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During 1983, Winery began selling some of its 1982 vintage
sauvignon blanc. Once Winery had demonstrated that its wines
were salable, during December 1983, Bank of America granted
Winery a $500,000 line of credit and an equipment loan of
$200,000. As a condition of granting the line of credit, Bank
of America required that (1) Vineyards and the Groths subordinate
all of the debts owed them by Winery, totaling $893,000, to
Winery's obligations to the bank and (2) no payments on those
debts be made by Winery without the bank's consent. Vineyards
accordingly executed a subordination agreement to induce Bank of
America to extend credit to Winery. The bank also required
cross-collateralization by Vineyards and personal guarantees by
the Groths of the loan. During February 1985, Bank of America
increased Winery's line of credit to $1,000,000, and continued to
require Winery's debts to Vineyards to be subordinate to Winery's
obligations to the bank. Vineyards subsequently executed
subordination agreements dated November 14, 1985, and March 31,
1986.
During 1986, Winery was not achieving the sales goals
expected by Bank of America, and the bank declined to raise
Winery's line of credit to $1,500,000. As a consequence, Winery
was put in a difficult financial position. Winery sold some of
its 1984 and 1985 vintages in bulk, which fetched a lower price
than could have been obtained had the wine been bottled, but
which saved costs, as well as unused barrels. During December
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