, whether in contract or tort, statutory or
common law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, this Agreement and the other Loan
Documents, or any past, present or future extensions of credit and other
activities, transactions or obligations of any kind related directly or
indirectly to this Agreement or any of the Loan Documents, including without
limitation, any of the foregoing arising in connection with the exercise of any
self-help, ancillary or other remedies pursuant to this Agreement or any of the
Loan Documents. Any party may by summary proceedings bring an action in court to
compel arbitration of a Dispute. Any party who fails or refuses to submit to
arbitration following a lawful demand by any other party shall bear all costs
and expenses incurred by such other party in compelling arbitration of any
Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by
the American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All
30
Disputes submitted to arbitration shall be resolved in accordance with the
Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any
conflicting choice of law provision in any of the Documents. The arbitration
shall be conducted at a location in California selected by the AAA or other
administrator. If there is any inconsistency between the terms hereof and any
such rules, the terms and procedures set forth herein shall control. All
statutes of limitation applicable to any Dispute shall apply to any arbitration
proceeding. All discovery activities shall be expressly limited to matters
directly relevant to the Dispute being arbitrated. Judgment upon any award
rendered in an arbitration may be entered in any court having jurisdiction;
provided however, that nothing contained herein shall be deemed to be a waiver
by any party that is a bank of the protections afforded to it under 12 U.S.C.
ss.91 or any similar applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration or reference hereunder.
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(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive law
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may grant
any remedy or relief that a court of the state of California could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award, and (iii) shall have the power to award recovery of all
costs and fees, to impose sanctions and to take such other actions as they deem
necessary to the same extent a judge could pursuant to the Federal Rules of
Civil Procedure, the California Rules of Civil Procedure or other applicable
law. Any Dispute in which the amount in controversy is $5,000,000 or less shall
be decided by a single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By submission to a
single arbitrator, each party expressly waives any right or claim to recover
more than $5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three arbitrators;
provided however, that all three arbitrators must actively participate in all
hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to the contrary,
in any arbitration in which the amount in
32
controversy exceeds $25,000,000, the arbitrators shall be required to make
specific, written findings of fact and conclusions of law. In such arbitrations
(A) the arbitrators shall not have the power to make any award which is not
supported by substantial evidence or which is based on legal error, (B) an award
shall not be binding upon the parties unless the findings of fact are supported
by substantial evidence and the conclusions of law are not erroneous under the
substantive law of the state of California, and (C) the parties shall have in
addition to the grounds referred to in the Federal Arbitration Act for vacating,
modifying or correcting an award the right to judicial review of (1) whether the
findings of fact rendered by the arbitrators are supported by substantial
evidence, and (2) whether the conclusions of law are erroneous under the
substantive law of the state of California. Judgment confirming an award in such
a proceeding may be entered only if a court determines the award is supported by
substantial evidence and not based on legal error under the substantive law of
the state of California.
(f) Real Property Collateral; Judicial Reference. Notwithstanding
anything herein to the contrary, no Dispute shall be submitted to arbitration if
the Dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all
33
mortgages, liens and security interests securing such indebtedness and
obligations, shall remain fully valid and enforceable. If any such Dispute is
not submitted to arbitration, the Dispute shall be referred to a referee in
accordance with California Code of Civil Procedure Section 638 et seq., and this
general reference agreement is intended to be specifically enforceable in
accordance with said Section 638. A referee with the qualifications required
herein for arbitrators shall be selected pursuant to the AAA's selection
procedures. Judgment upon the decision rendered by a referee shall be entered in
the court in which such proceeding was commenced in accordance with California
Code of Civil Procedure Sections 644 and 645.
(g) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Documents or the subject matter of the Dispute shall
control. This arbitration provision shall survive termination, amendment or
expiration of any of this Agreement and the Loan Documents or any relationship
between the parties.
34
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
XXXXX FARGO BANK,
THE CHALONE WINE GROUP, LTD. NATIONAL ASSOCIATION
By: /s/ Xxxxxxx X. Xxxxxxxx By: /s/ Xxxxx O'Melveny
---------------------------- ------------------------
Xxxxxxx X. Xxxxxxxx Xxxxx O'Melveny
Chief Financial Officer/ Vice President
Executive Vice President
35
