Prepared by MERRILL CORPORATION

That interest on a Variable Rate Advance shall be adjusted to accrue at the LIBOR Rate; provided, however, that such notice shall be received by the Bank no later than two Business Days prior to the Business Day on which the Borrower requests that interest be adjusted to accrue at the LIBOR Rate.

That interest on a Fixed Rate Advance shall continue to accrue at a newly quoted Fixed 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 2:00 p.m. on 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 shall continue to accrue at the newly quoted Fixed 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 pertaining to such Advance.

That interest on a Fixed Rate Advance shall accrue at a newly quoted LIBOR Rate or interest on a LIBOR Advance shall continue to accrue at a newly quoted Fixed Rate or LIBOR 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 relevant Interest Period or LIBOR Interest Period, as applicable. If the Bank shall not have received notice as prescribed herein of the Borrower's election that interest on any Fixed Rate Advance shall accrue interest at a newly quoted LIBOR Rate or at a newly quoted Fixed Rate pursuant to subparagraph (iii) hereinabove; or any LIBOR Advance shall continue to accrue at the newly quoted Fixed Rate or LIBOR 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 LIBOR Interest Period pertaining to such Advance.

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 LIBOR Rate or Fixed Rate, no prepayment shall be made except on a day which is the last day of the LIBOR Interest Period or Interest Period pertaining thereto. If the whole or any part of any LIBOR Advance or Fixed Rate 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, expenses and any loss (including loss of future interest income) actually incurred by the Bank and any loss (including loss of profit resulting from the re-employment of funds) deemed sustained by the Bank as a consequence of such prepayment.

The Bank be entitled to fund all or any portion of its Advances in any manner it may determine in its sole discretion, but all calculations and transactions hereunder shall be conducted as though the Bank actually funded all Advances through the purchase of dollar deposits bearing interest at the same rate as U.S. Treasury securities in the amount of the relevant Advance and in maturities corresponding to the date of such purchase to the Expiration Date hereunder.

0000912057-01-533814.txt : 20011009 0000912057-01-533814.hdr.sgml : 20011009 ACCESSION NUMBER: 0000912057-01-533814 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010928 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLDEN STATE VINTNERS INC CENTRAL INDEX KEY: 0001059581 STANDARD INDUSTRIAL CLASSIFICATION: MALT BEVERAGES [2082] IRS NUMBER: 770412762 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-14305 FILM NUMBER: 1747681 BUSINESS ADDRESS: STREET 1: 500 DRAKES LANDING ROAD CITY: GREENBRAE STATE: CA ZIP: 94904 BUSINESS PHONE: 4154614400 MAIL ADDRESS: STREET 1: 500 DRAKES LANDING ROAD CITY: GREENBRAE STATE: CA ZIP: 94904 10-K405 1 a2055467z10-k405.htm 10-K405 Prepared by MERRILL CORPORATION
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

/x/	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2001
OR

/ /	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-24651

GOLDEN STATE VINTNERS, INC.

(Exact name of registrant as specified in its charter)

Delaware		77-0412761
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

607 Airpark Road, Napa, California 94558

(Address of Principal Executive Offices)

Registrant's telephone number, including area code: (707) 254-4900

Securities registered pursuant to Section 12(b) of the Act:
Class B Common Stock, par value $0.01 per share

Name of each exchange on which registered: The Nasdaq National Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES /x/ NO / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /x/

The aggregate market value of the Class B Common Stock of the Registrant held by non-affiliates of the Registrant on September 25, 2001, based on the closing sales price of the Class B Common Stock as reported by Nasdaq on such date was $27,719,005. All of the shares of Class A Common Stock of the Registrant are held by affiliates of the Registrant.

The number of shares of the Registrant's Class A and Class B Common Stock outstanding as of September 25, 2001 was 4,342,528 and 5,170,459 shares, respectively.

PART I

This Annual Report on Form 10-K for the fiscal year ended June 30, 2001 (the "Form 10-K") contains "forward-looking statements," as defined under Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements are statements other than historical information or statements of current condition and relate to future events or the future financial performance of the Company. Some forward-looking statements may be identified by use of such terms as "believes," "anticipates," "intends" or "expects." Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 1. Business.

Introduction

The Company is one of the largest suppliers of premium bulk wines, wine processing and storage services, wine grapes and case goods in the United States. Management believes that the Company is a contract supplier of choice for many of the leading branded wineries in California because of its reputation for quality and service, extensive vineyard holdings, strategically located facilities and ability to tailor a full range of products and services to meet the particular needs of its customers.

The Company provides a broad range of high quality winemaking and processing services, barrel fermentation and bottling and storage services to many of the largest branded wineries in California and to a number of international wineries and customers. The Company supplies premium bulk wine pursuant to long-term supply agreements with Constellation Brands, Inc. ("Constellation"), Sutter Home Winery ("Sutter Home"), UDV North America ("UDV"), Beringer Blass Wine Estates ("Beringer") and other wineries. The Company also delivers contract wine processing, barrel fermentation and storage services under contracts with, among others, Robert Mondavi Winery ("Mondavi"), The Wine Group, and Beringer Wine Estates ("Beringer"). The Company also sells wine grapes, predominantly to EJ Gallo Winery ("Gallo") and, to a lesser extent The Wine Group.

GSV provides custom winemaking and bottling services for a number of clients, such as C.A. Warren, International Wine Services Limited ("IWS"), JC Boisset USA ("Boisset"), Wente Vineyards, Smith-Anderson, Trader Joe's and Seagram Chateau and Estate Wines Co. In fiscal 2001, the Company derived approximately 15% of its revenues from the sale of bulk wine and case goods outside of the United States. The Company also supplies brandy (a distilled derivative of wine) primarily to a single customer pursuant to a long-term agreement and is one of the largest brandy producers in the United States. In the fourth quarter of fiscal 2001, the Company completed construction of a high-speed bottling line to provide custom bottling services for malt-based alcoholic beverages to three major customers on long-term production contracts.

The combination of GSV's extensive vineyard holdings and five strategically located facilities has enabled the Company to become what management believes is one of California's preferred providers of premium bulk wine and related services. The Company's 7,884 producing acres of vineyard properties primarily in California's San Joaquin Valley allow the Company to source high quality wine grapes at a competitive cost. The Company's wine processing facilities are generally modern, efficient and automated, and allow for large scale, low-cost production of premium bulk wine and case goods and the delivery of a full line of winemaking, processing and storage services. Over the last six years, the Company has greatly expanded its presence in the California wine industry by acquiring vineyards and wine and brandy processing facilities and effectively integrating these assets into GSV's winemaking operations.

Fiscal 2001 Revenues
(dollars in millions)

Company Operations

The Company's operations include the following: bulk wine and related services, grape sales, case goods and related services and brandy. Bulk wine and related services includes the production and sale of bulk wine, custom crushing services, storage of bulk wine in tanks and barrels and bulk wine barreling services, such as racking and topping. The Company's grape sales consist of the sale of grapes grown at the Company's vineyards as well as grapes purchased by the Company from third party growers. Case goods and related services includes the production of proprietary and private label bottled wine, wine-related and malt-based alcoholic beverages and custom bottling and storage services. The Company's brandy business includes the production of brandy and grape spirits and brandy barrel storage and related barreling services.

Bulk Wine and Related Services

The Company generates a majority of its revenues from the sale of premium bulk wine and the delivery of a broad range of wine processing, barrel fermentation and storage services to its branded winery customers.

The Company sells premium bulk wine to a number of the largest branded wineries in California, including Constellation, Sutter Home, UDV, and Beringer and to a number of international customers, including IWS. The Company's standard bulk wine supply contract establishes the variety of wine, source of grapes and vintage and generally calls for the delivery of a set number of gallons of wine or processed grape juice at an agreed upon price per ton of grapes. The Company supplies, crushes and processes the grapes and typically stores the wine for six months or more following production. Winemaking standards are usually agreed to by the parties in advance. GSV generally guarantees the quality of the wine produced. Delivery of bulk wine is usually F.O.B. the particular GSV winery.

In fiscal 2001, approximately 73% of the grapes grown at the Company's vineyards were used internally for the production of bulk wine and brandy. Additionally, the Company purchases grapes in the marketplace in order to meet the needs of its bulk wine and brandy customers. The Company typically buys grapes from numerous growers pursuant to a variety of short-term, long-term, and evergreen grape purchase contracts entered into prior to grape harvest. Additionally, after analyzing anticipated grape yields and grape prices during a harvest, the Company sometimes elects to purchase needed grapes on the spot market.

The Company produces more than half of its bulk wine at its wine processing facility in Fresno, which has the capacity to handle approximately 100,000 tons of grapes annually (the equivalent of 7.2 million

cases), and is used primarily for the production of premium white and red wines. GSV also processes smaller quantities of premium bulk wine at its St. Helena, Cutler, Monterey and Reedley facilities. As is customary in the industry, the Company engages the services of commissioned wine brokers to sell bulk wine and services.

The Company also delivers various wine processing, barrel fermentation and storage services mostly under long-term contracts. GSV is flexible with respect to providing these services and customizes its products and services to meet the unique needs of its customers. The Company offers a number of processing and storage services, including crushing grapes, wine production, fermentation and storage in stainless steel tanks and oak barrels and other winemaking services. Under a typical wine processing and storage contract, a wine processing customer will deliver grapes for crushing, fermentation and storage in separately labeled tanks or barrels.

Wine Grape Sales

In May 1995, the Company entered into long-term grape supply contracts with Gallo covering certain Chardonnay and Zinfandel grapes that expired in May 2001. A long-term contract with Gallo covering certain Ruby Cabernet grapes continues through 2007. This contract requires the Company to deliver grapes meeting specified sugar levels and other quality measurements.

Approximately 73% of Company grown grapes for the 2000 harvest were retained by the Company for internal use in the production of bulk wine, brandy and case goods in the 2001 fiscal year. Thus, revenues from grape sales to third parties declined significantly in GSV's 2001 fiscal year. The Company believes its internal use of grapes is a potentially more profitable allocation of the Company's resources. Certain of the Company's grape purchase contracts require GSV to purchase the entire grape production of a number of small vineyards. Thus, the Company may purchase varieties of grapes in excess of quantities required in its production of bulk wine. The Company may resell these grapes into the market at approximate cost.

Case Goods and Related Services

The Company produces proprietary and private label products and provides custom bottling and storage services. These case goods sales are comprised of wine bottled and sold in a case containing twelve 750ml bottles, or the volume equivalent. The Company produced more than 1,300,000 cases of wine and wine related products and services in its 2001 fiscal year.

In a continuing effort to move into more profitable and growing market segments, during fiscal 2001 the Company decided to discontinue certain of its lower margin product lines. As a result, certain bottling lines at the Company's Cutler facility will no longer be utilized. The net book value of fixed assets associated with these lines aggregated to $178,000 and is included in cost of sales in fiscal 2001. In addition, certain case goods and supplies relating to these product lines totalling approximately $365,000 were written off and are included in cost of sales in fiscal 2001.

Private Label Case Goods. The sale of private label case goods may include any or all of the various steps in the winemaking process, from the purchase and processing of grapes, aging and storage of wine to the bottling and labeling of the finished product. The majority of the Company's private label case goods revenues in fiscal 2001 were derived from three customers based on short-term arrangements that may terminate at any time. Private label case goods are produced and bottled at the Company's St. Helena and Cutler facilities.

Proprietary and Control Brands. The Company sells proprietary wine products under a variety of brands in the generic and premium wine categories. Generally, the Company's Bounty and LeBlanc labels sell in the jug category, the Company's Golden State Vintners, Cutler Creek, J. Wile, Muirfield, Summerfield and Weston brands sell in the popular premium category, the Company's Monthaven, and Diamond Grove labels compete in the superpremium category and the Company's Edgewood Estate label is sold in the ultrapremium category. The Company's proprietary wines include different types of premium varietal wines, including vintage Cabernet Sauvignon, Chardonnay, Merlot and Zinfandel. Many of the Company's

proprietary wines are produced, processed and/or bottled at the Company's St. Helena winery. The Company's proprietary products are sold primarily through third party distributors and directly to specific wine and general merchandise retailers.

The Company also offers its proprietary brands to retailers, such as large supermarket chains, for sale on an exclusive basis in certain defined geographic regions. The terms of the exclusive arrangements for these "control brands" vary from customer to customer and are negotiated directly with retailers, rather than through wine wholesalers.

Ready to Drink Bottling. The Company completed construction and installation of a high-speed bottling line in the fourth quarter of its 2001 fiscal year at a cost of approximately $10 million. This line, located at the Reedley facility, provides custom bottling services for malt-based alcoholic beverages to three major customers on long-term production contracts totaling approximately 10 million cases annually.

Brandy

Brandy is produced by processing grapes into wine, distilling the wine and aging the product in oak barrels for a minimum of two years until the product can be declared as brandy. The Company is among the largest brandy processors in the United States and has a long-term brandy production agreement to produce brandy for sale under the Christian Brothers label owned by Heaven Hill Distilleries, Inc. ("Heaven Hill"). Under the terms of this agreement, GSV is paid for all aspects of the brandy distillation process, including the purchase of grapes, storage and various processing charges. The Company also produces brandy for other customers.

International

Approximately 15% of the Company's revenues in its 2001 fiscal year were derived from the sale of wine and wine products internationally. The Company exports bulk wine and case goods to Canada, Europe and Asia.

Winemaking Facilities

The Company's five winemaking, distilling and processing facilities are located in Fresno, Monterey, Napa and Tulare counties and are adjacent to primary grape growing and winemaking regions in California.

The table below identifies key statistics for each of the Company's facilities for the 2000 harvest, as reflected in the Company's fiscal year 2001 operations.

Production at The Company's Winemaking Facilities

Facility Name		Tons of Grapes Crushed	Case Equivalent(1)		Gallons of Cooperage Capacity(3)
			(In millions)
Fresno		92,000	6.6		21.6
Cutler		32,000	2.3		15.9
Reedley		74,000	5.3	(2)	17.4
Monterey		26,000	1.9		8.6
Napa Valley		2,700	.2		1.1

	Total	226,700	16.3		64.6

(1): It is industry custom to convert one ton of wine grapes into 170 gallons of wine, and to convert gallons of wine into cases of twelve 750ml bottles at the rate of 2.3775 gallons per case.
(2): A majority of grapes processed at Reedley were distilled into brandy and grape spirits.
(3): Generally 240 gallons of cooperage are required to store one ton of crushed grapes. Additionally, GSV and its customers have storage requirements for product aging and use cycles. Management believes the Company's annual practical crush capacity is between 215,000 to 230,000 tons, based on available cooperage at the beginning of the crush season.

Fresno. The Company's Fresno winery is situated on six acres within the Company's 4,400 acre Fresno vineyard and is located approximately 10 miles southwest of the city of Fresno. The Fresno winery serves as the Company's bulk wine processing center for varietal white wines, including Chardonnay and White Zinfandel and varietal red wines, including Cabernet Sauvignon and Merlot.

Cutler. The Company's Cutler facility is the original GSV winery and is located on approximately 120 acres in Tulare County north of the town of Visalia. The Cutler winery serves as a bulk wine processing and storage center.

Reedley. The Company's Reedley facility is located on a 246-acre parcel in southern Fresno County, northwest of the town of Reedley. The Company uses the Reedley facility primarily for the production and storage of brandy and custom bottling of malt-liquor based products. Additionally, the Reedley facility produces red, white, barrel fermented and dessert wines.

Reedley Facility Expansion. The Company completed the installation of a ready-to-drink bottling line in the spring of 2001 at a cost of approximately $10 million. This line provided custom bottling of malt-based alcoholic beverage products to several customers.

Monterey. The Monterey winery is located on 81 acres in the town of Soledad, in Monterey County, near California's central coast wine region. The Company uses the winery primarily for custom processing of small lots of superpremium and ultrapremium white and red wines for GSV's wine processing customers and GSV's bottling programs.

Napa Valley Winery. The Company's Napa Valley winery in St. Helena occupies approximately 22 acres and is located in the town of St. Helena fronting Highway 29, in Napa Valley. The Napa Valley winery produces primarily superpremium and ultrapremium white and red wines for a number of the leading branded wineries in California. A portion of the Company's proprietary and private label case goods are produced and bottled at the Napa Valley winery.

Napa Valley Warehouse. The Company uses the Napa Valley warehouse for third-party oak barrel storage and related services. The Napa Valley warehouse has a 24,000-barrel storage capacity, which was virtually full in fiscal 2000 and 2001.

During September 2001, the Company entered into a long-term lease agreement for a new building to be constructed in Napa County. The building will be approximately 150,000 square feet and provide for case goods production and storage commencing in the Spring of 2002.

Vineyard Operations

The Company owns more than 9,600 acres of vineyard properties, of which 7,884 acres are permanently planted as of June 30, 2001. The table below identifies the name of each of the Company's vineyards and the acres of wine grapes at each vineyard.

The Company's Vineyard Properties

Vineyard Name		County Location	Approximate Acres Planted
Fresno Vineyard		Fresno	3,474
Gravelly Ford Vineyard		Madera	1,652
Lost Hills Vineyard		Kern	1,410
Cawelo Vineyard		Kern	661
Mazzie Vineyard		Kern	619
Monterey Vineyard		Monterey	54
St. Helena Vineyard		Napa	14	(1)

	Total		7,884

(1): Vineyards under development.

Grape Production. The following table shows GSV's net vine production by grape variety from the 1996 to 2001 harvest years and the total grape tonnage produced by GSV following each grape harvest. Information regarding the Company's 2001 harvest is not yet available, however management believes that the 2001 harvest will approximate historical per acre yields.

Net Production Acres Owned by GSV and Tons Produced

		Net Production Acres
Grape Variety		Net Production Acres
Grape Variety		1996	1997	1998	1999	2000	2001
French Colombard (1)		3,114	2,965	2,965	2,965	2,868	2,868
Zinfandel (1)		1,211	1,211	1,211	1,211	836	836
Chardonnay (1)		875	1,124	1,124	1,124	1,060	907
Ruby Cabernet		941	941	941	1,089	1,089	1,089
Merlot		687	687	687	687	687	687
Barbera		379	379	379	379	379	379
Carnelian		344	344	344	344	344	344
Chenin Blanc (1)		418	313	313	313	261	261
Other (1)		416	416	416	416	425	499

	Total Net Production Acres	8,385	8,380	8,380	8,528	7,949	7,870
	Total Tons Produced	72,896	88,209	84,122	67,108	84,255

(1): 153 acres of Chardonnay were removed in Spring 2001. 708 acres were removed in Spring 2000, including 375 acres of Zinfandel, 101 acres of Chardonnay, 97 acres of French Colombard, 83 acres of Centurian and 52 acres of Chenin Blanc.

Typically, the Company's mature vineyards yield approximately 9.5 tons per acre. Management believes that the 2001 harvest will approximate normal yields.

In the Company's 2001 fiscal year, the Company removed approximately 153 acres of underperforming vineyards (representing approximately two percent of the Company's total vineyard assets), resulting in a $0.3 million charge to wine grapes cost of sales.

Viticultural Practices. The Company's vineyards and vineyard operations benefit from above-average soil quality and the availability of an economical and dependable supply of high quality water. The large, contiguous vineyards are almost entirely machine harvested. Management believes the Company's farming and harvesting costs per acre of vineyard are in line with the average per acre farming cost of California Central Valley vineyards. Short-term needs such as pruning, fertilizing, pesticide spraying and harvesting are contracted to multiple service providers.

Water Supply. The Company's Fresno, Gravelly Ford, Mazzie, Cawelo and Monterey Vineyards benefit from deep aquifers that provide relatively inexpensive water sources. The Company irrigates these vineyards from wells located on or near these properties. The quality of the water obtained from the wells is good. The Company's Lost Hills Vineyard relies upon area district-supplied water, which is allocated among surrounding properties and uses. During fiscal 2001, the Company was notified by the Lost Hills and Cawelo Water Districts, in Kern County respectively, that normal water supplies would be reduced by fifty to eighty percent. The Company has located supplemental water supplies through additional purchases made by these water districts as well as through ground water supplies. The Company believes its sources of water will be available and sufficient for the foreseeable future, but various factors such as drought or contamination could adversely affect the Company's water supply.

Agricultural Hazards. Grape production is subject to many risks common to agriculture that can materially and adversely affect the quality and quantity of grapes produced. These hazards include, among other things, adverse weather such as drought, frost, excessive rain, excessive heat or prolonged periods of cold weather during the growing season. These weather conditions can materially and adversely affect the quality and quantity of grapes produced by the Company.

Vineyards are also susceptible to certain diseases, insects and pests, which can increase farming expenses, reduce yields or kill vines. In the last ten years phylloxera, a louse that feeds on the roots of grape vines, has infested many vineyards in the wine grape producing regions of California and caused grape yields to decrease. Within a few years of the initial infestation, phylloxera can leave a vine entirely unproductive. Phylloxera infestation has been widespread in California, particularly in Napa, Sonoma, Mendocino and Monterey Counties, and most of the other wine grape producing areas of the state are affected to some degree. As a result of this widespread problem, thousands of vineyard acres throughout California have been replanted with phylloxera-resistant rootstock or, in some cases, taken out of production completely.

In 1997, GSV discovered a phylloxera infestation in certain acres of the Company's vineyards in Fresno county. The Company believes that the lighter, sandy, porous soil in its Fresno, Madera and Kern County vineyards (representing 99% of the Company's planted acres), as compared to the heavier, clay-like soil in more northern regions such as Napa and Sonoma Counties, hinders the growth and spread of phylloxera. Additionally, high soil temperatures and vine vigor in the Central and Southern San Joaquin Valley mitigate root damage that can be caused by phylloxera. The grape production from the Company's phylloxera-infested acres in the 2000 harvest did not evidence lower yields than in other, unaffected acres. Thus, the Company does not believe phylloxera will have a material adverse effect on vineyard operations and production, though there can be no assurances phylloxera will not adversely affect the Company's future harvests.

In recent years the Glassy-Winged Sharpshooter ("GWSS") has emerged as an efficient vector of Pierce's disease. Pierce's disease is a serious threat to wine grapes and combined with large GWSS populations can destroy vineyards over a several year period. The GWSS has been discovered in low populations throughout many of California's grape regions. A number of vineyards in a small grape growing region in Southern California have been destroyed by Pierce's disease. The Company has engaged a consultant to monitor the pest and advise regarding the latest research developments. To date the GWSS has not been found on Company vineyards and the Company believes there is no immediate Pierce's threat. While the grape industry is hopeful the spread of Pierce's disease can be controlled, an infestation of Company vineyards would have a materially adverse effect on Company operations and profitability.

numbers has been detected in certain acres of the Company's vineyards. The Company has countered the infestation with improved irrigation management and soil fertilization. The Company believes none of these infestations or infections currently pose a major threat to the Company's vineyards, although they could do so in the future.

Environmental Matters. The Company's vineyard operations require the periodic usage of various chemical herbicides, fungicides and pesticides, some of which contain hazardous or toxic substances. The usage and storage of these chemicals are, to varying degrees, subject to federal and state regulation. Additionally, all winemaking and distilling operations are subject to strict water quality control regulations.

Competition

The markets in which the Company operates are highly competitive and are dominated by companies with substantially greater financial, production, personnel and other resources than the Company. In the area of bulk wine production and processing, the Company competes primarily with JFJ Bronco and Delicato Winery, as well as a number of smaller companies. The Company's proprietary label case goods compete with the products of branded wineries and with other alcoholic and, to a lesser degree, nonalcoholic beverages in the retail stores where the Company's case goods products are sold and in the beverage marketplace in general.

The Company also experiences competition from its current and potential customers. There are an estimated 800 commercial wineries that produce and market California wine, although, according to Gomberg, Fredrikson and Associates ("Fredrikson"), a wine industry consulting firm, nine wineries accounted for approximately 59% of California wine sales, based on total volume of California wine shipments in calendar 2000. Certain major wineries, including many of the Company's customers, grow a significant amount of the grapes they need to make wine and produce wine for their own branded labels.

Numerous wine producers in Europe, South America, South Africa and Australia also compete with GSV by exporting their wine into the United States. Most imports are bottled wines; however, some wineries have imported bulk wine for bottling and sale in the United States. According to Fredrikson, bulk table wine imports into the United States for these purposes decreased from approximately 4.9 million gallons in calendar 1999 to approximately 3.5 million gallons in calendar 2000.

The Company does not believe that it faces a significant competitive threat from new entrants into the wine grape growing and wine production markets due to the substantial capital investments and lengthy start-up periods involved in the development of productive vineyards and winemaking facilities and the establishment of customer relationships. Rather, the expansion of the Company's current competitors and the entry of the Company's customers into the bulk wine business pose a more significant long-term competitive concern for the Company.

Customers

The Company provides premium bulk wine pursuant to long-term supply agreements to wineries such as Constellation, Sutter Home, Beringer, and UDV and sells wine grapes to Gallo and others pursuant to long-term grape purchase contracts. C.A. Warren, Boisset, IWS, Wente, Smith Anderson, and Trader Joe's were among the Company's private label case goods customers in fiscal 2001. The Company also provides various wine processing services for Mondavi, Beringer and The Wine Group, among other wineries, and brandy distillation and production for Heaven Hill. The Company sells bulk wine internationally to IWS, Les Grandes Chais de France, and Mark Anthony Cellars, Ltd., among other wineries.

Government Regulation

The wine industry is subject to extensive regulation by the Federal Bureau of Alcohol, Tobacco and Firearms, various foreign agencies and state and local liquor authorities. These regulations and laws dictate such matters as licensing requirements, trade and pricing practices, permitted distribution channels, permitted and required labeling, advertising restrictions and relations with wholesalers and retailers.

Expansion of the Company's existing facilities and development of new vineyards and wineries may be limited by present and future zoning ordinances, environmental restrictions and other legal requirements. In addition, new regulations or requirements or increases in excise taxes, sales taxes or international tariffs, could materially adversely affect the financial results of the Company.

Trademarks

The Company's trademarks include Golden State Vintners, and the proprietary labels Edgewood Estate, Monthaven, Diamond Grove, Summerfield, Weston, Cutler Creek, Bounty, J. Wile, Muirfield, Willow Cove, LeBlanc and Golden Gate Vineyards.

Employees

As of June 30, 2001, the Company had approximately 270 full-time equivalent employees. The Company believes that its employee relations are good. GSV also employs seasonal labor for wine processing services and other related tasks, primarily during the late summer and early fall months and contract labor through independent sources as needed for vineyard development, pruning and harvesting.

RISK FACTORS

In evaluating the Company, its business, operations and financial position, the following risk factors should be carefully considered, in addition to the other information contained in this Form 10-K. The following factors, among others, could affect the Company's actual future operating results and could cause such results to differ from the results discussed elsewhere in this Form 10-K.

Much of Our Revenues Are Derived From Only a Few Customers, the Loss of Any One of Which Would Harm Our Business

During fiscal 2001, five of the Company's customers accounted for approximately 44% of the Company's revenues, with Heaven Hill and Constellation accounting for approximately 14% and 13%, respectively. While some of the Company's largest customers have entered into some form of long-term contract with the Company, there can be no assurance that each of these relationships will continue following the expiration of these contracts or that the volume of business the Company is currently conducting with such customers will continue at such levels. The loss of any one of the Company's major customers or a significant reduction in the volume of their business with the Company could have a material adverse effect on GSV's business, financial condition and results of operations.

A Decrease in Customer Spending Would Harm Our Business

The growth of the wine industry and the success of the Company's business depend to a significant extent on a number of factors relating to discretionary consumer spending, including the general condition of the economy, general levels of consumer confidence, federal, state and local taxation, and the deductibility of business entertainment expenses under federal and state tax laws. The current economic downturn both in the U.S. and abroad could adversely affect discretionary consumer spending generally, or purchases of wine specifically, which could have a material adverse effect on the Company. Imposition of excise or other taxes on wine could also negatively impact the wine industry by increasing wine prices for consumers.

Bad Weather, Pests and Diseases Could Adversely Affect Our Business

Grape production is subject to a variety of agricultural risks. Extreme weather conditions can materially and adversely affect the quality and quantity of grapes produced. There can be no assurance that inclement weather in the future will not affect a substantial portion of the Company's vineyards in any year and have a material adverse effect on the Company's business, financial condition and results of operations.

Vineyards are also susceptible to certain diseases, insects and pests, which can increase operating expenses, reduce yields and damage or kill vines. In recent years phylloxera, a louse that feeds on and may ultimately destroy the roots of grape vines, has infested many vineyards in the wine grape producing regions of California, causing grape yields to decrease. Phylloxera infestation has been widespread in California, particularly in Napa, Sonoma, Mendocino and Monterey Counties, where the soil and climate provide an ideal environment for the pest. As a result of this widespread infestation, thousands of vineyard acres throughout the State of California have been replanted with phylloxera-resistant rootstock or, in some cases, taken out of production completely. The cost of controlling this pest was significant to affected vineyard owners.

Substantially all of the Company's vineyards are planted on their own rootstock that is not phylloxera-resistant. In the fall of 1997, phylloxera was discovered in certain acres of the Company's vineyards located in Fresno County. The Company believes that the scope of this phylloxera infestation is modest, though there can be no assurance in that regard. Additionally, GSV believes the climate, soil and water conditions in California's San Joaquin Valley slow the development of phylloxera in vineyard roots. Further, 1998, 1999 and 2000 harvest yields from the Company's phylloxera-infested acres were not notably lower than yields from surrounding, non-infested acreage. There can, however, be no assurance that phylloxera will

not spread throughout adjoining vineyard acres, or infest any of the Company's other vineyards which could reduce yields and require a significant investment in replanting with disease-resistant root stock, all of which would have a material adverse effect on the Company.

Other pests that may infest vineyards include leafhoppers, thrips, nematodes, mites, insects, orange tortrix and various grapevine diseases, such as Pierce's disease, which has destroyed portions of a number of vineyards in Southern California and elsewhere. Pesticides and the selection of resistant rootstocks reduce losses from these pests, but do not eliminate the risk of such loss. Gophers, rabbits, deer and birds can also pose a problem for vineyards, and wine grapevines are also susceptible to certain viral infections which may cause reduction of yields. In addition, the presence of potentially harmful nematodes in relatively high numbers has been detected in certain acres of the Company's vineyards. While the Company believes that none of these infestations or infections currently poses a major threat to the Company's vineyards, they could do so in the future and could subject the vineyards to severe damage, which could have a material adverse effect on the Company.

Intense Competition in the Wine Industry Could Adversely Affect Our Business

The wine industry is extremely competitive. The Company competes with several well-capitalized companies in the production of bulk wine. Further, many of the Company's current and prospective competitors have substantially greater financial, production, personnel and other resources than the Company. In order to meet near-term shortfalls in supply, a number of wineries have commenced purchases of wine from foreign sources. Because of higher production costs in the United States and the higher prices of grapes in California, especially in comparison to the prices of years past, some wineries can achieve significant cost savings, even after taking into account shipping costs, by importing bulk wine from abroad. Some countries, such as France and Australia, have launched marketing campaigns to increase their sales in the United States. Foreign competition can be expected to continue and increase. In addition, the Company's principal winery customers compete with each other and with other wineries located in the United States, Europe, South America, South Africa and Australia. Wine also competes with other alcoholic, and to a lesser degree, nonalcoholic beverages, and to the extent wine consumers reduce consumption of wine in favor of such other beverages, demand for wine and the Company's products and services could decline.

Difficulties in Production of Bulk Wine Could Affect Our Financial Condition

While the Company has substantial experience in producing and processing bulk wine, the Company may still experience production difficulties and delays with respect to the delivery of finished wine. The Company generally guarantees the quality of the wine produced, which could result in the Company bearing financial responsibility for wine that fails to meet agreed upon quality standards. From time to time, the Company has received claims from customers based on alleged defects in wine produced by the Company. Such production difficulties could have a material adverse effect on the Company's business, results of operations and financial condition.

Adverse Public Opinion About Alcohol May Harm Our Business

In recent years there has been substantial publicity regarding the possible health benefits of moderate wine consumption. The results of a number of studies suggest that moderate consumption of wine (or other alcoholic beverages) could result in decreased mortality and other health benefits. Alternatively, anti-alcohol groups have, in the past, successfully advocated more stringent labeling requirements and other regulations designed to discourage consumption of alcoholic beverages, including wine. More restrictive regulations, negative publicity regarding alcohol consumption, publication of studies that indicate a significant health risk from moderate consumption of alcohol or changes in consumer perceptions of the relative healthfulness or safety of wine generally could adversely affect the sale and consumption of wine and the demand for wine and wine grapes and could have a material adverse effect on the Company's business, financial condition and results of operations.

Loss of a Major Bulk Wine Customer Could Adversely Affect Our Operations

Bulk wine and related services accounted for approximately 59% of GSV's revenues in fiscal 2001. The Company continues to provide resources for expanding this portion of its business. Any loss of a major bulk wine customer could reduce GSV's bulk wine revenues, which could have a material adverse effect on the Company's business, financial condition and results of operations.

Decreased Demand for Our Case Goods Could Harm Our Business

Sales of case goods and related services accounted for approximately 21% of revenues in fiscal 2001. A significant portion of the Company's case goods revenues consists of short-term private label case goods sales. Additionally, the Company's higher margin proprietary case goods revenues resulted from sales of the Company's relatively unknown proprietary brands of premium wines. Any significant increase in the supply of premium wine in the California wine market that is not met by a corresponding demand could adversely affect the Company's case goods sales.

Wine Grape and Bulk Wine Price Declines Would Harm Our Business

Recent developments resulted in certain California wine grape and bulk wine prices declining significantly, which could have a material adverse effect on the Company's business, financial condition and results of operations. Such developments include (1) plantings of new vineyards, (2) yield enhancements through technological advances and (3) denser plantings of vines.

We Use Pesticides and Other Hazardous Substances in Our Business

The Company's current operations emit ethanol and require the periodic use of various chemical herbicides, fungicides and pesticides, some of which contain hazardous or toxic substances. The emission and usage of these chemicals are, to varying degrees, subject to federal and state regulation. The Company believes that its properties and operations have been and continue to be in material compliance with relevant environmental regulations. At the same time, if hazardous substances are discovered to have emanated from the Company's properties, the Company could be subject to material liability arising from the remediation of such potential harm. Additionally Company processing operations generally require the disposal of water based effluents. As environmental regulations tighten the Company cannot be assured its current waste water management practices will meet such standards.

The Seasonality of Our Business Could Cause Our Stock Price to Fluctuate

The wine grape business is extremely seasonal and the Company recognizes the vast majority of its revenues in the first six months of its fiscal year. GSV is not positioned to maximize quarter-to-quarter results, and its quarterly results should not be considered indicative of those to be expected for a full year. The Company recorded 65% of its revenues during the first six months of the Company's 2001 fiscal year. GSV has historically operated at a loss in the last two fiscal quarters due to limited sales during such

quarters. In fiscal 1999 and 2000, El Nino-related weather conditions, among other things, caused an approximate four week delay in the California wine grape harvest as compared to the prior year's harvest. The late harvest of grapes resulted in increased revenues in the second and third quarters of fiscal 1999 and 2000. Seasonality of revenues also affects the Company's cash flow requirements. In the past, GSV has borrowed funds under lines of credit from late summer through the fall to finance inventory build-up during the fall crush season. GSV also historically borrows funds through the spring and summer to finance crop production costs through harvest. Such seasonality in revenues and borrowings may lead to significant fluctuations in the Company's reported quarterly results. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Utility Supplies and Costs Could Adversely Affect Our Operations

California is currently experiencing volatility in energy costs and supply. Company operations depend on predictable sources of electricity and natural gas for efficient and cost effective performance. To ensure such sources, the Company has, in certain circumstances, obtained supply contracts for purchases of natural gas during the peak use period of the grape crush season. The Company has developed contingency plans to mitigate the effects of possible power outages and increased utility costs which include shifting certain operating processes to off-peak hours. Nevertheless, there can by no assurance that the Company's energy sources will be available on a consistent and reliable basis in the future without an adverse impact on Company operations and profitability.

The Company intended to mitigate the effects of possible power outages by purchasing power generating equipment to provide power to essential manufacturing systems, however, due to revised favorable projections of energy supplies, the Company changed its plans regarding such purchases. The Company recognized a charge of approximately $.9 million (included in other expense) related to preliminary engineering costs incurred, and estimated losses on the resale of such equipment.

Because We Have Fixed Farming Costs, a Weak Harvest Would Reduce Our Profit

The Company incurs relatively fixed annual farming costs per vineyard acre. Revenues from grape sales and wine processing and production are not realized until harvest and vary depending upon numerous factors. Vineyard productivity varies from year to year depending upon weather and other factors, and significant variations in annual yields should be expected from time to time. Because production costs are not significantly variable in light of productivity or revenue levels, weak harvests or lower grape prices cannot be fully mitigated by cost reductions and could have an adverse effect upon profitability.

Loss of Key Personnel Could Harm Our Operations

The Company believes its continued success depends on the active involvement of Jeffrey B. O'Neill, the Company's Chief Executive Officer, Mark A. Larson, the Company's President and Chief Operating Officer and John G. Kelleher, the Company's Chief Financial Officer. There can be no assurance that these persons will remain in their management positions with the Company, and the loss of the services of any of these persons could have an adverse effect on the Company's business, financial condition and results of operations.

New or Changed Regulations Could Significantly Impact Our Business

GSV is subject to a broad range of federal and state regulatory requirements regarding its operations and practices. These regulations are subject to change and conceivably could have a significant impact on operating practices, chemical usage and other aspects of the Company's business. There can be no assurance that new or revised regulations pertaining to the wine grape production industry will not have a material adverse effect on the Company's business, financial condition and results of operations.

Wine production and sales are subject to extensive regulation by the Federal Bureau of Alcohol, Tobacco and Firearms, the California Department of Alcohol Beverage Control and other state, local and

federal governmental authorities that regulate licensing, trade and pricing practices, labeling, advertising and other activities. In recent years, federal and state authorities have required warning labels on beverages containing alcohol. Restrictions imposed by government authorities on the sale of wine could increase the retail price of wine, which could have an adverse effect on demand for wine in general. There can be no assurance that there will not be new or revised laws or regulations pertaining to the wine industry which could have a negative impact on the Company's business.

Our Stock Price May Be Volatile

The market price of the shares of Class B Common Stock has declined sharply since the Company's initial public offering in late July 1998. The market price for such shares could continue to be volatile and may be significantly affected by factors such as actual or anticipated fluctuations in the Company's operating results, industry consolidation, conditions and trends in the wine industry, changes in recommendations and estimates by security analysts, general market conditions and other factors. There can be no assurance that an active trading market of the Class B Common Stock will be sustained. In addition, stock markets from time to time have experienced price and volume fluctuations that have affected the market price for many companies and that frequently have been unrelated to the operating performance of those companies. Such market fluctuations may adversely affect the market price of the Class B Common Stock.

Item 2. Properties.

The Company leases approximately 8,000 square feet for its executive corporate office in Napa, California under a sublease expiring in September 2002. The Company believes its existing executive office facility will be adequate to meet the Company's needs for the foreseeable future and that additional space will be available as needed at commercially reasonable rates. In addition, the Company owns all of the vineyards and winemaking facilities described above under "Business—Vineyard Operations" and "—Winemaking Facilities".

Item 3. Legal Proceedings.

None

Item 4. Submission of Matters to a Vote of Security Holders.

None

PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.

The Company's Class B Common Stock commenced trading on the Nasdaq National Market on July 22, 1998. The following table sets forth the high and low sales prices for the Class B Common Stock, as reported by Nasdaq, for the periods indicated.

Fiscal year ending June 30, 2001	High		Low
First Quarter	$	7.13	$	3.66
Second Quarter	$	8.00	$	6.13
Third Quarter	$	8.69	$	6.63
Fourth Quarter	$	9.00	$	7.25

Fiscal year ending June 30, 2000	High		Low
First Quarter	$	7.00	$	4.25
Second Quarter	$	5.72	$	3.00
Third Quarter	$	6.10	$	4.00
Fourth Quarter	$	5.56	$	3.75

Fiscal Year ending June 30, 1999	High		Low
First Quarter (commencing July 22, 1998)	$	18.12	$	9.00
Second Quarter	$	12.31	$	6.88
Third Quarter	$	15.50	$	10.25
Fourth Quarter	$	12.00	$	4.75

The last reported sale price of the Class B Common Stock on the Nasdaq National Market on September 25, 2001 was $5.45 per share. As of September 25, 2001, there were 55 holders of record of the Company's Class B Common Stock.

There is no established public trading market for the Company's Class A Common Stock. As of September 25, 2001, there were four holders of record of the Company's Class A Common Stock.

The Company has never paid cash dividends on its Common Stock and has no intention of paying cash dividends in the foreseeable future. The Company anticipates that all future earnings, if any, generated from operations will be retained by the Company to develop and expand its business. Any future determination with respect to the payment of dividends will be at the discretion of the Board of Directors and will depend upon, among other things, the Company's operating results, financial condition and capital requirements, the terms of then-existing indebtedness, general business conditions and such other factors as the Board of Directors deems relevant. In addition, negative covenants contained in the Company's senior credit facility currently prohibit the Company from paying cash dividends on such shares without the prior approval of the lender.

Item 6. Selected Financial Data.

The selected consolidated financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements of the Company and Notes thereto included elsewhere in this Form 10-K.

		Year Ended June 30,
		1997			1998			1999			2000		2001
		(in thousands, except per share data)
Statement of operations data:
Revenues		$	95,785		$	111,994		$	107,755		$	96,912	$	97,935
Cost of sales			71,662			83,684			83,383			80,845		77,401
Gross profit			24,123			28,310			24,372			16,067		20,534
Selling, general, and administrative expenses (1)			7,408			14,451			8,126			7,980		9,958
Income from operations			16,715			13,859			16,246			8,087		10,576
Interest expense			5,880			6,867			4,522			3,827		2,955
Other expense, net			677			356			15			6		956
Income before income taxes			10,158			6,636			11,709			4,254		6,665
Net income			6,170			4,184			8,261			2,723		4,379
Redeemable preferred stock dividends			(1,314	)		(1,272	)		(400	)		—		—
Accretion on preferred stock			—			—			(1,928	)		—		—
Redemption of Junior Preferred Stock			(405	)		—			—			—		—

Income available to common stockholders			4,451			2,912			5,933			2,723		4,379

Earnings per common share (2):
	Basic	$	.65		$	.42		$	.63		$	.29	$	.46

	Diluted	$	.65		$	.41		$	.62		$	.28	$	.45

Weighted average shares outstanding (2):
	Basic		6,860			6,918			9,349			9,498		9,507

	Diluted		6,860			7,325			9,621			9,578		9,838

	June 30,
	1997		1998		1999		2000		2001
Balance sheet data:
Working capital	$	9,386	$	8,846	$	22,025	$	23,649	$	20,895
Total assets		102,111		124,519		128,520		116,743		131,181
Total long-term debt		49,781		51,918		39,250		36,102		39,792
Redeemable preferred stock		8,813		8,951		—		—		—
Stockholders' equity		12,574		18,136		57,483		60,206		64,726

(1): Management incentives relating to stock appreciation rights and bonuses increased selling, general and administrative expenses by $2,141 and $8,800 for the years ended June 30, 1997 and 1998, respectively.
(2): See Note 2 of the Notes to Consolidated Financial Statements for an explanation of the basic and diluted earnings per share computations.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of the financial condition and results of operations of Golden State Vintners, Inc. (the "Company" or "GSV") contains "Forward-Looking Statements," as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-Looking Statements are statements other than historical information or statements of current condition and relate to future events or the future financial performance of the Company. Some Forward-Looking Statements may be identified by use of such terms as "believes," "anticipates," "intends" or "expects." Such Forward-Looking Statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such Forward-Looking Statements. The Company's results may differ materially from those anticipated in such Forward-Looking Statements as a result of a number of factors, including without limitation, (i) reduced consumer spending or a change in consumer preferences, which could reduce demand for the Company's wines; (ii) competition from various domestic and foreign wine producers which could affect the Company's ability to sustain volume and revenue growth; (iii) interest rates and other business and economic conditions which could increase significantly the costs and risks of projected capital spending; and (iv) the effect of weather and other natural forces on growing conditions and, in turn, the quality and quantity of grapes produced by the Company. Each of these factors, and other risks pertaining to the Company, the premium wine industry and general business and economic conditions, are more fully discussed herein and from time to time in other filings with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update or revise any Forward-Looking Statements, whether as a result of new information, future events or otherwise.

Overview

The Company's operations can be distinguished among the following: bulk wine and related services, grape sales, case goods and related services and brandy. Bulk wine and related services includes production and sale of bulk wine, custom crushing services, storage of bulk wine in tanks and barrels and the delivery of bulk wine barreling services, such as racking and topping. Grape sales consist of the sale of grapes grown at the Company's vineyards as well as grapes purchased by the Company from third party growers. Case goods and related services includes the production of proprietary and private label bottled wine, wine related and malt-based alcoholic beverages and custom bottling and storage services. The Company's brandy business includes the production of brandy and grape spirits and brandy barrel storage and related barreling services. See "Business—Company Operations."

The table below sets forth summary statement of operations data for the three fiscal years ended June 30, 2001:

Summary Statement of Operations Data
(in thousands)

	Year Ended June 30,
	1999		2000		2001
Revenues	$	107,755	$	96,912	$	97,935
Cost of sales		83,383		80,845		77,401

Gross profit		24,372		16,067		20,534
Selling, general and administrative expenses		8,126		7,980		9,958

Income (loss) from operations		16,246		8,087		10,576
Interest expense		4,522		3,827		2,955
Other expense (income), net		15		6		956

Income before income taxes		11,709		4,254		6,665
Income taxes		3,448		1,531		2,286

Net income	$	8,261	$	2,723	$	4,379

The following table reflects summary statement of operations data shown above, expressed as a percentage of revenues:

Percentage of Revenues

	Year Ended June 30,
	1999		2000		2001
Revenues	100.0	%	100.0	%	100.0	%
Cost of sales	77.4		83.4		79.0

Gross profit	22.6		16.6		21.0
Selling, general and administrative expenses	7.5		8.2		10.2

Income from operations	15.1		8.4		10.8
Interest expense	4.2		4.0		3.0
Other expense, net	0.0		0.0		1.0

Income before income taxes	10.9		4.4		6.8
Income taxes	3.2		1.6		2.3

Net income	7.7		2.8		4.5

Seasonality and Quarterly Results

The Company has experienced and expects to continue to experience seasonal and quarterly fluctuations in its revenues. Because of the inherent seasonality of its operations, the Company has historically reported its highest revenues and net income in its first and second fiscal quarters as the Company sells most of its grapes in the first quarter, immediately after harvest, sells most of its bulk wine and brandy in its second quarter, immediately after crush, and performs many of its wine processing services in the first and second quarters.

As a result, the Company typically reports lower revenues and net income (loss) in the third and fourth fiscal quarters. In fiscal 1999 and 2000 El Nino-related weather conditions, among other things, caused an approximate four-week delay in the California wine grape harvest as compared to normal harvests.

The following table illustrates the seasonality of the Company's revenues, gross profit and net income (loss) for each of the four fiscal quarters of the Company's 2001 fiscal year:

Quarterly Revenues, Gross Profit and Net Income (Loss)

	Fiscal 2001 Quarter Ended
	Sept. 30			Dec. 31			Mar. 31			June 30
	(dollars in thousands)
Revenues	$	18,868		$	44,950		$	20,859		$	13,258
Percent of revenues for the year ended June 30, 2001		19.3	%		45.9	%		21.3	%		13.5	%
Gross profit	$	3,717		$	11,056		$	3,740		$	2,021
Percent of gross profit for the year ended June 30, 2001		18.1	%		53.8	%		18.2	%		9.9	%
Net income (loss)	$	543		$	4,858		$	(22	)	$	(1,000	)
Percent of net income (loss) for the year ended June 30, 2001		12.4	%		111.0	%		(.5)	%		(22.9)	%

Results of Operations

The following table illustrates the Company's revenues by source for the periods indicated:

Revenues by Source
(in thousands)

			Year Ended June 30,
			1999		2000		2001
Revenues:
	Bulk wine and related services		$	65,116	$	55,832	$	57,384
	Grape sales			13,261		10,617		6,810
	Case goods and related services			15,795		15,911		20,258
	Brandy			13,583		14,552		13,483

		Total revenues	$	107,755	$	96,912	$	97,935

The following table illustrates the Company's revenues by source for the periods indicated, expressed as a percentage of revenues:

Percentage of Revenues by Source

			Year Ended June 30,
			1999		2000		2001
Revenues:
	Bulk wine and related services		60.4	%	57.6	%	58.6	%
	Grape sales		12.3		11.0		6.9
	Case goods and related services		14.7		16.4		20.7
	Brandy		12.6		15.0		13.8

		Total revenues	100.0	%	100.0	%	100.0	%

Fiscal Years Ended June 30, 2001 and 2000

Revenues

Total revenues for fiscal 2001 were $97.9 million, an increase of $1.0 million or 1.0%, as compared to revenues of $96.9 million in fiscal 2000. The overall slight increase in revenues was primarily due to increased revenues in the bulk wine and case goods segments largely offset by decreased wine grape sales resulting from the planned reduction in sales of Company grown grapes and from decreased volume of "resold grapes," both at lower prices as compared to the prior year.

Bulk Wine and Related Services. For fiscal 2001, revenues from bulk wine and related services were $57.4 million, an increase of $1.6 million or 2.9%, as compared to $55.8 million during fiscal 2000. Increased custom processing volumes and bulk wine volumes were partially offset by overall lower unit pricing on bulk wine sales during fiscal 2001.

Wine Grapes. In fiscal 2001, revenues from wine grape sales were $6.8 million, a decrease of $3.8 million or 35.8%, as compared to revenues of $10.6 million for fiscal 2000. Wine grape revenues include sales of grapes grown on the Company's vineyards and grapes purchased from outside growers and resold to various third parties or "resold grapes." Revenues from Company grown grapes decreased approximately $0.8 million or 14.8% from approximately $5.4 million for fiscal year 2000 to $4.6 million for fiscal 2001, consistent with the Company's plan to use more Company grown grapes in its operations. The decrease in revenues is primarily due to lower unit prices realized in fiscal 2001. Resold grape revenue decreased to $2.2 million from $5.2 million for fiscal 2001 and 2000, respectively. The decline in resold grape revenue resulted from lower volume and lower unit pricing realized in fiscal 2001.

Case Goods and Related Services. For fiscal 2001, revenues from case goods and related services were $20.3 million, an increase of $4.4 million or 27.7%, as compared to revenues of $15.9 million for the first nine months of fiscal 2000. The period to period increase in case goods and related services revenues was due to an increased volume of international case goods sales.

In the fourth quarter of fiscal 2001, the Company commenced custom bottling services for malt-based alcoholic beverages on its $10 million high-speed bottling line. Revenues related to such production were approximately $.4 million in fiscal 2001. Initial production levels were not at peak capacity. The Company expects production levels and related revenues to increase in fiscal 2002.

Brandy. For fiscal 2001, revenues from the sale of brandy and grape spirits were $13.5 million, a decrease of $1.1 million or 7.5%, as compared to revenues of $14.6 million in fiscal 2000. The decrease in brandy revenues in fiscal 2001 is primarily due to lower unit pricing stemming from the lower cost of brandy grapes used in production in fiscal 2001, partially offset by increased volume in fiscal 2001.

Cost of Sales.

For fiscal 2001, total cost of sales was $77.4 million, a decrease of $3.4 million or 4.2%, from $80.8 million in fiscal 2000. As a percentage of revenues, cost of sales for fiscal 2001 was 79.0%, a decrease from 83.4% in fiscal 2000. The decrease in cost of sales on a percentage of revenue basis was primarily the result of higher margins on bulk wine sales favorably impacted by the LIFO reserve and lower grape costs which were partially offset by lower unit pricing. For fiscal 2001, the Company's benefit to cost of sales from LIFO was approximately $2.7 million, primarily associated with the bulk wine segment. In addition, vineyard removal costs decreased from $1.8 million to $0.3 million from fiscal 2000 to fiscal 2001 respectively. Case goods cost of sales were negatively impacted by additional costs associated with integrating new bottling activity into the Company's historical bottling programs, and by write-offs of certain dry goods and packaged products.

Gross Profit

In fiscal 2001, the Company realized gross profit of $20.5 million, an increase of $4.4 million or 27.3%, as compared to $16.1 million for fiscal 2000. As a percentage of revenues, gross profit for fiscal 2001 was 21.0%, an increase from 16.6% for fiscal 2000. The Company's gross profit and gross margin for fiscal 2001 were the result of items discussed above under "Cost of Sales."

Selling, General and Administrative

For fiscal 2001, selling, general and administrative expenses were $10.0 million, an increase of $2.0 million or 25.0% from $8.0 million for fiscal 2000 primarily due to increased professional services expenses and increased payroll and related expenses consistent with the Company's goal to strengthen and enhance its management team.

Interest Expense

For fiscal 2001, interest expense was $3.0 million, a decrease of $0.8 million or 21.1%, as compared to $3.8 million in fiscal 2000. The period to period decline is primarily due to decreased weighted average borrowings on the Company's line of credit and long-term debt and increased capitalized interest relative to increased capital expenditures.

Other Expense

For fiscal 2001, other expense was $1.0 million, as compared to an immaterial amount in fiscal 2000. Such increase was due to a $.9 million charge related to power generating equipment committed to be purchased by the Company but subsequently cancelled. The charge includes preliminary engineering costs incurred and estimated losses on the resale of such equipment.

Net Income

For fiscal 2001, net income was $4.4 million, an increase of $1.7 million or 63.0%, as compared to net income of $2.7 million in fiscal 2000. Net income was impacted by factors discussed above.

Earnings Per Share

For fiscal 2001, diluted earnings per share was $0.45 compared to diluted earnings per share of $0.28 for fiscal 2000.

Fiscal Years Ended June 30, 2000 and 1999

Revenues

Total revenues for fiscal 2000 were $96.9 million, a decrease of $10.9 million or 10.1%, as compared to revenues of $107.8 million for fiscal 1999. The overall decrease in revenues was due to decreases in bulk wine revenues and third party grape sales as partially offset by increased brandy and case goods revenues.

Bulk wine and related services. For fiscal 2000, revenues from bulk wine and related services were $55.8 million, a decrease of $9.3 million or 14.3%, as compared to revenues of $65.1 million in fiscal 1999. Such decrease primarily resulted from decreased gallons contracted for current vintage wines and to a lesser extent the reduced California grape harvest. In addition, in fiscal 2000, the Company experienced a loss of revenues associated with a major bulk wine customer. Bulk wine revenues in fiscal 1999 from this customer were approximately $5.6 million compared to approximately $1.0 million in fiscal 2000. Management is not certain this customer will continue to provide revenues in future periods to the extent realized in fiscal 1999.

Wine grapes. In fiscal 2000, revenues from grape sales were $10.6 million, a decrease of $2.7 million or 20.3%, as compared to revenues of $13.3 million in fiscal 1999. Company grown grape tons delivered to customers decreased by approximately 20,000 tons (or $4.4 million in revenues) from approximately 42,000

in fiscal 1999 to 22,000 tons in fiscal 2000 as a result of 1) the Company's continued restructuring of grape contracts to utilize a greater percentage of its own grapes toward the internal production of bulk wine and brandy and 2) lower yields on company owned vineyards resulting from El Nino. Resold grape revenue increased to $5.2 million from $3.6 million for fiscal 2000 and 1999, respectively.

Case goods and related services. For fiscal 2000, revenues from case goods and related services were $15.9 million, an increase of $.1 million or .6%, as compared to revenues of $15.8 million in fiscal 1999.

Brandy. For fiscal 2000, revenues from the sale of brandy and grape spirits were $14.6 million, an increase of $1.0 million or 7.4%, as compared to revenues of $13.6 million in fiscal 1999. Brandy sales volume increased to approximately 2.4 million proof gallons in fiscal 2000 from approximately 2.1 million in 1999.

Cost of Sales

For fiscal 2000, total cost of sales was $80.8 million, a decrease of $2.6 million or 3.1%, from $83.4 million in fiscal 1999. As a percentage of revenues, cost of sales for fiscal 2000 was 83.4%, an increase from 77.4% in fiscal 1999. The increase in cost of sales on a percentage of revenue basis was primarily as a result of 1) increased per ton grape costs due to decreased grape yields from Company owned vineyards, 2) the write-off of approximately $1.8 million related to the removal of approximately 700 acres of vineyards that were underperforming and were expected to remain so in future periods and 3) the decreased utilization of bottling facilities significantly due to start-up inefficiencies associated with a new bottling line in St. Helena.

Gross Profit

In fiscal 2000, the Company realized gross profit of $16.1 million, a decrease of $8.3 million or 34.0%, as compared to $24.4 million in fiscal 1999. As a percentage of revenues, gross profit for fiscal 2000 was 16.6%, a decrease from 22.6% in fiscal 1999, for reasons discussed above under "Cost of Sales."

Selling, General and Administrative Expenses

For fiscal 2000, selling, general and administrative expenses were $8.0 million, a decrease of $.1 million or 1.2%, from $8.1 million for fiscal 1999. The period to period decline is due to a decrease in bad debt expense offset by increases related to consulting services and research and market development of various new products.

Interest Expense

For fiscal 2000, interest expense was $3.8 million, a decrease of $.7 million or 15.6%, as compared to interest expense of $4.5 million in fiscal 1999. The period to period decline is due to decreased average borrowings on the Company's line of credit.

Net Income

For fiscal 2000, net income was $2.7 million, a decrease of $5.6 million or 67.5%, as compared to net income of $8.3 million in fiscal 1999. Net income for fiscal 2000 was adversely impacted by factors covered above.

Earnings Per Share

For fiscal 2000, the basic earnings per share was $.29 as compared to basic earnings per share of $.63 for fiscal 1999. Net income available to common shareholders for fiscal 2000 was impacted by reduced net income.

Liquidity and Capital Resources

The Company's working capital position at June 30, 2001 was $20.9 million, compared to $23.6 million at June 30, 2000. The decrease in working capital is due to cash expenditures for fixed assets. The

Company maintains a revolving line of credit for working capital purposes which is secured by inventory, accounts receivable, the current year's wine grape crop and other collateral. Borrowings under the line typically peak in November, during the Company's second fiscal quarter. There were no outstanding balances under the revolving line of credit at June 30, 2001 or 2000. Unused availability under the line of credit was $16 million at June 30, 2001.

Net cash provided by operating activities for fiscal 2001 was $15.6 million, compared to net cash provided by operating activities of $19.8 million for fiscal 2000. The decrease in cash provided by operations resulted from increased receivables and lower inventory liquidations as compared to fiscal 2000.

Capital expenditures for fiscal 2001 were $19.3 million, compared to $7.6 million in fiscal 2000. The Company funded these expenditures from cash provided by operations, its working capital line and a capital lease. The Company intends to finance current and future capital expenditures through long-term financing arrangements although operating and working capital line sources are adequate for the Company's current capital expenditure programs.

California is currently experiencing volatility in energy costs and supply. Company operations depend on predictable sources of electricity and natural gas for efficient and cost effective performance. The Company intended to mitigate the effects of possible power outages by purchasing power generating equipment to provide power to essential manufacturing systems, however, due to revised favorable projections of energy supplies, the Company changed its plans regarding such purchases. The Company recognized a charge of approximately $0.9 million (included in other expense) related to preliminary engineering costs incurred and estimated losses on the resale of such equipment.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company can choose from several variable rate options on certain of its debt. All Company balance sheet items and sales are in U.S. dollars, therefore the Company has no foreign currency exchange rate risk related to these financial data. The Company does not use financial instruments for trading purposes.

Certain Company debt is subject to variable interest rate options. The following chart indicates the Company's fixed and variable rate long and short-term debt at June 30, 2001, and estimates the balances of such debt in future periods ($ millions):

			June 30,
			2001			2002			2003			2004			2005
Bank line of credit:
	Variable Rate:
		Average Outstanding*	$	4.8		$	5.0		$	5.0		$	5.0		$	5.0
		Weighted average rate for year		7.6	%		7.5	%		7.5	%		7.5	%		7.5	%
Long-term Debt:
	Fixed Rate:
		Average Outstanding	$	37.8		$	42.0		$	37.0		$	31.4		$	26.7
		Weighted average rate for year		8.7	%		8.5	%		8.3	%		8.4	%		8.5	%

*: Based on current anticipated cash flow, the Company believes that its bank line of credit will be periodically used to fund operations in the Company's peak season.

During its annual business cycle, the Company utilizes a variable interest rate working capital line at various borrowing levels. The Company's existing working capital loan agreement offers interest rate options at spreads over LIBOR and/or lender cost of funds, at maturities selected by the Company. For the year ended June 30, 2001, the average outstanding balance under this line was approximately $4.8 million, with a weighted average interest rate of approximately 7.6%.

At June 30, 2001, the balance on the Company's fixed rate long-term debt was $44.2 million and carried a weighted average interest rate of approximately 8.5%. The weighted average interest rate for the year ended June 30, 2001 for all Company debt was approximately 8.6%.

For strategic reasons, the Company enters into forward product sales and material supply contracts, most of which have staggered maturity dates. Under SFAS 133 and the corresponding amendments under SFAS 138, these contracts qualify as normal sales and purchases contracts, under which the Company expects to take physical delivery. Of the Company's four primary lines of business, bulk wine, grape sales and brandy production are subject to multi-year contracts, while case goods sales occur on a short-term basis. The primary raw material component for most Company products is wine grapes. The Company enters into long and short-term grape purchase contracts to ensure an adequate and cost effective source of raw material for production. Product sales contracts are substantially fixed over the term of the contract as to quantity and price. Wine grape contract terms are similarly fixed at inception for the term of the contract, although a portion of these contracts contains annual harvest market price adjustment clauses, including individual harvest year minimum pricing. For fiscal 2001, or the 2000 harvest year, none of the Company's total wine grape purchases on a dollar basis were adjusted upward against contract minimum prices following the harvest. The Company's annual operating budget anticipates wine grape price adjustments, based on management's estimate of movements in anticipated wine grape supply, quality and cost during each harvest year's wine grape crop maturation.

The Company's annual wine and brandy production is substantially committed under sales contracts prior to harvest and production. The Company intentionally maintains uncommitted product inventory to meet customer demand. At June 30, 2001, the Company's reported inventory value of bulk wine and brandy was $11.7 million, of which approximately $6.6 million, or 56%, is committed to sales contracts. Uncommitted inventory of approximately $5.1 million, or 44% is reserved for future case goods sales and for spot market bulk wine sales. The Company generally matches preproduction contractual sales with contracted material supply agreements and will continue to maintain certain uncommitted inventory.

Item 8. Financial Statements and Supplementary Data.

See the Index included at "Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K."

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

PART III

Item 10. Directors and Executive Officers of the Registrant.

The information required by this Item is incorporated herein by reference to the Company's Proxy Statement relating to the 2001 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after June 30, 2001.

Item 11. Executive Compensation.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

Item 13. Certain Relationships and Related Transactions.

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a) Documents filed as part of this Report:

(1): Index to Consolidated Financial Statements:

		Page
Independent Auditors' Report		29
Consolidated Balance Sheets as of June 30, 2000 and 2001		30
Consolidated Statements of Income for the Three Years in the Period Ended June 30, 2001		31
Consolidated Statements of Stockholders' Equity for the Three Years in the Period Ended June 30, 2001		32
Consolidated Statements of Cash Flows for the Three Years in the Period Ended June 30, 2001		33
Notes to Consolidated Financial Statements		34

(2): Index to Financial Statement Schedules:

Schedule II—Valuation and Qualifying Accounts

(3): (a) Exhibits:

(b) Reports on Form 8-K:

None

Exhibit Number		Description of Document
2.1		Stock Purchase Agreement dated as of April 27, 1995 by and among the Registrant, Golden State Vintners and certain shareholders of Golden State Vintners filed as Exhibit 2.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.
2.2		Vineyard Purchase Agreement dated May 16, 1995 between the Registrant and The Grape Group, Inc. filed as Exhibit 2.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.
3.1		Amended and Restated Certificate of Incorporation of the Registrant filed as Exhibit 2.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.
3.2		Bylaws of the Registrant filed as Exhibit B to the Company's Proxy Statement for an Annual Meeting of Stockholders filed September 28, 2000 and incorporated by reference herein.
3.3		Certificate of Designations of the 12% Senior Redeemable Preferred Stock of the Registrant, as amended and currently in effect filed as Exhibit 3.4 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.
3.4		Certificate of Powers, Designations, Preferences and Relative, Participating, Optional and Other Special Rights of Junior Exchangeable Preferred Stock and Qualifications, Limitations and Restrictions Thereof of the Registrant, as amended and currently in effect filed as Exhibit 3.5 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.

4.1		Form of Class B Common Stock Certificate of the Registrant filed as Exhibit 4.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.
4.2		Registration Rights Agreement dated as of April 27, 1995 by and among the Registrant and certain holders of the Registrant's Common Stock filed as Exhibit 4.2 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.
4.3		Registration Rights Agreement dated October 10, 1996 by and among the Registrant and certain holders of the Registrant's Common Stock filed as Exhibit 4.3 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.
10.1		1996 Stock Option Plan ("1996 Stock Plan") of the Registrant filed as Exhibit 10.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.
10.2		Form of Incentive Stock Option Agreement under the 1996 Stock Plan filed as Exhibit 10.2 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.
10.3		Form of Nonqualified Stock Option Agreement under the 1996 Stock Plan filed as Exhibit 10.3 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.
10.4		Form of Indemnification Agreement between the Registrant and its officers and directors filed as Exhibit B to the Company's Proxy Statement for an Annual Meeting of Stockholders, filed June 8, 2000, and incorporated by reference herein.
10.5		Employment Agreement dated as of April 27, 1995 between the Registrant and Jeffrey B. O'Neill filed as Exhibit 10.5 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.
10.6		Securities Purchase Agreement dated April 21, 1995 among the Registrant, Golden State Vintners and John Hancock Mutual Life Insurance Company ("John Hancock"), as amended, filed as Exhibit 10.6 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.
10.7		First Mortgage Note Due April 1, 2005 issued by Golden State Vintners in favor of John Hancock in the principal amount of $35,000,000.00 filed as Exhibit 10.7 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.
10.8		Continuing Corporate Guaranty dated April 27, 1995 entered into by the Registrant in favor of John Hancock filed as Exhibit 10.8 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.
10.9		Security Agreement dated as of April 21, 1995 entered into by Golden State Vintners in favor of John Hancock filed as Exhibit 10.9 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.
10.10		Intercreditor Agreement dated as of April 21, 1995 among Golden State Vintners, John Hancock and Sanwa Bank California ("Sanwa"), as amended, filed as Exhibit 10.10 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.

10.11		Continuing Guaranty dated as of April 21, 1998 between the Registrant and Sanwa filed as Exhibit 10.14 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.
10.12		Management Agreement dated May 31, 1997 between the Registrant and Forrest Binkley & Brown Partners L.P. filed as Exhibit 10.22 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.
10.13		1998 Director Stock Option Plan (the "Director Plan") filed as Exhibit 10.23 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.
10.14		Stock Option Agreement dated as of December 31, 1997 between the Registrant and Jeffrey B. O'Neill filed as Exhibit 10.24 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.
10.15		Stock Option Agreement dated as of December 31, 1997 between the Registrant and Brian R. Thompson filed as Exhibit 10.25 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.
10.16		Employment Agreement dated as of January 1, 1998 between the Registrant and Jeffrey B. O'Neill, filed as Exhibit 10.26 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.
10.17		Form of Stock Option Agreement under the Director Plan filed as Exhibit 10.29 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.
10.18		Promissory Note dated September 30, 1986 between the Registrant, as assignee of original maker, The Grape Group and The Prudential Insurance Company of America filed as Exhibit 10.30 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.
10.19		Promissory Note dated January 1, 1998 between the Registrant and Jeffrey B. O'Neill filed as Exhibit 10.33 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.
10.20		Promissory Note dated January 1, 1998 between the Registrant and Brian R. Thompson filed as Exhibit 10.34 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.
10.21		Credit Agreement dated as of July 5, 2000 between Sanwa and the Registrant.
10.22		First Amendment to Credit Agreement dated as of June 21, 2001 between Sanwa and the Registrant.
21.1		Subsidiaries of the Registrant filed as Exhibit 21.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-51443) and incorporated by reference herein.
23.1		Consent of Deloitte & Touche LLP
24.1		Power of Attorney (included on page 49).

INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors
of Golden State Vintners, Inc.

We have audited the accompanying consolidated balance sheets of Golden State Vintners, Inc. and subsidiaries as of June 30, 2000 and 2001, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended June 30, 2001. Our audits also included the supplementary financial schedule listed in the Index at Item 14(a)(2). These financial statements and the supplementary financial schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Golden State Vintners, Inc. and subsidiaries at June 30, 2000 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2001, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such supplementary financial schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

DELOITTE & TOUCHE LLP

Fresno, California
August 14, 2001

GOLDEN STATE VINTNERS, INC.

CONSOLIDATED BALANCE SHEETS

				June 30,
				2000		2001
ASSETS
CURRENT ASSETS:
		Cash and equivalents		$	39,244	$	488,507
		Trade receivables—net			7,441,232		10,042,126
		Inventories			22,069,778		22,926,688
		Refundable income taxes			2,419,881		1,686,619
		Refundable deposits and prepaid expenses			754,579		412,683

			Total current assets		32,724,714		35,556,623
PROPERTY, PLANT AND EQUIPMENT—Net					83,687,870		94,720,354
DEFERRED FINANCING COSTS AND OTHER ASSETS					330,221		903,880

TOTAL ASSETS				$	116,742,805	$	131,180,857

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
	Accounts payable			$	2,963,360	$	5,684,342
	Payable to growers				360,285		194,815
	Payroll and related liabilities				961,179		1,769,924
	Accrued interest				823,116		387,532
	Other accrued liabilities				616,857		914,832
	Deferred income taxes				94,707		1,313,970
	Current portion of long-term debt				3,256,001		4,395,722

		Total current liabilities			9,075,505		14,661,137
LONG-TERM DEBT					36,102,451		39,792,467
DEFERRED COMPENSATION					—		149,255
DEFERRED INCOME TAXES					11,358,680		11,852,463
COMMITMENTS AND CONTINGENCIES (Notes 10 and 12)
STOCKHOLDERS' EQUITY:
	Common stock:
		Class A common stock; 4,342,528 issued and outstanding at June 30, 2000 and 2001, respectively			43,425		43,425
		Class B common stock; 5,155,733 issued and outstanding at June 30, 2000 and 5,192,343 issued at June 30, 2001			51,558		51,924
	Additional paid-in capital				44,836,541		45,058,028
	Retained earnings				15,274,645		19,653,820

	Total common stock, paid-in capital and retained earnings				60,206,169		64,807,197
	Treasury stock (11,884 shares at June 30, 2001)				—		(81,662	)

			Total stockholders' equity		60,206,169		64,725,535

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY				$	116,742,805	$	131,180,857

See notes to consolidated financial statements.

GOLDEN STATE VINTNERS, INC.

CONSOLIDATED STATEMENTS OF INCOME

			Year Ended June 30,
			1999			2000			2001
REVENUES, net:
	Bulk wine		$	65,116,190		$	55,832,192		$	57,383,986
	Wine grapes			13,260,863			10,616,502			6,810,530
	Case goods			15,794,918			15,910,972			20,257,658
	Brandy and spirits			13,583,441			14,552,343			13,483,096

		Total revenues		107,755,412			96,912,009			97,935,270
COST OF SALES				83,382,860			80,845,033			77,401,093

GROSS PROFIT				24,372,552			16,066,976			20,534,177
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES				8,126,170			7,980,066			9,957,704

INCOME FROM OPERATIONS				16,246,382			8,086,910			10,576,473
INTEREST EXPENSE				(4,521,836	)		(3,827,121	)		(2,955,362	)
OTHER EXPENSE, net				(15,458	)		(5,774	)		(955,936	)

INCOME BEFORE INCOME TAXES				11,709,088			4,254,015			6,665,175
INCOME TAXES				3,448,000			1,531,000			2,286,000

NET INCOME				8,261,088			2,723,015			4,379,175
REDEEMABLE PREFERRED STOCK DIVIDENDS				(400,000	)		—			—
ACCRETION ON PREFERRED STOCK				(1,927,648	)		—			—

EARNINGS AVAILABLE TO COMMON STOCKHOLDERS			$	5,933,440		$	2,723,015			4,379,175

EARNINGS PER COMMON SHARE:
	BASIC		$	0.63		$	0.29		$	0.46

	DILUTED		$	0.62		$	0.28		$	0.45

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
	BASIC			9,348,628			9,498,261			9,506,583

	DILUTED			9,621,144			9,578,117			9,838,179

See notes to consolidated financial statements.

GOLDEN STATE VINTNERS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

		Common Stock
		Common Stock										Additional Paid-in Capital			Retained Earnings			Treasury Stock
		Class A		Class B		Class E			Class K			Additional Paid-in Capital			Retained Earnings			Treasury Stock			Total
BALANCE, JUNE 30, 1998		$	—	$	20,237	$	4,141		$	446		$	11,492,808		$	6,618,190		$	—		$	18,135,822
	Issuance of common stock		43,425		29,827		(4,141	)		(446	)		33,922,835			—			—			33,991,500
	Public offering costs		—		—		—			—			(1,614,294	)		—			—			(1,614,294	)
	Conversion of Junior Preferred Stock		—		1,304		—			—			889,221			(156,694	)		—			733,831
	Stock option exercise		—		190		—			—			90,744			—			—			90,934
	Tax benefit of stock option exercises		—		—		—			—			55,227			—			—			55,227
	Accretion on Senior Preferred stock		—		—		—			—			—			(1,770,954	)		—			(1,770,954	)
	Dividends paid on redeemable preferred stock		—		—		—			—			—			(400,000	)		—			(400,000	)
	Net income		—		—		—			—			—			8,261,088			—			8,261,088

BALANCE, JUNE 30, 1999			43,425		51,558		—			—			44,836,541			12,551,630			—			57,483,154
	Net income		—		—		—			—			—			2,723,015			—			2,723,015

BALANCE, JUNE 30, 2000			43,425		51,558		—			—			44,836,541			15,274,645			—			60,206,169
	Treasury stock purchases		—		—		—			—			—			—			(81,662	)		(81,662	)
	Stock option exercises		—		339		—			—			161,906			—			—			162,245
	Tax benefit of stock option exercises		—		—		—			—			39,692			—			—			39,692
	Employee stock awards		—		27		—			—			19,889			—			—			19,916
	Net income		—		—		—			—			—			4,379,175			—			4,379,175

BALANCE, JUNE 30, 2001		$	43,425	$	51,924	$	—		$	—		$	45,058,028		$	19,653,820		$	(81,662	)	$	64,725,535

See notes to consolidated financial statements.

GOLDEN STATE VINTNERS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

				Year Ended June 30,
				1999			2000			2001
OPERATING ACTIVITIES:
	Net income			$	8,261,088		$	2,723,015		$	4,379,175
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			4,453,503			6,211,116			7,066,845
		Provision for doubtful accounts			1,100,000			(200,000	)		50,000
		Loss on disposal of assets			61,392			1,836,167			948,842
		Employee stock award			—			—			19,916
		Change in cash surrender value of life insurance policies			—			—			5,509
		Deferred income taxes			3,384,182			419,337			1,713,046
		Change in deferred tax valuation allowance			(1,250,963	)		—			—
		Changes in operating assets and liabilities:
			Trade and other receivables		(3,453,324	)		2,697,731			(2,650,894	)
			Inventories		4,128,111			5,143,100			(471,543	)
			Prepaid expenses and other current assets		(495,439	)		(26,030	)		341,896
			Accounts payable		109,428			(1,065,663	)		2,720,982
			Grower payable		(263,848	)		(299,553	)		(165,470	)
			Accrued interest		(240,845	)		(63,061	)		(435,584	)
			Payroll and related liabilities		(5,717,871	)		326,788			808,745
			Deferred compensation		—			—			149,255
			Other accrued liabilities		(1,212,524	)		425,511			297,975
			Income taxes refundable/payable		581,670			1,711,663			772,954

			Net cash provided by operating activities		9,444,560			19,840,121			15,551,649

INVESTING ACTIVITIES:
	Purchases of property, plant and equipment				(8,128,184	)		(7,614,425	)		(19,281,183	)
	Purchase of life insurance policies				—			—			(650,000	)
	Proceeds from note receivable				—			1,722,322			—
	Refund (payment) of deposits				(2,750	)		(18,890	)		7,551

		Net cash used in investing activities			(8,130,934	)		(5,910,993	)		(19,923,632	)

FINANCING ACTIVITIES:
	Borrowings on line of credit				56,350,000			25,900,000			38,200,000
	Payments on line of credit				(66,450,000	)		(34,000,000	)		(38,200,000	)
	Cash overdraft increase				162,972			(964,467	)		—
	Proceeds from lease financing				—			—			8,000,000
	Payments on long-term debt				(14,581,297	)		(4,855,011	)		(3,259,337	)
	Proceeds from stock option exercises				90,934			—			162,245
	Purchase of treasury stock				—			—			(81,662	)
	Payment of dividends on redeemable preferred stock				(400,000	)		—			—
	Issuance of capital stock				33,991,500			—			—
	Public offering costs				(487,969	)		—			—
	Redemption of preferred stock				(10,000,000	)		—			—

		Net cash provided by (used in) financing activities			(1,323,860	)		(13,919,478	)		4,821,246

INCREASE (DECREASE) IN CASH AND EQUIVALENTS					(10,234	)		9,650			449,263
CASH AND EQUIVALENTS, BEGINNING OF PERIOD					39,828			29,594			39,244

CASH AND EQUIVALENTS, END OF PERIOD				$	29,594		$	39,244		$	488,507

See notes to consolidated financial statements.

GOLDEN STATE VINTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND OPERATIONS

Golden State Vintners, Inc. (the "Company"), formerly Golden State Acquisition Corp., a Delaware corporation, was formed on April 26, 1995 for the purpose of acquiring and holding for investment all of the outstanding capital stock of Golden State Vintners ("GSV"), a California corporation. Such acquisition occurred on April 27, 1995.

The Company processes and bottles wine, brandy and juice for sale, primarily in bulk, to other wineries and processors located principally in California. The Company experiences seasonal fluctuations in its revenues. Due to the inherent seasonality of its grape harvesting and crushing operations, the Company generally reports its highest revenues and net income in its first and second fiscal quarters.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the Company and its wholly-owned subsidiary, GSV. All significant intercompany transactions and accounts have been eliminated.

Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The fair value of certain financial instruments, including cash, receivables, accounts payable, and other accrued liabilities, approximate the amounts recorded in the balance sheet because of the relatively short-term maturities of these financial instruments. The fair value of bank, insurance company, and other long-term financing at June 30, 2001 approximate the amounts recorded in the balance sheet based on information available to the Company with respect to current interest rates and terms for similar financial instruments.

Cash Equivalents

For purposes of reporting cash flows, the Company considers cash equivalents to include all short-term investments with an original maturity of three months or less.

Trade Receivables

Substantially all accounts receivable are due from wine distributors and major wineries located principally in California, however, at June 30, 2001, a receivable balance of approximately $1.5 million was due from an international customer. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral for its sales. Trade and other receivables at June 30, 2000 and 2001 are net of an allowance for doubtful accounts of approximately $957,000 and $502,000, respectively.

Inventories

The Company utilizes the last-in, first-out ("LIFO") method for costing its wine and brandy inventories. Inventories at June 30, 2000 and 2001 would have been higher by $3,905,405 (including $513,875 for

brandy inventories) and $1,248,028 (including $359,714 for brandy inventories), respectively, had the Company used FIFO cost rather than LIFO cost for valuation of its inventories. Such differences at June 30, 2000 and 2001 include a $359,415 and $727,833, respectively, year end adjustment decreasing cost of sales to recognize changes between estimated interim and final year end LIFO balances. Juice is stated at the lower of average cost or net realizable value. Inventories of supplies are stated at the lower of FIFO cost or market. Costs associated with the current year's unharvested grape crop are deferred and recognized in the subsequent year when the grapes are harvested. Wine inventories are classified as current assets in accordance with recognized trade practice although some products will not be sold in the following year.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated lives of the related assets, as follows:

Land Improvements		30 years
Vineyards		20 years
Buildings		7 to 48 years
Cooperage		10 to 30 years
Equipment		7 to 20 years

Costs incurred in developing vineyards, including related interest costs, are capitalized until the vineyards become commercially productive. Maintenance and repairs are charged to operating costs as incurred. The cost of betterments is capitalized. Gains or losses on the disposition of assets are included in income. Amortization of assets held under capital leases is included in depreciation expense.

Company Owned Life Insurance

The Company has purchased life insurance policies to cover its obligations under deferred compensation plans for officers, key employees and directors. Cash surrender values, included in other assets, of these policies are adjusted for fluctuations in the market value of underlying instruments. The cash surrender value is adjusted each reporting period and any gain or loss is included with other expense.

Deferred Financing Costs

Financing costs incurred to obtain new financing are deferred and amortized over the term of the related loan. At June 30, 2000 and 2001, such costs were $300,580 and $237,300, respectively, which were net of accumulated amortization of $332,220 and $395,500, respectively.

Treasury Stock

In November 2000, the board of directors authorized the repurchase of up to 1 million shares of the Company's outstanding Class B common stock. The timing of stock purchases are made at the discretion of management. For fiscal 2001, the Company repurchased 11,884 shares or 1% of the total shares authorized to be purchased. The Company's repurchases of shares are recorded at cost as "Treasury Stock" and result in a reduction of "Stockholders' Equity."

Revenue Recognition

Sales of bulk wine, juice and brandy are recognized at the time the product specifications of the purchase contract are met and the product has been accepted by the buyer, title has passed to the buyer, and there is no right of return in the contract. In certain cases the contract requirements specify that the Company store such product after it has been sold and require the buyer to pay a storage fee. Sales of wine grapes and cased goods are recognized at the time of delivery to the customer. Wine processing and storage fees are recognized as those services are provided. Revenues relating to product stored by the Company after it has been sold totalled approximately $24,000,000, $26,795,000 and $47,909,000 in the years ended June 30, 1999, 2000 and 2001, respectively. At June 30, 1999 and 2001, accounts receivable included approximately $4,900,000 and $1,300,000, respectively (none at June 30, 2000), pertaining to product sales in which the products were stored by the Company at such dates.

Major Customers

The Company's brandy sales are primarily to one customer. Such sales, together with bulk wine and case goods sales to such customer, accounted for approximately 17%, 15% and 14% of total revenues in the years ended June 30, 1999, 2000 and 2001, respectively. In addition, a bulk wine customer accounted for approximately 12%, 8% and 13% of total revenues in the years ended June 30, 1999, 2000 and 2001, respectively.

Wine grape sales to a single customer accounted for approximately 9%, 4% and 2% of total revenues in the years ended June 30, 1999, 2000 and 2001, respectively.

Income Taxes

The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("FAS 109"), and provides deferred income taxes for the differences between the tax bases of assets and liabilities and their related financial statement amounts using current income tax rates. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

Stock-Based Compensation

The Company accounts for stock-based awards using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and recognizes compensation expense for certain stock-based awards granted to employees as required by APB 25. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"), became effective in fiscal year 1997 and requires disclosure of certain pro forma information as if the Company had adopted the fair value method of accounting for stock-based compensation prescribed by FAS 123 (see Note 7).

Earnings Per Common Share

Basic earnings per share is computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing earnings available to common stockholders adjusted for the effects of preferred stock dividends, interest on convertible debt, and other changes in income or loss resulting from the presumed conversion of potential common shares, if any, by the weighted average common shares outstanding during the period plus potential common shares outstanding. Diluted EPS reflects the

potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.

Basic and fully diluted earnings per share ("EPS") are determined as follows:

		Year Ended June 30,
		1999			2000		2001
Basic EPS Computation
Numerator:
	Net income	$	8,261,088		$	2,723,015	$	4,379,175
	Less: Redeemable preferred stock dividends		(400,000	)		—		—
	Accretion on preferred stock		(1,927,648	)		—		—

	Income available to common stockholders	$	5,933,440		$	2,723,015	$	4,379,175

Denominator:
	Weighted average common shares		9,348,628			9,498,261		9,506,583

Basic EPS		$	.63		$	.29	$	.46

Diluted EPS Computation
Numerator:
	Income available to common stockholders and assumed conversions	$	5,933,440		$	2,723,015	$	4,379,175

Denominator:
	Weighted average common shares outstanding		9,348,628			9,498,261		9,506,583
	Stock options		272,516			79,856		331,596

	Adjusted weighted average common shares		9,621,144			9,578,117		9,838,179

Diluted EPS		$	.62		$	.28	$	.45

Options to purchase approximately 866,000, 1,004,000 and 758,000 shares of common stock at various prices per share were outstanding at June 30, 1999, 2000 and 2001, respectively, but were not included in diluted EPS computations because the exercise prices were greater than the estimated fair values of the common shares for the periods then ended.

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 defines derivatives, requires that derivatives be carried at fair value and provides hedge accounting when certain conditions are met. In June 2000, the FASB issued SFAS No. 138, which amends certain provisions of SFAS 133 to address several issues causing implementation difficulties for entities in the application of SFAS No. 133. The Company had adopted SFAS 133 and the corresponding amendments under SFAS 138 on July 1, 2000. Adoption of this standard did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.

In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 101 (SAB) 101), "Revenue Recognition in Financial Statements," which clarifies the SEC's view in applying generally accepted accounting principles to revenue recognition in financial statements. The Company adopted this standard effective July 1, 2000. Adoption of this standard did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.

In June 2001, the FASB issued three statements: No. 141, Business Combinations, No. 142, Goodwill and Other Intangible Assets, and No. 143, Accounting for Assets Retirement Obligations. SFAS No. 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001. SFAS No. 142 provides that goodwill and certain identifiable intangible assets will not be amortized and requires impairment tests for goodwill and certain identifiable intangible assets. SFAS No. 143 provides that asset retirement obligations be measured at fair value and be discounted. Dismantlement and restoration costs should be recognized as liabilities when incurred. SFAS No. 142 and 143 are effective for the Company July 1, 2001. Management expects that the adoption of SFAS No. 141 and 142 will have no material impact on the Company's consolidated financial position, results of operations or cash flows. Management has not completed the process of evaluating the impact of adopting SFAS No. 143. The Company is therefore unable to disclose the impact that adopting SFAS No. 143 will have on its financial position and results of operations when such statements are adopted.

3. INVENTORIES

Inventories consist of the following:

		June 30,
		2000		2001
Bulk wine		$	9,379,513	$	10,876,338
Cased and bottled wine			2,510,044		3,032,063
Brandy			1,275,576		844,286
Juice, supplies and other			1,354,764		979,100
Unharvested crop costs			7,549,881		7,194,901

	Total	$	22,069,778	$	22,926,688

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

		June 30,
		2000		2001
Land and improvements		$	13,689,655	$	14,713,312
Vineyards			26,353,287		26,357,461
Buildings			12,397,231		12,726,460
Cooperage			23,129,374		24,766,768
Equipment			25,896,802		35,723,730
Construction in progress			4,043,455		8,609,770

	Total		105,509,804		122,897,501
Less accumulated depreciation and amortization			21,821,934		28,177,147

Property, plant and equipment—net		$	83,687,870	$	94,720,354

For the years ended June 30, 2000 and 2001, the Company capitalized approximately $300,000 and $512,000, respectively, of interest primarily related to software development, plant equipment and vineyards under development included in construction in progress. In the Company's 2000 and 2001 fiscal years, the Company removed approximately 700 and 150 acres of underperforming vineyards, respectively, from production (representing approximately eight and two percent of the Company's total vineyard assets, respectively), resulting in a $1.8 and $.3 million charge, respectively, to wine grape cost of sales.

5. BANK LINE OF CREDIT AND LONG-TERM DEBT

The Company has a revolving bank line of credit, expiring July 2002, which provides for borrowings of up to $16,000,000 with variable interest based on interest rate options elected by the Company. There were no borrowings on the line at June 30, 2000 and 2001. Unused availability under the line of credit was $16,000,000 at June 30, 2001.

Long-term debt is as follows:

		June 30,
		2000			2001
Insurance company Senior Secured First Mortgage Notes, principal and interest at 8.99% payable $370,000 monthly, balance of $19,843,000 due April 1, 2005		$	28,720,320		$	26,789,711
Insurance company note payable, interest at 11.6% payable annually, annual principal payments of $200,000, balance of $1,724,000 due on October 1, 2002			2,124,156			1,924,156
Unsecured loan due to related party, non-interest bearing, discounted (at 10%) to present value, payable based on excess cash flows (as defined)			796,738			860,986
Capital lease obligations and other loans, interest principally at 7.0% (See Note 9)			7,717,238			14,613,336

	Total		39,358,452			44,188,189
Less current portion			(3,256,001	)		(4,395,722	)

Long-term portion		$	36,102,451		$	39,792,467

Substantially all of the Company's assets are pledged as collateral for revolving bank loans and long-term debt. The insurance company loan agreement, as amended, and bank credit agreements include various financial covenants which require that the Company maintain certain specified financial ratios and restrict the amount of capital expenditures, additional indebtedness and certain investments. Further, dividends may not be declared and paid without prior approval. The Company was not in compliance with the capital expenditure limitation of its bank credit agreement as of June 30, 2001, but a waiver was subsequently obtained on July 26, 2001.

In June, 2001, the Company entered into a master lease agreement with a bank to finance $8 million of bottling and processing equipment. During 1998, the Company entered into a master leasing agreement with a bank to finance up to $11 million of cooperage and processing equipment. The leases are collateralized by the property and require monthly principal and interest payments. As of June 30, 2001, the cumulative amount of property financed and capitalized totaled approximately $17 million.

Under the terms of the insurance company Securities Purchase Agreement (the "Agreement") dated April 21, 1995, the Company may, at its option, prepay the outstanding Senior Secured First Mortgage Notes (the "Notes") in whole or in part, after April 1, 1998 at a price equal to the principal amount of the Notes plus accrued interest, plus a premium as defined in the agreement. Prepayment of all outstanding Notes and accrued interest thereon is required on the occurrence of certain events, as defined in the Agreement.

Scheduled annual maturities of long-term debt, including capital leases, as of June 30, 2001 are as follows:

2002		$	4,395,722
2003			6,268,734
2004			4,915,529
2005			22,181,319
2006			2,411,768
Thereafter			4,015,117

	Total	$	44,188,189

6. INCOME TAXES

The components of income tax expense are as follows:

		Year Ended June 30,
		1999			2000			2001
Current:
	Federal	$	871,717		$	961,995		$	442,160
	State		443,064			148,776			130,794

			1,314,781			1,110,771			572,954
Deferred:
	Federal		2,766,674			505,169			1,663,748
	State		617,508			(85,832	)		5,615

			3,384,182			419,337			1,669,363
Change in valuation allowance			(1,250,963	)		892			43,683

		$	3,448,000		$	1,531,000		$	2,286,000

The Company recognized certain tax benefits related to stock option exercises in the amount of $55,227 and $39,692, for the year ended June 30, 1999 and 2001, respectively. These benefits were both recorded as a decrease to income taxes payable and an increase in paid-in-capital. There were no stock option exercises in the year ended June 30, 2000.

The Company's income tax provision differs from the amount determined by applying the statutory federal income tax (benefit) rate, due to the following:

	Year Ended June 30,
	1999		2000		2001
Federal statutory tax rate	35.00	%	35.00	%	35.00	%
Permanent items	.30		.80		(1.72	)
State income taxes, net of federal	5.98		.98		1.35
Change in valuation allowance	(10.68	)	.02		.66
Other	(1.15	)	(.80	)	(.99	)

	29.45	%	36.00	%	34.30	%

Deferred income tax assets and liabilities consist of the following:

			June 30,
			2000			2001
Current assets (liabilities):
	Inventory costing		$	(833,168	)	$	(1,767,346	)
	State franchise taxes			35,994			104,192
	Capitalized interest			207,774			122,094
	Reserves			263,771			343,030
	Allowance for doubtful accounts			409,821			214,884
	Property taxes			(370,377	)		(471,240	)
	Benefits			117,232			97,853
	Other			74,246			42,563

		Total	$	(94,707	)	$	(1,313,970	)

Long-term assets (liabilities):
	Purchase accounting		$	(4,259,366	)	$	(4,009,784	)
	Accelerated depreciation			(9,832,651	)		(10,769,036	)
	Deferred compensation			—			63,941
	State franchise taxes			—			142,911
	Operating loss carryforwards			439,480			—
	Tax credit carryforwards			2,387,639			3,072,163
	Other			257,018			41,825
	Valuation allowance			(350,800	)		(394,483	)

		Total	$	(11,358,680	)	$	(11,852,463	)

GOLDEN STATE VINTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. INCOME TAXES (Continued)

The Company has federal and state alternative minimum tax ("AMT") credit carryforwards of approximately $2,202,000 and $355,000, respectively, that may be used for an indefinite period. In addition, the Company has a state manufacturers tax credit of approximately $516,000 which expires as follows:

2008		$	309,000
2009			207,000

	Total	$	516,000

7. SHAREHOLDERS' EQUITY

Common Stock

The Company's authorized capital stock is as follows at June 30, 2001:

		Par Value			Authorized Shares
Class A		$	.01		6,000,000
Class B		$	.01		54,000,000

Class A common stock have ten votes for each share and are convertible into Class B common stock on a share-for-share basis at the option of the stockholder or upon certain transfers of current stock ownership. Class B common stock have one vote for each share. Class A and Class B common stockholders share equally in dividend distributions (if declared by the Board of Directors) and liquidation rights.

On July 21, 1998, the Company completed an underwritten public offering of 4,300,000 shares of Class B Common Stock, at an offering price of $17.00 per share (the "Offering"). The proceeds to the Company from the Offering of $32,377,206, net of public offering costs of $1,614,294, were primarily used to repay the Company's line of credit, certain bank term loans, officers notes, and senior redeemable preferred stock, including related dividends. The unamortized discount of $1,927,648, associated with the redemption of the senior redeemable preferred stock and the conversion of junior redeemable preferred stock was reflected as a deduction from net income available to common stockholders in fiscal 1999.

Changes in the Company's common stock issued during the years ended June 30, 1999 and 2001 (no changes in fiscal 2000) are as follows:

	Class of Common Stock
	A	B		E		K
Shares issued and outstanding, June 30, 1998	—	5,868,612		1,200,829		129,477
Issuance of stock (public offering)	4,342,528	(862,222	)	(1,200,829	)	(129,477	)
Conversion of Junior Preferred Stock	—	130,343		—		—
Issuance of stock (option exercise)	—	19,000		—		—

Shares issued and outstanding, June 30, 1999 and 2000	4,342,528	5,155,733		—		—
Issuance of stock (option exercises)	—	33,900		—		—
Issuance of stock (employee stock awards)	—	2,710		—		—

Shares issued, June 30, 2001	4,342,528	5,192,343		—		—

Incentive Compensation and Stock Option Plans

An incentive stock plan (terminated in 1996) provided for grants of stock appreciation rights ("SARS") to officers, directors and certain key employees. The SARs entitled the holder to receive cash

payments equal to the excess of the fair market value of the rights over the base price for such rights, had an unlimited term and generally became exercisable over a two year period. Compensation expense accrued pursuant to the Company's incentive stock plan was $6,300,000 for the year ended June 30, 1998 (none in 1999 and 2000). In 1998, the President's bonus was restructured resulting in accrued compensation expense of $2.5 million. Such compensation was paid to key employees in the amount of $5.4 million in 1998 and $5.4 million in 1999.

The Company's 1996 Stock Option Plan covers 1,393,925 shares of Class B Common Stock. The Plan provides for the grant of incentive and nonstatutory stock options to officers, key employees and others, at prices not less than fair value. Options granted generally become exercisable 25% annually and expire after 10 years.

In April 1998, the Company adopted the 1998 Director Stock Option Plan (the "Plan"), which covers 348,000 shares of Class B Common Stock. Under the terms of the Plan, options may be granted to non-employee members of the Company's Board of Directors at prices not less than fair market value (as defined), are fully vested after one year and expire ten years after issuance. The Plan also provides for annual grants of options to purchase 10,005 shares of common stock on May 1 of each year commencing May 1, 1999 to each non-employee director who has remained in continuous service. The options for 2001 have not yet been granted.

A summary of SAR and stock option activity is as follows:

		Number of Stock Options		Weighted Average Exercise Price Per Right/Option
Outstanding at June 30, 1998		1,364,212		$	9.35
	Granted ($4.41 weighted average fair value per option)	6,000		$	17.00
	Exercised	(19,000	)	$	4.79
	Terminated	(2,175	)	$	4.79

Outstanding at June 30, 1999		1,349,037		$	9.46
	Granted ($2.58 weighted average fair value per option)	377,527		$	3.87
	Terminated	(55,793	)	$	9.20

Outstanding at June 30, 2000		1,670,771		$	8.21
	Granted ($3.63 weighted average fair value per option)	111,800		$	5.90
	Exercised	(33,900	)	$	4.79
	Terminated	(177,650	)	$	10.12

Outstanding at June 30, 2001		1,571,021		$	7.90

Exercisable at June 30, 2001		1,285,479		$	8.66

Available for grant at June 30, 2001		459,752			—

The following table summarizes information about stock options outstanding at June 30, 2001.

Options Outstanding					Options Exercisable
Range of Exercise Prices	Number Outstanding at 6/30/01	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable at 6/30/01	Weighted Average Exercise Price
$3.47 to $7.63	866,539	7.1 years	$	4.51	582,447	$	4.55
$12.07 to $12.08	704,482	6.5	$	12.07	703,032	$	12.07

$3.47 to $12.08	1,571,021	6.9	$	7.90	1,285,479	$	8.66

In 1998, the Board of Directors and the Company's stockholders approved a recapitalization and stock split, which resulted in each share of the Company's common stock being split into 2.9 shares of common stock. The recapitalization and stock split was effected by the filing of the Amended and Restated Certificate of Incorporation of the Company with the Delaware Secretary of State on July 20, 1998. The recapitalization was in the form of (i) the creation by the Company of a new Class A Common Stock and a new Class B Common Stock, (ii) the conversion of all of the Company's outstanding shares of old Class B Common Stock on a one-for-one basis into shares of Company's newly-created Class A Common Stock, (iii) the conversion of all of the Company's outstanding shares of old Class E Common Stock and old Class K Common Stock on a one-for-one basis into shares of the Company's newly-created Class B Common Stock, (iv) a 2.9-for-1 stock split for each of the Company's outstanding shares of a newly-created Class A Common Stock and newly-created Class B Common Stock, and (v) the conversion of all of the Company's outstanding shares of Junior Preferred Stock into 130,343 shares of the Company's newly-created Class B Common Stock. All common stock related data in the accompanying financial statements of the Company reflect the stock split for all periods presented.

FAS 123 requires the disclosure of pro forma net income amounts had the Company adopted the fair value method for valuation of stock based compensation prescribed by that statement. Under FAS 123, the fair value of stock-based awards to employees is calculated using option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards. These models require certain subjective assumptions which greatly affect the calculated values. The Company's calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions: expected life, 5.0 years as of June 30, 1999, 2000 and 2001, respectively; risk free interest rates, 6.0%, 6.2% and 5.5% as of June 30, 1999, 2000 and 2001, respectively; 79%, 77% and 70% expected volatility for the year ended June 30, 1999, 2000 and 2001, respectively and no dividends during the expected term. The Company's calculations are based on a multiple option valuation approach and forfeitures are recognized as they occur. Proforma net income for the years ended June 30, 1999, 2000 and 2001 would have been $404,837, $543,029 and $598,906, respectively, less than net income as reported if the computed fair values of the stock option awards had been amortized to expense over the vesting period of the awards. Proforma earnings per share for the year ended June 30, 1999, 2000 and 2001 would have been as follows: basic—$0.59, $0.23 and $0.39 and diluted—$0.57, $0.23 and $0.38, respectively.

8. RETIREMENT PLANS

The Company's 401(k) plan, established in 1996, provides retirement benefits to full-time employees that meet certain eligibility requirements. Under the 401(k) plan, employees may elect to have up to 15% of their annual eligible compensation, subject to certain limitations, deferred and deposited with a qualified trustee. The Company may elect to make an annual discretionary contribution to the Plan of up to 25% of each participant's eligible compensation, subject to certain limitations. Participants' voluntary

contributions and Company contributions to the Plan vest immediately. The Company also contributes to a winery workers' retirement plan which provides retirement benefits for union employees. In the event of withdrawal or plan termination the Company could be liable for its proportionate share of a plan's unfunded vested benefits. The information required to determine the amount of this contingent obligation is not readily available. Retirement plan costs charged to operations were $101,220, $104,448 and $107,503 for the years ended June 30, 1999, 2000 and 2001, respectively.

The Company has a deferred compensation plan for officers, key employees and directors that enables participants to defer portions of their current compensation.

9. LEASES

The Company leases cooperage and equipment under both capital and operating lease arrangements. Future minimum payments by fiscal year and in aggregate under such capital leases and noncancellable operating leases with terms of one year or more consist of the following at June 30, 2001:

	Capital Leases			Operating Leases
2002	$	3,034,319		$	391,810
2003		3,034,319			102,609
2004		3,034,319			14,563
2005		2,814,536			3,566
2006		2,721,155			1,783
Thereafter		3,343,995			—

Total minimum lease payments		17,982,643		$	514,331

Amount representing interest		(3,369,307	)

Net present value of minimum lease payments		14,613,336
Less current maturities		(2,084,240	)

	$	12,529,096

The following is a summary of cost and accumulated amortization on capitalized cooperage and equipment leases:

	June 30,
	2000			2001
Cooperage	$	7,586,711		$	8,453,990
Equipment		2,768,060			9,673,016
Less accumulated amortization		(1,303,406	)		(1,745,332	)

	$	9,051,365		$	16,381,674

Rent expense totaled $903,874, $890,310 and $1,024,198 for the years ended June 30, 1999, 2000 and 2001, respectively.

10. BUSINESS SEGMENT INFORMATION

The Company's chief decision maker evaluates performance based on gross profit of the following four segments: bulk wine, wine grapes, case goods and brandy. The bulk wine segment includes production and sale of bulk wine, custom crushing services, storage of bulk wine in tanks and barrels and delivery of

bulk wine barreling services, such as racking and topping. The Company's wine grapes segment consists of farming and harvesting of Company owned vineyards and subsequent sales or internal use of produced grapes as well as grapes purchased by the Company for resale. The case goods segment includes production of proprietary and private label bottled wine, wine-related and malt-based alcoholic beverages and custom bottling and storage services. The Company's brandy segment includes production of brandy and spirits and brandy barrel storage and related barreling services. The Company also analyzes information on capital expenditures, depreciation and amortization and assets utilized by each of the four segments.

Segment information as of June 30, 2000 and 2001 and for the years ended June 30, 1999, 2000 and 2001 is as follows:

			Year Ended June 30,
			1999		2000			2001
Revenues, net:
	Bulk wine		$	65,116,190	$	55,832,192		$	57,383,986
	Wine grapes			13,260,863		10,616,502			6,810,530
	Case goods			15,794,918		15,910,972			20,257,658
	Brandy			13,583,441		14,552,343			13,483,096

		Total revenues, net		107,755,412		96,912,009			97,935,270
Cost of Sales:
	Bulk wine			51,872,756		44,468,581			40,876,015
	Wine grapes			9,238,208		10,704,360			6,163,036
	Case goods			12,433,359		14,572,716			20,023,816
	Brandy			9,838,537		11,099,376			10,338,226

		Total cost of sales		83,382,860		80,845,033			77,401,093
Gross Profit:
	Bulk wine			13,243,434		11,363,611			16,507,971
	Wine grapes			4,022,655		(87,858	)		647,494
	Case goods			3,361,559		1,338,256			233,842
	Brandy			3,744,904		3,452,967			3,144,870

		Total gross profit	$	24,372,552	$	16,066,976		$	20,534,177

Capital Expenditures:
	Bulk wine		$	7,381,021	$	4,359,304		$	2,432,810
	Wine grapes			1,620,255		413,380			104,188
	Case goods			742,397		2,019,138			10,325,086
	Brandy			808,403		721,432			323,312
	Corporate			987,015		101,171			6,120,612

		Total	$	11,539,061	$	7,614,425		$	19,306,008

Depreciation and amortization:
	Bulk wine		$	3,008,156	$	4,471,833	$	5,242,010
	Wine grapes			680,068		550,883		420,950
	Case goods			113,881		233,035		516,217
	Brandy			486,561		614,696		561,903
	Corporate			164,837		340,669		325,765

		Total	$	4,453,503	$	6,211,116	$	7,066,845

			June 30
			2000		2001
Total Assets:
	Bulk wine		$	58,459,525	$	56,846,347
	Wine grapes			35,948,798		33,484,548
	Case goods			9,950,461		23,520,208
	Brandy			8,554,474		6,773,055
	Corporate			3,829,547		10,556,699

		Total	$	116,742,805	$	131,180,857

11. COMMITMENTS AND CONTINGENCIES

Grape Purchase Commitments

The Company enters into grape purchase and bulk wine sales contracts in the normal course of business. Contracted prices to be paid for grapes are fixed or fluctuate with prevailing market prices at the time of purchase based on contract terms. Bulk wine sales contracts are generally at fixed prices.

Equipment and Cooperage Purchase Commitments

As of June 30, 2001, the Company had entered into contracts aggregating approximately $1,737,000 for the purchase of processing equipment and cooperage.

12. SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information is as follows:

	Year Ended June 30,
	1999		2000			2001
Interest paid	$	5,138,846	$	4,143,279		$	3,558,109
Income taxes paid/(refunded)		733,111		(600,000	)		(200,000	)
Property acquired under capital lease		3,410,877		—			24,825
Tax benefit of stock option exercises		55,227		—			39,692
Conversion of junior preferred stock to common stock		733,831		—			—

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		GOLDEN STATE VINTNERS, INC.
		By:	/s/ JOHN G. KELLEHER John G. Kelleher Chief Financial Officer September 28, 2001

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jeffrey B. O'Neill, Mark A. Larson, John G. Kelleher and Jeffrey J. Brown, and each of them his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date

/s/ JEFFREY B. O'NEILL Jeffrey B. O'Neill	Chief Executive Officer and Director (Principal Executive Officer)	September 28, 2001
/s/ MARK A. LARSON Mark A. Larson	Chief Operating Officer and President	September 28, 2001
/s/ JOHN G. KELLEHER John G. Kelleher	Chief Financial Officer and Secretary (Principal Financial Officer and Accounting Officer)	September 28, 2001
/s/ JEFFREY J. BROWN Jeffrey J. Brown	Chairman of the Board, Assistant Secretary and Director	September 28, 2001

/s/ NICHOLAS B. BINKLEY Nicholas B. Binkley	Director	September 28, 2001
/s/ LAWRENCE R. BUCHALTER Lawrence R. Buchalter	Director	September 28, 2001
/s/ JEAN-MICHEL VALETTE Jean-Michel Valette	Director	September 28, 2001
/s/ W. SCOTT HEDRICK W. Scott Hedrick	Director	September 28, 2001
/s/ PETER W. MULLIN Peter W. Mullin	Director	September 28, 2001
/s/ GREG J. FORREST Greg J. Forrest	Director	September 28, 2001

Item 14(a)(2)

GOLDEN STATE VINTNERS, INC.

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(dollars in thousands)

		Balance at Beginning of Year		Charged to Costs and Expenses			Deductions			Balance at End of Year
Year ended June 30, 1999:
	Allowance for uncollectible accounts	$	176	$	1,100		$	(4	)	$	1,272
Year ended June 30, 2000:
	Allowance for uncollectible accounts		1,272		(200	)		(115	)		957
Year ended June 30, 2001:
	Allowance for uncollectible accounts		957		50			(505	)		502

QuickLinks

PART I
Fiscal 2001 Revenues (dollars in millions)
Production at The Company's Winemaking Facilities
The Company's Vineyard Properties
Net Production Acres Owned by GSV and Tons Produced
RISK FACTORS
PART II
PART III
PART IV
INDEPENDENT AUDITORS' REPORT
GOLDEN STATE VINTNERS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
GOLDEN STATE VINTNERS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
SIGNATURES
POWER OF ATTORNEY
EX-10.21 3 a2055467zex-10_21.htm EXHIBIT 10.21 Prepared by MERRILL CORPORATION
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Exhibit 10.21

[SANWA BANK CALIFORNIA LOGO]

CREDIT AGREEMENT

(LINE OF CREDIT)

This Agreement (the "Agreement") is made and entered into as of July 5, 2000, by and between SANWA BANK CALIFORNIA (the "Bank") and GOLDEN STATE VINTNERS (the "Borrower"), on the terms and conditions that follow and amends and supercedes that certain Credit Agreement by and between Borrower and Bank dated as of July 5, 2000:

SECTION

1

DEFINITIONS


1.1	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)
	1.1.1	"Advance": shall mean an advance to the Borrower under the credit facility (ies) described in Section 2.
	1.1.2	"Business Day": shall mean a day, other than a Saturday or Sunday, on which commercial banks are open for business in California.
	1.1.3	"Cash Flow": shall mean the sum of net income after tax and exclusive of extraordinary gains, plus depreciation and amortization expense minus dividends and distributions.
	1.1.4	"Collateral": shall mean the property described in Section 3, 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.
	1.1.5	"Crops": shall mean the crops described in Section 3.
	1.1.6	"Current Assets": shall mean current assets as determined in accordance with generally accepted accounting principles, less all amounts due from affiliates, officers or employees.
	1.1.7	"Current Liabilities": shall mean current liabilities as determined in accordance with generally accepted accounting principles, including any negative cash balance on the Borrower's financial statement.
	1.1.8	"Debt": shall mean all liabilities of the Borrower less Subordinated Debt, if any.
	1.1.9	"EBITDA": shall mean earnings exclusive of extraordinary gains and before deductions for interest expense, taxes, depreciation and amortization expense.

–1–

		1.1.10		"Effective Tangible Net Worth": shall mean the Borrower's stated net worth plus Subordinated Debt but less all intangible assets of the Borrower (i.e., goodwill, trademarks, patents, copyrights, organization expense, and similar intangible items including, but not limited to, investments in and all amounts due from affiliates, officers or employees).
		1.1.11		"Environmental Claims": shall mean all claims, however asserted, by any governmental authority or other person alleging potential liability or responsibility for violation of any Environmental Law or for release or injury to the environment or threat to public health, personal injury (including sickness, disease or death), property damage, natural resources damage, or otherwise alleging liability or responsibility for damages (punitive or otherwise), cleanup, removal, remedial or response costs, restitution, civil or criminal penalties, injunctive relief, or other type of relief, resulting from or based upon (a) the presence, placement, discharge, emission or release (including intentional and unintentional, negligent and non-negligent, sudden or non-sudden, accidental or non-accidental placement, spills, leaks, discharges, emissions or releases) of any Hazardous Material at, in, or from property, whether or not owned by the Borrower, or (b) any other circumstances forming the basis of any violation, or alleged violation, of any Environmental Law.
		1.1.12		"Environmental Laws": shall mean all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any governmental authorities, in each case relating to environmental, health, safety and land use matters, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Emergency Planning and Community Right-to-Know Act, the California Hazardous Waste Control Law, the California Solid Waste Management, Resource, Recovery and Recycling Act, the California Water Code and the California Health and Safety Code.
		1.1.13		"Environmental Permits": shall have the meaning provided in Section 5.11 hereof.
		1.1.14		"Equipment": shall mean equipment as defined in the California Uniform Commercial Code.
		1.1.15		"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.
		1.1.16		"Event of Default": shall have the meaning set forth in Section 7.
		1.1.17		"Expiration Date": shall mean July 5, 2002, or the date of termination of the Bank's commitment to lend under this Agreement pursuant to Section 8, whichever shall occur first.
		1.1.18		"Fixed Rate Advance": shall have the respective meaning as it is defined for each facility under Section 2, hereof if applicable.
		1.1.19		"Fixed Rate": shall have the respective meaning as it is defined for each facility under Section 2, hereof if applicable.

–2–

		1.1.20		"Hazardous Materials": shall mean all those substances which are regulated by, or which may form the basis of liability under, any Environmental Law, including all substances identified under any Environmental Law as a pollutant, contaminant, hazardous waste, hazardous constituent, special waste, hazardous substance, hazardous material, or toxic substance, or petroleum or petroleum derived substance or waste.
		1.1.21		"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.
		1.1.22		"Interest Period": shall have the respective meaning as it is defined for each facility under Section 2, hereof;
		1.1.23		"Inventory": shall mean the inventory described in Section 3.
		1.1.24		"Letter of Credit Sub-Facility": shall mean the credit facility described as such in Section 2.
		1.1.25		"LIBOR Advance": shall have the respective meaning as it is defined for each facility under Section 2, hereof.
		1.1.26		"LIBOR Interest Period": shall have the respective meaning as it is defined for each facility under Section 2, hereof.
		1.1.27		"LIBOR Rate": shall have the respective meaning as it is defined for each facility under Section 2, hereof.
		1.1.28		"Line Account": shall have the meaning provided in Section 2.3 hereof.
		1.1.29		"Line of Credit": shall mean the credit facility described as such in Section 2.
		1.1.30		"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.
		1.1.31		"Ordinary Course of Business": shall mean, with respect to any transaction involving the Borrower or any of its subsidiaries or affiliates, the ordinary course of the Borrower's business, as conducted by the Borrower in accordance with past practice and undertaken by the Borrower in good faith and not for the purpose of evading any covenant or restriction in this Agreement or in any other document, instrument or agreement executed in connection herewith.

–3–

	1.1.32	"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 not yet due, (iii) liens of materialmen, mechanics, warehousemen, producers, laborers or carriers 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 herein; (v) liens and security interests which, as of the date hereof, have been disclosed to and approved by the Bank in writing; and (vi) 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.
	1.1.33	"Reference Rate": shall mean an index for a variable interest rate which is quoted, published or announced by Bank as its reference rate and as to which loans may be made by Bank at, above or below such rate.
	1.1.34	"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.
	1.1.35	"Variable Rate Advance": shall have the respective meaning as it is defined for each facility under Section 2, hereof.
	1.1.36	"Variable Rate": shall have the respective meaning as it is defined for each facility under Section 2, hereof.
1.2	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.
1.3	Other Terms: Other terms not otherwise defined shall have the meanings attributed to such terms in the California Uniform Commercial Code.

–4–

SECTION

2

CREDIT FACILITIES


2.1	THE LINE OF CREDIT
	2.1.1	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 $28,000,000.00 (the "Line of Credit"). Within the foregoing limits, the Borrower may borrow, partially or wholly prepay, and reborrow under this Section 2.1. Proceeds of the Line of Credit shall be used for general working capital purposes.
	2.1.2	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 and provided such request is made in a timely manner as provided in Section 2.1.5 below, Advances shall be made by the Bank under the Line of Credit.
	2.1.3	Repayment: 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.
2.1.4		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 Subsection (i) or Subsection (ii) or Subsection (iii) below:
		(i)	Variable Rate Advances: A variable rate per annum equivalent to the Reference Rate (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".
		(ii)	Fixed Rate Advances: A fixed rate per annum quoted by the Bank for 30, 60, 90 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 "Interest Period") for Advances in the minimum amount of $250,000.00. Such interest rate shall be a percentage equal to .95% 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 borrowing or purchase by the Bank 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"). Advances based upon the Fixed Rate are hereinafter referred to as "Fixed Rate Advances".

–5–

	(iii)	LIBOR Advances: A fixed rate quoted by the Bank for 1, 2, 3, or 6 months 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 "LIBOR Interest Period") for Advances in the minimum amount of $250,000.00. Such interest rate shall be a percentage equal to .95% in excess of the Bank's LIBOR Rate which is that rate determined by the Bank's Treasury Desk as being the arithmetic mean (rounded upwards, if necessary, to the nearest whole multiple of one-sixteenth of one percent (1/16%)) of the U.S. dollar London Interbank Offered Rates for such period appearing on page 3750 (or such other page as may replace page 3750) of the Telerate screen at or about 11:00 a.m. (London time) on the second Business Day prior to the first days of such period (adjusted for any and all assessments, surcharges and reserve requirements) (the "LIBOR Rate"). An Advance based upon the LIBOR Rate is hereinafter referred to as a "LIBOR 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.
		The Borrower hereby promises and agrees to pay interest in arrears on all Advances on the 5^th calendar day of each month.
		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.
2.1.5	Notice of Borrowing: Upon written or telephonic notice which shall be received by the Bank at or before 2:00 p.m. (California time) on a Business Day, the Borrower may borrow under the Line of Credit by requesting:
	(i)	A Variable Rate Advance or Fixed Rate Advance: A Variable Rate Advance or Fixed Rate Advance may be made on the day notice is received by the Bank; provided, however, that if the Bank shall not have received notice at or before 2:00 p.m. on the day such Advance is requested to be made, such Variable Rate Advance or Fixed Rate Advance may, at the Bank's option, be made on the next Business Day.
	(ii)	A LIBOR Advance: Notice of any LIBOR Advance shall be received by the Bank no later than two Business Days prior to the day (which shall be a Business Day) on which the Borrower requests such LIBOR Advance to be made.
2.1.6	Notice of Election to Adjust Interest Rate: Upon telephonic notice which shall be received by the Bank at or before 2:00 p.m. (California time) on a Business Day, the Borrower may elect:
	(i)	That interest on a Variable Rate Advance shall be adjusted to accrue at the Fixed Rate; provided, however, that such notice shall be received by the Bank no later than 2:00 p.m. on the Business Day on which the Borrower requests that interest be adjusted to accrue at the Fixed Rate.

–6–

–7–

	2.1.8	Indemnification for LIBOR Rate or Fixed Rate Costs: During any period of time in which interest on any Advance is accruing on the basis of the LIBOR Rate or Fixed 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 LIBOR Rate or Fixed Rate.
	2.1.9	Conversion from LIBOR Rate or Fixed 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 LIBOR Rate or Fixed Rate (i) has become infeasible because the Bank is unable to determine the LIBOR Rate or Fixed 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 LIBOR Interest Period or Interest Period as the case may be or (ii) is or has become unlawful 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 promptly give telephonic notice thereof (confirmed in writing) to the Borrower, in which event any Advance bearing interest at either the LIBOR Rate or Fixed Rate as the case may be shall be deemed to be a Variable Rate Advance and interest shall thereupon immediately accrue at the Variable Rate and shall continue at such rate until the Bank determines that the LIBOR Rate or Fixed Rate is no longer infeasible or unlawful.
	2.1.10	Commitment Fee: The Borrower agrees to pay to the Bank a commitment fee on the unused portion of the Line of Credit of .125% per annum, payable quarterly in arrears, commencing September 15, 2000, and computed on a year of 360 days for actual days elapsed.
2.2	LETTER OF CREDIT SUB-FACILITY
	2.2.1	Letter of Credit Sub-Facility: The Bank agrees to issue standby letters of credit (each a "Letter of Credit") on behalf of the Borrower of up to $3,000,000.00. At no time, however, shall the total principal amount of all Advances outstanding under the Line of Credit, together with the total face amount of all Letters of Credit outstanding, less any partial draws paid by the Bank, exceed the Line of Credit.
		(i)	Upon the Bank's request, the Borrower shall promptly pay to the Bank issuance fees 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.
		(ii)	The committment 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 of the Line of Credit and no Letter of Credit shall expire on a date which is after the Expiration Date.

–8–

		(iii)	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.
		(iv)	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.
		(v)	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.
	In the event that the Borrower fails to pay any drawing under any Letter of Credit or the balances in the depository account or accounts maintained by the Borrower with Bank are insufficient to pay such drawing, without limiting the rights of Bank hereunder or waiving any Event of Default caused thereby, Bank may, and Borrower hereby authorizes Bank to create an Advance bearing interest at the rate or rates provided in Section 9.2 hereof to pay such drawing.
2.3	Line Account: 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 credit facilities granted hereunder (the "Line Account"). The Bank shall provide the Borrower with a 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.
2.4	Authorization to Charge Account(s): The Borrower hereby authorizes the Bank, if and to the extent payment owed to the Bank under this Agreement 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.
2.5	Payments: If any payment required to be made by the Borrower hereunder becomes due and payable on a day other than a Business Day, the due date thereof shall be extended to the next succeeding Business Day and interest thereon shall be payable at the then applicable rate during such extension. All payments required to be made hereunder shall be made to the office of the Bank designated for the receipt of notices herein or such other office as Bank shall from time to time designate.
2.6	Late Payment: In addition to any other rights the Bank may have hereunder, if any payment of principal or interest or any portion thereof, under this Agreement is not paid within 5 days of when due, a late payment charge equal to five percent (5%) of such past due payment may be assessed and shall be immediately payable.

–9–

SECTION

3

COLLATERAL


3.1	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 Borrower's right, title and interest in and to the following property ("Collateral"):
		(i)	Inventory. 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 (the "Inventory").
		(ii)	Accounts. 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, trademark applications, trade styles, trade names, patents, patent applications, copyrights and copyright applications, customer lists, business records and computer programs, tapes, disks and related data processing software that at any time evidence or contain information relating to any of the Collateral.
		(iii)	Documents. All documents, instruments and chattel paper now owned or hereafter acquired by the Borrower, including, but not limited to, warehouse and other receipts, bills of sale and bills of lading.
		(iv)	Monies. All monies, deposit accounts, certificates of deposit and securities of the Borrower now or hereafter in the Bank's or its agents' possession.
		(v)	Crops. 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 "A" (the "Real Property").
		(vi)	Farm Products. 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.
		(vii)	Water Rights. 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.
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.
The security interest granted to Bank in the Collateral shall not secure or be deemed to secure any indebtedness of the Borrower to the Bank which is, at the time of its creation, subject to the provisions of any state or federal consumer credit or truth-in-lending disclosure statutes.

–10–

SECTION

4

CONDITIONS PRECEDENT


4.1	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:
		(i)	Authority to Borrow. 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.
		(ii)	Guarantors. Continuing guaranty in favor of the Bank executed by the following, together with evidence that the execution, delivery and performance by any guarantor has been duly authorized: Golden State Vintners, Inc.
		(iii)	Fees. Payment of all of the Bank's out-of-pocket expenses in connection with the preparation and negotiation of this Agreement.
		(iv)	Financing Statements. Executed UCC-1 financing statement(s) describing the Collateral which have been filed with the Secretary of State or the county recorder as a lien of first priority.
		(v)	Miscellaneous. 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.
4.2	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 Borrower (including the initial Advance and the first extension of credit) shall be subject to the further conditions precedent that, on the date of each Advance or each extension of credit and after the making of such Advance or extension of credit:
		(i)	Subsequent Approvals. The Bank shall have received such supplemental approvals, opinions or documents as the Bank may reasonably request.
		(ii)	Representations and Warranties. The representations contained in Section 5 and in any other document, instrument or certificate delivered to the Bank hereunder are true, correct and complete.
		(iii)	Event of Default. No event has occurred and is continuing which constitutes, or with the lapse of time or giving of notice or both, would constitute an Event of Default.
		(iv)	Collateral. The security interest in the Collateral has been duly authorized, created and perfected with first priority and is in full force and effect.

The Borrower's acceptance of the proceeds of any loan, advance or extension of credit or the Borrower's execution of any document or instrument evidencing or creating any Obligation hereunder shall be deemed to constitute the Borrower's representation and warranty that all of the above statements are true and correct.

–11–

SECTION

5

REPRESENTATIONS AND WARRANTIES

The Borrower hereby makes the following representations and warranties to the Bank, which representations and warranties are continuing:

	Trade Style		State of Use
See attached Exhibit "B"			All


5.5		Financial Statements: All financial statements, information and other data which may have been or which may hereafter be submitted by the Borrower to the Bank are true, accurate and correct and have been or will be prepared in accordance with generally accepted accounting principles consistently applied and accurately represent the financial condition or, as applicable, the other information disclosed therein. Since the most recent submission of such financial information or data to the Bank, the Borrower represents and warrants that no material adverse change in the Borrower's financial condition or operations has occurred which has not been fully disclosed to the Bank in writing.
5.6		Litigation: Except as have been disclosed to the Bank in writing, there are no actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or the Borrower's properties before any court or administrative agency which, if determined adversely to the Borrower, would have a material adverse effect on the Borrower's financial condition or operations or on the Collateral.

–12–


5.7	Title to Assets: The Borrower has good and marketable title to all of its assets (including, but not limited to, the Collateral) and the same are not subject to any security interest, encumbrance, lien or claim of any third person except for Permitted Liens.
5.8	ERISA: If the Borrower has a pension, profit sharing or retirement plan subject to ERISA, such plan has been and will continue to be funded in accordance with its terms and otherwise complies with and continues to comply with the requirements of ERISA.
5.9	Taxes: The Borrower has filed all tax returns required to be files and paid all taxes shown thereon to be due, including interest and penalties, other than such taxes which are currently payable without penalty or interest of those which are being duly contested in good faith.
5.10	Margin Stock: The proceeds of any loan or advance hereunder will not be used to purchase or carry margin stock as such term is defined under Regulation U of the Board of Governors of the Federal Reserve System.
5.11	Environmental Compliance: The operations of the Borrower comply, and during the term of this Agreement will at all times comply, in all respects with all Environmental Laws; the Borrower has obtained all licenses, permits, authorizations and registrations required under any Environmental Law ("Environmental Permits") and necessary for its ordinary course operations, all such Environmental Permits are in good standing, and the Borrower is in compliance with all material terms and conditions of such Environmental Permits; neither the Borrower nor any of its present property or operations is subject to any outstanding written order from or agreement with any governmental authority nor subject to any judicial or docketed administrative proceeding, respecting any Environmental Law, Environmental Claim or Hazardous Material; there are no Hazardous Materials or other conditions or circumstances existing, or arising from operations prior to the date of this Agreement, with respect to any property of the Borrower that would reasonably be expected to give rise to Environmental Claims; provided, however, that with respect to property leased from an unrelated third party, the foregoing representation is made to the best knowledge of the Borrower. In addition, (i) the Borrower does not have any underground storage tanks that are not properly registered or permitted under applicable Environmental Laws, or that are leaking or disposing of Hazardous Materials off-site, and (ii) the Borrower has notified all of their employees of the existence, if any, of any health hazard arising from the conditions of their employment and have met all notification requirements under Title III of CERCLA and all other Environmental Laws.
5.12	Inventory:
		(i)	The Borrower keeps correct and accurate records.
		(ii)	All inventory is of good and merchantable quality, free from defects.
		(iii)	The inventory is not stored with a bailee, warehouseman or similar party.
		(iv)	The Borrower is not a "retail merchant" as defined in the California Uniform Commercial Code.
5.13	Water: As of the date of this Agreement, sufficient water is available and is projected to be available, from verifiable surface and ground water sources, or to conduct operations materially similar to prior years' operations as evidenced by information provided by any Borrower to the Bank. Borrower has filed with all governmental agencies, all notices and other documents required under Federal, state and local laws and regulations in connection with the supply of water to and use of water upon the Real Property.

–13–

SECTION

6

COVENANTS

The Borrower covenants and agrees that, during the term of this Agreement, and so long thereafter as the Borrower is indebted to the Bank under the Agreement, the Borrower will, unless the Bank shall otherwise consent in writing:


6.1	Reporting and Certification Requirements: Deliver or cause to be delivered to the Bank in form and detail satisfactory to the Bank:
		(i)	Not later than 120 days after the end of each of the Borrower's fiscal years, a copy of the annual audited financial report of the Borrower for such year, prepared by a firm of certified public accountants acceptable to Bank and accompanied by an unqualified opinion of such firm.
		(ii)	Not later than 60 days after the end of each fiscal quarter, the Borrower's financial statements as of the end of such period and a copy of Golden State Vintners, Inc.'s Form 10Q filed with the Securities and Exchange Commission.
		(iii)	Concurrently with the delivery of the financial reports required hereunder, a compliance certificate stating that the Borrower is in compliance with all covenants contained herein and that no Event of Default or potential Event of Default has occurred or is continuing, and certified to by the chief financial officer of the Borrower.
		(iii)	A ratio of Current Assets to Current Liabilities of not less than 1.5 to 1 at each fiscal year end.
		(iv)	A ratio of Cash Flow to the current portion of long term Debt of not less than 1.25 to 1 at each fiscal year end.
		(v)	EBITDA of at least $1.00 at the end of each fiscal quarter, with EBITDA based upon the immediately preceding three fiscal quarters and the current quarter just ended.
6.3	Preservation of Existence; Compliance with Applicable Laws: Maintain and preserve its existence and all rights and privileges now enjoyed; and conduct its business and operations in accordance with all applicable laws, rules and regulations.
6.4	Merge or Consolidate: Not liquidate or dissolve, merge or consolidate with or into, or acquire any other business organization.
6.5	Maintenance of Insurance: Keep and maintain the Collateral insured for not less than its full replacement value against all risks of loss and damage and maintain insurance in such amounts and covering such risks as is usually carned by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower operates and maintain such other insurance and coverages as may be required by the Bank. All such insurance shall be in form and amount and with companies satisfactory to the Bank.

–14–

		With respect to insurance covering properties in which the Bank maintains a security interest or lien, such insurance shall name the Bank as loss payee pursuant to a loss payable endorsement satisfactory to the Bank and shall not be altered or canceled except upon 10 days' prior written notice to the Bank. Upon the Bank's request, the Borrower shall furnish the Bank with the original policy or binder of all such insurance.
6.6		Maintenance of Collateral and Other Properties: Except for Permitted Liens, keep and maintain the Collateral free and clear of all levies, liens, encumbrances and security interests (including, but not limited to, any lien of attachment, judgement or execution not discharged, bonded against or released within 60 days) and defend the Collateral against any such levy, lien encumbrance or security interest; comply with all laws, statutes and regulations pertaining to the Collateral and its use and operation; execute, file and record such statements, notices and agreements, take such actions and obtain such certificates and other documents as necessary to perfect, evidence and continue Bank's security interest in the Collateral and the priority thereof; maintain accurate and compete records of the Collateral which show all sales, claims and allowances; and properly care for, house, store and maintain the Collateral in good condition, free of misuse, abuse and deterioration, other than normal wear and tear. The Borrower shall also maintain and preserve all its properties in good working order and condition in accordance with the general practice of other businesses of similar character and size, ordinary wear and tear excepted.
6.7		Payment of Obligations and Taxes: Make timely payment of all assessments and taxes and all of its liabilities and obligations including, but not limited to, trade payables, unless the same are being contested in good faith by appropriate proceedings with the appropriate court or regulatory agency. For purposes hereof, the Borrower's issuance of a check, draft or similar instrument without delivery to the intended payee shall not constitute payment.
6.8		Inspection Rights and Accounting Records: The Borrower will maintain adequate books and records in accordance with generally accepted accounting principles consistently applied and in a manner otherwise acceptable to Bank, and, at any reasonable time and from time to time, permit the Bank or any representative thereof to examine and make copies of the records and visit the properties of the Borrower and discuss the business and operations of the Borrower with any employee or representative thereof. If the Borrower shall maintain any records (including, but not limited to, computer generated records or computer programs for the generation of such records) in the possession of a third party, the Borrower hereby agrees to notify such third party to permit the Bank free access to such records at all reasonable times and to provide the Bank with copies of any records which it may request, all at the Borrower's expense, the amount of which shall be payable immediately upon demand.
6.9		Liens and Encumbrances: Not create, assume or permit to exist any security interest, encumbrance, mortgage, deed of trust, or other lien (including, but not limited to, a lien of attachment, judgement or execution) affecting any of the Borrower's properties, or execute or allow to be filed any financing statement or continuation thereof affecting any of such properties, except for Permitted Liens or as otherwise provided in this Agreement, and except liens and security interests associated with Indebtedness of up to $1,000,000.00 in any one fiscal year.
6.10		Transfer Assets: Not, after the date hereof, sell, contract for sale, convey, transfer, assign, lease or sublet, any of its assets (including, but not limited to, the Collateral) except in the Ordinary Course of Business and, then, only for full, fair and reasonable consideration.
6.11		Change in Nature of Business: Not make any material change in its financial structure or the nature of its business as existing or conducted as of the date hereof.

–15–


6.12	Compensation of Employees: Compensate its employees for services rendered at an hourly rate at least equal to the minimum hourly rate prescribed by any applicable federal or state law or regulation.
6.13	Capital Expense: Not make any fixed capital expenditure or any commitment therefor, including, but not limited to, incurring liability for leases which would be, in accordance with generally accepted accounting principles, reported as capital leases, or purchase any real or personal property in an aggregate amount exceeding $14,000,000.00 in any one fiscal year.
6.14	Notice: Give the Bank prompt written notice of any and all (i) Events of Default; (ii) litigation, arbitration or administrative proceedings to which the Borrower is a party and in which the claim or liability exceeds $500,000.00 or which affects the Collateral; (iii) other matters which have resulted in, or might result in a material adverse change in the Collateral or the financial condition or business operations of the Borrower, and (iv) any enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened against the Borrower or any of its properties.
6.15	Environmental Compliance: The Borrower shall conduct its operations and keep and maintain all of its property in compliance with all Environmental Laws and, upon the written request of the Bank, the Borrower shall submit to the Bank, at the Borrower's sole and cost and expense, at reasonable intervals, a report providing the status of any environmental, health or safety compliance, hazard or liability.
6.16	Inventory:
		(i)	Except as provided herein below, the Borrower's inventory shall, at all times, be in the Borrower's physical possession, shall not be held by others on consignment, sale on approval, or sale or return and shall be kept only at: 607 Airport Road, Napa, CA 94558, 38558 Rd. 128, Cutler, CA 93615; 8418 South Lac Jac Ave., Parlier, CA 93648; 7409 W. Central Ave., Fresno, CA 93706; 401 S. St. Helena Hwy., St. Helena, CA 94574; 1777 Metz Road, Soledad, CA 93960; and 1075 Golden Gate Drive, Napa, CA 94559.
		(ii)	The Borrower shall keep correct and accurate records.
		(iii)	All inventory shall be of good and merchantable quality, free from defects.
		(iv)	The inventory shall not at any time or times hereafter be stored with a bailee, warehouseman or similar party without the Bank's prior written consent and, in such event, the Borrower will concurrently therewith cause any such bailee, warehouseman or similar party to issue and deliver to the Bank, in form acceptable to the Bank, warehouse receipts in the Bank's name evidencing the storage of inventory.
		(v)	At any reasonable time and from time to time during normal business hours and with reasonable notice, allow Bank to have the right, upon demand, to inspect and examine inventory and to check and test the same as to quality, quantity, value and condition and the Borrower agrees to reimburse the Bank for the Bank's reasonable costs and expenses in so doing.
6.17	Location of the Harvested Crops: Any Crops now or hereafter harvested or removed from the Real Property shall not be stored with a bailee, warehouseman or similar party without the Bank's prior written consent and shall be kept only at the following location(s): 38558 Rd. 128, Cutler, CA 93615; 8418 South Lac Jac Ave., Parlier, CA 93648; 7409 W. Central Ave., Fresno, CA 93706; 401 S. St. Helena Hwy., St. Helena, CA 94574; 1777 Metz Road, Soledad, CA 93960; and 1075 Golden Gate Drive, Napa, CA 94559.
6.18	Care and Preservation of the Crops:

–16–

		(i)	Attend to and care for the Crops and do or cause to be done any and all acts that may at any time be appropriate or necessary to grow, farm, cultivate, irrigate, fertilize, fumigate, prune, harvest, pick, clean, preserve and protect the Crops.
		(ii)	Not commit or suffer to be committed any waste of or damage to the Crops.
		(iii)	Permit the Bank and any of its agents, employees or representatives to enter upon the Real Property at any reasonable time and from time to time for the purpose of examining and inspecting the Crops and the Real Property.
		(iv)	Harvest and prepare the Crops for market and promptly notify the Bank when any of the Crops are ready for market.
		(v)	Keep the Crops separate and always capable of identification.
		(vi)	Comply with any requirements or instructions of the Bank with respect to hauling, shipping, storing, marketing and otherwise preparing, handling and disposing of the Crops.
6.19	Evidence of Water Availability: At such times as the Bank may request, to deliver to the Bank a certificate stating that the amount of water available and projected to be available is sufficient to conduct operations materially similar to prior years' operations, as evidenced by information provided by the Borrower to the Bank. Such certificate shall be signed, at the Bank's option, either by the Borrower or by an independent third party, such as an officer of the Borrower's water district or other supplier of water.

SECTION

7

EVENTS OF DEFAULT

–17–

7.5		Insolvency: The Borrower or any guarantor shall: (i) become insolvent or be unable to pay its debts as they mature; (ii) make an assignment for the benefit of creditors or to an agent authorized to liquidate any substantial amount of its properties and assets; (iii) file a voluntary petition in bankruptcy or seeking reorganization or to effect a plan or other arrangement with creditors; (iv) file an answer admitting the material allegations of an involuntary petition relating to bankruptcy or reorganization or join in any such petition; (v) become or be adjudicated a bankrupt; (vi) apply for or consent to the appointment of, or consent that an order be made, appointing any receiver, custodian or trustee, for itself or any of its properties, assets or businesses; or (vii) in an involuntary proceeding, any receiver, custodian or trustee shall have been appointed for all or substantial part of the Borrower's or guarantor's properties, assets or businesses and shall not be discharged within 60 days after the date of such appointment.
7.6		Execution: Any writ of execution or attachment or any judgment lien shall be issued against any property of the Borrower and shall not be discharged or bonded against or released within 60 days after the issuance or attachment of such writ or lien.
7.7		Revocation or Limitation of Guaranty: Any guaranty shall be revoked or limited or its enforceability or validity shall be contested by any guarantor, by operation of law, legal proceeding or otherwise or any guarantor who is a natural person shall die.
7.8		Suspension: The Borrower shall voluntarily suspend the transaction of business or allow to be suspended, terminated, revoked or expired any material permit, license or approval of any governmental body necessary to conduct the Borrower's business as now conducted.
7.9		Material Adverse Change: If there occurs a material adverse change in the Borrower's business or financial condition, or if there is a material impairment of the prospect of repayment of any portion of the Obligations or there is a material impairment of the value or priority of the Bank's security interest in the Collateral.
7.10		Change in Ownership: There shall occur a sale, transfer, disposition or encumbrance (whether voluntary or involuntary to), or an agreement shall be entered into to do so with, any Person or group of Persons (as such terms are defined pursuant to Federal securities laws) with respect to more than 19% of the issued and outstanding capital stock of the Borrower and, as a result thereof, such Person or group of Persons has the ability to direct or cause the direction of the management and policies of the Borrower.
7.11		Impairment of Collateral: There shall occur any injury or damage to all or any part of the Collateral or all or any part of the Collateral shall be lost, stolen or destroyed.
7.12		Water Quality/Amount: The Borrower's water is or is projected to be insufficient in amount or unsuitable in quality, as determined by the Bank in either case, to conduct operations as described in projections or by information provided by Borrower to the Bank.

–18–

SECTION

8

REMEDIES ON DEFAULT

Upon the occurrence of any Event of Default, the Bank may, at its sole and absolute election, without demand and only upon such notice as may be required by law:

–19–

8.7		Care and Possession of the Crops: Enter upon the Real Property and, using any and all of the Borrower's equipment, machinery, tools, farming implements and supplies, and improvements located on the Real Property: (i) farm, cultivate, irrigate, fertilize, fumigate, prune and perform any other act of acts appropriate or necessary to grow, care for, maintain, preserve and protect the Crops (using any water located in, on or adjacent to the Real Property); (ii) harvest, pick, clean and remove the Crops from the Real Property; and (iii) appraise, store, prepare for public or private sale, exhibit, market and sell the Crops and the products thereof; provided that the Borrower hereby agrees that, if the Borrower is the owner of the Real Property, the Bank shall not be responsible or liable for returning the Real Property to its condition immediately preceding the use of the Real Property as provided herein or for doing such acts as may be necessary to permit future crops to be grown on the Real Property.
8.8		Non-Exclusivity of Remedies: Exercise one or more of the Bank's rights set forth herein or seek such other rights or pursue such other remedies as may be provided by law, in equity or in any other agreement now existing or hereafter entered into between the Borrower and the Bank, or otherwise.
8.9		Application of Proceeds: All amounts received by the Bank as proceeds from the disposition or liquidation of the Collateral shall be applied to the Borrower's indebtedness to the Bank as follows: first, to the costs and expenses of collection, enforcement, protection and preservation of the Bank's lien in the Collateral, including court costs and reasonable attorneys' fees, whether or not suit is commenced by the Bank; next, to those costs and expenses incurred by the Bank in protecting, preserving, enforcing, collecting, liquidating, selling or disposing of the Collateral, next, to the payment of accrued and unpaid interest on all of the Obligations; next, to the payment of the outstanding principal balance of the Obligations, and last to the payment of any other indebtedness owed by the Borrower to the Bank.

SECTION

9

MISCELLANEOUS

–20–

To the Borrower:		To the Bank:
GOLDEN STATE VINTNERS		SANWA BANK CALIFORNIA
607 Airport Road		Fresno Office (CBC)
Napa, CA 94558		2035 Fresno Street
Attn: Jeffrey B. O'Neill		Fresno, CA 93721
FAX: (707) 254-4900		Attn: Robert Griffin
Or		FAX: (559) 487-2157
8418 S. Lac Jac Ave. Parlier, CA 93648 Attn: Brian R. Thompson FAX: (559) 638-6272

–21–


9.7		Waiver: Neither the failure nor delay by the Bank in exercising any right hereunder or under any document, instrument or agreement mentioned herein shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder or under any other document, instrument or agreement mentioned herein preclude other or further exercise thereof or the exercise of any other right, nor shall any waiver of any right or default hereunder, or under any other document, instrument or agreement mentioned herein, constitute a waiver of any other right or default or constitute a waiver of any other default of the same or any other term or provision.
9.8		Conflicting Provisions: To the extent the provisions contained in this Agreement are inconsistent with those contained in any other document, instrument or agreement executed pursuant hereto, the terms and provisions contained herein shall control. Otherwise, such provisions shall be considered cumulative.
9.9		Binding Effect; Assignment: This Agreement shall be binding upon and inure to the benefit of the Borrower and the Bank and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Bank. The Bank may sell, assign or grant participation in all or any portion of its rights and benefits hereunder. The Borrower agrees that, in connection with any such sale, grant or assignment, the Bank may deliver to the prospective buyer, participant or assignee financial statements and other relevant information relating to the Borrower and any guarantor.
9.10		Jurisdiction: This Agreement, any notes issued hereunder, the rights of the parties hereunder to and concerning the Collateral, and any documents, instruments or agreements mentioned or referred to herein shall be governed by and construed according to the laws of the State of California without regard to conflict of law principles, to the jurisdiction of whose courts the parties hereby submit.
9.11		Waiver of Jury Trial: THE BORROWER AND THE BANK EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE BORROWER AND THE BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
9.12		Counterparts: This Agreement may be executed in any number of counterparts and all such counterparts taken together shall be deemed to constitute one and the same instrument.
9.13		Headings: The headings herein set forth are solely for the purpose of indentification and have no legal significance.

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9.14

Entire Agreement and Amendments: This Agreement and all documents, instruments and agreements mentioned herein constitute the entire and complete understanding of the parties with respect to the transactions contemplated hereunder. All previous conversations, memoranda and writings between the parties pertaining to the transactions contemplated hereunder not incorporated or referenced in this Agreement or in such documents, instruments and agreements are superseded hereby. This Agreement may be amended only by an instrument in writing signed by the Borrower and the Bank.

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


BANK:				BORROWER:

SANWA BANK CALIFORNIA				GOLDEN STATE VINTNERS

BY: NAME: Robert Griffin, Vice President				BY: /s/ BRIAN R. THOMPSON NAME: Brian R. Thompson, CFO

				BY: /s/ RALPH LENAMON NAME: Ralph Lenamon, Assistant Treasurer

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Exhibit 10.21

CREDIT AGREEMENT
SECTION 1 DEFINITIONS
SECTION 2 CREDIT FACILITIES
SECTION 3 COLLATERAL
SECTION 4 CONDITIONS PRECEDENT
SECTION 5 REPRESENTATIONS AND WARRANTIES
SECTION 6 COVENANTS
SECTION 7 EVENTS OF DEFAULT
SECTION 8 REMEDIES ON DEFAULT
SECTION 9 MISCELLANEOUS
EX-10.22 4 a2055467zex-10_22.htm EXHIBIT 10.22 Prepared by MERRILL CORPORATION
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Exhibit 10.22

FIRST AMENDMENT TO CREDIT AGREEMENT

This First Amendment to Credit Agreement (the "Amendment") is made and entered into this 21st day of June, 2001 by and between SANWA BANK CALIFORNIA (the "Bank") and GOLDEN STATE VINTNERS (the "Borrower") with respect to the following.

This Amendment shall be deemed to be a part of and subject to that certain Credit Agreement dated as of July 5, 2000, as it may be amended from time to time, and any and all addenda and riders thereto (collectively the "Agreement"). Unless otherwise defined herein, all terms used in this Amendment shall have the same meanings as in the Agreement. To the extent that any of the terms or provisions of this Amendment conflict with those contained in the Agreement, the terms and provisions contained herein shall control.

WHEREAS, the Borrower and the Bank mutually desire to extend and/or modify the Agreement.

NOW THEREFORE, for value received and hereby acknowledged, the Borrower and the Bank agree as follows:

1. Change in Dollar Amount. The dollar amount provided for in Section 2.1.1 of the Agreement shall be changed from $28,000,000.00 to $16,000,000.00.

2. Modification of Notices. The dollar amount provided for in Section 6.14 of the Agreement shall be changed from $500,000.00 to $250,000.00.

3. Representations and Warranties. The Borrower hereby reaffirms the representations and warranties contained in the Agreement and represents that no event, which with notice or lapse of time, could become an Event of Default, has occurred or is continuing.

4. Confirmation of Other Terms and Conditions of the Agreement. Except as specifically provided in this Amendment, all other terms, conditions and covenants of the Agreement unaffected by this Amendment shall remain unchanged and shall continue in full force and effect and the Borrower hereby covenants and agrees to perform and observe all terms, covenants and agreements provided for in the Agreement, as hereby amended.

5. Governing Law. This Amendment shall be governed and construed in accordance with the laws of the State of California to which jurisdiction the parties hereto hereby consent and submit.

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

IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto as of the date first hereinabove written.


BANK:		BORROWER:
SANWA BANK CALIFORNIA		GOLDEN STATE VINTNERS
By:	/s/ KEITH L. KRUM	By:	/s/ JOHN KELLEHER
	Keith L. Krum, Senior Vice President		John Kelleher, Chief Financial Officer
		By:	/s/ RALPH LENAMON
			Ralph Lenamon, Assistant Treasurer

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CONTINUING GUARANTY

For value received and in consideration of the extension of credit by SANWA BANK CALIFORNIA (the "Bank") to GOLDEN STATE VINTNERS (the "Debtor") or the benefits to the undersigned derived therefrom, the undersigned (each, a "Guarantor"), guarantees and promises to pay to the Bank any and all Indebtedness (as defined in Subsection 1 below) and agrees as follows:

1.: Indebtedness. The term "Indebtedness" is used herein in its most comprehensive sense and includes any and all advances, debts, obligations, guaranties and liabilities of the Debtor, or any one or more of them, heretofore, now, or hereafter made, incurred or created, whether voluntary or involuntary and however arising, whether direct or acquired by the Bank by assignment, succession, or otherwise, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, secured or unsecured, whether on original, renewed, extended or revised terms, and whether the Debtor may be liable individually or jointly with others, or whether recovery upon any Indebtedness may be or hereafter becomes barred by any statute of limitations or whether any Indebtedness may be or hereafter becomes otherwise unenforceable.
2.: Guaranty. The Guarantor unconditionally agrees to pay to the Bank or its order, on demand, in lawful money of the United States of America, an amount equal to the amount of the Indebtedness and to otherwise perform any obligation of the Debtor undertaken pursuant to any Indebtedness. The Guarantor agrees to (a) bear the expenses enumerated in Subsection 20 hereof and (b) pay interest on the Indebtedness at the rate(s) applicable thereto.
3.: Right to Amend or Modify Indebtedness and/or Collateral. The Guarantor authorizes the Bank, at its sole discretion, with or without notice and without affecting the Guarantor's liability hereunder, from time to time to: (a) change the time or manner of payment of any Indebtedness by renewal, extension, modification, acceleration or otherwise; (b) alter or change any provision of any Indebtedness including, but not limited to, the rate of interest thereon, and any document, instrument or agreement (other than this Guaranty) evidencing, guaranteeing, securing or related to any Indebtedness; (c) release, discharge, exonerate, substitute or add one or more parties liable on any Indebtedness or one or more endorsers, cosigners or guarantors for any Indebtedness; (d) obtain collateral for the payment of any Indebtedness or any guaranty thereof; (e) release existing or after-acquired collateral on such terms as the Bank, in its sole discretion, shall determine; (f) apply any sums received from the Debtor, any endorser, cosigner, other guarantor or other person liable on any Indebtedness or from the sale or collection or collateral or its proceeds to any Indebtedness whatsoever owed or to be owed to the Bank by the Debtor in any order or amount and regardless of whether or not such Indebtedness is guaranteed hereby, is secured by collateral or is due and payable; (g) apply any sums received from the Guarantor or from the sale of collateral granted by the Guarantor to any Indebtedness in any order or amount regardless of whether such Indebtedness is secured by collateral or is due and payable.
4.: Waivers. The Guarantor hereby unconditionally and irrevocably acknowledges and agrees to the matters set forth below:

(a) Deficiency. In the event that any Indebtedness is now or hereafter secured by a deed of trust, the Guarantor waives any defense and all rights and benefits of those laws purporting to state that no deficiency judgment may be recovered on certain real property purchase money obligations (as presently contained in Section 580b of the California Code of Civil Procedure and as it may be amended or superseded in the future) and those laws purporting to state that no deficiency judgment may be recovered after a trustee's sale under a deed of trust (as presently

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contained in Section 580d of the California Code of Civil Procedure and as it may be amended or superseded in the future). THE GUARANTOR ACKNOWLEDGES THAT A FORECLOSURE BY A TRUSTEE'S SALE UNDER A DEED OR TRUST MAY RESULT IN THE DESTRUCTION OF THE GUARANTOR'S SUBROGATION RIGHTS THAT MAY OTHERWISE EXIST AND THAT A DESTRUCTION OF THOSE RIGHTS MAY CREATE A DEFENSE TO A DEFICIENCY JUDGMENT AGAINST THE DEBTOR AND/OR THE GUARANTOR.

THE GUARANTOR WAIVES ALL RIGHTS AND DEFENSES THAT GUARANTOR MAY HAVE BECAUSE THE INDEBTEDNESS OR ANY PORTION THEREOF IS SECURED BY REAL PROPERTY. THIS MEANS, AMONG OTHER THINGS,

(1) BANK MAY COLLECT FROM THE GUARANTOR WITHOUT FIRST FORECLOSING ON ANY REAL OR PERSON PROPERTY PLEDGED BY THE DEBTOR.

(2) IF THE BANK FORECLOSES ON ANY REAL PROPERTY COLLATERAL PLEDGED BY THE DEBTOR,

A.: THE AMOUNT OF THE INDEBTEDNESS MAY BE REDUCED ONLY BY THE PRICE FOR WHICH THAT COLLATERAL IS SOLD AT THE FORECLOSURE SALE, EVEN IF THE COLLATERAL IS WORTH MORE THAN THE SALE PRICE.
B.: BANK MAY COLLECT FROM THE GUARANTOR EVEN IF THE CREDITOR, BY FORECLOSING ON THE REAL PROPERTY COLLATERAL, HAS DESTROYED ANY RIGHT THE GUARANTOR MAY HAVE TO COLLECT FROM THE DEBTOR.

THIS IS AN UNCONDITIONAL AND IRREVOCABLE WAIVER OF ANY RIGHTS AND DEFENSES THE GUARANTOR MAY HAVE BECAUSE THE INDEBTEDNESS IS SECURED BY REAL PROPERTY. THESE RIGHTS AND DEFENSES INCLUDE, BUT ARE NOT LIMITED TO, ANY RIGHTS AND DEFENSES BASED ON SECTION 580a, 580b, 580d, OR 726 OF THE CALIFORNIA CODE OF CIVIL PROCEDURE.

(b) Election of Remedies. The Guarantor waives any defense based upon the Guarantor's loss of a right against the Debtor arising from the Bank's election of a remedy on any Indebtedness under bankruptcy or other debtor relief laws or under any other laws, including, but not limited to, those purporting to reduce the Bank's right against the Guarantor in proportion to the principal obligation of any Indebtedness (as presently contained in Section 2809 of the California Civil Code and as it may be amended or superseded in the future).

Without limiting the generality of the foregoing, Guarantor waives all rights and defenses arising out of an election of remedies by the Bank, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed the Guarantor's rights of subrogation and reimbursement against the Debtor (principal) by operation of Section 580d of the Code of Civil Procedure or otherwise.

(c) Statute of Limitations. To the maximum extent permitted by law, the Guarantor waives the benefit of the statute of limitations affecting the Guarantor's liability hereunder or the enforcement hereof.

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(d) Action Against the Debtor and Collateral (and Other Remedies). The Guarantor waives all right to require the Bank to: (i) proceed against the Debtor, any endorser, cosigner, other guarantor or other person liable on any Indebtedness; (ii) join the Debtor or any endorser, cosigner, other guarantor or other person liable to any Indebtedness in any action or actions that may be brought and prosecuted by the Bank solely and separately against the Guarantor on any Indebtedness; (iii) proceed against any item or items of collateral securing any Indebtedness or any guaranty thereof; or (iv) pursue or refrain from pursuing any other remedy whatsoever in the Bank's power.

(e) Debtor's Defenses. The Guarantor waives any defense arising by reason of any disability or other defense of the Debtor, the Debtor's successor or any endorser, cosigner, other guarantor or other person liable on any Indebtedness including, without limitation, any statute of limitation defense that may be available to Debtor or such other person. Until all Indebtedness has been paid in full, even though it may be in excess of the liability incurred hereby and Bank has no further commitment to lend or extend financial accommodations to Debtor, the Guarantor shall not have any subrogation and the Guarantor waives any benefit of and right to participate in any collateral now or hereafter held by the Bank. The Guarantor waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, notices of sale of any collateral securing any Indebtedness or any guaranty thereof, and notice of the existence, creation or incurring of new or additional Indebtedness.

(f) Debtor's Financial Condition. The Guarantor hereby recognizes, acknowledges and agrees that advances may be made from time to time with respect to any Indebtedness without authorization from or notice to the Guarantor even though the financial condition of the Debtor, any endorser, cosigner, other guarantor or other person liable on any Indebtedness may have deteriorated since the date of this Guaranty. The Guarantor waives all right to require the Bank to disclose any information with respect to: any Indebtedness; the financial condition, credit or character of the Debtor, any endorser, cosigner, other guarantor or other person liable on any Indebtedness; any collateral securing any Indebtedness or any guaranty thereof, or any action or inaction on the part of the Bank, the Debtor or any endorser, cosigner, other guarantor or other person liable on any Indebtedness. The Guarantor hereby assumes the responsibility for being informed of the financial condition, credit and character of the Debtor and of all circumstances bearing upon the risk of non-payment of any Indebtedness which diligent inquiry would reveal.

5.: Right of Set-off; Grant of Security Interest. In addition to all liens upon the rights of set-off against any monies, securities or other property of the Guarantor given to the Bank by law, the Bank shall have a security interest in and a right to set off against all monies, securities and other property of the Guarantor now or hereafter in the possession of or on deposit with the Bank, the Bank's agents or any one or more of them, whether held in general or special account or deposit or for safekeeping or otherwise; and each such security interest and right of set-off may be exercised without demand upon or notice to the Guarantor. No action or inaction by the Bank with respect to any security interest or right of set-off shall be deemed a waiver thereof and every right of set-off and security interest shall continue in full force and effect until specifically released by the Bank in writing. The security interest created hereby shall secure all of the Guarantor's obligations under this Guaranty.
6.: Right of Foreclosure. The Bank may foreclose, either by judicial foreclosure or by exercise of power of sale, any deed of trust securing any Indebtedness even though such foreclosure may destroy or diminish the Guarantor's rights against the Debtor. The Guarantor shall be liable to the Bank for any part of any Indebtedness remaining unpaid after any such foreclosure whether or not such foreclosure was for fair market value.

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7.: Subordination. Any Indebtedness of the Debtor or any endorser, cosigner, other guarantor, or other person liable on any Indebtedness now or hereafter owed to the Guarantor is hereby subordinated to the Indebtedness. Such Indebtedness owed to the Guarantor shall, if the Bank so requests, be collected, enforced and received by the Guarantor as trustee for the Bank and be paid over to the Bank on account of the Indebtedness but without reducing or affecting in any manner the liability of the Guarantor set forth herein. Should the Guarantor fail to collect the proceeds of any such Indebtedness owed to it and pay the proceeds to the Bank, the Bank, as the Guarantor's attorney-in-fact, may do such acts and sign such documents in the Guarantor's name as the Bank considers necessary to effect such collection, and Guarantor hereby appoints Bank as Guarantor's attorney-in-fact for such purposes.
8.: Invalid, Fraudulent or Preferential Payments. The Guarantor agrees that, to the extend the Debtor or any endorser, cosigner, other guarantor or other person liable on any Indebtedness makes a payment of payments to, or is credited for any payment or payments made for or on behalf of the Debtor to the Bank, which payment or payments, or any part thereof, is subsequently invalidated, determined to be fraudulent or preferential, set aside or required to be repaid to any trustee, receiver, assignee or any other part whether under any bankruptcy, state or federal law or under any common law or equitable cause or otherwise, then, to the extent thereof, the obligation or part thereof intended to be satisfied thereby shall be revived, reinstated and continued in full force and effect as if such payment or payments had not originally been made or credited.
9.: Joint and Several Obligations; Independent Obligations. If more than one Guarantor signs this Guaranty, the obligations hereunder are joint and several. The Guarantor's obligations hereunder are independent of the obligations of the Debtor or any endorser, cosigner, other guarantor or other person liable on any Indebtedness and a separate action or actions may be brought and prosecuted against the Guarantor or any Indebtedness.
10.: Acknowledgement of Receipt. Receipt of a true copy of this Guaranty is hereby acknowledged by the Guarantor. The Guarantor understands and agrees that this Guaranty shall not constitute a commitment of any nature whatsoever by the Bank to renew or hereafter extend credit to the Debtor. The Guarantor agrees that this Guaranty shall be effective with or without notice from the Bank of the Bank's acceptance hereof.
11.: Continuing Guaranty. This Guaranty is a continuing guaranty. Revocation of this Guaranty shall be effective only after written notice thereof is personally received by an officer of the Bank at the originating office indicated below or actually received at the originating office by United States certified or registered mail, return receipt requested and postage prepaid. Notice shall be effective at any office of the Bank should the originating office no longer be in existence. Revocation shall be effective at the close of the Bank's business day when such notice is actually received. Any revocation shall be effective only as to the revoking party and shall not affect that party's obligation with respect to any Indebtedness existing before such revocation is effective.
12.: Non-Reliance. In executing this Guaranty, the Guarantor is not relying, and has not relied, upon any statement or representation made by the Bank, or any employee, agent or representative of the Bank, with respect to the status, financial condition or other matters related to the Debtor or the relationship between the Debtor and the Bank.
13.: Multiple Guaranties. If the Guarantor has executed or does execute more than one guaranty of any Indebtedness of the Debtor to the Bank, the limits of liability thereunder and hereunder shall be cumulative.
14.: Severability. Should any one or more provisions of this Guaranty be determined to be illegal or unenforceable, all other provisions shall remain effective.

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15.: Corporate, Limited Liability or Partnership Authority. If the Debtor is a corporation, limited liability partnership or company or partnership, the Bank need not inquire into the power of the Debtor or the authority of its officers, directors, partners or agents acting or purporting to act in its behalf and any credit granted in reliance upon the purported exercise of such power or authority is guarantied hereunder.
16.: Separate Property. Any married person who signs this Guaranty expressly agrees that recourse may be had against such person's separate property for all obligations hereunder.
17.: Interpretation. If there is more than one Debtor named herein or more than one Guarantor executing this Guaranty, the words "Debtor" and "Guarantor" shall respectively mean all and any one or more of them. As used in this Guaranty, neuter terms include the masculine and feminine, and vice versa.
18.: Assignment. The Bank may, with or without notice, assign this Guaranty in whole or in part. This Guaranty shall inure to the benefit of the Bank, its successors and assigns, and shall bind the Guarantor and the Guarantor's heirs, executors, administrators, successors and assigns.
19.: WAIVER OF JURY TRIAL. THE GUARANTOR AND THE BANK HEREBY EXPRESSLY WAIVE ANY AND ALL RIGHTS, WHETHER ARISING UNDER THE CALIFORNIA CONSTITUTION, ANY RULES OF THE CALIFORNIA CODE OF CIVIL PROCEDURE, COMMON LAW OR OTHERWISE, TO DEMAND A TRIAL BY JURY IN ANY ACTION, MATTER, CLAIM OR CAUSE OF ACTION WHATSOEVER ARISING OUT OF OR IN ANY WAY RELATED TO THIS GUARANTY OR ANY OTHER AGREEMENT, DOCUMENT OR TRANSACTION CONTEMPLATED HEREBY WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. GUARANTOR AND THE BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE BANK AND GUARANTOR FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS GUARANTY OR ANY PROVISION HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY.
20.: Attorney's Fees. Guarantor shall pay to Bank all costs and expenses, including, but not limited to reasonable attorney fees, incurred by Bank in connection with the administration, enforcement, including any bankruptcy appeal or the enforcement of any judgment or any refinancing or restructuring of the Guarantor's obligations under this Guaranty or any document, instrument of agreement executed with respect to, evidencing or securing the Indebtedness hereunder.
21.: Governing Law. This Guaranty shall be governed by and construed according to the internal laws of the State of California without regard to conflict of law principles, and the Guarantor hereby submits to the jurisdiction of the courts of the State of California.
22.: Headings. The headings used herein are solely for the purpose of identification and have no legal significance.
23.: Address of the Bank. The Bank's originating office under this Guaranty is:

Fresno Office (ABC)
2035 Fresno Street
Fresno, CA 93721

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24.: Indebtedness to Bank Subsidiaries, Affiliates and Assigns:. The definition of "Bank" as used herein includes Sanwa Bank California, its subsidiaries, affiliates and assigns.

This Guaranty is made as of June 21^st, 2001 (which shall be the date of this Guaranty).

Executed by the undersigned Guarantor(s) as of the date set forth above.

	GUARANTOR(S):
ADDRESS:
8418 S. Lac Jac Avenue Parlier, CA 93648	GOLDEN STATE VINTNERS, INC.
	By:	/s/ JOHN KELLEHER NAME: John Kelleher TITLE: CFO

By:

/s/ RALPH LENAMON

NAME: Ralph Lenamon
TITLE: Assistant Treasurer

–7–

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Exhibit 10.22

FIRST AMENDMENT TO CREDIT AGREEMENT
CONTINUING GUARANTY
EX-23 5 a2055467zex-23.htm EXHIBIT 23 Prepared by MERRILL CORPORATION
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Exhibit 23.1

We consent to the incorporation by reference in Registration Statement No. 33-72293 of Golden State Vintners, Inc. on Form S-8 of our report dated August 14, 2001, appearing in this Annual Report on Form 10-K of Golden State Vintners, Inc. for the year ended June 30, 2001.

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Exhibit 23.1

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