Document:

exv10w72

 

Exhibit 10.71

Execution Version

AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND POST-CLOSING

UNDERTAKINGS AGREEMENT

          THIS AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND POST-CLOSING
UNDERTAKINGS AGREEMENT (this “Amendment”), dated as of August 15, 2004, is made
among The Chalone Wine Group, Ltd., a California corporation (the “Borrower”),
the financial institutions listed on the signature pages hereof under the
heading “THE LENDERS” (each a “Lender” and, collectively, the “Lenders”), and
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank International”,
New York Branch as agent for the Lenders (in such capacity, the “Agent”).

RECITALS:

     WHEREAS, the Borrower, the Lenders and the Agent are parties to an Amended
and Restated Credit Agreement dated as of May 11, 2004 (as further amended from
time to time, the “Credit Agreement”);

     WHEREAS, in connection with the execution of the Credit Agreement, the
Borrower and the Agent entered into a letter agreement regarding post-closing
undertakings dated May 11, 2004 (the “Post-Closing Undertakings Agreement”);
and

     WHEREAS, the Borrower has requested that the Agent enter into certain
amendments to the Credit Agreement and the Post-Closing Undertakings
Agreement, and the Agent and the Lenders have agreed to such amendments,
subject to the terms and conditions set forth herein.

AGREEMENT:

     NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto covenant and agree as follows:

          SECTION 1 Definitions; Interpretation.

          (a) Terms Defined in Credit Agreement. All capitalized terms used in
this
Amendment (including in the recitals hereof) and not otherwise defined
herein shall have the
meanings assigned to them in the Credit Agreement.

          (b) Interpretation. The rules of interpretation set forth in Section
1.03 of the
Credit Agreement shall be applicable to this Amendment and are
incorporated herein by this
reference.

          SECTION 2 Amendments to the Credit Agreement.

          (a) Amendments. The Credit Agreement shall be amended as follows,
effective as of the date of satisfaction of the conditions set forth in
Section 4 (the “Effective Date”):

1

 

          (i) The following definitions are added to Section 1.01 of the Credit
Agreement:

	 	 	“Proposed Acquisition” means the proposed acquisition of all or some
portion of the Borrower’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 Borrower’s outstanding publicly
held shares of common stock, as any such proposals may be amended from
time to time.
	 
	 	 	“Processing Payable” means, in respect of the Borrower or any Subsidiary
Guarantor, the aggregate amount due from the Borrower or such Subsidiary
Guarantor to Courtside Cellars, LLC, Kendall-Jackson Wine Estates and
Sebastiani Winery and Vineyards, on account of any crops, produce, or
other farm products provided by such Person to the Borrower or such
Subsidiary Guarantor as to which crops, produce or other farm products
such Person has unwaived or unsubordinated processor’s lien rights, to
the extent of such unwaived or unsubordinated lien rights.

          (ii) The definition of “Borrowing Base” in the Credit Agreement is
amended by inserting “and Processing Payables” immediately following the term
“Grower Payables” in clauses (i) and (ii) thereof.

          (iii) The definition of “Change of Control” in the Credit Agreement is
amended by inserting the following sentence at the end thereof: “For the
avoidance of doubt, the consummation of the Proposed Acquisition shall
constitute a Change of Control.”

          (iv) The definition of “Consolidated EBIT” is amended and restated in its
entirety to read as follows:

	 	 	“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”), in each case, which were deducted in determining Consolidated Net
Income of the Borrower and its Subsidiaries on a consolidated basis as
determined in accordance with GAAP.

          (v) The definition of “Consolidated EBITDA” is amended and restated in
its entirety to read as follows:

	 	 	“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

2

 

	 	 	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”), in each case, which were deducted in determining
Consolidated Net Income of the Borrower and its Subsidiaries on a
consolidated basis as determined in accordance with GAAP.

          (vi) The definition of “Consolidated Net Income” is amended and restated
in its entirety to read as follows:

	 	 	“Consolidated Net Income” means, for any period, the net income of the
Borrower and its Subsidiaries on a consolidated basis for such period
taken as a single accounting period, plus any expenses associated with
the issuance or vesting of stock options issued by the Borrower on or
after January 1, 2005, which expenses were deducted in determining the
net income of the Borrower and its Subsidiaries on a consolidated basis,
in each case, as determined in accordance with GAAP.

          (vii) Clause (v) of the definition of “Eligible Inventory” is amended and
restated in its entirety to read as follows:

     (v) subject to the further restrictions in clause (vi) of this
definition, if applicable, Inventory which is not in the direct
possession of the Borrower or a Subsidiary Guarantor (except for
Inventory at (A) one of the locations set forth in Part 1 of Schedule 1
to the Security Agreements or at a location set forth in a notice from
the Borrower or a Subsidiary Guarantor to the Agent pursuant to Section
5(e) of the Security Agreements, which shall be considered eligible if
the Agent has received a collateral access agreement, in form and
substance reasonably satisfactory to it, with respect to any Inventory
located at leased locations or (B) Courtside Cellars, LLC, Kendall-Jackson Wine Estates and Sebastiani Winery and Vineyards);

          (viii) Schedule 1 to the Borrowing Base Certificate attached to the
Credit Agreement as Exhibit A is amended and restated in its entirety to read
as set forth in Annex 1 hereto.

          (ix) Schedule 1 to the Compliance Certificate attached to the Credit
Agreement as Exhibit B is amended and restated in its entirety to read as set
forth in Annex 2 hereto.

          (b) Amendment to Table of Contents. The Table of Contents of the Credit
Agreement shall be amended to the extent necessary to reflect the
amendments to the Credit
Agreement made in subsection (a).

          (c) References Within Credit Agreement. Each reference in the Credit
Agreement to “this Agreement” and the words “hereof,” “herein,”
“hereunder,” or words of like
import, shall mean and be a reference to the Credit Agreement as amended
by this Amendment.

          SECTION 3 Amendment to Post-Closing Undertakings Agreement.

          Subject to the terms and conditions hereof, effective the Effective Date,
the completion deadline of the third post-closing condition specified on
Schedule 1 of the Post-

3

 

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
Borrower or a Subsidiary Guarantor), shall be changed from May 28, 2004 to
August 31, 2004.

          SECTION 4 Conditions of Effectiveness. The effectiveness of Sections 2
and 3 of this Amendment shall be subject to the satisfaction of each of the
following conditions precedent:

          (a) Fees; Costs and Expenses. The Borrower shall have paid (i) all fees
then
due in accordance with Section 7 and (ii) all invoiced costs and expenses
then due in accordance
with Section 8(e).

          (b) Loan Documents. The Agent shall have received the following Loan
Documents:

          (i) this Amendment, executed by the Borrower and each
Lender; and

          (ii) the consent of the Guarantors to the amendments contemplated by this
Amendment, in substantially the form attached hereto.

          (c) Material Adverse Effect. On and as of the Effective Date, there shall
have
occurred no Material Adverse Effect since the Amendment Closing Date.

          (d) Representations and Warranties; No Default. On the Effective Date,
after
giving effect to the amendment of the Credit Agreement and the
Post-Closing Undertakings
Agreement contemplated hereby:

          (i) the representations and warranties contained in Section 5 shall be
true and correct on and as of the Effective Date as though made on and as of
such date; and

          (ii) no Default shall have occurred and be continuing.

          (e) Senior Secured Note Documents. The Agent shall have received executed
copies of amendments to the Senior Secured Note Documents, which shall be
in form and
substance satisfactory to the Agent and the Majority Lenders and which
shall amend the financial
covenants and/or related definitions of the Senior Secured Note Documents
to conform to the
corresponding amendments made herein.

          (f) Additional Documents. The Agent shall have received, in form and
substance satisfactory to it, such additional approvals,
opinions, documents and other
information as the Agent or any Lender (through the Agent) may reasonably
request.

          (g) Secretary’s Certificate. The Agent shall have received, in form and
substance satisfactory to it, a certificate of the Secretary or Assistant
Secretary of the Borrower,
dated the Effective Date, certifying copies of the resolutions of the
Board of Directors of the
Borrower authorizing the execution, delivery and performance of this
Amendment.

4

 

          SECTION 5 Representations and Warranties. To induce the Lenders to enter
into this Amendment, the Borrower hereby confirms and restates, as of the date
hereof, the representations and warranties made by it in Section 9.01 of the
Credit Agreement and in the other Loan Documents. For the purposes of this
Section 5, (i) each reference in Section 9.01 of the Credit Agreement to “this
Agreement,” and the words “hereof,” “herein,” “hereunder,” or words of like
import in such Section, shall mean and be a reference to the Credit Agreement
as amended by this Amendment, (ii) Section 9.01(p) of the Credit Agreement
shall be deemed instead to refer to the last day of the most recent fiscal
quarter and fiscal year for which financial statements have then been
delivered, (iii) any representations and warranties which relate solely to an
earlier date shall not be deemed confirmed and restated as of the date hereof
(provided that such representations and warranties shall be true, correct and
complete as of such earlier date), and (iv) the first sentence of this Section
5 shall take into account any amendments to the Schedules and other disclosures
made in writing by the Borrower and the Guarantors to the Agent and the Lenders
after the Amendment Closing Date and approved by the Agent and the Majority
Lenders.

          SECTION 6 Covenant. The Borrower shall provide to the Agent, in form and
substance satisfactory to it, all such further information relating to the
Proposed Acquisition, the Processing Payables and stock options issued by the
Borrower or its Subsidiaries as the Agent or any Lender (through the Agent)
may reasonably request.

          SECTION 7 Fees. The Borrower shall pay (through the Agent) to each Lender
that executes and delivers this Amendment by no later than 12:00 p.m. (Pacific
time) on August 15, 2004, a non-refundable amendment fee equal to 0.10% of
such Lender’s Commitment as of the Effective Date. Such amendment fee shall be
fully-earned upon becoming due and payable, shall not be refundable for any
reason whatsoever and shall be in addition to any fee, cost or expense
otherwise payable by the Borrower pursuant to the Credit Agreement or this
Amendment.

          SECTION 8 Miscellaneous.

          (a) Notice. The Agent shall notify the Borrower and the Lenders of the
occurrence of the Effective Date and promptly thereafter distribute to the
Borrower and the
Lenders copies of all documents delivered under Section 4.

          (b) Credit Agreement and Post-Closing Undertakings Agreement Otherwise
Not Affected. Except as expressly amended pursuant hereto, the Credit
Agreement and the Post-
Closing Undertakings Agreement shall remain unchanged and in full force
and effect and are
hereby ratified and confirmed in all respects. The Lenders’ and the
Agent’s execution and
delivery of, or acceptance of, this Amendment and any other documents and
instruments in
connection herewith (collectively, the “Amendment Documents”) shall not be
deemed to create a
course of dealing or otherwise create any express or implied duty by any
of them to provide any
other or further amendments, consents or waivers in the future.

          (c) Conditions. For purposes of determining compliance with the
conditions
specified in Section 4(e), each Lender that has signed this Amendment
shall be deemed to have
consented to, approved or accepted or to be satisfied with, each document
or other matter

5

 

required thereunder to be consented to or approved by or acceptable or
satisfactory to a Lender unless the Agent shall have received notice from such
Lender prior to the Effective Date specifying its objection thereto.

          (d) No Reliance. The Borrower hereby acknowledges and confirms to the
Agent and the Lenders that the Borrower is executing this Amendment and
the other Amendment
Documents on the basis of its own investigation and for its own reasons
without reliance upon
any agreement, representation, understanding or communication by or on
behalf of any other
Person.

          (e) Costs and Expenses. The Borrower agrees to pay to the Agent on demand
the reasonable out-of-pocket costs and expenses of the Agent, and the
reasonable fees and
disbursements of counsel to the Agent (including allocated costs of
internal counsel), in
connection with the negotiation, preparation, execution and delivery of
this Amendment and any
other documents to be delivered in connection herewith.

          (f) Binding Effect. This Amendment shall be binding upon, inure to the
benefit of and be enforceable by the Borrower, the Agent and each Lender
and their respective
successors and assigns.

          (g) Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK.

          (h) Complete Agreement; Amendments. This Amendment, together with the
other Amendment Documents and the other Loan Documents, contains the entire
and exclusive agreement of the parties hereto and thereto with reference to
the matters discussed herein and therein. This Amendment supersedes all prior
commitments, drafts, communications, discussions and understandings, oral or
written, with respect thereto. This Amendment may not be modified, amended or
otherwise altered except in accordance with the terms of Section 13.01 of the
Credit Agreement.

          (i) Severability. Whenever possible, each provision of this Amendment
shall be interpreted in such manner as to be effective and valid under all
applicable laws and regulations. If, however, any provision of this Amendment
shall be prohibited by or invalid under any such law or regulation in any
jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform
to the minimum requirements of such law or regulation, or, if for any reason
it is not deemed so modified, it shall be ineffective and invalid only to the
extent of such prohibition or invalidity without affecting the remaining
provisions of this Amendment, or the validity or effectiveness of such
provision in any other jurisdiction.

          (j) Counterparts. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute but one and the same agreement.

          (k) Interpretation. This Amendment and the other Amendment Documents are
the result of negotiations between and have been reviewed by counsel to the
Agent, the

6

 

Borrower and other parties, and are the product of all parties hereto.
Accordingly, this Amendment and the other Amendment Documents shall not be
construed against any of the Lenders or the Agent merely because of the Agent’s
or any Lender’s involvement in the preparation thereof.

      
    (l) Loan Documents. This Amendment and the other Amendment
Documents shall constitute Loan Documents.

7

 

          IN WITNESS WHEREOF, the parties hereto have duly executed
this Amendment, as of the date first above written.

	 	 	 
	

	 	THE BORROWER
	 
	 	 
	

	 	THE CHALONE WINE GROUP, LTD.
	 
	 	 
	

	 	By: /s/ Thomas B. Selfridge

Name: Thomas B. Selfridge

Title: President and CEO
	 
	 	 
	

	 	THE AGENT
	 
	 	 
	

	 	COOPERATIEVE CENTRALE RAIFFEISEN-
	

	 	BOERENLEENBANK B.A., “RABOBANK
	

	 	INTERNATIONAL”, NEW YORK BRANCH, as Agent
	 
	 	 
	

	 	By: /s/ John McHugh

Name: John McHugh

Title: Vice President
	 
	 	 
	

	 	By: /s/ Rebecca Morrow

Name: Rebecca Morrow

Title: Executive Director

S-1

 

	 	 	 
	

	 	THE LENDERS
	 
	 	 
	

	 	COOPERATIEVE CENTRALE RAIFFEISEN-
	

	 	BOERENLEENBANK B.A., “RABOBANK
	

	 	INTERNATIONAL”, NEW YORK BRANCH, as
	

	 	Issuing Lender, as Swingline Lender and as a
	

	 	Lender
	 
	 	 
	

	 	By: /s/ John McHugh

Name: John McHugh

Title: Vice President
	 
	 	 
	

	 	By: /s/ Rebecca Morrow

Name: Rebecca Morrow

Title: Executive Director

S-2

 

	 	 	 
	

	 	FARM CREDIT WEST FLCA
	 
	 	 
	

	 	By: /s/ Mark Littlefield

Name: Mark Littlefield

Title: Vice President

S-3

 

	 	 	 
	

	 	U.S. BANK NATIONAL ASSOCIATION
	 
	 	 
	

	 	By: /s/ Albert V. Shuler

Name: Albert Shuler

Title: Vice President

S-4

 

	 	 	 
	

	 	COMERICA BANK
	 
	 	 
	

	 	By: /s/ Misako Noda

Name: Misako Noda

Title: Vice President

S-5

 

ANNEX 1 TO AMENDMENT

SCHEDULE 1

to the Borrowing Base Certificate

Date of Calculation

A. Eligible Inventory.

	 	 	 	 	 	 	 
	1.	 	Inventory consisting of bulk wine to
be sold in the bulk wine market	 	 
	 
	 	 	 	 	 	 
	 	 	A. Gross dollar value of Borrower’s and
each
Subsidiary Guarantor’s Inventory consisting of bulk
wine
which is of marketable quality and to be sold in the
bulk
wine market, valued at fair market value (as reported
in the
most recently published quarterly Turrentine
Collateral
Value Report or, if not available, an equivalent
compilation
selected in the Agent’s reasonable discretion)	$	 
	 
	 	 	 	 	 	

	 
	 	 	 	 	 	 
	 	 	B. Grower Payables, if any, incurred in connection with
such bulk wine	$	 
	 
	 	 	 	 	 	

	 
	 	 	 	 	 	 
	 	 	C. Processing Payables, if any, incurred in connection
with such bulk wine	$	 
	 
	 	 	 	 	 	

	 
	 	 	 	 	 	 
	 	 	D. Less ineligible Inventory (without duplication):	 	 
	

	 	(i)
	 	Inventory (other than
bulk wine and Wine
Bottling Inventory) consisting of raw
materials, supplies, or work in process
	$	 
	 
	 	 	 	 	 	

	

	 	(ii)
	 	Inventory not owned by the Borrower or a
Subsidiary Guarantor free and clear of all
Liens and rights of others (other than Liens
in favor of the Agent on behalf of the
Lenders or Growers’ Liens or Production
Liens)
	$	 
	 
	 	 	 	 	 	

	

	 	(iii)
	 	Inventory in which the
Agent on behalf of
the Lenders shall not have a valid and
perfected first priority Lien, other than
Growers’ Liens or Production Liens
	$	 
	 
	 	 	 	 	 	

	

	 	(iv)
	 	Inventory located
anywhere other than
California, Washington, the locations
listed
on Schedule 1 to either Security
Agreement,
or such other jurisdictions as shall have been
	$	 
	 
	 	 	 	 	 	

Schedule 1-1

 

 

	 	 	 	 	 	 	 
	

	 	 	 	approved by the Agent in writing	 	 
	 
	 	 	 	 	 	 
	

	 	(v)
	 	Inventory which is not in the direct
possession of the Borrower or a Subsidiary
Guarantor (except for Inventory at (A) one of
the locations set forth in Part 1 of Schedule 1
to either Security Agreement, or at a location
set forth in a notice from the Borrower or a
Subsidiary Guarantor to the Agent pursuant
to Section 5(e) of either Security Agreement,
which shall be considered eligible if the
Agent has received a collateral access
agreement, in form and substance reasonably
satisfactory to it, with respect to any
Inventory located at leased locations or (B)
Courtside Cellars, LLC, Kendall-Jackson
Wine Estates or Sebastiani Winery and
Vineyards)
	$	 
	 
	 	 	 	 	 	

	 
	 	 	 	 	 	 
	

	 	(vi)
	 	Inventory on lease or consignment or subject
to warehousing arrangements, except for
Inventory subject to warehousing
arrangements (1) in form and substance
acceptable to the Agent and approved in
writing by the Agent and (2) which contain,
or as to which the Agent has received, a
subordination and/or waiver by the
warehouseman in form and substance
reasonably satisfactory to the Agent
	$	 
	 
	 	 	 	 	 	

	 
	 	 	 	 	 	 
	

	 	(vii)
	 	Inventory which is used or intended to be
used in research and development
	$	 
	 
	 	 	 	 	 	

	 
	 	 	 	 	 	 
	

	 	(viii)
	 	Inventory which is obsolete, unmerchantable,
spoiled, damaged or unfit for sale or further
processing
	$	 
	 
	 	 	 	 	 	

	 
	 	 	 	 	 	 
	

	 	(ix)
	 	Inventory which is packaging, shipping, or
advertising materials (other than Wine
Bottling Inventory)
	$	 
	 
	 	 	 	 	 	

	 
	 	 	 	 	 	 
	

	 	(x)
	 	Inventory which is in the exercise of the
Agent’s reasonable credit judgement,
exercised in good faith, unacceptable to the
Agent due to age, type, category or quantity,
or is otherwise ineligible
	$	 
	 
	 	 	 	 	 	

	 
	 	 	 	 	 	 
	 	 	E. 60% of (A minus B minus C minus D)	$	 
	 
	 	 	 	 	 	

Schedule 1-2

 

 

	 	 	 	 	 	 	 
	2.	 	Inventory consisting of
other bulk wine
	 
	 	 	A. Gross dollar value of Borrower’s and each
Subsidiary Guarantor’s Inventory consisting of bulk wine
(not included as part of the bulk wine inventory to be sold i
the bulk wine market in 1 above) which is of marketable
quality and held for sale or use in the ordinary and usual
course of business, valued at book value at the date of
determination	$	 
	 
	 	 	 	 	 	

	 
	 	 	 	 	 	 
	 	 	B. Grower Payables, if any, incurred in connection with
such bulk wine	$	 
	 
	 	 	 	 	 	

	 
	 	 	 	 	 	 
	 	 	C. Processing Payables, if any, incurred in connection
with such bulk wine	$	 
	 
	 	 	 	 	 	

	 
	 	 	 	 	 	 
	 	 	D. Less ineligible Inventory (without duplication):	 	 
	 
	

	 	(i)
	 	Inventory (other than bulk wine and Wine
Bottling Inventory) consisting of raw
materials, supplies, or work in process
	$	 
	 
	 	 	 	 	 	

	 
	 	 	 	 	 	 
	

	 	(ii)
	 	Inventory not owned by the Borrower or a
Subsidiary Guarantor free and clear of all
Liens and rights of others (other than Liens
in favor of the Agent on behalf of the
Lenders or Growers’ Liens or Production
Liens)
	$	 
	 
	 	 	 	 	 	

	 
	 	 	 	 	 	 
	

	 	(iii)
	 	Inventory in which the Agent on behalf of
the Lenders shall not have a valid and
perfected first priority Lien, other than
Growers’ Liens or Production Liens
	$	 
	 
	 	 	 	 	 	

	 
	 	 	 	 	 	 
	

	 	(iv)
	 	Inventory located anywhere other than
California, Washington, the locations listed
on Schedule 1 to either Security Agreement,
or such other jurisdictions as shall have been
approved by the Agent in writing
	$	 
	 
	 	 	 	 	 	

Schedule 1-3

 

 

	 	 	 	 	 	 	 
	

	 	(v)
	 	Inventory which is not in the direct
possession of the Borrower or a Subsidiary
Guarantor (except for Inventory at (A) one of
the locations set forth in Part 1 of Schedule 1
to either Security Agreement, or at a location
set forth in a notice from the Borrower or a
Subsidiary Guarantor to the Agent pursuant
to Section 5(e) of either Security Agreement,
which shall be considered eligible if the
Agent has received a collateral access
agreement, in form and substance reasonably
satisfactory to it, with respect to any
Inventory located at leased locations or (B)
Courtside Cellars, LLC, Kendall-Jackson
Wine Estates or Sebastiani Winery and
Vineyards)
	 	$                   
	 
	 	 	 	 	 	 
	

	 	(vi)
	 	Inventory on lease or consignment or subject
to warehousing arrangements, except for
Inventory subject to warehousing
arrangements (1) in form and substance
acceptable to the Agent and approved in
writing by the Agent and (2) which contain,
or as to which the Agent has received, a
subordination and/or waiver by the
warehouseman in form and substance
reasonably satisfactory to the Agent
	 	$                   
	 
	 	 	 	 	 	 
	

	 	(vii)
	 	Inventory which is used or intended to be
used in research and development 	 	$                   
	 
	 	 	 	 	 	 
	

	 	(viii)
	 	Inventory which is obsolete, unmerchantable,
spoiled, damaged or unfit for sale or further
processing
	 	$                   
	 
	 	 	 	 	 	 
	

	 	(ix)
	 	Inventory which is packaging, shipping, or
advertising materials (other than Wine
Bottling Inventory)
	 	$                   
	 
	 	 	 	 	 	 
	

	 	(x)
	 	Inventory which is in the exercise of the
Agent’s reasonable credit judgement,
exercised in good faith, unacceptable to the
Agent due to age, type, category or quantity,
or is otherwise ineligible
	 	$                   
	 
	 	 	 	 	 	 
	 	 	E. 70% of (A minus B minus C minus D)	 	 

Schedule 1-4

 

 

	 	 	 	 	 	 	 
	3.	 	Inventory consisting of cased wine or separately bottled
wine	 	 
	 
	 	 	 	 	 	 
	 	 	A. Gross dollar value of Borrower’s and each
Subsidiary Guarantor’s Inventory consisting of cased wine
or separately bottled wine which is of marketable quality
and held for sale or use in the ordinary and usual course of
business of the posted F.O.B. selling price at the date of
determination for the immediately preceding calendar
month	 	$                   
	 
	 	 	 	 	 	 
	 	 	B. Less ineligible Inventory (without duplication):	 	 
	

	 	(i)
	 	Inventory (other than bulk wine and Wine
Bottling Inventory) consisting of raw
materials, supplies, or work in process
	 	$                   
	 
	 	 	 	 	 	 
	

	 	(ii)
	 	Inventory not owned by the Borrower or a
Subsidiary Guarantor free and clear of all
Liens and rights of others (other than Liens
in favor of the Agent on behalf of the
Lenders or Growers’ Liens or Production
Liens)
	 	$                   
	 
	 	 	 	 	 	 
	

	 	(iii)
	 	Inventory in which the Agent on behalf of
the Lenders shall not have a valid and
perfected first priority Lien, other than
Growers’ Liens or Production Liens
	 	$                   
	 
	 	 	 	 	 	 
	

	 	(iv)
	 	Inventory located anywhere other than
California, Washington, the locations listed
on Schedule 1 to either Security Agreement,
or such other jurisdictions as shall have been
approved by the Agent in writing
	 	$                   
	 
	 	 	 	 	 	 
	

	 	(v)
	 	Inventory which is not in the direct
possession of the Borrower or a Subsidiary
Guarantor (except for Inventory at (A) one
of the locations set forth in Part 1 of Schedule 1 to either Security Agreement, or at a location set
forth in a notice from the Borrower or a
Subsidiary Guarantor to the Agent pursuant to
Section 5(e) of either Security Agreement, which
shall be considered eligible if the Agent has
received a collateral access agreement, in form and substance reasonably satisfactory to it, with
respect to any Inventory located at leased
	 	$                   

Schedule 1-5

 

 

	 	 	 	 	 	 	 
	

	 	 	 	locations or (B) Courtside Cellars, LLC,
Kendall-Jackson Wine Estates or Sebastiani
Winery and Vineyards)	 	 
	 
	 	 	 	 	 	 
	

	 	(vi)
	 	Inventory on lease or consignment or
subject
to warehousing arrangements, except for
Inventory subject to warehousing
arrangements (1) in form and substance
acceptable to the Agent and approved in
writing by the Agent and (2) which contain,
or as to which the Agent has received, a
subordination and/or waiver by the
warehouseman in form and substance
reasonably satisfactory to the Agent
	 	$                   
	 
	 	 	 	 	 	 
	

	 	(vii)
	 	nventory which is used or intended to be
used in research and development
	 	$                   
	 
	 	 	 	 	 	 
	

	 	(viii)
	 	Inventory which is obsolete, unmerchantable,
spoiled, damaged or unfit for sale or further
processing
	 	$                   
	 
	 	 	 	 	 	 
	

	 	(ix)
	 	Inventory which is packaging, shipping, or
advertising materials (other than Wine
Bottling Inventory)
	 	$                   
	 
	 	 	 	 	 	 
	

	 	(x)
	 	Inventory which is in the exercise of the
Agent’s reasonable credit judgement,
exercised in good faith, unacceptable to the
Agent due to age, type, category or quantity,
or is otherwise ineligible
	 	$                   
	 
	 	 	 	 	 	 
	 	 	C. 65% of (A minus B)	 	$                   
	 
	 	 	 	 	 	 
	4.	 	Inventory consisting of Wine Bottling Inventory	 	 
	 
	 	 	 	 	 	 
	 	 	A. Gross dollar value of Borrower’s and each
Subsidiary Guarantor’s Inventory consisting of Wine
Bottling Inventory which is held for use in the ordinary and
usual course of business, valued at book value at the date of
determination	 	$                   
	 
	 	 	 	 	 	 
	 	 	B. Less ineligible Inventory (without duplication):	 	 
	

	 	(i)
	 	Inventory (other than bulk wine and Wine
Bottling Inventory) consisting of raw
materials, supplies, or work in process
	 	$                   

Schedule 1-6

 

 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	(ii)
	 	Inventory not owned by the Borrower or a Subsidiary
Guarantor free and clear of all Liens and rights of
others (other than Liens in favor of the Agent on
behalf of the Lenders or Growers’ Liens or Production
Liens)
	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	(iii)
	 	Inventory in which the Agent on behalf of the Lenders
shall not have a valid and perfected first priority
Lien, other than Growers’ Liens or Production Liens
	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	(iv)
	 	Inventory located anywhere other than California,
Washington, the locations listed on Schedule 1 to
either Security Agreement, or such other jurisdictions
as shall have been approved by the Agent in writing
	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	(v)
	 	Inventory which is not in the direct possession of the
Borrower or a Subsidiary Guarantor (except for
Inventory at (A) one of the locations set forth in
Part 1 of Schedule 1 to either Security Agreement, or
at a location set forth in a notice from the Borrower
or a Subsidiary Guarantor to the Agent pursuant to
Section 5(e) of either Security Agreement, which shall
be considered eligible if the Agent has received a
collateral access agreement, in form and substance
reasonably satisfactory to it, with respect to any
Inventory located at leased locations or (B) Courtside
Cellars, LLC, Kendall-Jackson Wine Estates or
Sebastiani Winery and Vineyards)
	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	(vi)
	 	Inventory on lease or consignment or subject to
warehousing arrangements, except for Inventory subject
to warehousing arrangements (1) in form and substance
acceptable to the Agent and approved in writing by the
Agent and (2) which contain, or as to which the Agent
has received, a subordination and/or waiver by the
warehouseman in form and substance reasonably
satisfactory to the Agent
	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	(vii)
	 	Inventory which is used or intended to be 	 	 	$	 	 	                   

Schedule 1-7

 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	used in research and development
	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	(viii)
	 	Inventory which is obsolete, unmerchantable, spoiled,
damaged or unfit for sale or further processing
	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	(ix)
	 	Inventory which is packaging, shipping, or advertising
materials (other than Wine Bottling Inventory)
	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	(x)
	 	Inventory which is in the exercise of the Agent’s
reasonable credit judgement, exercised in good faith,
unacceptable to the Agent due to age, type, category
or quantity, or is otherwise ineligible
	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	C.	 	60% of (A minus B)	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	5.	 	 	Total Inventory (sum of lines l.E, 2.E, 3.C and 4.C above)	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	6.	 	 	Less applicable allowances and reserves (including depletion allowances
and allowances and reserves for shrinkage or obsolescence) in respect of
the Inventory included in 1, 2, 3 and 4 above	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	7.	 	 	Eligible Inventory Borrowing Base (5 minus 6)	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	B.	 	Eligible Receivables.	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	1.	 	 	Aggregate dollar value of the Borrower’s and each Subsidiary Guarantor’s
rights to payment arising out of the sale or lease of goods or the
performance of services in the ordinary and usual course of business
(“Receivables”), payable in cash in Dollars	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	2.	 	 	Less ineligible Receivables (without duplication):	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	(i)	 	Receivables for which the Borrower’s or a Subsidiary
Guarantor’s right to receive payment has not been fully earned
by performance or is contingent upon the fulfillment of any
condition whatsoever or which otherwise do not arise from a
bona fide completed transaction	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	(ii)	 	Receivables against which there are asserted any defenses,
counterclaims, discounts (other than normal trade discounts) or
offsets of any nature, whether well-founded or otherwise (but
only to the extent of such asserted defenses, counterclaims,	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	$	 	 	                   

Schedule 1-8

 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	discounts or offsets) to the extent not already
deducted as an allowance for doubtful accounts	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	(iii)	 	Receivables that do not comply in all material respects with
all applicable legal requirements, including all laws, rules,
regulations and orders of any Governmental Authority	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	(iv)	 	Receivables which represent a prepayment or progress payment or
arising out of the placement of goods on consignment,
guaranteed sale or other arrangement by reason of which the
payment by the Receivable Debtor may be conditional or
contingent	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	(v)	 	Receivables which are not owned by the Borrower or a Subsidiary
Guarantor free and clear of all Liens and rights of others
(other than the Liens in favor of the Collateral Agent or the
Agent on behalf of the Lenders, or Growers’ Liens or Production
Liens)	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	(vi)	 	Receivables in which the Collateral Agent or the Agent on
behalf of the Lenders, shall not have a valid and perfected
first-priority Lien (other than Growers’ Liens or Production
Liens)	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	(vii)	 	Receivables owing (A) by the United States or any department,
agency or instrumentality thereof, or (B) by a State or any
department, agency, instrumentality or political subdivision
thereof (other than State owned stores or other equivalent
alcohol beverage control Receivable Debtors to the extent that
there are no statutory, regulatory or other governmental
restrictions on the grant of security interests in Receivables
due from such Receivable Debtors), unless, in the case of
Receivables described in subclause (A), the Agent has agreed to
the contrary in writing and the Borrower has complied with the
Federal Assignment of Claims Act with respect to such
Receivables	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	(viii)	 	Receivables owing by any Receivable Debtor who is not a
resident of or located in the United States or the Dominion of
Canada	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	$	 	 	                   
	 	 	 	 	(ix)	 	Receivables not paid in full within 90 days from the date of
invoice (to the extent not already deducted as an allowance for
doubtful accounts)	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	$	 	 	                   

Schedule 1-9

 

 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	(x)	 	Receivables owing by any Receivable Debtor who has failed to
make full payment within 90 days from the date of invoice on
more than 20% of the aggregate amount of Receivables owing to
the Borrower and the Subsidiary Guarantors by such Receivable
Debtor	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	(xi)	 	that portion of Receivables owing by any single Receivable
Debtor (other than Young’s Market or an Eligible Receivable
Debtor) which exceeds 20% of the aggregate amount of Eligible
Receivables owing to the Borrower and the Subsidiary Guarantors
by all Receivable Debtors (to the extent not already deducted
as an allowance for doubtful accounts)	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	(xii)	 	Receivables which constitute the proceeds of Inventory which
Inventory is at the same time included in the Borrowing Base	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	(xiii)	 	Receivables owing by any Receivable Debtor who is the subject
of an Insolvency Proceeding	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	(xiv)	 	Receivables owing by an Affiliate of the Borrower or of a
Subsidiary Guarantor	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	(xv)	 	Receivables with respect to which the Agent, in its reasonable
discretion, deems the creditworthiness or financial condition
of the Receivable Debtor to be unsatisfactory or the prospect
of payment or performance to be impaired and other Receivables
which, in the exercise of the Agent’s good faith reasonable
credit judgement are otherwise ineligible	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	3.	 	 	Total ineligible Receivables (sum of (i) through (xv) of 2)	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	4.	 	 	Less applicable allowances, reserves, discounts, returns, credits or

offsets (including allowances or reserves for doubtful accounts)	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	5.	 	 	Total Eligible Receivables (1 minus 3 minus 4 )	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	6.	 	 	Eligible Receivables Borrowing Base (85% of 5)	 	 	$	 	 	                   
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	C.	 	 	Borrowing Base and Availability	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	1.	 	 	Total Borrowing Base (total of A.7 plus B.6 minus $7,000,000)	 	 	$	 	 	                   

Schedule 1-10

 

 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	2.	 	 	Revolving Commitments	 	 	$	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	3.	 	 	Lesser of C.I and C.2	 	 	$	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	4.	 	 	Outstanding aggregate principal amount of Revolving Loans, Swingline
Loans and L/C Obligations	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	$	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	5.	 	 	Aggregate principal amount of Revolving Loans, Swingline Loans and L/C
Obligations available for borrowing or issuance (if C.4 is less than
C.3)	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	$	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	6.	 	 	Aggregate principal amount of Revolving Loans, Swingline Loans and L/C
Obligations to be prepaid or cash collateralized, as the case may be (if
C.4 is greater than C.3)	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	$	 	 	 
	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

Schedule 1-11

 

 

ANNEX 2 TO AMENDMENT

Schedule 1

to the Compliance Certificate

Worksheet for Financial Covenants

for the accounting period ending        
                              .

	 	 	 	 	 	 	 
	 	 	Actual
	 	Required

	Section 10.02(a) – Leverage Ratio*

	 

	A.

	 	Consolidated Indebtedness	 	 	 	 
	 
	 	 	 	 	 	 
	

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

	 	(ii) accounts payable to trade creditors
for goods and services (not the result of the
borrowing of money) incurred in the
ordinary course of the Borrower’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 Borrower’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 Borrower
to the estate of Richard Graff in a
principal amount not to exceed $1,000,000
	 	$                                      	 	 
	 
	 	 	 	 	 	 
	

	 	(i) minus (ii) minus (iii) minus (iv)
	 	$                                      	 	 
	 
	 	 	 	 	 	 
	B.

	 	600% of Consolidated Rent
Expense (calculated on a rolling 4-quarter basis)
	 	$                                      	 	 
	 
	 	 	 	 	 	 
	C.

	 	A + B
	 	$                                      	 	 

* To be calculated without giving effect to the principal amount of the
Shareholder Subordinated Debt or any interest payable thereunder.

Schedule 1-1

 

	 	 	 	 	 	 	 
	 	 	 	 	Actual
	 	Required

	D.

	 	Consolidated EBITDA (calculated on a rolling 4-quarter basis)	 	 	 	 
	 
	 	 	 	 	 	 
	

	 	(i) Consolidated Net Income (plus any expenses associated with the
issuance or vesting of stock options issued by the Borrower on or after
January 1, 2005, which expenses were deducted in determining the net
income of the Borrower and its Subsidiaries on a consolidated basis;
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
	 	$                                      	 	 
	 
	 	 	 	 	 	 
	

	 	(v) amortization expense
	 	$                                      	 	 
	 
	 	 	 	 	 	 
	

	 	(vi) other non-cash expenses
	 	$                                      	 	 
	 
	 	 	 	 	 	 
	

	 	(vii) 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) + (v) + (vi) + (vii)
	 	$                                      	 	 
	 
	 	 	 	 	 	 
	E.

	 	Consolidated Rent Expense (calculated on a rolling 4-quarter basis)
	 	$                                      	 	 
	 
	 	 	 	 	 	 
	F.

	 	D + E
	 	$                                      	 	 
	 
	 	 	 	 	 	 
	G.

	 	Ratio of C to F	 	 	 	 
	

	 	 	 	                   :                   
	 	See
Section 10.02(a) of
the Credit
Agreement

* To be calculated without giving effect to the principal amount of the
Shareholder Subordinated Debt or any interest payable thereunder.

Schedule 1-2

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	Actual
	 	Required

	Section 10.02(b)  — Consolidated Tangible Net Worth	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	A.

	 	Minimum Consolidated Tangible Net Worth Calculation	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	

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

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

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

	 	(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
	 	$                                      
	 	 

* To be calculated without giving effect to the principal amount of the
Shareholder Subordinated Debt or any interest payable thereunder.

Schedule 1-3

 

	 	 	 	 	 	 	 
	

	 	(iv) Consolidated Total Liabilities
	 	$
	 	 
	 
	 	 	 	 	 	 
	

	 	 	 	Actual
	 	Required
	 
	 	 	 	 	 	 
	(i) minus (ii) plus (iii) minus (iv)	 	$
	 	 
	 
	 	 	 	 	 	 
	C.

	 	Excess (deficient) for covenant compliance (B
minus A)
	 	$
	 	 
	 
	 	 	 	 	 	 
	Section 10.02(c) — Interest Coverage Ratio*	 	 	 	 
	 
	 	 	 	 	 	 
	A.

	 	Consolidated EBIT (calculated on a rolling 4-

quarter basis)
	 	$
	 	 
	 
	 	 	 	 	 	 
	

	 	(i) Consolidated Net Income (plus any expenses associated with the issuance
or vesting of stock options issued by the Borrower on or after January 1,
2005, which expenses were deducted in determining the net income of the
Borrower and its Subsidiaries on a consolidated basis; 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 10.02(c) of the
Credit Agreement

* To be calculated without giving effect to the principal amount of the
Shareholder Subordinated Debt or any interest payable thereunder.

Schedule 1-4

 

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	Actual
	 	Required

	Section 10.02(d)
— Fixed Charge Coverage Ratio*
 	 	 	 	 	 	 	 	 
	A.	 	Consolidated EBITDA (calculated on a
rolling
4-quarter basis) [see calculation above for
purposes of Section 10.02(a)]
 
	 	$	                 	 	 	 	 	 
	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
Borrower
and its Subsidiaries for the four
consecutive
fiscal quarters then most recently ended
 
	 	$	                 	 	 	 	 	 
	 	 	(iii) cash income taxes of the Borrower
and
its Subsidiaries for the four consecutive
fiscal
quarters then most recently ended
 
	 	$	                 	 	 	 	 	 
	 	 	(iv) Cash dividends of the Borrower 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 10.02(d) of the Credit Agreement
	Section 10.02(e)(i) — Capital Expenditure on
new wine barrels
 	 	 	 	 	 	 	 	 
	A.	 	Capital expenditures made on new wine
barrels
during fiscal year to date
	 	$	                 	 	 	 	 	 

	*	 	To be calculated without giving effect to the principal amount of the
Shareholder Subordinated Debt or any interest payable thereunder.

Schedule 1-5

 

	 	 	 	 	 	 	 
	 	 	 	 	Actual
	 	Required

	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 winebarrels
($        plus Line B above)
	 	$                   
	 	See
Section 10.02(e) of
the Credit
Agreement
	 
	 	 	 	 	 	 
	D.

	 	Excess (deficient) for covenant
compliance (C minus A)
	 	$                   	 	 
	 
	 	 	 	 	 	 
	Section 10.02(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 otherassets
($                   
plus Line B above)
	 	$                   
	 	See
Section 10.02(e) of
the Credit
Agreement
	 
	 	 	 	 	 	 
	D.

	 	Excess (deficient) for covenant
ompliance (C minus A)
	 	$                   	 	 
	 
	 	 	 	 	 	 
	Section 10.04(f)(viii)
– Intercompany Loans	 	 	 	 
	 
	 	 	 	 	 	 
	A.

	 	Canoe Ridge	 	 	 	 
	 
	 	 	 	 	 	 
	

	 	(i) Actual Intercompany Loan Amount
	 	$                   	 	 
	 
	 	 	 	 	 	 
	

	 	(ii) Maximum Permitted Intercompany

Loan Amount
	 	$                   	 	 
	

	 	 	 	(adjusted annually)	 	 
	 
	 	 	 	 	 	 
	

	 	(iii) Covenant compliance (i = ii)
	 	(Yes/No)	 	 

* To be calculated without giving effect
to the principal amount of the
Shareholder Subordinated Debt or any
interest payable thereunder.

Schedule 1-6

 

 

	 	 	 	 	 	 	 
	 	 	 	 	Actual
	 	Required

	B.

	 	Edna Valley	 	 	 	 
	 
	 	 	 	 	 	 
	

	 	(i) Actual Intercompany Loan

Amount
	 	$                   	 	 
	 
	 	 	 	 	 	 
	

	 	(ii) Maximum Permitted Intercompany Loan
	 	$                   	 	 
	

	 	Amount
	 	(adjusted annually)	 	 
	 
	 	 	 	 	 	 
	

	 	(iii) Covenant compliance (i =ii)
	 	(Yes/No)	 	 
	 
	 	 	 	 	 	 
	C.

	 	SHW	 	 	 	 
	 
	 	 	 	 	 	 
	

	 	(i) Actual Intercompany Loan

Amount
	 	$                   	 	 
	 
	 	 	 	 	 	 
	

	 	(ii) Maximum Permitted Intercompany Loan
	 	$                   	 	 
	

	 	Amount
	 	(adjusted annually)	 	 
	 
	 	 	 	 	 	 
	

	 	(iii) Covenant compliance (i =ii)
	 	(Yes/No)	 	 
	 
	 	 	 	 	 	 
	D.

	 	Covenant compliance (only if answer to A(iii),
B(iii) and C(iii) is Yes)
	 	(Yes/No)	 	 

* To be calculated without giving effect
to the principal amount of the
Shareholder Subordinated Debt or any
interest payable thereunder.

Schedule 1-7

 

 

     CONSENT AND AGREEMENT OF GUARANTORS

     Each of the undersigned, in its capacity as a Guarantor, acknowledges
receipt of the Amendment to Amended and Restated Credit Agreement and
Post-Closing Undertakings Agreement dated as of August 15, 2004 among The
Chalone Wine Group, Ltd., (the “Borrower”), the Lenders party thereto, and
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank
International”, New York Branch as agent for the Lenders (in such
capacity, the “Agent”) (the “Amendment”) and that its consent to the
Amendment is not required, but each of the undersigned nevertheless does
hereby consent to the Amendment and to any documents and agreements
referred to therein. Nothing herein shall in any way limit any of the
terms or provisions of the Guaranty dated as of April 19, 2002 of the
undersigned or the Collateral Documents executed by the undersigned in the
Agent’s and the Lenders’ favor, or any other Loan Document executed by the
undersigned (as the same may be amended from time to time), all of which
are hereby ratified and affirmed in all respects.

     IN WITNESS WHEREOF, the parties hereto have duly executed this
Consent and Agreement of Guarantors as of August 15, 2004.

GUARANTORS:

	 	 	 	 	 	 	 	 	 	 	 
	EDNA VALLEY VINEYARD,

as a guarantor	 	STATON HILLS WINERY COMPANY LIMITED,

as a guarantor
	By: The Chalone Wine Group, Ltd., Managing Joint	 	 	 	 	 	 	 	 
	Venturer
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Thomas B. Selfridge	 	By:	 	/s/ Thomas B. Selfridge	 	 	 	 
	

	 	
 
	 	 	 	
 	 	 	 	 
	Name:

	 	Thomas B. Selfridge	 	Name:	 	Thomas B. Selfridge	 	 	 	 
	Title:

	 	President and CEO	 	Title:	 	President and CEO	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	CANOE RIDGE VINEYARD L.L.C.,	 	SHW EQUITY CO.,
	as a guarantor	 	as a guarantor
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Thomas B. Selfridge	 	By:	 	/s/ Thomas B. Selfridge	 	 	 	 
	

	 	
 
	 	 	 	
 	 	 	 	 
	Name:

	 	Thomas B. Selfridge	 	Name:	 	Thomas B. Selfridge	 	 	 	 
	Title:

	 	President and CEO	 	Title:	 	President and CEO	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	CANOE RIDGE WINERY,
INC.,

as a guarantor	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:
	 	/s/ Thomas B. Selfridge	 	 	 	 	 	 	 	 
	

	 	
 	 	 	 	 	 	 	 	 
	Name:
	 	Thomas B. Selfridge	 	 	 	 	 	 	 	 
	Title:
	 	President and CEOexv10w73

 

Exhibit 10.73

CHALONE WINE GROUP, LTD.

CHANGE OF CONTROL SEVERANCE AGREEMENT

     This Change of Control Severance Agreement (the “Agreement”) is made and
entered into by and between Tom Selfridge (the “Employee”) and Chalone Wine
Group, Ltd. (the “Company”), effective as of the latest date set forth by the
signatures of the parties hereto below (the “Effective Date”).

R E C I T A L S

     A. It is expected that the Company from time to time will consider the
possibility of an acquisition by another company or other change of control.
The Board of Directors of the Company (the “Board”) recognizes that such
consideration can be a distraction to the Employee and can cause the Employee
to consider alternative employment opportunities. The Board has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication and objectivity of the
Employee, notwithstanding the possibility, threat or occurrence of a Change of
Control (as defined below) of the Company.

     B. The Board believes that it is in the best interests of the Company and
its shareholders to provide the Employee with an incentive to continue his
employment and to motivate the Employee to maximize the value of the Company
upon a Change of Control for the benefit of its shareholders.

     C. The Board believes that it is imperative to provide the Employee with
severance benefits upon the Employee’s termination of employment following a
Change of Control that provides the Employee with enhanced financial security
and provides incentive and encouragement to the Employee to remain with the
Company notwithstanding the possibility of a Change of Control.

     D. Certain capitalized terms used in the Agreement are defined in Section
6 below.

     The parties hereto agree as follows:

     1. Term of Agreement. This Agreement shall terminate upon the date that
all obligations of the parties hereto with respect to this Agreement have been
satisfied.

     2. At-Will Employment. The Company and the Employee acknowledge that the
Employee’s employment is and shall continue to be “at-will,” as defined under
applicable law. If the Employee’s employment terminates for any lawful reason,
including (without limitation) any termination prior to a Change of Control,
the Employee shall not be entitled to any contractual payments, benefits,
damages, awards or compensation other than as provided by this Agreement, or

 

 

as may otherwise be available in accordance with the Company’s established
employee plans or pursuant to other written agreements with the Company.

     3. Change of Control Severance Benefits.

          (a) Involuntary Termination other than for Cause, Death or Disability or
Voluntary Termination for Good Reason Following A Change of Control. If,
within twelve (12) months following a Change of Control, Employee’s employment
is terminated involuntarily by the Company other than for Cause, death or
Disability or by the Employee pursuant to a Voluntary Termination for Good
Reason, then the Company shall provide the Employee with the benefits as set
forth below:

               (i) Cash Award. On the date of such involuntary termination by the
Company other than for Cause, death or Disability or on Employee’s Voluntary
Termination for Good Reason, Employee shall be entitled to receive a lump sum
payment in the amount of one hundred and seventy-five percent (175%) of
Employee’s annual base salary as in effect immediately prior to such
termination, in addition to any other earned but unpaid base salary or vacation
pay due through the date of such termination. The foregoing payment shall
replace and be in lieu of any other severance benefit to which Employee would
otherwise be entitled following a Change of Control.

               (ii) Acceleration of Equity Awards. On the date such involuntary
termination by the Company other than for Cause, death or Disability or on
Employee’s Voluntary Termination for Good Reason occurs, (AA) the outstanding
and unvested options to purchase the common stock of the Company granted under
any equity plan of the Company, (BB) any restricted stock and (CC) any other
equity awards then held by Employee shall be accelerated in full, and
thereafter all such options, restricted stock and other equity awards shall be
immediately vested and exercisable for such period of time following
termination as provided for by the specific agreements governing each such
award.

               (iii) Benefits Continuation. For the period beginning on the date of such
involuntary termination by the Company other than for Cause, death or
Disability or Employee’s Voluntary Termination for Good Reason occurs and
ending on the earlier of (AA) the date which is two (2) years following the
date of such termination or (BB) the date upon which Employee commences
receiving generally comparable medical benefits and life insurance coverage
through employment elsewhere, the Company shall pay for and provide Employee
and Employee’s dependents with the same medical benefits and life insurance
coverage to which Employee would have been entitled had Employee remained
continuously employed by the Company during such period. At the termination of
the benefits coverage due to the occurrence of the event described in
subsection (AA) of this paragraph (iii), Employee and Employee’s dependents
shall be entitled to continuation coverage pursuant to Section 4980B of the
Internal Revenue Code of 1986, as amended (the “Code”), Sections 601-608 of the
Employee Retirement Income Security Act of 1974, as amended, and under any
other applicable law, to the extent required by such laws, as if Employee had
terminated employment with the Company on the date such benefits coverage
terminates.

-2-

 

          (b) Voluntary Resignation; Termination For Cause. If the Employee’s
employment terminates by reason of the Employee’s voluntary resignation (and is
not a Voluntary Termination for Good Reason), or if the Employee is terminated
for Cause, then the Employee shall not be entitled to receive severance or
other benefits except for those (if any) as may then be established
under the Company’s then existing severance and benefits plans or pursuant
to other written agreements with the Company.

          (c) Disability; Death. If the Employee’s employment with the Company
terminates as a result of the Employee’s Disability, or if the Employee’s
employment is terminated due to the death of the Employee, then the Employee
shall not be entitled to receive severance or other benefits except for those
(if any) as may then be established under the Company’s then existing severance
and benefits plans or pursuant to other written agreements with the Company.

          (d) Termination Apart from Change of Control. In the event the Employee’s
employment is terminated for any reason not related to a Change of Control
prior to the occurrence of a Change of Control, or for any reason after the
twelve (12) month period following a Change of Control, then the Employee shall
be entitled to receive severance and any other benefits only as may then be
established under the Company’s existing severance and benefits plans or
pursuant to other written agreements with the Company.

     6. Definition of Terms. The following terms referred to in this Agreement
shall have the following meanings:

          (a) Cause. “Cause” shall mean (i) an act of personal dishonesty taken by
the Employee in connection with his responsibilities as an employee and
intended to result in substantial personal enrichment of the Employee, (ii) the
Employee’s conviction of, or plea of guilty or no contest to, any felony, (iii)
a willful act by the Employee which constitutes gross misconduct and which is
injurious to the Company, (iv) following delivery to the Employee of a written
demand for performance from the Company which describes the basis for the
Company’s reasonable belief that the Employee has not substantially performed
his duties, continued violations by the Employee of the Employee’s obligations
to the Company that are demonstrably willful and deliberate on the Employee’s
part.

          (b) Change of Control. “Change of Control” means the occurrence of any of
the following events:

                    (1) Any “person” (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended) becoming the “beneficial owner”
(as defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing fifty percent (50%) or more of the total
voting power represented by the Company’s then outstanding voting securities;

                    (2) A change in the composition of the Board of Directors of the Company
occurring within a thirty-six (36) month period, as a result of which fewer
than a majority of the directors are Incumbent Directors. “Incumbent
Directors” shall mean directors who either

-3-

 

(A) are directors of the Company as
of the date hereof, or (B) are elected, or nominated for election, to the Board
of Directors of the Company with the affirmative votes of at least a majority
of the Incumbent Directors at the time of such election or nomination (but
shall not include an individual not otherwise an Incumbent Director whose
election or nomination is in connection with an actual or threatened proxy
contest relating to the election of directors to the Company); or

                    (3) The approval by shareholders of the Company of a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the approval by
the shareholders of the Company of a plan of complete liquidation of the
Company or an agreement for the sale or disposition by Company of all or
substantially all the Company’s assets.

          (c) Disability. “Disability” shall mean that the Employee has been unable
to perform his Company duties as the result of his incapacity due to physical
or mental illness, and such inability, at least 26 weeks after its
commencement, is determined to be total and permanent by a physician selected
by the Company or its insurers and acceptable to the Employee or the Employee’s
legal representative (such Agreement as to acceptability not to be unreasonably
withheld). Termination resulting from Disability may only be effected after at
least thirty (30) days’ written notice by the Company of its intention to
terminate the Employee’s employment. In the event that the Employee resumes
the performance of substantially all of his duties hereunder before the
termination of his employment becomes effective, the notice of intent to
terminate shall automatically be deemed to have been revoked.

          (d) Voluntary Termination for Good Reason. “Voluntary Termination for
Good Reason” shall mean the Employee voluntarily resigns after the occurrence
of any of the following (i) without the Employee’s express written consent, a
material reduction of the Employee’s duties, title, authority or
responsibilities; provided, however, that a reduction in duties, title,
authority or responsibilities solely by virtue of the Company being acquired
and made part of a larger entity (e.g., when the Chief Financial Officer of the
Company remains as such following a Change of Control and is not made the Chief
Financial Officer of the acquiring corporation) shall not by itself constitute
grounds for a “Voluntary Termination for Good Reason;” (ii) without the
Employee’s express written consent a reduction in the base salary of the
Employee greater than ten percent (10%); (iii) the relocation of the Employee
to a facility or a location more than forty-five (45) miles from the Employee’s
then present location of employment; (iv) the failure of the Company to obtain
the assumption of this agreement by any successors contemplated in Section 7(a)
below.

     7. Successors.

          (a) Company’s Successors. Any successor to the Company (whether direct or
indirect and whether by purchase, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company’s business and/or assets
shall assume the obligations under this Agreement

-4-

 

and agree expressly to perform the obligations under this Agreement in the same manner and to the same
extent as the Company would be required to perform such obligations in the
absence of a succession. For all purposes under this Agreement, the term
“Company” shall include any successor to the Company’s business and/or assets
which executes and delivers the assumption agreement described in this Section
7(a) or which becomes bound by the terms of this Agreement by operation of law.

          (b) Employee’s Successors. The terms of this Agreement and all rights of
the Employee hereunder shall inure to the benefit of, and be enforceable by,
the Employee’s personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.

     8. Notice.

          (a) General. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or one day following mailing via Federal Express or
similar overnight courier service. In the case of the Employee, mailed notices
shall be addressed to the Employee at the Employee’s home address that the
Company has on file for the Employee. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notices shall
be directed to the attention of its Secretary.

          (b) Notice of Termination. Any termination by the Company for Cause or by
the Employee pursuant to a Voluntary Termination for Good Reason shall be
communicated by a notice of termination to the other party hereto given in
accordance with Section 8(a) of this Agreement. Such notice shall indicate the
specific termination provision in this Agreement relied upon, shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination under the provision so indicated, and shall specify the termination
date (which shall be not more than thirty (30) days after the giving of such
notice). The failure by the Employee to include in the notice any fact or
circumstance that contributes to a showing of Voluntary Termination for Good
Reason shall not waive any right of the Employee hereunder or preclude the
Employee from asserting such fact or circumstance in enforcing his rights
hereunder.

     9. Confidentiality; Non-Solicitation.

          (a) Confidentiality. While the Employee is employed by the Company, and
thereafter while the Employee receives severance benefits hereunder, the
Employee shall not directly or indirectly disclose or make available to any
person, firm, corporation, association or other entity for any reason or
purpose whatsoever, any Confidential Information (as defined below). Upon
termination of the Employee’s employment with the Company, all Confidential
Information in the Employee’s possession that is in written or other tangible
form (together with all copies or duplicates thereof, including computer files)
shall be returned to the Company and shall not be retained by the Employee or
furnished to any third party, in any form except as provided herein; provided,
however, that the Employee shall not be obligated to treat as confidential, or
return to the Company copies of any Confidential Information that (i) was
publicly known at the time of disclosure to the Employee, (ii) becomes publicly
known or available thereafter other than by any means in violation of this

-5-

 

Agreement or any other duty owed to the Company by any person or entity, or
(iii) is lawfully disclosed by the Employee by a third party. For purposes of
this Agreement, the term “Confidential Information” shall mean information
disclosed to the Employee or known by the Employee as a consequence of or
through his or her relationship with the Company, about the customers,
employees, business methods, public relations methods, organization, procedures
or finances, including, without limitation, information of or relating to
customer lists, of the Company and its affiliates.

          (b) Non-Solicitation. In addition to each Employee’s obligations under
the Proprietary Information Agreement, the Employee shall not for a period of
one (1) year following the Employee’s termination of employment for any reason,
either on the Employee’s own account or jointly with or as a manager, agent,
officer, employee, consultant, partner, joint venturer, owner or shareholder or
otherwise on behalf of any other person, firm or corporation, directly or
indirectly solicit or attempt to solicit away from the Company any of its
officers or key employees; provided, however, that a general advertisement to
which an employee of the Company responds shall in no event be deemed to result
in a breach of this Section 9(b).

          (c) Survival of Provisions. The provisions of this Section 9 shall
survive the termination or expiration of the applicable Employee’s employment
with the Company and shall be fully enforceable thereafter. If it is
determined by a court of competent jurisdiction in any state that any
restriction in this Section 9 is excessive in duration or scope or is
unreasonable or unenforceable under the laws of that state, it is the intention
of the parties that such restriction may be modified or amended by the court to
render it enforceable to the maximum extent permitted by the law of that state.

     10. Arbitration and Equitable Relief.

          (a) Except as provided in Section 10(d) below, the Employee and the
Company agree that to the extent permitted by law, any dispute or controversy
arising out of, relating to, or in connection with this Agreement, or the
interpretation, validity, construction, performance, breach, or termination
thereof will be settled by arbitration to be held in the County of Napa,
California, in accordance with the National Rules for the Resolution of
Employment Disputes then in effect of the American Arbitration Association (the
“Rules”). The arbitrator may grant injunctions or other relief in such dispute
or controversy. The decision of the arbitrator will be final, conclusive and
binding on the parties to the arbitration. Judgment may be entered on the
arbitrator’s decision in any court having jurisdiction.

          (b) The arbitrator will apply California law to the merits of any dispute
or claim, without reference to rules of conflict of law. The Employee hereby
expressly consent to the personal jurisdiction of the state and federal courts
located in California for any action or proceeding arising from or relating to
this Agreement and/or relating to any arbitration in which the parties are
participants.

          (a) The Company will pay the direct costs and expenses of the arbitration.
The Company and the Employee are responsible for any attorneys’ fees incurred
in connection with enforcing this Agreement.

-6-

 

          (b) The Company and the Employee may apply to any court of competent
jurisdiction for a temporary restraining order, preliminary injunction, or
other interim or conservatory relief, as necessary to enforce the provisions of
this Agreement, without breach of this arbitration agreement and without
abridgement of the powers of the arbitrator.

     The Employee understands that nothing in this Section 10 modifies the
Employee’s “at-will” employment status with the Company. Either the Company
the Employee can terminate the employment relationship at any time, with or
without cause.

     THE EMPLOYEE HAS READ AND UNDERSTOOD THIS SECTION 10, WHICH DISCUSSES
ARBITRATION. THE EMPLOYEE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, THE
EMPLOYEE AGREES TO THE EXTENT PERMITTED BY LAW, TO SUBMIT ANY FUTURE CLAIMS
ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE
INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH, OR TERMINATION
THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A
WAIVER OF THE EMPLOYEE’S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF
ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EXECUTIVE RELATIONSHIP,
INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:

               (i) EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF
THE COVENANT OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED;
NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR
INTENTIONAL MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH
CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION;

               (ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR MUNICIPAL
STATUTE, INCLUDING, BUT NOT LIMITED TO, THE AMERICANS WITH DISABILITIES ACT OF
1990, THE FAIR LABOR STANDARDS ACT, AND ANY LAW OF ANY STATE; AND

               (iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND REGULATIONS
RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.

     11. Miscellaneous Provisions.

          (a) Waiver. No provision of this Agreement shall be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by the Employee and by an authorized officer of the Company (other
than the Employee). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other
party shall be considered a waiver of any other condition or provision or of
the same condition or provision at another time.

-7-

 

          (b) Whole Agreement. No agreements, representations or understandings
(whether oral or written and whether express or implied) which are not
expressly set forth in this Agreement have been made or entered into by either
party with respect to the subject matter hereof. This Agreement and the
Proprietary Information Agreement represent the entire understanding of the
parties hereto with respect to the subject matter hereof and supersedes all
prior arrangements and understandings regarding same.

          (c) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.

          (d) Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision hereof, which shall remain in full force and effect.

          (e) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together will constitute
one and the same instrument.

     IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the day and year
set forth below.

	 	 	 	 	 
	 	 	CHALONE WINE GROUP, LTD.
	 
	 	 	 	 
	

	 	By:
	 	/s/ Richard Kramlich

	 
	 	 	 	 
	 	 	Title: Chairman, Special Committee
	 
	 	 	 	 
	 	 	Date: August 22, 2004
	 
	 	 	 	 
	 	 	TOM SELFRIDGE
	 
	 	 	 	 
	 	 	/s/ Tom Selfridge
	 	 	

	 	 	Signature
	 
	 	 	 	 
	 	 	Tom Selfridge
	 	 	

	 	 	Print Name
	 
	 	 	 	 
	 	 	Date: August 22, 2004

-8-

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