John Salisbury’s Personal Account of His Vineyard LLC Chapter 12

Editor’s note:

John Salisbury sent Wine Industry Insight the following personal account of the events leading up to the Chapter 12 Bankruptcy filing by Salisbury Vineyards, LLC.  The personal struggles will certainly resonate clearly with many others in the industry. Also, as we pointed out in our original article, this bankruptcy filing concerns the vineyard-only LLC and not the Salisbury Vineyards, Inc. winery and tasting room corporation.

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The reorganization has to do with only one of the four vineyards we either own or lease. It has nothing to do with the bulk of the grape growing, wine making, wine sales, or the Schoolhouse property which are all doing well.

Salisbury Vineyards, Inc is our main business that farms two thirds of our 80 acres, makes the wine, and sells 98% of our 5,000 cases annual production out of our old Schoolhouse tasting room at retail less appropriate discounts.The last two summers we have sold out of many of our main varietals.

Thanks to this year’s great production and cutting back on spot grape sales, we have tripled our tonnage. One third of this wine has been placed on the bulk wine market with half already sold at good prices and remaining half has pending offers. We have long term contracts with four other wineries for our excess Pinot Noir (avg. $3,300/ton) and have eight other varietals that round out the rest of the production.

That leaves us with 10,000 cases that we will bottle over the next year and a half so that we will not only have sufficient supply for the tasting room but for the first time have wine to sell on the outside market.

Our Avila Valley Vineyard Partners, LLC owns the 102 year old rehabilitated Schoolhouse and the real estate it sits on. Salisbury & Rucks Family Farms, LLC does custom farming and sales of other organic crops besides grapes, mature tree relocation, and Certified Arborist services.

All three of these companies are in good shape and each are separate legal entities. Salisbury Vineyards, LLC owns the 113 acres surrounding the Bassi Ranch Estates in Avila Valley and has a small interest in the vacant property south of the Schoolhouse.

In 2000 we entered into a 32 year lease with Robin L. Rossi Living Trust, cleaned up the abandoned citrus/apple orchard and nursery, and planted 28 acres of winegrapes at a cost of over $800,000 cash because no liens could be placed on the leased property. We recently successfully drilled a 680 foot well that produces 150 gpm which is gusher in these parts which we share with the Bassi Ranch HOA.

In January of this year, we were blindsided with the knowledge that our landlord, in July of 2008, borrowed $800,000 secured by the property with very high interest all due this past January. He came to us because we had a First Right of Refusal and said his partner wanted to buy the property and plant the remaining available acreage on the ranch.

We checked out our legal position on the lease, that we were very happy with and had another 22 years to go, and found out that it could possibly be broken with the sale. Therefore, in order to protect our investment and our water rights, we reluctantly exercised our right to buy. We took over the $800,000 note, borrowed another $400,000 from the same lender, and secured the balance of $275,000 with the seller on a short term note. The Robin L. Rossi Living Trust received 80% of the sale price of $1,500,000 in a two day escrow.

We immediately started the loan process with our local Ag lender who did an appraisal which came in at $2,000,000 which was a half million dollars over the sale price. The lender said because of the equity they could loan up to 65% ($1,300,000) at around 5% on a long term mortgage with guarantees. At this time, we were changing accountants and going through an extensive audit but were finally able to get our financials to the bank.

As we were getting close to the end of the term of the Rossi note, it was evident that we would not get our funding done in time. So we had a meeting of all of the creditors and asked for a little more time. We thought we had a gentleman’s agreement to let the loan process play out; however, even though the seller had no money out of pocket, he surprisingly filed a default notice the next week which was his right. This action effectively stopped the loan process with the Ag lender and that of a commercial bank that we were using as a backup loan.

The default notice started a 90 day clock during which we hustled to find private financing which is not easy in this financial climate. However, we did find some interest but no one could come up with the money until after the first of the year because they had already committed their funds for this year.

We even tried to work with the seller, who offered to buy back the property for much less than the appraised value, and get back our lease but the terms were just not realistic. So at the last minute to buy more time, we had to file for a reorganization under a special statute for fishermen and family farmers which we qualify for because our family has been continuously farming in the State for 160 years plus all the way back to pre-revolutionary war times on east coast.

We have a realistic plan that will pay all the creditors in a relatively short period of time including the non-secured who are mostly ex-partners, friends, and family whom we have been buying out over the last several years.

In a little while, all this and our 15 minutes of fame will have all blown over but most importantly we will continue to own the land for future generations. I hope this note clears up some of the confusion.

This may be just a sign of the times with everyone doing what they have to do, but most importantly we are fine and still very optimistic about our future.

Merry Christmas,

John