Document:

Exhibit 10.6

 CONSULTING AGREEMENT

                                    Recitals

CONSULTING AGREEMENT entered into this 12th day of December 2002 by and between
PRECISE LIFE SCIENCES LTD., a   Nevada Company (the "Company"), and Edward C.
Heisler ("Consultant").

WHEREAS, the Company desires to continue the consulting services of Consultant
in the areas of Corporate Image Advertising, Business Development, and Business
Strategy for the Company (the "Services") in connection the Company's business,
namely, alternate energy management (the "Business");

WHEREAS, in consideration for the Services, the Company shall issue its common
stock that shall be restricted stock upon the terms and conditions hereinafter
set forth.

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:

1.    Provision of Services

Duties of Consultant, The Consultant will provide such services and advice to
the Company so as to advise the Company in business development, business
strategy and corporate image.  Without limiting the generality of the foregoing,
Consultant will also assist the Company in developing, studying and evaluating
acquisition proposals, prepare reports and studies thereon when advisable, and
assist in matters of executive compensation and discussions pertaining thereof.
Nothing contained herein constitutes a commitment on the part of the Consultant
to find an acquisition target for the Company or, if such target is found, that
any transaction will be completed.  This Agreement is not a contract for listing
services, and nothing in this Agreement will require the Consultant to negotiate
on behalf of the Company with corporations that are involved with listings or
making a market in corporate securities in the OTC markets.  Consultant would
undertake such services under the direction of an individual to be appointed by
the Company's Board of Directors.

1.1  Duties Expressly Excluded. This Agreement expressly excludes the Consultant
from providing any and all capital formation and/or public relation services to
the Company inclusive of but not limited to (i) direct or indirect promotion of
the Company's securities; (ii) assistance in making of a market in the Company's
securities; and (iii) assistance in obtaining debt and /or equity financing.
The Consultant shall not have the power of authority to bind the Company to any
transaction without the Company's prior written consent.

2.    Issuance of Stock

In consideration of Services rendered to date and to be rendered during the
Term, the Company hereby issues to Consultant the Company's stock, in the manner
and for the price stated below, 1,000,000 shares of the Company's common
restricted stock, such number of shares representing 28% of the Company's
issued and outstanding capital stock on the date hereof. The shares will be
issued to the Consultant within 5 days of this agreement.

Consultant acknowledges that this issuance constitutes taxable compensation and
that any tax liability related thereto shall be the responsibility of
Consultant. In these regards, the Company will issue Consultant a Form 1099,
with the value of the shares being determined based upon the closing price of
the Company's stock on the date of issuance.

3.    Property

All work performed by Consultant pursuant to this Agreement in connection with
the Services or otherwise, including, without limitation, business and strategic
plans and proposals, and however rendered, electronic or otherwise, and whether
or not patentable or copyrightable (the "Products"), shall be deemed works-made-
for-hire under United States copyright law and shall be the property of the
Company. Consultant further agrees to and does hereby assign, transfer, and
convey to the Company all of Consultant's right, title and interest in and to
the Products, and in connection therewith, to execute and deliver such documents
and take other steps, in order to enable the Company, in its sole discretion, to
obtain grants of patent and registration of copyright and trademark, both
domestic and foreign, in connection with the Products.

4.    Confidential Information

The Company has developed and is the owner of highly valuable and unique
confidential and proprietary technical information related to the Business, as
well as business and financial information related thereto (the  "Confidential
Information"). Notwithstanding the foregoing, "Confidential Information" shall
not include and the provisions of this Agreement will not apply to any
information disclosed by the Company and/or Consultant (1) if such information
is demonstrated to be generally available to the public at the time of its
disclosure to Consultant;  (2) after the time, if any, that such information
becomes generally available to the public without any breach by Consultant; (3)
was already in Consultant's possession at the time of disclosure to Consultant
(whether such time of  disclosure is before or after the date hereof); (4) is
developed by Consultant independently of the Services; or (5)  was lawfully
received by Consultant from a third party without restrictions on disclosure or
use.

Using no less effort than the Consultant would use to maintain the
confidentiality of his own confidential and proprietary information, the
Consultant shall maintain in strict confidence and shall not disclose at any
time, without the prior written consent of the Company, any of the Confidential
Information to any other person or entity, unless such information has entered
the public domain through lawful means, without violation of this Agreement, or
pursuant to requirements of law or court order.

5.    Severability

In the event that any one or more provisions herein shall for any reason be held
to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision hereof.

6.    Independent Contractor

Consultant acknowledges and agrees that he is rendering the Services as an
independent contractor and not an employee of the Company and, accordingly, the
Company shall have no obligations to Consultant in connection with payroll
taxes, employee benefits and the like.

7.    No Assignment

Consultant's obligations hereto with respect to provision of Services shall not
be assignable to any other person without the express written consent of the
Company.

8     Miscellaneous

This Agreement (I) constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof and shall supersede all prior
understandings and agreements as to such subject matter; (ii) may be amended or
modified only by a writing executed by the party against whom enforcement is
sought; (iii) shall inure to the benefit of and be binding upon the respective
heirs, administrators, personal representatives, successors and assigns of the
parties hereto; and (iv) shall be governed by and construed in accordance with
the laws of California.

IN WITNESS WHEREOF, the parties hereto have executed this Consulting Agreement
as of the date and year first above written.

CONSULTANT:
        /s/: E. Heisler
---------------------------
Edward C. Heisler

COMPANY:
        /s/: R. Waters
---------------------------EXECUTION COPY

________________________________________________________________________________

                          THE CHALONE WINE GROUP, LTD.

$5,000,000 Adjustable Rate Senior Secured Notes, Series A,
   Due September 15, 2010

 $10,000,000 Adjustable Rate Senior Secured Notes, Series B,
   Due September 15, 2010

 $15,000,000 Adjustable Rate Senior Secured Notes, Series C,
   Due September 15, 2010

                            _______________________
                              AMENDED AND RESTATED
                            NOTE PURCHASE AGREEMENT
                            _______________________

                           Dated as of April 19, 2002

________________________________________________________________________________

                               TABLE OF CONTENTS

                                                                            PAGE

1.  Amendment and Restatement; Guaranties; Security...........................1

        1.1 Amendment and Restated Note Purchase Agreement and Notes..........1

        1.2 Guarantee ........................................................2

        1.3 Security for the Notes and Subsidiary Guarantee Agreements .......2

        1.4 Intercreditor Agreement ..........................................2

2.  Issuance and Exchange Of Notes ...........................................3

3.  Closing...................................................................3

4.  Conditions To Closing ....................................................3

        4.1 Representations and Warranties ...................................3

        4.2 Performance; No Default...........................................3

        4.3 Compliance Certificates ..........................................3

        4.4 Opinions of Counsel...............................................4

        4.5 Original Subsidiary Guarantee Agreement...........................4

        4.6 Purchase Permitted By Applicable Law, etc ........................4

        4.7 Exchange of Other Notes ..........................................5

        4.8 Payment of Special Counsel Fees ..................................5

        4.9 Private Placement Number..........................................5

        4.10 Changes in Corporate Structure ..................................5

        4.11 Collateral Documents; Related Transactions; Collateral Due
               Diligence .....................................................5

        4.12 Consent of Other Holders.........................................6

        4.13 Pro-Forma Debt to EBITDA Ratio ..................................6

        4.14 Proceedings and Documents .......................................7

5.  Representations And Warranties Of The Company.............................7

5.1 Organization; Power and Authority.........................................7

5.2 Authorization, etc........................................................7

5.3 Disclosure................................................................8

5.4 Organization and Ownership of Shares of Subsidiaries; Affiliates..........8

                                       -i-

<PAGE>

                               TABLE OF CONTENTS

                                  (CONTINUED)

                                                                            PAGE

        5.5 Financial Statements .............................................9

        5.6 Compliance with Laws and Instruments .............................9

        5.7 Governmental Authorizations, etc..................................9

        5.8 Litigation; Observance of Agreements, Statutes and Orders ........9

        5.9 Taxes ...........................................................10

        5.10 Title to Property; Leases.......................................10

        5.11 Licenses, Permits, etc. ........................................10

        5.12 Compliance with ERISA...........................................11

        5.13 Intentionally Omitted ..........................................12

        5.14 Use of Proceeds; Margin Regulations ............................12

        5.15 Existing Debt; Future Liens ....................................12

        5.16 Intentionally Omitted ..........................................12

        5.17 Status under Certain Statutes...................................12

        5.18 Environmental Matters...........................................12

        5.19 [Intentionally Omitted].........................................13

        5.20 Solvency........................................................13

        5.21 Consolidated and Integrated Business of the Company and
               its Restricted Subsidiaries...................................14

        5.22 No Burdensome Restrictions......................................14

        5.23 Matters Relating to the Collateral .............................14

        5.24 Credit Agreement Representations................................15

6.  Representations Of The Purchasers........................................15

        6.1 Purchase for Investment .........................................15

        6.2 Source of Funds..................................................15

7.  Information As To Company................................................16

        7.1 Financial and Business Information ..............................16

        7.2 Additional Information...........................................18

                                      -ii-

<PAGE>

                               TABLE OF CONTENTS

                                  (CONTINUED)

                                                                            PAGE

        7.3 Inspection ......................................................20

8.  Prepayment Of The Notes .................................................20

        8.1 Required Prepayments.............................................20

        8.2 Optional Prepayments with Make-Whole Amount .....................21

        8.3 Allocation of Partial Prepayments................................22

        8.4 Maturity; Surrender, etc. .......................................22

        8.5 Purchase of Notes................................................22

        8.6 Make-Whole Amount................................................22

9.  Affirmative Covenants ...................................................24

        9.1 Compliance with Law .............................................24

        9.2 Insurance .......................................................24

        9.3 Maintenance of Properties; Action under Environmental Laws ......25

        9.4 Payment of Taxes and Claims .....................................25

        9.5 Corporate Existence, etc.........................................26

        9.6 [Intentionally Omitted.].........................................26

        9.7 Further Assurances and Additional Acts...........................26

        9.8 Proceeds of Events of Loss ......................................27

        9.9 Post-Closing Matters ............................................27

10. Negative Covenants.......................................................27

        10.1 Transactions with Affiliates ...................................27

        10.2 Restrictions on Fundamental Changes ............................27

        10.3 Liens; Negative Pledges ........................................28

        10.4 Financial Covenants ............................................28

        10.5 Indebtedness ...................................................30

        10.6 Intentionally Omitted ..........................................32

        10.7 Distributions...................................................32

        10.8 Loans and Investments ..........................................33

                                     -iii-

<PAGE>

                               TABLE OF CONTENTS

                                  (CONTINUED)

                                                                            PAGE

        10.9 Sale of Assets .................................................34

        10.10 Limitations on Sale-and-Leaseback Transactions ................34

        10.11 Subsidiary Guarantors .........................................35

        10.12 Line of Business ..............................................36

        10.13 Change of Control .............................................36

        10.14 Amendments of Certain Documents ...............................36

        10.15 Redemption of Subordinated Debt................................37

        10.16 Hazardous Substances ..........................................37

        10.17 Accounting Changes.............................................37

        10.18 Foreign Subsidiaries...........................................37

11. Events Of Default........................................................37

12. Remedies On Default, Etc.................................................40

        12.1 Acceleration ...................................................40

        12.2 Other Remedies .................................................41

        12.3 Rescission......................................................41

        12.4 No Waivers or Election of Remedies, Expenses, etc. .............42

13. Registration; Exchange; Substitution Of Notes ...........................42

        13.1 Registration of Notes...........................................42

        13.2 Transfer and Exchange of Notes .................................42

        13.3 Replacement of Notes ...........................................43

14. Payment Of Notes ........................................................43

        14.1 Place of Payment ...............................................43

        14.2 Home Office Payment ............................................43

15. Expenses, Etc. ..........................................................44

        15.1 Transaction Expenses............................................44

        15.2 Survival .......................................................44

16. Survival Of Representations And Warranties; Entire Agreement.............44

                                      -iv-

<PAGE>

                               TABLE OF CONTENTS

                                  (CONTINUED)

                                                                            PAGE

17. Amendment And Waiver ....................................................45

        17.1 Requirements....................................................45

        17.2 Solicitation of Holders of Notes................................45

        17.3 Binding Effect, etc.............................................45

        17.4 Notes Held by Company, etc......................................46

18. Notices..................................................................46

19. Reproduction Of Documents................................................46

20. Confidential Information.................................................47

21. Substitution Of Purchaser; Participation ................................48

22. Miscellaneous............................................................48

        22.1 Successors and Assigns..........................................48

        22.2 Payments Due on Non-Business Days ..............................48

        22.3 Severability....................................................49

        22.4 Construction ...................................................49

        22.5 Counterparts ...................................................49

        22.6 Governing Law; Jurisdiction and Service of Process..............49

        22.7 Agents for Service of Process ..................................50

        22.8 Waiver of Jury Trial ...........................................50

                                      -v-

<PAGE>

                               TABLE OF CONTENTS
                                  (CONTINUED)

SCHEDULES

Schedule A              Information  Relating to Purchasers
Schedule B              Defined Terms
Schedule 4.10           Corporate Changes
Schedule 5.4            Subsidiaries
Schedule 5.5            Financial Statements
Schedule 5.8            Litigation
Schedule 5.11           Licenses
Schedule 5.15           Existing Debt; Existing Liens
Schedule 10.9           Specified Assets

 EXHIBITS

Exhibit 1-A             Form of Series A Note
Exhibit 1-B             Form of Series B Note
Exhibit 1-C             Form of Series C Note
Exhibit 4.4(a)          Form of Opinion of Counsel for the Company
Exhibit 4.4(b)          Form of Opinion of Special Washington Counsel for the
                          Purchasers
Exhibit 4.5             Form of Subsidiary Guarantee Agreement
Exhibit 10.11(a)        Representations and Warranties of Original Subsidiary
                          Guarantors
Exhibit A               Form of Deed of Trust
Exhibit B               Form of Environmental Indemnity
Exhibit C               Form of Patent and Trademark Security Agreement
Exhibit D               Form of Security Agreement
Exhibit E               Form of Intercreditor Agreement
Exhibit F               Form of Compliance Certificate
Exhibit G               Form of Update Certificate

                                      -vi-

<PAGE>

                          THE CHALONE WINE GROUP, LTD.
                                621 Airpark Road
                             Napa, California 94558

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

                                                                  April 19, 2002

TO EACH OF THE PURCHASERS LISTED IN
        THE ATTACHED SCHEDULE A:

Ladies and Gentlemen:

         THE CHALONE WINE GROUP, LTD., a California corporation (the "Company"),
in  consideration of the mutual promises herein contained and for other good and
valuable consideration agrees with each of the purchasers named in Schedule A to
this Agreement (the "Purchasers") as follows:

1.      AMENDMENT AND RESTATEMENT; GUARANTIES; SECURITY

         1.1    Amendment and Restated Note Purchase Agreement and Notes.

         The  Purchasers  and the  Company  are  parties  to that  certain  Note
Purchase  Agreement  dated as of  September  15,  2000 as  amended  by the First
Amendment,  Consent and Waiver dated as of February 9, 2001 (as so amended,  the
"Original Note Purchase  Agreement"),  pursuant to which the Company  authorized
the issue and sale of, and the Purchasers  purchased,  the (i) $5,000,000  8.90%
Senior Guaranteed Notes,  Series A, Due September 15, 2010 (the "Original Series
A  Notes");  (ii)  $10,000,000  8.93%  Senior  Guaranteed  Notes,  Series B, Due
September 15, 2010 (the "Original Series B Notes");  and (iii) $15,000,000 9.05%
Senior Guaranteed Notes,  Series C, Due September 15, 2010 (the "Original Series
C Notes",  and together with the Original Series A Notes and the Original Series
B Notes, the "Original Notes").

         On the Closing (as  defined  below) the company  will amend and restate
the Original  Notes in the form of Exhibit 1. Reference in this Agreement to the
"Series A Notes" shall be a reference to the Original  Series A Notes as amended
and  restated in the form of Exhibit  1-A.  Reference  in this  Agreement to the
"Series B Notes" shall be a reference to the Original  Series B Notes as amended
and  restated in the form of Exhibit  1-B.  Reference  in this  Agreement to the
"Series C Notes" shall be a reference to the Original  Series C Notes as amended
and  restated in the form of Exhibit  1-C.  Reference  in this  Agreement to the
"Notes" shall be a reference to the Original Notes as so amended and restated in
said  Exhibit 1 with such changes  therefrom,  if any, as may be approved by you
and the Company.

         Each of the Notes shall bear  interest from the date thereof until such
Note shall  become due and  payable in  accordance  with the terms  thereof  and
hereof (whether at maturity, by

<PAGE>

acceleration or otherwise) at the applicable  Adjustable Rate.  Interest on each
Note shall be  computed  on the basis of a 360 day year of twelve 30 day months.
Notwithstanding  the  foregoing,  the Company  shall pay interest on any overdue
payment (including any overdue prepayment) of principal,  any overdue payment of
interest  and any overdue  payment of any  Make-Whole  Amount at the  applicable
Default Rate in accordance  with the Notes.  Certain  capitalized  terms used in
this  Agreement  are defined in Schedule B;  references  to a  "Schedule"  or an
"Exhibit" are, unless otherwise specified,  to a Schedule or an Exhibit attached
to this Agreement.

         The  Company  and the  Purchasers  now desire to amend and  restate the
Original Note Purchase  Agreement and the Original Notes to, among other things,
(a) amend certain covenants and related definitions,  (b) provide for additional
collateral to secure the obligations represented by the Notes and the Guarantee,
(c) waive  certain  Defaults and Events of Default  existing  under the Original
Note Purchase  Agreement and (d) make certain other changes to the Original Note
Purchase Agreement.

         1.2    Guarantee.

         The  payment  and  performance  obligations  of the  Company  under and
pursuant  to this  Agreement  and the Notes are to be fully and  unconditionally
guaranteed  by each of the  Subsidiary  Guarantors  pursuant  to the  Subsidiary
Guarantee Agreements.

         1.3    Security for the Notes and Subsidiary Guarantee Agreements.

         The Notes and the  obligations of the Subsidiary  Guarantors  under the
Subsidiary  Guarantee  Agreements shall be secured,  equally and ratably, by the
Collateral Documents.

         1.4    Intercreditor Agreement.

         The collateral  described in the Collateral  Documents shall be held by
Cooperatieve Centrale  Raiffeisen-Boerenleenbank B.A., "Rabobank International",
New York Branch,  as Collateral  Agent for the benefit of the Purchasers and the
Bank  Lenders  (the  "Collateral  Agent")  pursuant  to  the  Intercreditor  and
Collateral Agency Agreement dated as of the date hereof and in substantially the
form  attached  hereto as Exhibit E (the  "Intercreditor  Agreement")  among the
Purchasers,  the Collateral  Agent and the banks which are parties to the Credit
Agreement (the "Bank Lenders").  The Intercreditor Agreement shall recognize (a)
the first  perfected  interest  and rights of the  Purchasers  and the Bank Term
Lenders in the Real Estate  Collateral,  (b) the second  perfected  interest and
rights of the Bank Revolver Lenders in the Real Estate Collateral, (c) the first
perfected  interest and rights of the Bank Revolver  Lenders in the Accounts and
Inventory  Collateral,  (d) the  second  perfected  interest  and  rights of the
Purchasers  and the Bank Term Lenders in the Accounts and Inventory  Collateral,
and (e) the pari passu  perfected  interest and rights of the Purchasers and the
Bank Lenders in the Intellectual Property Collateral.

                                      -2-

<PAGE>

2.       ISSUANCE AND EXCHANGE OF NOTES.

         Subject to the terms and conditions of this Agreement, the Company will
issue the amended and restated Notes to each Purchaser upon surrender by them of
the Original  Notes for  cancellation  by the Company.  The  obligation  of each
Purchaser  shall be  several  and not  joint  and no  Purchaser  shall  have any
obligation or any liability to any Person for the performance or  nonperformance
by any other Purchaser hereunder.

3.       CLOSING.

         The issue and  exchange  of the Notes  shall  occur at the  offices  of
Farella  Braun & Martel LLP,  at 10:00 a.m.,  Central  time,  at a closing  (the
"CLOSING")  on April 19, 2002 or on such other  Business  Day  thereafter  on or
prior to April 30, 2002 as may be agreed upon by the Company and the  Purchasers
(the  "CLOSING  DATE").  If at the Closing the Company shall fail to tender such
Notes to be purchased by any  Purchaser as provided  above in this Section 3, or
any of the  conditions  specified in Section 4 shall not have been  fulfilled to
such  Purchaser's  satisfaction,  such  Purchaser  shall,  at its  election,  be
relieved  of all  further  obligations  under this  Agreement,  without  thereby
waiving any rights  such  Purchaser  may have by reason of such  failure or such
non-fulfillment.

4.       CONDITIONS TO CLOSING.

         Each  Purchaser's  obligation  to exchange the  Original  Notes for the
Notes  to be  issued  to  such  Purchaser  at  the  Closing  is  subject  to the
fulfillment to such Purchaser's satisfaction, prior to or at the Closing, of the
following conditions:

         4.1    Representations and Warranties.

         The  representations  and warranties of the Company in this  Agreement,
and the  representations  and warranties of the Original  Subsidiary  Guarantors
contained in Exhibit 10.11(a) to this Agreement,  shall be correct when made and
at the time of the Closing.

         4.2    Performance; No Default.

         The Company and each of the Original  Subsidiary  Guarantors shall have
performed  and complied with all  agreements  and  conditions  contained in this
Agreement,  the  Collateral  Documents and the Subsidiary  Guarantee  Agreements
required to be performed  or complied  with by it prior to or at the Closing and
after  giving  effect to the issue and  exchange  of the Notes and no Default or
Event of Default shall have occurred and be continuing.

         4.3    Compliance Certificates.

                (a)     Officer's Certificate of the Company. The Company  shall
have delivered to you an Officer's  Certificate,  dated the date of the Closing,
certifying that the conditions specified in Sections 4.1, 4.2 and 4.10 have been
fulfilled.

                                      -3-

<PAGE>

                (b)     Secretary's Certificate of the Company.The Company shall
have delivered to you a certificate  certifying as to the  resolutions  attached
thereto and other corporate proceedings relating to the authorization, execution
and delivery of the Notes, this Agreement and the Collateral Documents.

                (c)     Officer's Certificate of the  Guarantors.  Each Original
Subsidiary Guarantor shall have delivered to you an Officer's Certificate, dated
the date of the Closing,  certifying  that the conditions  specified in Sections
4.1,  4.2 and 4.10 have been  fulfilled in respect of such  Original  Subsidiary
Guarantor.

                (d)     Secretary's Certificate of the Guarantors. Each Original
Subsidiary Guarantor shall have delivered to you a certificate  certifying as to
the resolutions attached thereto and other corporate proceedings relating to the
authorization,  execution  and  delivery  of  the  subject  Original  Subsidiary
Guarantee Agreement and the subject Collateral Documents.

         4.4    Opinions of Counsel.

         You shall have received opinions in form and substance  satisfactory to
you, dated the date of the Closing (a) from Farella Braun & Martel LLP,  counsel
for the Company and the Original Subsidiary Guarantors, covering the matters set
forth in  Exhibit  4.4(a)  and  covering  such  other  matters  incident  to the
transactions  contemplated  hereby as you or your counsel may reasonably request
(and the Company  hereby  instructs  its counsel to deliver such opinion to you)
and (b) from Davis  Wright  Termaine  LLP,  your special  Washington  local real
estate counsel in connection with such  transactions,  substantially in the form
set forth in Exhibit  4.4(b) and covering  such other  matters  incident to such
transactions as each Purchaser may reasonably request.

         4.5    Original Subsidiary Guarantee Agreement.

         You  shall  have  received  a  counterpart  original  of  a  Subsidiary
Guarantee  Agreement,  duly  executed  and  delivered  by each  of the  Original
Subsidiary  Guarantors,  in  substantially  the form set  forth in  Exhibit  4.5
(collectively, the "Subsidiary Guarantee Agreements"),  together with such other
documents as to each Original  Subsidiary  Guarantor as are sufficient to comply
with Section 10.11,  and each  Subsidiary  Guarantee  Agreement shall be in full
force and effect.

         4.6    Purchase Permitted By Applicable Law, etc.

         On the  Closing  Date each  Purchaser's  exchange of Notes shall (i) be
permitted  by the  laws  and  regulations  of each  jurisdiction  to which it is
subject,  without recourse to provisions (such as Section  1405(a)(8) of the New
York  Insurance  Law)  permitting  limited  investments  by insurance  companies
without restriction as to the character of the particular  investment,  (ii) not
violate  any  applicable  law  or  regulation  (including,  without  limitation,
Regulation  U, T or X of the Board of Governors of the Federal  Reserve  System)
and (iii) not subject any  Purchaser to any tax,  penalty or liability  under or
pursuant to any applicable law or regulation, which law or regulation was not in
effect on the date hereof.  If requested by any Purchaser,  such Purchaser shall
have received an Officer's Certificate  certifying as to such matters of fact as
such Purchaser

                                      -4-

<PAGE>

may  reasonably  specify to enable such  Purchaser  to  determine  whether  such
exchange is so permitted.

         4.7    Exchange of Other Notes.

         Contemporaneously with the Closing the Company shall issue the Notes to
the  Purchasers  and the  Purchasers  shall  exchange the  Original  Notes to be
exchanged by them at the Closing as specified in Schedule A.

         4.8    Payment of Special Counsel Fees.

         Without limiting the provisions of Section 15.1, the Company shall have
paid on or before the Closing the reasonable fees,  charges and disbursements of
McDermott,  Will & Emery,  the  Purchasers'  special counsel and the Purchasers'
special  Washington  local real estate counsel referred to in Section 4.4 to the
extent  reflected in a statement of each such counsel rendered to the Company at
least one Business Day prior to the Closing.

         4.9    Private Placement Number.

         A Private  Placement  number  issued by Standard & Poor's CUSIP Service
Bureau (in  cooperation  with the  Securities  Valuation  Office of the National
Association of Insurance Commissioners) shall have been obtained for each series
of the Notes,  if  necessary.  4.10  Changes in Corporate  Structure.  Except as
specified  in Schedule  4.10,  neither the Company nor any  Original  Subsidiary
Guarantor shall have changed its  jurisdiction of  incorporation or been a party
to any  merger  or  consolidation  nor  shall  it have  succeeded  to all or any
substantial  part of the liabilities of any other entity,  at any time following
the date of the most recent financial statements referred to in Schedule 5.5.

         4.11   Collateral Documents; Related Transactions; Collateral Due
Diligence.

                (a)     Each of the Collateral Documents  shall  have been  duly
executed and  delivered  in the  respective  forms  thereof and shall be in full
force and effect and all of the security  interests granted  thereunder shall be
duly perfected to the satisfaction of the Purchasers.

                (b)     The Credit  Agreement and  the  Intercreditor  Agreement
shall have been duly  executed and  delivered by the parties  thereto and all of
the  transactions  contemplated  thereby  shall  have  been  consummated  to the
satisfaction of the Purchasers.

                (c)     The  Purchasers  shall have  received the following,  in
form and substance satisfactory to the Purchasers:

                        (i)      evidence  that all filings,  registrations  and
recordings have been made in the appropriate governmental offices, and all other
action has been  taken,  which  shall be  necessary  to create,  in favor of the
Collateral Agent on behalf of the Purchasers, a

                                       -5-

<PAGE>

perfected first or second,  as the case may be, priority Lien on the Collateral,
including  evidence of recordation of the Deeds of Trust (which may consist of a
written or telephonic confirmation from the title insurance company), and filing
of  completed  UCC-1  financing  statements,  in each  case  in the  appropriate
governmental offices;

                        (ii)     the results,  dated as of a recent  date  prior
to the Closing Date, of searches conducted (A) in the UCC filing records in each
of the governmental  offices in each jurisdiction in which personal property and
fixture  Collateral  is located,  and (B) of the records  maintained by the U.S.
Patent and  Trademark  Office and  Copyright  Office with  respect to all United
States  patents  and  patent  applications  and  all  United  States  registered
trademarks  and United States  registered  copyrights  constituting  Collateral,
which shall have revealed no Liens with respect to any of the Collateral  except
Permitted Liens;

                        (iii)    a   title  insurance  policy  ( or  a   binding
commitment  therefor)  for the  Deeds of Trust (A)  issued by a title  insurance
company of recognized  standing  satisfactory to the Purchasers,  (B) on an ALTA
lender's  extended  coverage policy,  in an amount and form  satisfactory to the
Purchasers,  (C) naming the  Collateral  Agent,  for the ratable  benefit of the
Secured Parties, as the insured thereunder, (D) insuring that the Deeds of Trust
insured  thereby create a valid first  priority Lien on the property  covered by
each such Deed of Trust,  subject to no other Liens, other than Permitted Liens,
and to no other exceptions, other than those satisfactory to the Purchasers, and
(E) containing such  endorsements and affirmative  coverage as the Purchasers or
any Lender (through the Purchasers)
may reasonably request;  and

                        (iv)     such surveys,  appraisals,  collateral  audits,
consents of landlords, estoppels from landlords, tenant subordination agreements
and other  documents and  instruments  in connection  with the Deeds of Trust as
shall reasonably be deemed necessary by the Purchasers.

         4.12   Consent of Other Holders.

         Any  consents or approvals  required to be obtained  from any Holder or
holder  of any  outstanding  debt  of the  Company  or any  Original  Subsidiary
Guarantor and any  amendments of agreements  pursuant to which any debt may have
been incurred by the Company or any Original Subsidiary  Guarantor,  which shall
be necessary to permit the consummation of the transactions  contemplated hereby
shall have been obtained and all such consents, approvals or amendments shall be
satisfactory  in form and substance to each Purchaser and special counsel to the
Purchasers.

         4.13   Pro-Forma Debt to EBITDA Ratio.

         The ratio of (a) Consolidated  Indebtedness PLUS six times Consolidated
Rent Expense to (b) Consolidated  EBITDA (measured on a trailing 12-month basis)
plus one times Consolidated Rent Expense,  in each case,  measured on a trailing
12-month basis, shall not be greater than 5.75 to 1.00,  measured on a pro forma
basis (after giving effect to the transactions and borrowings

                                       -6-

<PAGE>

contemplated hereunder and under the Credit Agreement) as of the last day of the
immediately preceding fiscal month.

         4.14   Proceedings and Documents.

         All corporate and other proceedings in connection with the transactions
contemplated  by this  Agreement and all documents and  instruments  incident to
such  transactions  shall be  satisfactory to each Purchaser and the Purchasers'
special  counsel,  and each Purchaser and the Purchasers'  special counsel shall
have  received  all such  counterpart  originals or certified or other copies of
such  documents as each  Purchaser  or special  counsel to the  Purchasers'  may
reasonably request.

5.       REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

         The Company represents and warrants to the Purchasers that:

         5.1    Organization; Power and Authority.

         The Company is a corporation  duly organized,  validly  existing and in
good standing under the laws of its  jurisdiction of  organization,  and is duly
qualified as a foreign corporation or other legal entity and is in good standing
in each jurisdiction in which such  qualification is required by law, other than
those  jurisdictions  as to which  the  failure  to be so  qualified  or in good
standing would not, individually or in the aggregate,  reasonably be expected to
have a Material  Adverse  Effect.  The Company has the  corporate or other legal
entity power and authority to own or hold under lease the properties it purports
to own or hold under lease,  to transact the business it transacts  and proposes
to transact, to execute and deliver this Agreement, the Collateral Documents and
the Notes and to perform the provisions hereof and thereof.

         5.2    Authorization, etc.

         This Agreement,  the Collateral  Documents and the Notes have been duly
authorized by all  necessary  corporate or other legal entity action on the part
of the Company, and this Agreement and the Collateral Documents constitute,  the
legal,  valid and binding  obligations and contracts of the Company  enforceable
against the Company in accordance with their  respective  terms,  except as such
enforceability  may  be  limited  by  (a)  applicable  bankruptcy,   insolvency,
reorganization,  moratorium or other similar laws  affecting the  enforcement of
creditors' rights generally and (b) general  principles of equity (regardless of
whether such  enforceability is considered in a proceeding in equity or at law).
Upon execution and delivery  thereof,  each Note will constitute a legal,  valid
and  binding  obligation  of the  Company  enforceable  against  the  Company in
accordance with its terms,  except as such  enforceability may be limited by (a)
applicable bankruptcy, insolvency,  reorganization,  moratorium or other similar
laws affecting the  enforcement of creditors'  rights  generally and (b) general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or in law).

                                      -7-

<PAGE>

         5.3    Disclosure.

         This Agreement, the Collateral Documents,  the documents,  certificates
or other  communications  made or delivered to each Purchaser by or on behalf of
the  Company and the  Original  Subsidiary  Guarantors  in  connection  with the
transactions contemplated hereby and the financial statements listed in Schedule
5.5, taken as a whole, do not contain any untrue statement of a material fact or
omit to state any material  fact  necessary to make the  statements  therein not
misleading  in light of the  circumstances  under  which they were  made.  Since
December  31,  2001,  there  has  been no  change  in the  financial  condition,
operations,  business  or  properties  of the Company or any  Subsidiary  except
changes that  individually  or in the aggregate could not reasonably be expected
to have a Material  Adverse  Effect.  There is no fact known to the Company that
could reasonably be expected to have a Material Adverse Effect that has not been
set forth herein or in the  Memorandum or in the other  documents,  certificates
and other communications made or delivered to you by or on behalf of the Company
or any Original Subsidiary Guarantor specifically for use in connection with the
transactions contemplated hereby.

         5.4    Organization and Ownership of Shares of Subsidiaries;Affiliates.

                (a)     Schedule 5.4 contains (except as noted therein) complete
and  correct  lists  (i) of the  Company's  Subsidiaries,  showing,  as to  each
Subsidiary, the correct name thereof, the jurisdiction of its organization,  and
the  percentage of shares of each class of its Capital  Stock or similar  equity
interests  outstanding owned by the Company and each other  Subsidiary,  (ii) of
the Company's Restricted Subsidiaries,  (iii) of the Company's Affiliates, other
than Subsidiaries, and (iv) of the Company's directors and senior officers.

                (b)     All  of  the  outstanding  shares  of  Capital  Stock or
similar equity interests of each Subsidiary shown in Schedule 5.4 as being owned
by the Company and its Subsidiaries have been validly issued, are fully paid and
nonassessable and are owned by the Company or another  Subsidiary free and clear
of any Lien (except as otherwise disclosed in Schedule 5.4).

                (c)     Each  Subsidiary  identified   in  Schedule  5.4   is  a
corporation or other legal entity duly organized,  validly  existing and in good
standing  under  the  laws  of its  jurisdiction  of  organization,  and is duly
qualified as a foreign corporation or other legal entity and is in good standing
in each jurisdiction in which such  qualification is required by law, other than
those  jurisdictions  as to which  the  failure  to be so  qualified  or in good
standing could not, individually or in the aggregate,  reasonably be expected to
have a Material Adverse Effect.  Each such Subsidiary has the corporate or other
power and authority to own or hold under lease the properties it purports to own
or hold under lease and to transact the  business it  transacts  and proposes to
transact.

                (d)     No Subsidiary is a party to, or otherwise subject to any
legal  restriction or any agreement  (other than this Agreement,  the agreements
listed on  Schedule  5.4 and  customary  limitations  imposed by  corporate  law
statutes)  restricting  the ability of such  Subsidiary  to pay dividends out of
profits or make any other similar distributions of profits to the Company or any

                                       -8-

<PAGE>

of its  Subsidiaries  that owns  outstanding  shares of Capital Stock or similar
equity interests of such Subsidiary.

         5.5    Financial Statements.

         The Company has  delivered to each  Purchaser  copies of the  financial
statements  of the Company and its  Subsidiaries  listed on Schedule 5.5. All of
said  financial  statements  (including  in each case the related  schedules and
notes)  fairly  present in all  Material  respects  the  consolidated  financial
position  of  the  Company  and  its  Subsidiaries  as of the  respective  dates
specified in such  financial  statements and the  consolidated  results of their
operations and cash flows for the respective  periods so specified and have been
prepared in accordance  with GAAP  consistently  applied  throughout the periods
involved except as set forth in the notes thereto  (subject,  in the case of any
interim financial statements,  to normal year-end adjustments and the absence of
notes).

         5.6    Compliance with Laws and Instruments.

         The  execution,  delivery  and  performance  by  the  Company  of  this
Agreement,  the  Collateral  Documents  and the Notes  will not (i)  contravene,
result in any breach of, or constitute a default  under,  or,  unless  permitted
hereunder,  result in the creation of any Lien in respect of any property of the
Company or any Subsidiary under, any indenture,  mortgage,  deed of trust, loan,
purchase or credit agreement,  lease, corporate charter or by-laws, or any other
agreement or  instrument  to which the Company or any  Subsidiary is bound or by
which the Company or any Subsidiary or any of their respective properties may be
bound or affected, (ii) conflict with or result in a breach of any of the terms,
conditions or provisions of any order, judgment, decree, or ruling of any court,
arbitrator  or  Governmental   Authority   applicable  to  the  Company  or  any
Subsidiary,  or (iii)  violate  any  provision  of any  statute or other rule or
regulation  of any  Governmental  Authority  applicable  to the  Company  or any
Subsidiary.

         5.7    Governmental Authorizations, etc.

         No consent,  approval or authorization  of, or registration,  filing or
declaration with, any Governmental  Authority is required in connection with the
execution,  delivery  or  performance  by the  Company  of this  Agreement,  the
Collateral  Documents or the Notes.  5.8  Litigation;  Observance of Agreements,
Statutes and Orders.

                (a)     Except  as  disclosed  in  Schedule  5.8,  there  are no
actions,  suits or  proceedings  pending or, to the  knowledge  of the  Company,
threatened against or affecting the Company or any Subsidiary or any property of
the Company or any  Subsidiary in any court or before any arbitrator of any kind
or  before  or by  any  Governmental  Authority  that,  individually  or in  the
aggregate, could reasonably be expected to have a Material Adverse Effect.

                (b)     Neither the  Company  nor any Subsidiary  is in  default
under any term of any agreement or instrument to which it is a party or by which
it is bound, or any order, judgment,  decree or ruling of any court,  arbitrator
or Governmental Authority or is in violation of

                                       -9-

<PAGE>

any applicable law, ordinance,  rule or regulation (including without limitation
Environmental Laws) of any Governmental  Authority,  which default or violation,
individually  or in the  aggregate,  could  reasonably  be  expected  to  have a
Material Adverse Effect.

         5.9    Taxes.

         The Company and its  Subsidiaries  have filed all tax returns  that are
required to have been filed in any  jurisdiction,  and have paid all taxes shown
to be due and payable on such returns and all other taxes and assessments levied
upon them or their properties,  assets, income or franchises, to the extent such
taxes and  assessments  have  become due and payable and before they have become
delinquent,  except for any taxes and assessments (i) the amount of which is not
individually or in the aggregate Material, or (ii) the amount,  applicability or
validity of which is  currently  being  contested  in good faith by  appropriate
proceedings  and  with  respect  to  which  the  Company  or  a  Subsidiary  has
established  adequate  reserves in accordance with GAAP. The Company knows of no
basis for any other tax or assessment that could  reasonably be expected to have
a Material  Adverse Effect.  The charges,  accruals and reserves on the books of
the Company and its Subsidiaries in respect of Federal, state or other taxes for
all fiscal  periods are  adequate.  The Federal  income tax  liabilities  of the
Company  and its  Subsidiaries  have  been paid for all  fiscal  years up to and
including the fiscal year ended March 31, 2000.

         5.10   Title to Property; Leases.

         The  Company and its  Subsidiaries  have good and  sufficient  title to
their respective  properties that individually or in the aggregate are Material,
including all such properties reflected in the most recent audited balance sheet
referred to in Section 5.5 or purported to have been  acquired by the Company or
any Subsidiary  after said date (except as sold or otherwise  disposed of in the
ordinary course of business), in each case free and clear of Liens prohibited by
this  Agreement.  All leases that  individually or in the aggregate are Material
are valid  and  subsisting  and are in full  force  and  effect in all  Material
respects.

         5.11   Licenses, Permits, etc.

         Except as disclosed in Schedule 5.11,

                (a)     the Company and its Subsidiaries  own,  possess  or have
the right to use all licenses,  permits,  franchises,  authorizations,  patents,
copyrights, service marks, trademarks, technology, know-how, processes and trade
names,  or  rights  thereto   (collectively   "Intellectual   Property"),   that
individually  or in the aggregate are Material,  without known conflict with the
rights of others;

                (b)     to the best knowledge of the Company, no product  of the
Company or any Subsidiary infringes in any Material respect any license, permit,
franchise, authorization, patent, copyright, service mark, trademark, trade name
or other right owned by any other Person;

                                      -10-

<PAGE>

                (c)     to  the  best knowledge of  the  Company,  there  is  no
Material  violation  by any  Person  of any right of the  Company  or any of its
Subsidiaries  with respect to any Intellectual  Property or other right owned or
used by the Company or any of its Subsidiaries; and

                (d)     the Company  and each  Subsidiary owns, or has the legal
right  to  use,  (subject  to  the  common  law  rights  of  another  user)  all
Intellectual  Property  necessary  for each of them to conduct  its  business as
currently conducted except for those which the failure to own or have such legal
right to use could not have a Material Adverse Effect.

         5.12   Compliance with ERISA.

                (a)     The Company and each ERISA  Affiliate  have operated and
administered  each Plan in compliance  with all applicable  laws except for such
instances of  noncompliance  as have not resulted in and could not reasonably be
expected  to result in a Material  Adverse  Effect.  Neither the Company nor any
ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or
the penalty or excise tax  provisions of the Code  relating to employee  benefit
plans (as defined in Section 3 of ERISA), and no event, transaction or condition
has  occurred  or exists  that could  reasonably  be  expected  to result in the
incurrence of any such  liability by the Company or any ERISA  Affiliate,  or in
the  imposition  of any Lien on any of the rights,  properties  or assets of the
Company or any ERISA  Affiliate,  in either  case  pursuant  to Title I or IV of
ERISA or to such penalty or excise tax  provisions  or to Section  401(a)(29) or
412  of the  Code,  other  than  such  liabilities  or  Liens  as  would  not be
individually or in the aggregate Material.

                (b)     The Company does not maintain any Plan that is a defined
benefit pension plan subject to Title IV of ERISA.

                (c)     The Company  and  its ERISA Affiliates have not incurred
withdrawal   liabilities   (and  are  not  subject  to   contingent   withdrawal
liabilities)  under  section  4201 or 4204 of ERISA in respect of  Multiemployer
Plans that individually or in the aggregate are Material.

                (d)     The   expected    postretirement   benefit    obligation
(determined  as of the last day of the Company's most recently ended fiscal year
in accordance  with  Financial  Accounting  Standards  Board  Statement No. 106,
without regard to liabilities  attributable to continuation coverage mandated by
section 4980B of the Code) of the Company and its Subsidiaries is not Material.

                (e)     The  execution  and  delivery of  this  Agreement,   the
Collateral  Documents and the issuance and sale of the Notes  hereunder will not
involve any  transaction  that is subject to the  prohibitions of section 406 of
ERISA or in  connection  with which a tax could be imposed  pursuant  to section
4975(c)(1)(A)-(D)  of the Code. The  representation  by the Company in the first
sentence of this Section 5.12(e) is made in reliance upon and subject to (i) the
accuracy of each Purchaser's  representation in Section 6.2 as to the sources of
the funds used to pay the  purchase  price of the Notes to be  purchased by such
Purchaser  and (ii) the  assumption,  made solely for the purpose of making such
representation, that Department of Labor Interpretive Bulletin 75-2 with respect
to  prohibited   transactions   remains  valid  in  the   circumstances  of  the
transactions contemplated herein.

                                      -11-

<PAGE>

         5.13   Intentionally Omitted.

         5.14   Use of Proceeds; Margin Regulations.

         Margin  stock  does not  constitute  more  than 5% of the  value of the
consolidated assets of the Company and its Subsidiaries and the Company does not
have any present intention that margin stock will constitute more than 5% of the
value of such assets.  As used in this  Section,  the terms  "margin  stock" and
"purpose of buying or carrying" shall have the meanings assigned to them in said
Regulation U.

         5.15   Existing Debt; Future Liens.

                (a)     Except as described therein, Schedule 5.15 sets  forth a
complete  and  correct  list  of all  outstanding  Debt of the  Company  and its
Subsidiaries  as of the Closing Date since which date there has been no Material
change in the amounts,  interest rates,  sinking funds,  installment payments or
maturities of the Debt of the Company or its  Subsidiaries.  Neither the Company
nor any  Subsidiary  is in  default  and no waiver of default  is  currently  in
effect,  in the payment of any  principal or interest on any Debt of the Company
or any such Subsidiary and no event or condition exists with respect to any Debt
of the Company or any  Subsidiary  that would permit (or that with notice or the
lapse of time, or both,  would permit) one or more Persons to cause such Debt to
become  due and  payable  before  its stated  maturity  or before its  regularly
scheduled dates of payment.

                (b)     Except as described in Schedule 5.15,neither the Company
nor any  Subsidiary  has  agreed or  consented  to cause or permit in the future
(upon the happening of a contingency or otherwise) any of its property,  whether
now owned or  hereafter  acquired,  to be  subject  to a Lien not  permitted  by
Section 10.3.

                (c)     The   Original  Subsidiary   Guarantors  will  derive  a
commercial  benefit by their execution and delivery of the Subsidiary  Guarantee
Agreements  generally  and,  in certain  other  respects,  as more  specifically
described in Section 5.21 hereto.

         5.16   Intentionally Omitted.

         5.17   Status under Certain Statutes.

         Neither the Company nor any  Subsidiary is subject to regulation  under
the  Investment  Company Act of 1940,  as amended,  the Public  Utility  Holding
Company Act of 1935, as amended, the Interstate Commerce Act, as amended, or the
Federal Power Act, as amended.

         5.18   Environmental Matters.

         As of the date of the Closing,  neither the Company nor any  Subsidiary
has  knowledge  of any claim or has  received  any notice of any  claim,  and no
proceeding has been  instituted  raising any claim against the Company or any of
its  Subsidiaries  or any of their  respective  real  properties now or formerly
owned, leased or operated by any of them or other assets, alleging any damage to
the environment or violation of any  Environmental  Laws,  except, in each case,
such as could

                                      -12-

not  reasonably be expected to result in a Material  Adverse  Effect.  As of the
Closing Date, except as otherwise disclosed to the Purchasers in writing,

                (a)     neither  the Company  nor  any  Subsidiary has knowledge
of any facts which would give rise to any claim, public or private, of violation
of Environmental Laws or damage to the environment  emanating from, occurring on
or in any way  related  to real  properties  now or  formerly  owned,  leased or
operated by any of them or to other assets or their use,  except,  in each case,
such as could not reasonably be expected to result in a Material Adverse Effect;

                (b)     neither the  Company nor any  Subsidiaries has stored or
has knowledge of any storage of any Hazardous  Materials on real  properties now
or formerly owned,  leased or operated by any of them and has not disposed,  nor
has any  knowledge  of any  disposal,  of any  Hazardous  Materials  in a manner
contrary  to any  Environmental  Laws in  each  case in any  manner  that  could
reasonably be expected to result in a Material Adverse Effect; and

                (c)     neither  the  Company  nor  any of  its Subsidiaries has
knowledge  that any  buildings  on any real  properties  now  owned,  leased  or
operated by the Company or any of its  Subsidiaries  are not in compliance  with
applicable  Environmental  Laws,  except  where  failure  to  comply  could  not
reasonably be expected to result in a Material Adverse Effect.

         5.19   [Intentionally Omitted].

         5.20   Solvency.

         Each of the Company and the Original Subsidiary Guarantors is, and upon
giving effect to the exchange of the Notes and the  execution of this  Agreement
and the Subsidiary  Guarantee  Agreements will be, a "solvent  institution",  as
said term is used in section  1405(c) of the New York State Insurance Law, whose
"obligations are not in default as to principal or interest",  as said terms are
used in said section  1405(c).  Each of the Company and the Original  Subsidiary
Guarantors  has capital  not  unreasonably  small in relation to its  respective
business or any  contemplated or undertaken  transaction and has assets having a
value both at fair  valuation and at present fair salable value greater than the
amount  required to pay its debts as they become due and greater than the amount
that will be required to pay its respective  probable  liability on its existing
debts as they become absolute and matured.  Neither the Company nor any Original
Subsidiary  Guarantor intends to incur, or believes or should have believed that
it will  incur,  debts  beyond its ability to pay such debts as they become due.
Neither the  Company  nor any  Original  Subsidiary  Guarantor  will be rendered
insolvent by the execution and delivery of, and  performance  of its  respective
obligations  under,  this  Agreement,  the  Notes and the  Subsidiary  Guarantee
Agreements.

         5.21   Consolidated  and  Integrated  Business  of  the Company and its
Restricted Subsidiaries.

         The  Company  and  its  Restricted   Subsidiaries   share   centralized
administration of the winery functions of each entity including  finance,  sales
and marketing.  Such  centralized  administration  is performed at the Company's
Napa office. This facility also includes a central

                                      -13-

<PAGE>

distribution  center  in  which  substantially  all of  the  Company's  and  its
Restricted Subsidiaries' wines are stored prior to shipping.

         Sales  and   marketing  of  all  of  the   Company's   and   Restricted
Subsidiaries'  wines  within  the  State  of  California  are made  through  the
Company's  own sales  forces and one or more  wholesalers.  The  Company  uses a
single  broker  for  all  wholesale  California  sales  of the  Company  and its
Restricted  Subsidiaries.  Furthermore,  all of  the  Company's  and  Restricted
Subsidiaries'  wineries  are  operated  under  the  overall  supervision  of the
Company's Chief Executive Officer.

         The  Company  and  its  Restricted  Subsidiaries  prepare  consolidated
financial  statements  and present their  financial  reporting on a consolidated
basis.

         5.22   No Burdensome Restrictions.

         Neither the Company nor any Original Subsidiary Guarantor is a party to
any agreement or instrument or subject to any other obligation or any charter or
corporate restriction or any provision of any applicable law, rule or regulation
which, individually or in the aggregate, could have a Material Adverse Effect.

         5.23   Matters Relating to the Collateral.

         The Liens  granted in favor of the  Collateral  Agent  pursuant  to the
Collateral  Documents in respect of the collateral  described therein constitute
and will constitute first and second,  as the case may be, priority  (subject to
Permitted Liens) perfected  security interests under the Uniform Commercial Code
as in effect in each applicable  jurisdiction,  entitled to all rights, benefits
and priorities as provided by such Uniform  Commercial Code or other  applicable
law. Upon the filing of financing statements relating to such security interests
in each office and in each  jurisdiction  where required in order to perfect the
security interests  described above and recordations of the Security  Agreements
and/or the Patent and Trademark Security  Agreements in the United States Patent
and Trademark Office and the United States Copyright Office,  all such action as
is necessary or advisable to establish such rights of the Collateral  Agent will
have been taken.  There will be upon  execution  and  delivery  of the  Security
Agreements  and Patent and  Trademark  Security  Agreements  and such filings no
necessity for any further action in order to preserve, protect and continue such
rights,  except  the  filing of  continuation  statements  with  respect to such
financing  statements  within six months prior to each five year  anniversary of
the filing of such financing statements.

         5.24   Credit Agreement Representations.

         The  representations  and  warranties  set forth in  Article  IX of the
Credit  Agreement  are  hereby  incorporated  by  reference  herein  as if  such
representations  and warranties  were set forth herein in full. The  information
contained in the Schedules to the Credit  Agreement are hereby  incorporated  by
reference herein as if such information were set forth herein in full

                                      -14-

<PAGE>

6.       REPRESENTATIONS OF THE PURCHASERS.

         6.1    Purchase for Investment.

         Each  Purchaser  represents  that it  purchased  the  Notes for its own
account or for one or more separate accounts maintained by it for the account of
one or more  pension  or trust  funds  and not  with a view to the  distribution
thereof, PROVIDED THAT the disposition of such Purchaser's property shall at all
times be within its control;  PROVIDED  FURTHER that such Purchaser shall not be
prohibited from creating security interests, including any pledge or assignment,
to  any  Federal  Reserve  Bank  in  accordance  with  applicable  law or by any
Purchaser which is a Farm Credit System entity, to the Farm Credit Funding Corp.
or other appropriate  funding sources and entities within the Farm Credit System
in accordance  with applicable  law. Each Purchaser  understands  that the Notes
have not been  registered  under the  Securities  Act and may be resold  only if
registered  pursuant to the  provisions of the Securities Act or if an exemption
from registration is available,  except under  circumstances  where neither such
registration  nor such an  exemption is required by law, and that the Company is
not required to register the Notes.

         6.2    Source of Funds.

         Each Purchaser represents that at least one of the following statements
is an accurate  representation as to each source of funds (a "SOURCE") which was
used by such Purchaser to pay the purchase price of the Notes to be purchased by
such Purchaser hereunder:

                (a)     the  Source  is  an "insurance company  general account"
within the  meaning of  Department  of Labor  Prohibited  Transaction  Exemption
("PTE")  95-60  (issued  July 12, 1995) and there is no employee  benefit  plan,
treating as a single plan, all plans maintained by the same employer or employee
organization,  with respect to which the amount of the general account  reserves
and liabilities for all contracts held by or on behalf of such plan,  exceed ten
percent  (10%) of the total  reserves and  liabilities  of such general  account
(exclusive of separate account  liabilities)  plus surplus,  as set forth in the
NAIC Annual  Statement  filed by such Purchaser with such  Purchaser's  state of
domicile; or

                (b)     the Source is either (i)  an  insurance  company  pooled
separate  account,  within the meaning of PTE 90-1 (issued January 29, 1990), or
(ii) a bank  collective  investment  fund,  within the  meaning of the PTE 91-38
(issued  July 12,  1991) and,  except as such  Purchaser  has  disclosed  to the
Company in writing  pursuant to this paragraph (b), no employee  benefit plan or
group  of  plans  maintained  by the  same  employer  or  employee  organization
beneficially  owns more than 10% of all assets allocated to such pooled separate
account or collective investment fund; or

                (c)     the  Source  constitutes  assets of an "investment fund"
(within the meaning of Part V of the "QPAM  Exemption")  managed by a "qualified
professional  asset manager" or "QPAM" (within the meaning of Part V of the QPAM
Exemption),  no  employee  benefit  plan's  assets  that  are  included  in such
investment  fund,  when combined with the assets of all other  employee  benefit
plans  established or maintained by the same employer or by an affiliate (within
the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the
same

                                      -15-

<PAGE>

employee  organization and managed by such QPAM,  exceed 20% of the total client
assets  managed by such QPAM,  the  conditions  of Part I(c) and (g) of the QPAM
Exemption are satisfied, neither the QPAM nor a person controlling or controlled
by the QPAM  (applying  the  definition of "control" in Section V(e) of the QPAM
Exemption)  owns a 5% or more  interest in the  Company and (i) the  identity of
such QPAM and (ii) the names of all  employee  benefit  plans  whose  assets are
included in such  investment  fund have been disclosed to the Company in writing
pursuant to this paragraph (c); or

                (d)     the Source is a governmental plan; or

                (e)     the  Source  is one or more employee benefit plans, or a
separate  account or trust fund comprised of one or more employee benefit plans,
each of which has been  identified  to the  Company in writing  pursuant to this
paragraph (e); or

                (f)     the  Source  does  not  include  assets  of any employee
benefit plan, other than a plan exempt from the coverage of ERISA.

         If any Purchaser or any  subsequent  transferee of the Notes  indicates
that  such  Purchaser  or  such  transferee  is  relying  on any  representation
contained in paragraph  (b), (c) or (e) above,  the Company shall deliver on the
Closing Date and on the date of any  applicable  transfer a  certificate,  which
shall  either  state  that  (i)  it  is  neither  a  party  in  interest  nor  a
"disqualified  person" (as defined in Section 4975(e)(2) of the Internal Revenue
Code of 1986,  as  amended),  with  respect to any plan  identified  pursuant to
paragraphs  (b) or (e)  above,  or (ii) with  respect  to any  plan,  identified
pursuant to paragraph (c) above,  neither it nor any  "affiliate" (as defined in
Section V(c) of the QPAM Exemption) has at such time, and during the immediately
preceding one year, exercised the authority to appoint or terminate said QPAM as
manager of any plan identified in writing  pursuant to paragraph (c) above or to
negotiate  the terms of said QPAM's  management  agreement on behalf of any such
identified plan. As used in this Section 6.2, the terms "employee benefit plan",
"governmental  plan",  "party in interest" and "separate account" shall have the
respective meanings assigned to such terms in Section 3 of ERISA.

7.       INFORMATION  AS TO COMPANY.

         7.1    Financial and Business Information.

         The Company shall deliver to each Holder:

                (a)     as  soon as  available and  in any  event within 45 days
after  the end of the  first  three  fiscal  quarters  of each  fiscal  year,  a
consolidated and consolidating balance sheet of the Company and its Subsidiaries
as of  the  end of  such  quarter,  and  the  related  consolidated  and,  as to
statements of income only,  consolidating  statements  of income,  shareholders'
equity and cash flows of the Company and its  Subsidiaries  for such quarter and
the portion of the fiscal  year  through  the end of such  quarter,  prepared in
accordance with GAAP  consistently  applied,  subject to changes  resulting from
normal,  year-end audit  adjustments  and except for the absence of notes all in
reasonable  detail and  setting  forth in  comparative  form the figures for the
corresponding  period in the preceding fiscal year,  together with a certificate
of a Responsible Officer of the

                                      -16-

<PAGE>

Company  stating that such  financial  statements  fairly  present the financial
condition of the Company and its Subsidiaries as at such date and the results of
operations of the Company and its Subsidiaries for the period ended on such date
and have been prepared in accordance with GAAP consistently applied,  subject to
changes  resulting from normal,  year-end audit  adjustments  and except for the
absence of notes;

                (b)     as soon  as  available and  in  any event within 90 days
after the end of each fiscal  year, a  consolidated  and  consolidating  balance
sheet of the Company and its Subsidiaries as of the end of such fiscal year, and
the related  consolidated  and, as to statements  of income only,  consolidating
statements of income, shareholders' equity and cash flows of the Company and its
Subsidiaries for such fiscal year, prepared in accordance with GAAP consistently
applied,  all in  reasonable  detail and setting forth in  comparative  form the
figures for the previous  fiscal year, and (i) in the case of such  consolidated
financial  statements,  accompanied  by a report  thereon  of Moss  Adams LLP or
another firm of independent  certified public accountants of recognized national
standing acceptable to the Required Holders, which report shall not be qualified
as to (A) going concern,  or (B) any  limitation in the scope of the audit,  and
(ii) in the case of such  consolidating  financial  statements,  certified  by a
Responsible Officer of the Company;

                (c)     together with the financial statements required pursuant
to clauses (a) and (b), (i) a Compliance Certificate of a Responsible Officer as
of the end of the applicable accounting period and (ii) an Update Certificate of
a Responsible Officer as of the end of the applicable accounting period;

                (d)     promptly upon  receipt  thereof,  copies of all  reports
submitted to the Company by its  independent  certified  public  accountants  in
connection with each annual, interim or special audit examination of the Company
and its Subsidiaries made by such accountants, including the "management letter"
submitted by such  accountants  to the Company in  connection  with their annual
audit;

                (e)     as  soon as  available and in any event not less than 30
days prior to the start of each fiscal year, a consolidated  financial  forecast
for the  Company and its  Subsidiaries  for the  following  fiscal year and each
fiscal  year  thereafter,  including  forecasted  consolidated  balance  sheets,
consolidated  statements of income,  shareholders'  equity and cash flows of the
Company and its Subsidiaries which forecast shall (i) state the assumptions used
in the preparation  thereof,  (ii) contain such other  information as reasonably
requested by the Required  Holders and (iii) be in form reasonably  satisfactory
to the Required Holders;

                (f)     as  soon as available and in any event not less  than 30
days prior to the start of each  fiscal  year,  budgets of the  Company  and its
Subsidiaries  for each quarter of the following fiscal year, which budgets shall
(i) state  the  assumptions  used in the  preparation  thereof,  (ii) be in form
satisfactory to the Required Holders, and (iii) be accompanied by a statement of
a  Responsible  Officer of the  Company  that,  to the best of such  Responsible
Officer's  knowledge,  such budgets are a reasonable and good-faith estimate for
the period covered thereby; and

                                      -17-

<PAGE>

                (g)     promptly  after  the giving,  sending or filing thereof,
copies of all  reports,  if any,  which the  Company or any of its  Subsidiaries
sends to the holders of its respective  capital stock or other securities and of
all reports or filings,  if any, by the Company or any of its Subsidiaries  with
the SEC or any national securities exchange.

As to any information  contained in materials  furnished pursuant to clause (i),
the Company shall not be separately  required to furnish such information  under
clause  (a)  or  (b),  but  the  foregoing  shall  not be in  derogation  of the
obligation of the Company to furnish the information and materials  described in
clauses  (a) and  (b) at the  times  specified  therein.  Additionally,  reports
required to be delivered pursuant to clauses (a), (b) or (h) of this Section 7.1
(to the extent any such financial  statements,  reports or proxy  statements are
included  in  materials   otherwise   filed  with  the  SEC)  may  be  delivered
electronically  and if so, shall be deemed to have been delivered on the date on
which the Company posts such reports, or provides a link thereto, either: (x) on
the  Company's  website on the  Internet  at the  website  address  set forth in
Section   18;  or  (y)  when   such   report   is   posted   electronically   on
IntraLinks/IntraAgency or other relevant website to which each Holder has access
(whether a commercial,  third-party website or whether sponsored by any Holder),
if any, on the Company's  behalf;  PROVIDED  that: (1) the Company shall deliver
paper  copies of such  reports to any Holder who requests the Company to deliver
such paper  copies until  written  request to cease  delivering  paper copies is
given by Holder;  (2) the Company  shall  notify  (which may be by  facsimile or
electronic  mail) each Holder of the posting of any such  reports and provide to
each Holder by email electronic versions (i.e. soft copies) of such reports; and
(3) in every  instance the Company shall provide paper copies of the  Compliance
Certificates  required  by clause (c) above to each of the  Holders.  Except for
such  Compliance  Certificates,  the Holders shall have no obligation to request
the delivery or to maintain copies of the reports  referred to above, and in any
event shall have no responsibility to monitor compliance by the Company with any
such  request for  delivery,  and each Holder  shall be solely  responsible  for
requesting delivery to it or maintaining its copies of such reports.

         7.2    Additional Information.

         The Company will furnish to the Holders:

                (a)     promptly  after  the  Company  has knowledge or  becomes
aware thereof, notice of the occurrence of any Event of Loss with respect to its
property  or  assets  aggregating  $1,500,000  (or  its  equivalent  in  another
currency) or more;

                (b)     promptly  after  the  Company  has knowledge or  becomes
aware hereof, notice of the occurrence or existence of any Default and any Event
of Default;

                (c)     promptly after any Person becomes a  Subsidiary  of  the
Company (whether by acquisition or otherwise), prompt written notice thereof;

                (d)     prompt  written  notice of (i) any  proposed acquisition
of stock,  assets or  property by the  Company or any of its  Subsidiaries  that
could  reasonably  be  expected  to  result  in  environmental  liability  under
Environmental  Laws,  and (ii)(1) any spillage,  leakage,  discharge,  disposal,
leaching, migration or release of any Hazardous Material required to be reported
to any

                                      -18-

<PAGE>

Governmental Authority under applicable Environmental Laws, and (2) all actions,
suits,  claims,  notices of violation,  hearings,  investigations or proceedings
pending,  or to the  best of the  Company's  knowledge,  threatened  against  or
affecting  the  Company  or any of  its  Subsidiaries  or  with  respect  to the
ownership,  use,  maintenance  and  operation of the  Premises,  relating to (x)
Environmental  Laws or Hazardous  Material,  (y) or any other Requirement of Law
that, in the case of this clause (y), may have a Material Adverse Effect;

                (e)     prompt  written  notice  of   all  actions,  suits   and
proceedings before any Governmental  Authority or arbitrator  pending, or to the
best of the Company's knowledge,  threatened against or affecting the Company or
any of its  Subsidiaries  which (i) if  adversely  determined  would  involve an
aggregate  uninsured  liability  of  $1,500,000  (or its  equivalent  in another
currency) or more, or (ii) otherwise may have a Material Adverse Effect;

                (f)     promptly  after  the  Company has  knowledge or  becomes
aware thereof,  (i) notice of the occurrence of any Termination Event,  together
with a copy of any notice of such  Termination  Event to the PBGC,  and (ii) the
details  concerning  any action taken or proposed to be taken by the IRS,  PBGC,
Department of Labor or other Person with respect thereto;

                (g)     the information  regarding  insurance  maintained by the
Company and its Subsidiaries as required under Section 9.2;

                (h)     within  30 days  of  the date  thereof,  or, if earlier,
on the date of delivery of any  financial  statements  pursuant to Section  7.1,
notice of any material  change in  accounting  policies or  financial  reporting
practices by the Company or any of its Subsidiaries;

                (i)     promptly after  the  occurrence thereof,  notice  of any
labor  controversy  resulting in or  threatening  to result in any strike,  work
stoppage,  boycott,  shutdown  or other  material  labor  disruption  against or
involving  the  Company  or any of its  Subsidiaries  which  could  result  in a
Material Adverse Effect;

                (j)     upon  the request from  time  to time of any Holder, the
Swap Termination Values, together with a description of the method by which such
values were determined, relating to any then-outstanding Rate Contracts to which
the Company or any of its Subsidiaries is party;

                (k)     prompt written  notice of  any other condition or  event
which has  resulted,  or that could  reasonably  be  expected  to  result,  in a
Material Adverse Effect; and

                (l)     such    other  information  respecting   the operations,
properties, business or condition (financial or otherwise) of the Company or its
Subsidiaries  (including  with respect to the Collateral) as any Holder may from
time to time reasonably request.

Each notice  pursuant  to this  Section  7.2 shall be  accompanied  by a written
statement by a Responsible  Officer of the Company  setting forth details of the
occurrence referred to therein,  and stating what action the Company proposes to
take with respect thereto.

                                      -19-

<PAGE>

7.3      Inspection.

         The Company shall permit the representatives of each Holder:

                (a)     No Default -- if  no  Default or Event of  Default  then
exists,  at the expense of such Holder and upon  reasonable  prior notice to the
Company during normal business hours, to visit the principal executive office of
the Company to discuss the affairs, finances and accounts of the Company and its
Subsidiaries with the Company's officers,  and (with the consent of the Company,
which  consent  will  not  be  unreasonably  withheld)  its  independent  public
accountants,  and (with the consent of the  Company,  which  consent will not be
unreasonably  withheld) to visit the other offices and properties of the Company
and  each  Subsidiary,  all at such  reasonable  times  and as  often  as may be
reasonably requested in writing; and

                (b)     Default -- if a Default or Event of Default then exists,
at the  expense  of the  Company,  to visit and  inspect  any of the  offices or
properties  of the Company or any  Subsidiary,  to examine all their  respective
books of account, records, reports and other papers, to make copies and extracts
therefrom,  and to discuss their respective affairs,  finances and accounts with
their  respective  officers  and  independent  public  accountants  (and by this
provision  the Company  authorizes  said  accountants  to discuss  the  affairs,
finances  and accounts of the Company and its  Subsidiaries),  all at such times
and as often as may be requested.

8.       PREPAYMENT OF THE NOTES.

         8.1    Required Prepayments.

                (a)     The  Company  agrees  that  on September 15 in each year
commencing  September 15, 2004 and ending on September 15, 2009, both inclusive,
it will prepay and apply and there shall become due and payable on the principal
debt  evidenced  by the  Series A Notes an  amount  equal to the  lesser  of (x)
$714,285.71 or (y) the principal amount of the Series A Notes then  outstanding.
The entire remaining principal amount of the Series A Notes shall become due and
payable on September 15, 2010.  No premium  shall be payable in connection  with
any required  prepayment made pursuant to this Section 8.1(a).  Upon any partial
prepayment of the Series A Notes  pursuant to Section 8.2, the principal  amount
of each  required  prepayment  of the  Series A Notes  becoming  due under  this
Section 8.1(a) on and after the date of such prepayment  shall be reduced in the
same proportion as the aggregate  unpaid  principal amount of the Series A Notes
is reduced as a result of such prepayment.

                (b)     The  Company  agrees that  on  September 15 in each year
commencing  September 15, 2004 and ending on September 15, 2009, both inclusive,
it will prepay and apply and there shall become due and payable on the principal
debt  evidenced  by the  Series B Notes an  amount  equal to the  lesser  of (x)
$1,428,571.43   or  (y)  the  principal  amount  of  the  Series  B  Notes  then
outstanding.  The entire remaining  principal amount of the Series B Notes shall
become due and payable on  September  15, 2010.  No premium  shall be payable in
connection  with any required  prepayment  made pursuant to this Section 8.1(b).
Upon any partial  prepayment of the Series B Notes  pursuant to Section 8.2, the
principal amount of each required  prepayment of the Series B Notes becoming due
under this Section 8.1(b) on and after the date of such prepayment

                                      -20-

<PAGE>

shall be reduced in the same proportion as the aggregate unpaid principal amount
of the Series B Notes is reduced as a result of such prepayment.

                (c)     The  Company  agrees that  on  September 15 in each year
commencing  September 15, 2004 and ending on September 15, 2009, both inclusive,
it will prepay and apply and there shall become due and payable on the principal
debt  evidenced  by the  Series C Notes an  amount  equal to the  lesser  of (x)
$2,142,857.14   or  (y)  the  principal  amount  of  the  Series  C  Notes  then
outstanding.  The entire remaining  principal amount of the Series C Notes shall
become due and payable on  September  15, 2010.  No premium  shall be payable in
connection  with any required  prepayment  made pursuant to this Section 8.1(c).
Upon any partial  prepayment of the Series C Notes  pursuant to Section 8.2, the
principal amount of each required  prepayment of the Series C Notes becoming due
under  this  Section  8.1(c) on and after the date of such  prepayment  shall be
reduced in the same proportion as the aggregate  unpaid  principal amount of the
Series C Notes is reduced as a result of such prepayment.

         8.2    Optional Prepayments with Make-Whole Amount.

         The Company may, at its option,  upon notice as provided below,  prepay
at any time  all,  or from  time to time any part of (but if in part,  then such
prepayment shall be applied against the Series A Note, the Series B Note and the
Series C Note,  respectively,  in proportion to the aggregate amount outstanding
of each  Series),  the  Notes,  in an amount  not less than 5% of the  aggregate
principal  amount of all series of the Notes then  outstanding  in the case of a
partial  prepayment,  at 100% of the principal amount so prepaid,  together with
interest accrued thereon to the date of such prepayment, plus the greater of (i)
zero and (ii) the Make-Whole  Amount  determined  for the  prepayment  date with
respect to such  principal  amount.  The Company  will give each Holder of Notes
written notice of each optional  prepayment under this Section 8.2 not less than
30 days and not more than 60 days prior to the date  fixed for such  prepayment.
Each such notice shall specify such date, the aggregate  principal amount of the
Notes to be prepaid on such date, the principal amount of each Note held by such
Holder to be prepaid  (determined  in  accordance  with  Section  8.3),  and the
interest to be paid on the prepayment date with respect to such principal amount
being prepaid,  and shall be accompanied by a certificate of a Senior  Financial
Officer  as to the  estimated  Make-Whole  Amount  due in  connection  with such
prepayment  (calculated  as if the  date of such  notice  were  the  date of the
prepayment),  setting forth the details of such  computation.  Two Business Days
prior to such  prepayment,  the Company  shall deliver to each Holder of Notes a
certificate of a Senior  Financial  Officer  specifying the  calculation of such
Make-Whole Amount as of the specified prepayment date.

         8.3    Allocation of Partial Prepayments.

         In the case of each partial prepayment of the Notes pursuant to Section
8.2, the principal  amount of the Notes to be prepaid  shall be allocated  among
all  of  the  Notes  at  the  time  outstanding  in  proportion,  as  nearly  as
practicable,  to the respective unpaid principal amounts thereof not theretofore
prepaid.

                                      -21-

<PAGE>

         8.4    Maturity; Surrender, etc.

         In the case of each  prepayment  or purchase of Notes  pursuant to this
Section 8, the  principal  amount of each Note to be prepaid or purchased  shall
mature  and become due and  payable  on the date  fixed for such  prepayment  or
purchase,  together with interest on such principal  amount accrued to such date
and the applicable  Make-Whole  Amount, if any. From and after such date, unless
the Company  shall fail to pay such  principal  amount when so due and  payable,
together with the interest and Make-Whole Amount, if any, as aforesaid, interest
on such  principal  amount  shall cease to accrue.  Any Note paid,  purchased or
prepaid in full shall be  surrendered to the Company and cancelled and shall not
be  reissued,  and no Note shall be issued in lieu of any  prepaid or  purchased
principal amount of any Note.

         8.5    Purchase of Notes.

         The Company  will not and will not permit any  Affiliate  to  purchase,
redeem,  prepay  or  otherwise  acquire,  directly  or  indirectly,  any  of the
outstanding  Notes except upon the purchase,  payment or prepayment of the Notes
in accordance  with the terms of this Agreement and the Notes.  The Company will
promptly  cancel  all Notes  acquired  by it or any  Affiliate  pursuant  to any
payment,  prepayment  or purchase of Notes  pursuant  to any  provision  of this
Agreement  and no Notes may be issued in  substitution  or exchange for any such
Notes.

         8.6    Make-Whole Amount.

         "MAKE-WHOLE  AMOUNT" means,  with respect to any Note of any series, an
amount equal to the excess,  if any, of the  Discounted  Value of the  Remaining
Scheduled  Payments  with  respect to the Called  Principal of such Note of such
series over the amount of such Called  Principal,  provided that the  Make-Whole
Amount may in no event be less than zero.  For the purposes of  determining  the
Make-Whole Amount, the following terms have the following meanings:

         "CALLED  PRINCIPAL" means, with respect to any Note of any series,  the
principal of the Note of such series that is to be prepaid or purchased pursuant
to Sections  8.2 or 8.7 or has become or is declared to be  immediately  due and
payable pursuant to Section 12.1, as the context requires.

         "DISCOUNTED  VALUE" means,  with respect to the Called Principal of any
Note of any series,  the amount obtained by discounting all Remaining  Scheduled
Payments with respect to such Called Principal from their  respective  scheduled
due dates to the  Settlement  Date with  respect to such  Called  Principal,  in
accordance with accepted financial practice and at a discount factor (applied on
the same  periodic  basis as that on which  interest  on such Notes is  payable)
equal to the Reinvestment Yield with respect to such Called Principal.

         "REINVESTMENT  YIELD" means,  with respect to the Called Principal of a
Note of any series,  0.50% over the yield to maturity  implied by (i) the yields
reported,  as of 10:00  A.M.  (New York City time) on the  second  Business  Day
preceding  the  Settlement  Date with respect to such Called  Principal,  on the
display  designated as Screen PX1 on the Bloomberg  Financial  Markets  Services
System (or such other display as may replace  Screen PX1 on Bloomberg  Financial
Markets

                                      -22-

<PAGE>

Services System) for actively traded U.S. Treasury  securities having a maturity
equal  to the  remaining  average  live  of  such  Called  Principal  as of such
Settlement  Date, or (ii) if such yields are not reported as of such time or the
yields  reported as of such time are not  ascertainable,  the Treasury  Constant
Maturity Series Yields  reported,  for the latest day for which such yields have
been so reported as of the second  Business Day  preceding the  Settlement  Date
with respect to such Called Principal,  in Federal Reserve  Statistical  Release
H.15 (519) (or any comparable  successor  publication)  for actively traded U.S.
Treasury  securities  having a constant  maturity equal to the remaining average
life of such Called  Principal as of such  Settlement  Date.  Such implied yield
will  be  determined,  if  necessary,  by  (a)  converting  U.S.  Treasury  bill
quotations  to  bond-equivalent  yields in accordance  with  accepted  financial
practice and (b)  interpolating  linearly  between (1) the actively  traded U.S.
Treasury  security  with the maturity  closest to and greater than the remaining
average life of such Called Principal and (2) the actively traded U.S.  Treasury
security with the maturity  closest to and less than the remaining  average life
of such Called Principal.

         "REMAINING  SCHEDULED  PAYMENTS"  means,  with  respect  to the  Called
Principal of any Note of any series,  all payments of such Called  Principal and
interest  thereon  that would be due after the  Settlement  Date with respect to
such Called  Principal if no payment or purchase of such Called  Principal  were
made prior to its scheduled due date  (assuming  that the Notes will continue to
bear interest at the rates in effect on the Settlement  Date),  PROVIDED that if
such Settlement Date is not a date on which interest payments are due to be made
under  the  terms of the  Notes of such  series,  then  the  amount  of the next
succeeding  scheduled interest payment will be reduced by the amount of interest
accrued to such  Settlement Date and required to be paid on such Settlement Date
pursuant to Sections 8.2, 8.7 or 12.1.

         "SETTLEMENT  DATE" means,  with respect to the Called  Principal of any
Note of any series,  the date on which such Called Principal is to be prepaid or
purchased pursuant to Section 8.2 or has become or is declared to be immediately
due and payable pursuant to Section 12.1, as the context requires.

         8.7    Mandatory Prepayments with Make-Whole Amount.

                (a)     Upon the  sale,  transfer or  other  disposition of  any
Collateral by the Company or any Subsidiary under Section 10.9(c) (to the extent
the Net Proceeds  from the sale,  transfer or other  disposition  of worn out or
obsolete assets are not promptly applied to replace such assets) or 10.9(f), the
Company  shall,  if either (i) an Event of Default  shall have  occurred  and be
continuing  or (ii) a Specified  Loan to Value  Event  would occur after  giving
effect to such sale,  transfer or other disposition,  within one Business Day of
the Company's or such Subsidiary's  receipt of the proceeds thereof,  prepay the
outstanding  principal amount of the Notes,  together with the Make-Whole Amount
payable  with  respect  thereto,  in an  amount  equal  to (1) in the  case of a
prepayment by reason of the circumstances set forth in clause (i) above, 100% of
the Net Proceeds  therefrom by depositing such amount with the Collateral  Agent
for  application by the  Collateral  Agent under and pursuant to Section 6.10 of
the Intercreditor Agreement to the Secured Obligations, and (2) in the case of a
prepayment be reason of the  circumstances  set forth in clause (ii) above, that
amount of the Net Proceeds therefrom that would be required to be prepaid on the
Notes so that after giving effect to the application thereof,

                                      -23-

<PAGE>

such  Specified  Loan to Value Event would no longer  exist by  depositing  such
amount with the Collateral  Agent for application by the Collateral  Agent under
and  pursuant  to Section  6.10 of the  Intercreditor  Agreement  to the Secured
Obligations.

                (b)     Upon  the incurrence of indebtedness for borrowed  money
by the Company or any Subsidiary  during the continuance of an Event of Default,
the Company shall, within one Business Day of the Company's or such Subsidiary's
receipt of the proceeds thereof,  prepay the outstanding principal amount of the
Notes in an amount equal to 100% of the Net Issuance Proceeds (as defined in the
Credit Agreement)  therefrom by depositing such amount with the Collateral Agent
for  application by the  Collateral  Agent under and pursuant to Section 6.10 of
the Intercreditor Agreement to the Secured Obligations.

                (c)     If  any Event  of Loss shall occur the Company shall, if
either (i) an Event of Default  shall have occurred and be continuing or (ii) if
such Event of Loss is in a amount in excess of $1,500,000  and a Specified  Loan
to Value Event would occur after giving effect to such Event of Loss, within one
Business  Day of the  Company's  or such  Subsidiary's  receipt of the  proceeds
therefrom,  prepay the outstanding  principal amount of the Notes, together with
the Make-Whole Amount payable with respect thereto, in an amount equal to (1) in
the case of a prepayment by reason of the  circumstances set forth in clause (i)
above,  100% of the Net Proceeds  therefrom by  depositing  such amount with the
Collateral  Agent for application by the Collateral  Agent under and pursuant to
Section 6.10 of the Intercreditor Agreement to the Secured Obligations,  and (2)
in the case of a prepayment be reason of the  circumstances  set forth in clause
(ii) above, that amount of the Net Proceeds  therefrom that would be required to
be prepaid on the Notes so that after giving effect to the application  thereof,
such  Specified  Loan to Value Event would no longer  exist by  depositing  such
amount with the Collateral  Agent for application by the Collateral  Agent under
and  pursuant  to Section  6.10 of the  Intercreditor  Agreement  to the Secured
Obligations.

9.       AFFIRMATIVE COVENANTS.

         The Company covenants that so long as any of the Notes are outstanding:

         9.1    Compliance  with Law.

         The Company will,  and will cause each of its  Subsidiaries  to, comply
with all laws,  ordinances or governmental rules or regulations to which each of
them is subject,  including,  without  limitation,  Environmental Laws, and will
obtain and maintain in effect all licenses,  certificates,  permits,  franchises
and  other  governmental  authorizations  necessary  to the  ownership  of their
respective properties or to the conduct of their respective businesses,  in each
case to the  extent  necessary  to ensure  that  non-compliance  with such laws,
ordinances  or  governmental  rules or  regulations  or  failures  to  obtain or
maintain in effect such licenses,  certificates,  permits,  franchises and other
governmental  authorizations  could  not,  individually  or  in  the  aggregate,
reasonably be expected to have a Material Adverse Effect.

                                      -24-

<PAGE>

         9.2    Insurance.

         The Company shall,  and shall cause each of its  Subsidiaries to, carry
and maintain in full force and effect,  at its own expense and with  financially
sound and reputable insurance  companies,  insurance in such amounts,  with such
deductibles  and  covering  such risks as is  customarily  carried by  companies
engaged in the same or similar  businesses and owning similar  properties in the
localities  where the  Company  or such  Subsidiary  operates,  including  fire,
extended coverage, business interruption,  public liability, property damage and
worker's  compensation.  Insurance on the  Collateral  shall name the Holders as
additional  insured and shall name the Collateral Agent as loss payee.  Upon the
request of the Holders,  the Company shall furnish the Holders from time to time
with full  information  as to the insurance  carried by it and, if so requested,
copies of all such  insurance  policies.  The Company  shall also furnish to the
Holders  from time to time upon the request of any Holder a  certificate  of the
Company's  insurance  broker  or other  insurance  specialist  stating  that all
premiums then due on the policies  relating to insurance on the Collateral  have
been  paid,  that  such  policies  are in full  force and  effect  and that such
insurance  coverage and such policies  comply with all the  requirements of this
subsection.  All insurance  policies  required  under this section shall provide
that they shall not be  terminated  or  cancelled  nor shall any such  policy be
materially changed without at least 30 days' prior written notice to the Company
and the Holders.  Receipt of notice of termination or  cancellation  of any such
insurance policies or reduction of coverages or amounts thereunder shall entitle
the Holders to renew any such policies,  cause the coverages and amounts thereof
to be  maintained  at levels  required  pursuant  to the first  sentence of this
Section 9.2 or otherwise to obtain similar  insurance in place of such policies,
in each case at the expense of the Company.

         9.3    Maintenance  of  Properties; Action under  Environmental  Laws.

                (a)     The Company will,and will cause each of its Subsidiaries
to,  maintain and keep, or cause to be  maintained  and kept,  their  respective
properties in good repair, working order and condition (other than ordinary wear
and tear),  so that the  business  carried  on in  connection  therewith  may be
properly  conducted at all times,  PROVIDED  that this Section shall not prevent
the  Company  or  any  Subsidiary  from  discontinuing  the  operation  and  the
maintenance of any of its properties if such  discontinuance is desirable in the
conduct of its business and the Company has concluded  that such  discontinuance
could not,  individually  or in the aggregate,  reasonably be expected to have a
Material Adverse Effect.

                (b)     The  Company  shall,  and   shall  cause  each  of   its
Subsidiaries  to, upon becoming aware of the presence of any Hazardous  Material
or the existence of any environmental  liability under applicable  Environmental
Laws with respect to the Premises,  take all actions, at their cost and expense,
as shall be necessary or advisable to investigate  and clean up the condition of
the  Premises,  including all removal,  containment  and remedial  actions,  and
restore the Premises to a condition in compliance with applicable  Environmental
Laws.

         9.4    Payment of Taxes and Claims.

         The Company will, and will cause each of its  Subsidiaries to, file all
tax returns  required to be filed in any  jurisdiction  and to pay and discharge
all taxes shown to be due and payable on

                                      -25-

<PAGE>

such returns and all other taxes,  assessments,  governmental charges, or levies
imposed on them or any of their properties, assets, income or franchises, to the
extent  such taxes and  assessments  have become due and payable and before they
have become delinquent and all claims for which sums have become due and payable
that have or might become a Lien on  properties  or assets of the Company or any
Subsidiary,  PROVIDED that neither the Company nor any  Subsidiary  need pay any
such tax or  assessment or claims if (a) the amount,  applicability  or validity
thereof is contested by the Company or such Subsidiary on a timely basis in good
faith and in appropriate  proceedings,  and the Company has established adequate
reserves therefor in accordance with GAAP on the books of the Company or (b) the
nonpayment  of all  such  taxes  and  assessments  in the  aggregate  could  not
reasonably be expected to have a Material Adverse Effect.

         9.5    Corporate Existence, etc.

         The Company and each  Subsidiary will at all times preserve and keep in
full force and effect its  corporate  existence.  Subject to  Sections  10.2 and
10.9,  the Company will at all times  preserve and keep in full force and effect
the  corporate  existence  of  each  of its  Subsidiaries  and  all  rights  and
franchises  of the  Company  and its  Subsidiaries  unless,  in the  good  faith
judgment of the Company,  the  termination of or failure to preserve and keep in
full force and effect such corporate  existence,  right or franchise  could not,
individually or in the aggregate, have a Material Adverse Effect.

         9.6    [Intentionally Omitted.].

         9.7    Further Assurances and Additional Acts.

         The Company shall execute,  acknowledge,  deliver,  file,  notarize and
register  at  its  own  expense  all  such  further   agreements,   instruments,
certificates,  documents  and  assurances  and perform  such acts as the Holders
shall deem  necessary  or  appropriate  to  effectuate  the purposes of the Loan
Documents,  and  promptly  provide the Holders  with  evidence of the  foregoing
satisfactory in form and substance to the Holders.

         9.8    Proceeds of Events of Loss.  All  proceeds  paid to the  Company
or any Subsidiary on account of any Event of Loss in excess of $1,500,000  shall
be deposited or otherwise  held in a deposit  account or  securities  account in
respect of which the  Collateral  Agent holds a perfected  first  priority  Lien
(subject  only to  Permitted  Liens),  for the  ratable  benefit of the  Secured
Parties as their interests may appear,  pending the application of such proceeds
to  repay  the  Notes  as  provided  in  Section  __ or to  repair,  replace  or
reconstruct the property affected by the Event of Loss.

         9.9    Post-Closing Matters. In addition to the terms and provisions of
Section 4.11, the Company shall, and shall cause its Subsidiaries to, within the
time periods set forth below (to the extent such actions have not occurred on or
prior to the  Closing),  cause  the  following  to occur  with  respect  to each
Property  described in any Deed of Trust as set forth below:  (a) within  thirty
(30) days of the Closing,  deliver a Lender's 1970 ALTA form of title  insurance
policy (or executed  Pro-Forma  thereof) in favor of the Collateral Agent in the
amount of the net book value of such  Property;  (b) within  thirty (30) days of
the Closing, deliver the final appraisal with

                                      -26-

respect to the Hewitt  Property  (as  defined in the Credit  Agreement)  and the
property in Napa County leased by the Company  bearing APN 047-272-011 and owned
by the Lois Martinez Trust, in form and substance reasonably satisfactory to the
Purchasers;  (c)  within  thirty  (30)  days of the  Closing,  deliver a Phase I
Environmental  Assessment  addressed  to and in form  and  substance  reasonably
satisfactory to the Holders,  and prepared by an environmental  engineering firm
reasonably  acceptable to the Holders,  with respect to the Hewitt  Property (as
defined in the Credit Agreement) and the property located in Walla Walla County,
Washington;  (d) within sixty (60) days of the Closing,  deliver an ALTA plat of
survey prepared by a surveyor  licensed in the state in which each such Property
is located;  and (e) within  thirty (30) days of delivery of each survey,  cause
any necessary amendments,  adjustments or modifications to the Deeds of Trust or
the  title  insurance  policy  related  to each  Property  as may be  reasonably
required  to reflect  the  survey  and the facts set forth  therein on the title
insurance policy and the Deeds of Trust.

10.      NEGATIVE COVENANTS.

         The Company covenants that so long as any of the Notes are outstanding:

         10.1   Transactions with Affiliates.

         The Company and each Restricted Subsidiary will not enter into directly
or  indirectly  any  transaction  or  Material  group  of  related  transactions
(including  without  limitation  the  purchase,   lease,  sale  or  exchange  of
properties  of any kind or the  rendering  of any  service)  with any  Affiliate
(other  than the  Company  or  another  Restricted  Subsidiary),  except  in the
ordinary course and pursuant to the reasonable  requirements of the Company's or
such Restricted Subsidiary's business and upon fair and reasonable terms no less
favorable to the Company or such Restricted  Subsidiary than would be obtainable
in a comparable arm's-length transaction with a Person not an Affiliate.

         10.2   Restrictions on Fundamental Changes

         The Company shall not, and shall not permit any of its Subsidiaries to,
merge with or  consolidate  into,  or acquire  all or  substantially  all of the
assets of, any Person, or sell, transfer, lease or otherwise dispose of (whether
in one transaction or in a series of transactions)  all or substantially  all of
its assets, except that:

                (a)     any of the Company's wholly owned Subsidiaries may merge
with,  consolidate  into or transfer all or  substantially  all of its assets to
another of the Company's wholly owned Subsidiaries that is a Guarantor or to the
Company  and in  connection  therewith  such  Subsidiary  may be  liquidated  or
dissolved;  (b) the  Company or any of its  Subsidiaries  may sell or dispose of
assets in accordance with the provisions of Section 10.9; and (c) the Company or
any of its Subsidiaries may make any investment permitted by Section 10.8.

                                      -27-

<PAGE>

         10.3   Liens; Negative Pledges.

                (a)     The Company shall not, and shall not permit any  of  its
Subsidiaries to, create,  incur, assume or suffer to exist any Lien upon or with
respect  to any of its  properties,  revenues  or assets,  whether  now owned or
hereafter acquired, other than Permitted Liens.

                (b)     The Company shall not, and shall not permit any  of  its
Subsidiaries  to, enter into or suffer to exist any  agreement  (other than this
Agreement,  any other Loan  Document and the Credit  Agreement)  prohibiting  or
conditioning  the creation or assumption of any Lien upon any of its properties,
revenues or assets, whether now owned or hereafter acquired;  PROVIDED, HOWEVER,
that this subsection shall not prohibit any negative pledge incurred or provided
in favor of any holder of Indebtedness permitted under subsection 10.5(j) solely
to the extent any such negative  pledge  relates to the property  financed by or
the subject of such Indebtedness.

         10.4   Financial Covenants.

         So long as any of the Notes shall  remain  unpaid,  the Company  agrees
that:

                (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) 5.75 to 1.00 for
the first,  second,  third and fourth fiscal quarters of 2002, (ii) 5.50 to 1.00
for the first fiscal  quarter of 2003,  (iii) 5.25 to 1.00 for the second fiscal
quarter of 2003,  (iv) 5.00 to 1.00 for the third and fourth fiscal  quarters of
2003 and the first and second fiscal  quarters of 2004, (v) 4.75 to 1.00 for the
third and fourth  fiscal  quarters of 2004,  (vi) 4.50 to 1.00 for the first and
second  fiscal  quarters  of 2005,  (vii)  4.00 to 1.00 for the third and fourth
fiscal  quarters  of 2005 and the first and second  fiscal  quarters of 2006 and
(viii) 3.50 to 1.00 for the third fiscal quarter of 2006 and each fiscal quarter
ending thereafter.

                (b)     Minimum Consolidated Tangible Net Worth.

The Company shall maintain  Consolidated  Tangible Net Worth at all times of not
less than $76,000,000 PLUS the Net Issuance  Proceeds received by the Company or
any  Subsidiary  from the sale or  issuance of equity  securities  to any Person
other than the Company or any Subsidiary PLUS the Net Issuance Proceeds received
by the Company or any Subsidiary from the sale or issuance of Subordinated  Debt
to any Person  other than the  Company or any  Subsidiary  plus 75% of  positive
Consolidated Net Income,  if any, for each fiscal quarter elapsed after December
31, 2001.

                (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) 1.50

                                      -28-

<PAGE>

to 1.00 as of the  last  day of the  first,  second,  third  and  fourth  fiscal
quarters  of 2002,  (ii) 1.75 to 1.00 as of the last day of the  first,  second,
third and fourth fiscal quarters of 2003,  (iii) 2.50 to 1.00 as of the last day
of the first,  second,  third and fourth fiscal  quarters of 2004,  (iv) 3.00 to
1.00 as of the last day of the first,  second,  third and fourth fiscal quarters
of 2005 and (v) 3.50 to 1.00 as of the last day of the first  fiscal  quarter of
2006 and each fiscal quarter ending thereafter.

         (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) 1.65 to 1.00 as
of the last day of the first fiscal  quarter of 2002 through the last day of the
second  fiscal  quarter  of 2004  and (2) 1.25 to 1.00 as of the last day of the
third fiscal quarter of 2004 and each fiscal quarter ending thereafter.

        (e)     Capital Expenditures.

                (i)     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 new wine barrels 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
                  ------                  ------
                   2002                 $4,500,000
                   2003                 $5,000,000
                   2004                 $5,500,000
                   2005                 $6,000,000
                   2006                 $6,500,000
                   2007                 $7,000,000
                   2008                 $7,500,000
                   2009                 $8,000,000
                   2010                 $8,000,000

                (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               Amount
                                          ------

                                      -29-

<PAGE>

                   Ending
                   ------
                   2002                 $6,000,000
                   2003                $12,000,000
                   2004                $12,500,000
                   2005                 $4,500,000
                   2006                 $3,000,000
                   2007                 $3,000,000
                   2008                 $2,500,000
                   2009                 $2,500,000
                   2010                 $2,500,000

PROVIDED,  HOWEVER, that in respect of clauses (i) and (ii) above, so long as no
Default or Event of Default has occurred and is  continuing or would result from
such  expenditure,  any  portion  of any such  amount  set forth  above,  if not
expended in the fiscal year for which it is permitted above, may be carried over
for  expenditure in the next following  fiscal year, but may not be carried over
for expenditure in any fiscal year thereafter.

         10.5   Indebtedness.

         The Company shall not, and shall not permit any of its Subsidiaries to,
create,  incur,  assume or  otherwise  become  liable for or suffer to exist any
Indebtedness, other than:

                (a)     Indebtedness of the Company and its Subsidiaries  to the
Holders hereunder;

                (b)     Indebtedness  of   the  Company  and  its   Subsidiaries
existing  on the  Closing  Date and set forth in  Schedule  5.15 or  extensions,
renewals and  refinancings  of such  Indebtedness,  PROVIDED  that the principal
amount of such  Indebtedness  being  extended,  renewed or  refinanced  does not
increase;

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

                (d)     Indebtedness  consisting  of  guarantees  resulting from
endorsement of negotiable  instruments for collection by the Company or any such
Subsidiary in the ordinary course of business;

                (e)     Indebtedness under the Credit Agreement and any renewal,
extension or  refinancing  of the Credit  Agreement;  PROVIDED that (i) any such
renewal, extension or refinancing shall be on terms substantially similar to the
terms  which are set forth in the Credit  Agreement  on the  Closing  Date or on
terms which are more  favorable to the Company  than such terms  existing on the
Closing  Date;  (ii)  that  the  aggregate  principal  amount  of  the  exposure
thereunder shall not

                                      -30-

<PAGE>

exceed $72,500,000,  plus accrued interest and other charges thereon;  (iii) the
maturity dates of such renewed, extended or refinanced Indebtedness shall not be
shorter than the maturity  dates of the existing  Indebtedness  under the Credit
Agreement and the interest rate of such Indebtedness shall be at then prevailing
interest  rates;  (iv) the new  Indebtedness  shall  contain a term loan portion
which shall not exceed $17,500,000  aggregate  principal amount, and (v) the new
Indebtedness  shall contain a revolver facility in such amount and form as shall
be reasonably necessary to provide the Company adequate liquidity thereunder and
which shall not be in an amount in excess of $55,000,000;

                (f)     Indebtedness under the Credit Agreement Guaranties;

                (g)     Guaranty  Obligations  not  to exceed  $1,000,000 in the
aggregate at any time outstanding;

                (h)     Rate  Contracts entered  into  in the ordinary course of
business;

                (i)     unsecured   Indebtedness   of   the   Company   and  its
Subsidiaries in an aggregate  principal  amount not to exceed  $3,000,000 at any
time outstanding;

                (j)     Indebtedness  in  respect  of Capital Leases,  Synthetic
Lease  Obligations  and purchase money  obligations  for fixed or capital assets
within the  limitations  set forth in clause (i) of the  definition of Permitted
Liens and other  Indebtedness  secured by Liens within the limitations set forth
in  clause  (j)  of the  definition  of  Permitted  Liens,  or,  in  each  case,
extensions,  renewals and refinancings of such  Indebtedness,  PROVIDED that the
principal amount of such Indebtedness being extended, renewed or refinanced does
not increase,  and PROVIDED  FURTHER that the aggregate  principal amount of all
such Indebtedness does not exceed $16,000,000 at any time outstanding;

                (k)     Indebtedness subordinated on terms  satisfactory  to the
Required  Holders to the Notes in an  aggregate  principal  amount not to exceed
$2,000,000 at any time outstanding; and

                (l)     Indebtedness  of the Company to any of  its wholly owned
Subsidiaries or of any of its wholly owned Subsidiaries to another of its wholly
owned Subsidiaries.

         10.6   Intentionally Omitted.

         10.7   Distributions.

                (a)     The Company shall not declare or  pay  any  dividends in
respect of the Company's capital stock, or purchase, redeem, retire or otherwise
acquire for value any of its capital stock now or hereafter outstanding,  return
any capital to its  shareholders as such, or make any  distribution of assets to
its shareholders as such, or permit any of its Subsidiaries to purchase, redeem,
retire, or otherwise acquire for value any stock of the Company, except that the
Company may:

                                      -31-

<PAGE>

                        (i)      declare and deliver dividends and distributions
payable only in common stock of the Company;

                        (ii)     purchase,  redeem, retire, or otherwise acquire
shares of its capital  stock with the  proceeds  received  from a  substantially
concurrent issue of new shares of its capital stock;

                        (iii)    declare  and pay cash  dividends  to its
stockholders and purchase, redeem, retire or otherwise acquire shares of its own
outstanding  capital  stock for cash during any fiscal year if (1) after  giving
effect thereto the aggregate amount of such dividends,  purchases,  redemptions,
retirements  and  acquisitions  paid or made  during any  fiscal  year is not in
excess of 25% of  Consolidated  Net Income of the  Company  for the fiscal  year
immediately  preceding the year in which such  dividend,  purchase,  redemption,
retirement or acquisition is paid or made and (2) immediately prior to and after
giving effect  thereto,  no Default shall have occurred and be  continuing;  and

                        (iv)     declare  and  pay  the  Wine  Dividend Credits,
PROVIDED that immediately  prior to and after giving effect thereto,  no Default
shall have occurred and be continuing.

                (b)     The  Company  shall  not  permit  any  Subsidiary of the
Company  to grant  or  otherwise  agree to or  suffer  to exist  any  consensual
restrictions  on the ability of such  Subsidiary to pay dividends and make other
distributions to the Company,  or to pay any Indebtedness owed to the Company or
transfer properties and assets to the Company.

         10.8   Loans and Investments.

         The Company shall not, and shall not permit any of its Subsidiaries to,
purchase or otherwise  acquire the capital stock,  assets,  obligations or other
securities of or any interest in any Person,  or otherwise extend any credit to,
guarantee the  obligations of or make any additional  investments in any Person,
other than:

                (a)     extensions   of   credit   in  the  nature  of  accounts
receivable  or notes  receivable  arising from the sales of goods or services in
the ordinary course of business;

                (b)     investments  by  the  Company in  the  capital  stock of
wholly-owned Subsidiaries, and extensions of credit by the Company to any of its
wholly owned  Subsidiaries or by any of its wholly owned Subsidiaries to another
of its wholly owned  Subsidiaries  or the Company,  in each case in the ordinary
course of business;

                (c)     Permitted Investments;

                (d)     purchases of assets in the ordinary course of business;

                (e)     additional purchases of or investments in joint ventures
or the capital stock, assets,  obligations or other securities of or interest in
other Persons, provided that (i) immediately prior to and after giving effect to
such purchase or investment, no Event of

                                      -32-

<PAGE>

Default  shall have  occurred and be  continuing,  (ii) the  aggregate  cash and
non-cash consideration for any such purchase or investment (or series of related
purchases or investments)  shall not exceed $5,000,000 without the prior written
consent of the Required  Holders and (iii) after giving  effect to such purchase
or investment,  the Company shall be in full pro forma  compliance  with each of
the financial covenants set forth in subsections  10.04(a) through (e), measured
as of the last day of the fiscal  quarter then most  recently  ended and (iv) in
the case of any Acquisition, the prior, effective written consent or approval to
such  Acquisition of the board of directors or equivalent  governing body of the
acquiree is obtained;

                (f)     employee  loans and  guarantees in  accordance with  the
Company's usual and customary practices with respect thereto;

                (g)     Guaranty Obligations permitted under Section 10.4(a); or

                (h)     extensions of  credit by  the  Company to its Subsidiary
Canoe Ridge Vineyard L.L.C., its Subsidiary SHW Equity Co. and/or its Subsidiary
Edna Valley  Vineyard  outstanding  on or after the Closing Date in an aggregate
amount  for all such  extensions  of credit  not to  exceed,  without  the prior
written consent of the Required  Holders in their sole  discretion,  the Maximum
Intercompany  Loan  Amount  at any  time  outstanding;  PROVIDED  that  all such
extensions of credit by the Company (i) to Canoe Ridge Vineyard L.L.C. shall not
at any time outstanding exceed the Canoe Ridge Intercompany Loan Amount, (ii) to
Edna Valley  Vineyard shall not at any time  outstanding  exceed the Edna Valley
Intercompany  Loan  Amount  and (iii) to SHW  Equity  Co.  shall not at any time
outstanding  exceed the SHW Intercompany Loan Amount;  and PROVIDED FURTHER that
no Event of Default shall exist at the time of making any such credit  extension
or would result therefrom.

         10.9   Sale of Assets.

The Company  shall not, and shall not permit any of its  Subsidiaries  to, sell,
lease,  transfer,  or otherwise  dispose of, or part with control of (whether in
one transaction or a series of transactions) any assets (including any shares of
stock in any Subsidiary or other Person),  except sales or other dispositions of
any of the following:

                (a)     any inventory in the ordinary course of business;

                (b)     any Permitted Investments;

                (c)     any  assets which  have  become worn  out or obsolete or
which are promptly being replaced, in the ordinary course of business;

                (d)     any assets  by  any  of its wholly owned Subsidiaries to
another of its wholly owned Subsidiaries or to the Company;

                (e)     any  Specified  Assets;  PROVIDED  that  such  sale   or
disposition  is made in a bona  fide  arm's  length  transaction;  and  provided
further  that at the time of any such sale or  disposition,  no Event of Default
shall exist or shall result therefrom; and

                                      -33-

<PAGE>

                (f)     any other assets to the extent not  otherwise  permitted
under this Section 10.9; provided that such assets do not constitute the Primary
Trademarks or  Substantial  Assets and such sale or disposition is made for fair
market  value;  and  provided  further  that (i) at the time of any such sale or
disposition, no Event of Default shall exist or shall result therefrom, (ii) the
aggregate  sales price from such sale or disposition  shall be paid in cash, and
(iii) no  dispositions  of  accounts  or  notes  receivable  shall be  permitted
hereunder.  For  purposes  of  clause  (f) a  sale,  lease,  transfer  or  other
disposition  of assets  shall be deemed to be of  "Substantial  Assets"  if such
assets,  when added to all other assets sold,  leased,  transferred or otherwise
disposed of during the same fiscal year (other than assets sold in the  ordinary
course of business),  shall exceed 5% of the Company's Consolidated Total Assets
determined as of the end of the most recently completed fiscal year.

         10.10  Limitations on Sale-and-Leaseback Transactions.

         The Company shall not, and shall not permit any of its Subsidiaries to,
become  liable,  directly or indirectly,  with respect to any lease,  whether an
Operating Lease or a Capital Lease, of any property  (whether real,  personal or
mixed),  whether now owned or hereafter acquired,  (a) which the Company or such
Subsidiary has sold or transferred or is to sell or transfer to any other Person
or (b) which the Company or such Subsidiary intends to use for substantially the
same  purposes  as any  other  property  which  has  been  or is to be  sold  or
transferred by the Company or such  Subsidiary to any other Person in connection
with such  lease,  unless  such sale or  transfer  is  permitted  under  Section
10.9(f).

         10.11  Subsidiary Guarantors.

                (a)     The Company shall cause each of the Original  Subsidiary
Guarantors  to execute and  deliver,  on or before the Closing,  and  thereafter
shall cause each  Additional  Subsidiary  Guarantor to execute and deliver,  the
Subsidiary  Guarantee  Agreement  pursuant to which each such  Subsidiary  shall
guarantee the payment of all amounts payable by the Company  hereunder and under
the Notes and the  performance of all  obligations of the Company  hereunder and
under the Notes and the  Collateral  Documents  to which it is a party to secure
its obligations under the Subsidiary Guarantee Agreement.

                (b)     In  connection  with  the  delivery  of  the  Subsidiary
Guarantee  Agreement and the relevant  Collateral  Documents,  the Company shall
cause each Subsidiary  Guarantor to deliver to each Holder of the Notes (i) such
documents and evidence with respect to such  Subsidiary  Guarantor as any Holder
may reasonably  request in order to establish the existence and good standing of
such  Subsidiary  Guarantor  and  evidence  that the Board of  Directors of such
Subsidiary  Guarantor  has adopted  resolutions  authorizing  the  execution and
delivery of the Subsidiary  Guarantee Agreement and the Collateral  Documents to
which such  Subsidiary  Guarantor is a party,  (ii) evidence that the Subsidiary
Guarantee Agreement and the relevant Collateral  Documents do not violate any of
such Subsidiary  Guarantor's  outstanding  debt instruments in the form of (A) a
certificate  from such  Subsidiary  Guarantor  to such  effect,  (B) consents or
approvals of the holder or holders of any  Security,  and/or (C)  amendments  of
agreements  pursuant to which any Security  may have been issued,  all as may be
reasonably

                                      -34-

<PAGE>

deemed  necessary  by the Holders to permit the  execution  and  delivery of the
Subsidiary  Guarantee  Agreement  and the  Collateral  Documents  to which  such
Subsidiary  Guarantor is a party,  (iii) a certificate of such  Subsidiary as to
the matters  described in Exhibit 10.11(a) hereto and such certificates or other
evidence as any Holder may reasonably request to establish that the transactions
contemplated by the Subsidiary  Guarantee Agreement and the Collateral Documents
to which  such  Subsidiary  Guarantor  is a party  shall  not  subject  any such
Subsidiary  Guarantor to any tax, penalty,  liability or other onerous condition
under or pursuant to any  applicable  law or  governmental  regulation,  (iv) an
opinion of independent counsel (which opinion, in scope, form and substance, and
counsel,  shall be  reasonably  satisfactory  to the  Holders) and (v) all other
documents and showings  reasonably  requested by the Holders in connection  with
the  execution  and  delivery  of the  Subsidiary  Guarantee  Agreement  and the
Collateral  Documents  to which  such  Subsidiary  Guarantor  is a party,  which
documents  shall be  satisfactory in form and substance to the Holders and their
special  counsel,  and each  Holder  shall  have  received a copy  (executed  or
certified as may be appropriate) of all of the foregoing legal documents.

                (c)     In addition to the other limitations  contained  in this
Agreement,  the Company will not permit any Subsidiary which is not a Subsidiary
Guarantor at that time to be or become  liable in respect of any other  Guaranty
after the date hereof;  PROVIDED,  however, that such Subsidiary may execute and
deliver such subsequent Guaranty so long as the Company shall  contemporaneously
therewith  cause such  Subsidiary  to execute and deliver,  and such  Subsidiary
shall execute and deliver, to the Holders of the Notes, the Subsidiary Guarantee
Agreement  and  all  relevant  Collateral  Documents  together  with  all  other
documents, agreement, certificates and opinions in compliance with the terms and
provisions of this Section 10.11.  It being the intent of this Section  10.11(c)
that at all times the Company shall cause all  Subsidiaries  which have executed
and  delivered  Guaranties  to Holders of Funded Debt of the Company  and/or any
other Subsidiary to be Subsidiary  Guarantors in accordance with and pursuant to
the provisions of this Section 10.11.

                (d)     All  reasonable  out-of-pocket  fees and expenses of the
Holders of the Notes,  including,  without  limitation,  the reasonable fees and
expenses of special counsel to the Holders of the Notes,  incurred in connection
with the  execution  and delivery of the  Subsidiary  Guarantee  Agreement,  the
Collateral  Documents and the related  agreements and opinions  described  above
shall be borne by the Company.

         10.12  Line of Business.

         The  Company  will  not,  and will  not  permit  any of the  Restricted
Subsidiaries  to, engage in any business if, as a result,  the general nature of
the business in which the Company and the  Restricted  Subsidiaries,  taken as a
whole,  would then be engaged  would be  substantially  changed from the general
nature of the  business in which the Company  and the  Restricted  Subsidiaries,
taken as a whole, are engaged on the date of the Closing.

         10.13  Change of Control.

         The Company will not allow a Change of Control.

                                      -35-

<PAGE>

         10.14  Amendments of Certain Documents.

         The Company shall not, and shall not permit any of its Subsidiaries to,
agree to or permit any amendment, modification or waiver of:

                (a)     any   provision  of  any  agreement   related   to   any
Subordinated  Debt (including any amendment,  modification or waiver pursuant to
an exchange of other  securities or  instruments  for  outstanding  Subordinated
Debt) if the effect of such amendment, modification or waiver is to (i) increase
the interest  rate on such  Subordinated  Debt or change (to earlier  dates) the
dates  upon  which  principal  and  interest  are due  thereon;  (ii)  alter the
redemption,  prepayment or  subordination  provisions  thereof;  (iii) alter the
covenants  and events of default in a manner  which  would make such  provisions
more onerous or restrictive to the Company or such Subsidiary; or (iv) otherwise
increase the  obligations  of the Company or such  Subsidiary in respect of such
Subordinated  Debt or confer  additional  rights upon the holders  thereof which
individually  or  in  the  aggregate  would  be  adverse  to  the  Company,  its
Subsidiaries or the Holders; and

                (b)     any provision of any of the Credit  Agreement  Documents
(including  any  amendment,  modification  or waiver  pursuant to an exchange of
other securities or instruments for outstanding  Revolving Notes or Term) if the
effect  of such  amendment,  modification  or waiver  would be to (i)  change to
earlier dates the dates upon which  principal  and interest are due  thereunder,
(ii) alter the redemption or prepayment  provisions  thereof, or (iii) alter the
provisions thereof relating to dispositions of collateral.

         10.15  Redemption of Subordinated Debt.

         The Company shall not, and shall not permit any of its Subsidiaries to,
make any voluntary or optional payment or repayment on, redemption,  exchange or
acquisition  for value of, or any sinking  fund or similar  payment with respect
to, any Subordinated Debt.  Notwithstanding the foregoing,  the Company may from
time to time satisfy all or any portion of the outstanding principal and accrued
and unpaid  interest in respect of any  Subordinated  Debt by exchanging  common
stock or  Permitted  Preferred  Stock of the  Company  in  satisfaction  of such
outstanding  principal  and accrued and unpaid  interest  pursuant to a non-cash
transaction approved in good faith by the Board of Directors of the Company. The
Company shall promptly notify the Holders of any such exchange.

         10.16  Hazardous Substances.

         The Company shall not, and shall not permit any of its Subsidiaries to,
use, generate,  manufacture,  install,  treat, release,  store or dispose of any
Hazardous Material, except in compliance with all applicable Environmental Laws.

         10.17  Accounting Changes.

         The  Company  shall  not,  and  shall not  suffer or permit  any of its
Subsidiaries  to,  make  any  significant  change  in  accounting  treatment  or
reporting practices, except as required or permitted

                                      -36-

<PAGE>

by  GAAP,  or  change  its  fiscal  year  or  that  of any  of its  consolidated
Subsidiaries,  except to change  the fiscal  year of a  Subsidiary  acquired  in
connection  with a  permitted  acquisition  to conform  its  fiscal  year to the
Company's.

         10.18  Foreign Subsidiaries.

         The  Company  shall not  directly or  indirectly  create or acquire any
Foreign Subsidiary without the prior written consent of the Required Holders.

11.      EVENTS OF DEFAULT.

         An "EVENT OF DEFAULT" shall exist if any of the following conditions or
events shall occur:

                (a)     the  Company defaults in the payment of any principal or
Make-Whole  Amount,  if any, on any Note when the same  becomes due and payable,
whether at  maturity  or at a date fixed for  prepayment  or by  declaration  or
otherwise; or

                (b)     the Company defaults in  the payment of  any interest on
any Note or any other amount payable  hereunder or under any other Loan Document
for more than three Business Days after the same becomes due and payable; or

                (c)     the Company defaults in the performance of or compliance
with any term contained in Sections 7, 9.2, 9.5 and 10 inclusive; or

                (d)     the Company defaults in the performance of or compliance
with any term contained  herein (other than those referred to in paragraphs (a),
(b) and (c) of this Section 11) and such default is not remedied  within 30 days
after the occurrence thereof; or

                (e)     any representation or warranty made in writing  by or on
behalf of the Company or any Original Subsidiary  Guarantor or by any officer of
the  Company  or any  Original  Subsidiary  Guarantor  in  this  Agreement,  any
Collateral  Document  or  in  any  writing  furnished  in  connection  with  the
transactions  contemplated  hereby proves to have been false or incorrect in any
Material respect on the date as of which made; or

                (f)     (i)the Company or any Subsidiary Guarantor is in default
(as  principal or as guarantor or other  surety) in the payment of any principal
of or premium or make-whole  amount or interest on any Debt that is  outstanding
in an aggregate principal amount exceeding $1,500,000 beyond any period of grace
provided with respect thereto,  or (ii) the Company or any Subsidiary  Guarantor
is in default in the  performance of or compliance with any term of any evidence
of any Debt in an aggregate outstanding principal amount exceeding $1,500,000 or
of any  mortgage,  indenture or other  agreement  relating  thereto or any other
condition  exists,  and as a consequence  of such default or condition such Debt
has become, or has been declared (or one or more Persons are entitled to declare
such Debt to be),  due and  payable  before  its stated  maturity  or before its
regularly  scheduled  dates  of  payment,  or  (iii)  as a  consequence  of  the
occurrence or continuation of any event or condition  (other than the passage of
time or the  right of the  holder  of Debt to  convert  such  Debt  into  equity
interests),  (x) the Company or any Subsidiary Guarantor has become obligated to
purchase or repay Debt before its regular maturity

                                      -37-

<PAGE>

or before its regularly  scheduled dates of payment in an aggregate  outstanding
principal amount exceeding $1,500,000, or (y) one or more Persons have the right
to require the Company or any Subsidiary  Guarantor so to purchase or repay such
Debt; or

                (g)     the  Company  or  any   Subsidiary  (i) is generally not
paying, or admits in writing its inability to pay, its debts as they become due,
(ii) files,  or consents by answer or otherwise  to the filing  against it of, a
petition for relief or  reorganization  or  arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any bankruptcy,  insolvency,
reorganization, moratorium or other similar law of any jurisdiction, (iii) makes
an assignment for the benefit of its creditors, (iv) consents to the appointment
of a custodian,  receiver,  trustee or other  officer  with similar  powers with
respect to it or with respect to any  substantial  part of its property,  (v) is
adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for
the purpose of any of the foregoing; or

                (h)     a   court   or   governmental   authority   of competent
jurisdiction  enters an order appointing,  without consent by the Company or any
of its  Subsidiaries,  a  custodian,  receiver,  trustee or other  officer  with
similar powers with respect to it or with respect to any substantial part of its
property, or constituting an order for relief or approving a petition for relief
or  reorganization  or any other petition in bankruptcy or for liquidation or to
take  advantage of any  bankruptcy or  insolvency  law of any  jurisdiction,  or
ordering the dissolution, winding-up or liquidation of the Company or any of its
Subsidiaries,  or any such petition shall be filed against the Company or any of
its Subsidiaries and such petition shall not be dismissed within 60 days; or

                (i)     a  final judgment or judgments for  the payment of money
aggregating  in excess of  $1,500,000  are  rendered  against one or more of the
Company and its  Subsidiaries  and which judgments are not, within 20 days after
entry  thereof,  bonded,  discharged  or  stayed  pending  appeal,  or  are  not
discharged within 20 days after the expiration of such stay; or

                (j)     (i) Default shall occur in the observance or performance
of any covenant or agreement  contained in any  Subsidiary  Guarantee  Agreement
which is not  remedied  within 20 days  after the  occurrence  thereof,  (2) any
Subsidiary  Guarantee  Agreement  shall cease to be in full force and effect for
any reason whatsoever,  including,  without  limitation,  a determination by any
governmental body or court that such agreement is invalid, void or unenforceable
or (3) the  Company  or any  Subsidiary  Guarantor,  as the case  may be,  shall
contest  or  deny  in  writing  the  validity  or  enforceability  of any of its
obligations under any Subsidiary Guarantee Agreement; or

                (k)     any Plan  shall  fail  to satisfy  the  minimum  funding
standards  of ERISA or the Code for any plan year or part thereof or a waiver of
such  standards  or extension  of any  amortization  period is sought or granted
under  section 412 of the Code,  (ii) a notice of intent to  terminate  any Plan
shall have been or is reasonably  expected to be filed with the PBGC or the PBGC
shall have  instituted  proceedings  under ERISA  section  4042 to  terminate or
appoint a trustee to  administer  any Plan or the PBGC shall have  notified  the
Company  or any ERISA  Affiliate  that a Plan may  become a subject  of any such
proceedings,  (iii) the  aggregate  "amount  of  unfunded  benefit  liabilities"
(within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined
in accordance with Title IV of ERISA, shall exceed $1,500,000, (iv) the

                                      -38-

<PAGE>

Company or any ERISA Affiliate shall have incurred or is reasonably  expected to
incur any liability  pursuant to Title I or IV of ERISA or the penalty or excise
tax provisions of the Code relating to employee  benefit plans,  (v) the Company
or any  ERISA  Affiliate  withdraws  from any  Multiemployer  Plan,  or (vi) the
Company or any  Subsidiary  establishes or amends any employee  welfare  benefit
plan that  provides  post-employment  welfare  benefits  in a manner  that would
increase the liability of the Company or any Subsidiary thereunder; and any such
event or events described in clauses (i) through (vi) above, either individually
or together with any other such event or events, could reasonably be expected to
have a Material Adverse Effect; or

                (l)     a Material Adverse Effect shall occur; or

                (m)     a Change of Control shall occur; or

                (n)     [intentionally  omitted]; or

                (o)     the Environmental Indemnity after delivery thereof shall
for any reason be revoked or invalidated, or otherwise cease to be in full force
and effect,  or the Company or any other Person shall  contest in any manner the
validity or  enforceability  thereof,  or the Company shall deny that it has any
further liability or obligation thereunder; or

                (p)     the  subordination  or intercreditor provisions  of  the
Intercreditor  Agreement  or  of  any  agreement  or  instrument  governing  any
Subordinated  Debt shall for any reason be revoked or invalidated,  or otherwise
cease to be in full force and effect, any Person shall contest in any manner the
validity or enforceability  thereof or deny that it has any further liability or
obligation  thereunder,  or the  Indebtedness  hereunder shall for any reason be
subordinated  or shall not have the priority  contemplated  by this Agreement or
such subordination or intercreditor provisions; or

                (q)     the Company or any other Person shall fail to perform or
observe any term, covenant or agreement contained in the Collateral Documents on
its  part  to be  performed  or  observed  and any  such  failure  shall  remain
unremedied  for a period  of 20 days from the  occurrence  thereof  (unless  the
Required Holders  determine that such failure is not capable of remedy),  or any
"Event of Default" as defined in any Collateral Document shall have occurred; or
any of the Collateral  Documents after delivery  thereof shall for any reason be
revoked or invalidated,  or otherwise  cease to be in full force and effect,  or
the  Company or any other  Person  shall  contest in any manner the  validity or
enforceability  thereof,  or the Company or any other  Person shall deny that it
has any further  liability or obligation  thereunder;  or any of the  Collateral
Documents for any reason,  except to the extent  permitted by the terms thereof,
shall cease to create a valid and perfected  first priority Lien subject only to
Permitted Liens in any of the Collateral purported to be covered thereby; or any
title insurance coverage in respect of any material portion of the Collateral is
disavowed or becomes ineffective.

 As used in Section 11(k),  the terms  "EMPLOYEE  BENEFIT PLAN" and
"EMPLOYEE  WELFARE BENEFIT PLAN" shall have the respective  meanings assigned to
such terms in Section 3 of ERISA.

                                      -39-

<PAGE>

12.      REMEDIES ON DEFAULT, ETC.

         12.1   Acceleration.

                (a)     If  an  Event of Default  with  respect  to  the Company
described in paragraph  (g) or (h) of Section 11 (other than an Event of Default
described  in  clause  (i) of  paragraph  (g) or  described  in  clause  (vi) of
paragraph (g) by virtue of the fact that such clause  encompasses  clause (i) of
paragraph (g)) has occurred,  all the Notes then outstanding shall automatically
become immediately due and payable.

                (b)     If any  other  Event of  Default  has  occurred  and  is
continuing,  any Holder or Holders of more than 25% in  principal  amount of the
Notes at the time outstanding may at any time at its or their option,  by notice
or  notices  to the  Company,  declare  all the  Notes  then  outstanding  to be
immediately due and payable.

                (c)     If any Event of Default described in paragraph (a) or(b)
of Section 11 has occurred and is continuing,  any Holder or Holders of Notes at
the time  outstanding  affected by such Event of Default may at any time, at its
or their option, by notice or notices to the Company, declare all the Notes held
by it or them to be immediately due and payable. Upon any Notes becoming due and
payable under this Section 12.1, whether  automatically or by declaration,  such
Notes  will  forthwith  mature and the entire  unpaid  principal  amount of such
Notes,  plus (x) all accrued and unpaid interest  thereon and (y) the Make-Whole
Amount  determined  in respect  of such  principal  amount  (to the full  extent
permitted by applicable law), shall all be immediately due and payable,  in each
and every case without  presentment,  demand,  protest or further notice, all of
which are hereby waived. The Company acknowledges, and the parties hereto agree,
that each holder of a Note has the right to maintain its investment in the Notes
free from repayment by the Company (except as herein specifically  provided for)
and that the provision for payment of a Make-Whole  Amount by the Company in the
event that the Notes are prepaid or are  accelerated  as a result of an Event of
Default,  is intended to provide  compensation for the deprivation of such right
under such circumstances.

         12.2   Other Remedies.

         If any Default or Event of Default has occurred and is continuing,  and
irrespective of whether any Notes have become or have been declared  immediately
due and  payable  under  Section  12.1,  the  Holder  of any  Note  at the  time
outstanding  may  proceed to protect and enforce the rights of such Holder by an
action at law, suit in equity or other appropriate  proceeding,  whether for the
specific performance of any agreement contained herein or in any Note, or for an
injunction against a violation of any of the terms hereof or thereof,  or in aid
of the exercise of any power granted hereby or thereby or by law or otherwise.

         12.3   Rescission.

         At any time after any Notes have been declared due and payable pursuant
to clause (b) or (c) of Section  12.1,  the Holders of not less than  66-2/3% in
principal amount of the Notes then

                                      -40-

<PAGE>

outstanding,  by written  notice to the Company,  may rescind and annul any such
declaration  and its  consequences  if (a) the  Company  has  paid  all  overdue
interest on the Notes,  all principal of and Make-Whole  Amount,  if any, on any
Notes  that are due and  payable  and are  unpaid  other  than by reason of such
declaration,  and all interest on such overdue principal and Make-Whole  Amount,
if any, and (to the extent  permitted by applicable law) any overdue interest in
respect of the  Notes,  at the  Default  Rate,  (b) all  Events of  Default  and
Defaults,  other  than  non-payment  of amounts  that have  become due solely by
reason of such  declaration,  have been cured or have been  waived  pursuant  to
Section 17, and (c) no  judgment  or decree has been  entered for the payment of
any monies due pursuant  hereto or to the Notes.  No  rescission  and  annulment
under this Section 12.3 will extend to or affect any subsequent Event of Default
or Default or impair any right consequent thereon.

         12.4   No Waivers or Election of Remedies, Expenses, etc.

         No course of dealing and no delay on the part of any Holder of any Note
in exercising  any right,  power or remedy shall operate as a waiver  thereof or
otherwise prejudice such holder's rights, powers or remedies. No right, power or
remedy  conferred by this Agreement or by any Note upon any Holder thereof shall
be exclusive of any other right,  power or remedy  referred to herein or therein
or now or  hereafter  available  at law,  in equity,  by  statute or  otherwise.
Without  limiting the  obligations  of the Company under Section 15, the Company
will pay to the holder of each Note on demand  such  further  amount as shall be
sufficient  to cover all costs  and  expenses  of such  holder  incurred  in any
enforcement or collection under this Section 12, including,  without limitation,
reasonable attorneys' fees, expenses and disbursements.

13.      REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.

         13.1   Registration of Notes.

The Company  shall keep at its  principal  executive  office a register  for the
registration  and  registration  of transfers of Notes.  The name and address of
each  Holder and the name and  address of each  transferee  of one or more Notes
shall be registered in such register.  Prior to due presentment for registration
of  transfer,  the Person in whose name any Note  shall be  registered  shall be
deemed and treated as the owner and Holder thereof for all purposes hereof,  and
the Company  shall not be affected by any notice or knowledge  to the  contrary.
The Company shall give to any Holder promptly upon request therefor,  a complete
and correct copy of the names and addresses of all registered Holders.

         13.2   Transfer and Exchange of Notes.

         Upon  surrender of any Note at the  principal  executive  office of the
Company for registration of transfer or exchange (and in the case of a surrender
for  registration  of  transfer,  duly  endorsed  or  accompanied  by a  written
instrument of transfer duly  executed by the  registered  Holder or his attorney
duly  authorized in writing and  accompanied  by the address for notices of each
transferee of such Note or part thereof), the Company shall execute and deliver,
at the Company's  expense (except as provided below),  one or more new Notes (as
requested  by the Holder  thereof) in such Series in  exchange  therefor,  in an
aggregate principal amount equal to the

                                      -41-

<PAGE>

unpaid  principal  amount of the  surrendered  Note. Each such new Note shall be
payable to such Person as such Holder may request and shall be  substantially in
the form of  Exhibit  1-A,  1-B or 1-C,  as the case may be.  Each such new Note
shall be dated and bear interest from the date to which interest shall have been
paid on the  surrendered  Note or dated the date of the  surrendered  Note if no
interest shall have been paid thereon.  The Company may require payment of a sum
sufficient to cover any stamp tax or  governmental  charge imposed in respect of
any such transfer of Notes.  Notes shall not be transferred in  denominations of
less than  $100,000,  PROVIDED THAT if necessary to enable the  registration  of
transfer  by a Holder  of its  entire  holding  of  Notes,  one Note may be in a
denomination of less than $100,000. Any transferee,  by its acceptance of a Note
registered  in its name (or the name of its  nominee),  shall be  deemed to have
made the representation set forth in Section 6.2.

         13.3   Replacement of Notes.

         Upon receipt by the Company of evidence  reasonably  satisfactory to it
of the ownership of and the loss,  theft,  destruction or mutilation of any Note
(which evidence shall be, in the case of an Institutional Investor,  notice from
such Institutional Investor of such ownership and such loss, theft,  destruction
or mutilation), and

                (a)     in the case of loss,  theft or destruction, of indemnity
reasonably  satisfactory  to it (PROVIDED THAT if the Holder is, or is a nominee
for,  an  original  Purchaser  or another  Holder with a minimum net worth of at
least $25,000,000,  such Person's own unsecured  agreement of indemnity shall be
deemed to be  satisfactory),  or

                (b)     in   the   case   of   mutilation,  upon  surrender  and
cancellation thereof,

         the Company at the Holder's sole expense shall execute and deliver,  in
lieu  thereof,  a new Note of such Series,  dated and bearing  interest from the
date to which interest shall have been paid on such lost,  stolen,  destroyed or
mutilated  Note or dated the date of such lost,  stolen,  destroyed or mutilated
Note if no interest shall have been paid thereon.

14.      PAYMENT OF NOTES.

         14.1   Place of Payment.

         Subject to Section 14.2,  payments of principal,  Make-Whole Amount, if
any,  and  interest  becoming  due and payable on the Notes shall be made in New
York, New York, at the principal office of Chase Manhattan Bank. The Company may
at any time, by notice to each Holder,  change the place of payment of the Notes
so long as such place of payment  shall be either  the  principal  office of the
Company in such  jurisdiction or the principal office of a bank or trust company
in such jurisdiction.

         14.2 Home Office Payment.

         So  long  as any  Purchaser  or its  nominee  shall  be a  Holder,  and
notwithstanding  anything  contained  in  Section  14.1 or in  such  Note to the
contrary, the Company will pay all sums becoming due on such Note for principal,
Make-Whole Amount, if any, and interest by the

                                      -42-

<PAGE>

method and at the address specified for such purpose below such Purchaser's name
in  Schedule  A, or by  such  other  method  or at such  other  address  as such
Purchaser  or nominee  shall have from time to time  specified to the Company in
writing for such purpose,  without the presentation or surrender of such Note or
the making of any  notation  thereon,  except that upon  written  request of the
Company  made  concurrently  with  or  reasonably   promptly  after  payment  or
prepayment in full of any Note,  such Purchaser or nominee shall  surrender such
Note for  cancellation,  reasonably  promptly  after  any such  request,  to the
Company  at its  principal  executive  office  or at the place of  payment  most
recently  designated by the Company  pursuant to Section 14.1. Prior to any sale
or other  disposition  of any Note,  any  Purchaser or its nominee  will, at its
election,  either  endorse  thereon the amount of principal paid thereon and the
last date to which  interest has been paid thereon or surrender such Note to the
Company  in  exchange  for a new Note or Notes  pursuant  to Section  13.2.  The
Company  will afford the  benefits  of this  Section  14.2 to any  Institutional
Investor that is the direct or indirect transferee of any Note purchased by each
Purchaser under this Agreement and that has made the same agreement  relating to
such Note as each Purchaser has made in this Section 14.2.

15.      EXPENSES, ETC.

         15.1   Transaction Expenses.

         Whether or not the  transactions  contemplated  hereby are consummated,
the Company will pay all costs and  expenses  (including  reasonable  attorneys'
fees of a special counsel and, if reasonably  required,  local or other counsel)
incurred by each Purchaser or Holder in connection with such transactions and in
connection with any amendments,  waivers or consents under or in respect of this
Agreement or the Notes (whether or not such amendment, waiver or consent becomes
effective),  including,  without limitation: (a) the costs and expenses incurred
in enforcing or defending (or  determining  whether or how to enforce or defend)
any rights under this Agreement or the Notes or in responding to any subpoena or
other legal process or informal  investigative  demand issued in connection with
this Agreement or the Notes,  or by reason of being a Holder,  and (b) the costs
and expenses,  including  financial  advisors' fees, incurred in connection with
the insolvency or bankruptcy of the Company,  any  Restricted  Subsidiary or any
Subsidiary  Guarantor in connection  with any work-out or  restructuring  of the
transactions  contemplated  hereby and by the Notes.  The Company  will pay, and
will save each Purchaser or other Holder harmless from, all claims in respect of
any fees,  costs or expenses  if any,  of brokers and finders  (other than those
retained by such Purchaser or other Holder).

         15.2   Survival.

         The  obligations  of the Company under this Section 15 will survive the
payment or transfer of any Note,  the  enforcement,  amendment  or waiver of any
provision of this  Agreement,  the  Collateral  Documents or the Notes,  and the
termination of this Agreement and the Collateral Documents.

                                      -43-

<PAGE>

16.      SURVIVAL  OF  REPRESENTATIONS   AND  WARRANTIES;   ENTIRE  AGREEMENT.

All representations and warranties  contained herein shall survive the execution
and delivery of this  Agreement  and the Notes,  the purchase or transfer by any
Purchaser of any Note or portion thereof or interest  therein and the payment of
any Note,  and may be relied upon by any  subsequent  Holder,  regardless of any
investigation  made at any time by or on  behalf of any  Purchaser  or any other
Holder.  All  statements  contained  in  any  certificate  or  other  instrument
delivered  by or on behalf of the  Company  pursuant  to this  Agreement  or any
Collateral  Document  shall be  deemed  representations  and  warranties  of the
Company  under  this  Agreement  and such  Collateral  Document.  Subject to the
preceding  sentence,  this  Agreement,  the  Collateral  Documents and the Notes
embody the entire  agreement and  understanding  between the  Purchasers and the
Company and supersede all prior  agreements and  understandings  relating to the
subject matter hereof.

17.      AMENDMENT AND WAIVER.

         17.1 Requirements.

         This Agreement and the Notes may be amended,  and the observance of any
term  hereof  or  of  the  Notes  may  be  waived   (either   retroactively   or
prospectively),  with (and only with) the written consent of the Company and the
Required Holders, and the Notes may be amended and the observance of any term of
the Notes may be waived (either  retroactively or prospectively),  with and only
with the written  consent of the Company and the Required  Holders,  except that
(a) no amendment or waiver of any of the  provisions of Section 1, 2, 3, 4, 5, 6
or 21 hereof, or any defined term (as it is used therein),  will be effective as
to each Purchaser unless  consented to by each Purchaser in writing,  and (b) no
such amendment or waiver may,  without the written consent of the Holder of each
Note at the time outstanding  affected thereby, (i) subject to the provisions of
Section 12 relating to acceleration or rescission,  change the amount or time of
any prepayment or payment of principal of, or reduce the rate or change the time
of payment or method of computation of interest or of the Make-Whole  Amount on,
the Notes,  (ii) change the percentage of the principal amount of the Notes, the
Holders of which are  required  to consent  to any such  amendment  or waiver or
(iii) amend any of Sections 8, 11(a), 11(b), 12, 17 or 20.

         17.2   Solicitation of Holders of Notes.

                (a)     Solicitation -- the Company will provide each  Holder of
the Notes (irrespective of the amount of Notes then owned by it) with sufficient
information,  sufficiently far in advance of the date a decision is required, to
enable such Holder to make an informed and  considered  decision with respect to
any proposed  amendment,  waiver or consent in respect of any of the  provisions
hereof or of the Notes or of the Collateral Documents.  The Company will deliver
executed  or true and  correct  copies  of each  amendment,  waiver  or  consent
effected  pursuant  to the  provisions  of this  Section  17 to each  Holder  of
outstanding  Notes  promptly  following  the date on which  it is  executed  and
delivered by, or receives the consent or approval of, the  requisite  Holders of
Notes.

                                      -44-

<PAGE>

                (b)     Payment -- the Company  will not directly or  indirectly
pay or cause to be paid any  remuneration,  whether  by way of  supplemental  or
additional interest,  fee or otherwise,  or grant any security, to any Holder of
Notes as  consideration  for or as an  inducement  to the  entering  into by any
Holder of Notes of any waiver or  amendment  of any of the terms and  provisions
hereof or of the Notes or of the Collateral  Documents unless such  remuneration
is concurrently  paid, or security is concurrently  granted,  on the same terms,
ratably to each  Holder of Notes  then  outstanding  whether or not such  Holder
consented to such waiver or amendment.

         17.3   Binding Effect, etc.

         Any  amendment  or waiver  consented  to as provided in this Section 17
applies  equally to all Holders of Notes and is binding  upon them and upon each
future Holder of Notes and upon the Company  without regard to whether such Note
has been marked to indicate  such  amendment  or waiver.  No such  amendment  or
waiver will extend to or affect any obligation,  covenant, agreement, Default or
Event of Default not expressly  amended or waived or impair any right consequent
thereon.  No course of dealing  between the Company and any Holder nor any delay
in exercising  any rights  hereunder or under any Note shall operate as a waiver
of any rights of any  Holder.  As used  herein,  the term "this  Agreement"  and
references  thereto  shall  mean this  Agreement  as it may from time to time be
amended or supplemented.

         17.4   Notes Held by Company, etc.

         Solely  for the  purpose  of  determining  whether  the  Holders of the
requisite percentage of the aggregate principal amount of Notes then outstanding
approved or consented to any amendment, waiver or consent to be given under this
Agreement  or the Notes,  or have  directed  the  taking of any action  provided
herein  or in the  Notes to be taken  upon the  direction  of the  Holders  of a
specified   percentage  of  the  aggregate   principal   amount  of  Notes  then
outstanding,  Notes  directly or  indirectly  owned by the Company or any of its
Affiliates shall be deemed not to be outstanding.

18.      NOTICES.

         All notices  and  communications  provided  for  hereunder  shall be in
writing  and  sent  (a) by  telecopy  if the  sender  on the  same  day  sends a
confirming  copy of such  notice  by a  recognized  overnight  delivery  service
(charges  prepaid),  or (b) by registered or certified  mail with return receipt
requested (postage prepaid),  or (c) by a recognized  overnight delivery service
(with charges prepaid). Any such notice must be sent:

                        (i)      if  to  a  Purchaser  or  its  nominee, to such
Purchaser or its nominee at the address  specified  for such  communications  in
Schedule A, or at such other address as such Purchaser or its nominee shall have
specified to the Company in writing,

                        (ii)     if to any other Holder, to such  Holder at such
address as such other Holder shall have specified to the Company in writing, or

                                      -45-

<PAGE>

                        (iii)    if to the Company,to the Company at its address
set forth at the  beginning  hereof  to the  attention  of the  Chief  Financial
Officer, or if to the Company's website at www.chalonewinegroup.com,  or at such
other address as the Company shall have  specified to the Holder of each Note in
writing.

Notices under this Section 18 will be deemed given only when actually  received.

19.      REPRODUCTION  OF  DOCUMENTS.

         This Agreement and all documents relating thereto,  including,  without
limitation,  (a)  consents,  waivers and  modifications  that may  hereafter  be
executed, (b) documents received by each Holder at the Closing (except the Notes
themselves),  and (c) financial  statements,  certificates and other information
previously  or hereafter  furnished  to any Holder,  may be  reproduced  by such
Holder  by  any  photographic,   photostatic,  microfilm,  microcard,  miniature
photographic  or other similar  process and such Holder may destroy any original
document so reproduced.  The Company  agrees and stipulates  that, to the extent
permitted  by  applicable  law, any such  reproduction  shall be  admissible  in
evidence as the  original  itself in any judicial or  administrative  proceeding
(whether  or  not  the  original  is  in  existence  and  whether  or  not  such
reproduction  was made by such Holder in the regular course of business) and any
enlargement,  facsimile  or  further  reproduction  of such  reproduction  shall
likewise be  admissible  in  evidence.  This  Section 19 shall not  prohibit the
Company or any Holder from  contesting any such  reproduction to the same extent
that it could contest the original,  or from introducing evidence to demonstrate
the inaccuracy of any such reproduction.

20.      CONFIDENTIAL INFORMATION.

         For the purposes of this Section 20,  "CONFIDENTIAL  INFORMATION" means
information  delivered  to each  Holder by or on behalf  of the  Company  or any
Subsidiary  in connection  with the  transactions  contemplated  by or otherwise
pursuant to this  Agreement  that is  proprietary in nature and that was clearly
marked or labeled or  otherwise  adequately  identified  when  received  by such
Holder as being  confidential  information  of the  Company or such  Subsidiary,
provided that such term does not include information that (a) was publicly known
or  otherwise  known to such Holder  prior to the time of such  disclosure,  (b)
subsequently becomes publicly known through no act or omission by such Holder or
any Person acting on such Holder's behalf,  (c) otherwise  becomes known to such
Holder  other than through  disclosure  by the Company,  any  Subsidiary  or any
Guarantor  through  disclosure by a Person who was  otherwise  permitted to make
such  disclosure,  or (d)  constitutes  financial  statements  delivered to such
Holder under Section 7.1 that are otherwise publicly available.

         Each Holder will use its best efforts to maintain  the  confidentiality
of such Confidential  Information in accordance with procedures  adopted by such
Holder  in good  faith to  protect  confidential  information  of third  parties
delivered  to such  Holder,  PROVIDED  THAT such  Holder may deliver or disclose
Confidential  Information to (i) each Holder's  directors,  trustees,  officers,
employees,  Purchasers,  attorneys and affiliates (to the extent such disclosure
reasonably relates to the  administration of the investment  represented by each
Holder's Notes),  (ii) each Holder's  financial  advisors and other professional
advisors who agree to hold confidential the Confidential

                                      -46-

<PAGE>

Information substantially in accordance with the terms of this Section 20, (iii)
any other Holder,  (iv) any Institutional  Investor to which any Holder sells or
offers to sell such Note or any part  thereof or any  participation  therein (if
such  Person  has agreed in writing  prior to its  receipt of such  Confidential
Information  to be bound by the  provisions  of this Section 20), (v) any Person
from whom any Holder  offers to  purchase  any  security of the Company (if such
Person  has  agreed  in  writing  prior  to its  receipt  of  such  Confidential
Information  to be bound by the provisions of this Section 20), (vi) any federal
or state regulatory  authority having  jurisdiction  over any Holder,  (vii) the
National Association of Insurance Commissioners or any similar organization,  or
any  nationally  recognized  rating agency that requires  access to  information
about such  Holder's  investment  portfolio  or (viii) any other Person to which
such  delivery or  disclosure  may be  necessary  or  appropriate  (w) to effect
compliance with any law, rule, regulation or order applicable to any Holder, (x)
in response to any subpoena or other legal process,  (y) in connection  with any
litigation  to which  any  Holder is a party or (z) if an Event of  Default  has
occurred and is continuing,  to the extent any Holder may  reasonably  determine
such delivery and disclosure to be necessary or  appropriate in the  enforcement
or for the  protection  of the  rights  and  remedies  under your Notes and this
Agreement.  Each Holder,  by its  acceptance  of a Note,  will be deemed to have
agreed to be bound by and to be entitled to the  benefits of this  Section 20 as
though it were a party to this Agreement.

21. SUBSTITUTION OF PURCHASER; PARTICIPATION.

                (a)     Each Purchaser  shall have  the right to  substitute any
one of its  Affiliates  as the  purchaser of the Notes that such  Purchaser  has
agreed to purchase  hereunder,  by written  notice to the Company,  which notice
shall be signed by both such  Purchaser and such  Affiliate,  shall contain such
Affiliate's  agreement  to be  bound  by this  Agreement  and  shall  contain  a
confirmation  by  such  Affiliate  of the  accuracy  with  respect  to it of the
representations  set forth in Section 6. Upon receipt of such  notice,  wherever
the word  "Purchaser" is used in this Agreement (other than in this Section 21),
such word  shall be deemed to refer to such  Affiliate  in lieu of the  previous
Purchaser.  In the event that such  Affiliate is so  substituted  as a purchaser
hereunder and such  Affiliate  thereafter  transfers to any Purchaser all of the
Notes then held by such Affiliate, upon receipt by the Company of notice of such
transfer, wherever the word "Purchaser" is used in this Agreement (other than in
this  Section  21),  such  word  shall  no  longer  be  deemed  to refer to such
Affiliate,  but shall refer to the Purchaser,  and the Purchaser  shall have all
the rights of an original Holder under this Agreement.

                (b)     Any Holder  may at any  time sell to one or more Persons
not Affiliates of the Company (a "Participant")  participating  interests in any
loan evidenced by a Note issued hereunder held by such Holder (the  "Originating
Holder"); provided, however, that (i) the Originating Holder's obligations under
this Agreement shall remain unchanged,  (ii) the Originating Holder shall remain
solely  responsible for the performance of such  obligations,  (iii) the Company
and  the  Subsidiary   Guarantors  shall  deal  solely  and  directly  with  the
Originating  Holder in  connection  with the  Originating  Holder's  rights  and
obligations  under this  Agreement  and the Notes held by it, and (iv) no Holder
shall transfer or grant any  participating  interest under which the Participant
has rights to approve any  amendment  to, or any consent or waiver with  respect
to, this Agreement or any of the Notes.  In the case of any such  participation,
the

                                      -47-

<PAGE>

Participant  shall be entitled to the benefit of Section14.2,  as though it were
also a Holder hereunder.

22.      MISCELLANEOUS.

         22.1   Successors and Assigns.

         All covenants and other agreements contained in this Agreement by or on
behalf  of any of the  parties  hereto  bind and inure to the  benefit  of their
respective successors and assigns (including, without limitation, any subsequent
Holder) whether so expressed or not.

         22.2   Payments Due on Non-Business Days.

         Anything   in   this   Agreement   or  the   Notes   to  the   contrary
notwithstanding, any payment of principal of or Make-Whole Amount or interest on
any Note that is due on a date other  than a  Business  Day shall be made on the
next  succeeding  Business Day without  including the additional days elapsed in
the computation of the interest payable on such next succeeding Business Day.

         22.3   Severability.

         Any provision of this Agreement that is prohibited or  unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such  prohibition  or  unenforceability   without   invalidating  the  remaining
provisions  hereof,  and  any  such  prohibition  or   unenforceability  in  any
jurisdiction  shall (to the full  extent  permitted  by law) not  invalidate  or
render unenforceable such provision in any other jurisdiction.

         22.4   Construction.

         Each  covenant  contained  herein  shall be construed  (absent  express
provision to the contrary) as being independent of each other covenant contained
herein,  so that  compliance  with any one  covenant  shall not (absent  such an
express  contrary  provision)  be  deemed to  excuse  compliance  with any other
covenant. Where any provision herein refers to action to be taken by any Person,
or which  such  Person  is  prohibited  from  taking,  such  provision  shall be
applicable whether such action is taken directly or indirectly by such Person.

         22.5   Counterparts.

         This Agreement may be executed in any number of  counterparts,  each of
which  shall be an  original  but all of which  together  shall  constitute  one
instrument.  Each  counterpart  may consist of a number of copies  hereof,  each
signed by less than all, but together signed by all, of the parties hereto.

         22.6   Governing Law; Jurisdiction and Service of Process.

         This Agreement shall be construed and enforced in accordance  with, and
the  rights of the  parties  shall be  governed  by, the law of the State of New
York, excluding choice-of-law

                                      -48-

<PAGE>

principles  of the law of such State that would require the  application  of the
laws of a jurisdiction other than such State. The Company hereby irrevocably and
unconditionally  agree that any suit,  action or proceeding with respect to this
Agreement,  or any  proceeding  to execute or otherwise  enforce any judgment in
respect  of any  breach  thereof,  brought  by any  registered  Holder of a Note
against the Company or any of its  property,  may be brought by such Holder of a
Note in the United States  District Court for the Southern  District of New York
or any New York State Court  sitting in the Borough of  Manhattan as such Holder
of a Note may in its sole discretion elect, and by the execution and delivery of
this Agreement, the Company irrevocably submits to the jurisdiction of each such
court;  and agrees that process served either  personally or by registered  mail
shall constitute, to the extent permitted by law, adequate service of process in
any such suit.  In  addition,  the Company  hereby  irrevocably  waives,  to the
fullest  extent  permitted by law, any  objection  which it may now or hereafter
have to the laying of venue in any suit, action or proceeding  arising out of or
relating to this Agreement or any Note,  brought in the said courts,  and hereby
irrevocably waives any claim that any such suit, action or proceeding brought in
any such court has been brought in an inconvenient  forum.  Nothing herein shall
in any way be deemed to limit the ability of any registered  Holder of a Note to
serve  any  such  writs,  process  or  summonses,  in any  manner  permitted  by
applicable  law or to  obtain  jurisdiction  over  the  Company  in  such  other
jurisdiction, and in such manner, as may be permitted by applicable law.

22.7 Agents for Service of Process.

         WITHOUT  LIMITING THE FOREGOING,  THE COMPANY HEREBY  APPOINTS,  IN THE
CASE OF ANY SUCH ACTION OR  PROCEEDING  BROUGHT IN THE COURTS OF OR IN THE STATE
OF NEW YORK, CT  CORPORATION  TO RECEIVE,  FOR IT AND ON ITS BEHALF,  SERVICE OF
PROCESS IN THE STATE OF NEW YORK WITH RESPECT THERETO, PROVIDED THE COMPANY MAY,
AND IN THE EVENT THAT CT CORPORATION  IS AT ANY TIME NO LONGER  DOMICILED IN THE
STATE OF NEW YORK,  THE  COMPANY  SHALL,  APPOINT  CT  CORPORATION  OR ANY OTHER
PERSON, REASONABLY ACCEPTABLE TO THE REQUIRED HOLDERS, WITH OFFICES IN THE STATE
OF NEW YORK TO REPLACE SUCH  PURCHASERS  FOR SERVICE OF PROCESS UPON DELIVERY TO
THE HOLDERS OF A REASONABLY ACCEPTABLE AGREEMENT OF SUCH NEW PURCHASERS AGREEING
SO TO ACT.  IF  SERVICE  OF  PROCESS  IS MADE BY ANY  HOLDER OF A NOTE UPON SUCH
APPOINTEE,  A COPY THEREOF SHALL ALSO BE PROVIDED TO THE COMPANY,  BY REGISTERED
OR CERTIFIED MAIL, OR BY INTERNATIONALLY-RECOGNIZED  EXPEDITED DELIVERY SERVICE;
PROVIDED  THAT THE  FAILURE OF SUCH  HOLDER TO PROVIDE  SUCH COPY TO THE COMPANY
SHALL NOT IMPAIR OR AFFECT IN ANY WAY THE VALIDITY OF SUCH SERVICE OF PROCESS OR
ANY JUDGMENT RENDERED IN ANY SUCH SUIT,  ACTION,  OR PROCEEDING.  NOTHING HEREIN
SHALL IN ANY WAY BE DEEMED TO LIMIT THE ABILITY OF ANY HOLDER OF A NOTE TO SERVE
ANY SUCH WRITS,  PROCESS OR SUMMONSES IN ANY MANNER PERMITTED BY APPLICABLE LAW,
OR TO OBTAIN JURISDICTION OVER THE COMPANY,  IN SUCH OTHER JURISDICTION,  AND IN
SUCH MANNER, AS MAY BE PERMITTED BY APPLICABLE LAW.

                                      -49-

<PAGE>

         22.8   Waiver of Jury Trial.

         THE  COMPANY  AND THE HOLDERS  HEREBY  AGREE TO WAIVE THEIR  RESPECTIVE
RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION  BASED UPON OR ARISING
OUT  OF  OR  RELATED  TO  THIS  AGREEMENT,  THE  OTHER  LOAN  DOCUMENTS  OR  THE
TRANSACTIONS  CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION,  PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES  AGAINST ANY OTHER PARTY OR
PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE
COMPANY  AND THE  HOLDERS  HEREBY  AGREE  THAT ANY SUCH CLAIM OR CAUSE OF ACTION
SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY.  WITHOUT IN ANY WAY LIMITING THE
FOREGOING,  THE PARTIES FURTHER AGREE THAT THEIR  RESPECTIVE RIGHT TO A TRIAL BY
JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION,  COUNTERCLAIM,  OR
OTHER  PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY  OF THIS  AGREEMENT OR THE OTHER LOAN  DOCUMENTS OR ANY PROVISION
HEREOF  OR  THEREOF.  THIS  WAIVER  SHALL  APPLY TO ANY  SUBSEQUENT  AMENDMENTS,
RENEWALS,  SUPPLEMENTS  OR  MODIFICATIONS  TO THIS  AGREEMENT AND THE OTHER LOAN
DOCUMENTS.  A COPY OF THIS  SECTION  22.8 MAY BE FILED WITH ANY COURT AS WRITTEN
EVIDENCE  OF THE  WAIVER OF THE RIGHT TO TRIAL BY JURY AND  CONSENT  TO TRIAL BY
COURT.  THIS SECTION  22.8 MAY NOT BE AMENDED,  MODIFIED,  TERMINATED  OR WAIVED
EXCEPT BY A WRITING WHICH MAKES SPECIFIC REFERENCE TO THIS SECTION 22.8.

                                   * * * * *

                                      -50-

<PAGE>

         If you are in  agreement  with the  foregoing,  please sign the form of
agreement on the accompanying counterpart of this Agreement and return it to the
Company,  whereupon the foregoing shall become a binding  agreement  between you
and the Company.

                                 Very truly yours,

                                 THE CHALONE WINE GROUP, LTD.

                                 By: /s/ THOMAS B. SELFRIDGE
                                    _________________________________________
                                         Thomas B. Selfridge, President & CEO

AMENDED AND RESTATED
NOTE PURCHASE AGREEMENT

<PAGE>

                                 AGSTAR FINANCIAL SERVICES, PCA, D/B/A FARM
                                   CREDIT SERVICES COMMERCIAL FINANCE GROUP

                                 BY: /s/ JAMEY M. GRAFING
                                    _________________________________________

                                 NAME:   Jamey M. Grafing
                                    _________________________________________

                                 ITS:    SVP - Syndicated Finance
                                    _________________________________________

<PAGE>

                                 FARM CREDIT SERVICES OF AMERICA, PCA

                                 BY: /s/ BRUCE P. ROUSE
                                    _________________________________________

                                 NAME:   BRUCE P. ROUSE
                                 ITS:    V.P. - COMMERICAL LENDER

<PAGE>

                       INFORMATION RELATING TO PURCHASERS

                                                Principal Amount and Series
Name and Address of Purchaser                   of Notes to be Purchased
_____________________________                   ___________________________

FARM CREDIT  SERVICES OF AMERICA, PCA           $ 5,000,000 Series A Notes
206 South 19th Street                            15,000,000 Series C Notes
Omaha, Nebraska 68102
Attention: Bruce P. Rouse
Facsimile Number: (402) 348-3324
Confirmation Number: (402) 348-3284

Payments

All  payments  on or in  respect  of the  Notes to be by bank wire  transfer  of
Federal or other  immediately  available funds at the opening of business on the
due date thereof  (identifying  each  payment as "The  Chalone  Wine Group,  Ltd
Adjustable Rate Senior Secured Notes,  Series A, Due September 15, 2010,  157639
B* 5,  principal,  premium  or  interest"  or  "The  Chalone  Wine  Group,  Ltd.
Adjustable  Rate Senior  Secured  Notes,  Series C, Due September 15, 2010,  PPN
157639 B# 1, principal, premium or interest") to:

Bank Name: AgAmerica FCB
Short Name: AGAMER FCB
Routing # (ABA): 125108298
Beneficiary Account Name: Farm Credit Services of America
Beneficiary Account Number: 81100-000 (Commercial Loan)
Further Credit Account Name: The Chalone Wine Group, Ltd.
Further Credit Account #: 89407-151 & 152
Contact: Judy Bachand (800) 348-0023 or Sue Bement (800) 348-0283 x3284

Contemporaneous  with  the  above  electronic  funds  transfer,  mail or fax the
following  information:  (1) the full name,  private placement number,  interest
rate and  maturity  date of the Notes;  (2) the  allocation  of payment  between
principal,  interest,  premium  and any  special  payment;  and (3) the name and
address of the Bank from which such transfer was sent, to:

Farm Credit Services of America, PCA
206 South 19th Street
Omaha, Nebraska 68102
Attention: Sue Bement
Facsimile Number: (402) 348-3324
Confirmation Number: (402) 348-3284

All other notices and communications to be addressed as first provided above.

Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 47-0373522

                                   SCHEDULE A
                          (to Note Purchase Agreement)

<PAGE>

                                                Principal Amount and Series
Name and Address of Purchaser                   of Notes to be Purchased
_____________________________                   ___________________________

AGSTAR FINANCIAL SERVICES, PCA                  $10,000,000 Series B Notes
 DBA FARM CREDIT SERVICES COMMERCIAL
     FINANCE GROUP
1921 Premiere Drive
PO Box 4249
Mankato, MN 56002-4249
Attention: Jamey Grafing
Facsimile Number: (507) 344-5081
Confirmation Number: (507) 345- 5626

Payments

All  payments  on or in  respect  of the  Notes to be by bank wire  transfer  of
Federal or other  immediately  available funds at the opening of business on the
due date thereof  (identifying  each  payment as "The  Chalone  Wine Group,  Ltd
Adjustable  Rate Senior  Secured  Notes,  Series B, Due September 15, 2010,  PPN
157639 B@ 3, principal, premium or interest") to:

Bank Name: AgriBank St Paul
Routing Number: 0960 1697 2
Remitter: Purchasers Bank for Chalone Wine Group
Deadline: Wire must be sent to AgriBank by 2 p.m.

Notices

Contemporaneous  with  the  above  electronic  funds  transfer,  mail or fax the
following  information  setting  forth:  (1) the full  name,  private  placement
number,  interest  rate and maturity  date of the Notes and  including  also the
identifying information:  Chalone Loan # 1068700900,  Chalone CIF # 1682954; (2)
the allocation of payment between principal,  interest,  premium and any special
payment;  and (3) the name and address of the Bank from which such  transfer was
sent, to the above address, Attention: Karen Doyen.

All other notices and communications to be addressed as first provided above.

Name of Nominee in which Notes are to be issued: None

Taxpayer I.D. Number: 41-1956284

                                      A-2

<PAGE>

                                 DEFINED TERMS

         As used herein,  the following  terms have the respective  meanings set
forth below or set forth in the Section hereof  following  such term:

         "ACCOUNTS AND INVENTORY  COLLATERAL" means the Collateral  described in
the granting clauses of the Security Agreement.

         "ACQUISITION"  means any transaction or series of related  transactions
for the purpose of, or resulting, directly or indirectly, in (a) the acquisition
of all or substantially all of the assets of a Person, or any line or segment of
business or division of a Person, (b) the acquisition of in excess of 50% of the
capital  stock,  partnership  interests,  membership  interests or equity of any
Person, or otherwise causing any Person to become a Subsidiary,  or (c) a merger
or  consolidation  or any other  combination  with another  Person (other than a
Person that is a  Subsidiary)  provided  that (i) the Company or a Subsidiary is
the   surviving   entity  or  (ii)  after  giving   effect  to  such  merger  or
consolidation, such other Person has become a Subsidiary of a Company

         "ADDITIONAL  SUBSIDIARY GUARANTOR" means each Subsidiary of the Company
that, subsequent to the Closing, from time to time guarantees any Funded Debt of
the Company or of another Subsidiary.

         "ADJUSTABLE RATE" means, with respect to the Series A Notes, the Series
A Adjustable  Rate, with respect to the Series B Notes,  the Series B Adjustable
Rate or with respect to the Series C Notes, the Series C Adjustable Rate.

         "AFFILIATE" means, at any time, and with respect to any Person, (a) any
other  Person  that at such time  directly  or  indirectly  through  one or more
intermediaries  Controls,  or is Controlled by, or is under common Control with,
such first Person, and (b) any Person beneficially  owning or holding,  directly
or  indirectly,  10% or more of any class of voting or equity  interests  of the
Company  or any  Subsidiary  or any  corporation  of which the  Company  and its
Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly,
10% or  more  of any  class  of  voting  or  equity  interests.  As used in this
definition, "Control" means the possession, directly or indirectly, of the power
to direct or cause the  direction  of the  management  and policies of a Person,
whether  through the ownership of voting  securities,  by contract or otherwise.
Unless the context otherwise  clearly requires,  any reference to an "Affiliate"
is a reference to an Affiliate of the Company.

         "ATTRIBUTABLE  INDEBTEDNESS"  means, on any date, (a) in respect of any
Capital Lease of any Person, the capitalized amount thereof that would appear on
a balance sheet of such Person prepared as of such date in accordance with GAAP,
and (b) in respect of any Synthetic Lease Obligation,  the capitalized amount of
the remaining  lease  payments  under the relevant  lease that would appear on a
balance sheet of such Person prepared as of such date in accordance with GAAP if
such lease were accounted for as a Capital Lease.

         "BANK LENDERS" is defined in Section 1.4.

         "BANK  REVOLVER  LENDERS" means those Bank Lenders which hold Revolving
Notes (as

                                   SCHEDULE B
                          (to Note Purchase Agreement)

<PAGE>

defined in the Credit Agreement) of the Company.

         "BANK TERM LENDERS"  means those Bank Lenders which hold Term Notes (as
defined in the Credit Agreement) of the Company.

         "BUSINESS  DAY" means any day other than a Saturday,  a Sunday or a day
on which commercial banks in New York, New York are required or authorized to be
closed.

         "CANOE RIDGE  INTERCOMPANY LOAN AMOUNT" means the sum of (i) $7,000,000
PLUS (ii) on each  anniversary  of the  Closing  Date,  10% of the  Canoe  Ridge
Intercompany Loan Amount in effect immediately prior to such anniversary.

         "CAPITAL LEASE" means, for any Person,  any lease of property  (whether
real,  personal or mixed) which, in accordance  with GAAP,  would, at the time a
determination  is made, be required to be recorded as a capital lease in respect
of which such Person is liable as lessee.

         "CAPITAL STOCK" means (a) in the case of a corporation,  capital stock,
(b) in the  case of an  association  or  business  entity,  any and all  shares,
interests,  participation,  rights or other equivalents  (however designated) of
capital stock, (c) in the case of a partnership,  partnership interests (whether
general or limited), (d) in the case of a limited liability company,  membership
interests and (e) any other interest or  participation  that confers on a Person
the right to receive a share of the profits and losses of, or  distributions  of
assets of, the issuing Person.

         "CHANGE OF  CONTROL"  means (a) any  "person"  (as such term is used in
subsections 13(d) and 14(d) of the Exchange Act) or group of persons on or after
the Closing  Date other than members of the Board of Directors of the Company as
of the date hereof and their  "Affiliates"  (as such term is used in Rule 405 of
the Securities  Act), is or becomes the  "beneficial  owner" (as defined in Rule
13d-3 under said Act),  directly or  indirectly,  of  securities  of the Company
representing  51% or  more  of  the  combined  voting  power  of  the  Company's
then-outstanding voting securities, or (b) the Existing Directors for any reason
cease to  constitute a majority of the Company's  board of directors.  "Existing
Directors"  means (x) individuals  constituting the Company's board of directors
on the Closing Date, and (y) any subsequent director whose election by the board
of  directors  or  nomination  for election by the  Company's  shareholders  was
approved by a vote of at least a majority of the directors then in office, which
directors  either  were  directors  on the  Closing  Date or whose  election  or
nomination for election was previously so approved.

         "CLOSING" is defined in Section 3.

         "CLOSING DATE" is defined in Section 3.

         "CODE" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time.

         "COLLATERAL" means the property described in the Collateral  Documents,
and all other property now existing or hereafter  acquired which may at any time
be or become subject to a

                                      B-2

<PAGE>

Lien in favor of the  Collateral  Agent or the Secured  Parties  pursuant to the
Collateral  Documents or otherwise,  securing the payment and performance of the
Notes and the other Secured Obligations.

         "COLLATERAL   DOCUMENTS"   means  the  Deeds  of  Trust,  the  Security
Agreement,  the Patent and Trademark  Security  Agreement,  any other  agreement
pursuant to which the Company,  the  Guarantors  or any other Person  provides a
Lien on its  assets  in favor of the  Collateral  Agent for the  benefit  of the
Holders and all financing  statements,  fixture filings,  patent,  trademark and
copyright filings, assignments, acknowledgments and other filings, documents and
agreements made or delivered pursuant thereto.

         "COMPANY" means The Chalone Wine Group, Ltd., a California corporation.

         "COMPLIANCE  CERTIFICATE" means a certificate of a Responsible  Officer
of the  Company,  in  substantially  the form of  Exhibit  F, with such  changes
thereto as the Holders may from time to time reasonably request.

         "CONFIDENTIAL INFORMATION" is defined in Section 20.

         "CONSOLIDATED  EBIT"  means,  for any period,  Consolidated  Net Income
(computed  without  giving  effect to any gains or losses from  dispositions  of
assets and other  extraordinary  items) PLUS Consolidated  Interest Expense PLUS
income  tax  expense,   in  each  case,   which  were  deducted  in  determining
Consolidated  Net Income of the Company and its  Subsidiaries  on a consolidated
basis as determined in accordance with GAAP.

         "CONSOLIDATED  EBITDA" means,  for any period,  Consolidated Net Income
(computed  without  giving  effect to any gains or losses from  dispositions  of
assets and other  extraordinary  items) PLUS Consolidated  Interest Expense PLUS
income tax expense plus  depreciation  expense,  amortization  expense and other
non-cash expenses, in each case, which were deducted in determining Consolidated
Net  Income of the  Company  and its  Subsidiaries  on a  consolidated  basis as
determined in accordance with GAAP.

         "CONSOLIDATED EBITDAR" means, for any period,  Consolidated EBITDA PLUS
Consolidated  Rent Expense which was deducted in  determining  Consolidated  Net
Income of the Company and its Subsidiaries on a consolidated basis as determined
in accordance with GAAP.

         "CONSOLIDATED INDEBTEDNESS" means as at any date of determination,  the
total  Indebtedness of the Company and its Subsidiaries on a consolidated  basis
MINUS (1) accounts  payable to trade creditors for goods and services on current
operating liabilities (not the result of the borrowing of money) incurred in the
ordinary  course of the  Company's or the  Subsidiaries'  business in accordance
with  customary  terms and paid within the specified  time (unless  contested in
good faith by appropriate  proceedings and reserved for in accordance with GAAP)
and (2) until such time as the  Indebtedness  owing as of the date hereof by the
Company to the estate of Richard Graff is repaid in full,  Indebtedness owing by
the Company to the estate of Richard  Graff in a principal  amount not to exceed
$1,000,000.

                                      B-3

<PAGE>

         "CONSOLIDATED INTEREST EXPENSE" means, for any period, interest expense
(including  that  attributable  to  Capital  Leases)  of  the  Company  and  its
Subsidiaries on a consolidated basis,  including all commissions,  discounts and
other  fees and  charges  owed with  respect to  standby  letters of credit,  as
determined in accordance with GAAP.

         "CONSOLIDATED NET INCOME" means, for any period,  the net income of the
Company and its Subsidiaries on a consolidated  basis for such period taken as a
single accounting period, as determined in accordance with GAAP.

         "CONSOLIDATED  RENT EXPENSE"  means,  for any period,  operating  lease
expense  of the  Company  and  its  Subsidiaries  on a  consolidated  basis,  as
determined in accordance with GAAP.

         "CONSOLIDATED   TANGIBLE   NET  WORTH"   means,   as  of  any  date  of
determination,   Consolidated   Total  Assets  PLUS   Subordinated   Debt  MINUS
Consolidated Total Liabilities;  PROVIDED, HOWEVER, that there shall be excluded
from  Consolidated  Total  Assets  all  assets  which  would  be  classified  as
intangible assets in accordance with GAAP,  including  goodwill,  organizational
expense,  research  and  development  expense,  patent  applications,   patents,
trademarks,  trade names,  brands,  copyrights,  trade secrets,  customer lists,
licenses, franchises and covenants not to compete.

         "CONSOLIDATED TOTAL ASSETS" means, as of any date of determination, the
total assets of the Company and its  Subsidiaries  on a consolidated  basis,  as
determined in accordance with GAAP.

         "CONSOLIDATED   TOTAL   LIABILITIES"   means,   as  of  any   date   of
determination,  the total  liabilities of the Company and its  Subsidiaries on a
consolidated basis, as determined in accordance with GAAP.

         "CREDIT  AGREEMENT"  means the Credit  Agreement  dated as of April 19,
2002, between the Company and Cooperatieve  Centrale  Raiffeisen-Boerenleenbank,
B.A.,  "Rabobank  Nederland," New York Branch,  as such Credit  Agreement may be
amended, renewed or extended.

         "CREDIT  AGREEMENT  GUARANTIES" means the Guaranties (as defined in the
Credit Agreement).

         "CURRENT  DEBT"  means,  with  respect to any Person,  all Debt of such
Person  which  by its  terms  or by the  terms of any  instrument  or  agreement
relating  thereto  matures  on demand  or  within  one year from the date of the
creation  thereof and is not directly or  indirectly  renewable or extendible at
the option of the  obligor  in  respect  thereof to a date one year or more from
such date, and which shall include Current Maturities of Funded Debt.

         "CURRENT MATURITIES OF FUNDED DEBT" means, at any time and with respect
to any item of Funded Debt, the portion of such Funded Debt  outstanding at such
time which by the terms of such  Funded Debt is due on demand or within one year
from such time  (whether by sinking  fund,  other  required  prepayment or final
payment at maturity) and is not directly or indirectly renewable,  extendible or
refundable at the option of the obligor under an agreement or firm commitment in
effect at such time to a date one year or more from such date.

                                      B-4

<PAGE>

         "DEEDS  OF  TRUST"  means  each  Deed  of  Trust,  Security  Agreement,
Assignment of Leases and Rents and Fixture  Filing and each  Mortgage,  Security
Agreement,  Assignment of Leases and Rents and Fixture Filing,  from the Company
or a  Subsidiary  Guarantor,  as trustor or grantor,  as the case may be, to the
trustee  named  therein  and  for  the  Collateral  Agent,  as  beneficiary,  in
substantially the form of Exhibit A.

         "DEFAULT  RATE" means that rate of interest  that is the greater of (a)
2% per annum  above  the rate of  interest  stated  in  clause  (a) of the first
paragraph of the Notes or (b) 2% over the rate of interest publicly announced by
Chase Manhattan Bank in New York, New York as its "base" or "prime" rate.

         "DOLLARS" means lawful currency of the United States of America.

         "DOMESTIC  SUBSIDIARY"  means a Subsidiary which is organized under the
laws of a State of the United States, Canada or Puerto Rico.

         "EDNA  VALLEY"  means  Edna  Valley  Vineyards,  a  California  general
partnership.

         "EDNA  VALLEY   INTERCOMPANY   LOAN  AMOUNT"   means  the  sum  of  (i)
$20,000,000,  plus (ii) on each anniversary of the Closing Date, 10% of the Edna
Valley Intercompany Loan Amount in effect immediately prior to such anniversary.

         "ENVIRONMENTAL  INDEMNITY"  means the  Environmental  Indemnity  of the
Company and the Subsidiary Guarantors, in substantially the form of Exhibit B.

         "ENVIRONMENTAL  LAWS"  means any and all  Federal,  state,  local,  and
foreign statutes,  laws,  regulations,  ordinances,  rules,  judgments,  orders,
decrees,  permits,  concessions,  grants,  franchises,  licenses,  agreements or
governmental  restrictions  relating  to  pollution  and the  protection  of the
environment or the release of any materials into the environment,  including but
not limited to those related to hazardous  substances  or wastes,  air emissions
and discharges to waste or public systems.

         "ERISA" means the Employee  Retirement  Income Security Act of 1974, as
amended from time to time, and the rules and regulations  promulgated thereunder
from time to time in effect.

         "ERISA   AFFILIATE"  means  any  trade  or  business  (whether  or  not
incorporated)  that is treated as a single  employer  together  with the Company
under section 414 of the Code. "Event of Default" is defined in Section 11.

         "EVENT OF LOSS"  means with  respect to any asset of the Company or its
Subsidiaries any of the following:  (a) any loss,  destruction or damage of such
asset;  (b) any pending or threatened  institution  of any  proceedings  for the
condemnation or seizure of such asset or of any right of eminent domain;  or (c)
any actual condemnation,  seizure or taking, by exercise of the power of eminent
domain or otherwise, of such asset, or confiscation of such asset or requisition
of the use of such asset.

                                      B-5

<PAGE>

         "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

         "FOREIGN  SUBSIDIARY"  means  any  Subsidiary  other  than  a  Domestic
Subsidiary.

         "FUNDED DEBT" of any Person shall mean (a) all Debt of such Person,  or
all  Debt of such  Person  which  has  been  incurred  in  connection  with  the
acquisition of assets,  in each case having a final maturity of one or more than
one year from the date of origin thereof (or which is renewable or extendible at
the option of the  obligor  for a period or periods  more than one year from the
date of origin),  including all payments in respect thereof that are required to
be made  within  one year from the date of any  determination  of  Funded  Debt,
whether or not the obligation to make such payments  shall  constitute a current
liability of the obligor under GAAP, (b) all  Capitalized  Lease  Obligations of
such Person, and (c) all Guaranties by such Person of Funded Debt of others.

         "GAAP" means generally accepted accounting principles as in effect from
time to time in the United States of America.

         "GOVERNMENTAL AUTHORITY" means

                (a)     the government of

                        (i)      the United  States of America  or any State or
other political subdivision thereof, or

                        (ii)     any jurisdiction in which  the  Company  or any
Subsidiary  conducts  all  or  any  part  of  its  business,  or  which  asserts
jurisdiction over any properties of the Company or any Subsidiary, or

                (b)     any entity exercising  executive, legislative, judicial,
regulatory  or   administrative   functions  of,  or  pertaining  to,  any  such
government.

         "GROWERS'  LIENS" means statutory Liens securing the payment of amounts
due from the Company or any Subsidiary  Guarantor to any other Person on account
of any crops,  produce or other farm  products  supplied  by such  Person to the
Company or such  Subsidiary  Guarantor,  including  but not limited to, Liens in
favor of growers arising  pursuant to Article 9 (commencing with Section 55631),
Chapter 6, Division 20 of the California Food and  Agricultural  Code, as now in
effect or hereafter amended."

         "GUARANTOR  DOCUMENTS" means each Subsidiary Guarantee  Agreement,  the
Collateral  Documents  and all other  certificates,  documents,  agreements  and
instruments  delivered  to the  Collateral  Agent  and the  Holders  under or in
connection with a Subsidiary Guarantee Agreement.

         "GUARANTY"  means, with respect to any Person,  any obligation  (except
the endorsement in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing any
Debt,  dividend or other  obligation of any other Person in any manner,  whether
directly or indirectly,  including  (without  limitation)  obligations  incurred
through an agreement, contingent or otherwise, by such Person:

                                      B-6

<PAGE>

                (a)     to  purchase  such Debt or  obligation  or any  property
constituting security therefor;

                (b)     to  advance  or  supply  funds  (i) for  the purchase or
payment of such Debt or obligation,  or (ii) to maintain any working  capital or
other balance  sheet  condition or any income  statement  condition of any other
Person or  otherwise  to advance or make  available  funds for the  purchase  or
payment of such Debt or obligation;

                (c)     to  lease  properties  or  to  purchase  properties   or
services  primarily  for the  purpose  of  assuring  the  owner of such  Debt or
obligation  of the  ability of any other  Person to make  payment of the Debt or
obligation; or

                (d)     otherwise to assure the owner of such Debt or obligation
against loss in respect thereof.

In any  computation  of the Debt or other  liabilities  of the obligor under any
Guaranty,  the Debt or other  obligations  that are the subject of such Guaranty
shall be assumed to be direct obligations of such obligor.

         "GUARANTY  OBLIGATION"  means, as applied to any Person,  any direct or
indirect liability,  contingent or otherwise, of that Person with respect to any
Indebtedness,  lease,  dividend,  letter  of  credit  or other  obligation  (the
"primary obligations") of another Person (the "primary obligor"),  including any
obligation of that Person (i) to purchase,  repurchase or otherwise acquire such
primary  obligations or any property  constituting  direct or indirect  security
therefor,  or (ii) to advance or provide  funds (A) for the payment or discharge
of any such primary  obligation,  or (B) to maintain  working  capital or equity
capital  of the  primary  obligor  or  otherwise  to  maintain  the net worth or
solvency or any balance  sheet item,  level of income or financial  condition of
the primary  obligor,  or (iii) to  purchase  property,  securities  or services
primarily  for the purpose of assuring the owner of any such primary  obligation
of  the  ability  of the  primary  obligor  to  make  payment  of  such  primary
obligation,  (iv) in connection  with any  synthetic  lease or other similar off
balance sheet lease transaction, or (v) otherwise to assure or hold harmless the
holder of any such primary obligation against loss in respect thereof.

         "HAZARDOUS  MATERIAL" means any and all pollutants,  toxic or hazardous
wastes or any other  substances  that  pose a hazard  to health or  safety,  the
removal  of which may be  required  or the  generation,  manufacture,  refining,
production, processing, treatment, storage, handling, transportation,  transfer,
use, disposal, release, discharge,  spillage, seepage, or filtration of which is
restricted,  prohibited or penalized by any applicable law  (including,  without
limitation,  asbestos,  urea formaldehyde  foam insulation and  polycholorinated
biphenyls).

         "HOLDER" means, with respect to any Note, the Person in whose name such
Note is registered in the register maintained by the Company pursuant to Section
13.1.

         "INDEBTEDNESS"  means,  for any Person:  (i) all  indebtedness or other
obligations of such Person for borrowed money or for the deferred purchase price
of  property  or  services;  (ii) all  obligations  evidenced  by notes,  bonds,
debentures or similar instruments, including obligations

                                       B-7

<PAGE>

so evidenced incurred in connection with the acquisition of property,  assets or
businesses; (iii) all indebtedness created or arising under any conditional sale
or other title  retention  agreement  with respect to property  acquired by such
Person  (even  though the rights and remedies of the seller or Holder under such
agreement  in the event of default are limited to  repossession  or sale of such
property);  (iv) all  obligations  under  Capital  Leases  and  Synthetic  Lease
Obligations;  (v) all reimbursement or other obligations of such Person under or
in respect of letters of credit and bankers acceptances, and all net obligations
in respect of Rate Contracts in an amount equal to the Swap  Termination  Values
thereof;  (vi) all  reimbursement or other obligations of such Person in respect
of any bank  guaranties,  shipside bonds,  surety bonds and similar  instruments
issued for the account of such  Person or as to which such  Person is  otherwise
liable  for   reimbursement   of  drawings  or  payments;   (vii)  all  Guaranty
Obligations;  and (viii) all  indebtedness of another Person secured by any Lien
upon  or in  property  owned  by the  Person  for  whom  Indebtedness  is  being
determined,  whether  or not such  Person has  assumed or become  liable for the
payment of such indebtedness of such other Person.  For all purposes hereof, the
Indebtedness of any Person shall include the  Indebtedness of any partnership or
joint  venture  (other  than a joint  venture  that is itself a  corporation  or
limited liability  company) in which such Person is a general partner or a joint
venturer, unless such Indebtedness is expressly made non-recourse to such Person
(subject  only to  customary  recourse  exceptions  acceptable  to the  Required
Holders).  The amount of any Capital Lease or Synthetic  Lease  Obligation as of
any date  shall be  deemed  to be the  amount of  Attributable  Indebtedness  in
respect thereof as of such date.

         "INSTITUTIONAL  INVESTOR"  means (a) any original  purchaser of a Note,
(b) any holder of a Note holding more than 5% of the aggregate  principal amount
of the Notes then outstanding, and (c) any bank, trust company, savings and loan
association,  national  banking  association or Farm Credit System  institution,
acting  for its own  account  or in a  fiduciary  capacity,  or other  financial
institution,  any pension plan, any investment  company,  any insurance company,
any broker or dealer,  or any other  similar  financial  institution  or entity,
regardless of legal form.

         "INTELLECTUAL  PROPERTY  COLLATERAL" means the Collateral  described in
the granting clauses of the Patent and Trademark Security Agreement.

         "INTERCREDITOR AGREEMENT" is defined in Section 1.4.

         "INVENTORY" means all "inventory" (as such term is defined in the UCC).
For purposes of this Agreement,  bulk wine shall be deemed Inventory  regardless
of whether bulk wine is properly classified as "inventory" under the UCC.

         "INVESTMENT"  means  any  investment,  made in cash or by  delivery  of
property,  by the  Company  or any of its  Restricted  Subsidiaries  in (a)  any
Person,  whether by acquisition of Capital Stock,  Debt or other  obligations or
security, or by loan, guaranty,  advance,  capital contribution or otherwise, or
(b) any property.

         "LEVERAGE RATIO" has the meaning specified in Section 10.4(a).

         "LIEN" means, with respect to any Person,  any mortgage,  lien, pledge,
charge, security interest or other encumbrance,  or any interest or title of any
vendor, lessor, Holder or other

                                       B-8

<PAGE>

secured  party to or of such Person  under any  conditional  sale or other title
retention  agreement or Capital  Lease,  upon or with respect to any property or
asset of such  Person  (including  in the  case of  Capital  Stock,  stockholder
agreements, voting trust agreements and all similar arrangements).

         "LOAN  DOCUMENTS"  means  this  Agreement,  the Notes,  the  Collateral
Documents, the Intercreditor Agreement,  each Guaranty, the Guarantor Documents,
the Environmental  Indemnity and all other certificates,  documents,  agreements
and  instruments  delivered to the Collateral  Agent and the Holders under or in
connection with this Agreement.

         "MAKE-WHOLE AMOUNT" is defined in Section 8.6.

         "MATERIAL"  means  material in relation  to the  business,  operations,
affairs,  financial condition,  assets,  properties, or prospects of the Company
and its Restricted Subsidiaries taken as a whole.

         "MATERIAL  ADVERSE  EFFECT"  means  any  event,  matter,  condition  or
circumstance  which (i) has or would  reasonably  be expected to have a material
adverse effect on the business,  properties,  results of operations or condition
(financial or otherwise) of the Company and its  Subsidiaries  taken as a whole;
(ii) would materially impair the ability of the Company,  or any other Person to
perform or observe its obligations under or in respect of the Loan Documents, or
(iii) affects the legality, validity, binding effect or enforceability of any of
the Loan  Documents  or the  perfection  or priority of any Lien  granted to the
Collateral  Agent for the  benefit of the  Holders  under any of the  Collateral
Documents.

         "MAXIMUM  INTERCOMPANY  LOAN AMOUNT"  means the sum of (i)  $35,000,000
PLUS  (ii)  on  each  anniversary  of the  Closing  Date,  10%  of  the  Maximum
Intercompany  Loan Amount then in effect  immediately prior to such anniversary.
"Multiemployer Plan" means any Plan that is a "multiemployer plan" (as such term
is defined in section 4001(a)(3) of ERISA).

         "NET ISSUANCE  PROCEEDS"  means, as to any issuance or other incurrence
of debt or any  issuance  of equity by any  Person,  cash  proceeds  received or
receivable by such Person in connection  therewith,  net of out-of-pocket  costs
and expenses paid or incurred in connection therewith in favor of any Person not
an Affiliate of such Person.

         "NET PROCEEDS" means, as to any sale,  transfer or other disposition of
assets  ("Disposition")  by a Person,  proceeds  in cash,  checks or other  cash
equivalent  financial  instruments as and when received by such Person,  net of:
(a) the direct costs relating to such Disposition  excluding  amounts payable to
such Person or any Affiliate of such Person,  (b) sale, use or other transaction
taxes,  and income  taxes,  paid or  reasonably  expected  to be payable by such
Person as a direct  result  thereof,  and (c) amounts  required to be applied to
repay principal,  interest and prepayment premiums and penalties on Indebtedness
secured by a Lien on the asset  which is the subject of such  Disposition.  "NET
PROCEEDS" shall also include  proceeds paid on account of any Event of Loss, net
of (i) all money  actually  applied or set aside  within  six  months  after the
receipt of such  proceeds  to repair or  reconstruct  the  damaged  property  or
property

                                       B-9

<PAGE>

affected  by the  condemnation  or  taking,  (ii) all of the costs and  expenses
reasonably incurred in connection with the collection of such proceeds, award or
other  payments,  and (iii) any amounts  retained  by or paid to parties  having
superior rights to such proceeds, awards or other payments.

         "NOTES" is defined in Section 1.

         "OFFICER'S  CERTIFICATE"  means a  certificate  of a  Senior  Financial
Officer or of any other  officer of the Company or a  Subsidiary  as the context
shall  require,  whose  responsibilities  extend to the  subject  matter of such
certificate.

         "OPERATING  LEASE" means, for any Person,  any lease of any property of
any kind by that Person as lessee which is not a Capital Lease.

         "ORIGINAL SUBSIDIARY GUARANTEE AGREEMENT" is defined in Section 4.5.

         "ORIGINAL  SUBSIDIARY   GUARANTOR"  means  a  corporation  which  is  a
Restricted Subsidiary listed on Schedule 5.4

         "PATENT  AND  TRADEMARK  SECURITY   AGREEMENT"  means  the  Patent  and
Trademark  Security  Agreement  between the Company and the Collateral Agent, in
substantially the form of Exhibit C.

         "PBGC" means the Pension Benefit Guaranty  Corporation  referred to and
defined in ERISA or any successor thereto.

         "PERMITTED  INVESTMENTS"  means any of the following Dollar denominated
investments,  maturing within one year from the date of acquisition, selected by
the Company:

                (a)     marketable  direct obligations issued or unconditionally
guaranteed by the United States  government or issued by any agency  thereof and
backed by the full faith and credit of the United States;

                (b)     marketable direct obligations issued by any state of the
United  States or any  political  subdivision  of any such  state or any  public
instrumentality  thereof  and,  at the time of  acquisition,  having the highest
credit rating obtainable from either S&P or Moody's;

                (c)     commercial paper  or corporate  promissory notes bearing
at the time of  acquisition  the highest  credit rating either of S&P or Moody's
issued by United States, Australian, Canadian, European or Japanese bank holding
companies or industrial or financial  companies  (other than an Affiliate of the
Company or any Guarantor);

                (d)     certificates   of   deposit   issued   by   and  bankers
acceptances of and interest bearing deposits with any Lender, or with any United
States,  Australian,  Canadian,  European or Japanese  commercial  banks  having
capital and surplus of at least  $500,000,000 or the equivalent and which issues
(or the parent of which issues)  commercial paper or other short term securities
bearing the highest credit rating obtainable from either S&P or Moody's; and

                                      B-10

<PAGE>

                (e)     money  market  funds  organized  under  the  laws of the
United  States or any state  thereof that invest  solely in any of the foregoing
investments permitted under clauses (a), (b), (c) and (d).

         "PERMITTED LIENS" means:

                (a)     Liens in favor of the Holders or  the  Collateral  Agent
for the benefit of the Holders to secure the Notes;

                (b)     the existing Liens  listed in Schedule 5.15  or incurred
in connection  with the extension,  renewal or  refinancing of the  Indebtedness
secured  by such  existing  Liens,  PROVIDED  that  any  extension,  renewal  or
replacement  Lien shall be limited to the  property  encumbered  by the existing
Lien and the principal  amount of the  Indebtedness  being extended,  renewed or
refinanced does not increase;

                (c)     Liens for taxes, fees, assessments or other governmental
charges or levies,  either not  delinquent  or being  contested in good faith by
appropriate proceedings and which are adequately reserved for in accordance with
GAAP;

                (d)     Liens of materialmen, mechanics, warehousemen, artisans,
carriers  or  employees  or other  like  Liens  (including  Growers'  Liens  and
prodution  Liens)  arising  in the  ordinary  course of  business  and  securing
obligations   either  not  delinquent  or  being  contested  in  good  faith  by
appropriate  proceedings  which are adequately  reserved for in accordance  with
GAAP;

                (e)     Liens consisting of  deposits  or pledges to  secure the
payment  of  worker's  compensation,  unemployment  insurance  or  other  social
security  benefits or obligations,  or to secure the performance of bids,  trade
contracts,  leases (other than Capital Leases), public or statutory obligations,
surety or appeal  bonds or other  obligations  of a like nature  incurred in the
ordinary  course of business  (other than for  Indebtedness or any Liens arising
under ERISA);

                (f)     easements,  rights  of  way,  servitudes  or  zoning  or
building  restrictions  and  other  minor  encumbrances  on  real  property  and
irregularities  in the  title to such  property  which  do not in the  aggregate
materially  impair  the use or  value  of such  property  or  risk  the  loss or
forfeiture of title thereto;

                (g)     statutory  landlord's Liens  under leases to  which  the
Company or any of its Subsidiaries is a party;

                (h)     Liens  arising solely  by  virtue of  any  statutory  or
common law provision  relating to banker's  liens,  rights of set-off or similar
rights and  remedies as to deposit  accounts or other  funds  maintained  with a
creditor depository institution; PROVIDED that (i) such deposit account is not a
dedicated cash  collateral  account and is not subject to  restrictions  against
access by the Company in excess of those set forth by regulations promulgated by
the FRB,  and (ii) such  deposit  account is not  intended by the Company or any
Subsidiary to provide collateral to the depository institution;

                                      B-11

<PAGE>

                (i)     Liens securing  Indebtedness incurred by the  Company or
any Subsidiary which is permitted under Section 10.5(j);  PROVIDED that (i) such
Liens do not at any time encumber any property other than the property  financed
by such  Indebtedness and (ii) the Indebtedness  secured thereby does not exceed
the cost or fair  market  value,  whichever  is  lower,  of the  property  being
acquired on the date of acquisition;

                (j)     Liens  on specific  tangible  assets  of  Persons  which
become Subsidiaries after the date of this Agreement;  PROVIDED,  HOWEVER,  that
(i) such Liens existed at the time the respective  Persons  became  Subsidiaries
and were not created in anticipation thereof, (ii) any such Lien does not by its
terms cover any assets  after the time such Person  becomes a  Subsidiary  which
were not covered immediately prior thereto,  (iii) any such Lien does not by its
terms secure any Indebtedness other than Indebtedness existing immediately prior
to the time such Person  becomes a  Subsidiary,  and (iv) such  Indebtedness  is
permitted by Section 10.5(j); and

                (k)     Liens  securing the  obligations of  the Company and its
Subsidiaries  under the Credit  Agreement,  the Credit Agreement  Guaranties and
related loan documents, subject to the Intercreditor Agreement.

         "PERMITTED  PREFERRED  STOCK"  means  preferred  stock of the  Company,
subject to the  following:  such  preferred  stock shall not (a) have  mandatory
redemption  rights,  or  redemption  at the option of the holder,  sinking  fund
payments,  guaranteed  return  or  exchange  ability  or  conversions  into debt
instruments or any other "debt-like" features other than any mandatory rights of
redemption  effective not earlier than six months after  September 15, 2010, and
(b)  require  the payment of any  dividends  thereon  while any Event of Default
exists hereunder.

         "PERMITTED   SUBSIDIARY  GUARANTOR  GUARANTEES"  means  the  Subsidiary
Guarantee  Agreements  and the  Guaranties  of the Debt  evidenced by the Credit
Agreement entered into by Edna Valley and SHW.

         "PERSON"  means  an  individual,   partnership,   corporation,  limited
liability  company,  association,   trust,  unincorporated  organization,  or  a
government or agency or political subdivision thereof.

         "PLAN" means an "employee  benefit plan" (as defined in section 3(3) of
ERISA) that is or,  within the preceding  five years,  has been  established  or
maintained,  or to which  contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA  Affiliate or
with respect to which the Company or any ERISA Affiliate may have any liability.

         "PREFERRED  STOCK"  means any class of Capital  Stock of a  corporation
that is preferred  over any other class of Capital Stock of such  corporation as
to the payment of  dividends  or the payment of any amount upon  liquidation  or
dissolution of such corporation.

         "PREMISES" means any and all real property, including all buildings and
improvements now or hereafter located thereon and all appurtenances thereto, now
or  hereafter  owned,   leased,   occupied  or  used  by  the  Company  and  its
Subsidiaries.

                                      B-12

<PAGE>

         "PRIMARY TRADEMARKS" means the following trademarks:  ACACIA, CARMENET,
CHALONE VINYARD, GAVILAN, SAGELANDS, STATON HILLS, MISTY RIDGE and PHOENIX.

"Production Liens" means statutory Liens securing the rights of Persons who have
rendered  services  for  the  storage,  protection,  improvement,   safekeeping,
carriage,  alteration,  repair,  harvest or crushing of any grapes or Inventory,
including without limitation,  artisans and service liens under California Civil
Code Section 3051,  thresher's  liens under  California Civil Code Section 3061,
and harvestors liens under  California Civil Code Section 3061.5.

         "PROPERTY"  or  "PROPERTIES"  means,   unless  otherwise   specifically
limited,  real or personal property of any kind, tangible or intangible,  choate
or inchoate.

         "QPAM  EXEMPTION" means  Prohibited  Transaction  Class Exemption 84-14
issued by the United States Department of Labor.

         "RATE CONTRACTS" means interest rate swaps,  caps,  floors and collars,
currency  swaps,  or  other  similar  financial  products  designed  to  provide
protection against fluctuations in interest, currency or exchange rates.

         "REAL ESTATE COLLATERAL" means the Collateral described in the granting
clauses of the Deeds of Trust.

         "RECEIVABLE DEBTOR" means any Person obligated on a Receivable.

         "RECEIVABLES"  means all rights to payment  arising  out of the sale or
lease of goods or the  performance  of services in the ordinary and usual course
of business, however evidenced.

         "REQUIRED  HOLDERS"  means,  at any  time,  the  holders  of at least a
majority in principal amount of the Notes at the time outstanding  (exclusive of
Notes then owned by the Company or any of its Affiliates).

         "REQUIREMENT  OF LAW" means,  as to any Person,  any law  (statutory or
common), treaty, code, decree, order, rule or regulation or determination of any
arbitrator or of a Governmental Authority, in each case applicable to or binding
upon the  Person or any of its  property  or to which  the  Person or any of its
property is subject.

         "RESPONSIBLE  OFFICER" means any Senior Financial Officer and any other
officer  of the  Company  with  responsibility  for  the  administration  of the
relevant  portion of this Agreement.

         "RESTRICTED PAYMENTS" has the meaning set forth in Section 10.7 hereof.

         "RESTRICTED  SUBSIDIARY"  means any Domestic  Subsidiary  which has not
been designated as an Unrestricted Subsidiary.

                                      B-13

<PAGE>

         "SALE  AND  LEASEBACK  TRANSACTION"  means a  transaction  or series of
transactions  pursuant to which the Company or any Restricted  Subsidiary  shall
sell or  transfer  to any  Person  (other  than the  Company  or a  Wholly-Owned
Subsidiary) any property,  whether now owned or hereafter acquired, and, as part
of the same transaction or series of transactions, the Company or any Restricted
Subsidiary  shall  rent or lease as lessee  (other  than  pursuant  to a Capital
Lease), or similarly acquire the right to possession or use of, such property or
one or more properties  which it intends to use for the same purpose or purposes
as such property.

         "SECURED  OBLIGATIONS"  has the meaning set forth in the  Intercreditor
Agreement.

         "SECURED PARTIES" means the Purchasers and the Bank Lenders.

         "SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time.

         "SECURITY"  has  the  meaning  set  forth  in  section  2(a)(1)  of the
Securities Act.

         "SECURITY  AGREEMENT" means the Security  Agreement between the Company
and the  Collateral  Agent,  in  substantially  the form of Exhibit  D.  "Senior
Financial  Officer"  means the chief  financial  officer,  principal  accounting
officer, treasurer or comptroller of the Company.

         "SERIES A ADJUSTABLE  RATE" means the rate per annum to be borne by the
Series A Notes during the following time periods:

                During the time period when
                Consolidated Indebtedness to
               Consolidated EBITDAR coverage
              shall be between the following    Interest Rate
                        levels:                   Per Annum

                     5.25 - 6.00x                  9.35%
                     4.75 - 5.24x                  9.20%
                     4.25 - 4.74x                  9.05%
                     3.75 - 4.24x                  8.90%
                     3.25 - 3.74x                  8.75%
                         <3.25                     8.60%

         "SERIES B ADJUSTABLE  RATE" means the rate per annum to be borne by the
Series B Notes during the following time periods:

                During the time period when
                Consolidated Indebtedness to
               Consolidated EBITDAR coverage
               shall be between the following   Interest Rate
                        levels:                   Per Annum

                                      B-14

<PAGE>

                     5.25 - 6.00x                  9.38%
                     4.75 - 5.24x                  9.23%
                     4.25 - 4.74x                  9.08%
                     3.75 - 4.24x                  8.93%
                     3.25 - 3.74x                  8.78%
                         <3.25                     8.63%

         "SERIES C ADJUSTABLE  RATE" means the rate per annum to be borne by the
Series C Notes during the following time periods:

                During  the  time  period  when
                Consolidated  Indebtedness to
               Consolidated EBITDAR coverage
               shall be between the following   Interest Rate
                        levels:                   Per Annum

                     5.25 - 6.00x                  9.50%
                     4.75 - 5.24x                  9.35%
                     4.25 - 4.74x                  9.20%
                     3.75 - 4.24x                  9.05%
                     3.25 - 3.74x                  8.90%
                         <3.25                     8.75%

         "SHW" means SHW Equity Co., a Washington corporation.

         "SHW  INTERCOMPANY  LOAN AMOUNT" means the sum of (i)  $8,000,000  plus
(ii) on each anniversary of the Closing Date, 10% of the SHW  Intercompany  Loan
Amount in effect immediately prior to such anniversary.

         "SOLVENT"  means, as to any Person at any time, that (i) the fair value
of the  property  of such  Person is greater  than the  amount of such  Person's
liabilities  (including  disputed,  contingent and unliquidated  liabilities) as
such value is  established  and  liabilities  evaluated  for purposes of Section
101(32) of the  Bankruptcy  Code;  (ii) the present fair  saleable  value of the
property of such Person is not less than the amount that will be required to pay
the probable  liability of such Person on its debts as they become  absolute and
matured;  (iii) such  Person is able to realize  upon its  property  and pay its
debts and other  liabilities  (including  disputed,  contingent and unliquidated
liabilities)  as they mature in the normal course of business;  (iv) such Person
does  not  intend  to,  and  does  not  believe  that it  will,  incur  debts or
liabilities  beyond such Person's  ability to pay as such debts and  liabilities
mature; and (v) such Person is not engaged in business or a transaction,  and is
not  about to engage in  business  or a  transaction,  for which  such  Person's
property would constitute unreasonably small capital.

         "SPECIFIED ASSETS" means the assets of the Company and its Subsidiaries
identified on Schedule 10.9 hereto which are being held for sale.

         "SPECIFIED  LOAN TO VALUE  EVENT"  means,  in  connection  with a sale,
transfer or other

                                      B-15

<PAGE>

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 of exceeds 70% 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.

         "SUBORDINATED  DEBT"  means  any  Indebtedness  of the  Company  or any
Subsidiary   incurred   after  the  date  hereof  in  accordance   with  Section
10.04(a)(viii).

         SUBSIDIARY"  means, as to any Person,  any corporation,  association or
other business entity in which such Person or one or more of its Subsidiaries or
such Person and one or more of its Subsidiaries owns sufficient equity or voting
interests  to  enable  it or them (as a group)  ordinarily,  in the  absence  of
contingencies,  to elect a majority  of the  directors  (or  Persons  performing
similar  functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or  more  of its  Subsidiaries  or  such  Person  and  one  or  more  of its
Subsidiaries  (unless  such  partnership  can and  does  ordinarily  take  major
business actions without the prior approval of such Person or one or more of its
Subsidiaries).  The term  "Subsidiary" also shall include Edna Valley so long as
(i) the  financial  results of Edna  Valley are  consolidated  with those of the
Company in accordance  with GAAP,  and (ii) the Company  continues to act as the
managing partner of Edna Valley.  Unless the context otherwise clearly requires,
any reference to a "Subsidiary" is a reference to a Subsidiary of the Company.

         "SUBSIDIARY  GUARANTEE  AGREEMENT" means an agreement  substantially in
the form of the Subsidiary  Guarantee  Agreement attached hereto as Exhibit 4.5.

         "SUBSIDIARY GUARANTOR" means each of Edna Valley Vineyard,  Canoe Ridge
Vineyard  LLC, SHW Equity  Company,  Staton  Hills Winery  Company Ltd. and each
other Subsidiary that becomes party to a Subsidiary Guarantee Agreement.

         "SUBSIDIARY  GUARANTOR"  means any  Original  Subsidiary  Guarantor  or
Additional  Subsidiary  Guarantor  which  executes  and  delivers  a  Subsidiary
Guarantee  Agreement  and  so  long  as  such  Person's  obligations  under  the
Subsidiary Guarantee Agreement remain in full force and effect and to the extent
that the  obligations  of such Person  under the  provisions  of the  Subsidiary
Guarantee Agreement have not, at the time, been terminated pursuant to the terms
hereof.

         "SWAP  TERMINATION  VALUE"  means,  in  respect of any one or more Rate
Contracts,  after  taking into  account  the effect of any  legally  enforceable
netting agreement relating to such Rate Contracts,  (i) for any date on or after
the date such Rate  Contracts  have been  closed  out and  termination  value(s)
determined in accordance therewith,  such termination value(s), and (ii) for any
date prior to the date referenced in clause (a) the amount(s)  determined as the
mark-tomarket  value(s) for such Rate  Contracts,  as  determined by the Company
based upon one or more mid-market or other readily available quotations provided
by any recognized dealer in such Rate Contracts (which may include any Holder).

                                      B-16

<PAGE>

         "SYNTHETIC LEASE OBLIGATION" means the monetary  obligation of a Person
under (a) a socalled synthetic, off-balance sheet or tax retention lease, or (b)
an agreement for the use or possession of property creating  obligations that do
not appear on the balance sheet of such Person but which, upon the insolvency or
bankruptcy of such Person,  would be  characterized  as the indebtedness of such
Person (without regard to accounting treatment).

         "TERM   DEBT"  shall  have  the   meaning   assigned   thereto  in  the
Intercreditor Agreement.

         "TERM DEBT PRIORITY COLLATERAL" shall have the meaning assigned thereto
in the Intercreditor Agreement.

         "UPDATE  CERTIFICATE"  means a certificate of a Responsible  Officer of
the Company in substantially the form of Exhibit G, with such changes thereto as
the Holders may from time to time reasonably request.

         "UNRESTRICTED  SUBSIDIARY" means each Subsidiary which is designated as
an  Unrestricted  Subsidiary on Schedule 5.4 and any other  Subsidiary  which is
hereafter designated as an Unrestricted  Subsidiary by the Board of Directors of
the Company.  The Board of  Directors  of the Company  may,  after 30 days prior
written notice is provided to the Holders designated any Unrestricted Subsidiary
to be a Restricted  Subsidiary or designate any  Restricted  Subsidiary to be an
Unrestricted  Subsidiary if, in each case, at the date of such  designation  and
after giving effect thereto,  no Default or Event of Default shall have occurred
and be continuing.

         "WHOLLY-OWNED  SUBSIDIARY"  means,  at any  time,  any  Subsidiary  one
hundred  percent  (100%)  of all  of the  equity  interests  (except  directors'
qualifying shares) and voting interests of which are owned by any one or more of
the Company and the Company's other Wholly-Owned Subsidiaries at such time.

         "WINE DIVIDEND CREDITS" means annual credits provided by the Company to
shareholders  owning 100 or more shares of the  Company's  common  stock,  which
credits may be applied by each such shareholder,  for a period not to exceed one
year following such shareholder's receipt of such credits,  towards up to 50% of
the purchase  price of  mail-order  or other  direct  purchases of wine from the
Company.

                                      B-17

<PAGE>

                               CORPORATE CHANGES

None.

                                 SCHEDULE 4.10
                          (to Note Purchase Agreement)

<PAGE>

                                  SUBSIDIARIES

SUBSIDIARIES (EACH SUCH SUBSIDIARY BEING ALSO A RESTRICTED SUBSIDIARY):

NAME                                            OWNERSHIP INTEREST

SHW Equity Co., a Washington corporation        100%

Staton Hills Winery Company Limited, a          100% owned by SHW Equity Co.
Washington corporation

Canoe Ridge Winery, Inc., a Washington          100%
corporation

Canoe Ridge Vineyard, LLC, a Washington         100% (50.5% owned through Canoe
limited liability company                       Ridge   Winery, Inc.)

AFFILIATES:     Les Domaines Barons de Rothschild (Lafite)

Phyllis S. Hojel

                                  SCHEDULE 5.4
                          (to Note Purchase Agreement)

<PAGE>

SENIOR OFFICERS:                                        DIRECTORS:

Christophe Salin, Chairman                              Christophe Salin

Thomas B. Selfridge, President and Chief Executive      Thomas B. Selfridge
  Officer

Robert B. Farver, Vice President, Sales and             Cristina G. Banks
  Distribution

Shawn Conroy Blom, Chief Financial Officer              Mark A. Hojel

Paul Novak, Vice President, Marketing                   Yves-Andre Istel

                                                        C. Richard Kramlich

                                                        George E. Myers

                                                        James H. Niven

                                                        Phillip M. Plant

                                                        Eric De Rothschild

                                                        W. Philip Woodward

                                     5.4-2

<PAGE>

                              FINANCIAL STATEMENTS

Consolidated  Statement of Income,  Statement of Cash Flow, Statement of Changes
in  Shareholder  Equity and Balance Sheet for the nine-month  transition  period
ended December 31, 2001 and for the years ended March 31, 2001,  March 31, 2000,
March 31, 1999, March 31, 1998 and March 31, 1997.

                                  SCHEDULE 5.5
                          (to Note Purchase Agreement)

<PAGE>

                                   LITIGATION

As  disclosed in the  Company's  Form 10-K filed for the  nine-month  transition
period ended  December 31, 2001,  the Company  received  notice dated August 28,
1998 from the California  Department of Alcoholic  Beverage Control ("ABC") that
it was  accused,  along  with 36  other  companies  (most of them  wineries)  of
violations of Section  25502(a)(2)  of the California  Business and  Professions
Code which prohibits wine growers and others from giving "something of value" to
retailers.  The accusation arises from the appearance of paid  advertisements of
the Company and other wineries in catalogues  distributed by a certain retailer.
The notice of violation  requested  each of the noticed  companies who agreed to
the  accusation  to  stipulate to a ten (10) day  suspension  of its license or,
consent  to the  payment  of a fine  not  greater  than  $10,000  in lieu of the
suspension. The matter was tried to an administrative law judge appointed by the
ABC on July 14,  1999.  The  judge  found  for the ABC and the ABC  adopted  the
judge's decision. The Company,  together with 16 other wine companies,  filed an
appeal with the Alcoholic  Beverage  Control Appeals Board, an independent  body
that hears  appeals  from ABC  decisions.  The matter was  submitted  to the ABC
appeals  board for a decision to be rendered  within 90 days pursuant to the May
24, 2001 hearing date. The appeals board ruled against the ABC. The ABC does not
agree with the ruling of the ABC appeals board and has submitted the case to the
First District Court of Appeals in San Francisco for review.

                                  SCHEDULE 5.8
                          (to Note Purchase Agreement)

<PAGE>

                                    LICENSES

None.

                                 SCHEDULE 5.11
                          (to Note Purchase Agreement)

<PAGE>

                         EXISTING DEBT; EXISTING LIENS

Amounts owed pursuant to that Credit Agreement  between Chalone Wine Group, Ltd.
and  Cooperatieve   Centrale   Raiffeisen  -  Boerenleenbank   B.A.,   "Rabobank
Nederland," New York Branch, dated March 31, 1999, as amended.

Amounts owed pursuant to that Secured Purchase Money Promissory Note (Secured by
Deed of Trust) dated July 1, 1996 in favor of Richard H. Graff,  Trustee,  Graff
1993 Trust Dated June 10, 1993 by The Chalone Wine Group,  Ltd.,  in an original
principal  amount of $942,503.  As of April 15, 2002,  the  remaining  principal
balance due is approximately $890,000.

Amounts owed pursuant to that Promissory  Note and Loan Agreement  Variable Rate
dated July 17, 1996 in favor of Central  Coast  Federal  Land Bank  Association,
FLCA by Edna Valley Vineyard, in an original principal amount of $1,839,275.

Amounts owed  pursuant to the senior  unsecured  notes  (Series A, B, C) between
Agstar Financial Services,  Farm Credit Services of America and The Chalone Wine
Group, Ltd., dated September 15, 2000, as amended.

Other accounts payable,  accrued liabilities and general office equipment leases
in the ordinary course of business and barrel leases with De Lage Landen.

                                 SCHEDULE 5.15
                          (to Note Purchase Agreement)

<PAGE>

                                SPECIFIED ASSETS

SALE OF CARMENET  BRAND AND  VINTAGE  LANE  FACILITY:  The Company has engaged a
broker to  confidentially  market the Carmenet  brand and Vintage Lane facility.

SALE OF RICHARD  GRAFF  HOME AND  SURROUNDING  VINEYARD:  The Graff home is on a
separate  parcel on the  backside  of the  Chalone  property  site.  The home is
surrounded by  approximately  10 acres of  vineyards.  The property is in escrow
with a full cash offer of $1.195  million and is  scheduled  to close within the
next 90 to 120 days.

SALE OF SUSCOL VINEYARD: The Company has begun to actively market this property.

                                 SCHEDULE 10.9
                          (to Note Purchase Agreement)

<PAGE>

                             FORM OF SERIES A NOTE

                          THE CHALONE WINE GROUP, LTD.

     ADJUSTABLE RATE SENIOR SECURED NOTE, SERIES A, DUE SEPTEMBER 15, 2010

No. [_____]                                                               [Date]
$[_______]                                                       PPN 157639 B* 5

         FOR VALUE  RECEIVED,  the  undersigned,  The Chalone  Wine  Group,  Ltd
(herein called the  "Company"),  a corporation  organized and existing under the
laws   of   the   State   of   California,    hereby    promises   to   pay   to
[__________________________],  or  registered  assigns,  the  principal  sum  of
[__________________________]  DOLLARS  on  September  15,  2010,  with  interest
(computed  on the basis of a 360-day  year of twelve  30-day  months) (a) on the
unpaid  balance  thereof at the Series A  Adjustable  Rate from the date hereof,
payable  monthly in  arrears,  on the 15th day of each  month,  commencing  with
October 15, until the principal  hereof shall have been paid in full, and (b) to
the extent  permitted  by law on any  overdue  payment  (including  any  overdue
prepayment)  of  principal,  any  overdue  payment of  interest  and any overdue
payment of any  Make-Whole  Amount (as  defined in the Note  Purchase  Agreement
referred  to below),  payable  monthly as  aforesaid  (or,  at the option of the
registered  holder  hereof,  on  demand),  at a rate per annum from time to time
equal to the greater of (i) 2% over the then applicable Series A Adjustable Rate
and (ii) 2% over the rate of interest publicly announced by Chase Manhattan Bank
from time to time in New York, New York as its "base" or "prime" rate.

         Payments of principal of,  interest on and any  Make-Whole  Amount with
respect  to this Note are to be made in  lawful  money of the  United  States of
America in New York, New York at the principal  office of Chase  Manhattan Bank,
or at such other place as the Company shall have designated by written notice to
the holder of this Note as provided in the Note Purchase  Agreement  referred to
below.

         This Note is one of a series of Senior Secured Notes (herein called the
"Notes") issued pursuant to the Note Purchase  Agreement,  dated as of April 19,
2002 (as from time to time amended, the "Note Purchase Agreement"),  between the
Company  and the  Purchasers  named  therein  and is  entitled  to the  benefits
thereof.  Each holder of this Note will be deemed, by its acceptance hereof, (i)
to have agreed to the confidentiality  provisions set forth in Section 20 of the
Note Purchase  Agreement and (ii) to have made the  representation  set forth in
Section 6.2 of the Note Purchase Agreement.

         This Note is a  registered  Note and, as provided in the Note  Purchase
Agreement,  upon  surrender  of this Note for  registration  of  transfer,  duly
endorsed,  or accompanied by a written instrument of transfer duly executed,  by
the  registered  holder  hereof or such  holder's  attorney  duly  authorized in
writing,  a new  Note  for a like  principal  amount  will  be  issued  to,  and
registered  in the  name  of,  the  transferee.  Prior  to due  presentment  for
registration of transfer, the

                                  EXHIBIT 1-A
                          (to Note Purchase Agreement)

<PAGE>

Company may treat the person in whose name this Note is  registered as the owner
hereof for the purpose of receiving payment and for all other purposes,  and the
Company will not be affected by any notice to the contrary.

         This Note is subject to optional  prepayment,  in whole or from time to
time in part,  at the  times  and on the terms  specified  in the Note  Purchase
Agreement,  but not otherwise.  This Note is subject to mandatory  prepayment at
the times and on the terms specified in the Note Purchase Agreement.

         If an Event of  Default,  as  defined in the Note  Purchase  Agreement,
occurs  and is  continuing,  the  principal  of this  Note  may be  declared  or
otherwise  become due and payable in the  manner,  at the price  (including  any
applicable  Make-Whole Amount) and with the effect provided in the Note Purchase
Agreement.

         The payment of all principal of, premium,  if any, and interest on this
Note and the other Notes outstanding under the Note Purchase  Agreement has been
unconditionally  guaranteed by certain  Subsidiaries of the Company  pursuant to
separate and several  Subsidiary  Guarantee  Agreements  (as defined in the Note
Purchase  Agreement).  Reference  is hereby made  thereto for a statement of the
rights and benefits accorded thereby.

         This Note is equally and ratably  secured by the  Collateral  Documents
(as defined in the Note  Purchase  Agreement).  Reference  is hereby made to the
Collateral  Documents for a description  of the  collateral  thereby  mortgaged,
warranted, bargained, sold, released, conveyed, assigned,  transferred,  pledged
and  hypothecated,  the  nature and extent of the  security  for the Notes,  the
rights of the holders of the Notes, the Collateral Agent (as defined in the Note
Purchase Agreement) in respect of such security and otherwise.

         This Note shall be construed and enforced in accordance  with,  and the
rights of the parties  shall be  governed  by, the law of the State of New York,
excluding  choice-of-law  principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.

                                 THE CHALONE WINE GROUP, LTD.

                                 By:___________________________________________

                                 Its:__________________________________________

                                      1-A-2

<PAGE>

                              FORM OF SERIES B NOTE

                          THE CHALONE WINE GROUP, LTD.

     ADJUSTABLE RATE SENIOR SECURED NOTE, SERIES B, DUE SEPTEMBER 15, 2010

No. [_____]                                                               [Date]
$[_______]                                                       PPN 157639 B@ 3

         FOR VALUE  RECEIVED,  the  undersigned,  The Chalone  Wine  Group,  Ltd
(herein called the  "Company"),  a corporation  organized and existing under the
laws   of   the   State   of   California,    hereby    promises   to   pay   to
[_____________________________],  or  registered  assigns,  the principal sum of
[_____________________________] DOLLARS on  September  15, 2010,  with  interest
(computed  on the basis of a 360-day  year of twelve  30-day  months) (a) on the
unpaid  balance  thereof at the Series B  Adjustable  Rate from the date hereof,
payable  monthly in  arrears,  on the 15th day of each  month,  commencing  with
October 15, 2000,  until the principal  hereof shall have been paid in full, and
(b) to the extent permitted by law on any overdue payment (including any overdue
prepayment)  of  principal,  any  overdue  payment of  interest  and any overdue
payment of any  Make-Whole  Amount (as  defined in the Note  Purchase  Agreement
referred  to below),  payable  monthly as  aforesaid  (or,  at the option of the
registered  holder  hereof,  on  demand),  at a rate per annum from time to time
equal to the greater of (i) 2% over the then applicable Series B Adjustable Rate
and (ii) 2% over the rate of interest publicly announced by Chase Manhattan Bank
from time to time in New York, New York as its "base" or "prime" rate.

         Payments of principal of,  interest on and any  Make-Whole  Amount with
respect  to this Note are to be made in  lawful  money of the  United  States of
America in New York, New York at the principal  office of Chase  Manhattan Bank,
or at such other place as the Company shall have designated by written notice to
the holder of this Note as provided in the Note Purchase  Agreement  referred to
below.

         This Note is one of a series of Senior Secured Notes (herein called the
"Notes") issued pursuant to the Note Purchase  Agreement,  dated as of April 19,
2002 (as from time to time amended, the "Note Purchase Agreement"),  between the
Company  and the  Purchasers  named  therein  and is  entitled  to the  benefits
thereof.  Each holder of this Note will be deemed, by its acceptance hereof, (i)
to have agreed to the confidentiality  provisions set forth in Section 20 of the
Note Purchase  Agreement and (ii) to have made the  representation  set forth in
Section 6.2 of the Note Purchase Agreement.

         This Note is a  registered  Note and, as provided in the Note  Purchase
Agreement,  upon  surrender  of this Note for  registration  of  transfer,  duly
endorsed,  or accompanied by a written instrument of transfer duly executed,  by
the  registered  holder  hereof or such  holder's  attorney  duly  authorized in
writing,  a new  Note  for a like  principal  amount  will  be  issued  to,  and
registered  in the  name  of,  the  transferee.  Prior  to due  presentment  for
registration  of  transfer,  the Company may treat the person in whose name this
Note is registered as the owner hereof for the

                                   EXHIBIT 1-B
                          (to Note Purchase Agreement)

<PAGE>

purpose of receiving  payment and for all other  purposes,  and the Company will
not be affected by any notice to the contrary.

         This Note is subject to optional  prepayment,  in whole or from time to
time in part,  at the  times  and on the terms  specified  in the Note  Purchase
Agreement,  but not otherwise.  This Note is subject to mandatory  prepayment at
the times and on the terms specified in the Note Purchase Agreement.

         If an Event of  Default,  as  defined in the Note  Purchase  Agreement,
occurs  and is  continuing,  the  principal  of this  Note  may be  declared  or
otherwise  become due and payable in the  manner,  at the price  (including  any
applicable  Make-Whole Amount) and with the effect provided in the Note Purchase
Agreement.

         The payment of all principal of, premium,  if any, and interest on this
Note and the other Notes outstanding under the Note Purchase  Agreement has been
unconditionally  guaranteed by certain  Subsidiaries of the Company  pursuant to
separate and several  Subsidiary  Guarantee  Agreements  (as defined in the Note
Purchase  Agreement).  Reference  is hereby made  thereto for a statement of the
rights and benefits accorded thereby.

         This Note is equally and ratably  secured by the  Collateral  Documents
(as defined in the Note  Purchase  Agreement).  Reference  is hereby made to the
Collateral  Documents for a description  of the  collateral  thereby  mortgaged,
warranted, bargained, sold, released, conveyed, assigned,  transferred,  pledged
and  hypothecated,  the  nature and extent of the  security  for the Notes,  the
rights of the holders of the Notes, the Collateral Agent (as defined in the Note
Purchase Agreement) in respect of such security and otherwise.

         This Note shall be construed and enforced in accordance  with,  and the
rights of the parties  shall be  governed  by, the law of the State of New York,
excluding  choice-of-law  principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.

                                 THE CHALONE WINE GROUP, LTD.

                                 By:__________________________________________

                                 Its:_________________________________________

                                     1-B-2

<PAGE>

                             FORM OF SERIES C NOTE

                          THE CHALONE WINE GROUP, LTD.

     ADJUSTABLE RATE SENIOR SECURED NOTE, SERIES C, DUE SEPTEMBER 15, 2010

No. [_____]                                                               [Date]
$[________]                                                      PPN 157639 B# 1

         FOR VALUE  RECEIVED,  the  undersigned,  The Chalone  Wine  Group,  Ltd
(herein called the  "Company"),  a corporation  organized and existing under the
laws   of   the   State   of   California,    hereby    promises   to   pay   to
[__________________________],  or  registered  assigns,  the  principal  sum  of
[__________________________] DOLLARS September 15, 2010, with interest (computed
on the  basis of a 360-day  year of  twelve  30-day  months)  (a) on the  unpaid
balance  thereof at the Series C Adjustable  Rate from the date hereof,  payable
monthly in arrears,  on the 15th day of each month,  commencing with October 15,
2001,  until the principal  hereof shall have been paid in full,  and (b) to the
extent  permitted  by  law  on  any  overdue  payment   (including  any  overdue
prepayment)  of  principal,  any  overdue  payment of  interest  and any overdue
payment of any  Make-Whole  Amount (as  defined in the Note  Purchase  Agreement
referred  to below),  payable  monthly as  aforesaid  (or,  at the option of the
registered  holder  hereof,  on  demand),  at a rate per annum from time to time
equal to the greater of (i) 2% over the then applicable Series C Adjustable Rate
and (ii) 2% over the rate of interest publicly announced by Chase Manhattan Bank
from time to time in New York, New York as its "base" or "prime" rate.

         Payments of principal of,  interest on and any  Make-Whole  Amount with
respect  to this Note are to be made in  lawful  money of the  United  States of
America in New York, New York at the principal  office of Chase  Manhattan Bank,
or at such other place as the Company shall have designated by written notice to
the holder of this Note as provided in the Note Purchase  Agreement  referred to
below.

         This Note is one of a series of Senior Secured Notes (herein called the
"Notes") issued pursuant to the Note Purchase  Agreement,  dated as of April 19,
2002 (as from time to time amended, the "Note Purchase Agreement"),  between the
Company  and the  Purchasers  named  therein  and is  entitled  to the  benefits
thereof.  Each holder of this Note will be deemed, by its acceptance hereof, (i)
to have agreed to the confidentiality  provisions set forth in Section 20 of the
Note Purchase  Agreement and (ii) to have made the  representation  set forth in
Section 6.2 of the Note Purchase Agreement.

         This Note is a  registered  Note and, as provided in the Note  Purchase
Agreement,  upon  surrender  of this Note for  registration  of  transfer,  duly
endorsed,  or accompanied by a written instrument of transfer duly executed,  by
the  registered  holder  hereof or such  holder's  attorney  duly  authorized in
writing,  a new  Note  for a like  principal  amount  will  be  issued  to,  and
registered  in the  name  of,  the  transferee.  Prior  to due  presentment  for
registration of transfer, the

                                 EXHIBIT 1-C-1
                          (to Note Purchase Agreement)

<PAGE>

Company may treat the person in whose name this Note is  registered as the owner
hereof for the purpose of receiving payment and for all other purposes,  and the
Company will not be affected by any notice to the contrary.

         This Note is subject to optional  prepayment,  in whole or from time to
time in part,  at the  times  and on the terms  specified  in the Note  Purchase
Agreement,  but not otherwise.  This Note is subject to mandatory  prepayment at
the times and on the terms specified in the Note Purchase Agreement.

         If an Event of  Default,  as  defined in the Note  Purchase  Agreement,
occurs  and is  continuing,  the  principal  of this  Note  may be  declared  or
otherwise  become due and payable in the  manner,  at the price  (including  any
applicable  Make-Whole Amount) and with the effect provided in the Note Purchase
Agreement.

         The payment of all principal of, premium,  if any, and interest on this
Note and the other Notes outstanding under the Note Purchase  Agreement has been
unconditionally  guaranteed by certain  Subsidiaries of the Company  pursuant to
separate and several  Subsidiary  Guarantee  Agreements  (as defined in the Note
Purchase  Agreement).  Reference  is hereby made  thereto for a statement of the
rights and benefits accorded thereby.

         This Note is equally and ratably  secured by the  Collateral  Documents
(as defined in the Note  Purchase  Agreements).  Reference is hereby made to the
Collateral  Documents for a description  of the  collateral  thereby  mortgaged,
warranted, bargained, sold, released, conveyed, assigned,  transferred,  pledged
and  hypothecated,  the  nature and extent of the  security  for the Notes,  the
rights of the holders of the Notes, the Collateral Agent (as defined in the Note
Purchase Agreements) in respect of such security and otherwise.

         This Note shall be construed and enforced in accordance  with,  and the
rights of the parties  shall be  governed  by, the law of the State of New York,
excluding  choice-of-law  principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.

                                 THE CHALONE WINE GROUP, LTD.

                                 By:________________________________________

                                 Its:_______________________________________

                                     1-C-2

<PAGE>

            DESCRIPTION OF CLOSING OPINION OF COUNSEL TO THE COMPANY

The  closing  opinion of Farella  Braun & Martel  LLP,  counsel to the  Company,
called for by Section 4.4(a) of the Note Purchase Agreement,  shall be dated the
date of Closing and addressed to the  Purchasers,  shall be satisfactory in form
and substance to the Purchasers and shall be to the effect that:

         1.     The Company is a corporation,  duly organized,  validly existing
and in  good  standing  under  the  laws of the  State  of  California,  has the
corporate  power and the  corporate  authority  to execute  and perform the Note
Purchase  Agreement and to issue the Notes and has the full corporate  power and
the corporate authority to conduct the activities in which it is now engaged and
is duly licensed or qualified  and is in good standing as a foreign  corporation
in each jurisdiction in which the character of the properties owned or leased by
it or the  nature of the  business  transacted  by it makes  such  licensing  or
qualification necessary.

         2.     Each  Restricted Subsidiary  is  a  corporation  or  other legal
entity, duly organized,  validly existing and in good standing under the laws of
its  jurisdiction  of formation and is duly licensed or qualified and is in good
standing in each  jurisdiction in which the character of the properties owned or
leased by it or the nature of the business transacted by it makes such licensing
or  qualification  necessary  and all of the  issued and  outstanding  shares of
Capital Stock or equivalent  equity interest of each such Restricted  Subsidiary
have been duly issued,  are fully paid and  non-assessable  and are owned by the
Company,  by one or more Restricted  Subsidiaries,  or by the Company and one or
more Subsidiaries.

         3.     The  Note  Purchase Agreement  has  been  duly authorized by all
necessary corporate or other legal entity action on the part of the Company, has
been duly executed and delivered by the Company and constitute the legal,  valid
and binding  contract of the Company  enforceable in accordance  with its terms,
subject  to  bankruptcy,  insolvency,  fraudulent  conveyance  or  similar  laws
affecting  creditors'  rights  generally,   and  general  principles  of  equity
(regardless  of whether the  application  of such  principles is considered in a
proceeding in equity or at law).

         4.     The Notes have been duly authorized  by all necessary  corporate
action on the part of the Company,  have been duly executed and delivered by the
Company and constitute the legal,  valid and binding  obligations of the Company
enforceable in accordance with their terms,  subject to bankruptcy,  insolvency,
fraudulent conveyance or similar laws affecting creditors' rights generally, and
general  principles of equity  (regardless  of whether the  application  of such
principles is considered in a proceeding in equity or at law).

         5.     No approval, consent or withholding of objection on the part of,
or filing,  registration or qualification  with, any governmental body, Federal,
state or local,  is necessary in  connection  with the  execution,  delivery and
performance of the Note Purchase Agreement or the Notes.

                                 EXHIBIT 4.4(a)
                          (to Note Purchase Agreement)

<PAGE>

         6.     The issuance and sale of the Notes and the  execution,  delivery
and  performance  by the Company of the Note Purchase  Agreement do not conflict
with or result in any breach of any of the provisions of or constitute a default
under or  result  in the  creation  or  imposition  of any Lien  upon any of the
property  of  the  Company  pursuant  to  the  provisions  of  the  Articles  of
Incorporation or By-laws, or equivalent formation  documents,  of the Company or
any  agreement or other  instrument  to which the Company is a party or by which
the Company may be bound.

         7.     The  issuance,  sale  and  delivery  of  the  Notes  under   the
circumstances  contemplated  by the Note  Purchase  Agreement  does  not,  under
existing law,  require the registration of the Notes under the Securities Act of
1933, as amended, or the qualification of an indenture under the Trust Indenture
Act of 1939, as amended.

         8.     The  issuance  of the Notes and the use of the  proceeds  of the
sale of the Notes in accordance  with the provisions of and  contemplated by the
Note Purchase  Agreement do not violate or conflict with Regulation T, U or X of
the Board of Governors of the Federal Reserve System.

         9.     There is no litigation pending or, to the best knowledge of such
counsel, threatened which in such counsel's opinion could reasonably be expected
to have Material  Adverse  Effect on the  Company's  business or assets or which
would  impair the  ability of the  Company to issue and  deliver the Notes or to
comply with the provisions of the Note Purchase Agreement.

         10.    The  Company  is  not  an  "investment  company"  or  a  company
"controlled"  by an  "investment  company",  as such  terms are  defined  in the
Investment Company Act of 1940, as amended.

         11.    The  Company  has  the  power to  submit, and  pursuant  to  the
Agreement, has legally,  validly,  effectively and irrevocably submitted, to the
non-exclusive  jurisdiction  of the  courts  of the State of New York and of the
courts of the United States of America having  jurisdiction  in the State of New
York in respect of any legal action or  proceeding  arising out of the Agreement
or the Notes.

         12.    The choice of New York as the governing law of the Agreement and
the Notes is valid and will be recognized  and applied by the courts of New York
and of the United States.

         13.    The Company is not, nor  will it become,  solely  by  reason  of
entering into or performing  its respective  obligations  under the Agreement or
the  carrying out of any of the  transactions  contemplated  thereby,  a "public
utility company" or a "holding company" under the Public Utility Holding Company
Act of 1935, as amended.

         14.    Each  Subsidiary  Guarantor  is  a  corporation  or  other legal
entity, duly formed, validly existing and in good standing under the laws of the
United  States,  has the  corporate or other legal entity power and authority to
execute and perform the  Subsidiary  Guarantee  Agreement to which it is a party
and has the full  corporate or other legal entity power and authority to conduct
the  activities in which it is now engaged and is duly licensed or qualified and
is in good  standing  as a foreign  corporation  or other  legal  entity in each
jurisdiction in which

                                    4.4(a)-2

<PAGE>

the  character  of the  properties  owned or leased  by it or the  nature of the
business transacted by it makes such licensing or qualification necessary.

         15.    To ensure the  legality,  validity,  enforceability  or
admissibility  into evidence of the Agreement and the Notes, it is not necessary
that said documents or any other  documents be registered,  notarized,  filed or
recorded  with any court or other  authority or that any stamp or similar tax be
paid with respect thereto.

         16.    The  obligations  of  the  Company  under  the Agreement and the
Notes,  and the  obligations  of the Original  Subsidiary  Guarantors  under the
Original Subsidiary  Guarantee  Agreements,  rank PARI PASSU in right of payment
with all other Debt (actual or  contingent)  of the Company which is not secured
or the subject of any  statutory  trust or  preference or which is not expressly
subordinated in right of payment to any other Debt thereof.  Collateral Document
opinions to come.

         17.    The  opinion  of  such  counsel shall cover  such  other matters
relating to the sale of the Notes as the Purchasers may reasonably request. With
respect to matters of fact on which such opinion is based, such counsel shall be
entitled to rely on appropriate certificates of public officials and officers of
the Company.

                                    4.4(a)-3

<PAGE>

                DESCRIPTION OF SPECIAL COUNSEL'S CLOSING OPINION

         The closing  opinion of Davis  Wright  Tremaine  LLP,  special  counsel
Washington local real estate to the Purchasers,  called for by Section 4.4(b) of
the Agreement,  shall be dated the Closing Date and addressed to the Purchasers,
shall be satisfactory in form and substance to the Purchasers.

         With respect to matters of fact upon which such opinion is based, Davis
Wright Tremaine LLP may rely on appropriate certificates of public officials and
officers of the Company and the Original Subsidiary Guarantors.

                                 EXHIBIT 4.4(b)
                          (to Note Purchase Agreement)

<PAGE>

                     FORM OF SUBSIDIARY GUARANTEE AGREEMENT

                 See attached representative form of Guarantee.

                                   EXHIBIT 4.5
                          (to Note Purchase Agreement)

<PAGE>

              AMENDED AND RESTATED SUBSIDIARY GUARANTEE AGREEMENT

                RE: AMENDED AND RESTATED NOTE PURCHASE AGREEMENT
                                       OF
                          THE CHALONE WINE GROUP, LTD.

THIS AMENDED AND RESTATED  SUBSIDIARY  GUARANTEE AGREEMENT dated as of April 19,
2002  (the or this  "GUARANTY")  is by  __________________________  ("SUBSIDIARY
GUARANTOR").

                                R E C I T A L S:

         A.     The Chalone Wine  Group, Ltd.,  a  California  corporation  (the
"COMPANY"),  is the owner,  directly and indirectly,  of 100% of the outstanding
membership interest in the Subsidiary Guarantor.

         B.     Farm  Credit  Services  of  America,  PCA  and  AgStar Financial
Services,  PCA, dba Farm Credit Services Commercial Finance Group (together with
their permitted successors and assigns, the "PURCHASERS"),  and the Company have
entered  into a Note  Purchase  Agreement  dated as of September  15,  2000,  as
amended by the First Amendment  dated as of February 9, 2001(the  "ORIGINAL NOTE
AGREEMENT"),  pursuant  to which the Company  has issued to the  Purchasers  the
Company's  $5,000,000 8.90% Senior Guaranteed Notes, Series A, Due September 15,
2010;  $10,000,000 8.93% Senior  Guaranteed  Notes,  Series B, Due September 15,
2010; and $15,000,000 9.05% Senior Guaranteed Notes, Series C, Due September 15,
2010 (collectively, the "ORIGINAL NOTES"). The Subsidiary Guarantor has executed
and delivered that certain Subsidiary  Guarantee  Agreement dated as of February
26, 2001 (the "ORIGINAL SUBSIDIARY  GUARANTEE  AGREEMENT") under and pursuant to
which the Subsidiary  Guarantor guaranteed to the Purchasers the full and prompt
payment of all amounts due under and with  respect  to, and  performance  by the
Company of the terms and provisions of, the Original Notes and the Original Note
Agreement.

         C.     The  Subsidiary  Guarantor has requested that  Purchasers  amend
and restate the Original Note Agreement and Original  Notes,  and the Purchasers
are willing to enter into and execute  that certain  Amended and  Restated  Note
Purchase  Agreement  each dated  April 19,  2002 (as the same may  hereafter  be
amended,  modified and/or restated from time to time, the "NOTE  AGREEMENT") and
are  willing to amend and  restate  the  Original  Notes  pursuant  to the terms
thereof (as so amended and  restated,  the  "NOTES"),  on the  condition  (among
others)  that the  Subsidiary  Guarantor  execute and deliver  this  Amended and
Restated  Guarantee  Agreement.   All  capitalized  terms  used  herein  without
definition  shall have the same  meanings  herein as such terms have in the Note
Agreement  unless  otherwise  defined  herein  or the  context  shall  otherwise
require.

         D.     The Subsidiary Guarantor has agreed to execute and deliver  this
Amended and Restated  Subsidiary  Guarantee  Agreement to and for the benefit of
the Purchasers.  This Amended and Restated Subsidiary Guarantee Agreement amends
and restates the Original Subsidiary Guarantee Agreement in its entirety.

<PAGE>

         E.     The Subsidiary  Guarantor has determined  that the execution and
delivery of this  Amended and  Restated  Subsidiary  Guarantee  Agreement  is in
furtherance of its purposes and in the best interests of it and its members, and
that it will derive substantial  benefit,  whether directly or indirectly,  from
the  performance  by the Company of the  obligations  under the Note  Agreement,
having regard for all relevant facts and circumstances.

         NOW,  THEREFORE,  in consideration of the premises,  and for other good
and valuable  consideration,  the receipt  whereof is hereby  acknowledged,  the
Subsidiary  Guarantor  does hereby  covenant  and agree with the  Purchasers  as
follows:

         1.     GUARANTY OF NOTES AND NOTE AGREEMENT

                (a)     Subject to Section 1(b), below, the Subsidiary Guarantor
does hereby  irrevocably,  absolutely and unconditionally (i) guarantee unto the
Purchasers  the  prompt  payment  in full  when due,  whether  by lapse of time,
acceleration or otherwise, of (A) all indebtedness,  obligations and liabilities
of the  Company  under  or in  connection  with or  evidenced  by (x)  the  Note
Agreement,  or (y) the  Notes  heretofore  or  hereafter  issued  under the Note
Agreement,  in each case whether now existing or  hereafter  arising,  due or to
become due, direct or indirect, absolute or contingent, and howsoever evidenced,
held or acquired and (B) all costs,  expenses and charges,  legal and otherwise,
incurred by the Purchasers in collecting or enforcing any of such  indebtedness,
obligations  and  liabilities  or in  realizing  on or  protecting  any security
therefor, including, without limitation, the guaranty afforded hereunder (all of
such indebtedness,  obligations, liabilities, expenses and charges identified in
the immediately  foregoing clauses (A) and (B) being hereinafter  referred to as
the  "OBLIGATIONS")  and (ii) agree to cause the full and prompt performance and
observance  of each and all of the Company's  obligations  under and pursuant to
the Notes, the Note Agreement and each and every agreement, certificate or other
document  executed or delivered  in  connection  with the  execution of the Note
Agreement.

                (b)     The obligations of  the Subsidiary  Guarantor  hereunder
shall be limited to the lesser of (i) the Obligations  guaranteed hereunder,  or
(ii) a maximum  aggregate  amount  equal to the  largest  amount  that would not
render its obligations  hereunder subject to avoidance as a fraudulent  transfer
or  conveyance  under  Section 548 of Title 11 of the United  States Code or any
applicable  provisions of comparable  state law  (collectively,  the "FRAUDULENT
TRANSFER LAWS"), if and to the extent the Subsidiary  Guarantor (or a trustee on
its behalf) has properly invoked the protections of the Fraudulent Transfer Laws
in each case after  giving  effect to all other  liabilities  of the  Subsidiary
Guarantor,  contingent  or  otherwise,  that are relevant  under the  Fraudulent
Transfer Laws.

                                      -2-

<PAGE>

         2.     GUARANTY OF PAYMENT AND PERFORMANCE

         This is a guaranty of payment and  performance,  and not of collection,
and the Subsidiary  Guarantor hereby waives any right to require that any action
on or in respect of the Obligations or the Note Agreement be brought against the
Company.  The Purchasers  may, at their option,  proceed  hereunder  against the
Subsidiary  Guarantor  in the first  instance to collect  monies  when due,  the
payment of which is  guaranteed  hereby,  without first  proceeding  against the
Company  or any other  Person  and  without  first  resorting  to any  direct or
indirect  security  for  the  Obligations  or  for  this  Amended  and  Restated
Subsidiary Guarantee Agreement, if any, or to any other remedy. The liability of
the Subsidiary  Guarantor  hereunder  shall in no way be affected or impaired by
any  acceptance  by the  Purchasers  of any direct or indirect  security for, or
other guaranties of, any indebtedness, liability or obligation of the Company or
any other Person to the Purchasers or by any failure, delay, neglect or omission
by the Purchasers to realize upon or protect any such indebtedness, liability or
obligation or any notes or other  instruments  evidencing the same or any direct
or indirect  security  therefor or by any approval,  consent,  waiver,  or other
action taken, or omitted to be taken by the Purchasers.

         3.     GENERAL PROVISIONS RELATING TO THE GUARANTY.

                (a)     The Subsidiary Guarantor hereby consents and agrees that
the  Purchasers,  with or  without  any  further  notice to or  assent  from the
Subsidiary  Guarantor may,  without in any manner affecting the liability of the
Subsidiary  Guarantor,  and upon such terms and conditions as the Purchasers may
deem advisable:

                        (1)  extend  in   whole  or  in  part  ( by  renewal  or
otherwise),  modify, change,  compromise,  release or extend the duration of the
time for the performance or payment of any indebtedness, liability or obligation
of the Company or of any other Person  secondarily  or otherwise  liable for any
indebtedness,  liability or  obligations of the Company on the  Obligations,  or
waive any default with respect thereto,  or waive,  modify,  amend or change any
provision of any other instruments; or

                        (2)  sell, release, surrender, modify, impair,  exchange
or substitute any and all property,  of any nature and from whomsoever received,
held by, or on behalf of, the Purchasers as direct or indirect security, if any,
for the payment or performance of any  indebtedness,  liability or obligation of
the  Company or of any other  Person  secondarily  or  otherwise  liable for any
indebtedness, liability or obligation of the Company on the Obligations; or

                        (3)  settle,  adjust  or  compromise  any  claim  of the
Company  against  any other  Person  secondarily  or  otherwise  liable  for any
indebtedness, liability or obligation of the Company on the Obligations.

         The  Subsidiary   Guarantor  hereby  ratifies  and  confirms  any  such
extension,   renewal,  change,  sale,  release,  waiver,  surrender,   exchange,
modification,  amendment, impairment,  substitution,  settlement,  adjustment or
compromise  and agrees that the same shall be binding upon it, and hereby waives
any and all defenses, counterclaims or offsets which it might or could

                                       -3-

<PAGE>

have by reason thereof, it being understood that the Subsidiary  Guarantor shall
at all times be bound by this Guaranty and remain liable hereunder.

                (b)     The Subsidiary Guarantor  hereby  waives:  (1) notice of
acceptance of this Amended and Restated  Subsidiary  Guarantee  Agreement by the
Purchasers  or of the  creation,  renewal  or accrual  of any  liability  of the
Company,  present or future,  or of the  reliance  of the  Purchasers  upon this
Amended and Restated  Subsidiary  Guarantee  Agreement (it being understood that
the Obligations shall conclusively be presumed to have been created,  contracted
or  incurred  in  reliance  upon the  execution  of this  Amended  and  Restated
Subsidiary  Guarantee  Agreement);  (2) demand of payment by the Purchasers from
the  Company  or any other  Person  indebted  in any manner on or for any of the
indebtedness,  liabilities or obligations hereby guaranteed; and (3) presentment
for the payment by the  Purchasers or any other Person of the Notes or any other
instrument,  protest thereof and notice of its dishonor to any party thereto and
to the Subsidiary  Guarantor.  The obligations of the Subsidiary Guarantor under
this Amended and Restated  Subsidiary  Guarantee Agreement and the rights of the
Purchasers to enforce such obligations by any proceedings,  whether by action at
law,  suit in  equity  or  otherwise,  shall not be  subject  to any  reduction,
limitation,  impairment  or  termination,  whether by reason of any claim of any
character  whatsoever  or  otherwise  and shall not be subject  to any  defense,
set-off,  counterclaim (other than any compulsory  counterclaim),  recoupment or
termination whatsoever.

                (c)     The obligations of  the Subsidiary  Guarantor  hereunder
shall be binding upon the  Subsidiary  Guarantor and its successors and assigns,
and shall remain in full force and effect irrespective of:

                        (1)   the   genuineness,    validity,    regularity   or
enforceability  of the Obligations,  the Note Agreement or any other instruments
relating  thereto or any of the terms of any  thereof,  the  continuance  of any
obligation on the part of the Company or any other Person on the  Obligations or
under  the Note  Agreement  or the  power or  authority  or the lack of power or
authority  of the  Company  to issue or incur the  Obligations  or  execute  and
deliver the Note  Agreement  or the Notes or to perform  any of its  obligations
thereunder or the existence or continuance of the Company or any other Person as
a legal entity; or

                        (2) any default, failure or delay, willful or otherwise,
in the  performance by the Company or any other Person of any obligations of any
kind or  character  whatsoever  of the Company or any other  Person  (including,
without limitation, the obligations and undertakings of the Company or any other
Person under the Obligations, the Note Agreement or the Notes); or

                        (3)  any  creditors' rights, bankruptcy, receivership or
other insolvency  proceeding of the Company or any other Person or in respect of
the  property of the Company or any other  Person or any merger,  consolidation,
reorganization,  dissolution,  liquidation  or winding up of the  Company or any
other Person; or

                        (4)  impossibility  or illegality of  performance on the
part  of  the  Company  or  any  other  Person  of  its  obligations  under  the
Obligations, the Note Agreement, the Notes or any other instruments; or

                                      -4-

<PAGE>

                        (5)  in respect of the Company or any other Person,  any
change of circumstances,  whether or not foreseen or foreseeable, whether or not
imputable  to the  Company  or any  other  Person,  or  other  impossibility  of
performance  through  fire,  explosion,  accident,  labor  disturbance,  floods,
droughts,  embargoes, wars (whether or not declared), civil commotions,  acts of
God or the public enemy,  delays or failure of suppliers or carriers,  inability
to obtain  materials,  action of any Federal or state regulatory body or agency,
change of law or any other  causes  affecting  performance,  or any other  force
majeure,  whether or not beyond the control of the  Company or any other  Person
and whether or not of the kind hereinbefore specified; or

                        (6)  any attachment, claim, demand, charge, lien, order,
process,  encumbrance  or any other  happening  or event or  reason,  similar or
dissimilar to the foregoing,  or any withholding or diminution at the source, by
reason  of  any  taxes,  assessments,  expenses,  indebtedness,  obligations  or
liabilities of any character,  foreseen or unforeseen, and whether or not valid,
incurred by or against any Person, or any claims,  demands,  charges or liens of
any nature, foreseen or unforeseen,  incurred by any Person, or against any sums
payable under this Amended and Restated Subsidiary Guarantee Agreement,  so that
such sums  would be  rendered  inadequate  or would be  unavailable  to make the
payments herein provided; or

                        (7)  any  order, judgment, decree, ruling  or regulation
(whether  or  not  valid)  of  any  court  of any  nation  or of  any  political
subdivision thereof or any body, agency, department,  official or administrative
or  regulatory  agency of any thereof or any other action,  happening,  event or
reason whatsoever which shall delay,  interfere with,  hinder or prevent,  or in
any way  adversely  affect,  the  performance  by any  party  of its  respective
obligations  under  the  Obligations,  the Note  Agreement  or the  Notes or any
instrument relating thereto; or

                        (8)  the failure of  the Subsidiary Guarantor to receive
any benefit from or as a result of its  execution,  delivery and  performance of
this Amended and Restated Subsidiary Guarantee Agreement; or

                        (9)  any  failure or lack of diligence in  collection or
protection,  failure in  presentment or demand for payment,  protest,  notice of
protest, notice of default and of nonpayment,  any failure to give notice to the
Subsidiary  Guarantor  of failure of the Company or any other Person to keep and
perform any obligation, covenant or agreement under the terms of the Obligations
or the Note  Agreement or failure to resort for payment to the Company or to any
other Person or to any other guaranty or to any property,  security or liens, if
any, or other rights or remedies; or

                        (10)  the  acceptance of any security or other guaranty,
the advance of additional money to the Company or any other Person,  the renewal
or  extension  of the  Obligations  or  amendments,  modifications,  consents or
waivers  with respect to the  Obligations  or the Note  Agreement,  or the sale,
release,  substitution or exchange of any security,  if any, for the Obligations
or for this  Amended and  Restated  Subsidiary  Guarantee  Agreement  including,
without limitation, the release of collateral, if any, or

                                       -5-

                        (11)  any  defense  whatsoever  that  the Company or any
other Person might have to the payment of the Obligations, or to the performance
or observance of any of the provisions of the Note  Agreement,  whether  through
the satisfaction or purported satisfaction by the Company or any other Person of
its debts due to any cause such as bankruptcy, insolvency, receivership, merger,
consolidation,   reorganization,   dissolution,   liquidation,   winding-up   or
otherwise; or

                        (12)  any  act or failure  to act  with  regard  to  the
Obligations  or the Note  Agreement or anything which might vary the risk of the
Subsidiary Guarantor; or

                        (13)  any   other  circumstance  which  might  otherwise
constitute a defense  available to, or a discharge of, the Subsidiary  Guarantor
in respect of the obligations of the Subsidiary Guarantor under this Amended and
Restated Subsidiary Guarantee Agreement;

PROVIDED that the specific enumeration of the above-mentioned  acts, failures or
omissions shall not be deemed to exclude any other acts,  failures or omissions,
though not specifically mentioned above, it being the purpose and intent of this
Amended and Restated Subsidiary  Guarantee Agreement that the obligations of the
Subsidiary  Guarantor  shall be  absolute  and  unconditional  and  shall not be
discharged,  impaired or varied except by the payment in full of the Obligations
in accordance with their respective terms whenever the same shall become due and
payable,  at the place  specified  in and all in the  manner and with the effect
provided in the Notes and the Note Agreement. Without limiting the foregoing, it
is understood  that repeated and  successive  demands may be made and recoveries
may be had hereunder as and when,  from time to time,  the Company shall default
under  the  terms of the Notes or the Note  Agreement  and that  notwithstanding
recovery  hereunder  for or in respect of any given  default or  defaults by the
Company  under  the  Notes or the Note  Agreement,  this  Amended  and  Restated
Subsidiary  Guarantee  Agreement shall remain in full force and effect and shall
apply to each and every subsequent default.

                (d)     To the extent of any payments made  under  this  Amended
and Restated Subsidiary  Guarantee  Agreement,  the Subsidiary  Guarantor making
such payment shall be subrogated to the rights of the holders of the Obligations
in  respect of whose  Obligations  such  payment  was made,  but the  Subsidiary
Guarantor  covenants  and  agrees  that  such  right  of  subrogation  shall  be
subordinate  in right of payment to the rights of any holder of the  Obligations
for which full  payment has not been made or provided  for and, to that end, the
Subsidiary  Guarantor  agrees  not  to  claim  or  enforce  any  such  right  of
subrogation  or any  right of  set-off  or any  other  right  which may arise on
account of any payment made by the Subsidiary  Guarantor in accordance  with the
provisions of this Amended and Restated  Subsidiary  Guarantee  Agreement unless
and until all of the Notes and all other  Obligations  have been  fully paid and
discharged.

                (e)     The Subsidiary  Guarantor  agrees that to the extent the
Company or any other Person makes any payment on any  Obligation,  which payment
or  any  part  thereof  is  subsequently  invalidated,  voided,  declared  to be
fraudulent or preferential, set aside, recovered, rescinded or is required to be
retained  by or repaid to a trustee,  receiver,  or any other  Person  under any
bankruptcy code,  common law, or equitable cause, then and to the extent of such
payment,  the obligation or the part thereof  intended to be satisfied  shall be
revived and continued

                                       -6-

<PAGE>

in full force and effect with respect to the Subsidiary Guarantor's  obligations
hereunder, as if said payment had not been made. The liability of the Subsidiary
Guarantor hereunder shall not be reduced or discharged,  in whole or in part, by
any payment to the Purchasers from any source that is thereafter paid,  returned
or  refunded  in whole or in part by reason of the  assertion  of a claim of any
kind relating  thereto,  including,  but not limited to, any claim for breach of
contract,  breach of  warranty,  preference,  illegality,  invalidity,  or fraud
asserted by any account debtor or by any other Person.

                (f)     The Purchasers  shall not be under any obligation (1) to
marshall any assets in favor of the Subsidiary Guarantor or in payment of any or
all of the  liabilities of the Company under or in respect of the Obligations or
the obligations of the Subsidiary Guarantor hereunder or (2) to pursue any other
remedy that the Subsidiary Guarantor may or may not be able to pursue itself and
that may lighten  such  Subsidiary  Guarantor's  burden,  any right to which the
Subsidiary Guarantor hereby expressly waives.

         4.     GUARANTOR COVENANTS.

                (a)     REPORTING  COVENANTS.  So  long as any Obligations shall
remain unsatisfied, the Subsidiary Guarantor agrees that it shall furnish to the
Purchasers:  (i)  prompt  written  notice of any  condition  or event  which has
resulted,  or that could reasonably be expected to result, in a Material Adverse
Effect; and (ii) such other information  respecting the operations,  properties,
business or condition  (financial or otherwise) of the  Subsidiary  Guarantor or
its  Subsidiaries,  if any, as the Purchasers  may from time to time  reasonably
request.

                (b)     ADDITIONAL  AFFIRMATIVE  COVENANTS.   So  long  as   any
Obligations shall remain unsatisfied, the Subsidiary Guarantor agrees that:

                        (i)      PRESERVATION OF EXISTENCE, ETC.  The Subsidiary
                Guarantor  shall, and shall cause each of its  Subsidiaries,  if
                any, to, maintain and preserve its legal  existence,  its rights
                to  transact  business  and all  other  rights,  franchises  and
                privileges  necessary or  desirable in the normal  course of its
                business and operations and the ownership of its properties.

                        (ii)     FURTHER  ASSURANCES  AND ADDITIONAL  ACTS.  The
                Subsidiary Guarantor shall execute, acknowledge,  deliver, file,
                notarize  and  register  at its own  expense  all  such  further
                agreements, instruments,  certificates, documents and assurances
                and perform such acts as the Purchasers  shall  reasonably  deem
                necessary  or  appropriate  to  effectuate  the purposes of this
                Amended and Restated Subsidiary Guarantee Agreement and promptly
                provide  the   Purchasers   with   evidence  of  the   foregoing
                satisfactory in form and substance to it.

                (c)     NEGATIVE COVENANTS.  So  long  as  any Obligations shall
remain unsatisfied, the Subsidiary Guarantor agrees that:

                        (i)      RESTRICTIONS  ON   FUNDAMENTAL  CHANGES.    The
                Subsidiary  Guarantor shall not merge with or consolidate  into,
                or acquire all or

                                      -7-

<PAGE>

                substantially  all  of the  assets  of,  any  Person,  or  sell,
                transfer,   lease  or  otherwise  dispose  of  (whether  in  one
                transaction or in a series of transactions) all or substantially
                all of its assets,  except that any wholly owned  Subsidiary  of
                the  Subsidiary  Guarantor may merge with,  consolidate  into or
                transfer all or substantially  all of its assets to another such
                wholly-owned  Subsidiary or to the  Subsidiary  Guarantor and in
                connection  therewith  such  Subsidiary  may  be  liquidated  or
                dissolved.

                        (ii)     DISTRIBUTIONS.  The  Subsidiary Guarantor shall
                not  grant  or  otherwise  agree  to  or  suffer  to  exist  any
                consensual restrictions on its ability to pay dividends and make
                other  distributions to the Company,  or to pay any Indebtedness
                owed to the  Company or  transfer  properties  and assets to the
                Company,  except that any consensual restrictions existing as of
                the date hereof and disclosed in writing to the Purchasers shall
                be permitted hereunder.

         5.     NOTICES.

         All communications provided for herein  shall be in writing,  delivered
or mailed prepaid by registered or certified  mail or overnight air courier,  or
by facsimile  communication  at the addresses set forth below,  or to such other
address as such Person may  designate to the other Persons named below by notice
given in accordance with this Section:

         If to the  Purchasers:                 To the addresses for notices set
                                                forth on Schedule A of the Note
                                                Agreement

         If to the  Subsidiary Guarantor:       c/o the Company to the address
                                                for notices set forth in Section
                                                18 of the Note Agreement

         If to the  Company:                    To the address for notices set
                                                forth in Section 18 of the Note
                                                Agreement

         6.     AMENDMENTS AND MODIFICATIONS; SOLICITATION OF NOTEHOLDERS.

                (a)     This Amended and Restated Subsidiary Guarantee Agreement
may only be amended  and/or  modified by an instrument in writing  signed by the
Subsidiary  Guarantor  and by the holder or holders of at least 51% in aggregate
principal  amount of the Notes then  outstanding;  provided,  that  without  the
written  consent of the  holders of all of the Notes then  outstanding,  no such
waiver,  modification,  alteration  or amendment  shall be effective  which will
reduce  the  scope of the  guaranty  set  forth  in this  Amended  and  Restated
Subsidiary  Guarantee  Agreement or amend the requirements of Sections 1, 2 or 3
hereof or amend this Section 6. No such amendment or  modification  shall extend
to or affect any  obligation  not  expressly  amended or  modified or impair any
right consequent thereon.

                (b)     The  Subsidiary Guarantor  will not solicit,  request or
negotiate for or with

                                      -8-

<PAGE>

respect to any proposed waiver or amendment of any of the provisions of this
Amended and Restated Subsidiary Guarantee  Agreement,  the Note Agreement unless
each Holder of the Notes  (irrespective of the amount of Notes then owned by it)
shall be informed thereof by the Subsidiary  Guarantor and shall be afforded the
opportunity  of  considering  the same and shall be supplied  by the  Subsidiary
Guarantor  with a copy of the  proposed  waiver  or  amendment  and  such  other
information  regarding such amendment or waiver as any Holder of the Notes shall
reasonably  request  to  enable it to make an  informed  decision  with  respect
thereto. Executed or true and correct copies of any waiver or amendment effected
pursuant  to the  provisions  of  this  Section  6  shall  be  delivered  by the
Subsidiary  Guarantor  to  each  Holder  of  outstanding  Notes  within  30 days
following  the date on which the same shall have been  executed and delivered by
the Holder or Holders of the requisite  percentage of the outstanding Notes. The
Subsidiary  Guarantor will not, directly or indirectly,  pay or cause to be paid
any remuneration,  whether by way of supplemental or additional interest, fee of
otherwise,  to any Holder of the Notes as consideration  for or as an inducement
to the  entering  into by any Holder of the Notes of any waiver or  amendment of
any of the  terms  and  provisions  of  this  Amended  and  Restated  Subsidiary
Guarantee   Agreement  or  the  Note  Agreement  unless  such   remuneration  is
concurrently paid, on the same terms, ratably to the Holders of all of the Notes
then outstanding.

         7.     MISCELLANEOUS.

                (a)     No  remedy  herein  conferred  upon  or  reserved to the
Purchasers  is  intended  to be  exclusive  of any  other  available  remedy  or
remedies,  but each and every such remedy  shall be  cumulative  and shall be in
addition to every other remedy given under this Amended and Restated  Subsidiary
Guarantee  Agreement now or hereafter  existing at law or in equity. No delay or
omission to exercise any right or power  accruing upon any default,  omission or
failure of performance  hereunder  shall impair any such right or power or shall
be construed to be a waiver thereof but any such right or power may be exercised
from time to time and as often as may be deemed  expedient.  In order to entitle
the  Purchasers  to exercise any remedy  reserved to them under this Amended and
Restated  Subsidiary  Guarantee  Agreement,  it shall not be  necessary  for the
Purchasers to physically  produce their Notes in any  proceedings  instituted by
them or to give any notice,  other than such  notice as may be herein  expressly
required.

                (b)     This Amended and Restated Subsidiary Guarantee Agreement
shall be binding upon the Subsidiary  Guarantor,  its successors and assigns and
shall inure,  together with the rights and remedies of the Purchasers hereunder,
to the benefit of the  Purchasers and their  successors  and assigns;  provided,
however, that the Subsidiary Guarantor may not assign its rights or delegate its
duties hereunder without the Purchasers' prior written consent. Without limiting
the generality of the foregoing,  but subject to the terms and conditions of the
Note Agreement, the Purchasers may assign or otherwise transfer any indebtedness
held by them secured by this Amended and Restated Subsidiary Guarantee Agreement
to any other Person or entity,  and such other Person or entity shall  thereupon
become vested with all the benefits in respect thereof granted to the Purchasers
herein or otherwise,  subject, however, to the provisions of the Note Agreement.
The Company  hereby  releases the  Purchasers  from any liability for any act or
omission relating to this Amended and Restated Subsidiary  Guarantee  Agreement,
except the Purchasers' gross negligence or willful misconduct.

                (c)     In the event that any provision  hereof shall be  deemed
to be invalid by reason

                                      -9-

<PAGE>

of the operation of any law or by reason of the interpretation placed thereon by
any court,  this Amended and Restated  Subsidiary  Guarantee  Agreement shall be
construed as not containing  such provision,  but only as to such  jurisdictions
where  such law or  interpretation  is  operative,  and the  invalidity  of such
provision shall not affect the validity of any remaining  provision hereof,  and
any and all other  provisions  hereof which are otherwise lawful and valid shall
remain in full force and effect.

                (d)     This Amended and Restated Subsidiary Guarantee Agreement
shall be deemed to have been made in the State of New York and shall be governed
by and construed in accordance  with the laws of the State of New York,  without
regard to  principles of conflicts of law. The headings in this  instrument  are
for  convenience of reference  only and shall not limit or otherwise  affect the
meaning of any provision hereof.

                (e)     THE  GUARANTORS HEREBY AGREE TO WAIVE, AND THE AGENT AND
THE LENDERS BY THEIR ACCEPTANCE  HEREOF HEREBY AGREE TO WAIVE,  THEIR RESPECTIVE
RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION  BASED UPON OR ARISING
OUT OF OR  RELATED  TO THIS  GUARANTY,  THE  OTHER  GUARANTOR  DOCUMENTS  OR THE
TRANSACTIONS  CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION,  PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES  AGAINST ANY OTHER PARTY OR
PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE
GUARANTORS  HEREBY  AGREE,  AND THE AGENT AND THE  LENDERS  BY THEIR  ACCEPTANCE
HEREOF HEREBY AGREE,  THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL  WITHOUT A JURY.  WITHOUT IN ANY WAY  LIMITING  THE  FOREGOING,  THE
GUARANTORS  FURTHER  AGREE,  AND THE AGENT AND THE  LENDERS BY THEIR  ACCEPTANCE
HEREOF FURTHER AGREE,  THAT THEIR  RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED
BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM, OR OTHER PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF
THIS  GUARANTY OR THE OTHER  GUARANTORS  DOCUMENTS  OR ANY  PROVISION  HEREOF OR
THEREOF.  THIS  WAIVER  SHALL  APPLY  TO ANY  SUBSEQUENT  AMENDMENTS,  RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THE GUARANTY AND THE OTHER GUARANTOR  DOCUMENTS.
A COPY OF THIS SECTION  7(E) MAY BE FILED WITH ANY COURT AS WRITTEN  EVIDENCE OF
THE WAIVER OF THE RIGHT TO TRIAL BY JURY AND CONSENT TO TRIAL BY COURT.

                (f)     THE  GUARANTORS  ACKNOWLEDGE  THAT  THEY  AS  INDIVIDUAL
ENTITIES  HAVE  EITHER  OBTAINED  THE  ADVICE OF LEGAL  COUNSEL  OR HAVE HAD THE
OPPORTUNITY TO OBTAIN SUCH ADVICE IN CONNECTION WITH THE TERMS AND PROVISIONS OF
THIS GUARANTY. THE GUARANTORS ACKNOWLEDGE AND AGREE THAT EACH OF THE WAIVERS AND
CONSENTS SET FORTH HEREIN ARE MADE WITH FULL KNOWLEDGE OF THEIR SIGNIFICANCE AND
CONSEQUENCES.  ADDITIONALLY,  THE  GUARANTORS  ACKNOWLEDGE  AND  AGREE  THAT  BY
EXECUTING THIS

                                      -10-

<PAGE>

GUARANTY, THEY ARE WAIVING CERTAIN RIGHTS, BENEFITS, PROTECTIONS AND DEFENSES TO
WHICH THEY MAY OTHERWISE BE ENTITLED UNDER  APPLICABLE LAW,  INCLUDING UNDER THE
PROVISIONS OF THE CALIFORNIA  CIVIL CODE AND CALIFORNIA  CODE OF CIVIL PROCEDURE
REFERRED TO IN THIS AGREEMENT TO THE EXTENT SUCH LAWS ARE  APPLICABLE,  AND THAT
ALL SUCH WAIVERS HEREIN ARE EXPLICIT,  KNOWING WAIVERS.  THE GUARANTORS  FURTHER
ACKNOWLEDGE AND AGREE THAT THE AGENT AND THE LENDERS ARE RELYING ON SUCH WAIVERS
IN CREATING  THE  GUARANTEED  OBLIGATIONS,  AND THAT SUCH WAIVERS ARE A MATERIAL
PART OF THE  CONSIDERATION  WHICH THE AGENT AND THE  LENDERS ARE  RECEIVING  FOR
CREATING THE  GUARANTEED  OBLIGATIONS.

                (g)     The  obligations  of the Subsidiary Guarantor  hereunder
shall remain in full force and effect until all the  Obligations  have been paid
and satisfied in full.

                                      -11-

<PAGE>

         IN WITNESS WHEREOF, the  Subsidiary Guarantor has caused  this  Amended
and Restated Subsidiary  Guarantee Agreement to be duly executed and attested as
of the date first above written.

                                 [Subsidiary Guarantor]

                                 By: The Chalone Wine Group, Ltd.,
                                     a California corporation
                                     Its Managing Member

                                     By: _____________________________
                                         Thomas B. Selfridge,
                                         President and CEO

<PAGE>

        REPRESENTATION AND WARRANTIES OF ORIGINAL SUBSIDIARY GUARANTORS

         Such  Subsidiary Guarantor represents and warrants to each Purchaser as
follows:

         1.     SUBSIDIARIES.  Such  Subsidiary  Guarantor  has,  directly   and
indirectly, good and marketable title to all of the shares it purports to own of
the stock of each of its subsidiaries,  free and clear in each case of any Lien.
All such shares have been duly issued and are fully paid and non-assessable.

         2.     ORGANIZATION AND AUTHORITY.  Such Subsidiary Guarantor, and each
of its subsidiaries,

                (a)     is   a   corporation   or   general   partnership,  duly
incorporated,  or duly organized,  as the case may be, amalgamated or continued,
validly  existing and in good standing and has duly made all  registrations  and
filings  required  given  the  nature  of its  business  under  the  laws of its
jurisdiction  of  incorporation  or  organization  and has paid all taxes as are
necessary to maintain its corporate or  partnership  existence,  as the case may
be;

                (b)     has all requisite power  and authority and all necessary
licenses  and  permits to own and  operate  its  properties  and to carry on its
business  as now  conducted,  where  failure  to do so would  materially  affect
adversely  the  business,  properties,  profits or  financial  condition of such
Subsidiary Guarantor or any of its subsidiaries; and

                (c)     is duly licensed or qualified and is in good standing as
a foreign  corporation in each  jurisdiction  wherein the nature of the business
transacted by it or the nature of the property  owned or leased by it makes such
licensing or  qualification  necessary,  where failure to do so would materially
affect  adversely the business,  properties,  profits or financial  condition of
such Subsidiary Guarantor or any of its subsidiaries.

         3.     FULL DISCLOSURE. Neither the Subsidiary Guarantee Agreement, the
Collateral  Documents to which such Subsidiary  Guarantor is a signatory nor any
other written statement furnished by such Subsidiary Guarantor to such Purchaser
in connection with the negotiation of the Subsidiary Guarantee Agreement and the
Collateral Documents to which such Subsidiary Guarantor is a signatory, contains
any untrue  statement of a material fact or omits a material  fact  necessary to
make the statements contained therein or herein not misleading. There is no fact
peculiar to such Subsidiary  Guarantor or its subsidiaries which such Subsidiary
Guarantor  has not  disclosed  to such  Purchaser  in writing  which  materially
affects adversely nor, so far as such Subsidiary Guarantor can now foresee, will
materially  affect  adversely  the  properties,  business,  profits or financial
condition of such Subsidiary Guarantor and its subsidiaries, taken as a whole.

         4.     PENDING LITIGATION.  There are no proceedings pending or, to the
knowledge of such  Subsidiary  Guarantor,  threatened  against or affecting such
Subsidiary  Guarantor  or any of its  subsidiaries  in any court or  before  any
governmental authority or arbitration board or tribunal are reasonably likely to
materially  affect  adversely  the  properties,  business,  profits or financial
condition of such Subsidiary Guarantor and its subsidiaries.

                                EXHIBIT 10.11(a)
                        (to the Note Purchase Agreement)

<PAGE>

         5.     TITLE TO PROPERTIES.  Such Subsidiary  Guarantor and each of its
subsidiaries  has good and  marketable  title in fee simple  (or its  equivalent
under  applicable  law) to all  material  parcels of real  property and has good
title to all the other material items of property it purports to own,  except as
sold or otherwise  disposed of in the ordinary course of business and except for
Liens permitted by this Agreement.

         6.     PATENTS AND TRADEMARKS.  Such Subsidiary  Guarantor and  each of
its  subsidiaries  owns,  possesses  or has the  right  to use all the  patents,
trademarks,  trade names,  service  marks,  copyright,  licenses and rights with
respect to the foregoing necessary for the present and planned future conduct of
its business, without any known conflict with the rights of others.

         7.     COMPLIANCE IS LEGAL AND AUTHORIZED.Compliance by such Subsidiary
Guarantor with all of the provisions of the Subsidiary  Guarantee  Agreement and
the Collateral Documents to which such Subsidiary Guarantor is a signatory--

                (a)     is  within  the corporate or partnership powers, as  the
case may be, of such Subsidiary Guarantor;

                (b)     will not violate any  provisions of any law or any order
of any court or  governmental  authority or agency and will not conflict with or
result in any  breach  of any of the  terms,  conditions  or  provisions  of, or
constitute a default under the charter or other organizational documents of such
Subsidiary  Guarantor or any indenture or other agreement or instrument to which
such  Subsidiary  Guarantor  is a party or by which it may be bound or result in
the imposition of any Liens or  encumbrances  on any property of such Subsidiary
Guarantor; and

                (c)     has  been  duly  authorized  by   proper  corporate   or
partnership action, as the case may be, on the part of such Subsidiary Guarantor
(no action by the  stockholders or partners of such  Subsidiary  Guarantor being
required  by law,  by the  charter  or other  organizational  documents  of such
Subsidiary Guarantor or otherwise),  and such Subsidiary Guarantee Agreement and
Collateral  Documents  have been duly executed and delivered by such  Subsidiary
Guarantor and constitute the legal, valid and binding obligations, contracts and
agreements of such  Subsidiary  Guarantor  enforceable  in  accordance  with its
terms.

         8.     NO DEFAULTS.   Neither such Subsidiary Guarantor nor any of  its
subsidiaries  is in default in the payment of  principal or interest on any Debt
or is in default under any  instrument or  instruments  or agreements  under and
subject  to which any Debt has been  issued,  and no event has  occurred  and is
continuing  under the provisions of any such  instrument or agreement which with
the lapse of time or the giving of notice, or both, would constitute an event of
default thereunder.

         9.     GOVERNMENTAL CONSENT.  No approval,  consent or  withholding  of
objection on the part of, or filing,  registration  or  qualification  with, any
governmental  department,  regulatory  authority  or court under the laws of the
United States or any agency or authority  thereof,  state,  Federal or local, is
necessary  in  connection  with  the  lawful  execution  and  delivery  by  such
Subsidiary  Guarantor of its Guaranty or compliance by such Subsidiary Guarantor
with  any of the  provisions  of such  Subsidiary  Guarantee  Agreement  and the
Collateral  Documents including,  without limitation,  payments to be made under
such Subsidiary Guarantee Agreement.

                                   10.11(a)-2

<PAGE>

         10.    TAXES.  Such  Subsidiary  Guarantor and  its  subsidiaries  have
filed all tax returns that are required to have been filed in any  jurisdiction,
and have paid all taxes  shown to be due and  payable  on such  returns  and all
other taxes and assessments levied upon them or their properties, assets, income
or  franchises,  to the extent  such taxes and  assessments  have become due and
payable  and  before  they  have  become  delinquent,  except  for any taxes and
assessments  (i) the  amount of which is not  individually  or in the  aggregate
material,  or (ii) the amount,  applicability  or validity of which is currently
being  contested in good faith by  appropriate  proceedings  and with respect to
which  such  Subsidiary  Guarantor  or a  subsidiary  has  established  adequate
reserves in accordance with GAAP.  Such  Subsidiary  Guarantor knows of no basis
for any other tax or  assessment  that could  reasonably  be  expected to have a
material adverse effect. The charges, accruals and reserves on the books of such
Subsidiary Guarantor and its subsidiaries in respect of Federal,  state or other
taxes for all fiscal periods are adequate. The Federal income tax liabilities of
such  Subsidiary  Guarantor and its  subsidiaries  have been paid for all fiscal
years up to and including the fiscal year ended March 31, 2000.

         11.    EMPLOYEE-RELATED MATTERS. (a) Each  pension  plan  maintained by
such Subsidiary  Guarantor or any of its  subsidiaries  complies in all material
respects with all applicable  statutes and  governmental  rules and regulations.
Such  Subsidiary  Guarantor and each of its  subsidiaries  has  satisfied  their
respective  funding  obligations  as required by applicable  law for all pension
plans maintained by them. All tax returns and reports required to be filed by or
with  respect  to such  Subsidiary  Guarantor's  and  each of its  subsidiaries'
pension plans in all applicable  jurisdictions  have been filed.  Such plans are
(to the extent  required under  applicable  law, rule or regulation)  registered
under,  and are in  compliance  with,  applicable  federal  legislation  and all
reports, returns and filings required to be made thereunder have been made. Such
plans have been at all times administered in accordance with their terms and the
provisions of applicable law.  Neither such Subsidiary  Guarantor nor any of its
subsidiaries  has incurred a liability in  connection  with the  winding-up of a
pension  plan or the  withdrawal  from a  multiemployer  plan which would have a
Material  adverse  effect on the  properties,  business,  profits  or  condition
(financial  or  otherwise)  of  such  Subsidiary   Guarantor  and  each  of  its
subsidiaries taken as a whole or impair the ability of such Subsidiary Guarantor
or any of its  subsidiaries to perform its respective  obligations  contained in
the Subsidiary  Guarantee  Agreement and the Collateral  Documents to which such
Subsidiary Guarantor is a signatory.  There are no controversies  pending or, to
the knowledge of such Subsidiary  Guarantor,  threatened or anticipated  between
such  Subsidiary  Guarantor and any of its employees which would have a material
adverse effect on the properties,  business,  profits or condition (financial or
otherwise)  of such  Subsidiary  Guarantor or any of its  subsidiaries  or would
materially  impair  the  ability  of  such  Subsidiary  Guarantor  or any of its
subsidiaries  to perform its obligations  contained in the Subsidiary  Guarantee
Agreement and the Collateral  Documents to which such Subsidiary  Guarantor is a
signatory  and there are no material  labor  disputes,  grievances,  arbitration
proceedings  or any strikes,  work  stoppages or slow downs  pending or, to such
Subsidiary  Guarantor's  knowledge,  threatened by such  Subsidiary  Guarantor's
employees and representatives.

         (b)    The  consummation  of  the  transactions  provided  for  in  the
Subsidiary  Guarantee  Agreement  and the  Collateral  Documents  to which  such
Subsidiary  Guarantor is a signatory and compliance by such Subsidiary Guarantor
with the provisions thereof will not involve any

                                   10.11(a)-3

<PAGE>

prohibited  transaction  within  the  meaning  of ERISA or  Section  4975 of the
Internal Revenue Code of 1986, as amended.  No Reportable Event has occurred and
is continuing with respect to any Plan.  Neither such  Subsidiary  Guarantor nor
any  ERISA  Affiliate  has  withdrawn  from  any Plan or  Multiemployer  Plan or
instituted  steps to do so and no steps have been  instituted  to terminate  any
Plan.  No condition  exists or event or  transaction  has occurred in connection
with any Plan which could result in the incurrence by such Subsidiary  Guarantor
or any ERISA  Affiliate  of any  material  liability,  fine or penalty.  No Plan
maintained by such Subsidiary  Guarantor or any ERISA  Affiliate,  nor any trust
created thereunder, has incurred any "accumulated funding deficiency" as defined
in Section 302 of ERISA nor does the present value of all benefits  vested under
all Plans exceed,  as of the last annual valuation date, the value of the assets
of the  Plans  allocable  to  such  vested  benefits.  Neither  such  Subsidiary
Guarantor nor any ERISA  Affiliate has any contingent  liability with respect to
any  post-retirement  "welfare  benefit plan" (as such term is defined in ERISA)
except as has been disclosed to the Purchasers.

         12.    COMPLIANCE WITH LAW. Neither such Subsidiary  Guarantor nor any
of its  subsidiaries  (a) is in  violation  of any  law,  ordinance,  franchise,
governmental  rule or  regulation  to which it is subject;  or (b) has failed to
obtain  any  license,  permit,  franchise  or other  governmental  authorization
necessary to the  ownership  of its property or to the conduct of its  business,
which  violation  or failure to obtain  would  materially  adversely  affect the
business,  prospects,  profits, properties or condition (financial or otherwise)
of such Subsidiary  Guarantor and its subsidiaries,  taken as a whole, or impair
the ability of such Subsidiary Guarantor to perform its obligations contained in
the Subsidiary  Guarantee  Agreement and the Collateral  Documents to which such
Subsidiary  Guarantor is a signatory.  Neither such Subsidiary Guarantor nor any
of its  subsidiaries  is in  default  with  respect to any order of any court or
governmental authority or arbitration board or tribunal.

         13.    COMPLIANCE WITH  ENVIRONMENTAL LAWS.   Neither  such  Subsidiary
Guarantor nor any of its  subsidiaries is in violation of any applicable  United
States Federal, state, or local laws, statutes, rules, regulations or ordinances
relating  to  public  health,  safety  or the  environment,  including,  without
limitation,  relating to  releases,  discharges,  emissions or disposals to air,
water,  land or ground water,  to the withdrawal or use of ground water,  to the
use, handling or disposal of polychlorinated  biphenyls (PCBs), asbestos or urea
formaldehyde,  to the  treatment,  storage,  disposal or management of hazardous
substances (including, without limitation,  petroleum, crude oil or any fraction
thereof,  or other  hydrocarbons),  pollutants or  contaminants,  to exposure to
toxic,  hazardous or other controlled,  prohibited or regulated substances which
violation could materially affect adversely the business, profits, properties or
financial condition of such Subsidiary Guarantor and its subsidiaries,  taken as
a whole.  Such  Subsidiary  Guarantor does not know of any liability or class of
liability  of such  Subsidiary  Guarantor or any of its  subsidiaries  under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended (42 U.S.C.  Section  9601 et seq.),  or the  Resource  Conservation  and
Recovery Act of 1976, as amended (42 U.S.C. Section 6901 et seq.).

         14.    ABSENCE OF FOREIGN OR ENEMY STATUS.  (a) No Subsidiary Guarantor
nor any of their  subsidiaries on the date hereof, is (i) an "enemy" or an "ally
of enemy"  within the  meaning of Section 2 of the  Trading  with the Enemy Act,
(ii) a "national" of a foreign  country  designated in Executive  Order 8389, as
amended or of any "designated enemy country" as defined in

                                   10.11(a)-4

<PAGE>

Executive  Order No. 9095, as amended,  of the President of the United States of
America,  in each case within the meaning of said Executive  Orders, as amended,
or of any regulation issued  thereunder,  or (iii) a "national of any designated
foreign country" within the meaning of the Foreign Assets Control Regulations or
of the Cuban Assets Control Regulations of the United States of America.

         (b)    The execution and delivery of the Subsidiary Guarantee Agreement
and the Collateral  Documents by any Subsidiary Guarantor as contemplated hereby
will not violate the  Foreign  Assets  Control  Regulations,  the Foreign  Funds
Control  Regulations,  the  Transaction  Control  Regulations,  the Cuban Assets
Control  Regulations,   the  Iranian  Assets  Control  Regulations,  the  Libyan
Sanctions Regulations,  the South African Transactions Regulations, or the Iraqi
Sanctions  Regulations  of the United States  Treasury  Department  (each as set
forth in 31 C.F.R., Subtitle B, Chapter V, as amended).

         15.    CONSOLIDATED   AND   INTEGRATED  BUSINESS.  The  Company and its
Restricted Subsidiaries share centralized administration of the winery functions
of  each  entity  including  finance,  sales  and  marketing.  Such  centralized
administration  is performed at the  Company's  Napa office.  This facility also
includes  a  central  distribution  center  in  which  substantially  all of the
Company's and its Restricted Subsidiaries' wines are stored prior to shipping.

                Sales and marketing of  all  of  the  Company's  and  Restricted
Subsidiaries'  wines  within  the  State  of  California  are made  through  the
Company's  own sales  forces and one or more  wholesalers.  The  Company  uses a
single  broker  for  all  wholesale  California  sales  of the  Company  and its
Restricted  Subsidiaries.  Furthermore,  all of  the  Company's  and  Restricted
Subsidiaries'  wineries  are  operated  under  the  overall  supervision  of the
Company's Chief Executive Officer.

                The Company and  each  Subsidiary Guarantor prepare consolidated
financial statements and do their financial reporting on a consolidated basis.

         16.    SOLVENCY AND CONSIDERATION.  (a)  Such Subsidiary  Guarantor  is
solvent,  has capital not unreasonably  small in relation to its business or any
contemplated  or  undertaken  transaction  and has assets having a value both at
fair  valuation  and at  present  fair  salable  value  greater  than the amount
required to pay its debts as they  become due and  greater  than the amount that
will be required to pay its probable  liability  on its  existing  debts as they
become absolute and matured. Such Subsidiary Guarantor does not intend to incur,
or believes or should have believed that it will incur, debts beyond its ability
to pay such debts as they  become due.  Such  Subsidiary  Guarantor  will not be
rendered  insolvent by the  execution  and delivery of, and  performance  of its
obligations  under,  the  Subsidiary  Guarantee  Agreement  and  the  Collateral
Documents to which such  Subsidiary  Guarantor is a signatory.  such  Subsidiary
Guarantor  does not  intend to  hinder,  delay or defraud  its  creditors  by or
through the execution and delivery of, or performance of its obligations  under,
the Subsidiary  Guarantee  Agreement and the Collateral  Documents to which such
Subsidiary Guarantor is a signatory.

         (b)    Each Subsidiary Guarantor for  itself  has determined  that  the
execution and delivery of the Subsidiary  Guarantee Agreement and the Collateral
Documents to which such

                                   10.11(a)-5

<PAGE>

Subsidiary  Guarantor is a signatory is in furtherance of its corporate purposes
and is in its best interest and that it will derive substantial benefit, whether
directly or indirectly,  from the making of such Subsidiary  Guarantee Agreement
and the Collateral Documents (i) by, among other things, (1) enabling its direct
or indirect parent company to obtain  financing  deemed necessary and beneficial
by such parent  company for  general,  consolidated  corporate  purposes and (2)
enabling it to increase its  capitalization on a consolidated  basis and (ii) in
accordance with its  participation in the  consolidated and integrated  business
described in paragraph 15 hereof.

         17.    SUBSIDIARY GUARANTEE AGREEMENT to Rank Pari Passu.The Subsidiary
Guarantee Agreement to which such Subsidiary  Guarantor is a party and all other
obligations  thereunder are direct and unsecured  obligations of such Subsidiary
Guarantor  ranking  PARI  PASSU as against  all other  present  and future  Debt
(actual or contingent) of such Subsidiary  Guarantor which is not secured or the
subject of any  statutory  trust or  preference  or which is not expressed to be
subordinate or junior in rank to any other Debt of such Subsidiary Guarantor.

         18.    INVESTMENT COMPANY ACT. Such Subsidiary Guarantor is not, and is
not directly or indirectly controlled by or acting on behalf of any Person which
is, required to register as an "investment company" under the Investment Company
Act of 1940, as amended.

         19.    PUBLIC UTILITY HOLDING  COMPANY ACT.  Such Subsidiary  Guarantor
is not, nor will it become,  solely by reason of entering into or performing its
obligations under the Subsidiary  Guarantee  Agreement to which it is a party or
the  carrying out of any of the  transactions  contemplated  thereby,  a "public
utility company" or a "holding company" under the Public Utility Holding Company
Act of 1935, as amended.

                                   10.11(a)-6

<PAGE>

                             FORM OF DEED OF TRUST

               See attached representative form of Deed of Trust.

                                   EXHIBIT A
                          (to Note Purchase Agreement)

<PAGE>

<PAGE>

 RECORDING REQUESTED BY:                            )

 NORTH AMERICAN TITLE COMPANY                       )

 AND WHEN RECORDED MAIL TO:                         )
 McDermott, Will & Emery                            )
 227 West Monroe Street, Suite 4400 '               )
 Chicago, Illinois 60606                            )
 Attention: Elizabeth L. Majers, Esq.               )
________________________________________________________________________________
                                          (Space Above For Recorder's use only)

             DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF RENTS
                               AND FIXTURE FILING
                           Dated as of April 19, 2002
                                      From
                          THE CHALONE WINE GROUP, LTD.
                                 (the "Company")
                                       To
                    North American Title Company, as Trustee
                               For the Benefit of
              C60PERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.,

                       "RABOBANK INTERNATIONAL", NEW YORK
                                     BRANCH,
                  as collateral agent (the "Collateral Agent")

THIS  DEED OF TRUST  CONSTITUTES  A FIXTURE  FILING  UNDER  SECTION  9502 OF THE
UNIFORM  COMMERCIAL  CODE OF THE STATE OF CALIFORNIA  ("UCC") AND APPLIES TO ALL
GOODS AND PERSONAL  PROPERTY WHICH,  UNDER  CALIFORNIA LAW, ARE OR ARE TO BECOME
FIXTURES  ON THE REAL  PROPERTY  LOCATED  IN THE  COUNTY OF  MONTEREY,  STATE OF
CALIFORNIA,  AND MORE PARTICULARLY DESCRIBED ON ANNEX A WHICH IS ATTACHED HERETO
AND INCORPORATED HEREIN BY THIS REFERENCE.

THE NAMES OF THE  DEBTOR  AND THE  SECURED  PARTY,  THE  MAILING  ADDRESS OF THE
SECURED PARTY FROM WHICH  INFORMATION  CONCERNING  THE SECURITY  INTEREST MAY BE
OBTAINED,  THE  MAILING  ADDRESS OF THE DEBTOR AND A  STATEMENT  INDICATING  THE
TYPES,  OR DESCRIBING THE ITEMS,  OF  COLLATERAL,  ARE AS DESCRIBED  HEREIN,  IN
COMPLIANCE WITH THE REQUIREMENTS OF UCC.

THIS DEED OF TRUST SECURES  PROMISSORY NOTES WHICH PROVIDE FOR VARIABLE RATES OF
INTEREST.

<PAGE>

THIS DEED OF TRUST IS ENTERED INTO BY THE PARTIES  HERETO  EXPRESSLY  SUBJECT TO
THE TERMS AND  CONDITIONS  OF THE  INTERCREDITOR  AND  COLLATERAL  AGREEMENT (AS
DEFINED HEREIN) AND THE RIGHTS OF COLLATERAL AGENT SET FORTH THEREIN,  WHICH MAY
RESULT IN THE  SUBORDINATION  THERETO  OF ANY LIEN OR OTHER  CLAIM BY ANY JUNIOR
LIENHOLDER OR JUNIOR DEED OF TRUST  BENEFICIARY  WITH AN INTEREST SECURED BY THE
COLLATERAL DESCRIBED HEREIN.

Tax statements for the Collateral  described herein and situated in the State of
California should be sent to:
The Chalone Wine Group, Ltd. 621 Airpark Road
Napa, California 94558

<PAGE>

                               TABLE OF CONTENTS
                                                                            Page
Recitals.......................................................................1

Section 1       Definitions ...................................................7

Section 2.      General Covenants and Warranties .............................11

Section 2.1.    Agreement and Deed of Trust Covenants  ................. .....11

Section 2.2.    Ownership of Collateral................................ ......12

Section 2.3     Further Assurances............................................12

Section 2.4.    Payment of Principal, Premium and Interest  ..................12

Section 2.5.    Maintenance of Collateral, Other Liens, Compliance with Laws,
                Environmental Matters, Etc . .................................12

Section 2.6.    Insurance.   .................................................16

Section 2.7.    Payment of Taxes and Other Charges; Contests Thereof..........18

Section 2.8.    Limitation on Liens ..........................................19

Section 2.9.    Advances......................................................19

Section 2.10.   Recordation...................................................20

Section 2.11.   After-Acquired Property. .....................................20

Section 2.12.   Indemnification; Waiver of Offset.............................20

Section 3.1.    Possession, Use and Release of Collateral  ...................22

Section 3.1.    Company's Right of Possession ................................22

Section 3.2.    Disposition of Certain Trade Property ........................22

Section 3.3.    Release of Trade Property ....................................23

Section 3.4.    Release of Collateral - Loss, Damage to or Destruction of the
                Collateral and Prepayment of the Notes........................24

Section 3.5.    Eminent Domain................................................24

Section 4.      Application of Insurance and Certain Other Moneys Received by
                the Collateral Agent..........................................24

Section 4.1.    Insurance Proceeds and Condemnation Awards....................24

Section 4.2.    Title Insurance...............................................25

Section 4.3.    Other Proceeds................................................26

Section 4.4.    Application if Event of Default Exists .......................26

Section 4.5.    Investment of Collateral .....................................26

Section 5.      Defaults and Remedies THEREFOR ...............................26

                                      -i-

<PAGE>

                                TABLE OF CONTENTS
                                   (CONTINUED)
                                                                            Page

Section 5.1.    Events of Default ............................................26

Section 5.2.    Remedies .....................................................26

Section 5.3.    Application of Proceeds ......................................30

Section 5.4.    Waiver of Extension, Appraisement and Stay Laws ..............30

Section 5.5.    Effect of Discontinuance of Proceedings ......................31

Section 5.6.    Delay or Omission Not a Waiver ...............................31

Section 5.7.    Costs and Expenses of Foreclosure ............................31

Section 5.8.    Notes to Become Due Upon Sale by Collateral Agent ............31

Section 5.9.    Remedies Subject to Applicable Law ...........................32

Section 6.      Miscellaneous.................................................32

Section 6.1.    Successors and Assigns  ......................................32

Section 6.3.    Addresses for Notices and Demands.............................32

Section 6.4.    Headings and Table of Contents ...............................32

Section 6.5.    Release.......................................................32

Section 6.6.    Counterparts..................................................33

Section 6.7.    Agency........................................................33

Section 6.8.    Substitute Trustee ...........................................33

Section 6.9.    Governing.....................................................33

Section 6.10.   Time..........................................................34

Section 6.11.   Future Advances ..............................................34

Section 6.12.   Waiver of Jury Trial ........................................ 34

Section 6.13.   Special California Provisions ................................34
                                      -ii-
<PAGE>

         THIS DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND FIXTURE
 FILING  dated as of APRIL 19, 2002 (the or this "DEED OF  TRUST"),  is from THE
 CHALONE WINE GROUP, LTD., a California corporation (the "COMPANY"),  having its
 principal office at 621 Airpark Road, Napa, California 94558, to North American
 Title  Company   ("TRUSTEE'),   for  the  benefit  of   C66PERATIEVE   CENTRALE
 RAIFFEISENBOERENLEENBANK B.A., "RABOBANK INTERNATIONAL, NEW YORK BRANCH, in its
 capacity as  Collateral  Agent for the ratable  benefit of the Secured  Parties
 under  and  pursuant  to  that  certain  Intercreditor  and  Collateral  Agency
 Agreement (together with its permitted  successors and assigns, the "COLLATERAL
 AGENT') whose post office address is 245 Park Avenue, New York, New York 10167.

                                    RECITALS:

         A.  Reference  is made to those  separate  and  several  Note  Purchase
Agreements,  each dated as of September  15, 2000  (collectively,  the "ORIGINAL
NOTE  AGREEMENTS"),  entered  into by the  Company  with each of the  Purchasers
listed on  Schedule A thereto  (collectively,  the  "NOTEHOLDERS  "),  under and
pursuant to which the Noteholders  purchased  $5,000,000 8.75% Senior Guaranteed
Notes,  Series A, due September 15, 2010,  $10,000,000  Senior Guaranteed Notes,
Series B, due September 15, 2010 and $15,000,000 Senior Guaranteed Notes, Series
C, due September 15, 2010  (collectively,  the "ORIGINAL  SENIOR  NOTES') of the
Company.  The Company has requested that the  Noteholders  amend and restate the
Original Note  Agreements,  amend and restate the Original Senior Notes, and the
Noteholders  are willing to enter into and  execute  those  certain  Amended and
Restated  Note  Purchase  Agreements  each dated April 19, 2002 (as the same may
hereafter be amended,  modified and/or restated from time to time, collectively,
the  "AMENDED  AND  RESTATED  NOTE  AGREEMENTS  ") and are  willing to amend and
restate the Original  Senior Notes pursuant to the terms thereof (as so amended,
the "AMENDED AND  RESTATED  SENIOR  SECURED  NOTES "), on the  condition  (among
others) that the Company enter into this Deed of Trust.

         B. Reference is hereby made to that certain Credit  Agreement  dated as
of April  19,  2002  (as the same may  hereafter  be  amended,  modified  and/or
restated from time to time,  the "CREDIT  AGREEMENT")  by and among the Company,
Cooperatieve Centrale  RaiffeisenBoerenleenbank  B.A., "Rabobank International,"
New York  Branch,  as  administrative  agent (the "AGENT ") and the lenders from
time to time party  thereto  (the  "LENDERS  ") under and  pursuant to which the
Lenders have  extended  term loans and  revolving  loans to the Company and made
available a letter of credit subfacility and swingline loans and which loans are
evidenced by, among other things,  certain promissory notes  (collectively,  the
"CREDIT AGREEMENT NOTES ").

         C. Pursuant to the  Intercreditor and Collateral Agency Agreement dated
as of April 19, 2002, as the same may be amended, modified or restated from time
to time,  (the  "INTERCREDITOR  AND AGENCY  AGREEMENT  "),  entered  into by the
Noteholders,  the Company,  the Lenders, the Agent and the Collateral Agent, the
Agent was appointed as collateral  agent to act on behalf of the Secured Parties
(as hereinafter defined) regarding the Collateral (as hereinafter defined),  the
obligations  of the Company to the  Noteholders  under the Amended and  Restated
Note  Agreements  and the  Amended and  Restated  Senior  Secured  Notes and the
obligations  of the  Company  to the  Lenders  and the Agent  under  the  Credit
Agreement and the Credit Agreement Term Notes, are to be secured by this Deed of
Trust.

<PAGE>

         D. All  principal,  premium and  interest  and all fees and  additional
 amounts and other sums at any time due and owing from and all other obligations
 of any nature of the Company now or hereafter existing,  or required to be paid
 by the  Company  under the terms of the  Amended and  Restated  Senior  Secured
 Notes,  the Amended and Restated Note  Agreements,  the Credit  Agreement,  the
 Credit Agreement Notes, the Intercreditor  and Agency  Agreement,  this Deed of
 Trust,  or any other  document,  mortgage or security  agreement  executed  and
 delivered by the Company  pursuant to the Amended and Restated Note Agreements,
 the  Credit  Agreement  or the  Intercreditor  and  Agency  Agreement  and  any
 extensions,  renewals  or  modifications  of any of the above  are  hereinafter
 sometimes referred to as the "SECURED OBLIGATIONS ".

         E. The Company is duly  authorized  under all applicable  provisions of
law, its charter and bylaws,  to issue the Amended and Restated  Senior  Secured
Notes and the Credit  Agreement  Notes and to execute and  deliver  this Deed of
Trust and to  mortgage,  convey,  assign  and grant a security  interest  in the
Collateral (as hereinafter  defined) to the Trustee, its successors and assigns,
for the  benefit of the  Collateral  Agent,  and its  successors  and assigns as
security for the Secured  Obligations and all corporate action and all consents,
approvals and other  authorizations  and all other acts and things  necessary to
make this Deed of Trust the valid, binding and legal instrument for the security
of the Secured Obligations have been done and performed.

         Now,  THEREFORE,  THIS DEED OF TRUST  WITNESSETH  that the Company,  in
consideration  of the premises,  the purchase and  acceptance of the Amended and
Restated  Secured Notes by the Noteholders and of the Credit  Agreement Notes by
the  Lenders,  and of the sum of Ten Dollars  received  by the Company  from the
Trustee  and the  Collateral  Agent and other good and  valuable  consideration,
receipt  whereof is hereby  acknowledged,  and in order to secure the payment of
all of the Secured Obligations,  does hereby warrant,  mortgage, pledge, assign,
bargain, hypothecate,  convey, grant, transfer, grant a first perfected security
interest in and set over unto the  Trustee,  and its  successors  and assigns in
trust, with power of sale and right of entry, for the benefit of and as an agent
for the Collateral Agent, its successors and assigns, all of its estate,  right,
title  and  interest  in  and  to  all  and  singular  the  following  described
properties,  rights,  interest and privileges  and all of the Company's  estate,
right, title and interest therein, thereto and thereunder,  if any (all of which
properties  hereby mortgaged,  assigned,  pledged and in which a first perfected
security  interest  has  been  granted  or  intended  so to be  are  hereinafter
collectively referred to as the "COLLATERAL"):

                              GRANTING CLAUSE FIRST
                                   COLLATERAL
         The  parcels  of land in  Monterey  County in the  State of  California
 described in Annex A attached hereto and made a part hereof ("LAND'),  together
 with the entire  interest of the Company in and to all  buildings,  structures,
 improvements  and  appurtenances  now  standing,   or  at  any  time  hereafter
 constructed or placed, upon such land,  including all right, title and interest
 of the Company, 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

                                      -2-
<PAGE>

hereafter  standing  on  said  land  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  and all elevators and  escalators)  and the reversion or  reversions,
remainder  or  remainders,  in and to said land,  and  together  with the entire
interest of the Company 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 Company in, to and under any streets,
ways,  alleys,  gores or strips of land  adjoining  said land, and all claims or
demands  whatsoever of the Company either in law or in equity,  in possession or
expectancy,  of, in and to said  land,  it being the  intention  of the  parties
hereto that,  so far as may be  permitted by law, all property of the  character
hereinabove  described,  which is now  owned  or is  hereafter  acquired  by the
Company and is affixed or attached or annexed to said land,  shall be and remain
or become and constitute a portion of said land and the security  covered by and
subject to the Lien of this Deed of Trust,  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  Company,  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 "REAL PROPERTY "). The assignment
of rents set forth in the proceeding  sentence is intended by the parties hereto
to be effective to create a present security interest in all existing and future
rents,  profits  or other  income  arising  from or  related  to the Land  under
California Civil Code Section 2938, as amended from time to time.

                             GRANTING CLAUSE SECOND
                                 TRADE PROPERTY

         All  materials,   furniture,   furnishings,   machinery,  fixtures  and
 equipment  now  or  hereafter  erected  on or  affixed  to the  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 goods, equipment, furnishings, fixtures, machinery and furniture owned by
 the  Company 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 Collateral,
 or  otherwise  located on the  Collateral,  and all  fixtures,  accessions  and
 appurtenances thereto, and all renewals or replacements of or substitutions for
 any of the foregoing (all of which  properties are  hereinafter  referred to as
 "TRADE PROPERTY ").

                              GRANTING CLAUSE THIRD

                                       -3-

<PAGE>

                        CONDEMNATION AWARDS AND PAYMENTS

         All judgments,  awards of damages,  settlements and other  compensation
 heretofore or hereafter  made resulting  from  condemnation  proceedings or the
 taking of the 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 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 (collectively, "CONDEMNATION AWARDS ").

                             GRANTING CLAUSE FOURTH

         Subject to the  satisfaction  in full of all  indebtedness  outstanding
 under the Revolving Credit Agreement Notes, a collateral  security  interest in
 all of  the  Company's  right,  title  and  interest  in  and  to  the  General
 Intangibles  related to the Collateral (as defined in the Credit  Agreement) of
 the Company.

                              GRANTING CLAUSE FIFTH
                                    PROCEEDS

         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 Collateral.

                                EXCEPTED PROPERTY

         There is, however,  to the extent included in the Lien and operation of
 this Deed of Trust, expressly excepted and excluded from the Lien and operation
 of this Deed of Trust, and expressly excepted and excluded from the Collateral,
 the Credit Agreement Collateral of the Company, now owned or hereafter acquired
 (herein called "EXCEPTED PROPERTY ").

         SUBJECT  HOWEVER,  as to all property or rights in property at any time
 subject  to the Lien  hereof  (whether  now owned or  hereafter  acquired),  to
 Permitted Encumbrances, as DEFINED IN SECTION 1 hereof.

         To HAVE AND To HOLD the Collateral  unto the Trustee and the successors
and assigns  forever,  in trust,  with power of sale for the purpose of securing
performance of each agreement, covenant and warranty of the Company contained in
the Amended and  Restated  Note  Agreements,  the  Amended and  Restated  Senior
Secured  Notes,  the Credit  Agreement,  the Credit  Agreement  Term Notes,  the
Intercreditor and Agency  Agreement,  this Deed of Trust, and the other Security
Documents and payment of the Secured Obligations. It is understood and agreed

                                      -4-
<PAGE>

 that this Deed of Trust is to secure the  obligation  of the  Company to repay,
 without preference or priority, all Secured Obligations.

         PROVIDED,  NEVERTHELESS,  and  these  presents  are  upon  the  express
condition that if the Company  performs the covenants  herein  contained and the
Secured  Obligations  are  paid  in full  and  all  other  sums  due or  payable
hereunder, under the Amended and Restated Note Agreements, the Credit Agreement,
the  Intercreditor  and Agency Agreement or under the other Security  Documents,
the estate,  right and interest of the Trustee in the property  hereby  conveyed
and granted a first perfected  security interest in shall cease and this Deed of
Trust shall  become  null and void,  but  otherwise  to remain in full force and
effect.

                  It is agreed and understood by the parties hereto that:

                  1. The  Secured  Obligations  are also  secured  by the  other
         Security  Documents.  The other Security  Documents are intended to and
         shall constitute  security for the entire  indebtedness  represented by
         the Amended and Restated  Senior  Secured Notes,  the Credit  Agreement
         Term Notes and all other Secured Obligations without allocation.

                  2.  Any  part  of  the  Collateral,  and  any  other  security
          described in the other  Security  Documents  or any other  mortgage or
          other  instrument  now  or  hereafter  given  to  secure  the  Secured
          Obligations,  may be released  pursuant  to the terms of the  Security
          Documents,  or by or at the direction of the Secured  Parties  without
          affecting the Lien hereof on the Collateral  and any Person  acquiring
          any direct or indirect interest in the Collateral or in any collateral
          described in the other Security Documents or any other mortgage,  deed
          of trust,  or other  instrument  now or hereafter  given to secure the
          Secured  Obligations  shall  take  the  same  subject  to  all  of the
          provisions hereof.

                  3. The  Company  for itself  and all who may claim  through or
         under it waives  to the  extent  permitted  by law any and all right to
         have the property and estates  comprising  the  Collateral or any other
         property  of  the  Company   constituting   security  for  the  Secured
         Obligations  marshaled upon any  foreclosure of the Lien hereof,  or to
         have the  Collateral  hereunder  and the property  covered by any other
         mortgage or deed of trust  securing the Secured  Obligations  marshaled
         upon any  foreclosure of any of said  mortgages or deeds of trust,  and
         agrees that any court having  jurisdiction  to foreclose  such Lien may
         order the Collateral sold as an entirety.

                  4. Upon the occurrence and during the  continuance of an Event
         of Default hereunder the Collateral Agent has, among other things,  the
         right to  foreclose  on the  Collateral  and  dispose  of the same,  in
         accordance  with  applicable  law. The Trustee's  deed (if permitted by
         law) or Sheriffs deed or other  instrument of  conveyance,  transfer or
         release (which,  if permitted by law, may be executed by the Collateral
         Agent in its own name or as  attorney-in-fact  for the  Company and the
         Collateral Agent is hereby irrevocably  appointed  attorney-in-fact for
         the Company to, in the event that an Event of Default  hereunder  shall
         have  occurred  and be  continuing,  so  execute  such  deed  or  other
         instruments of conveyance,  transfer or release) shall be effective (if
         all prerequisites required by law have been accomplished) to convey and
         transfer to the grantee an

                                      -5-
<PAGE>

indefeasible title to the property covered thereby,  discharged of all rights of
redemption  (to  the  extent  permitted  by law) by the  Company  or any  Person
claiming  under it, and to bar  forever all claims by the Company or the Trustee
or the Collateral  Agent to the property covered thereby and no grantee from the
Trustee,  the Collateral Agent, or Sheriff shall be under any duty to inquire as
to the authority of the Trustee, the Collateral Agent, or Sheriff to execute the
same, or to see to the application of the purchase money.

         5. This Deed of Trust  constitutes  a  financing  statement  filed as a
fixture filing under UCC ss. 9502(4)(c) in the official records of the county in
which the  Collateral  is located with respect to any and all fixtures  included
within the term  "Collateral"  and with  respect to any goods or other  personal
property  that  may now be or  hereafter  become  such a  fixture.  PARTS OF THE
PERSONAL PROPERTY ARE, OR ARE TO BECOME, FIXTURES ON THE PROPERTY.

                  (a)  Company and  Collateral  Agent agree that the filing of a
         financing  statement in the records normally having to do with personal
         property  shall never be  construed  as in any way  derogating  from or
         impairing  this Deed of Trust and the  intention  of the  parties  that
         everything  used in connection  with the  production of income from the
         Collateral  or  adapted  for use  therein  or  which  is  described  or
         reflected  in this  Deed of  Trust  is,  and at all  times  and for all
         purposes  and in all  proceedings  both  legal  or  equitable  shall be
         regarded  as,  part of the real  estate  subject  to the  lien  hereof,
         irrespective  of whether  (i) any such item is  physically  attached to
         improvements  located  on such real  property  or (ii) any such item is
         referred to or  reflected  in any  financing  statement so filed at any
         time. Similarly, the mention in any such financing statement of (A) the
         rights in or the proceeds of any fire or hazard insurance policy or (B)
         any award in eminent domain proceedings for taking or for loss of value
         or for any cause of action or proceeds  thereof in connection  with any
         damage or injury to the  Collateral  or any part thereof shall never be
         construed as in any way altering any of the rights of Collateral  Agent
         as  determined  by  this   instrument  or  impugning  the  priority  of
         Collateral  Agent's  lien  granted  hereby  or by  any  other  recorded
         document,  but such mention in such financing  statement is declared to
         be for the protection of Collateral  Agent in the event any court shall
         at any time hold with  respect  to the  matters  set forth  above  that
         notice of  Collateral  Agent's  priority of  interest,  to be effective
         against a particular class of persons,  including,  without limitation,
         the federal  government  and any  subdivision  or entity of the federal
         government,  must be filed in the  personal  property  records or other
         commercial code records.

                  (b) It is  understood  and agreed that,  in the event that (A)
         Company  intends to purchase any goods which may become fixtures to the
         Collateral,  or any part  thereof  (except as permitted  under  Section
         10.04(e) of the Credit  Agreement  and Section 10.09 of the Amended and
         Restated  Note  Agreement),  and (B) such  goods  will be  subject to a
         security  interest  held by a seller or any  other  party  (other  than
         Permitted  Liens),   Company  shall,   before  executing  any  security
         agreement or other document  evidencing such security interest,  obtain
         the prior written  approval of Collateral  Agent,  and all requests for
         such  written  approval  shall be in writing and contain the  following
         information:

                                       -6-

<PAGE>

                        (i) A description of the Collateral to be replaced,
                      added to, installed or substituted;

                        (ii) The address at which the Collateral will be
                      replaced, added to, installed or substituted; and

                        (iii) The name and  address  of the  proposed holder and
                       proposed amount of the security interest; and any failure
                       of Company to obtain  such  approval  shall be a material
                       breach of Company's  covenants  under this Deed of Trust,
                       and shall,  at the option of  Collateral  Agent,  entitle
                       Collateral Agent to all rights and remedies  provided for
                       herein  upon  default.  No  consent by  Collateral  Agent
                       pursuant to this paragraph  shall be deemed to constitute
                       an agreement to subordinate any right of Collateral Agent
                       in  fixtures  or other  property  covered by this Deed of
                       Trust.

 SECTION 1.     DEFINITIONS.

          The following terms shall have the following meanings for all purposes
of this Deed of Trust:

          "ACCOUNT",  "CHATTEL  PAPER",   "DOCUMENTS";   "EQUIPMENT",   "GENERAL
INTANGIBLES",  "INSTRUMENTS", "INVENTORY", "PATENTS", "SECURITIES", "TRADEMARKS"
AND  "TRADENAMES  " SHALL  each  have  the  meaning  set  forth  in the  Uniform
Commercial Code.

          "ADVANCE  OVERDUE  RATE" shall mean that rate of interest  that is the
 lesser  of (a) the  highest  amount  allowed  by law and (b) the sum of (i) the
 greatest of (1) the Series A Adjustable  Rate, (2) the Series B Adjustable Rate
 and (3) the Series C Adjustable Rate, plus (ii) 2%.

         "AGENT" shall mean  Cooperative  Centrale  Raiffeisen -  Boerenleenbank
B.A. "Rabobank International", New York branch, as agent for the Lenders.

          "AMENDED AND RESTATED NOTE AGREEMENTS" shall have the meaning assigned
thereto in the Recitals hereof.

         "AMENDED AND  RESTATED  SENIOR  SECURED  NOTES " SHALL have the meaning
assigned thereto in the Recitals hereof.

         "BUSINESS  DAY" means any day other than a Saturday,  Sunday,  or other
day on which  banks  in San  Francisco,  California  or New  York,  New York are
required by law to close or are customarily closed.

          "CERCLA  "  SHALL  mean  the  Comprehensive   Environmental  Response,
Compensation, and Liability Act of 1980, as amended.

                                      -7-
<PAGE>

          "CLOSING  DATE"  shall  have  the  meaning  assigned  thereto  in  the
Intercreditor and Agency Agreement.

          "COLLATERAL"  shall have the meaning assigned thereto in the paragraph
 immediately preceding the Granting Clause First hereof.

          "COLLATERAL  AGENT " SHALL have the  meaning  assigned  thereto in the
Intercreditor and Agency Agreement.

          "COMPANY" shall mean The Chalone Wine Group, Ltd., a California
corporation, and its successors and assigns.

          "CONDEMNATION  AWARDS"  shall  have the  meaning  assigned  thereto in
Granting Clause Third hereof.

          "CREDIT  AGREEMENT " SHALL have the meaning  assigned thereto
in the Recitals hereof.

          "CREDIT  AGREEMENT  COLLATERAL" shall mean all "Collateral" as defined
 in the Credit Agreement Security Agreement,  including without limitation,  the
 following  assets of the Company,  as each such  capitalized tern is defined in
 the Credit Agreement Security Agreement:

                  (a)     all Accounts;

                  (b)     all Inventory;

                  (c)   all  Operating  Accounts  of the  Company  and all funds
 certificates,  Documents,  Instruments, checks, drafts, wire transfer receipts,
 and other earnings,  profits or other Proceeds from time to time  representing,
 evidencing, deposited into, or held in the Operating Accounts;

                  (d) all  Margin  Accounts  of the  Company,  the  initial  and
 maintenance  margin  maintained  in any Margin  Accounts,  the credit  balances
 therein  and  all  Instruments,   securities  entitlements,   money  and  other
 investment  property  held  therein  and all other  funds  and other  earnings,
 profits or other Proceeds from time to time representing, evidencing, deposited
 into or held in the Margin Accounts;

                  (e)  all  Chattel  Paper,  Instruments,   Documents,   Payment
 Intangibles and other General Intangibles  evidencing title to, or the right to
 possession of, arising from the sale or other  disposition of, necessary for or
 used in connection with, the production, manufacture, sale or other disposition
 of, or otherwise relating to or arising from or in connection with the property
 described in clauses (a) through (d) above; and

                  (f)      all other products and Proceeds,in cash or otherwise,
 of any of the property described in the foregoing clauses (a)through (e) above.

          "CREDIT  AGREEMENT NOTES " SHALL have the meaning  assigned thereto in
the Recitals hereof.

                                       -8-

<PAGE>

          "CREDIT  AGREEMENT   SECURITY   AGREEMENT"  shall  mean  the  Security
 Agreement  dated as of April 19, 2002 by and among the  Company,  the Agent and
 certain lenders as such agreement may be amended or modified in accordance with
 its terms.

          "DEFAULT"  shall mean any event  which  would  constitute  an Event of
 Default if all  requirements in connection  therewith for the giving of notice,
 the lapse of time and the happening of any further condition,  event or act had
 been satisfied.

          "ENVIRONMENTAL CLAIM "shall mean all claims,  however asserted, by any
 Governmental   Authority  or  other  Person  alleging  potential  liability  or
 responsibility for violation of any Environmental Law, or for release or injury
 to the environment.

         "ENVIRONMENTAL  LAW shall  have the  meaning  assigned  thereto  in the
Amended and Restated Note Agreements.

         "EVENT  OF  DEFAULT"  shall  have the  meaning  specified  in SECTION
5.1 hereof.

         "EXCLUDED  TAXES "  SHALL  have  the  meaning  specified  in SECTION
2.1 hereof.

         "GAAP"  shall have the  meaning  assigned  thereto in the  Amended  and
Restated Note Agreements.

         "GOVERNMENTAL  APPROVALS  " SHALL  mean any  written  permit,  license,
variance, certification, consent, no action letter, clearance, exemption or
other approval granted by a Governmental Authority.

         "GOVERNMENTAL   AUTHORITY"  shall  mean  any  international,   foreign,
federal, state, regional, county, local or other governmental authority.

         "HAZARDOUS  SUBSTANCE shall have the meaning  assigned  thereto in the
Amended and Restated Note Agreements.

         "IMPOSITIONS" shall have the meaning assigned thereto in SECTION 2.7(a)
 hereof.

         "INDEBTEDNESS  shall have the meaning  assigned thereto in the Amended
and Restated Note Agreements.

         "INTERCREDITOR  AND AGENCY  AGREEMENT"  shall have the meaning assigned
thereto in the Recitals hereof.

         "LENDERS"  shall have the  meaning  assigned  thereto in the  paragraph
immediately preceding the Recitals hereof.

         "LIEN " SHALL mean any interest in property securing an obligation owed
to, or a claim by, a Person other than the owner of the  property,  whether such
interest is based on the common law, statute or contract,  and including but not
limited to the security  interest  lien  arising  from a mortgage,  encumbrance,
pledge, conditional sale or trust receipt or a lease consignment or bailment for
security purposes. The term "Lien" shall include reservations, exceptions,

                                       -9-

<PAGE>

 encroachments,  easements, rights-of-way,  covenants, conditions, restrictions,
 leases and other title exceptions and encumbrances (including,  with respect to
 stock, stockholder agreements, voting trust agreements, buy-back agreements and
 all similar arrangements) affecting property.

         "MAKE WHOLE PREMIUM " SHALL have the meaning  assigned thereto in the
Amended and Restated Note Agreements.

         "MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (a)
 the  properties,  business,  prospects,  profits  or  condition  (financial  or
 otherwise) of the Company and their respective  Subsidiaries  taken as a whole,
 or (b) the  ability  of the  Company to perform  their  respective  obligations
 contained in the Operative Agreements, or (c) the validity or enforceability of
 the  Operative  Agreements,  or (d) the validity or  perfection of the security
 interests granted under and pursuant to the Security Documents.

         "MORTGAGED  PROPERTY" shall have the meaning  assigned thereto in the
Amended and Restated Note Agreements.

         "NOTE   DOCUMENTS  "  SHALL  mean  the  Amended  and  Restated   Note
 Agreements,  the Amended and Restated Senior Secured Notes,  the  Intercreditor
 and  Agency  Agreement,  this Deed of Trust and all other  mortgages,  security
 agreements,  documents,  certificates and instruments  relating to, arising out
 of, or in any way connected  therewith or any of the transactions  contemplated
 thereby.

         "NOTES" and "NOTE" shall mean the Amended and Restated Senior Secured
 Notes and the Credit Agreement Term Notes, collectively.

         "OFFICER'S  CERTIFICATE " shall have the meaning  assigned thereto in
the Amended and Restated Note Agreements.

         "OPERATIVE AGREEMENTS" shall have the meaning assigned thereto in the
Amended and Restated Note Agreements.

         "ORIGINAL NOTE AGREEMENTS" shall have the meaning assigned thereto in
the Recitals hereof.

         "PERMITTED   INVESTMENTS"  MEANS  any  of  the   following   Dollar
 denominated investments, maturing within one year from the date of acquisition,
 selected by the Company:

                  (a) marketable direct  obligations  issued or  unconditionally
          guaranteed  by the United  States  government  or issued by any agency
          thereof and backed by the full faith and credit of the United States;

                  (b) marketable direct  obligations  issued by any state of the
          United  States or any political  subdivision  of any such state or any
          public instrumentality thereof and, at the time of acquisition, having
          the highest credit rating obtainable from either S&P or Moody's;

                  (c) commercial paper or corporate promissory notes bearing at
         the time of

                                      - 10-

<PAGE>

          acquisition  the highest credit rating either of S&P or Moody's issued
          by United  States,  Australian,  Canadian,  European or Japanese  bank
          holding companies or industrial or financial  companies (other than an
          Affiliate of the Company or any Guarantor);

                  (d) certificates of deposit issued by and bankers  acceptances
         of and interest  bearing  deposits with any Lender,  or with any United
         States,  Australian,  Canadian,  European or Japanese  commercial banks
         having capital and surplus of at least  $500,000,000  or the equivalent
         and which issues (or the parent of which  issues)  commercial  paper or
         other  short  term   securities   bearing  the  highest  credit  rating
         obtainable from either S&P or Moody's; and

                  (e) money market funds  organized under the laws of the United
         States or any state  thereof that invest solely in any of the foregoing
         investments permitted under clauses (a), (b), (c) and (d).

          "PERMITTED  LIENS " shall  have the  meaning  assigned  thereto in the
Amended and Restated Note Agreements.

          "PERSON " shall  mean an  individual,  partnership,  limited liability
company,  corporation,  trust or unincorporated organization, or a government or
agency or political subdivision thereof.

          "RCRA " shall mean the  Resource  Conservation  and  Recovery Act, as
amended.

          "REPLACEMENT  ITEMS OF TRADE PROPERTY" shall have the meaning assigned
thereto in SECTION 3.3(A)(I) hereof.

          "RESPONSIBLE  OFFICER" shall have the meaning  assigned  thereto in
the Amended and Restated Note Agreements.

          "SECURED   OBLIGATIONS"  shall  have  the  meaning  assigned thereto
in Recitals hereof.

          "SECURED  PARTIES " shall mean the  Lenders  and the holders from time
to time of the Notes.

          "SECURITY  DOCUMENTS " shall have the meaning  assigned  thereto in
the Amended and Restated Note Agreements.

          "SUBSIDIARY " shall have the meaning  assigned  thereto in the Amended
and Restated Note Agreements.

          "TRADE  PROPERTY" shall have the meaning  assigned thereto in Granting
Clause Second of this Deed of Trust.

          "TRUSTEE " shall have the meaning  assigned  thereto in the  paragraph
immediately preceding the Recitals hereof.

          "UNIFORM COMMERCIAL CODE" shall mean the Uniform Commercial Code as in
effect in the State of California, as amended.

                                      -11-

<PAGE>

 SECTION 2. GENERAL COVENANTS AND WARRANTIES.

         The Company covenants, warrants and agrees as follows:

                  SECTION 2.1.  AGREEMENT AND DEED OF TRUST COVENANTS.  Each and
 all of the terms, provisions,  restrictions, covenants and agreements set forth
 in the Amended and  Restated  Note  Agreements,  the Credit  Agreement  and the
 Intercreditor and Agency Agreement and in each and every supplement  thereto or
 amendment  thereof  which at any time or from time to time may be executed  and
 delivered by the parties thereto or their successors and assigns, to the extent
 then in effect,  are  incorporated  herein by  reference  to the same extent as
 though  each and all of said terms,  provisions,  restrictions,  covenants  and
 agreements  were fully set out herein and as though any amendment or supplement
 to the  Amended and  Restated  Note  Agreements,  the Credit  Agreement  or the
 Intercreditor  and  Agency  Agreement  was  fully  set out in an  amendment  or
 supplement  to this Deed of Trust;  and the Company  does hereby  covenant  and
 agree well and truly to abide by,  perform and be governed  and  restricted  by
 each and all of the  matters  provided  for by the Amended  and  Restated  Note
 Agreements, the Credit Agreement and the Intercreditor and Agency Agreement and
 so incorporated herein to the same extent and with the same force and effect as
 if  each  and  all of  said  terms,  provisions,  restrictions,  covenants  and
 agreements so incorporated herein by reference were set out and repeated herein
 at length. Without limiting the foregoing,  the Company covenants and agrees to
 pay all taxes, assessments and governmental charges or levies imposed upon this
 Deed of Trust or the Secured Obligations (other than income and franchise taxes
 of the Trustee,  the Collateral Agent, or of the Secured Parties (the "EXCLUDED
 TAXES ")) to the extent  provided in the documents set forth above. If any such
 sums shall be advanced by the Trustee,  the  Collateral  Agent,  or any Secured
 Party, they shall bear interest, shall be paid and shall be secured as provided
 in SECTION 2.9 hereof.

                  SECTION 2.2.  OWNERSHIP OF COLLATERAL.  The Company  covenants
 and  warrants  that it has fee  simple  title  to the  Collateral  and good and
 marketable title to the other Collateral  hereinbefore  conveyed to the Trustee
 free and clear of all liens, charges and encumbrances whatever except Permitted
 Encumbrances,  and the Company has full right,  power and  authority to convey,
 transfer, mortgage and grant a first perfected security interest in the same to
 the Trustee for the uses and purposes in this Deed of Trust set forth;  and the
 Company will warrant and defend the title to the Collateral  against all claims
 and demands whatsoever except Permitted Encumbrances.

                  SECTION 2.3. FURTHER ASSURANCES.  The Company will, at its own
 expense, do, execute,  acknowledge and deliver all and every further reasonable
 act, deed,  conveyance,  transfer and assurance necessary or proper for (a) the
 better assuring, conveying,  assigning and confirming unto the Collateral Agent
 all of the  Collateral,  or property  intended  so to be,  whether now owned or
 hereafter  acquired  and (b) the  perfection  of the  first  security  interest
 (subject to the Permitted  Exceptions)  provided for in the Collateral  whether
 now owned or hereafter  acquired.  The Collateral  Agent, as secured party, may
 file one or more financing  statements  disclosing its security interest in any
 or all of the Collateral with the Company's  signature  appearing thereon.  The
 Company also hereby grants the Collateral Agent, as such secured party, a power
 of  attorney  to  execute  any such  financing  statement,  or  amendments  and
 supplements to financing  statements,  on behalf of the Company  without notice
 thereof to the Company, which

                                      -12-

<PAGE>

power of attorney  is coupled  with an interest  and is  irrevocable  until the
Secured Obligations have been fully satisfied.

                  SECTION 2.4. PAYMENT OF PRINCIPAL,  PREMIUM AND INTEREST.  The
 Company will duly and punctually pay the principal of, and premium and interest
 on all Notes secured hereby according to the terms thereof.

                  SECTION 2.5. MAINTENANCE OF COLLATERAL, OTHER LIENS,
COMPLIANCE WITH LAWS,  ENVIRONMENTAL  MATTERS,  ETC. Without limiting  the
provisions  of the Amended and  Restated  Note  Agreements, the Credit Agreement
and the  Intercreditor  and Agency Agreement,

         (a) The Company  shall (1)  subject to SECTION  3.2,  PROMPTLY  repair,
 restore,  replace or rebuild  any  material  buildings,  improvements  or Trade
 Property  now or  hereafter on the  Collateral  which may become  damaged or be
 destroyed,  (2) keep the Collateral in good condition and repair, ordinary wear
 and tear excepted,  without waste, and free from all claims, liens, charges and
 encumbrances  (except for taxes not yet delinquent and claims,  liens,  charges
 and encumbrances  that are being contested under and in compliance with SECTION
 2.7(C)  hereof)  other  than  Permitted  Encumbrances,  (3)  pay  when  due any
 indebtedness  which may be  secured by a Lien or charge on the  Collateral  and
 upon request provide satisfactory evidence of the discharge of such Lien to the
 Collateral  Agent  (unless  such  payment  is  being  contested  under  and  in
 compliance with SECTION 2.7(E) hereof), (4) comply with all requirements of law
 or municipal  ordinances,  including without limitation all Environmental Laws,
 with  respect to the  Collateral  and the use  thereof,  failure to comply with
 which would be reasonably  likely to result in any material  interference  with
 the use or  operation  of the  Collateral  by the  Company or would  materially
 adversely  affect  the  assets,  business,   operations,  income  or  condition
 (financial or otherwise) of the Company and its Subsidiaries, taken as a whole,
 and (5) make no material  alterations in said Collateral  except as required by
 law or  municipal  ordinance;  PROVIDED  that the  Company  may make such other
 material  alterations so long as such  alterations  are completed in compliance
 with the requirements of paragraphs (b) and (c) of this SECTION 2.5.

         (b) The Company may, at its expense,  (1) construct upon the Collateral
 additional  buildings,   structures,   drainage  systems,  irrigation  systems,
 trellises, and other improvements and (2) install,  assemble and place upon the
 Collateral  any  items  of  Trade  Property,  signs,  furniture,   furnishings,
 equipment, machinery and other tangible personal property used or useful in the
 Company's  business,  in each  case  upon  compliance  with the  provisions  of
 paragraph  (a) of this SECTION 2.5. All such  buildings,  structures  and other
 improvements  shall be and  remain  part of the  realty and shall be subject to
 this Deed of Trust with respect thereto.

          (c) Any repair, restoration,  rebuilding,  substitution,  replacement,
 modification,  alteration of or addition to the Collateral  pursuant to SECTION
 2.5(B) hereof must not materially impair the market value, structural integrity
 or usefulness  of the  Collateral  for use in the ordinary  course of business;
 shall  be  performed  in a good and  workmanlike  manner  and be  expeditiously
 completed in  compliance in all material  respects  with all laws,  ordinances,
 orders,  rules,  regulations and requirements  applicable  thereto,  failure to
 comply  with  which  could be  reasonably  likely  to  result  in any  material
 interference  with the use or  operation  of the  Collateral  by the Company or
 would materially adversely affect the assets, business,  operations,  income or
 condition  (financial or otherwise) of the Company and its Subsidiaries,  taken
 as a whole,

                                      -13-

<PAGE>

including  to the  extent  necessary  to  maintain  in full force and effect the
policies of insurance  required by SECTION 2.6 hereof. All costs and expenses of
each  such  repair,  restoration,  rebuilding,  substitution,  replacement,  the
discharge  of all liens filed  against the  Collateral  arising out of the same,
together with all costs and expenses necessary to obtain any permits or licenses
required in connection  therewith  shall be promptly paid by the Company (except
to the  extent  such  costs  and  expenses  are  being  contested  under  and in
compliance with SECTION 2.7(C) hereof).

         (d)      The Company:

                  (1) shall,  as soon as  reasonably  practicable,  maintain the
         Collateral  in   compliance   in  all  respects  with  any   applicable
         Environmental  Law,  except  such  failures  to  comply  as  would  not
         reasonably be likely to result in a Material Adverse Effect;

                  (2) shall  obtain  and  maintain  in full force and effect all
         Governmental  Approvals  required  for  its  operations  at or  on  the
         Collateral  by  any  applicable  Environmental  Law,  except  for  such
         Governmental  Approvals  the failure to obtain or maintain  which would
         not be reasonably likely to have a Material Adverse Effect;

                  (3) as soon as reasonably  practicable,  cure any violation of
         applicable  Environmental Laws by any Person at the Collateral,  except
         such failures to cure as would not  reasonably be likely to result in a
         Material Adverse Effect;

                  (4) shall not,  and shall not permit any other  Person to, own
         or operate on the Collateral any (i) landfill or dump or (ii) hazardous
         waste  treatment,  storage or disposal  facility as defined pursuant to
         RCRA or any comparable state law;

                  (5) shall not use, generate,  treat, store, release or dispose
         Hazardous  Substances  at or on the  Collateral  except in the ordinary
         course of its  business  and in  compliance  with  Environmental  Laws,
         except such use, generation, treatment, storage, release or disposal of
         Hazardous Substances at or on the Collateral as would not reasonably be
         likely to result in a Material Adverse Effect;

                  (6)  shall  within   twenty  (20)  Business  Days  notify  the
         Collateral  Agent in writing of and  provide any  reasonably  requested
         documents  upon  learning  of any  of  the  following  which  arise  in
         connection with the Collateral:

                          (A) any liability  for response or corrective  action,
                  natural resource damage or other harm pursuant to CERCLA, RCRA
                  or any  comparable  state  law which is  reasonably  likely to
                  result in a Material Adverse Effect;

                          (B) any Environmental Claim which is reasonably likely
                  to result in a Material Adverse Effect;

                          (C) any violation of an  Environmental  Law or release
                  or  disposal  of a  Hazardous  Substance  which is  reasonably
                  likely to result in a Material Adverse Effect;

                                      -14-

<PAGE>

                          (D) any restriction on the ownership,  occupancy,  use
                  or  transferability  of the Collateral arising pursuant to any
                  (i)  release,  threatened  release or  disposal of a Hazardous
                  Substance or (ii) Environmental Law which is reasonably likely
                  to result in a Material Adverse Effect; or,

                          (E) any other environmental,  natural resource, health
                  or safety  condition,  which would  reasonably  be expected to
                  have a Material Adverse Effect; and,

                  (7) at its  expense,  will conduct any  investigation,  study,
          sampling and testing, and undertake any cleanup,  removal, remedial or
          other  response  action  necessary  to  remove,  clean up or abate any
          material quantity of Hazardous Substance released or disposed at or on
          the Collateral as required by any applicable Environmental Law and any
          binding  order  or  directive  from a  Governmental  Authority  having
          jurisdiction,   except  to  the  extent  the  Company  is   reasonably
          contesting  any  Environmental  Law or any order or  directive  from a
          Governmental  Authority,  so long as (i) such contest is in good faith
          and by appropriate proceedings,  (ii) adequate reserves are maintained
          in  accordance  with GAAP and (iii) no  forfeiture  will result from a
          failure to comply with the contested requirement.

         (e)  The  Company  at its own  expense  and at the  reasonable  written
request of the  Collateral  Agent  shall  provide  reasonably  expeditiously  an
environmental  report  of  reasonable  scope,  form and  depth  by a  consultant
reasonably  acceptable to the Collateral Agent as to any matter for which notice
is  required to be provided  pursuant  to SECTION  2.5(D)(7)  above or which may
reasonably be believed by the  Collateral  Agent to form the basis of a material
Environmental  Claim in  connection  with the  Collateral.  If such a  requested
environmental  report is not  delivered  within  seventy-five  (75)  days  after
receipt of the Collateral Agent's request, then the Collateral Agent may arrange
for  same,  and the  Company  hereby  grants  to the  Collateral  Agent  and its
representatives  access to the  Collateral  and a license to  undertake  such an
assessment. The reasonable cost of any assessment arranged for by the Collateral
Agent  pursuant to this  provision  will be payable by the Company on demand and
added to the obligations secured by the Security Documents.

         (f) The  Company  may use and  operate  the  Collateral  for any lawful
purpose not  inconsistent  with the  provisions of the Amended and Restated Note
Agreements or the Credit Agreement.

         (g) In  accordance  with  California  Code of Civil  Procedure  Section
726.5, Collateral Agent may waive its lien against the Collateral or any portion
thereof,  to the extent such property is found to be  environmentally  impaired,
and may  exercise  any and all  rights and  remedies  of an  unsecured  creditor
against Company and all of Company's assets and property for the recovery of any
deficiency,  including,  without  limitation,  seeking an attachment order under
California  Code of Civil  Procedure  Section  483.010.  No such waiver shall be
final or binding on Collateral  Agent unless and until a final money judgment is
obtained against Company. As between Collateral Agent and Company,  for purposes
of California  Code of Civil  Procedure  Section  726.5,  Company shall have the
burden of proving that the release or  threatened  release was not  knowingly or
negligently caused or contributed to, or knowingly or willfully permitted or

                                      -15-

<PAGE>

acquiesced  to by Company or any  related  party (or any  affiliate  or agent of
Company or any related party) and that Company made written  disclosure  thereof
to Collateral Agent or that Collateral Agent otherwise obtained actual knowledge
thereof prior to the making of the Credit Agreement. Notwithstanding anything to
the contrary  contained  in the Deed of Trust or any of the Security  Documents,
Company  shall be fully and  personally  liable  for all  judgments  and  awards
entered against Company pursuant to California Code of Civil Procedure 726.5 and
such  liability  shall not be limited by the  original  principal  amount of the
obligations secured by this Deed of Trust. Company's obligations hereunder shall
survive the foreclosure,  deed in lieu of foreclosure,  release, reconveyance or
any other transfer of the Collateral or this Deed of Trust.  For the purposes of
any action  brought under this Deed of Trust,  Company hereby waives the defense
of laches and any applicable statute of limitations.  For purposes of California
Code of Civil  Procedure  726.5,  the acts,  knowledge and notice of each "726.5
Party" shall be attributed to and be deemed to have been  performed by the party
or parties then obligated on or liable for payment of the Indebtedness.  As used
herein,  "726.5 Party" shall mean Company,  any partner  thereof,  any successor
owner to Company of all or any portion of the  Collateral,  any related party of
Company or any such  successor and any  affiliate or agent of Company,  any such
successor or any such related party.

         SECTION 2.6. INSURANCE.  The Company will maintain, and will cause each
 Subsidiary to maintain, insurance coverage with financially sound and reputable
 domestic  insurers  in such forms and  amounts  and  against  such risks as are
 customary  for  companies of  established  reputation  engaged in the same or a
 similar business and owning and operating similar properties as the Collateral.
 Without limiting the foregoing, the Company agree that they will, to the extent
 available, continuously maintain the following described policies of insurance:

                  (i)  Property  insurance,   including  business   interruption
         insurance,  against  loss and damage by all risks of  physical  loss or
         damage,   including   fire,   windstorm,   builders   risk   (including
         construction and repair period coverage) and other risks covered by the
         so  called  "all  risks"  form  of  property   insurance   policy  with
         replacement cost endorsements (excluding therefrom flood and earthquake
         coverage);  PROVIDED,  HOWEVER,  that the amount of such insurance with
         respect to the Collateral  shall not at any time be less than a blanket
         limit of $70,000,000 in the aggregate;  and PROVIDED  FURTHER that such
         insurance  POLICY SHALL  provide that NOT more than  $1,000,000  may be
         deductible FROM the LOSS payable with respect to any casualty;

                  (ii)  fiduciary  liability  insurance  with such  terms as are
         customary for companies of established  size and reputation  engaged in
         substantially the same business as the Company and similarly  situated;
         PROVIDED,  HOWEVER, that the amount of such insurance shall not be less
         than  $1,000,000;  and PROVIDED,  FURTHER,  that such  insurance  shall
         provide with respect to the Company that not more than  $100,000 may be
         deductible  from any loss payable and that with respect to  individuals
         that not more than  $100,000  may be  deductible  from any loss payable
         with respect to any casualty;

                  (iii)  surety  bonds  (securing  leases,  permits  franchises,
         taxes,  notary  public,  judicial  and other bonds) in amounts and with
         such terms as are  customary  for  companies  of  established  size and
         reputation  engaged in  substantially  the same business as the Company
         and similarly situated;

                                      -16-

<PAGE>

                  (iv) workers  compensation  insurance and employer's liability
          insurance, for all employees of the Company engaged on or with respect
          to any of the  Collateral  and with such  terms as are  customary  for
          companies of established size and reputation  engaged in substantially
          the same  business as the Company and similarly  situated,  or if such
          limits are established by law, in such amounts;

                  (v) boiler and machinery  insurance covering pressure vessels,
         air  tanks,   boilers,   machinery,   pressure  pipings,   heating  air
         conditioning and elevator equipment and escalator  equipment,  PROVIDED
         the improvements contain equipment of such nature and insurance against
         loss or  occupancy  or use  arising  from any such  breakdown,  in such
         amounts  and  with  such  terms  as  are  customary  for  companies  of
         established  size and  reputation  engaged  in  substantially  the same
         business as the Company and similarly situated;

                  (vi) insurance  insuring  against public liability for loss or
         damage  (including  bodily injury) to the Persons or Property of others
         from such risks and in such amounts as are  customary  for companies of
         established  size and  reputation  engaged  in  substantially  the same
         business as the Company and similarly situated (including  construction
         and repair period coverage);  PROVIDED, HOWEVER, that in no event shall
         the amount of such  insurance be less than an aggregate of  $15,000,000
         under single limit liability for such loss; and provided, further, that
         such Insurance  policy shall provide that not more than  $1,000,000 may
         be deductible from any loss payable; and

                  (vii) other insurance against such risks as is customary to be
          carried by companies of  established  size and  reputation  engaged in
          substantially the same business as the Company and similarly  situated
          and owning Properties in the state in which the Collateral is located.

         (b) Form of Policies. Any insurance policies carried in accordance with
this SECTION 2.6 shall be written by companies of  recognized  international  or
national standing  authorized to do business in the State of California and: (i)
shall with  respect to the  insurance  described  in clauses (i) and (vi) above,
name the Trustee,  the Collateral  Agent and each Noteholder and each Bank AS an
additional  insured, as their interests may appear, (ii) in the case of policies
covering loss or damage to the  Collateral,  shall provide that such losses,  if
any, shall be payable solely to the Collateral Agent under a standard  mortgagee
clause reasonably satisfactory to the Collateral Agent, (iii) shall provide that
the Trustee's and Collateral Agent's interest shall be insured regardless of any
breach or violation by the Company of any warranties, declarations or conditions
contained  in such  policies,  (iv) as to the  interest  of the  Trustee and the
Collateral  Agent  therein,  shall not be invalidated by the use or operation of
the Collateral for purposes which are not permitted by such policies, nor by any
foreclosure or other  proceedings  relating to the  Collateral,  (v) except with
respect  to the  insurance  described  in clause  (iv) of  SECTION  2.6(A),  the
insurers  shall waive any right of subrogation of the insurers to any set-off or
counterclaim  or any other  deduction,  whether by attachment  or otherwise,  in
respect of any liability of the Company,  (VI) if any premium or  installment is
not paid when due, or if such insurance would lapse or be cancelled,  terminated
or materially  changed for any reason whatsoever shall provide that the insurers
WILL  promptly  notify the  Collateral  Agent and any such lapse,  cancellation,
termination  or change shall not be effective as to the Trustees for thirty days
after receipt of such

                                      -17-

<PAGE>

 notice,  and (vii)  appropriate  certification  shall be made to the Collateral
 Agent by each  insurer with  respect  thereto.  Provided no Default or Event of
 Default  has  occurred or is  continuing,  the loss,  if any,  under any policy
 pertaining to loss by reason of damage to or  destruction of any portion of any
 of the  Collateral  shall be  adjusted  with  the  insurance  companies  by the
 Company,  subject to the approval of the  Collateral  Agent if the loss exceeds
 $1,500,000;  PROVIDED that such approval shall not  unreasonably be withheld or
 delayed. The loss so adjusted shall be paid to the Collateral Agent pursuant to
 said loss payable  clause  unless said loss is $1,500,000 or less in which case
 said loss shall be paid  directly to the  Company  unless a Default or Event of
 Default has occurred and is  continuing,  in which event any such loss shall be
 paid to the Collateral Agent.

         The Company shall furnish the  Collateral  Agent with  certificates  or
 other satisfactory  evidence of MAINTENANCE OF the insurance required hereunder
 and, with respect to any renewal policy or policies, shall furnish certificates
 evidencing  such renewal not less than 30 days prior to the expiration  date of
 the original  policy or renewal  policies or if not so  available,  immediately
 upon the receipt thereof,  and shall furnish insurance binders  evidencing such
 renewal immediately upon receipt thereof.  All such policies shall provide that
 the same shall not be cancelled  without at least 30 days' prior written notice
 to the Collateral Agent and the Company.

          Upon the request of Trustee,  Collateral  Agent or any Secured  Party,
 the  Company  shall  furnish the  Collateral  Agent from time to time with full
 INFORMATION AS to the insurance  carried by it and, if so requested,  copies of
 all such insurance policies. The Company shall also furnish to Collateral Agent
 from time to time upon the  request  of the  Trustee,  Collateral  Agent or any
 Secured  Party  a  certificate  of the  Company's  insurance  broker  or  other
 insurance  specialist  stating  that  all  premiums  then  due on the  policies
 relating to insurance on the Collateral have been .paid, that such policies are
 in full force and effect and that such  insurance  coverage  and such  policies
 comply  with all the  requirements  of this  subsection.  Receipt  of notice of
 termination  or  cancellation  of any such  insurance  policies or reduction of
 coverages or amounts thereunder shall entitle the Collateral Agent to renew any
 such  policies,  cause the  coverages  and amounts  thereof to be maintained at
 levels  required  pursuant to this Section 2.6 or  otherwise to obtain  similar
 insurance  in  place  of such  policies,  in each  case at the  expense  of the
 Company.

       SECTION 2.7. PAYMENT OF TAXES AND OTHER CHARGES; CONTESTS THEREOF.

          (a)  Subject  to  SECTION  2.7(C)  BELOW,  and  without  limiting  the
 provisions  of  the  Amended  and  Restated  Note  Agreements  and  the  Credit
 Agreement,  the Company  will pay and  discharge,  before the same shall become
 delinquent,  together  with  interest and  penalties  thereon,  if any, (1) all
 taxes,  assessments  (INCLUDING  ASSESSMENTS  for benefits from public works or
 improvements whenever begun or completed),  levies, fees, water and sewer rents
 and charges, and all other governmental charges, general and special,  ordinary
 and  extraordinary,  and whether or not within the contemplation of the parties
 hereto,  which  are at any  time  levied  upon or  assessed  against  it or the
 Collateral  or any part  thereof  or upon  this  Deed of  Trust or the  Secured
 Obligations  secured hereby, or upon the revenues,  rents,  issues,  income and
 profits in respect of the  Collateral,  or arising in respect of the occupancy,
 use or possession  thereof,  but excluding the Excluded Taxes, which failure to
 pay would  result in the  creation  of a Lien upon the  Collateral  or any part
 thereof,  or upon the  revenues,  rents,  issues,  income  and  profits  of the
 Collateral  or in the  diminution  thereof  or  would  result  in any  material
 interference with the use or operation of the

                                      -18-

<PAGE>

 Collateral by the Company, (2) all corporate franchise, excise and other taxes,
 fees and  charges  assessed,  levied or imposed  in  respect  of its  corporate
 existence  or its right to do  business in any state,  (3) all  income,  excess
 profits,  excise, sales,  franchise,  gross receipts and other taxes, duties or
 imposts, whether of alike or different nature,  assessed,  levied or imposed by
 any Governmental Authority on it or the Collateral,  or any portion thereof, or
 upon the revenues,  rents, issues, income and profits of the Collateral whether
 or not the  failure  to pay any such tax,  duty or impost  might  result in the
 creation of a Lien upon any asset of the Company or the  Collateral or any part
 thereof  or upon  the  revenues,  rents,  issues,  income  and  profits  of the
 Collateral or in the diminution thereof,  and whether or not any such tax, duty
 or impost is payable  directly by the Company or is subject to  withholding  at
 the source  and (4) all lawful  claims  and  demands  of  mechanics,  laborers,
 materialmen and others which, if unpaid, might result in the creation of a Lien
 on the Collateral or upon the revenues,  rents,  issues,  income and profits of
 the  Collateral  and,  in  general,  will do or  cause  to be  done  everything
 necessary so that the Lien hereof shall be fully preserved,  at the cost of the
 Company,  without expense to the Trustee or the Collateral  Agent (all of which
 taxes,  assessments,  levies,  fees and other governmental or  non-governmental
 charges,  claims and  demands of like  nature are  hereinafter  referred  to as
 "IMPOSITIONS").  The  Company  shall  discharge  any claim or Lien  relating to
 Impositions upon the Collateral.

         (b) The  Company  will pay  when  due all  utility  charges  which  are
incurred by the Company for the benefit of the  Collateral or which may become a
charge or Lien  against  the  Collateral  for gas,  electricity,  water or sewer
services  furnished to the Collateral and all other  assessments or charges of a
similar  nature,  whether  public or private,  affecting  the  Collateral or any
portion  thereof,  whether or not such taxes,  assessments or charges are or may
become Liens thereon.

         (C)  CONTEST.  Without  limiting  the  provisions  of the  Amended  and
Restated Note  Agreements  and the Credit  Agreement,  and always subject to the
terms and conditions thereof, the Company may, in good faith and with reasonable
diligence and by appropriate proceedings diligently prosecuted, contest or cause
to be contested the validity or amount of any such Impositions, PROVIDED that:

                  (1) such contest shall have the effect of  preventing  (i) any
          sale,  forfeiture  OR loss of the  Collateral  or any part  thereof or
          interest   therein  to  satisfy   the  same  and  (ii)  any   material
          interference with the value, use or occupancy of the Collateral or any
          part thereof; and

                  (2) the Company  shall have  established  with respect to such
          Impositions (and any attendant penalties or late fees) reserves deemed
          by it to be adequate with respect thereto.
                  SECTION 2.8.  LIMITATION ON LIENS. The Company will not create
 or incur or suffer to be incurred or to exist, any mortgage,  pledge,  security
 interest,  encumbrance,  charge or other Lien of any kind upon the  Collateral,
 whether  now  owned or  hereafter  acquired,  or upon any  income  or  proceeds
 therefrom,  except Permitted Encumbrances and except for those exceptions noted
 on the policies of title insurance  delivered to the Trustee and the Collateral
 Agent on the Closing Date.

                                      -19-

<PAGE>

                  SECTION  2.9.  ADVANCES.  If the Company  shall fail to comply
 with the  covenants  contained  herein or contained in the Amended and Restated
 Note Agreements,  the Credit Agreement,  the Intercreditor and Agency Agreement
 or the other Note Documents and incorporated  herein by reference,  the Trustee
 or the  Collateral  Agent,  without  waiving any Default or Event of Default or
 releasing any obligation, may (but shall be under no obligation to) at any time
 thereafter  after five Business  Days' prior written notice to the Company make
 such  payment or perform  such act for the  account  and at the  expense of the
 Company, and may enter upon the Collateral or any part thereof for such purpose
 and take all such  action  thereon as, in the  opinion of the  Trustee,  may be
 necessary or reasonably appropriate therefore.  All sums so paid by the Trustee
 or the  Collateral  Agent,  and all  costs  and  expenses  (including,  without
 limitation, reasonable attorneys' fees and expenses) so incurred, together with
 interest  thereon  at the  Advance  Overdue  Rate from the date of  payment  or
 incurrence,  shall be secured  hereby  and shall be paid by the  Company to the
 Collateral  Agent on  demand.  The  Collateral  Agent  in  making  any  payment
 authorized  under this SECTION 2.9 relating to taxes or  assessments  may do so
 according to any bill,  statement  or estimate  procured  from the  appropriate
 public  office  without  inquiry into the  accuracy of such bill,  statement or
 estimate or into the validity of any tax assessment, sale, forfeiture, tax Lien
 or title  or  claim  thereof.  The  Collateral  Agent,  in  performing  any act
 hereunder,  shall be the sole  judge of whether  the  Company  is  required  to
 perform  the same  under the  terms of this  Deed of Trust and no such  advance
 shall be deemed to relieve the Company from any default hereunder.

                  SECTION  2.10.  RECORDATION.  The  Company  will,  at its  own
 expense,  cause this Deed of Trust and all supplements hereto and any financing
 statements and continuation  statements required by the Uniform Commercial Code
 or other law in respect  thereof at all times to be kept  recorded and filed at
 its own  expense in such manner and in such places as may be required by law in
 order  to  fully  preserve  and  protect  the  rights  of the  Trustee  and the
 Collateral Agent hereunder.

                  SECTION 2.11.  AFTER-ACQUIRED  PROPERTY.  Any and all property
 hereafter  acquired  which is of the kind or nature  described  in the Granting
 Clauses  hereof  and is or is  intended  to become a part  thereof,  shall IPSO
 FACTO, and without any further conveyance, assignment or act on the part of the
 Company or the Trustee or the  Collateral  Agent become and be,  subject to the
 Lien and first perfected  security  interest OF this Deed of Trust as fully and
 completely  as though  specifically  described  herein;  but  nevertheless  the
 Company shall from time to time, if requested by the Trustee or the  Collateral
 Agent, execute and deliver any and all such further assurances, conveyances and
 assignments  thereof as the  Trustee  or the  Collateral  Agent may  reasonably
 require for the purpose of expressly  and  specifically  subjecting to the Lien
 and first  perfected  security  interest of this Deed of Trust any and all such
 property, subject to Permitted Encumbrances.  In the event the Company acquires
 a  material  leasehold  estate in any  property  which is of the kind or nature
 described in the Granting  Clauses hereof,  such leasehold estate shall be made
 subject to a lien and first perfected security interest in favor of the Trustee
 by means of the Company's  execution  and delivery of a leasehold  mortgage and
 security agreement in form and substance reasonably satisfactory to the Trustee
 and the  Collateral  Agent.  The  Company  agrees that in the event the Company
 acquires a leasehold estate as described in this SECTION 2.11, the Company will
 use commercially  reasonable efforts to promptly obtain from the subject lessor
 an agreement  for the benefit of the Trustee and the  Collateral  Agent,  INTER
 ALIA,  providing that the lessor will give the Trustee and the Collateral Agent
 written notice of any

                                      -20-

<PAGE>

defaults  under the subject lease together with the option to cure such defaults
and providing for such other requirements as the Collateral Agent may reasonably
request.

                  SECTION 2.12. INDEMNIFCATION; WAIVER OF OFFSET
                                       SET

         (a) If the Trustee or the Collateral Agent is made a party defendant to
any  litigation  concerning  this  Deed of Trust or the  Collateral  or any part
thereof or interest therein,  then the Company shall indemnify,  defend and hold
the Trustee or the  Collateral  Agent  harmless  from all liability by reason of
said litigation,  including reasonable  attorneys' fees and expenses incurred by
the Trustee or the Collateral Agent in any such  litigation,  whether or not any
such  litigation  is prosecuted  to judgment.  If the Trustee or the  Collateral
Agent commences an action against the Company to enforce any of the terms hereof
or because of the breach by the Company of any of the terms  hereof,  or for the
recovery of any of the Secured Obligations,  the Trustee or the Collateral Agent
shall have its reasonable  attorneys' fees and expenses paid by the Company.  If
the Trustee or the Collateral Agent is a party to any discussion or negotiations
relating to any  amendment,  waivers or  consents  to the  Amended and  Restated
Senior Secured Notes,  the Credit Agreement Term Notes, the Amended and Restated
Note Agreements,  the Credit Agreement,  the Intercreditor and Agency Agreement,
this  Deed of  Trust  or the  other  Note  Documents,  or  relating  to any loan
modification,  recasting,  settlement or other agreement relating to the Secured
Obligations,  then the Company shall  indemnify,  defend and hold the Trustee or
the Collateral Agent harmless from all liability, costs and expenses incurred in
connection therewith, including reasonable attorneys' fees and expenses.

         (b) All sums  payable by the Company  hereunder  shall be paid  without
notice,  demand,   counterclaim,   setoff,  deduction  or  defense  and  without
abatement,  suspension,  deferment, diminution or reduction, and the obligations
and liabilities of the Company hereunder shall in no way be released, discharged
or otherwise affected (except as expressly provided herein) by reason of (i) any
damage  to or  destruction  of or any  condemnation  or  similar  taking  of the
Collateral  or any  part  thereof;  (ii) any  restriction  or  prevention  of or
interference with any use of the Collateral or any part thereof; (iii) any title
defect or encumbrance  on the Collateral or any part thereof by title  paramount
or otherwise;  (iv) any  bankruptcy,  insolvency,  reorganization,  composition,
adjustment,  dissolution,  liquidation or other like proceeding  relating to the
Trustee or the Collateral  Agent,  or any action taken with RESPECT to this Deed
OF Trust by any trustee OR receiver of the Trustee or the Collateral  Agent,  or
by any court,  in any such  proceeding;  (v) any claim  which the Company has or
might have  against the  Trustee or the  Collateral  Agent;  (vi) any default or
failure on the part of the Trustee or the Collateral  Agent to perform or comply
with any of the terms  hereof or of any other  agreement  with the  Company;  or
(vii) any other  occurrence  whatsoever,  whether  similar or  dissimilar to the
foregoing;  whether or not the Company  shall have notice or knowledge of any of
the foregoing.  Except as expressly  provided herein,  the Company waives to the
extent  permitted  by law all rights now or  hereafter  conferred  by statute or
otherwise to any abatement,  suspension,  deferment,  diminution or reduction of
any of the Secured Obligations payable by the Company.

         (c) The Company  shall,  at its sole expense,  indemnify,  defend (with
attorneys,  consultants  and experts  reasonably  acceptable  to the  Collateral
Agent),  and hold the Trustee and the Collateral Agent harmless from and against
any  and  all  liens,  damages,  losses,  liabilities,  obligations,  settlement
payments, penalties, assessments, citations, directives, claims, litigation,

                                      -21-

<PAGE>

demands,  defenses,  judgments,  suits,  proceedings,  costs,  disbursements  or
expenses  of any  kind or of any  nature  whatsoever  which  may at any  time be
imposed  upon,  incurred  by or  asserted  or awarded  against  the  Trustee and
Collateral  Agent  or the  Collateral,  (including,  without  limitation,  those
arising out of or attributed,  directly or indirectly,  to or resulting from any
and all  negligent  acts or omissions of Trustee or  Collateral  Agent,  whether
caused  by  the  sole  negligence  of  Trustee  or  Collateral  Agent  or by the
concurrent  negligence of Trustee or Collateral Agent), and arising prior to the
Collateral  Agent's  obtaining  title to the Collateral  through  foreclosure or
other like proceedings,  directly or indirectly from or out of (i) the presence,
release  or threat of  release  of any  Hazardous  Substance  on,  in,  under or
affecting  all or  any  portion  of the  Collateral  or any  surrounding  areas,
regardless  of whether or not caused by or within  control of the Company;  (ii)
the violation of any Environmental Laws relating to or affecting the Collateral,
caused by the Company; (iii) the failure by the Company to comply fully with the
terms  and  conditions  of  THIS  SECTION  2.12(C);   (iv)  the  breach  of  any
representation  or  warranty  contained  in  this  Deed  of  Trust  or the  Note
Agreements  relating  to matters  covered by this  SECTION  2.12(C);  or (v) the
enforcement of this SECTION 2.12(C), including,  without limitation, the cost of
assessment,  containment and/or removal of any and all Hazardous Substances from
all or any portion of the Collateral or any surrounding  areas,  the cost of any
actions taken in response to the  presence,  release or threat of release of any
Hazardous  Substance on, in, under or affecting any portion of the Collateral or
any  surrounding  areas to prevent or minimize such release or threat of release
so that it does not migrate or otherwise  cause or threaten danger to present or
future public health, safety, welfare or the environment,  and costs incurred to
comply with the Environmental  Laws in connection with all or any portion of the
Collateral or any surrounding areas; except, in each case, to the extent arising
out of the gross  negligence or willful  misconduct of the Trustee or Collateral
Agent.  The indemnity  set forth in this SECTION  2.12(C) shall also include any
diminution in the value of the security afforded by the Collateral or any future
reduction in the sales price of the Collateral by reason of any matter set forth
in this SECTION 2.12(C).  The Company's  obligations  under this SECTION 2.12(C)
shall survive payment in full of the indebtedness secured hereby and shall be in
addition to all other rights of Trustee and the Collateral Agent under this Deed
of Trust, the Amended and Restated Note Agreements,  the Credit  Agreement,  the
Amended and Restated  Senior Secured Notes,  the Credit  Agreement Notes and the
Intercreditor and Agency Agreement.

SECTION 3 POSSESSION, USE AND RELEASE OF COLLATERAL.

                  SECTION 3.1. COMPANY'S RIGHT OF POSSESSION.  Provided no Event
 of Default  hereunder  has occurred  and is  continuing,  the Company  shall be
 suffered and permitted to remain in full  possession,  enjoyment and control of
 the Collateral subject always to the observance and performance of the terms of
 this Deed of Trust,  the Amended and Restated Note  Agreements,  and the Credit
 Agreement.
                  SECTION  3.2.   DISPOSITION  OF  CERTAIN  TRADE  PROPERTY  The
 Company,  so  long  as no  Event  of  Default  hereunder  has  occurred  and is
 continuing  and subject to the  provisions  of SECTION 3.3 hereof in connection
 with each  replacement,  shall  have  full  power,  from  time to time,  in its
 discretion,  and  without  any  action  by or  notice  to  the  Trustee  or the
 Collateral Agent, to sell, exchange, or otherwise dispose of, any item of Trade
 Property,  at any time subject to the security  interest hereof pursuant to the
 terns of the Amended and Restated Note  Agreements and the Credit  Agreement or
 which may have become worn out, unserviceable, obsolete or

                                      -22-

<PAGE>

unnecessary for use in the conduct of its business;  PROVIDED HOWEVER, THAT with
respect to any worn out,  unserviceable,  obsolete or unnecessary Trade Property
except where such item is, in the ordinary  course of business,  unnecessary  to
the conduct of its  business,  the Company shall  contemporaneously  replace the
same with, or substitute for the same,  other items of Trade  Property  having a
value  and  utility  at least  equal to that of the items of Trade  Property  so
replaced,  which shall forthwith become,  without further action, subject to the
security interest of this Deed of Trust.

                  SECTION 3.3, RELEASE OF TRADE PROPERTY

         (a) The Trustee or the Collateral Agent, so long as no Event of Default
 hereunder exists, shall execute a release of its security interest hereunder as
 to the items of Trade  Property  which the  Company has  replaced or  otherwise
 disposed of under SECTION 3.2 hereof (1) upon the written notice of the Company
 in the event such Trade Property has an estimated fair market value in the good
 faith  judgment of the Company of less than  $1,500,000  which notice shall (i)
 reference  this SECTION 3.3,  (ii)  estimate the fair market value of the Trade
 Property replaced or otherwise  disposed of and (iii) request such release,  or
 (2) for all other Trade Property, upon:

                  (i) receipt of an  Officer's  Certificate  (A) stating that no
          Event of Default exists, (B) describing in reasonable detail the newly
          acquired  items of Trade  Property  (the  "REPLACEMENT  ITEMS OF TRADE
          PROPERTY")  replacing  the old items of Trade  Property,  (C)  stating
          that,  except where such item is, in the ordinary  course of business,
          unnecessary to the conduct of its business,  the Replacement  Items of
          Trade  Property  are in as good  operating  condition  as,  and have a
          value,  utility and useful life at least equal to that of the items of
          Trade Property so replaced,  and (D) stating that the Company has good
          title to the Replacement  Items of Trade  Property,  free of all Liens
          other than Permitted Encumbrances;

                  (ii)  execution  and  delivery of a Deed of Trust and Security
          Agreement Supplement and any necessary financing statements subjecting
          the  Replacement  Items of Trade  Property to the lien of this Deed of
          Trust,  but only such  supplement  or financing  statement as shall be
          necessary to subject such  Replacement  Items of Trade Property to the
          lien and first perfected  security  interest (subject to the Permitted
          Encumbrances) of this Deed of Trust;

                  (iii) receipt of evidence that such Deed of Trust and Security
          Agreement  Supplement  and financing  statements  have been  recorded,
          registered and filed as may be deemed reasonably  necessary by counsel
          for the Trustee  and the  Collateral  Agent in order to  preserve  and
          protect  the  rights  of  the  Collateral  Agent  as to  all  property
          comprising the Collateral; and

                  (iv) if the  fair  market  value of the  Replacement  Items of
          Trade  Property equal or exceed  $8,000,000,  receipt of an opinion of
          counsel reasonably  satisfactory to the Trustee or Collateral Agent to
          the effect that the Company's right,  title and interest in and to the
          Replacement Items of Trade Property, are either subject to the lien of
          this Deed of Trust, or that such Deed of Trust and Security  Agreement
          Supplement and any necessary financing  statements have been recorded,
          registered and filed in such manner and in such

                                      -23-

<PAGE>

         places as may be required  by law to  preserve  and protect the Trustee
         and the Collateral  Agent as to all property  comprising the Collateral
         (including,   without  limitation,   the  Replacement  Items  of  Trade
         Property).

          (b) No purchaser in good faith of an item of Trade  Property  shall be
 bound to inquire  into the  authority of the Company to sell such item of Trade
 Property,  or the authority of the Trustee or the Collateral Agent to execute a
 release of its security interest, under the terms hereof.

                  SECTION  3.4.  RELEASE  OF  COLLATERAL  -- LOSS,  DAMAGE TO OR
 DESTRUCTION OF THE COLLATERAL AND PREPAYMENT OF THE NOTES.  Upon the occurrence
 of any material loss,  damage to or destruction of the Collateral,  the Company
 shall  give the  Trustee  and the  Collateral  Agent,  within 30 days after the
 occurrence  thereof,  written notice of such loss, damage or destruction.  Such
 notice shall generally describe the nature and extent of the loss, damage to or
 destruction of the Collateral and shall include a detailed estimate of the cost
 of repair or replacement of such damaged or destroyed  Collateral.  In the case
 of any loss,  damage to or  destruction  of the  Collateral  which results in a
 prepayment  of the Notes in  accordance  with the  provisions  of  SECTION  4.1
 hereof,  the Trustee or the Collateral Agent shall execute a release in respect
 of the damaged or destroyed Collateral upon receipt of such prepayment in full.

          All  determinations  of the  cost  of  repair  or  replacement  of the
 Collateral  hereof  shall be made by the  Company  in good  faith  and shall be
 evidenced by the delivery of an Officer's  Certificate  or a resolution  of the
 Board of Directors of the Company certifying the accuracy and reasonableness of
 such determination. In making such determinations,  the Company shall base such
 calculations on engineer's,  architect's or other objective criteria, including
 insurance estimates of cost of repair, as shall be reasonably consulted in good
 faith by the Company.

                  SECTION 3.5.  EMINENT DOMAIN.  The Company,  immediately  upon
 obtaining  knowledge of the institution of any proceeding for the  condemnation
 of the Collateral or any portion thereof,  shall notify the Collateral Agent of
 the pendency of such  proceeding.  The Collateral  Agent may participate in any
 such proceeding,  and the Company from time to time will deliver or cause to be
 delivered to the  Collateral  Agent all  instruments  requested by it to permit
 such participation. Any award or compensation payable to the Company on account
 of such condemnation proceeding, if any, shall be paid to the Collateral Agent,
 and such award of  compensation  shall be retained by the  Collateral  Agent as
 part of the Collateral and applied in accordance with SECTION 4.1(A) OR SECTION
 4.1(B) hereof.  The  Collateral  Agent shall be under no obligation to question
 the amount of the award of  compensation  and,  without  limiting the Company's
 right to adjust such award,  the Collateral  Agent may accept any such award of
 compensation.  In any such condemnation proceedings the Collateral Agent may be
 represented by counsel.  The  reasonable  costs of counsel shall be paid by the
 Company.

 SECTION 4. APPLICATION OF INSURANCE AND CERTAIN OTHER MONEYS RECEIVED BY THE
COLLATERAL AGENT.

                  SECTION 4.1. INSURANCE  PROCEEDS AND CONDEMNATION  AWARDS. The
 amounts received by or payable to the Collateral Agent from time to time which
constitute insurance proceeds in respect of any damage to or destruction of the
Collateral or any part thereof or

                                      -24-

<PAGE>

Condemnation  Awards or  compensation  covering the Collateral  (less the actual
costs,  fees and expenses  incurred in the collection  thereof) shall be held by
the  Collateral  Agent as part of the  Collateral  and shall be  applied  by the
Collateral  Agent,  subject  to  the  terms  of  the  Intercreditor  and  Agency
Agreement,  as set forth below (Company hereby  unconditionally  and irrevocably
waives all rights of a property owner under the provisions of California Code of
Civil Procedure ss.  1265.225(a),  or any successor  statute,  providing for the
allocation of condemnation proceeds between a property owner and a lienholder):

         (a) In case of any loss, damage to,  destruction or condemnation of the
Collateral or any part thereof for which the total cost of repair or replacement
is less than $1,500,000, such proceeds shall be paid over to the Company and the
Company  shall  have the right and the  option,  so long as no Event of  Default
hereunder has occurred and is  continuing,  to use the net  insurance  proceeds,
Condemnation Awards or other compensation from such loss, damage to, destruction
or  condemnation  of the  Collateral for either (i) the repair or replacement of
such Collateral so lost, damaged, destroyed or condemned, so long as such repair
or  replacement  is  commenced  within 180 days of the receipt by the Company of
such  insurance  proceeds or  condemnation  award and the  Collateral  Agent has
received  written evidence  satisfactory to the Collateral  Agent  demonstrating
that the collateral  lost,  damaged or destroyed will be replaced or restored to
substantially the same market value and condition immediately prior to the loss,
damage to,  destruction  or  condemnation  of or other event  giving rise to the
payment of such  proceeds;  or (ii) the  reduction  of the  Secured  Obligations
(whether  or not then  due) in  accordance  with and  pursuant  to the terms and
provisions  of  the  Intercreditor  and  Agency  Agreement  including,   without
limitation, the payment of the Make Whole Premium, as applicable; and

         (b) In case of any loss,  damage to or destruction of the Collateral or
any part  thereof for which the total cost of repair or  replacement  is greater
than or equal to $1,500,000, the net insurance proceeds,  Condemnation Awards or
other compensation from such loss, damage to, destruction or condemnation of the
Collateral  shall be placed in a separate escrow account and 180 days thereafter
shall be  applied  by the  Collateral  Agent  to the  reduction  of the  Secured
Obligations  (whether or not then due) in  accordance  with and  pursuant to the
terns and  provisions  of the  Intercreditor  and  Agency  Agreement  including,
without  limitation,  the  payment of the Make  Whole  Premium,  if  applicable;
PROVIDED,  HOWEVER, that the Collateral Agent agrees, subject to the immediately
following  sentence,  to release  such  insurance  proceeds  to the  Company for
replacement or restoration of the portion of the Collateral so lost,  damaged or
destroyed if, but only if, (i) no Event of Default hereunder has occurred and is
continuing  at the time of release,  (ii) written  application  for such release
signed by the President or any Vice  President of the Company is received by the
Collateral Agent within 180 days of the placement of such proceeds in escrow and
(iii) the Collateral Agent has received evidence reasonably  satisfactory to the
Collateral Agent  demonstrating  that the Collateral lost,  damaged or destroyed
has been or will be replaced or restored to substantially  the same market value
and  condition  immediately  prior  to  the  loss,  damage  to,  destruction  or
condemnation  of or other event  giving  rise to the  payment of such  insurance
proceeds. All insurance proceeds and Condemnation Awards shall be subject to the
lien and security interest of the Collateral Agent hereunder. In the case of any
repair or replacement  of the Collateral for which the cost exceeds  $8,000,000,
the Collateral Agent shall receive a supplement hereto  sufficient,  as shown by
an opinion of counsel  (which may be counsel  for the  Company) to grant a valid
first  Lien  and  first  perfected   security  interest  (subject  to  Permitted
Encumbrances) in any additions to or substitutions for the

                                      -25-

<PAGE>

 Collateral to or for the benefit of the Collateral  Agent,  which opinion shall
 also cover the filing  and/or  recording  of such  supplement  (and a financing
 statement or similar notice thereof if and to the extent  permitted or required
 by  applicable  law) so as to perfect  the Lien and  security  interest in such
 additions  or  substitutions,  or in the  alternative  an opinion  that no such
 supplement is required for such purpose.

                  SECTION  4.2.  TITLE  INSURANCE.  Any moneys  received  by the
 Trustee or the  Collateral  Agent as  payment  for any loss under any policy of
 title  insurance  which was  delivered by the Company  shall become part of the
 Collateral.

                  SECTION 4.3. OTHER PROCEEDS.  Any other moneys received by the
 Collateral Agent in connection with the release of the Collateral shall be held
 by the  Collateral  Agent as part of the Collateral and shall be applied by the
 Collateral  Agent upon the terms and in the  manner  provided  in  SECTION  5.3
 hereof.

                  SECTION 4.4.  APPLICATION  IF EVENT of DEFAULT  EXISTS.  If an
 Event of Default hereunder has occurred and is continuing, all amounts received
 by the Collateral Agent under this Deed of Trust, including without limitation,
 all amounts held pursuant to SECTION 4.5 hereof, shall be applied in the manner
 PROVIDED  FOR IN SECTION  5.3 hereof in respect of  proceeds  and avails of the
 Collateral.

                  SECTION 4.5. INVESTMENT OF COLLATERAL.  All monies held by the
 Collateral  Agent  hereunder as Collateral  shall be invested and reinvested by
 the  Collateral  Agent at the  direction of the Company in one or more Eligible
 Investments. The Collateral Agent shall not in any way be held liable by reason
 of any insufficiency of such invested Collateral resulting from any loss on any
 Eligible  Investment  included  therein.  All interest  earned on such Eligible
 Investments  shall be held by the Collateral Agent as Collateral  hereunder and
 shall be invested and reinvested pursuant to this SECTION 4.5.

 SECTION 5. DEFAULTS AND REMEDIES THEREFOR.

                  SECTION 5.1. EVENTS OF DEFAULT.  The Company  acknowledges and
 agrees,  without  limitation,  that each and all of the terms and provisions of
 Section 11 of the Amended and Restated  Note  Agreements  and Article XI of the
 Credit  Agreement,  have been and are  incorporated  into this Deed of Trust by
 reference  to the same extent as though  fully set out herein and that the term
 Event of Default wherever used in this Deed of Trust shall mean either:  (a) an
 Event of Default as defined in the Amended and Restated Note  Agreements or the
 Credit  Agreement,  as the case may be, or (b) the  failure  of the  Company to
 comply with any covenant, agreement or warranty contained in this Deed of Trust
 within 30 days  after the  earlier  of the date that (1) the  Collateral  Agent
 shall have given  written  notice  thereof to the Company,  or (2) such failure
 shall first  become  actually  known to a  Responsible  Officer of the Company;
 PROVIDED,  HOWEVER,  that if the  Company  shall be  diligently  proceeding  to
 correct  such  failure but shall be unable to correct  such  failure  within 30
 days,  then such period shall  continue for an additional 60 days if at the end
 of the initial  30-day period it can be  reasonably  expected that such failure
 can be corrected  within such 60 additional days and the Company shall continue
 to proceed  diligently  to correct such failure  during such  additional 60 day
 period.

                                      -26-

<PAGE>

                  SECTION 5.2. REMEDIES. When any Event of Default hereunder has
 occurred  and is  continuing  and pursuant to the terms and  conditions  of the
 Amended and Restated Note  Agreements or the Credit  Agreement,  the Collateral
 Agent or Trustee may exercise any one or more or all, and in any order,  of the
 remedies  hereinafter set forth,  it being expressly  understood that no remedy
 herein or in the Amended and Restated Note  Agreements or the Credit  Agreement
 conferred is intended to be exclusive of any other remedy or remedies; but each
 and every  remedy shall be  cumulative  and shall be in addition to every other
 remedy  given  herein or now or  hereafter  existing  at law or in equity or by
 statute:

          (a)  Subject  to  compliance  with the  terms  and  provisions  of the
 Intercreditor  and Agency  Agreement,  the  Noteholders and the Lenders may, by
 notice in writing to the  Company,  declare  the entire  unpaid  balance of the
 Amended and  Restated  Senior  Secured  Notes and the Credit  Agreement  Notes,
 respectively,  to be immediately due and payable; and thereupon all outstanding
 principal,  together with all accrued interest thereon and premium, if any, and
 all other fees or other  amounts  payable  with  respect  thereto  shall be and
 become immediately due and payable.

          (b)  Subject  to the terms and  conditions  of the  Intercreditor  and
 Agency Agreement,  the Collateral  Agent,  personally or by agents or attorneys
 may, to the extent  permitted by law, enter into and take  possession of all or
 any part of the  Collateral,  and may  forthwith  use,  operate  and manage the
 Collateral,  collect  the  earnings  and  income  therefrom,  pay  all  charges
 including  taxes and  assessments  levied thereon and operating and maintenance
 expenses and all  disbursements  and  liabilities of the Company  hereunder and
 apply the net proceeds  arising from any such  operation of the  Collateral  as
 provided  in SECTION  5.3 hereof in  respect of the  proceeds  of a sale of the
 Collateral.  The right to enter and take  possession of the  Collateral and use
 any personal property therein, to manage, operate and conserve the same, and to
 collect  the rents,  issues and  profits  thereof,  shall be in addition to all
 other rights or remedies of the Collateral  Agent  hereunder or afforded by law
 (including,  without  limitation  the rights of  Collateral  Agent set forth in
 California  Civil  Code  Section  2938),  and  may  be  exercised  concurrently
 therewith or  independently  thereof.  The expenses  (including  any reasonable
 receiver's  fees,  reasonable  counsel  fees,  costs and agent's  compensation)
 incurred  pursuant to the powers herein  contained  shall be secured hereby and
 the  Company  promises  to pay all such  expenses  upon  demand  together  with
 interest thereon at the Advance Overdue Rate. The Collateral Agent shall not be
 liable to account to the Company for any action  taken  pursuant  hereto  other
 than to  account  for any rents  actually  received  by the  Collateral  Agent.
 Without taking  possession of the Collateral,  the Collateral Agent may, in the
 event the Collateral becomes vacant or is abandoned, take such reasonable steps
 as it deems appropriate to protect and secure the Collateral  (including hiring
 watchmen  therefor)  and  all  costs  incurred  in so  doing  shall  constitute
 additional Secured Obligations payable upon demand with interest thereon at the
 Advance Overdue Rate.

         (c) Subject to the terms and conditions of the Intercreditor and Agency
 Agreement, the Trustee may, if at the time such action may be lawful and always
 subject to compliance  with any mandatory  legal  requirements,  either with or
 without  taking  possession and either before or after taking  possession,  and
 without  instituting any legal proceedings  whatsoever,  and having first given
 notice of such sale to the  Company  at least 30 days prior to the date of such
 sale and having given any other  notice which may be required by law,  sell and
 dispose of said  Collateral  or any part  thereof at public  auction or private
 sale to the highest bidder, which may be a

                                      -27-

<PAGE>

 Noteholder,  in one lot as an  entirety or in  separate  lots (the  Company for
 itself  and for all who may claim  by,  through  or under it  hereby  expressly
 waiving and releasing all rights to have the Collateral marshaled to the extent
 permitted  by law),  and  either for cash or on credit and on such terms as the
 Trustee may determine and at the place  required by law. Any such sale or sales
 may be  adjourned  from  time to time by  announcement  at the time  and  place
 appointed  for such  sale or sales or for any  such  adjourned  sale or  sales,
 without further published notice. Company waives all rights to direct the order
 in which any of the Collateral will be sold in the event of any sale under this
 Deed of  Trust.  In the  case of a sale  under  this  Deed of  Trust,  the said
 property,  real, personal and mixed, may be sold in one parcel or more than one
 parcel.  Should  Collateral  Agent desire that more than one such sale or other
 disposition be conducted,  Collateral Agent may, at its option,  cause the same
 to be conducted  simultaneously,  or  successively  on the same day, or at such
 different days or times and in such order as Collateral Agent may deem to be in
 its best interest. Any person,  including Company, Trustee or Collateral Agent,
 may purchase at the sale.  Upon any sale,  Trustee shall execute and deliver to
 the purchaser or purchasers a deed or deeds conveying the property so sold, but
 without any covenant or warranty whatsoever, express or implied, whereupon such
 purchaser or  purchasers  shall be let into  immediate  possession.  Collateral
 Agent,  from time to time before the trustee's sale pursuant to this paragraph,
 may rescind any notice of breach or default and of election to cause to be sold
 the  Collateral by executing and delivering to Trustee a written notice of such
 rescission,  which notice,  shall also  constitute a cancellation  of any prior
 declaration of default and demand for sale. The exercise by Collateral Agent of
 such right of rescission shall not constitute a waiver of any breach or default
 then existing or subsequently occurring or impair the right of Collateral Agent
 to execute and deliver to Trustee,  as above  provided,  other  declarations of
 default and demand for sale, and notices of breach or default,  the obligations
 hereof,  nor  otherwise  affect any  provision,  covenant or  condition  of the
 Operative  Agreements  and/or  this  Deed  of  Trust  or  any  of  the  rights,
 obligations or remedies of the parties thereunder or hereunder.

          (d)  Subject  to the terms and  conditions  of the  Intercreditor  and
 Agency  Agreement,  the Collateral Agent may proceed to protect and enforce its
 rights by a suit or suits in equity or at law, or for the specific  performance
 of any  covenant or agreement  contained  herein or in the Amended and Restated
 Note  Agreements  or the Credit  Agreement,  or in aid of the  execution of any
 power herein or therein granted,  or for the foreclosure of this Deed of Trust,
 or for the enforcement of any other appropriate legal or equitable remedy. Upon
 the  bringing  of any suit to  foreclose  this Deed of Trust or to enforce  any
 other remedy available  hereunder,  the plaintiff shall be entitled as a matter
 of right,  without  notice and  without  giving  bond to the  Company or anyone
 claiming  under,  by or  through  it, and  without  regard to the  solvency  or
 insolvency  of the  Company or the then value of the  premises,  to apply to an
 appropriate court to have a receiver appointed of all the Collateral and of the
 earnings,  income, rents, issues, profits and proceeds thereof, with such power
 as the court making such appointment shall confer,  and the Company does hereby
 irrevocably  consent to such  appointment.  It is understood and agreed upon by
 the Company and the Collateral  Agent that this Deed of Trust may be foreclosed
 upon simultaneously in one or more jurisdictions.

          (e)  Subject  to the terms and  conditions  of the  Intercreditor  and
 Agency  Agreement,  in  case  of any  sale of the  Collateral,  or of any  part
 thereof,  pursuant  to any  judgment  or decree of any  court or  otherwise  in
 connection with the enforcement of any of the terms of this Deed of Trust,  the
 Collateral  Agent,  the  Lenders  or the  Noteholders  may bid and  become  the
 purchaser,

                                      -28-

<PAGE>

 and the purchaser or  purchasers,  for the purpose of making  settlement for or
 payment of the purchase  price,  shall be entitled to TURN IN AND use the Notes
 and ANY claims for interest and premium  matured and unpaid  thereon,  in order
 that there may be credited as paid on the purchase price the sum  apportionable
 and  applicable  to the Notes,  including  principal  and  interest and premium
 thereof, out of the net proceeds of such sale after allowing for the proportion
 of the total  purchase  price  required  to be paid in actual  cash.  If at any
 foreclosure  proceeding  the  Collateral  shall be sold for a sum less than the
 total  amount  of  indebtedness  for  which  judgment  is  therein  given,  the
 Collateral Agent shall be entitled to the entry of a deficiency  decree against
 the  Company  and  against  the  property of the Company for the amount of such
 deficiency.

          (f)  Subject  to the terms and  conditions  of the  Intercreditor  and
 Agency  Agreement,  the  Collateral  Agent  shall  have any and all  rights and
 remedies (including, without limitation, extra judicial power of sale) provided
 to a secured party by the Uniform  Commercial  Code with respect to any and all
 parts of the  Collateral  which are and which are deemed to be  governed by the
 Uniform Commercial Code. Without limiting the generality of the foregoing,  the
 Collateral Agent shall, with respect to any part of the Collateral constituting
 property  of the type in respect  of which  realization  on a Lien or  security
 interest  granted therein is governed by the Uniform  Commercial Code, have all
 the  rights,  options  and  remedies  of a  secured  party  under  the  Uniform
 Commercial Code, including,  without limitation, the right to the possession of
 any such  property,  or any part  thereof,  and the  right  peaceably  to enter
 without  legal process any premises  where any such property may be found.  Any
 requirement of said Uniform  Commercial Code for reasonable  notification shall
 be met by mailing  written  notice to the  Company at its  address set forth in
 SECTION  6.3 hereof at least 30 days prior to the sale or other event for which
 such notice is required.

          (g)  Declare  all  sums  secured  by this  Deed of Trust to be due and
 payable  without  further notice and commence a trustee's sale of the Property,
 and if the  Collateral  Agent shall so elect,  the sale shall be  conducted  as
 follows:

                  (1) The  Collateral  Agent shall  deliver to Trustee a written
         declaration  of default  and  demand  for sale and a written  notice of
         default and election to cause the Mortgaged  Property to be sold, which
         notice  Trustee  shall cause to be filed for record.  Collateral  Agent
         shall  also  deposit  with  Trustee  this  Deed of  Trust,  the  Credit
         Agreement Documents,  the Note Documents,  and all documents evidencing
         expenditures secured hereby.

                  (2) After a lapse of such time as may then be  required by law
         following the recordation of said notice of default, and notice of sale
         having been given as then required by law,  Trustee,  without demand on
         the Company,  shall sell the  Mortgaged  Property at the time and place
         fixed by it in the  notice of sale,  either  as a whole or in  separate
         parcels,  and in such order as it may  determine,  at public auction to
         the  highest  bidder  for cash in lawful  money of the  United  States,
         payable at time of sale.  Trustee may  postpone  the sale of all or any
         portion of the Mortgaged  Property by public  announcement at such time
         and place of sale,  and from time to time  thereafter may postpone such
         sale  by  public  announcement  at the  time  fixed  by  the  preceding
         postponement.   Trustee  shall  deliver  to  such  purchaser  its  deed
         conveying the Mortgaged  Property so sold,  but without any covenant or
         warranty, express or implied. The recitals

                                      -29-

<PAGE>

         in such deed of any matters or facts shall be conclusive proof of the
         truthfulness thereof.

                  (3) Any  person,  including  the  Company,  the  Trustee,  the
         Collateral  Agent,  or any  of the  Noteholders  or  the  Lenders,  may
         purchase at any sale of the Property  under this Deed of Trust,  and if
         the Collateral  Agent is the highest bidder,  may credit the portion of
         the purchase price that would be  distributed  to the Collateral  Agent
         against the  indebtedness  in lieu of paying cash. The proceeds of such
         sale shall be applied as provided in this Deed of Trust.

          (h) The  Collateral  Agent shall have any and all rights and  remedies
 provided  for in the  Intercreditor  and Agency  Agreement  and the Amended and
 Restated Note Agreements and the Credit Agreement.

                  SECTION  5.3.  APPLICATION  OF PROCEEDS.  The  purchase  money
 proceeds and/or avails of any sale of the  Collateral,  or any part thereof and
 the  proceeds  and the  avails  of any  remedy  hereunder  shall be paid to and
 applied as follows:

          (a)  FIRST,  to  the  payment  PRO  RATA  of  costs  and  expenses  of
 foreclosure or suit, if any, and of such sale,  and to the extent  permitted by
 applicable law, the reasonable  compensation of the Collateral  Agent's agents,
 attorneys  and  counsel,  and of all proper  expenses,  liability  and advances
 incurred or made  hereunder by the Collateral  Agent or such agents,  attorneys
 and counsel,  and of all taxes,  assessments  or liens  superior to the Lien of
 these presents, except any taxes, assessments or other superior Lien subject to
 which said sale may have been made; and

          (b)  SECOND, in accordance with the terms and conditions of the
Intercreditor and Agency Agreement.

                  SECTION 5.4. WAIVER OF EXTENSION,  APPRAISEMENT AND STAY LAWS.
 The Company covenants that, upon the occurrence and the continuance of an Event
 of Default  hereunder  and the  acceleration  of the Notes  pursuant to SECTION
 5.2(A)  hereof and to the extent that such rights may then be lawfully  waived,
 it will not at any time  thereafter  insist  upon or  plead,  or in any  manner
 whatever  claim or take any benefit or advantage  of, any stay or extension law
 now or at any time  hereafter  in  force,  or claim,  take or  insist  upon any
 benefit or advantage of or from any law now or hereafter in force providing for
 the valuation or  appraisement  of the  Collateral or any part thereof prior to
 any  sale  or  sales  thereof  to be  made  pursuant  to any  provision  herein
 contained,  or to the  decree,  judgment  or  order of any  court of  competent
 jurisdiction or, after confirmation of any such sale or sales claim or exercise
 any right under any statute  now or  hereafter  made or enacted by any state or
 otherwise  to redeem  the  property  so sold or any part  thereof,  and  hereby
 expressly  waives  for  itself  and on behalf of each and every  Person who may
 claim under it, all benefit and  advantage  of any such law or laws which would
 otherwise be available to any such Person in connection with the enforcement of
 any of the Collateral  Agent's remedies  hereunder;  and covenants that it will
 not in connection with any such enforcement  proceedings  invoke or utilize any
 such law or laws or  otherwise  hinder,  delay or impede the  execution  of any
 power herein granted and delegated to the Collateral  Agent but will suffer and
 permit the execution of every such power as though no such law or laws had been
 made or enacted.

                                      -30-

<PAGE>

          The Company  hereby waives any and all rights of redemption  from sale
 under any order or decree of foreclosure  pursuant to rights herein granted, on
 behalf of the Company,  and each and every Person acquiring any interest in, or
 title to the Collateral described herein subsequent to the date of this Deed of
 Trust, and on behalf of all other Persons to the extent permitted by applicable
 law.

          Any sale, whether under any power of sale hereby given or by virtue of
 judicial proceedings, shall operate to divest all right, title, interest, claim
 and demand whatsoever, either at law or in equity, of the Company in and to the
 property sold and shall be a perpetual bar, both at law and in equity,  against
 the  Company,  its  successors  and  assigns,  and  against any and all Persons
 claiming  the  property  sold or any part  thereof  under,  by or  through  the
 Company, its successors or assigns.

                  SECTION 5.5. EFFECT OF DISCONTINUANCE OF PROCEEDINGS.  IN case
 the Collateral  Agent shall have proceeded to enforce any right under this Deed
 of Trust by foreclosure,  sale, entry or otherwise,  and such proceedings shall
 have been discontinued  through written notice to the Company by the Collateral
 Agent or shall have been determined adversely,  then and in every such case the
 Company and the  Collateral  Agent shall each be restored to its  position  and
 rights hereunder,  except with respect to any rights  specifically  denied in a
 proceeding which was adversely determined, as they existed immediately prior to
 the  commencement of such  proceedings  with respect to the property subject to
 the Lien and first perfected security interest of this Deed of Trust.

                  SECTION 5.6. DELAY OR OMISSION NOT A WAIVER. No delay, failure
 or omission of the Collateral Agent to exercise any right or power arising from
 any Event of Default  on the part of the  Company  shall  exhaust or impair any
 such right or power or prevent  its  exercise  during the  continuance  of such
 Event of  Default.  No  waiver  by the  Collateral  Agent of any such  Event of
 Default, whether such waiver be full or partial, shall extend to or be taken to
 affect any  subsequent  Event of  Default,  or to impair  the rights  resulting
 therefrom,  except as may be  otherwise  provided  herein.  No right,  power or
 remedy  hereunder  is intended to be  exclusive  of any other  right,  power or
 remedy but each and every  right,  power or remedy shall be  cumulative  and in
 addition to any and every  other  right,  power or remedy  given  hereunder  or
 otherwise existing. Nor shall the giving, taking or enforcement OF any other or
 additional security, collateral or guaranty for the payment of the indebtedness
 secured  under  this Deed of Trust  operate to  prejudice,  waive or affect the
 security of this Deed of Trust or any rights, powers or remedies hereunder; nor
 shall the  Collateral  Agent be required  to first look to,  enforce or exhaust
 such other or additional security, collateral or guaranties.

                  SECTION 5.7. COSTS AND EXPENSES OF FORECLOSURE. In any suit to
 foreclose the Lien or first perfected  security  interest hereon there shall be
 allowed and included as additional  Secured  Obligations in the decree for sale
 all  expenditures and expenses which may be paid or incurred by or on behalf of
 the Collateral  Agent and Trustee for reasonable  attorney's  fees,  reasonable
 appraiser's  fees,  outlays for documentary and expert  evidence,  stenographic
 charges, publication costs and costs (which may be estimated as the items to be
 expended  after the entry of the decree) of  procuring  all such  abstracts  of
 title, title searches and examination, guarantee policies, and similar data and
 assurances  with respect to title as the Collateral  Agent and Trustee may deem
 to be reasonably  necessary  either to prosecute any  foreclosure  action or to
 evidence to

                                      -31-

<PAGE>

 the bidder at any sale pursuant  thereto the true  condition of the title to or
 the value of the Collateral,  all of which expenditures shall become additional
 Secured  Obligations  which the Company  agrees to pay and all of such shall be
 immediately due and payable with interest  thereon from the date of expenditure
 until paid at the Advance Overdue Rate.

                  SECTION  5.8.  NOTES TO  BECOME  DUE UPON  SALE BY  COLLATERAL
 AGENT. Upon any sale under or by virtue of this Deed of Trust, whether pursuant
 to foreclosure,  power of sale or otherwise, the entire unpaid principal amount
 of the Notes  shall,  unless  the  Collateral  Agent  shall  expressly  declare
 otherwise or if not previously declared due and payable, immediately become due
 and payable,  together  with  interest  accrued  thereon and Make Whole Premium
 and/or fees, if any, and all other indebtedness which this Deed of Trust by its
 terms secures,  anything contrary in this Deed of Trust, the Notes or any other
 instrument securing the Notes to the contrary notwithstanding.

                  SECTION 5.9.  REMEDIES  SUBJECT TO APPLICABLE LAW. ALL rights,
 remedies, and powers provided by this SECTION 5 entitled "Defaults and Remedies
 Therefor"  may be exercised  only to the extent that the exercise  thereof does
 not violate any applicable provisions of law, and all of the provisions of this
 Section are intended to be subject to all  applicable  mandatory  provisions of
 law which may be controlling and to be limited to the extent  necessary so that
 they will not render this Deed of Trust invalid, unenforceable, or not entitled
 to be recorded,  registered,  or filed under the  provisions of any  applicable
 law.

SECTION 6 MISCELLANEOUS.

                  SECTION  6.1.  SUCCESSORS  AND  ASSIGNS.  Whenever  any of the
 parties  hereto is referred to, such  reference  shall be deemed to include the
 successors  and  assigns of such party;  and all the  covenants,  premises  and
 agreements in this Deed of Trust  contained by or on behalf of the Company,  or
 by or on behalf of the Trustee or the Collateral Agent, shall bind and inure to
 the benefit of the respective successors and assigns of such parties whether so
 expressed or not.

                  SECTION 6.2.  SEVERABILITY.  The unenforceability or
invalidity of any provision or provisions of this Deed of Trust shall not render
any other provision or provisions herein contained unenforceable or invalid.

                  SECTION 6.3. ADDRESSES FOR NOTICES AND DEMANDS.  Any notice or
 report  required by any provision of this Deed of Trust shall be deemed to have
 been  sufficiently  given or made if copies  thereof are  delivered in writing,
 telexed,  telegraphed  or  telecopied  (with a copy of any  such  communication
 promptly  mailed by  registered  or  certified  mail or prepaid  overnight  air
 courier), addressed as follows:

          If to the Company:           The Chalone Wine Group, Ltd,
                                       621 Airpark Road
                                       Napa, CA 94558

                                      -32-

<PAGE>

          If to the Collateral Agent; "Rabobank International", New York Branch,
                                      245 Park Avenue
                                      New York, NY 10167

          If to the Trustee           North American Title Company
                                      3273 Claremont Way, Ste. 101
                                      Napa, CA 94558

 or as to either  party at such other  address as such  party may  designate  by
 notice duly given in accordance with this Section to the other party.

                  SECTION 6.4.  HEADINGS AND TABLE OF CONTENTS.  The headings of
 the  sections of this Deed of Trust and the table of contents  are inserted for
 purposes of  convenience  only and shall not be construed to affect the meaning
 or construction of any of the provisions hereof.

                 SECTION 6.5. RELEASE.  This Deed of Trust shall be a continuing
agreement  in every  respect and shall remain in full force and effect until all
of the Notes,  premium,  if any,  principal  and interest  thereon and all other
Secured Obligations, shall have been fully paid and satisfied. Simultaneous with
the occurrence of the preceding sentence, or otherwise pursuant to the terms and
provisions of the  Intercreditor  and Agency  Agreement,  the  Collateral  Agent
shall, upon the request and at the expense of the Company, forthwith release all
its liens and security interests hereunder by, including but not limited to, the
execution of a satisfaction  and any other documents or actions required for the
release of the Deed of Trust of record.

                 SECTION 6.6.  COUNTERPARTS. This Deed of Trust may be executed,
acknowledged and delivered in any number of counterparts, each of such
counterparts constituting an original but all together only one Deed of Trust.

                 SECTION  6.7.  AGENCY.  Each  holder  of  the  Notes,  by its
execution and delivery of the Intercreditor  and Agency Agreement,  appoints and
authorizes  the  Trustee and  Collateral  Agent to hold the lien of this Deed of
Trust on the  Collateral  for the equal and ratable  benefit and security of all
holders of the Notes, without preference, priority or distinction of any thereof
or any other by reason of  difference  in time of issuance,  sale or delivery of
the Notes to such  holders.  The  Collateral  Agent  shall take such  actions in
respect of the Collateral (including actions after the occurrence of an Event of
Default)  as  are  delegated  to  the  Collateral  Agent  by  the  terms  of the
Intercreditor and Agency Agreement.

                  SECTION 6.8.  SUBSTITUTE  TRUSTEE.  Trustee  shall be under no
 duty to take any action hereunder except as expressly required or by law, or to
 perform any act which would  involve  Trustee in any expense or liability or to
 institute or defend any suit in respect hereof,  unless properly indemnified to
 Trustee's  reasonable  satisfaction.  Trustee,  by  acceptance  of this Deed of
 Trust,  covenants  to perform  and  fulfill the trusts  herein  created,  being
 liable,  however,  only for gross negligence or willful misconduct,  and hereby
 waives any statutory fee and agrees to accept reasonable compensation,  in lieu
 thereof,  for any  services  rendered by Trustee in  accordance  with the terms
 hereof.  Trustee may resign at any time upon giving thirty (30) days' notice to
 Company and to Collateral Agent.  Collateral Agent may in its sole and absolute
 discretion and with or without cause remove Trustee at any time or from time to
 time and select a

                                      -33-

<PAGE>

 successor trustee. In the event of the death, removal, resignation,  refusal to
 act, or inability to act of Trustee, or in its sole and absolute discretion for
 any  reason  whatsoever  Collateral  Agent  may,  without  notice  and  without
 specifying any reason  therefor and without  applying to any court,  select and
 appoint a successor  trustee,  by an instrument  recorded wherever this Deed of
 Trust is recorded and all powers  rights,  duties and authority of Trustee,  as
 aforesaid,  shall  thereupon  become  vested  in  such  successor  and  without
 conveyance of the  Collateral,  the successor  trustee shall succeed to all the
 title,  powers, and duties conferred upon Trustee herein and by applicable laws
 as if the  successor  had been named Trustee at the time this Deed of Trust was
 recorded.  Such  substitute  trustee shall not be required to give bond for the
 faithful  performance of the duties of Trustee  hereunder unless required to do
 so by Collateral Agent. Company shall pay all costs, fees and expenses incurred
 by Trustee and Trustee's  agents and counsel in connection with the performance
 by Trustee of Trustee's duties hereunder and all such costs,  fees and expenses
 shall be secured by this Deed of Trust.

                  SECTION  6.9.  GOVERNING  LAW.  This Deed of Trust shall be
construed  in  accordance  with and  governed by the laws and decisions of the
State of California (without regard to any choice of law provisions).

                  SECTION 6.10. TIME. Time shall be of the essence of this Deed
of Trust.

                  SECTION  6.11.  FUTURE  ADVANCES.  At all times,  this Deed of
 Trust  secures as part of the  Secured  Obligations  the payment of any and all
 loan  commissions,   service  charges,  liquidated  damages,  attorney's  fees,
 expenses  and  advances  due to or  incurred  by the  Collateral  Agent and the
 Trustee in connection with the Secured Obligations,  all in accordance with the
 Notes, this Deed of Trust, the Amended and Restated Note Agreements, the Credit
 Agreement  the  Intercreditor  and  Agency  Agreement  and any of the  Security
 Documents,  together with such future or additional  advances as may be made by
 the  Collateral  Agent or the holder  hereof,  at its  exclusive  option to the
 Company  or its  successors  or  assigns  in title,  for any  purpose  provided
 hereunder,  PROVIDED that all such advances are made within twenty years of the
 date of this Deed of Trust.

                 SECTION  6.12.  WAIVER  OF  JURY  TRIAL.  The  Company  and the
Collateral Agent hereby knowingly, voluntarily and intentionally waive the right
to trial by jury in respect of any  litigation  based  hereon,  arising  out of,
under or in connection  with this Deed of Trust or any other  Security  Document
contemplated  to be executed in connection  herewith,  or any course of conduct,
course of  dealings,  statements  (whether  verbal or written) or acts of either
party, or any exercise of any party of their  respective  rights under this Deed
of Trust or any such Security  Document.  The Company hereby  acknowledges  that
this  waiver  of jury  trial is a  material  inducement  to the  Noteholders  in
extending  credit to the Company,  that the Noteholders  would not have extended
credit  without  this  waiver  of jury  trial  and that the  Company  has had an
opportunity  to consult with an attorney in connection  with this waiver of jury
trial and understands the legal effect of this waiver.

                 SECTION  6.13.  SPECIAL  CALIFORNIA   PROVISIONS.   The  terms,
conditions  and  provisions of this Section 6.13, if any,  shall apply solely to
the portion of the security herein  described which is located in California and
shall govern,  control and take  precedence  with respect to such portion of the
security:

                                      -34-

<PAGE>

                  (a) The  provisions of this Deed of Trust shall remain in full
 force and effect  notwithstanding (i) any release of Company from any liability
 with respect to the Secured  Obligations;  or (ii) any release or subordination
 of any real or personal  property now or hereafter held by Collateral  Agent as
 security for the performance of the Secured Obligations;

                  (b) Company hereby waives all rights and defenses that Company
 may have because any of Company's debt is secured by real property. This means,
 among other things: (i) Collateral Agent may collect from Company without first
 foreclosing on any real or personal property collateral pledged by Company; and
 (ii) if Collateral Agent forecloses on any real property  collateral pledged by
 Company  (A) the amount of debt may be reduced  only by the price for which the
 collateral is sold at the  foreclosure  sale,  even if the  collateral is worth
 more than the sale price,  and (B)  Collateral  Agent may COLLECT  FROM COMPANY
 even if Collateral Agent, by foreclosing on the real property  collateral,  has
 destroyed any right  Company may have to collect from any other party.  This is
 an unconditional and irrevocable  waiver of any rights and defenses Company may
 have  because  Company's  debt is secured by real  property.  These  rights and
 defenses  include,  but are not limited  to, any rights or defenses  based upon
 Section 580a, 580b, 580d, or 726 of the California Code of Civil Procedure.

                  (c) In the case of a power of sale foreclosure under this Deed
 of Trust or any other deed of trust entered into by the parties as security for
 the Secured Obligations,  the fair market value of the real property collateral
 shall be  conclusively  deemed to be the  amount of the  successful  bid at the
 foreclosure sale. Company waives any rights or benefits it may now or hereafter
 have to a fair value hearing under Section 580a of the California Code of Civil
 Procedure.  Collateral  Agent shall have absolutely no obligation to make a bid
 at any  foreclosure  sale,  but rather may make no bid or bid any amount  which
 Collateral Agent, in its sole discretion, deems appropriate.

                 (d) Company  warrants and  represents to Collateral  Agent that
(i) it now has or will continue to have full and complete  access to any and all
information concerning the transactions contemplated by the Operative Agreements
referred  to  therein,  the value of the assets  owned or to be  acquired by any
Subsidiary Guarantor under the Operative Agreements,  their financial status and
their respective  ability to pay and perform their respective  obligations under
the Operative  Agreements;  and (ii) Company has reviewed and approved copies of
the Operative  Agreements and is fully informed of the remedies Collateral Agent
may pursue, with or without notice to Company, in the event of default under the
Operative Agreements. Company shall keep fully informed as to all aspects of the
financial condition of any Subsidiary  Guarantor under the Operative  Agreements
and  the  performance  of  their  respective  obligations  under  the  Operative
Agreements.

                  (e) Company  agrees that  Collateral  Agent may  exercise  any
 right or remedy hereunder or under any of the Operative  Agreements without the
 necessity of resorting to or exhausting any security or collateral  conveyed or
 assigned by Company or any of the  Subsidiary  Guarantors  under the  Operative
 Agreements or any guarantor of any of the Secured  Obligations.  Company hereby
 waives any right it may now or hereafter  have to require  Collateral  Agent to
 proceed  against any Subsidiary  Guarantor under the Operative  Agreements,  to
 proceed against any guarantor of any of the Secured  Obligations,  to foreclose
 any lien on any real or personal  property  collateral  conveyed or assigned to
 Collateral Agent by Company or any Subsidiary

                                      -35-

<PAGE>

 Guarantor under the Operative Agreements, to exercise any right or remedy under
 the  Operative  Agreements,  to draw  upon  any  letter  of  credit  issued  in
 connection with any of the Secured  Obligations,  or to pursue any other remedy
 or to enforce any other right under the Operative Agreements.

                  (f) Company and Collateral  Agent intend that the relationship
 created hereunder be solely that of "debtor" and "creditor".  Nothing herein is
 intended to create a joint venture,  partnership,  tenancy- in-common, or joint
 tenancy  relationship  between  Company  and  Collateral  Agent  nor  to  grant
 Collateral Agent any interest in the Collateral other than that of beneficiary,
 secured party or lender. '

                  (g)  This  Deed  of  Trust  may  not  be  modified,   amended,
 discharged  or waived in whole or in part  except by an  agreement  in  writing
 signed by Company and  Collateral  Agent.  The  covenants of this Deed of Trust
 shall RUN WITH THE LAND AND SHALL BIND  COMPANY  and the  heirs,  distributees,
 personal representatives, successors and assigns of Company and all present and
 subsequent  encumbrancers,  lessees and sublessees of any of the Collateral and
 shall inure to the benefit of Collateral  Agent and its respective  successors,
 assigns and endorsees.

                  (h) Whenever  possible,  each  provision of this Deed of Trust
 shall  be  interpreted  in such  manner  as to be  effective  and  valid  under
 applicable  law, but if any provision of this Deed of Trust shall be prohibited
 by or invalid under  applicable law, such provision shall be ineffective to the
 extent of such  prohibition or invalidity,  without  invalidating the remaining
 provisions of this Deed of Trust. Nothing in this Deed of Trust or in any other
 Operative  Agreements  shall  require  Company to pay, or  Collateral  Agent to
 accept,  interest in an amount which would subject  Collateral Agent to penalty
 under  applicable  law.  In the event  that the  payment  of any  interest  due
 hereunder or under any of the other Operative  Agreements or a payment which is
 deemed  interest,  exceeds the  maximum  amount  payable as interest  under the
 applicable  usury laws, such excess amount shall be applied to the reduction of
 the  Indebtedness,  and  upon  payment  in full of the  Indebtedness,  shall be
 applied to the performance of the Obligations,  and upon performance in full of
 the  Obligations,  shall be deemed to be a payment made by mistake and shall be
 refunded to Company.

                  (i) Any consent or approval by Collateral  Agent in any single
instance  shall not be deemed or construed to be Collateral  Agent's  consent or
approval in any like matter  arising at a  subsequent  date,  and the failure of
Collateral  Agent to promptly  exercise  any right,  power,  remedy,  consent or
approval  provided  herein or at law or in equity  shall  not  constitute  or be
construed as a waiver of the same nor shall  Collateral  Agent be stopped  from
exercising such right, power,  remedy,  consent or approval at a later date. Any
consent or approval requested of and granted by Collateral Agent pursuant hereto
shall be  narrowly  construed  to be  applicable  only to Company and the matter
identified  in such  consent or  approval  and no third  party  shall  claim any
benefit by reason thereof, other than the party to whom such consent or approval
was given or  reasonably  intended to benefit,  and any such consent or approval
shall not be deemed to  constitute  Collateral  Agent a venturer or partner with
Company nor shall privity of contract be presumed to have been  established with
any such third party.

                  It is the desire and intention of the parties hereto that this
Deed of Trust  and the lien  hereof  do not  merge  in fee  simple  title to the
Collateral. It is hereby understood and agreed

                                      -36-

<PAGE>

 that should Collateral Agent acquire any additional or other interests in or to
 the  Collateral or the ownership  thereof,  then,  unless a contrary  intent is
 manifested by  Collateral  Agent as evidenced by an  appropriate  document duly
 recorded,  this Deed of Trust and the lien hereof shall not merge in such other
 or additional interests in or to the Collateral,  toward the end that this Deed
 of  Trust  may be  foreclosed  as if  owned  by a  stranger  to said  other  or
 additional interests.

                  (j) By accepting delivery of any item required to be observed,
 performed or fulfilled or to be given to Collateral Agent pursuant to this Deed
 of Trust and the other Operative Agreements, including, but not limited to, any
 officer's  certificate,  balance  sheet,  statement of profit and loss or other
 financial statement,  survey,  appraisal or insurance policy,  Collateral Agent
 shall  not  be  deemed  to  have  warranted,  consented  to,  or  affirmed  the
 sufficiency,  legality,  effectiveness  or legal effect of the same,  or of any
 term,  provision or condition thereof,  and such acceptance of delivery thereof
 shall not be or constitute any warranty,  consent or  affirmation  with respect
 thereto by Collateral Agent.

                  (k) The  parties  hereto  agree  that  each of them,  upon the
 request of the other party,  shall execute and deliver such further  documents,
 instruments  or  agreements  and shall  take such  further  action  that may be
 necessary or  appropriate  to effectuate  the purposes of this Deed of Trust or
 that may be necessary or  appropriate  to comply with the  requirements  of the
 Uniform Commercial Code.

                  COMPANY  PLEASE  NOTE:  UPON  THE  OCCURRENCE  OF  A  DEFAULT,
 CALIFORNIA  PROCEDURE PERMITS THE TRUSTEE TO SELL THE COLLATERAL AT A SALE HELD
 WITHOUT  SUPERVISION  BY ANY COURT AFTER  EXPIRATION OF A PERIOD  PRESCRIBED BY
 LAW.  UNLESS YOU  PROVIDE AN ADDRESS  FOR THE GIVING OF NOTICE,  YOU MAY NOT BE
 ENTITLED TO NOTICE OF THE  COMMENCEMENT  OF SALE  PROCEEDINGS.  BY EXECUTION OF
 THIS DEED OF TRUST,  YOU CONSENT TO SUCH PROCEDURE.  COLLATERAL AGENT URGES YOU
 TO GIVE  PROMPT  NOTICE OF ANY CHANGE IN YOUR  ADDRESS SO THAT YOU MAY  RECEIVE
 PROMPTLY ANY NOTICE GIVEN PURSUANT TO THIS DEED OF TRUST.

                                      -37-

<PAGE>

         IN WITNESS  WHEREOF,  the  Company  has caused this Deed of Trust to be
executed  in its  behalf by its  President  as of the day and year  first  above
written.

                                          THE CHALONE WINE GROUP, LTD.

                                          BY:      ________________________
                                                   THOMAS B. SELFRIDGE,
                                                   PRESIDENT AND CEO

                                          Address: 621 Airpark Road
                                                   Napa, California 94558
                                                   Taxpayer Identification No.:
                                                   84-1537575
Deed of Trust Monterey County

<PAGE>

                         CERTIFICATE OF ACKNOWLEDGMENT

State of California

County of San Francisco

On April 12, 2002, before me, Kimberly A. Clark, personally appeared
Thomas B. Selfridge,

 [     ] personally known to me, OR [XX] proved   to  me   on   the   basis   of
                                         satisfactory   evidence   to   be   the
 KIMBERLY A. CLARK                       person(s)    whose    name(s)    is/are
 COMM. #1238162                          subscribed to the within instrument and
 NOTARY PUBLIC-CALIFORNIA                acknowledged  to  me  that  he/she/they
 City & County of San Francisco          executed  the  same  in   his/her/their
 COMM. EXP. OCT, 16, 2003                authorized  capacity(ies),  and that by
                                         his/her/their   signature(s)   on   the
                                         instrument the person(s), or the entity
                                         upon  behalf  of  which  the  person(s)
                                         acted, executed the instrument.

                                         WITNESS my hand and official seal

                                         Signature _____________________________

<PAGE>

                                                       MONTEREY, CA CHALONE WINE

                                     AMENDED
                                LEGAL DESCRIPTION
PARCEL I
________

PARCEL "A" IN THE COUNTY OF MONTEREY, STATE OF CALIFORNIA, ACCORDING TO THE MAP
FILED FOR RECORD ON SEPTEMBER  16, 1987 IN VOLUME 15 OF SURVEY,  AT PAGE 48, IN
THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

EXCEPTING  THEREFROM A 14 FOOT STRIP OF LAND  LEADING TO THE N. 1/2 OF THE N.
1/2 OF SEC. 17, T17, S., R7E MDM,  FROM THE  STONEWALL  CANYON ROAD LOCATED IN
THE SE 1/4 OF THE SE 1/4 OF SECTION 8,  TOWNSHIP 17, SOUTH,  RANGE 7 EAST MDM,
THENCE  SOUTHERLY  ACROSS THE SAID SE 1/4 OF
THE SE 1/4 OF  SECTION 8 AND  ADJACENT  TO THE  WESTERNMOST  BOUNDARY  OF THE
SAID SE 1/4 OF THE SE 1/4 OF SECTION 8 FOR  APPROXIMATELY  ONE QUARTER MILE,
GRANTED TO JON A. BROSSEAU AND JANET A. BROSSEAU,  HUSBAND AND WIFE,  RECORDED
OCTOBER 6, 1978 ON REEL 1280, OFFICIAL RECORDS, PAGE 875.

APN: 417-181-053

PARCEL II
_________

THE  SOUTHEAST  QUARTER OF SECTION 7 IN TOWNSHIP 17 SOUTH,  RANGE 7 EAST,  MOUNT
DIABLO MERIDIAN, ACCORDING TO THE OFFICIAL PLAT THEREOF.

EXCEPTING  THEREFROM  THAT REAL  PROPERTY  DESCRIBED  IN THAT  DEED TO  MACWOOD
COMPANY OF CALIFORNIA, A GENERAL PARTNERSHIP, RECORDED NOVEMBER 8, 1973 IN REEL
879, PAGE 623, OFFICIAL RECORDS, MONTEREY COUNTY, CALIFORNIA.

ALSO  EXCEPTING  THEREFROM  THAT REAL PROPERTY  DESCRIBED IN THAT DEED TO PETER
WATSON-GRAFF,  ET UX,  RECORDED  APRIL 8, 1975 IN REEL 972,  PAGE 169,  OFFICIAL
RECORDS, MONTEREY COUNTY, CALIFORNIA.

APN: 417-201-001

PARCEL III
__________

THE  NORTHWEST  QUARTER OF SECTION 8,  TOWNSHIP  17 SOUTH,  RANGE 7 EAST,  MOUNT
DIABLO  BASE AND  MERIDIAN  IN THE  COUNTY  OF  MONTEREY,  STATE OF  CALIFORNIA,
ACCORDING TO THE OFFICIAL PLAT THEREOF.

APN: 417-181-029
                                       -1-

<PAGE>

                                                                    MONTEREY,CA
                                                                    CHALONE WINE

PARCEL IV
_________

THE WEST HALF OF THE EAST HALF OF SECTION 8,  TOWNSHIP  17 SOUTH,  RANGE 7 EAST,
MOUNT DIABLO BASE AND MERIDIAN, IN THE COUNTY OF MONTEREY,  STATE OF CALIFORNIA,
ACCORDING TO THE OFFICIAL PLAT THEREOF.

APN:     417-181-030
         417-181-036

PARCEL V
________

THE EAST HALF OF THE  SOUTHWEST  QUARTER  AND THE SOUTH  HALF OF THE  SOUTHWEST
QUARTER OF THE SOUTHWEST QUARTER AND THE NORTH HALF OF THE NORTHWEST QUARTER OF
THE  SOUTHWEST  QUARTER OF SECTION 8,  TOWNSHIP 17 SOUTH,  RANGE 7 EAST,  MOUNT
DIABLO  BASE AND  MERIDIAN,  IN THE COUNTY OF  MONTEREY,  STATE OF  CALIFORNIA,
ACCORDING TO THE OFFICIAL PLAT THEREOF.

 APN: 417-181-052

 PARCEL VI
__________

PARCEL "1", AS SHOWN ON THAT CERTAIN PARCEL MAP FILED  SEPTEMBER 29, 1974 IN
VOLUME 7 OF PARCEL  MAPS,  AT PAGE 54,  OFFICIAL  RECORDS  OF  MONTEREY
COUNTY, LOCATED IN THE SOUTHEAST QUARTER OF SECTION 7, TOWNSHIP 17 SOUTH, RANGE
7 EAST, M.D.M.

APN: 417-201-002

PARCEL VII
__________

AN EASEMENT FOR ACCESS TO THE  DESCRIBED  PREMISES,  AND  APPURTENANT  THERETO,
CONSISTENT  WITH THE PRESENT USE, OVER A PRIVATE  RIGHT-OF-WAY 30 FEET IN WIDTH
AND 272 FEET IN LENGTH, MORE OR LESS, LYING ALONG THE NORTHEASTERLY BOUNDARY OF
SAID PARCEL IV ABOVE, AND ALSO AS SHOWN ON THE AFORESAID PARCEL MAP.

                                             -2-

<PAGE>

                        FORM OF ENVIRONMENTAL INDEMNITY

         This ENVIRONMENTAL  INDEMNITY (this "INDEMNITY") is entered into as of
April 19, 2002,  by THE CHALONE WINE GROUP,  LTD. (the  "COMPANY"),  EDNA VALLEY
VINEYARD ("EDNA"),  CANOE RIDGE VINEYARD,  L.L.C.  ("CANOE LLC"), SHW EQUITY CO.
("SHW"),  STATON HILLS WINERY COMPANY LIMITED ("STATON") and CANOE RIDGE WINERY,
INC.   ("CANOE   WINERY")  (each  an   "INDEMNITOR"   and,   collectively,   the
"INDEMNITORS")  to and  for the  benefit  of each  of the  Purchasers  named  in
Schedule A to the Note Purchase Agreement.

The Purchasers and the Company are parties to that certain  Amended and Restated
Note  Purchase  Agreement  dated as of April  19,  2002 (as  amended,  restated,
modified,  supplemented,  renewed  or  extended  from  time to time,  the  "NOTE
PURCHASE  AGREEMENT").  Edna,  Canoe LLC and SHW,  are each  parties to separate
Amended and Restated  Guaranty  Agreements  dated as of April 19, 2002 ("AMENDED
AND  RESTATED  GUARANTEES")  and Canoe  Winery and  Staton  are each  parties to
separate Guaranty  Agreements dated as of April 19, 2002 ("ORIGINAL  GUARANTEES"
and together with the Amended and Restated  Guarantees,  the  "GUARANTEES"),  in
favor of the Purchasers  pursuant to which they have  guaranteed the payment and
performance of the Company's  obligations  under and in connection with the Note
Purchase Agreement as provided in such Guarantees.

The  obligations  of the  Company  and the  Guarantors  under the Note  Purchase
Agreement,  the  Guarantees  and the other Loan  Documents are secured by, among
other  things,  certain  deeds of trust  and  mortgages  covering  the  premises
described on EXHIBIT A hereto and the  improvements  now or  hereafter  existing
thereon (such  premises and  improvements,  the  "PROPERTY").

It is a condition  precedent to the  borrowings and issuances of Notes under the
Note Purchase  Agreement  that the  Indemnitors  indemnify the Purchasers as set
forth  herein.  This  Indemnity is secured by the personal  property  Collateral
covered by the Collateral Documents, but not by the Property.

         NOW,  THEREFORE,  in  consideration of the foregoing and other valuable
consideration,  the receipt and  sufficiency  of which are hereby  acknowledged,
each  Indemnitor  agrees as follows:

DEFINITIONS.

"ENVIRONMENTAL LAWS" means all federal, state and local environmental, health or
safety  laws,  regulations,   ordinances,   standards,  policies,  requirements,
rulings, judgments, and rules of common law (including,  without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C. ss.9601 ET SEQ., the Hazardous Materials  Transportation Act,
49 U.S.C.ss.1802, ET SEQ., The

                                   EXHIBIT B
                        (to the Note Purchase Agreement)

<PAGE>

Resource  Conservation  and Recovery Act, 42  U.S.C.ss.6901  ET SEQ.,  the Toxic
Substance  Control Act of 1976, as amended,  15 U.S.C.ss.2601 ET SEQ., the Clean
Water Act,  33  U.S.C.ss.466  et seq.,  as  amended,  and the Clean Air Act,  42
U.S.C.ss.7401 ET SEQ.).

"HAZARDOUS  SUBSTANCES"  means  any toxic or  hazardous  wastes,  pollutants  or
substances,  including,  without limitation,  asbestos, PCBs, petroleum products
and  by-products,  substances  defined or listed as  "hazardous  substances"  or
"toxic  substances" or similarly  identified in or pursuant to any Environmental
Laws and any hazardous or toxic substance or pollutant regulated under any other
applicable federal, state or local laws.

Capitalized  terms used herein  (including  in the preamble and recitals of this
Indemnity) and not otherwise  defined herein shall have the meanings ascribed to
such terms in the Note Purchase Agreement.

INDEMNIFICATION.  The  Indemnitors,  jointly  and  severally,  hereby  agree  to
indemnify and hold the Purchasers harmless from and against, and shall reimburse
the  Purchasers  for, any and all loss,  claim,  liability,  damage,  injunctive
relief,  injuries to person,  property,  collateral or natural resources,  cost,
expense (including,  without limitation,  reasonable fees and allocated costs of
internal and external  counsel,  expert  witnesses  and other  professionals  or
experts  advising  the  Purchasers),  action  or cause  of  action,  arising  in
connection with the release or presence of any Hazardous  Substance at or on any
or all of the Property, whether foreseeable or unforeseeable,  regardless of the
source of such  release  or when  such  release  occurred  or such  presence  is
discovered.  The foregoing indemnity includes, without limitation, (a) all costs
in law or in equity of removal,  remediation  of any kind,  and disposal of such
Hazardous  Substances,  (b) all cost of  determining  whether  any or all of the
Property  is in  compliance,  and  causing  any or all of the  Property to be in
compliance,  with all applicable  Environmental  Laws, (c) all costs  associated
with claims for damages to persons, property, or natural resources, and (d) each
Purchaser's  reasonable  attorneys'  fees  (including  the  allocated  costs  of
internal legal counsel) and consultants' fees and court costs.

SECURITY.  This Indemnity is secured by the personal property Collateral covered
by the Collateral  Documents,  but not by the Property.  The  obligations of the
Indemnitors  under this Indemnity  shall survive the  foreclosure of any Deed of
Trust and satisfaction of the other Obligations, and shall be independent of any
other Obligations. The rights of the Purchasers under this Indemnity shall be in
addition to any other rights and remedies of the Purchasers  under any Guaranty,
the Note  Purchase  Agreement  or any other Loan  Document  or at law or equity.
Notwithstanding any other provision of this Indemnity or any other instrument or
agreement to the contrary,  the  Purchasers  shall at all times have the maximum
rights and remedies  available at any time under any applicable law or equitable
principal of any state (including,  without limitation, under Chapter 70.105D of
the  Revised  Code  of  Washington,  or any  other  similar  laws  or  equitable
principals of any state).

SURVIVAL.  If any  Purchaser  takes title to any or all of the Property  through
foreclosure  or deed in lieu of foreclosure of any or all of the Deeds of Trust,
this Indemnity shall not apply to any loss or costs incurred by any Purchaser as
a direct result of affirmative actions of any Purchaser as

                                       B-2

<PAGE>

owner and  operator of any or all such  Property  after  Purchaser  has acquired
title to any or all such  Property,  which actions are the sole and direct cause
of damage  resulting from the  introduction  and initial  release of a Hazardous
Substance at any or all such Property;  provided,  however, this Indemnity shall
otherwise remain in full force and effect,  including,  without limitation,  (a)
with respect to Hazardous  Substances  which are discovered at any or all of the
Property  by any  Purchaser  or any other  Person  after the date any  Purchaser
acquires  title  to any or all  such  Property,  but  which  were  not  actually
introduced at any or all such Property by any Purchaser, and (b) with respect to
the  continuing  migration  or release  of any  Hazardous  Substance  previously
introduced  at any or all of the  Property.  This  Indemnity  is  intended to be
operable under 42 U.S.C. ss.9607(e)(1) and any successor section thereof.

INTEREST.  Any amount  claimed  hereunder by the  Purchasers and not paid by the
Indemnitors within thirty (30) days after written demand from any Purchaser with
an explanation of the amounts  claimed,  shall bear interest at a rate per annum
equal to the highest interest rate set forth in the Note Purchase Agreement.

SUCCESSORS AND ASSIGNS. This Indemnity shall inure to the benefit of each of the
Purchasers and each  Purchaser's  successors  and assigns,  and shall be binding
upon each Indemnitor's  successors and assigns,  provided that no Indemnitor may
assign its obligations under this Indemnity without the prior written consent of
the Purchasers.

NO WAIVER;  CONSENTS. Each waiver hereunder by the Purchasers must be in writing
and signed by the  Purchasers,  and no waiver shall be construed as a continuing
waiver.  No waiver shall be implied from any delay or failure by the  Purchasers
to take  action on account  of any  default  of any  Indemnitor.  Consent by the
Purchasers to any act or omission by any Indemnitor  shall not be construed as a
consent  to any  other or  subsequent  act or  omission  or as a  waiver  of the
requirement  for the  Purchasers'  consent to be obtained in any future or other
instance.

GOVERNING LAW. This Indemnity shall be governed and construed in accordance with
the laws of the State of New York.

JOINT AND SEVERAL  OBLIGATIONS.  If this  Indemnity is executed by more than one
person or entity, the liability of the undersigned  hereunder shall be joint and
several.

COSTS,  EXPENSES AND  ATTORNEYS'  FEES. The  Indemnitors  agree to reimburse the
Purchasers for all reasonable costs,  out-of-pocket expenses and attorneys' fees
(including the allocated  costs of internal legal counsel)  expended or incurred
by each Purchaser in preparation of or enforcing (or attempted  enforcement  of)
this  Indemnity,  in actions for  declaratory  relief in any way related to this
Indemnity,  or in collecting any sum which becomes due from an Indemnitor to the
Purchasers under this Indemnity.

NOTICES.  Any notices,  requests or responses to be made or to be given pursuant
to the  terms  of this  Indemnity  shall  be made in  accordance  with  the Note
Purchase Agreement.

                                      B-3

<PAGE>

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

COUNTERPARTS. This Indemnity may be executed in two or more counterparts, and by
different  parties on separate  counterparts,  each of which shall constitute an
original,  but all of which,  when  taken  together,  shall  constitute  but one
agreement.

               [Remainder of this page intentionally left blank.]

                                      B-4

<PAGE>

         IN WITNESS WHEREOF,  this  Indemnity is executed as of the day and year
first above written.

                                 THE CHALONE WINE GROUP, LTD.

                                 By:_______________________________________

                                 Name:_____________________________________

                                 Title:____________________________________

                                 EDNA VALLEY VINEYARD

                                 By:_______________________________________

                                 Name:_____________________________________

                                 Title:____________________________________

                                 CANOE RIDGE VINEYARD, L.L.C.

                                 By:_______________________________________

                                 Name:_____________________________________

                                 Title:____________________________________

                                 SHW EQUITY CO.

                                 By:_______________________________________

                                 Name:_____________________________________

                                 Title:____________________________________

<PAGE>

                                 CANOE RIDGE WINERY, INC.

                                 By:_______________________________________

                                 Name:_____________________________________

                                 Title:____________________________________

                                 STATON HILLS WINERY COMPANY LIMITED

                                 By:_______________________________________

                                 Name:_____________________________________

                                 Title:____________________________________

                                 FARM CREDIT SERVICES OF AMERICA, PCA

                                 By:_______________________________________

                                 Name:_____________________________________

                                 Title:____________________________________

                                 AgSTAR FINANCIAL SERVICES, PCA
                                 D/B/A FARM CREDIT SERVICES
                                 COMMERCIAL FINANCE GROUP

                                 By:_______________________________________

                                 Name:_____________________________________

                                 Title:____________________________________

<PAGE>

                FORM OF PATENT AND TRADEMARK SECURITY AGREEMENT

                                 See attached.

                                   EXHIBIT C
                          (to Note Purchase Agreement)

<PAGE>

                    PATENT AND TRADEMARK SECURITY AGREEMENT

         THIS PATENT AND TRADEMARK SECURITY AGREEMENT (this "Agreement"),  dated
as of April 19, 2002, is made between The Chalone Wine Group, Ltd., a California
corporation (the "Borrower"), Canoe Ridge Vineyard, L.L.C., a Washington limited
liability company,  SHW Equity Co., a Washington  corporation,  and Staton Hills
Winery Company Limited, a Washington  corporation,  Canoe Ridge Winery,  Inc., a
Washington  corporation  (each a "Grantor" and together  with the Borrower,  the
"Grantors"), and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
International", New York Branch ("Rabobank"), as collateral agent for the Agent,
the  Lenders  and the  Noteholders  referred  to below  (in such  capacity,  the
"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 a Credit  Agreement dated as of April 19, 2002 (as
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  and  certain  noteholders  are parties to an Amended and
Restated  Note  Purchase  Agreement  dated as of  April  19,  2002 (as  amended,
restated,  modified,  supplemented,  renewed or extended from time to time,  the
"Note  Agreement")  pursuant to which the  Borrower  and such  noteholders  have
amended  and  restated  the  $30,000,000   aggregate  principal  amount  of  the
Borrower's Senior  Guaranteed  Notes,  Series A, B and C, Due September 15, 2010
originally   issued  and  sold  to  such   noteholders  on  September  15,  2000
(collectively, the "Private Placement Notes"), as provided therein.

         The Grantors  have also entered into a Security  Agreement  dated as of
April  19,  2002 (as  amended,  restated,  modified,  supplemented,  renewed  or
extended  from time to time,  the "Security  Agreement")  pursuant to which each
Grantor has granted a security  interest in  substantially  all of its  personal
property in favor of the Collateral Agent, for itself and for the benefit of the
Agent, the Lenders and the Noteholders.

         It is a  condition  precedent  to the  borrowings  and the  issuance of
letters of credit under the Credit  Agreement and the amendment and  restatement
of the  Private  Placement  Notes as provided  in the Note  Agreement  that each
Grantor enter into this 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
Grantors as described below.

         The Collateral  Agent,  the Agent, the Lenders,  the  Noteholders,  the
Grantors and certain of their affiliates 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

<PAGE>

certain rights and remedies of the Lenders and Noteholders may be exercised, all
as provided therein.

         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 of this  Agreement) 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,  the following
terms shall have the following meanings:

         "COLLATERAL" has the meaning set forth in Section 2.

         "CREDIT  FACILITY   SECURED   OBLIGATIONS"   means  the   indebtedness,
liabilities and other  obligations of the Grantors to the Collateral  Agent, the
Agent and the Lenders  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  Grantor  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.

         "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.

         "NOTEHOLDERS"  means the  noteholders  from time to time holding one or
more of the Private  Placement  Notes and in whose name such  Private  Placement
Note(s) are  registered in the register  maintained by the Borrower  pursuant to
the Note Agreement.

         "PRIVATE   PLACEMENT  SECURED   OBLIGATIONS"  means  the  indebtedness,
liabilities  and other  obligations of the Grantors to the Collateral  Agent and
the  Noteholders  under or in connection  with the Note  Agreement,  the Private
Placement  Notes,  the  Subsidiary  Guarantee  Agreement (as defined in the Note
Agreement)  and the other Loan  Documents  (as  defined in the Note  Agreement),
including  all unpaid  principal of the Private  Placement  Notes,  all interest
accrued  thereon,  all fees due under  the Note  Agreement  and the  other  Loan
Documents  (as so defined) and all other  amounts  payable by any Grantor 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.

         "PTO" means the United States Patent and Trademark Office.

                                       2.

<PAGE>

         "SECURED OBLIGATIONS" means the Credit Facility Secured Obligations and
the Private Placement Secured Obligations.

         "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 Grantor hereby assigns,  transfers
and  conveys to the  Collateral  Agent,  and grants a security  interest  in and
mortgage  to the  Collateral  Agent,  for  itself  and on  behalf of and for the
ratable  benefit of the  Agent,  the  Noteholders  and the  Lenders,  all of the
Grantor's right, title and interest in, to and under the following property,  in
each case whether now or hereafter  existing or arising or in which such Grantor
now has or hereafter owns, acquires or develops an interest and wherever located
(collectively, the "Collateral"):

         (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,  without limitation, such patents and patent
applications as described in SCHEDULE A), 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 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,
without limitation,  such marks, names and applications as described in SCHEDULE
B), 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;

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

         (iv)   all commercial tort claims associated with or arising out of any
of the aforementioned properties and assets;

         (v)    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

                                       3.

<PAGE>

assets and not otherwise  described  above,  including all license  payments and
payments under insurance  (whether or not the Collateral Agent is the loss payee
thereof) or any  indemnity,  warranty  or guaranty  payable by reason of loss or
damage to or otherwise  with respect to the foregoing  Collateral;  and

         (vi)   all products,  proceeds and  supporting  obligations  of or with
respect to any and all of the foregoing Collateral.

         (b)    CONTINUING SECURITY INTEREST.  Each  Grantor  agrees  that  this
Agreement shall create a continuing  security  interest in the Collateral  which
shall remain in effect until terminated in accordance with Section 20.

         SECTION 3 SUPPLEMENT TO SECURITY AGREEMENT. The terms and provisions of
this  Agreement are intended as a supplement to the terms and  provisions of the
Security  Agreement.  Each Grantor  acknowledges that the rights and remedies of
the  Collateral  Agent with respect to the security  interest in the  Collateral
granted hereby are more fully set forth in the Security  Agreement and the other
Loan Documents and all such rights and remedies are cumulative.

         SECTION 4 REPRESENTATIONS  AND WARRANTIES.  Each Grantor represents and
warrants to the Agent,  the  Noteholders,  each Lender and the Collateral  Agent
that:

         (a)    PATENTS.   A  true  and  correct list  of  all  of  the existing
Collateral   consisting  of  U.S.   patents  and  patent   applications   and/or
registrations  owned  by the  Grantor,  in whole  or in  part,  is set  forth in
SCHEDULE A.

         (b)    TRADEMARKS.  A true  and  correct list  of  all  of the existing
Collateral  consisting  of  U.S.  trademarks,   trademark  registrations  and/or
applications  owned  by such  Grantor,  in whole  or in  part,  is set  forth in
SCHEDULE B.

         SECTION 5 FURTHER ACTS. On a continuing basis, each Grantor shall make,
execute,  acknowledge and deliver,  and file and record in the proper filing and
recording places,  all such instruments and documents,  and take all such action
as may be necessary or advisable or may be requested by the Collateral  Agent to
carry out the intent and purposes of this Agreement, or for assuring, confirming
or  protecting  the grant or  perfection  of the  security  interest  granted or
purported to be granted  hereby,  to ensure such Grantor's  compliance with this
Agreement or to enable the  Collateral  Agent to exercise and enforce its rights
and remedies  hereunder with respect to the Collateral,  including any documents
for filing with the PTO and/or any applicable state office. The Collateral Agent
may record this Agreement, an abstract thereof, or any other document describing
the Collateral  Agent's  interest in the Collateral with the PTO, at the expense
of the Grantors.

         SECTION 6 FUTURE  RIGHTS.  Except as otherwise  expressly  agreed to in
writing by the Collateral  Agent, if and when any Grantor shall obtain rights to
any new patentable  inventions or any new trademarks,  or become entitled to the
benefit of any of the  foregoing,  or obtain  rights or benefits with respect to
any reissue, division, continuation,  renewal, extension or continuation-in-part
of any patents or trademarks,  or any improvement of any patent,  the provisions
of Section 2 shall  automatically  apply  thereto and such Grantor shall give to
the

                                       4.

<PAGE>

Collateral Agent prompt notice thereof.  Each Grantor shall do all things deemed
necessary  or  advisable  by  the  Collateral  Agent  to  ensure  the  validity,
perfection,  priority  and  enforceability  of  the  security  interests  of the
Collateral  Agent  in such  future  acquired  Collateral.  Each  Grantor  hereby
authorizes the Collateral  Agent to modify,  amend,  or supplement the Schedules
hereto  and to  reexecute  this  Agreement  from time to time on such  Grantor's
behalf and as its attorneyin- fact to include any such future  Collateral and to
cause such  reexecuted  Agreement  or such  modified,  amended  or  supplemented
Schedules to be filed with the PTO.

         SECTION 7 COLLATERAL AGENT APPOINTED  ATTORNEY-IN-FACT.  The Collateral
Agent  shall have the right to, in the name of each  Grantor,  or in the name of
the Collateral  Agent or otherwise,  without notice to or assent by any Grantor,
and each Grantor hereby  constitutes and appoints the Collateral  Agent (and any
of the  Collateral  Agent's  officers or employees or agents  designated  by the
Collateral Agent) as its true and lawful  attorney-in-fact,  with full power and
authority,  and hereby  authorizes the Collateral Agent: (i) to sign and file in
the name of such Grantor any financing statement (with or without such Grantor's
signature) or other instrument and any modification,  supplement or amendment to
this  Agreement  (including any described in Section 6), and to sign the name of
such  Grantor on all or any of such  documents  or  instruments  and perform all
other acts that the  Collateral  Agent deems  necessary or advisable in order to
perfect or continue  perfected,  maintain the priority or  enforceability  of or
provide notice of the Collateral  Agent's security  interest in, the Collateral;
and (ii) to execute any and all other documents and instruments,  and to perform
any and all acts  and  things  for and on  behalf  of such  Grantor,  which  the
Collateral  Agent may deem  necessary or  advisable  to  maintain,  preserve and
protect  the  Collateral  and to  accomplish  the  purposes  of this  Agreement,
including  (A) to  defend,  settle,  adjust or  institute  any  action,  suit or
proceeding  with respect to the  Collateral,  (B) to assert or retain any rights
under any license  agreement for any of the Collateral,  including any rights of
such Grantor arising under Section 365(n) of the Bankruptcy Code, and, (C) after
the  occurrence and during the  continuance of any Event of Default,  to execute
any and all applications,  documents,  papers and instruments for the Collateral
Agent to use the  Collateral,  to grant or issue any exclusive or  non-exclusive
license  with  respect to any  Collateral,  and to assign,  convey or  otherwise
transfer title in or dispose of the Collateral;  provided,  however,  that in no
event  shall  the  Collateral  Agent  have the  unilateral  power,  prior to the
occurrence  of an Event of  Default,  to  assign  any of the  Collateral  to any
Person,  including itself,  without the Grantor's written consent. 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 Grantor 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 GRANTOR  OBLIGATIONS.  The
Collateral  Agent may perform or pay any obligation which any Grantor has agreed
to perform or pay under or in connection  with this  Agreement,  and the Grantor
shall  reimburse  the  Collateral  Agent on demand for any  amounts  paid by the
Collateral Agent pursuant to this Section 8.

         SECTION 9 COLLATERAL  AGENT'S  DUTIES.  Notwithstanding  any  provision
contained in this Agreement, the Collateral Agent shall have no duty to exercise
any of the  rights,  privileges  or  powers  afforded  to it  and  shall  not be
responsible to any Grantor or any other Person for any failure to do so or delay
in doing so. Except for and the accounting for moneys

                                       5.

<PAGE>

actually received by the Collateral Agent hereunder,  the Collateral Agent shall
have no duty or  liability  to exercise or preserve  any rights,  privileges  or
powers  pertaining to the Collateral.

         SECTION 10 REMEDIES.  Upon the occurrence and during the continuance of
any Event of Default,  the Collateral Agent shall have, in addition to all other
rights and remedies granted to it in this Agreement, the Credit Agreement or any
other Loan  Document,  all rights and remedies of a secured  party under the UCC
and other  applicable  laws.  Without  limiting the generality of the foregoing,
each  Grantor  agrees  that the  Collateral  Agent  shall at all times have such
royalty free licenses,  to the extent  permitted by law, for any Collateral that
is  reasonably  necessary  to permit the  exercise  of any of the Agent's or the
Collateral  Agent's  rights or remedies upon or after the occurrence of an Event
of Default.  In addition to and without limiting any of the foregoing,  upon the
occurrence  and during the  continuance  of an Event of Default,  the Collateral
Agent shall have the right but shall in no way be obligated to bring suit, or to
take such other action as the Collateral Agent deems necessary or advisable,  in
the name of any  Grantor or the  Collateral  Agent,  to  enforce or protect  any
Collateral, and any license thereunder, in which event the Grantor shall, at the
request of the Collateral  Agent, do any and all lawful acts and execute any and
all documents required by the Collateral Agent in aid of such enforcement.

         SECTION 11 NOTICES. All notices and other  communications  provided for
hereunder shall be given as provided in Section 13.02 of the Credit Agreement.

         SECTION 12 NO WAIVER;  CUMULATIVE  REMEDIES.  No failure on the part of
the Collateral Agent 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 Agent.

         SECTION 13 BINDING  EFFECT.  This Agreement  shall be binding upon, and
shall inure to the benefit of and be enforceable by, the Collateral  Agent,  the
Agent,  the Lenders,  the  Noteholders  and the  Grantors  and their  respective
successors  and assigns and shall bind any Person who becomes  bound as a debtor
to this Agreement.

         SECTION 14  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.

         SECTION 15 ENTIRE  AGREEMENT;  AMENDMENT.  This 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 as provided
in the Credit Agreement.

                                       6.

<PAGE>

         SECTION 16  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 17  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 18 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 19 NO INCONSISTENT REQUIREMENTS. Each Grantor acknowledges that
this  Agreement  and the other Loan  Documents  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 20 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  contemplated by this
Agreement  shall terminate and the Collateral  Agent shall promptly  execute and
deliver to each Grantor such documents and instruments  reasonably  requested by
such  Grantor as shall be  necessary  to evidence  termination  of all  security
interests  given by such Grantor to the Collateral  Agent  hereunder,  including
cancellation  of this Agreement by written  notice from the Collateral  Agent to
the PTO.

                           [SIGNATURE PAGES FOLLOW.]

                                       7.

<PAGE>

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

                                 THE GRANTORS

                                 THE CHALONE WINE GROUP, LTD.

                                 By:_______________________________________
                                    Name:
                                    Title:

                                 CANOE RIDGE VINEYARD, L.L.C.

                                 By:_______________________________________
                                    Name:
                                    Title:

                                 SHW EQUITY CO.

                                 By:_______________________________________
                                    Name:
                                    Title:

                                 STATON HILLS WINERY COMPANY
                                 LIMITED

                                 By:_______________________________________
                                    Name:
                                    Title:

                                 CANOE RIDGE WINERY, INC.

                                 By:_______________________________________
                                    Name:
                                    Title:

                                       8.

<PAGE>

                                 THE COLLATERAL AGENT
                                 COOPERATIEVE CENTRALE
                                 RAIFFEISEN-BOERENLEENBANK B.A.,
                                 "RABOBANK INTERNATIONAL", NEW
                                 YORK BRANCH, as Collateral Agent

                                 By:_______________________________________
                                    Name:
                                    Title:

                                 By:_______________________________________
                                    Name:
                                    Title:

                                       9.

<PAGE>

                                   SCHEDULE A
                 to the Patent and Trademark Security Agreement

                          THE CHALONE WINE GROUP, LTD.

                       ISSUED U.S. PATENTS OF THE GRANTOR

PATENT NO.         ISSUE DATE              INVENTOR               TITLE

                                      A-1.

<PAGE>

                PENDING U.S. PATENT APPLICATIONS OF THE GRANTOR

SERIAL NO.          FILING DATE             INVENTOR           TITLE

                                      A-2.

<PAGE>

                                   SCHEDULE B
                 to the Patent and Trademark Security Agreement

                          THE CHALONE WINE GROUP, LTD.

                         U.S. TRADEMARKS OF THE GRANTOR

REGISTRATION            REGISTRATION                    REGISTERED
    NO.                    DATE         FILING DATE       OWNER         MARK

                                      B-1.

<PAGE>

               PENDING U.S. TRADEMARK APPLICATIONS OF THE GRANTOR

APPLICATION NO.         FILING DATE             APPLICANT              MARK

                                      B-2.

<PAGE>

                           FORM OF SECURITY AGREEMENT

                                 See attached.

                                   EXHIBIT D
                          (to Note Purchase Agreement)

<PAGE>

         THIS SECURITY AGREEMENT (this "Agreement"), dated as of April 19, 2002,
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 a Credit  Agreement dated as of April 19, 2002 (as
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 those  separate and several Note Purchase
Agreements,  each dated as of September  15, 2000  (collectively,  the "Original
Note  Agreements"),  entered  into by the Borrower  with each of the  Purchasers
listed on  Schedule  A  thereto,  under and  pursuant  to which the  Noteholders
purchased  $5,000,000 8.75% Senior Guaranteed Notes, Series A, due September 15,
2010,  $10,000,000 Senior Guaranteed Notes, Series B, due September 15, 2010 and
$15,000,000   Senior  Guaranteed  Notes,   Series  C,  due  September  15,  2010
(collectively,  the "Original  Senior Notes") of the Borrower.  The Borrower has
requested that the Noteholders  amend and restate the Original Note  Agreements,
amend and restate the Original Senior Notes,  and the Noteholders are willing to
enter  into and  execute  those  certain  Amended  and  Restated  Note  Purchase
Agreements  each dated  April 19,  2002 (as the same may  hereafter  be amended,
modified  and/or  restated  from time to time,  collectively,  the  "Amended and
Restated  Note  Agreement")  and are willing to amend and  restate the  Original
Senior  Notes  pursuant to the terms  thereof (as so amended,  the  "Amended and
Restated Senior Secured Notes").

         It is a  condition  precedent  to the  borrowings  and the  issuance of
letters of credit under the Credit  Agreement and the amendment and  restatement
of the  Original  Senior  Notes as provided in the  Amended  and  Restated  Note
Agreement and the Amended and Restated  Senior Notes that each Debtor enter into
this 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.

                                       1

<PAGE>

         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

                                       2

<PAGE>

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.

                                       3

<PAGE>

         "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.

                                       4

<PAGE>

         "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.

         "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.

         "SECURED OBLIGATIONS" means the Credit Facility Secured Obligations and
the Private Placement Secured Obligations.

                                       5

<PAGE>

         "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.

         SECTION 3 PERFECTION AND PRIORITY.

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<PAGE>

         (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 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

                                        7

<PAGE>

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;

                                       8

<PAGE>

         (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;

                                       9

<PAGE>

         (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.

                                       10

<PAGE>

         (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

<PAGE>

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;

                                       12

<PAGE>

         (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.

                                       13

<PAGE>

         (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.

         (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  composition of the Collateral
(other than in the ordinary course of business) or other event which

                                       14

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
conversion,  exchange,  subscription or any other rights,  privileges or options
pertaining thereto,

                                       15

<PAGE>

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 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;

                                       16

<PAGE>

         (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:

         (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

                                       17

<PAGE>

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
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.

                                       18

<PAGE>

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.

         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

                                       19

<PAGE>

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 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

                                       20

<PAGE>

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.

         SECTION  17  ENTIRE  AGREEMENT;   AMENDMENT.  This  Agreement  and  the
Intercreditor  Agreement  contains  the entire  agreement  of the  parties  with
respect to the subject

                                       21

<PAGE>

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.

                              [SIGNATURES FOLLOW.]

                                       22

<PAGE>

         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., a California
                                 corporation

                                 By:_______________________________________
                                    Name:
                                    Title:

                                 Canoe Ridge Vineyard, L.L.C., a Washington
                                 limited liability company

                                 By:_______________________________________
                                    Name:
                                    Title:

                                 SHW Equity Co., a Washington corporation

                                 By:_______________________________________
                                    Name:
                                    Title:

                                 Canoe Ridge Winery, Inc.
                                 By:_______________________________________
                                    Name:
                                    Title:

                                       23

<PAGE>

                                 THE COLLATERAL AGENT

                                 Cooperatieve Centrale Raiffeisen-Boerenleenbank
                                 B.A., "Rabobank International", New York
                                 Branch

                                 By:_______________________________________
                                    Name:
                                    Title:

                                 By:_______________________________________
                                    Name:
                                    Title:

                                       24

<PAGE>

                                     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  Security  Agreement  dated as of April 19,  2002 (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
Credit Agreement dated as of April 19, 2002 (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 April19, 2002 (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

<PAGE>

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

<PAGE>

                                   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:

                (i)     2585 Biddle Ranch Road,
                        San Louis Obispo, CA 93401

                (ii)    1102 W. Cherry St.
                        Walla Walla, WA 94362

                (iii)   71 Gangl Rd.
                        Wapato, WA 98951

                (iv)    Stonewall Canyon Road & Hwy 116
                        Soledad,  CA 93960

                (v)     1700 Moon  Mountain  Drive
                        Sonoma,  CA 95476

                (vi)    14301 Arnold  Drive
                        Glen Ellen,  CA 95442

                (vii)   2750 Las Amigas Road
                        Napa,  CA 94558

                (viii)  389 Fourth  Street  East
                        Sonoma,  CA 95476

                (ix)    4910 Edna Road
                        San Luis Obispo, CA 93401

                (x)     5055 Solano Avenue
                        Napa, CA 94558

                (xi)    #1 Vintage Lane
                        Glen Ellen, CA 95442

                                      S-1.

<PAGE>

2.       Locations of Books Pertaining to Rights to Payment

         621 Airpark Road
         Napa, CA 94558

3.       Jurisdiction of Organization.

         Chalone Wine Group, Ltd                     California
         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.

         Henry Wine Group
         531 Getty Court
         Suite A
         Benicia, CA 94510

         Tiger Mountain Warehouse
         19817 89th Avenue South
         Kent, WA 98301

         Biagi Warehouse
         787 Airpark Road
         Napa, CA 94558

6.       Patents, Copyrights, Trademarks, Etc.

         Trademarks: ACACIA, CARMENET, CHALONE VINEYARD, GAVILAN,
         SAGELANDS, STATON HILLS, MISTY RIDGE and PHOENIX

                                      S-2.

<PAGE>

7.       Leased Equipment

         General office equipment leases; barrel leases with De Lage Landen.

8.       Deposit Accounts

         Wells Fargo Bank

9.       Investment Property

         None.

10.      Instruments and Chattel Paper

         None

11.      Commercial Tort Claims

         None

12.      Letter-of-Credit Rights

         None

                                      S-3.

<PAGE>

                                   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-4.

<PAGE>

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-5.

<PAGE>

                        FORM OF INTERCREDITOR AGREEMENT

                                 See attached.

                                   EXHIBIT E
                          (to Note Purchase Agreement)

<PAGE>

               AMENDED AND RESTATED INTERCREDITOR AND COLLATERAL
                                AGENCY AGREEMENT

         THIS AMENDED AND RESTATED INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT
dated as of April 19, 2002 (this "AGREEMENT") is among (1) the Noteholders named
in Schedule I hereto (collectively,  the "NOTEHOLDERS") (2) the Facility Lenders
named  in  Schedule  II  hereto  (collectively,   the  "FACILITY  LENDERS",  the
Noteholders  and  the  Facility  Lenders  are  collectively  referred  to as the
"SECURED PARTIES"),  (3) Cooperatieve Centrale  Raiffeisen-Boerenleenbank  B.A.,
"RABOBANK  INTERNATIONAL",  New York  Branch,  as  administrative  agent for the
Facility  Lenders  (the  "AGENT")  and  (4)  Cooperatieve  Centrale  Raiffeisen-
Boerenleenbank  B.A., "RABOBANK  INTERNATIONAL",  New York Branch, as collateral
agent  for the  Agent and the  Secured  Parties  (the  "COLLATERAL  AGENT")  and
acknowledged  and agreed to by (x) each of Edna Valley  Vineyard,  a  California
general  partnership ("EDNA VALLEY"),  SHW Equity Co., a Washington  corporation
("SHW EQUITY"),  Canoe Ridge Vineyard,  L.L.C., 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  HILLS") (Edna Valley,  SHW Equity,  Canoe Ridge,  CRW and Staton Hills
each a "SUBSIDIARY  GUARANTOR" and  collectively  the "SUBSIDIARY  GUARANTORS"),
each of which  Subsidiary  Guarantors is a subsidiary of The Chalone Wine Group,
Ltd., a California corporation (the "COMPANY"), and (y) the Company. Capitalized
terms used  herein and not  otherwise  defined  herein  shall have the  meanings
assigned thereto in Section 1 below.

                                R E C I T A L S:

         A.     Under and pursuant to the Credit Agreement dated as of April 19,
2002,  among the  Company,  the  Facility  Lenders and the Agent,  the  Facility
Lenders have made  available  to the Company Term Loans (as defined  therein) in
the aggregate  principal  amount of $17,500,000  and Revolving Loans (as defined
therein) up to an aggregate  principal  amount of  $55,000,000,  together with a
letter of credit subfacility and swingline loan subfacility  (collectively,  the
"FACILITY  DEBT") (such Credit  Agreement,  as the same may from time to time be
amended, restated, supplemented or otherwise modified, the "CREDIT AGREEMENT").

         B.     Each of the Subsidiary Guarantors has executed and  delivered  a
Guaranty  (collectively,  the "FACILITY GUARANTY") pursuant to which each of the
Subsidiary Guarantors has irrevocably, absolutely and unconditionally guaranteed
to the Facility  Lenders the payment of the principal of,  premium,  if any, and
interest  on the  Facility  Debt and the payment  and  performance  of all other
obligations  of the  Company  under the  Credit  Agreement  and the  other  Loan
Documents (as defined in the Credit Agreement),  subject to certain  limitations
contained therein in the case of the guaranty of Edna Valley.

         C.     Under and pursuant to the Amended and Restated Note Purchase
Agreement  dated  as of  April  19,  2002,  among  the  Company  and each of the
Noteholders,  the Company and the  Noteholders  have  amended and  restated  the
$30,000,000 aggregate principal amount of the Company's Senior Guaranteed Notes,
Series A, B and C, Due  September  15,  2010  originally  issued and sold to the
Noteholders  on September 15, 2000  (collectively,  the "NOTES") (such

                                        1

<PAGE>

Amended and Restated Note Purchase Agreement,  as the same may from time to time
be further  amended,  restated,  supplemented or otherwise  modified,  the "NOTE
AGREEMENT").

         D.     Each of the  Subsidiary  Guarantors  has  executed and delivered
an Amended  and  Restated  Subsidiary  Guarantee  Agreement  (collectively,  the
"NOTEHOLDER  GUARANTY")  each dated as of April 19,  2002  pursuant to which the
Subsidiary Guarantors amended and restated the Subsidiary Guarantee Agreement to
which it was heretofore a party under and pursuant to which it has  irrevocably,
absolutely and unconditionally  guaranteed to the Noteholders the payment of the
principal  of,  premium,  if any,  and interest on the Notes and the payment and
performance of all other  obligations  of the Company under the Note  Agreement,
subject to certain limitations  contained therein in the case of the guaranty of
Edna Valley.

         E.     The Facility  Guaranty  and  the  Noteholder  Guaranty  are each
referred to as a "SUBSIDIARY  GUARANTY" and are collectively  referred to as the
"SUBSIDIARY GUARANTIES".

         F.     The  obligations of the Company  and the  Subsidiary  Guarantors
(hereinafter each referred to as a "GRANTOR" and collectively as the "GRANTORS")
under  the  Note  Agreement  and the  Noteholder  Guaranty  are  secured  by the
Collateral  Documents  described below.

         G.     The obligations of the Grantors under the Credit  Agreement  and
the other Loan Documents (as defined in the Credit  Agreement)  also are secured
by the Collateral Documents described below.

         H.     Notwithstanding  the time or  order of  attachment or perfection
or any provisions to the contrary in any of the Collateral Documents or the fact
that all Secured Obligations are secured by the same Collateral  Documents,  the
Secured  Parties  desire  that  the  interests  of the  Secured  Parties  in the
Collateral  subject  to  the  Collateral  Documents  shall  have  the  following
priorities:  (i) the Term Debt shall be  secured  on a senior  basis by the Term
Debt  Priority  Collateral  and on a  subordinate  basis by the  Revolving  Debt
Priority Collateral,  (ii) the Revolving Debt shall be secured on a senior basis
by the Revolving Debt Priority Collateral and on a subordinate basis by the Term
Debt Priority Collateral, and (iii) the Term Debt and the Revolving Debt will be
secured pari passu by a first Lien on the Patent and Trademark  Collateral,  all
as provided herein.

         I.     The  Secured  Parties  desire to appoint  Cooperatieve  Centrale
Raiffeisen-Boerenleenbank  B.A., "RABOBANK  INTERNATIONAL",  New York Branch, as
collateral  agent  to act  on  behalf  of  the  Secured  Parties  regarding  the
Collateral, all as more fully provided herein.

         J.     The Secured Parties,  the  Agent and the Collateral Agent desire
to enter  into this  Agreement  to  provide,  among  other  things,  for (i) the
appointment,  duties and  responsibilities  of the  Collateral  Agent,  (ii) the
respective  priorities,  rights  and  interests  of  the  parties  in and to the
Collateral,  (iii)  the  orderly  administration  of the  Collateral,  (iv)  the
coordination of any enforcement by the parties of their respective  rights under
the Note Agreement,  the Credit  Agreement and the Collateral  Documents and (v)
the allocation of payments,  if any, made under the Collateral Documents and the
Subsidiary  Guaranties,  all upon the terms and  subject to the  conditions  set
forth in this Agreement.

                                       2

<PAGE>

         K.     Pursuant to  the  requirements  of  the  Note Agreement  and the
Credit  Agreement,  the Company has requested and the parties hereto have agreed
to enter into this Agreement.

         NOW,  THEREFORE,  in  consideration  of the premises and other good and
valuable  consideration,  the  sufficiency  and  receipt  of  which  are  hereby
acknowledged, the parties hereto hereby agree as follows:

         SECTION 1. DEFINITIONS.

         The following  terms shall have the meanings  assigned to them below in
this SECTION 1 or in the provisions of this Agreement referred to below:

         "AFFILIATE" means any Person which,  directly or indirectly,  controls,
is controlled by or is under common control with another Person. For purposes of
the foregoing,  "CONTROL,"  "controlled by" and "under common control with" with
respect to any Person shall mean the possession,  directly or indirectly, of the
power (i) to vote 10% or more of the securities  having ordinary voting power of
the  election  of  directors  of such  Person,  or (ii) to  direct  or cause the
direction of the  management  and policies of such Person,  whether  through the
ownership of voting securities or by contract or otherwise.

         "BANKRUPTCY  PROCEEDING"  shall mean,  with  respect to any  Person,  a
general  assignment  of such  Person for the  benefit of its  creditors,  or the
institution  by or  against  such  Person of any  proceeding  seeking  relief as
debtor,  or seeking to  adjudicate  such  Person as bankrupt  or  insolvent,  or
seeking reorganization, arrangement, adjustment or composition of such Person or
its debts, under any law relating to bankruptcy,  insolvency,  reorganization or
relief of debtors, or seeking appointment of a receiver,  trustee,  custodian or
other  similar  official  for such  Person  or for any  substantial  part of its
property.

         "CASH EQUIVALENT INVESTMENTS" shall mean, (a) direct obligations of the
United States  Government or any agencies thereof and obligations  guaranteed by
the United States Government, in each case having remaining terms to maturity of
not more than thirty days; and (b)  certificates  of deposit,  time deposits and
acceptances,  including Eurodollar deposits,  having remaining terms to maturity
of not more than sixty days issued by a United  States bank which has a combined
capital and surplus of at least $750,000,000 and whose long-term certificates of
deposit are rated "A" or better by Standard & Poor's Ratings  Service or "A2" or
better by Moody's Investors Service, Inc.

         "COLLATERAL"  shall  mean  the  Term  Debt  Priority  Collateral,   the
Revolving Debt Priority Collateral and the Patent and Trademark Collateral.

         "COLLATERAL DOCUMENTS" shall mean the "Collateral Documents" as defined
in the Credit  Agreement,  which secure the  obligations  of the Company and the
Subsidiary Guarantors under the Credit Agreement,  the Facility Guaranty and the
other Loan Documents (as defined in the Credit  Agreement)  and the  "Collateral
Documents" as defined in the Note Agreement, which secure the obligations of the
Company and the Subsidiary  Guarantors  under the Note Agreement,  the Notes and
the Noteholder Guaranty.

                                       3

<PAGE>

         "COMPANY"  shall have the  meaning  assigned  thereto  in the  Recitals
hereof.

         "CREDIT  AGREEMENT"  shall  have the  meaning  assigned  thereto in the
Recitals hereof.

         "DEFAULT" shall mean an Event of Default or an event or condition which
with notice or lapse of time or both would constitute an Event of Default.

         "DEED OF TRUST" shall mean each deed of trust or mortgage  entered into
by the Company,  any other Grantor or any other Person, as trustor or mortgagor,
for the benefit of the Collateral  Agent or any other Person,  as beneficiary or
mortgagee on behalf of the Secured Parties to secure the Secured Obligations.

         "EVENT OF DEFAULT"  shall mean any "Event of Default" as defined in the
Note Agreement or the Credit Agreement.

         "FACILITY DEBT" shall have the meaning assigned thereto in the Recitals
hereof.

         "GRANTORS"  shall have the  meaning  assigned  thereto in the  Recitals
hereof.

         "LIEN" means any mortgage,  deed of trust,  pledge,  security interest,
assignment, deposit arrangement, charge, encumbrance or other lien (statutory or
otherwise).

         "MAKE-WHOLE AMOUNT" shall have the meaning assigned thereto in the Note
Agreement.

         "NOTE  AGREEMENT"  shall  have  the  meaning  assigned  thereto  in the
Recitals hereof.

         "NOTEHOLDER  GUARANTY" shall have the meaning  assigned  thereto in the
Recitals hereof.

         "NOTEHOLDERS"  shall have the meaning  assigned thereto in the Recitals
hereof.

         "NOTES" shall have the meaning assigned thereto in the Recitals hereof.

         "PATENT AND TRADEMARK  COLLATERAL" shall mean the Collateral  described
on Exhibit C hereto.

         "PERSON"  shall  mean an  individual,  partnership,  limited  liability
company,  corporation,  trust,  unincorporated  organization or any other entity
whatsoever, or any government or agency or political subdivision thereof.

         "PRO RATA SHARE" shall mean,  in respect of any Secured Party as of any
date  of  determination,   the  proportion  which  the  amount  of  the  Secured
Obligations  then owing to such Secured Party bears to the  aggregate  amount of
Secured Obligations then owing to all Secured Parties.

         "REQUIRED  REVOLVING  DEBT  SECURED  PARTIES"  shall  have the  meaning
assigned thereto in the definition of Required Secured Parties.

                                       4

<PAGE>

         "REQUIRED  SECURED  PARTIES"  shall  mean,  (a)  with  respect  to  the
Revolving Debt Priority Collateral and the Collateral Documents related thereto,
Revolving  Debt  Secured  Parties  holding  more  than 60% of the sum of (i) the
unused Revolving Commitments (as defined in the Credit Agreement) for so long as
the Revolving Commitments are in effect plus (ii) the unpaid principal amount of
the Revolving Debt (the "Required  Revolving  Debt Secured  Parties"),  (b) with
respect  to the Term  Debt  Priority  Collateral  and the  Collateral  Documents
related  thereto,  Term  Debt  Secured  Parties  holding  more  than  70% of the
outstanding  principal  amount of the Term Debt (the "Required Term Debt Secured
Parties"),  and (c) in all other instances,  the "Required  Secured Parties" set
forth in both  clause (a) and (b) hereof in each case,  measured  on the date of
determination of the "Required Secured Parties".

         "REQUIRED TERM DEBT SECURED  PARTIES"  shall have the meaning  assigned
thereto in the definition of Required  Secured  Parties.

         "REVOLVING DEBT" shall mean the Secured  Obligations  consisting of (i)
all unpaid principal of the Revolving Loans (as defined in the Credit Agreement)
(including therein the unpaid amount of any drawings under any letters of credit
issued under the Credit Agreement and, without duplication,  the undrawn portion
of the face amount of any such  letters of credit) and the  Swingline  Loans (as
defined in the Credit  Agreement),  (ii) all accrued and unpaid interest thereon
and  (iii)  all  fees,  commissions,  indemnities  and  other  amounts  (without
duplication of any Term Debt) owing to the Revolving Debt Secured Parties.

         "REVOLVING  DEBT  PRIORITY   COLLATERAL"   shall  mean  the  Collateral
described on EXHIBIT A hereto.

         "REVOLVING DEBT SECURED PARTIES" shall mean those Secured Parties which
hold Revolving Debt.

         "SECURITY  AGREEMENT"  shall have the meanings  assigned thereto in the
Note Agreement and the Credit Agreement.

         "SECURED PARTY" shall have the meaning assigned thereto in the Recitals
hereof.

         "SPECIFIED  AMOUNT"  shall mean as to any Secured  Party the  aggregate
amount of the Secured Obligations owed to such Secured Party.

         "SECURED  OBLIGATIONS"  shall mean all  indebtedness,  liabilities  and
other obligations of the Company and the Subsidiary Guarantors to the Collateral
Agent,  the Agent and the Secured Parties under the Note  Agreement,  the Notes,
the Credit Agreement, the Subsidiary Guaranties and the other Loan Documents (as
defined in the Credit  Agreement),  including  all  principal  in respect of the
Notes and the Facility Debt, all interest  accrued  thereon,  all fees due under
the Note Agreement, the Notes, the Credit Agreement and the other Loan Documents
(as  defined  in the  Credit  Agreement)  and all other  amounts  payable by the
Company or any Subsidiary  Guarantor to the Collateral  Agent,  the Agent or any
Secured Party  thereunder or in connection  therewith,  whether now or hereafter
existing or arising,  and whether due or to become due,  absolute or contingent,
liquidated or unliquidated, determined or undetermined.

                                       5

<PAGE>

         "SENIOR PREFERENTIAL  PAYMENT" shall mean any payments,  or proceeds of
the  Collateral,  from the  Grantors  or any other  source  with  respect to the
Secured Obligations (including from the exercise of any set-off),  cumulatively,
but without duplication, which are:

         (a)    received by a  Secured Party  within  90 days  prior  to (1) the
commencement  of a Bankruptcy  Proceeding with respect to any Grantor or (2) the
acceleration of the Notes or the  obligations  under the Credit  Agreement,  and
which payment reduces the amount of the Secured Obligations owed to such Secured
Party  below the amount owed to such  Secured  Party as of the 90th day prior to
such commencement or acceleration,

         (b)    received  by a  Secured  Party  (1) within  90 days prior to the
occurrence  of any Event of Default which has not been waived or cured within 30
days after the  occurrence  thereof and which payment  reduces the amount of the
Secured  Obligations  owed to such  Secured  Party below the amount owed to such
Secured  Party as of the  90th day  prior  to the  occurrence  of such  Event of
Default or (2) within 30 days after the occurrence of such Event of Default,  or
received by a Secured Party after the occurrence of a Special Event of

         (c)    Default except as provided in SS.6.11(B).

         "Special  Event  of  Default"  shall  mean  (a) the  commencement  of a
Bankruptcy  Proceeding  with  respect  to any  Grantor,  (b) any other  Event of
Default  which has not been waived or cured within 30 days after the  occurrence
thereof,  or (c) the  acceleration  of the  Notes or the  obligations  under the
Credit Agreement.

         "SPECIAL  TRUST  ACCOUNT"  shall mean that certain  restricted  account
maintained  by the  Collateral  Agent for the purpose of  receiving  and holding
Senior Preferential Payments.

         "SUBSIDIARY  GUARANTORS" shall have the meaning assigned thereto in the
Recitals hereof.

         "SUBSIDIARY  GUARANTY" shall have the meaning  assigned  thereto in the
Recitals hereof.

         "TERM DEBT" shall mean the Secured  Obligations  consisting  of (a) all
outstanding  principal of the Notes and the Term Loans (as defined in the Credit
Agreement),  (b) all accrued and unpaid interest and premium  (including without
limitation Make-Whole Amount) thereon and (c) all fees, commissions, indemnities
and other amounts (without  duplication of any Revolving Debt) owing to the Term
Debt Secured Parties.

         "TERM DEBT PRIORITY  COLLATERAL" shall mean the Collateral described on
EXHIBIT C hereto.

         "TERM DEBT SECURED PARTIES" shall mean those Secured Parties which hold
Term Debt.

         SECTION 2. PRIORITY OF LIENS.

         Section 2.1.  Priority of Liens of Term Debt Secured Parties in respect
of Term Debt  Priority  Collateral.  (a) All Liens now or hereafter  existing in
favor of the Collateral Agent, any Secured Party or any other Person on any Term
Debt  Priority  Collateral  to  secure  the  Revolving  Debt  shall be  subject,
subordinate and junior in all respects and at all times to the Liens or

                                       6

<PAGE>

interests  now or  hereafter  existing  in favor of the  Collateral  Agent,  any
Secured  Party or any other  Person  thereon to secure the Term Debt and (b) all
Liens now or hereafter  existing in favor of the Collateral  Agent,  any Secured
Party or any other  Person on any Term Debt  Priority  Collateral  to secure the
Term  Debt  shall be  senior  at all  times to the  Liens  or  interests  now or
hereafter  existing in favor of the Collateral  Agent,  any Secured Party or any
other Person thereon to secure the Revolving  Debt, in each case,  regardless of
the  fact  that all  Secured  Obligations  are  secured  by the same  Collateral
Documents, the time or order of attachment or perfection,  any provisions to the
contrary  in  any  of  the  Collateral  Documents  or  any  other  circumstances
whatsoever.

         Section  2.2.  Priority of Liens of Revolving  Debt Secured  Parties in
respect of Revolving  Debt Priority  Collateral.  (a) All Liens now or hereafter
existing in favor of the Collateral Agent, any Secured Party or any other Person
on any  Revolving  Debt  Priority  Collateral  to secure  the Term Debt shall be
subject, subordinate and junior in all respects and at all times to the Liens or
interests  now or  hereafter  existing  in favor of the  Collateral  Agent,  any
Secured Party or any other Person  thereon to secure the Revolving  Debt and (b)
all  Liens now or  hereafter  existing  in favor of the  Collateral  Agent,  any
Secured Party or any other Person on any Revolving  Debt Priority  Collateral to
secure the Revolving Debt shall be senior at all times to the Liens or interests
now or hereafter existing in favor of the Collateral Agent, any Secured Party or
any other Person  thereon to secure the Term Debt,  in each case,  regardless of
the  fact  that all  Secured  Obligations  are  secured  by the same  Collateral
Documents, the time or order of attachment or perfection,  any provisions to the
contrary  in  any  of  the  Collateral  Documents  or  any  other  circumstances
whatsoever.

         Section  2.3.  Liens of  Secured  Parties  in  respect  of  Patent  and
Trademark  Collateral  are Pari Passu.  All Liens now or  hereafter  existing in
favor of the  Collateral  Agent,  any Secured  Party or any other  Person on any
Patent and Trademark  Collateral  to secure the Term Debt or the Revolving  Debt
shall be PARI PASSU in all  respects  and at all times,  regardless  of the fact
that all Secured Obligations are secured by the same Collateral  Documents,  the
time or order of attachment or perfection, any provisions to the contrary in any
of the Collateral Documents or any other circumstances whatsoever.

         Section  2.4.   Nonavoidability   of  Liens.  The   subordinations  and
priorities   specified   hereinabove   are   expressly   conditioned   upon  the
nonavoidability and perfection of the Lien to which another Lien is subordinated
or made PARI PASSU and, if the Lien to which  another  Lien is  subordinated  or
made PARI PASSU is not  perfected  or is  avoidable,  for any  reason,  then the
subordinations and relative priority agreements provided for herein shall not be
effective  as  to  the  particular  Collateral  which  is  the  subject  of  the
unperfected or avoidable lien.

         SECTION 3. RELATIONSHIPS AMONG SECURED PARTIES.

         Section 3.1.  Restrictions on Actions.  Each Secured Party agrees that,
so long as any Secured  Obligations are outstanding or any Secured Party has any
commitment  to extend  credit in respect  thereof  pursuant  to the terms of the
Credit  Agreement,  the provisions of this Agreement shall provide the exclusive
method by which any Secured Party may exercise  rights and remedies with respect
to the Collateral under the Collateral Documents and under applicable

                                       7

<PAGE>

law relating to the rights and remedies of secured  creditors.  Therefore,  each
Secured Party shall,  for the mutual benefit of all Secured  Parties,  except as
permitted under this Agreement:

                (a)  refrain  from  taking or filing  any  action,  judicial  or
otherwise,  to enforce  any rights or pursue  any  remedy  under the  Collateral
Documents, except for delivering notices hereunder;

                (b) refrain  from (1) selling  any  Secured  Obligations  to the
Company or any  Affiliate of the Company and (2)  accepting  any guaranty of, or
any  other  security  for,  the  Secured  Obligations  from the  Company  or any
Affiliate  of the Company or any other  Person,  except any guaranty or security
granted to the  Collateral  Agent for the benefit of all Secured  Parties in the
relative priorities set forth herein; and

                (c) refrain from  exercising any rights or remedies with respect
to the  Collateral  under the  Collateral  Documents,  or under  applicable  law
relating to the rights and remedies of secured creditors, which have or may have
arisen  or which  may arise as a result  of a  Default  or Event of  Default  or
otherwise;

PROVIDED,  HOWEVER,  that nothing contained in subsections (a) through (c) above
shall  prevent the Agent or any Secured  Party from  exercising or enforcing any
other right or remedy available to the Agent or any Secured Party under the Note
Agreement,  the Notes, the Credit  Agreement,  the Subsidiary  Guaranties or the
other Loan Documents (as defined in the Credit  Agreement),  as the case may be,
including,  without limitation,  accelerating the maturity of the Term Debt, the
Revolving Debt or the Notes, as the case may be,  terminating any commitments to
lend  additional  money to the Company under the Credit  Agreement in accordance
with the terms thereof,  imposing a default rate of interest in accordance  with
the Credit Agreement or the Note Agreement, as applicable,  raising any defenses
in any action in which it has been made a party  defendant or has been joined as
a third party,  except that the Collateral Agent may, but shall not be obligated
to, direct and control any defense  directly  relating to the  Collateral or any
one or  more  of the  Collateral  Documents,  which  shall  be  governed  by the
provisions of this Agreement.  NOTWITHSTANDING  THE FOREGOING,  NO SECURED PARTY
SHALL EXERCISE, OR ATTEMPT TO EXERCISE, ANY RIGHT OF SET-OFF,  BANKER'S LIEN, OR
THE LIKE,  AGAINST ANY DEPOSIT  ACCOUNT OR PROPERTY OF THE COMPANY OR ANY OF ITS
SUBSIDIARIES  HELD OR  MAINTAINED BY THE SECURED PARTY WITHOUT THE PRIOR WRITTEN
CONSENT OF THE COLLATERAL AGENT, THE REQUIRED REVOLVING DEBT SECURED PARTIES AND
THE REQUIRED TERM DEBT SECURED PARTIES.

         Section 3.2.  Representations  and Warranties.  (a) Each of the Secured
Parties represents and warrants to the other parties hereto that:

                        (1)   It (i) is either (x) a corporation duly organized,
existing  and in  good  standing  under  the  laws  of the  jurisdiction  of its
incorporation  or (y) a  national  banking  association  duly  incorporated  and
existing  under the laws of the United  States of  America  or a  state-licensed
branch of a foreign bank, and (ii) has all requisite power (corporate or

                                        8

<PAGE>

otherwise)  to own its property and conduct its business as now conducted and as
presently contemplated.

                        (2) The  execution,  delivery  and  performance  by such
Secured Party of this Agreement has been authorized by all necessary proceedings
(corporate or otherwise)  and does not and will not  contravene any provision of
law,  its  charter or by-laws or any  amendment  thereof,  or of any  indenture,
agreement, instrument or undertaking binding upon such Secured Party.

                        (3) The  execution, delivery  and  performance by such
Secured  Party of this  Agreement  will  result in a valid and  legally  binding
obligation of such Secured Party enforceable in accordance with its terms.

                (b)    The Collateral Agent hereby represents and warrants that:

                        (1) Collateral Agent is a New York state-licensed branch
of a Netherlands banking cooperative validly existing and in good standing under
the laws of the State of New York.

                        (2) Collateral Agent has full power, authority and legal
right under the laws of New York  pertaining  to its banking  powers to execute,
deliver,  and  perform  this  Agreement  and has taken all  necessary  action to
authorize the execution, delivery and performance by it of this Agreement.

                        (3) execution,delivery and performance by the Collateral
Agent of this  Agreement  will not contravene any law, rule or regulation of the
United States or any United States  governmental  authority or agency regulating
the Collateral Agent's banking activities or any judgment or order applicable to
or  binding on the  Collateral  Agent and will not  contravene  or result in any
breach of, or constitute a default under,  the Collateral  Agent's  constitutive
documents  or the  provision  of any  indenture,  mortgage,  contract  or  other
agreement  to which it is a party  or by  which it or any of its  properties  is
bound.

                        (4) execution,delivery and performance by the Collateral
Agent of this Agreement will not require the authorization, consent, or approval
of, the giving of notice to, the filing or  registration  with, or the taking of
any other  action in respect of, any United  States  governmental  authority  or
agency regulating the banking activities of the Collateral Agent.

                        (5)  Agreement  has been  duly  executed  and  delivered
by the Collateral Agent and constitutes the legal,  valid, and binding agreement
of the Collateral  Agent,  enforceable in accordance with its terms,  subject to
bankruptcy,   insolvency,  fraudulent  conveyance  and  similar  laws  affecting
creditors' rights  generally,  and general  principles of equity  (regardless of
whether the  application  of such  principles  is  considered in a proceeding in
equity or at law).

         Section 3.3. Cooperation; Accountings. Each of the parties hereto will,
upon the  reasonable  request of another  party,  from time to time  execute and
deliver or cause to be

                                        9

<PAGE>

executed and  delivered  such further  instruments,  and do and cause to be done
such further  acts as may be  necessary or proper to carry out more  effectively
the provisions of this  Agreement.  The Secured Parties agree to provide to each
other upon reasonable request a statement of all payments received in respect of
Secured Obligations.

         Section  3.4.  Termination  of  Credit  Agreement,  Note  Agreement  or
Additional  Facilities.  Upon final  payment in full of all Secured  Obligations
owing to any Secured Party,  and, in the case of any Facility Lender,  after the
termination of such Facility  Lender's  Revolving  Commitment (as defined in the
Credit  Agreement),  such  Secured  Party  shall  cease  to be a  party  to this
Agreement; provided, however, if all or any part of any payments to such Secured
Party  are  invalidated  or set  aside or  required  to be paid or repaid to any
Person in any Bankruptcy Proceeding or otherwise (including, without limitation,
any  payment  required  to be made by such  Secured  Party to one or more of the
other Secured Parties pursuant to ss.6.15 hereof),  then this Agreement shall be
renewed as of such date and shall  thereafter  continue in full force and effect
to the extent of the Secured  Obligations  so  invalidated,  set aside,  paid or
repaid.

         SECTION 4. APPOINTMENT AND AUTHORIZATION OF COLLATERAL AGENT.

                (a)Each Secured Party hereby irrevocably designates and appoints
Cooperatieve Centrale  Raiffeisen-Boerenleenbank B.A., "Rabobank International",
New York  Branch  as the  Collateral  Agent of such  Secured  Party  under  this
Agreement  and  the  Collateral   Documents,   and  each  Secured  Party  hereby
irrevocably  authorizes  Cooperatieve Centrale Raiffeisen-  Boerenleenbank B.A.,
"Rabobank  International",  New York  Branch  as the  Collateral  Agent for such
Secured Party to execute and enter into each of the Collateral Documents and all
other instruments  relating to said Collateral  Documents and (i) to take action
on its behalf and exercise such powers and use such  discretion as are expressly
permitted  hereunder  and under the  Collateral  Documents  and all  instruments
relating  hereto and thereto and (ii) to exercise  such powers and perform  such
duties as are, in each case,  expressly delegated to the Collateral Agent by the
terms hereof and thereof  together with such other powers and  discretion as are
reasonably incidental hereto and thereto.

                (b) Notwithstanding any provision to the contrary elsewhere in
this Agreement or the Collateral Documents,  the Collateral Agent shall not have
any  duties or  responsibilities  except  those  expressly  set forth  herein or
therein or any fiduciary  relationship  with any Secured  Party,  and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this  Agreement  or any  Collateral  Document  or  otherwise  exist
against the Collateral Agent.

         SECTION 5. AGENCY PROVISIONS.

         Section 5.1.  Delegation of Duties.  The Collateral  Agent may exercise
its powers and execute any of its duties under this Agreement and the Collateral
Documents  by or through  employees,  agents or  attorneys-in-fact  and shall be
entitled  to take  and to rely on  advice  of  counsel  concerning  all  matters
pertaining  to such  powers  and  duties.  The  Collateral  Agent  shall  not be
responsible for the negligence or misconduct of any agents or  attorneys-in-fact
selected  by it with  reasonable  care.  The  Collateral  Agent may  utilize the
services of such Persons as the

                                       10

<PAGE>

Collateral  Agent in its sole discretion may determine,  and all reasonable fees
and expenses of such Persons shall be borne by the Company.

         Section 5.2. Exculpatory  Provisions.  Neither the Collateral Agent nor
any  of  the  Collateral  Agent's  officers,   directors,   employees,   agents,
attorneys-in-fact  or  Affiliates  shall be (a) liable  for any action  taken or
omitted  to be  taken by it or such  Person  under or in  connection  with  this
Agreement or any Collateral  Document or any Collateral  (except for its or such
Person's own gross negligence or willful misconduct),  or (b) responsible in any
manner  to  any  of  the   Secured   Parties  for  any   recitals,   statements,
representations  or warranties made by the Grantors,  any officer thereof or any
other Person contained in, or made or deemed made in connection with, the Credit
Agreement,  the Note Agreement or any Collateral Document or in any certificate,
report,  statement or other document referred to or provided for in, or received
by the Collateral Agent under or in connection with, this Agreement,  the Credit
Agreement,  the  Note  Agreement  or any  Collateral  Document,  or for  the due
execution, legality, value, validity, effectiveness, genuineness, enforceability
or  sufficiency  of the Credit  Agreement,  the Note Agreement or any Collateral
Document or any other document or instrument  furnished  pursuant  thereto or of
any  of the  Collateral  or for  any  failure  of any  Grantor  to  perform  its
obligations  under  such  documents.  The  Collateral  Agent  shall  be under no
obligation  to  the  Secured  Parties  to  ascertain  or to  inquire  as to  the
observance or performance of any of the agreements contained in, statements made
in, or conditions of the Credit Agreement,  the Note Agreement or any Collateral
Document or to inspect the  property  (including  the books and  records) of the
Grantors.

Section  5.3.  Reliance  by  Collateral  Agent.  The  Collateral  Agent shall be
entitled to rely,  and shall be fully  protected and shall incur no liability in
acting and relying, upon any writing, resolution,  notice, consent, certificate,
affidavit,  letter,  cablegram,  telegram,  telecopy, telex or teletype message,
statement,  order or other document or conversation reasonably believed by it to
be  genuine  and  correct  and to have been  signed,  sent or made by the proper
Person or Persons and upon advice and  statements of legal  counsel  (including,
without limitation, counsel to the Grantors),  independent accountants and other
experts selected by the Collateral Agent. Without limiting the generality of the
foregoing,  the  Collateral  Agent  may  treat  the  payee of any  Term  Debt or
Revolving  Debt as the  registered  holder  thereof until it receives  notice or
otherwise  has actual  knowledge  that such  payee is no longer  the  registered
holder of such Term Debt or  Revolving  Debt.  Notwithstanding  anything  to the
contrary  contained herein or in any Collateral  Document,  the Collateral Agent
shall be fully  justified  in  failing or  refusing  to take  action  under this
Agreement  or the  Collateral  Documents  (including,  without  limitation,  the
exercise of any rights or remedies  under, or the entering into of any agreement
amending, modifying,  supplementing,  waiving any provision of, or the giving of
consent  pursuant  to, any of the  Collateral  Documents)  unless it shall first
receive instructions of the relevant Required Secured Parties as is contemplated
by ss.6 hereof and it shall first be indemnified to its reasonable  satisfaction
by the relevant  Secured Parties against any and all liability and expense which
may be incurred by it by reason of taking, continuing to take or refraining from
taking  any such  action.  The  Collateral  Agent  shall  in all  cases be fully
protected in acting, or in refraining from acting,  under this Agreement and the
Collateral  Documents in accordance  with the provisions of ss.6.5 hereof and in
accordance with written  instructions of the relevant  Required  Secured Parties
pursuant to ss.6.3 hereof, and such instructions and any action taken or failure
to act pursuant thereto shall be binding upon all the relevant Secured Parties.

                                       11

<PAGE>

Section 5.4.  Knowledge or Notice of Default,  Event of Default.  The Collateral
Agent  shall not be  deemed to have  actual,  constructive,  direct or  indirect
knowledge or notice of the  occurrence of any Default or Event of Default unless
and until the Collateral  Agent has received written notice from a Secured Party
or the Company  referring  to the Credit  Agreement,  the Note  Agreement or the
Collateral Documents, describing such Default or Event of Default, setting forth
in reasonable  detail the facts and  circumstances  thereof and stating that the
Collateral Agent may rely on such notice without further inquiry;  provided that
if the Agent is the Collateral  Agent  hereunder,  the Collateral Agent shall be
deemed to have actual  knowledge and notice of the  occurrence of any Default or
Event of Default (as defined in the Credit Agreement) under the Credit Agreement
if the Agent has  actual  knowledge  of such  Default or Event of Default or has
declared an Event of Default under the Credit  Agreement.  The Collateral  Agent
shall have no obligation or duty prior to or after  receiving any such notice to
inquire  whether a Default or Event of Default has in fact occurred and shall be
entitled to rely, and shall be fully protected in so relying, on any such notice
furnished to it.

Section 5.5.  Non-Reliance on Collateral Agent and Other Secured  Parties.  Each
Secured Party expressly acknowledges that, except as expressly set forth in this
Agreement,  neither  the  Collateral  Agent  nor any of the  Collateral  Agent's
officers, directors, employees, agents, attorneys-in-fact or Affiliates has made
any  representations or warranties to it and that no act by the Collateral Agent
hereafter taken,  including any review of the affairs of the Grantors,  shall be
deemed to constitute any  representation  or warranty by the Collateral Agent to
any Secured Party. Each Secured Party represents that it has,  independently and
without reliance upon the Collateral Agent or any other Secured Party, and based
on such  documents and  information as it has deemed  appropriate,  made its own
appraisal  of  and  investigation  into  the  business,  operations,   property,
financial and other condition and credit-worthiness of the Grantors and made its
own  decision  to enter  into this  Agreement,  the Credit  Agreement,  the Note
Agreement or any Collateral Document. Each Secured Party also represents that it
will,  independently and without reliance upon the Collateral Agent or any other
Secured  Party,  and based on such  documents and  information  as it shall deem
appropriate at the time,  continue to make its own credit  analysis,  appraisals
and  decisions in taking or not taking  action under the Credit  Agreement,  the
Note Agreement or any Collateral  Document and this Agreement,  and to make such
investigation  as it  deems  necessary  to  inform  itself  as to the  business,
operations, property, financial and other condition and credit-worthiness of the
Grantors.  Except for notices, reports and other documents expressly required to
be furnished  to the Secured  Parties by the  Collateral  Agent  hereunder,  the
Collateral  Agent  shall  not have any duty or  responsibility  to  provide  the
Secured  Parties with any credit or other  information  concerning the business,
operations,  property, financial and other condition or credit-worthiness of the
Grantors which may come into the  possession of the  Collateral  Agent or any of
its officers, directors, employees, agents, attorneys-in-fact or Affiliates.

Section  5.6.  Indemnification.  The  Secured  Parties  agree to  indemnify  the
Collateral  Agent in its capacity as such (to the extent not  reimbursed  by the
Company or the Subsidiary Guarantors, but without limiting any obligation of the
Company and the Subsidiary  Guarantors to do so) ratably in accordance  with the
Secured  Parties'  Pro Rata  Shares,  against,  and hold  the  Collateral  Agent
harmless from, any and all liabilities,  obligations,  losses, claims,  damages,
penalties,  actions,  judgments,  suits, costs, expenses or disbursements of any
kind or nature

                                       12

<PAGE>

whatsoever,  which may be imposed  on,  incurred  by, or  asserted  against  the
Collateral Agent, in any way relating to or arising out of this Agreement or any
Collateral  Document or the transactions  contemplated  hereby or thereby or any
action taken or omitted by the  Collateral  Agent in connection  with any of the
foregoing;  PROVIDED  that no Secured  Party  shall be liable to the  Collateral
Agent  for  any  portion  of such  liabilities,  obligations,  losses,  damages,
penalties,  actions,  judgments,  suits, costs, expenses or disbursements to the
extent they are found by a final  decision of a court of competent  jurisdiction
to have  resulted  from the  Collateral  Agent's  gross  negligence  or  willful
misconduct.. The agreements in
this ss.5.6 shall survive the payment of the Secured Obligations.

         Section 5.7. Collateral Agent in Its Individual Capacity.  Cooperatieve
Centrale  Raiffeisen-Boerenleenbank  B.A.,  "Rabobank  International",  New York
Branch and its Affiliates may make loans to and generally  engage in any kind of
business with the Company or any other Grantor as though such Person was not the
Collateral  Agent  hereunder  and  without  any duty to account  therefor to the
Secured  Parties.  With respect to any Term Debt or Revolving  Debt issued to it
and  advances  made by it  under  the  Credit  Agreement,  if any,  Cooperatieve
Centrale  Raiffeisen-Boerenleenbank  B.A.,  "Rabobank  International",  New York
Branch shall have the same rights and powers under this Agreement as any Secured
Party and may exercise the same as though it were not the Collateral  Agent, and
the terms  "Secured  Party" and "Secured  Parties"  shall  include  Cooperatieve
Centrale  Raiffeisen-Boerenleenbank  B.A.,  "Rabobank  International",  New York
Branch in its individual capacity.

         Section 5.8. Successor Collateral Agent.

                (a)     The  Collateral  Agent may resign at any time upon sixty
days'  notice to the  Secured  Parties and the Company and may be removed at any
time, with or without cause,  by the Required  Secured Parties by written notice
delivered to the Company,  the Collateral Agent and the Secured Parties.  If the
Collateral Agent is also a Facility Lender,  then the Noteholders may remove the
Collateral Agent for a continuing breach of its obligations under this Agreement
at any time  upon a vote of the  holders  of  66-2/3%  or more of the  aggregate
principal amount of outstanding Notes,  PROVIDED that the Collateral Agent shall
be given a reasonable opportunity to cure such breach prior to any such removal.
After  any  resignation  or  removal  hereunder  of the  Collateral  Agent,  the
provisions of this ss.5 shall continue to inure to its benefit as to any actions
taken or omitted  to be taken by it in  connection  with its role as  Collateral
Agent  hereunder  while it was the Collateral  Agent under this Agreement and it
shall be entitled to be paid  promptly when due any amounts owing to it pursuant
to ss.5.6.

                (b)    Upon receiving notice of any such resignation or removal,
a successor Collateral Agent shall be appointed by the Required Secured Parties;
provided,  however,  that such successor Collateral Agent shall be (i) a bank or
trust company  having a combined  capital and surplus of at least  $500,000,000,
subject to supervision  or examination by a federal or state banking  authority;
and (ii) authorized under the laws of the  jurisdiction of its  incorporation or
organization to assume the functions of the Collateral Agent. If the appointment
of such successor  shall not have become  effective (as hereafter  provided) (x)
within such sixty day period after the Collateral  Agent's notice of resignation
or (y) upon  removal of the  Collateral  Agent,  then the  Collateral  Agent may
assign the Liens and its duties hereunder and under the Collateral

                                       13

<PAGE>

Documents to the Secured  Parties,  as their  interests may appear,  and in such
case all references herein to "Collateral Agent" shall be deemed to refer to the
"Required  Secured Parties." Any Secured Party may petition a court of competent
jurisdiction  for the appointment of a successor  Collateral  Agent.  Such court
shall, after such notice as it may deem proper,  appoint a successor  Collateral
Agent  meeting  the  qualifications  specified  in this  ss.5.8(b).  The Secured
Parties hereby consent to such petition and appointment so long as such criteria
are met.

                (c)     The  resignation or removal of a Collateral  Agent shall
become   effective  upon  the  execution  and  delivery  of  such  documents  or
instruments  as are  necessary  to transfer  the rights and  obligations  of the
Collateral Agent under the Collateral Documents,  including, without limitation,
the delivery and  recordation of all  amendments,  instruments,  Deed of Trusts,
financing statements,  continuation  statements and other documents necessary to
maintain the perfection of the security  interests held by the Collateral  Agent
hereunder.  Copies of each such document or instrument shall be delivered to all
Secured  Parties.  Subject to the foregoing  provisions of this  ss.5.8(c),  the
appointment of a successor Collateral Agent pursuant to this ss.5.8 shall become
effective upon the acceptance of the  appointment as Collateral  Agent hereunder
by a successor Collateral Agent. Upon such effective appointment,  the successor
Collateral Agent shall succeed to and become vested with all the rights, powers,
privileges  and  duties  of the  retiring  Collateral  Agent  and  the  retiring
Collateral  Agent shall be discharged  from its rights,  powers,  privileges and
duties  under  this  Agreement  and the other  Collateral  Documents;  provided,
however,  that  the  provisions  of this  ss.5  shall  continue  to inure to the
retiring  Collateral  Agent's  benefit as to any actions  taken or omitted to be
taken by it in connection  with its role as Collateral  Agent hereunder while it
was the Collateral Agent under this Agreement.

         SECTION 6. ACTIONS BY THE COLLATERAL AGENT.

         Section 6.1. Duties and Obligations.  The duties and obligations of the
Collateral  Agent  are  only  those  set  forth  in  this  Agreement  and in the
Collateral Documents.

         Section 6.2.  Notification of Default. If the Collateral Agent has been
notified in a writing  conforming to the  requirements  of ss.5.4 by any Secured
Party that a Default,  an Event of  Default  or a Special  Event of Default  has
occurred,  the Collateral  Agent shall furnish to the Secured  Parties a copy of
such  written  notice and may,  but is under no  obligation  to,  furnish to the
Company a copy of the notice received by the Collateral  Agent and a copy of the
Collateral  Agent's  notice to the Secured  Parties.  The failure of any Secured
Party having knowledge of the occurrence of a Default,  an Event of Default or a
Special Event of Default to notify the Collateral  Agent or any Secured Party of
such occurrence, however, does not constitute a waiver of such Default, Event of
Default or Special  Event of Default by the Secured  Parties.  Upon receipt of a
notice  conforming  to the  requirements  of ss.5.4 from a Secured  Party of the
occurrence of an Event of Default or a Special Event of Default,  the Collateral
Agent shall (in  addition to the action  required by the first  sentence of this
ss.6.2)  promptly  (and in any event no later  than  three  Business  Days after
receipt of such notice) issue its Notice of Default to all Secured Parties. Such
Notice of Default shall  indicate the nature of such Event of Default or Special
Event of Default.  The Notice of Default may contain a recommendation of actions
to be taken by the Secured Parties and/or request  instructions from the Secured
Parties  and shall  specify the date on which  responses  are due in order to be
timely within ss.6.4 hereof.

                                       14

<PAGE>

Section 6.3. Exercise of Remedies.  Except as otherwise  provided in ss.6.5, the
Collateral  Agent shall take only such actions and exercise  only such  remedies
under the Collateral Documents as are approved in written instructions delivered
to the  Collateral  Agent and signed by the relevant  Required  Secured  Parties
required under ss.6.4. In the event that the Collateral Agent shall determine in
good faith that taking the actions specified in such instructions is contrary to
law, it may refrain (and shall be fully protected in so refraining)  from taking
such  action  and  shall  immediately  give  notice  of such fact to each of the
Secured Parties. In the event that instructions received by the Collateral Agent
are in its good faith  judgment  ambiguous or conflict  with other  instructions
received by the Collateral Agent, the Collateral Agent (a) shall promptly notify
the  Secured  Parties of such  ambiguity  or  conflict  and  request  clarifying
instructions,  and (b) may either (1) delay taking any such action or exercising
any such remedy pending the receipt of such clarifying  instructions  (and shall
be fully  protected  in so  delaying) or (2) take such actions as it is entitled
under ss.6.5.

         Section 6.4. Instructions from Secured Parties.

         Notwithstanding  anything  express or implied  to the  contrary  in any
Collateral Document:

                (a)     remedies  and  other  actions  to  be  taken  under  the
Collateral  Documents  or  applicable  law with  respect to the  Revolving  Debt
Priority  Collateral  shall be directed by the Required  Revolving  Debt Secured
Parties,  or by the Required Term Debt Secured  Parties with the written consent
of  the  Required  Revolving  Debt  Secured  Parties  (such  consent  not  to be
unreasonably withheld or delayed);

                (b)     remedies  and other  actions  to  be  taken  under  the
Collateral  Documents or  applicable  law with respect to the Term Debt Priority
Collateral  shall be directed by the Required Term Debt Secured  Parties,  or by
the  Required  Revolving  Debt Secured  Parties with the written  consent of the
Required Term Debt Secured Parties (such consent not to be unreasonably withheld
or delayed);

                (c)  remedies and other actions to be taken under the Collateral
Documents or applicable law with respect to the Patent and Trademark  Collateral
shall be  directed by both the  Required  Term Debt  Secured  Parties and by the
Required  Revolving Debt Secured Parties;  and

                (d) if any Secured Party does not respond in a timely  manner to
any  notice  (including,  without  limitation,  a Notice  of  Default)  from the
Collateral Agent or request for instructions within the time period specified by
the Collateral Agent in such notice or request for instructions  (which shall be
a minimum of five Business Days),  the Secured  Obligations held by such Secured
Party which would otherwise be included in a determination  of Required  Secured
Parties shall not be included in the  determination  of Required Secured Parties
for purposes of such notice or request for instructions. Any action taken or not
taken  without  the vote of such  Secured  Party or Secured  Parties  under this
ss.6.4 shall nevertheless be binding on such Secured Party or Secured Parties.

Section 6.5. Emergency Actions. If the Collateral Agent has asked the relevant
Secured  Parties for instruction  and if the relevant  Required  Secured Parties
have not yet

                                       15

<PAGE>

responded to such request, the Collateral Agent shall be authorized to take, but
shall not be required to take and shall in no event have any  liability  for the
taking or the failure to take, such actions (other than any action  described or
permitted  under  ss.6.7  hereof)  with  regard to a Default or Event of Default
which the Collateral Agent, in good faith, believes to be reasonably required to
promote and protect the  interests  of the Secured  Parties and to preserve  the
value of the Collateral and shall give the Secured Parties appropriate notice of
such action;  PROVIDED that once  instructions with respect to such request have
been  received  by the  Collateral  Agent  from the  relevant  Required  Secured
Parties,  the actions of the Collateral  Agent shall be governed thereby and the
Collateral  Agent  shall not take any  further  action  which  would be contrary
thereto.

         Section  6.6.  Changes  to  Collateral  Documents.   Any  term  of  the
Collateral  Documents may be amended,  and the  performance or observance by the
parties to a Collateral  Document of any term of such Collateral Document may be
waived (either generally or in a particular instance and either retroactively or
prospectively)  with the written  consent of both the Required Term Debt Secured
Parties and the Required Revolving Debt Secured Parties.

         Section 6.7.  Release of  Collateral.  The release of any Collateral by
the Collateral Agent from the Lien of any Collateral Document shall be permitted
with the written consent of all of the Secured Parties; provided,  however, that
if  the  Company  or its  Subsidiaries  disposes  of  Collateral  pursuant  to a
disposition  that is  permitted  under  both the Credit  Agreement  and the Note
Agreement, then the written consent of the Secured Parties to the release by the
Collateral Agent of such Collateral shall not be required.

         Section 6.8. Other Actions.  The Collateral  Agent shall have the right
to take such  actions,  or omit to take such  actions,  hereunder  and under the
Collateral  Documents  not  inconsistent  with the written  instructions  of the
relevant  Required  Secured Parties  delivered  pursuant to ss.6.3 hereof or the
terms of this Agreement,  including actions the Collateral Agent deems necessary
or  appropriate  to  perfect  or  continue  the  perfection  of the Liens on the
Collateral for the benefit of the Secured Parties.  Except as otherwise provided
by applicable law, the Collateral Agent shall have no duty as to any Collateral,
the  collection  or  protection  of  the  Collateral  or  any  income  therefrom
(including  any  duty to  ascertain  or  take  action  with  respect  to  calls,
conversions,  exchanges,  maturities,  tenders or other matters  relative to any
Collateral,  whether  or not  the  Collateral  Agent  has or is  deemed  to have
knowledge of such matters),  nor as to the  preservation of rights against prior
parties,  nor as to the  preservation  of rights  pertaining  to the  Collateral
beyond the safe  custody of any  Collateral  in the  Collateral  Agent's  actual
possession.

         Section  6.9.  Cooperation.  To the  extent  that the  exercise  of the
rights,  powers and remedies of the  Collateral  Agent in  accordance  with this
Agreement  requires that any action be taken by any Secured Party,  such Secured
Party shall take such action and cooperate with the  Collateral  Agent to ensure
that the rights,  powers and  remedies of all Secured  Parties are  exercised in
full.

                                       16

<PAGE>

         Section 6.10.  Distribution  of Proceeds of Collateral  and  Subsidiary
Guaranties.

                (a) Upon any realization upon the Term Debt Priority Collateral,
the Secured Parties agree that the proceeds  thereof shall be applied (i) first,
to the  amounts  owing  to the  Collateral  Agent,  solely  in its  capacity  as
Collateral  Agent (or  owing to the  Secured  Parties  in such  capacity  if the
Collateral  Agent has  resigned  or has been  removed),  by the  Grantors or the
Secured  Parties  pursuant to this Agreement or the Collateral  Documents;  (ii)
second,  ratably to the payment of the Agent's  administrative agency fee (which
fee  shall  not  exceed  $30,000  per  year)  and  all  professional  and  other
out-of-pocket  fees,  costs and  expenses  owing to the  Agent  and the  Secured
Parties by the Grantors  according to the aggregate  amounts of such fees, costs
and  expenses  then  owing to the Agent and each  Secured  Party;  (iii)  third,
ratably to the payment of all amounts of accrued and unpaid interest (other than
breakage costs or any Make-Whole Amount) which constitute Term Debt according to
the  aggregate  amounts of such  interest  then owing to each Term Debt  Secured
Party; (iv) fourth,  ratably to all amounts of principal  outstanding in respect
of the Term Debt according to the aggregate amounts of such principal then owing
to each Term  Debt  Secured  Party;  (v)  fifth,  ratably  to all other  Secured
Obligations  then  owing to the  Term  Debt  Secured  Parties  according  to the
aggregate  amounts  of such  Secured  Obligations  then  owing to each Term Debt
Secured Party; (vi) sixth,  ratably to all Secured Obligations then owing to the
Revolving  Debt  Secured  Parties  (such  amounts to be  ratably  applied to the
Secured  Obligations of the Revolving Debt Secured  Parties in the same order as
provided in ss.6.10(b) below); and (vii) seventh,  the balance, if any, shall be
returned to the Grantors or such other Persons as are entitled thereto.

                (b) Upon  any  realization  upon  the  Revolving  Debt  Priority
Collateral, the Secured Parties agree that the proceeds thereof shall be applied
(i) first, to the amounts owing to the Collateral Agent,  solely in its capacity
as  Collateral  Agent (or owing to the Secured  Parties in such  capacity if the
Collateral  Agent has  resigned  or has been  removed),  by the  Grantors or the
Secured  Parties  pursuant to this Agreement or the Collateral  Documents;  (ii)
second,  ratably to the payment of the Agent's  administrative agency fee (which
fee  shall  not  exceed  $30,000  per  year)  and  all  professional  and  other
out-of-pocket  fees,  costs and  expenses  owing to the  Agent  and the  Secured
Parties by the Grantors  according to the aggregate  amounts of such fees, costs
and  expenses  then  owing to the Agent and each  Secured  Party;  (iii)  third,
ratably to the payment of all amounts of accrued and unpaid interest (other than
any breakage costs) which  constitute  Revolving Debt according to the aggregate
amounts of such interest then owing to each Revolving  Debt Secured Party;  (iv)
fourth,  ratably to all amounts of principal and obligations owing in respect of
Specified Swap Contracts  outstanding in respect of the Revolving Debt according
to the aggregate  amounts of such  principal or  obligations  then owing to each
Revolving  Debt  Secured  Party;  (v)  fifth,   ratably  to  all  other  Secured
Obligations  then owing to the Revolving Debt Secured  Parties  according to the
aggregate amounts of such Secured  Obligations then owing to each Revolving Debt
Secured Party; (vi) sixth,  ratably to all Secured Obligations then owing to the
Term Debt Secured  Parties  (such  amounts to be ratably  applied to the Secured
Obligations  of the Term Debt  Secured  Parties in the same order as provided in
ss.6.10(a) above); and (vii) seventh,  the balance, if any, shall be returned to
the Grantors or such other Persons as are entitled thereto.

                                       17

<PAGE>

                (c)   Upon  any  realization  upon  the  Patent   and  Trademark
Collateral, the Secured Parties agree that the proceeds thereof shall be applied
(i) first, to the amounts owing to the Collateral Agent,  solely in its capacity
as  Collateral  Agent (or owing to the Secured  Parties in such  capacity if the
Collateral  Agent has  resigned  or has been  removed),  by the  Grantors or the
Secured  Parties  pursuant to this Agreement or the Collateral  Documents;  (ii)
second,  ratably to the payment of the Agent's  administrative agency fee (which
fee  shall  not  exceed  $30,000  per  year)  and  all  professional  and  other
out-of-pocket  fees,  costs and  expenses  owing to the  Agent  and the  Secured
Parties by the Grantors  according to the aggregate  amounts of such fees, costs
and  expenses  then  owing to the Agent and each  Secured  Party;  (iii)  third,
ratably to the payment of all amounts of accrued and unpaid interest (other than
breakage costs or any Make-Whole  Amount) which constitute  Secured  Obligations
according to the  aggregate  amounts of such interest then owing to each Secured
Party; (iv) fourth,  ratably to all amounts of principal  outstanding in respect
of the Secured Obligations  according to the aggregate amounts of such principal
then  owing to each  Secured  Party;  (v) fifth,  ratably  to all other  Secured
Obligations then owing to the Secured Parties according to the aggregate amounts
of such Secured  Obligations  then owing to each Secured Party;  and (vi) sixth,
the balance,  if any, shall be returned to the Grantors or such other Persons as
are entitled thereto.

                (d)    Upon  any payment or other recovery  under the Subsidiary
Guaranties, the Secured Parties agree that the proceeds thereof shall be applied
(i) first, to the amounts owing to the Collateral Agent,  solely in its capacity
as  Collateral  Agent (or owing to the Secured  Parties in such  capacity if the
Collateral  Agent has  resigned  or has been  removed),  by the  Grantors or the
Secured  Parties  pursuant to this Agreement or the Collateral  Documents;  (ii)
second,  ratably to the payment of the Agent's  administrative agency fee (which
fee  shall  not  exceed  $30,000  per  year)  and  all  professional  and  other
out-of-pocket  fees,  costs and  expenses  owing to the  Agent  and the  Secured
Parties by the Grantors  according to the aggregate  amounts of such fees, costs
and  expenses  then  owing to the Agent and each  Secured  Party;  (iii)  third,
ratably to the payment of all amounts of accrued and unpaid interest (other than
breakage costs or any Make-Whole  Amount) which constitute  Secured  Obligations
according to the  aggregate  amounts of such interest then owing to each Secured
Party; (iv) fourth,  ratably to all amounts of principal  outstanding in respect
of the Secured Obligations  according to the aggregate amounts of such principal
then owing to each Secured  Party;  and (v) fifth,  ratably to all other Secured
Obligations then owing to the Secured Parties according to the aggregate amounts
of such Secured Obligations then owing to each Secured Party.

                (e)   Upon  the request  of  the  Collateral  Agent prior to any
distribution  under  this  ss.6.10,  each  Secured  Party  shall  provide to the
Collateral Agent certificates,  in form and substance reasonably satisfactory to
the  Collateral  Agent,  setting  forth the  respective  amounts  referred to in
ss.6.10(a), ss.6.10(b), ss.6.10(c) and ss.6.10(d) hereof which each such Secured
Party believes it is entitled to receive.

                (f)    Notwithstanding the preceding subsections 6.10(a) through
6.10(c),  in the event that the Company is required  to  mandatorily  prepay the
Facility  Debt  under  Section  5.03(b)(ii),  (b)(iii)  or (b)(iv) of the Credit
Agreement,  such prepayments shall be made in accordance with the terms thereof;
provided,  however,  that if either (1) an Event of Default has  occurred and is
continuing at the time of such prepayment or (2) after giving effect on a pro

                                       18

<PAGE>

forma basis to the  application of such  prepayment  proceeds as provided in the
Credit  Agreement  a  Specified  Loan to Value  Event  (as  defined  in the Note
Agreement)  would  occur  as a  result  thereof,  then  the  provisions  of this
Agreement  shall  govern the  application  of the  prepayment  proceeds and such
proceeds  shall be applied to the Secured  Obligations  pursuant to the terms of
this Section 6.10; PROVIDED FURTHER that if the terms of this Section 6.10 shall
govern the application of such prepayment  proceeds as a result of the facts set
forth only in clause (2)  hereof,  then the amount of such  prepayment  proceeds
that shall be applied  pursuant to this Section 6.10 shall be that amount of the
proceeds  which will be  required to prepay the  Secured  Obligations  so that a
Specified  Loan to Value  Event will not occur and be  continuing  after  giving
effect to the application of such proceeds under this Section 6.10.

         Notwithstanding  the  preceding  Sections  6.10(a)  through  (d) to the
contrary,  any  payment  hereunder  of the  Agent's  administrative  agency  fee
pursuant to the Sections  6.10(a)(ii),  (b)(ii),  (c)(ii) and (d)(ii)  shall not
exceed $30,000 in the aggregate per year.

         Section 6.11. Senior Preferential Payments and Special Trust Account.

                (a)   After  the  receipt  by each Secured  Party of a Notice of
Default pursuant to ss.6.2 stating that a Special Event of Default has occurred,
all Senior Preferential  Payments other than those payments received pursuant to
subsection  (b) of this ss.6.11 shall be delivered to the  Collateral  Agent for
deposit into the Special Trust Account.

                (b)     If  (i) such  Special  Event of Default is waived by the
Facility  Lenders  and the  Noteholders  and if no other  Event of  Default  has
occurred and is  continuing,  (ii) such Special Event of Default is cured by the
Company or by any amendment of the Credit  Agreement or the Note  Agreement,  as
the case may be, and if no other Event of Default has occurred and is continuing
or (iii) any or all of the Secured Obligations have not been accelerated and the
Required  Secured Parties have not instructed the Collateral  Agent to foreclose
on a substantial portion of the Collateral,  seek the appointment of a receiver,
commence  litigation against the Company,  liquidate the Collateral,  commence a
Bankruptcy Proceeding against the Company,  seize Collateral,  or exercise other
remedies of similar  character  prior to the 180th day  following  such  Special
Event of Default,  the  Collateral  Agent  thereupon  shall  return all amounts,
together with their pro rata share of any interest earned  thereon,  held in the
Special Trust Account  representing  payment of any Secured  Obligations  to the
Secured Party initially entitled thereto, and no payments thereafter received by
a Secured Party shall constitute a Senior Preferential Payment by reason of such
cured or waived Special Event of Default. No payment returned to a Secured Party
for which  such  Secured  Party has been  obligated  to make a deposit  into the
Special  Trust  Account  shall  thereafter  ever be  characterized  as a  Senior
Preferential Payment.

                (c)   Each Secured  Party agrees that upon the  occurrence  of a
Special Event of Default it shall (i) promptly  notify the  Collateral  Agent of
the receipt of any Senior Preferential Payments, (ii) hold such amounts in trust
for the Secured  Parties and act as agent of the Secured Parties during the time
any such amounts are held by it, and (iii)  deliver  promptly to the  Collateral
Agent  such  amounts  for  deposit  into the  Special  Trust  Account as soon as
practicable.

                                       19

<PAGE>

                (d)   If  the Secured  Obligations  have been accelerated or the
Required  Secured Parties have instructed the Collateral Agent to foreclose on a
substantial  portion of the  Collateral,  seek the  appointment  of a  receiver,
commence  litigation against the Company,  liquidate the Collateral,  commence a
Bankruptcy Proceeding against the Company,  seize Collateral,  or exercise other
remedies of similar  character,  then all funds,  together with interest  earned
thereon,   held  in  the  Special  Trust  Account  and  all  subsequent   Senior
Preferential  Payments  shall be applied in  accordance  with the  provisions of
ss.6.10 above.

         Section  6.12.  Authorized  Investments.  Any and all funds held by the
Collateral  Agent in its capacity as Collateral  Agent,  whether pursuant to any
provision of this  Agreement or any of the  Collateral  Documents,  shall to the
extent feasible within a reasonable time be invested by the Collateral  Agent in
Cash Equivalent Investments. Prior to making such investment or to the extent it
is not  feasible  to  invest  such  funds in Cash  Equivalent  Investments,  the
Collateral Agent shall hold any such funds in an interest  bearing account.  Any
interest  earned on such funds  shall be  disbursed  to the  Secured  Parties in
accordance with ss.6.10 or ss.6.11,  as applicable.  The Collateral  Agent shall
have no duty to place  funds  held and  invested  pursuant  to this  ss.6.12  in
investments  which provide a maximum return.  The Collateral  Agent shall not be
responsible for any loss of any funds invested in accordance with this ss.6.12.

         Section  6.13.   Restoration  of  Obligations.   For  the  purposes  of
determining the amount of outstanding Secured Obligations,  if any Secured Party
is  required  to deposit any Senior  Preferential  Payment in the Special  Trust
Account,   then  the  obligations  intended  to  be  satisfied  by  such  Senior
Preferential  Payment  shall be  revived,  as of the date of the deposit of such
amount with the  Collateral  Agent,  in the amount of such  Senior  Preferential
Payment and such  obligation  shall  continue in full force and effect (and,  if
applicable,  bear  interest  from such deposit date at the  non-default  rate as
provided in the Notes or in the Credit Agreement, as the case may be) as if such
Secured Party had not received such payment.  All such revived obligations shall
be included as Secured Obligations for purposes of allocating any payments under
ss.6.10 and for applying the definition of Required Secured Parties. If any such
revived obligation shall not be allowed as a claim under the Bankruptcy Code due
to the fact that the Senior  Preferential  Payment  has in fact been made by the
Company,  the Secured Parties shall make such other equitable  arrangements  for
the purchase and sale of participations in the Secured Obligations to effectuate
the intent of this ss.6.13.

         Section 6.14. Bankruptcy, Preferences, etc. If any payment to a Secured
Party is subsequently invalidated,  declared to be fraudulent or preferential or
set aside and is required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, state or Federal law,  common law or equitable  cause,
and such Secured Party has previously  made a deposit in respect of such payment
into the Special Trust Account  pursuant to ss.6.11,  then the Collateral  Agent
shall  distribute to such Secured Party  proceeds from the Special Trust Account
in an amount  equal to such  deposit or so much  thereof as is  affected by such
events and if, due to previous  disbursements to the Secured Parties pursuant to
ss.6.11(d),  the proceeds in the Special Trust Account are insufficient for such
purpose,  then each other  Secured  Party shall pay to such  Secured  Party upon
demand an amount equal to a ratable portion of such disbursements of the deposit
which was  distributed  to each such Secured  Party  according to the  aggregate
amounts so distributed to each such Secured Party.

                                       20

<PAGE>

         Section 6.15.  Sharing of Proceeds.  If, despite the provisions of this
Agreement,  any  Secured  Party shall  receive any payment or other  recovery in
excess of its portion of payments on account of the Secured Obligations to which
it is then entitled in accordance with this Agreement,  such Secured Party shall
hold such  payment or other  recovery  in trust for the  benefit of the  parties
entitled thereto and promptly pay over or deliver such payment or other recovery
to the Collateral  Agent for  application by the Collateral  Agent in accordance
with this Agreement.

         SECTION 7. BANKRUPTCY PROCEEDINGS.

         The following  provisions shall apply during any Bankruptcy  Proceeding
of any Grantor:

                (a)  The Collateral Agent shall represent all Secured Parties in
connection  with all  matters  directly  relating to the  Collateral,  including
without  limitation,  use, sale or lease of Collateral,  use of cash collateral,
relief from the automatic stay and adequate  protection.  The  Collateral  Agent
shall act on the  instructions of the Required  Secured  Parties;  provided that
such  instructions  by the Required  Secured Parties shall not treat any Secured
Party  differently  with  respect  to  rights in the  Collateral  from any other
Secured Party; and provided further that if action is required prior to the time
such  instructions  are received or if the Required Secured Parties fail to give
instructions  with  respect  to  any  matter,  the  Collateral  Agent  shall  be
authorized to act, or refrain from acting, in accordance with ss.6.5 hereof.

                (b) Each Secured Party shall be free to act independently on any
issue not directly  relating to the Collateral,  including  without  limitation,
matters  relating to appointment of a trustee,  conversion of a case,  filing of
claims, and plans of reorganization.  Each Secured Party shall give prior notice
to the  Collateral  Agent of any such  action to the extent  that such notice is
possible.  If such prior  notice is not given,  such  Secured  Party  shall give
prompt notice following any such action.

         SECTION 8. ADDITIONAL AGREEMENTS OF SECURED PARTIES.

                (a)  The Term Debt Secured Parties agree that the Revolving Debt
Secured Parties, through their authorized representatives or agents, may (to the
extent the Term Debt Secured  Parties  have the right to restrict  access to the
Term Debt Priority  Collateral)  enter upon any real property  constituting Term
Debt Priority  Collateral from time to time during normal business hours for the
sole  purpose  of  inspecting,  repairing,  removing,  caring  for,  harvesting,
protecting  or  conducting a sale or sales of any or all of the  Revolving  Debt
Priority  Collateral if the Agent provides the Term Debt Secured  Parties notice
prior to each entry (which  shall not be less than two (2) business  days except
in the case of  emergency).  The Term Debt Secured  Parties  further  agree that
neither the Agent nor any Revolving Debt Secured Party shall have any obligation
or liability to any Term Debt Secured Party, except, however, that the Revolving
Debt Secured  Parties shall promptly repair any damage to the Term Debt Priority
Collateral caused by the removal,  repair,  sale or inspection and the Revolving
Debt Secured Parties shall be liable for, and shall  indemnify,  defend and hold
the Collateral  Agent and the Term Debt Secured Parties  harmless from the gross
negligence or willful misconduct of their employees or agents in connection with
such removal, repairs, sale or inspection.  The Agent and Revolving Debt Secured
Parties  agree  that  neither  the  Collateral  Agent nor the Term Debt  Secured
Parties shall

                                       21
<PAGE>

have any  obligation  or  liability  to  preserve,  protect,  manage,  maintain,
safekeep or otherwise  have any  responsibility  for the Revolving Debt Priority
Collateral beyond the safe custody of any Collateral in any such Person's actual
possession;  provided,  however,  that the Term Debt Secured  Parties agree that
they will not take or direct the Collateral  Agent to take any action to destroy
or damage any crops grown on,  attached  to,  affixed to, or located on any Term
Debt Priority Collateral.

                (b)   The  Collateral  Agent  agrees to use its best efforts to
give to the Agent,  via certified mail,  written notice prior to the exercise by
the  Collateral  Agent of any of its rights or  remedies  against  the Term Debt
Priority  Collateral  at the address  provided for in ss.10.2  below;  PROVIDED,
HOWEVER,  that any failure to so provide such notice shall have no effect on the
ability  of the  Collateral  Agent to  exercise  any of its  rights or  remedies
against the Term Debt Priority Collateral.

                (c)  The Collateral Agent agrees to use its best efforts to give
to the Term Debt Secured  Parties,  via certified mail,  written notice prior to
the exercise by  Collateral  Agent of any of its rights or remedies  against the
Revolving Debt Priority Collateral at the address provided for in ss.10.2 below;
PROVIDED,  HOWEVER,  that any failure to so provide  such  notice  shall have no
effect on the ability of the  Collateral  Agent to exercise any of its rights or
remedies against the Revolving Debt Priority Collateral.

                (d)   If the Collateral  Agent takes possession of the Grantors'
books and records  included  in the  Revolving  Debt  Priority  Collateral,  the
Collateral Agent shall provide the Term Debt Secured Parties  reasonable  access
to inspect  and copy such books and  records  if the Term Debt  Secured  Parties
provide  prior notice (which shall be not less than two (2) business days except
in the case of emergency) and if such access is necessary to exercise its rights
and remedies in the Term Debt Priority Collateral.

                (e)   If the  Collateral  Agent or the  Revolving  Debt  Secured
Parties  receives any Term Debt  Priority  Collateral  or any  proceeds  thereof
(other than crops and  proceeds of crops which are not included in the Term Debt
Priority  Collateral)  in  which  the Term  Debt  Secured  Parties  have a prior
perfected  security  interest or if the  Collateral  Agent or Term Debt  Secured
Parties receives any Revolving Debt Priority  Collateral or any proceeds thereof
in which the  Revolving  Debt Secured  Parties have a prior  perfected  security
interest,  such party  shall (a) notify the other party in writing of the nature
of such receipt, the date of the receipt and the amount thereof; (b) deduct from
the  proceeds  received  any costs or expenses  (including  attorneys'  fees and
expenses) incurred in connection with the acquisition of such proceeds; (c) hold
the  remaining  amount of such  proceeds  in trust for the  benefit of the other
party until paid over to the other party;  and (d) pay the  remaining  amount of
such  proceeds or deliver the  applicable  Collateral  to the other party hereto
promptly upon receipt thereof.  If at any time payment,  in whole or in part, of
any Collateral or proceeds of Collateral  distributed  hereunder is rescinded or
must otherwise be restored or returned as a preference, fraudulent conveyance or
otherwise  under any  bankruptcy,  insolvency  or similar  law,  then each party
receiving  any  portion of such  proceeds  agrees,  upon  demand,  to return the
portion of such proceeds it has received to the party  responsible for restoring
or returning such proceeds.

                                       22

<PAGE>

         SECTION 9. PROVISIONS RELATING TO PATENT & TRADEMARK COLLATERAL

         For the purpose of enabling the Collateral Agent to exercise its rights
and remedies under the Collateral  Documents and under applicable law in respect
of the Revolving Debt Priority Collateral, each Secured Party hereby permits the
Collateral  Agent to use,  license or sublicense any of the Patent and Trademark
Collateral as reasonably required in connection therewith.

         SECTION 10. MISCELLANEOUS.

         Section 10.1.  Entire Agreement.  This Agreement  represents the entire
Agreement  among the Collateral  Agent,  the Agent,  the Secured Parties and the
Grantors in respect of the subject matter hereof.

         Section 10.2. Notices.  Notices hereunder shall be given to the Secured
Parties  at their  addresses  as set forth in the Note  Agreement  or the Credit
Agreement  or at such other  address as may be  designated  by each in a written
notice to the other parties hereto.

         Section 10.3.  Successors and Assigns.  This Agreement shall be binding
upon and inure to the benefit of the Collateral Agent, the Agent and each of the
Secured  Parties  and  their  respective  successors  and  assigns,  whether  so
expressed  or not,  and,  in  particular,  shall  inure to the benefit of and be
enforceable  by and  against  any  future  holder  or  holders  of  any  Secured
Obligations,  and the term  "Secured  Party" shall  include any such  subsequent
holder of Secured Obligations, wherever the context permits.

         Section 10.4. Consents, Amendment, Waivers. All amendments,  waivers or
consents of any provision of this Agreement  shall be effective only if the same
shall be in writing and signed by the Collateral Agent, the Agent and all of the
Secured Parties.

         Section 10.5.  Governing Law. This  Agreement  shall be governed by and
construed in accordance  with the laws of the State of New York,  without giving
effect to any conflicts of law principles.

         Section  10.6.  Counterparts.  This  Agreement  may be  executed in any
number  of  counterparts,  all of which  taken  together  shall  constitute  one
Agreement,  and any of the parties  hereto may execute this Agreement by signing
any such counterpart.

         Section 10.7. Sale of Interest. No Secured Party will sell, transfer or
otherwise  dispose  of any  interest  in the  Secured  Obligations  unless  such
purchaser or  transferee  shall agree,  in writing,  to be bound by the terms of
this Agreement.

         Section 10.8.  Severability.  In case any one or more of the provisions
contained in this Agreement shall be invalid,  illegal or  unenforceable  in any
respect,  the validity,  legality and enforceability of the remaining provisions
of this Agreement shall not in any way be affected or impaired thereby.

                                       23

<PAGE>

         Section 10.9. Expenses.  In the event of any litigation to enforce this
Agreement,  the prevailing party shall be entitled to its reasonable  attorney's
fees (including the allocated costs of in-house counsel).

         Section 10.10.  Term of Agreement.  This Agreement shall terminate when
all Secured  Obligations  are paid in full and such  payments are not subject to
any  possibility  of  revocation  or  rescission  and no  Secured  Party has any
commitment to extend any  additional  credit  constituting  Secured  Obligations
under the terms of the Credit Agreement, or when the Collateral Agent, the Agent
and all of the Secured  Parties  mutually  agree in a writing to terminate  this
Agreement, whichever occurs earlier.

         Section  10.11.  Obligations  Several.  The  obligations of the Secured
Parties,  the Agent and the Collateral Agent hereunder are several.  The failure
of any  Secured  Party,  the  Agent or the  Collateral  Agent  to carry  out its
obligations  hereunder  shall not relieve any other Secured Party,  the Agent or
the Collateral Agent of any obligation  hereunder,  nor shall any Secured Party,
the Agent or the Collateral  Agent be responsible for the obligations of, or any
action taken or omitted by, any other  Person  hereunder.  Nothing  contained in
this  Agreement  shall be deemed to cause any  Secured  Party,  the Agent or the
Collateral  Agent to be considered a partner of or joint venturer with any other
Secured Party, the Collateral Agent, the Agent, the Subsidiary Guarantors or the
Company.

         IN  WITNESS  WHEREOF,  each  of the  parties  hereto  has  caused  this
Agreement to be executed as of the date first above written.

                                          COOPERATIEVE CENTRALE RAIFFEISEN-
                                          BOERENLEEBANK  B.A., "RABOBANK
                                          INTERNATIONAL",  NEW YORK BRANCH, AS
                                          AGENT

                                          BY:___________________________________

                                          NAME: ________________________________

                                          ITS:__________________________________

                                          BY:___________________________________

                                          NAME: ________________________________

                                          ITS:__________________________________

                                       24

<PAGE>

                                      COOPERATIEVE CENTRALE RAIFFEISEN-
                                      BOERENLEEBANK  B.A., "RABOBANK
                                      INTERNATIONAL",  NEW YORK BRANCH, AS
                                      COLLATERAL AGENT

                                      BY:___________________________________

                                      NAME: ________________________________

                                      ITS:__________________________________

                                      BY:___________________________________

                                      NAME: ________________________________

                                      ITS:__________________________________

                                      FARM CREDIT SERVICES OF AMERICA, PCA

                                      BY:___________________________________

                                      NAME: ________________________________

                                      ITS:__________________________________

                                      AGSTAR FINANCIAL SERVICES, PCA, D/B/A FARM
                                        CREDIT SERVICES COMMERCIAL FINANCE GROUP

                                      BY:___________________________________

                                      NAME: ________________________________

                                      ITS:__________________________________

                                       25

<PAGE>

                                      COOPERATIEVE CENTRALE RAIFFEISEN-
                                      BOERENLEEBANK  B.A., "RABOBANK
                                      INTERNATIONAL",  NEW YORK BRANCH, AS
                                      A FACILITY LENDER

                                      BY:___________________________________

                                      NAME: ________________________________

                                      ITS:__________________________________

                                      BY:___________________________________

                                      NAME: ________________________________

                                      ITS:__________________________________

                                      FARM CREDIT WEST FLCA

                                      BY:___________________________________

                                      NAME: ________________________________

                                      ITS:__________________________________

                                      U.S. BANK NATIONAL ASSOCIATION

                                      BY:___________________________________

                                      NAME: ________________________________

                                      ITS:__________________________________

                                       26

<PAGE>

                                      COMERICA BANK - CALIFORNIA

                                      BY:___________________________________

                                      NAME: ________________________________

                                      ITS:__________________________________

    THE UNDERSIGNED HEREBY ACKNOWLEDGE AND AGREE TO THE FOREGOING AGREEMENT.

                                      EDNA VALLEY VINEYARD

                                      BY:___________________________________

                                      NAME: ________________________________

                                      ITS:__________________________________

                                      SHW EQUITY CO.

                                      BY:___________________________________

                                      NAME: ________________________________

                                      ITS:__________________________________

                                      CANOE RIDGE VINEYARD, L.L.C.

                                      BY:___________________________________

                                      NAME: ________________________________

                                      ITS:__________________________________

                                       27

<PAGE>

                                      STATON HILLS WINERY COMPANY LIMITED

                                      BY:___________________________________

                                      NAME: ________________________________

                                      ITS:__________________________________

                                      BY:___________________________________

                                      NAME: ________________________________

                                      ITS:__________________________________

                                      CANOE RIDGE WINERY, INC.

                                      BY:___________________________________

                                      NAME: ________________________________

                                      ITS:__________________________________

                                      THE CHALONE WINE GROUP, LTD.

                                      BY:___________________________________

                                      NAME: ________________________________

                                      ITS:__________________________________

                                       28

<PAGE>

                                   Exhibit A
                                       to
                            Intercreditor Agreement

                       Revolving Debt Priority Collateral

         The  collateral  described  in the  granting  clauses  of the  Security
Agreements each dated as of April 19, 2002, made by the Grantors in favor of the
Collateral  Agent to secure the Facility Debt (as the same may from time to time
be  amended,  restated,   supplemented  or  otherwise  modified,  the  "SECURITY
AGREEMENT") including, without limitation:

         Each  Grantor'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:  (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 any asset which would be real
property  under  the law of the  jurisdiction  in  which  it is  located  or any
Excluded Collateral.

         Capitalized  terms used in this Exhibit A and not otherwise  defined in
this  Agreement or in this Exhibit A shall have the meanings given to such terms
in the Security Agreement.

<PAGE>

                                   Exhibit B
                                       to
                            Intercreditor Agreement

                                 Real Property

         Real Property

         All of the Mortgaged Property (as defined in the subject Deed of Trust)
described in each Deed of Trust in each of the following locations:

         Deeds of Trusts  executed  by the  Company  and/or  various  Subsidiary
Guarantors for real  properties  bearing the following APN  designations  in the
States of California and Washington:

         APN

         047-272-012

         047-272-011

         047-272-016

         047-272-018

         027-470-030

         127-011-001

         053-070-037

         417-181-053

         417-201-001

         417-181-029

         417-181-030

         417-181-036

         417-181-052

         417-201-002

         36-07-19-51-2701

         36-07-19-51-2702

         36-07-19-51-2601

         36-07-19-51-2602

<PAGE>

         1-2554-400-0004-001

         1-3055-200-0001-001

         1-2554-400-0003-000

         191221-41002

         191211-42001

         191221-13001

         191221-14001

         191221-31013

                                      -2-

<PAGE>

                                   Exhibit C
                                       to
                            Intercreditor Agreement
                         TERM DEBT PRIORITY COLLATERAL

     THE COLLATERAL DESCRIBED IN THE GRANTING CLAUSES OF THE DEEDS OF TRUST
                         INCLUDING, WITHOUT LIMITATION:

                             GRANTING CLAUSE FIRST

                                   COLLATERAL

         [For  leasehold  properties:  All of  the  Company's  leasehold  estate
created under that certain lease dated __________,  19__ between the Company, as
Lessee and ___________,  as Lessor (said Lessor,  together with their respective
successors  and assigns,  said Lease as  heretofore  amended  together  with any
future  modifications,   amendments,   additions,  assignments  and  supplements
thereto,  and  substitutions,  extensions,  renewals or replacements  thereof is
hereafter  referred to as the  "Lease")  demising  the parcels of land in ______
County in the State of California  described in Annex A attached hereto and made
a part hereof ("Land"),  together with all options to renew,  extend or purchase
(including rights of first refusal) now or hereafter contained in the Lease, and
the benefits of all covenants  contained in the Lease  whether  running with the
Land or otherwise,  together  with the entire  interest of the Company in and to
all buildings,  structures,  improvements and appurtenances now standing,  or at
any time hereafter  constructed or placed, upon such land,  including all right,
title and  interest of the  Company,  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 said
land 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  and  all  elevators  and
escalators) and the reversion or reversions,  remainder or remainders, in and to
said land,  and together  with the entire  interest of the Company 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 Company in, to and under any streets,  ways, alleys, gores or strips of land
adjoining said land, and all claims or demands  whatsoever of the Company either
in law or in equity,  in possession or  expectancy,  of, in and to said land, it
being the  intention of the parties  hereto that,  so far as may be permitted by
law, all property of the character hereinabove described,  which is now owned or
is  hereafter  acquired  by the Company and is affixed or attached or annexed to
said land, shall be and remain or become and constitute the security

<PAGE>

covered  by and  subject  to the Lien of this Deed of Trust,  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  Company,  as
sublessor, under any subleases 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  "REAL
PROPERTY").  The  assignment  of rents set forth in the  proceeding  sentence is
intended  by the parties  hereto to be  effective  to create a present  security
interest in all existing and future rents,  profits or other income arising from
or related to the Land under California Civil Code Section 2938, as amended from
time to time.]

         [For fee owned properties:  The parcels of land in ______ County in the
State of California  described in Annex A attached hereto and made a part hereof
("LAND"),  together  with  the  entire  interest  of the  Company  in and to all
buildings,  structures,  improvements and appurtenances now standing,  or at any
time hereafter constructed or placed, upon such land, including all right, title
and interest of the Company,  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 said land
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  and  all  elevators  and
escalators) and the reversion or reversions,  remainder or remainders, in and to
said land,  and together  with the entire  interest of the Company 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 Company in, to and under any streets,  ways, alleys, gores or strips of land
adjoining said land, and all claims or demands  whatsoever of the Company either
in law or in equity,  in possession or  expectancy,  of, in and to said land, it
being the  intention of the parties  hereto that,  so far as may be permitted by
law, all property of the character hereinabove described,  which is now owned or
is  hereafter  acquired  by the Company and is affixed or attached or annexed to
said land,  shall be and remain or become and  constitute a portion of said land
and the  security  covered  by and  subject  to the Lien of this  Deed of Trust,
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 Company,
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  "REAL
PROPERTY").  The  assignment  of rents set forth in the  proceeding  sentence is
intended  by the parties  hereto to be  effective  to create a present  security
interest in all existing and future rents,  profits or other income arising from
or related to the Land under California Civil Code Section 2938, as amended from
time to time.]

                                      -2-

<PAGE>

                             GRANTING CLAUSE SECOND

                                 TRADE PROPERTY

         All  materials,   furniture,   furnishings,   machinery,  fixtures  and
equipment  now  or  hereafter  erected  on or  affixed  to  the  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 goods, equipment, furnishings,  fixtures, machinery and furniture owned by
the  Company  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  Collateral,
or  otherwise  located  on the  Collateral,  and all  fixtures,  accessions  and
appurtenances  thereto, and all renewals or replacements of or substitutions for
any of the foregoing  (all of which  properties are  hereinafter  referred to as
"TRADE PROPERTY").

                             GRANTING CLAUSE THIRD

                        CONDEMNATION AWARDS AND PAYMENTS

         To the extent assignable, all judgments, awards of damages, settlements
and other compensation  heretofore or hereafter made resulting from condemnation
proceedings  or  the  taking  of  the  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 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
(collectively, "CONDEMNATION AWARDS").

                             GRANTING CLAUSE FOURTH

         Subject to the  satisfaction  in full of all  indebtedness  outstanding
under the Revolving Credit Agreement  Notes, a collateral  security  interest in
all of the Company's right,

                                      -3-

<PAGE>

title and interest in and to the General  Intangibles  related to the Collateral
(as defined in the Credit Agreement) of the Company.

                             GRANTING CLAUSE FIFTH

                                    PROCEEDS

         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 Collateral.

                               EXCEPTED PROPERTY

         There is, however,  expressly  excepted and excluded from the Term Debt
Priority  Collateral,  the Revolving Debt Priority Collateral of the Company and
the other Grantors, now owned or hereafter acquired (herein called the "EXCEPTED
PROPERTY").

                                      -4-

<PAGE>

                     Schedule I to Intercreditor Agreement

                              List of Noteholders

         Farm Credit Services of America, PCA

         Agstar Financial  Services,  PCA, D/B/A Farm Credit Services Commercial
Finance Group

                                      -5-

<PAGE>

                     Schedule II to Intercreditor Agreement

                            List of Facility Lenders

Cooperatieve Centrale  Raiffeisen-Boerenleenbank B.A., "Rabobank International",
New York Branch

Farm Credit West FLCA

U.S. Bank National Association

Comerica Bank - California

                                      -6-

<PAGE>

                         FORM OF COMPLIANCE CERTIFICATE

To Each Of The Purchasers
Listed In The Attached Schedule 2
        Re:    The Chalone Wine Group, Ltd.

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

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

         I hereby further certify that (i) as of the date hereof, no Default has
occurred and is  continuing,  and (ii) on and as of the date  hereof,  there has
occurred no Material  Adverse Effect since December 31, 2001 except in each case
as may be set forth in a separate  attachment  hereto  describing  in detail the
nature of each  condition or event  constituting  an exception to the  foregoing
statements,  the period  during  which it has existed  and the action  which the
Company is taking or proposes  to take with  respect to each such  condition  or
event.

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

                                        _________________________________
                                        Name:
                                        Title:

                                   EXHIBIT F
                        (to the Note Purchase Agreement)

<PAGE>

                                   SCHEDULE 1

                           TO COMPLIANCE CERTIFICATE

                       Worksheet for Financial Covenants
             for the accounting period ending ____________________.

Section 10.4(a)-Leverage Ratio                  Actual            Required
______________________________                  ______            ________

A.  Consolidated Indebtedness

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

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

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

    (i) minus (ii) minus (iii)                  $
                                                 ==============

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

C.  A + B                                       $______________

                                      F-2

<PAGE>

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

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

    (ii) Consolidated Interest Expense          $______________

    (iii) income tax expense                    $______________

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

    Sum of (i) + (ii) + (iii) + (iv)            $
                                                 ==============

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

F.  D + E                                       $______________

G.  Ratio of C to F                             ______:________ See Section 10.4
                                                                (a) of the Note
                                                                Purchase
                                                                Agreement

Section 10.4(b) - Consolidated Tangible
Net Worth

A.  Minimum Consolidated Tangible Net
    Worth Calculation

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

                                      F-3

<PAGE>

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

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

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

     Sum of (i) + (ii) + (iii) + (iv)           $______________

B.  Consolidated Tangible Net Worth

    (i) Consolidated Total Assets               $______________

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

    (iii) Subordinated Debt                     $______________

    (iv) Consolidated Total Liabilities         $______________

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

C.  Excess (deficient) for covenant             $______________
    compliance
    (B minus A)

                                      F-4

<PAGE>

Section 10.4(c) - Interest Coverage
Ratio

A.  Consolidated EBIT (calculated on a          $______________
    rolling 4-quarter basis)

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

    (ii) Consolidated Interest Expense          $______________

    (iii) income tax expense                    $______________

    Sum of (i) + (ii) + (iii)                   $
                                                 ==============

B.  Consolidated Interest Expense               $______________
    (calculated on a rolling 4-quarter
    basis)

C.  Ratio of A to B                             ______:________ See Section 10.4
                                                                (c) of the Note
                                                                Purchase
                                                                Agreement

Section 10.4(d) - Fixed Charge
Coverage Ratio

A.  Consolidated EBITDA (calculated             $______________
    on a rolling 4-quarter basis)

B.  Fixed Charge calculation

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

                                      F-5

<PAGE>

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

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

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

    Sum of (i) + (ii) + (iii) + (iv)            $______________

    C. Ratio of A to B                          ______:________ See Section 10.4
                                                                (d) of the Note
                                                                Purchase
                                                                Agreement

Section 10.4(e)(i) - Capital Expenditure
on new wine barrels

A.  Capital expenditures made on new
    wine barrels during fiscal year to
    date                                        $______________

B.  Capital expenditures on new wine
    barrels that could have been made
    during prior fiscal year but which
    were not made                               $______________

C.  Maximum permitted capital
    expenditures on wine barrels
    ($_________ plus Line B above)              $______________

D.  Excess (deficient) for covenant
    compliance (C minus A)                      $
                                                 ==============

                                      F-6

<PAGE>

Section 10.4(e)(ii) - Capital Expenditure
on other fixed or capital assets

A.  Capital expenditures made on other
    assets during fiscal year to date           $______________

B.  Capital expenditures on other assets
    that could have been made during
    prior fiscal year but which were not
    made                                        $______________

C.  Maximum permitted capital
    expenditures on other assets
    ($_________ plus Line B above)              $______________

D.  Excess (deficient) for covenant
    compliance (C minus A)                      $
                                                 ==============

Section 10.8(h) - Intercompany Loans

A.  Canoe Ridge Intercompany Loan                               $7,000,000
    Amount                                      $______________ (adjusted
                                                                 annually)

B.  Edna Valley Intercompany Loan                               $20,000,000
    Amount                                      $______________ (adjusted
                                                                 annually)

C.  SHW Intercompany Loan Amount                $______________ $8,000,000
                                                                (adjusted
                                                                 annually)

D.  A + B + C                                   $               $35,000,000
                                                 ============== (adjusted
                                                                 annually)

                                      F-7

<PAGE>

                           FORM OF UPDATE CERTIFICATE

                           See attached certificate.

                                   EXHIBIT G
                        (to the Note Purchase Agreement)

<PAGE>

                               UPDATE CERTIFICATE
              for the Reporting Period ended _______________, 20__

Date: [   ], 200[  ]

To:      The Parties to the Note Agreement described below.

Ladies and Gentlemen:

         Reference is made to that certain  Amended and Restated  Note  Purchase
Agreement dated as of April 19, 2002 (as amended,  modified, renewed or extended
from time to time, the  "Agreement"),  between The Chalone Wine Group, Ltd. (the
"Company") and each of the Purchasers named therein.  Capitalized terms used and
not  defined  herein  shall  have the  meanings  assigned  to such  terms in the
Agreement, as applicable.

         This Update  Certificate is provided  pursuant to the Agreement without
limiting the Company's or any Subsidiary's  ongoing reporting  obligations under
the  Loan  Documents  with  respect  to  the  matters  covered  by  this  Update
Certificate.

         The  undersigned  hereby  certifies to the  Purchasers,  that as to the
Company and each Subsidiary  (each a "Loan Party" and,  collectively,  the "Loan
Parties")  that,  during the period  referred  to below to the date  hereof (the
"Reporting Period"), there has not been (i) any change in its corporate name, in
its registration as an organization (or new registration) or in its jurisdiction
of organization,  (ii) any change in the location of its chief executive office,
its  principal  place of  business,  any office in which it  maintains  books or
records  relating to  Collateral  owned by it or any office or facility at which
Collateral owned by it is located  (including the  establishment of any new such
office or facility), (iii) any securities account, bank account or other deposit
account  opened by a Loan Party or any change in the names or  locations  of any
other persons in possession of  Collateral,  (iv) any new lease of real property
entered into by a Loan Party,  (v) the creation or acquisition of any Subsidiary
by a Loan Party,  (vi) any  creation or  acquisition  by a Loan Party of any new
patent or trademark rights, or copyrights,  owned or maintained by a Loan Party,
(vii) any  acquisition of any right to payment or performance  under a letter of
credit,  or (viii) any new claims of any Loan Party against any third person for
damages (whether or not suit has been filed), except as follows:

         1.     Names; Jurisdiction of Organization.

                (a) During the Reporting Period, a Loan Party changed its
 corporate

                (b) During the Reporting  Period,  a Loan Party changed its
jurisdiction of organization as follows:

(c) During the Reporting  Period,  a Loan Party changed its  registration  as an
organization or obtained a new registration as follows:

                                      G-2

<PAGE>

         2.     Locations.

                (a) During the Reporting  Period, a Loan Party changed the
location of its chief executive office as follows:

                (b) During the  Reporting  Period,  a Loan Party changed the
location of its principal place of business as follows:

                (c) During the Reporting Period, a Loan Party changed the
location of any office in which it maintains  books and records  relating to the
Collateral owned by it or any office or facility at which Collateral owned by it
is located  (including the  establishment of any such new office or facility and
any new co-location of Collateral or other third party site) as follows, and the
value of the Collateral at any such new location is also identified:

         3.     New Names and Locations of Persons  Possessing  Collateral
(including New Deposit  Accounts).  During the Reporting  Period,  the names and
locations  of any persons  other than a Loan Party that have  possession  of any
Collateral of a Loan Party  changed as follows  (include the location of any new
bank accounts, securities custody accounts, or similar accounts opened by a Loan
Party during the Reporting Period):

         4.     Real Property Leases. During the Reporting Period, a Loan Party
entered into new real property leases as follows:

         5.     Subsidiaries. During the Reporting Period, a Loan Party created
or acquired the following direct or indirect Subsidiaries:

         6.     Intellectual Property. During the Reporting Period, a Loan Party
created  or  acquired,   or  otherwise   become  entitled  to  the  benefit  of,
intellectual property consisting of any patents,  trademarks,  or copyrights (or
any  renewals,  extensions or  applications  with regard to the  foregoing),  as
follows:

         7.     Letter-of-Credit  Rights. During the Reporting Period, a Loan
Party  acquired  right to  payment  or  performance  under a letter of credit as
follows:

         8.     Commercial Tort Claims.  During the Reporting Period, new claims
of a Loan Party  against any third  person for damages  (whether or not suit has
been filed) arose as follows:

         Consistent  with the  provisions  of revised  Article 9 of the  Uniform
Commercial Code of the relevant  jurisdiction(s) (as and when adopted), the Loan
Parties hereby  authorize the  Collateral  Agent to file (with or without a Loan
Party's signature), at any time and from time to time thereafter,  all financing
statements, assignments,  continuation financing statements, financing statement
amendments,  termination statements and other documents and instruments, in form
reasonably  satisfactory to the Collateral  Agent, and take all other action, as
the Collateral  Agent may deem  reasonable,  to perfect and continue  perfected,
maintain  the  priority  of or provide  notice of any  security  interest of the
Collateral  Agent  in the  Collateral  and to  accomplish  the  purposes  of the
Agreement.

                                      G-3

<PAGE>

         IN  WITNESS   WHEREOF,   the   undersigned  has  executed  this  Update
Certificate on behalf of the Loan Parties.

                                 _____________________________________________
                                 Name:
                                 Title:

Note Agreement dated: April 19, 2002

Start date of Reporting Period: ______________

                                      G-4

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