Oakcross Vineyards, LTD., Dennis D. Groth, Tax Matters Partner - Page 13

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               Vineyards sold grapes to Winery at market value.  Winery               
          made no payments to Vineyards during 1982 or 1983 for grape                 
          purchases because funds were not available.  Vineyards sold                 
          grapes to Winery during 1983 because Mr. Groth believed that                
          Winery would eventually become successful.  During March 1984,              
          Winery made its first payment to Vineyards for 1982 sauvignon               
          blanc grapes used in wine being sold at that time.  That payment,           
          and subsequent payments to Vineyards, were made with funds                  
          provided by Winery's line of credit from Bank of America, and the           
          bank consented to the March 1984 payment.  In deciding whether to           
          approve the payment, the bank considered whether the wines made             
          from the grapes purchased from Vineyards had been released for              
          sale, and Vineyards would be paid 6 months after a wine's                   
          release.  At that time, Winery customarily released its sauvignon           
          blanc after 1 year, its chardonnay after 2 years and its cabernet           
          sauvignon after 3 years.  Winery also produced relatively small             
          quantities of a reserve cabernet sauvignon that was released 1              
          year after the estate cabernet was released.  A subsequent                  
          vintage was not released until the prior one had been sold.                 
               By addenda to subordination agreements dated November 14,              
          1985, and March 31, 1986, that were executed by it, Vineyards               
          consented to receive payments from Winery only for those grapes             
          that had been made into wine that had been released for sale by             
          Winery for a minimum of 7 months.  Vineyards acknowledged,                  
          however, that payments were allowed only to the extent they did             

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