Document:

SUBORDINATION AGREEMENT
                           (SFI Intermediate Limited)

                  THIS SUBORDINATION  AGREEMENT (this "Agreement"),  dated as of
August __, 2002, is made by SFI  Intermediate  Limited (the "Creditor") in favor
of each of the  "Senior  Lenders"  listed on  SCHEDULE 1 hereto  (each a "Senior
Lender" and, collectively, the "Senior Lenders").

                  The Chalone Wine Group,  Ltd., a California  corporation  (the
"Borrower"),     certain    Senior    Lenders    and    Cooperatieve    Centrale
Raiffeisen-Boerenleenbank  B.A.,  "Rabobank  International",   New  York  Branch
("Rabobank"),  as issuer of  letters  of  credit,  as  swingline  lender  and as
administrative  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 Senior Lenders party
thereto have made available to the Borrower a revolving credit facility and term
loan facility, as provided therein.

                  The Borrower and certain  other Senior  Lenders 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 "Amended  and  Restated  Note  Purchase  Agreement")  relating to the
Borrower's  $5,000,000  Adjustable  Rate  Senior  Secured  Notes,  Series A, Due
September 15, 2010, the Borrower's  $10,000,000  Adjustable  Rate Senior Secured
Notes,  Series  B,  Due  September  15,  2010,  and the  Borrower's  $15,000,000
Adjustable Rate Senior Secured Notes, Series C, Due September 15, 2010.

                  Rabobank,   as  collateral   agent  (in  such  capacity,   the
"Collateral Agent"), and the other Senior Lenders are also parties to an Amended
and Restated Intercreditor and Collateral Agency Agreement dated as of April 19,
2002 (as amended,  restated,  modified,  supplemented,  renewed or extended from
time to time,  the  "Intercreditor  Agreement")  pursuant to which,  among other
things,  the Senior  Lenders have agreed to the  allocation of certain  payments
made in respect of the Senior Debt (as defined below).

                  Additionally,  the  Borrower  is or  will be  indebted  to the
Creditor in the principal  amount of $2,750,000,  pursuant to a Convertible Note
Purchase Agreement, dated as of August __, 2002 (as amended, modified,  renewed,
extended or replaced from time to time, the "Note Purchase  Agreement")  and the
Convertible   Subordinated   Promissory   Note  dated   August  __,   2002  (the
"Subordinated Note") outstanding thereunder.  It is a condition precedent to the
continued  borrowings  under the Credit Agreement and the issuance of letters of
credit  thereunder  and the  continuance  of the  loans  under the  Amended  and
Restated Note Purchase Agreement that the Creditor deliver this Agreement to the
Senior Lenders to provide for the  subordination of the Borrower's  indebtedness
to the Creditor to the Senior Debt. The Creditor has agreed to the subordination
of such  indebtedness  to it, upon the terms and subject to the  conditions  set
forth in this Agreement.

                  Accordingly, the parties hereto agree as follows:

                  SECTION 1         DEFINITIONS; INTERPRETATION.

                                       1.

<PAGE>

                  (a) TERMS DEFINED IN CREDIT  AGREEMENT.  All capitalized terms
used in 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:

                  "COMMITMENTS"  means,  in respect of each Senior  Lender,  the
commitment of such Senior Lender to grant credit, make loans or otherwise extend
financing to the Borrower under the Senior Debt.

                  "INSOLVENCY EVENT" has the meaning set forth in Section 3.

                  "REQUIRED  SECURED  PARTIES"  shall have the meaning  given to
such term in the Intercreditor Agreement.

                  "SENIOR  DEBT"  means (i) the  indebtedness,  liabilities  and
other  obligations  of the Borrower to the Senior Lenders under or in connection
with the Credit  Agreement  and the other Loan  Documents,  including all unpaid
principal of the Loans,  all unpaid  drawings  under the Letters of Credit,  all
interest accrued thereon,  all fees due thereunder and all other amounts payable
by the Borrower to the Senior  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;
and (ii) the indebtedness,  liabilities and other obligations of the Borrower to
the Senior  Lenders  under or in  connection  with the Amended and Restated Note
Purchase  Agreement and the other Senior Secured Note  Documents,  including all
unpaid principal of the Senior Secured Notes, all interest accrued thereon,  all
premiums and  Make-Whole  Amounts (as defined in the Amended and  Restated  Note
Purchase  Agreement)  due  thereunder,  all fees due  thereunder  and all  other
amounts  payable  by  the  Borrower  to  the  Senior  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.

                  "SUBORDINATED  DEBT" means all  indebtedness,  liabilities and
other  obligations of the Borrower to the Creditor  under or in connection  with
the Note Purchase Agreement and the Subordinated  Note,  including all principal
on the Subordinated Note, all premium and interest accrued thereon, all fees and
all other amounts payable by the Borrower to the Creditor under or in connection
with the Note Purchase Agreement,  the Subordinated Note and any other documents
or instruments related thereto,  whether now existing or hereafter arising,  and
whether  due  or  to  become  due,   absolute  or   contingent,   liquidated  or
unliquidated, determined or undetermined.

                  "SUBORDINATED  DEBT PAYMENT" means any payment or distribution
by or on  behalf  of the  Borrower,  directly  or  indirectly,  of assets of the
Borrower of any kind or  character,  whether in cash,  property  or  securities,
including  on  account  of the  purchase,  redemption  or other  acquisition  of
Subordinated  Debt, as a result of any collection,  sale or other disposition of
collateral,  or by setoff, exchange or in any other manner, for or on account of
the Subordinated Debt.

                                       2.

<PAGE>

                  (c)  INTERPRETATION.  In this Agreement,  except to the extent
the context otherwise requires:

                  (i) Any reference in this Agreement to an Article,  a Section,
a Schedule or an Exhibit is a reference to an article hereof,  a section hereof,
a schedule hereto or an exhibit hereto, respectively, and to a subsection hereof
or a clause hereof is, unless otherwise stated, a reference to a subsection or a
clause of the Section or subsection in which the reference appears.

                  (ii) The words "hereof," "herein,"  "hereto,"  "hereunder" and
the like  mean and  refer to this  Agreement  as a whole  and not  merely to the
specific  Article,  Section,  subsection,  paragraph  or  clause  in  which  the
respective word appears.

                  (iii) The meaning of defined terms shall be equally applicable
to both the singular and plural forms of the terms defined.

                  (iv) The words "including,"  "includes" and "include" shall be
deemed to be followed by the words "without limitation".

                  (v) References to agreements and other contractual instruments
shall be deemed to include all  subsequent  amendments  and other  modifications
thereto.

                  (vi) References to statutes or regulations are to be construed
as including all statutory and regulatory provisions consolidating,  amending or
replacing the statute or regulation referred to.

                  (vii)  The  captions  and  headings  are  for  convenience  of
reference only and shall not affect the construction of this Agreement.

                  SECTION 2 AGREEMENT OF SUBORDINATION.  Until such time as this
Agreement is terminated in accordance  with Section 30 below,  the  Subordinated
Debt (including all  Subordinated  Debt Payments) shall be subject,  subordinate
and junior,  in right of payment and exercise of remedies,  to the extent and in
the manner set forth herein,  to the prior payment in full in cash of the Senior
Debt.

                  SECTION 3 SUBORDINATION UPON ANY DISTRIBUTION OF ASSETS OF THE
BORROWER.  In the event of any payment or distribution of assets of the Borrower
of any kind or  character,  whether in cash,  property or  securities,  upon the
dissolution,  winding  up or total or  partial  liquidation  or  reorganization,
readjustment,  arrangement or similar proceeding relating to the Borrower or its
property,  whether  voluntary  or  involuntary  or  in  bankruptcy,  insolvency,
receivership,  arrangement or similar  proceedings or upon an assignment for the
benefit of creditors, or upon any other marshalling or composition of the assets
and liabilities of the Borrower,  or otherwise (such events,  collectively,  the
"Insolvency Events"):  (i) all amounts owing on account of the Senior Debt shall
first  be paid  in full in  cash,  or  payment  provided  for in cash or in cash
equivalents,  for  application in accordance with the  Intercreditor  Agreement,
before any  Subordinated  Debt Payment is made; and (ii) to the extent permitted
by applicable law, any Subordinated  Debt Payment to which the Creditor would be
entitled  except for the  provisions  hereof  shall be paid or  delivered by the
trustee in bankruptcy,  receiver, assignee for the benefit of creditors or other
liquidating agent making such payment or distribution,

                                       3.

<PAGE>

as  applicable,  directly  to the  Collateral  Agent (on  behalf  of the  Senior
Lenders) for  application  to the payment of the Senior Debt in accordance  with
clause (i), after giving effect to any  concurrent  payment or  distribution  or
provision  therefor to the Collateral  Agent or the Senior Lenders in respect of
such Senior Debt.

                  SECTION 4 PAYMENTS ON SUBORDINATED DEBT. As long as any Senior
Debt shall remain outstanding and unpaid, the Borrower shall not make,  directly
or indirectly,  and the Creditor shall not accept or receive,  any  Subordinated
Debt Payment;  PROVIDED,  HOWEVER, that the Borrower and the Creditor may at any
time convert the  Subordinated  Debt, in whole or in part,  into common stock of
the Borrower.

                  SECTION 5  SUBORDINATION  OF  REMEDIES.  As long as any Senior
Debt shall remain  outstanding and unpaid,  the Creditor shall not,  without the
prior written consent of the Collateral  Agent (acting on instructions  from the
Required Secured Parties):

                  (i)  accelerate,  make demand,  declare a default or otherwise
make  due  and  payable  prior  to the  original  stated  maturity  thereof  any
Subordinated Debt or bring suit or institute any other actions or proceedings to
enforce  its  rights  or  interests  under or in  respect  of the Note  Purchase
Agreement and the Subordinated Note;

                  (ii)  exercise  any  rights  under or with  respect to (A) any
guaranties  of  the  Subordinated  Debt,  or (B)  any  collateral  securing  the
Subordinated Debt, including causing or compelling the pledge or delivery of any
such collateral,  any attachment of, levy upon,  execution against,  foreclosure
upon or the taking of other action against or  institution of other  proceedings
with  respect  to any such  collateral,  notifying  any  account  debtors of the
Borrower or  asserting  any claim or interest in any  insurance  with respect to
collateral, or attempt to do any of the foregoing;

                  (iii)  exercise  any rights to set-offs and  counterclaims  in
respect of any  indebtedness,  liabilities or obligations of the Creditor to the
Borrower against any of the Subordinated Debt; or

                  (iv)  commence,  or cause to be  commenced,  or join  with any
creditor other than the Senior Lenders in commencing, any bankruptcy, insolvency
or receivership proceeding against the Borrower.

                  SECTION 6 PAYMENT OVER TO COLLATERAL AGENT. In the event that,
notwithstanding  the  provisions of Sections 3, 4 and 5, any  Subordinated  Debt
Payments shall be received in  contravention  of such Sections 3, 4 and 5 by the
Creditor  before  all Senior  Debt is paid in full in cash or cash  equivalents,
such  Subordinated  Debt Payments  shall be held in trust for the benefit of the
Senior Lenders and shall be paid over or delivered to the  Collateral  Agent for
application  to the  payment in full in cash or cash  equivalents  of all Senior
Debt remaining unpaid to the extent necessary to give effect to such Sections 3,
4 and 5, after giving effect to any concurrent  payments or distributions to the
Collateral Agent and the Senior Lenders in respect of the Senior Debt.

                  SECTION 7  AUTHORIZATION  TO COLLATERAL  AGENT.  If, while any
Subordinated  Debt is outstanding,  any Insolvency Event shall occur relating to
the Borrower or its property:  (i) the

                                       4.

<PAGE>

Collateral Agent, when so instructed by the Required Secured Parties,  is hereby
irrevocably  authorized  and empowered (in the name of the Senior  Lenders or in
the name of the Creditor or otherwise), but shall have no obligation, to demand,
sue for,  collect and receive  every payment or  distribution  in respect of the
Subordinated Debt and give acquittance therefor and to file claims and proofs of
claim and take such other action (including voting the Subordinated  Debt) as it
may deem  necessary or advisable for the exercise or  enforcement  of any of the
rights or interests of the Collateral Agent and the Senior Lenders; and (ii) the
Creditor shall promptly take such action as the Collateral Agent (on instruction
from the Required  Secured  Parties) may  reasonably  request (A) to collect the
Subordinated  Debt for the account of the Senior Lenders and to file appropriate
claims or proofs of claim in respect of the  Subordinated  Debt,  (B) to execute
and deliver to the  Collateral  Agent such powers of attorney,  assignments  and
other  instruments  as it may request to enable it to enforce any and all claims
with respect to the  Subordinated  Debt,  and (C) to collect and receive any and
all Subordinated Debt Payments.

                  SECTION  8  REPRESENTATIONS   AND  WARRANTIES.   The  Creditor
represents and warrants to each Senior Lender that:

                  (a)  ORGANIZATION  AND POWERS.  The Creditor is a  corporation
duly  organized,  validly  existing  and in good  standing  under the law of the
jurisdiction of its  incorporation  and has all requisite power and authority to
own its assets and carry on its business and to execute, deliver and perform its
obligations under this Agreement.

                  (b) AUTHORIZATION;  NO CONFLICT.  The execution,  delivery and
performance by the Creditor of this  Agreement have been duly  authorized by all
necessary  corporate  action  of the  Creditor,  and do not and  will  not:  (i)
contravene  the terms of the  certificate  or  articles,  as the case may be, of
incorporation  and the  bylaws of the  Creditor,  (ii)  result in a breach of or
constitute  a default  under any  indenture  or loan or credit  agreement or any
other  agreement,  lease or  instrument  to which the  Creditor is a party or by
which it or its  properties  may be  bound or  affected;  or (iii)  violate  any
provision of any law,  rule,  regulation,  order,  writ,  judgment,  injunction,
decree or the like binding on or affecting the Creditor.

                  (c) BINDING OBLIGATION.  This Agreement constitutes the legal,
valid and binding obligation of the Creditor,  enforceable  against the Creditor
in accordance with its terms.

                  (d) CONSENTS. No authorization,  consent,  approval,  license,
exemption of, or filing or registration  with, any  Governmental  Authority,  or
approval  or consent of any other  Person,  is required  for the due  execution,
delivery or performance by the Creditor of this Agreement.

                  (e) NO  PRIOR  ASSIGNMENT.  The  Creditor  has not  previously
assigned  any  interest  in the  Subordinated  Debt,  no Person  other  than the
Creditor owns an interest in the Subordinated  Debt (whether as joint holders of
the Subordinated Debt,  participants or otherwise),  and the entire Subordinated
Debt is owing only to the Creditor.

                  (f)   INDEPENDENT    INVESTIGATION.    The   Creditor   hereby
acknowledges  that it has undertaken its own  independent  investigation  of the
financial  condition of the Borrower and all other  matters  pertaining  to this
Agreement and further acknowledges that it is not relying in any

                                       5.

<PAGE>

manner upon any  representation  or  statement  of the  Collateral  Agent or the
Senior Lenders with respect thereto.  The Creditor  represents and warrants that
it is aware of the  terms of the Loan  Documents  and the  Senior  Secured  Note
Documents  and that it is in a position to obtain,  and it hereby  assumes  full
responsibility  for  obtaining,   any  additional   information  concerning  the
financial  condition of the Borrower and any other matters pertinent hereto that
the  Creditor may desire.  The  Creditor is not relying  upon or  expecting  the
Collateral  Agent  or  the  Senior  Lenders  to  furnish  to  the  Creditor  any
information  now or hereafter  in the  Collateral  Agent or the Senior  Lenders'
possession  concerning  the  financial  condition  of the  Borrower or any other
matter.

SECTION 9         CERTAIN AGREEMENTS OF THE CREDITOR.

                  (a) NO BENEFITS.  The Creditor  understands  that there may be
various  agreements  among the  Collateral  Agent,  the Senior  Lenders  and the
Borrower evidencing and governing the Senior Debt, and the Creditor acknowledges
and agrees that such  agreements  are not intended to confer any benefits on the
Creditor  and that the  Collateral  Agent and the Senior  Lenders  shall have no
obligation  to the Creditor or any other Person to exercise any rights,  enforce
any  remedies,  or take any  actions  which may be  available  to it under  such
agreements.

                  (b)  NO  INTERFERENCE.  The  Creditor  acknowledges  that  the
Borrower  has granted  the  Collateral  Agent and the Senior  Lenders a security
interest in certain of the Borrower's assets and agrees not to interfere with or
in any manner oppose a disposition of any collateral by the Collateral  Agent or
the Senior Lenders in accordance with applicable law.

                  (c)  RELIANCE  BY  COLLATERAL  AGENT AND SENIOR  LENDERS.  The
Creditor  acknowledges  and  agrees  that the  Collateral  Agent and the  Senior
Lenders will have relied upon and will  continue to rely upon the  subordination
provisions  provided for herein and the other  provisions  hereof in maintaining
the loans and other extensions of credit under the Loan Documents and the Senior
Secured Note Documents.

                  (d)  WAIVERS.  The  Creditor  waives any and all notice of the
incurrence  of the  Senior  Debt or any part  thereof  and any right to  require
marshalling of assets.

                  (e) OBLIGATIONS OF CREDITOR NOT AFFECTED.  The Creditor agrees
that at any time and from time to time,  without notice to or the consent of the
Creditor,   without  incurring  responsibility  to  the  Creditor,  and  without
impairing  or  releasing  the  subordination  provided  for herein or  otherwise
impairing the rights of the Collateral Agent and the Senior Lenders hereunder:

                  (i) the time for the  Borrower's  performance of or compliance
with any of its agreements contained in the Loan Documents or the Senior Secured
Note  Documents may be extended or such  performance or compliance may be waived
by the applicable Senior Lenders;

                  (ii) the  agreements  of the Borrower with respect to the Loan
Documents  and the  Senior  Secured  Note  Documents  may  from  time to time be
modified by the Borrower and the  applicable  Senior  Lenders for the purpose of
adding  any  requirements  thereto  or  changing  in any  manner  the rights and
obligations of the Borrower or the Senior Lenders thereunder;

                                       6.

<PAGE>

                  (iii) the manner, place or terms for payment of Senior Debt or
any portion  thereof may be altered or the terms for  payment  extended,  or the
Senior Debt may be renewed in whole or in part, or the  principal  amount of the
Senior Debt may from time to time be increased or decreased;

                  (iv) the  maturity  of the Senior Debt may be  accelerated  in
accordance with the terms of any present or future agreement by the Borrower and
the applicable Senior Lenders;

                  (v)  any  collateral   securing   Senior  Debt  may  be  sold,
exchanged, released or substituted and any Lien in favor of the Collateral Agent
or the Senior Lenders may be terminated, subordinated or fail to be perfected or
become unperfected;

                  (vi) any Person  liable in any  manner for Senior  Debt may be
discharged, released or substituted; and

                  (vii) all other rights against the Borrower,  any other Person
or with respect to any collateral may be exercised (or the Collateral  Agent and
the Senior Lenders may waive or refrain from exercising such rights).

                  (f) RIGHTS OF  COLLATERAL  AGENT AND SENIOR  LENDERS NOT TO BE
IMPAIRED.  No right of the Collateral Agent or the Senior Lenders to enforce the
subordination  provided for herein or to exercise  their other rights  hereunder
shall at any time in any way be  prejudiced or impaired by any act or failure to
act by the Borrower,  the Collateral  Agent or the Senior  Lenders  hereunder or
under or in  connection  with the Loan  Documents  or the  Senior  Secured  Note
Documents or by any  noncompliance by the Borrower with the terms and provisions
and  covenants  herein or in any other  Loan  Document  or Senior  Secured  Note
Document, regardless of any knowledge thereof the Collateral Agent or the Senior
Lenders may have or otherwise be charged with.

                  (g) FINANCIAL  CONDITION OF BORROWER.  The Creditor  shall not
have any right to require the  Collateral  Agent or the Senior Lenders to obtain
or disclose  any  information  with respect to: (i) the  financial  condition or
character  of the  Borrower  or the  ability of the  Borrower to pay and perform
Senior Debt;  (ii) the Senior Debt;  (iii) any  collateral for any or all of the
Senior Debt;  (iv) the existence or  nonexistence  of any  guarantees of, or any
other  subordination  agreements  with respect to, all or any part of the Senior
Debt; (v) any action or inaction on the part of the Collateral Agent, the Senior
Lenders  or any other  Person;  or (vi) any  other  matter,  fact or  occurrence
whatsoever.

                  (h)  ACQUISITION  OF LIENS OR  GUARANTIES.  The Creditor shall
not,  without the prior written consent of the Collateral Agent and the Required
Secured Parties, acquire any right or interest in or to any collateral to secure
the Subordinated  Debt or accept any guaranties for the  Subordinated  Debt. The
Borrower shall not,  without the prior written  consent of the Collateral  Agent
and the Required Secured Parties, grant, or suffer or permit its Subsidiaries to
grant,  to the Creditor any right or interest in or to any  collateral to secure
the Subordinated Debt or suffer or permit any of its Subsidiaries to provide any
guaranties for the Subordinated Debt.

                  SECTION 10 SUBROGATION.

                                       7.

<PAGE>

                  (a) SUBROGATION.  Until the payment in cash and performance in
full of all Senior Debt,  the Creditor shall not have, and shall not directly or
indirectly exercise,  any rights that it may acquire by way of subrogation under
this Agreement,  by any payment or  distribution to the Collateral  Agent or the
Senior Lenders hereunder or otherwise.  Upon the payment in cash and performance
in full of all Senior Debt,  the Creditor  shall be  subrogated to the rights of
the Collateral Agent and the Senior Lenders to receive payments or distributions
applicable to the Senior Debt until the Subordinated Debt shall be paid in full.
For the purposes of the foregoing  subrogation,  no payments or distributions to
the Collateral  Agent or the Senior Lenders of any cash,  property or securities
to which the Creditor would be entitled  except for the provisions of Section 3,
4 or 5 shall,  as among the  Borrower,  its  creditors  (other  than the  Senior
Lenders and the Collateral Agent) and the Creditor, be deemed to be a payment by
the Borrower to or on account of the Senior Debt.

                  (b) PAYMENTS OVER TO CREDITOR.  If any payment or distribution
to which the Creditor would  otherwise have been entitled but for the provisions
of Section 3, 4 or 5 shall  have been  applied  pursuant  to the  provisions  of
Section 3, 4 or 5 to the payment of all amounts  payable  under the Senior Debt,
the  Creditor  shall be entitled to receive  from the  Collateral  Agent and the
Senior Lenders any payments or  distributions  received by the Collateral  Agent
and the Senior  Lenders in excess of the  amount  sufficient  to pay in full all
amounts  payable  under or in  respect of the Senior  Debt.  If any such  excess
payment is made to the Collateral  Agent and the Senior Lenders,  the Collateral
Agent and the Senior  Lenders shall  promptly  remit such excess to the Creditor
and until so  remitted  shall hold such  excess  payment  for the benefit of the
Creditor.

                  SECTION 11 CONTINUING AGREEMENT; REINSTATEMENT.

                  (a)  CONTINUING  AGREEMENT.  This  Agreement  is a  continuing
agreement of subordination  and shall continue in effect and be binding upon the
Creditor until the full,  final and  indefeasible  payment in cash, and the full
and  final  performance,   of  the  Senior  Debt  and  the  termination  of  the
Commitments.  The  subordinations,  agreements,  and priorities set forth herein
shall remain in full force and effect  regardless of whether any party hereto in
the future  seeks to rescind,  amend,  terminate  or reform,  by  litigation  or
otherwise, its respective agreements with the Borrower.

                  (b)  REINSTATEMENT.   This  Agreement  shall  continue  to  be
effective or shall be  reinstated,  as the case may be, if, for any reason,  any
payment of the Senior Debt by or on behalf of the Borrower shall be rescinded or
must otherwise be restored by the Collateral  Agent or any Lender,  whether as a
result of an Insolvency Event or otherwise.

                  SECTION 12  PAYMENTS.  The  Creditor  shall make each  payment
hereunder  unconditionally  in  full  without  set-off,  counterclaim  or  other
defense,  on the day when due to the Collateral Agent in Dollars and in same day
or immediately  available  funds,  to the account from time to time specified by
the Collateral Agent.

                  SECTION 13 TRANSFER OF SUBORDINATED DEBT. The Creditor may not
assign or transfer its rights and obligations under the Note Purchase  Agreement
or the  Subordinated  Note  or any  interest  in the  Subordinated  Debt  or any
collateral  therefor  without the prior written consent of the Required  Secured
Parties,  and any such  transferee or assignee,  as a condition to

                                       8.

<PAGE>

acquiring  the  Subordinated  Note  or  interest  in the  Subordinated  Debt  or
collateral  shall  agree  to be  bound  hereby,  in  form  satisfactory  to  the
Collateral  Agent and the Required Secured  Parties.  Any prohibited  assignment
shall be absolutely void. The Senior Lenders (and each of them) may from time to
time  assign  or  grant  participations  in all or  part  of  their  rights  and
obligations  under the Senior Debt,  subject to the terms and  provisions of the
Senior  Debt  held  by such  Senior  Lender,  and  each  such  assignee  of,  or
participant  in, the  Senior  Debt  shall be  entitled  to all of the rights and
benefits afforded to the Senior Lenders under this Agreement.

                  SECTION  14  AMENDMENTS  OF  SUBORDINATED  DEBT.  Each  of the
Borrower and the Creditor  shall not,  without the prior written  consent of the
Required  Secured  Parties,  agree to or permit any amendment,  modification  or
waiver  of  any  material  provisions  of  the  Note  Purchase  Agreement,   the
Subordinated  Note or any other  agreement  relating  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 the  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 Borrower or any Subsidiary; or (iv) otherwise increase the obligations of
the Borrower in respect of the  Subordinated  Debt or confer  additional  rights
upon the Creditor which individually or in the aggregate would be adverse to the
Borrower, its Subsidiaries or the Senior Lenders.

                  SECTION  15   OBLIGATIONS   OF  BORROWER  NOT  AFFECTED.   The
provisions of this Agreement are intended solely for the purpose of defining the
relative  rights against the Borrower of the Creditor,  on the one hand, and the
Collateral Agent and the Senior Lenders, on the other hand. Nothing contained in
this Agreement shall (i) impair,  as between the Borrower and the Creditor,  the
obligation  of  the  Borrower  to  pay  the  principal  of or  interest  on  the
Subordinated  Note and its other  obligations  with respect to the  Subordinated
Debt as and when the same shall  become due and payable in  accordance  with the
terms thereof, or (ii) otherwise affect the relative rights against the Borrower
of the Creditor,  on the one hand, and the creditors of the Borrower (other than
the Senior Lenders and the Collateral Agent), on the other hand.

                  SECTION  16  ENDORSEMENT  OF   SUBORDINATED   NOTES;   FURTHER
ASSURANCES AND ADDITIONAL ACTS.

                  (a)  ENDORSEMENT OF  SUBORDINATED  NOTE. At the request of the
Collateral  Agent, the Subordinated Note and all other documents and instruments
evidencing any of the  Subordinated  Debt shall be endorsed with a legend noting
that the Subordinated  Note and such other documents and instruments are subject
to this  Agreement,  and the Creditor shall  promptly  deliver to the Collateral
Agent evidence of the same.

                  (b)  FURTHER  ASSURANCES  AND  ADDITIONAL  ACTS.  Each  of the
Creditor and the Borrower shall execute,  acknowledge,  deliver,  file, notarize
and  register  at its own  expense  all such  further  agreements,  instruments,
certificates,  financing statements,  documents and assurances, and perform such
acts  as the  Collateral  Agent  or the  Required  Secured  Parties  shall  deem
necessary or  appropriate  to  effectuate  the purposes of this  Agreement,  and
promptly

                                       9.

<PAGE>

provide the Collateral Agent with evidence of the foregoing satisfactory in form
and substance to the Collateral Agent and the Required Secured Parties.

                  SECTION  17  NOTICES.  All  notices  and other  communications
provided for hereunder  shall,  unless  otherwise  stated herein,  be in writing
(including by facsimile  transmission) and shall be mailed, sent or delivered at
or to the address or  facsimile  number of the  respective  party or parties set
forth  in the  Credit  Agreement  or the  Amended  and  Restated  Note  Purchase
Agreement,  as the case may be,  or, in the case of the  Creditor,  at or to its
address or facsimile number set forth on the signature pages hereof, or at or to
such other  address  or  facsimile  number as such  party or parties  shall have
designated in a written  notice to the other party or parties.  All such notices
and communications  shall be effective (i) if delivered by hand, when delivered;
(ii) if 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  to be sent to or from the United States),  postage prepaid;  and
(iii) if sent by facsimile transmission, when sent.

                  SECTION 18 NO WAIVER;  CUMULATIVE REMEDIES.  No failure on the
part of the Collateral  Agent or any Senior 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 or
any Senior Lender.

                  SECTION 19 COSTS AND EXPENSES.

                  (a)  PAYMENTS BY BORROWER.  The Borrower  agrees to pay to the
Collateral  Agent and the Senior Lenders on demand the reasonable  out-of-pocket
costs and  expenses  of the  Collateral  Agent and the Senior  Lenders,  and the
reasonable  fees and  disbursements  of counsel to the Collateral  Agent and the
Senior Lenders (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.

                  (b)  PAYMENTS BY BORROWER AND  CREDITOR.  Each of the Borrower
and the Creditor  jointly and severally agrees to pay to the Collateral Agent on
demand all costs and expenses of the  Collateral  Agent and the Senior  Lenders,
and the fees and disbursements of counsel (including allocated costs of internal
counsel),  in connection with the  enforcement or attempted  enforcement of, and
preservation of rights or interests under, this Agreement, including any losses,
costs and expenses  sustained by the Collateral Agent and any Senior Lender as a
result of any  failure by the  Creditor  to perform or observe  its  obligations
contained in this Agreement.

                  SECTION    20    SURVIVAL.    All    covenants,    agreements,
representations  and  warranties  made in this  Agreement  shall,  except to the
extent  otherwise  provided  herein,  survive the execution and delivery of this
Agreement,  and shall  continue  in full  force and effect so long as any Senior
Debt remains unpaid or the Senior Lenders have any Commitments. Without limiting
the  generality  of the  foregoing,  the  obligations  of the  Borrower  and the
Creditor under

                                      10.

<PAGE>

Section 19 shall survive the satisfaction of the Senior Debt and the termination
of the Commitments.

                  SECTION 21 BENEFITS OF  AGREEMENT.  This  Agreement is entered
into for the sole  protection  and  benefit  of the  parties  hereto  and  their
successors and assigns,  and no other Person (other than any Person that becomes
a Senior Lender after the date hereof) shall be a direct or indirect beneficiary
of, or shall have any direct or indirect  cause of action or claim in connection
with, this Agreement.

                  SECTION 22 BINDING  EFFECT.  This  Agreement  shall be binding
upon, inure to the benefit of and be enforceable by the Borrower,  the Creditor,
the Collateral Agent and each Senior Lender and their respective  successors and
assigns.

                  SECTION 23 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

                  SECTION 24 SUBMISSION TO JURISDICTION.

                  (a)  SUBMISSION  TO  JURISDICTION.  The  Creditor  hereby  (i)
submits to the non-exclusive jurisdiction of the courts of the State of New York
and the Federal courts of the United States sitting in the State of New York for
the  purpose of any action or  proceeding  arising  out of or  relating  to this
Agreement,  (ii)  agrees  that all  claims  in  respect  of any such  action  or
proceeding may be heard and determined in such courts,  (iii) irrevocably waives
(to the  extent  permitted  by  applicable  law) any  objection  which it now or
hereafter  may have to the  laying  of venue of any such  action  or  proceeding
brought in any of the foregoing courts, and any objection on the ground that any
such action or proceeding in any such court has been brought in an  inconvenient
forum and (iv)  agrees that a final  judgment  in any such action or  proceeding
shall be conclusive  and may be enforced in other  jurisdictions  by suit on the
judgment or in any other manner permitted by law.

                  (b)  APPOINTMENT  OF PROCESS  COLLATERAL  AGENT.  The Creditor
hereby irrevocably  appoints the Borrower (the "Process  Collateral  Agent"), as
its authorized  agent with all powers necessary to receive on its behalf service
of copies of the summons and complaint and any other process which may be served
in any action or proceeding  arising out of or relating to this Agreement in any
of the  courts  in and of the  State of New York.  Such  service  may be made by
mailing or  delivering  a copy of such  process to the  Creditor  in care of the
Process  Collateral Agent at the Process  Collateral  Agent's  address,  and the
Creditor hereby irrevocably  authorizes and directs the Process Collateral Agent
to accept such  service on its behalf and agrees that the failure of the Process
Collateral  Agent to give any notice of any such service to the  Creditor  shall
not impair or affect the validity of such service or of any judgment rendered in
any action or proceeding based thereon. As an alternative method of service, the
Creditor also irrevocably  consents to the service of any and all process in any
such  action or  proceeding  by the  mailing  of copies of such  process  to the
Creditor at its address  specified in Section 17. If for any reason the Borrower
shall cease to act as Process  Collateral  Agent,  the  Creditor  shall  appoint
forthwith,  in the manner provided for herein,  a successor  Process  Collateral
Agent  qualified  to act as an

                                      11.

<PAGE>

Collateral Agent for service of process with respect to all courts in and of the
State of New York and acceptable to the Collateral Agent.

                  (c) NO LIMITATION. Nothing in this Section 24 shall affect the
right of the  Collateral  Agent or the Senior  Lenders to serve legal process in
any other manner  permitted by law or limit the right of the Collateral Agent or
the Senior Lenders to bring any action or proceeding against the Creditor or its
property in the courts of other jurisdictions.

                  SECTION 25 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS.

                  (a) ENTIRE  AGREEMENT.  This Agreement  constitutes the entire
agreement of the Borrower,  the Senior  Lenders,  the  Collateral  Agent and the
Creditor with respect to the matters set forth herein and  supersedes  any prior
agreements, commitments, drafts, communications, discussions and understandings,
oral or written,  with  respect  thereto.  There are no  conditions  to the full
effectiveness of this Agreement.

                  (b) AMENDMENTS  AND WAIVERS.  No amendment to any provision of
this  Agreement  shall in any event be  effective  unless  the same  shall be in
writing and signed by the Borrower,  the Creditor,  the Collateral Agent and the
Required  Secured  Parties (or the Collateral  Agent with the written consent of
the Required Secured Parties); and no waiver of any provision of this Agreement,
or consent to any departure by the Borrower or the Creditor therefrom,  shall in
any event be  effective  unless the same  shall be in writing  and signed by the
Collateral  Agent and the Required Secured Parties (or the Collateral Agent with
the consent of the Required  Secured  Parties).  Any such  amendment,  waiver or
consent  shall be effective  only in the specific  instance and for the specific
purpose for which given.

                  SECTION 26 CONFLICTS. In case of any conflict or inconsistency
between  any terms of this  Agreement,  on the one hand,  and the Note  Purchase
Agreement, the Subordinated Note or any other document or instrument relating to
the Subordinated Debt, on the other hand, then the terms of this Agreement shall
control.

                  SECTION 27 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 28  INTERPRETATION.  This  Agreement  is the result of
negotiations  between,  and have been  reviewed  by counsel  to, the  Collateral
Agent, the Senior Lenders, the Creditor,  the Borrower and other parties, and is
the product of all parties  hereto.  Accordingly,  this  Agreement  shall not be
construed  against  any of the Senior  Lenders or the  Collateral  Agent  merely
because of the  Collateral  Agent's or any Senior  Lender's  involvement  in the
preparation thereof.

                                      12.

<PAGE>

                  SECTION 29 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 30 TERMINATION OF AGREEMENT.  Upon payment in cash and
performance in full of the Senior Debt and the  termination of the  Commitments,
this Agreement shall  terminate and the Collateral  Agent and the Senior Lenders
shall  promptly  execute  and  deliver to the  Borrower  and the  Creditor  such
documents and  instruments  as shall be necessary to evidence such  termination;
PROVIDED,  HOWEVER,  that the obligations of the Borrower and the Creditor under
Section 19 shall survive such termination.

                              [SIGNATURES FOLLOW.]

                                      13.

<PAGE>

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

                                    THE COLLATERAL AGENT

                                    COOPERATIEVE CENTRALE
                                    RAIFFEISEN-BOERENLEENBANK B.A.,
                                    "RABOBANK INTERNATIONAL",
                                    NEW YORK BRANCH, as Collateral Agent

                                    By ___________________________________
                                    Title:

                                    By ___________________________________
                                    Title:

                                    THE SENIOR LENDERS

                                    COOPERATIEVE CENTRALE
                                    RAIFFEISEN-BOERENLEENBANK B.A.,
                                    "RABOBANK INTERNATIONAL",
                                    NEW YORK BRANCH

                                    By ___________________________________
                                    Title:

                                    By ___________________________________
                                    Title:

                                    FARM CREDIT WEST FLCA

                                    By ___________________________________
                                    Title:

                                    U.S. BANK NATIONAL ASSOCIATION

                                    By ___________________________________
                                    Title:

                                      14.

<PAGE>

                                    COMERICA BANK-CALIFORNIA

                                    By ___________________________________
                                    Title:

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

                                    By ___________________________________
                                    Title:

                                    FARM CREDIT SERVICE OF AMERICA, PCA

                                    By ___________________________________
                                    Title:

                                    THE CREDITOR

                                    SFI Intermediate Limited

                                    By ___________________________________
                                    Title:

                                    Address:

                                    ______________________________________
                                    ______________________________________
                                    ______________________________________
                                    Attn: ________________________________
                                    Fax No._______________________________

                                    THE BORROWER

                                    THE CHALONE WINE GROUP, LTD.

                                    By ___________________________________
                                    Title:

                                      15.

<PAGE>

                                   Schedule 1

                           to Subordination Agreement

                                "SENIOR LENDERS"

A.       Senior Lenders party to the Credit Agreement:

                  1.     Cooperatieve Centrale  Raiffeisen-Boerenleenbank  B.A.,
                         "Rabobank  International",  New York Branch, as Issuing
                         Lender, as Swingline Lender, as a Lender and as Agent

                  2.     Farm Credit West FLCA

                  3.     U.S. Bank National Association

                  4.     Comerica Bank - California

                  5.     Each other Person from time to time party to the Credit
                         Agreement as a "Lender" thereunder.

B.       Senior Lenders party to the Amended and Restated Note Purchase
         Agreement.

                  1.     Agstar  Financial  Services,  PCA,  d/b/a  Farm  Credit
                         Services Commercial Finance Group

                  2.     Farm Credit Services of America, PCA

                  3.     Each  other  Person  from  time  to time  party  to the
                         Amended  and  Restated  Note  Purchase  Agreement  as a
                         "Purchaser" thereunder.

C.       Cooperatieve  Centrale  Raiffeisen-Boerenleenbank  B.A.,  "Rabobank
         International",  New York Branch,  as  Collateral Agent

                                      16.REGISTRATION RIGHTS AGREEMENT

         THIS REGISTRATION  RIGHTS AGREEMENT (this  "AGREEMENT") is entered into
as of  ____________,  2002 by and  between  The  Chalone  Wine  Group,  Ltd.,  a
California  corporation  (the  "COMPANY"),   and  SFI  Intermediate  Limited,  a
____________  ("SFI") and Les Domaines  Baron de Rothschild  (Lafite),  a French
company  ("DBR").  DBR  and  SFI  are  individually  referred  to  herein  as  a
"PURCHASER" and collectively as the "PURCHASERS."

                                    RECITALS

         In order to induce the  Purchasers to enter into the  Convertible  Note
Purchase Agreement of even date herewith between the Company and the Purchasers,
the Company has agreed to provide the  registration  rights provided for in this
Agreement.  The execution of this Agreement is a condition to the closing of the
transactions contemplated by the Convertible Purchase Agreement.

         NOW, THEREFORE, the parties agree as follows:

Section 1:        CERTAIN DEFINITIONS.  For purposes of this Agreement, the
following terms shall have the following respective meanings:

         1.1      "APPLICABLE REGISTRATION STATEMENT" shall have the meaning
assigned thereto in SECTION 5.2 hereof.

         1.2      "COMMISSION" shall mean the Securities and Exchange
Commission,  or any other federal agency at the time  administering the Exchange
Act or the Securities Act,  whichever is the relevant statute for the particular
purpose.

         1.3      "COMMON  STOCK" shall mean the common stock of the Company,
no par value, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.

         1.4      "CONVERTIBLE  NOTES" shall mean the subordinated  convertible
notes of the  Company to be issued and sold to the  Purchasers  pursuant  to the
Purchase  Agreement and any convertible  notes issued in exchange therefor or in
lieu thereof.

         1.5      "DEMAND  MANAGING  UNDERWRITER"  shall have the  meaning
assigned thereto in SECTION 5.4 hereof.

         1.6      "DEMAND  REGISTRABLE  SECURITIES"  shall have the meaning
assigned thereto in SECTION 2 hereof.

         1.7      "DEMAND  REGISTRATION  STATEMENT"  shall have the meaning
assigned thereto in SECTION 2 hereof.

         1.8      "DEMAND REQUEST" shall have the meaning assigned thereto in
SECTION 2 hereof.

         1.9      "EXCHANGE ACT" shall mean the  Securities  Exchange Act of
1934, or any successor thereto, as the same shall be amended from time to time.

                                       1.

<PAGE>

         1.10     "PERSON"  shall  mean a corporation, association, partnership,
limited liability company,  organization,  business,  individual,  government or
political subdivision thereof or governmental agency.

         1.11     "PIGGYBACK  MARKET  CUT-BACK" shall have the meaning  assigned
thereto in SECTION 4.3 hereof.

         1.12     "PIGGYBACK REGISTRABLE SECURITIES" shall have the meaning
assigned thereto in SECTION 4.1 hereof.

         1.13     "PIGGYBACK REGISTRATION STATEMENT" shall have the meaning
assigned thereto in SECTION 4.1 hereof.

         1.14     "PIGGYBACK  REQUEST" shall have the meaning  assigned  thereto
in SECTION 4.1 hereof.

         1.15     "PIGGYBACK UNDERWRITING AGREEMENT" shall have the meaning
assigned thereto in SECTION 4.2 hereof.

         1.16     "PURCHASE AGREEMENT" means the Convertible Note Purchase
Agreement of even date herewith between the Company and the Purchasers.

         1.17     "REGISTRABLE  SECURITIES"  means the  Shares  and any
securities  issued in respect of the  foregoing  as a result of any stock split,
stock dividend, recapitalization or similar transaction.

         1.18     "REGISTRATION EXPENSES" shall have the meaning assigned
thereto in SECTION 6 hereof.

         1.19     "S-3  REGISTRATION  STATEMENT"  shall  have the  meaning
assigned thereto in SECTION 3 hereof.

         1.20     "S-3 INITIATING  HOLDERS" shall have the meaning  assigned
thereto in SECTION 3 hereof.

         1.21     "SECURITIES  ACT" shall mean the  Securities  Act of 1933,
or any successor thereto, as the same shall be amended from time to time.

         1.22     "SHARES"  means the shares of Common Stock issued or issuable
upon conversion of the Convertible Notes.

         1.23     "SUSPENSION  CONDITION" shall have the meaning assigned
thereto in SECTION 5.5 hereof.

Section 2:        DEMAND REGISTRATION. If at any time prior to the fifth
anniversary  of the date of this  Agreement  the Company  shall  receive  from a
Purchaser a written  request (a "DEMAND  REQUEST") that the Company  register on
Form S-1, Form S-2 or any successor  form of  registration  under the Securities
Act, or, if available,  on Form S-3 or any successor form of registration  under
the Securities Act (or if such form is not available, any registration statement

                                       2

<PAGE>

form then  available to the Company)  Registrable  Securities,  then the Company
shall (a) promptly  given  written  notice to the other  Purchaser of the Demand
request and (b) prepare and file with the Commission as soon as practicable, but
in no event  later  than  forty-five  (45) days  after  receipt  of such  Demand
Request, a registration statement (a "DEMAND REGISTRATION  STATEMENT") to effect
such  registration.  The  Company  shall  use its  best  efforts  to  cause  the
Registrable  Securities  specified in such Demand Request,  together with all of
such portion of the  Registrable  Securities of the other  Purchaser  joining in
such request as are specified in a written  request within 10 days after receipt
of such written notice from the Company, (collectively,  the "DEMAND REGISTRABLE
SECURITIES")  to become or be declared  effective  as soon as  practicable.  The
Company shall provide copies of all  correspondence to, and from, the Commission
within twenty-four (24) hours after receipt, or delivery, as the case may be, of
any such correspondence.  Each such Demand Request shall: (a) include an initial
request to register Registrable Securities having an aggregate offering value of
not less than the lesser of all of the Registrable  Securities then owned by the
Purchaser or $5 million (or Registrable  Securities having an aggregate offering
value of not less than $5 million when combined with a concurrent Demand Request
from the  other  Purchaser);  (b)  specify  the  number  of  Demand  Registrable
Securities  intended to be offered and sold by the Purchaser  pursuant  thereto;
(c)  express  the  present  intention  of the  Purchaser  to offer or cause  the
offering  of  such  Demand  Registrable   Securities  pursuant  to  such  Demand
Registration  Statement,  (d) describe the nature or method of  distribution  of
such  Demand  Registrable   Securities  pursuant  to  such  Demand  Registration
Statement (including, in particular,  whether the Purchaser plans to effect such
distribution  by means of an underwritten  offering);  (e) identify the proposed
Demand  Managing  Underwriter,  if any; and (f) contain the  undertaking  of the
Purchaser  to  provide  all such  information  and  materials  and take all such
actions as may be  required  in order to permit the  Company to comply  with all
applicable  requirements  of the Securities  Act, the Exchange Act and the rules
and  Regulations  of the  Commission  thereunder,  and  to  obtain  any  desired
acceleration of the effective date of such Demand Registration Statement.

Section 3:        FORM S-3  REGISTRATION.  If the  Company is  eligible to use
Form S-3 under the  Securities  Act (or any  similar  successor  form) and shall
receive from a Purchaser  and its  permitted  transferees  (the "S-3  INITIATING
HOLDERS") a written  request or requests that the Company  effect a registration
on such Form S-3  pursuant  to Rule 415 of the  Securities  Act and any  related
qualification  or  compliance  with  respect  to all or part of the  Registrable
Securities  owned by the S-3  Initiating  Holders and its permitted  transferees
(provided that the S-3 Initiating Holders registering  Registrable Securities in
such registration  together with all other holders of Registrable  Securities to
be included in such registration propose to sell their Registrable Securities at
an  aggregate  price  to the  public  (net  of any  underwriters'  discounts  or
commissions)  of no less than  $1,000,000),  the Company shall then (a) promptly
given written notice to the other Purchaser of the proposed registration and (b)
prepare and file with the  Commission  as soon as  practicable,  but in no event
later than  forty-five  (45) days after receipt of such request,  a registration
statement  (a "S-3  REGISTRATION  STATEMENT")  to effect such  registration.  No
registration  requested by any S-3 Initiating Holders pursuant to this SECTION 3
shall be deemed a  registration  pursuant  to  SECTION  2.  Notwithstanding  the
foregoing,  the Company shall not be obligated to effect a registration  on From
S-3  pursuant to this  SECTION 3 within 180 days after the  effective  date of a
registration statement subject to SECTION 4 or if the Company has, within the 12
month period preceding a request already effected two  registrations on Form S-3
pursuant to this SECTION 3

                                       3

<PAGE>

Section 4:        PIGGYBACK REGISTRATION.

         4.1      If at any time from and after the date  hereof,  the Company
shall determine to register any of its securities,  whether for sale for its own
account  or for  the  account  of any  other  Person,  other  than  registration
statements relating to (i) employee,  consultant or distributor  compensation or
incentive  arrangements,  including employee benefit plans, or (ii) acquisitions
or any  transaction or  transactions  under Rule 145 under the Securities Act or
any successor rule with similar effect,  then the Company will promptly give the
Purchasers written notice thereof and include in such registration  statement (a
"PIGGYBACK  REGISTRATION  STATEMENT") and in any underwriting  involved therein,
all Registrable Securities (the "PIGGYBACK REGISTRABLE SECURITIES") specified in
a written request made by each Purchaser (a "PIGGYBACK REQUEST") within 10 (ten)
business  days (or such later  time as the  underwriters  may allow in  writing)
after receipt of such written notice from the Company.

         4.2      If the Piggyback  Registration Statement of which the Company
gives notice is for an  underwritten  offering or the Company  proposes to do an
underwritten take down from an unallocated or universal shelf registration,  the
Company  shall so advise the  Purchasers  as a part of the written  notice given
pursuant to SECTION 4.1. In such event, the right of a Purchaser to registration
pursuant to this SECTION 4 (or to  participate in an  underwritten  take down in
the case of an unallocated or universal shelf registration) shall be conditioned
upon the agreement of the Purchaser to participate in such  underwriting  and in
the inclusion of such Piggyback  Registrable  Securities in the  underwriting to
the extent provided herein.  The Purchasers shall (together with the Company and
any  other  holders  distributing  securities  in  such  Piggyback  Registration
Statement,  if  any)  enter  into  an  underwriting  agreement  (the  "PIGGYBACK
UNDERWRITING  AGREEMENT") in customary form with the underwriter or underwriters
selected for such underwriting by the Company. If a Purchaser disapproves of the
terms of any such  underwriting,  it may elect to withdraw  therefrom by written
notice to the Company and the managing  underwriters.  Any Piggyback Registrable
Securities excluded from such underwriting shall be excluded from such Piggyback
Registration Statement.

         4.3      Notwithstanding  any other  provision  of this  Agreement,
if  the  managing  underwriters  of  any  underwritten  offering  pursuant  to a
Piggyback Request determine,  in their sole discretion that, after including all
the shares proposed to be offered by the Company and all the shares of any other
Persons  entitled  to  registration   rights  with  respect  to  such  Piggyback
Registration   Statement  (pursuant  to  other  agreements  with  the  Company),
marketing  factors  require a limitation of the number of Piggyback  Registrable
Securities to be underwritten (a "PIGGYBACK MARKET CUT-BACK"), the Company shall
include in the registration (i) in the event that such registration is on behalf
of  shareholders  of the Company having demand  registration  rights under other
agreements with the Company (A) first, the securities requested to be registered
by such other shareholders, and (B) second, the Piggyback Registrable Securities
requested to be included in the registration and securities,  if any,  requested
to be  included by others  having  these  rights,  pro rata among the holders of
Piggyback Registrable Securities which are to be registered and sold pursuant to
the Piggyback  Registration Statement and others exercising these rights, on the
basis of the number of  securities  requested  to be  included by the holders of
such Piggyback  Registrable  Securities and the others  exercising these rights;
and (ii) in the event that such  registration  is on behalf of the Company,  (A)
first,  the  securities  that the  Company  proposes to sell,  (B)  second,  the
Piggyback Registrable Securities requested to be

                                       4

<PAGE>

included in the registration and securities, if any, requested to be included by
others  having  these  rights,  pro rata  among  the  holders  of the  Piggyback
Registrable  Securities  which are to be  registered  and sold  pursuant to such
Piggyback  Registration  Statement and others  exercising  these rights,  on the
basis of the number of the  Piggyback  Registrable  Securities  requested  to be
included  by  holders  of such  Piggyback  Registrable  Securities,  and  others
exercising  these  rights;  provided,  however,  in no event shall the amount of
Piggyback Registrable  Securities of the Purchasers included in the underwriting
on behalf of the Company  (together with any other  securities of the Purchasers
being  included  in the  underwriting  pursuant  to  other  agreements  with the
Company) be reduced below thirty percent (30%) of the total amount of securities
included in such offering.

         4.4      Except to the extent specifically provided  in this  SECTION 4
hereof, the procedures to be followed by the Company and the Purchasers, and the
respective  rights and  obligations  of the  Company  and the  Purchasers,  with
respect to the  distribution  of any  Piggyback  Registrable  Securities  by the
Purchasers pursuant to any Piggyback Registration Statement filed by the Company
shall be as set  forth in the  Piggyback  Underwriting  Agreement,  or any other
agreement or agreements governing the distribution of such Piggyback Registrable
Securities pursuant to such Piggyback Registration Statement.

         4.5      Notwithstanding the foregoing,  however, nothing in this
SECTION 4, or any other provision of this Agreement, shall be construed to limit
the absolute right of the Company, for any reason and in its sole discretion (i)
to  delay,  suspend  or  terminate  the  filing  of any  Piggyback  Registration
Statement;  (ii)  to  delay  the  effectiveness  of any  Piggyback  Registration
Statement; or (iii) to withdraw such Piggyback Registration Statement.

Section 5:        DEMAND  REGISTRATION  AND S-3  REGISTRATION PROCEDURES, RIGHTS
AND  OBLIGATIONS.  The  procedures  to  be  followed  by  the  Company  and  the
Purchasers,  and the  respective  rights and  obligations of the Company and the
Purchasers, with respect to the preparation,  filing and effectiveness of Demand
Registration Statements and S-3 Registration Statements,  respectively,  and the
distribution  of  Demand  Registrable  Securities  and  Registrable  Securities,
respectively, pursuant thereto, are as follows:

         5.1      A Purchaser  shall not be entitled to make more than two (2)
Demand Requests;  provided,  however,  that if any Demand Request:  (i) does not
result  in  the  corresponding  Demand  Registration  Statement  being  declared
effective by the  Commission;  (ii) is withdrawn by the Purchaser  following the
imposition  of an order by the  Commission  with  respect  to the  corresponding
Demand Registration  Statement;  (iii) is withdrawn by the Purchaser as a result
of the exercise by the Company of its suspension rights pursuant to this SECTION
5; or (iv) is  withdrawn  if the  Purchaser  shall  have  learned  of a material
adverse change in the condition,  business or prospects of the Company different
than that known to the Purchaser at the time the Purchaser  shall have initiated
the Demand Request (other than a decline in the Company's stock price since such
time unless,  however,  the Purchaser agrees to pay, or otherwise  reimburse the
Company,  for all  Registration  Expenses)  that  makes  the  proposed  offering
unreasonable  in the good faith  judgment  of the  Purchaser,  then such  Demand
Request  in the  event of any of (i)  through  (iv)  shall not count as a Demand
Request for any  purpose.  A  Purchaser  shall not make more than one (1) Demand
Request within any 180-day period. Any Demand Request that is

                                       5

<PAGE>

withdrawn by a Purchaser  for any reason other than as set forth in the previous
sentence shall count as a Demand Request.

         5.2      The  Company shall use its  best   efforts  to  maintain   the
effectiveness  of  each  Demand  Registration  Statement  and  S-3  Registration
Statement (each an "APPLICABLE  REGISTRATION  STATEMENT")  until the earliest to
occur of: (i) the sale or other disposition of all of the Registrable Securities
registered on the Applicable  Registration Statement and (ii) one hundred twenty
(120)  days  after  the  effective  date  of any  such  Applicable  Registration
Statement.

         5.3      The  Company  shall  prepare  and  file  with the  Commission
such amendments and supplements to each  Applicable  Registration  Statement and
each prospectus used in connection  therewith as may be necessary to make and to
keep such  Applicable  Registration  Statement  effective and to comply with the
provisions of the Securities  Act with respect to the sale or other  disposition
of all  Registrable  Securities  proposed  to be  distributed  pursuant  to such
Applicable  Registration  Statement until the earliest to occur of: (i) the sale
or other  disposition of all such Registrable  Securities so registered and (ii)
one hundred  twenty (120) days after the effective  date of any such  Applicable
Registration Statement.

         5.4      In connection with any underwritten  offering  pursuant to a
Demand  Registration  Statement,   the  Purchaser  holding  a  majority  of  the
Registrable Securities being registered by the Purchasers pursuant to the Demand
Request  shall  select one  investment  banking firm to serve as manager of such
offering  which must be  reasonably  acceptable  to the Company.  The manager is
hereinafter referred to as the "DEMAND MANAGING UNDERWRITER." The Company shall,
together with the  Purchasers,  enter into an  underwriting  agreement  with the
Demand Managing  Underwriter,  which  agreement  shall contain  representations,
warranties, indemnities and agreements then customarily included by an issuer in
underwriting  agreements  with respect to secondary  distributions  under demand
registration  statements or shelf registration  statements,  as the case may be,
and  shall  stipulate  that  the  Demand  Managing   Underwriter   will  receive
commissions and fees and other  remuneration in connection with the distribution
of any Demand Registrable Securities or Registrable Securities thereunder.

         5.5      Notwithstanding any other provision of this Agreement, in the
event that the Company  determines  that:  (i) non-public  material  information
regarding  the  Company  exists,  the  immediate  disclosure  of which  would be
significantly disadvantageous to the Company; (ii) the prospectus constituting a
part of any Applicable  Registration  Statement covering the distribution of any
Registrable  Securities contains an untrue statement of a material fact or omits
to state a material fact required to be stated  therein or necessary to make the
statements  therein,  in the light of the  circumstances  under  which they were
made,  not  misleading;  or (iii) an offering of  Registrable  Securities  would
materially  interfere  with any proposed  material  acquisition,  disposition or
other similar corporate  transaction or event involving the Company (each of the
events or conditions referred to in clauses (i), (ii) and (iii) of this sentence
is hereinafter referred to as a "SUSPENSION CONDITION"),  then the Company shall
have the  right  to  suspend  the  filing  or  effectiveness  of any  Applicable
Registration  Statement or any distribution of Registrable Securities thereunder
for so long as such Suspension Condition exists; provided that the Company shall
have suspended the filing or effectiveness of all other registration  statements
registering  securities  for the account of the  Company or any other  Person or
suspended the

                                       6

<PAGE>

distribution of any securities  under such  registration  statements;  provided,
further,  that in the case of (ii) above,  the Company shall be obligated to use
its best efforts to amend the Applicable  Registration Statement to correct such
material  misstatement  or omission in such  registration  statement and related
prospectus as promptly as practicable;  and, provided, further, that the Company
shall  not  have  the  right to  suspend  the  filing  or  effectiveness  of any
Applicable  Registration Statement or any distribution of Registrable Securities
thereunder  within six (6) months after the termination of a Purchaser Lockup as
provided in SECTION  5.15 below.  The  Company  will as promptly as  practicable
provide written notice to the Purchasers when a Suspension  Condition arises and
when it  ceases  to exist.  Upon  receipt  of  notice  from the  Company  of the
existence of any Suspension  Condition,  each  Purchaser  shall after receipt of
such  notice   discontinue   efforts  to:  (i)  file  or  cause  any  Applicable
Registration  Statement to be declared effective by the Commission (in the event
that such  Applicable  Registration  Statement  has not been filed,  or has been
filed but not declared effective, at the time the Purchaser receives notice that
a Suspension Condition has arisen); or (ii) offer or sell Registrable Securities
(in the event that such  Applicable  Registration  Statement  has been  declared
effective at the time the Purchaser receives notice that a Suspension  Condition
has arisen). In the event that a Purchaser had previously commenced or was about
to commence the distribution of Registrable  Securities pursuant to a prospectus
under an effective Applicable Registration Statement, then the Company shall, as
promptly as practicable  after the Suspension  Condition  ceases to exist,  make
available to the Purchaser (and to each  underwriter,  if any,  participating in
such distribution) an amendment or supplement to such prospectus.

         5.6       Notwithstanding any other provision of this Agreement,  the
Company  shall not be permitted to postpone (i) the filing or  effectiveness  of
any  Applicable   Registration   Statement  or  (ii)  the  distribution  of  any
Registrable  Securities  pursuant to an effective Demand  Registration more than
two (2) times in any 360 day period,  and the aggregate of such  suspensions may
not exceed a total of sixty (60) days in any 360 day period.

         5.7      The Company shall promptly  notify the Purchasers of any stop
order issued or, to the  Company's  knowledge,  threatened,  to be issued by the
Commission  with respect to any Applicable  Registration  Statement and will use
its best  efforts  to  prevent  the entry of such stop  order or to remove it if
entered at the earliest possible date.

         5.8      The Company shall furnish to the Purchasers (and any
underwriter in connection with any underwritten  offering) such number of copies
of any  prospectus  (including  any  preliminary  prospectus  and any amended or
supplemented prospectus),  in conformity with the requirements of the Securities
Act, as the Purchasers (and such underwriters) shall reasonably request in order
to effect  the  offering  and sale of any or the  Registrable  Securities  to be
offered  and  sold,  but only  while the  Company  shall be  required  under the
provisions  hereof to cause the Applicable  Registration  Statement  pursuant to
which such  Registrable  Securities  are  intended to be  distributed  to remain
current.

         5.9      The Company  shall use its best efforts to register or qualify
the Registrable  Securities  covered by each Applicable  Registration  Statement
under the state  securities or "blue sky" laws of such states as the  Purchasers
shall reasonably  request and to maintain any such registration or qualification
current,  until the  earliest to occur of: (i) the sale of all such  Registrable
Securities  so  registered  and (ii) one  hundred  twenty  (120)  days after the
effective

                                       7

<PAGE>

date of any such Applicable Registration Statement;  provided, however, that the
Company  shall not be required  to take any action that would  subject it to the
general  jurisdiction  of the courts of any  jurisdiction  in which it is not so
subject or to qualify as a foreign  corporation  in any  jurisdiction  where the
Company is not so qualified.

         5.10     The  Company  shall  furnish  to  each  Purchaser and  to each
underwriter  engaged in an  underwritten  offering of  Registrable  Securities a
signed counterpart,  addressed to such Purchaser or such underwriter,  of (i) an
opinion or opinions of counsel to the Company  (with  respect to the Company and
securities  law  compliance by the Company) and (ii) a comfort letter or comfort
letters from the Company's  independent  public  accountants,  each in customary
form and covering  such matters of the type  customarily  covered by opinions or
comfort  letters,  as the  case  may  be,  as  the  Purchasers  or the  managing
underwriters may reasonably request.

         5.11     The Company shall use its best efforts to make appropriate
members of its management reasonably available for due diligence purposes, "road
show"   presentations   and  analyst   presentations   in  connection  with  any
distributions of Demand Registrable Securities pursuant to a Demand Registration
Statement.

         5.12     The Company  shall use its best  efforts to cause all
Registrable Securities to be listed on each securities exchange on which similar
securities  of the Company are then  listed,  or, if the Company does not have a
class of equity securities listed on a national securities  exchange,  apply for
qualification  and use its best  efforts to qualify the  Registrable  Securities
being registered for inclusion on the Nasdaq Stock Market.

         5.13     The Company  shall  provide, in connection  with the filing of
a  registration  statement  pursuant  to this  Agreement,  a transfer  agent and
registrar  for all  Registrable  Securities  registered  thereunder  and a CUSIP
number for all such Registrable  Securities not later than the effective date of
such registration.

         5.14     The Company  shall take all such other actions  either
reasonably  necessary or desirable to permit the Registrable  Securities held by
the Purchasers to be registered  and disposed of in accordance  with the methods
of disposition described herein.

         5.15     A Purchaser shall not effect any  public  sale or distribution
(including sales pursuant to Rule 144) of equity  securities of the Company,  or
any  securities  convertible  into or  exchangeable  or  exercisable  for equity
securities  of the  Company,  during  the five (5) days  prior to, and the sixty
(60)-day period  beginning on the effective date of any  registration  statement
covering the offer and sale of Common  Stock for the  Company's  account  having
aggregate  proceeds  to the  Company of not less than  $20,000,000  in which the
Purchaser was able to register 50% of the Registrable Securities proposed by the
Purchaser to be included in such registration,  unless the underwriters managing
the public offering  otherwise agree to allow such sales or distributions  (such
restriction on the Purchaser, the "PURCHASER LOCKUP").

Section 6:        REGISTRATION EXPENSES.The Company agrees to bear and to pay or
cause to be paid promptly upon request being made therefor all expenses incident
to the Company's  performance of or compliance with this  Agreement,  including,
without limitation, (i) all Commission and any NASD registration and filing fees
and expenses, (ii) all fees and expenses

                                       8

<PAGE>

in connection with the qualification of the Registrable  Securities for offering
and sale under any state securities and blue sky laws, including reasonable fees
and disbursements of counsel for the placement or sales agent or underwriters in
connection with such  qualifications,  (iii) all fees and expenses in connection
with the  approval  for trading of the Shares or other shares of Common Stock on
the Nasdaq  National  Market or other  appropriate  exchange,  (iv) all expenses
relating to the  preparation,  printing,  distribution  and reproduction of each
registration statement required to be filed hereunder,  each prospectus included
therein  or  prepared  for  distribution  pursuant  hereto,  each  amendment  or
supplement to the  foregoing,  the  certificates  representing  the  Registrable
Securities  and all other  documents  relating  hereto,  (v)  internal  expenses
(including,  without  limitation,  all salaries  and  expenses of the  Company's
officers and employees  performing legal or accounting  duties),  and (vi) fees,
disbursements   and  expenses  of  counsel  and  independent   certified  public
accountants  of the Company  (including  the  expenses of any  opinions or "cold
comfort"  letters  required by or incident to such  performance  and compliance)
(collectively, the "REGISTRATION EXPENSES").  Notwithstanding the foregoing, the
Purchasers shall pay all underwriting discounts and commissions  attributable to
the sale of the  Registrable  Securities and the fees and  disbursements  of any
counsel or other advisors or experts retained by the Purchasers.

Section 7:        REPRESENTATIONS AND WARRANTIES.  The Company represents and
warrants to, and agrees with, each Purchaser that:

         7.1      Each registration  statement  covering  Registrable Securities
and each prospectus  (including any preliminary or summary prospectus) contained
therein and any  further  amendments  or  supplements  to any such  registration
statement  or  prospectus,  when it  becomes  effective  or is  filed  with  the
Commission,  as the case may be, and, in the case of an underwritten offering of
Registrable  Securities,  at the  time of the  closing  under  the  underwriting
agreement  relating  thereto  will  conform  in  all  material  respects  to the
requirements of the Securities Act, and will not contain an untrue  statement of
a material fact or omit to state a material  fact required to be stated  therein
or  necessary  to make the  statements  therein not  misleading  in light of the
circumstances  in which  they  were  made;  and at all times  subsequent  to the
Effective  Time when a prospectus  would be required to be  delivered  under the
Securities  Act, other than from (i) such time as a notice has been given to the
Purchaser  pursuant  to SECTION  5.5 hereof  until (ii) such time as the Company
furnishes an amended or supplemented  prospectus pursuant to SECTION 5.5 hereof,
each such  registration  statement,  and each prospectus  (including any summary
prospectus)  contained  therein or furnished  pursuant to SECTION 5.5 hereof, as
then  amended or  supplemented,  will  conform in all  material  respects to the
requirements of the Securities Act, and will not contain an untrue  statement of
a material fact or omit to state a material  fact required to be stated  therein
or necessary to make the  statements  therein not misleading in the light of the
circumstances then existing;  provided,  however,  that this  representation and
warranty  shall not apply to any  statements or omissions  made in reliance upon
and in conformity  with  information  furnished in writing to the Company by the
Purchaser expressly for use therein.

         7.2      Any documents  incorporated by reference in any prospectus
prepared pursuant to this Agreement, when they become or became effective or are
or were filed with the Commission,  or if amended, when amended, as the case may
be, will conform or conformed in all material  respects to the  requirements  of
the Exchange Act, and none of such documents will contain or contained an untrue
statement  of a material  fact or will omit or omitted to state a

                                       9

<PAGE>

material fact required to be stated  therein or necessary to make the statements
therein not  misleading in light of the  circumstances  in which they were made;
provided,  however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with information
furnished in writing to the Company by the Purchaser expressly for use therein.

Section 8:        INDEMNIFICATION.

         8.1      INDEMNIFICATION  BY THE COMPANY.   Upon  the  registration  of
Registrable  Securities pursuant to this Agreement,  and in consideration of the
agreements  of each  Purchaser  contained  herein,  and as an inducement to each
Purchaser to purchase the Convertible  Notes,  the Company shall,  and it hereby
agrees  to,  indemnify  and  hold  harmless  each  Purchaser  and its  officers,
directors,  partners,  employees,  representatives,  underwriters and agents and
each control  person (as defined in Section 15 of the Exchange  Act) against any
losses, claims, damages or liabilities, joint or several, to which the Purchaser
or  any  of  its  officers,  directors,  partners,  employees,  representatives,
underwriters  and agents and each control  person may become  subject  under the
Securities  Act or  otherwise,  insofar  as  such  losses,  claims,  damages  or
liabilities  (or actions in respect  thereof)  arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
registration  statement under which such Registrable  Securities were registered
under the Securities Act pursuant to this Agreement,  or any preliminary,  final
or summary  prospectus  contained  therein or  furnished  by the  Company to the
Purchaser, any officer, director, partner, employee, representative, underwriter
or agent or control person, or any amendment or supplement thereto, or arise out
of or are  based  upon the  omission  or  alleged  omission  to state  therein a
material fact required to be stated  therein or necessary to make the statements
therein not  misleading in light of the  circumstances  in which they were made,
and the Company shall,  and it hereby agrees to,  reimburse the  Purchaser,  any
officer, director,  partner, employee,  representative,  underwriter or agent or
control  person for any legal or other expenses  reasonably  incurred by them in
connection  with  investigating  or  defending  any such action or claim as such
expenses are incurred;  provided,  however, that the Company shall not be liable
to any such  person in any such case to the extent  that any such  loss,  claim,
damage  or  liability  arises  out of or is based  upon an untrue  statement  or
alleged  untrue   statement  or  omission  or  alleged  omission  made  in  such
registration  statement,  or  preliminary,   final  or  summary  prospectus,  or
amendment  or  supplement  in  reliance  upon  and in  conformity  with  written
information furnished to the Company by such person expressly for use therein or
is caused  by the  Purchaser's  failure  to  deliver a copy of the  registration
statement or prospectus, or any supplement or amendment of which it is aware.

         8.2      INDEMNIFICATION BY THE PURCHASERS.   In  connection  with  any
registration  statement  pursuant to which a Purchaser  sold or offered for sale
Registrable Securities,  the Purchaser agrees to (i) indemnify and hold harmless
the Company and its officers, directors, employees, representatives, underwriter
and agents and each  control  person  against  any  losses,  claims,  damages or
liabilities to which the Company may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect  thereof) arise out of or are based upon an untrue  statement or alleged
untrue statement of a material fact contained in such registration statement, or
any preliminary,  final or summary prospectus  contained therein or furnished by
the  Company  to  the  Purchaser,  any  officer,  director,  partner,  employee,
representative,  underwriter  or agent or control  person,  or any  amendment or

                                       10

<PAGE>

supplement  thereto,  or arise out of or are based upon the  omission or alleged
omission  to state  therein a material  fact  required  to be stated  therein or
necessary  to make  the  statements  therein  not  misleading  in  light  of the
circumstances  in which they were made, in each case to the extent,  but only to
the extent,  that such untrue  statement or alleged untrue statement or omission
or alleged  omission was made in reliance  upon and in  conformity  with written
information  furnished  to  the  Company  by  the  Purchaser  or  its  officers,
directors,  partners,  employees  representatives,  or agents  expressly for use
therein,  and (ii)  reimburse  the  Company  for any  legal  or  other  expenses
reasonably incurred by the Company in connection with investigating or defending
any such action or claim as such  expenses  are  incurred;  provided  that in no
event shall any indemnity under this  subsection  exceed the gross proceeds from
such offering received by the Purchaser.

         8.3      NOTICES OF CLAIMS,  ETC.  Promptly  after receipt by an
indemnified  party under  SECTION 8.1 or SECTION 8.2 above of written  notice of
the  commencement  of any action,  such  indemnified  party shall, if a claim in
respect  thereof is to be made  against an  indemnifying  party  pursuant to the
indemnification  provisions  of or  contemplated  by this SECTION 8, notify such
indemnifying  party in  writing  of the  commencement  of such  action;  but the
failure  so to notify  the  indemnifying  party  shall not  relieve  it from any
liability  which it may have to any  indemnified  party  other  than  under  the
indemnification  provisions  of or  contemplated  by SECTION  8.1 or SECTION 8.2
hereof and only to the extent of prejudice  caused by such failure.  In case any
such action shall be brought against any  indemnified  party and it shall notify
an indemnifying party of the commencement thereof, such indemnifying party shall
be  entitled  to  participate  therein  and,  to the extent  that it shall wish,
jointly with any other  indemnifying  party  similarly  notified,  to assume the
defense thereof,  with counsel satisfactory to such indemnified party and, after
notice from the indemnifying  party to such indemnified party of its election so
to assume the  defense and costs of  investigation  thereof,  such  indemnifying
party shall not be liable to such  indemnified  party for any legal  expenses of
other counsel or any other expenses,  in each case subsequently incurred by such
indemnified party, in connection with the defense thereof.

         8.4      CONTRIBUTION. If the indemnification provided for in this
SECTION 8 is held by a court of competent  jurisdiction  to be unavailable to or
insufficient  to hold  harmless an  indemnified  party in respect of any losses,
claims,  damages or  liabilities  (or  actions in respect  thereof)  referred to
therein,  then each  indemnifying  party shall  contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the  relative  fault of the  indemnifying  party and the  indemnified
party in  connection  with the  statements or omissions  which  resulted in such
losses,  claims, damages or liabilities (or actions in respect thereof), as well
as any other  relevant  equitable  considerations.  The  relative  fault of such
indemnifying  party and  indemnified  party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or  omission  or  alleged  omission  to state a  material  fact  relates to
information  supplied by such indemnifying  party or by such indemnified  party,
and  the  parties'  relative  intent,  knowledge,   access  to  information  and
opportunity to correct or prevent such statement or omission. The parties hereto
agree that it would not be just and equitable if contributions  pursuant to this
SECTION 8.4 were  determined by pro rata  allocation  (even if the Purchasers or
any agents or  underwriters  or all of them were  treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable  considerations  referred to in this  SECTION  8.4. The amount paid or
payable by an indemnified

                                       11

<PAGE>

party as a result of the losses, claims,  damages, or liabilities (or actions in
respect thereof) referred to above shall be deemed to include any legal or other
fees or expenses  reasonably  incurred by such  indemnified  party in connection
with  investigating or defending any such action or claim.  Notwithstanding  the
provisions of this SECTION 8.4, a Purchaser  shall not be required to contribute
any amount in excess of the amount by which the  dollar  amount of the  proceeds
received by the Purchaser  from the sale of any  Registrable  Securities  (after
deducting any fees,  discounts and commissions  applicable  thereto) exceeds the
amount of any damages which the Purchaser  may have  otherwise  been required to
pay by reason of such untrue or alleged untrue  statement or omission or alleged
omission,  and no  underwriter  shall be  required to  contribute  any amount in
excess  of the  amount  by  which  the  total  price at  which  the  Registrable
Securities  underwritten by it and distributed to the public were offered to the
public  exceeds the amount of any damages which such  underwriter  has otherwise
been  required to pay by reason of such untrue or alleged  untrue  statement  or
omission or alleged omission.  No person guilty of fraudulent  misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution   from  any  person   who  was  not   guilty  of  such   fraudulent
misrepresentation.  The  obligations of the Purchasers and any  underwriters  in
this SECTION 8.4 to  contribute  shall be several in proportion to the principal
amount of Registrable Securities registered or underwritten, as the case may be,
by them and not joint.

         8.5      The  obligations  of the Company  under this  SECTION 8 shall
be in addition to any liability  which the Company may otherwise  have;  and the
obligations of the Purchasers and any agents and  underwriters  contemplated  by
this SECTION 8 shall be in addition to any liability  which the  Purchasers  may
otherwise have.

         8.6      Notwithstanding the foregoing, to the extent that the
provisions on  indemnification  and  contribution  contained in an  underwriting
agreement  entered into by the  Purchasers  are in conflict  with the  foregoing
provisions, the provisions of such underwriting agreement shall control.

Section 9:        MISCELLANEOUS.

         9.1      ENTIRE AGREEMENT. This Agreement and the other writings
referred to herein or delivered pursuant hereto which form a part hereof contain
the entire understanding of the parties with respect to its subject matter. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to its subject matter.

         9.2      NO  INCONSISTENT  AGREEMENTS.  The  Company  represents,
warrants,  covenants  and agrees that it has not  granted,  and shall not grant,
registration  rights  with  respect  to  shares  of  Common  Stock or any  other
securities  which  would  be  inconsistent  with  the  terms  contained  in this
Agreement.

         9.3      SPECIFIC PERFORMANCE.The parties hereto acknowledge that there
may be no  adequate  remedy  at law if any  party  fails to  perform  any of its
obligations  hereunder and that each party may be irreparably harmed by any such
failure,  and accordingly agree that each party, in addition to any other remedy
to which it may be  entitled  at law or in equity,  shall be  entitled to compel
specific  performance of the obligations of any other party under this Agreement

                                       12

<PAGE>

in accordance with the terms and conditions of this  Agreement,  in any court of
the United States or any State thereof having jurisdiction.

         9.4      AMENDMENTS AND WAIVERS. This Agreement  may not be  amended or
terminated, or any right or obligation hereunder waived, other than by a written
instrument  signed by the party  against  whom  enforcement  of such  amendment,
termination or waiver is sought.

         9.5      GOVERNING LAW. Except for applicable  federal  securities laws
this  Agreement  shall be governed  in all  respects by the laws of the State of
California.

         9.6      COUNTERPARTS.  This  Agreement  may be  signed  in any  number
of  counterparts  with the same effect as if the signatures to each  counterpart
were upon a single  instrument  and is intended  to be binding  when all parties
have  delivered  their  signatures  to  the  other  parties.  Signatures  may be
delivered  by  facsimile  transmission.  All  counterparts  shall be  deemed  an
original of this Agreement.

         9.7      HEADINGS.  The table of contents and  headings used herein are
used for  convenience  only,  are not part of this  Agreement  and  shall not be
considered in construing or interpreting this Agreement.

         9.8      NOTICES. All notices,  requests,  consents and other
communications  required or permitted  hereunder shall be in writing and will be
effective (a) immediately upon delivery in person or by messenger,  (b) the next
business day after  deposit with a  commercial  courier or delivery  service for
next day delivery,  (c) upon receipt by facsimile as  established by evidence of
successful transmission or (d) three business days after deposit with the United
States  Postal  Service,  certified  mail,  return  receipt  requested,  postage
prepaid.  All notices  must be properly  addressed  as follows (or to such other
address as a party may specify by notice in pursuant to this SECTION 8.8.

                  (a)      If to the Company:

                  The Chalone Wine Group, Ltd.
                  621 Airpark Road
                  Napa, CA  94558
                  Attention:  Thomas Selfridge
                  Facsimile No.:  (707) 254-4204

                  with a copy to:

                  Farella Braun + Martel LLP
                  235 Montgomery Street
                  San Francisco, CA  94104
                  Attention:  Daniel E. Cohn, Esq.
                  Facsimile No.:  (415) 954-4480

                                       13

<PAGE>

                  If to DBR:

                  _______________________________
                  _______________________________
                  _______________________________
                  _______________________________
                  Facsimile No.:

                  with a copy to:

                  Piper Rudnick LLP
                  1251 Avenue of the Americas
                  New York, NY  10020
                  Attention:  Michael A. Varet, Esq.
                  Facsimile No.:  (212) 835-6001

                  (b)      If to SFI:

                  _______________________________
                  _______________________________
                  _______________________________
                  _______________________________

                  with a copy to:

                  Baker & Botts, L.L.P.
                  One Shell Plaza
                  910 Louisiana
                  Houston, TX  77002
                  Attention:  Gray Jennings, Esq.
                  Facsimile No.:  (713) 229-1522

         9.9      SURVIVAL. The respective indemnities, agreements,
representations, warranties and each other provision set forth in this Agreement
or made pursuant hereto shall remain in full force and effect  regardless of any
investigation  (or statement as to the results  thereof) made by or on behalf of
the  Purchasers  or  any  of  its  officers,  directors,   partners,  employees,
representatives, or agents, or any controlling person of any of the foregoing.

         9.10     ASSIGNMENT. In connection with any permitted transfer of
Shares, a Purchaser may assign its rights hereunder in respect of such Shares to
the  transferee.  Upon such  assignment  the  transferee  shall,  insofar as the
transferred  Shares are  concerned,  be entitled  to all of the  rights,  and be
subject to all of the  obligations,  of the Purchaser under this Agreement,  and
all references to the "PURCHASER"  herein shall  thereafter be deemed to include
the transferring  Purchaser,  or such transferee,  or both, as the circumstances
warrant.

                            [Signature page follows]

                                       14

<PAGE>

         IN WITNESS  WHEREOF,  the parties  hereto have executed this  Agreement
effective as of the date referred to above.

COMPANY:                            THE CHALONE WINE GROUP, LTD.

                                    By:
                                       _________________________________________
                                    Name:
                                    Title:

PURCHASERS:                         LES DOMAINES BARON DE ROTHSCHILD (LAFITE)

                                    By:
                                       _________________________________________
                                    Name:
                                    Title:

                                    By:
                                       _________________________________________
                                    Name:
                                    Title:

                 SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT

                                       15

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