-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GOcweVUqADmH3HDduaZGlDy01i+hqu9snfSS/jpbXr7m98MV3goZECmp+2SLIEbr es3oXiCsJzSJjffiVdXLcQ== 0000950149-96-001476.txt : 19961024 0000950149-96-001476.hdr.sgml : 19961024 ACCESSION NUMBER: 0000950149-96-001476 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960926 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MONDAVI ROBERT CORP CENTRAL INDEX KEY: 0000902276 STANDARD INDUSTRIAL CLASSIFICATION: 2080 IRS NUMBER: 942765451 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 033-61516 FILM NUMBER: 96634861 BUSINESS ADDRESS: STREET 1: 7801 ST HELENA HWY STREET 2: PO BOX 106 CITY: OAKVILLE STATE: CA ZIP: 94562 BUSINESS PHONE: 7072599463 MAIL ADDRESS: STREET 1: 7801 ST HELENA HWY CITY: OAKVILLE STATE: CA ZIP: 94562 10-K405 1 ROBERT MONDAVI FORM 10-K 1 - - -------------------------------------------------------------------------------- U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended Commission File Number: June 30, 1996 33-61516 THE ROBERT MONDAVI CORPORATION Incorporated under the laws I.R.S. Employer Identification: of the State of California 94-2765451 Principal Executive Offices: 7801 St. Helena Highway Oakville, CA 94562 Telephone: (707) 259-9463 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock 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 --------- As of August 31, 1996 there were issued and outstanding (i) 7,281,779 shares of the Registrant's Class A Common Stock and (ii) 7,676,012 shares of the Registrant's Class B Common Stock. The aggregate market value of the Registrant's voting stock held by non-affiliates was $204,700,602 as of August 31, 1996. - - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS. INTRODUCTION The Company is a leading producer of premium table wines. The Company markets wines worldwide under the following labels: Robert Mondavi, Woodbridge by Robert Mondavi, Vichon, Byron, Opus One, Caliterra and Errazuriz. The Company's products are available through all principal retail channels for premium table wine, including fine restaurants, hotels, specialty shops, supermarkets and club stores in all fifty states and 85 countries throughout the world. Sales of the Company's products outside the United States accounted for approximately 7% of net revenues in fiscal 1996. The Robert Mondavi Winery was incorporated under the laws of California in 1966, and the Company was incorporated under the laws of California in 1981 as a holding company for the various business interests of the Robert Mondavi Winery. The Company's principal executive offices are located at 7801 St. Helena Highway, Oakville, California 94562. Its telephone number is (707) 259-9463. As used herein, unless the context indicates otherwise, the "Company" shall mean The Robert Mondavi Corporation and its consolidated subsidiaries. INDUSTRY BACKGROUND "Table" wines are those with 7%-14% alcohol by volume and which are traditionally consumed with food. Other wine products, such as sparkling wines, wine coolers, pop wines and fortified wines, are not sold in commercial quantities by the Company. To have a vintage date, a table wine must be made at least 95% from grapes harvested, crushed and fermented in the calendar year shown on the label and must use an appellation of origin (e.g. Napa Valley). Table wines that retail at less than $3.00 per 750 ml. bottle are generally considered to be generic or "jug" wines, while those that retail at $3.00 or more per bottle are considered premium wines. The Company produces and sells only premium table wines. The premium category is generally divided by the trade into three segments: popular premium wines that retail at $3.00 to $7.00 per bottle; super premium wines that retail at $7.01 to $14.00 per bottle; and ultra premium wines that retail at over $14.00 per bottle. The Company also recognizes a fourth segment, not generally recognized by the trade, consisting of super-ultra premium wines that retail at above $20.00 per bottle. The Company sells wines in each price segment of the premium table wine market. PRODUCT LINES The Company's business began in 1966 at the Robert Mondavi Winery in Oakville where the Company produces its flagship products, the Robert Mondavi Napa Valley reserve, district and varietal wines. The Napa Valley wines are marketed under the prestigious "Robert Mondavi" label. The principal Napa Valley offerings include Cabernet Sauvignon, Pinot Noir, Chardonnay and Fume Blanc. In May 1994 the Robert Mondavi Coastal line of wines was introduced in California. Distribution has since been expanded to additional markets, resulting in Coastal sales of 399,000 cases and 184,000 cases in fiscal 1996 and 1995, respectively. 3 The Woodbridge Winery, located in the Northern San Joaquin Valley in Acampo, California, produces popular premium wines for sale under the "Woodbridge" label. Although competitively priced, Woodbridge wines are made in the Robert Mondavi tradition of quality, including oak barrel aging of its Cabernet Sauvignon, Zinfandel, Chardonnay and Sauvignon Blanc wines. All of the Woodbridge wines are vintage-dated and sold under varietal names, including Cabernet Sauvignon, Chardonnay, Sauvignon Blanc and red and white Zinfandel. The Vichon Winery, located on the Oakville Grade in the Napa Valley, produces Napa Valley Cabernet Sauvignon, Merlot, Chardonnay and Chevrignon wines. Chevrignon is a proprietary blend of two varietals, Sauvignon Blanc and Semillon. Vichon also offers the Vichon California line of wines from select California growing regions outside the Napa Valley. The Company recently purchased 600,000 gallons of 1995 vintage wine from the Languedoc region of France which will be imported to California for blending and bottling. The Languedoc wines will be sold beginning in the Fall of 1996 under the new Vichon Mediterranean line. The Company purchased the Byron Winery located near Santa Maria in 1990. Byron Pinot Noir and Chardonnay are made in the traditional Burgundian style of winemaking. To date, the Byron wines have been offered in only a few prominent markets due to limited supply. The Company intends to broaden distribution as production capacity increases. Construction of a new 32,000 square foot winery at Byron was completed in August 1996. The Opus One Winery, located in Oakville across from the original Robert Mondavi Winery, is a joint venture between the Company and a corporation owned by members of the family of Baron Philippe de Rothschild, the owners of Chateau Mouton-Rothschild, one of the first-growth wines of Bordeaux, France. At Opus One, the Company and its partner employ unique production techniques which balance the newest technology with traditional methods in a manner designed to minimize mechanical handling of the grapes and the finished wine. In March 1996 the Company and the Chadwick family of Chile formed a 50/50 joint venture, Vina Caliterra S.A., to produce and market the Caliterra brand of Chilean premium wines. The Company also acts as the exclusive United States importer of the Caliterra wines and the Chadwick family's Errazuriz brand. During fiscal 1996 the Company also completed the formation of a 50/50 joint venture, Solaria S.R.L., with Marchesi de' Frescobaldi to produce and market ultra-premium and super-premium Italian wines under a new proprietary label. Sales of the Italian wines are scheduled to commence during fiscal 1998. MARKETING AND DISTRIBUTION The Company sells its products through a wide variety of "on-sale" retail establishments (meaning the wine is consumed on the premises), and "off-sale" retail establishments (meaning the wine is purchased for consumption off the premises). On-sale retailers include restaurants and hotels and off-sale retailers include bottle shops, grocery stores, supermarkets and club stores. Substantially all of the Company's wines are sold through a three-tier system: the Company sells to wholesalers for resale to retailers, such as restaurants and supermarkets, who sell the products to the consumer. Domestic sales of the Company's wines are made through more than 100 independent wine and spirits distributors. International sales are made through independent importers and brokers. 3 4 The Company's wines are distributed in California, Florida, Pennsylvania and Southern Nevada by Southern Wine and Spirits, a large national beverage distributor. Sales to Southern Wine and Spirits nationwide represented approximately 28%, 29% and 26% of the Company's net revenues for the fiscal years ended June 30, 1996, 1995 and 1994, respectively. Sales to the Company's 15 largest distributors represented 66% of the Company's net revenues in fiscal 1996. The Company's distributors also offer table wines of other companies that directly compete with the Company's products. Sales of the Company's wines in California accounted for approximately 22%, 23%, and 22% of the Company's net revenues for the fiscal years ended June 30, 1996, 1995 and 1994, respectively. Other major domestic markets include New York, New Jersey, Texas, Pennsylvania and Florida where annual sales aggregated 25%, 26% and 25%, respectively, in each of the same fiscal periods. GRAPE SUPPLY In fiscal 1996, approximately 8% of the Company's total grape supply came from Company-owned or leased vineyards, including approximately 35% of the grape supply for wines produced at the Robert Mondavi Winery in Oakville. The Company owns and leases vineyards throughout California as described in the table below. Approximately 1,800 acres of the total amount indicated were added by purchase or lease since the start of fiscal 1996, of which 800 acres were planted and 1,000 acres were fallow.
APPROXIMATE 1996 PLANTABLE ACREAGE ----------------- LOCATION (1) PLANTED FALLOW TOTAL - - ------------ ------- ------ ----- NAPA VALLEY (2) 623 427 1,050 CARNEROS (3) 441 18 459 MENDOCINO (4) 58 252 310 MONTEREY 196 141 337 SAN JOAQUIN 87 -- 87 SAN LUIS OBISPO 434 -- 434 SANTA BARBARA (5) 1,104 529 1,633 ----- ----- ----- Total 2,943 1,367 4,310 ===== ===== =====
(1) Excludes vineyards owned by the Opus One, Twin Oaks, Caliterra and Solaria joint ventures, in each of which the Company owns a 50% interest. Vineyards described are owned by the Company unless otherwise indicated. (2) Includes 72 acres held pursuant to a 28 1/2-year lease that expires in 2024. (3) Includes 45 acres held pursuant to a 15-year lease that expires in 2010. (4) Includes 155 acres held pursuant to a 28-year lease that expires in 2023. (5) Includes 56 acres held pursuant to a 2 1/2-year lease that expires in 1998 and 191 acres held pursuant to a 40-year lease that expires in 2011. In addition to the grapes it grows in its own vineyards, the Company purchases grapes in California from approximately 300 independent growers, including approximately 100 growers in Napa Valley. The grower contracts range from one-year spot market purchases to intermediate and long-term agreements. 4 5 PHYLLOXERA In recent years, phylloxera, a pest that feeds on susceptible grape rootstocks, has infested Napa Valley vineyards planted with nonresistant rootstock, principally the widely-used AXR #1 variety. The pest generally renders a vine unproductive within a few years following initial infestation. Although phylloxera over time decreases the amount of fruit that a vine produces, it does not directly impair the quality of the fruit and there are no known human health risks. No pesticide has been proven to be effective in stopping the spread of phylloxera. The only known solution is to replant infested vineyards with resistant rootstocks. Although the economic life of a vineyard is normally 20 years, some of the Company's infested vineyards are at or near the end of their economic lives. The economic effect of phylloxera therefore depends upon the individual vineyard. It generally takes 3-5 years for a replanted vineyard to bear grapes in commercial quantities. Of the Company's 1,064 total acres of planted Napa Valley and Carneros vineyards, 148 acres are planted with nonresistant rootstock and are infested with phylloxera. The Company has recognized write-downs and adjusted the remaining productive lives of this acreage. The remaining 916 acres of planted Napa Valley and Carneros vineyards are on rootstocks the Company believes to be resistant to this strain of phylloxera. The Company plans to remove its remaining infested vineyards from production and to replant vineyards as required to meet its production needs. WINEMAKING The Company's winemaking philosophy is to make wines in the traditional manner by starting with high quality fruit and handling it as gently and naturally as possible all the way to the bottle. Each of the Company's wineries is equipped with modern equipment and technology that is appropriate for the style and scale of the wines being produced. Examples include barrel fermentation and aging and handling methods that allow the Company to produce wines with elegance, body and complexity at high volumes. The Company emphasizes traditional barrel aging as a cornerstone of its winemaking approach. The Company has approximately 73,000 French and American oak barrels in its statewide barreling system. The barrels vary in terms of age, forest source and "toast" level. The Company views its barrels as key winemaking assets and its substantial annual investment in new oak barrels enables it to consistently produce premium quality wines and to accomplish both its economic and stylistic objectives within its statewide system of wineries. EMPLOYEES As of June 30, 1996, the Company had 989 employees, 877 of whom were full-time employees and 112 of whom were part-time. In addition, a significant number of seasonal hourly employees are hired during each autumn harvest. None of the Company's employees is represented by a labor union and the Company believes that its relationship with its employees is good. 5 6 TRADEMARKS The Company has federal trademark registrations for wine of the marks "ROBERT MONDAVI," "WOODBRIDGE" and the "Arch and Tower" motif used on the Robert Mondavi Napa Valley label. Through its wholly-owned subsidiaries, the Company has also federally registered the trademarks "VICHON and design" and "BYRON" for wine. The Company also has foreign registrations of the trademarks "MONDAVI" and/or "ROBERT MONDAVI" for goods covering wine in those countries it considers to be the major winemaking countries of the world. The Opus One joint venture, through the partnership to which it succeeded, has federal trademark registrations for wine of the mark "OPUS ONE" and the "Silhouette Logo" used on the Opus One label. Opus One, either directly or through its predecessor, also has foreign registrations of the trademarks "OPUS" and/or "OPUS ONE" for goods covering wine in those countries it considers to be the major winemaking countries of the world. Each of the United States trademark registrations is renewable indefinitely so long as the Company is making a bona fide usage of the trademark. ITEM 2. PROPERTIES. The Company operates five wineries, including Opus One which is co-managed with the owners of Chateau Mouton-Rothschild. The current annual production capacity is up to 600,000 cases at the Robert Mondavi Winery in Oakville, 4.5 million cases at Woodbridge, 100,000 cases at Vichon, 75,000 cases at Byron and 25,000 cases at Opus One. The Woodbridge winery serves as a central warehouse and distribution point for all of the Company's wines. For information regarding the Company's vineyards, see "Grape Supply" under Item 1 above. The Company also leases at market rates approximately 178,000 square feet of administrative and warehouse space under various leases expiring between March 1997 and January 2001. The Company believes that its current facilities, leased and owned, are adequate for their current uses. The Company is in the process of expanding and improving its winery facilities as described in "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." 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 or the results of its operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no matters submitted to a vote of security holders during the Company's fourth quarter ended June 30, 1996. 6 7 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Prior to June 10, 1993, the date of the Company's initial public offering at $13.50 per share, there was no public market for the Company's Class A Common Stock. Since June 10, 1993, the Class A Common Stock of the Company has been traded in the Nasdaq National Market under the symbol "MOND." The following table sets forth the high and low closing prices for the Class A Common Stock on the Nasdaq National Market for the periods indicated as reported by Nasdaq.
Class A Common Stock ------------------------ High Low ----------- ---------- 1995 Fiscal Year: First Quarter 9 5/8 6 1/2 Second Quarter 11 7/8 8 3/8 Third Quarter 13 7/8 10 3/8 Fourth Quarter 17 1/2 12 1/8 1996 Fiscal Year: First Quarter 26 17 5/8 Second Quarter 32 1/2 22 5/8 Third Quarter 31 25 3/4 Fourth Quarter 33 3/4 24 3/4 1997 Fiscal Year: First Quarter (through August 31) 32 1/2 26 1/2
At June 30, 1996, there were approximately 1,300 record holders of the Class A Common Stock. All of the Company's outstanding Class B Common Stock is owned by members of the immediate family of Robert Mondavi or trusts for the benefit of family members. There is no established public trading market for the Class B Common Stock, but the Class B Common Stock is convertible on a share-for-share basis into Class A Common Stock. The Company has never declared or paid dividends on its Common Stock and anticipates that all earnings will be retained for use in its business. The payment of any future dividends will be at the discretion of the Board of Directors and will continue to be subject to certain limitations and restrictions under the terms of the Company's indebtedness to certain institutional lenders, including a prohibition on the payment of dividends without the prior written consent of such lenders. 7 8 ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
YEAR ENDED JUNE 30, ---------------------------------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (In thousands, except per share data) INCOME STATEMENT DATA Gross revenues $ 253,540 $ 210,361 $ 176,236 $ 177,748 $ 154,349 Less excise taxes 12,710 10,892 9,209 9,608 8,755 --------- --------- --------- --------- --------- Net revenues 240,830 199,469 167,027 168,140 145,594 Cost of goods sold 122,385 97,254 88,102 92,979 80,084 --------- --------- --------- --------- --------- Gross profit 118,445 102,215 78,925 75,161 65,510 Operating expenses 70,707 64,160 56,198 52,191 44,870 --------- --------- --------- --------- --------- Operating income 47,738 38,055 22,727 22,970 20,640 Other income (expense): Interest (8,814) (8,675) (6,698) (7,486) (8,223) Other 1,543 215 (305) (1,020) (384) --------- --------- --------- --------- --------- Income before income taxes 40,467 29,595 15,724 14,464 12,033 Provision for income taxes 16,029 11,775 6,212 5,801 4,928 --------- --------- --------- --------- --------- Net income $ 24,438 $ 17,820 $ 9,512 $ 8,663 $ 7,105 ========= ========= ========= ========= ========= Earnings per share $ 1.61 $ 1.39 $ .75 $ .83 $ .69 ========= ========= ========= ========= ========= Weighted average number of common shares and equivalents outstanding (1) 15,203 12,787 12,731 10,385 10,233 ========= ========= ========= ========= ========= BALANCE SHEET DATA Working capital $ 152,757 $ 116,899 $ 59,493 $ 90,075 $ 83,246 Long-term debt, less current portion 123,713 113,017 55,902 84,203 107,429 Total debt 127,828 119,088 107,409 95,237 111,232 Total liabilities 172,940 157,752 137,884 127,558 140,602 Shareholders' equity (2) 188,255 124,562 106,352 96,775 56,294 Total assets 361,195 282,314 244,236 224,333 196,896
- - ----------------------------------------- (1) See Note 1 of Notes to Consolidated Financial Statements for an explanation of the determination of shares used in computing earnings per share. (2) The Company has never paid or declared dividends on its common stock. 8 9
YEAR ENDED JUNE 30, --------------------------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- OPERATING DATA (UNAUDITED) CASES SOLD (3): Robert Mondavi (4) 756 613 474 468 483 Woodbridge 4,466 3,767 3,281 3,406 3,063 Vichon (5) 172 143 96 92 51 Byron 32 27 22 25 21 Imports 11 -- -- -- -- --------- --------- --------- --------- --------- Total 5,437 4,550 3,873 3,991 3,618 ========= ========= ========= ========= ========= AVERAGE NET SELLING PRICE (6): Robert Mondavi (7) $ 88.88 $ 91.02 $ 93.58 $ 91.09 $ 90.24 Woodbridge 34.76 34.31 34.09 33.80 30.61 Vichon (8) 67.25 65.94 69.11 67.61 80.94 Byron 120.10 115.76 112.65 102.82 95.78 Imports 55.78 -- -- -- -- Company average net selling price $ 43.86 $ 43.42 $ 42.70 $ 41.73 $ 39.65
- - --------- (3) Case information based on industry standard 9-liter case. (4) Includes 399,000 cases, 184,000 cases and 27,000 cases of Robert Mondavi Coastal sold in fiscal 1996, 1995 and 1994, respectively. (5) Includes 135,000 cases, 108,000 cases, 56,000 cases and 51,000 cases of Vichon California sold in fiscal 1996, 1995, 1994 and 1993, respectively. (6) Average net selling price is reported on a per-case basis and represents net revenues received per brand, excluding net revenues from bulk wine and grape sales, divided by the total number of cases sold during the period. (7) Excluding the impact of Robert Mondavi Coastal, average net selling price would have been $113.16, $99.63 and $94.72 for fiscal 1996, 1995 and 1994, respectively. (8) Excluding the impact of Vichon California, average net selling price would have been $90.95, $89.93, $83.87 and $78.58 for fiscal 1996, 1995, 1994 and 1993, respectively. 9 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW INTRODUCTION The Company was founded in 1966 to make quality premium table wines that would compete with the finest wines of the world. The Company's strategy is to sell its wines across all principal price segments of the premium wine market. Fiscal 1996 was a year of significant accomplishment and growth for Robert Mondavi. The Company saw increasing demand for its wines, which led to most of its products being placed on allocation during the year. The Company also experienced increasing grape and bulk wine costs due to an industry-wide shortage of premium grapes. The Company expects the industry's premium grape shortage to continue in fiscal 1997. To improve its future grape supply, the Company added approximately 1,500 acres of premium California vineyards and vineyard land through acquisitions and long-term leases during the fiscal year. The Company also added another 300 acres during the first quarter of fiscal 1997. In addition, the Company secured international sources of premium wine during the year by establishing a new joint venture, Caliterra, to produce and market premium wines from Chile and by purchasing premium wines from the Languedoc region of France that will be introduced under the new Vichon Mediterranean line. The Company also established a joint venture, Solaria, to produce and market premium wines from Italy. The Company plans to begin importing and selling these Italian wines during fiscal 1998. FORWARD-LOOKING STATEMENTS This Form 10-K and other information provided from time to time by the Company contain historical information as well as forward-looking statements about the Company, the premium wine industry and general business and economic conditions. Such forward-looking statements include, for example, projections or predictions about the Company's future growth, consumer demand for its wines, including new brands and brand extensions, margin trends, the premium wine grape market and the Company's anticipated future investment in vineyards and other capital projects. Actual results may differ materially from the Company's present expectations. Among other things, reduced consumer spending or a change in consumer preferences could reduce demand for the Company's wines. Similarly, competition from numerous domestic and foreign vintners could affect the Company's ability to sustain volume and revenue growth. The price of grapes, the Company's single largest product cost, is beyond the Company's control and higher grape costs may put more pressure on the Company's gross profit margin than is currently forecast. Interest rates and other business and economic conditions could increase significantly the cost and risks of projected capital spending. For these and other reasons, no forward-looking statement by the Company can nor should be taken as a guarantee of what will happen in the future. KEY ACCOUNTING MATTERS The Company uses the last-in, first-out (LIFO) method of valuing its wine inventories. The LIFO method attempts to match the most current inventory cost with sales for the period. LIFO adjustments can increase or decrease the Company's cost of goods sold as determined under alternative valuation methods, and such variances can be significant and unpredictable since LIFO adjustments depend on many interrelated factors not all of which are within the Company's control. In the premium wine business, the difference between LIFO and FIFO (first-in, first-out) inventory costs can be significant due to the extended period of time that wines remain in inventory, typically from one to three years or longer depending on the style and variety of wine. The use of the LIFO method has led, and will continue to lead, to volatility in quarterly and annual financial results. For example, the Company's LIFO provision resulted in reductions in FIFO costs of goods sold in the amount of approximately $545,000, $9.2 million and $4.6 million in fiscal 1996, 1995 and 1994, respectively. 10 11 The Company's joint venture interests in Opus One, Caliterra and Solaria are accounted for as investments under the equity method. Accordingly, the Company's share of their results is reflected in "equity in net income of joint ventures" and "investments in joint ventures" on the Consolidated Statements of Income and Consolidated Balance Sheets, respectively. The Company also imports wines under importing and marketing agreements with certain of its joint ventures and their affiliates. Under the terms of these agreements the Company purchases wine for resale in the United States. Revenues and expenses related to importing and selling these wines are included in the appropriate sections of the Consolidated Statements of Income. In October 1995, Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," was issued. The Company is required to adopt this standard in fiscal 1997. This standard encourages companies to use the fair value based method to measure compensation cost, but it allows the Company to continue measuring compensation cost using the intrinsic value based method as prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." The Company intends to continue applying the intrinsic value based method and as a result, adoption of SFAS 123 will not have any effect on the Company's consolidated financial statements other than to require disclosure of the pro forma effect on net income and earnings per share of using the fair value based method of accounting. PHYLLOXERA The Company accounts for its phylloxera-infested vineyards by determining on a vineyard-by-vineyard basis if the projected future net cash flow exceeds the net book value of such vineyard; if it does not, the net book value is written down to the present value of the currently projected future net cash flow from that vineyard. Each infested vineyard's remaining useful life is reduced to its projected remaining productive life and the resulting increased annual depreciation is added to the cost of grapes harvested from that vineyard, increasing inventory and ultimately cost of goods sold. The Company has recognized write-downs and adjusted the remaining productive lives for all of its vineyards believed to be susceptible to phylloxera. The increased cost of goods sold resulting from such additional depreciation, as well as the vineyard write-downs, are set forth in the table below on an actual pre-tax basis for fiscal 1990 through fiscal 1996 and on an estimated pre-tax basis for fiscal 1997 through fiscal 1998:
ACCOUNTING FOR PHYLLOXERA IMPACT ON A PRE-TAX BASIS (1) Actual -------------------------------------------------------------- Estimated Fiscal Year Ended June 30, (Unaudited) --------------------------------------------------------------- ---------------- 1993 Total Total and 1990- Projected Prior 1996 1997-1998 1996 1995 1994 (4 years) (7 years) (2 years) ---- ---- ----- --------- --------- --------- (In thousands) Cost of goods sold impact $226 $330 $375 $ 992 $1,923 $100 Vineyard write-downs -- 260 84 612 956 -- ---- ---- ---- ------ ------ ---- Total $226 $590 $459 $1,604 $2,879 $100 ==== ==== ==== ====== ====== ====
- - --------------- (1) Data set forth in this table represent accounting for vineyards known to be currently infested with phylloxera. At June 30, 1996 and 1995, all vineyards located in areas where phylloxera is present and that are planted with non-resistant rootstock have been infested. 11 12 SEASONALITY AND QUARTERLY RESULTS The Company has historically experienced and expects to continue experiencing seasonal and quarterly fluctuations in its net revenues, cost of goods sold, and net income. Sales volume tends to increase in advance of holiday periods, before price increases go into effect, and during promotional periods, which generally last for one month. Sales volume tends to decrease if distributors begin a quarter with larger than standard inventory levels. The timing of releases for certain wines, such as Cabernet Sauvignon Reserve futures, which may be shipped in either the third or fourth fiscal quarter, depending on the aging requirements of the vintage, also can have a significant impact on quarterly results. Additionally, the Company may schedule price increases on July 1, which, when combined with June promotions and intensive sales force efforts to meet fiscal year goals, can result in increased sales in the Company's fourth fiscal quarter and lower than average sales in the Company's first fiscal quarter. Significant fluctuations in quarterly financial results have also historically resulted and are expected to continue to result from adjustments that are required by the Company's LIFO method of valuing inventories. The following table sets forth certain information regarding the Company's net revenues and net income for each of the last eight fiscal quarters:
FISCAL 1996 QUARTER ENDED FISCAL 1995 QUARTER ENDED ------------------------------------------------- --------------------------------------------- SEP. 30 DEC. 31 MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31 JUN. 30 ------- ------- ------- ------- ------- ------- ------- ------- (Dollars in millions) Net revenues $45.5 $70.8 $58.4 $66.1 $35.0 $57.6 $52.7 $54.2 % of annual net revenues 18.9% 29.4% 24.3% 27.4% 17.5% 28.9% 26.4% 27.2% Net income $ 4.5 $ 8.1 $ 5.9 $ 5.9 $ 1.4 $ 5.7 $ 5.7 $ 5.0 % of annual net income 18.4% 33.2% 24.2% 24.2% 8.4% 31.8% 31.8% 28.0%
Seasonal cash requirements increase just after harvest in the fall as a result of contract grape payments and, to a lesser degree, due to the large seasonal work force employed in both the vineyards and wineries during harvest. Also, many grape contracts include a deferral of a portion of the payment obligations until April 1st of the following calendar year, resulting in significant cash payments on March 31 of each year. As a result of harvest costs and the timing of its contract grape payments, the Company's borrowings, net of cash, generally peak during December and March of each year. Cash requirements also fluctuate depending on the level and timing of capital spending and joint venture investments. The following table sets forth the Company's total borrowings, net of cash, at the end of each of its last eight fiscal quarters:
FISCAL 1996 QUARTER ENDED FISCAL 1995 QUARTER ENDED ---------------------------------------- ---------------------------------------- SEP. 30 DEC. 31 MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31 JUN. 30 ------- ------- ------- ------- ------- ------- ------- ------- (in millions) Total borrowings, net of cash $ 81.4 $105.1 $134.1 $128.2 $108.1 $112.2 $124.4 $118.2
12 13 PERIOD TO PERIOD COMPARISON The following table sets forth, for the periods indicated, selected income statement data expressed as a percentage of net revenues:
AS A PERCENTAGE OF NET REVENUES FOR THE FISCAL YEAR ENDED JUNE 30, --------------------------------------- 1996 1995 1994 --------- --------- --------- Gross revenues 105.3% 105.5% 105.5% Less excise taxes 5.3 5.5 5.5 ----- ----- ----- Net revenues 100.0 100.0 100.0 Cost of goods sold 50.8 48.8 52.7 ----- ----- ----- Gross profit 49.2 51.2 47.3 Operating expenses 29.4 32.1 33.7 ----- ----- ----- Operating income 19.8 19.1 13.6 Other income (expense): Interest (3.6) (4.3) (4.0) Other 0.6 -- (0.2) ----- ----- ----- Income before income taxes 16.8 14.8 9.4 Provision for income taxes 6.7 5.9 3.7 ----- ----- ----- Net income 10.1% 8.9% 5.7% ===== ===== =====
THREE YEARS ENDED JUNE 30, 1996 GROSS REVENUES Gross revenues increased by 20.5% to $253.5 million in fiscal 1996 from fiscal 1995, and by 19.4% to $210.4 million in fiscal 1995 from $176.2 million in fiscal 1994. In fiscal 1996, sales volume increased by 19.5% to 5,437,000 cases from fiscal 1995, and by 17.5% to 4,550,000 cases in fiscal 1995 from 3,873,000 cases in fiscal 1994. The increase in gross revenues in fiscal 1996 and 1995 was primarily attributable to the increase in sales volume, particularly in the Woodbridge and Robert Mondavi Coastal wines. During fiscal 1996 and 1995, many of the Company's wines were in limited supply, resulting in wines being allocated to customers. The Company expects many of its wines will remain on allocation during fiscal 1997. EXCISE TAXES The Company's federal and state excise taxes increased by 16.5% to $12.7 million in fiscal 1996 from fiscal 1995, and by 18.5% to $10.9 million in fiscal 1995 from $9.2 million in fiscal 1994. The dollar increase in excise taxes in fiscal 1996 and 1995 correlates to an increase in domestic sales volume, since the excise tax is assessed on a per gallon basis and the excise tax rate remained unchanged during these periods. Excise taxes as a percentage of net revenues decreased in the 1996 and 1995 periods as a result of higher net average selling prices per case during these periods. NET REVENUES As a result of the above factors, net revenues increased by 20.7% to $240.8 million in fiscal 1996 from fiscal 1995, and by 19.5% to $199.5 million in fiscal 1995 from $167.0 million in fiscal 1994. Net revenues per case increased by 1.0% to $43.86 per case in fiscal 1996 from fiscal 1995, and by 1.7% to $43.42 per case in fiscal 1995 from $42.70 per case in fiscal 1994. COST OF GOODS SOLD Cost of goods sold increased by 25.8% to $122.4 million in fiscal 1996 from fiscal 1995, and by 10.4% to $97.3 million in fiscal 1995 from $88.1 million in fiscal 1994. The dollar increase in fiscal 1996 reflects the increase in sales volume and a 5.2% increase in average cost per case. The increase in average cost per case in fiscal 1996 reflects increasing grape and bulk wine prices, as well as lower grape yields on the Company's vineyards. The dollar increase in fiscal 1995 reflects the increase in sales volume, partially offset by a 6.1% decrease in average cost per case. The decrease in average cost per case in fiscal 1995 reflects lower grape costs experienced during the 1994 harvest, purchases of bulk wine at favorable costs and improved capacity utilization; however, these lower costs were partially offset by the shift in mix to the Robert Mondavi brand, which has a higher cost per case. 13 14 If inventories valued at LIFO cost had been valued at FIFO cost, then cost of goods sold would have been $545,000, $9.2 million and $4.6 million higher in fiscal 1996, 1995 and 1994, respectively. The Company expects the trend of increasing grape and bulk wine costs to continue in fiscal 1997. GROSS PROFIT As a result of the factors discussed above, gross profit increased by 15.9% to $118.4 million in fiscal 1996 from fiscal 1995, and by 29.5% to $102.2 million in fiscal 1995 from $78.9 million in fiscal 1994. The Company's gross profit margins were 49.2%, 51.2% and 47.3% of net revenues for fiscal 1996, 1995 and 1994, respectively. The fiscal 1996 gross profit percentage reflects the increase in average cost per case discussed above. The improved gross profit percentage in fiscal 1995 was the result of higher net revenues per case combined with the lower average cost per case described above. Rising grape and bulk wine costs are expected to lead to a decrease in the gross profit percentage in fiscal 1997. OPERATING EXPENSES Operating expenses increased by 10.1% to $70.7 million in fiscal 1996 from fiscal 1995, and by 14.2% to $64.2 million in fiscal 1995 from $56.2 million in fiscal 1994. The ratio of operating expenses to net revenues was 29.4% in fiscal 1996, 32.1% in fiscal 1995 and 33.7% in fiscal 1994. The dollar increase in operating expenses in fiscal 1996 and 1995 was primarily attributable to an increase in sales and marketing expenses and employee compensation associated with increased sales volume and improved profitability. The decrease in operating expense ratio in fiscal 1996 was due to an 8.0% decrease in the average promotional dollars spent per case and economies of scale in personnel and overhead costs achieved as a result of increased net revenues. The decrease in operating expense ratio in fiscal 1995 was due to economies of scale in personnel and overhead costs achieved as a result of increased net revenues. OPERATING INCOME As a result of the factors discussed above, operating income increased by 25.2% to $47.7 million in fiscal 1996 from fiscal 1995, and by 67.8% to $38.1 million in fiscal 1995 from $22.7 million in fiscal 1994. Operating income constituted 19.8% of net revenues in fiscal 1996, 19.1% in fiscal 1995, and 13.6% in fiscal 1994. INTEREST Interest expense increased by 1.1% to $8.8 million in fiscal 1996 from fiscal 1995, and by 29.9% to $8.7 million in fiscal 1995 from $6.7 million in fiscal 1994. The Company's average interest rates were 8.61%, 8.60% and 7.78% in fiscal 1996, 1995 and 1994, respectively. The increase in interest expense in fiscal 1995 was primarily attributable to increases in the Company's average interest rate and average borrowing levels, as well as a decrease in the amount of interest capitalized. OTHER "Other" primarily consists of the Company's equity income in its joint ventures and miscellaneous non-operating income and expense items. In fiscal 1996, "Other" was $1,543,000 compared to $215,000 in fiscal 1995 and $(305,000) in fiscal 1994. The improvement in "Other" in fiscal 1996 compared to fiscal 1995 was mainly due to tax refunds and a decrease in vineyard write-downs. The improvement in "Other" in fiscal 1995 compared to fiscal 1994 was primarily attributable to improved income from the Opus One joint venture. INCOME BEFORE INCOME TAXES As a result of the factors discussed above, income before income taxes increased by 36.8% to $40.5 million in fiscal 1996 from fiscal 1995, and by 88.5% to $29.6 million in fiscal 1995 from $15.7 million in fiscal 1994. Pre-tax income as a percentage of net revenues increased to 16.8% in fiscal 1996 from 14.8% and 9.4% in fiscal 1995 and fiscal 1994, respectively. PROVISION FOR INCOME TAXES The provision for income taxes and the Company's effective tax rates were $16.0 million and 39.6%, $11.8 million and 39.8%, and $6.2 million and 39.5% in fiscal 1996, 1995 and 1994, respectively. 14 15 NET INCOME AND EARNINGS PER SHARE As a result of the above factors, net income increased by 37.1% to $24.4 million in fiscal 1996 from fiscal 1995, and by 87.4% to $17.8 million in fiscal 1995 from $9.5 million in fiscal 1994. Earnings per share were $1.61, $1.39 and $.75 in fiscal 1996, 1995 and 1994, respectively. Fiscal 1996 earnings per share reflect the dilutive impact of the increase in the weighted average shares outstanding resulting from the Company's second public offering of stock in August 1995. LIQUIDITY AND CAPITAL RESOURCES Working capital as of June 30, 1996, was $152.8 million compared to $116.9 million at June 30, 1995. The $35.9 million increase in working capital was primarily attributable to a $29.3 million increase in inventories. Borrowings under the Company's credit lines totaled $40.0 million at June 30, 1996, compared to $28.2 million at June 30, 1995. The Company had a book overdraft of $403,000 at June 30,1996, compared to a cash balance of $900,000 at June 30, 1995. The Company has historically financed its growth through increases in borrowings and cash flow from operations. In addition, the Company received $32.3 million in net proceeds from its initial public offering of stock in June 1993 and an additional $35.3 million in net proceeds from its second public offering of stock in August 1995. During fiscal 1996, the Company's primary uses of capital have been to finance the following: a $40.1 million increase in property, plant and equipment (including vineyard land acquisitions and development, expansion of the Woodbridge and Byron wineries and purchases of new oak barrels), a $29.3 million increase in inventories, $9.4 million in repayments of term debt and $7.5 million in contributions to the Caliterra and Solaria joint ventures. In addition to the net proceeds from the Company's August 1995 public offering of stock, the primary sources of funds during fiscal 1996 were from the following: $24.4 million in net income, as well as the non-cash impact on pre-tax income of $10.3 million in depreciation and amortization, $11.9 million in net additions under the Company's long-term credit lines, a $6.2 million increase in accounts payable and accruals, $4.1 million in distributions from joint ventures and $2.4 million in proceeds from the exercise of stock options. Management expects that the Company's working capital needs will grow significantly to support expected future growth in sales volumes. Due to the lengthy aging and processing cycles involved in premium wine production, expenditures for inventory and fixed assets need to be made one to three years or more in advance of anticipated sales. The Company's capital spending requirements increased during fiscal 1996 due to vineyard acquisitions and developments to improve the Company's long-term grape supply and to support expected future sales volume growth. The Company currently expects its capital spending requirements will total approximately $90.0 million for the two fiscal years ending June 30, 1998. As of June 30, 1996, the Company had entered into commitments totaling approximately $5.0 million for additional vineyard and vineyard land acquisitions that were funded during the first quarter of fiscal 1997. On July 8, 1996, the Company entered into unsecured term loans totaling $50.0 million. The proceeds from these loans were used to pay down long-term credit line borrowings and to pay off secured term loans that matured in July 1996. 15 16 The Company currently has credit lines that provide both short-term and long-term borrowings. The short-term credit lines expire on December 27, 1996, and have maximum credit available of $41.2 million. The long-term credit lines expire on December 31, 1998, and have maximum credit available ranging from $40.0 million to $50.0 million. The annual interest rates on these lines are based on various bank programs and ranged from 5.69% to 9.00% during fiscal 1996. Management believes that the Company's capital requirements over the next two fiscal years will be met by additional borrowing under its credit lines and/or new arrangements for term debt and by funds generated through operating activities. 16 17 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of The Robert Mondavi Corporation In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) and (2) on page 35 present fairly, in all material respects, the financial position of The Robert Mondavi Corporation and its subsidiaries at June 30, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1996, in conformity with generally accepted accounting principles. These financial statements 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 of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audits 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP - - ------------------------------- PRICE WATERHOUSE LLP San Francisco, California July 26, 1996 17 18 THE ROBERT MONDAVI CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS JUNE 30, -------- 1996 1995 ---- ---- Current assets: Cash $ -- $ 900 Accounts receivable--trade, net 39,495 32,601 Advances to joint ventures 118 116 Inventories 142,565 113,375 Prepaid income taxes 2,370 -- Deferred income taxes 570 -- Prepaid expenses and other current assets 722 770 -------- -------- Total current assets 185,840 147,762 Property, plant and equipment, net 156,754 120,934 Investments in joint ventures 17,100 11,792 Other assets 1,501 1,826 -------- -------- Total assets $361,195 $282,314 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Book overdraft $ 403 $ -- Accounts payable--trade 13,733 9,411 Accrued payroll, bonuses and benefits 10,322 9,247 Other accrued expenses 2,828 1,986 Current portion of long-term debt 4,115 6,071 Income taxes payable -- 1,160 Deferred revenue 1,682 1,493 Deferred income taxes -- 1,495 -------- -------- Total current liabilities 33,083 30,863 Long-term debt, less current portion 123,713 113,017 Deferred income taxes 8,944 7,368 Deferred executive compensation 6,098 5,839 Other liabilities 1,102 665 -------- -------- Total liabilities 172,940 157,752 -------- -------- Commitments and contingencies (Note 12) Shareholders' equity: Preferred Stock: Authorized--5,000,000 shares Issued and outstanding--no shares -- -- Class A Common Stock, without par value: Authorized--25,000,000 shares Issued and outstanding--7,281,529 and 4,448,853 shares 73,402 34,441 Class B Common Stock, without par value: Authorized--12,000,000 shares Issued and outstanding--7,676,012 and 8,325,781 shares 12,324 13,364 Paid-in capital 1,334 -- Retained earnings 101,195 76,757 -------- -------- 188,255 124,562 -------- -------- Total liabilities and shareholders' equity $361,195 $282,314 ======== ========
See Notes to Consolidated Financial Statements. 18 19 THE ROBERT MONDAVI CORPORATION CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED JUNE 30, -------------------------------------- 1996 1995 1994 ---- ---- ---- Gross revenues $ 253,540 $ 210,361 $ 176,236 Less excise taxes 12,710 10,892 9,209 --------- --------- --------- Net revenues 240,830 199,469 167,027 Cost of goods sold 122,385 97,254 88,102 --------- --------- --------- Gross profit 118,445 102,215 78,925 Selling, general and administrative expenses 70,707 64,160 56,198 --------- --------- --------- Operating income 47,738 38,055 22,727 Other income (expense): Interest (8,814) (8,675) (6,698) Equity in net income of joint ventures 1,751 1,547 973 Other (208) (1,332) (1,278) --------- --------- --------- Income before income taxes 40,467 29,595 15,724 Provision for income taxes 16,029 11,775 6,212 --------- --------- --------- Net income $ 24,438 $ 17,820 $ 9,512 ========= ========= ========= Earnings per share: $ 1.61 $ 1.39 $ .75 ========= ========= ========= Weighted average number of common shares and equivalents outstanding 15,203 12,787 12,731 ========= ========= =========
See Notes to Consolidated Financial Statements. 19 20 THE ROBERT MONDAVI CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT PER SHARE DATA)
TOTAL SHARE- SERIES A CLASS A CLASS B PAID-IN RETAINED HOLDERS' PREFERRED STOCK COMMON STOCK COMMON STOCK CAPITAL EARNINGS EQUITY --------------- ------------ ------------ ------- -------- ------ SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ----- ----- ------ ------- ----- ------- Balance at June 30, 1993 -- $ -- 3,700 $32,858 9,026 $ 14,492 $ -- $ 49,425 $ 96,775 Net income 9,512 9,512 Conversion of Class B Common Stock to Class A Common Stock 700 1,127 (700) (1,127) Issuance of Class A Common Stock through Employee Stock Purchase Plan 8 65 65 ----- ----- ------ ------- ----- -------- -------- -------- -------- Balance at June 30, 1994 -- -- 4,408 34,050 8,326 13,365 -- 58,937 106,352 Net income 17,820 17,820 Conversion of Class B Common Stock to Class A Common Stock 1 1 (1) (1) Exercise of Class A Common Stock Options 18 208 208 Issuance of Class A Common Stock through Employee Stock Purchase Plan 22 182 182 ----- ----- ------ ------- ----- -------- -------- -------- -------- Balance at June 30, 1995 -- -- 4,449 34,441 8,325 13,364 -- 76,757 124,562 Net income 24,438 24,438 Conversion of Class B Common Stock to Class A Common Stock 650 1,040 (650) (1,040) Exercise of Class A Common Stock Options including related tax benefits 215 2,401 1,334 3,735 Issuance of Class A Common Stock through public offering 1,955 35,323 35,323 Issuance of Class A Common Stock through Employee Stock Purchase Plan 13 197 197 ----- ----- ------ ------- ----- -------- -------- -------- -------- Balance at June 30, 1996 -- $ -- $7,282 $73,402 7,675 $ 12,324 $ 1,334 $101,195 $188,255 ===== ===== ====== ======= ===== ======== ======== ======== ========
See Notes to Consolidated Financial Statements 20 21 THE ROBERT MONDAVI CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED JUNE 30, ------------------- 1996 1995 1994 ------ ------ ------ Cash flows from operating activities: Net income $ 24,438 $ 17,820 $ 9,512 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes (489) 710 1,126 Depreciation and amortization 10,263 8,854 7,955 Equity in net income of joint ventures (1,751) (1,547) (973) Other 178 687 (305) Changes in assets and liabilities: Accounts receivable--trade (6,894) (501) 2,566 Inventories (29,319) (17,230) (10,377) Prepaid income taxes (1,036) -- -- Other assets 148 (353) 431 Accounts payable--trade and accrued expenses 6,239 6,625 (779) Income taxes payable (1,160) 733 (1,912) Deferred revenue 189 (366) 41 Deferred executive compensation 259 516 (188) Other liabilities 437 (29) (134) -------- -------- -------- Net cash provided by operating activities 1,502 15,919 6,963 -------- -------- -------- Cash flows from investing activities: Acquisitions of property, plant and equipment (40,084) (27,823) (19,088) Distributions from joint ventures 4,102 482 681 Contributions to joint ventures (7,530) (458) (571) -------- -------- -------- Net cash used in investing activities (43,512) (27,799) (18,978) -------- -------- -------- Cash flows from financing activities: Book overdraft 403 -- -- Net additions (repayments) under notes payable to banks -- (18,050) 18,950 Proceeds from issuance of long-term debt 40,368 43,547 7,557 Principal repayments of long-term debt (37,572) (13,818) (14,335) Proceeds from issuance of Class A Common Stock 35,520 182 65 Exercise of Class A Common Stock options 2,401 208 -- Other (10) 318 (84) -------- -------- -------- Net cash provided by financing activities 41,110 12,387 12,153 -------- -------- -------- Net increase (decrease) in cash (900) 507 138 Cash at the beginning of the year 900 393 255 -------- -------- -------- Cash at the end of the year $ -- $ 900 $ 393 ======== ======== ========
See Notes to Consolidated Financial Statements. 21 22 THE ROBERT MONDAVI CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Robert Mondavi Corporation (RMC) and its consolidated subsidiaries (the Company) are primarily engaged in the production and sale of premium table wine. The Company also markets wine under importing and marketing agreements. The Company markets wines worldwide under the following labels: Robert Mondavi, Woodbridge by Robert Mondavi, Vichon, Byron, Opus One, Caliterra and Errazuriz. The Company sells its products principally to distributors for resale to restaurants and retail outlets in the United States. A substantial part of the Company's wine sales is concentrated in California and, to a lesser extent, the states of New York, New Jersey, Texas, Pennsylvania, Florida and Massachusetts. Export sales account for approximately 7% of net revenues, with major markets in Canada, Europe and Asia. A summary of significant accounting policies follows: Basis of presentation The consolidated financial statements include the accounts of RMC and all its subsidiaries. All significant intercompany transactions and balances have been eliminated. Investments in joint ventures are accounted for using the equity method. Certain fiscal 1995 and 1994 balances have been reclassified to conform with current year presentation. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Inventories Inventories are valued at the lower of cost or market. Wine inventory costs are determined using the dollar value last-in, first-out (LIFO) method, applying the double extension pricing method to natural business units. Inventory costs for bottling and other supplies are determined using the first-in, first-out (FIFO) method. Costs associated with growing crops are recorded as inventory and are recognized as wine inventory costs in the year in which the related crop is harvested. In accordance with the general practice in the wine industry, wine inventories are included in current assets, although a portion of such inventories may be aged for periods longer than one year. Property, plant and equipment Property, plant and equipment is stated at cost. Vineyards infested with phylloxera are stated at the lower of cost or adjusted cost as determined by the estimated future net cash flows (Note 3). Maintenance and repairs are expensed as incurred. Costs incurred in developing vineyards, including related interest costs, are capitalized until the vineyards become commercially productive. 22 23 Depreciation and amortization is computed using the straight-line method, with the exception of barrels which are depreciated using an accelerated method, over the estimated useful lives of the assets amounting to 20 years for vineyards, 45 years for buildings and 3 to 12 years for machinery and equipment. Estimated useful lives of vineyards infested with phylloxera are adjusted to the Company's estimate of the remaining productive life of the vineyards ranging from 1 to 6 years. Leasehold improvements are amortized over the estimated useful lives of the improvements or the terms of the related lease, whichever is shorter. Other assets Other assets include goodwill, loan fees and label design costs. Goodwill, loan fees and label design costs are amortized on a straight-line basis over 40 years, the terms of the related loans, and 5 years, respectively. Advertising costs Advertising costs are expensed in the year in which they are incurred. Advertising expense totaled $3,073,000, $451,000 and $24,000, respectively, for the year ended June 30, 1996, 1995 and 1994. Income taxes Deferred income taxes are computed using the liability method. Under the liability method, taxes are recorded based on the future tax effects of the difference between the tax and financial reporting bases of the Company's assets and liabilities. In estimating future tax consequences, all expected future events are considered, except for potential income tax law or rate changes. Major customers The Company sells the majority of its wines through distributors in the United States and through brokers and agents in export markets. There is a common ownership in several distributorships in different states that, when considered to be one entity, represented 28%, 29% and 26%, respectively, of gross revenues for the year ended June 30, 1996, 1995 and 1994. Trade accounts receivable from these distributors at June 30, 1996 and 1995 totaled $11,498,000 and $9,657,000, respectively. Allowance for uncollectible accounts Accounts receivable--trade are presented net of an allowance for uncollectible accounts totaling $500,000 and $300,000 at June 30, 1996 and 1995, respectively. The provision for uncollectible accounts for the year ended June 30, 1996, 1995 and 1994 totaled $219,000, $127,000 and $76,000, respectively. Wine futures program The Company has a wine futures program whereby contracts to buy cased wine are sold to distributors prior to the time the wine is available for shipment. The agreement to deliver the wine in the future is recorded when the Company receives the distributor's deposit representing the total purchase price. Revenue relating to this program is deferred and recognized when the wine is shipped. Deferred revenue relating to wine scheduled for shipment during the next fiscal year is included as a current liability while the remainder of the deferred revenue is included in other liabilities in the consolidated balance sheet. Deferred revenue included in other liabilities at June 30, 1996 and 1995 totaled $23,000 and $14,000, respectively. Earnings per share Earnings per share have been computed by dividing net income by the sum of the weighted average number of Class A and Class B common shares outstanding plus the dilutive effect, if any, of common share equivalents for stock option awards. 23 24 Fair value of financial instruments The fair value of the Company's notes payable to banks and long-term debt is estimated based on the current market rates available to the Company for debt of the same remaining maturities. At June 30, 1996, the carrying amount and estimated fair value of notes payable to banks and long-term debt are $127,828,000 and $132,141,000, respectively. At June 30, 1995, the carrying amount and estimated fair value of notes payable to banks and long-term debt are $119,088,000 and $125,177,000, respectively. Derivative financial instruments The Company has only a limited involvement with derivative financial instruments and does not use them for trading purposes. Forward exchange contracts are used to manage exchange rate risks on certain purchase commitments denominated in foreign currencies. Gains and losses relating to firm purchase commitments are deferred and are recognized as adjustments of carrying amounts or in income when the hedged transaction occurs. At June 30, 1996, the Company has outstanding forward exchange contracts to purchase 13,100,000 French francs through November 1996 for the U.S. dollar equivalent of $2,585,000. Using exchange rates outstanding as of June 30, 1996, the U.S. dollar equivalent of the contracts is $2,542,000. NOTE 2--INVENTORIES Inventories consist of the following (in thousands):
JUNE 30, -------- 1996 1995 ---- ---- Wine in production $ 95,747 $ 84,652 Bottled wine 46,247 32,460 Crop costs and supplies 13,097 9,333 ----------- ---------- Inventories stated at FIFO cost 155,091 126,445 Reserve for LIFO valuation method (12,526) (13,070) ---------- ---------- $142,565 $113,375
Wine inventory costs are determined using the LIFO method, which attempts to match the most current inventory cost with sales for the period. Information related to the FIFO method may be useful in comparing operating results to those of companies not on LIFO. If inventories valued at LIFO cost had been valued at FIFO cost, net income would have decreased by approximately $329,000, $5,537,000 and $2,776,000, respectively, for the year ended June 30, 1996, 1995 and 1994. Certain wine inventory levels were reduced in fiscal 1995 and 1994 in an effort to better match inventory levels with sales requirements, resulting in liquidations of prior year LIFO inventory levels. These liquidations reduced net income by approximately $24,000 and $106,000 for the year ended June 30, 1995 and 1994, respectively. 24 25 NOTE 3--PROPERTY, PLANT AND EQUIPMENT The cost and accumulated depreciation of property, plant and equipment consist of the following (in thousands):
JUNE 30, -------- 1996 1995 ---- ---- Land $ 38,235 $ 28,742 Vineyards 29,716 26,514 Machinery and equipment 99,211 81,096 Buildings 31,739 29,581 Vineyards under development 7,461 4,126 Construction in progress 21,429 12,928 --------- --------- 227,791 182,987 Less--accumulated depreciation (71,037) (62,053) --------- --------- $ 156,754 $ 120,934 ========= =========
Included in property, plant and equipment are assets leased under capital leases with cost and accumulated depreciation totaling $6,514,000 and $673,000, respectively, at June 30, 1996 and $4,912,000 and $3,055,000, respectively, at June 30, 1995. Depreciation expense for machinery and equipment under capital leases was $793,000, $366,000 and $455,000 for the year ended June 30, 1996, 1995 and 1994, respectively. Included in property, plant and equipment is $532,000, $687,000 and $1,337,000 of interest capitalized for the year ended June 30, 1996, 1995 and 1994, respectively. The Company has detected phylloxera in certain of its Napa Valley vineyards. Phylloxera attacks root systems of vines planted on susceptible rootstock, significantly shortening the estimated useful life of the vineyard. When phylloxera is discovered in a vineyard, the net book value of the vineyard is written down to the present value of estimated future net cash flow if the estimated future net cash flow is lower than the net book value of the vineyard, resulting in an additional operating expense in the current year. This additional operating expense totaled $260,000 and $84,000, respectively, for the year ended June 30, 1995 and 1994. The estimated useful life of a vineyard infested with phylloxera is adjusted to its projected remaining productive life, resulting in increased wine inventory costs and ultimately impacting cost of goods sold. The increase in cost of goods sold as a result of accelerating the depreciation of infested vineyards totaled $226,000, $330,000 and $375,000, respectively, for the year ended June 30, 1996, 1995 and 1994. NOTE 4--INVESTMENTS IN JOINT VENTURES During March 1996, the Company and Vina Errazuriz S.A. (Errazuriz), Santiago, Chile, completed the formation of Vina Caliterra S.A. (Caliterra), a 50/50 joint venture created to produce and market wines from Chile. As of June 30, 1996, the Company had contributed $5,900,000 to this joint venture. During April 1996, the Company and Marchesi de' Frescobaldi S.P.A., Florence, Italy, completed the formation of Solaria S.R.L. (Solaria), a 50/50 joint venture created to produce and market wines from Italy. As of June 30, 1996, the Company had contributed $1,417,000 to this joint venture. 25 26 Investments in joint ventures are summarized below (in thousands). The Company's interest in income and losses for each joint venture is stated within parentheses.
JUNE 30, -------- 1996 1995 ---- ---- Opus One (50%) $ 9,238 $ 11,414 Twin Oaks (50%) 360 228 Caliterra (50%) 6,010 - - Solaria (50%) 1,365 - - Other 127 150 ---------- ---------- $ 17,100 $ 11,792 ========== ==========
The condensed combined balance sheets and statements of operations of the joint ventures, along with the Company's proportionate share, are summarized as follows (in thousands): BALANCE SHEETS
COMBINED PROPORTIONATE SHARE -------- ------------------- JUNE 30, JUNE 30, -------- -------- 1996 1995 1996 1995 ---- ---- ---- ---- Current assets $ 22,136 $ 9,419 $ 11,038 $ 4,695 Other assets 33,440 32,305 16,623 16,018 ---------- ---------- ---------- ---------- Total assets $ 55,576 $ 41,724 $ 27,661 $ 20,713 ========== ========== ========== ========== Current liabilities $ 6,084 $ 2,056 $ 3,042 $ 1,028 Other liabilities 16,057 16,425 8,029 8,213 Venturers' equity 33,435 23,243 16,590 11,472 ---------- ---------- ---------- ---------- Total liabilities and venturers' equity $ 55,576 $ 41,724 $ 27,661 $ 20,713 ========== ========== ========== ==========
The Company's investments in joint ventures differ from the amount that would be obtained by applying the Company's ownership interest to the venturers' equity of these entities due to preferred capital accounts and capital account differences specified in the joint venture agreements. STATEMENTS OF OPERATIONS
COMBINED Proportionate Share -------- ------------------- YEAR ENDED JUNE 30, Year Ended June 30, ------------------- ------------------- 1996 1995 1994 1996 1995 1994 ---- ---- ---- ---- ---- ---- Net revenues $ 17,171 $ 11,773 $ 10,052 $ 8,511 $ 5,887 $ 5,026 Cost of goods sold 7,179 4,017 4,449 3,590 2,009 2,225 ---------- ---------- ---------- ---------- ---------- ---------- Gross profit 9,992 7,756 5,603 4,921 3,878 2,801 Other expenses 6,588 5,101 4,974 3,184 2,550 2,487 ---------- ---------- ---------- ---------- ---------- ---------- Net income $ 3,404 $ 2,655 $ 629 $ 1,737 $ 1,328 $ 314 ========== ========== ========== ========== ========== ==========
The Company's equity in net income of certain joint ventures is higher than the amount which would be obtained by applying the Company's interest in income and losses to the net income or loss of those entities due to special profit allocations and preferred interest amounts specified in the joint venture agreements. The Company has preferred capital accounts in Opus One totaling $487,000 and $3,276,000 at June 30, 1996 and 1995, respectively. During December 1995, preferred capital accounts totaling $2,789,000 were distributed to the Company in accordance with the joint venture agreement. The remaining balance of $487,000 represents the agreed value of certain land and capital improvements contributed to Opus One by the Company. 26 27 The preferred capital accounts earn interest at 8.25% at June 30, 1996, and at variable rates ranging from 1.63% to 10.16% at June 30, 1995 and 1994. During the year ended June 30, 1996, 1995 and 1994, the Company earned preferred interest on these accounts of $141,000, $220,000, and $208,000, respectively. As of June 30, 1996, $21,000 of preferred interest was unpaid. NOTE 5--OTHER ASSETS Other assets consist of the following (in thousands):
June 30, -------- 1996 1995 ---- ---- Goodwill $ 696 $ 696 Loan fees 910 910 Label design costs 685 662 Other 239 354 ---------- ---------- 2,530 2,622 Less--accumulated amortization (1,029) (796) ---------- ---------- $ 1,501 $ 1,826 ========== ==========
NOTE 6--ACCRUED PAYROLL, BONUSES AND BENEFITS Accrued payroll, bonuses and benefits consist of the following (in thousands):
JUNE 30, -------- 1996 1995 ---- ---- Accrued vacation $ 2,244 $ 2,277 Accrued profit sharing and bonuses 4,718 4,296 Accrued payroll and payroll taxes 1,921 1,254 Accrued retirement 1,167 946 Other 272 474 ---------- ---------- $ 10,322 $ 9,247 ========== ==========
The Company has a tax-qualified defined contribution retirement plan (the Plan) which covers substantially all of its employees. Company contributions to the Plan are 7% of eligible compensation paid to participating employees. Company contributions to the Plan were $1,925,000, $1,797,000 and $1,649,000 for the year ended June 30, 1996, 1995 and 1994, respectively. Contributions to the Plan are limited by the Internal Revenue Code. The Company has a non-qualified supplemental executive retirement plan to restore contributions limited by the Plan. This plan is administered on an unfunded basis. The unfunded liability relating to this plan totaled $623,000 and $371,000 at June 30, 1996 and 1995, respectively. The Company has a deferred executive incentive compensation plan with certain present and past key officers. Under the provisions of this plan, units are awarded to participants at the discretion of the Board of Directors. The units each earn a percentage of Company profits as defined by the plan over a five year vesting period. In February 1993, the Board of Directors determined that no future units will be awarded under the plan; however, the plan remains in place with respect to existing units. Subject to participant election for deferral of payments and payment terms for participants no longer in the plan, the accrued amounts are distributable in cash when fully vested. The compensation earned on the units and accumulated interest on fully vested amounts not distributed, are accrued but unfunded. The current portion of this liability of $1,400,000 and $806,000 at June 30, 1996 and 1995, respectively, is included in accrued profit sharing and bonuses presented above. 27 28 NOTE 7--LONG-TERM DEBT AND NOTES PAYABLE TO BANKS Long-term debt consists of the following (in thousands):
JUNE 30, -------- 1996 1995 ----- ----- Long-term unsecured credit lines $ 40,000 $ 28,150 Fixed rate secured term loans; interest rates 6.33% to 10.00% at June 30, 1996; principal and interest payable monthly; due 1996--2005 41,238 50,009 Fixed rate unsecured term loans; interest rate 8.92% at June 30, 1996; interest payable quarterly through January 1, 1997; principal and interest payable quarterly from April 1, 1997; due 2004 40,000 40,000 Capitalized lease obligations; interest rates 6.96% to 8.00% at June 30, 1996; principal and interest payable monthly; due 2002--2010 6,448 736 Other borrowings, interest rate 10.00% at June 30, 1996 142 193 --------- --------- 127,828 119,088 Less--current portion (4,115) (6,071) --------- --------- $ 123,713 $ 113,017 ========= =========
Aggregate annual maturities of long-term debt at June 30, 1996 are as follows (in thousands):
YEAR ENDING JUNE 30, -------- 1997 $ 4,115 1998 46,790 1999 10,960 2000 10,252 2001 10,103 Thereafter 45,608 ---------- $ 127,828 ==========
The Company has unsecured credit lines with two banks that provide for both short-term and long-term borrowings. The short-term credit lines expire on December 27, 1996, and have maximum credit available of $41,150,000. The long-term credit lines expire on December 31, 1998, and have maximum credit available ranging from $40,000,000 to $50,000,000. The credit lines bear interest, which is payable monthly, at rates determined under various bank interest programs, ranging from 6.09% to 8.25% at June 30, 1996. There were no borrowings outstanding under the Company's short-term credit lines as of June 30, 1996 and 1995. On July 8, 1996, the Company entered into unsecured term loans totaling $50,000,000 that bear interest, payable semiannually, at a fixed rate of 7.39%. Semiannual principal payments commence on July 8, 1998. The proceeds from these loans were used to refinance secured term loans that matured in July 1996 and to pay down long-term credit line borrowings. The fixed rate secured term loans totaling $18,856,000 that were refinanced during July 1996 are classified as long-term at June 30, 1996. Property, plant and equipment with a net book value of approximately $72,000,000 at June 30, 1996 is pledged as collateral for long-term debt. Subsequent to the refinancing of fixed rate secured term loans described above, property, plant and equipment with a net book value of approximately $42,000,000 was pledged as collateral for long-term debt. The terms of the unsecured credit lines and certain long-term debt agreements include covenants that require the maintenance of various minimum financial ratios and other covenants. The most restrictive of these covenants requires the ratio of net tangible assets to debt maturing in excess of one year to be 1.75 to 1 or greater. The Company was in compliance with all such covenants during the year ended June 30, 1996. 28 29 NOTE 8--INCOME TAXES The provision for income taxes consists of the following (in thousands):
YEAR ENDED JUNE 30, ------------------- 1996 1995 1994 ------- ------- ------ Current: Federal $14,760 $ 9,182 $4,435 State 1,758 1,883 651 ------- ------- ------ 16,518 11,065 5,086 ------- ------- ------ Deferred: Federal (824) 874 1,178 State 335 (164) (52) ------- ------- ------ (489) 710 1,126 ------- ------- ------ $16,029 $11,775 $6,212 ======= ======= ======
Income tax expense differs from the amount computed by multiplying the statutory federal income tax rate times income before taxes, due to the following:
YEAR ENDED JUNE 30, ------------------- 1996 1995 1994 ---- ---- ---- Federal statutory rate 35.0% 35.0% 35.0% State income taxes, net of federal benefit 3.4 4.6 3.0 Permanent differences 0.5 0.7 1.1 Other 0.7 (0.5) 0.4 ---- ---- ---- 39.6% 39.8% 39.5% ==== ==== ====
The approximate effect of temporary differences and carryforwards that give rise to deferred tax balances at June 30, 1996 and 1995 are as follows (in thousands):
JUNE 30, -------- 1996 1995 ------- ------- GROSS DEFERRED TAX ASSETS Liabilities and accruals $(1,388) $(1,442) Deferred compensation (3,797) (3,211) Tax credits (45) (350) ------- ------- Gross deferred tax assets (5,230) (5,003) ------- ------- GROSS DEFERRED TAX LIABILITIES Property, plant and equipment 11,431 9,315 Retirement plans 583 485 Inventories 340 2,691 Investments in joint ventures 1,144 1,113 State taxes 106 262 ------- ------- Gross deferred tax liabilities 13,604 13,866 ------- ------- Net deferred tax liability $ 8,374 $ 8,863 ======= =======
The Company has foreign tax credits at June 30, 1996, that can be carried forward five years. The state investment tax credits were fully utilized during the year ended June 30, 1996. During the year ended June 30, 1996, the Company recognized certain tax benefits related to stock option plans in the amount of $1,334,000. These benefits were recorded as an increase in prepaid income taxes and paid-in capital. 29 30 NOTE 9--SHAREHOLDERS' EQUITY The authorized capital stock of the Company consists of Preferred Stock, Class A Common Stock and Class B Common Stock. On July 17, 1995 and December 22, 1993, 649,769 and 700,000 shares, respectively, of Class B Common Stock, owned by a major shareholder, were converted into 649,769 and 700,000 shares, respectively, of Class A Common Stock. The conversion of the shares represents a non-cash financing activity for purposes of the consolidated statement of cash flows. On August 3, 1995, the Company completed a public offering of 1,955,000 shares of Class A Common Stock, resulting in net proceeds to the Company of $35,323,000. Each share of Class A Common Stock is entitled to one vote and each share of Class B Common Stock is entitled to ten votes on all matters submitted to a vote of the shareholders. The holders of the Class A Common Stock, voting as a separate class, elect 25% of the total Board of Directors of the Company and the holders of the Class B Common Stock, voting as a separate class, elect the remaining directors. All shares of common stock share equally in dividends, except that any stock dividends are payable only to holders of the respective class. If dividends or distributions payable in shares of stock are made to either class of common stock, a pro rata and simultaneous dividend or distribution payable in shares of stock must be made to the other class of common stock. Upon liquidation, dissolution or winding up of the Company, after distributions as required to the holders of outstanding Preferred Stock, if any, all shares of Class A and Class B Common Stock share equally in the remaining assets of the Company available for distribution. The holders of the outstanding shares of Class B Common Stock and the Company are parties to a Stock Buy-Sell Agreement. Subject to the provisions of the Buy-Sell Agreement, each share of Class B Common Stock is convertible at the option of the holder into Class A Common Stock on a share-for-share basis. The Class A Common Stock is not convertible. Included in retained earnings at June 30, 1996, is $1,800,000 of undistributed income from joint ventures that has been accounted for using the equity method. NOTE 10--TRANSACTIONS WITH RELATED PARTIES (NOTE 4) The Company has an agricultural, selling and administrative services agreement with Opus One under which it earned fees totaling $846,000, $789,000 and $580,000 for the year ended June 30, 1996, 1995 and 1994, respectively. In addition, the Company has purchased barrels and bulk wine from Opus One at market value. Aggregate purchases of $146,000, $66,000 and $409,000 were made for the year ended June 30, 1996, 1995 and 1994, respectively. Included in advances to joint ventures are amounts due under the above arrangements and receivables relating to charges for services and goods paid by the Company on behalf of Opus One. The Opus One joint venture agreement provides for a grape sourcing fee through harvest year 1999 relating to grapes procured by the Company and selected by Opus One for the production of Opus One wine. During the year ended June 30, 1996, 1995 and 1994, Opus One purchased grapes from the Company in the amount of $526,000, $509,000 and $529,000, respectively, of which $319,000, $330,000 and $328,000, respectively, related to the grape sourcing fee. During the year ended June 30, 1995 and 1994, payment of 50% of the grape sourcing fee was deferred and recorded as a capital contribution to the preferred capital account discussed at Note 4. The Company imports and sells wines produced by Caliterra and Errazuriz. During the year ended June 30, 1996, the Company purchased $1,547,499 and $585,430 of wine from Caliterra and Errazuriz, respectively, as part of its importing arrangement. These amounts are included in accounts payable--trade at June 30, 1996. 30 31 During the year ended June 30, 1996, 1995 and 1994, the Company purchased grapes under a long-term contract with the Twin Oaks joint venture totaling $728,000, $615,000 and $436,000, respectively. During the year ended June 30, 1996, 1995 and 1994, the Company incurred fees for legal services, provided by a law firm in which a member of its Board of Directors is a partner, totaling $95,000, $36,000 and $586,000, respectively, and purchased grapes from a member of its Board of Directors totaling $43,000, $98,000 and $139,000, respectively. During the year ended June 30, 1994, the Company concluded the sale of land to two major shareholders of the Company pursuant to an agreement reached in February 1993. The land was sold at the appraised fair market value of $759,000, resulting in a gain of $503,000. NOTE 11--STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS Stock Options In February 1993, the Company established two stock option plans--the 1993 Equity Incentive Plan for key employees and the 1993 Non-Employee Directors' Stock Option Plan for non-employee members of the Board of Directors (the Board) of the Company. Equity Incentive Plan Under the Equity Incentive Plan, the Company is authorized to grant both incentive stock options and non-qualified stock options for up to 1,835,294 shares of Class A Common Stock. Incentive stock options may not be granted for less than the fair market value of the Class A Common Stock at the date of grant. Non-qualified stock options may not be granted for less than 50% of the fair market value of the Class A Common Stock at the date of grant. The stock options are exercisable over a period determined by the Board at the time of grant, but no longer than ten years after the date they are granted. On September 2, 1994, the Board granted 255,000 options to officers and employees, which become exercisable over five years, to purchase Class A Common Stock for $7-7/8 per share. On December 14, 1994, the Board granted 3,000 options to an employee, which vest in twelve equal monthly installments, to purchase Class A Common Stock for $10-1/2 per share. On November 6, 1995, the Board granted 2,500 options to an employee, which vest in twelve equal monthly installments, to purchase Class A Common Stock for $30-5/8 per share. On December 29, 1995, the Board granted 105,000 options to certain officers, which vested immediately, to purchase Class A Common Stock for $27-5/8 per share. Non-Employee Directors' Stock Option Plan Under the Non-Employee Directors' Stock Option Plan the Company is authorized to grant options for up to 100,000 shares of Class A Common Stock. These options may not be granted for less than the fair market value of the Class A Common Stock at the date of grant. Non-employee directors are granted options when they are elected for the first time to the Board. These options become exercisable over five years from the date of grant and expire ten years after the date of grant. Incumbent non-employee directors are granted options annually on the date of the Annual Meeting of Shareholders. These options vest in twelve equal monthly installments and expire ten years after the date of grant. 31 32 On December 14, 1994, each of the incumbent non-employee directors was granted 3,000 options, which vest in twelve equal monthly installments, to purchase Class A Common Stock for $10-1/2 per share. On November 6, 1995, each of the incumbent non-employee directors was granted 2,500 options, which vest in twelve equal monthly installments, to purchase Class A Common Stock for $30-5/8 per share. On May 29, 1996, a new outside director was granted 5,345 options, which become exercisable over five years, to purchase Class A Common Stock for $28-1/16 per share. Additional information relating to the stock option plans is as follows:
NON-EMPLOYEE DIRECTORS' EQUITY STOCK INCENTIVE OPTION PLAN PLAN ------------------------------------ ---------------------------------- EXERCISE EXERCISE OUTSTANDING PRICE OUTSTANDING PRICE OPTIONS PER SHARE OPTIONS PER SHARE ------- --------- ------- --------- Balance at June 30, 1993 1,187,500 $11 9/10 - $13 1/2 36,000 $11 9/10 Canceled (68,850) $11 9/10 -- --------- ------ Balance at June 30, 1994 1,118,650 $11 9/10 - $13 1/2 36,000 $11 9/10 Granted 258,000 $ 7 7/8 - $10 1/2 9,000 $10 1/2 Canceled (15,325) $11 9/10 -- Exercised (17,500) $11 9/10 -- --------- ------ Balance at June 30, 1995 1,343,825 $ 7 7/8 - $13 1/2 45,000 $10 1/2 - $11 9/10 Granted 107,500 $27 5/8 - $30 5/8 12,845 $28 1/16 - $30 5/8 Canceled (6,800) $ 7 7/8 - $11 9/10 -- Exercised (215,182) $ 7 7/8 - $11 9/10 -- --------- ------ Balance at June 30, 1996 1,229,343 $ 7 7/8 - $30 5/8 57,845 $10 1/2 - $30 5/8 ========= ====== Exercisable at June 30, 1996 826,398 33,000 --------- ------ Available for grant at June 30, 1996 373,269 42,155 --------- ------
Employee Stock Purchase Plan In February 1993, the Company established the Employee Stock Purchase Plan under which the Board will from time to time grant rights to eligible employees to purchase Class A Common Stock. Under this plan, the Company is authorized to grant rights to purchase up to 300,000 shares of Class A Common Stock. The purchase price is the lower of 85% of the fair market value on the date the Company grants the right to purchase or 85% of the fair market value on the date of purchase. Employees, through payroll deductions of no more than 15% of their base compensation, may exercise their rights to purchase for the period specified in the related offering. No compensation expense will be recorded in connection with the plan. During the year ended June 30, 1996, 1995 and 1994, shares totaling 12,725, 22,258 and 8,395, respectively, were issued under the Employee Stock Purchase Plan at average prices of $15.47, $8.13 and $7.76 per share, respectively. 32 33 NOTE 12--COMMITMENTS AND CONTINGENCIES The Company leases some of its office space, warehousing facilities, vineyards and equipment under non-cancelable leases accounted for as operating leases. Certain of these leases have options to renew. Rental expense amounted to $2,126,000, $1,781,000 and $2,224,000, respectively, for the year ended June 30, 1996, 1995 and 1994. The Company also leases machinery and equipment under capital leases. The minimum rental payments under non-cancelable operating and capital leases at June 30, 1996 are as follows (in thousands):
YEAR ENDING CAPITAL OPERATING JUNE 30, LEASES LEASES -------- ------ ------ 1997 $1,011 $1,581 1998 1,011 1,315 1999 1,011 960 2000 1,011 608 2001 1,011 341 Thereafter 4,797 1,554 ------- ------ 9,852 $6,359 ====== Less amount representing interest (3,404) Present value of minimum lease payments $ 6,448 =======
Interest expense on capital lease obligations was $176,000, $50,000 and $131,000 for the year ended June 30, 1996, 1995 and 1994, respectively. The Company has guaranteed certain debt of Opus One in the amount of $2,250,000. The Company has contracted with various growers and certain wineries to supply a large portion of its future grape requirements and a smaller portion of its future bulk wine requirements. While most of these contracts call for prices to be determined by market conditions, several long-term contracts provide for minimum grape or bulk wine purchase prices. The Company is subject to litigation in the ordinary course of 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 or the results of its operations. NOTE 13--SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest, net of amounts capitalized, was $7,999,000, $8,614,000 and $6,249,000 for the year ended June 30, 1996, 1995 and 1994, respectively. Cash paid for income taxes was $20,048,000, $10,322,000 and $6,998,000 for the year ended June 30, 1996, 1995 and 1994, respectively. Non-cash investing activities not included in the statements of cash flows include capital lease obligations incurred during the year ended June 30, 1996 and 1995, totaling $5,944,000 and $570,000, respectively. Non-cash financing activities not included in the statements of cash flows include the conversions of stock in fiscal 1996 and 1994 (Note 9) and the tax benefits related to stock option plans in fiscal 1996 (Note 8). 33 34 NOTE 14--QUARTERLY HIGHLIGHTS (UNAUDITED) Selected highlights for each of the fiscal quarters during the year ended June 30, 1996 and 1995 are as follows (in thousands, except per share data):
1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- Year ended June 30, 1996: Net revenues $45,561 $70,786 $58,389 $66,094 Gross profit 22,093 34,142 28,304 33,906 Net income 4,557 8,059 5,881 5,941 Earnings per share .31 .52 .38 .38 Year ended June 30, 1995: Net revenues $34,992 $57,553 $52,737 $54,187 Gross profit 16,565 28,400 27,808 29,442 Net income 1,450 5,693 5,692 4,985 Earnings per share .11 .44 .44 .38
34 35 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this item is incorporated by reference from pages 2-4 of the registrant's definitive proxy statement dated September 20, 1996, as filed with the Commission. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference from pages 7-11 of the registrant's definitive proxy statement dated September 20, 1996, as filed with the Commission. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item is incorporated by reference from pages 5-6 of the registrant's definitive proxy statement dated September 20, 1996, as filed with the Commission. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this item is incorporated by reference from page 13 of the registrant's definitive proxy statement dated September 20, 1996, as filed with the Commission. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) The following documents are filed as part of this report:
1) Financial Statements: PAGE ---- Report of Independent Accountants 17 Consolidated Balance Sheets as of June 30, 1996 and 1995 18 Consolidated Statements of Income for the years ended June 30, 1996, 1995 and 1994 19 Consolidated Statements of Changes in Shareholders' Equity for the years ended June 30, 1996, 1995 and 1994 20 Consolidated Statements of Cash Flows for the years ended June 30, 1996, 1995 and 1994 21 Notes to Consolidated Financial Statements 22 2) Financial Statement Schedules: Schedule II Valuation and Qualifying Accounts 38 3) Exhibits: (1) Exhibit 3.1 Restated Articles of Incorporation
35 36 (2) Exhibit 3.2 Certificate of Amendment of Articles of Incorporation filed on June 4, 1993. (2) Exhibit 3.3 Restated Bylaws. (1) Exhibit 10.1 Form of Registrant's Indemnification Agreement for Directors and Officers (1) Exhibit 10.2 Stock Buy-Sell Agreement between Registrant and the holders of Class B Common Stock, dated as of March 1, 1982 (1) Exhibit 10.3 First Amendment to Stock Buy-Sell Agreement between Registrant and the holders of Class B Common Stock, dated as of March 8, 1993 (1) Exhibit 10.4 Registration Rights Agreement between Registrant and the holders of Class B Common Stock, dated as of February 26, 1993 (1) Exhibit 10.5 1993 Non-Employee Directors' Stock Option Plan, and form of agreement thereunder (1) Exhibit 10.7 1993 Employee Stock Purchase Plan, and form of plan offering document thereunder (1) Exhibit 10.8 Second Amended and Restated Executive Incentive Compensation Plan, dated July 1, 1988, as amended effective June 30, 1992 and April 20, 1993 (1) Exhibit 10.9 Retirement Restoration Plan, effective as of April 1, 1992 (1) Exhibit 10.11 Form of Supplemental Long Term Disability Income Plan for certain Executive Officers of Registrant (1) Exhibit 10.12 Personal Services Agreement, dated as of February 26, 1993, between Registrant and Robert Mondavi (1) Exhibit 10.14 Grape Purchase Agreement, dated August 7, 1992, between Registrant and Frank E. Farella (1) Exhibit 10.20 $9,400,000 Promissory Note, Deed of Trust, Security Agreement and Fixture Filing, with Assignment of Rents as amended and Agreement Concerning Special Requirements, dated December 15,1989, between Registrant and John Hancock Mutual Life Insurance Company 36 37 (1) Exhibit 10.21 $4,900,000 Promissory Note, Deed of Trust, Security Agreement and Fixture Filing, with Assignment of Rents as amended and Agreement Concerning Special Requirements between Registrant and John Hancock Mutual Life Insurance Company (1) Exhibit 10.24 $5,600,000 Promissory Note, Deed of Trust, Security Agreement and Fixture Filing, with Assignment of Rents as amended and Agreement Concerning Special Requirements, dated December 29, 1989, between Registrant and John Hancock Mutual Life Insurance Company (1) Exhibit 10.27 Agreement of Guaranty, dated May 22, 1992, with Registrant as the guarantor and John Hancock Mutual Life Insurance Company as the lender guaranteeing $2,500,000 of the debt of Opus One to the lender (1) Exhibit 10.28 Third Restatement of Joint Venture Agreement of Opus One dated January 1, 1991, between Robert Mondavi Investments and B.Ph.R. (California), Inc. (3) Exhibit 10.32 Business Loan Agreement dated December 29, 1994 among Bank of America, The Registrant and RME, Inc. (3) Exhibit 10.33 Revolving Credit Agreement dated December 29, 1994 among The Registrant, RME, Inc. and Cooperatieve Centrale Raiffeisen - Boerenleenbank B.A. (3) Exhibit 10.34 Note Agreement dated December 1, 1994. Exhibit 10.36 Amended and Restated 1993 Equity Incentive Plan. Exhibit 10.37 Note Agreement dated July 8, 1996. Exhibit 11 Statement re Computation of Per Share Earnings (1) Exhibit 21 Subsidiaries of the Registrant Exhibit 23 Consent of Price Waterhouse LLP (1) Incorporated by reference to Registration Statement on Form S-1 filed on April 23, 1993. (2) Incorporated by reference to Amendment No. 3 to Registration Statement on Form S-1 filed on June 7, 1993. (3) Incorporated by reference to Quarterly Report on Form 10-Q for the quarterly period ended December 31, 1994. (b) No reports on Form 8-K were filed during the quarter ended June 30, 1996. 37 38 ROBERT MONDAVI CORPORATION SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED JUNE 30, 1996 (IN THOUSANDS)
ADDITIONS --------- BALANCE AT CHARGED TO CHARGED BALANCE BEGINNING COSTS AND TO OTHER AT END OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR ------- -------- -------- ---------- ------- YEAR ENDED JUNE 30, 1994: Allowance for uncollectible accounts $195 $ 76 $-- $ 71(1) $ 200 Inventory reserves for write down to net realizable value 554 751 -- 373 932 YEAR ENDED JUNE 30, 1995: Allowance for uncollectible accounts 200 127 -- 27(1) 300 Inventory reserve for write down to net realizable value 932 348 -- 535 745 YEAR ENDED JUNE 30, 1996: Allowance for uncollectible accounts 300 219 -- 19(1) 500 Inventory reserve for write down to net realizable value 745 755 -- 402 1,098
Notes: (1) Balances written off as uncollectible. 38 39 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. THE ROBERT MONDAVI CORPORATION By /s/ GREGORY M. EVANS --------------------------- Gregory M. Evans, Senior Vice President and Chief Financial Officer 39 40 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. SIGNATURES
SIGNATURE TITLE DATE - - --------- ----- ---- /s/ ROBERT G. MONDAVI - - ------------------------ Robert G. Mondavi Chairman of the Board September 26, 1996 /s/ R. MICHAEL MONDAVI - - ------------------------ R. Michael Mondavi President and Director (Principal Executive Officer) September 26, 1996 /s/ TIMOTHY J. MONDAVI - - ------------------------ Timothy J. Mondavi Managing Director, Winegrower and Director September 26, 1996 /s/ GREGORY M. EVANS - - ------------------------ Gregory M. Evans Chief Financial Officer (Principal Financial and Accounting Officer) September 26, 1996 /s/ CLIFFORD S. ADAMS - - ------------------------ Clifford S. Adams Director September 26, 1996 /s/ JAMES L. BARKSDALE - - ------------------------ James L. Barksdale Director September 26, 1996 /s/ MARCIA MONDAVI BORGER - - ------------------------ Marcia Mondavi Borger Director September 26, 1996 /s/ FRANK E. FARELLA - - ------------------------ Frank E. Farella Director September 26, 1996 /s/ PHILIP GREER - - ------------------------ Philip Greer Director September 26, 1996 /s/ BARTLETT R. RHOADES - - ------------------------ Bartlett R. Rhoades Director September 26, 1996
40
EX-10.36 2 EXHIBIT 10.36 1 EXHIBIT 10.36 THE ROBERT MONDAVI CORPORATION 1993 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN Adopted on February 26, 1993 Approved by Shareholders on February 26, 1993 Amended and Restated on December 14, 1994 1. PURPOSE (a) The purpose of the 1993 Non-Employee Directors' Stock Option Plan (the "Plan") is to provide a means by which each director of The Robert Mondavi Corporation (the "Company") who is not otherwise an employee of the Company or of any Affiliate of the Company (each such person being hereafter referred to as a "Non-Employee Director") will be given an opportunity to purchase stock of the Company. (b) The word "Affiliate" as used in the Plan means any parent corporation or subsidiary corporation of the Company as those terms are defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended from time to time (the "Code"). (c) The Company, by means of the Plan, seeks to retain the services of persons now serving as Non-Employee Directors of the Company, to secure and retain the services of persons capable of serving in such capacity, and to provide incentives for such persons to exert maximum efforts for the success of the Company. 2. ADMINISTRATION (a) The Plan shall be administered by the Board of Directors of the Company (the "Board") unless and until the Board delegates administration to a committee, as provided in subparagraph 2(b). (b) The Board may delegate administration of the Plan to a committee composed of not fewer than two (2) members of the Board (the "Committee"). If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. 3. SHARES SUBJECT TO THE PLAN (a) Subject to the provisions of paragraph 10 relating to adjustments upon changes in stock, the stock that may be sold pursuant to options granted under the Plan shall not exceed in the aggregate one hundred thousand (100,000) shares of the Company's Class A Common Stock. If any option granted 2 under the Plan shall for any reason expire or otherwise terminate without having been exercised in full, the stock not purchased under such option shall again become available for the Plan. (b) The stock subject to the Plan may be unissued shares or required shares, bought on the market or otherwise. 4. ELIGIBILITY Options shall be granted only to Non-Employee Directors of the Company. 5. NON-DISCRETIONARY GRANTS (a) Upon the date of the approval of the Plan by the Board (the "Adoption Date"), each person who is then a Non-Employee Director shall be granted an option to purchase twelve thousand (12,000) shares of Class A Common Stock of the Company on the terms and conditions set forth herein. (b) After the Adoption Date and prior to the date of the Company's first underwritten registration of an offering of securities of the Company under the Securities Act of 1933, as amended (the "IPO"), each person who is elected for the first time to be a Non-Employee Director shall, upon the date of his or her initial election to be a Non-Employee Director by the Board or shareholders of the Company, be granted an option to purchase twelve thousand (12,000) shares of Class A Common Stock of the Company on the terms and conditions set forth herein. (c) After the date of the Company's IPO, each person who is elected for the first time to be a Non-Employee Director shall, upon the date of his or her initial election to be a Non-Employee Director by the Board or the shareholders of the Company, be granted an option to purchase that whole number of shares of the Company's Class A Common Stock closest to the number determined by dividing one hundred fifty thousand (150,000) by the closing price per share of the Company's Class A Common Stock as reported on the NASDAQ National Market System on the date each such Non-Employee Director is elected, on the terms and conditions set forth herein. (d) Each person serving as a Non-Employee Director on December 14, 1994 shall be granted: (i) an option to purchase three thousand (3,000) shares of Class A Common Stock of the Company on the terms and conditions set forth herein on the date of approval of the Plan, as amended and restated, by the Board; and (ii) subsequent options on the terms and conditions set forth herein to purchase an additional two thousand five hundred (2,500) shares on the date of the 1995 Annual Meeting of Shareholders of the Company, two thousand (2,000) snares on the date of the 1996 Annual Meeting of Shareholders of the Company, and two thousand (2,000) shares on the date of each subsequent Annual Meeting of Shareholders of the Company; provided, however, that such person has provided continuous service as a Non-Employee Director to the Company since December 14, 1994 and until the applicable subsequent grant date. (e) Each person who is elected for the first time to be a Non-Employee Director on or after December 15, 1994 shall be granted, on the terms and conditions set forth herein: (i) on the date of the first Annual Meeting of Shareholders of the Company following such election, an option to purchase 5.48 shares of the Company's Class A Common Stock for each day of continuous service as a Non-Employee Director provided since such Non-Employee Director's initial election until (but not including) the date of such Annual Meeting (rounded to the next highest whole share); and (ii) on the date of each subsequent Annual Meeting of Shareholders of the Company thereafter, an option to purchase an additional two thousand (2,000) shares; provided, however, that such person has provided continuous service as a 3 Non-Employee Director to the Company since his or her date of election and until the applicable subsequent grant date. (f) The exercise price per share of each option granted under this Plan shall be equal to the fair market value on the date of grant of a share of Class A Common Stock, as determined by the Board or the Committee. 6. OPTION PROVISIONS Each option shall contain the following terms and conditions: (a) The term of each option commences on the date it is granted and, unless sooner terminated as set forth herein, expires ten (10) years from the date of grant (the "Expiration Date"). If the optionee's service as a Non-Employee Director of the Company terminates for any reason or for no reason, the option shall terminate on the earlier of the Expiration Date or the date one hundred eighty (180) days after the date of termination of such services; provided, however, that if such termination is due to the optionee's death or permanent disability, the option shall terminate on the earlier of (i) the Expiration Date or (ii) the date that occurs one hundred eighty (180) days after the optionee's "period of service" as a director would have ended under the Company's written policy (in effect as of the date the option is granted) regarding tenure of the members of the Company's Board of Directors had such director been able to complete the full period of service as a member of the Company's Board of Directors permitted under such policy. In any and all circumstances, an option may be exercised following termination of the optionee's service as a Non-Employee Director of the Company only as to that number of shares as to which it was exercisable on the date of termination of such services under the provisions of subparagraph 6(d). (b) Payment of the exercise price of each option is due in full in cash upon any exercise when the number of shares being purchased upon such exercise is less than one hundred (100) shares; but when the number of shares being purchased upon an exercise is one hundred (100) or more shares, the optionee may elect to make payment of the exercise price under one of the following alternatives: (i) Payment of the exercise price per share in cash at the time of exercise; or (ii) Provided that at the time of the exercise the Company's Class A Common Stock is publicly traded and quoted regularly in the Wall Street Journal, payment by delivery of shares of Class A Common Stock of the Company already owned by the optionee, held for the period required to avoid a charge to the Company's reported earnings, and owned free and clear of any liens, claims, encumbrances or security interest, which Class A Common Stock shall be valued at fair market value (as determined in good faith by the Board) on the date preceding the date of exercise; or (iii) Payment by a combination of the methods of payment specified in subparagraph 6(b)(i) and 6(b)(ii) above. (c) An option shall not be transferable except by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order satisfying the requirements of Rule 16b-3 promulgated under the Securities Exchange Act of 1934 and the rules thereunder (a "QDRO"), and shall be exercisable during the lifetime of the person to whom the option is granted only by such person (or his guardian or legal representative) or any transferee pursuant to a QDRO. The person to whom the option is granted may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionee, shall thereafter be entitled to exercise the option. 4 (d) The shares covered by an option shall become exercisable ("vest") as follows: (i) With respect to any option granted under the provisions of subparagraphs 5(a), (b) or (c), in equal monthly installments of 1.667% of such shares over a period of five (5) years after the date the option is granted; and (ii) With respect to any option granted under the provisions of subparagraphs 5(d) or (e), in equal monthly installments over a period of twelve (12) months after the date the option is granted; provided, however, that the optionee has during the entire period prior to such vesting date, continuously served as a Non-Employee Director or as an employee of or consultant to the Company or any Affiliate of the Company. (e) The Company may require any optionee, or any person to whom an option is transferred under subparagraph 6(c), as a condition of exercising any such option: (i) to give written assurances satisfactory to the Company as to the optionee's knowledge and experience in financial and business matters; and (ii) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the option for such person's own account and not with any present intention of selling or otherwise distributing the stock. These requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise of the option has been registered under a then-currently-effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), or (ii), as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then-applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to legends restricting the transfer of the stock. (f) Notwithstanding anything to the contrary contained herein, an option may not be exercised unless the shares issuable upon exercise of such option are then registered under the Securities Act or, if such shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. (g) The Company (or a representative of the underwriters) may, in connection with the filing of a registration statement of the Company filed under the Securities Act, require that any optionee not sell or otherwise transfer or dispose of any shares of common stock or other securities of the Company during such period (not to exceed one hundred eighty (180) days) following the effective date (the "Effective Date") of the registration statement of the Company filed under the Securities Act as may be requested by the Company or the representative of the underwriters. 7. COVENANTS OF THE COMPANY (a) During the terms of the options granted under the Plan, the Company shall keep available at all times the number of shares of stock required to satisfy such options. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the options granted under the Plan; provided, however, that this undertaking shall not require the Company to register under the Securities Act either the Plan, any option granted under the Plan, or any stock issued or issuable pursuant to any such option. If, after reasonable efforts, the company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company 5 deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such options. 8. USE OF PROCEEDS FROM STOCK Proceeds from the sale of stock pursuant to options granted under the Plan shall constitute general funds of the Company. 9. MISCELLANEOUS (a) Neither an optionee nor any person to whom an option is transferred under subparagraph 6(c) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such option unless and until such person has satisfied all requirements for exercise of the option pursuant to its terms. (b) Nothing in the Plan or in any instrument executed pursuant thereto shall confer upon any Non-Employee Director any right to continue in the service of the Company or any Affiliate or shall affect any right of the Company, its Board or stockholders or any Affiliate to terminate the service of any Non-Employee Director with or without cause. (c) No Non-Employee Director, individually or as a member of a group, and no beneficiary or other person claiming under or through him, shall have any right, title or interest in or to any option reserved for the purposes of the Plan except as to such shares of Class A Common Stock, if any, as shall have been reserved for him pursuant to an option granted to him. (d) In connection with each option made pursuant to the Plan, it shall be a condition precedent to the Company's obligation to issue or transfer shares to a Non-Employee Director, or to evidence the removal of any restrictions on transfer, that such Non-Employee Director make arrangements satisfactory to the Company to insure that the amount of any federal or other withholding tax required to be withheld with respect to such sale or transfer, or such removal or lapse, is made available to the Company for timely payment of such tax. 10. ADJUSTMENTS UPON CHANGES IN STOCK (a) If any change is made in the stock subject to the Plan, or subject to any option granted under the Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the Plan and outstanding options will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan and the class(es) and number of shares and price per share of stock subject to outstanding options. (b) In the event of: (1) a dissolution or liquidation or the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's Class A Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (4) any other capital reorganization in which more than fifty percent (50%) of the shares of the Company entitled to vote are exchanged, then the time during which such option may be exercised shall be accelerated and the options terminated if not exercised prior to such event. 6 11. AMENDMENT OF THE PLAN (a) The Board at any time, and form time to time, may amend the plan, provided, however, that the Board shall not amend the plan more than once every six months with respect to the provisions of the plan which relate to the amount, price and timing of grants, other than to comport with changes in the Code, the Employee Retirement Income Security Act, or the rules thereunder. Except as provided in paragraph 10 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will: (i) Increase the number of shares which may be issued under the Plan; (ii) Modify the requirements as to eligibility for participation in the Plan (to the extent such modification requires stockholder approval in order for the Plan to comply with the requirements of Rule 16b-3); or (iii) Modify the Plan in any other way if such modification requires stockholder approval in order for the Plan to comply with the requirements of Rule 16b-3. (b) Rights and obligations under any option granted before any amendment of the Plan shall not be impaired by such amendment unless (i) the Company requests the consent of the person to whom the option was granted and (ii) such person consents in writing. 12. TERMINATION OR SUSPENSION OF THE PLAN (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on February 25, 2003. No options may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any option granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan, except with the consent of the person to whom the option was granted. (c) The Plan shall terminate upon the occurrence of any of the events described in Section 10(b) above. 13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE (a) The Plan, as amended and restated, shall become effective upon adoption by the Board of Directors, subject to the condition subsequent that the Plan is approved by the stockholders of the Company. (b) Notwithstanding any other provision in the Plan to the contrary, no option granted under the Plan on or after December 14, 1994 shall be exercised or exercisable unless and until the condition of subparagraph 13(a) above has been met. EX-10.37 3 EXHIBIT 10.37 1 EXHIBIT 10.37 THE ROBERT MONDAVI CORPORATION AND R.M.E., INC. COMPOSITE CONFORMED COPY OF THE NOTE AGREEMENT Re: $50,000,000 7.39% Senior Notes Due July 8, 2006 PPN 77035* AB 3 Closing Date: July 8, 1996 ================================================================================ Separate and several Note Agreements, each dated as of June 26, 1996, in the form attached hereto, were entered into by The Robert Mondavi Corporation, a California corporation, R.M.E., Inc., a California corporation, and each of the institutions named below. Each of said Note Agreements was executed on behalf of The Robert Mondavi Corporation and R.M.E., Inc. by Greg Evans, Chief Financial Officer. The separate Note Agreements were addressed to each of the institutions as shown on Schedule I attached thereto and were accepted by the officers of the respective institutions as shown below. METROPOLITAN LIFE INSURANCE COMPANY By: /s/ William F. Covington Assistant Vice-President GOLDMAN, SACHS & CO. By: /s/ Keith Alexis Malas Authorized Signatory 2 THE ROBERT MONDAVI CORPORATION R.M.E., INC. NOTE AGREEMENT Dated as of June 26, 1996 Re: $50,000,000 7.39% Senior Notes Due July 8, 2006 3 The Robert Mondavi Corporation R.M.E., INC. 7801 St. Helena Highway Oakville, California 94562 Note Agreement Re: $50,000,000 7.39% Senior Notes Due July 8, 2006 Dated as of June 26, 1996 To the Purchaser named in Schedule I hereto which is a signatory of this Agreement Ladies and Gentlemen: The undersigned, The Robert Mondavi Corporation, a California corporation ("RMC"), and R.M.E., Inc., a California corporation ("RME", RMC and RME each being hereinafter sometimes individually referred to as an "Obligor" and collectively as the "Obligors"), jointly and severally agree with you as follows: Section 1. Description of Notes and Commitment. Section 1.1. Description of Notes. The Obligors will authorize the issue and sale of $50,000,000 aggregate principal amount of their 7.39% Senior Notes (the "Notes") to be dated the date of issue, to bear interest from such date at the rate of 7.39% per annum, payable semiannually on the eighth day of January and July in each year (commencing January 8, 1997) and at maturity and to bear interest on overdue principal (including any overdue required or optional prepayment of principal) and premium, if any, and (to the extent legally enforceable) on any overdue installment of interest at the Overdue Rate after the date due, whether by acceleration or otherwise, until paid, to be expressed to mature on July 8, 2006, and to be substantially in the form attached hereto as Exhibit A. Interest on the Notes shall be computed on the basis of a 360-day year of twelve 30-day months. The Notes are not subject to prepayment or redemption at the option of the Obligors prior to their expressed maturity dates except on the terms and conditions and in the amounts and with the premium, if any, set forth in SECTION 2 of this Agreement. The term "Notes" as used herein shall include each Note delivered pursuant to this Agreement and the separate agreements with the other purchasers named in Schedule I. You and the other purchasers named in Schedule I are hereinafter sometimes referred to as the "Purchasers". The terms which are capitalized herein shall have the meanings set forth in SECTION 8.1 unless the context shall otherwise require. 4 Section 1.2. Commitment, Execution Date, Closing Date. Subject to the terms and conditions hereof and on the basis of the representations and warranties hereinafter set forth, the Obligors and you agree to execute and deliver this Agreement on the Execution Date hereafter mentioned. The Obligors further agree to issue and sell to you, and you further agree to purchase from the Obligors, Notes in the principal amount set forth opposite your name on Schedule I hereto at a price of 100% of the principal amount thereof on the Closing Date hereafter mentioned. Execution and delivery of the Agreements will be made at the offices of Chapman and Cutler, 111 West Monroe Street, Chicago, Illinois 60603 on June 26, 1996 or such later date (not later than June 30, 1996) as shall be mutually agreed upon by the Obligors and the Purchasers (the "Execution Date"). Delivery of the Notes will be made at the offices of Chapman and Cutler, 111 West Monroe Street, Chicago, Illinois 60603, against payment therefor in Federal Reserve or other funds current and immediately available at the principal office of Bank of America, 345 Montgomery Street, San Francisco, California (A.B.A. No. 121000358), for credit to RMC's Account No. 14999-01601, Attention: Julie Poole (415/622-5791) in the amount of the purchase price at 10:00 A.M., Chicago, Illinois time, on July 8, 1996 or such later date (not later than July 10, 1996) as shall mutually be agreed upon by the Obligors and the Purchasers (the "Closing Date"). The Notes delivered to you on the Closing Date will be delivered to you in the form of a single registered Note in the form attached hereto as Exhibit A for the full amount of your purchase (unless different denominations are specified by you), registered in your name or in the name of such nominee, as may be specified in Schedule I attached hereto. Section 1.3. Other Agreements. Simultaneously with the execution and delivery of this Agreement, the Obligors are entering into similar agreements with the other Purchasers under which such other Purchasers agree to purchase from the Obligors the principal amount of Notes set opposite such Purchasers' names in Schedule I, and your obligation and the obligations of the Obligors hereunder are subject to the execution and delivery of the similar agreements by the other Purchasers. This Agreement and said similar agreements with the other Purchasers are herein collectively referred to as the "Agreements". The obligations of each Purchaser shall be several and not joint and no Purchaser shall be liable or responsible for the acts of any other Purchaser. Section 2. Prepayment of Notes. Section 2.1. Required Prepayments. In addition to paying the entire outstanding principal amount and the interest due on the Notes on the maturity date thereof, the Obligors agree that on the eighth day of January and July in each year, commencing July 8, 1998 and ending January 8, 2006, both inclusive, they will prepay and apply and there shall become due and payable on the principal Indebtedness evidenced by the Notes an amount equal to the lesser of (a) $2,205,500 or (b) the principal amount of the Notes then outstanding. The entire remaining principal amount of the Notes shall become due and payable on July 8, 2006. No premium shall be payable in connection with any required prepayment made pursuant to this SECTION 2.1. In the event that the Obligors shall prepay less than all of the Notes pursuant to SECTION 2.2 hereof, the amounts of the prepayments required by this SECTION 2.1 shall be reduced by an amount which is the same percentage of 5 such required prepayment as the percentage that the principal amount of Notes prepaid pursuant to SECTION 2.2 is of the aggregate principal amount of outstanding Notes immediately prior to such prepayment. Section 2.2. Optional Prepayment with Premium. In addition to the payments required by SECTION 2.1, upon compliance with SECTION 2.4, the Obligors shall have the privilege, at any time and from time to time of prepaying the outstanding Notes, either in whole or in part (but if in part then in a minimum principal amount of $1,000,000), by payment of the principal amount of the Notes, or portion thereof to be prepaid, and accrued interest thereon to the date of such prepayment, together with a premium equal to the Make-Whole Amount, determined as of two Business Days prior to the date of such prepayment pursuant to this SECTION 2.2. Section 2.3. Prepayment of Notes upon an Asset Disposition. In the event that either Obligor shall sell, lease, transfer, abandon or otherwise dispose of assets (an "Asset Disposition") and, in conjunction therewith, the Obligors shall, at their option, desire to prepay on a pro rata basis Senior Indebtedness, including the Notes, as contemplated in SECTION 5.12(b)(6)(z)(B) or (c)(3)(z)(B), the Obligors will give written notice of such fact (the "Asset Disposition Prepayment Offer") in the manner provided in SECTION 9.6 hereof to all holders of the Notes. The Asset Disposition Prepayment Offer shall (1) describe the facts and circumstances of such Asset Disposition in reasonable detail, (2) make reference to this SECTION 2.3 and the right of the holders of the Notes to be prepaid on the terms and conditions provided for in this SECTION 2.3, (3) offer in writing to prepay the outstanding Notes to the extent proceeds from the Asset Disposition are to be applied to the Notes, together with accrued interest to the date of prepayment, but without premium, and (4) specify a date for such prepayment (the "Asset Disposition Prepayment Date"), which Asset Disposition Prepayment Date shall be not more than 60 days nor less than 30 days following the date of such Asset Disposition Prepayment Offer. Each holder of the then outstanding Notes shall have the right to accept such offer and require prepayment of the Notes held by such holder by written notice to the Obligors (a "Noteholder Notice") given not later than 20 days after receipt of the Asset Disposition Prepayment Offer. The Obligors shall on the Asset Disposition Prepayment Date prepay the Notes designated in the Asset Disposition Prepayment Offers and held by holders which have so accepted such offer of prepayment. The prepayment price of the Notes payable upon the occurrence of any Asset Disposition shall be an amount equal to 100% of the outstanding principal amount of the Notes so to be prepaid and accrued interest thereon to the date of such prepayment, but without premium. Section 2.4. Notice of Optional Prepayments. The Obligors will give notice of any prepayment of the Notes pursuant to SECTION 2.2 to each holder thereof not less than 30 days nor more than 60 days before the date fixed for such optional prepayment specifying (a) such date, (b) the principal amount of the holder's Notes to be prepaid on such date, (c) that a premium may be payable, (d) the date when such premium will be calculated, (e) the estimated premium, together with a reasonably detailed computation of such estimated premium, and (f) the accrued interest applicable to the prepayment. Such notice of prepayment shall also certify all facts, if any, which are conditions precedent to any such prepayment. Notice of prepayment having been so given, the aggregate principal amount of the Notes specified in such notice, together with accrued interest thereon and the premium, if any, payable with respect thereto shall become due and payable on the prepayment date specified in said notice. Two Business Days prior to the prepayment date specified in such notice, the Obligors shall provide each 6 holder of a Note written notice of the premium, if any, payable in connection with such prepayment and, whether or not any premium is payable, a reasonably detailed computation of the Make-Whole Amount. Section 2.5. Application of Prepayments. All partial prepayments made pursuant to SECTION 2.1 or SECTION 2.2 shall be applied on all outstanding Notes ratably in accordance with the unpaid principal amounts thereof. All partial prepayments made pursuant to SECTION 2.3 shall be applied only to the Notes of the holders who have elected to participate in such prepayment. Section 2.6. Direct Payment. Notwithstanding anything to the contrary contained in this Agreement or the Notes, in the case of any Note owned by you or your nominee or owned by any subsequent Institutional Holder which has given written notice to the Obligors requesting that the provisions of this SECTION 2.6 shall apply, the Obligors will punctually pay when due the principal thereof, interest thereon and premium, if any, due with respect to said principal, without any presentment thereof, directly to you, to your nominee or to such subsequent Institutional Holder at your address or your nominee's address set forth in Schedule I hereto or such other address as you, your nominee or such subsequent Institutional Holder may from time to time designate in writing to the Obligors or, if a bank account with a United States bank is designated for you or your nominee on Schedule I hereto or in any written notice to the Obligors from you, from your nominee or from any such subsequent Institutional Holder, the Obligors will make such payments in immediately available funds to such bank account, no later than 11:00 a.m. New York, New York time on the date due, marked for attention as indicated, or in such other manner or to such other account in any United States bank as you, your nominee or any such subsequent Institutional Holder may from time to time direct in writing. If for any reason whatsoever the Obligors do not make any such payment by such 11:00 a.m. transmittal time, such payment shall be deemed to have been made on the next following Business Day and such payment shall bear interest at the Overdue Rate. Section 3. Representations. Section 3.1. Representations of the Obligors. The Obligors represent and warrant that all representations and warranties set forth in Exhibit B are true and correct as of the date hereof and are incorporated herein by reference with the same force and effect as though herein set forth in full. Section 3.2. Representations of the Purchaser. (a) You represent, and in entering into this Agreement the Obligors understand, that you are acquiring the Notes either (i) for the purpose of investment and not with a view to the distribution thereof, and that you have no present intention of selling, negotiating or otherwise disposing of the Notes, or any participations, rights or interests therein or (2) for your own account for resale to one or more accredited investors (as defined in Rule 501 under the Securities Act of 1933, as amended) pursuant to one or more transactions in which such accredited investors make the representation contained in this SECTION 3.2(a) to you; it being understood, however, that the disposition of your property shall at all times be and remain within your control. (b) You further represent that at least one of the following statements concerning each source of funds to be used by you to purchase the Notes shall be accurate as of the Closing Date: (1) the source of funds to be used by you to pay the purchase price of the Notes is an "insurance company general account" within the meaning of Department of Labor Prohibited Transaction Exemption ("PTE") 95-60 (issued July 12, 1995) and there is no employee benefit plan, treating as a single plan, all plans maintained by the same employer or 7 employee organization, with respect to which the amount of the general account reserves and liabilities for all contracts held by or on behalf of such plan, exceed ten percent (10%) of the total reserves and liabilities of such general account (exclusive of separate account liabilities) plus surplus, as set forth in the NAIC Annual Statement filed with your state of domicile; (2) all or a part of such funds constitute assets of one or more separate accounts, trusts or a commingled pension trust maintained by you, and you have disclosed to the Obligors the names of such employee benefit plans whose assets in such separate account or accounts or pension trusts exceed 10% of the total assets or are expected to exceed 10% of the total assets of such account or accounts or trusts as of the date of such purchase (for the purpose of this clause (2), all employee benefit plans maintained by the same employer or employee organization are deemed to be a single plan); (3) all or part of such funds constitute assets of a bank collective investment fund maintained by you, and you have disclosed to the Obligors the names of such employee benefit plans whose assets in such collective investment fund exceed 10% of the total assets or are expected to exceed 10% of the total assets of such fund as of the date of such purchase (for the purpose of this clause (3), all employee benefit plans maintained by the same employer or employee organization are deemed to be a single plan); (4) all or part of such funds constitute assets of one or more employee benefit plans, each of which has been identified to the Obligors in writing; (5) you are acquiring the Notes for the account of one or more pension funds, trust funds or agency accounts, each of which is a "governmental plan" as defined in Section 3(32) of ERISA; (6) the source of funds is an "investment fund" managed by a "qualified professional asset manager" or "QPAM" (as defined in Part V of PTE 84-14, issued March 13, 1984), provided that no other party to the transactions described in this Agreement and no "affiliate" of such other party (as defined in Section V(c) of PTE 84-14) has at this time, and during the immediately preceding one year has exercised the authority to appoint or terminate said QPAM as manager of the assets of any plan identified in writing pursuant to this clause (6) or to negotiate the terms of said QPAM's management agreement on behalf of any such identified plans; or (7) if you are other than an insurance company, all or a portion of such funds consists of funds which do not constitute "plan assets". The Obligors shall deliver a certificate on or before the Closing Date which certificate shall either state that (i) it is neither a "party in interest" (as defined in Title I, Section 3(14) of ERISA) nor a "disqualified person" (as defined in Section 4975(e)(2) of the Internal Revenue Code of 1986, as amended), with respect to any plan identified pursuant to paragraphs (2), (3) or (4) above, or (ii) with respect to any plan identified pursuant to paragraph (6) above, neither it nor any "affiliate" (as defined in Section V(c) of PTE 84-14) is described in the proviso to said paragraph (6). As used in this Section 3.2(b), the terms "separate account", "employer securities", and "employee benefit plan" shall have the respective meanings assigned to them in ERISA and the term "plan assets" shall have the meaning assigned to it in Department of Labor Regulation 29 C.F.R. Section 2510.3-101. Section 4. Closing Conditions. Section 4.1. Conditions. Your obligation to execute and deliver this Agreement on the Execution Date and to purchase the Notes on the Closing Date shall be subject to the performance by the Obligors of their agreements hereunder which by the terms hereof are to be performed at or prior to the time of the execution and delivery of the Agreements or the issuance and delivery of the Notes, as the case may be, and to the following further conditions precedent: 8 (a) Closing Certificate. You shall have received a certificate dated the Execution Date and a certificate dated the Closing Date, each signed by the President or a Vice President of each of the Obligors, the truth and accuracy of which shall be a condition to your obligation to execute and deliver the Agreement or to purchase the Notes proposed to be sold to you, as the case may be, and to the effect that (1) the representations and warranties of the Obligors set forth in Exhibit B hereto are true and correct on and with respect to the Execution Date or the Closing Date, as the case may be, provided that, with respect to the certificate to be delivered on the Closing Date, Schedule II may be adjusted with your prior approval, which approval shall not be unreasonably withheld, to reflect any changes that have occurred between the Execution Date and the Closing Date, (2) each of the Obligors has performed all of its obligations hereunder which are to be performed on or prior to the Execution Date or the Closing Date, as the case may be, and (3) no Default or Event of Default has occurred and is continuing on the date of such certificate. (b) Legal Opinions. You shall have received from Chapman and Cutler, who are acting as your special counsel in this transaction, and from Michael K. Beyer, counsel for the Obligors, their respective opinions dated the Closing Date, in form and substance satisfactory to you, and covering the matters set forth in Exhibits C and D, respectively, hereto. (c) Obligors' Existence and Authority. On or prior to the Execution Date and the Closing Date, you shall have received, in form and substance reasonably satisfactory to you and your special counsel, such documents and evidence with respect to the Obligors as you may reasonably request in order to establish the existence and good standing of the Obligors and the authorization of the transactions contemplated by this Agreement (including, without limitation, the written approval of RMC as the sole shareholder of RME of the execution, delivery and performance by RME of its obligations contemplated by this Agreement). (d) Related Transactions. On the Closing Date: (1) the Obligors shall have consummated the sale of the entire principal amount of the Notes scheduled to be sold on the Closing Date pursuant to this Agreement and the other agreements referred to in SECTION 1.3; and (2) you shall have received such written evidence as you or your special counsel may require demonstrating (i) that RMC has transferred the proceeds of the issuance of the Notes to RME as equity, and (ii) the payment by RME of $50,000,000 aggregate principal amount of Indebtedness of RMC and RME outstanding under their existing Lines of Credit. (e) Prior to the Closing Date, you shall have received such written evidence as you or your special counsel may require demonstrating that all obligations under and with respect to the Equitable Notes have been paid in full and that all actions have been taken by The Equitable Life Assurance Society of the United States to terminate or otherwise release the Liens securing such obligations. (f) Private Placement Number. On or prior to the Closing Date, special counsel to the Purchasers shall have duly made the appropriate filings with Standard & Poor's CUSIP Service Bureau, as agent for the National Association of Insurance Commissioners, in order to obtain a private placement number for the Notes. 9 (g) Funding Instructions. At least three Business Days prior to the Closing Date, you shall have received written instructions executed by a Responsible Officer of the Obligors directing the manner of the payment of funds and setting forth (1) the name and address of the transferee bank, (2) such transferee bank's ABA number, (3) the account name and number into which the purchase price for the Notes is to be deposited, and (4) the name and telephone number of the account representative responsible for verifying receipt of such funds. (h) Special Counsel Fees. Concurrently with the delivery of the Notes to you on the Closing Date, the reasonable charges and disbursements of Chapman and Cutler, your special counsel, shall have been paid by the Obligors. (i) Legality of Investment. On each of the Execution Date and the Closing Date, the Notes to be purchased by you shall be a legal investment for you under the laws of each jurisdiction to which you may be subject (without resort to any so-called "basket provisions" of such laws). (j) Satisfactory Proceedings. On each of the Execution Date and the Closing Date, all proceedings taken in connection with the transactions contemplated by this Agreement, and all documents necessary to the consummation thereof, shall be satisfactory in form and substance to you and your special counsel, and you shall have received a copy (executed or certified as may be appropriate) of all legal documents or proceedings taken in connection with the consummation of said transactions. Section 4.2. Waiver of Conditions. If on the Execution Date, the Obligors fail to execute and deliver the Agreement or on the Closing Date, the Obligors fail to tender to you the Notes to be issued to you on the Closing Date, or if on either the Execution Date or the Closing Date the conditions specified in SECTION 4.1 to be fulfilled on such date have not been fulfilled, you may thereupon elect to be relieved of all further obligations under this Agreement. Without limiting the foregoing, if the conditions specified in SECTION 4.1 have not been fulfilled, you may waive compliance by the Obligors with any such condition to such extent as you may in your sole discretion determine. Nothing in this SECTION 4.2 shall operate to relieve the Obligors of any of their obligations hereunder or to waive any of your rights against the Obligors. Section 5. Obligors' Covenants. From and after the Closing Date and continuing so long as any amount remains unpaid on any Note: Section 5.1. Corporate Existence, Etc. Each Obligor will preserve and keep in full force and effect, and will cause each Restricted Subsidiary to preserve and keep in full force and effect, its corporate existence and all licenses and permits necessary to the proper conduct of its business where the failure to do so could reasonably be expected to materially and adversely affect the properties, business, prospects, profits or condition (financial or otherwise) of the Obligors and their respective Restricted Subsidiaries, provided that the foregoing shall not prevent any transaction permitted by SECTION 5.12. Section 5.2. Insurance. Each Obligor will maintain, and will cause each of its Restricted Subsidiaries to maintain, insurance coverage by financially sound and reputable insurers and in such forms and amounts and against such risks as are (a) customary for corporations of established reputation engaged in the same or a similar business and owning and operating similar properties and (b) consistent with such Obligor's insurance practices existing on the Closing Date, all as more fully set forth in Schedule II hereto. 10 Section 5.3. Taxes, Claims for Labor and Materials; Compliance with Laws. (a) Each Obligor will promptly pay and discharge, and will cause each of its Restricted Subsidiaries promptly to pay and discharge, all lawful taxes, assessments and governmental charges or levies imposed upon such Obligor or such Restricted Subsidiary, respectively, or upon or in respect of all or any part of the property or business of such Obligor or such Restricted Subsidiary, all trade accounts payable in accordance with usual and customary business terms, and all claims for work, labor or materials, which if unpaid might become a Lien upon any property of such Obligor or such Restricted Subsidiary; provided such Obligor or such Restricted Subsidiary shall not be required to pay any such tax, assessment, charge, levy, account payable or claim if (1) the validity, applicability or amount thereof is being contested in good faith by appropriate actions or proceedings which will prevent the forfeiture or sale of any property of such Obligor or such Restricted Subsidiary or any material interference with the use thereof by such Obligor or such Restricted Subsidiary, and (2) such Obligor or such Restricted Subsidiary shall set aside on its books, reserves deemed by it to be adequate with respect thereto. (b) Each Obligor will promptly comply and will cause each of its Restricted Subsidiaries to promptly comply with all laws, ordinances or governmental rules and regulations to which it is subject, including, without limitation, ERISA and all Environmental Laws, the violation of which could materially and adversely affect the properties, business, prospects, profits or condition (financial or otherwise) of either Obligor and any of its Restricted Subsidiaries or would result in any Lien not permitted under SECTION 5.10. Section 5.4. Maintenance, Etc. Each Obligor will maintain, preserve and keep, and will cause each of its Restricted Subsidiaries to maintain, preserve and keep, its material properties which are used or useful in the conduct of its business (whether owned in fee or a leasehold interest) in good repair and working order and from time to time will make all necessary repairs, replacements, renewals and additions so that at all times the efficiency thereof shall be maintained. Section 5.5. Nature of Business. Neither Obligor nor any of their respective Restricted Subsidiaries will engage in any business if, as a result, the general nature of the business, taken on a consolidated basis, which would then be engaged in by the Obligors and their Restricted Subsidiaries would be substantially changed from the general nature of the business engaged in by the Obligors and their Restricted Subsidiaries as described in the Offering Materials. Section 5.6. Consolidated Funded Debt Maintenance Ratio. The Obligors will not at any time permit Consolidated Funded Debt to exceed 60% of Consolidated Total Capitalization. Section 5.7. Consolidated Adjusted Net Worth. The Obligors will at all times keep and maintain Consolidated Adjusted Net Worth at an amount not less than the sum of (a) $125,000,000 plus (b) 25% of Consolidated Net Income for each Specified Fiscal Period ending after March 31, 1996, provided that notwithstanding that Consolidated Net Income for any elapsed Specified Fiscal Period may be a deficit figure, no reduction as a result thereof shall be made in the sum to be maintained pursuant hereto. Section 5.8. Fixed Charges Coverage Ratio. The Obligors will at all times keep and maintain the ratio of Consolidated Net Income Available for Fixed Charges for the immediately 11 preceding four fiscal quarter period to Consolidated Fixed Charges (less Capitalized Interest) for such four fiscal quarter period at not less than 1.50 to 1.0. Section 5.9. Limitations on Indebtedness. (a) The Obligors will not create, assume, guarantee or otherwise incur or in any manner be or become liable in respect of any Funded Debt, and will not permit any of their Restricted Subsidiaries to create, assume, guarantee or otherwise incur or in any manner be or become liable in respect of any Indebtedness, except: (1) Funded Debt evidenced by the Notes; (2) Funded Debt of the Obligors and Indebtedness of Restricted Subsidiaries outstanding as of the Closing Date and described on Schedule II hereto; (3) Indebtedness of a Restricted Subsidiary to an Obligor in respect of which such Restricted Subsidiary is a Restricted Subsidiary or to a Wholly-owned Restricted Subsidiary; (4) Funded Debt of the Obligors and Indebtedness of Restricted Subsidiaries, in each such case secured by Liens permitted by SECTION 5.10(a)(7), (8) or (9), provided that at the time of creation, issuance, assumption, guarantee or other incurrence thereof and after giving effect thereto and to the application of the proceeds thereof, no Default or Event of Default would exist; (5) additional Funded Debt of RMC and Indebtedness of RME or any other Restricted Subsidiary, provided that at the time of creation, issuance, assumption, guarantee or other incurrence thereof and after giving effect thereto and to the application of the proceeds thereof: (i) no Default or Event of Default would exist; and (ii) in the case of the issuance of any Funded Debt of RMC secured by Liens permitted by SECTION 5.10(a)(10) or the issuance of Indebtedness of RME or any other Restricted Subsidiary (other than Indebtedness of RME or any other Restricted Subsidiary secured by Liens permitted by SECTIONS 5.10(a)(7), (8) or (9) and RME joint Indebtedness), the sum of (A) all Funded Debt of RMC secured by Liens permitted by SECTION 5.10(a)(10), plus (B) the aggregate amount of all Indebtedness of RME and all other Restricted Subsidiaries (other than RME Joint Indebtedness) incurred in accordance with the provisions of this clause (ii) shall not exceed 10% of Consolidated Total Assets. (b) Indebtedness issued or incurred in accordance with the limitations of SECTION 5.9(a) may be renewed, extended or refunded (without increase in principal amount remaining unpaid at the time of such renewal, extension or refunding), provided that at the time of such renewal, extension or refunding and after giving effect thereto, no Default or Event of Default would exist. Section 5.10. Limitation on Liens. (a) The Obligors will not, and will not permit any of their respective Restricted Subsidiaries to, create or incur, or suffer to be incurred or to exist, any Lien on its or their property or assets, whether now owned or hereafter acquired, or upon any income or profits therefrom, or transfer any property for the purpose of subjecting the same to the payment of obligations in priority to the payment of its or their general creditors, or acquire or agree to acquire, or permit any of their respective Restricted Subsidiaries to acquire, any property or assets upon conditional sales agreements or other title retention devices, except: (1) Liens for property taxes and assessments or governmental charges or levies and Liens securing claims or demands of mechanics and materialmen, provided that payment thereof is not at the time required by SECTION 5.3; 12 (2) Liens of or resulting from any litigation or legal proceeding which are currently being contested in good faith by appropriate proceedings and for which the Obligors or the relevant Restricted Subsidiary shall have set aside on its books, reserves deemed by it to be adequate with respect thereto, unless the judgment they secure shall not have been stayed, bonded or discharged within 60 days; (3) Liens incidental to the conduct of business or the ownership of properties and assets (including Liens in connection with worker's compensation, unemployment insurance and other like laws, warehousemen's and attorneys' liens and statutory landlords' liens) and Liens to secure the performance of bids, tenders or trade contracts, or to secure statutory obligations, surety or appeal bonds or other Liens of like general nature, in any such case incurred in the ordinary course of business and not in connection with the borrowing of money, which in any such case would not materially and adversely affect the properties, business, prospects, profits or condition (financial or otherwise) of the Obligors and their Restricted Subsidiaries, provided in each case, the obligation secured is not overdue or, if overdue, is being contested in good faith by appropriate actions or proceedings; (4) minor survey exceptions or minor encumbrances, easements or reservations, or rights of others for rights-of-way, utilities and other similar purposes, or zoning or other restrictions as to the use of real properties, which are necessary for the conduct of the activities of the Obligors and their Restricted Subsidiaries or which customarily exist on properties of corporations engaged in similar activities and similarly situated and which do not in any event materially impair their use in the operation of the business of the Obligors and their Restricted Subsidiaries; (5) Liens securing Indebtedness of a Restricted Subsidiary to an Obligor in respect of which such Restricted Subsidiary is a Restricted Subsidiary or to another Wholly-owned Restricted Subsidiary; (6) Liens existing as of the Closing Date and described on Schedule II hereto; (7) Liens created or incurred after the Closing Date given to secure the payment of the purchase price incurred in connection with the acquisition or purchase of real or personal property or the cost of construction or improvements to real or personal property, in any such case, useful and intended to be used in carrying on the business of an Obligor or any of its respective Restricted Subsidiaries, provided that (i) the Lien shall attach solely to the real or personal property acquired, purchased, constructed or improved, (ii) such Lien shall have been created or incurred within 270 days after the date of acquisition or purchase or the date of completion of construction or improvement of such real or personal property, as the case may be, and (iii) at the time of the imposition of the Lien, the aggregate amount remaining unpaid on all Indebtedness secured by Liens on such real or personal property, as the case may be (whether or not assumed by an Obligor or any of its respective Restricted Subsidiaries) shall not exceed an amount equal to the lesser of the total acquisition or purchase price or cost of construction or improvement, as the case may be, or fair market value of such real or personal property (as determined in good faith by the Board of Directors of such Obligor); (8) Liens affixed on real or personal property (including without limitation outstanding shares of capital stock and Indebtedness) of any entity at the time such entity becomes a Restricted Subsidiary given to secure the payment of the purchase price incurred in connection with the acquisition of such entity by an Obligor or any of its respective Restricted Subsidiaries; provided that (i) the Lien shall attach solely to such real or personal property, (ii) such Lien shall have been created or incurred 13 substantially concurrently with such acquisition or purchase, and (iii) at the time of acquisition or purchase of such Restricted Subsidiary, the aggregate amount of Indebtedness secured by Liens on such real or personal property (whether or not assumed by such Obligor or such Restricted Subsidiary) shall not exceed an amount equal to the lesser of the purchase price or fair market value of such real property or such personal property (as determined in good faith by the Board of Directors of such Obligor); (9) Liens affixed on real or personal property existing (i) at the time of acquisition thereof, whether or not the Indebtedness secured thereby is assumed by an Obligor or any of its respective such Restricted Subsidiaries, or (ii) on the property or outstanding shares of a corporation at the time such corporation is merged into or consolidated with such Obligor or such Restricted Subsidiary or at the time of a sale, lease or other disposition of the properties or outstanding shares or Indebtedness of a corporation or firm as an entirety to such Obligor or such Restricted Subsidiary; provided that the amount of Indebtedness secured by such Liens shall not exceed an amount equal to the lesser of the acquisition or purchase price or fair market value of such real or personal property (as determined in good faith by the Board of Directors of such Obligor); (10) Liens created or incurred after the Closing Date given to secure Indebtedness of an Obligor or Indebtedness of any of its respective Restricted Subsidiaries in addition to the Liens permitted by the preceding clauses (1) through (9) hereof, provided that all Indebtedness secured by such new Liens incurred after the Closing Date shall have been incurred within the limitations provided in SECTION 5.9(a)(5); and (11) any extension, renewal or refunding of any Lien permitted by the preceding clauses (5) through (10) of this SECTION 5.10 in respect of the same property theretofore subject to such Lien in connection with the extension, renewal or refunding of the Indebtedness secured thereby; provided that (1) such extension, renewal or refunding of Indebtedness shall be without increase in the principal amount remaining unpaid as of the date of such extension, renewal or refunding, (2) such Lien shall attach solely to the same such property, and (3) the principal amount remaining unpaid as of the date of such extension, renewal or refunding of Indebtedness is less than or equal to the fair market value of the property (determined in good faith by the Board or Directors of the Obligors) to which such Lien is attached. (b) In the event that any property, asset or income or profits therefrom is subjected to a Lien not expressly enumerated in this SECTION 5.10, the Obligors will make or cause to be made provision whereby the Notes will be secured equally and ratably with all other obligations secured thereby and concurrently therewith the Obligors shall furnish to the holders of the Notes an opinion to such effect in scope and form reasonably satisfactory to the holders of at least 66-2/3% of the aggregate principal amount of the Notes at the time outstanding of independent counsel satisfactory to such holders, and in any case if the Obligors fail to make such provision to secure the Notes equally and ratably with such other obligations, the Notes shall in any event have the benefit, to the full extent that, and with such priority as, the holders may be entitled thereto under applicable law, of an equitable Lien securing the Notes on such property, asset, income or profit. Section 5.11. Dividends, Stock Purchases, Restricted Investments. (a) RMC will not and RMC will not permit any of its Restricted Subsidiaries to, directly or indirectly, or through any Affiliate, 14 declare or make or incur any liability to declare or make any Distribution and neither RMC nor any of its Restricted Subsidiaries will declare, make or authorize any Restricted Investment, unless, immediately after giving effect to the proposed Distribution or Restricted Investment, the aggregate amount of Distributions declared in the case of dividends or made in the case of other Distributions plus the aggregate amount of Restricted Investments then held by RMC and its Restricted Subsidiaries (valued immediately after the making of such Restricted Investment as provided in the definition thereof) during the period from and after the date of this Agreement to and including the date of declaration in the case of a dividend, the date of payment in the case of any other Distribution and the date such Investment is committed to in the case of a Restricted Investment, would not exceed the sum of: (1) $25,000,000; plus (2) 75% of Consolidated Net Income (or if such Consolidated Net Income is a deficit figure, then minus 100% of such deficit) for such period determined on a cumulative basis commencing on March 31, 1996, to and including the date of such declaration, payment or commitment; plus (3) an amount equal to (i) the aggregate net cash proceeds received by RMC from the sale on or after the date of this Agreement of shares of its capital stock or other Securities or Indebtedness converted into capital stock of RMC minus (ii) all amounts paid by RMC and its Restricted Subsidiaries on or after the date of this Agreement to purchase, redeem or retire any shares of RMC's or any Restricted Subsidiary's capital stock of any class (including preferred stock) or any warrants, rights or options to purchase or acquire any shares of such capital stock; plus (4) any amount received by an Obligor which is not treated as Consolidated Net Income and which represents a return of capital from (i) any Restricted Investment or (ii) any Investment described in clause (c) of the definition of Restricted Investments, the effect of which is to decrease such Obligor's net current investment therein. (b) For the purposes of making computations under paragraph (a) of this SECTION 5.11, the amount of any Distribution declared, paid or distributed or Restricted Investment made in property or assets of RMC or a Restricted Subsidiary shall be deemed to be the greater of the book value or fair market value (as determined in good faith by the Board of Directors of RMC), of such property or assets as of the date of declaration in the case of a dividend, the date of payment in the case of any other Distribution and the date the Investment is committed to in the case of any Restricted Investment. Any corporation which becomes a Restricted Subsidiary after the date of this Agreement shall be deemed to have made, at the time it becomes a Restricted Subsidiary, all Restricted Investments of such corporation existing immediately after it becomes a Restricted Subsidiary. (c) RMC will not authorize a Distribution on its capital stock which is not payable within 90 days of authorization. (d) RMC will not authorize or make a Distribution on its capital stock and neither RMC nor any Restricted Subsidiary will make any Restricted Investment if after giving effect to the proposed Distribution or Restricted Investment, a Default or Event of Default would exist. Section 5.12. Mergers, Consolidations and Sales of Assets. (a) The Obligors will not, and will not permit any of their respective Restricted Subsidiaries to, consolidate with or be a party to a merger 15 with any other corporation, or sell, lease or otherwise dispose of all or substantially all of its assets; provided that: (1) any Restricted Subsidiary may merge or consolidate with or into any Obligor or any Wholly-owned Restricted Subsidiary so long as in any merger or consolidation involving an Obligor, such Obligor shall be the surviving or continuing corporation; (2) RMC may consolidate or merge with or into any other corporation if (i) the corporation which results from such consolidation or merger (the "surviving corporation") is organized under the laws of any state of the United States or the District of Columbia, (ii) the due and punctual payment of the principal of and premium, if any, and interest on all of the Notes, according to their tenor, and the due and punctual performance and observation of all of the covenants in the Notes and this Agreement to be performed or observed by RMC are expressly assumed in writing by the surviving corporation and the surviving corporation shall furnish to the holders of the Notes an opinion of counsel satisfactory to such holders to the effect that the instrument of assumption has been duly authorized, executed and delivered and constitutes the legal, valid and binding contract and agreement of the surviving corporation enforceable in accordance with its terms, except as enforcement of such terms may be limited by bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles, (iii) RME shall confirm in writing its obligations under and in respect of the Notes and this Agreement, and (iv) at the time of such consolidation or merger and immediately after giving effect thereto, no Default or Event of Default would exist; (3) RMC may sell or otherwise dispose of all or substantially all of its assets (other than stock and Indebtedness of a Restricted Subsidiary, which may only be sold or otherwise disposed of pursuant to Section 5.12(c)) to any Person for consideration which represents the fair market value of such assets (as determined in good faith by the Board of Directors of RMC, a copy of which determination, certified by the Secretary or an Assistant Secretary of RMC, shall have been furnished to the holders of the Notes) at the time of such sale or other disposition if (i) the acquiring Person is a corporation organized under the laws of any state of the United States or the District of Columbia, (ii) the due and punctual payment of the principal of and premium, if any, and interest on all the Notes, according to their tenor, and the due and punctual performance and observance of all of the covenants in the Notes and in this Agreement to be performed or observed by RMC are expressly assumed in writing by the acquiring corporation and the acquiring corporation shall furnish to the holders of the Notes an opinion of counsel satisfactory to such holders to the effect that the instrument of assumption has been duly authorized, executed and delivered and constitutes the legal, valid and binding contract and agreement of such acquiring corporation enforceable in accordance with its terms, except as enforcement of such terms may be limited by bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles, (iii) RME shall have confirmed in writing its obligations under and in respect of the Notes and this Agreement, and (iv) at the time of such sale or disposition and immediately after giving effect thereto, no Default or Event of Default would exist. 16 (b) The Obligors will not, and will not permit any of their respective Restricted Subsidiaries to, sell, lease, transfer, abandon or otherwise dispose of assets (except assets sold in the ordinary course of business for fair market value and except as provided in SECTION 5.12(a)(3)); provided that the foregoing restrictions do not apply to: (1) the sale, lease, transfer or other disposition of assets of a Restricted Subsidiary to an Obligor or a Wholly-owned Restricted Subsidiary; or (2) the transfer made as a capital contribution to a corporation, partnership, limited partnership or limited liability company of certain real property used, or to be used, to grow grapes which is owned by an Obligor or a Restricted Subsidiary, provided that the power to direct or cause the direction of the management, operations and policies of such transferee entity is held by an Obligor or a Wholly-owned Restricted Subsidiary; or (3) the sale, lease, transfer or other disposition of any fixed asset of an Obligor or a Restricted Subsidiary the book value of which at the time of such sale, lease, transfer or other disposition shall be less than $1,000,000; provided that in the opinion of the Board of Directors of such Obligor (i) the sale is for fair value and is in the best interests of such Obligor and (ii) such sale, lease, transfer or other disposition is not part of a plan by the Obligors to divest themselves of fixed assets (in which event such sale, lease, transfer or other disposition shall be made within the limitations of SECTION 5.12(a)(3), (b)(6) or (c)(3)); or (4) the sale or transfer of assets of an Obligor or a Restricted Subsidiary whenever it is determined in the good faith judgment of the Board of Directors of such Obligor that such assets are obsolete, worn-out or without economic value to such Obligor or any of its Restricted Subsidiaries; or (5) the exchange in an arm's-length transaction of assets, provided that (i) the assets acquired by an Obligor or its Restricted Subsidiaries in connection with such exchange shall have a fair market value (as determined in good faith by the Board of Directors of such Obligor) equal to or greater than the fair market value of the assets disposed of by such Obligor or any of its Restricted Subsidiaries in connection with such exchange, (ii) the assets acquired by such Obligor or any of its Restricted Subsidiaries in connection with such exchange shall be similar in nature to the assets sold or otherwise disposed of in connection with such exchange, and (iii) the assets so acquired are free and clear of any Lien (other than Liens permitted by SECTION 5.10) and arE useful and intended to be used in the business of such Obligor and its Restricted Subsidiaries as described in SECTION 5.5; or (6) the sale of such assets for cash or other property to a Person or Persons if all of the following conditions are met: (i) such assets (valued at net book value) do not, together with all other assets of the Obligors and their respective Restricted Subsidiaries previously disposed of during the same fiscal year (other than in the ordinary course of business), exceed 10% of Consolidated Total Assets determined as of the end of the immediately preceding fiscal quarter; (ii) in the opinion of the Board of Directors of RMC, the sale is for fair value and is in the best interests of the Obligors; and (iii) immediately after the consummation of the transaction and after giving effect thereto, no Default or Event of Default would exist; 17 provided, however, that for purposes of the foregoing calculation, there shall not be included any assets the proceeds of which were or are (x) immediately after the consummation of such sale deposited in an escrow account with a depository institution or trust company of the character described in clause (g) of the definition of "Restricted Investments" contained in SECTION 8.1 acting as escrow agent, (y) invested in Investments of the character described in clauses (e), (f) and (g) of said definition of "Restricted Investments," and (z) applied within twelve months of the date of sale of such assets to either (A) the acquisition of fixed assets useful and intended to be used in the operation of the business of an Obligor and its respective Restricted Subsidiaries as described in SECTION 5.5 and having a fair market value (as determined in good faith by the Board of Directors of such Obligor) at least equal to that of the assets so disposed of and/or (B) the prepayment at any applicable prepayment premium, on a pro rata basis, of Senior Indebtedness of the Obligors. It is understood and agreed by the Obligors that any optional prepayment of the Notes as hereinabove provided shall be made pursuant to an Asset Disposition Prepayment Offer as and to the extent provided in SECTION 2.3. Computations pursuant to this SECTION 5.12(b) shall include dispositions made pursuant to SECTION 5.12(c) and computations pursuant to SECTION 5.12(c) shall include dispositions made pursuant to this SECTION 5.12(b). (c) The Obligors will not, and will not permit any Restricted Subsidiary to, sell, pledge or otherwise dispose of any shares of the stock (including as "stock" for the purposes of this Section any options or warrants to purchase stock or other Securities exchangeable for or convertible into stock) of a Restricted Subsidiary (said stock, options, warrants and other Securities herein called "Subsidiary Stock") or any Indebtedness of any Restricted Subsidiary, nor will any Restricted Subsidiary issue, sell, pledge or otherwise dispose of any shares of its own Subsidiary Stock, provided that the foregoing restrictions do not apply to: (1) the issue of directors' qualifying shares; or (2) the issue of Subsidiary Stock to RMC; or (3) the sale or other disposition at any one time to a Person (other than directly or indirectly to an Affiliate) of the entire Investment of the Obligors and their respective Restricted Subsidiaries in any Restricted Subsidiary if all of the following conditions are met: (i) the assets (valued at net book value) of such Restricted Subsidiary do not, together with all other assets of the Obligors and their respective Restricted Subsidiaries previously disposed of during the same fiscal year (other than in the ordinary course of business), exceed 10% of Consolidated Total Assets determined as of the end of the immediately preceding fiscal quarter; (ii) in the opinion of the Board of Directors of RMC, the sale is for fair value and is in the best interests of the Obligors; (iii) immediately after the consummation of the transaction and after giving effect thereto, such Restricted Subsidiary shall have no Indebtedness of or continuing Investment in the capital stock of the Obligors or of any of their respective Restricted Subsidiaries and any such Indebtedness or Investment shall have been discharged or acquired, as the case may be, by an Obligor or any of its Restricted Subsidiaries; and (iv) immediately after the consummation of the transaction and after giving effect thereto, no Default or Event of Default would exist; 18 provided, however, that for purposes of the foregoing calculation, there shall not be included any assets of any Subsidiary so disposed of the proceeds of which were or are (x) deposited immediately after the consummation of such sale in an escrow account with a depository institution or trust company of the character described in clause (g) of the definition of "Restricted Investments" contained in SECTION 8.1 acting as escrow agent, (y) invested in Investments of the character described in clauses (e), (f) and (g) of said definition of "Restricted Investments," and (z) applied within twelve months of the date of sale of such assets to either (A) the acquisition of fixed assets useful and intended to be used in the operation of the business of an Obligor and its respective Restricted Subsidiaries as described in SECTION 5.5 and having a fair market value (as determined in good faith by the Board of Directors of such Obligor) at least equal to that of the assets so disposed of and/or (B) the prepayment at any applicable prepayment premium, on a pro rata basis, of Senior Indebtedness of the Obligors. It is understood and agreed by the Obligors that any optional prepayment of the Notes as hereinabove provided shall be made pursuant to an Asset Disposition Prepayment Offer as and to the extent provided in SECTION 2.3. Computations pursuant to this SECTION 5.12(c) shall include dispositions made pursuant to SECTION 5.12(b) and computations pursuant to SECTION 5.12(b) shall include dispositions made pursuant to this SECTION 5.12(c). Section 5.13. Guaranties. The Obligors will not, and will not permit any of their respective Restricted Subsidiaries to, become or be liable in respect of any Guaranty except Guaranties by an Obligor which are limited in amount to a stated maximum dollar exposure or which constitute Guaranties of obligations incurred by any Restricted Subsidiary in compliance with the provisions of this Agreement. Section 5.14. Repurchase of Notes. Neither the Obligors nor any of their Restricted Subsidiaries or any Affiliate, directly or indirectly, may repurchase or make any offer to repurchase any Notes unless an offer has been made to repurchase Notes, pro rata, from all holders of the Notes at the same time and upon the same terms. In case an Obligor or any of its respective Restricted Subsidiaries or any Affiliate repurchases or otherwise acquires any Notes, such Notes shall immediately thereafter be cancelled and no Notes shall be issued in substitution therefor. Without limiting the foregoing, upon the purchase or other acquisition of any Notes by an Obligor, any of its respective Restricted Subsidiaries or any Affiliate, such Notes shall no longer be outstanding for purposes of any section of this Agreement relating to the taking by the holders of the Notes of any actions with respect hereto, including, without limitation, SECTION 6.3, SECTION 6.4 and SECTION 7.1. Section 5.15. Transactions with Affiliates. Neither Obligor will, nor will either Obligor permit any Restricted Subsidiary to, enter into or be a party to any transaction or arrangement with any Affiliate (including, without limitation, the purchase from, sale to or exchange of property with, or the rendering of any service by or for, any Affiliate), except in the ordinary course of and pursuant to the reasonable requirements of such Obligor's or such Restricted Subsidiary's business and upon fair and reasonable terms no less favorable to such Obligor or such Restricted Subsidiary than would obtain in a comparable arm's-length transaction with a Person other than an Affiliate, provided that the Specified Joint Venture Agreements, as in effect on the Closing Date, shall be excluded from the requirements of this SECTION 5.15. Section 5.16. Termination of Pension Plans. No Obligor will, nor will either Obligor permit any Subsidiary to, withdraw from any Multiemployer Plan or permit any employee benefit plan 19 maintained by it to be terminated if such withdrawal or termination could result in withdrawal liability (as described in Part 1 of Subtitle E of Title IV of ERISA) or the imposition of a Lien on any property of such Obligor or any Subsidiary pursuant to Section 4068 of ERISA. Section 5.17. Designation of Subsidiaries. RMC may designate any Unrestricted Subsidiary (which was not previously designated a Restricted Subsidiary) to be a Restricted Subsidiary and any Restricted Subsidiary to be an Unrestricted Subsidiary by giving prompt written notice to the holders of the Notes that the Board of Directors of RMC has made such designation, provided, however, that no Unrestricted Subsidiary may be designated as a Restricted Subsidiary and no Restricted Subsidiary may be designated as an Unrestricted Subsidiary if, at the time of such action and after giving effect thereto, a Default or Event of Default would exist. In addition to the foregoing, any Restricted Subsidiary which has been designated as an Unrestricted Subsidiary in accordance with the preceding sentence may not at any time thereafter again be designated as a Restricted Subsidiary. Section 5.18. Reports and Rights of Inspection. Each Obligor will keep, and will cause each Restricted Subsidiary to keep, proper books of record and account in which full and correct entries will be made of all dealings or transactions of, or in relation to, the business and affairs of such Obligor or such Restricted Subsidiary, in accordance with GAAP consistently applied (except for changes disclosed in the financial statements furnished to you pursuant to this SECTION 5.18 and concurred in by the independent public accountants referred to in SECTION 5.18(b)), and will furnish to you so long as you are the holder of any Note and to each other Institutional Holder of the then outstanding Notes (in duplicate if so specified below or otherwise requested): (a) Quarterly Statements. As soon as available and in any event within 90 days after the end of each quarterly fiscal period (except the last) of each fiscal year, copies of: (1) a consolidated balance sheet of RMC and its consolidated Subsidiaries as of the close of such quarterly fiscal period, setting forth in comparative form the consolidated figures for the fiscal year then most recently ended, (2) consolidated statements of income of RMC and its consolidated Subsidiaries for such quarterly fiscal period and for the portion of the fiscal year ending with such quarterly fiscal period, in each case setting forth in comparative form the consolidated figures for the corresponding periods of the preceding fiscal year, and (3) consolidated statements of cash flows of RMC and its consolidated Subsidiaries for the portion of the fiscal year ending with such quarterly fiscal period, setting forth in comparative form the consolidated figures for the corresponding period of the preceding fiscal year, all in reasonable detail and certified as complete and correct by an authorized financial officer of RMC; (b) Annual Statements. As soon as available and in any event within 120 days after the close of each fiscal year of RMC, copies of: (1) a consolidated balance sheet of RMC and its consolidated Subsidiaries as of the close of such fiscal year, and (2) consolidated statements of income, changes in shareholders' equity and cash flows of RMC and its consolidated Subsidiaries for such fiscal year, 20 in each case setting forth in comparative form the consolidated figures for the preceding fiscal year, all in reasonable detail and accompanied by a report thereon of a firm of independent public accountants of recognized national standing selected by RMC to the effect that the consolidated financial statements present fairly, in all material respects, the consolidated financial position of RMC and its consolidated Subsidiaries as of the end of the fiscal year being reported on and the consolidated results of the operations and cash flows for said year in conformity with GAAP and that the examination of such accountants in connection with such financial statements has been conducted in accordance with generally accepted auditing standards and included such tests of the accounting records and such other auditing procedures as said accountants deemed necessary in the circumstances; (c) Reports of RME. If at any time after the Closing Date audited or unaudited financial statements of RME are prepared (1) as soon as available, and in any event within 90 days after the end of each quarterly fiscal period (except the last) of each fiscal year of RME, copies of any unaudited quarterly statements of RME for such quarterly fiscal period, of the character as provided in paragraph (a) above to the extent prepared, and (2) as soon as available, and in any event within 120 days after the close of each fiscal year of RME, copies of any audited or unaudited financial statements of RME as of the close of such fiscal year, of the character as provided in paragraph (b) above to the extent so prepared; (d) Audit Reports. Promptly upon receipt thereof, one copy of each interim or special audit made by independent accountants of the books of an Obligor or any Restricted Subsidiary received from such accountants, in each case, prepared at the request of the Board of Directors of either Obligor or otherwise presented to the Board of Directors of either Obligor; (e) SEC and Other Reports. Promptly upon their becoming available, one copy of each financial statement, report, notice or proxy statement sent by an Obligor to its creditors and stockholders generally and of each regular or periodic report, and any registration statement or prospectus filed by an Obligor or any Subsidiary with any securities exchange or the Securities and Exchange Commission or any successor agency, and copies of any orders in any proceedings to which an Obligor or any of its Subsidiaries is a party, issued by any governmental agency, Federal or state, having jurisdiction over an Obligor or any of its Subsidiaries; (f) ERISA Reports. Promptly upon the occurrence thereof, written notice of (1) a Reportable Event with respect to any Plan; (2) the institution of any steps by an Obligor, any ERISA Affiliate, the PBGC or any other Person to terminate any Plan; (3) the institution of any steps by an Obligor or any ERISA Affiliate to withdraw from any Plan; (4) a non-exempt "prohibited transaction" within the meaning of Section 406 of ERISA in connection with any Plan; (5) any material increase in the contingent liability of an Obligor or any Restricted Subsidiary with respect to any post-retirement welfare liability; or (6) the taking of any action by, or the threatening of the taking of any action by, the Internal Revenue Service, the Department of Labor or the PBGC with respect to any of the foregoing; (g) Officer's Certificates. Within the periods provided in paragraphs (a) and (b) above, a certificate of the chief financial officer or treasurer of the Obligors substantially in the form of Exhibit E-1 attached hereto stating that such officer has reviewed the provisions of this Agreement and setting forth: (1) the information and computations (in sufficient detail) required in order to establish whether 21 the Obligors were in compliance with the requirements of SECTIONS 5.6 through 5.12 at the end of the period covered by the Financial statements then being furnished, and (2) whether there existed as of the date of such financial statements and whether, to the best of such officer's knowledge, there exists on the date of the certificate or existed at any time during the period covered by such financial statements any Default or Event of Default and, if any such condition or event exists on the date of the certificate, specifying the nature and period of existence thereof and the action the Obligors are taking and propose to take with respect thereto; (h) Accountant's Certificates. Within the period provided in paragraph (b) above, a certificate of the accountants who render an opinion with respect to such financial statements, substantially in the form of Exhibit E-2 attached hereto stating that they have reviewed this Agreement and stating further whether, in making their audit, such accountants have become aware of any Default or Event of Default under any of the terms or provisions of this Agreement insofar as any such terms or provisions pertain to or involve accounting matters or determinations, and if any such condition or event then exists, specifying the nature and period of existence thereof; (i) Restricted Subsidiaries. In the event the Unrestricted Subsidiaries of RMC shall at any time constitute 5% or more of the consolidated total assets of RMC and its consolidated Subsidiaries (determined in accordance with GAAP), then within the respective periods provided in paragraphs (a) and (b) above, financial statements of the character and for the dates and periods described in said paragraphs (a) and (b) covering RMC and its Restricted Subsidiaries for such dates and periods; and (j) Requested Information. With reasonable promptness, such other data and information as you or any such Institutional Holder may reasonably request. Without limiting the foregoing, each of the Obligors will permit you, so long as you are the holder of any Note, and each Institutional Holder of the then outstanding Notes (or such Persons as either you or such Institutional Holder may designate), to visit and inspect, under such Obligor's guidance, any of the properties of such Obligor or any Restricted Subsidiary, to examine all of their books of account, records, reports and other papers, to make copies and extracts therefrom and to discuss their respective affairs, finances and accounts with their respective officers, employees, and independent public accountants (and by this provision each Obligor authorizes said accountants to discuss with you the finances and affairs of such Obligor and its Restricted Subsidiaries), all at such reasonable times and as often as may be reasonably requested. Any visitation shall be at the sole expense of you or such Institutional Holder, unless a Default or Event of Default shall have occurred and be continuing or the holder of any Note or of any other evidence of Indebtedness of either Obligor or any Restricted Subsidiary having an aggregate principal amount outstanding of $1,000,000 or more gives any written notice with respect to a claimed default, in which case, any such visitation or inspection shall be at the sole expense of the Obligors. Section 5.19. Ownership of RME. RMC will at all times directly own not less than 100% of all of the issued and outstanding capital stock (and any Securities convertible at any time and from time into capital stock) of RME free and clear of all Liens, it being understood that this SECTION 5.19 shall not be construed to prevent a merger of RME into RMC as otherwise permitted by this Agreement. 22 Section 5.20. Release of Liens. Within 60 days of the Closing Date, the Obligors shall provide to you and your special counsel such written evidence, recording data and other confirmations as you or your special counsel shall reasonably request demonstrating that all Liens relating to the Equitable Notes which have been terminated as required by SECTION 4.1(e) are no longer of record. Section 6. Events of Default and Remedies Therefor. Section 6.1. Events of Default. Any one or more of the following shall constitute an "Event of Default" as such term is used herein: (a) Default shall occur in the payment of interest on any Note when the same shall have become due and such default shall continue for more than five Business Days; or (b) Default shall occur in the making of any required prepayment on any of the Notes as provided in SECTION 2.1 or in the making of any other payment of the principal or premium, if any, thereon at the expressed or any accelerated maturity date or at any date fixed for prepayment; provided that in the case of any Default pursuant to this SECTION 6.1(b) which is caused by the breakdown of any electronic payment system utilized by the Obligors and authorized by the holders of the Notes, the cause of which is not related to any act or omission on the part of the Obligors, then and in such event, but only in such event, the Obligors shall have two Business Days following the date of such Default to cure the same; or (c) Default shall occur in the observance or performance of any covenant or agreement contained in SECTION 5.6 through SECTION 5.12 and SECTION 5.15; or (d) Default shall occur in the observance or performance of any other provision of this Agreement which is not remedied within 30 days after the earlier of (1) the day on which a Responsible Officer of either of the Obligors first obtains knowledge of such default, or (2) the day on which written notice thereof is given to the Obligors by the holder of any Note; provided that in the case of any Default pursuant to this SECTION 6.1(d) which cannot with due diligence be cured within such 30-day period, if the Obligors shall commence promptly to cure the same and thereafter prosecute the curing of such Default with due diligence, the time within which to cure such Default shall be extended for such period as may be necessary to effect such cure but in no event more than 30 additional days; or (e) Default shall be made in the payment when due (whether by lapse of time, by declaration, by call for redemption or otherwise) of the principal of or interest on any Indebtedness for borrowed money (other than the Notes) of either Obligor or any Restricted Subsidiary aggregating in excess of $1,000,000 and such default shall continue beyond the period of grace, if any, allowed with respect thereto; or (f) Default or the happening of any event shall occur under any indenture, agreement or other instrument under which any Indebtedness for borrowed money (other than the Notes) of either Obligor or any Restricted Subsidiary aggregating in excess of $1,000,000 may be issued and such default or event shall occur at the maturity of, or result in the acceleration of, such Indebtedness for borrowed money of either Obligor or any Restricted Subsidiary and such acceleration shall not have been rescinded or annulled; or (g) Any representation or warranty made by either Obligor herein, or made by either Obligor in any statement or certificate furnished by such Obligor in connection with the consummation of the 23 issuance and delivery of the Notes or furnished by such Obligor pursuant hereto, is untrue in any material respect as of the date of the issuance or making thereof; or (h) Final judgment or judgments for the payment of money aggregating in excess of $1,000,000 (net of insurance proceeds to the extent the insurer has acknowledged liability with respect thereto or which insurer's liability is being contested in good faith by appropriate proceedings by the Obligors or a Restricted Subsidiary) is or are outstanding against an Obligor or any Restricted Subsidiary or against any property or assets of either and any one of such judgments has remained unpaid, unvacated, unbonded or unstayed by appeal or otherwise for a period of 60 days from the date of its entry; or (i) A custodian, liquidator, trustee or receiver is appointed for an Obligor or any Restricted Subsidiary or for the major part of the property of any thereof and is not discharged within 60 days after such appointment; or (j) Either Obligor or any Restricted Subsidiary becomes insolvent or bankrupt, is generally not paying its debts as they become due or makes an assignment for the benefit of creditors, or either Obligor or any Restricted Subsidiary applies for or consents to the appointment of a custodian, liquidator, trustee or receiver for such Obligor or such Restricted Subsidiary or for the major part of the property of any thereof; or (k) Bankruptcy, reorganization, arrangement or insolvency proceedings, or other proceedings for relief under any bankruptcy or similar law or laws for the relief of debtors, are instituted by or against an Obligor or any Restricted Subsidiary and, if instituted against an Obligor or any Restricted Subsidiary, are consented to or are not dismissed within 60 days after such institution. Section 6.2. Notice to Holders. When any Event of Default described in the foregoing SECTION 6.1 has occurred, or if the holder of any Note or of any other evidence of Indebtedness for borrowed money of an Obligor gives any notice or takes any other action with respect to a claimed default, each Obligor agrees to give notice within ten Business Days after a Responsible Officer of such Obligor first obtains knowledge of such event to all holders of the Notes then outstanding. Section 6.3. Acceleration of Maturities. When any Event of Default described in paragraph (a), (b) or (c) of SECTION 6.1 has happened and is continuing, any holder of any Note may, by notice in writing sent to the Obligors in the manner provided in SECTION 9.6, declare the entire principal and all interest accrued on such Note TO be, and such Note shall thereupon become, forthwith due and payable, without any presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived. When any Event of Default described in paragraphs (a) through (h), inclusive, of said SECTION 6.1 has happened and is continuing, the holder or holders of 66-2/3% or more of the principal amount of the Notes at the time outstanding may, by notice in writing to the Obligors in the manner provided in SECTION 9.6, declare the entire principal and all interest accrued on all Notes TO be, and all Notes shall thereupon become, forthwith due and payable, without any presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived. When any Event of Default described in paragraph (i), (j) or (k) of SECTION 6.1 has occurred, then all outstanding Notes shall immediately become due and payable without presentment, demand or notice of any kind. Upon the Notes becoming due and payable as a result of any Event of Default as aforesaid, the Obligors will forthwith pay to the holders of the Notes the entire 24 principal and interest accrued on the Notes and, to the extent not prohibited by applicable law, an amount as liquidated damages for the loss of the bargain evidenced hereby (and not as a penalty) equal to the Make-Whole Amount, determined as of the date on which the Notes shall so become due and payable. No course of dealing on the part of the holder or holders of any Notes nor any delay or failure on the part of any holder of Notes to exercise any right shall operate as a waiver of such right or otherwise prejudice such holder's rights, powers and remedies. The Obligors further agree, to the extent permitted by law, to pay to the holder or holders of the Notes all costs and expenses incurred by them in the enforcement of the terms and provisions of this Agreement and the collection of any Notes upon any default hereunder or thereon, including reasonable compensation to such holder's or holders' attorneys for all services rendered in connection therewith. Section 6.4. Rescission of Acceleration. The provisions of SECTION 6.3 are subject to the condition that if the principal of and accrued interest on all or any outstanding Notes have been declared immediately due and payable by reason of the occurrence of any Event of Default described in paragraphs (a) through (h), inclusive, of SECTION 6.1, the holders of 66-2/3% in aggregate principal amount of the Notes then outstanding may, by written instrument filed with the Obligors, rescind and annul such declaration and the consequences thereof, provided that at the time such declaration is annulled and rescinded: (a) no judgment or decree has been entered for the payment of any monies due pursuant to the Notes or this Agreement; (b) all arrears of interest upon all the Notes and all other sums payable under the Notes and under this Agreement (except any principal, interest or premium on the Notes which has become due and payable solely by reason of such declaration under SECTION 6.3) shall have been duly paid; and (c) each and every other Default and Event of Default shall have been made good, cured or waived pursuant to SECTION 7.1; and provided further, that no such rescission and annulment shall extend to or affect any subsequent Default or Event of Default or impair any right consequent thereto. Section 7. Amendments, Waivers and Consents. Section 7.1. Consent Required. Any term, covenant, agreement or condition of this Agreement may, with the consent of the Obligors, be amended or compliance therewith may be waived (either generally or in a particular instance and either retroactively or prospectively), if the Obligors shall have obtained the consent in writing of the holders of at least 66-2/3% in aggregate principal amount of outstanding Notes; provided that without the written consent of the holders of all of the Notes then outstanding, no such amendment or waiver shall be effective (a) which will change the time of payment (including any prepayment required by SECTION 2.1) of THe principal of or the interest on any Note or reduce the principal amount thereof or reduce the rate of interest thereon, or (b) which will change any of the provisions with respect to optional prepayments, or (c) which will change the percentage of holders of the Notes required to consent to any such amendment or waiver of any of the provisions of this SECTION 7 or SECTION 6. Section 7.2. Solicitation of Holders. So long as there are any Notes outstanding, the Obligors will not solicit, request or negotiate for or with respect to any proposed waiver or amendment of any of the provisions of this Agreement or the Notes unless each holder of Notes (irrespective of the amount of 25 Notes then owned by it) shall be informed thereof by the Obligors and shall be afforded the opportunity of considering the same and shall be supplied by the Obligors with sufficient information to enable it to make an informed decision with respect thereto. The Obligors will not, directly or indirectly, pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, to any holder of Notes as consideration for or as an inducement to entering into by any holder of Notes of any waiver or amendment of any of the terms and provisions of this Agreement or the Notes unless such remuneration is concurrently offered, on the same terms, ratably to the holders of all Notes then outstanding. Promptly and in any event within 30 days of the date of execution and delivery of any such waiver or amendment, the Obligors shall provide a true, correct and complete copy thereof to each of the holders of the Notes. Section 7.3. Effect of Amendment or Waiver. Any such amendment or waiver shall apply equally to all of the holders of the Notes and shall be binding upon them, upon each future holder of any Note and upon the Obligors, whether or not such Note shall have been marked to indicate such amendment or waiver. No such amendment or waiver shall extend to or affect any obligation not expressly amended or waived or impair any right consequent thereon. Section 8. Interpretation of Agreement; Definitions. Section 8.1. Definitions. Unless the context otherwise requires, the terms hereinafter set forth when used herein shall have the following meanings and the following definitions shall be equally applicable to both the singular and plural forms of any of the terms herein defined: "Affiliate" shall mean any Person (other than a Restricted Subsidiary) (a) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, either Obligor, (b) which beneficially owns or holds 5% or more of any class of the Voting Stock of either Obligor or (c) 5% or more of the Voting Stock (or in the case of a Person which is not a corporation, 5% or more of the equity interest) of which is beneficially owned or held by either Obligor or a Subsidiary. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of Voting Stock, by contract or otherwise. "Agreements" shall have the meaning set forth in SECTION 1.3. "Business Day" shall mean any day other than a Saturday, Sunday or other day on which banks in San Francisco, California or New York, New York are required by law to close or are customarily closed. "Capitalized Interest" for any period shall mean a reasonable estimate of capitalized interest included in the depreciation expense used to arrive at Consolidated Net Income for such period, provided that the Obligors shall demonstrate, in the Officer's Certificates delivered pursuant to the requirements of SECTION 5.18(g), the basis for Such estimate to the satisfaction of the holders of the Notes. "Capitalized Lease" shall mean any lease the obligation for Rentals with respect to which is required to be capitalized on a consolidated balance sheet of the lessee and its subsidiaries in accordance with GAAP. "Capitalized Rentals" of any Person shall mean as of the date of any determination thereof the amount at which the aggregate Rentals due and to become due under all Capitalized Leases under which such Person is a lessee would be reflected as a liability on a consolidated balance sheet of such Person. 26 "Closing Date" shall have the meaning set forth in SECTION 1.2. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the regulations from time to time promulgated thereunder. "Consolidated Adjusted Net Worth" shall mean, as of the date of any determination thereof, the arithmetic sum of: (a) the amount of the capital stock accounts (net of treasury stock, at cost, but including preferred stock), plus (or minus in the case of a deficit) the surplus and retained earnings of RMC and its Restricted Subsidiaries as set forth in the consolidated financial statements of RMC as at the end of the fiscal quarter immediately preceding the date of such determination, MINUS (b) the net book value, after deducting any reserves applicable thereto, of all items of the following character which are included in the assets of RMC and its Restricted Subsidiaries, to wit: (1) the incremental increase in an asset resulting from any reappraisal, revaluation or write-up of assets, other than an increase to the extent permitted by GAAP; and (2) (i) unamortized debt discount and expense and (ii) goodwill, patents, patent applications, permits, trademarks, trade names, copyrights, licenses, franchises, experimental expense, organizational expense, research and development expense and such other assets as are properly classified as "intangible assets" acquired by RMC or any of its Restricted Subsidiaries after the Closing Date; provided, however, that notwithstanding the foregoing, RMC may include in any determination of "Consolidated Adjusted Net Worth" the aggregate net value of prepaid royalties, patents, patent applications, trademarks, trade names, copyrights and other intellectual property acquired after the Closing Date; all determined in accordance with GAAP. "Consolidated Fixed Charges" for any period shall mean on a consolidated basis the sum of (a) all Rentals (other than Rentals on Capitalized Leases) payable during such period by RMC and its Restricted Subsidiaries, plus (b) all Interest Expense on all Indebtedness (including the interest component of Rentals on Capitalized Leases) of RMC and its Restricted Subsidiaries. "Consolidated Funded Debt" shall mean all Funded Debt of RMC and its Restricted Subsidiaries, determined on a consolidated basis eliminating intercompany items. "Consolidated Net Income" for any period shall mean the consolidated net income of RMC and its Restricted Subsidiaries for such period determined in accordance with GAAP, excluding in any event extraordinary items in accordance with GAAP. "Consolidated Net Income Available for Fixed Charges" for any period shall mean the sum of (a) Consolidated Net Income during such period plus (to the extent deducted in determining Consolidated Net Income), (b) all provisions for any Federal, state or other income taxes made by RMC and its Restricted Subsidiaries during such period and (c) Consolidated Fixed Charges during such period. "Consolidated Total Assets" shall mean, as of the date of any determination thereof, total assets of RMC and its Restricted Subsidiaries determined on a consolidated basis in accordance with GAAP. 27 "Consolidated Total Capitalization" shall mean, as of the date of any determination thereof, the sum of (a) Consolidated Funded Debt plus (b) Consolidated Adjusted Net Worth. "Consolidated Total Liabilities" shall mean, as of the date of any determination thereof, total liabilities of RMC and its Restricted Subsidiaries determined on a consolidated basis in accordance with GAAP. "Default" shall mean any event or condition the occurrence of which would, with the lapse of time or the giving of notice, or both, constitute an Event of Default. "Distribution" in respect of RMC and its Restricted Subsidiaries shall mean: (a) dividends or other distributions on capital stock (including, without limitation, preferred stock) of a corporation (except dividends or other distributions payable solely in shares of common stock of such corporation); and (b) redemption, acquisition or retirement of any shares of its capital stock or warrants, rights or other options to purchase any shares of its capital stock (other than in exchange for or out of the net proceeds to RMC from the concurrent issue or sale of shares of common stock of RMC). "Environmental Law" shall mean any international, federal, state or local statute, law, regulation, order, consent decree, judgment, permit, license, code, covenant, deed restriction, common law, treaty, convention, ordinance or other requirement relating to public health, safety or the environment, including, without limitation, those relating to releases, discharges or emissions to air, water, land or groundwater, to the withdrawal or use of groundwater, to the use and handling of polychlorinated biphenyls or asbestos, to the disposal, treatment, storage or management of hazardous or solid waste, or Hazardous Substances or crude oil, or any fraction thereof, or to exposure to toxic or hazardous materials, to the handling, transportation, discharge or release of gaseous or liquid Hazardous Substances and any regulation, order, notice or demand issued pursuant to such law, statute or ordinance, in each case applicable to the property of the Obligors and their Subsidiaries or the operation, construction or modification of any thereof, including without limitation, the following: the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and the Hazardous and Solid Waste Amendments of 1984, the Hazardous Materials Transportation Act, as amended, the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1976, the Safe Drinking Water Control Act, the Clean Air Act of 1966, as amended, the Toxic Substances Control Act of 1976, the Occupational Safety and Health Act of 1977, as amended, the Emergency Planning and Community Right-to-Know Act of 1986, the National Environmental Policy Act of 1975, the Oil Pollution Act of 1990 and any similar or implementing state law, and any state statute and any further amendments to these laws providing for financial responsibility for cleanup or other actions with respect to the release or threatened release of Hazardous Substances or crude oil, or any fraction thereof, and all rules, regulations, guidance documents and publications promulgated thereunder. "Equitable Notes" shall mean (a) that certain promissory note issued by RME, Robert Mondavi Winery, a California corporation, and Robert Mondavi Vineyards, Inc., a California corporation, and payable to the order of The Equitable Life Assurance Society of the United States, a New York corporation, dated June 18, 1986, due July 1, 1996, assigned loan identifying number F-0195763-00, outstanding on the 28 Execution Date in the aggregate principal amount of $7,663,639.00, and secured by that certain Long Form Deed of Trust, Assignment of Rents, Security Agreement and Financing Statement (California) dated as of June 18, 1986 by and among R.M.E., Inc., Robert Mondavi Winery, Robert Mondavi Vineyards, Inc., Chicago Title Insurance, a Missouri corporation, and The Equitable Life Assurance Society of the United States and (b) that certain promissory note issued by RME, Robert Mondavi Vineyards, Inc., Robert Mondavi Winery and Robert Mondavi Properties, Inc. and payable to The Equitable Life Assurance Society of the United States dated May 1, 1990, due July 1, 1996, assigned loan identifying number F-0195763-02, outstanding on the Execution Date in the aggregate principal amount of $11,192,406.65, and secured by that certain Long Form Deed of Trust, Assignment of Rents, Security Agreement and Financing Statement (California) dated as of May 1, 1990 by and among R.M.E., Inc., Robert Mondavi Winery, Robert Mondavi Vineyards, Inc., Chicago Title Insurance Company and The Equitable Life Assurance Society of the United States. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA shall be construed to also refer to any successor sections. "ERISA Affiliate" shall mean any corporation, trade or business that is, along with the Obligors, a member of a controlled group of corporations or a controlled group of trades or businesses, as described in section 414(b) and 414(c), respectively, of the Code or Section 4001 of ERISA. "Event of Default" shall have the meaning set forth in SECTION 6.1. "Execution Date" shall have the meaning set forth in SECTION 1.2. "Funded Debt" of any Person shall mean (a) all Indebtedness of such Person for borrowed money or which has been incurred in connection with the acquisition of assets in each case having a final maturity of one or more than one year from the date of origin thereof (or which is renewable or extendible at the option of the obligor for a period or periods more than one year from the date of origin), including all payments in respect thereof that are required to be made within one year from the date of any determination of Funded Debt, whether or not the obligation to make such payments shall constitute a current liability of the obligor under GAAP, (b) all Capitalized Rentals of such Person, and (c) all Guaranties by such Person of Funded Debt of others; provided that up to $10,000,000 of Indebtedness of the Obligors outstanding under bank lines established for working capital purposes and having final maturities of not longer than three years shall be excluded from Funded Debt. "GAAP" shall mean generally accepted accounting principles at the time. "Guaranties" by any Person shall mean all obligations (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing, or in effect guaranteeing, any Indebtedness, dividend or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, all obligations incurred through an agreement, contingent or otherwise, by such Person: (a) to purchase such Indebtedness or obligation or any property or assets constituting security therefor, (b) to advance or supply funds (1) for the purchase or payment of such Indebtedness or obligation, or (2) to maintain working capital or any balance sheet or income statement condition or otherwise to advance or make available funds for the 29 purchase or payment of such Indebtedness or obligation, (c) to lease property or to purchase Securities or other property or services primarily for the purpose of assuring the owner of such Indebtedness or obligation of the ability of the primary obligor to make payment of the Indebtedness or obligation, or (d) otherwise to assure the owner of the Indebtedness or obligation of the primary obligor against loss in respect thereof. For the purposes of all computations made under this Agreement, a Guaranty in respect of any Indebtedness for borrowed money shall be deemed to be Indebtedness equal to the principal amount of such Indebtedness for borrowed money which has been guaranteed, and a Guaranty in respect of any other obligation or liability or any dividend shall be deemed to be Indebtedness equal to the maximum aggregate amount of such obligation, liability or dividend. "Hazardous Substance" shall mean any hazardous or toxic material, substance or waste, pollutant or contaminant which is regulated under any statute, law, ordinance, rule or regulation of any local, state, regional or federal authority having jurisdiction over the property of the Obligors and its Subsidiaries or its use, including but not limited to any material, substance or waste which is: (a) defined as a hazardous substance under Section 311 of the Federal Water Pollution Control Act (33 U.S.C. Section 1317), as amended; (b) regulated as a hazardous waste under Section 1004 or Section 3001 of the Federal Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), as amended; (c) defined as a hazardous substance unDEr Section 101 of the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), as amended; or (d) defined or regulated as a hazardous substance or hazardous waste under any rules or regulations promulgated under any of the foregoing statutes. "Indebtedness" of any Person shall mean and include all (a) obligations of such Person for borrowed money or which have been incurred in connection with the acquisition of property or assets, (b) obligations secured by any Lien upon property or assets owned by such Person, even though such Person has not assumed or become liable for the payment of such obligations, (c) obligations created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person, notwithstanding the fact that the rights and remedies of the seller, lender or lessor under such agreement in the event of default are limited to repossession or sale of property, (d) Capitalized Rentals and (e) Guaranties of obligations of others of the character referred to in this definition, provided that (1) letters of credit issued for the benefit of an Obligor or any of its Restricted Subsidiaries to support payment of trade payables and (2) Guaranties existing on the Closing Date and described in Schedule II (including extension and renewals of any such Guaranty, but without increase in the maximum dollar exposure under any such Guaranty) may be excluded from any determination of "Indebtedness". Indebtedness of any corporation which becomes a Restricted Subsidiary after the Closing Date, which is existing immediately after such corporation becomes a Restricted Subsidiary, shall for purposes of any determination pursuant to SECTION 5.9(a)(5)(ii) be disregarded, but for all other purposes under this Agreement shall be Indebtedness which must be incurred and outstanding within the applicable limitations hereof. "Institutional Holder" shall mean any of the following Persons: (a) any bank, savings and loan association, savings institution, trust company or national banking association, acting for its own account or in a fiduciary capacity, (b) any charitable foundation, (c) any insurance company, (d) any fraternal 30 benefit society, (e) any pension, retirement or profit-sharing trust or fund within the meaning of Title I of ERISA or for which any bank, trust company, national banking association or investment adviser registered under the Investment Advisers Act of 1940, as amended, is acting as trustee or agent, (f) any investment company or business development company, as defined in the Investment Company Act of 1940, as amended, (g) any small business investment company licensed under the Small Business Investment Act of 1958, as amended, (h) any broker or dealer registered under the Securities Exchange Act of 1934, as amended, or any investment adviser registered under the Investment Adviser Act of 1940, as amended, (i) any government, any public employees' pension or retirement system, or any other government agency supervising the investment of public funds, (j) any other entity all of the equity owners of which are Institutional Holders or (k) any other Person which may be within the definition of "qualified institutional buyer" as such term is used in Rule 144A, as from time to time in effect, promulgated under the Securities Act of 1933, as amended. "Interest Expense" for any period shall mean all interest and all amortization of debt discount and expense on any particular Indebtedness (including, without limitation, payment-in-kind, zero coupon and other like Securities) for which such calculations are being made. "Investments" shall mean all investments, in cash or by delivery of property, made directly or indirectly in any Person, whether by acquisition of shares of capital stock, Indebtedness or other obligations or Securities or by loan, advance, capital contribution or otherwise; provided that "Investments" shall not mean or include routine investments in property to be used or consumed in the ordinary course of business. "Lien" shall mean any interest in property securing an obligation owed to, or a claim by, a Person other than the owner of the property, whether such interest is based on the common law, statute or contract, and including but not limited to the security interest lien arising from a mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term "Lien" shall include reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances (including, with respect to stock, stockholder agreements, voting trust agreements, buy-back agreements and all similar arrangements) affecting property. For the purposes of this Agreement, an Obligor or a Restricted Subsidiary shall be deemed to be the owner of any property which it has acquired or holds subject to a conditional sale agreement, Capitalized Lease or other arrangement pursuant to which title to the property has been retained by or vested in some other Person for security purposes and such retention or vesting shall constitute a Lien. "Lines of Credit" shall mean and include the bank lines of credit available to RMC and RME under (i) that certain Business Loan Agreement dated as of December 29, 1994, as amended on December 28, 1995, among Bank of America National Trust and Savings Association, RMC and RME and (ii) that certain Revolving Credit Agreement dated as of December 29, 1994, as amended May 2, 1995 and December 27, 1995, among Cooperatieve Centrale Raiffeisen - Boerenleenbank B.A., "Rabobank Nederland", New York Branch, and RMC and RME. "Long Term Lease" shall mean any lease of real or personal property (other than Capitalized Leases, leases between an Obligor and any Restricted Subsidiary and leases between Restricted Subsidiaries) 31 having an original term, including any period for which the lease may be renewed or extended at the option of the lessor, of more than three years. "Make-Whole Amount" shall mean in connection with any prepayment of the Notes the excess, if any, of (a) the aggregate present value as of the date of such prepayment of each dollar of principal being prepaid (taking into account the application of such prepayment required by SECTION 2.1) and the amount of interest (exclusive of intereST accrued to the date of prepayment) that would have been payable in respect of such dollar if such prepayment had not been made, determined by discounting such amounts at the Reinvestment Rate from the respective dates on which they would have been payable, over (b) 100% of the principal amount of the outstanding Notes being prepaid. If the Reinvestment Rate is equal to or higher than 7.39%, the Make-Whole Amount shall be zero. For purposes of any determination of the Make-Whole Amount: "Reinvestment Rate" shall mean (1) the sum of 0.50%, plus the yield reported on page "USD" of the Bloomberg Financial Markets Services Screen (or, if not available, any other nationally recognized trading screen reporting on-line intraday trading in the United States government Securities) at 9:00 A.M. (San Francisco, California time) for the United States government Securities having a maturity (rounded to the nearest month) corresponding to the remaining Weighted Average Life to Maturity of the principal being prepaid (taking into account the application of such prepayment required by SECTION 2.1) or (2) in the event that no nationally recognized trading screen reporting on-line intraday trading in the United States government Securities is available, Reinvestment Rate shall mean the sum of 0.50%, plus the arithmetic mean of the yields for the two columns under the heading "Week Ending" published in the Statistical Release under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the Weighted Average Life to Maturity of the principal being prepaid (taking into account the application of such prepayment required by SECTION 2.1). If no maturity exactly corresponds to such Weighted Average Life to Maturity, yields for the two published maturities most closely corresponding to such Weighted Average Life to Maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For the purposes of calculating the "Reinvestment Rate", the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used. "Statistical Release" shall mean the then most recently published statistical release designated "H.15(519)" or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded U.S. Government Securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination hereunder, then such other reasonably comparable index which shall be designated by the holders of 66-2/3% in aggregate principal amount of the outstanding Notes. "Weighted Average Life to Maturity" of the principal amount of the Notes being prepaid shall mean, as of the time of any determination thereof, the number of years obtained by dividing the then Remaining Dollar-Years of such principal by the aggregate amount of such principal. The term "Remaining Dollar-Years" of such principal shall mean the amount obtained by (1) multiplying (i) the remainder of (A) the amount of principal that would have become due on each scheduled payment date if such prepayment 32 had not been made, less (B) the amount of principal on the Notes scheduled to become due on such date after giving effect to such prepayment and the application thereof in accordance with the provisions of SECTION 2.1, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between the date of determination and such scheduled payment date, and (2) totalling the products obtained in (1). "Minority Interests" shall mean any shares of stock of any class of a Restricted Subsidiary (other than directors' qualifying shares as required by law) that are not owned by an Obligor and/or one or more of its Restricted Subsidiaries. Minority Interests shall be valued by valuing Minority Interests constituting preferred stock at the voluntary or involuntary liquidating value of such preferred stock, whichever is greater, and by valuing Minority Interests constituting common stock at the book value of capital and surplus applicable thereto adjusted, if necessary, to reflect any changes from the book value of such common stock required by the foregoing method of valuing Minority Interests in preferred stock. "Multiemployer Plan" shall have the same meaning as in ERISA. "Offering Materials" shall mean and include (i) the Annual Report of RMC to the SEC on Form 10-K for the fiscal year ending June 30, 1995, (ii) the Prospectus of RMC dated August 3, 1995 relating to the offering by RMC of its Class A Common Stock and (iii) the Quarterly Report of RMC to the SEC on Form 10-Q for the quarterly period ended March 31, 1996. "Opus One" shall mean Opus One, a California general partnership, of which Robert Mondavi Investments, a California corporation, and B.Ph.R. (California), Inc. are the sole general partners. "Overdue Rate" shall mean the lesser of (a) the maximum interest rate permitted by law and (b) 8.39%. "PBGC" shall mean the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Person" shall mean an individual, partnership, limited liability company, corporation, trust or unincorporated organization, and a government or agency or political subdivision thereof. "Plan" shall mean a "pension plan," as such term is defined in ERISA, established or maintained by the Obligors or any ERISA Affiliate or as to which the Obligors or any ERISA Affiliate contributed or is a member or otherwise may have any liability. "Purchasers" shall have the meaning set forth in SECTION 1.1. "Rentals" shall mean and include as of the date of any determination thereof all fixed payments (including as such all payments which the lessee is obligated to make to the lessor on termination of the lease or surrender of the property) payable by an Obligor or a Restricted Subsidiary, as lessee or sublessee under Long-Term Leases, but shall be exclusive of any amounts required to be paid by an Obligor or a Restricted Subsidiary (whether or not designated as rents or additional rents) on account of maintenance, repairs, insurance, taxes and similar charges. Fixed rents under any so-called "percentage leases" shall be computed solely on the basis of the minimum rents, if any, required to be paid by the lessee regardless of sales volume or gross revenues. "Reportable Event" shall have the same meaning as in ERISA. "Responsible Officer" shall mean the President, Executive Vice President, the Chief Financial Officer, or the Treasurer of an Obligor, and any other executive or financial officer of either Obligor. "Restricted Investments" shall mean all Investments, other than: 33 (a) Investments by an Obligor and its Restricted Subsidiaries in and to Restricted Subsidiaries, including any Investment in a corporation which, after giving effect to such Investment, will become a Restricted Subsidiary; (b) Investments representing loans or advances in the usual and ordinary course of business to officers, directors and employees for expenses (including moving expenses related to a transfer) incidental to carrying on the business of an Obligor or any Restricted Subsidiary, including loans to employees secured by capital stock of RMC; (c) Investments of the Obligors existing as of the Closing Date and described on Schedule II hereto; (d) receivables arising from the sale of goods and services in the ordinary course of business of the Obligors and any of their respective Restricted Subsidiaries; (e) Investments in commercial paper of corporations organized under the laws of the United States or any state thereof maturing in 270 days or less from the date of issuance which, at the time of acquisition by an Obligor or any Subsidiary, is accorded a rating of "A-2" or better by Standard & Poor's Corporation or "P-2" by Moody's Investors Service, Inc.; (f) Investments in direct obligations of the United States of America or any agency or instrumentality of the United States of America, the payment or guarantee of which constitutes a full faith and credit obligation of the United States of America, in either case, maturing within three years from the date of acquisition thereof; (g) Investments in certificates of deposit and time deposits maturing within one year from the date of issuance thereof, either (1) issued by a bank or trust company organized under the laws of the United States or any State thereof, Canada or any province thereof, Japan, Great Britain, Germany, France, Italy, Switzerland or the Netherlands, having capital, surplus and undivided profits aggregating at least $250,000,000 (or the equivalent under local currency), provided that at the time of acquisition thereof by an Obligor or a Subsidiary, (1) the senior unsecured long-term debt of such bank or trust company or of the holding company of such bank or trust company is rated "A-" or better by Standard & Poor's Corporation or "A-3" or better by Moody's Investors Service, Inc. or (2) such certificate of deposit or time deposit is issued by any bank or trust company organized under the laws of the United States or any state thereof to the extent that such Investments are fully insured by the Federal Depository Insurance Corporation, and provided, further, the aggregate amount of such certificates of deposit or time deposits issued by any bank or trust company organized under the laws of jurisdictions other than the United States or any state thereof shall not exceed 10% of consolidated gross sales of the Obligors and the Restricted Subsidiaries determined as of the end of the immediately preceding fiscal year; (h) Investments in repurchase agreements with respect to any Security described in clause (f) of this definition entered into with a depository institution or trust company acting as principal described in clause (g) of this definition if such repurchase agreements are by their terms to be performed by the repurchase obligor and such repurchase agreements are deposited with a bank or trust company of the type described in clause (g) of this definition; (i) Investments in any money market fund which is classified as a current asset in accordance with GAAP, the aggregate asset value of which "marked to market" is at least 34 $1,000,000,000 and which is managed by a fund manager of recognized national standing, and which invests substantially all of its assets in obligations described in clauses (e) through (g) above; (j) Investments in readily-marketable obligations of indebtedness of any State of the United States or any municipality organized under the laws of any State of the United States or any political subdivision thereof which, at the time of acquisition by the Obligors or any Subsidiary, are accorded either of the two highest ratings by Standard & Poor's Corporation, Moody's Investors Service, Inc. or another nationally recognized credit rating agency of similar standard which in any such case mature no later than three years after the date of acquisition thereof; (k) Investments in money market preferred stock which, at the date of acquisition by an Obligor or any Subsidiary, are accorded either of the two highest ratings by Standard & Poor's Corporation, Moody's Investors Services, Inc. or Duff & Phelps or their respective successors or assigns; (l) advances in the usual and ordinary course of business to grape suppliers pursuant to the reasonable and customary terms of written contracts under which an Obligor has agreed to procure grapes from such suppliers, provided that such advances do not in the aggregate exceed $5,000,000 at any one time outstanding; (m) Investments consisting of deposit accounts to the extent reasonably required by financial institutions providing an Obligor with operating lines of credit, provided that amounts on deposit in such deposits accounts do not any time exceed $3,000,000; (n) Investments in joint ventures engaged in the same business engaged in by an Obligor and its Restricted Subsidiaries as described in SECTION 5.5 and in which such Obligor or any Restricted Subsidiary has an interest; provided that the aggregate amount of all such Investments made after the Closing Date shall not at any time exceed 7.5% of Consolidated Total Assets; and (o) Investments of the Obligors not described in the foregoing clauses (a) through (n) made for cash management purposes which Investments are, in the prudent judgment of a Responsible Office, in the best interests of the Obligors, provided that to the extent such Investments consist of Investments in agreements, devices or arrangements designed to provide protection from the fluctuations of interest rates, exchange rates or forward rates applicable to a party's assets, liabilities or exchange transactions, such Investments shall be made solely for cash management and interest hedging purposes and not for speculative investment purposes, and provided further, that the aggregate amount of all such Investments shall not at any time exceed 2.5% of Consolidated Total Assets. In valuing any Investments for the purpose of applying the limitations set forth in SECTION 5.12, Investments shall Be taken at the original cost thereof, without allowance for any subsequent write-offs or appreciation or depreciation therein, but less any amount repaid or recovered in cash on account of capital or principal. "Restricted Subsidiary" shall mean any Subsidiary which is not designated as an Unrestricted Subsidiary on Schedule II to this Agreement or in accordance with SECTION 5.17. "RME Joint Indebtedness" shall mean all Indebtedness under and pursuant to which RME and RMC are jointly and severally obligated for the repayment thereof. "SEC" shall mean the Securities and Exchange Commission, or any other Federal agency at the time administering the Securities Act of 1933, as amended. 35 "Security" shall have the same meaning as in Section 2(1) of the Securities Act of 1933, as amended. "Senior Indebtedness" shall mean all Indebtedness for borrowed money of either Obligor which is not expressed to be subordinate or junior in rank to any other Indebtedness for borrowed money of the Obligors. "Specified Fiscal Period" shall mean any of the following fiscal periods of the Obligors, as the context may require: (i) the semi-annual fiscal period ending December 31 in any fiscal year, (ii) the quarterly fiscal period ending March 31 in any fiscal year or (iii) the quarterly fiscal period ending June 30 in any fiscal year. "Specified Joint Venture Agreements" shall mean (a) that certain Agreement to Provide Agricultural Services between Opus One and Robert Mondavi Properties, Inc., a California corporation, dated January 1, 1991, (b) that certain Amendment and Restatement of Administrative Services Agreement between Opus One and Robert Mondavi Investments, Inc., a California corporation, B.Ph.R. (California), Inc., a California corporation, and Robert Mondavi Winery, a California corporation, dated January 1, 1991, (c) that certain Amendment and Restatement of Sales Representation Agreement between Opus One, Robert Mondavi Investments, Inc., B.Ph.R. (California), Inc. and Robert Mondavi Winery, dated January 1, 1991, (d) that certain Shareholders Agreement between Vina Errazuriz S.A. and Inversiones RMC Limitada, dated as of February 1, 1996, and (e) that certain Shareholders Agreement among Marchesi de Frescobaldi S.p.a., Tenuta di Castelgiocondo S.p.a. and RMC, dated January 18, 1996, each such agreement as in effect on the Execution Date. The term "subsidiary" shall mean as to any particular parent corporation any corporation of which more than 50% (by number of votes) of the Voting Stock shall be beneficially owned, directly or indirectly, by such parent corporation. The term "Subsidiary" shall mean a subsidiary of an Obligor. For purposes of this Agreement, it is understood and agreed that none of the following shall be deemed to be a Subsidiary of either Obligor: (a) Opus One, a joint venture partnership owned 50% by the Obligors and 50% by the Baron Philippe de Rothschild family, (b) Vina Caliterra S.A., a Chilean corporation owned 50% by the Obligors (as the co-owners of Inversiones RMC Limitada) and 50% by Vina Errazuriz S.A. and (c) Solaria S.r.l., an Italian limited liability company owned 50% by Marchesi de Frescobaldi S.p.a. and Tenuta di Castelgiocondo S.p.a. and 50% by RMC. "Subsidiary Stock" shall have the meaning set forth in SECTION 5.12(c). "Unrestricted Subsidiary" shall mean any Subsidiary which is designated as an Unrestricted Subsidiary in Schedule II to this Agreement or in accordance with SECTION 5.17. " "Voting Stock" shall mean Securities of any class or classes, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions). "Wholly-owned" when used in connection with any Subsidiary shall mean a Subsidiary of which all of the issued and outstanding shares of stock (except shares required as directors' qualifying shares) and all Indebtedness for borrowed money shall be owned by the Obligors and/or one or more of their respective Wholly-owned Subsidiaries. Section 8.2. Accounting Principles. Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting 36 computation is required to be made for the purposes of this Agreement, the same shall be done in accordance with GAAP, to the extent applicable, except where such principles are inconsistent with the requirements of this Agreement. Section 8.3. Directly or Indirectly. Where any provision in this Agreement refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether the action in question is taken directly or indirectly by such Person. Section 9. Miscellaneous. Section 9.1. Registered Notes. RMC, as agent and attorney-in-fact for the Obligors pursuant to this SECTION 9.1 and SECTIONS 9.2 and 9.3, which RME hereby appoints as its agent and attorney-in-fact as herein contemplated by its execution of this Agreement, shall cause to be kept at its principal office a register for the registration and transfer of the Notes, and RMC will register or transfer or cause to be registered or transferred, as hereinafter provided, any Note issued pursuant to this Agreement. At any time and from time to time the holder of any Note which has been duly registered as hereinabove provided may transfer such Note upon surrender thereof at the principal office of RMC duly endorsed or accompanied by a written instrument of transfer duly executed by the holder of such Note or its attorney duly authorized in writing. The Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes of this Agreement. Payment of or on account of the principal, premium, if any, and interest on any Note shall be made to or upon the written order of such holder. Section 9.2. Exchange of Notes. At any time and from time to time, upon notice to that effect given by the holder of any Note initially delivered or of any Note substituted therefor pursuant to SECTION 9.1, this SECTION 9.2 or SECTION 9.3, and, upon surrender of such Note at its office, RMC will, and will cause the other Obligor to, deliver in exchange therefor, without expense to such holder, except as set forth below, a Note for the same aggregate principal amount as the then unpaid principal amount of the Note so surrendered, or Notes in the denomination of $100,000 (or such lesser amount as shall constitute 100% of the Notes of such holder) or any amount in excess thereof as such holder shall specify, dated as of the date to which interest has been paid on the Note so surrendered or, if such surrender is prior to the payment of any interest thereon, then dated as of the date of issue, registered in the name of such Person or Persons as may be designated by such holder, and otherwise of the same form and tenor as the Notes so surrendered for exchange. The Obligors may require the payment of a sum sufficient to cover any stamp tax or governmental charge imposed upon such exchange or transfer. Section 9.3. Loss, Theft, Etc. of Notes. Upon receipt of evidence satisfactory to RMC of the loss, theft, mutilation or destruction of any Note, and in the case of any such loss, theft or destruction upon delivery of a bond of indemnity in such form and amount as shall be reasonably satisfactory to RMC, or in the event of such mutilation upon surrender and cancellation of the Note, RMC will, and will cause the other Obligor to, make and deliver without expense to the holder thereof, a new Note, of like tenor, in lieu of such lost, stolen, destroyed or mutilated Note. If the Purchaser or any subsequent Institutional Holder is the owner of any such lost, stolen or destroyed Note, then the affidavit of an authorized officer of such owner, setting forth the fact of loss, theft or destruction and of its ownership of such Note at the time of such loss, theft or destruction shall be accepted as satisfactory evidence thereof 37 and no further indemnity shall be required as a condition to the execution and delivery of a new Note other than the written agreement of such owner to indemnify the Obligors. Section 9.4. Expenses, Stamp Tax Indemnity. Whether or not the transactions herein contemplated shall be consummated, the Obligors agree to pay directly all of your out-of-pocket expenses in connection with the preparation, execution and delivery of this Agreement and the transactions contemplated hereby, including but not limited to the charges and disbursements of Chapman and Cutler, your special counsel, duplicating and printing costs and charges for shipping the Notes, adequately insured to you at your home office or at such other place as you may designate, and all such expenses relating to any amendments, waivers or consents pursuant to the provisions hereof (whether or not the same are actually executed and delivered), including, without limitation, any amendments, waivers, or consents resulting from any work-out, renegotiation or restructuring relating to the performance by the Obligors of its obligations under this Agreement and the Notes. The Obligors also agree to pay, within five Business Days of receipt thereof, supplemental statements of Chapman and Cutler for disbursements unposted or not incurred as of the Closing Date and to pay and save you harmless against any and all liability with respect to stamp and other taxes, if any, which may be payable or which may be determined to be payable in connection with the execution and delivery of this Agreement or the Notes, whether or not any Notes are then outstanding and to protect and indemnify you against any liability for any and all brokerage fees and commissions payable or claimed to be payable to any Person in connection with the transactions contemplated by this Agreement. Without limiting the foregoing, the Obligors agree to pay the cost of obtaining the private placement number for the Notes and authorizes the submission of such information as may be required by Standard & Poor's CUSIP Service Bureau for the purpose of obtaining such number. Section 9.5. Powers and Rights Not Waived; Remedies Cumulative. No delay or failure on the part of the holder of any Note in the exercise of any power or right shall operate as a waiver thereof; nor shall any single or partial exercise of the same preclude any other or further exercise thereof, or the exercise of any other power or right, and the rights and remedies of the holder of any Note are cumulative to, and are not exclusive of, any rights or remedies any such holder would otherwise have. Section 9.6. Notices. All communications provided for hereunder shall be in writing and, if to you, delivered or mailed prepaid by registered or certified mail or overnight air courier, or by facsimile communication, in each case addressed to you at your address appearing on Schedule I to this Agreement or such other address as you or the subsequent holder of any Note initially issued to you may designate to the Obligors in writing, and if to the Obligors, delivered or mailed by registered or certified mail or overnight air courier, or by facsimile communication, to the Obligors c/o RMC at 7801 St. Helena Highway, Oakville, California 94562, Attention: Chief Financial Officer, or to such other address as the Obligors may in writing designate to you or to a subsequent holder of the Note initially issued to you; provided, however, that a notice to you by overnight air courier shall only be effective if delivered to you at a street address designated for such purpose in Schedule I, and a notice to you by facsimile communication shall only be effective if confirmed by transmission of a copy thereof by prepaid overnight air courier, or, in either case, as you or a subsequent holder of any Note initially issued to you may designate to the Obligors in writing. 38 Section 9.7. Successors and Assigns. This Agreement shall be binding upon the Obligors and their successors and assigns and shall inure to your benefit and to the benefit of your successors and assigns, including each successive holder or holders of any Notes. Section 9.8. Survival of Covenants and Representations. All covenants, representations and warranties made by the Obligors herein and in any certificates delivered pursuant hereto, whether or not in connection with the Execution Date or the Closing Date, shall survive the closing and the delivery of this Agreement and the Notes. Section 9.9. Severability. Should any part of this Agreement for any reason be declared invalid or unenforceable, such decision shall not affect the validity or enforceability of any remaining portion, which remaining portion shall remain in force and effect as if this Agreement had been executed with the invalid or unenforceable portion thereof eliminated and it is hereby declared the intention of the parties hereto that they would have executed the remaining portion of this Agreement without including therein any such part, parts or portion which may, for any reason, be hereafter declared invalid or unenforceable. Section 9.10. Governing Law. This Agreement and the Notes issued and sold hereunder shall be governed by and construed in accordance with California law, including all matters of construction, validity and performance. Section 9.11. Captions. The descriptive headings of the various Sections or parts of this Agreement are for convenience only and shall not affect the meaning or construction of any of the provisions hereof. 39 The execution hereof by you shall constitute a contract between us for the uses and purposes hereinabove set forth, and this Agreement may be executed in any number of counterparts, each executed counterpart constituting an original but all together only one agreement. THE ROBERT MONDAVI CORPORATION By Its R.M.E., INC. By Its Accepted as of June __, 1996. [VARIATION] By Its 40 NAMES AND ADDRESSES OF PURCHASERS PRINCIPAL AMOUNT OF NOTES TO BE PURCHASED METROPOLITAN LIFE INSURANCE COMPANY $40,000,000 One Madison Avenue New York, New York 10010 Attention: Treasurer Telecopier Number: (212) 578-3910 PAYMENTS All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as principal, premium or interest with respect to the 7.39% Senior Notes, due July 8, 2006 of The Robert Mondavi Corporation and R.M.E., Inc., Private Placement Number 77035* AB 3) to: The Chase Manhattan Bank, N.A. (ABA #021000021) Metropolitan Branch 33 East 23rd Street New York, New York 10010 for credit to: Metropolitan Life Insurance Company-Corporate Investments Account Number 002-2-410591 NOTICES All notices and communications, including notices with respect to payments and written confirmation of each such payment, to be addressed as first provided above with duplicate notices to: Metropolitan Life Insurance Company Fixed Income Investments- Private Placement Unit 334 Madison Avenue Convent Station, New Jersey 07961 Attention: Vice President Telecopier Number: (201) 254-3050 Metropolitan Life Insurance Company 2601 Main Street Suite 1210 Irvine, California 92714 Attention: Investment Department Telecopier Number: (714) 474-1630 Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 13-5581829 EXHIBIT D (to Note Agreement) 41 NAMES AND ADDRESSES OF PURCHASERS PRINCIPAL AMOUNT OF NOTES TO BE PURCHASED GOLDMAN, SACHS & CO. $10,000,000 85 Broad Street New York, New York 10004 Telecopier Number: (212) 902-1431 Receipt confirmation number: (212) 902-1370 PAYMENTS All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as principal, premium or interest with respect to the 7.39% Senior Notes, due July 8, 2006 of The Robert Mondavi Corporation and R.M.E., Inc., Private Placement Number 77035* AB 3) to: Chase Manhattan Bank (ABA No. 021-0000-21) 1 Chase Plaza New York, New York 10181 for credit to the account of Goldman, Sachs & Co.'s Account No. 930-1-011483 Attention: Bond Int. NOTICES All notices and communications, including notices with respect to payments, and written confirmation of each such payment, to be addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. No.: 13-510888 D-41 EX-11 4 EXHIBIT 11 1 EXHIBIT 11 THE ROBERT MONDAVI CORPORATION STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS COMPUTATION OF PRIMARY EARNINGS PER SHARE
YEAR ENDED JUNE 30, ----------------------------------------------- 1996 1995 1994 ----------- ----------- ----------- Weighted average number of common shares outstanding during the year 14,612,994 12,748,729 12,730,598 Common Stock equivalents considered to be outstanding for years presented: Options 589,514 38,292 -- Preferred shares -- -- -- =========== =========== =========== 15,202,508 12,787,021 12,730,598 =========== =========== =========== Net Income $24,438,000 $17,820,000 $ 9,512,000 =========== =========== =========== Primary earnings per share $ 1.61 $ 1.39 $ .75 =========== =========== ===========
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
YEAR ENDED JUNE 30, ----------------------------------------------- 1996 1995 1994 ----------- ----------- ----------- Weighted average number of common shares 14,612,994 12,748,729 12,730,598 outstanding during the year Common Stock equivalents considered to be outstanding for years presented: Options 668,364 370,032 -- Preferred shares -- -- -- =========== =========== =========== 15,281,358 13,118,761 12,730,598 =========== =========== =========== Net Income $24,438,000 $17,820,000 $ 9,512,000 =========== =========== =========== Fully Dilutive earnings per share $ 1.60 $ 1.36 $ .75 =========== =========== ===========
EX-23 5 EXHIBIT 23 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement on Form S-8 (No. 33-61516) of our report dated July 26, 1996 appearing on page 17 of The Robert Mondavi Corporation's Annual Report on Form 10-K for the year ended June 30, 1996. /s/ PRICE WATERHOUSE LLP - - ------------------------- Price Waterhouse LLP San Francisco, CA September 23, 1996 EX-27 6 FINANCIAL DATA SCHEDULE
5 1,000 US DOLLARS YEAR JUN-30-1996 JUL-01-1995 JUN-30-1996 1 0 0 39,495 0 142,565 185,840 227,791 71,037 361,195 33,083 123,713 0 0 85,726 102,529 361,195 240,830 240,830 122,385 122,385 70,707 0 8,814 40,467 16,029 24,438 0 0 0 24,438 1.61 1.60
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