March, 2002 STONE CREEK VINEYARDS 2000 “If you accept my offer of $11 million dollars, the employment agreement will allow you and your sister to remain as managers for the next ten years. You will be able to continue to define the styles and tastes of Stone Creek’s red and white table wines, just as you have been doing for the last 9 years and you will be able to implement plans for developing and expanding these brands throughout the United States. Yet, you will be relieved of ownership and financing responsibilities. Together we will continue to build our brands, expand our production and distribution, and move towards producing fine wines for the higher end of the premium market segment.” This was the essence of the proposal Weather conditions could affect the quantity and quality of grape production. Insect damage and disease could affect the grape vines. New vines take 4 to 5 years before commercial production of grapes can be expected. When the grapes are ready, they are picked and carefully brought from the fields to the crushing facility. There is only one crop per year and crushing takes from one to two months. Therefore the investment in this facility is idle at least 10 months of the year. Since all the grapes in a region mature at approximately the same time, there is no way to rent out crushing capacity to other wineries at other times of the year. Fermentation takes place in stainless steel tanks that are temperature controlled. This process takes only weeks after the crush, so this investment also is idle more than 85 percent of the time. From the fermentation tanks, the wine is put into oak barrels for aging. These barrels are quite costly, at $600 to $700 each and, due to quality concerns, are used for only 4 to 5 years, at which time their value is negligible. A barrel aging facility is a large open space that also must be climate controlled. During the aging process, some wine is lost due to evaporation through the oak. Over a two year period, about 5% of wine value is lost. WINE PRODUCTION IN THE UNITED STATES The internal structure of the wine industry in America had been undergoing fundamental changes in the 1980’s and 1990’s. In terms of
