**Exhibit 10.68**
**[Execution Version]**
**AMENDED AND RESTATED SECURITY AGREEMENT**
          THIS AMENDED AND RESTATED SECURITY AGREEMENT (this “Agreement”), dated asof May 11, 2004, is made among The Chalone Wine Group, Ltd., a Californiacorporation (the “Borrower”), Canoe Ridge Vineyard, L.L.C., a Washingtonlimited liability company (“Canoe Ridge”), SHW Equity Co., a Washingtoncorporation (“SHW”), Staton Hills Winery Company Limited, a Washingtoncorporation (“Staton Hills”), Canoe Ridge Winery, Inc. a Washington corporation(“CRW”) (the Borrower, Canoe Ridge, CRW, SHW and Staton Hills, individually a“Debtor” and collectively, the “Debtors”) and Cooperatieve CentraleRaiffeisen-Boerenleenbank B.A., “Rabobank International”, New York Branch(“Rabobank”), as Collateral Agent.
          The Borrower, certain lenders and Rabobank, as issuer of letters of credit(in such capacity, the “Issuing Lender”), as swingline lender (in suchcapacity, the “Swingline Lender”) and as administrative agent (in suchcapacity, the “Agent”), are parties to an Amended and Restated Credit Agreementdated as of May 11, 2004 (as the same may be hereafter amended, restated,modified, supplemented, renewed or extended from time to time, the “CreditAgreement”) pursuant to which the Lenders have made available to the Borrower arevolving credit facility and term loan facility, as provided therein.
          The Borrower is also party to that certain Amended and Restated NotePurchase Agreement dated as of April 19, 2002 (the “Note Agreement”), enteredinto by the Borrower with the Purchasers listed on the signature pages thereto.Pursuant to the Note Agreement, the Borrower delivered certain amended andrestated notes to the Purchasers (the “Amended and Restated Senior SecuredNotes”). The Borrower has requested that the Noteholders amend the NoteAgreement and the Noteholders are willing to enter into and execute thatcertain Second Amendment to Note Purchase Agreement dated May 11, 2004 ( as thesame may hereafter be amended, modified and/or restated from time to time, the“Amended and Restated Note Agreement”).
          It is a condition precedent to the amendment and restatement of the CreditAgreement, that each Debtor enter into this Agreement to amend and restate theOriginal Security Agreement and grant to the Collateral Agent, for itself andfor the ratable benefit of the Agent, the Lenders and the Noteholders, thesecurity interests hereinafter provided to secure the obligations of theDebtors as described below.
          The Collateral Agent, the Agent, the Lenders, the Noteholders and theDebtors have entered into an Intercreditor and Collateral Agency Agreementdated as of April 19, 2002 (as amended, restated, supplemented or otherwisemodified from time to time, the “Intercreditor Agreement”) pursuant to which,among other things, the Lenders and Noteholders have agreed (i) to theappointment of Rabobank as Collateral Agent and (ii) to the relative priorityof their security interests in the Collateral and the manner and order in whichcertain rights and remedies of the Lenders and Noteholders may be exercised,all as provided therein.
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          Accordingly, the parties hereto agree as follows:
          SECTION 1 Definitions; Interpretation.
          (a) Terms Defined in Credit Agreement. All capitalized terms used in thisAgreement (including in the preamble and recitals hereof) and not otherwisedefined herein shall have the meanings assigned to them in the CreditAgreement.
          (b) Certain Defined Terms. As used in this Agreement (including in thepreamble and recitals hereof), the following terms shall have the followingmeanings:
          “Accounts” means any and all of any Debtor’s accounts, as such term isdefined in Section 9-102 of the UCC.
          “Appraised Winery Equipment” means the equipment (including, withoutlimitation, all crushing, pressing, processing, bottling and lab equipment,pumps, stainless steel cooperage and wood barrels) which is identified in theappraisal reports delivered by or on behalf of the Borrower to the Agent andthe Noteholders prior to the date hereof in respect of the Acacia, Carmenet,Chalone, Canoe Ridge and Sageland vineyard properties and improvements.
          “Books” means all books, records and other written, electronic or otherdocumentation in whatever form maintained now or hereafter by or for any Debtorin connection with the ownership of its assets or the conduct of its businessor evidencing or containing information relating to the Collateral, including:(i) ledgers; (ii) records indicating, summarizing, or evidencing any Debtor’sassets (including Inventory and Rights to Payment), business operations orfinancial condition; (iii) computer programs and software; (iv) computer discs,tapes, files, manuals, spreadsheets; (v) computer printouts and output ofwhatever kind; (vi) any other computer prepared or electronically stored,collected or reported information and equipment of any kind; and (vii) any andall other rights now or hereafter arising out of any contract or agreementbetween any Debtor and any service bureau, computer or data processing companyor other Person charged with preparing or maintaining any of such Debtor’sbooks or records or with credit reporting, including with regard to suchDebtor’s Accounts.
          “Bulk Wine” means any and all of any Debtor’s bulk wine, whether held forsale in the bulk wine market or otherwise, and whether or not classified as“inventory” under Section 9-102 of the UCC.
          “Chattel Paper” means any and all of any Debtor’s chattel paper, as suchterm is defined in Section 9-102 of the UCC, including all Electronic ChattelPaper.
          “Collateral” has the meaning set forth in Section 2.
          “Commercial Tort Claims” means any and all of any Debtor’s commercial tortclaims, as such term is defined in Section 9-102 of the UCC, including anydescribed in Schedule 1.
          “Control Agreement” means any control agreement or other agreement withany securities intermediary, bank or other Person establishing the CollateralAgent’s control with
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respect to any Deposit Accounts, Letter-of-Credit Rights or InvestmentProperty, for purposes of UCC Sections 9-104, 9-106 and 9-107.
          “Credit Facility Secured Obligations” means the indebtedness, liabilitiesand other obligations of the Debtors and Edna Valley to the Collateral Agent,the Agent, the Lenders and the Indemnified Persons under or in connection withthe Credit Agreement, the Revolving Notes, the Term Notes, the Guaranties, theLetters of Credit and the other Loan Documents, including all unpaid principalof the Loans, all unpaid drawings under Letters of Credit, all interest accruedthereon, all fees due under the Credit Agreement and the other Loan Documentsand all other amounts payable by any Debtor or Edna Valley to the CollateralAgent, the Agent and the Lenders thereunder or in connection therewith, whethernow existing or hereafter arising, and whether due or to become due, absoluteor contingent, liquidated or unliquidated, determined or undetermined.
          “Deposit Account” means any deposit account, as such term is defined inSection 9-102 of the UCC, maintained by or for the benefit of any Debtor,whether or not restricted or designated for a particular purpose.
          “Documents” means any of any Debtor’s documents, as such term is definedin Section 9-102 of the UCC.
          “Edna Valley” means Edna Valley Vineyard, a joint venture.
          “Electronic Chattel Paper” means any and all of any Debtor’s electronicchattel paper, as such term is defined in Section 9-102 of the UCC.
          “Equipment” means any and all of any Debtor’s equipment, including any andall fixtures, as such terms are defined in Section 9-102 of the UCC.
          “Excluded Collateral” means the personal property listed on Schedule 2, tothe extent such property relates to the Excluded Parcels, if any; provided,however, that, notwithstanding anything to the contrary herein, the AppraisedWinery Equipment shall not at any time constitute Excluded Collateral; andprovided further that, for the avoidance of doubt, it is agreed andacknowledged that Bulk Wine and Inventory shall not at any time constituteExcluded Collateral.
          “Excluded Parcel” means any real property of any Debtor that is notencumbered by a Deed of Trust.
          “Farm Products” means any and all of any Debtor’s farm products, as suchterm is defined in Section 9-102 of the UCC.
          “General Intangibles” means any and all of any Debtor’s generalintangibles, as such term is defined in Section 9-102 of the UCC.
          “Instruments” means any and all of such Debtors’ instruments, as such termis defined in Section 9-102 of the UCC.
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          “Intellectual Property Collateral” means the following properties andassets owned or held by any Debtor or in which any Debtor otherwise has anyinterest, now existing or hereafter acquired or arising:
          (i) all patents and patent applications, domestic or foreign, all licensesrelating to any of the foregoing and all income and royalties with respect toany licenses (including such patents, patent applications and patent licensesas described in Schedule 1), all rights to sue for past, present or futureinfringement thereof, all rights arising therefrom and pertaining thereto andall reissues, divisions, continuations, renewals, extensions andcontinuations-in-part thereof;
          (ii) all copyrights and applications for copyright, domestic or foreign,together with the underlying works of authorship (including titles), whether ornot the underlying works of authorship have been published and whether saidcopyrights are statutory or arise under the common law, and all other rightsand works of authorship (including the copyrights and copyright applicationsdescribed in Schedule 1), all computer programs, computer databases, computerprogram flow diagrams, source codes, object codes and all tangible propertyembodying or incorporating any copyrights, all licenses relating to any of theforegoing and all income and royalties with respect to any licenses, and allother rights, claims and demands in any way relating to any such copyrights orworks, including royalties and rights to sue for past, present or futureinfringement, and all rights of renewal and extension of copyright;
          (iii) all state (including common law), federal and foreign trademarks,service marks and trade names, and applications for registration of suchtrademarks, service marks and trade names, all licenses relating to any of theforegoing and all income and royalties with respect to any licenses (includingsuch marks, names, applications and licenses as described in Schedule 1),whether registered or unregistered and wherever registered, all rights to suefor past, present or future infringement or unconsented use thereof, all rightsarising therefrom and pertaining thereto and all reissues, extensions andrenewals thereof;
          (iv) all trade secrets, trade dress, trade styles, logos, other source ofbusiness identifiers, mask-works, mask-work registrations, mask-workapplications, software, confidential information, customer lists, licenserights, advertising materials, operating manuals, methods, processes, know-how,algorithms, formulae, databases, quality control procedures, product, serviceand technical specifications, operating, production and quality controlmanuals, sales literature, drawings, specifications, blue prints, descriptions,inventions, name plates and catalogs;
          (v) the entire goodwill of or associated with the businesses now orhereafter conducted by any Debtor connected with and symbolized by any of theaforementioned properties and assets; and
          (vi) all accounts, all intangible intellectual or other similar propertyand other general intangibles associated with or arising out of any of theaforementioned properties and assets and not otherwise described above.
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          “Inventory” means any of any Debtor’s inventory, as such term is definedin Section 9-102 of the UCC.
          “Investment Property” means any of any Debtor’s investment property, assuch term is defined in Section 9-102 of the UCC.
          “Lenders” means the lenders from time to time party to the CreditAgreement as “Lenders”. References to the Lenders shall include references toRabobank in its capacity as the Issuing Lender and the Swingline Lender; forpurposes of clarification only, to the extent that Rabobank may have any rightsor obligations in addition to those of the Lenders due to its status as theIssuing Lender or the Swingline Lender, its status as such will be specificallyreferenced. Unless the context otherwise clearly requires, the Lenders shallinclude any such Person in its capacity as Swap Provider. Unless the contextotherwise clearly requires, references to any such Person as a Lender shallalso include any of such Person’s Affiliates that may at any time ofdetermination be Swap Providers.
          “Letter-of-Credit Rights” means any and all of any Debtor’sletter-of-credit rights, as such term is defined in Section 9-102 of the UCC.
          “Noteholders” means the noteholders from time to time holding one or moreof the Amended and Restated Senior Secured Notes and in whose name such Amendedand Restated Senior Secured Note(s) are registered in the register maintainedby the Borrower pursuant to the Amended and Restated Note Agreement.
          “Original Security Agreement” means the Security Agreement dated as ofApril 19, 2002, between the Debtors and Rabobank.
          “Private Placement Secured Obligations” means the indebtedness,liabilities and other obligations of the Debtors and Edna Valley to theCollateral Agent and the Noteholders under or in connection with the Amendedand Restated Note Agreement, the Amended and Restated Senior Secured Notes, theSubsidiary Guarantee Agreement (as defined in the Amended and Restated NoteAgreement) and the other Loan Documents (as defined in the Amended and RestatedNote Agreement), including all unpaid principal of the Amended and RestatedSenior Secured Notes, all interest accrued thereon, all fees due under theAmended and Restated Note Agreement and the other Loan Documents (as sodefined) and all other amounts payable by any Debtor or Edna Valley to theCollateral Agent and the Noteholders thereunder or in connection therewith,whether now existing or hereafter arising, and whether due or to become due,absolute or contingent, liquidated or unliquidated, determined or undetermined.
          “Proceeds” means all proceeds, as such term is defined in Section 9-102 ofthe UCC.
          “Rights to Payment” means any and all of any Debtor’s Accounts and any andall of any Debtor’s rights and claims to the payment or receipt of money orother forms of consideration of any kind in, to and under or with respect toits Chattel Paper, Documents, General Intangibles, Instruments, InvestmentProperty, Letter-of-Credit Rights, Proceeds and Supporting Obligations.
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          “Secured Obligations” means the Credit Facility Secured Obligations andthe Private Placement Secured Obligations.
          “Supporting Obligations” means all supporting obligations, as such term isdefined in Section 9-102 of the UCC.
          “UCC” means the Uniform Commercial Code as the same may, from time totime, be in effect in the State of New York.
          (c) Terms Defined in UCC. Where applicable and except as otherwisedefined herein, terms used in this Agreement shall have the meanings assignedto them in the UCC.
          (d) Interpretation. The rules of interpretation set forth in Section 1.03of the Credit Agreement shall be applicable to this Agreement and areincorporated herein by this reference.
          SECTION 2 Security Interest.
          (a) Grant of Security Interest. As security for the payment andperformance of the Secured Obligations, each Debtor hereby grants to theCollateral Agent, for itself and on behalf of and for the ratable benefit ofthe Agent, the Lenders and the Noteholders, a security interest in all of suchDebtor’s right, title and interest in, to and under all of its personalproperty, wherever located and whether now existing or owned or hereafteracquired or arising, including the following property (collectively, the“Collateral”): (i) all Accounts; (ii) all Chattel Paper; (iii) all CommercialTort Claims; (iv) all Deposit Accounts; (v) all Documents; (vi) all Equipment;(vii) all Farm Products, (viii) all General Intangibles; (ix) all Instruments;(x) all Inventory; (xi) all Investment Property; (xii) all Letter-of-CreditRights; and (xii) all money, all products and Proceeds of any and all of theforegoing, and all Supporting Obligations of any and all of the foregoing.Notwithstanding the foregoing, except for fixtures (as provided in Section9-313 of the UCC), such grant of a security interest shall not extend to, andthe term “Collateral” shall not include, any asset which would be real propertyunder the law of the jurisdiction in which it is located or any ExcludedCollateral.
          (b) Debtor Remains Liable. Anything herein to the contrarynotwithstanding, (i) each Debtor shall remain liable under any contracts,agreements and other documents included in the Collateral, to the extent setforth therein, to perform all of its duties and obligations thereunder to thesame extent as if this Agreement had not been executed, (ii) the exercise bythe Collateral Agent of any of the rights hereunder shall not release suchDebtor from any of its duties or obligations under such contracts, agreementsand other documents included in the Collateral, and (iii) the Collateral Agentshall not have any obligation or liability under any contracts, agreements andother documents included in the Collateral by reason of this Agreement, norshall the Collateral Agent be obligated to perform any of the obligations orduties of such Debtor thereunder or to take any action to collect or enforceany such contract, agreement or other document included in the Collateralhereunder.
          (c) Continuing Security Interest. Each Debtor agrees that this Agreementshall create a continuing security interest in the Collateral which shallremain in effect until terminated in accordance with Section 22.
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          SECTION 3 Perfection and Priority.
          (a) Financing Statements. Each Debtor shall execute and deliver to theCollateral Agent concurrently with the execution of this Agreement, and suchDebtor hereby authorizes the Collateral Agent to file (with or without suchDebtor’s signature), at any time and from time to time thereafter, allfinancing statements, continuation financing statements, terminationstatements, security agreements relating to the Intellectual PropertyCollateral, if any, assignments, fixture filings, affidavits, reports, noticesand other documents and instruments, in form satisfactory to the CollateralAgent, and take all other action, as the Collateral Agent may request, toperfect and continue perfected, maintain the priority of or provide notice ofthe Collateral Agent’s security interest in the Collateral and to accomplishthe purposes of this Agreement. Without limiting the generality of theforegoing, each Debtor ratifies and authorizes the filing by the CollateralAgent of any financing statements filed prior to the date hereof.
          (b) Bailees. Any Person (other than the Collateral Agent) at any time andfrom time to time holding all or any portion of the Collateral shall be deemedto, and shall, hold the Collateral as the agent of, and as pledge holder for,the Collateral Agent. At any time and from time to time, the Collateral Agentmay give notice to any such Person holding all or any portion of the Collateralthat such Person is holding the Collateral as the agent and bailee of, and aspledge holder for, the Collateral Agent, and obtain such Person’s writtenacknowledgment thereof. Without limiting the generality of the foregoing, suchDebtor will join with the Collateral Agent in notifying any Person who haspossession of any Collateral of the Collateral Agent’s security interesttherein and obtaining an acknowledgment from such Person that it is holding theCollateral for the benefit of the Collateral Agent.
          (c) Control. Each Debtor will cooperate with the Collateral Agent inobtaining control (as defined in the UCC) of Collateral consisting of anyDeposit Accounts, Electronic Chattel Paper, Investment Property orLetter-of-Credit Rights.
          SECTION 4 Representations and Warranties. In addition to therepresentations and warranties of the Debtors set forth in the CreditAgreement, which are incorporated herein by this reference, each Debtorrepresents and warrants to the Agent, each Lender, each Noteholder and theCollateral Agent that:
          (a) Location of Chief Executive Office and Collateral. Its chiefexecutive office and principal place of business (as of the date of thisAgreement) is located at the address set forth in Schedule 1; and all otherlocations (as of the date of this Agreement) where such Debtor conductsbusiness or Collateral is kept are set forth in Schedule 1.
          (b) Locations of Books. All locations where Books pertaining to theRights to Payment are kept, including all equipment necessary for accessingsuch Books and the names and addresses of all service bureaus, computer or dataprocessing companies and other Persons keeping any Books or collecting Rightsto Payment for such Debtor, are set forth in Schedule 1.
          (c) Jurisdiction of Organization and Names. Each Debtor’s jurisdiction oforganization is set forth in Schedule 1; and each Debtor’s exact legal name isas set forth in the first paragraph of this Agreement. All trade names andtrade styles under which any Debtor
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presently conducts its business operations are set forth in Schedule 1,and, except as set forth in Schedule 1, each Debtor has not, at any time in thepast: (i) been known as or used any other corporate, trade or fictitious name;(ii) changed its name; (iii) been the surviving or resulting corporation in amerger or consolidation; or (iv) acquired through asset purchase or otherwiseany business of any Person.
          (d) Collateral. Each Debtor has rights in or the power to transfer theCollateral, and such Debtor is, and, except as permitted by Section 5(i), willcontinue to be, the sole and complete owner of the Collateral (or, in the caseof after-acquired Collateral, at the time such Debtor acquires rights in suchCollateral, will be the sole and complete owner thereof), free from any Lienother than Permitted Liens.
          (e) Enforceability; Priority of Security Interest. (i) This Agreementcreates a security interest which is enforceable against the Collateral inwhich any Debtor now has rights and will create a security interest which isenforceable against the Collateral in which any Debtor hereafter acquiresrights at the time such Debtor acquires any such rights, subject to thePermitted Liens and the Intercreditor Agreement; and (ii) the Collateral Agenthas a perfected and first priority security interest in the Collateral in whichany Debtor now has rights, and will have a perfected and first prioritysecurity interest in the Collateral in which such Debtor hereafter acquiresrights at the time such Debtor acquires any such rights, in each case securingthe payment and performance of the Secured Obligations and subject to PermittedLiens and the Intercreditor Agreement.
          (f) Other Financing Statements. Other than (i) financing statementsdisclosed to the Agent, the Noteholders and the Lenders in writing, and (ii)financing statements in favor of the Collateral Agent on behalf of itself, theAgent, the Lenders and the Noteholders, no effective financing statement namingany Debtor as debtor, assignor, grantor, mortgagor, pledgor or the like andcovering all or any part of the Collateral is on file in any filing orrecording office in any jurisdiction.
          (g) Rights to Payment.
          (i) The Rights to Payment represent valid, binding and enforceableobligations of the account debtors or other Persons obligated thereon,representing undisputed, bona fide transactions completed in accordance withthe terms and provisions contained in any documents related thereto, and areand will be genuine, free from Liens, and not subject to any adverse claims,counterclaims, setoffs, defaults, disputes, defenses, discounts, retainages,holdbacks or conditions precedent of any kind or character, except to theextent reflected by any Debtor’s reserves for uncollectible Rights to Paymentor to the extent, if any, that such account debtors or other Persons may beentitled to normal and ordinary course trade discounts, returns, adjustmentsand allowances in accordance with Section 5(m), or as otherwise disclosed tothe Collateral Agent, the Agent, the Lenders and the Noteholders in writing;
          (ii) to the best of each Debtor’s knowledge and belief, all accountdebtors and other obligors on the Rights to Payment are solvent and generallypaying their debts as they come due;
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          (iii) all Rights to Payment comply with all applicable laws concerningform, content and manner of preparation and execution, including whereapplicable any federal or state consumer credit laws;
          (iv) no Debtor has assigned any of its rights under the Rights to Paymentexcept as provided in this Agreement or as set forth in the other LoanDocuments;
          (v) with respect to the Rights to Payment constituting EligibleReceivables, except as disclosed in writing to the Agent and the Lenders, noDebtor has any knowledge that any of the criteria for eligibility are not orare no longer satisfied;
          (vi) all statements made, all unpaid balances and all other information inthe Books and other documentation relating to the Rights to Payment are trueand correct and in all respects what they purport to be; and
          (vii) no Debtor has any knowledge of any fact or circumstance which wouldimpair the validity or collectibility of any of the Rights to Payment.
          (h) Inventory. No Inventory or Farm Products is stored with any bailee orwarehouseman or similar Person or on any premises leased to any Debtor, nor hasany Inventory or Farm Products been consigned to any Debtor or consigned by anyDebtor to any Person or is held by any Debtor for any Person under any “billand hold” or other arrangement, except as set forth in Schedule 1; and withrespect to the Inventory constituting Eligible Inventory, except as disclosedin writing to the Agent and the Lenders, no Debtor has any knowledge that anyof the criteria for eligibility are not or are no longer satisfied.
          (i) Intellectual Property.
          (i) Except as set forth in Schedule 1, no Debtor (directly or through anySubsidiary) owns, possesses or uses under any licensing arrangement anypatents, copyrights, trademarks, service marks or trade names, nor is therecurrently pending before any Governmental Authority any application forregistration of any patent, copyright, trademark, service mark or trade name;
          (ii) all patents, copyrights, trademarks, service marks and trade namesare subsisting and have not been adjudged invalid or unenforceable in whole orin part;
          (iii) all maintenance fees required to be paid on account of any patentshave been timely paid for maintaining such patents in force, and, to the bestof each Debtor’s knowledge, each of the patents is valid and enforceable andeach Debtor has notified the Agent, the Lenders and the Noteholders in writingof all prior art (including public uses and sales) of which it is aware;
          (iv) to the best of each Debtor’s knowledge after due inquiry, no materialinfringement or unauthorized use presently is being made of any IntellectualProperty Collateral by any Person;
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          (v) each Debtor is the sole and exclusive owner of its IntellectualProperty Collateral and the past, present and contemplated future use of suchIntellectual Property Collateral by such Debtor has not, does not and will notinfringe or violate any right, privilege or license agreement of or with anyother Person; and
          (vi) each Debtor owns, has material rights under, is a party to, or anassignee of a party to all material licenses, patents, patent applications,copyrights, service marks, trademarks, trademark applications, trade names andall other Intellectual Property Collateral necessary to continue to conduct itsbusiness as heretofore conducted.
          (j) Equipment.
          (i) None of the Equipment constituting Collateral or other Collateral isaffixed to real property, except Collateral with respect to which each Debtorhas supplied the Collateral Agent, the Agent, the Lenders and the Noteholderswith all information and documentation necessary to make all fixture filingsrequired to perfect and protect the priority of the Collateral Agent’s securityinterest in all such Collateral which may be fixtures as against all Personshaving an interest in the premises to which such property may be affixed;
          (ii) none of the Equipment constituting Collateral is leased from or toany Person, except as set forth on Schedule 1 or as otherwise disclosed to theCollateral Agent, the Agent, the Lenders and the Noteholders in writing;
          (iii) the Appraised Winery Equipment has an aggregate appraised value ofnot less than $6,590,000, as set forth in the appraisal reports previouslydelivered to the Agent and the Noteholders prior to the date hereof; and
          (iv) the Appraised Winery Equipment is owned by one or more of the Debtorsfree and clear of all Liens, rights and interests of any other Person.
          (k) Deposit Accounts. The names and addresses of all financialinstitutions at which any Debtor maintains its Deposit Accounts, and theaccount numbers and account names of such Deposit Accounts, are set forth inSchedule 1.
          (l) Investment Property; Instruments; and Chattel Paper. All securitiesaccounts of any Debtor and other Investment Property of any Debtor are setforth in Schedule 1, and all Instruments and Chattel Paper held by any Debtorare also set forth in Schedule 1.
          (m) Control Agreements. No Control Agreements exist with respect to anyCollateral other than any Control Agreements in favor of the Collateral Agent.
          (n) Letter-of-Credit Rights. No Debtor has any Letter-of-Credit Rightsexcept as set forth in Schedule 1.
          (o) Commercial Tort Claims. No Debtor has any Commercial Tort Claimsexcept as set forth in Schedule 1.
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          (p) Leases. No Debtor is nor will not become a lessee under any realproperty lease or other agreement governing the location of Collateral at thepremises of another Person pursuant to which the lessor or such other Personmay obtain any rights in any of the Collateral, and no such lease or other suchagreement now prohibits, restrains, impairs or will prohibit, restrain orimpair any Debtor’s right to remove any Collateral from the premises at whichsuch Collateral is situated, except for the usual and customary restrictionscontained in leases of real property.
          (q) Consideration. Each Debtor has received at least reasonablyequivalent value and more than sufficient consideration to support theindebtedness, obligations, liens and security interests created hereunder andunder the other Loan Documents to which such Debtor is a party. Each Debtoracknowledges that it will derive substantial direct and indirect benefits fromthe making of the Loans to the Borrower and the issuances of letters of creditpursuant to the Credit Agreement and, without limiting the generality of theforegoing, agrees to the inclusion of such Debtor’s assets in the BorrowingBase as provided in the Credit Agreement.
          SECTION 5 Covenants. In addition to the covenants of each Debtor setforth in the Credit Agreement and the other Loan Documents and in the Amendedand Restated Note Agreement and the other Loan Documents (as defined in theAmended and Restated Note Agreement), so long as any of the Secured Obligationsremain unsatisfied or any Lender shall have any Commitment, each Debtor agreesthat:
          (a) Defense of Collateral. It will appear in and defend any action, suitor proceeding which may affect to a material extent its title to, or right orinterest in, or the Collateral Agent’s right or interest in, the Collateral.
          (b) Preservation of Collateral. It will do and perform all reasonableacts that may be necessary and appropriate to maintain, preserve and protectthe Collateral.
          (c) Compliance with Laws, Etc. It will comply with all laws, regulationsand ordinances, and all policies of insurance, relating in a material way tothe possession, operation, maintenance and control of the Collateral.
          (d) Location of Books and Chief Executive Office. It will: (i) keep allBooks pertaining to the Rights to Payment at the locations set forth inSchedule 1; and (ii) give at least 30 days’ prior written notice to theCollateral Agent, the Agent and the Noteholders of (a) any changes in any suchlocation where Books pertaining to the Rights to Payment are kept, includingany change of name or address of any service bureau, computer or dataprocessing company or other Person preparing or maintaining any Books orcollecting Rights to Payment for the Debtor or (b) any change in the locationof its chief executive office or principal place of business.
          (e) Location of Collateral. It will: (i) keep the Collateral at thelocations set forth in Schedule 1 and not remove the Collateral from suchlocations (other than disposals of Collateral permitted by subsection (i)below) except upon at least 30 days’ prior written notice of any removal to theCollateral Agent, the Agent and the Noteholders; and (ii) give the Collateral
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Agent, the Agent and the Noteholders at least 30 days’ prior writtennotice of any change in the locations set forth in Schedule 1.
          (f) Change in Name, Identity or Structure. It will give at least 30 days’prior written notice to the Collateral Agent, the Agent and the Noteholders of(i) any change in its name, (ii) any change in its jurisdiction oforganization, (iii) any change in its registration as an organization (or anynew such registration); and (iv) any changes in its identity or structure inany manner which might make any financing statement filed hereunder incorrector misleading; provided that it shall not change its jurisdiction oforganization to a jurisdiction outside of the United States.
          (g) Maintenance of Records. It will keep separate, accurate and completeBooks with respect to the Collateral, disclosing the Collateral Agent’ssecurity interest hereunder.
          (h) Invoicing of Sales. It will invoice all of its sales upon formscustomary in the industry and to maintain proof of delivery and customeracceptance of goods.
          (i) Disposition of Collateral. It will not surrender or lose possession of(other than to the Collateral Agent), sell, lease, rent, or otherwise disposeof or transfer any of the Collateral or any right or interest therein, exceptto the extent permitted by the Credit Agreement and the Amended and RestatedNote Agreement; provided that no such disposition or transfer of InvestmentProperty or Instruments shall be permitted while any Event of Default exists.
          (j) Liens. It will keep the Collateral free of all Liens except PermittedLiens.
          (k) Expenses. It will pay all expenses of protecting, storing,warehousing, insuring, handling and shipping the Collateral.
          (l) Leased Premises. At the Collateral Agent’s, the Agent’s or theNoteholders’ request, it will obtain from each Person from whom it leases anypremises at which any Collateral is at any time present such collateral access,subordination, waiver, consent and estoppel agreements as the Collateral Agent,the Agent or the Noteholders may require, in form and substance satisfactory tothe Collateral Agent, the Agent and the Noteholders.
          (m) Rights to Payment. It will:
          (i) give only normal discounts, allowances and credits as to Accounts andother Rights to Payment, in the ordinary course of business, according tonormal trade practices utilized by it in the past, and enforce all Accounts andother Rights to Payment strictly in accordance with their terms, and take allsuch action to such end as may from time to time be reasonably requested by theCollateral Agent, the Agent or the Noteholders, except that it may grant anyextension of the time for payment or enter into any agreement to make a rebateor otherwise to reduce the amount owing on or with respect to, or compromise orsettle for less than the full amount thereof, any Account or other Right toPayment, in the ordinary course of business, according to normal tradepractices utilized by it in the past, and where the amount involved does notexceed $1,500,000 or where the Account or Right to Payment does not exceed$1,500,000 or would not be materially impaired;
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          (ii) if any discount, allowance, credit, extension of time for payment,agreement to make a rebate or otherwise to reduce the amount owing on, orcompromise or settle, an Account or other Right to Payment exists or occurs, orif, to the knowledge of it, any dispute, setoff, claim, counterclaim or defenseexists or has been asserted or threatened with respect to an Account or otherRight to Payment, disclose such fact fully to the Collateral Agent, the Agentand the Noteholders in the Books relating to such Account or other Right toPayment and in connection with any invoice or report furnished by it to theCollateral Agent, the Agent and the Noteholders relating to such Account orother Right to Payment;
          (iii) if any Accounts arise from contracts with the United States or anydepartment, agency or instrumentality thereof, immediately notify theCollateral Agent, the Agent and the Noteholders thereof and, upon the requestof the Collateral Agent, the Agent or the Noteholders, execute any documentsand instruments and take any other steps requested by the Collateral Agent, theAgent or the Noteholders in order that all monies due and to become duethereunder shall be assigned to the Collateral Agent and notice thereof givento the Federal authorities under the Federal Assignment of Claims Act;
          (iv) in accordance with its sound business judgment perform and comply inall material respects with its obligations in respect of the Accounts and otherRights to Payment;
          (v) upon the request of the Collateral Agent, the Agent or the Noteholderswhile an Event of Default exists, (a) at any time, notify all or any designatedportion of the account debtors and other obligors on the Rights to Payment ofthe security interest hereunder, and (b) notify the account debtors and otherobligors on the Rights to Payment or any designated portion thereof thatpayment shall be made directly to the Collateral Agent or to such other Personor location as the Collateral Agent shall specify; and
          (vi) upon the occurrence of any Event of Default, establish such lockboxor similar arrangements for the payment of the Accounts and other Rights toPayment as the Collateral Agent, the Agent or the Noteholders shall reasonablyrequire.
          (n) Instruments, Investment Property, Etc. Upon the request of theCollateral Agent, the Agent or the Noteholders it will (i) immediately deliverto the Collateral Agent, or an agent designated by it, appropriately endorsedor accompanied by appropriate instruments of transfer or assignment, allInstruments, Documents, Chattel Paper and certificated securities with respectto any Investment Property, all letters of credit, and all other Rights toPayment at any time evidenced by promissory notes, trade acceptances or otherinstruments, (ii) cause any securities intermediaries to show on their booksthat the Collateral Agent is the entitlement holder with respect to anyInvestment Property, and/or obtain Control Agreements in favor of theCollateral Agent from such securities intermediaries, in form and substancesatisfactory to the Collateral Agent, the Agent and the Noteholders withrespect to any Investment Property, as requested by Collateral Agent, and (iii)provide such notice, obtain such acknowledgments and take all such otheraction, with respect to any Chattel Paper, Documents and Letter-of CreditRights, as the Collateral Agent, the Agent or the Noteholders shall reasonablyspecify.
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          (o) Deposit Accounts and Securities Accounts. It will give the CollateralAgent, the Agent and the Noteholders immediate written notice of theestablishment of any new Deposit Account and any new securities account withrespect to any Investment Property.
          (p) Inventory. It will:
          (i) upon the request of the Collateral Agent (which, except upon theoccurrence and during the continuation of an Event of Default, shall not begiven more than once in any 12-month period), take a physical listing of theInventory and promptly deliver a copy of such physical listing to theCollateral Agent; and
          (ii) not store any Inventory or Farm Products with a bailee, warehousemanor similar Person or on premises leased to the Debtor, nor dispose of anyInventory or Farm Products on a bill-and-hold, guaranteed sale, sale andreturn, sale on approval, consignment or similar basis, nor acquire anyInventory or Farm Products from any Person on any such basis, without in eachcase giving the Agent prior written notice thereof.
          (q) Equipment. It will, upon the Collateral Agent’s request (which, exceptupon the occurrence and during the continuation of an Event of Default shallnot be given more than once in any 12-month period), deliver to the CollateralAgent a report of each item of Equipment, in form and substance satisfactory tothe Collateral Agent.
          (r) Intellectual Property Collateral. It will:
          (i) not enter into any agreement (including any license or royaltyagreement) pertaining to any Intellectual Property Collateral, except fornon-exclusive licenses in the ordinary course of business, without in each casethe prior written consent of the Collateral Agent;
          (ii) not allow or suffer any Intellectual Property Collateral to becomeabandoned, nor any registration thereof to be terminated, forfeited, expired ordedicated to the public;
          (iii) promptly give the Collateral Agent, the Agent and the Noteholdersnotice of any rights it may obtain to any new patentable inventions,copyrightable works or other new Intellectual Property Collateral, prior to thefiling of any application for registration thereof; and
          (iv) diligently prosecute all applications for patents, copyrights andtrademarks, and file and prosecute any and all continuations,continuations-in-part, applications for reissue, applications for certificateof correction and like matters as shall be reasonable and appropriate inaccordance with prudent business practice, and promptly and timely pay any andall maintenance, license, registration and other fees, taxes and expensesincurred in connection with any Intellectual Property Collateral.
          (s) Notices, Reports and Information. It will (i) notify the CollateralAgent, the Agent and the Noteholders of any other modifications of or additionsto the information contained in Schedule 1; (ii) notify the Collateral Agent,the Agent and the Noteholders of any material claim made or asserted againstthe Collateral by any Person and of any change in the
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composition of the Collateral (other than in the ordinary course ofbusiness) or other event which could materially adversely affect the value ofthe Collateral or the Collateral Agent’s Lien thereon; (iii) furnish to theCollateral Agent, the Agent and the Noteholders such statements and schedulesfurther identifying and describing the Collateral and such other reports andother information in connection with the Collateral as the Collateral Agent,the Agent or the Noteholders may reasonably request, all in reasonable detail;and (iv) upon request of the Collateral Agent, the Agent or the Noteholdersmake such demands and requests for information and reports as the Debtor isentitled to make in respect of the Collateral.
          (t) Chattel Paper. It will not create any Chattel Paper without placing alegend on the Chattel Paper acceptable to the Collateral Agent, the Agent andthe Noteholders indicating that the Collateral Agent has a security interest inthe Chattel Paper. It will give the Collateral Agent, the Agent and theNoteholders immediate notice if it at any time holds or acquires an interest inany Chattel Paper, including any Electronic Chattel Paper.
          (u) Commercial Tort Claims. It will give the Collateral Agent, the Agentand the Noteholders immediate notice if it shall at any time hold or acquireany Commercial Tort Claim.
          (v) Letter-of-Credit Rights. It will give the Collateral Agent, the Agentand the Noteholders immediate notice if it shall at any time hold or acquireany Letter-of-Credit Rights.
          SECTION 6 Rights to Payment.
          (a) Collection of Rights to Payment. Until the Collateral Agent exercisesits rights hereunder to collect Rights to Payment, each Debtor shall endeavorin the first instance diligently to collect all amounts due or to become due onor with respect to the Rights to Payment. At the request of the CollateralAgent, the Agent or the Noteholders, upon and after the occurrence of any Eventof Default, and while such Event of Default is continuing, all remittancesreceived by any Debtor shall be held in trust for the Collateral Agent and, inaccordance with the Collateral Agent’s instructions, remitted to the CollateralAgent or deposited to an account with the Collateral Agent in the form received(with any necessary endorsements or instruments of assignment or transfer).
          (b) Investment Property and Instruments. At the request of the CollateralAgent, the Agent or the Noteholders, upon and after the occurrence of any Eventof Default and while such Event of Default is continuing, the Collateral Agentshall be entitled to receive all distributions and payments of any nature withrespect to any Investment Property or Instruments, and all such distributionsor payments received by any Debtor shall be held in trust for the CollateralAgent and, in accordance with the Collateral Agent’s instructions, remitted tothe Collateral Agent or deposited to an account with the Collateral Agent inthe form received (with any necessary endorsements or instruments of assignmentor transfer). Following the occurrence of an Event of Default any suchdistributions and payments with respect to any Investment Property held in anysecurities account shall be held and retained in such securities account, ineach case as part of the Collateral hereunder. Additionally, the CollateralAgent shall have the right, upon the occurrence of an Event of Default andwhile such Event of Default is continuing, following prior written notice tothe Debtors, to vote and to give consents, ratifications and waivers withrespect to any Investment Property and Instruments, and to exercise all rightsof
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conversion, exchange, subscription or any other rights, privileges oroptions pertaining thereto, as if the Collateral Agent were the absolute ownerthereof; provided that the Collateral Agent shall have no duty to exercise anyof the foregoing rights afforded to it and shall not be responsible to anyDebtor or any other Person for any failure to do so or delay in doing so.
          SECTION 7 Authorization; Collateral Agent Appointed Attorney-in-Fact. TheCollateral Agent shall have the right to, in the name of any Debtor, or in thename of the Collateral Agent or otherwise, without notice to or assent by theDebtors, and each Debtor hereby constitutes and appoints the Collateral Agent(and any of the Collateral Agent’s officers or employees or Collateral Agentsdesignated by the Collateral Agent) as such Debtor’s true and lawfulattorney-in-fact, with full power and authority to:
          (i) sign and file any of the financing statements which must be executedor filed to perfect or continue perfected, maintain the priority of or providenotice of the Collateral Agent’s security interest in the Collateral;
          (ii) take possession of and endorse any notes, acceptances, checks,drafts, money orders or other forms of payment or security and collect anyProceeds of any Collateral;
          (iii) sign and endorse any invoice or bill of lading relating to any ofthe Collateral, warehouse or storage receipts, drafts against customers orother obligors, assignments, notices of assignment, verifications and noticesto customers or other obligors;
          (iv) send requests for verification of Rights to Payment to the customersor other obligors of any Debtor;
          (v) contact, or direct the Debtors to contact, all account debtors andother obligors on the Rights to Payment and instruct such account debtors andother obligors to make all payments directly to the Collateral Agent;
          (vi) assert, adjust, sue for, compromise or release any claims under anypolicies of insurance;
          (vii) exercise dominion and control over, and refuse to permit furtherwithdrawals from, Deposit Accounts maintained with the Collateral Agent, anyLender or any other bank, financial institution or other Person;
          (viii) notify each Person maintaining lockbox or similar arrangements forthe payment of the Rights to Payment to remit all amounts representingcollections on the Rights to Payment directly to the Collateral Agent;
          (ix) ask, demand, collect, receive and give acquittances and receipts forany and all Rights to Payment, enforce payment or any other rights in respectof the Rights to Payment and other Collateral, grant consents, agree to anyamendments, modifications or waivers of the agreements and documents governingthe Rights to Payment and other Collateral, and otherwise file any claims, takeany action or institute, defend, settle or adjust any actions, suits orproceedings with respect to the Collateral, as the Collateral Agent may deemnecessary
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or desirable to maintain, preserve and protect the Collateral, to collectthe Collateral or to enforce the rights of the Collateral Agent with respect tothe Collateral;
          (x) execute any and all applications, documents, papers and instrumentsnecessary for the Collateral Agent to use the Intellectual Property Collateraland grant or issue any exclusive or non-exclusive license or sublicense withrespect to any Intellectual Property Collateral;
          (xi) execute any and all endorsements, assignments or other documents andinstruments necessary to sell, lease, assign, convey or otherwise transfertitle in or dispose of the Collateral;
          (xii) execute and deliver to any securities intermediary or other Personany entitlement order or other notice, document or instrument which theCollateral Agent may reasonably deem necessary or advisable to maintain,protect, realize upon and preserve the Deposit Accounts and Investment Propertyand the Collateral Agent’s security interest therein; and
          (xiii) execute any and all such other documents and instruments, and doany and all acts and things for and on behalf of the Debtors, which theCollateral Agent may reasonably deem necessary or advisable to maintain,protect, realize upon and preserve the Collateral and the Collateral Agent’ssecurity interest therein and to accomplish the purposes of this Agreement.
The Collateral Agent agrees that, except upon and during the continuance of anEvent of Default, it shall not exercise the power of attorney, or any rightsgranted to the Collateral Agent, pursuant to clauses (ii) through (xiii). Theforegoing power of attorney is coupled with an interest and irrevocable so longas the Lenders have any Commitments or the Secured Obligations have not beenpaid and performed in full. Each Debtor hereby ratifies, to the extentpermitted by law, all that the Collateral Agent shall lawfully and in goodfaith do or cause to be done by virtue of and in compliance with this Section7.
          SECTION 8 Collateral Agent Performance of Debtor Obligations. TheCollateral Agent, the Agent or the Noteholders may perform or pay anyobligation which the Debtors have agreed to perform or pay under this Agreementupon notice to the Debtors, if the Debtors have failed to timely perform or payany such obligation, and each Debtor shall reimburse the Collateral Agent, theAgent or the Noteholders, as the case may be, on demand for any amounts paid bythe Collateral Agent, the Agent or the Noteholders, as the case may be,pursuant to this Section 8.
          SECTION 9 [Reserved.]
          SECTION 10 Remedies.
          (a) Remedies. Upon the occurrence of any Event of Default and while suchEvent of Default is continuing, the Collateral Agent shall have, in addition toall other rights and remedies granted to it in this Agreement, all rights andremedies of a secured party under the UCC and other applicable laws. Withoutlimiting the generality of the foregoing, each Debtor agrees that:
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          (i) The Collateral Agent may peaceably and without notice enter anypremises of any Debtor, take possession of any Collateral, remove or dispose ofall or part of the Collateral on any premises of any Debtor or elsewhere, or,in the case of Equipment, render it nonfunctional, and otherwise collect,receive, appropriate and realize upon all or any part of the Collateral, anddemand, give receipt for, settle, renew, extend, exchange, compromise, adjust,or sue for all or any part of the Collateral, as the Collateral Agent maydetermine.
          (ii) The Collateral Agent may require any Debtor to assemble all or anypart of the Collateral and make it available to the Collateral Agent, at anyplace and time designated by the Collateral Agent.
          (iii) The Collateral Agent may use or transfer any of any Debtor’s rightsand interests in any Intellectual Property Collateral, by license, bysublicense (to the extent permitted by an applicable license) or otherwise, onsuch conditions and in such manner as the Collateral Agent may determine.
          (iv) The Collateral Agent may secure the appointment of a receiver of theCollateral or any part thereof (to the extent and in the manner provided byapplicable law).
          (v) The Collateral Agent may withdraw (or cause to be withdrawn) any andall funds from any Deposit Accounts or securities accounts.
          (vi) The Collateral Agent may sell, resell, lease, use, assign, transferor otherwise dispose of any or all of the Collateral in its then condition orfollowing any commercially reasonable preparation or processing (utilizing inconnection therewith any of any Debtor’s assets, without charge or liability tothe Collateral Agent therefor) at public or private sale, by one or morecontracts, in one or more parcels, at the same or different times, for cash orcredit or for future delivery without assumption of any credit risk, all as theCollateral Agent deems advisable; provided, however, that such Debtor shall becredited with the net proceeds of sale only when such proceeds are finallycollected by the Collateral Agent. The Collateral Agent and each of theLenders shall have the right upon any such public sale, and, to the extentpermitted by law, upon any such private sale, to purchase the whole or any partof the Collateral so sold, free of any right or equity of redemption, whichright or equity of redemption each Debtor hereby releases, to the extentpermitted by law. The Collateral Agent shall give the Debtors such notice ofany public or private sale as may be required by the UCC or other applicablelaw. Each Debtor recognizes that the Collateral Agent may be unable to make apublic sale of any or all of the Investment Property, by reason of prohibitionscontained in applicable securities laws or otherwise, and expressly agrees thata private sale to a restricted group of purchasers for investment and not witha view to any distribution thereof shall be considered a commerciallyreasonable sale.
          (vii) Neither the Collateral Agent, the Agent, any Noteholder nor anyLender shall have any obligation to clean up or otherwise prepare theCollateral for sale. The Collateral Agent has no obligation to attempt tosatisfy the Secured Obligations by collecting them from any other Person liablefor them and the Collateral Agent may release, modify or waive any Collateralprovided by any other Person to secure any of the Secured Obligations, allwithout affecting the Collateral Agent’s, the Agent’s, any Noteholder’s or anyLender’s rights against
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any Debtor. Each Debtor waives any right it may have to require theCollateral Agent, the Agent, any Noteholder or any Lender to pursue any thirdPerson for any of the Secured Obligations. The Collateral Agent may complywith any applicable state or federal law requirements in connection with adisposition of the Collateral and compliance will not be considered adverselyto affect the commercial reasonableness of any sale of the Collateral. TheCollateral Agent may sell the Collateral without giving any warranties as tothe Collateral. The Collateral Agent may specifically disclaim any warrantiesof title or the like. This procedure will not be considered adversely toaffect the commercial reasonableness of any sale of the Collateral. If theCollateral Agent sells any of the Collateral upon credit, the Debtors will becredited only with payments actually made by the purchaser, received by theCollateral Agent and applied to the indebtedness of the purchaser. In theevent the purchaser fails to pay for the Collateral, the Collateral Agent mayresell the Collateral and the Debtors shall be credited with the proceeds ofthe sale.
          (b) License. For the purpose of enabling the Collateral Agent to exerciseits rights and remedies under this Section 10 or otherwise in connection withthis Agreement, each Debtor hereby grants to the Collateral Agent anirrevocable, non-exclusive and assignable license (exercisable without paymentor royalty or other compensation to the Debtors) to use, license or sublicenseany Intellectual Property Collateral.
          (c) Proceeds Account. To the extent that any of the Secured Obligationsmay be contingent, unmatured or unliquidated (including with respect to undrawnamounts under the Letters of Credit) at such time as there may exist an Eventof Default, the Collateral Agent may, at its election, (i) retain the proceedsof any sale, collection, disposition or other realization upon the Collateral(or any portion thereof) in a special purpose non-interest-bearing restricteddeposit account (the “Proceeds Account”) created and maintained by theCollateral Agent for such purpose (which shall constitute a Deposit Accountincluded within the Collateral hereunder) until such time as the CollateralAgent may elect to apply such proceeds to the Secured Obligations, and eachDebtor agrees that such retention of such proceeds by the Collateral Agentshall not be deemed strict foreclosure with respect thereto; (ii) in any mannerelected by the Collateral Agent, estimate the liquidated amount of any suchcontingent, unmatured or unliquidated claims and apply the proceeds of theCollateral against such amount; or (iii) otherwise proceed in any mannerpermitted by applicable law. Each Debtor agrees that the Proceeds Account shallbe a blocked account and that upon the irrevocable deposit of funds into theProceeds Account, the Debtors shall not have any right of withdrawal withrespect to such funds. Accordingly, each Debtor irrevocably waives until thetermination of this Agreement in accordance with Section 22 the right to makeany withdrawal from the Proceeds Account and the right to instruct theCollateral Agent to honor drafts against the Proceeds Account.
          (d) Application of Proceeds. Subject to subsection (c), the cash proceedsactually received from the sale or other disposition or collection ofCollateral, and any other amounts received in respect of the Collateral, shallbe applied as provided in the Intercreditor Agreement. Any surplus thereofwhich exists after payment and performance in full of the Secured Obligationsshall be promptly paid over to the Debtors or otherwise disposed of inaccordance with the Intercreditor Agreement, the UCC or other applicable law.The Debtors shall remain liable to the Collateral Agent, the Agent, theNoteholders and the Lenders for any deficiency which exists after any sale orother disposition or collection of Collateral.
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          SECTION 11 Certain Waivers. Each Debtor waives, to the fullest extentpermitted by law, (i) any right of redemption with respect to the Collateral,whether before or after sale hereunder, and all rights, if any, of marshallingof the Collateral or other collateral or security for the Secured Obligations;(ii) any right to require the Collateral Agent, the Agent, the Noteholders orthe Lenders (a) to proceed against any Person, (b) to exhaust any othercollateral or security for any of the Secured Obligations, (c) to pursue anyremedy in the Collateral Agent’s, the Agent’s, any Noteholder’s or any of theLenders’ power, or (d) to make or give any presentments, demands forperformance, notices of nonperformance, protests, notices of protests ornotices of dishonor in connection with any of the Collateral; and (iii) allclaims, damages, and demands against the Collateral Agent, the Agent, theNoteholders or the Lenders arising out of the repossession, retention, sale orapplication of the proceeds of any sale of the Collateral.
          SECTION 12 Notices. All notices or other communications hereunder shallbe given in the manner and to the addresses specified in the IntercreditorAgreement. All such notices and other communications shall be deemed to bedelivered when a record (within the meaning of the UCC) has been (i) deliveredby hand; (ii) sent by mail, upon the earlier of the date of receipt or fiveBusiness Days after deposit in the mail, first class (or air mail, with respectto communications sent to or from the United States); (iii) sent by facsimiletransmission, or (iv) sent by email.
          SECTION 13 No Waiver; Cumulative Remedies. No failure on the part of theCollateral Agent, the Agent, any Noteholder or any Lender to exercise, and nodelay in exercising, any right, remedy, power or privilege hereunder shalloperate as a waiver thereof, nor shall any single or partial exercise of anysuch right, remedy, power or privilege preclude any other or further exercisethereof or the exercise of any other right, remedy, power or privilege. Therights and remedies under this Agreement are cumulative and not exclusive ofany rights, remedies, powers and privileges that may otherwise be available tothe Collateral Agent, the Agent, any Noteholder or any Lender.
          SECTION 14 Costs and Expenses; Indemnification; Other Charges.
          (a) Costs and Expenses. Each Debtor agrees to pay on demand:
          (i) the reasonable out-of-pocket costs and expenses of the CollateralAgent and any of its Affiliates, and the reasonable fees and disbursements ofcounsel to the Collateral Agent (including allocated costs of internalcounsel), in connection with the negotiation, preparation, execution, deliveryand administration of this Agreement, and any amendments, modifications orwaivers of the terms thereof, and the custody of the Collateral;
          (ii) all title, appraisal (including the allocated costs of internalappraisal services), survey, audit, consulting, search, recording, filing andsimilar fees, costs and expenses incurred or sustained by the Collateral Agentor any of its Affiliates in connection with this Agreement or the Collateral;and
          (iii) all costs and expenses of the Collateral Agent and its Affiliatesand the fees and disbursements of counsel (including the allocated costs ofinternal counsel), in connection with the enforcement or attempted enforcementof, and preservation of any rights or
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interests under, this Agreement, any out-of-court workout or otherrefinancing or restructuring or in any bankruptcy case, and the protection,sale or collection of, or other realization upon, any of the Collateral,including all expenses of taking, collecting, holding, sorting, handling,preparing for sale, selling, or the like, and other such expenses of sales andcollections of Collateral, and any and all losses, costs and expenses sustainedby the Collateral Agent as a result of any failure by any Debtor to perform orobserve its obligations contained herein.
          (b) Indemnification. Each Debtor hereby agrees to indemnify theCollateral Agent, any Affiliate thereof, and their respective directors,officers, employees, agents, counsel and other advisors (each an “IndemnifiedPerson”) against, and hold each of them harmless from, any and all liabilities,obligations, losses, claims, damages, penalties, actions, judgments, suits,costs, expenses or disbursements of any kind or nature whatsoever, includingthe reasonable fees and disbursements of counsel to an Indemnified Person(including allocated costs of internal counsel), which may be imposed on,incurred by, or asserted against any Indemnified Person, in any way relating toor arising out of this Agreement or the transactions contemplated hereby or anyaction taken or omitted to be taken by it hereunder (the “IndemnifiedLiabilities”); provided that the Debtors shall not be liable to any IndemnifiedPerson for any portion of such Indemnified Liabilities to the extent they arefound by a final decision of a court of competent jurisdiction to have resultedfrom such Indemnified Person’s gross negligence or willful misconduct. If andto the extent that the foregoing indemnification is for any reason heldunenforceable, each Debtor agrees to make the maximum contribution to thepayment and satisfaction of each of the Indemnified Liabilities which ispermissible under applicable law.
          (c) Other Charges. Each Debtor agrees to indemnify the Collateral Agent,the Agent, each Noteholder and each Lender against and hold each of themharmless from any and all present and future stamp, transfer, documentary andother such taxes, levies, fees, assessments and other charges made by anyjurisdiction by reason of the execution, delivery, performance and enforcementof this Agreement.
          (d) Interest. Any amounts payable to the Collateral Agent, the Agent, anyNoteholder or any Lender under this Section 14 or otherwise under thisAgreement if not paid within 10 calendar days after demand shall thereafterbear interest until paid in full, at the rate of interest set forth in Section4.02 of the Credit Agreement.
          SECTION 15 Binding Effect. This Agreement shall be binding upon, inure tothe benefit of and be enforceable by the Debtors, the Collateral Agent, theAgent, each Noteholder and each Lender and their respective successors andassigns and shall bind any Person who becomes bound as a debtor to thisAgreement.
          SECTION 16 Governing Law. **THIS AGREEMENT SHALL BE GOVERNED BY, ANDCONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, EXCEPT ASREQUIRED BY MANDATORY PROVISIONS OF LAW AND TO THE EXTENT THE VALIDITY ORPERFECTION OF THE SECURITY INTERESTS HEREUNDER, OR THE REMEDIES HEREUNDER, INRESPECT OF ANY COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER THANNEW YORK.**
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          SECTION 17 Entire Agreement; Amendment. This Agreement and theIntercreditor Agreement contains the entire agreement of the parties withrespect to the subject matter hereof and shall not be amended except by thewritten agreement of the parties hereto or as provided in the IntercreditorAgreement.
          SECTION 18 Severability. Whenever possible, each provision of thisAgreement shall be interpreted in such manner as to be effective and validunder all applicable laws and regulations. If, however, any provision of thisAgreement shall be prohibited by or invalid under any such law or regulation inany jurisdiction, it shall, as to such jurisdiction, be deemed modified toconform to the minimum requirements of such law or regulation, or, if for anyreason it is not deemed so modified, it shall be ineffective and invalid onlyto the extent of such prohibition or invalidity without affecting the remainingprovisions of this Agreement, or the validity or effectiveness of suchprovision in any other jurisdiction.
          SECTION 19 Counterparts. This Agreement may be executed in any number ofcounterparts and by different parties hereto in separate counterparts, each ofwhich when so executed shall be deemed to be an original and all of which takentogether shall constitute but one and the same agreement.
          SECTION 20 Incorporation of Provisions of the Credit Agreement. To theextent the Credit Agreement contains provisions of general applicability to theLoan Documents, including any such provisions contained in Article XIIIthereof, such provisions are incorporated herein by this reference.
          SECTION 21 No Inconsistent Requirements. Each Debtor acknowledges thatthis Agreement, the Credit Agreement, the other Loan Documents, the Amended andRestated Note Agreement and the other Loan Documents (as defined in the Amendedand Restated Note Agreement) may contain covenants and other terms andprovisions variously stated regarding the same or similar matters, and agreesthat all such covenants, terms and provisions are cumulative and all shall beperformed and satisfied in accordance with their respective terms.
          SECTION 22 Future Debtors. At such time following the date hereof as anyPerson (an “Acceding Subsidiary”) is required to accede hereto pursuant to theterms of Section 10.03(k) of the Credit Agreement, such Acceding Subsidiaryshall execute and deliver to the Collateral Agent an accession agreementsubstantially in the form of Annex 1 (the “Accession Agreement’), signifyingits agreement to be bound by the provisions of this Agreement as a Debtor tothe same extent as if such Acceding Subsidiary had originally executed thisAgreement as of the date hereof.
          SECTION 23 Termination. Upon the termination of the Commitments of theLenders, the surrender of the Letters of Credit and payment and performance infull of all Secured Obligations, the security interests created by thisAgreement shall terminate and the Collateral Agent shall promptly execute anddeliver to the Debtors such documents and instruments reasonably requested bythe Debtors as shall be necessary to evidence termination of all securityinterests given by the Debtors to the Collateral Agent hereunder.
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          SECTION 24 Acknowledgments. Each Debtor hereby acknowledges and agreesfor the benefit of the Collateral Agent, for itself and on behalf of and forthe ratable benefit of the Agent, the Lenders and the Noteholders, that theOriginal Security Agreement, as amended and restated by this Agreement: (i) isand shall continue to be in full force and effect, without offset orcounterclaim; (ii) is and shall continue to be valid and enforceable; and (iii)is not and shall not be impaired or affected in any respect by the executionand delivery of this Agreement or by the execution and delivery of, or theconsummation of the transactions contemplated by, the Credit Agreement and theLoan Documents, the execution of which shall not be deemed a satisfaction,cancellation, or novation of any obligation or any obligations of any Debtorunder the Original Security Agreement or any other Loan Document (as defined inthe Existing Credit Agreement). Each Debtor hereby restates, reaffirms andcontinues the security interest in the existing Collateral created pursuant tothe Original Security Agreement (as amended and restated by this Agreement).
[*Signatures follow*.]
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          IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement,as of the date first above written.       THE DEBTORS       The Chalone Wine Group, Ltd.      By: /s/ Thomas B. Selfridge      Name: Thomas B. Selfridge   Title: President and CEO       Canoe Ridge Vineyard, L.L.C.      By: /s/ Thomas B. Selfridge      Name: Thomas B. Selfridge   Title: President and CEO       SHW Equity Co.      By: /s/ Thomas B. Selfridge      Name: Thomas B. Selfridge   Title: President and CEO       Staton Hills Winery Company Limited      By: /s/ Thomas B. Selfridge      Name: Thomas B. Selfridge   Title: President and CEO       Canoe Ridge Winery, Inc.      By: /s/ Thomas B. Selfridge      Name: Thomas B. Selfridge   Title: President and CEO
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       THE COLLATERAL AGENT       Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., “RabobankInternational”, New York Branch      By /s/ John Mc Hugh      Name: John Mc Hugh   Title: Vice President      By /s/ Rebecca Morrow      Name: Rebecca Morrow   Title: Executive Director
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ANNEX 1to the Security Agreement
**FORM OF ACCESSION AGREEMENT**   To: Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., “RabobankInternational”, New York Branch (“Rabobank”)   Re: The Chalone Wine Group, Ltd.
Ladies and Gentlemen:
     This Accession Agreement is made and delivered pursuant to Section 22 ofthat certain Amended and Restated Security Agreement dated as of May 11, 2004(as amended, modified, renewed or extended from time to time, the “SecurityAgreement”), made between each Debtor named in the signature pages thereof(each a “Debtor” and collectively, the “Debtors”), and Rabobank as CollateralAgent (the “Collateral Agent”). All capitalized terms used in this AccessionAgreement and not otherwise defined herein shall have the meanings assigned tothem in either the Security Agreement.
     The Chalone Wine Group, Ltd. (the “Borrower”) is party to that certainAmended and Restated Credit Agreement dated as of May 11, 2004 (the “CreditAgreement) by and among the Borrower, the Lenders from time to time partythereto and the Agent.
     The Borrower is also party to that certain Amended and Restated NotePurchase Agreement dated as of May 11, 2004 (the “Note Agreement”) by and amongthe Borrower and the Noteholders.
     The undersigned,                                       *[insert name of accedingSubsidiary]*, a                    *[corporation, partnership, limitedliability company, etc.]*, hereby acknowledges for the benefit of the CollateralAgent, the Agent, the Lenders and the Noteholders that it shall be a “Debtor”for all purposes of the Security Agreement effective from the date hereof. Theundersigned confirms that the representations and warranties set forth inSection 4 of the Security Agreement are true and correct as to the undersignedas of the date hereof.
     Without limiting the foregoing, the undersigned hereby agrees to performall of the obligations of a Debtor under, and to be bound in all respects bythe terms of, the Security Agreement, including Section 5 thereof, to the sameextent and with the same force and effect as if the undersigned were anoriginal signatory thereto. The undersigned hereby grants to the CollateralAgent, for itself and on behalf of and for the ratable benefit of the Agent,the Lenders and the Noteholders, a security interest in all of theundersigned’s right, title and interest in, to and under all of its personalproperty (other than any Excluded Collateral), wherever located and
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whether now existing or owned or hereafter acquired or arising, including allCollateral, as security for the payment and performance of the SecuredObligations.
     Schedule 1 to the Security Agreement is hereby amended by adding Schedule1 attached hereto to the Security Agreement.
     This Accession Agreement shall constitute a Loan Document under the CreditAgreement and a Loan Document under the Note Agreement.
     THIS ACCESSION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCEWITH, THE LAW OF THE STATE OF NEW YORK.
     IN WITNESS WHEREOF, the undersigned has executed this Accession Agreement,as of the date first above written.       [SUBSIDIARY]      By      Name      Title     
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SCHEDULE 1to the Security Agreement
**1.** **Locations of Chief Executive Office and other Locations, including ofCollateral**
a. Chief Executive Office and Principal Place of Business:   621 Airpark Road