CONVERTIBLE SUBORDINATED DEBENTURE
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS. SUCH SECURITIES AND ANY SECURITIES ISSUED HEREUNDER OR
WITH RESPECT HERETO MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT AND APPLICABLE LAWS OR AN OPINION OF COUNSEL
SATISFACTORY TO BORROWER THAT SUCH REGISTRATION IS NOT REQUIRED.
FOR VALUE RECEIVED, Ravenswood Winery, Inc., a California corporation
("Borrower"), hereby promises to pay __________________________________
("Holder"), or order, the "Principal" sum of __________________________
($_______________________). Such payment shall be made no later that 5 p.m.,
Pacific time on December 31, 2008 ("Maturity"). Conversion of this Debenture, as
provided in Article 3 hereto, shall constitute payment in full of all Principal.
Borrower shall also pay interest upon the Principal outstanding from time to
time in an amount equal to the index rate given to prime commercial customers by
the Bank of America NT&SA, San Francisco, California (the "Prime Rate") plus one
percent (1%) per annum (the "Interest Rate"), subject to adjustment as provided
in this paragraph, from the date hereof until this Debenture is converted or all
Principal is paid, whichever first occurs. Interest shall be payable quarterly
in arrears, commencing with the first payment on January 15, 1999. The Interest
Rate shall be subject to adjustment 18 months from the date hereof, and every
eighteen months thereafter, to one percent (1%) over the Prime Rate (each, an
"Interest Rate Adjustment"); provided, however, that no individual Interest Rate
Adjustment shall exceed 2%, and provided further that the maximum Interest Rate
shall be 11%. Notwithstanding any other provision of this Debenture, the
Interest Rate shall not exceed the
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maximum rate permitted under applicable law. Both principal and interest shall
be payable in lawful money of the United States of America at the address which
Holder has provided to Borrower in writing.
The securities represented hereby have not been registered under the
Securities Act of 1933 (the "Act") or any other federal or state securities
laws, and may not be resold, transferred, pledged, hypothecated or otherwise
assigned until the restrictions in Article 7 have been satisfied.
ARTICLE ONE
SUBORDINATION
1.1 Senior Indebtedness. As used in this Debenture, the term "Senior
Indebtedness" shall mean the principal amount of all indebtedness of
the Borrower, regardless of whether incurred on, before or after the
date of this Debenture, including: (i) Borrower's indebtedness to
Pacific Coast Farm Credit Association, ACA, in the form of a line of
credit, pursuant to which Borrower may borrow up to a maximum of
$2,000,000; (ii) Borrower's indebtedness to Pacific Coast Farm Credit
Association, ACA, in the form of a loan secured by Borrower's property
located at Gehricke Road, in the maximum amount of $2,665,755; (iii)
proposed indebtedness to be secured by Borrower's leasehold interest in
the proposed Quarry Facility, which is expected to total up to
$5,000,000; (iv) money borrowed from any bank and evidenced by notes,
bonds, debentures or other written obligations, if such notes, bonds,
debentures or other written obligations are interest-bearing securities
only and are not convertible or issued in connection with the issue of
warrants or options, whether separate or attached, or some other rights
to receive
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stock or participate in the earnings of Borrower in any form, including
dividend distributions; and (v) any renewals or extensions of any
indebtedness described in (i), (ii) or (iii) above. Borrower reserves
the right to increase the number of its sources of bank credit, as well
as to increase the maximum loan amounts. Use of available funds for
payments on Senior Indebtedness shall not constitute a default under
payments due to the Holder. Any such payments not made to Holder shall
cumulate at the Interest Rate until paid.
1.2 Subordination. Borrower covenants and agrees and Holder, by acceptance
hereof, covenants, expressly for the benefit of the present and future
holders of Senior Indebtedness, that the payment of the principal and
interest on this Debenture is expressly subordinated in right of
payment to the payment in full of principal and interest and any fees,
charges or penalties of Senior Indebtedness. Upon any terminating
liquidation of assets of Borrower upon the occurrence of any
dissolution, winding up, or liquidation, whether or not in bankruptcy,
insolvency or receivership proceedings, Borrower shall not pay
thereafter and Holder shall not be entitled to receive thereafter, any
amount in respect of the principal and interest of the Debenture unless
and until the Senior Indebtedness shall have been paid, whether in
cash, property or securities, by Borrower or by a trustee in
bankruptcy, a receiver or liquidating trustee, or other person making
such payment or distribution, whether directly to the holders of Senior
Indebtedness, or to their representative or representatives, ratably
according to the aggregate amounts remaining unpaid on Senior
Indebtedness held or represented by each of them.
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1.3 Rights Against Borrower and Others. It is understood that the
provisions of this Article One captioned "Subordination" are, and are
intended to be, solely for the purpose of defining the relative rights
of Holder, on the one hand, and the holders of the Senior Indebtedness
of Borrower, on the other hand. Nothing contained in this Article One
or elsewhere in this Debenture shall or is intended to impair, as among
Borrower, its creditors other than holders of Senior Indebtedness, and
Holder, the unconditional and absolute obligation of Borrower to pay
Holder the principal and interest on the Debenture as and when the same
shall become due and payable in accordance with the terms hereof, or
affect the relative rights of Holder and the creditors of the Borrower,
other than a holder of such Senior Indebtedness; nor shall anything
herein prevent Holder from exercising all remedies otherwise permitted
by applicable law upon default under this Debenture, subject to the
rights, if any, of a holder of Senior Indebtedness in respect to cash,
property or securities of Borrower received upon the exercise of any
such remedy. Upon any payment or distribution of assets of Borrower
referred to in this Article One, Holder shall be entitled to rely upon
any order or decree made by any court of competent jurisdiction in
which any dissolution, winding up, liquidation or reorganization
proceedings are pending, or upon a certificate of a liquidating trustee
or agent or other person making any distribution to Holder, for the
purpose of ascertaining the persons entitled to participate in such
distribution, the holders of Senior Indebtedness and other indebtedness
of the Borrower, the amounts thereof or payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article One.
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ARTICLE TWO
PREPAYMENT
The principal and interest due pursuant to this Debenture may be prepaid, in
whole or in part, at any time after expiration of the conversion right herein
and prior to maturity, at the option of Borrower. Each prepayment shall include
the principal amount to be prepaid plus all interest due to the prepayment date.
In the case of partial prepayment, the amount and other details thereof shall be
noted on this Debenture.
ARTICLE THREE
CONVERSION AND PURCHASE RIGHTS
3.1 Conversion Right. Holder shall have the right, from and after the date
of this Debenture until any time at or prior to 5 o'clock p.m. Pacific
time on December 31, 2003, to convert all, and not a portion, of this
Debenture into fully paid and nonassessable shares of the Capital Stock
of Borrower. If conversion is not requested at or before this time, the
conversion right shall terminate and be of no further force or effect.
Subject to the terms of Article Two, the indebtedness represented by
this Debenture has been paid or otherwise discharged, the rights set
forth in this Debenture shall not survive such payment or discharge,
including but not limited to, the right to convert into shares of
Capital Stock of Borrower. "Capital Stock" shall mean the common voting
stock of Borrower. Upon the surrender of this Debenture, accompanied by
the Holder's written request for conversion, which request shall be
irrevocable, Borrower shall pay within 30 days all interest accrued
hereon to the date of conversion and issue and deliver to Holder
certificates, evidencing such shares of stock as hereinafter set forth.
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Subject to readjustment as provided in Section 3.2 hereof, the
Conversion Price (hereinafter, the "Conversion Price") and number of
shares issuable upon conversion shall be determined as follows: Each
$10,000 Debenture may be converted to 14.286 shares of Capital Stock
for a price of $700 per share.
3.2 Adjustment of Conversion Terms. The Conversion Price and the number and
kind of shares to be issued to Holder upon conversion pursuant to
Section 3.1 shall be adjusted to reflect the effect of any
consolidation, merger, sale of assets, reclassification of shares,
share issuance or any other change in the status of the Capital Stock
or the rights or privileges of holders of the Capital Stock (herein
called a "Change" in the Capital Stock) which occurs prior to
conversion. Such adjustment to the shares of Capital Stock to be issued
upon a conversion to reflect a Change shall be calculated as if the
Debenture had been converted and the Capital Stock into which the
Debenture is convertible was issued and outstanding immediately prior
to the Change and then, was adjusted, like all other shares of Capital
Stock then outstanding, to reflect the Change. Accordingly, if the
Debenture is then converted after a Change, the number of shares issued
in the conversion shall reflect the Change. After conversion, the
shares issued in the conversion shall be treated like all other similar
shares outstanding when any subsequent changes occur.
3.3 Cash Distributions. No adjustment as a result of cash dividends or
interest on Capital Stock into which this Debenture can be converted
will be made to the Conversion Price at which the number of shares into
which this Debenture can be converted.
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3.4 No Fractional Shares. Fractional shares of Capital Stock shall not be
issued in connection with any conversion hereunder. If after conversion
and taking into account any Change, there shall result any fractional
share, Borrower shall pay out such fractional share to Holder in cash.
The value of such fractional share shall be determined based upon: (i)
the last reported sales price of a share of Capital Stock on the last
trading day prior to the conversion date on the principal national
securities exchange on which the shares of Capital Stock are listed or
admitted to trading; (ii) if the shares of Capital Stock are not so
listed or admitted to trading, the average of the highest bid and
lowest asked prices on the last trading day prior to the conversion
date on the Nasdaq Stock Market; or (iii) if no such independent
quotations exist, as determined in good faith by Borrower's board of
directors.
3.5 Authorized Shares. Borrower covenants that during the period the
conversion right exists, Borrower shall reserve sufficient shares of
its authorized and unissued Capital Stock to provide for the issuance
of Capital Stock upon the conversion of this Debenture. Borrower agrees
that the issuance of this Debenture shall constitute full authority to
its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares
of Capital Stock upon the conversion of this Debenture.
3.6 Method of Conversion. This Debenture may be converted by Holder in
whole, only, by the surrender of this Debenture at the principal office
of Borrower as provided in Section 3.1 hereto.
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ARTICLE FOUR
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that:
4.1 Existence and Rights. As of the date hereof, Borrower is a corporation
duly organized and existing under the laws of the State of California
without limit as to the duration of its existence, and is authorized
and in good standing to do business in the State of California.
Borrower has corporate powers and adequate authority, rights and
franchises to own its property and to carry on its business as now
conducted, and is duly qualified and in good standing in each state in
which the character of the properties owned by it herein or the conduct
of its business makes such qualification necessary, and Borrower has
the corporate power and adequate authority to issue this Debenture and
the underlying shares of Capital Stock.
4.2 Debenture Authorized. The execution and delivery of this Debenture and
the performance by Borrower of its obligations hereunder are not in
contravention of or in conflict with any law or regulation or any term
or provision of Borrower's Articles of Incorporation or Bylaws, and are
duly authorized and do not require the consent or approval of any
governmental body or other regulatory authority; and this Debenture is
the valid, binding and legally enforceable obligation of Borrower in
accordance with its terms.
4.3 No Conflict. The execution, delivery and performance of this Debenture
do not contravene or conflict with any agreement, indenture or
undertaking to which Borrower is
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a party or by which it or any of its property may be bound or affected,
and do not cause any lien, charge or other encumbrance to be created or
imposed upon any such property by reason thereof.
4.4 Shares Outstanding. As of the date hereof, Borrower's authorized
Capital Stock consists of 1,000,000 shares, of which 56,362.8 shares
are outstanding. As of the date of this Debenture, other than 4,805.56
and 2,410.729 shares of Capital Stock reserved for issuance upon the
conversion of those certain Subordinated Convertible Debentures issued
by Borrower in December of 1994 and December 31, 1998, respectively,
there are no other shares of Capital Stock reserved for issuance or
subject to any agreement, right, option or warrant with respect to the
sale or issuance thereof by Borrower.
ARTICLE FIVE
RECORDS AND REPORTS
Borrower shall maintain a standard and modern system of accounting, applied on a
consistent basis. Within a reasonable period of time after the termination of
Borrower's fiscal year, Borrower shall prepare annual financial statements
pursuant to Generally Accepted Accounting Principles, based on Borrower's books
and records. These annual financial statements shall be audited by an
independent accountant. So long as Holder holds this Debenture, or Capital Stock
issued upon conversion of this Debenture, Holder shall have access to Borrower's
books and records, as provided under California law.
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ARTICLE SIX
EVENTS OF DEFAULT
Except as provided in Article One, the failure to pay an installment of
principal or interest hereon when due, and continued failure to pay after a
period of ten business days has lapsed from the date of delivery of written
notice therefor from Holder to Borrower shall constitute a default hereunder.
ARTICLE SEVEN
TRANSFERS
7.1 Investment Representation. Holder hereby represents and warrants that
it has acquired this Debenture for the purpose of investment and with
no present intent to sell or to distribute the same. Should it exercise
the conversion privilege contained herein, any Capital Stock of
Borrower so acquired will be acquired with the same investment intent.
7.2 Right of First Offer. Prior to the expiration of the conversion right,
Holder shall not be entitled to transfer this Debenture or any interest
in it without first offering to transfer the entire Debenture to
Borrower for a price and upon terms chosen by Holder, all as provided
in this Section 7.2.
Any attempted transfer that does not comply with this section
shall be void and of no force or effect. Without any other remedies,
Borrower shall be entitled to an injunction requiring Holder to comply
with the provisions of this section. The only exception to the
restriction on transfer in this section is for transfers at death and
certain lifetime transfers to family members, as described in Section
7.3 hereto.
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If Holder wishes to transfer this Debenture in a transaction
other than as described in Section 7.3 hereto, Holder shall, in
writing, first offer this Debenture to Borrower, stating the price and
terms upon which Holder offers to transfer the Debenture to Borrower.
Borrower shall have fifteen (15) business days in which to accept the
offer and a total of thirty (30) business days in which to close the
transfer. Borrower shall also have the right to designate a third
person or persons to accept the offer; however, once the offer is
accepted, Borrower and all such designated third persons shall be
jointly and severally liable with respect to the performance of the
obligations hereunder.
If Borrower does not accept Holder's offer, or designate a
third party or parties to accept Holder's offer within the fifteen
business day period, Holder shall be free to transfer the Debenture for
a price and upon terms which are no more favorable to the transferee
than those offered to Borrower. The transfer shall include Holder's
entire interest in the Debenture. If a transfer is not contracted for
within one calendar year from the date that Holder is free to offer the
transfer to others, and closed within a total of fourteen (14) calendar
months from that date, then any transfer shall require a new offer to
Borrower by Holder.
7.3 Permissible Transfers. Not withstanding the right of first offer of
Borrower provided in Section 7.2 above, Holder shall have the right:
(i) to transfer the entire Debenture by will to any third party or (ii)
to otherwise transfer the entire Debenture to a member or members
(holding jointly) of Holder's immediate family, including Holder's
children, parents, spouse, spouses parents ("Immediate Family") or to a
trust solely for the benefit of members of Holder's Immediate Family.
To transfer the Debenture under this Section
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7.3, Holder must transfer the entire Debenture. A transferee or a group
of transferees under this Section 7.3 shall not be entitled to transfer
this Debenture pursuant to this Section 7.3. As a condition precedent
to a transfer under this Section 7.3, each transferee shall agree to
and sign a copy of these transfer restrictions. When a transfer results
in joint ownership of this Debenture and the conversion right has not
expired, the transferees shall designate one member of their group to
represent them, in writing, to Borrower. Borrower shall be entitled to
rely upon any agreement or representation of such representative. If
the transferees do not designate a representative within thirty (30)
days after a request by Borrower, Borrower shall have the right to
designate one of the transferees as the representative of the
transferees upon whom Borrower can rely. Subject to the sole discretion
of Borrower, Borrower may modify this exception to the transfer
restrictions provided in this Section 7.3 in order to meet what
Borrower considers to be appropriate estate planning goals of Holder.
7.4 Restriction on Transfer. In addition to the restrictions on transfer
provided in Sections 7.2 and 7.3 hereto, this Debenture may not be
transferred or assigned in whole or in part without compliance with
federal and state securities laws by the transferor and the transferee
or transferees (including the delivery of investment representation
letters and legal opinions reasonably satisfactory to Borrower, if such
are requested Borrower).
7.5 Legend. Any certificate representing Securities shall be stamped with a
suitable endorsement to the effect that said Securities are subject to
the terms and conditions of this Article 7 and stating that said terms
and conditions are fully set forth in this Article, a copy of which is
on file and available for the inspection at the main office of
Borrower.
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ARTICLE EIGHT
MISCELLANEOUS
8.1 Failure or Indulgence Not Waiver. No failure or delay on the part of
Holder hereof in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege.
All rights and remedies existing hereunder are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
8.2 Rights of Shareholders. Subject to Section 3.1 of this Debenture,
Holder shall not be entitled to vote or receive dividends or be deemed
the holder of Capital Stock or any other securities of Borrower that
may at any time be issuable on the exercise hereof for any purpose, nor
shall anything contained herein be construed to confer upon Holder, as
such, any of the rights of a shareholder of Borrower or any right to
vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to
any corporate action (whether upon any recapitalization, issuance of
stock, reclassification of stock, change of par value, or change of
stock to no par value, consolidation, merger, conveyance, or otherwise)
or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Debenture shall have been
converted as provided herein.
8.3 Notices. Any notice herein required or permitted to be given shall be
in writing and may be personally serviced or sent by United States mail
and shall be deemed to have been given when deposited in the United
States mail registered, with postage prepaid and
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properly addressed. For the purposes hereof, the address of Holder and
the address of Borrower shall be as follows:
Borrower Holder
-------- ------
Ravenswood Winery, Inc.
18701 Gehricke Road
Sonoma, CA 95476
Both Holder and Borrower may change the address for service by service
of written notice to the other as herein provided. Notice by telephone
or facsimile is also permitted.
8.4 Amendment Provision. This Debenture may only be amended by a written
agreement executed by both Borrower and Holder.
8.5 Cost of Collection. If default is made in the payment of this
Debenture, Borrower shall pay Holder hereof costs of collection,
including, reasonable attorneys, fees, should Holder prevail.
8.6 Replacement of Debenture. On receipt of evidence reasonably
satisfactory to Borrower of the loss, theft, destruction or mutilation
of this Warrant and, in the case of loss, theft or destruction, on
delivery of an indemnity agreement reasonably satisfactory in form and
substance to Borrower or, in the case of mutilation, on surrender and
cancellation of this Debenture, Borrower at its expense shall execute
and deliver, in lieu of this Debenture, a new debenture of like tenor
and amount.
8.7 Governing Law. This Debenture has been executed by Borrower in, and
shall be governed by the laws of the State of California.
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8.8 Successors and Assigns. Subject to terms and provisions of this
Debenture limiting the right of assignment, this Debenture and all the
respective rights, interests and obligations hereunder shall be binding
upon, inure to the benefit of and be enforceable by the parties hereto
and their respective heirs, devisees, executors, administrators,
personal or legal representatives, successors (in interest, or in
title, or in both) and assigns, whether or not any such person shall
have become a party to this Debenture and have agreed in writing to
join and be bound by the terms and conditions hereof.
8.9 Severability. If any term, covenant or condition of this Debenture or
its application to any person or circumstances shall be held to be
invalid or unenforceable, the remainder of this Debenture and the
application of such term or provision to other persons or circumstances
shall not be affected, and each term hereof shall be valid and
enforceable to the fullest extent permitted by law.
8.10 Headings. The headings used herein are for purposes of convenience only
and shall not be used in construing the provisions hereof or in
determining any of the rights or obligations of the parties to the
Debenture.
8.11 Further Assurances. The parties hereby agree to execute such other
documents and perform such other acts as may be necessary or desirable
to carry out the purposes of this Debenture.
IN WITNESS HEREOF Borrower has caused this Debenture to be signed in its name by
its duly authorized officers.
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Dated: December 31, 1998
Ravenswood Winery, Inc.
By:
--------------------------------
W. Reed Foster, Chairman and
Chief Executive Officer
Attest:
--------------------------------
Justin M. Faggioli, Executive
Vice President and Secretary
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