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Accounts Receivable Credit Agreement

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ACCOUNTS RECEIVABLE CREDIT AGREEMENT


This Accounts Receivable Credit Agreement (the "Agreement") is made and entered into as of this ____ day of April, 1998, by and between SANWA BANK CALIFORNIA (the "Bank") and GOLDEN STATE VINTNERS (the "Borrower"), on the terms and conditions that follow:s


SECTION 1


DEFINITIONS


1.01 CERTAIN DEFINED TERMS: Unless elsewhere defined in this Agreement, the following terms shall have the following meanings (such meanings to be generally applicable to the singular and plural forms of the terms defined):


(a) "ACCEPTABLE INVENTORY": shall mean inventory consisting of bulk wine and bottled wine as cased goods, but EXCLUDING: (i) inventory which is not owned by the Borrower free and clear of all security interests, liens, encumbrances or claims of any third party, excluding permitted liens; (ii) inventory which is not permanently located in the State of California; (iii) inventory which the Bank, in its sole discretion, deems to be obsolete, unsalable, damaged, defective or unfit for further processing; (iv) inventory that is used in the winery tasting room; (v) inventory which consists of bottled wine in the Borrower's possession more than 15 months from the date of bottling; (vi) inventory which consists of bulk red wine in the Borrower's possession more than 36 months; and (vii) inventory which consists of bulk white wine in the Borrower's possession more than 24 months.


(b) "ACCOUNT DEBTOR": shall mean the person or entity obligated to the Borrower upon an account.


(c) "ADVANCE": shall mean an advance to the Borrower under the Line of Credit.


(d) "BORROWING BASE": shall mean, as determined by the Bank from time to time, the lesser of: (i)the sum of (a) 80% of the aggregate amount of Eligible Accounts of the Borrower, plus (b) 65% of the lesser of actual costs incurred in connection with growing crops or projected costs of growing crops as reflected on the Crop Budget, plus (c) 50% of the Value of Acceptable Inventory; or (ii) $22,500,000.


(e) "BUSINESS DAY": shall mean a day other than a Saturday or Sunday on which commercial banks are open for business in California.


(f) "COLLATERAL": shall mean the property described in Section 4.01, together with any other personal or real property in which the Bank may be granted a lien or security interest to secure payment of the Obligations.


(g) "CROP BUDGET": shall mean the crop budget dated ________ for the crop production year commencing on November 1, 1997and ending on October 31, 1998 (the "Current Crop Year, which budget is attached hereto as Exhibit "A" (the "Crop Budget").


(h) "DEBT": shall mean, on a consolidated basis with Golden State Acquisition Corp., all liabilities of the Borrower less Subordinated Debt.


(i) "EFFECTIVE TANGIBLE NET WORTH": shall mean, on a consolidated basis with Golden State Acquisition Corp., the Borrower's stated net worth plus Subordinated Debt but less all intangible assets (other than goodwill) of the Borrower (i.e., trademarks, patents, copyrights, organization expense and similar intangible items).


(j) "ELIGIBLE ACCOUNT": shall mean, at any time, the gross amount, less returns, discounts, credits or offsets of any nature, of the trade accounts owing to the Borrower by Account Debtors containing selling terms not exceeding 30 days or extended selling terms not exceeding equal installments of 30, 60 and 90 days by any Account Debtor but excluding the following:


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(1) Accounts with respect to which the Account Debtor is an officer, employee or agent of the Borrower.


(2) Accounts with respect to which goods are placed on consignment, guarantied sale or other terms by reason of which the payment by the Account Debtor may be conditional.


(3) Accounts with respect to which the Account Debtor is not a resident of the United States except Cardia Brights of Canada and except to the extent such accounts are supported by adequate Eximbank insurance or other insurance acceptable to the Bank or by irrevocable letters of credit issued by banks satisfactory to the Bank.


(4) Accounts with respect to which the Account Debtor is the United States or any department or agency thereof.


(5) Accounts with respect to which the Account Debtor is a subsidiary of, or affiliated with, the Borrower or its shareholders, officers or directors.


(6) Accounts with respect to which the Borrower is or may become liable to the Account Debtor for goods sold or services rendered by the Account Debtor to the Borrower.


(7) That portion of the accounts of any single Account Debtor that exceeds 15% of all of the Borrower's accounts, other than the following Account Debtors: Heublein, Wine World (Beringer), Sebastiani, Sutter Home, Gallo Winery, Kendall Jackson Winery, Canandaigua Wine Company, Cardia Brights, and Vie-Del.


(8) Accounts which have not been paid in full within 60 days from the date payment was due or 90 days from the original date of invoice, whichever is less.


(9) All accounts of any single Account Debtor if 25% or more of the dollar amount of all such accounts are represented by accounts which have not been paid in full within 60 days from the date payment was due or 90 days from the original date of invoice, whichever is less.


(10) Accounts which are subject to dispute, counterclaim or setoff.


(11) Accounts with respect to which the goods have not been shipped or delivered, or the services have not been rendered, to the Account Debtor.


(12) Accounts with respect to which the Bank, in its sole discretion, deems the creditworthiness or financial condition of the Account Debtor to be unsatisfactory.


(13) Accounts of any Account Debtor who has filed or had filed against it a petition in bankruptcy, or an application for relief under any provision of any state or federal bankruptcy, insolvency or debtor-in-relief acts; or who has had appointed a trustee, custodian or receiver for the assets of such Account Debtor; or who has made an assignment for the benefit of creditors or has become insolvent or fails generally to pay its debts (including its payrolls) as such debts become due.


(k) "ERISA": shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, including (unless the context otherwise requires) any rules or regulations promulgated thereunder.


(l) "EVENT OF DEFAULT": shall have the meaning set forth in Section 8.


(m) "EXPIRATION DATE": shall mean March 5, 1999, or the date of termination of the Bank's commitment to lend under this Agreement pursuant to Section 8, whichever shall occur first.


(n) "INDEBTEDNESS": shall mean, with respect to the Borrower, (i) all indebtedness for borrowed money or for the deferred purchase price of property or services in respect of which the Borrower is liable, contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which the Borrower otherwise assures a creditor against loss and (ii) obligations under leases which shall have been or should be, in accordance with generally accepted accounting principles, reported as capital leases in respect of which the Borrower is liable, contingently or otherwise, or in respect of which the Borrower otherwise assures a creditor against loss.


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(o) "LINE OF CREDIT": shall mean the credit facility described in Section 2.


(p) "OBLIGATIONS": shall mean all amounts owing by the Borrower to the Bank pursuant to this Agreement including, but not limited to, the unpaid principal amount of Advances.


(q) "PERMITTED LIENS": shall mean: (i) liens and security interests securing indebtedness owed by the Borrower to the Bank; (ii) liens for taxes, assessments or similar charges either not yet due or being contested in good faith; (iii) liens of materialmen, mechanics, warehousemen, carriers or grape suppliers or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (iv) purchase money liens or purchase money security interests upon or in any property acquired or held by the Borrower in the ordinary course of business to secure Indebtedness outstanding on the date hereof or permitted to be incurred under Section 7.09 hereof; (v) liens and security interests which, as of the date hereof, have been disclosed to and approved by the Bank in writing; (vi) liens and encumbrances securing indebtedness of up to $45,000,000 owed to other financial institutions; (vii) liens and security interests in connection with capital expenditures of up to $6,000,000 in any one fiscal year, excluding any capital expenditures associated with grafting and or planting programs; and (viii) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of the Borrower's assets.


(r) "REFERENCE RATE": shall mean an index for a variable interest rate which is quoted, published or announced from time to time by the Bank as its reference rate and as to which loans may be made by the Bank at, below or above such reference rate.


(s) "SUBORDINATED DEBT": shall mean such liabilities of the Borrower which have been subordinated to those owed to the Bank in a manner acceptable to the Bank.


(t) "VALUE": shall mean the lesser of the Borrower's cost of Acceptable Inventory or the wholesale market value thereof in such quantities and on such terms as the Bank in its sole discretion may deem appropriate, less any grower payables.


1.02 ACCOUNTING TERMS: All references to financial statements, assets, liabilities, and similar accounting items not specifically defined herein shall mean such financial statements or such items prepared or determined in accordance with generally accepted accounting principles consistently applied and, except where otherwise specified, all financial data submitted pursuant to this Agreement shall be prepared in accordance with such principles.


1.03 OTHER TERMS: Other terms not otherwise defined shall have the meanings attributed to such terms in the California Commercial Code.


SECTION 2


THE LINE OF CREDIT


2.01 THE LINE OF CREDIT: On terms and conditions as set forth herein, the Bank agrees to make Advances to the Borrower from time to time from the date hereof to the Expiration Date, provided the aggregate amount of such Advances outstanding at any time does not exceed the Borrowing Base. Within the foregoing limits, the Borrower may borrow, partially or wholly prepay, and reborrow under this Section 2.01.


2.02 MAKING LINE ADVANCES: Each Advance shall be conclusively deemed to have been made at the request of and for the benefit of the Borrower (i) when credited to any deposit account of the Borrower maintained with the Bank or (ii) when paid in accordance with the Borrower's written instructions. Subject to the requirements of Section 4, Advances shall be made by the Bank upon telephonic or written request in form acceptable to the Bank received from the Borrower, which request shall be received not later than 2:30 p.m. (California time) on the date specified for such Advance, which date shall be a Business Day. Requests for Advances received after such time may, at the Bank's option, be deemed to be a request for an Advance to be made on the next succeeding Business Day.


2.03 MANDATORY REPAYMENTS:


(a) If at any time the aggregate principal amount of the outstanding Advances shall exceed the applicable Borrowing Base, the Borrower hereby promises and agrees, immediately upon written or telephonic notice from the Bank, to


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pay to the Bank an amount equal to the difference between the outstanding principal balance of the Advances and the Borrowing Base.


(b) On the Expiration Date, the Borrower hereby promises and agrees to pay to the Bank in full the aggregate unpaid principal amount of all Advances then outstanding, together with all accrued and unpaid interest thereon.


2.04 INTEREST ON ADVANCES: Interest shall accrue from the date of each Advance under the Line of Credit at one of the following rates, as quoted by the Bank and as elected by the Borrower pursuant to paragraph 2.05 or paragraph 2.06 below:


1. VARIABLE RATE ADVANCES: A variable rate equivalent to the Reference Rate per annum (the "Variable Rate"). Interest shall be adjusted concurrently with any change in the Reference Rate. An Advance based upon the Variable Rate is hereinafter referred to as a "Variable Rate Advance".


2. FIXED RATE ADVANCES: A fixed rate quoted by the Bank for 30, 60, 90, 120, 180 or 360 days or for such other period of time that the Bank may quote and offer (provided that any such period of time does not extend beyond the Expiration Date) [the "Interest Period"] for Advances in the minimum amount of $250,000 and in $250,000 increments thereafter. Such interest rate shall be a percentage approximately equivalent to 1.70% in excess of the rate which the Bank determines in its sole and absolute discretion to be equal to the Bank's cost of acquiring funds (adjusted for any and all assessments, surcharges and reserve requirements pertaining to the Bank's borrowing or purchase of such funds) in an amount approximately equal to the amount of the relevant Advance and for a period of time approximately equal to the relevant Interest Period (the "Fixed Rate"). An Advance based upon the Fixed Rate is hereinafter referred to as a "Fixed Rate Advance".


3. EURODOLLAR ADVANCES: A fixed rate quoted by the Bank for 30, 60, 90, 120, or 180 days or for such other period of time that the Bank may quote and offer (provided that any such period of time does not extend beyond the Expiration Date) [the "Eurodollar Interest Period"] for Advances in the minimum amount of $250,000 and in $250,000 increments thereafter. Such interest rate shall be a percentage approximately equivalent to 1.70% in excess of the Bank's Eurodollar Rate which is that rate determined by the Bank's Treasury Desk as being the approximate rate at which the Bank could purchase offshore U.S. dollar deposits in an amount approximately equal to the amount of the relevant Advance and for a period of time approximately equal to the relevant Eurodollar Interest Period (adjusted for any and all assessments, surcharges and reserve requirements pertaining to the purchase by the Bank of such U.S. dollar deposits) [the "Eurodollar Rate"]. An Advance based upon the Eurodollar Rate is hereinafter referred to as the "Eurodollar Advance".


Interest on any Advance shall be computed on the basis of 360 days per year, but charged on the actual number of days elapsed.


Interest on Variable Rate Advances, Eurodollar Advances and Fixed Rate Advances shall be paid in monthly installments commencing on the fifth day of the month following the date of the first such Advance and continuing on the fifth day of each month thereafter.


If interest is not paid as and when it is due, it shall be added to the principal, become and be treated as a part thereof, and shall thereafter bear like interest.


2.05 NOTICE OF ELECTION TO ADJUST INTEREST RATE: The Borrower may elect:


1. That interest on a Variable Rate Advance shall be adjusted to accrue at the Fixed Rate or the Eurodollar Rate; provided, however, that such notice shall be received by the Bank no later than the same business day as the day (which shall be a business day) on which the Borrower requests that interest be adjusted to accrue at the Fixed Rate.


2. That interest on a Fixed Rate Advance or Eurodollar Advance shall continue to accrue at a newly quoted Fixed Rate or Eurodollar Rate or shall be adjusted to commence to accrue at the Variable Rate; provided, however, that such notice shall be received by the Bank no later than two business days prior to the last day of the Interest Period pertaining to such Fixed Rate Advance. If the Bank shall not have received notice (as prescribed herein) of the Borrower's election that interest on any Fixed Rate Advance or Eurodollar Rate shall continue to accrue at the newly quoted Fixed Rate or Eurodollar Rate as the case may be the Borrower shall be deemed to have elected that interest thereon shall be adjusted to accrue at the Variable Rate upon the expiration of the relevant Interest Period or Eurodollar Interest Period


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pertaining to such Advance.


2.06 PREPAYMENT: The Borrower may prepay any Advance in whole or in part, at any time and without penalty, provided, however, that: (i) any partial prepayment shall first be applied, at the Bank's option, to accrued and unpaid interest and next to the outstanding principal balance; and (ii) during any period of time in which interest is accruing on any Advance on the basis of the Fixed Rate or Eurodollar Rate, no prepayment shall be made except on a day which is the last day of the Interest Period or Eurodollar Interest Period pertaining thereto. If the whole or any part of any Fixed Rate Advance or Eurodollar Advance is prepaid by reason of acceleration or otherwise, the Borrower shall, upon the Bank's request, promptly pay to and indemnify the Bank for all costs and any loss (including interest) actually incurred by the Bank and any loss (including loss of profit resulting from the re-employment of funds) sustained by the Bank as a consequence of such prepayment.


2.07 INDEMNIFICATION FOR FIXED RATE AND EURODOLLAR RATE COSTS: During any period of time in which interest on any Advance is accruing on the basis of the Fixed Rate or the Eurodollar Rate the Borrower shall, upon the Bank's request, promptly pay to and reimburse the Bank for all costs incurred and payments made by the Bank by reason of any future assessment, reserve, deposit or similar requirement or any surcharge, tax or fee imposed upon the Bank or as a result of the Bank's compliance with any directive or requirement of any regulatory authority pertaining or relating to funds used by the Bank in quoting and determining the Fixed Rate or Eurodollar Rate.


2.08 CONVERSION FROM FIXED RATE OR EURODOLLAR RATE TO VARIABLE RATE: In the event that the Bank shall at any time determine that the accrual of interest on the basis of the Fixed Rate or Eurodollar Rate (i) is infeasible because the Bank is unable to determine the Fixed Rate or Eurodollar Rate due to the unavailability of U.S. dollar deposits, contracts or certificates of deposit in an amount approximately equal to the amount of the relevant Advance and for a period of time approximately equal to the relevant Interest Period or Eurodollar Interest Period or (ii) is or has become unlawful or infeasible by reason of the Bank's compliance with any new law, rule, regulation, guideline or order, or any new interpretation of any present law, rule, regulation, guideline or order, then the Bank shall give telephonic notice thereof (confirmed in writing) to the Borrower, in which event the relevant Fixed Rate Advance or Eurodollar Advance, shall be deemed to be a Variable Rate Advance and interest shall thereupon immediately accrue at the Variable Rate.


2.09 LINE ACCOUNT:


(a) The Bank shall maintain on its books a record of account in which the Bank shall make entries for each Advance and such other debits and credits as shall be appropriate in connection with the Line of Credit (the "Line Account"). The Bank shall provide the Borrower with a monthly statement of the Borrower's Line Account, which statement shall be considered to be correct and conclusively binding on the Borrower unless the Borrower notifies the Bank to the contrary within 30 days after the Borrower's receipt of any such statement which it deems to be incorrect.


(b) The Borrower hereby authorizes the Bank, if and to the extent payment owed to the Bank under the Line of Credit is not made when due, to charge, from time to time, against any or all of the Borrower's deposit accounts with the Bank any amount so due.


2.10 LATE PAYMENT: If any payment of principal (other than a principal payment due pursuant to Section 2.03(b)) or interest, or any portion thereof, under this Agreement is not paid within ten (10) calendar days after it is due, a late payment charge equal to five percent (5%) of such past due payment may be assessed and shall be immediately payable.


SECTION 3


LETTERS OF CREDIT


3.01 LETTER OF CREDIT FACILITY: Subject to the terms of the Agreement and those contained herein, the Bank agrees to issue stand-by letters of credit (each a "Letter of Credit") on behalf of the Borrower. At no time, however, shall the total face amount of all Letters of Credit outstanding, less any partial draws paid by the Bank, exceed the sum of $3,000,000 and, together with the total principal amount of all Advances, exceed the Borrowing Base.


(a) Upon the Bank's request, the Borrower shall promptly pay to
the Bank issuance fees of 1.5% of the face amount of each Letter of Credit
and such other fees, commissions, costs and any out-of-pocket expenses
charged or incurred by the Bank with respect to any Letter of Credit.


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(b) The commitment by the Bank to issue Letters of Credit shall,
unless earlier terminated in accordance with the terms of the Agreement,
automatically terminate on the Expiration Date and no Letter of Credit
shall expire on a date which is after the Expiration Date.


(c) Each Letter of Credit shall be in form and substance
satisfactory to the Bank and in favor of beneficiaries satisfactory to the
Bank, provided that the Bank may refuse to issue a Letter of Credit due to
the nature of the transaction or its terms or in connection with any
transaction where the Bank, due to the beneficiary or the nationality or
residence of the beneficiary, would be prohibited by any applicable law,
regulation or order from issuing such Letter of Credit.


(d) Prior to the issuance of each Letter of Credit, but in no
event later than 10:00 a.m. (California time) on the day such Letter of
Credit is to be issued (which shall be a Business Day), the Borrower shall
deliver to the Bank a duly executed form of the Bank's standard form of
application for issuance of a Letter of Credit with proper insertions.


(e) The Borrower shall, upon the Bank's request, promptly pay
to and reimburse the Bank for all costs incurred and payments made by
the Bank by reason of any future assessment, reserve, deposit or
similar requirement or any surcharge, tax or fee imposed upon the Bank
or as a result of the Bank's compliance with any directive or
requirement of any regulatory authority pertaining or relating to any
Letter of Credit.


SECTION 4


COLLATERAL


4.01 THE COLLATERAL: To secure payment and performance of all the Borrower's Obligations under this Agreement and all other liabilities, loans, guarantees, covenants and duties owed by the Borrower to the Bank, whether or not evidenced by this or by any other agreement, absolute or contingent, due or to become due, now existing or hereafter and howsoever created, the Borrower hereby grants the Bank a security interest in and to all of the following property (the "Collateral"):


(a) All inventory now owned or hereafter acquired by the Borrower, including, but not limited to, all raw materials, work in process, finished goods, merchandise, parts and supplies of every kind and description, including inventory temporarily out of the Borrower's custody or possession, together with all returns on accounts.


(b) All accounts, contract rights and general intangibles now owned or hereafter created or acquired by the Borrower, including, but not limited to, all receivables, goodwill, trademarks, trade styles, trade names, patents, patent applications, software, customer lists and business records.


(c) All documents, instruments and chattel paper now owned or hereafter acquired by the Borrower.


(d) All monies, deposit accounts, certificates of deposit and securities of the Borrower now or hereafter in the Bank's or its agents' possession.


(e) All crops now growing or hereafter to be grown, together with all products and proceeds thereof (the "Crops"), on that certain real property described in the attached Exhibit "B" (the "Real Property").


(f) All farm products now owned or hereafter acquired by or for the benefit of the Borrower consisting of supplies used or produced in the farming operations of the Borrower.


(g) All of Borrower's now existing or hereafter acquired water rights of every kind and description, whether appurtenant, riparian or prescriptive or arising by virtue of any contract or other agreement.


(h) All proceeds of the Collateral, including but not limited to, all accounts, contract rights, documents, instruments and chattel paper resulting from the sale or disposition of the Collateral.


The Bank's security interest in the Collateral shall be a continuing lien and shall include the proceeds and products of the Collateral including, but not limited to, the proceeds of any insurance thereon.


SECTION 5


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CONDITIONS OF LENDING


5.01 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE: The obligation of the Bank to make the initial Advance and the first extension of credit to or on account of the Borrower hereunder is subject to the conditions precedent that the Bank shall have received before the date of such initial Advance and such first extension of credit all of the following, in form and substance satisfactory to the Bank:


(a) Evidence that the execution, delivery and performance by the Borrower of this Agreement and any document, instrument or agreement required hereunder have been duly authorized.


(b) Continuing guaranty in favor of the Bank executed by Golden State Acquisition Corp., together with evidence that the execution, delivery and performance by the guarantor has been duly authorized and a subordination agreement subordinating indebtedness of the Borrower owed to the Grape Group, Inc. to indebtedness of the Borrower owed to the Bank and an executed UCC-1 financing statement.


(c) The Bank shall have conducted an audit of the Borrower's books, records and operations and the Bank shall be satisfied as to the condition thereof.


(d) Payment of all out-of-pocket expenses of Bank in connection with the preparation and negotiation of this Agreement.


(e) Such other evidence as the Bank may request to establish the consummation of the transaction contemplated hereunder and compliance with the conditions of this Agreement.


5.02 CONDITIONS PRECEDENT TO ALL ADVANCES: The obligation of the Bank to make each Advance and each other extension of credit to or on account of the Borro
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