Document:

exv10w68

 

Exhibit 10.68

[Execution Version]

AMENDED AND RESTATED SECURITY AGREEMENT

          THIS AMENDED AND RESTATED SECURITY AGREEMENT (this “Agreement”), dated as
of May 11, 2004, is made among The Chalone Wine Group, Ltd., a California
corporation (the “Borrower”), Canoe Ridge Vineyard, L.L.C., a Washington
limited liability company (“Canoe Ridge”), SHW Equity Co., a Washington
corporation (“SHW”), Staton Hills Winery Company Limited, a Washington
corporation (“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 Centrale
Raiffeisen-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 such
capacity, the “Swingline Lender”) and as administrative agent (in such
capacity, the “Agent”), are parties to an Amended and Restated Credit Agreement
dated as of May 11, 2004 (as the same may be hereafter amended, restated,
modified, supplemented, renewed or extended from time to time, the “Credit
Agreement”) pursuant to which the Lenders have made available to the Borrower a
revolving credit facility and term loan facility, as provided therein.

          The Borrower is also party to that certain Amended and Restated Note
Purchase Agreement dated as of April 19, 2002 (the “Note Agreement”), entered
into by the Borrower with the Purchasers listed on the signature pages thereto.
Pursuant to the Note Agreement, the Borrower delivered certain amended and
restated notes to the Purchasers (the “Amended and Restated Senior Secured
Notes”). The Borrower has requested that the Noteholders amend the Note
Agreement and the Noteholders are willing to enter into and execute that
certain Second Amendment to Note Purchase Agreement dated May 11, 2004 ( as the
same 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 Credit
Agreement, that each Debtor enter into this Agreement to amend and restate the
Original Security Agreement and grant to the Collateral Agent, for itself and
for the ratable benefit of the Agent, the Lenders and the Noteholders, the
security interests hereinafter provided to secure the obligations of the
Debtors as described below.

          The Collateral Agent, the Agent, the Lenders, the Noteholders and the
Debtors have entered into an Intercreditor and Collateral Agency Agreement
dated as of April 19, 2002 (as amended, restated, supplemented or otherwise
modified from time to time, the “Intercreditor Agreement”) pursuant to which,
among other things, the Lenders and Noteholders have agreed (i) to the
appointment of Rabobank as Collateral Agent and (ii) to the relative priority
of their security interests in the Collateral and the manner and order in which
certain 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 this
Agreement (including in the preamble and recitals hereof) and not otherwise
defined herein shall have the meanings assigned to them in the Credit
Agreement.

          (b) Certain Defined Terms. As used in this Agreement (including in the
preamble and recitals hereof), the following terms shall have the following
meanings:

          “Accounts” means any and all of any Debtor’s accounts, as such term is
defined in Section 9-102 of the UCC.

          “Appraised Winery Equipment” means the equipment (including, without
limitation, all crushing, pressing, processing, bottling and lab equipment,
pumps, stainless steel cooperage and wood barrels) which is identified in the
appraisal reports delivered by or on behalf of the Borrower to the Agent and
the 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 other
documentation in whatever form maintained now or hereafter by or for any Debtor
in connection with the ownership of its assets or the conduct of its business
or evidencing or containing information relating to the Collateral, including:
(i) ledgers; (ii) records indicating, summarizing, or evidencing any Debtor’s
assets (including Inventory and Rights to Payment), business operations or
financial condition; (iii) computer programs and software; (iv) computer discs,
tapes, files, manuals, spreadsheets; (v) computer printouts and output of
whatever kind; (vi) any other computer prepared or electronically stored,
collected or reported information and equipment of any kind; and (vii) any and
all other rights now or hereafter arising out of any contract or agreement
between any Debtor and any service bureau, computer or data processing company
or other Person charged with preparing or maintaining any of such Debtor’s
books or records or with credit reporting, including with regard to such
Debtor’s Accounts.

          “Bulk Wine” means any and all of any Debtor’s bulk wine, whether held for
sale 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 such
term is defined in Section 9-102 of the UCC, including all Electronic Chattel
Paper.

          “Collateral” has the meaning set forth in Section 2.

          “Commercial Tort Claims” means any and all of any Debtor’s commercial tort
claims, as such term is defined in Section 9-102 of the UCC, including any
described in Schedule 1.

          “Control Agreement” means any control agreement or other agreement with
any securities intermediary, bank or other Person establishing the Collateral
Agent’s control with

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respect to any Deposit Accounts, Letter-of-Credit Rights or Investment
Property, for purposes of UCC Sections 9-104, 9-106 and 9-107.

          “Credit Facility Secured Obligations” means the indebtedness, liabilities
and other obligations of the Debtors and Edna Valley to the Collateral Agent,
the Agent, the Lenders and the Indemnified Persons under or in connection with
the Credit Agreement, the Revolving Notes, the Term Notes, the Guaranties, the
Letters of Credit and the other Loan Documents, including all unpaid principal
of the Loans, all unpaid drawings under Letters of Credit, all interest accrued
thereon, all fees due under the Credit Agreement and the other Loan Documents
and all other amounts payable by any Debtor or Edna Valley to the Collateral
Agent, the Agent and the Lenders 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.

          “Deposit Account” means any deposit account, as such term is defined in
Section 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 defined
in 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 electronic
chattel 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 and
all fixtures, as such terms are defined in Section 9-102 of the UCC.

          “Excluded Collateral” means the personal property listed on Schedule 2, to
the extent such property relates to the Excluded Parcels, if any; provided,
however, that, notwithstanding anything to the contrary herein, the Appraised
Winery Equipment shall not at any time constitute Excluded Collateral; and
provided further that, for the avoidance of doubt, it is agreed and
acknowledged that Bulk Wine and Inventory shall not at any time constitute
Excluded Collateral.

          “Excluded Parcel” means any real property of any Debtor that is not
encumbered by a Deed of Trust.

          “Farm Products” means any and all of any Debtor’s farm products, as such
term is defined in Section 9-102 of the UCC.

          “General Intangibles” means any and all of any Debtor’s general
intangibles, as such term is defined in Section 9-102 of the UCC.

          “Instruments” means any and all of such Debtors’ instruments, as such term
is defined in Section 9-102 of the UCC.

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          “Intellectual Property Collateral” means the following properties and
assets owned or held by any Debtor or in which any Debtor otherwise has any
interest, now existing or hereafter acquired or arising:

          (i) all patents and patent applications, domestic or foreign, all licenses
relating to any of the foregoing and all income and royalties with respect to
any licenses (including such patents, patent applications and patent licenses
as described in Schedule 1), all rights to sue for past, present or future
infringement thereof, all rights arising therefrom and pertaining thereto and
all reissues, divisions, continuations, renewals, extensions and
continuations-in-part thereof;

          (ii) all copyrights and applications for copyright, domestic or foreign,
together with the underlying works of authorship (including titles), whether or
not the underlying works of authorship have been published and whether said
copyrights are statutory or arise under the common law, and all other rights
and works of authorship (including the copyrights and copyright applications
described in Schedule 1), all computer programs, computer databases, computer
program flow diagrams, source codes, object codes and all tangible property
embodying or incorporating any copyrights, all licenses relating to any of the
foregoing and all income and royalties with respect to any licenses, and all
other rights, claims and demands in any way relating to any such copyrights or
works, including royalties and rights to sue for past, present or future
infringement, 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 such
trademarks, service marks and trade names, all licenses relating to any of the
foregoing and all income and royalties with respect to any licenses (including
such marks, names, applications and licenses as described in Schedule 1),
whether registered or unregistered and wherever registered, all rights to sue
for past, present or future infringement or unconsented use thereof, all rights
arising therefrom and pertaining thereto and all reissues, extensions and
renewals thereof;

          (iv) all trade secrets, trade dress, trade styles, logos, other source of
business identifiers, mask-works, mask-work registrations, mask-work
applications, software, confidential information, customer lists, license
rights, advertising materials, operating manuals, methods, processes, know-how,
algorithms, formulae, databases, quality control procedures, product, service
and technical specifications, operating, production and quality control
manuals, sales literature, drawings, specifications, blue prints, descriptions,
inventions, name plates and catalogs;

          (v) the entire goodwill of or associated with the businesses now or
hereafter conducted by any Debtor connected with and symbolized by any of the
aforementioned properties and assets; and

          (vi) all accounts, all intangible intellectual or other similar property
and other general intangibles associated with or arising out of any of the
aforementioned properties and assets and not otherwise described above.

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          “Inventory” means any of any Debtor’s inventory, as such term is defined
in Section 9-102 of the UCC.

          “Investment Property” means any of any Debtor’s investment property, as
such term is defined in Section 9-102 of the UCC.

          “Lenders” means the lenders from time to time party to the Credit
Agreement as “Lenders”. References to the Lenders shall include references to
Rabobank in its capacity as the Issuing Lender and the Swingline Lender; for
purposes of clarification only, to the extent that Rabobank may have any rights
or obligations in addition to those of the Lenders due to its status as the
Issuing Lender or the Swingline Lender, its status as such will be specifically
referenced. Unless the context otherwise clearly requires, the Lenders shall
include any such Person in its capacity as Swap Provider. Unless the context
otherwise clearly requires, references to any such Person as a Lender shall
also include any of such Person’s Affiliates that may at any time of
determination be Swap Providers.

          “Letter-of-Credit Rights” means any and all of any Debtor’s
letter-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 more
of the Amended and Restated Senior Secured Notes and in whose name such Amended
and Restated Senior Secured Note(s) are registered in the register maintained
by the Borrower pursuant to the Amended and Restated Note Agreement.

          “Original Security Agreement” means the Security Agreement dated as of
April 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 the
Collateral Agent and the Noteholders under or in connection with the Amended
and Restated Note Agreement, the Amended and Restated Senior Secured Notes, the
Subsidiary Guarantee Agreement (as defined in the Amended and Restated Note
Agreement) and the other Loan Documents (as defined in the Amended and Restated
Note Agreement), including all unpaid principal of the Amended and Restated
Senior Secured Notes, all interest accrued thereon, all fees due under the
Amended and Restated Note Agreement and the other Loan Documents (as so
defined) and all other amounts payable by any Debtor or Edna Valley to the
Collateral 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 of
the UCC.

          “Rights to Payment” means any and all of any Debtor’s Accounts and any and
all of any Debtor’s rights and claims to the payment or receipt of money or
other forms of consideration of any kind in, to and under or with respect to
its Chattel Paper, Documents, General Intangibles, Instruments, Investment
Property, Letter-of-Credit Rights, Proceeds and Supporting Obligations.

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          “Secured Obligations” means the Credit Facility Secured Obligations and
the Private Placement Secured Obligations.

          “Supporting Obligations” means all supporting obligations, as such term is
defined in Section 9-102 of the UCC.

          “UCC” means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of New York.

          (c) Terms Defined in UCC. Where applicable and except as otherwise
defined herein, terms used in this Agreement shall have the meanings assigned
to them in the UCC.

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

          SECTION 2 Security Interest.

          (a) Grant of Security Interest. As security for the payment and
performance of the Secured Obligations, each Debtor hereby grants to the
Collateral Agent, 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 such
Debtor’s right, title and interest in, to and under all of its personal
property, wherever located and whether now existing or owned or hereafter
acquired or arising, including the following property (collectively, the
“Collateral”): (i) all Accounts; (ii) all Chattel Paper; (iii) all Commercial
Tort 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-Credit
Rights; and (xii) all money, all products and Proceeds of any and all of the
foregoing, and all Supporting Obligations of any and all of the foregoing.
Notwithstanding the foregoing, except for fixtures (as provided in Section
9-313 of the UCC), such grant of a security interest shall not extend to, and
the term “Collateral” shall not include, any asset which would be real property
under the law of the jurisdiction in which it is located or any Excluded
Collateral.

          (b) Debtor Remains Liable. Anything herein to the contrary
notwithstanding, (i) each Debtor shall remain liable under any contracts,
agreements and other documents included in the Collateral, to the extent set
forth therein, to perform all of its duties and obligations thereunder to the
same extent as if this Agreement had not been executed, (ii) the exercise by
the Collateral Agent of any of the rights hereunder shall not release such
Debtor from any of its duties or obligations under such contracts, agreements
and other documents included in the Collateral, and (iii) the Collateral Agent
shall not have any obligation or liability under any contracts, agreements and
other documents included in the Collateral by reason of this Agreement, nor
shall the Collateral Agent be obligated to perform any of the obligations or
duties of such Debtor thereunder or to take any action to collect or enforce
any such contract, agreement or other document included in the Collateral
hereunder.

          (c) Continuing Security Interest. Each Debtor agrees that this Agreement
shall create a continuing security interest in the Collateral which shall
remain 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 the
Collateral Agent concurrently with the execution of this Agreement, and such
Debtor hereby authorizes the Collateral Agent to file (with or without such
Debtor’s signature), at any time and from time to time thereafter, all
financing statements, continuation financing statements, termination
statements, security agreements relating to the Intellectual Property
Collateral, if any, assignments, fixture filings, affidavits, reports, notices
and other documents and instruments, in form satisfactory to the Collateral
Agent, and take all other action, as the Collateral Agent may request, to
perfect and continue perfected, maintain the priority of or provide notice of
the Collateral Agent’s security interest in the Collateral and to accomplish
the purposes of this Agreement. Without limiting the generality of the
foregoing, each Debtor ratifies and authorizes the filing by the Collateral
Agent of any financing statements filed prior to the date hereof.

          (b) Bailees. Any Person (other than the Collateral Agent) at any time and
from time to time holding all or any portion of the Collateral shall be deemed
to, 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 Agent
may give notice to any such Person holding all or any portion of the Collateral
that such Person is holding the Collateral as the agent and bailee of, and as
pledge holder for, the Collateral Agent, and obtain such Person’s written
acknowledgment thereof. Without limiting the generality of the foregoing, such
Debtor will join with the Collateral Agent in notifying any Person who has
possession of any Collateral of the Collateral Agent’s security interest
therein and obtaining an acknowledgment from such Person that it is holding the
Collateral for the benefit of the Collateral Agent.

          (c) Control. Each Debtor will cooperate with the Collateral Agent in
obtaining control (as defined in the UCC) of Collateral consisting of any
Deposit Accounts, Electronic Chattel Paper, Investment Property or
Letter-of-Credit Rights.

          SECTION 4 Representations and Warranties. In addition to the
representations and warranties of the Debtors set forth in the Credit
Agreement, which are incorporated herein by this reference, each Debtor
represents and warrants to the Agent, each Lender, each Noteholder and the
Collateral Agent that:

          (a) Location of Chief Executive Office and Collateral. Its chief
executive office and principal place of business (as of the date of this
Agreement) is located at the address set forth in Schedule 1; and all other
locations (as of the date of this Agreement) where such Debtor conducts
business or Collateral is kept are set forth in Schedule 1.

          (b) Locations of Books. All locations where Books pertaining to the
Rights to Payment are kept, including all equipment necessary for accessing
such Books and the names and addresses of all service bureaus, computer or data
processing companies and other Persons keeping any Books or collecting Rights
to Payment for such Debtor, are set forth in Schedule 1.

          (c) Jurisdiction of Organization and Names. Each Debtor’s jurisdiction of
organization is set forth in Schedule 1; and each Debtor’s exact legal name is
as set forth in the first paragraph of this Agreement. All trade names and
trade 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 the
past: (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 a
merger or consolidation; or (iv) acquired through asset purchase or otherwise
any business of any Person.

          (d) Collateral. Each Debtor has rights in or the power to transfer the
Collateral, and such Debtor is, and, except as permitted by Section 5(i), will
continue to be, the sole and complete owner of the Collateral (or, in the case
of after-acquired Collateral, at the time such Debtor acquires rights in such
Collateral, will be the sole and complete owner thereof), free from any Lien
other than Permitted Liens.

          (e) Enforceability; Priority of Security Interest. (i) This Agreement
creates a security interest which is enforceable against the Collateral in
which any Debtor now has rights and will create a security interest which is
enforceable against the Collateral in which any Debtor hereafter acquires
rights at the time such Debtor acquires any such rights, subject to the
Permitted Liens and the Intercreditor Agreement; and (ii) the Collateral Agent
has a perfected and first priority security interest in the Collateral in which
any Debtor now has rights, and will have a perfected and first priority
security interest in the Collateral in which such Debtor hereafter acquires
rights at the time such Debtor acquires any such rights, in each case securing
the payment and performance of the Secured Obligations and subject to Permitted
Liens and the Intercreditor Agreement.

          (f) Other Financing Statements. Other than (i) financing statements
disclosed to the Agent, the Noteholders and the Lenders in writing, and (ii)
financing statements in favor of the Collateral Agent on behalf of itself, the
Agent, the Lenders and the Noteholders, no effective financing statement naming
any Debtor as debtor, assignor, grantor, mortgagor, pledgor or the like and
covering all or any part of the Collateral is on file in any filing or
recording office in any jurisdiction.

          (g) Rights to Payment.

          (i) The Rights to Payment represent valid, binding and enforceable
obligations of the account debtors or other Persons obligated thereon,
representing undisputed, bona fide transactions completed in accordance with
the terms and provisions contained in any documents related thereto, and are
and 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 the
extent reflected by any Debtor’s reserves for uncollectible Rights to Payment
or to the extent, if any, that such account debtors or other Persons may be
entitled to normal and ordinary course trade discounts, returns, adjustments
and allowances in accordance with Section 5(m), or as otherwise disclosed to
the Collateral Agent, the Agent, the Lenders and the Noteholders in writing;

          (ii) to the best of each Debtor’s knowledge and belief, all account
debtors and other obligors on the Rights to Payment are solvent and generally
paying their debts as they come due;

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          (iii) all Rights to Payment comply with all applicable laws concerning
form, content and manner of preparation and execution, including where
applicable any federal or state consumer credit laws;

          (iv) no Debtor has assigned any of its rights under the Rights to Payment
except as provided in this Agreement or as set forth in the other Loan
Documents;

          (v) with respect to the Rights to Payment constituting Eligible
Receivables, except as disclosed in writing to the Agent and the Lenders, no
Debtor has any knowledge that any of the criteria for eligibility are not or
are no longer satisfied;

          (vi) all statements made, all unpaid balances and all other information in
the Books and other documentation relating to the Rights to Payment are true
and correct and in all respects what they purport to be; and

          (vii) no Debtor has any knowledge of any fact or circumstance which would
impair the validity or collectibility of any of the Rights to Payment.

          (h) Inventory. No Inventory or Farm Products is stored with any bailee or
warehouseman or similar Person or on any premises leased to any Debtor, nor has
any Inventory or Farm Products been consigned to any Debtor or consigned by any
Debtor to any Person or is held by any Debtor for any Person under any “bill
and hold” or other arrangement, except as set forth in Schedule 1; and with
respect to the Inventory constituting Eligible Inventory, except as disclosed
in writing to the Agent and the Lenders, no Debtor has any knowledge that any
of 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 any
Subsidiary) owns, possesses or uses under any licensing arrangement any
patents, copyrights, trademarks, service marks or trade names, nor is there
currently pending before any Governmental Authority any application for
registration of any patent, copyright, trademark, service mark or trade name;

          (ii) all patents, copyrights, trademarks, service marks and trade names
are subsisting and have not been adjudged invalid or unenforceable in whole or
in part;

          (iii) all maintenance fees required to be paid on account of any patents
have been timely paid for maintaining such patents in force, and, to the best
of each Debtor’s knowledge, each of the patents is valid and enforceable and
each Debtor has notified the Agent, the Lenders and the Noteholders in writing
of 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 material
infringement or unauthorized use presently is being made of any Intellectual
Property Collateral by any Person;

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          (v) each Debtor is the sole and exclusive owner of its Intellectual
Property Collateral and the past, present and contemplated future use of such
Intellectual Property Collateral by such Debtor has not, does not and will not
infringe or violate any right, privilege or license agreement of or with any
other Person; and

          (vi) each Debtor owns, has material rights under, is a party to, or an
assignee of a party to all material licenses, patents, patent applications,
copyrights, service marks, trademarks, trademark applications, trade names and
all other Intellectual Property Collateral necessary to continue to conduct its
business as heretofore conducted.

          (j) Equipment.

          (i) None of the Equipment constituting Collateral or other Collateral is
affixed to real property, except Collateral with respect to which each Debtor
has supplied the Collateral Agent, the Agent, the Lenders and the Noteholders
with all information and documentation necessary to make all fixture filings
required to perfect and protect the priority of the Collateral Agent’s security
interest in all such Collateral which may be fixtures as against all Persons
having an interest in the premises to which such property may be affixed;

          (ii) none of the Equipment constituting Collateral is leased from or to
any Person, except as set forth on Schedule 1 or as otherwise disclosed to the
Collateral Agent, the Agent, the Lenders and the Noteholders in writing;

          (iii) the Appraised Winery Equipment has an aggregate appraised value of
not less than $6,590,000, as set forth in the appraisal reports previously
delivered 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 Debtors
free and clear of all Liens, rights and interests of any other Person.

          (k) Deposit Accounts. The names and addresses of all financial
institutions at which any Debtor maintains its Deposit Accounts, and the
account numbers and account names of such Deposit Accounts, are set forth in
Schedule 1.

          (l) Investment Property; Instruments; and Chattel Paper. All securities
accounts of any Debtor and other Investment Property of any Debtor are set
forth in Schedule 1, and all Instruments and Chattel Paper held by any Debtor
are also set forth in Schedule 1.

          (m) Control Agreements. No Control Agreements exist with respect to any
Collateral other than any Control Agreements in favor of the Collateral Agent.

          (n) Letter-of-Credit Rights. No Debtor has any Letter-of-Credit Rights
except as set forth in Schedule 1.

          (o) Commercial Tort Claims. No Debtor has any Commercial Tort Claims
except as set forth in Schedule 1.

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          (p) Leases. No Debtor is nor will not become a lessee under any real
property lease or other agreement governing the location of Collateral at the
premises of another Person pursuant to which the lessor or such other Person
may obtain any rights in any of the Collateral, and no such lease or other such
agreement now prohibits, restrains, impairs or will prohibit, restrain or
impair any Debtor’s right to remove any Collateral from the premises at which
such Collateral is situated, except for the usual and customary restrictions
contained in leases of real property.

          (q) Consideration. Each Debtor has received at least reasonably
equivalent value and more than sufficient consideration to support the
indebtedness, obligations, liens and security interests created hereunder and
under the other Loan Documents to which such Debtor is a party. Each Debtor
acknowledges that it will derive substantial direct and indirect benefits from
the making of the Loans to the Borrower and the issuances of letters of credit
pursuant to the Credit Agreement and, without limiting the generality of the
foregoing, agrees to the inclusion of such Debtor’s assets in the Borrowing
Base as provided in the Credit Agreement.

          SECTION 5 Covenants. In addition to the covenants of each Debtor set
forth in the Credit Agreement and the other Loan Documents and in the Amended
and Restated Note Agreement and the other Loan Documents (as defined in the
Amended and Restated Note Agreement), so long as any of the Secured Obligations
remain unsatisfied or any Lender shall have any Commitment, each Debtor agrees
that:

          (a) Defense of Collateral. It will appear in and defend any action, suit
or proceeding which may affect to a material extent its title to, or right or
interest in, or the Collateral Agent’s right or interest in, the Collateral.

          (b) Preservation of Collateral. It will do and perform all reasonable
acts that may be necessary and appropriate to maintain, preserve and protect
the Collateral.

          (c) Compliance with Laws, Etc. It will comply with all laws, regulations
and ordinances, and all policies of insurance, relating in a material way to
the possession, operation, maintenance and control of the Collateral.

          (d) Location of Books and Chief Executive Office. It will: (i) keep all
Books pertaining to the Rights to Payment at the locations set forth in
Schedule 1; and (ii) give at least 30 days’ prior written notice to the
Collateral Agent, the Agent and the Noteholders of (a) any changes in any such
location where Books pertaining to the Rights to Payment are kept, including
any change of name or address of any service bureau, computer or data
processing company or other Person preparing or maintaining any Books or
collecting Rights to Payment for the Debtor or (b) any change in the location
of its chief executive office or principal place of business.

          (e) Location of Collateral. It will: (i) keep the Collateral at the
locations set forth in Schedule 1 and not remove the Collateral from such
locations (other than disposals of Collateral permitted by subsection (i)
below) except upon at least 30 days’ prior written notice of any removal to the
Collateral Agent, the Agent and the Noteholders; and (ii) give the Collateral

11

 

Agent, the Agent and the Noteholders at least 30 days’ prior written
notice 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 of
organization, (iii) any change in its registration as an organization (or any
new such registration); and (iv) any changes in its identity or structure in
any manner which might make any financing statement filed hereunder incorrect
or misleading; provided that it shall not change its jurisdiction of
organization to a jurisdiction outside of the United States.

          (g) Maintenance of Records. It will keep separate, accurate and complete
Books with respect to the Collateral, disclosing the Collateral Agent’s
security interest hereunder.

          (h) Invoicing of Sales. It will invoice all of its sales upon forms
customary in the industry and to maintain proof of delivery and customer
acceptance 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 dispose
of or transfer any of the Collateral or any right or interest therein, except
to the extent permitted by the Credit Agreement and the Amended and Restated
Note Agreement; provided that no such disposition or transfer of Investment
Property or Instruments shall be permitted while any Event of Default exists.

          (j) Liens. It will keep the Collateral free of all Liens except Permitted
Liens.

          (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 the
Noteholders’ request, it will obtain from each Person from whom it leases any
premises 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 to
the Collateral Agent, the Agent and the Noteholders.

          (m) Rights to Payment. It will:

          (i) give only normal discounts, allowances and credits as to Accounts and
other Rights to Payment, in the ordinary course of business, according to
normal trade practices utilized by it in the past, and enforce all Accounts and
other Rights to Payment strictly in accordance with their terms, and take all
such action to such end as may from time to time be reasonably requested by the
Collateral Agent, the Agent or the Noteholders, except that it may grant any
extension of the time for payment or enter into any agreement to make a rebate
or otherwise to reduce the amount owing on or with respect to, or compromise or
settle for less than the full amount thereof, any Account or other Right to
Payment, in the ordinary course of business, according to normal trade
practices utilized by it in the past, and where the amount involved does not
exceed $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, or
compromise or settle, an Account or other Right to Payment exists or occurs, or
if, to the knowledge of it, any dispute, setoff, claim, counterclaim or defense
exists or has been asserted or threatened with respect to an Account or other
Right to Payment, disclose such fact fully to the Collateral Agent, the Agent
and the Noteholders in the Books relating to such Account or other Right to
Payment and in connection with any invoice or report furnished by it to the
Collateral Agent, the Agent and the Noteholders relating to such Account or
other Right to Payment;

          (iii) if any Accounts arise from contracts with the United States or any
department, agency or instrumentality thereof, immediately notify the
Collateral Agent, the Agent and the Noteholders thereof and, upon the request
of the Collateral Agent, the Agent or the Noteholders, execute any documents
and instruments and take any other steps requested by the Collateral Agent, the
Agent or the Noteholders in order that all monies due and to become due
thereunder shall be assigned to the Collateral Agent and notice thereof given
to the Federal authorities under the Federal Assignment of Claims Act;

          (iv) in accordance with its sound business judgment perform and comply in
all material respects with its obligations in respect of the Accounts and other
Rights to Payment;

          (v) upon the request of the Collateral Agent, the Agent or the Noteholders
while an Event of Default exists, (a) at any time, notify all or any designated
portion of the account debtors and other obligors on the Rights to Payment of
the security interest hereunder, and (b) notify the account debtors and other
obligors on the Rights to Payment or any designated portion thereof that
payment shall be made directly to the Collateral Agent or to such other Person
or location as the Collateral Agent shall specify; and

          (vi) upon the occurrence of any Event of Default, establish such lockbox
or similar arrangements for the payment of the Accounts and other Rights to
Payment as the Collateral Agent, the Agent or the Noteholders shall reasonably
require.

          (n) Instruments, Investment Property, Etc. Upon the request of the
Collateral Agent, the Agent or the Noteholders it will (i) immediately deliver
to the Collateral Agent, or an agent designated by it, appropriately endorsed
or accompanied by appropriate instruments of transfer or assignment, all
Instruments, Documents, Chattel Paper and certificated securities with respect
to any Investment Property, all letters of credit, and all other Rights to
Payment at any time evidenced by promissory notes, trade acceptances or other
instruments, (ii) cause any securities intermediaries to show on their books
that the Collateral Agent is the entitlement holder with respect to any
Investment Property, and/or obtain Control Agreements in favor of the
Collateral Agent from such securities intermediaries, in form and substance
satisfactory to the Collateral Agent, the Agent and the Noteholders with
respect to any Investment Property, as requested by Collateral Agent, and (iii)
provide such notice, obtain such acknowledgments and take all such other
action, with respect to any Chattel Paper, Documents and Letter-of Credit
Rights, as the Collateral Agent, the Agent or the Noteholders shall reasonably
specify.

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          (o) Deposit Accounts and Securities Accounts. It will give the Collateral
Agent, the Agent and the Noteholders immediate written notice of the
establishment of any new Deposit Account and any new securities account with
respect to any Investment Property.

          (p) Inventory. It will:

          (i) upon the request of the Collateral Agent (which, except upon the
occurrence and during the continuation of an Event of Default, shall not be
given more than once in any 12-month period), take a physical listing of the
Inventory and promptly deliver a copy of such physical listing to the
Collateral Agent; and

          (ii) not store any Inventory or Farm Products with a bailee, warehouseman
or similar Person or on premises leased to the Debtor, nor dispose of any
Inventory or Farm Products on a bill-and-hold, guaranteed sale, sale and
return, sale on approval, consignment or similar basis, nor acquire any
Inventory or Farm Products from any Person on any such basis, without in each
case giving the Agent prior written notice thereof.

          (q) Equipment. It will, upon the Collateral Agent’s request (which, except
upon the occurrence and during the continuation of an Event of Default shall
not be given more than once in any 12-month period), deliver to the Collateral
Agent a report of each item of Equipment, in form and substance satisfactory to
the Collateral Agent.

          (r) Intellectual Property Collateral. It will:

          (i) not enter into any agreement (including any license or royalty
agreement) pertaining to any Intellectual Property Collateral, except for
non-exclusive licenses in the ordinary course of business, without in each case
the prior written consent of the Collateral Agent;

          (ii) not allow or suffer any Intellectual Property Collateral to become
abandoned, nor any registration thereof to be terminated, forfeited, expired or
dedicated to the public;

          (iii) promptly give the Collateral Agent, the Agent and the Noteholders
notice of any rights it may obtain to any new patentable inventions,
copyrightable works or other new Intellectual Property Collateral, prior to the
filing of any application for registration thereof; and

          (iv) diligently prosecute all applications for patents, copyrights and
trademarks, and file and prosecute any and all continuations,
continuations-in-part, applications for reissue, applications for certificate
of correction and like matters as shall be reasonable and appropriate in
accordance with prudent business practice, and promptly and timely pay any and
all maintenance, license, registration and other fees, taxes and expenses
incurred in connection with any Intellectual Property Collateral.

          (s) Notices, Reports and Information. It will (i) notify the Collateral
Agent, the Agent and the Noteholders of any other modifications of or additions
to the information contained in Schedule 1; (ii) notify the Collateral Agent,
the Agent and the Noteholders of any material claim made or asserted against
the Collateral by any Person and of any change in the

14

 

composition of the Collateral (other than in the ordinary course of
business) or other event which could materially adversely affect the value of
the Collateral or the Collateral Agent’s Lien thereon; (iii) furnish to the
Collateral Agent, the Agent and the Noteholders such statements and schedules
further identifying and describing the Collateral and such other reports and
other 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 Noteholders
make such demands and requests for information and reports as the Debtor is
entitled to make in respect of the Collateral.

          (t) Chattel Paper. It will not create any Chattel Paper without placing a
legend on the Chattel Paper acceptable to the Collateral Agent, the Agent and
the Noteholders indicating that the Collateral Agent has a security interest in
the Chattel Paper. It will give the Collateral Agent, the Agent and the
Noteholders immediate notice if it at any time holds or acquires an interest in
any Chattel Paper, including any Electronic Chattel Paper.

          (u) Commercial Tort Claims. It will give the Collateral Agent, the Agent
and the Noteholders immediate notice if it shall at any time hold or acquire
any Commercial Tort Claim.

          (v) Letter-of-Credit Rights. It will give the Collateral Agent, the Agent
and the Noteholders immediate notice if it shall at any time hold or acquire
any Letter-of-Credit Rights.

          SECTION 6 Rights to Payment.

          (a) Collection of Rights to Payment. Until the Collateral Agent exercises
its rights hereunder to collect Rights to Payment, each Debtor shall endeavor
in the first instance diligently to collect all amounts due or to become due on
or with respect to the Rights to Payment. At the request of the Collateral
Agent, the Agent or the Noteholders, upon and after the occurrence of any Event
of Default, and while such Event of Default is continuing, all remittances
received by any Debtor shall be held in trust for the Collateral Agent and, in
accordance with the Collateral Agent’s instructions, remitted to the Collateral
Agent 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 Collateral
Agent, the Agent or the Noteholders, upon and after the occurrence of any Event
of Default and while such Event of Default is continuing, the Collateral Agent
shall be entitled to receive all distributions and payments of any nature with
respect to any Investment Property or Instruments, and all such distributions
or payments received by any Debtor shall be held in trust for the Collateral
Agent and, in accordance with the Collateral Agent’s instructions, remitted to
the Collateral Agent or deposited to an account with the Collateral Agent in
the form received (with any necessary endorsements or instruments of assignment
or transfer). Following the occurrence of an Event of Default any such
distributions and payments with respect to any Investment Property held in any
securities account shall be held and retained in such securities account, in
each case as part of the Collateral hereunder. Additionally, the Collateral
Agent shall have the right, upon the occurrence of an Event of Default and
while such Event of Default is continuing, following prior written notice to
the Debtors, to vote and to give consents, ratifications and waivers with
respect to any Investment Property and Instruments, and to exercise all rights
of

15

 

conversion, exchange, subscription or any other rights, privileges or
options pertaining thereto, as if the Collateral Agent were the absolute owner
thereof; provided that the Collateral Agent shall have no duty to exercise any
of the foregoing rights afforded to it and shall not be responsible to any
Debtor or any other Person for any failure to do so or delay in doing so.

          SECTION 7 Authorization; Collateral Agent Appointed Attorney-in-Fact. The
Collateral Agent shall have the right to, in the name of any Debtor, or in the
name of the Collateral Agent or otherwise, without notice to or assent by the
Debtors, and each Debtor hereby constitutes and appoints the Collateral Agent
(and any of the Collateral Agent’s officers or employees or Collateral Agents
designated by the Collateral Agent) as such Debtor’s true and lawful
attorney-in-fact, with full power and authority to:

          (i) sign and file any of the financing statements which must be executed
or filed to perfect or continue perfected, maintain the priority of or provide
notice 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 any
Proceeds of any Collateral;

          (iii) sign and endorse any invoice or bill of lading relating to any of
the Collateral, warehouse or storage receipts, drafts against customers or
other obligors, assignments, notices of assignment, verifications and notices
to customers or other obligors;

          (iv) send requests for verification of Rights to Payment to the customers
or other obligors of any Debtor;

          (v) contact, or direct the Debtors to contact, all account debtors and
other obligors on the Rights to Payment and instruct such account debtors and
other obligors to make all payments directly to the Collateral Agent;

          (vi) assert, adjust, sue for, compromise or release any claims under any
policies of insurance;

          (vii) exercise dominion and control over, and refuse to permit further
withdrawals from, Deposit Accounts maintained with the Collateral Agent, any
Lender or any other bank, financial institution or other Person;

          (viii) notify each Person maintaining lockbox or similar arrangements for
the payment of the Rights to Payment to remit all amounts representing
collections on the Rights to Payment directly to the Collateral Agent;

          (ix) ask, demand, collect, receive and give acquittances and receipts for
any and all Rights to Payment, enforce payment or any other rights in respect
of the Rights to Payment and other Collateral, grant consents, agree to any
amendments, modifications or waivers of the agreements and documents governing
the Rights to Payment and other Collateral, and otherwise file any claims, take
any action or institute, defend, settle or adjust any actions, suits or
proceedings with respect to the Collateral, as the Collateral Agent may deem
necessary

16

 

or desirable to maintain, preserve and protect the Collateral, to collect
the Collateral or to enforce the rights of the Collateral Agent with respect to
the Collateral;

          (x) execute any and all applications, documents, papers and instruments
necessary for the Collateral Agent to use the Intellectual Property Collateral
and grant or issue any exclusive or non-exclusive license or sublicense with
respect to any Intellectual Property Collateral;

          (xi) execute any and all endorsements, assignments or other documents and
instruments necessary to sell, lease, assign, convey or otherwise transfer
title in or dispose of the Collateral;

          (xii) execute and deliver to any securities intermediary or other Person
any entitlement order or other notice, document or instrument which the
Collateral Agent may reasonably deem necessary or advisable to maintain,
protect, realize upon and preserve the Deposit Accounts and Investment Property
and the Collateral Agent’s security interest therein; and

          (xiii) execute any and all such other documents and instruments, and do
any and all acts and things for and on behalf of the Debtors, which the
Collateral Agent may reasonably deem necessary or advisable to maintain,
protect, realize upon and preserve the Collateral and the Collateral Agent’s
security interest therein and to accomplish the purposes of this Agreement.

The Collateral Agent agrees that, except upon and during the continuance of an
Event of Default, it shall not exercise the power of attorney, or any rights
granted to the Collateral Agent, pursuant to clauses (ii) through (xiii). The
foregoing power of attorney is coupled with an interest and irrevocable so long
as the Lenders have any Commitments or the Secured Obligations have not been
paid and performed in full. Each Debtor hereby ratifies, to the extent
permitted by law, all that the Collateral Agent shall lawfully and in good
faith do or cause to be done by virtue of and in compliance with this Section
7.

          SECTION 8 Collateral Agent Performance of Debtor Obligations. The
Collateral Agent, the Agent or the Noteholders may perform or pay any
obligation which the Debtors have agreed to perform or pay under this Agreement
upon notice to the Debtors, if the Debtors have failed to timely perform or pay
any such obligation, and each Debtor shall reimburse the Collateral Agent, the
Agent or the Noteholders, as the case may be, on demand for any amounts paid by
the 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 such
Event of Default is continuing, the Collateral Agent shall have, in addition to
all other rights and remedies granted to it in this Agreement, all rights and
remedies of a secured party under the UCC and other applicable laws. Without
limiting the generality of the foregoing, each Debtor agrees that:

17

 

          (i) The Collateral Agent may peaceably and without notice enter any
premises of any Debtor, take possession of any Collateral, remove or dispose of
all 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, and
demand, give receipt for, settle, renew, extend, exchange, compromise, adjust,
or sue for all or any part of the Collateral, as the Collateral Agent may
determine.

          (ii) The Collateral Agent may require any Debtor to assemble all or any
part of the Collateral and make it available to the Collateral Agent, at any
place and time designated by the Collateral Agent.

          (iii) The Collateral Agent may use or transfer any of any Debtor’s rights
and interests in any Intellectual Property Collateral, by license, by
sublicense (to the extent permitted by an applicable license) or otherwise, on
such conditions and in such manner as the Collateral Agent may determine.

          (iv) The Collateral Agent may secure the appointment of a receiver of the
Collateral or any part thereof (to the extent and in the manner provided by
applicable law).

          (v) The Collateral Agent may withdraw (or cause to be withdrawn) any and
all funds from any Deposit Accounts or securities accounts.

          (vi) The Collateral Agent may sell, resell, lease, use, assign, transfer
or otherwise dispose of any or all of the Collateral in its then condition or
following any commercially reasonable preparation or processing (utilizing in
connection therewith any of any Debtor’s assets, without charge or liability to
the Collateral Agent therefor) at public or private sale, by one or more
contracts, in one or more parcels, at the same or different times, for cash or
credit or for future delivery without assumption of any credit risk, all as the
Collateral Agent deems advisable; provided, however, that such Debtor shall be
credited with the net proceeds of sale only when such proceeds are finally
collected by the Collateral Agent. The Collateral Agent and each of the
Lenders shall have the right upon any such public sale, and, to the extent
permitted by law, upon any such private sale, to purchase the whole or any part
of the Collateral so sold, free of any right or equity of redemption, which
right or equity of redemption each Debtor hereby releases, to the extent
permitted by law. The Collateral Agent shall give the Debtors such notice of
any public or private sale as may be required by the UCC or other applicable
law. Each Debtor recognizes that the Collateral Agent may be unable to make a
public sale of any or all of the Investment Property, by reason of prohibitions
contained in applicable securities laws or otherwise, and expressly agrees that
a private sale to a restricted group of purchasers for investment and not with
a view to any distribution thereof shall be considered a commercially
reasonable sale.

          (vii) Neither the Collateral Agent, the Agent, any Noteholder nor any
Lender shall have any obligation to clean up or otherwise prepare the
Collateral for sale. The Collateral Agent has no obligation to attempt to
satisfy the Secured Obligations by collecting them from any other Person liable
for them and the Collateral Agent may release, modify or waive any Collateral
provided by any other Person to secure any of the Secured Obligations, all
without affecting the Collateral Agent’s, the Agent’s, any Noteholder’s or any
Lender’s rights against

18

 

any Debtor. Each Debtor waives any right it may have to require the
Collateral Agent, the Agent, any Noteholder or any Lender to pursue any third
Person for any of the Secured Obligations. The Collateral Agent may comply
with any applicable state or federal law requirements in connection with a
disposition of the Collateral and compliance will not be considered adversely
to affect the commercial reasonableness of any sale of the Collateral. The
Collateral Agent may sell the Collateral without giving any warranties as to
the Collateral. The Collateral Agent may specifically disclaim any warranties
of title or the like. This procedure will not be considered adversely to
affect the commercial reasonableness of any sale of the Collateral. If the
Collateral Agent sells any of the Collateral upon credit, the Debtors will be
credited only with payments actually made by the purchaser, received by the
Collateral Agent and applied to the indebtedness of the purchaser. In the
event the purchaser fails to pay for the Collateral, the Collateral Agent may
resell the Collateral and the Debtors shall be credited with the proceeds of
the sale.

          (b) License. For the purpose of enabling the Collateral Agent to exercise
its rights and remedies under this Section 10 or otherwise in connection with
this Agreement, each Debtor hereby grants to the Collateral Agent an
irrevocable, non-exclusive and assignable license (exercisable without payment
or royalty or other compensation to the Debtors) to use, license or sublicense
any Intellectual Property Collateral.

          (c) Proceeds Account. To the extent that any of the Secured Obligations
may be contingent, unmatured or unliquidated (including with respect to undrawn
amounts under the Letters of Credit) at such time as there may exist an Event
of Default, the Collateral Agent may, at its election, (i) retain the proceeds
of any sale, collection, disposition or other realization upon the Collateral
(or any portion thereof) in a special purpose non-interest-bearing restricted
deposit account (the “Proceeds Account”) created and maintained by the
Collateral Agent for such purpose (which shall constitute a Deposit Account
included within the Collateral hereunder) until such time as the Collateral
Agent may elect to apply such proceeds to the Secured Obligations, and each
Debtor agrees that such retention of such proceeds by the Collateral Agent
shall not be deemed strict foreclosure with respect thereto; (ii) in any manner
elected by the Collateral Agent, estimate the liquidated amount of any such
contingent, unmatured or unliquidated claims and apply the proceeds of the
Collateral against such amount; or (iii) otherwise proceed in any manner
permitted by applicable law. Each Debtor agrees that the Proceeds Account shall
be a blocked account and that upon the irrevocable deposit of funds into the
Proceeds Account, the Debtors shall not have any right of withdrawal with
respect to such funds. Accordingly, each Debtor irrevocably waives until the
termination of this Agreement in accordance with Section 22 the right to make
any withdrawal from the Proceeds Account and the right to instruct the
Collateral Agent to honor drafts against the Proceeds Account.

          (d) Application of Proceeds. Subject to subsection (c), the cash proceeds
actually received from the sale or other disposition or collection of
Collateral, and any other amounts received in respect of the Collateral, shall
be applied as provided in the Intercreditor Agreement. Any surplus thereof
which exists after payment and performance in full of the Secured Obligations
shall be promptly paid over to the Debtors or otherwise disposed of in
accordance with the Intercreditor Agreement, the UCC or other applicable law.
The Debtors shall remain liable to the Collateral Agent, the Agent, the
Noteholders and the Lenders for any deficiency which exists after any sale or
other disposition or collection of Collateral.

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          SECTION 11 Certain Waivers. Each Debtor waives, to the fullest extent
permitted by law, (i) any right of redemption with respect to the Collateral,
whether before or after sale hereunder, and all rights, if any, of marshalling
of the Collateral or other collateral or security for the Secured Obligations;
(ii) any right to require the Collateral Agent, the Agent, the Noteholders or
the Lenders (a) to proceed against any Person, (b) to exhaust any other
collateral or security for any of the Secured Obligations, (c) to pursue any
remedy in the Collateral Agent’s, the Agent’s, any Noteholder’s or any of the
Lenders’ power, or (d) to make or give any presentments, demands for
performance, notices of nonperformance, protests, notices of protests or
notices of dishonor in connection with any of the Collateral; and (iii) all
claims, damages, and demands against the Collateral Agent, the Agent, the
Noteholders or the Lenders arising out of the repossession, retention, sale or
application of the proceeds of any sale of the Collateral.

          SECTION 12 Notices. All notices or other communications hereunder shall
be given in the manner and to the addresses specified in the Intercreditor
Agreement. All such notices and other communications shall be deemed to be
delivered when a record (within the meaning of the UCC) has been (i) delivered
by hand; (ii) sent by mail, upon the earlier of the date of receipt or five
Business Days after deposit in the mail, first class (or air mail, with respect
to communications sent to or from the United States); (iii) sent by facsimile
transmission, or (iv) sent by email.

          SECTION 13 No Waiver; Cumulative Remedies. No failure on the part of the
Collateral Agent, the Agent, any Noteholder or any Lender to exercise, and no
delay in exercising, any right, remedy, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, remedy, power or privilege preclude any other or further exercise
thereof or the exercise of any other right, remedy, power or privilege. The
rights and remedies under this Agreement are cumulative and not exclusive of
any rights, remedies, powers and privileges that may otherwise be available to
the 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 Collateral
Agent and any of its Affiliates, and the reasonable fees and disbursements of
counsel to the Collateral Agent (including allocated costs of internal
counsel), in connection with the negotiation, preparation, execution, delivery
and administration of this Agreement, and any amendments, modifications or
waivers of the terms thereof, and the custody of the Collateral;

          (ii) all title, appraisal (including the allocated costs of internal
appraisal services), survey, audit, consulting, search, recording, filing and
similar fees, costs and expenses incurred or sustained by the Collateral Agent
or any of its Affiliates in connection with this Agreement or the Collateral;
and

          (iii) all costs and expenses of the Collateral Agent and its Affiliates
and the fees and disbursements of counsel (including the allocated costs of
internal counsel), in connection with the enforcement or attempted enforcement
of, and preservation of any rights or

20

 

interests under, this Agreement, any out-of-court workout or other
refinancing 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 and
collections of Collateral, and any and all losses, costs and expenses sustained
by the Collateral Agent as a result of any failure by any Debtor to perform or
observe its obligations contained herein.

          (b) Indemnification. Each Debtor hereby agrees to indemnify the
Collateral Agent, any Affiliate thereof, and their respective directors,
officers, employees, agents, counsel and other advisors (each an “Indemnified
Person”) 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, including
the 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 to
or arising out of this Agreement or the transactions contemplated hereby or any
action taken or omitted to be taken by it hereunder (the “Indemnified
Liabilities”); provided that the Debtors shall not be liable to any Indemnified
Person for any portion of such Indemnified Liabilities to the extent they are
found by a final decision of a court of competent jurisdiction to have resulted
from such Indemnified Person’s gross negligence or willful misconduct. If and
to the extent that the foregoing indemnification is for any reason held
unenforceable, each Debtor agrees to make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is
permissible 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 them
harmless from any and all present and future stamp, transfer, documentary and
other such taxes, levies, fees, assessments and other charges made by any
jurisdiction by reason of the execution, delivery, performance and enforcement
of this Agreement.

          (d) Interest. Any amounts payable to the Collateral Agent, the Agent, any
Noteholder or any Lender under this Section 14 or otherwise under this
Agreement if not paid within 10 calendar days after demand shall thereafter
bear interest until paid in full, at the rate of interest set forth in Section
4.02 of the Credit Agreement.

          SECTION 15 Binding Effect. This Agreement shall be binding upon, inure to
the benefit of and be enforceable by the Debtors, the Collateral Agent, the
Agent, each Noteholder and each Lender and their respective successors and
assigns and shall bind any Person who becomes bound as a debtor to this
Agreement.

          SECTION 16 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, EXCEPT AS
REQUIRED BY MANDATORY PROVISIONS OF LAW AND TO THE EXTENT THE VALIDITY OR
PERFECTION OF THE SECURITY INTERESTS HEREUNDER, OR THE REMEDIES HEREUNDER, IN
RESPECT OF ANY COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN
NEW YORK.

21

 

          SECTION 17 Entire Agreement; Amendment. This Agreement and the
Intercreditor Agreement contains the entire agreement of the parties with
respect to the subject matter hereof and shall not be amended except by the
written agreement of the parties hereto or as provided in the Intercreditor
Agreement.

          SECTION 18 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under all applicable laws and regulations. If, however, any provision of this
Agreement 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 Agreement, or the validity or effectiveness of such
provision in any other jurisdiction.

          SECTION 19 Counterparts. This Agreement 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.

          SECTION 20 Incorporation of Provisions of the Credit Agreement. To the
extent the Credit Agreement contains provisions of general applicability to the
Loan Documents, including any such provisions contained in Article XIII
thereof, such provisions are incorporated herein by this reference.

          SECTION 21 No Inconsistent Requirements. Each Debtor acknowledges that
this Agreement, the Credit Agreement, the other Loan Documents, the Amended and
Restated Note Agreement and the other Loan Documents (as defined in the Amended
and Restated Note Agreement) may contain covenants and other terms and
provisions variously stated regarding the same or similar matters, and agrees
that all such covenants, terms and provisions are cumulative and all shall be
performed and satisfied in accordance with their respective terms.

          SECTION 22 Future Debtors. At such time following the date hereof as any
Person (an “Acceding Subsidiary”) is required to accede hereto pursuant to the
terms of Section 10.03(k) of the Credit Agreement, such Acceding Subsidiary
shall execute and deliver to the Collateral Agent an accession agreement
substantially in the form of Annex 1 (the “Accession Agreement’), signifying
its agreement to be bound by the provisions of this Agreement as a Debtor to
the same extent as if such Acceding Subsidiary had originally executed this
Agreement as of the date hereof.

          SECTION 23 Termination. Upon the termination of the Commitments of the
Lenders, the surrender of the Letters of Credit and payment and performance in
full of all Secured Obligations, the security interests created by this
Agreement shall terminate and the Collateral Agent shall promptly execute and
deliver to the Debtors such documents and instruments reasonably requested by
the Debtors as shall be necessary to evidence termination of all security
interests given by the Debtors to the Collateral Agent hereunder.

22

 

          SECTION 24 Acknowledgments. Each Debtor hereby acknowledges and agrees
for the benefit of the Collateral Agent, for itself and on behalf of and for
the ratable benefit of the Agent, the Lenders and the Noteholders, that the
Original Security Agreement, as amended and restated by this Agreement: (i) is
and shall continue to be in full force and effect, without offset or
counterclaim; (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 execution
and delivery of this Agreement or by the execution and delivery of, or the
consummation of the transactions contemplated by, the Credit Agreement and the
Loan Documents, the execution of which shall not be deemed a satisfaction,
cancellation, or novation of any obligation or any obligations of any Debtor
under the Original Security Agreement or any other Loan Document (as defined in
the Existing Credit Agreement). Each Debtor hereby restates, reaffirms and
continues the security interest in the existing Collateral created pursuant to
the Original Security Agreement (as amended and restated by this Agreement).

[Signatures follow.]

23

 

          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

24

 

	 	 	 	 	 
	 	 	THE COLLATERAL AGENT
	 
	 	 	 	 
	 	 	Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank
International”, 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

25

 

ANNEX 1

to the Security Agreement

FORM OF ACCESSION AGREEMENT

	 	 	 
	To:

	 	Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank
International”, New York Branch (“Rabobank”)
	 
	 	 
	Re:

	 	The Chalone Wine Group, Ltd.

Ladies and Gentlemen:

     This Accession Agreement is made and delivered pursuant to Section 22 of
that certain Amended and Restated Security Agreement dated as of May 11, 2004
(as amended, modified, renewed or extended from time to time, the “Security
Agreement”), made between each Debtor named in the signature pages thereof
(each a “Debtor” and collectively, the “Debtors”), and Rabobank as Collateral
Agent (the “Collateral Agent”). All capitalized terms used in this Accession
Agreement and not otherwise defined herein shall have the meanings assigned to
them in either the Security Agreement.

     The Chalone Wine Group, Ltd. (the “Borrower”) is party to that certain
Amended and Restated Credit Agreement dated as of May 11, 2004 (the “Credit
Agreement) by and among the Borrower, the Lenders from time to time party
thereto and the Agent.

     The Borrower is also party to that certain Amended and Restated Note
Purchase Agreement dated as of May 11, 2004 (the “Note Agreement”) by and among
the Borrower and the Noteholders.

     The undersigned,                                        [insert name of acceding
Subsidiary], a                     [corporation, partnership, limited
liability company, etc.], hereby acknowledges for the benefit of the Collateral
Agent, 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. The
undersigned confirms that the representations and warranties set forth in
Section 4 of the Security Agreement are true and correct as to the undersigned
as of the date hereof.

     Without limiting the foregoing, the undersigned hereby agrees to perform
all of the obligations of a Debtor under, and to be bound in all respects by
the terms of, the Security Agreement, including Section 5 thereof, to the same
extent and with the same force and effect as if the undersigned were an
original signatory thereto. The undersigned hereby grants to the Collateral
Agent, 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 the
undersigned’s right, title and interest in, to and under all of its personal
property (other than any Excluded Collateral), wherever located and

A-1

 

whether now existing or owned or hereafter acquired or arising, including all
Collateral, as security for the payment and performance of the Secured
Obligations.

     Schedule 1 to the Security Agreement is hereby amended by adding Schedule
1 attached hereto to the Security Agreement.

     This Accession Agreement shall constitute a Loan Document under the Credit
Agreement and a Loan Document under the Note Agreement.

     THIS ACCESSION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, 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	 	 
	

	 	 	 	

A-2

 

SCHEDULE 1

to the Security Agreement

	1.	 	Locations of Chief Executive Office and other Locations, including of
Collateral

	a.	 	Chief Executive Office and Principal Place of Business:
	 
	 	 	621 Airpark Road

Napa, California 94558
	 
	b.	 	Other locations where Debtors conducts business or Collateral is kept:
	 
	 	 	2585 Biddle Ranch Road,

San Louis Obispo, CA 93401
	 
	 	 	1102 W. Cherry St.

Walla Walla, WA 94362
	 
	 	 	71 Gangl Rd.

Wapato, WA 98951
	 
	 	 	Stonewall Canyon Road & Hwy 116

Soledad, CA 93960
	 
	 	 	1700 Moon Mountain Drive

Sonoma, CA 95476
	 
	 	 	14301 Arnold Drive

Glen Ellen, CA 95442
	 
	 	 	2750 Las Amigas Road

Napa, CA 94558
	 
	 	 	4910 Edna Road

San Luis Obispo, CA 93401
	 
	 	 	5055 Solano Avenue

Napa, CA 94558
	 
	 	 	2425 Mission Street

San Miguel, CA 93451

S-1.

 

	 	 	1695 St. Helena Hwy.

Rutherford, CA 94573
	 
	 	 	19817 89th Avenue South

Kent, WA 98301
	 
	 	 	759 Skyway Court

Napa, CA 94558
	 
	 	 	13148 Raymer St.

N. Hollywood, CA 91605
	 
	 	 	787 Airpark Road

Napa, CA 94558
	 
	 	 	740 Airpark Rd.

Napa, CA 94558
	 
	 	 	389 4th Street E.

Sonoma, CA 95476
	 
	 	 	1160 Oak Knoll Road

Napa, CA 94558
	 
	 	 	600 Mathews Rd

Lakeport, CA 95453
	 
	 	 	12001 South Highway 99

Manteca, CA 95336

	2.	 	Locations of Books Pertaining to Rights to Payment
	 
	 	 	621 Airpark Road

Napa, CA 94558
	 
	3.	 	Jurisdiction of Organization.

	 	 	 
	Chalone Wine Group, Ltd

	 	California

S-2.

 

	 	 	 
	Canoe Ridge Vineyard, L.L.C.

	 	Washington
	Canoe Ridge Winery, Inc.

	 	Washington
	SHW Equity Co.

	 	Washington
	Staton Hills Winery Company Limited

	 	Washington

	4.	 	Trade Names and Trade Styles; Other Corporate, Trade or Fictitious Names;
Etc.
	 
	 	 	Sageland Vineyards
	 
	5.	 	Inventory Stored with Warehousemen or on Leased Premises, Etc.
	 
	 	 	Tiger Mountain Warehouse

19817 89th Avenue South

Kent, WA 98301
	 
	 	 	759 Skyway Court

Napa, CA 94558
	 
	 	 	2425 Mission Street

San Miguel, CA 95451
	 
	6.	 	Patents, Copyrights, Trademarks, Etc.
	 
	 	 	Registered Trademarks:
	 
	 	 	ACACIA, CANOE RIDGE, CHALONE VINEYARD & DESIGN, CHALONE VINEYARD, GAVILAN,
SAGELANDS, STATON HILLS, MISTY RIDGE, PINK RIESLING, PHOENIX, MOON
MOUNTAIN, PATRON OF THE WINE ARTS, BEYOND MERLOT, ARCHSTONE
	 
	 	 	Pending Trademark Applications:
	 
	 	 	PROVENANCE VINEYARD, OROGENY VINEYARDS, COMADRE, CANOE RIDGE VINEYARD &
DESIGN, HEWITT, WINES FOR WILDLIFE, COPIA DE LUNA
	 
	7.	 	Leased Equipment
	 
	 	 	General office equipment leases; barrel leases with De Lage Landen.

S-3.

 

	8.	 	Deposit Accounts
	 
	 	 	a. Main Accounts/Sweep Accounts:

	 	 	 	 	 	 	 
	The Chalone Wine Group, Ltd.

	 	account number:
	 	 	4295067011	 
	 
	 	 	 	 	 	 
	Canoe Ridge Vineyard, L.L.C.

	 	account number:
	 	 	4103137121	 
	 
	 	 	 	 	 	 
	Staton Hills Winery Company Limited

	 	account number:
	 	 	4296914369	 

	 	 	b. Winery Accounts:

	 	 	 	 	 	 	 
	The Chalone Wine Group, Ltd.

	 	account number:
	 	 	4518079637	 
	 
	 	 	 	 	 	 
	Staton Hills Winery Company Limited

	 	account number:
	 	 	4296914351	 

	9.	 	Investment Property
	 
	 	 	None.
	 
	10.	 	Instruments and Chattel Paper
	 
	 	 	None.
	 
	11.	 	Commercial Tort Claims
	 
	 	 	None.
	 
	12.	 	Letter-of-Credit Rights
	 
	 	 	None.

S-4.

 

SCHEDULE 2

to the Security Agreement

Excluded Collateral

     All right, title and interest of the Debtor, if any, in and to all
building material, building equipment and fixtures of every kind and nature
whatsoever on said land or in any building, structure or improvement now or
hereafter standing on an Excluded Parcel which are classified as fixtures under
applicable law and which are used in connection with the operation, maintenance
or protection of said buildings, structures and improvements as such
(including, without limitation, all boilers, air conditioning, ventilating,
plumbing, heating, lighting and electrical systems and apparatus, all
communications equipment and intercom systems and apparatus, all sprinkler
equipment and apparatus, all elevators and escalators, all irrigation systems,
all wastewater treatment and disposal facilities, all vines and farm products
growing thereon, and all trellises and the reversion or reversions, remainder
or remainders, in and to said land, and together with the entire interest of
the Debtor in and to all and singular the tenements, hereditaments, easements,
rights of way, rights, privileges and appurtenances to said land, belonging or
in anywise appertaining thereto, including, without limitation, the entire
right, title and interest of the Debtor in, to and under any streets, ways,
alleys, gores or strips of land adjoining said land, and all claims or demands
whatsoever of the Debtor either in law or in equity, in possession or
expectancy, of, in and to said land, together with all accessions, parts and
appurtenances appertaining or attached thereto and all substitutions, renewals
or replacements of and additions, improvements, accessions and accumulations to
any and all thereof, and together with all rights, powers, privileges, options
and other benefits of the Debtor, as lessor, under any leases including the
right to collect any and all rents, profits or other income and the present and
continuing right to make claim for, collect, receive and receipt for any and
all of such rents, profits or other income (all of which properties are
hereinafter referred to as the “Excluded Real Property Collateral").

     All materials, furniture, furnishings, machinery, fixtures and equipment
now or hereafter erected on or affixed to the Excluded Real Property Collateral
and including, but not limited to, all heating, plumbing, lighting, water
heating, cooking, laundry, refrigerating, incinerating, communications,
ventilating and air conditioning equipment, building signs, disposals,
dishwashers, telephone systems, sprinkler systems, fire extinguishing apparatus
and equipment, water tanks, engines, machines, boilers, dynamos, stokers,
elevators, motors, cabinets, shades, blinds, partitions, window screens, screen
doors, storm windows, awnings, drapes, rugs and other floor coverings,
furniture, furnishings, radios and television sets and wiring and antennae
therefor, and all fixtures, accessions and appurtenances thereto, and all
renewals or replacements of or substitutions for any of the foregoing, together
with all other equipment, furnishings, fixtures, machinery and furniture owned
by the Debtor now or hereafter attached or affixed to or used in and about the
building or buildings now erected or hereafter to be erected on the Excluded
Real Property Collateral, or otherwise located on the Excluded Real Property
Collateral, and all fixtures, accessions and appurtenances thereto, and all
renewals or replacements of or substitutions for any of the foregoing.

     All judgments, awards of damages, settlements and other compensation
heretofore or hereafter made resulting from condemnation proceedings or the
taking of the Excluded Real

S-5.

 

Property Collateral or any part thereof or any improvements now or at any
time hereafter located thereon or any easement or other appurtenance thereto
under the power of eminent domain, or any similar power or right (including any
award from the United States Government at any time after the allowance of the
claim therefor, the ascertainment of the amount thereof and the issuance of the
warrant for the payment thereof), whether permanent or temporary, or for any
damage (whether caused by such taking or otherwise) to said Excluded Real
Property Collateral or any part thereof or the improvements thereon or any part
thereof, or to any rights appurtenant thereto, including severance and
consequential damage, and any award for change of grade of streets.

     All proceeds of the conversion, voluntary or involuntary, of any of the
foregoing into cash or other liquidated claims, including, without limitation,
all proceeds and payments of insurance related to the foregoing.

S-6.exv10w69

 

Exhibit 10.69

THE CHALONE WINE GROUP, LTD.

SECOND AMENDMENT

Dated as of May 11,2004

To

AMENDED AND RESTATED NOTE PURCHASE AGREEMENT

Dated as of April 19, 2002

Re: $5,000,000 Adjustable Rate Senior Secured Guaranteed Notes, Series A,

Due September 15, 2010

$10,000,000 Adjustable Rate Senior Secured Guaranteed Notes, Series B,

Due September 15, 2010

$15,000,000 Adjustable Rate Senior Secured Guaranteed Notes, Series C,

Due September 15, 2010

 

 

SECOND AMENDMENT TO AMENDED AND RESTATED NOTE PURCHASE AGREEMENT

This Second Amendment dated as of May 11, 2004 (the or this “Second
Amendment”) to the Amended and Restated Note Purchase Agreement dated as of
April 19, 2002 is among The Chalone Wine Group, Ltd., a California corporation
(the “Company”), the Subsidiary Guarantors (as defined below) and Farm Credit
Services of America, PCA and Farm Credit Services of Minnesota Valley, PCA,
DBA PCS Commercial Finance Group (collectively, the “Noteholders”).

RECITALS:

          A. The Company and the Noteholders have heretofore entered into that
certain Amended and Restated Note Purchase Agreement dated as of April 19,
2002, as amended
by that certain First Amendment to Amended and Restated Note Purchase
Agreement dated July
11, 2002 (as so amended and otherwise amended, restated, supplemented or
otherwise modified
from time to time, the “Note Agreement”). The Company has heretofore
issued its $5,000,000
Adjustable Rate Senior Secured Notes, Series A, Due September 15, 2010
bearing PPN 157639
B*5 (the “Series A Notes”), dated April 19, 2002, its $10,000,000
Adjustable Rate Senior
Secured Notes, Series B, Due September 15, 2010 bearing PPN 157639 C* 4
(the “Series B
Notes”), dated July 1, 2003 and its $15,000,000 Adjustable Rate Senior
Secured Notes, Series C,
Due September 15, 2010 bearing PPN 157639 B# 1, dated April 19, 2002 (the
“Series C Notes”;
the Series A Notes, the Series B Notes and the Series C Notes are
hereinafter collectively
referred to as the “Notes”) pursuant to the Note Agreement. The
Noteholders are the holders of
100% of the principal amount of the Notes presently outstanding.

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

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

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

 

 

          NOW, THEREFORE, upon the full and complete satisfaction of the conditions
precedent to the effectiveness of this Second Amendment set forth in §6
hereof, the Company, the Subsidiary Guarantors and the Noteholders, for good
and valuable consideration the receipt and sufficiency of which is hereby
acknowledged, do hereby agree as follows:

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

     SECTION 2 Amendments.

     (a) Schedule B to the Note Agreement shall be and is hereby amended by
deleting the
definition of “Specified Loan to Value Event” and replacing the following
definition therefor:

     “ ‘Specified Loan to Value Event’ means, in connection with a
sale, transfer or other disposition of any Term Debt Priority
Collateral, any circumstance where the outstanding principal
amount of the Term Debt on the date of determination thereof
equals or exceeds 65% of the fair market value (as determined by
an appraisal reasonably acceptable to the Required Holders
performed within three (3) years of the date of determination
thereof) of the Term Debt Priority Collateral which is to remain
subject to the Collateral Documents after giving effect to such
sale, transfer or other disposition,”

     (b) Schedule B to the Note Agreement shall be and is hereby amended by
adding a
quotation mark in front of the definition of “Subsidiary” therein.

     (c) Section 10.4(a) of the Note Agreement shall be and is hereby amended
in its entirety
to read as follows:

     “(a) Leverage Ratio.

               The Company shall maintain a ratio of (a) Consolidated
Indebtedness plus six times Consolidated Rent Expense (measured on
a rolling 4-quarter basis) to (b) Consolidated EBITDA plus one
times Consolidated Rent Expense (in each case, measured on a
rolling 4-quarter basis) (such ratio, the “Leverage Ratio”) as of
the last day of each fiscal quarter of not more than (i) 5.50 to
1.00 for the second, third and fourth fiscal quarters of 2004, the
first second, third and fourth fiscal quarters of 2005, and the
first fiscal quarter of 2006, (ii) 5.00 to 1.00 for the second and
third fiscal quarters of 2006, (iii) 4.50 to 1.00 for the fourth
fiscal quarter of 2006 and the first fiscal quarter of 2007, and
(iv) 3.50 to 1.00 for the second fiscal quarter of 2007 and each
fiscal quarter ending thereafter.”

2

 

     (d) Section 10.4(c) of the Note Agreement shall be and is hereby amended
in its entirety
to read as follows:

     “(c) Interest Coverage Ratio.

               The Company shall maintain a ratio of Consolidated EBIT to
Consolidated Interest Expense, for each period of four consecutive
fiscal quarters then ended, of not less than (i) 1.05 to 1.00 as of
the last day of the second and third fiscal quarters of 2004, (ii)
1.25 to 1.00 as of the last day of the fourth fiscal quarter of
2004, the first, second, third and fourth fiscal quarters of 2005
and the first and second fiscal quarters of 2006, (iii) 1.50 to
1.00 as of the last day of the third and fourth fiscal quarters of
2006, (iv) 2.00 to 1.00 as of the last day of the first fiscal
quarter of 2007, and (v) 3.50 to 1.00 as of the last day of the
second fiscal quarter of 2007 and each fiscal quarter ending
thereafter.”

     (e) Section 10.4(d) of the Note Agreement shall be and is hereby amended
in its entirety
to read as follows:

     “(d) Fixed Charge Coverage Ratio.

               The Company shall maintain a ratio of (i) Consolidated EBITDA
to (ii) the sum of Consolidated Interest Expense plus regularly
scheduled principal payments on Indebtedness (including such
payments attributable to Capital Leases) plus cash income taxes
plus cash dividends, of the Company and its Subsidiaries on a
consolidated basis, as determined in accordance with GAAP, for each
period of four consecutive fiscal quarters then ended of not less
than (1) 1.10 to 1.00 as of the last day of the second fiscal
quarter of 2004 through the last day of the first fiscal quarter of
2007 and (2) 1.25 to 1.00 as of the last day of the second fiscal
quarter of 2007 and each fiscal quarter ending thereafter.”

     (f) Subsection 10.4(e)(ii) of the Note Agreement shall be and is hereby
amended in its
entirety to read as follows:

“(ii) The Company shall not, and shall not permit any of its
Subsidiaries to, make or become legally obligated to make any
expenditure in respect of the purchase or other acquisition of any
fixed or capital assets (excluding those assets set out in clause
(i) above), where such expenditure exceeds, in the aggregate for
the Company and its Subsidiaries during each fiscal year set forth
below, the amount set forth opposite such fiscal year:

	 	 	 	 	 
	Fiscal Year	 	 
	Ending
	 	Amount

	2004
	 	$	5,000,000	 
	2005
	 	$	4,500,000	 
	2006
	 	$	6,000,000	 
	2007
	 	$	3,000,000	 

3

 

	 	 	 	 	 
	2008
	 	$	2,500,000	 
	2009
	 	$	2,500,000	 
	2010
	 	$	2,500,000	”

     (g) Section 9 of the Note Agreement shall be and is hereby amended by
adding a new subsection 9.10 thereto as follows:

	 	 	“Section 9.10 Provenance Property. The Company shall, and shall
cause its Subsidiaries to, on or prior to June 30, 2004, deliver
the following items with respect to that certain parcel of real
property owned by the Company described on Exhibit A to the
Provenance Deed of Trust (the “Provenance Property”) and with
respect to the remaining parcels of real property currently subject
to Deeds of Trusts in favor of the Collateral Agent (the “Existing
Mortgaged Properties”): (a) a loan title insurance policy issued by
a title insurance company reasonably satisfactory to the
Noteholders (or, in the alternative, a commitment to issue a loan
title insurance policy issued by a title insurance company
reasonably satisfactory to the Noteholders and marked and initialed
by an authorized agent of such title insurance company to show all
changes to be made in connection with the actual issuance of such
title insurance policy) for the Provenance Property which shall be
satisfactory in scope, amount and form to the Noteholders; (b) a
“date-down” endorsement to the loan title policies for the Existing
Mortgaged Properties, together with amended “tie-in” endorsements
to include the Provenance Property therein, which shall be
satisfactory to the Noteholders in scope and form; (c) a survey for
the Provenance Property to the Noteholders which shall be
satisfactory to the Noteholders in scope and form; (d) deliver an
original policy of insurance (or certificate as to the existence of
such policy or any blanket insurance policy) with respect to the
Provenance Property; and (e) a Phase I Environmental Site
Assessment in general accordance with ASTM Standard El 527-00
prepared by a company acceptable to the Noteholders, together with
a letter from such company addressed to the Noteholders permitting
the Noteholders to rely on such Phase I Environmental Site
Assessment and, in the case of each of the foregoing, otherwise in
form and substance reasonably satisfactory to the Noteholders.
Simultaneously with the satisfaction of the foregoing conditions,
the Company shall make payment in full of all title insurance
charges and premiums and all fees, charges and taxes in connection
with the recordation or filing and of the Deed of Trust with
respect to the Provenance Property and any other agreement or
instrument, financing statement or any publication of notice
required to be filed or recorded to protect the validity of the
liens securing the obligations of the Notes.”

     SECTION 3 Representations and Warranties of the Company and
Subsidiary Guarantors. To induce the Noteholders to execute and deliver this
Second Amendment (which

4

 

     representations shall survive the execution and delivery of this Second
Amendment), each of the Company and the Subsidiary Guarantors represent and
warrant to the Noteholders that:

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

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

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

     (d) the execution, delivery and performance by the Company and
Subsidiary
Guarantors of this Second Amendment (i) has been duly authorized by
all requisite
corporate action and, if required, shareholder action, (ii) does not
require the consent or
approval of any governmental or regulatory body or agency, and (iii)
will not (A) violate
(1) any provision of law, statute, rule or regulation or its
certificate of incorporation or
bylaws, (2) any order of any court or any rule, regulation or order
of any other agency or
government binding upon it, or (3) any provision of any material
indenture, agreement or
other instrument to which it is a party or by which its properties or
assets are or may be
bound, including, without limitation, the Credit Agreement, or (B)
result in a breach or
constitute (along or with due notice or lapse of time or both) a
default under any
indenture, agreement or other instrument referred to in clause
(iii)(A)(3) of this §3(d);

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

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

     SECTION 4 Affirmation of Subsidiary Guarantee Agreements. Each of the
Subsidiary Guarantors hereby affirm each of their obligations under their
respective Subsidiary Guarantee Agreements after giving effect to this Second
Amendment.

5

 

     SECTION 5 Conditions to Effectiveness of this Amendment. This Second
Amendment shall not become effective until, and shall become effective when,
each and every one of the following conditions shall have been satisfied:

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

     (b) executed counterparts of an amendment to the Intercreditor
Agreement,
duly executed by the Company and the thereto shall have been
delivered to the
Noteholders;

     (c) executed counterparts of the Deed of Trust with respect to the
Provenance
Property, duly executed by the Company shall have been delivered to
the Noteholders;

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

     (e) the Company shall have caused to be delivered to the Noteholders
an
appraisal for the Provenance Property and such appraisal shall be
satisfactory to the
Noteholders in scope and form;

     (f) the Deed of Trust with respect to the Provenance
Property (the
“Provenance Deed of Trust”) and the financing statements relating
thereto, shall be duly
filed or recorded, as applicable, in such manner and in such places
as is required to
establish, preserve and protect the liens and security interests of
the Deed of Trust as a
valid first mortgage lien and a security interest of record on the
Provenance Property
(including, without limitation, all Trade Property (as defined in the
Provenance Deed of
Trust) located thereon);

     (g) the loan title insurance policy shall have been issued to the
Noteholders
with respect to the Provenance Property in scope and form
satisfactory to the Noteholders
and the “date-down” endorsements and amended “tie-in” endorsements to
the title
insurance policies in place for the remaining parcels of real
property currently subject to
Deeds of Trust in favor of the Collateral Agent shall have been
issued and delivered to
the Noteholders in scope and form satisfactory to the Noteholders;

     (h) the representations and warranties of the Company and the
Subsidiary Guarantors set forth in Section3 hereof are true and correct
on and with respect to the date
hereof;

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

6

 

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

     (k) the Company shall have paid the amendment fee in the amount of
$45,000 pro rata to the Noteholders.

     SECTION 6 Miscellaneous.

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

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

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

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

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

7

 

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

	 	 	 
	

	 	THE CHALONE WINE GROUP, LTD.
	 
	 	 
	

	 	By:  /s/ Thomas Selfridge

                                                                                 

          Title:
	 
	 	 
	

	 	EDNA VALLEY VINEYARD
	 
	 	 
	

	 	By: The Chalone Wine Group, Ltd.,
	

	 	           Managing General Partner
	 
	 	 
	

	 	By:  /s/ Thomas Selfridge

                                                                                 

          Title:
	 
	 	 
	

	 	SHW EQUITY CO.
	 
	 	 
	

	 	By:  /s/ Thomas
Selfridge
                                                                                 

          Title:
	 
	 	 
	

	 	CANOE RIDGE VINEYARD LLC
	 
	 	 
	

	 	By:  /s/ Thomas
Selfridge
                                                                                 

           Title:
	 
	 	 
	

	 	CANOE RIDGE WINERY, INC.
	 
	 	 
	

	 	By:  /s/ Thomas
Selfridge
                                                                                 

           Title:
	 
	 	 
	

	 	STATON HILLS WINERY COMPANY LIMITED
	 
	 	 
	

	 	By:  /s/ Thomas
Selfridge
                                                                                 

           Title:

 

 

	 	 	 
	Accepted and Agreed:

	 	FARM CREDIT SERVICES OF AMERICA,

PCA
	 
	 	 
	

	 	By: /s/ Bruce P. Rouse                              

     Title:  Bruce P. Rouse VP

 

 

	 	 	 	 	 
	Accepted and Agreed:
	 	FARM CREDIT SERVICES OF MINNESOTA VALLEY,

PCA, DBA PCS COMMERCIAL FINANCE GROUP
	 
	 	 
	 
	 	By:	 	/s/ James M. Grafing
	 
	 	 	 	

	 
	 	 	 	Name: James M. Grafing
	 
	 	 	 	Title:  SVP - SYNDICATED FINANCE

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