**Exhibit 10.78**
**RETENTION BONUS AGREEMENT**
     This Retention Bonus Agreement (the “Agreement”) is made and entered intoeffective as of August 22, 2004 (the “Effective Date”), between CHALONE WINEGROUP, LTD., a California corporation (the “Company”), and Robert Farver(“Employee”).
**RECITALS**
     A. Employee is presently employed by the Company.
     B. Employee occupies a key position with the Company, and the Company mayrequire the services of Employee during the period commencing on the EffectiveDate through the earlier of, December 31, 2004, and the effective date of aChange of Control of the Company, in order to effectively administer certainaspects of the Company’s business during such time period.
     C. The Company desires to offer Employee a retention bonus as an incentivefor Employee to remain in the employment of the Company through the earlier of,December 31, 2004, and the effective date of a Change of Control of theCompany.
     NOW, THEREFORE, in consideration of the mutual covenants and agreementscontained herein, and with reference to the above recitals, the parties herebyagree as follows:
     **1. Incentive Date.**For purposes of this Agreement, the “Incentive Date”shall mean the earlier of: (a) December 31, 2004, or (b) the effective date ofa Change of Control of the Company.
     **2. Retention and Change of Control Bonuses.**In the event that Employee isemployed by the Company or its successor as of the Incentive Date, the Companyshall pay to Employee a retention bonus (the “Retention Bonus”), in a lump sumpayment, in an amount equal to twenty five percent (25%) of Employee’s annualbase salary. In addition, in the event of a Change of Control, and Employee isemployed by the Company or its successor as of the effective date of suchChange of Control (the “Change of Control Date”), the Company shall pay toEmployee an additional retention bonus (the “Change of Control Bonus”), in alump sum payment, in an amount equal to an additional twenty five percent (25%)of Employee’s annual base salary. For purposes of this Section 2, the rate ofEmployee’s base salary for purposes of determining his or her Retention Bonusand Change of Control Bonus shall be the Employee’s annual base salary as ineffect immediately prior to the Incentive Date or the Change of Control Date,as applicable. Such lump sum payment(s) shall be made within ten (10) daysfollowing the Incentive Date or the Change of Control Date, as applicable.
     **3. Definition of Terms.**For purposes of this Agreement, “Change ofControl” shall mean the occurrence of any of the following events:
          (a) Any “person” (as such term is used in Sections 13(d) and 14(d) of theSecurities Exchange Act of 1934, as amended) becoming the “beneficial owner”(as defined in Rule 13d-3 under said Act), directly or indirectly, ofsecurities of the Company representing fifty percent (50%) or more of the totalvoting power represented by the Company’s then outstanding voting securities;
 

 

          (b) A change in the composition of the Board of Directors of the Companyoccurring within a thirty-six (36) month period, as a result of which fewerthan a majority of the directors are Incumbent Directors. “IncumbentDirectors” shall mean directors who either (i) are directors of the Company asof the date hereof, or (ii) are elected, or nominated for election, to theBoard of Directors of the Company with the affirmative votes of at least amajority of the Incumbent Directors at the time of such election or nomination(but shall not include an individual not otherwise an Incumbent Director whoseelection or nomination is in connection with an actual or threatened proxycontest relating to the election of directors to the Company); or
          (c) The approval by shareholders of the Company of a merger orconsolidation of the Company with any other corporation, other than a merger orconsolidation which would result in the voting securities of the Companyoutstanding immediately prior thereto continuing to represent (either byremaining outstanding or by being converted into voting securities of thesurviving entity) at least fifty percent (50%) of the total voting powerrepresented by the voting securities of the Company or such surviving entityoutstanding immediately after such merger or consolidation, or the approval bythe shareholders of the Company of a plan of complete liquidation of theCompany or an agreement for the sale or disposition by Company of all orsubstantially all the Company’s assets.
     **4. Withholding.**The Retention Bonus and Change of Control Bonus, ifapplicable, payable to Employee shall be subject to applicable taxes andwithholding.
     **5. Severance Benefits.**This Agreement shall not affect Employee’seligibility or entitlement to receive benefits under any severance, change ofcontrol or similar agreement with the Company.
     **6. Other Rights and Agreements.**This Agreement does not create anyemployment rights not specifically set forth herein with respect to Employee.An Employee’s employment remains at-will and can be terminated by the Companyat any time and for any reason, with or without cause. This Agreement containsthe entire understanding of the Company and Employee with respect to thesubject matter hereof.
     **7. Amendment.**This Agreement may be amended or revised only by writtenagreement signed by an authorized officer of the Company and Employee.
     **8. Applicable Law.**This Agreement shall be construed and enforced inaccordance with the laws of the State of California, without giving effect tothe principles of conflict of laws thereof.
**[*****Signature page follows*****]**
 

 

     IN WITNESS WHEREOF, the parties have executed this Agreement as of thedate first above written.       “COMPANY”      By: /s/ Tom Selfridge