10-K

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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, 2002
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 1-14305

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, 2002, based on the closing sales price of the Class B Common Stock as reported by Nasdaq on such date was $9,138,605. 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, 2002 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, 2002 (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 a Delaware corporation formed in 1995 for the purpose of acquiring and holding for investment all of the outstanding capital stock of Golden State Vintners, a California corporation. The Company is one of the largest suppliers of premium bulk wines, wine processing and storage services, 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"), Diageo, Trinchero Family Estates ("Trinchero"), Fetzer Vineyards ("Fetzer"), 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 ("Mondavi"), Seagram Chateau and Estate Wines ("Seagram"), and Villa Mt. Eden Winery. The Company also sells wine grapes, predominantly to EJ Gallo Winery ("Gallo").

        GSV provides custom winemaking and bottling services for a number of clients, such as C.A. Warren, JC Boisset USA ("Boisset"), Wines Ltd. LLC, Safeway, Inc., Trader Joe's Company and Erwal Wein AG. In fiscal 2002, the Company derived approximately 16% of its revenues from the sale of bulk wine and case goods to customers 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.

        The combination of GSV's extensive vineyard holdings and six 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 6,843 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.

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Fiscal 2002 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 beverage 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, Diageo, Mondavi, Trinchero, and Fetzer and to a number of international customers, including Les Grands Chais de France and Zimmerman-Graeff & Mueller GMBH & Co. ("Zimmerman"). 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 2002, approximately 94% 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.

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        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, 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

        Approximately 94% of Company grown grapes for the 2001 harvest were retained by the Company for internal use in the production of bulk wine, brandy and case goods in the 2002 fiscal year; an increase from 73% in fiscal 2001. Thus, revenues from grape sales to third parties declined significantly in GSV's 2002 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 market prices.

        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. Revenues under this contract were approximately $344,000 or 14.6% of wine grape revenues in fiscal 2002.

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 1.3 million cases of wine and wine related products and services in its 2002 fiscal year and approximately 5.8 million cases (2.25 gallons per case) of ready-to-drink product.

        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 2002 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 American Canyon 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 J. Wile, 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 American Canyon and St.

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Helena wineries. 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.

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 16% of the Company's revenues in its 2002 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 2001 harvest, as reflected in the Company's fiscal year 2002 operations.

Production at The Company's Winemaking Facilities

Facility Name		Tons of Grapes Crushed	Case Equivalent(1)		Gallons of Cooperage Capacity(2)
			(In millions)
Fresno		93,000	6.6		21.6
Cutler(3)		—	—		15.9
Reedley		50,000	3.6	(4)	17.4
Monterey		27,000	1.9		8.6
Napa Valley		1,800	.1		1.1
	Total	171,800	12.2		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)

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.

(3)

The Cutler facility was used solely as a storage facility for Company and customer bulk wine for the 2001 harvest and anticipates the same utilization for the 2002 harvest.

(4)

A majority of grapes processed at Reedley were distilled into brandy and grape spirits.

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        Fresno.    The Company's Fresno winery is situated on six acres within the Company's 2,600 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 currently serves as a bulk wine storage center.

        Reedley.    The Company's Reedley facility is located on a 296-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. 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 provides 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 although such bottling operations are being transferred solely to the American Canyon facility.

        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 2001 and 2002.

        American Canyon (Napa).    During September 2001, the Company entered into a long-term lease agreement for a new building in Napa County. The building is approximately 150,000 square feet of which approximately 100,000 square feet is utilized for proprietary and private label case goods production and storage that commenced in the Spring of 2002. The remaining 50,000 square feet is used for third-party barrel storage and related services. The Company is a member of the limited liability company, SDG/Commerce 201, LLC, ("LLC") the lessor of the American Canyon property. The Company has the right to earn an equity interest in the LLC under certain conditions.

Vineyard Operations

        The Company owns more than 8,500 acres of vineyard properties, of which 6,843 acres are permanently planted as of June 30, 2002. The table below identifies the name of each of the Company's vineyards and the acres of wine grapes at each vineyard.

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The Company's Vineyard Properties

Vineyard Name		County Location	Approximate Acres Planted
Fresno Vineyard		Fresno	2,627
Gravelly Ford Vineyard		Madera	1,458
Lost Hills Vineyard		Kern	1,410	(1)
Cawelo Vineyard		Kern	661
Mazzie Vineyard		Kern	619
Monterey Vineyard		Monterey	54
St. Helena Vineyard		Napa	14	(2)
	Total		6,843

(1)

The Company entered into an agreement at August 2, 2002 to sell this vineyard. The sale will be effective after the 2002 harvest.

(2)

Vineyards under development.

        Grape Production.    The following table shows GSV's net vine production by grape variety from the 1997 to 2002 harvest years and the total grape tonnage produced by GSV following each grape harvest. Information regarding the Company's 2002 harvest is not yet available, however management believes that the 2002 harvest will approximate historical per acre yields.

Net Production Acres Owned by GSV and Tons Produced

		Net Production Acres
Grape Variety
		1997	1998	1999	2000	2001	2002	Proforma(3)
French Colombard (1)		2,965	2,965	2,965	2,868	2,868	2,522	2,522
Zinfandel (1)(2)		1,211	1,211	1,211	836	836	645	317
Chardonnay (1)(2)		1,124	1,124	1,124	1,060	907	763	93
Ruby Cabernet		941	941	1,089	1,089	1,089	1,089	1,089
Merlot (1)(2)		687	687	687	687	687	562	150
Barbera		379	379	379	379	379	379	379
Carnelian		344	344	344	344	344	344	344
Chenin Blanc (1)		313	313	313	261	261	153	153
Other (1)		416	416	416	425	499	372	372
	Total Net Production Acres	8,380	8,380	8,528	7,949	7,870	6,829	5,419
	Total Tons Produced	88,209	84,122	67,108	84,255	76,612

(1)

194 acres of French Colombard and 144 acres of Chardonnary were removed in Spring 2002. In addition, 191 acres of Zinfandel, 152 acres of French Colombard, 127 acres of Grenache, 125 acres of Merlot and 108 acres of Chenin Blanc were sold in Spring 2002.

(2)

670 acres of Chardonnay, 412 acres of Merlot and 328 acres of Zinfandel of the Lost Hills Vineyard are to be sold per a sales agreement dated August 2, 2002. The sale will be effective after the 2002 harvest.

(3)

Acreage after effect of (2) above.

        Typically, the Company's mature vineyards yield approximately 9.5 tons per acre. Management believes that the 2002 harvest will approximate normal yields.

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        In Spring 2002, the Company sold approximately 700 acres of vineyards located in Fresno County realizing a gain of approximately $1.0 million included in wine grape cost of sales. The property collateralized long-term debt and the lender required the proceeds of $3.1 million to be applied to loan principal and to a prepayment penalty of $363,000.

        In August 2002, the Company entered into an agreement to sell the entire Lost Hills Vineyard. An asset impairment reserve was recognized of approximately $1.9 million included in wine grape cost of sales in fiscal 2002 to reflect the anticipated loss on this sale. This loss was partially offset by a reversal of a contingent note payable to a related party of approximately $0.9 million also included in wine grape cost of sales.

        In the Company's 2001 and 2002 fiscal years, the Company removed approximately 150 and 340 acres of underperforming vineyards (together representing approximately six percent of the Company's total vineyard assets), resulting in a $0.3 and a $0.8 million charge, respectively, to wine grape 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, 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 has entered into an agreement to sell its Lost Hills Vineyard, to be effective after the 2002 harvest. 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

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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.

        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. The presence of potentially harmful nematodes in relatively high 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 58% of California wine sales, based on total volume of California wine shipments in calendar 2001. 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

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table wine imports into the United States for these purposes increased from approximately 3.5 million gallons in calendar 2000 to approximately 3.6 million gallons in calendar 2001.

        The Company does not believe that it faces a significant domestic 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, Diageo, Trinchero, and Fetzer and sells wine grapes to Gallo and others pursuant to long-term grape purchase contracts. C.A. Warren, Boisset, Wines, Ltd. LLC, Safeway, Inc., and Trader Joe's were among the Company's private label case goods customers in fiscal 2002. The Company also provides various wine processing services for Mondavi, Constellation and Diageo, among other wineries, and brandy distillation and production for Heaven Hill. The Company sells bulk wine internationally to IWS, Les Grands Chais de France, and Zimmerman, 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 the following proprietary labels: Edgewood Estate, Monthaven Coastal, Diamond Grove, Summerfield, Weston, Cutler Creek, Butterfield Station, Belford Springs, Pacific Peak and Harbinger.

Employees

        As of June 30, 2002, the Company had approximately 260 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.

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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 2002, five of our customers accounted for approximately 49% of our revenues, with Constellation and Diageo accounting for approximately 17% and 13%, respectively. While some of our largest customers have entered into some form of long-term contract with us, there can be no assurance that each of these relationships will continue following the expiration of these contracts or that the volume of business we are currently conducting with such customers will continue at such levels. The loss of any one of our major customers or a significant reduction in the sales prices or volume of their business with us could have a material adverse effect on our business, financial condition and results of operations. See "Recent Developments" in Management's Discussion and Analysis where we discuss current issues with two of our customers.

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

        Bulk wine and related services accounted for approximately 52% of our revenues in fiscal 2002. We continue to provide resources for expanding this portion of our business. Any loss of a major bulk wine customer could reduce our bulk wine revenues, which could have a material adverse effect on our business, financial condition and results of operations. See "Recent Developments" in Management's Discussion and Analysis where we discuss a current issue with one of our bulk wine customers.

Decreasing Amounts of Our Bulk Wine Revenues Are Derived From Long-Term Contracts

        During fiscal 2001, approximately 11.7 million gallons were sold under long-term contracts. In fiscal 2002, approximately 10.0 million gallons were sold under long-term contracts. As a result of our decreasing reliance on long-term contracts, our ability to accurately predict our future revenues, required inventory levels and the volume of our business has declined. Furthermore, our operating expenses are relatively fixed and cannot be reduced on short notice to compensate for unanticipated variation in the demand of bulk wine and related services. As a result, any termination, significant reduction or modification of our business relationships with any of our significant customers, or with a number of smaller customers, could have a material adverse effect on our business, financial condition or results of operations.

Decreased Customer Demand for Our RTD Bottling Unit Could Adversely Affect Our Business

        Our new ready-to-drink ("RTD") bottling unit did not meet originally anticipated profit levels for fiscal 2002 due, in part, to lower than expected customer demand. In addition, the largest of our three RTD customers exercised a termination provision in its contract and paid us $1.4 million in September 2002 in lieu of further RTD production services. We are actively pursuing alternative customer arrangements to replace the revenues lost as a result of this customer's termination. If we are unable to locate new RTD customers, or if we fail to retain our existing RTD customers, the resulting loss or decrease in RTD revenues could have a material adverse effect on our business, financial condition and results of operation. In addition, assets utilized in our RTD operations could be subject to impairment reserves should minimum profitability requirements not be achieved. See "Recent Developments" in Management's Discussion and Analysis.

10

Decreased Demand for Our Case Goods Could Harm Our Business

        Sales of case goods and related services accounted for approximately 33% of revenues in fiscal 2002. A significant portion of our case goods revenues consists of short-term private label case goods sales. Additionally, our higher margin proprietary case goods revenues resulted from sales of our 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 our case goods sales. See "Recent Developments" in Management's Discussion and Analysis where we discuss the effect of reduced demand in our case goods business.

Wine Grape and Bulk Wine Price Declines Would Harm Our Business

        Recent developments resulted in oversupply and declining prices for certain wine grapes and bulk wine categories, which could have a material adverse effect on our 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. Anticipated high levels of grape production will continue to exert pressure on our bulk wine sales volume and margins. As a result, we may experience lower than expected revenues and increased inventories which would materially adversely affect our business and future results. See "Recent Developments" in Management's Discussion and Analysis where we discuss the effect of current difficulties in the bulk wine market on our business.

A Decrease in Customer Spending Would Harm Our Business

        The growth of the wine industry and the success of our 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 our business. Current market pressures could negatively impact our lower of cost or market reserves for inventories. In addition, reduced sales could result in increased inventories on hand and possible deterioration of inventory quality.

Decreased Cash Flow Could Limit Our Ability to Service Our Debt

        As a result of incurring debt, we are subject to the risks normally associated with debt financing, including the risk that cash flow from operations will be insufficient to meet required payments of principal and interest. Our ability to satisfy our obligations to pay interest and to repay debt is dependent on our future performance. Our performance depends, in part, on prevailing economic conditions and financial, business and other factors, including factors beyond our control. To the extent we use a substantial portion of our cash flow from operations to pay the principal and interest on our indebtedness, that cash flow will not be available to fund future operations and capital expenditures. Our debt level may also limit our ability to obtain additional financing to fund future capital expenditures, debt service, working capital and other general corporate requirements. It could also make us more vulnerable to general economic downturns and competitive pressures. We can give no assurances that our operating cash flow will be sufficient to fund our future capital expenditure and debt service requirements or to fund future operations. In addition, our debt is secured by substantially all of our assets. If we are unable to meet our debt service obligations due to adverse economic conditions, we risk the loss of some or all of our assets to foreclosure. See "Liquidity and Capital Resources" in Management's Discussion and Analysis where we discuss our existing line of credit.

11

Our Debt Financing Agreements Contain Restrictive Covenants with Which We May Not Be Able to Comply

        Our existing line of credit and long-term debt financing agreements contain restrictive financial covenants. These covenants require us, among other things, to maintain specified levels of net income, working capital, tangible net worth and financial ratios. Primarily as a result of the conditions described in "Recent Developments" in Management's Discussion and Analysis, we were out of compliance as of June 30, 2002 with certain financial covenants. We received waivers of such covenants in September 2002 in addition to amendment of covenant requirements for fiscal 2003.

        Our ability to comply with restrictive financial covenants depends upon our future operating performance. Our future operating performance depends, in part, on general industry conditions and other factors beyond our control. We can give no assurance that we will be able to comply with these covenants. If we fail to comply with these covenants in the future, we may not succeed in renegotiating our debt financing agreements or otherwise obtaining relief from the covenants. If we default under some or all of our debt financial agreements, our lenders may require that we immediately repay the full outstanding amount we owe them. In such event, we may have to pursue alternative financing arrangements. If we are not in compliance with financial covenants at the end of any compliance period, our future results of operations and liquidity could be materially adversely affected.

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 our vineyards in any year and have a material adverse effect on our 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 our vineyards are planted on their own rootstock that is not phylloxera-resistant. In the fall of 1997, phylloxera was discovered in certain acres of our vineyards located in Fresno County. We believe that the scope of this phylloxera infestation is modest, though there can be no assurance in that regard. Additionally, we believe the climate, soil and water conditions in California's San Joaquin Valley slow the development of phylloxera in vineyard roots. Further, recent harvest yields from our 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 our 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.

        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. We have engaged a consultant to monitor the pest and advise regarding the latest research developments. To date, the GWSS has not been found on our vineyards and we believe there is no immediate Pierce's threat. While the grape

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industry is hopeful the spread of Pierce's disease can be controlled, an infestation of our vineyards would have a materially adverse effect on our operations and profitability.

        Other pests that may infest vineyards include leafhoppers, thrips, nematodes, mites, insects, orange tortrix and various grapevine diseases. 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 our vineyards. While we believe that none of these infestations or infections currently poses a major threat to our vineyards, they could do so in the future and could subject our vineyards to severe damage, which could have a material adverse effect on our business, financial position and results of operations.

Intense Competition in the Wine Industry Could Adversely Affect Our Business

        The wine industry is extremely competitive. We compete with several well-capitalized companies in the production of bulk wine. Further, many of our current and prospective competitors have substantially greater financial, production, personnel and other resources than us. 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 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, our 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 we have substantial experience in producing and processing bulk wine, we may still experience production difficulties and delays with respect to the delivery of finished wine. We generally guarantee the quality of the wine produced, which could result in our bearing financial responsibility for wine that fails to meet agreed upon quality standards. From time to time, we have received claims from customers based on alleged defects in wine we produce. Such production difficulties could have a material adverse effect on our 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 our business, financial condition and results of operations.

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We Use Pesticides and Other Hazardous Substances in Our Business

        Our 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. We believe that our 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 our properties, we could be subject to material liability arising from the remediation of such potential harm. Additionally our processing operations generally require the disposal of water-based effluents. As environmental regulations tighten we cannot be assured our 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 we recognize the vast majority of our revenues in the first six months of our fiscal year. We are not positioned to maximize quarter-to-quarter results, and our quarterly results should not be considered indicative of those to be expected for a full year. We recorded 64% of our revenues during the first six months of our 2002 fiscal year. We have historically operated at a loss in the last two fiscal quarters due to limited sales during such quarters. Seasonality of revenues also affects our cash flow requirements. In the past, we have borrowed funds under lines of credit from late summer through the fall to finance inventory build-up during the fall crush season. We also historically borrow 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 our 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 has recently experienced volatility in energy costs and supply. Our operations depend on predictable sources of electricity and natural gas for efficient and cost effective performance. To ensure such sources, we have, in certain circumstances, obtained supply contracts for purchases of natural gas during the peak use period of the grape crush season. We have 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 be no assurance that our energy sources will be available on a consistent and reliable basis in the future without an adverse impact on our operations and profitability.

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

        We incur 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 our profitability.

Loss of Key Personnel Could Harm Our Operations

        We believe our continued success depends on the active involvement of Jeffrey B. O'Neill, the Company's Chief Executive Officer, and our key personnel, including John G. Kelleher, the Company's Chief Financial Officer. There can be no assurance that these persons will remain in their management positions, and the loss of the services of any of these persons could have an adverse effect on our business, financial condition and results of operations. See "Recent Developments" in Management's Discussion

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and Analysis where we discuss the departure of Mark A. Larson, the Company's President and Chief Operating Officer.

New or Changed Regulations Could Significantly Impact Our Business

        We are subject to a broad range of federal and state regulatory requirements regarding our 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 our 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 our 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. In addition, imposition of excise or other taxes on wine could also negatively impact the wine industry by increasing wine prices for consumers. 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 our business.

Our Stock Price May Be Volatile

        The market price of the shares of our Class B Common Stock has declined sharply since our 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 our 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 our 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 our Class B Common Stock.

        Furthermore, due to the volatility of our stock price, we could be subject to delisting from The Nasdaq National Market. To maintain the listing of our Class B Common Stock on The Nasdaq National Market, we are required to meet certain listing requirements, including a minimum bid price of $1.00 per share. The market price of our Class B Common Stock has never fallen below $1.00 per share, however, if our stock price fell below that level for an extended period, we could be subject to delisting from The Nasdaq National Market. Delisting could materially affect the market price and market liquidity of our capital stock and our ability to raise necessary capital.

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 2005. 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 September 2001, the Company entered into an agreement to lease an approximately 150,000 square foot warehouse located in American Canyon, California. The lease term is for twelve years and 6 months expiring in April, 2014. The warehouse provides for proprietary and private label case goods production and storage.

        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.

        The Company is subject to litigation in the ordinary course of its business. In the opinion of management, the ultimate outcome of existing litigation will not have a material adverse effect on the Company's consolidated financial condition, the results of its operations or its cash flows.

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

        None

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PART II

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

        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, 2002	High		Low
First Quarter	$	8.30	$	4.83
Second Quarter	$	5.75	$	4.50
Third Quarter	$	5.69	$	3.20
Fourth Quarter	$	4.09	$	2.73

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

        The last reported sale price of the Class B Common Stock on the Nasdaq National Market on September 25, 2002 was $1.78 per share. As of September 25, 2002, there were 311 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, 2002, 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.

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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. In fiscal 2002, the Company changed its wine and brandy inventory costing method from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method and all prior years have been restated to give effect for that change.

		Year Ended June 30,
		1998			1999			2000		2001		2002
		(in thousands, except per share data)
Statement of operations data:
Revenues		$	111,981		$	107,755		$	96,912	$	97,935	$	83,630
Cost of sales			83,457			81,417			81,079		80,662		70,383
Gross profit			28,524			26,338			15,833		17,273		13,247
Selling, general, and administrative expenses (1)			14,675			8,126			7,756		10,825		10,985
Write down on system costs			—			—			—		—		5,663
Income (loss) from operations			13,849			18,212			8,077		6,448		(3,401	)
Interest expense			6,867			4,522			3,827		2,955		4,069
Minority interest			112			—			—		—		—
Income (loss) before income taxes			6,870			13,690			4,250		3,493		(7,470	)
Net income (loss)			4,324			9,453			2,720		2,471		(4,669	)
Redeemable preferred stock dividends			(1,271	)		(400	)		—		—		—
Accretion on preferred stock			—			(1,928	)		—		—		—
Income (loss) available to common stockholders			3,053			7,125			2,720		2,471		(4,669	)
Earnings (loss) per common share (2):
	Basic	$	.44		$	.76		$	.29	$	.26	$	(.49	)
	Diluted	$	.43		$	.74		$	.28	$	.25	$	(.49	)
Weighted average shares outstanding (2):
	Basic		6,918			9,349			9,498		9,507		9,514
	Diluted		7,325			9,621			9,578		9,838		9,514

	June 30,
	1998		1999		2000		2001		2002
Balance sheet data:
Working capital	$	9,806	$	24,377	$	25,999	$	21,336	$	14,054
Total assets		126,081		132,041		120,648		132,119		132,814
Total long-term debt		51,918		39,250		36,102		39,792		30,039
Redeemable preferred stock		8,951		—		—		—		—
Stockholders' equity		19,296		59,835		62,556		65,166		60,434

(1)

Management incentives relating to stock appreciation rights and bonuses increased selling, general and administrative expenses by $8,800 for the year ended June 30, 1998.

(2)

See Note 2 of the Notes to Consolidated Financial Statements for an explanation of the basic and diluted earnings per share computations.

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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) difficulties in the bulk wine market; (ii) loss of key customers or contracts; (iii) competition from various domestic and foreign wine producers; (iv) interest rates and other business and economic conditions which could increase significantly the costs and risks of projected capital spending; and (v) the effect of weather and other natural forces on growing conditions and, in turn, the quality and quantity of grapes we produce. 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

        Our operations include 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 our vineyards as well as grapes purchased by us 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. Our brandy business includes the production of brandy and grape spirits and brandy barrel storage and related barreling services. See "Business—Company Operations."

Significant Accounting Policies

Critical Accounting Policies

        Our significant accounting policies are described in Note 2 to the Consolidated Financial Statements included in Item 14 of this Form 10-K. Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to its revenue recognition policy, the collectibility of accounts receivable, the valuation of inventories, and the valuation of its long-lived assets and deferred tax assets. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. In the past, actual results have not been materially different from our estimates.

        Some of our significant accounting policies involve a higher degree of judgment or complexity than our other accounting policies. The policies described below have been identified as critical to our business operations and the understanding of our results of operations. The impact and associated risks related to

18

these policies on our business operations are discussed throughout Management's Discussion and Analysis of Financial Condition and Results of Operations.

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 we 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.

Trade Receivables

        Substantially all accounts receivable are due from wine distributors and major wineries located in California. We perform periodic credit evaluations of its customers' financial condition and generally does not require collateral for its sales. We maintain an allowance for doubtful accounts to reflect expected credit losses resulting from the inability of customers to make required payments on such accounts. A considerable amount of judgment is required to assess the ultimate realization of the customer accounts receivable and the credit-worthiness of each customer. Furthermore, these judgments must be continually updated and evaluated. Estimates of potential losses are based on historical as well as current data, including the aging of the receivables, recent bankruptcy trends, delinquency rates, historical charge-off patterns, recovery rates and other data. Other factors, including the general economic environment in the wine industry, are also considered. Historically, our credit losses on receivables have been consistent and within expectations. However, if the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payment, adjustment to those estimates may be required.

Inventories

        Bulk wine, case goods and brandy are stated at the lower of average cost or net realizable value. Inventories of supplies are stated at the lower of the first-in, first-out method or market. Costs associated withe 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. Effective July 1, 2001, we changed our wine and brandy inventory costing method from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method. We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about historical usage, future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

Impairment of Long-Lived Assets

        Our long-lived assets consist primarily of property and equipment, assets held for sale and other assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. With respect to vineyards, we perform an evaluation of whether an impairment charge should be made whenever particular vineyards experience unfavorable operating results. A vineyard's assets are evaluated for impairment by comparing its estimated undiscounted cash flows over its estimated life to its carrying value. If the cash flows are not sufficient to recover the carrying value, a loss equal to the difference between the carrying value and the discounted future cash flows of the vineyard is recognized. Estimates of future cash flows are based on a variety of factors, including historical experience with yields and expected grape sales prices. Various uncertainties, including but not limited to bad weather, pests and diseases, and excess inventory levels in the industry could adversely impact the expected cash flows to be generated by a vineyard. In fiscal 2002, we recognized

19

an impairment reserve of approximately $1.9 million to reflect the anticipated loss on the sale of Lost Hills Vineyard currently in escrow. This loss was partially offset by a reversal of a contingent note payable to a related party of $0.9 million. In June 2002 the Company's Board of Directors approved a plan to sell certain excess assets. These assets, which include a bulk wine and bottling facility, a warehouse, a tasting room and certain vineyards, are included in the accompanying financial statements as assets held for sale. We expect that proceeds from the sale of the excess assets will be used for debt reduction and/or operating purposes. If actual performances of the remaining vineyards are less favorable than our projections, future asset impairment charges may be necessary. Similar procedures are used when analyzing other corporate assets for impairment.

Deferred Tax Assets

        We record a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. While we consider future taxable income and ongoing and prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event that we were to determine that they would not be able to realize all or part of the net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

Recent Developments

        Our bulk wine business unit continues to experience downward pressure on sales volumes and margins. This is a result of continued softness in the wine industry due to surplus domestic and international bulk wine inventories and a reduction in the number of long-term bulk wine sales contracts relative to previous years. As a result, the Company's bulk wine inventory at June 30, 2002 is $7.9 million greater than at June 30, 2001 and substantially in excess of committed sales contracts. Although management believes that this excess inventory can be sold on the spot market at sales prices at or above the carrying value, no assurance can be given that the Company will not experience losses on the sale or disposition of a portion of the inventory, and such losses could be material. The Company has recorded an inventory lower of cost or market reserve of approximately $1.1 million as of June 30, 2002 based on management's current assessment of market conditions.

        In our March 31, 2002 Form 10-Q, we reported that we were notified by a significant customer that they are reducing their requirements by approximately two-thirds for custom processing, storage and barreling services relative to the 2002 crush. Revenues attributable to this customer for the year ended June 30, 2002 were approximately $13.9 million or 32% of bulk wine segment revenues. We have negotiated replacement contracts and contract buy-outs with this customer to attempt to cover this anticipated revenue shortfall.

        Our new ready-to-drink ("RTD") bottling unit did not meet our originally anticipated profit levels for the year due to lower than expected customer demand, higher than expected start-up costs, unplanned capital expenditures and expenditures to maximize bottling line throughput. Furthermore, the largest of our three RTD customers exercised a contract provision providing for termination of the contract within a specified number of months. A termination agreement to buy out the remaining contract production requirement was entered into in August 2002. The agreement requires this customer to pay approximately $1.2 million to us in lieu of providing further production services. Revenues for the year ended June 30, 2002 related to this contract were approximately $3.9 million or 14% of case goods segment revenues. Based on the termination of the contract, management is actively pursuing alternate customer relationships.

        We have been in the process of implementing a new enterprise-wide technology platform over the past two years. In January 2002, we implemented all of the modules of the system with the exception of the bulk wine module. Due to significant remaining programming and training costs and additional ongoing resources needed to operate the bulk wine module, we have elected not to implement the bulk wine

20

module. Accordingly, in fiscal 2002 the Company has written off approximately $5.6 million (included in selling, general and administrative expense) of such costs.

        On July 19, 2002, the Company renewed its revolving line of credit to provide $22.0 million through February 5, 2003 and $18.0 million thereafter with variable interest based on interest rate options elected by the Company.

        We completed the sale of approximately 700 acres of our vineyards located in Fresno County. We recorded a gain of approximately $1.0 million on this sale as an offset to wine grape cost of sales. The property collateralized long-term debt and the lender required the proceeds of $3.1 million to be applied to the loan principal and to a prepayment penalty of $363,000.

        In August 2002, the Company entered into an agreement to sell the entire Lost Hills Vineyard. An asset impairment reserve was recognized of approximately $1.9 million included in wine grape cost of sales in fiscal 2002 to reflect the anticipated loss on this sale. This loss was partially offset by a reversal of a contingent note payable to a related party of approximately $0.9 million.

        In September 2002, Greg J. Forrest and Peter W. Mullin resigned as directors of the Company. The Board has appointed David Gale as a new director of the Company, effective September 18, 2002.

        Mark A. Larson, the Company's President and Chief Operating Officer, departed the Company effective May 13, 2002. The Company and Mr. Larson have finalized severance arrangements including a payment representing one year's salary or $320,000 in June 2002. Mr. Larson had options to purchase approximately 388,000 shares of stock but such options reverted back to the 1996 Stock Option Plan upon expiration in August 2002. Management believes that it has sufficient executive management personnel to direct its current business volume.

        In light of the foregoing developments, the Company is currently reducing its cost structure and increasing operating efficiencies including labor reductions in June, July and August 2002. Approximately 60 positions primarily involved in plant operations were eliminated during this period.

        The table below sets forth summary statement of operations data for the three fiscal years ended June 30, 2002. In fiscal 2002, the Company changed its wine and brandy inventory costing method from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method and all prior years have been restated to give effect for that change:

Summary Statement of Operations Data
(in thousands)

	Year Ended June 30,
	2000		2001		2002
Revenues	$	96,912	$	97,935	$	83,630
Cost of sales		81,079		80,662		70,383
Gross profit		15,833		17,273		13,247
Selling, general and administrative expenses		7,756		10,825		10,985
Write down on systems cost		—		—		5,663
Income (loss) from operations		8,077		6,448		(3,401	)
Interest expense		3,827		2,955		4,069
Income (loss) before income taxes		4,250		3,493		(7,470	)
Income taxes		1,530		1,022		(2,801	)
Net income (loss)	$	2,720	$	2,471	$	(4,669	)

21

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

Percentage of Revenues

	Year Ended June 30,
	2000		2001		2002
Revenues	100.0	%	100.0	%	100.0	%
Cost of sales	83.7		82.4		84.2
Gross profit	16.3		17.6		15.8
Selling, general and administrative expenses	8.0		11.0		13.1
Write down on systems cost	—		—		6.8
Income (loss) from operations	8.3		6.6		(4.1	)
Interest expense	3.9		3.0		4.8
Income (loss) before income taxes	4.4		3.6		(8.9	)
Income taxes	1.6		1.1		(3.3	)
Net income (loss)	2.8		2.5		(5.6	)

Seasonality and Quarterly Results

        We have experienced and expect to continue to experience seasonal and quarterly fluctuations in our revenues. Because of the inherent seasonality of our operations, we have historically reported our highest revenues and net income in our second fiscal quarter as we sell most of our bulk wine in the second quarter, immediately after crush, and perform many of our wine processing services in the first and second quarters. As a result, we typically report lower revenues and net income (loss) in the third and fourth fiscal quarters. In the current fiscal year, we have experienced decreased bulk wine revenues as a result of a reduced number of long-term bulk wine sales contracts relative to previous years. We believe such decrease in long term bulk sales contracts is attributable to 1) plantings of new vineyards 2) current and anticipated lower bulk wine market prices 3) higher levels of wine inventory held by our customers and 4) increased international competition. We anticipate that these market pressures will continue.

        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 2002 and 2001 fiscal year:

Quarterly Revenues, Gross Profit and Net Income (Loss)

	Fiscal 2002 Quarter Ended
	Sept. 30			Dec. 31			Mar. 31			June 30
	(in thousands, except per share data)
Revenues	$	17,399		$	35,960		$	16,203		$	14,068
Percent of revenues for the year ended June 30, 2002		20.8	%		43.0	%		19.4	%		16.8	%
Gross profit	$	2,966		$	8,378		$	3,061		$	(1,158	)
Percent of gross profit for the year ended June 30, 2002		22.4	%		63.2	%		23.1	%		(8.7	)%
Net income (loss)	$	(344	)	$	3,047		$	(165	)	$	(7,207	)
Percent of net income (loss) for the year ended June 30, 2002		(7.4	)%		65.3	%		(3.5	)%		(154.4	)%
Diluted earnings (loss) per common share	$	(0.04	)	$	0.31		$	(0.02	)	$	(0.76	)

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	Fiscal 2001 Quarter Ended
	Sept. 30			Dec. 31			Mar. 31			June 30
	(in thousands, except per share data)
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	$	3,395		$	9,592		$	3,584		$	702
Percent of gross profit for the year ended June 30, 2001		19.7	%		55.5	%		20.7	%		4.1	%
Net income (loss)	$	344		$	4,043		$	(132	)	$	(1,784	)
Percent of net income (loss) for the year ended June 30, 2001		13.9	%		163.6	%		(5.3	)%		(72.2	)%
Diluted earnings (loss) per common share	$	0.04		$	0.41		$	(0.01	)	$	(0.19	)

        Significant year-end adjustments recorded in the fourth quarter include the write-off of approximately $5.6 million related to the bulk wine module of the new enterprise-wide technology platform which the Company elected not to implement and an asset impairment reserve of approximately $1.9 million related to a pending sale of the Lost Hills Vineyard partially offset by a reversal of a contingent note payable to a related party of approximately $0.9 million.

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,
			2000		2001		2002
Revenues:
	Bulk wine and related services		$	55,832	$	57,384	$	43,756
	Grape sales			10,617		6,810		2,363
	Case goods and related services			15,911		20,258		27,722
	Brandy			14,552		13,483		9,789
		Total revenues	$	96,912	$	97,935	$	83,630

        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,
			2000		2001		2002
Revenues:
	Bulk wine and related services		57.6	%	58.6	%	52.3	%
	Grape sales		11.0		6.9		2.8
	Case goods and related services		16.4		20.7		33.2
	Brandy		15.0		13.8		11.7
		Total revenues	100.0	%	100.0	%	100.0	%

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International

        Approximately 16% of our revenues in fiscal 2002 were derived from the sale of wine and wine products internationally. We export bulk wine and case goods to Europe, Canada and Asia.

Fiscal Years Ended June 30, 2002 and 2001

Revenues

        Total revenues for fiscal 2002 were $83.6 million, a decrease of $14.3 million or 14.6%, as compared to revenues of $97.9 million for fiscal 2001. The overall decrease in revenues is due to decreases in bulk wine, wine grapes and brandy revenues as partially offset by increased case goods revenues.

        Bulk Wine and Related Services.    For fiscal 2002, revenues from bulk wine and related services were $43.8 million, a decrease of $13.6 million or 23.7%, as compared to revenues of $57.4 million in 2001. The period to period decrease was a result of a reduction of bulk wine contract and spot sales of approximately 4.9 million gallons or approximately $12.7 million at lower average sales prices per gallon totalling approximately $2.5 million partially offset by approximately $2.0 million in increased bulk wine storage revenues.

        Wine Grapes.    In fiscal 2002, revenues from grape sales were $2.4 million, a decrease of $4.4 million or 64.7%, as compared to revenues of $6.8 million in fiscal 2001. 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". The decline in this segment's revenues is due to reduced volume of wine grapes sold of approximately $3.6 million, partially offset by price increases totalling approximately $0.1 million. The reduction in sales of Company grown grapes is consistent with our plan to use more Company grown grapes in our operations. Resold grape volume decreases totalled approximately $1.8 million partially offset by increased prices totalling approximately $0.7 million.

        Case Goods and Related Services.    For fiscal 2002, revenues from case goods and related services were $27.7 million, an increase of $7.4 million or 36.5%, as compared to revenues of $20.3 million in fiscal 2001. The increase is a result of revenues recognized on custom bottling services for malt-based alcoholic beverages of $8.0 million in fiscal 2002. Malt-based alcoholic beverage custom bottling services commenced in the fourth quarter of fiscal 2001.

        Brandy.    For fiscal 2002, revenues from the sale of brandy and grape spirits were $9.8 million, a decrease of $3.7 million or 27.4%, as compared to revenues of $13.5 million for fiscal 2001. The period to period decrease in brandy revenue was due to decreased proof gallons sold or approximately $3.0 million at reduced contracted prices with an effect of approximately $0.5 million.

Cost of Sales.

        For fiscal 2002, total cost of sales was $70.4 million, a decrease of $10.3 or 12.8%, from $80.7 million for fiscal 2001. As a percentage of revenues, cost of sales for fiscal 2002 was 84.2%, an increase from 82.4% for fiscal 2001. The increase in cost of sales on a percentage of revenue basis was a result of various vineyard transactions as follows: (1) In August 2002, the Company entered into an agreement to sell the entire Lost Hills Vineyard comprising approximately 1400 acres. An asset impairment reserve was recognized of approximately $1.9 million included in wine grape costs of sales in fiscal 2002 to reflect the anticipated loss on this sale. This loss was partially offset by a reversal of a note payable to a related party of approximately $0.9 million; (2) In Spring 2002, the Company began removal of approximately 340 acres of underperforming vineyards resulting in a $0.8 million charge; together partially offset by (3) In Spring 2002, the Company sold approximately 700 acres of vineyards located in Fresno County realizing a gain of approximately $1.0 million. Another factor impacting the increased percentage of cost of sales to

24

revenues was reduced pricing per proof gallon of brandy sold. Partially offsetting factors include the decreased grape cost component of bulk wine and case goods costs relative to sales prices.

Gross Profit

        In fiscal 2002, we realized gross profit of $13.2 million, a decrease of $4.1 million or 23.7%, as compared to $17.3 million in fiscal 2001. As a percentage of revenues, gross profit for fiscal 2002 was 15.8%, a decrease from 17.6% in fiscal 2001, for reasons discussed above under "Cost of Sales."

Selling, General and Administrative Expenses

        For fiscal 2002, selling, general and administrative expenses were $11.0 million, an increase of $0.2 million or 1.9%, from $10.8 million in fiscal 2001. The period to period increase was due to increased payroll and related expenses including certain severance expenses and post production service and support of our new enterprise-wide technology platform partially offset by elimination of accrued bonuses in the current year.

Write Down on System Cost

        In fiscal 2002, a write-off of $5.6 million was recorded related to the bulk wine module of our new enterprise-wide technology platform. Management elected not to implement the bulk wine module due to significant remaining programming and training costs and additional ongoing resources needed to operate the bulk wine module. We will continue to use our existing bulk wine tracking software which is adequate for our current needs.

Interest Expense

        For fiscal 2002, interest expense was $4.1 million, an increase of $1.1 million or 36.7%, as compared to interest expense of $3.0 million in fiscal 2001. The period to period increase resulted from increased average borrowings on our line of credit and long-term debt and decreased interest capitalized related to an increased average balance of capital projects in progress partially offset by lower overall interest rates. In addition, approximately $363,000 of prepayment penalties were incurred in fiscal 2002 due to lender requirement to pay down long-term debt with proceeds on sale of certain vineyards located in Fresno County. Interest capitalized in fiscal 2002 and 2001 was approximately $0.3 and $0.5 million, respectively.

Income Taxes.

        The effective tax rate of our income tax benefit was 37.5% for fiscal 2002 as compared to our income tax rate of 29.3% for fiscal 2001. The income tax benefit effective rate for fiscal 2001 was primarily the result of an increase in manufacturing tax credits.

Net Income (Loss)

        For fiscal 2002, net loss was $4.7 million, a decrease of $7.2 million, as compared to net income of $2.5 million in fiscal 2001. Net loss for fiscal 2002 was impacted by factors covered above.

Earnings (Loss) Per Share

        For fiscal 2002, diluted loss per share was $0.49 compared to diluted earnings per share of $0.25 for fiscal 2001.

25

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 resulted in $8.5 million increased revenues partially offset by lower pricing on bulk wine sales of approximately $6.9 million 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. 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 increased volume in international case goods sales of $3.2 million and increased prices on international sales of $0.8 million.

        In addition, 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 of approximately $2.5 million, partially offset by increased volume in fiscal 2001 totalling approximately $1.4 million.

Cost of Sales.

        For fiscal 2001, total cost of sales was $80.7 million, a decrease of $0.4 million or 0.5%, from $81.1 million in fiscal 2000. As a percentage of revenues, cost of sales for fiscal 2001 was 82.4%, a decrease from 83.7% 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 lower grape costs which were partially offset by lower unit pricing. 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.

26

Gross Profit

        In fiscal 2001, the Company realized gross profit of $17.3 million, an increase of $1.5 million or 9.5%, as compared to $15.8 million for fiscal 2000. As a percentage of revenues, gross profit for fiscal 2001 was 17.6%, an increase from 16.3% 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 $10.8 million, an increase of $3.0 million or 38.5% from $7.8 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. In addition, the Company recognized 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.

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.

Income Taxes

        The effective tax rate for fiscal 2001 was 29.3% compared to an effective rate of 36.0% for fiscal 2000. The effective rate for 2001 was primarily the result of an increase in manufacturing tax credits.

Net Income

        For fiscal 2001, net income was $2.5 million, a decrease of $0.2 million or 7.4%, 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 $0.25 compared to diluted earnings per share of $0.28 for fiscal 2000.

Liquidity and Capital Resources

        Our working capital position at June 30, 2002 was $14.1 million, compared to $21.3 million at June 30, 2001. The decrease in working capital is due to cash expenditures funded with short-term debt. Historically, our investments in receivables and inventories are at their highest in the second quarter and are reduced in the third and fourth quarters, however, investments in inventories remain high due to current difficult market conditions. We maintain 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 our second fiscal quarter. The revolving line of credit balance was $14.5 million at June 30, 2002, with no outstanding balance at June 30, 2001. Unused availability under the line of credit was $1.5 million at June 30, 2002. On July 19, 2002, we renewed the revolving bank line of credit to provide $22.0 million through February 5, 2003 and $18.0 million thereafter. The line expires July 5, 2003 and we intend and expect to renew the line at that time.

        The Company's revolving line of credit and long-term debt financing agreements contain certain financial covenants. As a result of the factors discussed above under "Recent Development," the Company was not in compliance with cash flow and working capital minimum requirements of its bank credit

27

agreement as of June 30, 2002, but a waiver was subsequently obtained in September 2002. These financial ratios are measured only at June 30 of each fiscal year. In addition, the Company was not in compliance with a fixed charge coverage requirement of its insurance company loan agreement as of June 30, 2002, but a waiver was subsequently obtained in September 2002 as well as an amendment to the loan agreement regarding this covenant effective for each quarter beginning September 30, 2002.

        Net cash used in operating activities for fiscal 2002 was $1.3 million, compared to net cash provided by operations of $15.6 million for fiscal 2001. The decrease in cash provided by operations resulted from reduced income and increased inventories.

        Capital expenditures for fiscal 2002 were $10.2 million, compared to $19.3 million in fiscal 2001. We have funded these expenditures in 2002 from our working capital line. We intend to partially refinance these expenditures and finance future capital expenditures through long-term financing arrangements. Because we successfully renewed and increased our existing line of credit, we believe operating and working capital line sources are adequate for our current operating needs as well as our capital expenditure program.

        We have classified a bulk wine facility, a warehouse, a tasting room and certain vineyards with a net book value of $16.2 million (net of impairment charge of $1.9 million) as assets held for sale at June 30, 2002. Proceeds from the sale of these assets will be used for operating purposes and/or debt reduction. In October 2002, a principal payment of $1.7 million plus interest is due on a note payable to an insurance company. Vineyards included in assets held for sale collateralize this note. We intend to pay off the note with proceeds from this sale. We are negotiating with the lender to extend the maturity should a sale not occur.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

        We can choose from several variable rate options on certain of our debt. All of our balance sheet items and sales are in U.S. dollars, therefore we have no foreign currency exchange rate risk related to these financial data. We do not use financial instruments for trading purposes.

        Certain of our debt is subject to variable interest rate options. The following chart indicates our fixed and variable rate long and short-term debt at June 30, 2002, and estimates the balances of such debt in future periods ($ millions):

			June 30,
			2002			2003			2004			2005			2006
Bank line of credit:
	Variable Rate:
		Average Outstanding*	$	10.5		$	13.0		$	12.0		$	12.0		$	12.0
		Weighted average rate per period		3.4	%		5.0	%		7.0	%		7.0	%		7.0	%
Long-term Debt:
	Fixed Rate:
		Average Outstanding	$	42.2		$	35.4		$	27.6		$	22.5		$	4.6
		Weighted average rate per period		8.4	%		8.1	%		8.2	%		8.4	%		6.9	%

*

Based on current anticipated cash flow, we believe that our bank line of credit will be periodically used to fund operations in our peak season.

        During our annual business cycle, we utilize a variable interest rate working capital line at various borrowing levels. Our existing working capital loan agreement offers interest rate options at spreads over LIBOR and/or lender cost of funds, at maturities we selected. For fiscal 2002, the average outstanding balance under this line was approximately $10.5 million, with a weighted average interest rate of approximately 3.4%.

28

        At June 30, 2002, the balance on our fixed rate long-term debt was $39.3 million and carried a weighted average interest rate of approximately 8.4%. The weighted average interest rate for fiscal 2002 for all our debt was approximately 7.4%.

        For strategic reasons, we enter 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 we expect to take physical delivery. Of our 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 of our products is wine grapes. We enter into long and short-term grape purchase contracts to ensure an adequate and cost effective source of raw material for production. We currently have several contracts to purchase grapes at costs anticipated to exceed market for the 2002 crush. We are in the process of renegotiating such contracts but no assurance can be given that such efforts will be successful. 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 2002, or the 2001 harvest year, none of our total wine grape purchases on a dollar basis were adjusted upward against contract minimum prices following the harvest.

        A certain portion of our annual wine and brandy production is committed under sales contracts. We maintain a certain amount of uncommitted product inventory to meet customer demand. Bulk wine sold under long-term contracts decreased from 11.7 million gallons in fiscal 2001 to 10.0 million gallons in fiscal 2002. At June 30, 2002, our reported inventory value of bulk wine and brandy was approximately $19.9 million, of which approximately $3.7 million, or 18%, is committed to sales contracts. Uncommitted inventory of approximately $16.2 million, or 82% is reserved for future case goods sales and for spot market bulk wine sales. We generally match 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.

29

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 2002 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after June 30, 2002.

Item 11.    Executive Compensation.

        The information required by this Item is incorporated herein by reference to the Company's Proxy Statement relating to the 2002 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after June 30, 2002.

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

        The information required by this Item is incorporated herein by reference to the Company's Proxy Statement relating to the 2002 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after June 30, 2002.

Item 13.    Certain Relationships and Related Transactions.

        The information required by this Item is incorporated herein by reference to the Company's Proxy Statement relating to the 2002 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after June 30, 2002.

30

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	34
Consolidated Balance Sheets as of June 30, 2001 and 2002	35
Consolidated Statements of Operations for the Three Years in the Period Ended June 30, 2002	36
Consolidated Statements of Stockholders' Equity for the Three Years in the Period Ended June 30, 2002	37
Consolidated Statements of Cash Flows for the Three Years in the Period Ended June 30, 2002	38
Notes to Consolidated Financial Statements	39

(2)

Index to Financial Statement Schedules:

Schedule II—Valuation and Qualifying Accounts 58

(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.
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.

31

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.

32

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	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.
10.16	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.
10.17	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.
10.18	Credit Agreement dated as of July 5, 2000 between Sanwa and the Registrant filed as Exhibit 10.21 to the Company's Report on Form 10-K for the fiscal year ended June 30, 2000 and incorporated by reference herein.
10.19	First Amendment to Credit Agreement dated as of June 21, 2001 between Sanwa and the Registrant filed as Exhibit 10.22 to the Company's Report on Form 10-K for the fiscal year ended June 30, 2001 and incorporated by reference herein.
10.23	Credit Agreement dated as of July 19, 2002 between Bank of the West and the Registrant.
10.24	Standard Industrial/Commercial Multi-Tenant Lease Agreement dated as of September 6, 2002 between SDG/Commerce 201, LLC 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).
99.1	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
99.2	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

33

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, 2001 and 2002, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended June 30, 2002. 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, 2001 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2002, 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.

        As discussed in Note 2 to the consolidated financial statements, during the year ended June 30, 2002 the Company changed its wine and brandy inventory costing method from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method and retroactively restated the prior years' consolidated financial statements for the change.

DELOITTE & TOUCHE LLP

Fresno, California
September 26, 2002

34

GOLDEN STATE VINTNERS, INC.

CONSOLIDATED BALANCE SHEETS

				June 30,
				2001			2002
ASSETS
CURRENT ASSETS:
		Cash and equivalents		$	488,507		$	58,803
		Trade and other receivables—net			10,042,126			9,823,353
		Inventories			23,659,449			33,976,506
		Refundable income taxes			1,891,619			1,067,277
		Prepaid expenses and other current assets			412,683			253,296
			Total current assets		36,494,384			45,179,235
PROPERTY, PLANT AND EQUIPMENT—Net					94,720,354			69,935,293
ASSETS HELD FOR SALE					—			16,216,437
OTHER ASSETS					903,880			1,482,701
TOTAL ASSETS				$	132,118,618		$	132,813,666
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
	Bank line of credit			$	—		$	14,500,000
	Cash overdraft				—			977,895
	Accounts payable				5,684,342			6,904,334
	Payable to growers				194,815			181,722
	Payroll and related liabilities				1,769,924			917,926
	Accrued interest				387,532			409,925
	Other accrued liabilities				914,832			520,538
	Deferred income taxes				1,811,003			204,457
	Current portion of long-term debt				4,395,722			6,508,277
		Total current liabilities			15,158,170			31,125,074
LONG-TERM DEBT					39,792,467			30,039,089
DEFERRED COMPENSATION					149,255			732,917
DEFERRED INCOME TAXES					11,852,463			10,483,079
COMMITMENTS AND CONTINGENCIES (Notes 10 and 12)
STOCKHOLDERS' EQUITY:
	Common stock:
		Class A common stock; 4,342,528 issued and outstanding at June 30, 2001 and 2002, respectively			43,425			43,425
		Class B common stock; 5,192,343 issued at June 30, 2001 and 2002, respectively			51,924			51,924
	Additional paid-in capital				45,058,028			45,058,028
	Retained earnings				20,094,548			15,425,792
	Total common stock, paid-in capital and retained earnings				65,247,925			60,579,169
	Treasury stock (11,884 shares at June 30, 2001 and 21,884 shares at June 30, 2002)				(81,662	)		(145,662	)
			Total stockholders' equity		65,166,263			60,433,507
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY				$	132,118,618		$	132,813,666

See notes to consolidated financial statements.

35

GOLDEN STATE VINTNERS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

			Year Ended June 30,
			2000			2001			2002
REVENUES, net:
	Bulk wine		$	55,832,192		$	57,383,986		$	43,756,531
	Wine grapes			10,616,502			6,810,530			2,363,571
	Case goods			15,910,972			20,257,658			27,721,741
	Brandy and spirits			14,552,343			13,483,096			9,788,637
		Total revenues		96,912,009			97,935,270			83,630,480
COST OF SALES				81,078,937			80,661,946			70,383,055
GROSS PROFIT				15,833,072			17,273,324			13,247,425
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES				7,755,578			10,825,432			10,985,144
WRITE DOWN OF SYSTEM COSTS				—			—			5,663,199
INCOME (LOSS) FROM OPERATIONS				8,077,494			6,447,892			(3,400,918	)
INTEREST EXPENSE				(3,827,121	)		(2,955,362	)		(4,068,838	)
INCOME (LOSS) BEFORE INCOME TAXES				4,250,373			3,492,530			(7,469,756	)
INCOME TAXES (BENEFIT)				1,530,000			1,022,000			(2,801,000	)
NET INCOME (LOSS)				2,720,373			2,470,530			(4,668,756	)
EARNINGS (LOSS) PER COMMON SHARE:
	BASIC		$	0.29		$	0.26		$	(0.49	)
	DILUTED		$	0.28		$	0.25		$	(0.49	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
	BASIC			9,498,261			9,506,583			9,514,247
	DILUTED			9,578,117			9,838,179			9,514,247

See notes to consolidated financial statements.

36

GOLDEN STATE VINTNERS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

		Common Stock
						Additional Paid-in Capital		Retained Earnings			Treasury Stock
		Class A		Class B										Total
BALANCE, JUNE 30, 1999 (as previously reported)		$	43,425	$	51,558	$	44,836,541	$	12,551,630		$	—		$	57,483,154
Cumulative effect on prior years of change in accounting from LIFO to FIFO for certain inventories, net of tax of $1,557,032 (Note 2)			—		—		—		2,352,015			—			2,352,015
BALANCE, JUNE 30, 1999			43,425		51,558		44,836,541		14,903,645			—			59,835,169
	Net income		—		—		—		2,720,373			—			2,720,373
BALANCE, JUNE 30, 2000			43,425		51,558		44,836,541		17,624,018			—			62,555,542
	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		—		—		—		2,470,530			—			2,470,530
BALANCE, JUNE 30, 2001			43,425		51,924		45,058,028		20,094,548			(81,662	)		65,166,263
	Treasury stock purchases		—		—		—		—			(64,000	)		(64,000	)
	Net loss		—		—		—		(4,668,756	)		—			(4,668,756	)
BALANCE, June 30, 2002		$	43,425	$	51,924	$	45,058,028	$	15,425,792		$	(145,662	)	$	60,433,507

See notes to consolidated financial statements.

37

GOLDEN STATE VINTNERS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

				Year Ended June 30,
				2000			2001			2002
OPERATING ACTIVITIES:
	Net income (loss)			$	2,720,373		$	2,470,530		$	(4,668,756	)
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			6,211,116			7,066,845			6,935,382
		Provision for doubtful accounts			(200,000	)		50,000			100,000
		Write down on system costs			—			—			5,663,199
		Loss (gain) on disposal of assets			1,836,167			948,842			(560,960	)
		Impairment of long-term asset			—			—			1,903,618
		Reversal of contingent liability on unsecured loan due to related party			—			—			(925,233	)
		Employee stock award			—			19,916			—
		Change in cash surrender value of life insurance policies			—			5,509			164,419
		Change in market value of deferred compensation			—			(4,744	)		(79,445	)
		Deferred income taxes			418,337			654,047			(2,975,930	)
		Change in deferred tax valuation allowance			—			—			—
		Changes in operating assets and liabilities:
			Trade and other receivables		2,697,731			(2,650,894	)		118,773
			Inventories		5,146,742			2,701,101			(8,579,669	)
			Prepaid expenses and other current assets		(26,030	)		341,896			159,387
			Refundable income taxes		1,711,663			567,954			824,342
			Accounts payable		(1,065,663	)		2,720,982			1,219,992
			Payable to growers		(299,553	)		(165,470	)		(13,093	)
			Payroll and related liabilities		326,788			808,745			(851,998	)
			Accrued interest		(63,061	)		(435,584	)		22,393
			Other accrued liabilities		425,511			297,975			(394,294	)
			Deferred compensation		—			153,999			663,107
			Net cash provided by (used in) operating activities		19,840,121			15,551,649			(1,274,766	)
INVESTING ACTIVITIES:
	Purchases of property, plant and equipment				(7,614,425	)		(19,281,183	)		(10,193,754	)
	Proceeds from sale of property, plant and equipment				—			—			3,522,804
	Purchase of life insurance policies				—			(650,000	)		(650,000	)
	Proceeds from note receivable				1,722,322			—			—
	Refund (payment) of deposits				(18,890	)		7,551			(156,520	)
		Net cash used in investing activities			(5,910,993	)		(19,923,632	)		(7,477,470	)
FINANCING ACTIVITIES:
	Borrowings on line of credit				25,900,000			38,200,000			44,000,000
	Payments on line of credit				(34,000,000	)		(38,200,000	)		(29,500,000	)
	Cash overdraft increase (decrease)				(964,467	)		—			977,895
	Proceeds from lease financing				—			8,000,000			—
	Payments on long-term debt				(4,855,011	)		(3,259,337	)		(7,091,363	)
	Proceeds from stock option exercises				—			162,245			—
	Purchase of treasury stock				—			(81,662	)		(64,000	)
		Net cash provided by (used in) financing activities			(13,919,478	)		4,821,246			8,322,532
INCREASE (DECREASE) IN CASH AND EQUIVALENTS					9,650			449,263			(429,704	)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD					29,594			39,244			488,507
CASH AND EQUIVALENTS, END OF PERIOD				$	39,244		$	488,507		$	58,803

See notes to consolidated financial statements.

38

GOLDEN STATE VINTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    ORGANIZATION AND OPERATIONS

        Golden State Vintners, Inc., 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 Golden State Vintners, Inc. and its wholly-owned subsidiary, GSV (collectively, the "Company"). 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. Significant accounting estimates include collectibility of accounts receivable, valuation of inventories, valuation of long-lived assets and deferred tax assets and revenue recognition.

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, 2002 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

        Most accounts receivable are due from wine distributors and major wineries located principally in California, however, at June 30, 2002, a receivable balance of approximately $1.1 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,

39

2001 and 2002 are net of an allowance for doubtful accounts of approximately $502,000 and $409,000, respectively.

Inventories

        Effective July 1, 2001, the Company changed its wine and brandy inventory costing method from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method. The primary reasons for the change in accounting method are: management's belief that the FIFO method of accounting better matches revenues and expenses of the Company's wines and brandy sold, and therefore provides a better method of reporting the Company's results of operations; the FIFO method of accounting will reduce intra-year cost of sales volatility; and the FIFO method of accounting will provide improved financial comparability to other publicly-traded companies in the industry. The accounting change has been applied to prior years by retroactively restating the financial statements. For the year ended June 30, 2001, the restatement decreased net income by $1.9 million or $0.20 per share. For the year ended June 30, 2000, the restatement decreased net income by approximately $2,000 or $0.00 per share. As of July 1, 1999, the effect of this restatement increased current assets, current liabilities and retained earnings by $3.5 million, $1.2 million and $2.4 million, respectively. The change to the FIFO method of accounting discussed above resulted in additional taxes of approximately $2.0 million to be paid over four years beginning with the fiscal 2001 tax return. Payment of these additional taxes will not change our effective tax rate.

        Bulk wine, case goods, and brandy are 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 improvements 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.

Long-Lived Assets

        The Company periodically evaluates the carrying value of long-lived assets to be held and used, including intangible assets, when events and circumstances warrant such a review. When the anticipated undiscounted cash flow from a long-lived asset is less than its carrying value, a loss is recognized based on the amount by which its carrying value exceeds its fair market value. Fair market value is determined

40

primarily using the anticipated cash flows discounted at a rate commensurate with the risks involved, and in some cases, the expected proceeds from the sale of a particular asset, or independent appraisals. See Notes 4 and 5 for impairments recognized in 2002.

Deferred Compensation and 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 in selling, general and administrative expense. Market value declines resulted in losses of $5,509 and $164,419 in fiscal 2001 and 2002, respectively. Employee deferred compensation liabilities are also adjusted to market value each reporting period. Market value declines resulted in gains of $4,744 and $79,445 in fiscal 2001 and 2002, respectively.

Deferred Financing Costs

        Financing costs incurred to obtain new financing are deferred and amortized over the term of the related loan. At June 30, 2001 and 2002, such costs included in other assets were $237,300 and $174,020, respectively, which were net of accumulated amortization of $395,500 and $458,780, respectively.

Bank Line of Credit

        On July 19, 2002, the Company renewed and increased its revolving line of credit to provide $22.0 million through February 5, 2003 and $18.0 million thereafter. The line expires July 5, 2003. The balance outstanding under the line was $14.5 million at June 30, 2002 with no outstanding balance at June 30, 2001.

Treasury Stock

        On November 8, 2000, the Board of Directors of the Company approved the purchase of up to 1,000,000 shares of its outstanding Class B Common Stock. Through June 30, 2002, the Company has purchased 21,884 shares for $145,662 of which 10,000 shares were purchased for $64,000 in fiscal 2002. As of June 2002, the Board of Directors suspended additional purchases until further notice.

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 held and stored by the Company after it has been sold totalled approximately $26,795,000, $47,909,000 and $39,780,000 in the years ended June 30, 2000, 2001 and 2002, respectively. At June 30, 2001 and 2002, accounts receivable included approximately $1,300,000 and $363,000 respectively, pertaining to product sales in which the products were stored by the Company at such dates.

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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 15%, 14% and 12% of total revenues in the years ended June 30, 2000, 2001 and 2002, respectively. In addition, a bulk wine customer accounted for approximately 8%, 13% and 17% of total revenues in the years ended June 30, 2000, 2001 and 2002, 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 8).

Earnings (Loss) Per Common Share

        Basic earnings (loss) 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 (loss) 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. Stock options represent potential common shares and are included in computing diluted earnings per share when the effect is dilutive.

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

		Year Ended June 30,
		2000		2001		2002
Basic EPS Computation
Numerator:
	Net income (loss)	$	2,720,373	$	2,470,530	$	(4,668,756	)
Denominator:
	Weighted average common shares		9,498,261		9,506,583		9,514,247
Basic EPS		$	.29	$	.26	$	(.49	)
Diluted EPS Computation
Numerator:
	Income (loss) available to common stockholders and assumed conversions	$	2,720,373	$	2,470,530	$	(4,668,756	)
Denominator:
	Weighted average common shares outstanding		9,498,261		9,506,583		9,514,247
	Stock options		79,856		331,596		—
	Adjusted weighted average common shares		9,578,117		9,838,179		9,514,247
Diluted EPS		$	.28	$	.25	$	(.49	)

        Options to purchase approximately 1,004,000, 758,000 and 1,139,000 shares of common stock at various prices per share were outstanding at June 30, 2000, 2001 and 2002, respectively, but were not included in diluted EPS computations because the exercise prices were greater than the average market price for Class B common stock for the periods then ended.

New Accounting Pronouncements

        In 2001, the FASB issued four statements: No. 141, Business Combinations, No. 142, Goodwill and Other Intangible Assets, and No. 143, Accounting for Assets Retirement Obligations and No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. 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 a liability when incurred. SFAS No. 144 provides that impairment losses be recognized only if the carrying amount of the long-lived assets is not recoverable from undiscounted cash flows. Any impairment loss recognized would be the difference between the carrying value of the asset and its fair value. In 2002, the FASB issued SFAS No. 145 Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections and SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 145 provides that debt extinguishments that are part of a Company's risk management strategy should not be reported as extraordinary items because they do not meet the criteria as unusual and infrequently occurring events. This statement also requires sale-leaseback accounting for certain lease modifications whose economic effects are similar to sale-leaseback transactions. SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amounts recognized. This statement requires that the liability for costs associated with an exit or disposal activity be recognized when the

43

liability is incurred, rather than at the date of the Company's commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. SFAS Nos. 144 and 145 are effective July 1, 2002 and the provisions of SFAS No. 146 are effective for future exit activities initiated after December 31, 2002. The Company adopted SFAS Nos. 141, 142 and 143 effective July 1, 2001. Adoption of these statements had no material impact on the Company's consolidated financial position, results of operations or cash flows. Management expects that the adoption of SFAS Nos. 144, 145 and 146 will not have a material impact on the Company's consolidated financial position, results of operations or cash flows.

Reclassifications

        Certain amounts in the accompanying 2000 and 2001 consolidated financial statements have been reclassified to conform with the 2002 presentation.

3.    INVENTORIES

        Inventories consist of the following:

		June 30,
		2001		2002
Bulk wine		$	10,283,967	$	18,186,742
Cased and bottled wine			3,997,481		7,340,769
Brandy			1,204,000		1,713,118
Supplies and other			979,100		834,568
Unharvested crop costs			7,194,901		5,901,309
	Total	$	23,659,449	$	33,976,506

4.    PROPERTY, PLANT AND EQUIPMENT

        Property, plant and equipment consist of the following:

		June 30,
		2001		2002
Land and improvements		$	14,713,312	$	10,747,099
Vineyards			26,357,461		14,517,882
Buildings			12,726,460		9,040,357
Cooperage			24,766,768		22,938,059
Equipment			35,723,730		35,779,485
Construction in progress			8,609,770		3,958,163
	Total		122,897,501		96,981,045
Less accumulated depreciation and amortization			28,177,147		27,045,752
Property, plant and equipment—net		$	94,720,354	$	69,935,293

        We have been in the process of implementing a new enterprise-wide technology platform over the past two years. In January 2002, we implemented all of the modules of the system with the exception of the bulk wine module. Due to significant remaining programming and training costs and additional ongoing

44

resources needed to operate the bulk wine module, we have elected not to implement the bulk wine module. Accordingly, in fiscal 2002 the Company has written off approximately $5.6 million of such costs.

        For the years ended June 30, 2000, 2001 and 2002, the Company capitalized approximately $300,000, $512,000 and $292,000, respectively, of interest primarily related to software development costs and plant equipment and vineyards under development included in construction in progress. In the Company's 2001 and 2002 fiscal years, the Company removed approximately 150 and 340 acres of underperforming vineyards, respectively, from production (representing approximately two and five percent of the Company's total vineyard assets, respectively), resulting in a $0.3 and $0.8 million charge, respectively, to wine grape cost of sales.

        In addition, in the Spring of 2002 the Company sold approximately 700 acres of vineyards located in Fresno County realizing a gain of approximately $1.0 million included in wine grape cost of sales. The proceeds from the sale of approximately $3.1 million were deposited in an escrow account as required by the debt agreement for the benefit of the lender since the property collateralized long-term debt. In September 2002, the proceeds of $3.1 million were used to pay debt and a prepayment penalty of $363,000.

5.    ASSETS HELD FOR SALE

        In June 2002 the Company's Board of Directors approved a plan to sell certain excess assets. Such assets include a bulk wine and bottling facility, a warehouse, a tasting room and certain vineyards. After the lease of the American Canyon facility in December 2001, neither the bulk wine and bottling facility nor the other warehouse facility is necessary for custom crushing, bottling or storage.

        In addition, in August 2002, the Company entered into an agreement to sell the entire Lost Hills Vineyard. An asset impairment charge was recognized of $1.9 million included in wine grape cost of sales in fiscal 2002 to reflect the anticipated loss in this sale. This loss was partially offset by a reversal of a contingent note payable to a related party of $0.9 million. Such note was a part of the original purchase price of the Lost Hills Vineyard. Assets held for sale, at the lower of carrying value or fair value, consists of the following:

		June 30 2002
Land and improvements		$	4,696,782
Vineyards (net of a $1.9 million impairment charge)			6,390,510
Buildings			3,817,240
Cooperage			3,292,777
Equipment			6,044,928
	Total		24,242,237
Less accumulated depreciation and amortization			8,025,800
	Assets held for sale—net		16,216,437

6.    BANK LINE OF CREDIT AND LONG-TERM DEBT

      On July 19, 2002, the Company renewed and increased its revolving line of credit to provide $22.0 million through February 5, 2003 and $18.0 million thereafter with variable interest based on interest rate options elected by the Company. The balance outstanding under the line was $14.5 million at June 30, 2002 with no outstanding balance at June 30, 2001. The line expires July 5, 2003 and management intends and expects to renew the line at that time.

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        Long-term debt is as follows:

		June 30,
		2001			2002
Insurance company Senior Secured First Mortgage Notes, principal and interest at 8.99% payable $370,000 monthly, balance of $14,336,952 due April 1, 2005		$	26,789,711		$	21,913,908
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			1,924,156			1,724,156
Unsecured contingent loan due to related party, non-interest bearing, discounted (at 10%) to present value, reversed in fiscal 2002 as discussed in Note 2			860,986			—
Capital lease obligations and other loans, interest principally at 7.0% (See Note 10)			14,613,336			12,909,302
	Total		44,188,189			36,547,366
Less current portion			(4,395,722	)		(6,508,277	)
Long-term portion		$	39,792,467		$	30,039,089

        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 working capital and cash flow minimum requirements of its bank credit agreement as of June 30, 2002, but a waiver was subsequently obtained in September 2002. In addition, the Company was not in compliance with the fixed charge coverage requirement of its insurance company loan agreement as of June 30, 2002, but a waiver was subsequently obtained in September 2002 as well as an amendment to the loan agreement regarding this covenant effective for each quarter beginning September 30, 2002.

        In June, 2001, the Company entered into a master lease agreement with a bank to finance up to $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, 2002, the cumulative amount of property financed and capitalized totaled approximately $15.4 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.

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        Scheduled annual maturities of long-term debt, including capital leases, as of June 30, 2002 are as follows:

2003		$	6,508,277
2004			5,243,793
2005			18,992,079
2006			2,472,700
2007			1,823,146
Thereafter			1,507,371
	Total	$	36,547,366

        The fiscal 2003 amount above includes $1,724,156 currently due October 1, 2002. A sale of the vineyard that collateralizes such note is currently in escrow. The Company intends to pay off the loan with proceeds from this sale. Company management is negotiating with the lender to extend the maturity should the sale not occur.

7.    INCOME TAXES

        The components of income tax expense (benefit) are as follows:

		Year Ended June 30,
		2000			2001			2002
Current:
	Federal	$	961,995		$	283,160		$	266,007
	State		148,776			84,794			(91,077	)
			1,110,771			367,954			174,930
Deferred:
	Federal		504,169			823,748			(2,512,651	)
	State		(85,832	)		(213,385	)		(614,295	)
			418,337			610,363			(3,126,946	)
Change in valuation allowance			892			43,683			151,016
		$	1,530,000		$	1,022,000		$	(2,801,000	)

        The Company recognized tax benefits related to stock option exercises in the amount of $39,692 for the year ended June 30, 2001. These benefits were recorded as a decrease to income taxes payable and an increase in paid-in-capital. There were no stock option exercises in the years ended June 30, 2000 or 2002.

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        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,
	2000		2001		2002
Federal statutory tax rate	35.00	%	35.00	%	(35.00	)%
Permanent items	.80		(3.28	)	.75
State income taxes, net of federal effect	.98		(1.60	)	(4.91	)
Change in valuation allowance	.02		1.25		.01
Other	(.80	)	(2.07	)	1.65
	36.00	%	29.30	%	(37.50	)%

        Deferred income tax assets and liabilities consist of the following:

			June 30,
			2001			2002
Current assets (liabilities):
	Inventory costing		$	(2,264,379	)	$	(1,626,704	)
	State franchise taxes			104,192			6,435
	Capitalized interest			122,094			299,881
	Reserves			343,030			743,519
	Allowance for doubtful accounts			214,884			175,105
	Property taxes			(471,240	)		—
	Benefits			97,853			115,095
	Other			42,563			82,212
		Total	$	(1,811,003	)	$	(204,457	)
Long-term assets (liabilities):
	Purchase accounting		$	(4,009,784	)	$	(3,449,560	)
	Accelerated depreciation			(10,769,036	)		(11,308,876	)
	Deferred compensation			63,941			313,982
	State franchise taxes			142,911			115,591
	Operating loss carryforwards			—			1,487,289
	Tax credit carryforwards			3,072,163			2,867,567
	Other			41,825			36,427
	Valuation allowance			(394,483	)		(545,499	)
		Total	$	(11,852,463	)	$	(10,483,079	)

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        At June 30, 2002, the Company has federal and state alternative minimum tax ("AMT") credit carryforwards of approximately $1,791,000 and $295,000, respectively, that may be used for an indefinite period. At June 30, 2002, the Company has federal net operating loss carryforwards of approximately $1,283,000 expiring in 2022 and state net operating loss carryforwards of $204,000 expiring in 2014. In addition, the Company has a state manufacturers tax credit of approximately $782,000 which expires as follows:

2008		$	118,000
2009			584,000
2010			80,000
	Total	$	782,000

8.    SHAREHOLDERS' EQUITY

Common Stock

        The Company's authorized capital stock is as follows at June 30, 2002:

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

        Class A common stock has 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 has 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.

        Changes in the Company's common stock issued during the year ended June 30, 2001 (no changes in fiscal 2000 or 2002) are as follows:

	Class of Common Stock
	A	B
Shares issued and outstanding, June 30, 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 and 2002	4,342,528	5,192,343

Stock Option Plans

        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

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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.

        A summary stock option activity is as follows:

		Number of Stock Options		Weighted Average Exercise Price Per Right/Option
Outstanding at June 30, 1999		1,349,037		$	9.46
	Granted at market value ($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 at market value ($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
	Granted at market value ($3.02 weighted average fair value per option)	532,075		$	5.01
	Granted at greater than market value ($3.23 weighted average fair value per option)	150,000		$	6.35
	Terminated	(303,278	)	$	4.91
Outstanding at June 30, 2002		1,949,818		$	7.45
Exercisable at June 30, 2002		1,350,393		$	8.43
Available for grant at June 30, 2002		80,955

The following table summarizes information about stock options outstanding at June 30, 2002.

Options Outstanding					Options Exercisable
Range of Exercise Prices	Number Outstanding at 6/30/02	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable at 6/30/02	Weighted Average Exercise Price
$3.10 to $7.63	1,249,686	6.8 years	$	4.87	650,261	$	4.51
$12.07 to $12.08	700,132	5.5	$	12.07	700,132	$	12.07
$3.10 to $12.08	1,949,818	6.4	$	7.45	1,350,393	$	8.43

        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

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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:

	2000		2001		2002
Expected life	5.0		5.0		4.9
Risk free interest rate	6.2	%	5.5	%	4.3	%
Expected volatility	77	%	70	%	69	%
Dividends	None		None		None

        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, 2000 and 2001 would have been $543,029 and $651,426, less than net income as reported and the net loss for the year ended June 30, 2002 would have been $472,007 greater than 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 (loss) per share for the year ended June 30, 2000, 2001 and 2002 would have been as follows: basic—$0.23, $0.19 and $(0.54). and diluted—$0.23, $0.18 and $(0.54), respectively.

9.    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 $104,448, $107,503 and $120,806 for the years ended June 30, 2000, 2001 and 2002, respectively.

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

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10.    LEASES

        The Company leases cooperage, equipment and real estate 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, 2002:

	Capital Leases		Operating Leases
2003	$	3,112,137	$	1,435,670
2004		3,112,137		1,139,660
2005		2,881,354		1,046,781
2006		2,798,973		1,029,431
2007		1,981,741		962,911
Thereafter		1,569,639		—
Total minimum lease payments		15,455,981	$	5,614,453
Amount representing interest		2,546,679
Net present value of minimum lease payments		12,909,302
Less current maturities		2,282,773
	$	10,626,529

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

	June 30,
	2001			2002
Cooperage	$	8,453,990		$	8,453,990
Equipment		9,673,016			10,126,957
Less accumulated amortization		(1,745,332	)		(3,189,608	)
	$	16,381,674		$	15,391,339

        Rent expense totaled $890,310, $1,024,198 and $1,883,842 for the years ended June 30, 2000, 2001 and 2002, respectively.

11.    BUSINESS SEGMENT INFORMATION

        The Company's chief decision makers evaluate performance based on the 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, alcoholic beverages and custom bottling and storage services and providing custom bottling services for malt-based alcoholic beverages to two major customers. 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.

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        Segment information as of June 30, 2001 and 2002 and for the years ended June 30, 2000, 2001 and 2002 is as follows:

			Year Ended June 30,
			2000			2001		2002
Revenues, net:
	Bulk wine		$	55,832,192		$	57,383,986	$	43,756,531
	Wine grapes			10,616,502			6,810,530		2,363,571
	Case goods			15,910,972			20,257,658		27,721,741
	Brandy			14,552,343			13,483,096		9,788,637
		Total revenues, net		96,912,009			97,935,270		83,630,480
Cost of Sales:
	Bulk wine			45,358,636			43,870,080		32,722,420
	Wine grapes			10,809,404			6,163,036		2,930,301
	Case goods			13,989,159			20,136,443		26,762,124
	Brandy			10,921,738			10,492,387		7,968,210
		Total cost of sales		81,078,937			80,661,946		70,383,055
Gross Profit:
	Bulk wine			10,473,556			13,513,906		11,034,111
	Wine grapes			(192,902	)		647,494		(566,730	)
	Case goods			1,921,813			121,215		959,617
	Brandy			3,630,605			2,990,709		1,820,427
		Total gross profit	$	15,833,072		$	17,273,324	$	13,247,425
Capital Expenditures:
	Bulk wine		$	4,359,304		$	2,432,810	$	3,189,506
	Wine grapes			413,380			104,188		772,107
	Case goods			2,019,138			10,325,086		3,272,280
	Brandy			721,432			323,312		893,054
	Corporate			101,171			6,120,612		2,378,333
		Total	$	7,614,425		$	19,306,008	$	10,505,279
Depreciation and amortization:
	Bulk wine		$	4,471,833		$	5,242,010	$	4,167,058
	Wine grapes			550,883			420,950		135,456
	Case goods			233,035			516,217		1,569,942
	Brandy			614,696			561,903		528,332
	Corporate			340,669			325,765		534,594
		Total	$	6,211,116		$	7,066,845	$	6,935,382

			June 30
			2001		2002
Total Assets:
	Bulk wine		$	56,307,017	$	61,987,663
	Wine grapes			33,484,548		26,230,246
	Case goods			24,485,626		31,466,893
	Brandy			7,079,728		8,039,213
	Corporate			10,761,699		5,089,651
		Total	$	132,118,618	$	132,813,666

53

        The net book value of assets held for sale as of June 30, 2002 are included in the following business segments:

Bulk wine	$	7,993,941
Wine grapes		4,621,210
Case goods		3,601,286
	$	16,216,437

        Revenues derived from five of our customers accounted for 41%, 44% and 49% in 2000, 2001 and 2002, respectively. Revenues from Constellation and Diageo accounting for approximately 17% and 13%, respectively in 2002.

        International sales are 10%, 15% and 16% of revenues in 2000, 2001 and 2002, respectively, and represent the export of bulk wine and case goods to Canada, Europe and Asia. The Company has no assets in foreign locations.

12.    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, 2002, the Company had entered into contracts aggregating approximately $176,000 for the purchase of processing equipment and cooperage.

Legal Proceedings

        The Company is subject to litigation in the ordinary course of its business. In the opinion of management, the ultimate outcome of existing litigation will not have a material adverse effect on the Company's consolidated financial condition, the results of its operations or its cash flows.

13.    SUPPLEMENTAL CASH FLOW INFORMATION

        Supplemental cash flow information is as follows:

	Year Ended June 30,
	2000			2001			2002
Interest paid	$	4,143,279		$	3,558,109		$	3,549,334
Income taxes paid/(refunded)		(600,000	)		(200,000	)		(649,413	)
Property acquired under capital lease		—			24,825			311,525

54

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, 2002

POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jeffrey B. O'Neill, 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, 2002
/s/  JOHN G. KELLEHER John G. Kelleher	Chief Financial Officer and Secretary (Principal Financial Officer and Accounting Officer)	September 28, 2002
/s/  JEFFREY J. BROWN Jeffrey J. Brown	Chairman of the Board, Assistant Secretary and Director	September 28, 2002
/s/  NICHOLAS B. BINKLEY Nicholas B. Binkley	Director	September 28, 2002

55

/s/  LAWRENCE R. BUCHALTER Lawrence R. Buchalter	Director	September 28, 2002
/s/  DAVID GALE David Gale	Director	September 28, 2002
/s/  PAUL M. GINSBURG Paul M. Ginsburg	Director	September 28, 2002
/s/  W. SCOTT HEDRICK W. Scott Hedrick	Director	September 28, 2002
/s/  JEAN-MICHEL VALETTE Jean-Michel Valette	Director	September 28, 2002

56

CERTIFICATIONS

        I, Jeffrey B. O'Neill, certify that:

        1.    I have reviewed this annual report on Form 10-K of Golden State Vintners, Inc.;

        2.    Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements are made, not misleading with respect to the period covered by this annual report; and

        3.    Based on my knowledge, the financial statements and other financial information included in this annual report, fairly represent in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.

Date: September 28, 2002

/s/  JEFFREY B. O'NEILL Jeffrey B. O'Neill
Chief Executive Officer

CERTIFICATIONS

        I, John Kelleher, certify that:

        1.    I have reviewed this annual report on Form 10-K of Golden State Vintners, Inc.;

        2.    Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements are made, not misleading with respect to the period covered by this annual report; and

        3.    Based on my knowledge, the financial statements and other financial information included in this annual report, fairly represent in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.

Date: September 28, 2002

/s/  JOHN KELLEHER John Kelleher
Chief Financial Officer

57

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(1)			Balance at End of Year
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
Year ended June 30, 2002:
	Allowance for uncollectible accounts		502		100			(193	)		409

(1)

Represents write-offs of receivable amounts.

58

QuickLinks

PART I
Fiscal 2002 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
GOLDEN STATE VINTNERS, INC. CONSOLIDATED BALANCE SHEETS
GOLDEN STATE VINTNERS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
GOLDEN STATE VINTNERS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
GOLDEN STATE VINTNERS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
SIGNATURES
POWER OF ATTORNEY
CERTIFICATIONS
CERTIFICATIONS

EX-99.1

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EXHIBIT 99.1

CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)

        In connection with the Annual Report of Golden State Vintners, Inc., a Delaware corporation (the "Company") on Form 10-K for the year ended June 30, 2002 as filed with the Securities Exchange Commission (the "Report"), I, Jeffrey B. O'Neill, Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbannes-Oxley Act of 2002 (18 U.S.C. Section 1350), that to my knowledge:

        (1)  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

        (2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/  JEFFREY B. O'NEILL Jeffrey B. O'Neill
Chief Executive Officer
September 28, 2002

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EXHIBIT 99.1

EX-99.2

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EXHIBIT 99.2

CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)

        In connection with the Annual Report of Golden State Vintners, Inc., a Delaware corporation (the "Company") on Form 10-K for the year ended June 30, 2002 as filed with the Securities Exchange Commission (the "Report"), I, John Kelleher, Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbannes-Oxley Act of 2002 (18 U.S.C. Section 1350), that to my knowledge:

        (1)  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

        (2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/  JOHN KELLEHER John Kelleher
Chief Financial Officer
September 28, 2002

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EXHIBIT 99.2

EX-10.23

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Exhibit 10.23

CREDIT AGREEMENT
(LINE OF CREDIT)

        This Agreement (the "Agreement") is made and entered into as of July 19, 2002, by and between BANK OF THE WEST (the "Bank") and GOLDEN STATE VINTNERS (the "Borrower"), on the terms and conditions that follow:

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.
	1.1.10	"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

1.1.11	"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 Discharge 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	"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.
1.1.15	"Event of Default": shall have the meaning set forth in Section 7.
1.1.16	"Expiration Date": shall mean July 5, 2003, or the date of termination of the Bank's commitment to lend under this Agreement pursuant to Section 8, whichever shall occur first.
1.1.17	"Fixed Rate Advance": shall have the respective meaning as it is defined for each facility under Section 2, hereof if applicable.
1.1.18	"Fixed Rate": shall have the respective meaning as it is defined for each facility under Section 2, hereof if applicable.
1.1.19	"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.

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1.1.20	"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.
1.1.21	"Interest Period": shall have the respective meaning as it is defined for each facility under Section 2, hereof.
1.1.22	"Inventory": shall mean the inventory described in Section 3.
1.1.23	"LIBOR Advance": shall have the respective meaning as it is defined for each facility under Section 2, hereof.
1.1.24	"LIBOR Interest Period": shall have the respective meaning as it is defined for each facility under Section 2, hereof.
1.1.25	"LIBOR Rate": shall have the respective meaning as it is defined for each facility under Section 2, hereof.
1.1.26	"Line Account": shall have the meaning provided in Section 2.2 hereof.
1.1.27	"Line of Credit": shall mean the credit facility described as such in Section 2.
1.1.28	"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 any loans or advances.
1.1.29	"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.
1.1.30	"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, 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.
1.1.31	"Prime Rate": shall mean an index for a variable interest rate which is quoted, published or announced by Bank as its prime rate and as to which loans may be made by Bank at, above or below such rate.
1.1.32	"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.

3

	1.1.33	"Variable Rate Advance": shall have the respective meaning as it is defined for each facility under Section 2, hereof.
	1.1.34	"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 as in effect on July 1, 2001 and from time to time thereafter.

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 $22,000,000.00 through February 5, 2003 and $18,000,000.00 thereafter (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	M aking 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:
		(i)	If at any time the aggregate principal amount of the outstanding Advances shall exceed the Line of Credit, the Borrower hereby promises and agrees, immediately upon written or telephonic notice from the Bank, to pay to the Bank an amount equal to the difference between the outstanding principal balance of the Advances and the Line of Credit.
		(ii)	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.

4

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 below:
	(i)	Variable Rate Advances: A variable rate per annum equivalent to the Prime Rate (the "Variable Rate"). Interest shall be adjusted concurrently with any change in the Prime 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 approximately equivalent to 1.15% 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".
	(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 approximately equivalent to 1.15% 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 5th 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.

5

	(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.
	(ii)	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.
	(iii)	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.
	(iv)	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.

6

	2.1.7	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 shall 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.
	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.
2.2	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.

7

2.3	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.
2.4	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.
2.5	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.

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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 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, inventory leased to others or held for lease, 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, letter of credit rights, commercial tort claims, contract rights and general intangibles, including software and payment intangibles, now owned or hereafter created or acquired by the Borrower, including, but not limited to, all receivables, including as-extracted receivables, credit card receivables, health care receivables, insurance receivables, software receivables and license fees, 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, whether electronic or tangible, now owned or hereafter acquired by the Borrower, including, but not limited to, warehouse and other receipts, bills of sale, promissory notes and bills of lading.
		(iv)	Monies. All monies, deposit accounts, certificates of deposit, investment property and securities of the Borrower now or hereafter in the Bank's or its agents' possession.
		(v)	Farm Products. All farm products, other than standing timber, now owned or hereafter acquired by or for the benefit of the Borrower in connection with the farming operations of the Borrower, including all crops grown, growing or to be grown, whether produced on trees, vines or bushes, or aquatic goods produced by aquacultural operations (the "Crops"); all supplies used or produced in the farming operations of the Borrower; products of crops in their unmanufactured state; and the products and proceeds of the foregoing, and any additions to, substitutions for or replacements thereof.
		(vi)	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.
Borrower hereby consents to and instructs Bank to file financing statements in all locations deemed appropriate by the Bank from time to time.

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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.

SECTION
4
CONDITIONS PRECEDENT

4.1	Conditions Precedent to the Initial Extension of Credit: The obligation of the Bank to make the initial Advance or 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 or 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. A fee of $25,000.00 and payment of all of the Bank's out-of-pocket expenses in connection with the preparation and negotiation of this Agreement.
		(iv)	Financing Statements. 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 Extensions of Credit: The obligation of the Bank to make each Advance or each other extension of credit, as the case may be, to or on account of the Borrower (including the initial Advance or 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)	Reporting Requirements. The Bank shall have received the documents set forth in Section 6.1.
		(ii)	Subsequent Approvals. The Bank shall have received such supplemental approvals, opinions or documents as the Bank may reasonably request.
		(iii)	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.
		(iv)	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.
		(v)	Collateral. The security interest in the Collateral has been duly authorized, created and perfected with first priority and is in full force and effect.

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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.

SECTION
5
REPRESENTATIONS AND WARRANTIES

The Borrower hereby makes the following representations and warranties to the Bank, which representations and warranties are continuing:
5.1	Status: The Borrower's correct legal name is as stated in this Agreement and the Borrower is a corporation duly organized and validly existing under the laws of the state of California and with its chief executive office in the state of California and is properly licensed and is qualified to do business and in good standing in, and, where necessary to maintain the Borrower's rights and privileges, has complied with the fictitious name statute of every jurisdiction in which the Borrower is doing business.
5.2	Authority: The execution, delivery and performance by the Borrower of this Agreement and any instrument, document or agreement required hereunder have been duly authorized and do not and will not: (i) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having application to the Borrower; (ii) result in a breach of or constitute a default under any material indenture or loan or credit agreement or other material agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected; or (iii) require any consent or approval of its stockholders or violate any provision of its articles of incorporation or by-laws.
5.3	Legal Effect: This Agreement constitutes, and any instrument, document or agreement required hereunder when delivered hereunder will constitute, legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms.
5.4	Fictitious Trade Styles: All fictitious trade styles used by the Borrower in connection with its business operations and each state in which each such fictitious trade style is used are listed below. The Borrower shall notify the Bank not less than 30 days prior to effecting any change in the matters described below or prior to using any other fictitious trade style at any future date, indicating the trade style and state(s) of its use.
	Trade Style	State of Use
	See attached Exhibit "A"	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.

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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 filed 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 or 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. (itemizing and describing the kind, type, quality and quantity of inventory, the Borrower's cost therefor and selling price thereof, and the daily withdrawals therefrom and additions thereto).
		(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.
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 its real property.

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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 this 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, a copy of the Borrower's financial statement 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)	Promptly upon the Bank's request, such other information pertaining to the Borrower, the Collateral or any guarantor hereunder as the Bank may reasonably request.
6.2	Financial Condition: The Borrower promises and agrees, during the term of this Agreement and until payment in full of all of the Borrower's Obligations, the Borrower will maintain as of the relevant times set forth below:
		(i)	A minimum Effective Tangible Net Worth of at least $55,000,000.00 at each fiscal year end.
		(ii)	A ratio of Debt to Effective Tangible Net Worth of not more than 2 to 1 at each fiscal year end.
		(iii)	A ratio of Current Assets to Current Liabilities of not less than 1.50 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 1at each fiscal year end.
		(v)	A minimum EBITDA of at least $1.00 at the end of each fiscal year 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 carried 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.

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	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, judgment or execution) 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 the Bank's security interest in the Collateral and the priority thereof; maintain accurate and complete 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, judgment 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.

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6.12	Maintenance of Jurisdiction: Borrower shall maintain the jurisdiction of its organization and chief executive office, or if applicable, principal residence, as set forth herein and not change such jurisdiction name or form of organization without 30 days prior written notice to Bank.
6.13	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.
6.14	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.
6.15	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 $250,000.00 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.
6.16	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 cost and expense, at reasonable intervals, a report providing the status of any environmental, health or safety compliance, hazard or liability.
6.17	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; 1175 Commerce Blvd., Suite D, American Canyon, CA 94503; 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, 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.

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6.18	Location of the Harvested Crops: Any Crops now or hereafter harvested or removed 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; 1175 Commerce Blvd., Suite D, American Canyon, CA 94503; and 1075 Golden Gate Drive, Napa, CA 94559.
6.19	Care and Preservation of the Crops:
		(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 Borrower's premises at any reasonable time and from time to time for the purpose of examining and inspecting the Crops.
		(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.
6.20	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

	Any one or more of the following described events shall constitute an event of default (an "Event of Default") under this Agreement:
7.1	Non-Payment: Any Borrower shall fail to pay the principal amount of any Obligations when due or interest on the Obligations within 5 days of when due.
7.2	Performance Under This Agreement: The Borrowers or any Guarantor shall fail in any material respect to perform or observe any term, covenant or agreement contained in this Agreement or in any document, instrument or agreement relating to this Agreement or any other document or agreement executed by the Borrowers or any Guarantor with or in favor of Bank and any such failure shall continue unremedied for more than 30 days after the occurrence thereof.
7.3	Representations and Warranties; Financial Statements: Any representation or warranty made by the Borrower under or in connection with this Agreement or any financial statement given by the Borrower or any guarantor shall prove to have been incorrect in any material respect when made or given or when deemed to have been made or given.

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7.4	Other Agreements: If there is a default under any agreement to which Borrower is a party with Bank or with a third party or parties resulting in a right by the Bank or by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of $250,000.00.
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 30 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 30 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 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, or if a Borrower who is a natural person shall die.
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.

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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:
8.1	Acceleration: Declare any or all of the Borrower's indebtedness owing to the Bank, whether under this Agreement or any other document, instrument or agreement, immediately due and payable, whether or not otherwise due and payable.
8.2	Cease Extending Credit: Cease making Advances or otherwise extending credit to or for the account of the Borrower under this Agreement or under any other agreement now existing or hereafter entered into between the Borrower and the Bank.
8.3	Termination: Terminate this Agreement as to any future obligation of the Bank without affecting the Borrower's obligations to the Bank or the Bank's rights and remedies under this Agreement or under any other document, instrument or agreement.
8.4	Protection of Security Interest: Make such payments and do such acts as the Bank, in its sole judgment, considers necessary and reasonable to protect its security interest or lien in the Collateral. The Borrower hereby irrevocably authorizes the Bank to pay, purchase, contest or compromise any encumbrance, lien or claim which the Bank, in its sole judgment, deems to be prior or superior to its security interest. Further, the Borrower hereby agrees to pay to the Bank, upon demand therefor, all expenses and expenditures (including attorneys' fees) incurred in connection with the foregoing.
8.5	Foreclosure: Enforce any security interest or lien given or provided for under this Agreement or under any security agreement, mortgage, deed of trust or other document, in such manner and such order, as to all or any part of the properties subject to such security interest or lien, as the Bank, in its sole judgment, deems to be necessary or appropriate and the Borrower hereby waives any and all rights, obligations or defenses now or hereafter established by law relating to the foregoing. In the enforcement of its security interest or lien, the Bank is authorized to enter upon the premises where any Collateral is located and take possession of the Collateral or any part thereof, together with the Borrower's records pertaining thereto, or the Bank may require the Borrower to assemble the Collateral and records pertaining thereto and make such Collateral and records available to the Bank at a place designated by the Bank. The Bank may sell the Collateral or any portions thereof, together with all additions, accessions and accessories thereto, giving only such notices and following only such procedures as are required by law, at either a public or private sale, or both, with or without having the Collateral present at the time of the sale, which sale shall be on such terms and conditions and conducted in such manner as the Bank determines in its sole judgment to be commercially reasonable. The Collateral may be disposed of in its then condition without any preparation or processing. In connection with any disposition of the Collateral, the Bank may disclaim any warranty relating to title, possession or quiet enjoyment. Any deficiency which exists after the disposition or liquidation of the Collateral shall be a continuing liability of the Borrower to the Bank and shall be immediately paid by the Borrower to the Bank.

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8.6	Care and Possession of the Crops: Enter upon the Borrower's premises and, using any and all of the Borrower's equipment, machinery, tools, farming implements and supplies, and improvements located on the Borrower's premises: (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 Borrower's premises); (ii) harvest, pick, clean and remove the Crops from the Borrower's premises; 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 upon which the farming operations are located, the Bank shall not be responsible or liable for returning the such property to its condition immediately preceding its use as provided herein or for doing such acts as may be necessary to permit future crops to be grown on such property.
8.7	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.
8.8	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. Any excess Collateral or excess proceeds existing after the disposition or liquidation of the Collateral will be returned or paid by the Bank to the Borrower.
	If any non-cash proceeds are received in connection with any sale of Collateral, the Bank shall not apply such non-cash proceeds to the Obligations unless and until such proceeds are converted to such; provided, however, that if such non-cash proceeds are not expected on the date of receipt thereof to be converted to cash within one year after such date, the Bank shall use commercially reasonable efforts to convert such non-cash proceeds to cash within such one year period.

SECTION
9
MISCELLANEOUS

9.1

Amounts Payable on Demand: If the Borrower shall fail to pay on demand any amount so payable under this Agreement, the Bank may, at its option and without any obligation to do so and without waiving any default occasioned by the Borrower having so failed to pay such amount, create an Advance under this Agreement in an amount equal to the amount so payable, which Advance shall thereafter bear interest as provided hereunder.

9.2

Default Interest Rate: If an Event of Default, or an event which, with notice or passage of time could become an Event of Default, has occurred or is continuing, the Borrower shall pay to the Bank interest on any Indebtedness or amount payable under this Agreement at a rate which is 3% in excess of the rate or rates then in effect under this Agreement.

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9.3	Assignment of the Borrower's Rights in the Crops:
		(i)	If the Crops or any portion or portions thereof become infected by disease or are destroyed by order of any local, state or federal authority, and, by reason thereof, the Borrower is entitled to be indemnified by such authority, the Borrower hereby assigns to the Bank any and all such sums due from such authority, and the Bank is hereby authorized to receive, collect and sue for the same, and the Borrower hereby orders and directs that any such sums be paid directly to the Bank.
		(ii)	In addition, the Borrower hereby assigns and transfers to the Bank all of the Borrower's rights and interests in and to any monies now or hereafter placed in any funds of any marketing association, corporation, cooperative, partnership, firm or individual now, heretofore or hereafter handling or having to do with any of the Crops now growing or heretofore or hereafter grown in the Borrower's farming operations or connected with the growing, marketing, farming or other handling of such Crops and the Borrower hereby assigns and transfers to the Bank all stock and all other interests, benefits and rights of the Borrower in any such marketing association, corporation, cooperative, partnership, firm or individual having anything to do with such Crops and all monies due or becoming due to the Borrower from any one or more of them.
9.4	Reliance and Further Assurances: Each warranty, representation, covenant, obligation and agreement contained in this Agreement shall be conclusively presumed to have been relied upon by the Bank regardless of any investigation made or information possessed by the Bank and shall be cumulative and in addition to any other warranties, representations, covenants and agreements which the Borrower now or hereafter shall give, or cause to be given, to the Bank. Borrower agrees to execute all documents and instruments and to perform such acts as the Bank may reasonably deem necessary to confirm and secure to the Bank all rights and remedies conferred upon the Bank by this agreement and all other documents related thereto.
9.5	Attorneys' Fees: Borrower shall pay to the Bank all costs and expenses, including but not limited to reasonable attorneys 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 this Agreement or any document, instrument or agreement executed with respect to, evidencing or securing the indebtedness hereunder.
9.6	Notices: All notices, payments, requests, information and demands which either party hereto may desire, or may be required to give or make to the other party hereto, shall be given or made to such party by hand delivery or through deposit in the United States mail, postage prepaid, or by facsimile delivery, or to such other address as may be specified from time to time in writing by either party to the other.
	To the Borrower:			To the Bank:
	GOLDEN STATE VINTNERS 607 Airport Road Napa, CA 94558 Attn:    Jeffrey B. O'Neill FAX:    (707) 254-4900			BANK OF THE WEST doing business as UNITED CALIFORNIA BANK Fresno Office (ABC) 2035 Fresno Street Fresno, CA 93721 Attn:    Jay R. Dibble FAX:    (559) 487-2157

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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 identification 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:
BANK OF THE WEST doing business as UNITED CALIFORNIA BANK		GOLDEN STATE VINTNERS
BY:	/s/  JAY R. DIBBLE	BY:	/s/  JOHN KELLEHER
NAME: Jay R. Dibble, Vice President		NAME: John Kelleher, Chief Financial Officer and Secretary
		BY:	/s/  RALPH LENAMON
		NAME: Ralph Lenamon, Assistant Treasurer

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EXHIBIT "A"
GOLDEN STATE VINTNERS
CREDIT AGREEMENT DATED JULY 19, 2002

Trade Style	State of Use
Bounty Bridge Cutler Creek Diamond Grove Edgewood Florentina Gioberti J. Wile Le Blanc GSV Logo Monthaven Muirfield Pique Nique Stonehenge Summerfield Summerfield Cellars Summerfield Reserve Weston Estate Willow Cove	All are produced and bottled in California and distributed nationwide

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QuickLinks

CREDIT AGREEMENT (LINE OF CREDIT)
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-10.24

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EXHIBIT 10.24

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STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE—NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION

1.    Basic Provisions ("Basic Provisions").

        1.1    Parties:    This Lease ("Lease"), dated for reference purposes only, September 6, 2001, is made by and between SDG Commerce 201, LLC, a California limited liability company ("Lessor") and Golden State Vintners, Inc., a California corporation ("Lessee"), (collectively the "Parties", or individually a "Party").

        1.2(a)    Premises:    That certain portion of the Project (as defined below), including all improvements therein or to be provided by Lessor under the terms of this Lease, commonly known by the street address of 1175 Commerce Boulevard, located in the City of American Canyon, County of Napa, State of California, with zip code 94589, as outlined on Exhibit A attached hereto ("Premises") and generally described as (describe briefly the nature of the Premises): Approximately 149,066 square feet of an approximately 200,928 square foot tilt-up concrete warehouse/distribution building.

        In addition to Lessee's rights to use and occupy the Premises as hereinafter specified, Lessee shall have non-exclusive rights to the Common Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any rights to the roof, exterior walls or utility raceways of the building containing the Premises ("Building") or to any other buildings in the Project. The Premises, the Building, the Common Areas, the land upon which they are located, along with all other buildings and improvements thereon, are herein collectively referred to as the "Project." (See also Paragraph 2)

        1.2(b)    Parking:    prorata share of unreserved vehicle parking spaces ("Unreserved Parking Spaces"); and Seventeen (17) reserved vehicle parking spaces ("Reserved Parking Spaces"). (See also Paragraph 2.6)

        1.3    Term:    Twelve (12) years and Six (6) months ("Original Term") commencing November 1, 2001 ("Commencement Date") and ending April 30, 2010 ("Expiration Date"). (See also Paragraph 3)

        1.4    Early Possession:    October 1, 2001 ("Early Possession Date"). (See also Paragraphs 3.2 and 3.3)

        1.5    Base Rent:    $67,825.00 per month ("Base Rent"), payable on the First day of each month commencing November 1, 2001. (See also Paragraph 4)

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If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted.

        1.6    Lessee's Share of Common Area Operating Expenses:    Seventy-Four & 19/100 percent (74.19%) ("Lessee's Share").

        1.7    Base Rent and Other Monies Paid Upon Execution:

(a)

Base Rent:    $67,825.00 for the period November 1, 2001 through November 30, 2001.



(b)

Common Area Operating Expenses:    $10,435.00 for the period 11/01/01 through 11/30/01.



(c)

Security Deposit:    $156,520.00 ("Security Deposit"). (See also Paragraph 5)



(d)

(e)

Total Due Upon Execution of this Lease:    $234,780.00.

/s/ [ILLEGIBLE]	/s/ [ILLEGIBLE]
Initials	Initials

© 1999-American Industrial Real Estate Association REVISED FORM MTN-2-2/99E

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        1.8    Agreed Use:    Administrative office, wine barrel operation, bottling line, distribution and warehousing of wine related products. (See also Paragraph 6)

        1.9    Insuring Party.    Lessor is the "Insuring Party." (See also Paragraph 8)

        1.10

        1.12    Addenda and Exhibits.    Attached hereto is an Addendum or Addenda consisting of Paragraphs 1 through 23 and Exhibits A through C, all of which constitute a part of this Lease.

2.    Premises.

        2.1    Letting.    Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating Rent, is an approximation which the Parties agree is reasonable and any payments based thereon are not subject to revision whether or not the actual size is more or less.

        2.2    Condition.    Lessor shall deliver that portion of the Premises contained within the Building ("Unit") to Lessee broom clean and free of debris on the Commencement Date, and, so long as the required service contracts described in Paragraph 7.1(b) below are obtained by Lessee and in effect within thirty days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems ("HVAC"), loading doors, if any, and all other such elements in the Unit, other than those constructed by Lessee, shall be in good operating condition on said date and that the structural elements of the roof, bearing walls and foundation of the Unit shall be free of material defects. If a non-compliance with such warranty exists as of the Commencement Date, or if one of such systems or elements should malfunction or fail within the appropriate warranty period, Lessor shall, as Lessor's sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, malfunction or failure, rectify same at Lessor's expense. The warranty periods shall be as follows: (i) 6 months as to the HVAC systems, and (ii) 30 days as to the remaining systems and other elements of the Unit. If Lessee does not give Lessor the required notice within the appropriate warranty period, correction of any such non-compliance, malfunction or failure shall be the obligation of Lessee at Lessee's sole cost and expense (except for the repairs to the fire sprinkler systems, roof, foundations, main plumbing, electrical and sewerage systems and/or bearing walls—see Paragraph 7).

        2.3    Compliance.    Lessor warrants that the improvements on the Premises and the Common Areas comply with the building codes that were in effect at the time that each such improvement, or portion thereof, was constructed, and also with all applicable laws, covenants or restrictions of record, regulations, and ordinances in effect on the Start Date ("Applicable Requirements"). Said warranty does not apply to the use to which Lessee will put the Premises or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for determining whether or not the Applicable Requirements, and especially the zoning, are appropriate for Lessee's intended use, and acknowledges that past uses of the Premises may no longer be allowed. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within 6 months following the Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. If the Applicable Requirements are hereafter changed so as to require during the term of this Lease the construction of an addition to or an alteration of the Unit, Premises and/or Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Unit, Premises

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and/or Building ("Capital Expenditure"), Lessor and Lessee shall allocate the cost of such work as follows:

        (a)  Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however that if such Capital Expenditure is required during the last 2 years of this Lease and the cost thereof exceeds 6 months' Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within 10 days after receipt of Lessee's termination notice that Lessor has elected to pay the difference between the actual cost thereof and the amount equal to 6 months' Base Rent. If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least 90 days thereafter. Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure.

        (b)  If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor and Lessee shall allocate the obligation to pay for the portion of such costs reasonably attributable to the Premises pursuant to the formula set out in Paragraph 7.1(d); provided, however, that if such Capital Expenditure is required during the last 2 years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof, Lessor shall have the option to terminate this Lease upon 90 days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within 10 days after receipt of Lessor's termination notice that Lessee will pay for such Capital Expenditure. If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with interest, from Rent until Lessor's share of such costs have been fully paid. If Lessee is unable to finance Lessor's share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon 30 days written notice to Lessor.

        (c)  Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall be fully responsible for the cost thereof, and Lessee shall not have any right to terminate this Lease.

        2.5    Lessee as Prior Owner/Occupant.    The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the Premises. In such event, Lessee shall be responsible for any necessary corrective work.

        2.6    Vehicle Parking.    Lessee shall be entitled to use the number of Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph 1.2(b) on those portions of the Common Areas designated from time to time by Lessor for parking. Lessee shall not use more parking spaces than said number. Said parking spaces shall be used for parking by vehicles no larger than full-size passenger automobiles or pick-up trucks, herein called "Permitted Size Vehicles." Lessor may regulate the loading and unloading of vehicles by adopting Rules and Regulations as provided in Paragraph 2.9. No vehicles other than Permitted Size Vehicles may be parked in the Common Area without the prior written permission of Lessor.

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        (a)  Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee's employees, suppliers, shippers, customers, contractors or invitees to be loaded, unloaded, or parked in areas other than those designated by Lessor for such activities.

        (b)  Lessee shall not service or store any vehicles in the Common Areas.

        (c)  If Lessee permits or allows any of the prohibited activities described in this Paragraph 2.6, then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor.

        2.7    Common Areas—Definition.    The term "Common Areas" is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Project and interior utility raceways and installations within the Unit that are provided and designated by the Lessor from time to time for the general non-exclusive use of Lessor, Lessee and other tenants of the Project and their respective employees, suppliers, shippers, customers, contractors and invitees, including parking areas, loading and unloading areas, trash areas, roadways, walkways, driveways and landscaped areas.

        2.8    Common Areas—Lessee's Rights.    Lessor grants to Lessee, for the benefit of Lessee and its employees, suppliers, shippers, contractors, customers and invitees, during the term of this Lease, the non-exclusive right to use, in common with others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Lessor under the terms hereof or under the terms of any rules and regulations or restrictions governing the use of the Project. Under no circumstances shall the right herein granted to use the Common Areas be deemed to include the right to store any property, temporarily or permanently, in the Common Areas. Any such storage shall be permitted only by the prior written consent of Lessor or Lessor's designated agent, which consent may be revoked at any time. In the event that any unauthorized storage shall occur then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove the property and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor.

        2.9    Common Areas—Rules and Regulations.    Lessor or such other person(s) as Lessor may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to establish, modify, amend and enforce reasonable rules and regulations ("Rules and Regulations") for the management, safety, care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of the Building and the Project and their invitees. Lessee agrees to abide by and conform to all such Rules and Regulations, and to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform. Lessor shall not be responsible to Lessee for the non-compliance with said Rules and Regulations by other tenants of the Project.

        2.10    Common Areas—Changes.    Lessor shall have the right, in Lessor's sole discretion, from time to time:

        (a)  To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas, walkways and utility raceways;

        (b)  To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available;

        (c)  To designate other land outside the boundaries of the Project to be a part of the Common Areas;

        (d)  To add additional buildings and improvements to the Common Areas;

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        (e)  To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Project, or any portion thereof; and

        (f)    To do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Project as Lessor may, in the exercise of sound business judgment, deem to be appropriate.

3.    Term.

        3.1    Term.    The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.

        3.3    Delay in Possession.    Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. If, despite said efforts, Lessor is unable to deliver possession as agreed, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease. Lessee shall not, however, be obligated to pay Rent or perform its other obligations until it receives possession of the Premises as required by the Construction Rider attached hereto as Exhibit "C". If possession is not delivered within 60 days after the Commencement Date, Lessee may, at its option, by notice in writing within 10 days after the end of such 60 day period, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder. If such written notice is not received by Lessor within said 10 day period, Lessee's right to cancel shall terminate. Except as otherwise provided, Lessor shall return all amounts held by Lessor under Paragraph 1.7, if possession is not tendered to Lessee by the Commencement Date and Lessee does not terminate this Lease, as aforesaid, any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee.

        3.4    Lessee Compliance.    Lessor shall not be required to tender possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Commencement Date, including the payment of Rent, notwithstanding Lessor's election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee is required to perform any other conditions prior to or concurrent with the Commencement Date, the Commencement Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied.

4.    Rent.

        4.1    Rent Defined.    All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent ("Rent").

        4.2    Common Area Operating Expenses.    Lessee shall pay to Lessor during the term thereof, in addition to the Base Rent, Lessee's Share (as specified in Paragraph 1.6) of all Common Area Operating Expenses, as hereinafter defined, during each calendar year of the term of this Lease, in accordance with the following provisions:

        (a) "Common Area Operating Expenses" are defined, for purposes of this Lease, as all costs incurred by Lessor relating to the ownership and operation of the Project, including, but not limited to, the following:

(i)

The operation, repair and maintenance, in neat, clean, good order and condition of the following:

        (aa) The Common Areas and Common Area improvements, including parking areas, loading and unloading areas, trash areas, roadways, parkways, walkways, driveways,

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landscaped areas, bumpers, irrigation systems, Common Area lighting facilities, fences and gates, elevators, roofs and roof drainage systems.

        (bb) Exterior signs and any tenant directories.

        (cc) Any fire detection and/or sprinkler systems.

(ii)

The cost of water, gas, electricity and telephone to service the Common Areas and any utilities not separately metered.



(iii)

Trash disposal, pest control services, property management, security services, and the costs of any environmental inspections.



(iv)

Reserves set aside for maintenance and repair of Common Areas.



(v)

Real Property Taxes (as defined in Paragraph 10).



(vi)

The cost of the premiums for the insurance maintained by Lessor pursuant to Paragraph 8.



(vii)

Any deductible portion of an insured loss concerning the Building or the Common Areas.



(viii)

The cost of any Capital Expenditure to the Building or the Project not covered under the provisions of Paragraph 2.3 provided; however, that Lessor shall allocate the cost of any such Capital Expenditure over a 12 year period and Lessee shall not be required to pay more than Lessee's Share of ¹/144th of the cost of such Capital Expenditure in any given month.



(ix)

Any other services to be provided by Lessor that are stated elsewhere in this Lease to be a Common Area Operating Expense.

        (b)  Any Common Area Operating Expenses and Real Property Taxes that are specifically attributable to the Unit, the Building or to any other building in the Project or to the operation, repair and maintenance thereof, shall be allocated entirely to such Unit, Building, or other building. However, any Common Area Operating Expenses and Real Property Taxes that are not specifically attributable to the Building or to any other building or to the operation, repair and maintenance thereof, shall be equitably allocated by Lessor to all buildings in the Project.

        (c)  The inclusion of the improvements, facilities and services set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon Lessor to either have said improvements or facilities or to provide those services unless the Project already has the same, Lessor already provides the services, or Lessor has agreed elsewhere in this Lease to provide the same or some of them.

        (d)  Lessee's Share of Common Area Operating Expenses shall be payable by Lessee within 10 days after a reasonably detailed statement of actual expenses is presented to Lessee. At Lessor's option, however, an amount may be estimated by Lessor from time to time of Lessee's Share of annual Common Area Operating Expenses and the same shall be payable monthly or quarterly, as Lessor shall designate, during each 12 month period of the Lease term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to Lessee within 60 days after the expiration of each calendar year a reasonably detailed statement showing Lessee's Share of the actual Common Area Operating Expenses incurred during the preceding year. If Lessee's payments under this Paragraph 4.2(d) during the preceding year exceed Lessee's Share as indicated on such statement, Lessor shall credit the amount of such over-payment against Lessee's Share of Common Area Operating Expenses next becoming due. If Lessee's payments under this Paragraph 4.2(d) during the preceding year were less than Lessee's Share as indicated on such statement, Lessee shall pay

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to Lessor the amount of the deficiency within 10 days after delivery by Lessor to Lessee of the statement.

        4.3    Payment.    Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States, without offset or deduction (except as specifically permitted in this Lease), on or before the day on which it is due. Rent for any period during the term hereof which is for less than one full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor's rights to the balance of such Rent, regardless of Lessor's endorsement of any check so stating. In the event that any check, draft, or other instrument of payment given by Lessee is dishonored for any reason, Lessee agrees to pay to Lessor the sum of $25 in addition to any late charges which may be due.

5.    Security Deposit.    Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee's faithful performance of its obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of the Security Deposit, Lessee shall within 10 days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor's reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within 14 days after the expiration or termination of this Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise within 30 days after the Premises have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease.

6.    Use.

        6.1    Use.    Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs occupants of or causes damage to neighboring premises or properties. Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on the Premises or the mechanical or electrical systems therein, and/or is not significantly more burdensome to the Premises. If Lessor elects to withhold consent, Lessor shall within 7 days after such request give written notification of same, which notice shall include an explanation of Lessor's objections to the change in the Agreed Use.

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        6.2    Hazardous Substances.

        (a)    Reportable Uses Require Consent.    The term "Hazardous Substance" as used in this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee's expense) with all Applicable Requirements. "Reportable Use" shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit.

        (b)    Duty to Inform Lessor.    If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance.

        (c)    Lessee Remediation.    Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee's expense, take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee, or any third party.

        (d)    Lessee Indemnification.    Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties, and attorneys' and consultants' fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party (provided, however, that Lessee shall have no liability under this Lease with respect to underground migration of any Hazardous Substance under the Premises from areas outside of the Project). Lessee's obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the

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expiration or termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement.

        (e)    Lessor Indemnification.    Lessor and its successors and assigns shall indemnify, defend, reimburse and hold Lessee, its directors, officers, agents, employees and lenders, harmless from and against any and all environmental damages, including the cost of remediation, which existed as a result of Hazardous Substances on the Premises prior to the Start Date or which are caused by the gross negligence or willful misconduct of Lessor, its agents or employees. Lessor's obligations, as and when required by the Applicable Requirements, shall include, but not be limited to, the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.

        (f)    Investigations and Remediations.    Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to the Start Date, unless such remediation measure is required as a result of Lessee's use (including "Alterations", as defined in paragraph 7.3(a) below) of the Premises, in which event Lessee shall be responsible for such payment. Lessee shall cooperate fully in any such activities at the request of Lessor, including allowing Lessor and Lessor's agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor's investigative and remedial responsibilities.

        (g)    Lessor Termination Option.    If a Hazardous Substance Condition (see Paragraph 9.1(e)) occurs during the term of this Lease, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and this Lease shall continue in full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor's option, either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to remediate such condition exceeds 12 times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee, within 30 days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessor's desire to terminate this Lease as of the date 60 days following the date of such notice. In the event Lessor elects to give a termination notice, Lessee may, within 10 days thereafter, give written notice to Lessor of Lessee's commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds an amount equal to 12 times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days following such commitment. In such event, this Lease shall continue in full force and effect, and Lessor shall proceed to make such remediation as soon as reasonably possible after the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the time provided, this Lease shall terminate as of the date specified in Lessor's notice of termination.

        6.3    Lessee's Compliance with Applicable Requirements.    Except as otherwise provided in this Lease, Lessee shall, at Lessee's sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor's engineers and/or consultants which relate in any manner to the Premises, without regard to whether said requirements are now in effect or become effective after the Start Date. Lessee shall, within 10 days after receipt of Lessor's written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee's compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual

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claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements.

        6.4    Inspection; Compliance.    Lessor and Lessor's "Lender" (as defined in Paragraph 30) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at a reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease. The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a contamination is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority. In such case, Lessee shall upon request reimburse Lessor for the cost of such inspection, so long as such inspection is reasonably related to the violation or contamination.

7.    Maintenance; Repairs, Utility Installations; Trade Fixtures and Alterations.

        7.1    Lessee's Obligations.

        (a)    In General.    Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises, Utility Installations (intended for Lessee's exclusive use, no matter where located), and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, HVAC equipment, electrical, lighting facilities, boilers, pressure vessels, fixtures, interior walls, interior surfaces of exterior walls, ceilings, floors, windows, doors, plate glass, and skylights but excluding any items which are the responsibility of Lessor pursuant to Paragraph 7.2. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below. Lessee's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair.

        (b)    Service Contracts.    Lessee shall, at Lessee's sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler and pressure vessels, (iii) clarifiers, and (iv) any other equipment, if reasonably required by Lessor. However, Lessor reserves the right, upon notice to Lessee, to procure and maintain any or all of such service contracts, and if Lessor so elects, Lessee shall reimburse Lessor, upon demand, for the cost thereof.

        (c)    Failure to Perform.    If Lessee fails to perform Lessee's obligations under this Paragraph 7.1, Lessor may enter upon the Premises after 10 days' prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessee's behalf, and put the Premises in good order, condition and repair, and Lessee shall promptly reimburse Lessor for the cost thereof.

        (d)    Replacement.    Subject to Lessee's indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee's failure to exercise and perform good maintenance practices, if an item described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such item, then such item shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this

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Lease, on the date on which Base Rent is due, an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is one, and the denominator of which is 144 (ie. 1/144th of the cost per month). Lessee shall pay interest on the unamortized balance at a rate that is commercially reasonable in the judgment of Lessor's accountants. Lessee may, however, prepay its obligation at any time.

        7.2    Lessor's Obligations.    Subject to he provisions of Paragraphs 2.2 (Condition, 2.3 (Compliance), 4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9 (Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement pursuant to Paragraph 4.2, shall keep in good order, condition and repair the foundations, exterior walls, structural condition of interior bearing walls, exterior roof, fire sprinkler system, main plumbing, electrical and sewerage systems, Common Area fire alarm and/or smoke detection systems, fire hydrants, parking lots, walkways, parkways, driveways, landscaping, fences, signs and utility systems serving the Common Areas and all parts thereof, as well as providing the services for which there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or replace windows, doors or plate glass of the Premises. Lessee expressly waives the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease.

        7.3    Utility Installations; Trade Fixtures; Alterations.

        (a)    Definitions.    The term "Utility Installations" refers to all floor and window coverings, air lines, power panels, electrical distribution, security and fire protection systems, communication systems, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be removed without doing material damage to the Premises. The term "Alterations" shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned Alterations and/or Utility Installations" are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).

        (b)    Consent.    Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor's prior written consent. Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, and the cumulative cost thereof during this Lease as extended does not exceed a sum equal to 3 month's Base Rent in any one year. Notwithstanding the foregoing, Lessee shall not make or permit any roof penetrations and/or install anything on the roof without the prior written approval of Lessor. Lessor may, as a precondition to granting such approval, require Lessee to utilize a contractor chosen and/or approved by Lessor. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall be deemed conditioned upon Lessee's: (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications. For work which costs an amount in excess of one month's Base Rent, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to 150% of the estimated cost of such Alteration or Utility Installation and/or upon Lessee's posting an additional Security Deposit with Lessor.

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        (c)    Indemnification.    Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic's or materialman's lien against the Premises or any interest therein. Lessee shall give Lessor not less than 10 days notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to 150% of the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in any such action, Lessee shall pay Lessor's attorneys' fees and costs.

        7.4    Ownership; Removal; Surrender; and Restoration.

        (a)    Ownership.    Subject to Lessor's right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises.

        (b)    Removal.    By delivery to Lessee of written notice from Lessor not earlier than 90 and not later than 30 days prior to the end of the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent.

        (c)    Surrender, Restoration.    Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces that are broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted. "Ordinary wear and tear" shall not include any damage or deterioration that would have been prevented by good maintenance practice. Notwithstanding the foregoing, if this Lease is for 12 months or less, then Lessee shall surrender the Premises in the same condition as delivered to Lessee on the Start Date with NO allowance for ordinary wear and tear. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures. Lessee owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee. Lessee shall also completely remove from the Premises any and all Hazardous Substances brought onto the Premises by or for Lessee, or any third party (except Hazardous Substances which were deposited via underground migration from areas outside of the Project) even if such removal would require Lessee to perform or pay for work that exceeds statutory requirements. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below.

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8.    Insurance; Indemnity.

        8.1    Payment of Premiums.    The cost of the premiums for the insurance policies required to be carried by Lessor, pursuant to Paragraphs 8.2(b), 8.3(a) and 8.3(b), shall be a Common Area Operating Expense. Premiums for policy periods commencing prior to, or extending beyond, the term of this Lease shall be prorated to coincide with the corresponding Start Commencement Date or Expiration Date.

        8.2    Liability Insurance.

        (a)    Carried by Lessee.    Lessee shall obtain and keep in force a Commercial General Liability policy of insurance protecting Lessee and Lessor as an additional insured against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an annual aggregate of not less than $2,000,000, an "Additional Insured—Managers or Lessors of Premises Endorsement" and contain the "Amendment of the Pollution Exclusion Endorsement" for damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "insured contract" for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.

        (b)    Carried by Lessor.    Lessor shall maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein.

        8.3    Property Insurance—Building, Improvements and Rental Value.

        (a)    Building and Improvements.    Lessor shall obtain and keep in force a policy or policies of insurance in the name of Lessor, with loss payable to Lessor, any ground-lessor, and to any Lender insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lender, but in no event more than the commercially reasonable and available insurable value thereof. Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee's personal property shall be insured by Lessee under Paragraph 8.4. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence.

        (b)    Rental Value.    Lessor shall also obtain and keep in force a policy or polices in the name of Lessor with loss payable to Lessor and any Lender. insuring the loss of the full Rent for one year with an extended period of indemnity for an additional 180 days ("Rental Value insurance"). Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and

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the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next 12 month period.

        (c)    Adjacent Premises.    Lessee shall pay for any increase in the premiums for the property insurance of the Building and for the Common Areas or other buildings in the Project if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises.

        (d)    Lessee's Improvements.    Since Lessor is the Insuring Party, Lessor shall not be required to insure Lessee Owned Alterations and Utility Installations unless the item in question has become the property of Lessor under the terms of this Lease.

        8.4    Lessee's Property; Business Interruption Insurance.

        (a)    Property Damage.    Lessee shall obtain and maintain insurance coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee shall provide Lessor with written evidence that such insurance is in force.

        (b)    Business Interruption.    Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils.

        (c)    No Representation of Adequate Coverage.    Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee's property, business operations or obligations under this Lease.

        8.5    Insurance Polices.    Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B+, V. as set forth in the most current issue of "Best's Insurance Guide", or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required insurance polices. Lessee shall, prior to Start Date, deliver to Lessor certified copies of polices of such insurance or certificates evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification except after 30 days prior written notice to Lessor. Lessee shall, at least 30 days prior to the expiration of such polices, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such polices shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same.

        8.6    Waiver of Subrogation.    Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and wave their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein. The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby.

        8.7    Indemnity.    Except for Lessor's gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages,

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liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defend or indemnified.

        8.8    Exemption of Lessor from Liability.    Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the Building, or from other sources or places. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor nor from the failure of Lessor to enforce the provisions of any other lease in the Project. Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss of income or profit therefrom.

9.    Damage or Destruction.

        9.1    Definitions.

        (a)    "Premises Partial Damage"    shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in six (6) months or less from the date of the damage or destruction, and the cost thereof does not exceed a sum equal to 6 month's Base Rent. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

        (b)    "Premises Total Destruction"    shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in six (6) months or less from the date of the damage or destruction and/or the cost thereof exceeds a sum equal to 6 month's Base Rent. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

        (c)    "Insured Loss"    shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.

        (d)    "Replacement Cost"    shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation.

        (e)    "Hazardous Substance Condition"    shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises.

        9.2    Partial Damage—Insured Loss.    If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor's election, make the

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repair of any damage or destruction the total cost to repair of which is $5,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the forgoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds as and when required to complete said repairs. In the event, however such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available. Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within 10 days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said 10 day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within 10 days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or (ii) have this Lease terminate 30 days thereafter. Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.

        9.3    Partial Damage—Uninsured Loss.    If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), Lessor may either: (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within 30 days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective 60 days following the date of such notice. In the event Lessor elects to terminate this Lease, Lessee shall have the right within 10 days after receipt of the termination notice to give written notice to Lessor of Lessee's commitment to pay for the repair of such damage without reimbursement from Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days after making such commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice.

        9.4    Total Destruction.    Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate 60 days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.

        9.5    Damage Near End of Term.    If at any time during the last 6 months of this Lease there is damage for which the cost to repair exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may terminate this Lease effective 60 days following the date of occurrence of such damage by giving a written termination notice to Lessee within 30 days after the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by: (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is 10 days after Lessee's receipt of Lessor's written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's commercially reasonable expense, repair such damage as soon as reasonably possible

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and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee's option shall be extinguished.

        9.6    Abatement of Rent; Lessee's Remedies.

        (a)    Abatement.    In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value insurance. All other obligations of Lessee hereunder shall be preformed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein.

        (b)    Remedies.    If Lessor shall be obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within 90 days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee's election to terminate this Lease on a date not less than 60 days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not commenced within 30 days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within such 30 days, this Lease shall continue in full force and effect. "Commence" shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs.

        9.7    Termination; Advance Payments.    Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor.

        9.8    Waive Statutes.    Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith.

10.    Real Property Taxes.

        10.1    Definition.    As used herein, the term "Real Property Taxes" shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Project, Lessor's right to other income therefrom, and/or Lessor's business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Project address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Project is located. The term "Real Property Taxes" shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring during the term of this Lease, including but not limited to, a change in the ownership of the Project or any portion thereof or a change in the improvements thereon. In calculating Real Property Taxes for any calendar year, the Real Property Taxes for any real estate tax year shall be included in the calculation of Real Property Taxes for such calendar year based upon the number of days which such calendar year and tax year have in common.

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        10.2    Payment of Taxes.    Lessor shall pay the Real Property Taxes applicable to the Project, and except as otherwise provided in Paragraph 10.3, any such amounts shall be included in the calculation of Common Area Operating Expenses in accordance with the provisions of Paragraph 4.2.

        10.3    Additional Improvements.    Common Area Operating Expenses shall not include Real Property Taxes specified in the tax assessor's records and work sheets as being caused by additional improvements placed upon the Project by other lessees or by Lessor for the exclusive enjoyment of such other lessees. Notwithstanding Paragraph 10.2 hereof, Lessee shall, however, pay to Lessor at the time Common Area Operating Expenses are payable under Paragraph 4.2, the entirety of any increase in Real Property Taxes if assessed solely by reason of Alterations, Trade Fixtures or Utility Installations placed upon the Premises by Lessee or at Lessee's request.

        10.4    Joint Assessment.    If the Building is not separately assessed, Real Property Taxes allocated to the Building shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive.

        10.5    Personal Property Taxes.    Lessee shall pay prior to delinquency all taxes assessed against and levied upon Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee contained in the Premises. When possible, Lessee shall cause its Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee's property within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee's property.

11.    Utilities.    Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. Notwithstanding the provisions of Paragraph 4.2, if at any time in Lessor's sole judgment, Lessor determines that Lessee is using a disproportionate amount of water, electricity or other commonly metered utilities, or that Lessee is generating such a large volume of trash as to require an increase in the size of the dumpster and/or an increase in the number of times per month that the dumpster is emptied, then Lessor may increase Lessee's Base Rent by an amount equal to such increased costs.

12.    Assignment and Subletting

        12.1    Lessor's Consent Required.

        (a)  Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, "assign or assignment") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent.

        (c)  The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee's assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than 25% of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent. "Net Worth of Lessee" shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles.

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        (d)  An assignment or subletting without consent shall, at Lessor's options, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon 30 days written notice, increase the monthly Base Rent to 110% of the Base Rent then in effect. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to 110% of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to 110% of the scheduled adjusted rent.

        (e)  Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief.

        12.2    Terms and Conditions Applicable to Assignment and Subletting.

        (a)  Regardless of Lessor's consent, no assignment or subletting shall: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee.

        (b)  Lessor may accept Rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for Lessee's Default or Breach.

        (c)  Lessor's consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting.

        (d)  In the event of any default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee's obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefore to Lessor, or any security held by Lessor.

        (e)  Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $1,000 or 10% of the current monthly Base Rent applicable to the portion of the Premises which is the subject of the proposed assignment or sublease, whichever is greater, as consideration for Lessor's considering and processing said request. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested.

        (f)    Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations are as contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing.

        12.3    Additional Terms and Conditions Applicable to Subletting.    The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:

        (a)  Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee's obligations

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under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee's obligations, Lessee may collect said Rent. Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee's obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease. Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary.

        (b)  In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor.

        (c)  Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor.

        (d)  No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent.

        (e)  Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee.

13.    Default; Breach; Remedies.

        13.1    Default; Breach.    A "Default" is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or Rules and Regulations under this Lease. A "Breach" is defined as the occurrence of any one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period:

        (a)  The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.

        (b)  The failure by Lessee to make any payment of Rent or Security Deposit required to be made by Lessee hereunder, whether to Lessee or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of 3 business days following written notice to Lessee.

        (c)  The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) an Estoppel Certificate, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 41 (easements), or (viii) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of 10 days following written notice to Lessee.

        (d)  A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 2.9 hereof, other than those described in

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subparagraphs 13.1(a), (b) or (c), above, where such Default continues for a period of 30 days after written notice; provided, however, that if the nature of Lessee's Default is such that more than 30 days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said 30 day period and thereafter diligently prosecutes such cure to completion.

        (e)  The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a "debtor" as defined in 11 U.S.C. § 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within 30 days; provided, however, in the event that any provision of this subparagraph (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions.

        (f)    The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false.

        (g)  If the performance of Lessee's obligations under this Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a Guarantor's breach of its guaranty obligation on an anticipatory basis, and Lessee's failure, within 60 days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease.

        13.2    Remedies.    If Lessee fails to perform any of its affirmative duties or obligations, within 10 days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee upon receipt of invoice therefor. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its option, may require all future payments to be made by Lessee to be by cashier's check. In the event of a Breach, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach:

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        (a)  Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent. Efforts by Lessor to mitigate damages caused by Lessee's Breach of this Lease shall not waive Lessor's right to recover damages under Paragraph 12. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute.

        (b)  Continue the Lease and Lessee's right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor's interests, shall not constitute a termination of the Lessee's right to possession.

        (c)  Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises.

        13.3    Inducement Recapture.    Any agreement for free or abated rent or other charges, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "Inducement Provisions", shall be deemed conditioned upon Lessee's full and faithful performance of all of the terms, covenants and conditions of this Lease. Upon Breach of this Lease by Lessee, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this paragraph shall not be

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deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance.

        13.4    Late Charges.    Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent shall not be received by Lessor within 5 days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a one-time late charge equal to 10% of each such overdue amount or $100, whichever is greater. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default or Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for 3 consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor's option, become due and payable quarterly in advance.

        13.5    Interest.    Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent) or within 30 days following the date on which it was due or non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the 31st day after it was due as to non-scheduled payments. The interest ("Interest") charged shall be equal to the prime rate reported in the Wall Street Journal as published closest prior to the date when due plus 4%, but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for in Paragraph 13.4.

        13.6    Breach by Lessor.

        (a)  Notice of Breach.    Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no event be less than 30 days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed: provided, however, that if the nature of Lessor's obligation is such that more than 30 days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such 30 day period and thereafter diligently pursued to completion.

        (b)  Performance by Lessee on Behalf of Lessor.    In the event that neither Lessor nor Lender cures said breach within 30 days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee's expense and offset from Rent an amount equal to the greater of one month's Base Rent or the Security Deposit, and to pay an excess of such expense under protest, reserving Lessee's right to reimbursement from Lessor. Lessee shall document the cost of said cure and supply said documentation to Lessor.

14.    Condemnation.    If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively "Condemnation"), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs. If any of the floor area of the Premises, or more than 25% of the Lessee's Reserved Parking Spaces, is taken by Condemnation, Lessee may, at Lessee's option, to be exercised in writing within 10 days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within 10 days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If

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Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that the Lessee shall be entitled to any compensation for Lessee's relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor. In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation.

16.    Estoppel Certificates.

        (a)  Each Party (as "Responding Party") shall within 10 days after written notice from the other Party (the "Requesting Party") execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current "Estoppel Certificate" form published by the American Industrial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party.

        (b)  If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such 10 day period, the Requesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party's performance, and (iii) if the Lessor is the Requesting Party, not more than one month's rent has been paid in advance. Prospective purchasers and encumbrances may rely upon the Requesting Party's Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate.

        (c)  If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessee's financial statements for the past 3 years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.

17.    Definition of Lessor.    The term "Lessor" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee's interest in the prior lease. In the event of a transfer of Lessor's title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. Notwithstanding the above, and subject to the provisions of Paragraph 20 below, the original Lessor under this Lease, and all subsequent holders of the Lessor's interest in this Lease shall remain liable and responsible with regard to the potential duties and liabilities of Lessor pertaining to Hazardous Substances as outlined in Paragraph 6.2 above.

18.    Severability.    The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.

19.    Days.    Unless otherwise specifically indicated to the contrary, the word "days" as used in this Lease shall mean and refer to calendar days.

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20.    Limitation on Liability.    Subject to the provisions of Paragraph 17 above, the obligations of Lessor under this Lease shall not constitute personal obligations of Lessor, the individual partners of Lessor or its or their individual partners, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against the individual partners of Lessor, or its or their individual partners, directors, officers or shareholders, or any of their personal assets for such satisfaction.

21.    Time of Essence.    Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.

22.    No Prior or Other Agreements; Broker Disclaimer.    This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the use, nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. The liability (including court costs and attorneys' fees), of any Broker with respect to negotiation, execution, delivery or performance by either Lessor or Lessee under this Lease or any amendment or modification hereto shall be limited to an amount up to the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker's liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

23.    Notices.

        23.1    Notice Requirements.    All notices required or permitted by this Lease or applicable law shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notices. Either Party may by written notice to the other specify a different address for notice, except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing.

        23.2    Date of Notice.    Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given 48 hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantee next day delivery shall be deemed given 24 hours after delivery of the same to the Postal Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt (confirmation report from fax machine is sufficient), provided a copy is also delivered via delivery or mail. If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day.

24.    Waivers.    No waiver by Lessor or the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof.

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Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.

26.    No Right To Holdover.    Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over, then the Base Rent shall be increased to 150% of the Base Rent applicable immediately preceding the expiration or termination. Nothing contained herein shall be construed as consent by Lessor to any holding over by Leassee.

27.    Cumulative Remedies.    No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.

28.    Covenants and Conditions; Construction of Agreement.    All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. In construing this Lease, all headings and titles are for the convenience of the Parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it.

29.    Binding Effect; Choice of Law.    This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located.

30.    Subordination; Attornment; Non-Disturbance.

        30.1    Subordination.    This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "Security Device"), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holder of any such Security Devices (in this Lease together referred to as "Lender") shall have no liability or obligation to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.

        30.2    Attornment.    In the event that Lessor transfers title to the Premises, or the Premises are acquired by another upon the foreclosure or termination of a Security Device to which this Lease is subordinated (i) Lessee shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to such new owner, and upon request, enter into a new lease, containing all of the terms and provisions of this Lease, with such new owner for the remainder of the term hereof, or, at the election of such new owner, this Lease shall automatically become a new Lease between Lessee and such new owner, upon all of the terms and conditions hereof, for the remainder of the term hereof, and (ii) Lessor shall thereafter be relieved of any further obligations hereunder and such new owner shall assume all of Lessor's obligations hereunder, except that such new owner shall not: (a) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (b) be subject to any offsets or defenses which Lessee might have against any prior lessor, (c) be bound by

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prepayment of more than one month's rent, or (d) be liable for the return of any security deposit paid to any prior lessor.

        30.3    Non-Disturbance.    With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a "Non-Disturbance Agreement") from the Lender which Non-Disturbance Agreement provides that Lessee's possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. Further, within 60 days after the execution of this Lease, Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises. In the event that Lessor is unable to provide the Non-Disturbance Agreement within said 60 days, then Lessee may, at Lessee's option, terminate this Lease.

        30.4    Self-Executing.    The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein.

31.    Attorneys' Fees.    If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract, or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, "Prevailing Party" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys' fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably incurred. In addition, Lessor shall be entitled to attorneys' fees, costs, and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach ($200 is a reasonable minimum per occurrence for such services and consultation).

32.    Lessor's Access; Showing Premises; Repairs.    Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times and with reasonable notice for the purpose of showing the same to prospective purchasers, lenders, or during the last six (6) months of the term, tenants, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary. All such activities shall be without abatement of rent or liability to Lessee. Lessor may at any time place on the Premises any ordinary "For Sale" signs and Lessor may during the last 6 months of the term hereof place on the Premises any ordinary "For Lease" signs. Lessee may at any time place on the Premises any ordinary "For Sublease" sign.

33.    Auctions.    Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor's prior written consent. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction.

34.    Signs.    Except for ordinary "For Sublease" signs which may be placed only on the Premises, Lessee shall not place any sign upon the Project without Lessor's prior written consent. All signs must comply with all Applicable Requirements.

35.    Termination; Merger.    Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a

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termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessor's failure within 10 days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest.

36.    Consents.    Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including but not limited to architects', attorneys', engineers' and other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor. Lessor's consent to any act, assignment or subletting shall not constitute an acknowledgement that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within 10 business days following such request.

37.    Guarantor.

        37.1    Execution.    The Guarantors, if any, shall each execute a guaranty in the form most recently published by the American Industrial Real Estate Association, and each such Guarantor shall have the same obligations as Lessee under this Lease.

        37.2    Default.    It shall constitute a Default of the Lessee if any Guarantor fails or refuses, upon request to provide: (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantor's behalf to obligate Guarantor, and in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) an Estoppel Certificate, or (d) written confirmation that the guaranty is still in effect.

38.    Quiet Possession.    Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof.

39.    Options.    If Lessee is granted an option, as defined below, then the following provisions shall apply.

        39.1    Definition.    "Option" shall mean: (a) the right to extend the term of or renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase or the right of first refusal to purchase the Premises or other property of Lessor.

        39.3    Multiple Options.    In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised.

        39.4    Effect of Default on Options.

        (a)  Lessee shall have no right to exercise an Option: (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee),

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(iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given 3 or more notices of separate Default, whether or not the Defaults are cured, during the 12 month period immediately preceding the exercise of the Option.

        (b)  The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of Paragraph 39.4(a).

        (c)  An Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term, (i) Lessee fails to pay Rent for a period of 30 days after such Rent becomes due (without any necessity of Lessor to give notice thereof), (ii) Lessor gives to Lessee 3 or more notices of separate Default during any 12 month period, whether or not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease.

40.    Security Measures.    Lessee hereby acknowledges that the Rent payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties.

41.    Reservations.    Lessor reserves the right: (i) to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, (ii) to cause the recordation of parcel maps and restrictions, and (iii) to create and/or install new utility raceways, so long as such easements, rights, dedications, maps, restrictions, and utility raceways do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate such rights.

        42.    Performance Under Protest.    If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay.

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        43.    Authority.    If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Each party shall, within 30 days after request, deliver to the other party satisfactory evidence of such authority.

        44.    Conflict.    Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.

        45.    Offer.    Preparation of this Lease by either party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended to be binding until executed and delivered by all Parties hereto.

        46.    Amendments.    This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. As long as they do not materially change Lessee's obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises.

        47.    Multiple Parties.    If more than one person or entity is named herein as either Lessor or Lessee, such multiple Parties shall have joint and several responsibility to comply with the terms of this Lease.

        48.    Waiver of Jury Trial.    The Parties hereby waive their respective rights to trial by jury in any action or proceeding involving the Property or arising out of this Agreement.

        49.    Mediation and Arbitration of Disputes.    An Addendum requiring the Mediation and/or the Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease ý is o is not attached to this Lease.

LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.

ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:

1.    SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

2.    RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT AND THE SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.

WARNING: IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES ARE LOCATED.

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        The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.

Executed at:	Madera, California	Executed at:	Napa County, California
on:	September 6, 2001	on:	September 6, 2001
By LESSOR:		By LESSEE:
SDG Commerce 201, LLC, a California		Golden State Vintners, Inc., a California
limited liability company		corporation
By:	/s/  PETER T. STRAVINSKI9/11/01	By:	/s/  JEFFREY B. O'NEILL
Name Printed:	Peter T. Stravinski	Name Printed:	Jeffrey B. O'Neill
Title:	Manager	Title:	Chief Executive Officer
By:		By:
Name Printed:		Name Printed:
Title:		Title:
Address:	413 West Yosemite Avenue, Suite 105	Address:	607 Airpark Road
	Madera, California 93637		Napa, California 94558
Telephone:	(559) 674-0906	Telephone:	(707) 254-4900
Facsimile:	(559) 661-7506	Facsimile:	(707) 254-4920
Federal ID No.	77-0555684	Federal ID No.	94-0358460

These forms are often modified to meet changing requirements of law and needs of the industry. Always write or call to make sure you are utilizing the most current form: American Industrial Real Estate Association, 700 So. Flower Street, Suite 600, Los Angeles, CA 90017.

(213) 687-8777

©Copyright 1999 By American Industrial Real Estate Association.
All rights reserved.
No part of these works may be reproduced in any form without permission in writing.

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EXHIBIT "A"

[MAP]

EXHIBIT "B"

GOLDEN STATE VINTNERS
COMMERCE 201 WAREHOUSE OFFICE TENANT IMPROVEMENTS
FINISH SPECIFICATIONS
July 23, 2001

        3,649 sf offices includes two (2) entry/waiting areas, reception area, two (2) men and two (2) women's restrooms, janitors closet, two (2) storage/computer rooms, two (2) break rooms, conference room, work room, two (2) large open office areas and five (5) individual offices.

Walls:	35/8" metal stud with 1/2" sheetrock both sides, exterior office walls to be fourteen (14) foot high with sheetrock and boxed studs at 4' o.c. to the roof structure.
Wall Finish:	Spray knockdown texture. Orange peel texture at the restrooms and janitors closet.
Insulation:
Sound—	R-11 unfaced fiberglass batt insulation in all interior partition walls.
Thermal—	R-11 unfaced fiberglass batt insulation in demising wall between office and warehouse. R-19 unfaced fiberglass batt insulation at ceilings.
Hardware:	Standard office commercial grade ("Schlage—D Series" or equal), satin chrome privacy/passage lever latch set.
Doors:	3'0" x 6'8" sold core stain grade oak wood doors with aluminum door frames. Hollow metal door and frame at the entries to the warehouse.
Flooring:	Carpet to be 26 oz. level loop direct glue carpet (based on $24.00/sy allowance). Coved sheet vinyl (based on $4.00/sf allowance) at the break rooms. Tile see below.
Base:	4" vinyl top set base ("Burke" or equal) at carpet and warehouse side of the office walls.
Window Coverings:	None.
Ceilings:	Standard 2' x 4' non-directional fissure white acoustical tile ("Armstrong—White Cortega" or equal) with standard white 15/16" x 2' x 4' grid system with 2' x 2' tile at the entry/waiting area as shown. Sheetrock with spray knockdown texture finish at the entry/waiting soffit, and orange peel texture at the restroom and janitor closet ceilings.
Paint:
Wall/Ceiling—	1 coat sealer/1 coat flat or semi-gloss latex.
Doors—	painted with two (2) coats latex enamel paint or stained and lacquered as shown.
Cabinets—	stained and lacquered.
Cabinet:	Stain grade oak cabinetry with slab style doors, melamine interiors, concealed hinges, & wire pulls
Countertops:	Plastic laminate ("Wilsonart" or "Formica") with a 4" backsplash as shown. "Corian" at the entry/waiting high counter (+/- 16 sf).

Sinks:	22" x 25" standard stainless steel sink with standard chrome single lever kitchen faucet at the conference and break rooms. 19" x 16" oval cast iron sink or wall mounted sink (white) with chrome handicapped level faucet at restrooms. All faucets to have hot and cold water.
Ceramic Tile:
Restroom wall—	Standard color selection 4" x 4" direct glue on ceramic tile ("Dal-tile" or equal) to 4'-6" high.
Restroom floor—	Standard color selection 2" x 2" direct glue on ceramic tile ("Dal-tile" or equal).
Entry—	Standard color selection 12" x 12" direct glue on ceramic tile ("Dal-tile" or equal).
Toilet Partitions:	Toilet compartments to be floor mounted with a baked enamel finish and chrome hardware.
Toilet Accessories:	"Bobrick" or equal with brushed chrome finish.
Toilets:	Floor mounted bladder tank type elongated bowl toilet (white).
Kitchen Appliances:	"General Electric" or equal with standard color finish.
Fire Sprinklers:	Heads to be semi-recessed with a chrome finish, centered on ceiling tiles.
H.V.A.C.:	Zoned heating and cooling (12 tons total) with ducted supply and return grilles and programmable thermostats. Exhaust fans at the restrooms.
Electrical:	Electrical outlets, switches and lights per Electrical Code. Emergency lighting per Code. Combination phone/data ring and conduit stubbed above the ceiling (one per office or work station). General office lighting to be 2' x 4' lay-in 3-tube fluorescent fixtures with prismatic acrylic lenses.
Fire Alarm:	None.

EXHIBIT C

ATTACHED TO AND FORMING A PART OF
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE—NET
DATED AS OF SEPTEMBER 6, 2001
BETWEEN
SDG COMMERCE 201 LLC, AS LESSOR,
AND
GOLDEN STATE VINTNERS, INC., AS LESSEE ("LEASE")

CONSTRUCTION RIDER

        1.    Definition of Work.    The terms "Office Improvements," "Lessor Warehouse Improvements" and "Lessee Warehouse Improvements" are defined in Lease Addendum No. 1 to the Lease. The term, "Basic Warehouse Improvements" means the warehouse improvements undertaken by Lessor before making any modifications desired by Lessee: the Basic Warehouse Improvements are described in a design review permit from the City of American Canyon (Design Review Permit No. DPR 2000-07, approved on July 13, 2000), and a building permit (Building Permit No. C-0012-001, issued on January 25, 2001).

        2.    Designation of Architect and Contractor.    Dale Rutherford, AIA (the "Architect") is the architect for the work to be done under this Construction Rider. Industrial & Commercial Contractors, L.P. ("ICC") is the general contractor for the work to be done under this Construction Rider.

        3.    Lessee Warehouse Improvements.

        3.1.  Except as provided in paragraph 3.2, the Lessee Warehouse Improvements are not included within the scope of this Construction Rider.

        3.2.  Lessor and Lessee have identified certain elements of the Lessee Warehouse Improvements that Lessor has or will undertake concurrent with and as part of the construction of the warehouse and its supporting infrastructure (the "Lessee Improvements to be Constructed by Lessor"), which are described in Schedule 1 attached hereto. Upon the execution of this Construction Rider, Lessee will pay Lessor the sum of $94,939 ($169,939 - $75,000 = $94,939) for the Lessee Improvements to be Constructed by Lessor.

        4.    Plans for Office Improvements.

        4.1.  Exhibit 'A' to the Lease describes the location where the Office Improvements are to be made and Exhibit 'B' to the Lease describes the Office Improvements in sufficient detail to enable the Architect to prepare the plans that will be submitted to the building official for a building permit for the Office Improvements (the "Preliminary Office Improvement Plans"), which will include the design work of design-build subcontractors selected by ICC.

        4.2.  As soon as reasonably practicable after execution and delivery of the Lease, Lessor will cause the Architect to prepare and/or compile the Preliminary Office Improvement Plans. Lessor will submit the Preliminary Office Improvement Plans to Lessee for approval, which approval Lessee will not withhold if the Preliminary Office Improvement Plans are consistent with Exhibit 'B' to the Lease. Lessee will respond to the Preliminary Office Improvement Plans within three (3) days after receipt thereof, either approving them as delivered or specifying any changes or modifications required to be made to conform them to Exhibit 'B' to the Lease. If the Preliminary Office Improvement Plans are required to be modified to conform them to Exhibit 'B' to the Lease, the Architect will modify them within three (3) days after receipt of Lessee's specifications of the required modifications.

        4.3.  Lessor shall proceed with reasonable diligence to submit the Preliminary Office Improvement Plans prepared pursuant to paragraph 4.2. to the building official for a building permit. If the building official requires any modifications thereto to conform to the building official's interpretation of the applicable building code and ordinances, the changes will be made.

The plans on which the building permit for the Office Improvements is issued are herein referred to as the "Office Improvement Plans."

        4.4.  Lessor and Lessee have agreed on the price of the Office Improvements, the allocation of costs thereof between Lessor and Lessee, and the method of payment for Lessee's share thereof in excess of the allowance, all of which is set out the schedule captioned "Allocation and Payment of Office Improvement Costs," attached hereto as Schedule 2.

        5.    Lessor Warehouse Improvements.

        5.1.  The parties agree that the Lessor Warehouse Improvements are adequately described in the Lease and that Lessee requires no further review or right of approval of the specific plans for that work.

        5.2.  Lessor shall proceed with reasonable diligence to obtain from the building official the permit necessary for the construction of the Lessor Warehouse Improvements. Lessor shall be solely responsible for the cost of design, construction and installation of the Lessor Warehouse Improvements.

        6.    Construction.

        6.1.  Lessor has already begun the work of constructing the Basic Warehouse Improvements and the Lessee Improvements to be Constructed by Lessor, and Lessor will proceed with reasonable diligence to complete that work.

        6.2.  As soon as Lessor has obtained the building permit(s) necessary for the Office Improvements and the Lessor Warehouse Improvements, Lessor will proceed with reasonable diligence to undertake and complete that work.

        7.    Progress Inspection.

        7.1.  Lessee's Field Representative and Lessor's Field Representative shall conduct a joint walkthrough of the work of construction at least once each two (2) weeks, or more often at the request of either Lessor or Lessee, to observe the progress of the work and to inform Lessor of any problems or deficiencies with the work. Either party may have other representatives accompany the field representatives during the walk-throughs.

        7.2.  At the conclusion of each walk-through pursuant to Section 7.1, Lessee's and Lessor's Field Representatives shall each prepare a written statement of all problems or deficiencies observed by them and both field representatives shall date and sign the report. Lessor shall promptly cause the contractors performing work on the project to correct all problems or deficiencies set out in the report, but if there is a disagreement concerning the need for or nature of any corrective action, Lessee and Lessor shall meet and confer with one another, together with the Architect and any other experts either party deems necessary, to determine what corrective action, if any, is necessary.

        8.    Punch List.

        8.1.  At or before the delivery of possession of the Premises to Lessee, Lessor's and Lessee's Field Representatives shall conduct a final inspection of the premises and shall compile three (3) lists identifying any defects and other deficiencies and incomplete work that are outside the scope of the authority or concern of the building official. The first punch list (the "First Punch List") shall identify any items described in the Lease, which are not required to be complete on the Commencement Date, which have not been completed. The second punch list (the "Minor Defects Punch List") shall identify matters not on the First Punch List that affect the appearance of the improvements but do not materially affect the ability of Lessee to conduct its business on the premises ("Minor Items"). The third punch list (the "Major Defects Punch List") shall identify those matters not on the First Punch List that materially affect the ability of Lessee to conduct its business on the Premises. Lessor shall cause the contractors performing work on the project diligently to undertake the correction or completion of all items on the three punch lists. The Commencement Date shall not be postponed on account of the First Punch List or the Minor Defects Punch List but shall be postponed until the items on the Major Defects Punch List have been corrected or completed, as the case may be.

        8.2.  It is understood and agreed that some defects may not become apparent until the building is in use and, therefore, may not be listed in any of the three punch lists delivered before the Commencement Date. Lessee shall deliver to Lessor a fourth punch list (the "Final Punch List") not later than three (3) months after receipt of a final Certificate of Occupancy for the Premises, and Lessor shall, upon receipt thereof, cause the contractors performing work on the project diligently to proceed to correct all items set forth on the Final Punch List. Landlord shall not be responsible for the correction of any defects or deficiencies in the work that are not included on the Final Punch List, or if the Final Punch List is not delivered before the end of the three (3) month period.

        8.3.  Tenant's rights concerning latent defects shall be those arising by operating of law.

        9.    Changes.    If Lessee requests that any changes be made in the description of the Office Improvements set out in Exhibit B to the Lease or the Office Improvement Plans (as defined in Paragraph 4.3) ("Changes"), Lessor shall cause the Architect to prepare additional plans implementing such Change. Lessee shall pay the cost of preparing additional plans within ten (10) days after receipt of Lessor's invoice therefor. As soon as practicable after the completion of such additional plans, Lessor shall notify Lessee of the estimated cost of the Changes. Within three (3) working days after receipt of such cost estimate, Lessee shall notify Lessor in writing whether Lessee approves the Change. If Lessee approves the Change, Lessor shall proceed with the Change and Lessee shall be liable for any additional cost resulting from the Change. If Lessee fails to approve the Change within such three (3) day period, construction of the Office Improvements shall proceed as provided in accordance with the original Construction Documents.

        10.    Delays Caused by Lessee.    Lessee shall be responsible for, and shall pay to Lessor, any and all costs and expenses incurred by Lessor in connection with any delay in the commencement or completion of any Lessor Warehouse Improvements or Office Improvements and any increase in the cost of Lessor Warehouse Improvements or Office Improvements caused by (i) the processing of Lessee's request for Changes under Paragraph 9 or from constructing those Changes, or (ii) any other delay requested or caused by Lessee (collectively, "Lessee Delays").

        11.    Delivery of Premises.    Upon Substantial Completion of the Basic Warehouse Improvements, the Lessor Warehouse Improvements and the Lessee Improvements to be Constructed by Lessor (other than the installation of the air conditioning units, their thermostats and their related appurtenances and the installation of the exterior wall insulation (the "A/C and Wall Insulation")) Lessor shall deliver possession of the Premises to Lessee. If Lessor has not Substantially Completed the Basic Warehouse Improvements, the Lessor Warehouse Improvements and the Lessee Improvements to be Constructed by Lessor (other than the A/C and Wall Insulation) and tendered possession of the Premises to Lessee on or before the Commencement Date specified in Paragraph 1.3 of the Lease, or if Lessor is unable

for any other reason to deliver possession of the Premises to Lessee on or before such date, neither Lessor nor its representatives shall be liable to Lessee for any damage resulting from the delay in completing such construction obligations and/or delivering possession to Lessee and the Lease shall remain in full force and effect unless and until it is cancelled under the express provisions of this Paragraph or Paragraph 3.3 of the Lease. If any delays in Substantially Completing the Basic Warehouse Improvements, the Lessor Warehouse Improvements and the Lessor Improvements to be Constructed by Lessor are attributable to Lessee Delays, then the Premises shall be deemed to have been Substantially Completed and delivered to Lessee on the date on which Lessor could have Substantially Completed the Premises and tendered the Premises to Lessee but for such Lessee Delays. Any element of work undertaken pursuant to this Construction Rider shall be deemed "Substantially Complete" upon the issuance by the Architect of an AIA Certificate of Substantial Completion relating to such work.

        Notwithstanding the foregoing, if the Substantial Completion of the Lessor Warehouse Improvements (other than the A/C and Wall Insulation) and Lessor's delivery of possession of the Premises to Lessee have not occurred or been deemed to have occurred within six (6) months after the Commencement Date, either party, by written notice to the other party given within ten (10) days after the expiration of such six (6) month period, may terminate this Lease without any liability to the other party.

        12.    Completion of Office Improvements.    Lessor shall Substantially Complete the Office Improvements by January 15, 2002 (the "Office Completion Date"). There shall be no abatement of the Rent due under the Lease between the Commencement Date and the Office Completion Date due to the fact that the Office Improvements have not been completed. If the Office Improvements are not completed by the Office Completion Date, the Base Rent under the Lease shall be reduced by $1.00 per square foot per month (prorated for partial months) for any portion of the Office Improvements that remain unavailable to Lessee until such date as the Office Improvements are Substantially Complete.

        Following Substantial Completion of the Office Improvement, Lessor and Lessee shall inspect the Premises and jointly prepare a "punch list" of agreed items of construction remaining to be completed. Lessor shall complete the items set forth in the punch list as soon as reasonably possible. Lessee shall cooperate with and accommodate Lessor and Lessor's contractor in completing the items on the punch list.

        13.    Substantial Completion of the A/C and Wall Insulation.    Lessor shall Substantially Complete the A/C and Wall Insulation by the later of (1) the date that is 120 days after the execution of the Lease or (2) January 1, 2002 (the "A/C and Wall Insulation Completion Date"). There shall be no abatement of the Rent due under the Lease between the Commencement Date and the A/C and Wall Insulation Completion Date due to the fact that the A/C and Wall Insulation have not been completed. If the A/C and Wall Insulation is not completed by the A/C and Wall Insulation Completion Date, the Base Rent under the Lease shall be reduced by $77.71 per day (($310,869 × ..09)/360 = $77.71) from the AC and Wall Insulation Completion Date through March 31, 2002, and by $750.00 per day ((50,000 sq. ft. × $0.45)/30 = $750.00) after March 31, 2002 until such date as the A/C and Wall Insulation are Substantially Complete.

        Following Substantial Completion of the A/C and Wall Insulation, Lessor and Lessee shall inspect the Premises and jointly prepare a "punch list" of agreed items of A/C and Wall Insulation construction remaining to be completed. Lessor shall complete the items set forth on the punch list as soon as reasonably possible. Lessee shall cooperate with and accommodate Lessor and Lessor's contractor in completing the items on the punch list.

        14.    Force Majeure.    If Lessor is delayed at any time in the start or progress of any work for which Lessor is responsible by any delay caused by an Act of God, labor disputes, inclement weather, delay in deliveries, fire or other casualty, delays in the issuance of necessary permits by government agencies, or other causes beyond Lessor's control, then the schedule for the work and its completion shall be extended for a time that fairly and reasonably reflects the actual delay caused by the event.

        15.    Designation of Representatives.

        15.1.  Lessee's initial representative for the execution of required documents ("Lessee Signatory") is:

Name:	Jeffrey B. O'Neill, CEO
Address:	607 Airpark Road Napa, California 94558
Telephone:	(707) 254-4900
Facsimile:	(707) 254-4920

        15.2.  Lessee's initial representative to give and receive instructions at the job site ("Lessee's Field Representative") is:

Name:	Jeffrey B. O'Neill, CEO
Address:	607 Airpark Road Napa, California 94558
Telephone:	(707) 254-4900
Facsimile:	(707) 254-4920

        15.3.  Lessor's initial representative to give and receive instructions at the job site ("Lessor's Field Representative") is:

Name:	Peter T. Stravinski
Address:	413 West Yosemite Avenue Suite 105 Madera, California 93637
Telephone:	(559) 674-0906
Facsimile:	(559) 661-7506

        15.4.  Lessor's initial representative for the execution of required documents ("Lessor's Signatory") is:

Name:	Peter T. Stravinski
Address:	SDG COMMERCE 201 413 West Yosemite Avenue Suite 105 Madera, California 93637
Telephone:	(559) 674-0906
Facsimile:	(559) 661-7506

        15.5.  Either party may, at any time, and from time to time, replace its designated Signatory or Field Representative by giving written notice of the change to the other party.

        15.6.  In all matters specified in this Agreement to be done or approved by a party's Field Representative, the doing of the act or the giving of written approval by the Field Representative shall be conclusive and may be relied upon by the other party. Wherever this Agreement does not specify that an action is to be done or approved by the Field Representative, the act or written approval of the party's designated Signatory shall be required, shall be conclusive, and may be relied upon by the other party. No person may act on behalf of Lessee or Lessor other than their respective Field Representatives and Signatories.

COMMERCE 201 GOLDEN STATE WAREHOUSE IMPROVEMENTS SCHEDULE 1 Costs									NOT A PART
Tenant Improvement		QUAN.	UNIT	UNIT PRICE	TOTAL COST		SCHEDULE 1 COSTS		ESTIMATED BALANCE OF COSTS		NOTES
Architect		1	LS	5,000.00		8,000		8,000		0	Dale Rutherford, A.I.A.
Structural Engineer		1	LS	2,500.00		2,500		2,500		0	R.H. Welty Assoc.
Civil Engineer		1	LS	2,500.00		2,500		0		2,500	RSLA
General Conditions		1	LS	22,171		22,171		5,000		17,171
Demolition						—		—		—
	Sawcut Concrete	450	LF	2.50		1,150		0		1,150
	Remove concrete	508	LF	2.00		1,016		0		1,016
Earthwork						—		—		—
	Grade Conc. Pads and Truck Unloading	9,056	BF	1.00		???56		0		9,058
	Deduct A.C. Paving	-9,056	BF	0.75		???		0		-3,792
Underground Sewer						—		—		—
	3" Water Service and Tie-in	1	LB	4,000.00		4,000		650		3,350	Allow
	3" Water Backflow Preventer	1	LB	6,000.00		6,000		500		5,500	Allow
	Process Waste (4")	462	LF	50.00		23,100		23,100		0	LeDuc & Dexter
	Sanitary Waste (4")	274	BF	25.00		6,850		6,850		0	LeDuc & Dexter
	Shut-Off Valves	4	EA	500.00		2,000		2,000		0	LeDuc & Dexter
	Waste Trap	2	EA	1,500.00		3,000		3,000		0	LeDuc & Dexter
	Backwater Valve	2	EA	300.00		800		600		0	LeDuc & Dexter
	Sampling Manhole	2	EA	3,140.00		6,280		3,140		3,140	LeDuc & Dexter
	Sewer Lift Station & Pump	2	EA	15,543.00		31,086		31,086		0	Heide/Rick Moore/ICC
	Contribution from ICC	1	LS	-5,000.00		-5,000		-5,000		0
Concrete & Rebar						—		—		—
	Concrete S.O.G. patch (6")	508	SF	8.00		3,048		0		3,048
	Concrete @ new bollards	12	CY	100.00		1,227		0		1,227
	Concrete curbs (15")	500	LF	20.00		10,000		0		10,000
	Concrete Topping @ Cellar & Barrel W. (6")	7,125	SF	5.00		35,627		0		35,627
	Concrete Footing @ Masonry Wall	25	CY	150.00		3,833		0		3,833
	Concrete Utility Slab (6")	1,600	SF	4.50		7,200		0		7,200
	Concrete Truck Unloading Slab (6")	840	SF	5.50		4,820		0		4,820
	Concrete Paving (6")	6,316	SF	3.50		22,106		0		22,106
	Concrete Tank Pad (2")	36	CY	350.00		12,548		0		12,548
	Concrete Equip. Pads @ Process Yard	400	SF	4.00		1,600		0		1,600
Masonry Walls (8.5')		978	SF	10.50		10,264		0		10,264	Chain Link Fence if allowed by City
Steel & Misc. Iron						—		—		—
	Pipe bollards	15	EA	225.00		3,375		0		3,375
	Metal Canopy @ Utility Enclosure	1,600	SF	10.00		16,000		0		16,000	Allow
	Unistrut Pipe Supports (@ 4' o.c.)	100	EA	70.60		7,060		0		7,060	Unistrut/ICC/Allow
	Chain Link Gates @ Process Yard	3	EA	300.00		900		0		900	Allow
Finish Carpentry		60	HR	25.00		1,500		0		1,500
Insulation						—		—		—
	?-18 Batt Insulation @ Demising Walls	22,862	SF	0.38		8,688		0		8,688
	2" Rigid @ Barrel Storefront	297	SF	2.50		743		0		743
Caulk Joints @ Bottling Area		2,759	LF	1.50		4,130		0		4,130

HM Doors					—	—	—
	Standard Frames	2	EA	150.00	300	0	300
	Doors	2	EA	165.00	330	0	330
Sectional Doors					—	—	—
	14' x 14' Auto. Insulated Sec. Dr. (R-13)	2	EA	2,200.00	4,400	400	4,000	Barton
	10' x 12' Auto. Insulated Sec. Dr. (R-13)	0	EA	1,800.00	0	0	0	Barton
	Deduct 10' x 12' Auto. Insulated Sec. Dr. (R-13)	-1	EA	1,800.00	-1,800	0	-1,800	Barton
Finish Hardware		2	EA	300.00	600	0	600
Gyp. Drywall & MH. Studs					—	—	—
	Full Ht. Demising Wall (30')	11,431	SF	2.35	26,863	0	26,863	Denham Contracting
	Storefront Protection Wall	340	SF	2.35	799	0	799	Denham Contracting
	Gyp. Drywall—Walls	23,202	SF	1.05	24,362	0	24,362	Denham Contracting
	Vapor Barrier @ Barrel Demising Walls (10 mil Poly)	26,291	SF	0.30	7,887	0	7,887	Conelar/ICC
	Plywood Wainscoting (5/8" to 6')	8,068	SF	2.40	19,363	0	19,363
FRP @ Barrel Wash (4' high)		476	SF	4.00	1,904	0	1,904
Painting
	HM Frames	2	EA	45.00	90	0	90
	HM Doors	2	EA	45.00	90	0	?0
	Metal Canopy @ Utility Enclosure	1,000	SF	1.50	2,400	0	2,400
	Clear Middleweight @ Barrel Room Roof Structure	48,537	SF	0.52	27,245	0	27,245	Allow
	Epoxy Barrel Room Columns	18	EA	150.00	2,700	0	2,700	Allow
	Bollards	15	EA	25.00	375	0	375	Allow
	Gyp. Drywall Walls	23,202	SF	0.35	8,121	0	8,121	Allow
	Plywood	8,068	SF	0.45	3,631	0	3,631	Allow
Rubber Base (6")		2,212	LF	1.40	3,097	0	3,097	Allow
Fire Extinguishers		15	EA	50.00	750	0	750
Epoxy Floor Coating in Curbed Basins		7,125	SF	3.50	24,838	0	24,838	Allow
Plumbing
	Process Waste (4")	80	LF	55.00	4,400	0	4,400	LeDuc & Dexter
	Sanitary Waste (4")	6	LF	40.00	240	0	240	LeDuc & Dexter
	Floor Drains	3	EA	600.00	Included	Included	Included	LeDuc & Dexter
	3" Water Line	80	LF	15.00	1,200	0	1,200	Allow
	Eyewash/Shower Unit	2	EA	1,000.00	2,000	0	2,000	Allow
	Trench Drain	80	LF	60.00	5,400	0	5,400	Allow
	Gas Line (2")	880	LF	12.00	10,560	0	10,560	Allow
HVAC					—	—	—
	Humidification System	48,300	SF	1.00	48,300	0	48,300	Ed ???
Refrigeration Upgrades a Barrel Storage					—	—	—
	Increase Coil Size to Reduce TD for Humidty Control	4	EA	3,586.75	14,347	14,347	0	Hussmann Corp.
	Add Electro-Coating on Coils for Fermentation Cases	4	EA	2,332.50	9,330	9,330	0	Hussmann Corp.
	Add Stainless Steel Condensate Pans	4	EA	300.00	1,200	1,200	0	Hussmann Corp.
Fire Protection System		1	LS	4,066.67	4,067	0	4,067	Cen-Cal Fire Sys.

Electrical						—		—		—
	Underground Elec. Conduit to Process Area (future panel)	500	LF	31.60		15,800		15,800		0	Rex Moore Elec.
	Process Power and Upgrades	1	LS	171,208.00		171,209		0		171,209	Rex Moore Elec.
Utility Co. Conn. Fees (New Service)		1	LS	28,310.00		28,310		28,310		0	PG & E/ICC
Bldg. Permit (UBC)		1	LS	6,403.57		6,404		1,877		4,427	Am Cyn
Sewer Fixture Fee (20 Fixture Units)		20	LS	286.00		5,720		0		5,720	Am Cyn
3" Water Meter Charge		1	LS	2,052.00		2,052		0		2,052	Am Cyn
3" Water Distribution Charge		1	LS	13,888.00		13,888		0		13,888	An Cyn
Waste Water Connection Fee						Not Included		Not Included		Not Included
Water Demand Charge						Not Included		Not Included		Not Included
						—		—		—
SUBTOTAL					$	775,866	$	163,791	$	622,076
	LIABILITY INSURANCE @ .5%					3,879		769		3,110
	OVERHEAD @ 6%					46,552		?,227		37,324
	PROFIT @ 4%					31,035		?,152		24,883
TOTAL					$	867,331	$	185,333	$	617,352
	Less Credit for Prior Payments					-75,000		-75,000		0
TOTAL TO BE PAID BY LESSEE						782,331		???		687,392

SCHEDULE 2 TO CONSTRUCTION RIDER

PARTIES:	SDG COMMERCE 201, LLC, as Lessor
	GOLDEN STATE VINTNERS, INC., as Lessee
PREMISES:	1175 Commerce Boulevard, American Canyon, Napa County, California

Agreed Price Of Office Improvements:		$	291,997.00
Less:	Allowance ($44.20 x 3,000 sq. ft.)		132,600.00
	Excess of Agreed Price over Allowance	$	159,397.00
Less:	Portion attributable to warehouse/barrel storage/Bottling line payable by Lessee*		65,907.00	*
	Portion to be paid by Lessor	$	93,490.00

*

Lessee will pay this sum—$65,907.00—to Lessor upon execution of the Lease.

AUTHORIZATION TO SUBSTITUTE
CORRECTED FIRST PAGE OF LEASE

        The undersigned are the Lessee and Lessor named in that certain Standard Industrial/Commercial Multi-Tenant Lease—Net dated for reference purposes September 6, 2001, regarding Premises therein described as approximately 149,066 square feet of an 200,928 square foot tilt-up concrete warehouse/distribution building at 1175 Commerce Boulevard in the City of American Canyon, Napa County, California.

        The Lessor and Lessee have determined that an unintended error appears at paragraph 1.3 on the first page of the Lease, where the Expiration Date is incorrectly stated to be April 30, 2010, rather than the intended and correct date, which is April 30, 2014.

        Lessor and Lessee authorize one another to remove the erroneous first page of the Lease and substitute in its place the proper first page in the form attached hereto.

AGREED TO AND ACCEPTED BY:		AGREED TO AND ACCEPTED BY:
SDG COMMERCE 201, LLC, a California limited liability company		GOLDEN STATE VINTNERS, a California corporation
By:	/s/  PETER T. STRAVINSKI Peter T. Stravinski	By:	/s/  JEFFREY B. O'NEILL Jeffrey B. O'Neill
Its:	Manager	Its:	Chief Executive Officer
Executed on: Dec. 10, 2001		Executed on: Dec. 5, 2001

ADDENDUM NO. 1

        This is ADDENDUM NO. 1 (this "Addendum") to that certain Standard Industrial/Commercial Multi-Tenant Lease—Net dated September 6, 2001, in which SDG Commerce 201, LLC is referred to as "Lessor" and Golden State Vintners, Inc., a California Corporation is referred to as "Lessee."

        1.    Base Rent Adjustment.    The Base Rent shall be increased on November 1, 2003, and on November 1 of every second year thereafter (i.e., 2005, 2007, etc.), during both the Original Term and the Option Periods. The amount of each such increase shall be $2,236.00 per month (based on Premises of 149,066 square feet x 1.5¢ ($.015)).

        2.    Additional Rules and Regulations are as follows.

        (a)  No open burning is permitted;

        (b)  All waste must be disposed of in strict compliance with Federal, State, and Local Law regulations;

        (c)  Trash shall be kept in covered bins in the trash enclosures provided by the Lessor. Trash must be disposed of on a regular basis and often enough to avoid overflows;

        (d)  Truck Tractors and Truck Trailers parking shall be at the locations shown in Exhibit "A" attached to the Lease;

        (e)  The premises, including fences, shall be kept free of weeds, etc.;

        (f)    Automobile parking is limited to automobiles for on-site employees and visitors to on-site businesses. Parking for off-site uses is not permitted;

        (g)  No outside storage of equipment, goods, vehicles or materials is permitted, but short-term parking or rolling stock is permitted;

        (h)  Truck and Trailer maintenance is not permitted. Trucks and Trailers needing maintenance will be removed to off-premises locations for that service. Lessee is responsible to require all of its visitors, vendors, invites, employees, and licensees to conform to these rules and regulations;

        (i)    No camping, sleeping (except brief napping while loading or unloading is in progress) or preparation of meals is permitted, except for areas inside the building that are designated for that purpose; and

        (j)    The Project is adjacent to environmentally sensitive wetlands, and the Rules and Regulations set out in the Lease, including this Addendum, will be interpreted, applied and followed with consideration for the environmental setting of the Project.

        3.    Rental Checks.    Rental Checks shall be made payable to the order of SDG Commerce 201, LLC and sent to:

Ms. Darla Dawes
SDG COMMERCE 201, LLC
413 West Yosemite Avenue
Suite 105
Madera, California 93637
Telephone: (559) 674-0906
Facsimile: (559) 661-7506
E-mail Address: ddawes@icc-stravinski.com

        Lessor may change the foregoing rent payment instruction at any time by giving written notice of the change to Lessee.

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        4.    Limit on Lessee's Share of First Year's Common Area Operating Expense.    Lessee's share of the Common Area Operating Expenses for the first twelve months after the Commencement Date shall not exceed $0.07 (seven cents) per square foot per month.

        5.    Option Periods.    Lessee shall have two (2) options to renew this Lease for periods of five (5) years each (each, an "Option Period"). The second option may not be exercised unless the first option has been exercised. Lessee must exercise the option to renew by giving Lessor an irrevocable notice stating that Lessee has exercised its option to renew at least two-hundred seventy (270) days before the expiration of the Lease Term, taking into account any prior extensions thereof. The Base Rent for each Option Period will be subject to increase pursuant to Section 1 of this Addendum, but not otherwise.

        6.    Early Possession.    Lessee's occupancy of the Premises prior to the Commencement Date, as set out in Lease Paragraphs 1.4, 3.2 and 3.4, is for the limited purpose of allowing Lessee to begin installing Lessee's equipment and fixtures and to begin inventory loading. Lessee's occupancy during the Early Possession Period is subject to such reasonable limitations as Lessor may impose so as to prevent inefficiencies, delays, unsafe conditions, added costs and other interference with the work of improvement in progress. Lessor has no obligation to permit Early Possession unless and until all of the following have been satisfied: the local building official has issued a temporary certificate of occupancy or other authorization for early occupancy; Lessee has paid the amounts required by Paragraph 1.7 of the Lease; and Lessee has complied with the requirements of Lease Paragraph 3.4.

        7.    Arbitration.

        (a)  All claims, disputes, and other matters in question between Landlord and Tenant arising out of, or relating to this Agreement or the breach thereof, will be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association in effect as of the Commencement Date subject to the limitations of this section. This Agreement so to arbitrate and any other agreement or consent to arbitrate entered into in accordance herewith as provided in this section will be specifically enforceable under the prevailing law of any court having jurisdiction.

        (b)  Notice of the demand for arbitration will be filed in writing with the other party to the Lease and with the American Arbitration Association. The demand for arbitration will be made within a reasonable time after the claim, dispute, or other matter in question has arisen, and in no event shall any such demand be made after the date when institution of legal or equitable proceedings based on such claim, dispute, or other matter in question would be barred by the applicable statue of limitations.

        (c)  No arbitration arising out of or relating to this Lease shall include by consolidation, joinder, or in any other manner, any other person or entity, including agents, employees, or consultants who are not parties to this Lease, unless:

        (i)    The inclusion of such other person or entity is necessary if complete relief is to be afforded among those who are already parties to the arbitration; and

        (ii)  The written consent of the other person or entity sought to be included and of Lessor and Lessee have been obtained for such inclusion, which consent shall make specific reference to this paragraph; but no such consent shall constitute consent to arbitration of any dispute not specifically described in such consent or to arbitration with any party not specifically identified in such consent.

        (d)  The award rendered by the arbitrators will be final and judgment may be entered upon it in any court having jurisdiction thereof, and will not be subject to modification or appeal except to the extent permitted by Sections 10 and 11 of the Federal Arbitration Act (U.S.C. § § 10, 11).

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        8.    Wine Barrel Operation.    The wine barrel operation listed as an "Agreed Use" in Section 1.8 of the Lease is storage and aging of wine in barrels both before and after fermentation has been arrested.

        (a)    Limited Location.    Exhibit 'A' to the Lease designates the location within the Premises where a barrel storage operation may be conducted. The barrel storage operation is not permitted on any other part of the Premises.

        (b)    Standards of Operation.    Lessee shall use commercially reasonable efforts and practices to maintain the barrel storage area constantly at a temperature not less than 50 degrees Fahrenheit and not greater than 60 degrees Fahrenheit. Lessee shall use commercially reasonable efforts and practices to maintain the barrel storage area constantly at a humidity not in excess of 87%.

        9.    Office Improvements.    Lessor's responsibilities for improving the Premises with office space are described in this paragraph.

        (a)  The Premises include approximately 3,669 square feet, in two separate office areas, that will be improved for use as office space. The locations of the two office areas and their respective approximate square footages are shown in Exhibit "A" to the Lease. The finish specifications for the Office Space are set out in Exhibit "B" to the Lease.

        (b)  Lessor will cause to be constructed the office improvements described in Exhibit "B" to the Lease at the locations described in Exhibit "A" to the Lease. The office improvements to be constructed by Lessor are referred to in this Addendum as the "Office Improvements".

        10.    Warehouse Modifications by Lessor.    The Project design for which building permits are in effect upon the execution of this Lease is for a warehouse without air conditioning or insulation. Lessor will be responsible to make and will bear the cost of the following improvements to the Project (the "Lessor Warehouse Improvements"): (i) construct a demising wall at the north end of the Premises to separate the Premises from other space within the Building; (ii) upgrade the electrical panel that serves the entire project to a 3000 amp panel, which shall be allocated first to the needs of the Common Area (e.g., fire pump, site lighting) and next to the needs of the tenants in proportion to Building square footage; (iii) install night air cooling and air conditioning systems substantially similar to the night air cooling and air conditioning systems in the existing buildings (owned by Lessor's affiliates) at 175 Tower Road and 75 South Kelly Road, Napa County; (iv) install insulation with an "R" factor of 30 for the roof insulation and 10.8 for the exterior wall insulation; and (v) construct an added parking area, which is shown on Exhibit 'A.'

        11.    Warehouse Modifications by Tenant.

        (a)  Lessee's use of the Premises for its wine barrel operation and bottling line require that the Project design for which building permits are in effect upon the execution of this Lease be modified to include, among other things, natural gas service, high temperature sewer pipe, special electrical distribution, epoxy painting of roof members, spillage containment in the bottling room and special piping, (collectively, "Lessee's Warehouse Improvements"). Lessor agrees to use best commercially reasonable efforts to assist Lessee to obtain all necessary permits and entitlements that may be necessary to construct the Lessee Warehouse Improvements.

        (b)  The cost of the Lessee's Warehouse Improvements will be borne by Lessee. Lessee may contract with Lessor's affiliate and approved project contractor, Industrial & Commercial Contractors, L.P., ("ICC") at a price, on terms and on a schedule mutually acceptable to Lessee and ICC, for the construction of the Lessee's Warehouse Improvements. If Lessee and ICC are unable to reach agreement as to any such matters, Lessee may cause the Lessee's Warehouse Improvements to be constructed by any other qualified contractor selected by Lessee with Lessor's approval, which shall not be unreasonably withheld or delayed.

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        (c)  Except as provided in the Construction Rider, Lessor is not responsible for the completion of the Lessee Warehouse Improvements; provided, however, that Lessor shall use best commercially reasonable efforts to cooperate with Lessee's selected contractor to ensure timely and efficient construction of the Lessee Warehouse Improvements. The completion of the Lessee Warehouse Improvements is not a condition to the Commencement Date or any of Lessee's obligations under the Lease.

        12.    Reduction and Substitution of Security Deposit.

        (a)    Reduction.    Ninety (90) days after the completion of the Lessee Warehouse Improvements, and providing that Lessee is not Breach under the Lease, Lessor shall return to Lessee one-half of the Security Deposit set out in paragraph 1.7 of the Lease.

        (b)    Substitution.    If Lessee is not in Breach of any of its obligations under the Lease, then at any time on or after the date when one-half (1/2) of Lessee's Security Deposit has been returned to Lessee pursuant to paragraph (a), Lessee may provide a letter of credit in favor of Lessor and complying with the requirements of this paragraph in place of its Security Deposit, and upon the delivery of the letter of credit to Lessor, Lessor will return the full amount of Lessee's Security Deposit then held by Lessor. The letter of credit must be a demand letter of credit issued by a bank having a credit standing satisfactory to Lessor. The letter of credit must permit draws to be made against it in an amount equal to the Security Deposit to which Lessor was entitled by the terms of the Lease immediately prior to the substitution of the letter of credit in place of the Security Deposit. A demand upon Lessee for the payment of the amount claimed by Lessor to be due shall not be a prerequisite to Lessor's right to make a draw upon the letter of credit. The letter of credit must be in form and content satisfactory to Lessor's lender in its sole business judgment. The letter of credit must permit draw to be made by Lessor, upon demand, solely on Lessor's claim that the amount of the draw is owed by Lessee to Lessor under the Lease. Lessee and Lessor agree to use good faith efforts to cause Lessor's lender to waive the requirement of any Security Deposit under the Lease, and if that waiver is obtained, no Security Deposit shall be required under the Lease.

        13.    Parking Spaces Allocation.

        (a)    Reserved Parking.    Lessee shall have the right to the exclusive use of seventeen (17) automobile parking spaces, to be designated by Lessor, which shall be marked for Lessee's use at Lessee's expense in accordance with the project standard established by Lessor for private parking space designation. Lessor has no obligation to enforce Lessee's rights to reserved parking spaces against intrusion or misuse by other tenants, visitors or other persons.

        (b)    General Parking.    Lessor may designate a reasonable number of reserved parking spaces for other tenants.

        (c)    Reserved Parking for Other Tenants.    Lessee shall have no right to use parking that Lessor designates as reserved parking for other tenants. Lessee shall have the right to use non-reserved parking spaces in the proportion that the building square footage of the Premises bears to the building square footage of the Project.

        (d)    Changes in Number and Location of Parking Spaces.    Lessor may make minor reductions in the number, location and configuration of parking spaces, if permitted by the governmental agencies having jurisdiction over such matters.

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        14.    Additional Items.

        (a)  Lessee shall be responsible for the cost of Lessee's own telephone and computer equipment and the associated installation of said systems and wiring. Lessee further agrees to have Lessee's telephone and computer equipment installers coordinate the systems installation with Lessor and any adjacent tenants that may be affected during said installation. Lessor agrees to cooperate with Lessee's installers as reasonably requested, but all such work must be undertaken subject to the general provisions set out in Paragraph 6 of this Addendum.

        (b)  If Lessee enters into a sublease of all or any part of the Premises, or if Lessee assigns the Lease (provided that the sublease or assignment is permitted under the Lease) the amount of any consideration paid by the sublessee or assignee to Lessor on account of the sublease or assignment, and any rent under the sublease in excess of the Rent for the subleased space payable under this Lease shall be evenly split between Lessor and Lessee. Notwithstanding the foregoing, during the Original Term, Lessee shall not be obligated to split with Lessor any rent under a sublease in excess of the Rent for the subleased space payable under the Lease.

        (c)  Lessee is a publicly traded company who is required to make certain financial information publicly available through filings with instrumentalities of the United States. The following provisions of this paragraph apply only during such time as Lessee is no longer required to file such financial information with instrumentalities of the United States. No more often than once a year, within ten (10) business days after Lessor's written request, Lessee shall provide Lessor with financial information reasonably sufficient for Lessor and Lessor's lender to evaluate Lessee's credit, which shall include, but not be limited to, Lessee's balance sheets, profit and loss statements and U.S. federal tax returns for the then most recent three (3) years and such other information that is reasonably requested by Lessor or Lessor's lender.

        (d)  Lessee understands that the Building in which the Premises are located is a food grade warehouse. Lessee understands that vermin control and cleanliness in each part of the Building is interdependent with vermin control and cleanliness in other parts of the Building. Lessee agrees to maintain vermin control and cleanliness in the office space and the warehouse space consistent with the highest standards of the wine storage industry in the Napa Valley wine production area. Lessor shall use commercially reasonable efforts and practices to require all other tenants of the Building to maintain vermin control and cleanliness to a standard equal to that required of Lessee.

        (e)  Lessor shall have the exclusive right to place signage on the Building, if such signage is permitted by the City of American Canyon and applicable title restrictions. The Lessee's signage shall be approved by all necessary regulatory agencies. Lessor has no obligation to install or maintain signs. Lessor shall establish criteria for signs within the Project to which Lessee and all other tenants must conform. Lessee shall not be required to replace or change signs on account of changes in the sign criteria established by Lessor after Lessee's sign or signs have been installed.

        (f)    Exhibits 'A,' 'B,' and 'C,' attached to the Lease, are incorporated as part of this Addendum. All Exhibits referred to in this Addendum are references to the Exhibits attached to the Lease.

        15.    Governing Law.    This Lease shall be governed by and construed in accordance with California law.

        16.    Time of Essence.    Time is of the essence in this Lease.

        17.    Entire Agreement.    This Lease sets forth all the agreements between Lessor and Lessee concerning the Premises, and there are no other agreements either oral or written other than as set forth in this Lease.

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        18.    Drafting.    The parties to this Lease agree that this Lease is the product of joint drafting and negotiation and that should any of the terms be determined by a court, or in any type of quasi-judicial or other proceeding, to be vague, ambiguous and/or unintelligible, that the same sentences, phrases, clauses or other wordage or language of any kind shall not be construed against either party on the basis of that party being the drafting party.

        19.    Condition of the Premises.    The provisions of Lease Paragraph 2.2 and other provisions of the Lease concerning the condition of the Premises upon Lessee's taking possession are subject to and amended by the provisions of this Addendum regarding the Office Improvements, the Warehouse Modifications by Lessor and the Warehouse Modifications by Tenant, and the Commencement Date will not be delayed and rent will not be abated pending the completion of that work as scheduled.

        20.    Recalculation of Square Footage and Rent.    Notwithstanding the provisions of Paragraph 2.1 of the Lease to the contrary, Lessor and Lessee agree that the actual square footage of the Premises and of the Building will be measured upon the completion of the Building and such measurement shall be agreed upon by Lessor and Lessee. If there is a difference between the square footages set out in Paragraph 1.2 of the Lease, Lessor and Lessee shall execute an amendment to the Lease to set out the corrected measurements in Paragraph 1.2, and to make proportional adjustments in Lessee's Share of Common Area Expenses under Paragraph 1.6, the Base Rent and Common Area Expenses under Paragraph 1.7, and the Base Rent increase specified in Paragraph 1 of this Addendum.

        21.    Acknowledgements.    The Building is under construction at the time of the execution of the Lease. Lessor has submitted the plans for the Building to the building official of the City of American Canyon, who is charged with the legal duty to determine whether the Building complies with the applicable building codes and the Americans with Disabilities Act. Lessee has made no independent examination concerning the compliance of the Building with any such laws. Lessee has made its own investigation concerning the suitability of the Premises for Lessee's intended use, has not relied on any representations or warranties of Lessor in that regard, and assumes all responsibility for Lessee's determination thereof.

        22.    Early Possession.    If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Rent shall be abated for the period of the early possession. All other terms of the Lease shall, however, be in full force and effect during the period of early possession.

        23.    Substitution of Lease Paragraph 12.1(b).    The transfer of any securities of Lessee that are listed or approved for listing upon notice of issuance on a national securities exchange or on the National Market System of the Nasdaq Stock Market (or any successor to that entity) shall not be deemed to constitute a change in control that constitutes an assignment of this Lease that requires consent. Any sale, assignment or transfer of any securities other than those so listed or approved for listing shall constitute an assignment of this Lease requiring consent if the sale, assignment or transfer is of a controlling interest in Lessee (i.e., the possession directly or indirectly of the power to direct or cause the direction of the management and policies of the Lessee, whether through the ownership of voting securities, or by contract or otherwise).

AGREED TO AND ACCEPTED BY:		AGREED TO AND ACCEPTED BY:
GOLDEN STATE VINTNERS, a California corporation		SDG COMMERCE 201, LLC, a California limited liability company
By:	/s/  JEFFREY B. O'NEILL Jeffrey B. O'Neill	By:	/s/  PETER T. STRAVINSKI Peter T. Stravinski
Its:	CEO	Its:	Manager
Executed on: [ILLEGIBLE] 6, 2001		Executed on: 9/11, 2001

Telephone:
Facsimile: (707) 254-4900
(707) 254-4920 Telephone:
Facsimile: (559) 674-0906
(559) 661-7506

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List of Exhibits

Exhibit 'A'	Truck Tractor & Truck Trailer Parking
Exhibit 'A'	Location of Barrel Storage Operation
Exhibit 'A'	Premises
Exhibit 'A'	Lessee Warehouse Improvements Constructed by Lessor
Exhibit 'B'	Office Specifications
Exhibit 'B'	Office Improvements to be Constructed
Exhibit 'C'	Construction Rider

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EXHIBIT 10.24

[LOGO] STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE—NET AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
EXHIBIT "A"
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EXHIBIT "B"

GOLDEN STATE VINTNERS COMMERCE 201 WAREHOUSE OFFICE TENANT IMPROVEMENTS FINISH SPECIFICATIONS July 23, 2001
EXHIBIT C ATTACHED TO AND FORMING A PART OF STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE—NET DATED AS OF SEPTEMBER 6, 2001 BETWEEN SDG COMMERCE 201 LLC, AS LESSOR, AND GOLDEN STATE VINTNERS, INC., AS LESSEE ("LEASE") CONSTRUCTION RIDER
SCHEDULE 2 TO CONSTRUCTION RIDER
ADDENDUM NO. 1

EX-23.1

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EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

        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 September 26, 2002, appearing in this Annual Report on Form 10-K of Golden State Vintners, Inc., for the year ended June 30, 2002.

DELOITTE & TOUCHE LLP

Fresno, California
September 26, 2002

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EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT