Exhibit 10.71

EXECUTION VERSION

THE CHALONE WINE GROUP, LTD.

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THIRD AMENDMENT

Dated as of August 15, 2004

To

AMENDED AND RESTATED NOTE PURCHASE AGREEMENT
Dated as of April 19, 2002

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Re: $5,000,000 Adjustable Rate Senior Secured Guaranteed Notes, Series A,
Due September 15, 2010
$10,000,000 Adjustable Rate Senior Secured Guaranteed Notes, Series B,
Due September 15, 2010
$15,000,000 Adjustable Rate Senior Secured Guaranteed Notes, Series C,
Due September 15, 2010

 

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THIRD AMENDMENT TO AMENDED AND RESTATED NOTE PURCHASE AGREEMENT

This Third Amendment dated as of August 15, 2004 (the or this “Third Amendment”)
to the Amended and Restated Note Purchase Agreement dated as of April 19, 2002
is among The Chalone Wine Group, Ltd., a California corporation (the “Company”),
the Subsidiary Guarantors (as defined below) and Farm Credit Services of
America, PCA and Farm Credit Services of Minnesota Valley, PCA, DBA FCS
Commercial Finance Group (collectively, the “Noteholders”).

RECITALS:

          A. The Company and the Noteholders have heretofore entered into that
certain Amended and Restated Note Purchase Agreement dated as of April 19, 2002,
as amended by that certain First Amendment to Amended and Restated Note Purchase
Agreement dated July 11, 2002 and that certain Second Amendment to Amended and
Restated Note Purchase Agreement dated August 15, 2004 (as so amended and
otherwise amended, restated, supplemented or otherwise modified from time to
time, the “Note Agreement”). The Company has heretofore issued its $5,000,000
Adjustable Rate Senior Secured Notes, Series A, Due September 15, 2010 bearing
PPN 157639 B*5 (the “Series A Notes”), its $10,000,000 Adjustable Rate Senior
Secured Notes, Series B, Due September 15, 2010 bearing PPN 157639 C* 4 (the
“Series B Notes”), and its $15,000,000 Adjustable Rate Senior Secured Notes,
Series C, Due September 15, 2010 bearing PPN 157639 B# 1 (the “Series C Notes”;
the Series A Notes, the Series B Notes and the Series C Notes are hereinafter
collectively referred to as the “Notes”) pursuant to the Note Agreement. The
Noteholders are the holders of 100% of the principal amount of the Notes
presently outstanding.

          B. Edna Valley Vineyard, a California general partnership (“Edna
Valley”), SHW Equity Co,, a Washington corporation (“SHW”), Canoe Ridge
Vineyard, LLC, a Washington limited liability company (“Canoe Ridge”), Canoe
Ridge Winery, Inc., a Washington corporation (“CRW”), and Staton Hills Winery
Company Limited, a Washington corporation (“Staton”; Edna Valley, SHW, Canoe
Ridge, CRW and Staton are hereinafter collectively referred to as the
“Subsidiary Guarantors”), have heretofore entered into those certain Amended and
Restated Subsidiary Guarantee Agreements, each dated as of April 19, 2002
(collectively, the “Subsidiary Guarantee Agreements”) under and pursuant to
which each of the Subsidiary Guarantors guaranteed the payment of the Notes and
the performance by the Company of its obligations under the Note Agreement.

          C. The Company and the Noteholders now desire to amend the Note
Agreement in the respects, but only in the respects, hereinafter set forth. The
Subsidiary Guarantors now desire to affirm their respective obligations under
the Subsidiary Guarantee Agreements.

          D. All requirements of law have been fully complied with and all other
acts and things necessary to make this Third Amendment a valid, legal and
binding instrument according to its terms for the purposes herein expressed have
been done or performed.

 

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          NOW, THEREFORE, upon the full and complete satisfaction of the
conditions precedent to the effectiveness of this Third Amendment set forth in
Section 7 hereof, the Company, the Subsidiary Guarantors and the Noteholders,
for good and valuable consideration the receipt and sufficiency of which is
hereby acknowledged, do hereby agree as follows:

     SECTION 1 Definitions; References. Unless otherwise specifically defined
herein, each term used herein which is defined in the Note Agreement shall have
the meaning assigned to such term in the Note Agreement. Each reference to
“hereof”, “hereunder”, “herein” and “hereby” and each other similar reference
and each reference to “this Agreement” and each other similar reference
contained in the Note Agreement shall from and after the date hereof refer to
the Note Agreement as amended hereby.

     SECTION 2 Amendments.

     (a) Schedule B to the Note Agreement shall be and is hereby amended by
adding the definition of “Proposed Acquisition” as follows:

     “ ‘Proposed Acquisition’ means, the proposed acquisition of all or some
portion of the Company’s outstanding publicly held             shares of common
stock by an affiliate of Domaines Barons de Rothschild (Lafite), announced on
May 17, 2004 or a proposed acquisition by a competing bidder or bidders of all
or some portion of the Company’s outstanding publicly held shares of common
stock, as any such proposals may be amended from time to time.”

     (b) Schedule B to the Note Agreement shall be and is hereby amended by
adding the following sentence at the end of the definition of “Change of
Control”, “For the avoidance of doubt, the consummation of the Proposed
Acquisition shall constitute a Change of Control.”

     (c) Schedule B to the Note Agreement shall be and is hereby amended by
deleting the definition of “Consolidated EBIT” and replacing the following
definition therefor:

     “ ‘Consolidated EBIT’ means, for any period, Consolidated Net Income
(computed without giving effect to any gains or losses from dispositions of
assets and other extraordinary items) plus Consolidated Interest Expense plus
income tax expense plus nonrecurring cash and non-cash charges allocated,
accrued and/or paid in respect of the Proposed Acquisition during the period
from May 17, 2004 to December 31, 2004 (not to exceed $1,000,000 in the
aggregate with respect to expenses, and not to exceed $1,500,000 in the
aggregate with respect to any success fee paid or payable in connection with the
completion of the Proposed Acquisition (the “Permitted Success Fee”), in each
case, which were deducted in determining Consolidated Net Income of the Company
and its Subsidiaries on a consolidated basis as determined in accordance with
GAAP.”

     (d) Schedule B to the Note Agreement shall be and is hereby amended by
deleting the definition of “Consolidated EBITDA” and replacing the following
definition therefor:

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     “ ‘Consolidated EBITDA’ means, for any period, Consolidated Net Income
(computed without giving effect to any gains or losses from dispositions of
assets and other extraordinary items) plus Consolidated Interest Expense plus
income tax expense plus depreciation expense, amortization expense and other
non-cash expenses plus nonrecurring cash and non-cash charges allocated, accrued
and/or paid in respect of the Proposed Acquisition during the period from
May 17, 2004 to December 31, 2004 (not to exceed $1,000,000 in the aggregate
with respect to expenses, and not to exceed $1,500,000 in the aggregate with
respect to any the Permitted Success Fee), in each case, which were deducted in
determining Consolidated Net Income of the Company and its Subsidiaries on a
consolidated basis as determined in accordance with GAAP,”

     (e) Schedule F to the Note Agreement shall be and is hereby amended and
restated in its entirety to read as set forth in Annex 1 hereto.

     SECTION 3 Representations and Warranties of the Company and Subsidiary
Guarantors. To induce the Noteholders to execute and deliver this Third
Amendment (which representations shall survive the execution and delivery of
this Third Amendment), each of the Company and the Subsidiary Guarantors
represent and warrant to the Noteholders that:

     (a) since December 31. 2003, there has been no change in the condition,
financial or otherwise, of the Company and its Subsidiaries as shown on the
consolidated balance sheet as of such date except changes in the ordinary course
of business, none of which individually or in the aggregate has had, or
reasonably could be expected to have, a Material Adverse Effect;

     (b) this Third Amendment has been duly authorized, executed and delivered
by it and this Third Amendment constitutes the legal, valid and binding
obligation, contract and agreement of the Company and Subsidiary Guarantors
enforceable against it in accordance with its terms, except as enforcement may
be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or limiting creditors’ rights generally and general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or in law);

     (c) the Note Agreement, as amended by this Third Amendment, constitutes the
legal, valid and binding obligation, contract and agreement of the Company
enforceable against it in accordance with its terms, except as enforcement may
be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or limiting creditors’ rights generally and general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or in law);

     (d) the execution, delivery and performance by the Company and Subsidiary
Guarantors of this Third Amendment (i) has been duly authorized by all requisite
corporate action and, if required, shareholder action, (ii) does not require the
consent or approval of any governmental or regulatory body or agency, and (iii)
will not (A) violate (1) any provision of law, statute, rule or regulation or
its certificate of incorporation or bylaws, (2) any order of any court or any
rule, regulation or order of any other agency or

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     government binding upon it, or (3) any provision of any material indenture,
agreement or other instrument to which it is a party or by which its properties
or assets are or may be bound, including, without limitation, the Credit
Agreement, or (B) result in a breach or constitute (along or with due notice or
lapse of time or both) a default under any indenture, agreement or other
instrument referred to in clause (iii)(A)(3) of this Section 3(d);

     (e) as of the date hereof and after giving effect to this Third Amendment,
no Default or Event of Default has occurred which is continuing; and

     (f) except as otherwise set forth in the Schedules to the Note Agreement or
on Schedule I hereto, all the representations and warranties contained in
Section 5 of the Note Agreement are true and correct in all material respects
with the same force and effect as if made by the Company and Subsidiary
Guarantors on and as of the date hereof.

     SECTION 4 Amendment to Post-Closing Undertakings Agreement. Subject to the
terms and conditions hereof, the completion deadline of the third post-closing
condition specified on Schedule I of the Post-Closing Undertakings Agreement
(the requirement of delivery of fully executed acknowledgements of bailees or
collateral access agreements with respect to Inventory located at third-party
locations or at locations leased by the Company or a Subsidiary Guarantor),
shall be changed from May 28,2004 to August 31, 2004.

     SECTION 5 Affirmation of Subsidiary Guarantee Agreements, Each of the
Subsidiary Guarantors hereby affirm each of their obligations under their
respective Subsidiary Guarantee Agreements after giving effect to this Third
Amendment.

     SECTION 6 Covenant. The Company shall provide to the Noteholders, in form
and substance satisfactory to them, all such further information relating to
expenses related to and other financial aspects of the Proposed Acquisition, the
Processing Payables (as defined in the Credit Agreement) and stock options
issued by the Company or its Subsidiaries as the Noteholders may reasonably
request,

     SECTION 7 Conditions to Effectiveness of this Amendment. This Third
Amendment shall not become effective until, and shall become effective when,
each and every one of the following conditions shall have been satisfied:

     (a) executed counterparts of this Third Amendment, duly executed by the
Company, the Subsidiary Guarantors and the Required Holders, shall have been
delivered to the Noteholders;

     (b) the Noteholders shall have received evidence satisfactory to them that
the Credit Agreement has been amended and restated which amendment and
restatement shall be in form and substance satisfactory to the Noteholders;

     (c) the representations and warranties of the Company and the Subsidiary
Guarantors set forth in Section 3 hereof are true and correct on and with
respect to the date hereof;

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     (d) each Noteholder shall have received opinions in form and substance
satisfactory to such Noteholder from special counsel for the Company covering
such matters incident to the transactions contemplated hereby as such Noteholder
may reasonably request; and

     (e) the Company shall have paid the reasonable fees and expenses of
McDermott, Will & Emery, counsel to the Noteholders, in connection with the
negotiation, preparation, approval, execution and delivery of this Third
Amendment.

     SECTION 8 Miscellaneous.

     (a) This Third Amendment shall be construed in connection with and as part
of the Note Agreement and the Post-Closing Undertakings Agreement, as the case
may be, and except as modified and expressly amended by this Third Amendment,
all terms, conditions and covenants contained in the Note Agreement and the
Post-Closing Undertakings Agreement, as the case may be, as amended on the date
hereof, are hereby ratified and shall be and remain in full force and effect.

     (b) Any and all notices, requests, certificates and other instruments
executed and delivered after the execution and delivery of this Third Amendment
may refer to the Note Agreement without making specific references to this Third
Amendment but nevertheless all such references shall include this Third
Amendment unless the context otherwise requires,

     (c) The descriptive headings of the various Sections or parts of this Third
Amendment are for convenience only and shall not affect the meaning or
construction of any of the provisions hereof.

     (d) This Third Amendment shall be governed by and construed in accordance
with New York law.

     (e) The execution hereof by you shall constitute a contract between us for
the uses and purposes hereinabove set forth, and this Third Amendment may be
executed in any number of counterparts, each executed counterpart constituting
an original, but all together only one agreement.

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     IN .WITNESS WHEREOF, the parties hereto have caused this Third Amendment to
be duly executed by their respective authorized officers as of the day and year
first above written. Title

                  THE CHALONE WINE GROUP, LTD,
 
           

  By:   /s/ THOMAS SELFRIDGE

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  Title:   President and CEO    
 
                EDNA VALLEY VINEYARD  
 
  By:   The Chalone Wine Group, Ltd.,    

      Managing General Partner    
 
           

  By:   /s/ THOMAS SELFRIDGE

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  Title:   President and CEO    
 
                SHW EQUITY CO.  
 
  By:   /s/ THOMAS SELFRIDGE

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  Title:   President and CEO    
 
                CANOE RIDGE VINEYARD LLC  
 
  By:   /s/ THOMAS SELFRIDGE

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  Title:   President and CEO    
 
                CANOE RIDGE WINERY, INC,
 
           

  By:   /s/ THOMAS SELFRIDGE

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  Title:   President and CEO    
 
                STATON HILLS WINERY COMPANY LIMITED
 
           

  By:   /s/ THOMAS SELFRIDGE

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  Title:   President and CEO    

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              Accepted and Agreed;   FARM CREDIT SERVICES OF AMERICA,
PCA

  By:   /s/ Bruce P. Rouse

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  Title:   Vice President    

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Accepted and Agreed:
  FARM CREDIT SERVICES OF MINNESOTA
VALLEY, PCA, DBA FCS COMMERCIAL
FINANCE GROUP
 
   
 
  By:   /s/ James M. Grafing
 
     

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      Name: James M. Grafing
 
      Title:  SVP - Syndicated Finance

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ANNEX 1 TO THIRD AMENDMENT

FORM OF COMPLIANCE CERTIFICATE

To Each Of The Purchasers
Listed In The Attached Schedule 2

    Re: The Chalone Wine Group, Ltd.

Ladies and Gentlemen:

          This Compliance Certificate is made and delivered pursuant to the
Amended and Restated Note Purchase Agreement dated as of April 19, 2002 (as
amended, modified, supplemented, renewed or extended from time to time, the
“Note Purchase Agreement”) among The Chalone Wine Group, Ltd. (the “Company”),
and each of the Purchasers listed in the attached Schedule 2, and reference is
made thereto for full particulars of the matters described therein. All
capitalized terms used in this Compliance Certificate and not otherwise defined
herein shall have the meanings assigned to them in the Note Purchase Agreement.
This Compliance Certificate relates to the accounting period ending Fillinng
rule.

          I am the [Chief Financial Officer] of the Company. I have reviewed the
terms of the Note Purchase Agreement and I have made, or caused to be made under
my supervision, a detailed review of the transactions and conditions of the
Company and its Subsidiaries during such accounting period. I hereby certify
that the information set forth on Schedule 1 hereto (and on any additional
schedules hereto setting forth further supporting detail) is true, accurate and
complete as of the end of such accounting period.

          I hereby further certify that (i) as of the date hereof, no Default
has occurred and is continuing, and (ii) on and as of the date hereof, there has
occurred no Material Adverse Effect since December 31, [        ] in each case
as may be set forth in a separate attachment hereto describing in detail the
nature of each condition or event constituting an exception to the foregoing
statements, the period during which it has existed and the action which the
Company is taking or proposes to take with respect to each such condition or
event.

          IN WITNESS WHEREOF, the undersigned officer has signed this Compliance
Certificate this                    day of                    .

     

 

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  Name:  

  Title:

EXHIBIT F
(to the Note Purchase Agreement)

 

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Schedule 1
To Compliance Certificate

Worksheet for Financial Covenants

for the accounting period ending                                      .

              Section 10.4(a) – Leverage Ratio   Actual   Required              
A.
  Consolidated Indebtedness        
 
           

  (i) total Indebtedness of the Company and its Subsidiaries on a consolidated
basis   $                       
 
           

  (ii) accounts payable to trade creditors for goods and services and current
operating liabilities (not the result of the borrowing of money) incurred in the
ordinary course of the Company’s or the Subsidiaries’ business in accordance
with customary terms and paid within the specified time (unless contested in
good faith by appropriate proceedings and reserved for in accordance with GAAP)
  $                       
 
           

  (iii) current operating liabilities (not the result of the borrowing of money)
incurred in the ordinary course of the Company’s or the Subsidiaries’ business
in accordance with customary terms and paid within the specified time (unless
contested in good faith by appropriate proceedings and reserved for in
accordance with GAAP).   $                       
 
           

  (iv) indebtedness owing by the Company to the estate of Richard Graff in a
principal amount not to exceed $1,000,000   $                       

 

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  Sum of (i) minus (ii) minus (iii) minus (iv)   $                       
 
            B.   600% of Consolidated Rent Expense (calculated on a rolling
4-quarter basis)   $                       
 
            C.   A + B        
 
            D.   Consolidated EBITDA (calculated on a rolling 4-quarter basis)  
$                       
 
           

  (i) Consolidated Net Income (computed without giving effect to any gains or
losses from dispositions of assets and other extraordinary items)   $           
           
 
           

  (ii) Consolidated Interest Expense (iii)
income tax expense   $                       
 
           

  (iv) depreciation expense, amortization
expense, other non-cash expenses   $                       
 
           

  (v) nonrecurring cash and non-cash charges incurred in respect of the Proposed
Acquisition during the period of May 17, 2004 to December 31,2004   $           
           
 
                Sum of (i) + (ii) + (iii) + (iv) + (v)   $                     
 
 
            E.   Consolidated Rent Expense (calculated on a rolling 4-quarter
basis)   $                       
 
            F.   D + E   $                       
 
            G.   Ratio of C to F             :              See Section 10.4(a)
of the Note Purchase Agreement
 
            Section 10.4(b) – Consolidated Tangible Net Worth        

EXHIBIT F
(to the Note Purchase Agreement)

 

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A.
  Minimum Consolidated Tangible Net Worth Calculation        
 
           

  (i) $76,000,000   $                      $76,000,000
 
           

  (ii) Net Issuance Proceeds received by the Company or any Subsidiary from the
sale or issuance of equity securities to any Person other than the Company or
any Subsidiary after December 31, 2001   $                       
 
           

  (iii) Net Issuance Proceeds received by the Company or any Subsidiary from the
sale or issuance of Subordinated Debt to any Person other than the Company or
any Subsidiary after December 31, 2001d   $                       
 
           

  (iv) 75% of positive Consolidated Net Income, if any, for each fiscal quarter
elapsed after December 31,2001   $                       
 
           

  Sum of (i) + (ii) + (iii) + (iv)   $                       
 
            B.   Consolidated Tangible Net Worth        
 
           

  (i) Consolidated Total Assets   $                       
 
           

  (ii) Intangible Assets (including goodwill, organizational expense, research
and development expense, patent applications, patents, trademarks, trade names,
brands, copyrights, trade secrets, customer lists, licenses, franchises and
covenants not to compete)   $                       
 
           

  (iii) Subordinated Debt   $                       
 
           

  (iv) Consolidated Total Liabilities   $                       
 
           

  Sum of (i) - (ii) + (iii) - (iv)        

EXHIBIT F
(to the Note Purchase Agreement)

 

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C.
  Excess (deficient) for covenant compliance   $                       
 
  (B minus A)        
 
            Section 10.4(c) – Interest Coverage Ratio        
 
           
A.
  Consolidated EBIT (calculated on a rolling 4-quarter basis)   $               
       
 
           

  (i) Consolidated Net Income (computed without giving effect to any gains or
losses from dispositions of assets and other extraordinary items)   $           
           
 
           

  (ii) Consolidated Interest Expense   $                       
 
           

  (iii) income tax expense   $                       
 
           

  (iv) nonrecurring cash and non-cash charges incurred in respect of the
Proposed Acquisition during the period from May 17, 2004 to December 31, 2004  
$                       
 
           

  Sum of (i) + (ii) + (iii) + (iv)   $                       
 
            B.    Consolidated Interest Expense (calculated on a rolling
4-quarter basis)   $                       
 
            C.   Ratio of A to B   $                      See Section 10.4(c) of
the Note Purchase Agreement
 
            Section 10.4(d) – Fixed Charge Coverage Ratio        
 
            A.   Consolidated EBITDA (calculated on a rolling 4-quarter basis)  
$                       

EXHIBIT F
(to the Note Purchase Agreement)

 

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              B. Fixed Charge calculation        
 
           

  (i) Consolidated Interest Expense
(calculated on a rolling 4-quarter basis)   $                       
 
           

  (ii) regularly scheduled principal payments on Indebtedness (including such
payments attributable to Capital Leases) of the Company and its Subsidiaries for
the four consecutive fiscal quarters then most recently ended   $               
       
 
           

  (iii) cash income taxes of the Company and its Subsidiaries for the four
consecutive fiscal quarters then most recently ended   $                       
 
           

  (iv) cash dividends of the Company and its Subsidiaries for the four
consecutive fiscal quarters then most recently ended   $                       
 
           

  Sum of (i) + (ii) + (iii) + (iv)   $                       
 
            C. Ratio of A to B           :             See Section 10.4(d) of
the Note Purchase Agreement
 
            Section 10.4(e)(i)–. Capital Expenditure on new wine barrels        
 
           
A.
  Capital expenditures made on new wine barrels during fiscal year to date   $ 
                     
 
           
B.
  Capital expenditures on new wine barrels that could have been made during
prior fiscal year but which were not made   $                       
 
           
C.
  Maximum permitted capital
expenditures on wine barrels
($                     plus Line B above)   $                       

EXHIBIT F
(to the Note Purchase Agreement)

 

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D.
  Excess (deficient) for covenant compliance (C minus A)   $                   
   
 
            Section 10.4(e)(ii) – Capital Expenditure on other fixed or capital
assets        
 
           
A.
  Capital expenditures made on other assets during fiscal year to date   $     
                 
 
           
B.
  Capital expenditures on other assets that could have been made during prior
fiscal year but which were not made   $                       
 
           
C.
  Maximum permitted capital expenditures on other assets ($                    
plus Line B above)   $                       
 
           
D.
  Excess (deficient) for covenant compliance (C minus A)   $                   
   
 
            Section 10.8(h) – Intercompany Loans        
 
           
A.
  Canoe Ridge Intercompany Loan Amount   $                      Maximum amount
permitted
$                   
 
           
B.
  Edna Valley Intercompany Loan Amount   $                      Maximum amount
permitted
$                   
 
           
C.
  SHW Intercompany Loan Amount   $                      Maximum amount permitted
$                   
 
                D. A + B + C   $                      Maximum amount permitted
$                   

EXHIBIT F
(to the Note Purchase Agreement)